CNBC "Kudlow & Company" - Transcript

Interview

MR. KUDLOW: All right. Our great friend to the show Senator Charles Grassley of Iowa has got a big beef with the Fed-Treasury deal on Bear Stearns.

Welcome back, sir. We appreciate it very, very much. Mr. Grassley, as I understand it, today, at the close of business, was one of your deadlines for the submission of various information points from these parties. How'd you do? Did stuff come in? Did you learn anything?

SEN. GRASSLEY: We haven't gotten all the information, but we have had a good-faith communication with them today, instigated by them, that would tell us that we are going to get the information we want. But they can't get it all together by today, and so I can't answer your question of what we've learned. But the fact that they're cooperating is good news, and that congressional oversight will be meaningful in this effort, and that congressional oversight is meant to shed some light on this, to make it transparent, to find out how much the taxpayers might be on the hook up to $30 billion more or less and the extent to which the Fed has acted in a way that doesn't create moral hazard because they're an independent agency. And we're also interested then to what extent the political branch of government may have had some influence on this. But I've had some conversation with Secretary Paulson saying that this was led by the Fed.

MR. KUDLOW: You know, sir, this is such an interesting story, and we're very pleased that you could come on. Because most of the people I talk to on Wall Street do not want you to go there. However, I personal suspicion that most of the people on Main Street DO want you to go there. There's a recent poll out by ace pollster Scott Rasmussen that says America does not want federal bailouts of banks, or homes for that matter, by about a 60 percent majority.

Let me ask you first off, what's your biggest beef on the Bear Stearns-JPMorgan deal? In short, what's your biggest beef?

SEN. GRASSLEY: Well, my biggest concern -- I don't know whether it's a beef, because we don't know yet -- but I want to know how CEOs made out as opposed to the rank and file. Because I don't want another Enron if we can avoid it in the sense that the little guy gets stuffed down the toilet, and the other guy is sitting on king hill.

MR. KUDLOW: A lot of people say, look, Bear Stearns wasn't bailed out; they were essentially buried. The interesting thing is whether the Federal Reserve should have extended, I guess, $29 billion to take the bad collateral and guarantee it for the buyer of Bear Stearns, JPMorgan. That's the kind of thing that there seems to be a political backlash. Are you interested in pursuing that angle? Is that where you're going here?

SEN. GRASSLEY: I think we ought to be very concerned about the quality of the paper that they took, and that they didn't take all of the bad paper unless it was all bad, and that's something I don't know. But you know, we're hoping that the Fed might make a deal like they did in the Mexican peso where they actually made a couple billion dollars. But the taxpayers could be on the hook for 28 (billion dollars), 29 (billion dollars), $30 billion in this instance. And quite frankly, those of us in Congress, that ought to be a real concern of ours in addition to the issue of moral hazard.

MR. KUDLOW: Do you want the collateral -- whatever it is, subprime, you know, CDOs -- do you want that collateral out in the public information screen?

SEN. GRASSLEY: Listen, when the taxpayer's on the hook for potentially $30 billion, it seems to me the public's business ought to be made public. Then don't forget what's wrong with this whole subprime problem that Bear Stearns is just a result of is that there has been a lack of transparency. And don't you think, Larry, that this whole world would be better off, not just the United States, but the whole world and the financial community would be better off if we had more transparency, we knew what was going on? We don't even know how big this problem is yet.

MR. KUDLOW: Well, I think everybody's on your side on the transparency point. I think that's a fairly easy one. But are you worried that your hearings might, if all the information came out -- and I don't even know what that is -- but might cause an unraveling of the Bear Stearns deal which, in turn, might cause a contagion? You know, the story, Senator, of course, is there was a run on the bank at Bear Stearns. I believe the Fed would say we wanted to stop or they wanted to stop a run on the whole banking system. Are you worried that if you start pulling strings out of the ball that the whole thing would come unraveled?

SEN. GRASSLEY: Well, Larry, first of all, we're members of Congress. We're not the Fed. We're not the bank regulators. We're not the people in SEC that are watching this thing every day. Our job is to make sure the other agencies of government are doing their job. That's our constitutional job of oversight. And it seems to me, in bottom-line answer to your question, getting more information out into the public has nothing to do with the unraveling of anything.

MR. KUDLOW: Good things happen when the disaffected is lighted up and the transparency comes in. I hear you on that. You mentioned in one of your press releases or statements earlier this week that you were concerned that the Fed was acting at the political behest of the Treasury. Have you solved that problem to your satisfaction?

SEN. GRASSLEY: Well, let's put it this way, I've had a good conversation with Secretary Paulson. And he assured me that he was trying to help the Fed out, that the political branch of government, meaning the president and the secretary of Treasury and the forces of the executive branch of government, were not interfering with a judgment of the independent Fed. That the Fed, in a non-political way, was making the decision that this was the right economic and fiscal and monetary thing to do. And he was asked to help, and he helped, and so I've got to take him at his word.

MR. KUDLOW: Do you think it was? I mean, for example, some people have argued better to have let Bear Stearns merely go bankrupt.

SEN. GRASSLEY: Well, you know what? When I'm up against a Ph.D. like Bernanke, who has studied the 1930s and he doesn't want to repeat the mistakes of the 1930s, and I'm not an authority on that like the college professor is, I'm not going to second guess him, except I want to make sure that it's done at the last moment, nothing more done that needs to be done. And I think the fact that this is the first time it was used since the 1930s is some indication that the Fed hasn't gone overboard. And more importantly, the extent to which this was a worldwide concern from the financial communities of the Far East as well as Europe and North America, that his judgment, taking all that into consideration, I've got to give some deference to it. But that does not detract from the fact that we have a constitutional responsibility in Congress to oversee that things are right and the laws are being enforced, and I want the information.

MR. KUDLOW: If I could just get a quick, final one, sir. We thank you for your time very much. Did you find it odd that they had one deal for $2 a share, and then everybody came back later for $10 a share, and the Fed and the Treasury were engaged in that? Do you and Senator Baucus and Senator Dodd, who are joining you in this inquiry, do you find that odd? Is that one of the pieces that you want to unveil and disinfect with transparency?

SEN. GRASSLEY: Yes. We ought to get out in the open, because, to the extent to which a stock would go from $2 to $10, the marketplace ought to dictate that as much as possible.

MR. KUDLOW: All right. Senator Charles Grassley, we thank you very, very much, sir.

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