book "balout nation." "washington journal" starts now. ♪ host: good morning, the whitehouse leaked the news shortly after 9:00 p.m. monday evening and today papers are reporting on the re-emanation of fed chairman ben bernanke. we will hear from the president live this morning from martha's vineyard at about 9:00 a.m. eastern. nasa try again tomorrow to launch the space shuttle after bad weather delayed the launch. this morning, also h1n1 could infect many thousands of this fall.

more details on the prosecutor. we will look into the alleged cia interrogation abuses. those are some of the issues we will talk about on this august 25. our focus this first half-hour is on the federal reserve board and the expected re-nomination of. chairman ben of -- of chairman ben bernanke. we will also take your e-mails or you can send us a message by twitter. here is the front page above the fold in "the washington post" -- as a ben bernanke is reappointed, the announcement will come this morning from an elementary school. here is what mr. obama will say "as an expert on the causes of

the great depression i'm sure that ben never imagined he would be part of the team responsible for preventing another." he purged the collapse with calm and wisdom with bold action and thinking outside the box. -- he approached that collapsed. these reporters indicate that mr. obama's decision had become the subject of growing speculation. in washington policy circles the president called the fed chairman to the oval office this past wednesday to offer him another four-year term. mr. ben bernanke then flew off to wyoming where he gave the defense of his controversial policies.

one of the points, is that appointing a democrat such as janet yellen, alan blinder, would have been popular with many democrats, but a move by mr. obama to install his own person at the fed might have rattled markets and unsettled the foreign investors. your reaction to this story this morning. first, a call from worcester, mass. on the line for independents. caller: i do not think he should of been reinstated. they are all in bed together. you have to clean everyone out

and start over with new personnel. it is just going to be the same. the federal reserve is not part of the government. it is a private company, really. thank you for listening to me. host: next is patrick from silver spring, md., on the line for democrats. caller: yes, i think this is an excellent idea. this man is very talented, not jaded or so. as a black man i certainly support him. even though he is independent in the federal reserve, he is appointed by the president. that is remarkable. i do believe that this man is smarter than anyone he serves as

far as the president and his cabinet, tim geithner, even alan greenspan got listen to this garbage. you are hearing this nonsense about recovery. the markets are recovering, but the american people will continue to suffer. i think this man has the framework and he better be listening -- to get this doggone thing on the road. we are near collapse. you wait three years from now and see where we will be with this record deficit and the downsizing and elimination of the upper-middle-class. we are in deep, serious trouble. host: $9 trillion is the expected deficit. some background on ben bernanke was first appointed by george w. bush to serve as the fed chair. his appointment would be up in january which means that the

renomination will take place this fall. senator chuck schumer has already endorsed. the next call comes from sterling heights, mich. on the independent line. caller: didn't obama run on a campaign of change and transparency? he appointed the tim geithner guy who couldn't pay his taxes. that is more of the same. now he is going to reappoint the sky. in my state the unemployment is the highest in the nation. obama's just a fraud. the more things change the more they stay the same. host: here is the business section.

a senior official says that mr. obama did not offer the job to anyone else even though a number of high-par democratic economists were considered potentially strong candidates to replace him -- even though high-powered democratic economist were considered. caller: yes, good morning. everyone has heard about this $7 billion that went overseas. i agree with the last caller. obama it is a fraud. let me say this before you cut me you-- i have a husband, my husband who is on hospice and he do not have long. . host: what is the suffering from? caller: copd, and multiple

conditions such as an aneurysm in his aorta for which there to be no surgery. i have a 33-year-old daughter who has been a single parent. i'm wondering what obama will do to my husband and child. we need to get this president impeached. nancy pelosi -- barney frank, harry reid -- we need to get those people out of there. stop these people from doing what they are fixing to do to us. we are doomed. host: melissa, who did you vote for last year? caller: john mccain.

i'm 57 years old and will never vote democrat again as long as i live. my family were democrats and will never vote democrat again. this president is a fraud, a liar. he is going to kill us. a socialist country -- look what he is doing. you have not seen anything yet. it breaks my heart to know what is going to happen to us. host: thanks for that call from mississippi. here is another article where it says that ben bernanke is being asked to stay on. good morning. caller: yes, it is remarkable and i cannot believe progress has been made over the last seven months pena when barack obama, our president, i did not

know what to expect when he made his appointments. but he put a team together that it is unbelievable the progress that has been made. i received a tax cut, reduced my monthly mortgage payment by $300, received a stimulus check -- you know, i was laid off last november and i'm not scared and whining like the sky is falling like i'm some republican or something, scared to death of everything. i have had an extension of my unemployment, weekly benefits. i think probably i will get another extension. i will keep going until next january. i think it is remarkable that we're making that kind of progress because he has qualified people in there. i think some of these scared

republicans need to throw their hate aside and think about america. where are the slogans that republicans used to use? these colors don't run. people have forgotten about that. host: here is a message from twitter. cspanwj is how you can reach us on twitter. this piece concerns the york politics. 19 months after ending his disastrous run for the presidency, rudy guiliani is clearing a path for a possible race for governor in 2010.

