CNBC "Kudlow and Company" - Transcript

Interview

CNBC "Kudlow and Company"

MR. KUDLOW: A new son-of-stimulus plan is being debated on the floor of the Senate today. And we have Senator Bernie Sanders, Independent from Vermont, Senator Johnny Isakson, Republican from Georgia.

Gentlemen, welcome. I appreciate it.

Senator Sanders, what's this about a bankruptcy act to make it easier to throw the keys away or have judges set mortgage rates instead of markets? This is an amazing thing to my ears!

SEN. SANDERS: Well, it may be amazing to your ears, but for the hundreds and hundreds of thousands of people about to be thrown out on the street I think it's not so amazing. I think they want the government to stand with them. And what they want is when they are going bankrupt and their homes are being foreclosed, they want to be able to sit in front of a bankruptcy judge and be able to see lower interest rates so that they can hang on to their homes. That's good for the people, that's good for our economy.

MR. KUDLOW: Senator Isakson, just the idea of having an activist judge do this, I don't even know if they want to do it or if they're capable of doing it. What do you make of this idea and where is it going? Because I think it's being debated today, is it not?

SEN. ISAKSON: Well, it's not going to be debated today, but it will be debated next week. But I'll answer your question by saying this. If you want double-digit mortgage interest rates, if you want a scarcity of loans, if you want the mortgage market to dry up and not be accessible, then you let judges determine what the terms are going to be on a mortgage in bankruptcy. States already have bankruptcy laws with homestead exemption privileges. These loans, mortgage loans, are collateralized instruments which is why their rates are competitively much lower than credit cards. You take away the value of the collateral, you take away the ability of the lender to recover, and you're going to send rates through the roof, and Americans are going to pay a whole lot more for a whole lot less.

MR. KUDLOW: I mean, Senator Sanders, there is logic here. In fact, Senator Obama on the campaign trail basically agrees with Mr. Isakson and disagrees with Senator Hillary Clinton. If everybody believes that interest rates on mortgages are going to ultimately be fixed from judges, then everybody's going to withhold credit, the rates are going to blow sky high, and nobody's going to get a loan.

SEN. SANDERS: You're not talking about everybody, you're talking about people who are going to be thrown out of their homes, who are going to be out on the street, who are going to lose not only their own homes but you're going to have neighborhoods deteriorate, because three people cannot afford to hang on to their mortgage. I think it is absolutely appropriate that the federal government step up to the plate, not only for these people but for the sake of our economy. We're looking at a shrinking middle class. We're looking at an increase in poverty. The middle class is in trouble, and they want the government to stand up with them for a change.

MR. KUDLOW: Senator Isakson, I got one right out of the new deal play book -- the home ownership -- what is this -- the home ownership residential corporation. I can't even read this thing. Home ownership -- we need a new government agency to buy mortgages now? This is a new deal solution. Do we actually need it?

SEN. ISAKSON: No, we don't. And interestingly enough, this problem happened in 1975 in the United States. Congress passed a $6,000 tax credit, recoverable over three successive years, to stimulate the marketplace and in one year absorbed over a two-year supply of housing that was sitting vacant on the market and absorbed them with homeowners moving in those houses rather than bankers foreclosing or managing them. So what we need to do is stimulate the private sector, invigorate the mortgage market, and solutions will come.

MR. KUDLOW: It's the home ownership preservation corporation, Mr. Sanders. Now, I want to ask you -- I mean, I love having you on this program, because you have a distinctive voice. Do you believe that we are in a housing depression and need these kinds of big- government assistance?

SEN. SANDERS: Well, Larry, you know, a moment ago, you were kind of making fun of Roosevelt's New Deal. I think most people very much appreciated what he did for our economy in protecting low-income and working families.

MR. KUDLOW: Even though the unemployment rate stayed around 20 percent for the whole decade.