arnold joins us from tennessee. we're asking about then bernanke is possible second term as the fed schair. caller: good morning, to be honest i guess we are doing the best we can with what we have to work with. have you ever read a book called "the creature from jekyll island." the author is g.edward griffin. there is another book by w albert called "the coming

battle" which was released in 1899 and has just been read the released. the united states is under the control of the federal reserve. that is the main reason for all of the problems we're having. we need to realize that we need to love our neighbor as we love ourselves. all these people who were calling in here and calling obama a fraud, in the bible i think one of the 10 commandments says thou shalt not bear false witness against thy neighbor. the bible also says we are supposed to love our neighbors as we love ourselves and supposed to love our enemies. flu not start loving one another instead of hitting one another the will be consequences will be to know -- if we do not start loving instead of hating one another. host: this concerns the deadline

for cash for clunkers. it is by noon today. according to the free press clunkers by the numbers, 32 days, 625,000 vouchers, to $0.50 billion in sales. it says that the colleges continue until the last minute, but dealers are still delighted by the results. -- it's as though gl thoughitche -- it says that although the glliitches continued until the last minute, the dealers were still alive. we're joined now on the republican line by john. caller: good morning, i believe this administration just once to keep the bush appointee on so that when the economy does show

the combined once again on bush. it could be as far as two years down the road and there would still keep alive. host: here's the front page of the state newspaper by john o'connor on what is next for governor stanford. his wife has a series of stories and an article in "vote" magazine. it says that lawmakers will discuss whether to impeach and. -- in vogue magazine there are articles by the wife of him. it says thatsanford's future will be considered by politicians. here it says thatmcmaster says

he is running for governor. his the south carolinian attorney general. jan is joining us from connecticut. good morning. caller: i just wanted to respond to some of the people who have recalled in. they are speaking about the president being a fraud and that he should be taken out of office -- i think it is a little of lyon. just because -- i think it is a little out of line. just because there is a portion of a plan they disagree with the numbing as presidency is a fraud. i don't think anything that they have put out on the medical plan is a fraud. the way that people interpret them and the things they twisted around to be is what is wrong. -- but the thing that anything

but they disagree with as part of the plan means they should call the presidency of fraud. concerning this death panel, is inconceivably out of line. anyone near that stage of their life certainly needs advice to consider what the next step is to take, not are you going to let me live or not. so, i think that people should be a little more open and broad in their understanding. i think that ben bernanke could do a pretty good job. it is important that part of the government should be a little more included in some of those decisions which i often disagree with, but we still need that portion of our government. host: president bush is spending

the week at martha's vineyard for a week-long vacation. he spent yesterday playing golf and tennis with his wife. here is a picture of the farm where they are spending the week. it is the home of nearly 4000 square feet. what do you think about the ready appointment of ben bernanke? -- about the reappointment of ben bernanke? caller: i think the government is taking us on a downhill spiral for this economy and trying to ruin our health care as it stands. i feel that if ben bernanke is part of obama's decision-making on his economics platform then it should be rebuked and someone

else should come in. we need a turnover of people as much as possible to try to save the economy. host: another story in the business section of ""the new york times." new rules in wiki world will set a hierarchy to edit approval of some of the material on the website. the reporter says that one of the mos10 most popular sites one web --

pat is joining us from long island, good morning. caller: good morning, as far as ben bernanke, let's face it, the best of the worst choices. we are doing what we can with what we have. personally, the person who had the position before him road of book and admitted how the senior bush administration twisted his arm in controlling interest rates despite economic conditions. lowering them in the face of inflation. we do not follow economic rules. we support the chamber of commerce and do with the big industries want us to do despite conditions. so, how can you trust the system that is not working according to laws of economics? i do not know. look at the situation. i say the chamber of commerce is

too powerful. the people who run it, too. i was overseas for 10 years and 60,000 american troops in italy and germany go to local host nation hospitals and based clinics cannot support them -- they are fine with the medical system it is not just the people in medicare use universal health care. it is also troops overseas. people here should know that. we need to get on the road to lower our consumption, greed. help our people and do the right thing before it is too late. host: by the way, health care dominates our coverage on this network with more town hall meetings tonight. we will be in north virginia and have the former dnc chair there

as well. it will continue that through this month. healthcare is the subject of the story this morning on the front page of "usa today" concerning the h1n1 flu. it could infect half of the u.s.a., this article says.

next is jim joining us from raleigh, n.c. concerning ben bernanke is group women. what do caller: thincaller: yess just as i know. -- this is concerning ben bernanke's reappointment. caller: we're seeing those ready awakening of cabalism versus socialism. we are six months late, but better late than never -- capitalism versus socialism. i think that the ben bernanke appointment is just a smokescreen. our country is lighting and all of our industries to nationalization. -- the country is sliding.

everyone should go to read political theory and read up on socialism. thank you, c-span, for helping american people to become aware. thanks to all the american soldiers out there protecting our freedoms. i look forward to all the other people upholding their oaths. host: this morning inside the economy section is the ben bernanke story. writing that the president will renominate ben bernanke to a second term as head of the world's most powerful central bank. the president will make a statement at 9:00 a.m. from martha's vineyard.

next, a morristown, new jersey. caller: thank you for taking my call. all the callers talking about socialism -- nobody likes socialism. i want everyone who is getting a social security check to send a bet. anyone who is receiving one in the future do not receive it. if you do not like socialism do not drive on the roads are good to parts. do i agree with socialism, no? but i think that everyone is crazy with this issue. host: another store that is the front page of this boston paper and also available on its web site focuses on barney frank.

the congressman is "relishing the pivotal role he is playing in the overhaul." next is kevin joining us from los angeles. caller: good morning, i have a

comment on the polarization of all these topics that seem to be stated be-- host: you are breaking up a little bit. caller: yes, if we could stop polarizing everything with republicans against, against and capitalism versus socialism. -- and capitalism against socialism. if we can get past that, we can make some advantage in what we return to do. we can become the america that we can be and that we were. we need to focus on that. host: another comment on ben bernanke.

meanwhile, this morning, inside "the washington post" -- mr. johnson will join us in a couple of minutes to talk about this story. the essence of the story is that the interrogators lifted one detainee off the floor by his arms while there were bound behind his back with a belt. the story this morning is also on the front page of ""the new

york times." there'll be more on that in a couple of minutes. frank joins us from beverly, new jersey. what do think? caller: good morning, i think that ben bernanke needs to go and read to make changes in washington. -- and we need to make changes in washington. this has been going on for many years. the people are apathetic and now finding out what is going on. nobody even knows who anybody is anymore up in washington. look, steve, the problem here and our country now, and i hear all these pendants calling in on the show saying about socialism and this and that -- all the pundits calling in -- well, i have news for them.

they pay for that when they work. you have to earn it here to get it. the problem i have with this government is that it has gotten so big and bloated they take care -- they want to take care of every aspect of yours and my life. they hire all these people to do it. when the baby boomers retire there will be three people collecting social security and one person working to pay for the system. if the people calling in cannot understand that when the government runs things they do not care if they run it as a deficit because they are spending our money. they are not running it like a business would, granted there are some bad businesses that have run their businesses into

the ground, but the government does not care. look at the post office, social security, medicare. host: just as a side note yesterday was the 25th anniversary of ronald reagan's nomination at the republican convention. he talked about some of these issues back in the 1980's. caller: yeah. host: ok? still with us? caller: i just want to make one more point. if the american people do not wake up and see the government wants to take care of us like we're babies, how is anybody in the future, especially our children going to know how to

support themselves when the government will do it all for you? host: tony has the last word from dallas, texas. caller: i think it is ok for been bernanke because president obama, the matter what he does will be criticized if he picks someone else. -- it is okay for ben bernanke. when people are talking about socialists, but when your job is to negotiate with the insurance company everything goes up in your benefits lesson. obama ran on health care command to change it. i am upset because i want to know where are all the democrats with backbones who voted for him? nobody is speaking up. all the town hall meetings they show angry white people. that is ridiculous. they come with guns.

they are so racist and hateful. that is why it this country is in this state. we tried george bush in the reagan stay. has the free market work? hell, no. host: you might want to go to c- span website and to the town hall hub and look at many of the town hall meetings we have covered. there will be balanced comments from all sectors of society. a message from twitter saying that the best path to prosperity is to nationalize our financial system. look at sweden and how amazing its working. but for now, ben is good. this baltimore paper concerns state workers who will face pay cuts. a related story inside the new york paper, as rhode island

considers a shutdown, the state would need 12 days to trim millions of dollars in financing for local governments. we will turn our attention to the justice department and the cia. it is tuesday, august 25, and "washington journal" continues in just a moment. ♪

>> as the debate continues, c- span is healthcare hub is a key resource. go online, all the latest tweets, videos, and links. you can share your own citizen video. and there is more at c- span.org/health care. >> go inside the supreme court. hear record from the justices as they provide insight about the court and building. it is time to america's highest court, the first sunday in october on c-span. >> private conditions?

>> grants, and stuff like that. >> donations. >> i do not know. >> america's cable companies greeted c-span as a public service, a private business initiative with no government mandate or money. -- america's cable companies created c-span. "washington journal" continues. host: thank you for being with us, carrie johnson. let me read the statement by former vice president dick cheney. he said "the people involved deserve our gratitude but do not deserve to be the targets of political investigations and prosecutions. he went on to say that president obama's decision to allow the justice department to investigate and possibly prosecute and decision to

remove a 48 from the cia in the white house serves as a reminder of why so many americans have doubts about this administration's ability to be responsible for our nation's security." guest: those are tough words from the former vice president, continuing his campaign since leaving office in january in an attempt to portray the current administration and its intelligence officers as soft on secure. the message has been picked by many senate republicans. host: many headlines, but let's begin with yours. first of all, who is john durham a and what does he bring to the table? guest: he has been a prosecutor for the entire life first for connecticut and then as a federal prosecutor in connecticut where he now lives and works. his 59 years old, quite, and

gray-bearded. he has had some of the most incredible cases of the past three decades. he has looked into improper relations among criminals and a long forcers which went on to become the material for a movie with jack nicholson. he went on to investigate the destruction of videotapes which we think depicted very extreme scenes of water boring. host: what do you think he has seen? guest: he has not been able to see them because there were destroyed. what do exist are documents that describe everything that allegedly went on in the tapes. he has had access to witnesses before a grand jury in alexandria, virginia. he has been calling lawyers and others at the cia to speak to

the grand jury. he is making a decision about whether to seek an indictment. host: the president in april said he did not to look back, but ford. then you had a couple of heated discussions early on between leon panetta and people at the justice department. could you walk us through? guest: yes, the obama administration has struggled to find its footing on national- security issues. the president indicated a desire not to get stuck in the dispute in controversies of the bush administration which are still alive for many people. her lover, numerous court cases including lawsuits filed by the aclu, civil liberties groups have been presented to the justice department as well as evidence. a report came out yesterday. eric holder, the attorney

general, says that he acknowledges some of these problems from the past but feels he must launch an investigation. host: let me ask you about the classified material. can you explain what is in this report and what was cut out? guest: begin not entirely know what was kept out. there were numerous details about mistreatment that were kept in. when you of well water boarding, but did not know about the floor slamming, scrubbing a prisoner in about so badly that his skin was red. we also did not know about blowing smoke into the faces of