SEN. SANDERS: He was elected four times for a reason and will go down in history as one of the most popular presidents as opposed to the guy we have in the White House right now. But in general, what I do believe is that we're looking at a horrendously high rate of foreclosures. We are looking at millions of people whose mortgage is now worth more than the value of their home. And this is having an impact not only on people but on the economy in general, because those people are not able to invest and buy products and stimulate the economy.

MR. KUDLOW: Mr. Isakson, Georgia is hard hit. There's a lot of foreclosures down in Georgia according to the latest listings. What are the folks back home saying regarding government assistance plans?

SEN. ISAKSON: Well, they're saying exactly what I said a minute ago -- inspire the market to help us solve the problem. We do have a large number of foreclosures. One-third of them are investors. Those are people who speculated. And when you speculate and you're a grown- up and you lose, you gotta pay the price. I share with Bernie the concern for homeowners who are about to lose their home. But if you were to pass what Senator (Reid ?) wants to do in terms of letting judges reduce those loans and change those terms, what will happen is the biggest plummet in home values in history and an inability for anybody to be able to get a reasonable loan to buy a home. And it will be a sincere depression of big proportions.

MR. KUDLOW: You know, Mr. Sanders, another provision in this so- called son-of-stimulus plan is to attack oil companies and raise taxes on them. Now, what that has to do with the mortgage problem I have no idea. These guys paid $90 billion in taxes the last three years. They're your best friends! They finance government!

SEN. SANDERS: Larry, I am glad that you're here, because there has to be at least one person in America who loves those poor, struggling oil companies. I guess ExxonMobil only made $40 billion last year in profits. And some of us, among other things --

MR. KUDLOW: And paid $30 billion in taxes!

SEN. SANDERS: Oh, well --

MR. KUDLOW: Thirty billion (dollars) -- 27 (billion dollars) to be exact, 27 billion (dollars).

SEN. SANDERS: Well, they're doing just fine. They've made more money than any corporation in the history of the world.

MR. KUDLOW: So what do they have to do with mortgages? What are they doing in this bill?

SEN. SANDERS: Well, what they're doing is it's a source of income to start helping the middle class.

MR. KUDLOW: Johnny Isakson, what do we do about this idea? This is like a real cross rough to populist, left-wing economics. What's your take, Mr. Isakson?

SEN. ISAKSON: The government is not the solution. Government's getting ready to be a big part of the problem. What government needs to do is energize the marketplace which, in the end, is always the best way to solve the problem.

MR. KUDLOW: Mr. Sanders, you really believe these judges -- I can't help myself, I'm like a moth drawn to a flame -- do you really want judges to set interest rates in America?

SEN. SANDERS: Larry, what I want is that people are going bankrupt, the function of a bankruptcy judge is to help that family work out a situation so that they can survive. That's what they do. And one of the tools that a judge should have is to be able to lower interest rates so somebody can hang on to their home.

MR. KUDLOW: But the market is lowering interest rates.

SEN. SANDERS: Larry, you know, I know you love the market, but right now in America there are tens of millions of people who are hurting. And in fact, they're not looking to Wall Street to help them. Wall Street is not helping them. Wall Street is helping the people on top do very, very well. The vast majority of the American people are seeing a decline in their standard of living.

MR. KUDLOW: Well, all these CEOs that lost their jobs -- I mean, I don't think Wall Street's really distinguished itself during this.

SEN. SANDERS: Larry, what I love about you is here you are worried about the oil companies, worried about the CEOs of large corporations.

MR. KUDLOW: I'm not worried about them. I'm just saying the system works.

SEN. SANDERS: No, the system is not working for the middle class.

SEN. ISAKSON: Larry?

MR. KUDLOW: Last word, Senator Isakson.

SEN. ISAKSON: Larry, I have to tell you, if you want to do what they want to do, then you're going to make mortgage rates comparable with the interest rates on credit cards. If you want 14.5 percent mortgage rates and a dissolution of available capital for mortgages, then you let judges negotiate the terms.

MR. KUDLOW: All right, gentlemen. I appreciate your time very, very much. I want to wish you all a happy son of stimulus, Senator Sanders of Vermont, Senator Isakson of Georgia.

Source