prisoners until they regurgitate. surprisingly, there was at least one episode in early 2002 in which cia personnel repeatedly pressed on the carotid artery of the detainee until he became unconscious. he finally shook him back awake. host: there was one sentence in your piece of one to share with the audience because it gets to the essence. it could mark the beginning of a pain-taking inquiry that test the boundaries of the justice department's discretion and its ability to by incomplete evidence collected. guest: thank you for highlighting that. i think it is the central challenge now. the problem has been that many of these allegations in as many as a dozen cases -- the evidence was incomplete. it was collected in prisons in iraq, afghanistan, on the

battlefields. some prosecutors to me that they did not have bodies of detainees, nobody's of the victims to go on. it made the challenge to bring prosecution all the more difficult. john will have to confront a lot of serious problems concerning evidence which have grown weaker, not stronger in the seven years since these incidents took place. host: based on that, how would you have a trial if the evidence is in complete? if they fail to prosecute the criticism will come from the other side. guest: already in case there is a prosecution, and i have doubts whether can be one, some of these lower level personnel will have all lot of defenses. two separate teams in the bush

and mr. shen reviewed these. they will say that there supervises told them it was ok. right now is nearly targeted on those who will be on the four corners of guidance which defines the investigation at very low level. they want to point to higher ups if they are under fire. host: carrie johnson who has been covering the story for the justice department for "the washington post" -- you cannot read the editorials, but you indicate something on this front page of the newspaper -- the real culprits are the higher ups. it began with george w. bush and former vice president dick cheney who led american down the degree impact of state-

sanctioned torture and let the next administration to cope with the fallout. guest: many democrats and human rights groups feel that way. holder's decision was praised by some moderates. it was unpopular with more progressive elements. it is viewed as more narrow and limited and does not get to the lawyers and policymakers. there were briefed regularly on these interrogations' and expressed a lot of interest and what kind of intelligence was coming from them. host: we're joined on the republican line. from line caller: good morning. i have some questions for carrie, but she is so obviously a democrat liberal that it would be hopeless for me to ask her. she does not know what she's talking about she has not talked

to any of these prisoners, and when you're taking evidence from people behind bars, taking their word for something, and then you get out here and spout this stuff like it is the gospel -- i am sorry, steve, but i cannot believe a word that she says. host: let me read to you from the paper and then ask your question. "the wall street journal" has this conclusion, by threatening to prosecute cia officials the obama and mradministration is taking ownership of future troubles in a way that will only do itself harm.

don, the floor is yours. caller: your taking holder -- you are taking holder -- and i cannot take anything he says as the truth. is ben bernanke a democrat or republican ex i recall when he was appointed first -- because i recall when he was appointed the people were complaining that he had appointed a democrat. has he changed parties host: no, he is a republican. he was appointed by george w. bush and now reappointed. caller: then, someone gave me the wrong information.

host: we will go to eric in wilson, wyoming. caller: during this segment i'm sure that most of the people calling on the republican line will be christians to go to church, get on your knees, and pray to the prince of peace, and another will be judged by their so-called god. they're supposed to be christ- like. this country is not -- certainly is not acting christian. not by telling the detainees that we will rape your mother in front of you in to your children. anybody who will say anything -- john mccain when he was tortured route at a statement

defending the vietnamese -- he wrote out a statement defending the vietnamese. it is degrading. we should be ashamed of ourselves. host: any response? guest: i think that he has touched on a point that many people are making from both political parties. this episode has tarnished the country's reputation around the world. it has complicated the ability of the justice department to bring prosecutions against the 200-odd people who remain at guantanamo bay. it is also the case that there is an ongoing debate about how effective any of this information actually was in helping to prevent terrorist attacks in a that has also

become politicized. people in the fbi mostly in charge of interrogations' have said it is not all that effective. host: you say in your piece that the mandate is relatively narrow in terms of the investigation, but it could bottom. then a pointed out the investigation concerning a particular woman. guest: yes, the prosecutor began with a relatively narrow mandate. he appealed to the deputy attorney general. he appealed to expand the mandate based on allegations he uncovered. he was given the approval to expand his scrutiny. fitzgerald wound up charging scooter libby. it is possible that john after investigating for a while will

come across information that prompts him to ask attorney general holder to expand his purvey. host: our guest has been with the washington post for the last nine years. here is a message from twitter. guest: a lot of these detainees already have civil suits in the u.s. courts seeking their release, habeas corpus petitions. however, some who have been in custody and then released to have ongoing civil suits against former government officials in the bush administration. many have been dismissed because it is very difficult to sue a government official acting in his or her official capacity.

it is generally a source of a manatee. however, in one case in california a former detainee has an ongoing lawsuit against the university of california professor who had drafted some memos approving some of these most harsh techniques. host: our next call is from louisiana. caller: i believe they should not be bringing up this stuff about these detainees. i think our country has forgotten. it is just a cover-up for what is going on in the obama administration right now. guest: many people do not want

to look backward because they think we would just when the fighting with each other and misusing a scarce government resources. i think that the poles have borne that out to some extent. some people believe, however, including the president and attorney general that you cannot always look the other way, especially when possible evidence of a crime is presented and the form of the report which happened yesterday. host: let me return to the statement by dick cheney at the national press club. he continues to talk about saving lives. he says that this intelligence said less and prevented terrorist attacks. it says that it played a role in nearly every capture. it says that the activities of the cia in carrying out policies of the bush administration were directly responsible for defeating all efforts by al qaeda to launch further attacks

against the u.s. guest: i think that the documents will bear out that some of the intelligence used was useful. they also bear out according to analysts from both political parties that the cia often did not know what to do with intelligence it got. it is a mixed bag. i take some heart in what a former state department official and lawyer, advisor to connolly's arise -- to condoleeza rice, testified this year that the situation is too murky to evaluate whether this intelligence was useful and save lives.

host: here is the headline. and this is the reporting of our guest carrie johnson. james joins us from carlsbad, calif. caller: i know that it is tough to get information from the government through the freedom act, but we have always had a history dealing with terrorists and how we treat them since world war i. we get into this quagmire of the cia. if there was something done wrong -- and i guess mr. dick cheney is turned to look at it as if we made the mistake, not the guy in the trenches. he followed orders.

as a reporter i would ask you and your colleagues if you're going to do a story, dig into the fact, look at the administrations, the history we have now. look at who was giving the actual mandates to the people down there. no matter what you or anybody says, 90% of the people in the cia are in the military, in uniform. guest: i will happily look into that. that has been a target for reporters for the past eight years and i have no doubt that more information will become available. what people knew in meetings at the white house, and the like will become numb.

we know that there many meetings of the cabinet level itself. -- more information will become known. people it in many positions discussed some of these techniques. the president himself was not in the room, said john ashcroft, but for some of the harshest techniques we know that were used were actually discussed at 1600 pennsylvania ave. host: this is your asks if you think we will ever be able to see a less redacted version? guest: i am hopeful. john durham is still investigating the destruction of videotapes from 2005. there is anotheare other reasons why this persists.

there were tons of ore about how much information is safe and appropriate to release. in many of these cases the justice department and advocates for freedom of information have one. but it was discouraging of some people were reading this report yesterday of they to find that many scenes, including those of bolling the highest value detainees were nearly complete redacted. host: there is a story focusing on leon panetta. the sidebar piece says that leon panetta is being vilified by liberal contempt. guest: he is in a difficult political position. he is an outsider. yet he is having to defend his people from all sorts of assault. he issued an e-mailed to employees sign that he was proud

of their work, reaffirming that the agency had repeatedly breached up to the justice the permit for legal guidance. in the few cases in the not follow the guidance it referred allegations of misconduct to the agency is up. he is walking a fine line, turn to keep his committee happy and protect them. host: that was the sixth b-mail in six months to employes. guest: yes, he has had a lot to talk to them about, including blackwater. earlier this year what might have launched everything with the release of this justice department and those, is included in what he has talked to them about. host: good morning. caller: we are the united states

of america, a nation of laws. rules and regulations should be followed. it is not ok to say that law- enforcement can break the laws. i am united states military and we have a court of justice. if i break the code, i get into trouble. how can we tell our kids to do something different? i'm a democrat, but i greed sometimes with republicans, sometimes with democrats. -- i agree sometimes with republicans, sometimes with democrats. i am upset. i voted for president obama. if the election were held again tomorrow i would vote again for him. but he needs backbone and stop trying to appease people. the attorney general is right to push this. you cannot say you want to

follow loss one day in the next day not. thank you. guest: in the course of these controversies as they unfolded late in the bush years when no now that some of the people who objected most strenuously during the time as well as after were military lawyers themselves. . . or do torture for things like

that. and then they want to get mad of the democrats when they do things. that is why i'm glad to be independent. i watched c-span pretty much all day when you have the democrats and republicans -- before they sign things into the law and i think that is why nothing in washington is getting done because all they do is fight and bicker and can't agree on anything. i'm just glad to be independent because i just don't agree with some of the things the republicans are doing. if they want to be moral day ought to be upholding morals and values instead of upholding guest: thanks so much. no matter what your political affiliation, i think it is fair to say that yesterday's disclosures both of that cia report and that there is an

investigation ongoing are going to prompt even more fighting and very heated rhetoric from people on all elements of the political spectrum. and conservatives may have a point when they raised the question of whether we should be reinvested getting some conduct that has already been looked at by two sets of prosecutors and the bush administration. eric holder decided to go the other way but he is trying to keep a very narrow and tight focus. host: let me go to the time line issue for the special prosecutor. what is his time line to look at the evidence, look at these videotapes, the documents and then come up with some sort of decision. guest: this is an excellent question. many in washington wished they knew, including defense lawyers. he was appointed in january 2008 to look at the cia tapes destruction and it has been going on for 19 months. we think he is nearing the end

of the investigation but i asked bessin, senior justice department officials, how long you would have to do this, the review of allegations -- and he has no time limit. we know him to be painstaking and a perfectionist according to former colleagues and defense lawyers. so he is going to be operating very quietly in secret and it could take a very long time. host: we will be following the reporting of carey johnson who writes in "the washington post." in the next hour, conversation with barry ritholtz, the author of "bailout nation: how greed and easy money correct the wall street." and the president is in martha's vineyard and in the next hour he will formally before malay announce reappointment of ben bernanke as fed chairman. ben bernanke will be with him at his side. first, a news update from sestak

ready. >> the u.s. military says an improvised explosive device has killed four american service members in southern afghanistan. the deaths bring to 41 the number of u.s. troops killed in that country this month, the second deadliest month in the country since the 2001 u.s. invasion. more on the h1n1 virus this morning. health and human services secretary kathleen sibelius, speaking earlier on " the tip -- "the today show," it said officials will not likely be the to spread -- stop the spread by closing schools. the comments come one day after a presidential advisory report warrant -- warns that up to half of all americans can be affected by the virus. the secretary says americans should plan to be vaccinated when the shots become available. responding to requests for help from automobile dealers lobby, the transportation department temporarily extended the deadline for car dealers to submit the paper work for the cash for clunkers program due to

continued problems with its web site. the program, which was slated to close at 8:00 p.m. yesterday, will now close at noon today. those are the latest headlines from c-span radio. but as the debate over health care continues, c-span's healthcare of is a key resource. go online, follow the latest tweets, video ads, and the latest. watch town hall meetings and share your thoughts with your own citizen video. including video from any town halls you've gone too. there is more at c-span.org /healthcare. go inside the supreme court to see the public places and those are rarely seen spaces. hear directly from the justices as they provide their insight about their court and the building. the supreme court, only to america's highest court, the first sunday in october on c- span. >> "washington journal" continues but the next half hour we want to talk about a report

that will be coming from both ends of pennsylvania avenue, mike allen, who is tracking the story with the congressional budget office and the white house office of management and budget on the deficit report. mike allen, politico, thank you. what will we learn later this morning? guest: if you are an eco wonk, today is your suitable. incredible how much economic news. of course, reappointment of ben bernanke as the fed chief at 9:00 a.m.. then at 9:30 a.m., the white house budget office, office of management and budget, will release its midsession review. sort of halftime report on its projections. then at 10:30 a.m., you mentioned the other end of pennsylvania avenue, congressional budget office will put out its own summer update. then at 11:00, the director of that office will have a pen and pad the session for reporters.

lots of economic news today. specifically, what is coming out of the white house at 9:30 a.m.. we heard there will be no surprises, the numbers are based on projections congressional budget office and others have been using. one is good news, that the deficit will be lower this year than projected, $262 billion lower. two main reasons for that. one is, they won't need another bailout, they will need a tarp ii, they will need additional funds to shore up financial institutions. second, a lot of that money is being repaid. that has been helpful. then, not good news, the white house's projections on the long- term deficit, the 10-year deficit picture are coming into line with what the congressional budget folks have been saying already, and that is over 10 years, the deficit is likely to be $9 trillion.

basically $1 trillion a year deficits for the next 10 years. the white house says this is a reason to go ahead with health care. that the need to get down the government's costs for health care are reflected in the numbers and rather than scaring congressmembers away from taking action, that these numbers should remind them of why the nation needs to put its fiscal house in order. i think you will hear people say the president in coming years plans to take steps to reduce that deficit. bending the cost curve on health, how the want to bend the deficit curve. the present, they say, will take steps in the coming years to reduce the numbers so the hope is when he leaves office the picture will look slightly better than today. host: we will get to your calls and a couple of minutes, expected report of $9 trillion deficit over the next 10 years. which i believe is $2 trillion higher than originally anticipated. mike allen, let me go to the

original point. the essence of that argument from republicans as we cannot sustain this kind of debt but many democrats are saying we need to spend more in order to shore up the economy, otherwise we would face of the great depression. where do that two points of view, in to play. guest: i think that is the taproot or fountain of the passion we have seen on c-span on your great coverage of the town meetings. the two arguments you pose very much tapped into people's basic beliefs about government. republicans think all the spending has not helped and that the spending has not been warranted based on the number of jobs that were created. democrats are saying, don't be crazy, don't stop spending when this is working. you don't want a depression without a new deal, and the president's recovery plan, the

stimulus plan, is beginning to work, and it will be crazy to put the brakes on it at a time that there are signs of recovery. steve, we keep hearing that jobless numbers are a lagging indicator and that was still keep going up. i still -- think they still think it can go above 10%, that the unemployment rate can go into double digits despite a better outlook in other parts of the country. but it is very important to underscore really how bad a place we are in. because even though the figures are improving, if you look at a graph of past job losses in recessions and recoveries, we are still in a steep, tough to get out of, please, that makes this recession look much, much worse than the of the ones you and i and our kids have lived through. host: our phone lines are open. as we get your reaction to this

report. mike allen, let me go back to your other story which you posted in politico, your daily morning blog. that is, john harwood of cnbc squawk box, his reaction to the news of bernanke. guest: white houses are leery of the vacation backing. remember the bad things that happen in the bush administration when he was down to texas, including his slow response to katrina. you saw earlier this month, one of president bush's chiefs of staff talking about, beware of august. the white house, even though they of raise the idea president

obama was on vacation, they called it a vacation. they said he deserved it. this said the american people didn't care. they didn't try to call the down time and some of the other things white house tried to do. folks in the west wing were very aware of the fact that it leaves them vulnerable. it leaves airtime on c-span and cable news. it may make them look slower to react to world events even though they are always been in communication, and there are certain aids whose job is is to respond. you can see them filling that news backing, this boy but the announcement about the president. including a press appearance. we were told he would not be doing press even spirit and we have seen administration announcements today, this week, about interrogation and the tension. and, even though this is roughly to -- the time the bush white house put out its first office

of management mid-session review, they are not sad and is coming out in a week when one of the news media has the eye off the ball. correspondence taking a little vacation themselves. host: mike allen from politico's offices in virginia, thank you. guest: thank you for your great coverage. host: pat is joining us from pittsburgh. your reaction to expected $9 trillion deficit. but "the washington times" said the year of your debt will be lower. the bank bailouts not as costly as predicted. good morning to you, patrick. caller: good morning to you, too. i absolutely love the c-span. you provide such equal coverage across the board. as a democrat -- you know, i changed political parties and when george bush ran for office because i recognize that this individual was unbelievably reckless. the outcome of his

administration represented probably the most reckless economic president in american history, imploding our national infrastructure through deficit spending with the military and now all of the sudden this wonderful new president is spending simply just to drag us out of the worst economic downturn in the history of this country and he is being hustled across the board. what this president had better start understanding, that the control mechanisms in free radio are nothing but free. they are being controlled by the right-wing media and the president really needs to implement the fairness doctrine so he can get his message across and be more along the lines of c-span that provide a truly cross-section of both republican and democrat ideals. i think c-span truly is the

model for a response from the public. i will let you respond. have a good fit. host: again, about 9:30 a.m. eastern time and at 10:30 a.m. we will get this slot to different reports on the deficit projections that the congressional budget office, and non-partisan office that looks at the numbers and office of management and budget, director appointed by the present. bob is joining us from indiana. good morning. granger, indiana. caller: you have this guy on from politico, he hangs out -- socialists and becoming, as today. to say he is not in leftist bias died -- and this guy is trying to destroy this country. host: who is destroying the country? caller: this president we have now.

host: did you want to respond to the deficit report? caller: put out on friday, then a bogus thing on the cia. come on, people, which appeared host: mary is joining us from atlanta. caller: thank you for taking my call. i just wanted to say who the american people, both democrat and republican and independent, -- things president obama wanted to do, other countries aren't listening to us every day. they are take -- other countries are listening to us every day. their money is rising. i am trying to get this point across, they are going on and doing things but they are listening to him from applying

the situation in their own countries and they are moving on. they are really moving on and chugging right along. we americans are just sitting still and still arguing about the same old things. we know we have to fix health care, so why not just get past what ever is standing in each of our way and just do it. host: robert from grand rapids, michigan. caller: that is minnesota. host: i apologize, i had assumed it was michigan. where is it? caller: 50 miles east from the source of the mississippi. thank you for taking my call. forced the ball would implore people to be a little more critical in their thinking refer

stovall, i would implore people to be a little more critical now thinking -- first of all, i would implore people to be a little more critical in their thinking -- the lee atwater school, admit to nothing and deny everything. it puts us in a very precarious situation, not only here, but in the world. the fact people try to be subjective in the problems that we face without realizing that everything is connected and to downplay the costs of foreign wars and are empirical past presidents, especially when he ran on a platform of non-nation building and to be a fiscally responsible conservative when in fact we can see the results of

his policies. i agree with president obama to invest in this country. it is the american people's money, it should be invested here. i think he was set up to fail, it is quite obvious. and when we have pundits like karl rove, who showed be in prison, being a talking head for fox news, the conflict of interest, people like dick cheney coming from halliburton, dismantling regulations of industry, it is all connected. host: i will stop on that point. thank you for that call. a lot of opinions overnight and a live this morning from the blogs, including dean baker. he says the congressional budget office will release its set of economic and budget projections

for the next decade today. these projections will likely ease show a cumulative deficit over the next 10 years that is to dollars trillion hired, 1% of gdp, and the deficit the cbo predicted gen in webre. the reason is not that congress has suddenly blown another $2 trillion in taxpayer money on frivolous project, rather, the main reason for the jump is the cbo is now projecting lower growth and higher unemployment over the decade than it did last january. jim is join us from tennessee. go ahead, jim beard audit of the morning -- go ahead, jim. caller: good morning. i am neither the public and or democrat or independent -- i think politics is silly. but i do think the idea, whether it is a republican or democrat, can spend the nation to prosperity is just ridiculous.

you can't do it yourself. no country can. therefore, both bush and obama decided to get us out of a recession by spending money and those who think it will work have to believe that government has a power beyond that of anyone else and individual or business or corporation. i suggest it is a supernatural power, because it is superhuman, at least, therefore you are putting your government in position as your guide, or really a god. most religions, at least christian, jewish, and muslim don't think you ought to have more than one god. so the people in this nation who

think their government can do things -- like the idea of investing, government investing, is so ridiculous. government gets its revenues from taxes, taking it from productive people and giving it to those who are non-productive. of course, what it is doing is spending other people's money, i call it opium, a lot like it because it sounds like opium and it has many of the same at fax of opium. you can become addicted to doing it and those who do do it accomplish things for their own benefit but not for anyone else. host: are you tired? caller: i'm retired. host: what did you do? caller: a raider. host: commandeers -- caller: a writer. before that, investment business.

host: where is signal mountain, tennessee. caller: overlooks on one side the tennessee valley and chattanooga and on the other side, swat valley. host: sounds like a pretty nice part of the country. caller: beautiful part. host: thank you for calling in. joe on the democrats' line. caller: how are you doing? the deficit is getting out of hand but i think the best way to fix it, giving money to all of these big banks and car manufacturers and dealers and everything. i think if they were to split that up and give it to the taxpaying citizens, if they are going to try to spend, give the money away to people, they need to give it to us so we can stimulate the economy ourselves. i think if they give us the money, we would go and buy new cars, pay off houses and pay bills and stuff.

host: a related to wheat -- you have to borrow money to start a business. how is restarting the economy of the nation any different? chris from san diego. good morning. go ahead, please. caller: how are you doing? the comment on the deficit. i figure like this -- the deficit didn't start this year or last year, 10 years before that. it has been ongoing. a whole bunch of different aspects that is contributing to the deficit. i think the thing about it is we are borrowing from china. i would rather the money be put toward us, toward the americans instead of money going to the wars and things of that nature. it just doesn't make any sense. we could go ahead and fix it if we try.

we have to sit back and create jobs and we are supposed to. host: in reaction to the reports expected out this morning from capitol hill and the white house about the budget deficit and the projection it would be about $2 trillion higher over the next 10 years than originally predicted in january. part of a mid-year report that congress dictates to release information. cheryl is joining us from houston. good morning. cheryl, good morning. caller: i would just like to say that all prior administrations have added to the big deficit we have now, and president obama blames the bush administration, bush administration blames others. we are now, the trillion dollar deficit that has been created by him also.

he keeps spending and spending and spending, and people just don't see what it is all about. i agree, we should keep american jobs here, create jobs for americans. i called one time to the help lines and i was calling india. i want to talk to an american. we could use that money to lower the deficit here. that is about all i have to say. host: one of the headlines this morning is in the front page of "the washington post." ben bernanke to be reappointed as the fed chairman. we will hear from the president in about 35 minutes live from martha's vineyard, the renomination. senate confirmation hearing the fall. the reappointment would take effect in january of next year. we have and we will continue to be covering these town hall meetings here on this network all this week. we will show you a cross

section of democrats and republicans as they meet with their constituents. one of the hearings will be live tonight in northern virginia, a town hall meeting from the reston, va., with congressman jim moran. joining him will be former chairman of national democratic committee, former dr. and governor of vermont, howard dean. a writer for the fairfax county * will be at the town hall meeting and also with freshman congressman gerry connolly in springfield, virginia. thank you for joining us. what are you expecting to come from this town meeting tonight with the former dnc chair and congressman jim moran? >> most of moran's district is pretty liberal leaning, 69% 4 obama. reston itself is one of the more liberal areas of fairfax county. they tend to be pretty civic- minded people.

might come to give voice is heard, but not the type that would come and shall moran down, if any of that -- shout him down, if any that have been some probably be people from outside. the high-profile as howard dean. we heard anti-abortion activist randall terry will lead a demonstration. host: of course, we have been seeing those moments posted on youtube with congressman barney frank and senator clare mccaskill and others, as they continue the count -- town hall meetings. what are the specifics with regard to when this evening with howard dean and congressman jim moran in terms of who is invited and how they can check the people in attendance? guest: what has been set out applied -- implies it is first- come, first-served. doors open at 6:00 and it starts at 7:00 and however many can sit

in the room. it is a public high-school, or tour of. host: based on your reporting, do you expect -- you alluded to this a moment ago, but you expect the qana confrontation we have seen? guest: it is hard to say. some of the neighboring areas are represented by republican frank wolf, because of the with the districts are drawn -- because of the way the districts are drawn. some of the areas have people who are a little more protest the-oriented who might come and might try to do that kind of activism, based on going to public meetings in ruston, restonians themselves tend to be a little bit more intellectual and willing to debate and make their voices heard in a quieter

manner. host: just as a way of comparison. we know earlier in the afternoon he will be and another town hall meeting of sorts, at a retirement community in springfield, va., with congressman gerry connolly, former fairfax supervisors. what is different verse is the one we will be live with tonight with congressman jim moran? guest: it is a controlled audience. a retirement community. it has security. you have to have permission to enter the property. and it is targeted just to a specific population. i would imagine the older residents of the village will have different concerns than some of the people at congressman moran's town hall, which is open to the whole spectrum of people. host: as you prepare to write the stories on both of the

meetings, what do you think going into it you respect to be reporting on? guest: i'm just interested to hear a little bit more about what our local residents are thinking. we have gotten some letters to the editor, and what we have heard so far from people fall along party lines. i am curious to get a little bit more in depth on what people are thinking on this issue. host: she writes for "the fairfax county *." we will rely this evening with the town hall meeting with congressman jim moran and former chair of the national democratic committee, live here on c-span, and we will follow that with coverage of the town hall meeting with the republican from alaska. we will take a short break. when we come back, we will talk about the stimulus plan and the impact it has had on public schools and private schools, elementary and secondary in the

u.s. later, we will hear from the president as he formally announces the renomination of ben bernanke. we will be back in a moment. in the coming up at noon, and discussion on conservatives, voters, and political issues like immigration. washington post columnist is among the panelists. from the center for american progress, live on c-span. also in the afternoon, an update on last week's presidential election in afghanistan. allegations of voter fraud in the future of afghanistan, that conversation at the brookings institution at 3:00 p.m. eastern. more health care coverage this evening. virginia democratic congressman jim moran hosted town hall meeting, joined by former dnc chairman howard dean. live coverage from rest in the -- reston, virginia. >> as the debate over health care continues, c-span's

healthcare hub is a key resource. go online, follow the latest tweets, video ad and links. what's the latest events including town hall meetings and share your thoughts with their own citizen video, including video from a town hall you have been through. there is more at c-span.org /healthcare. go inside the supreme court to see the public places and those rarely-seen spaces, hear directly from the justices as they provide their insight about the courts and the building. the supreme court, home to america's highest court. the first sunday in october on c-span. >> "washington journal" continues. host: we have daniel domenech, executive director of national school of the straightest. a new report on your web site this morning, taking a look of the stimulus money and how much is being pumped into primary and secondary schools of our country. what did you find?

guest: interestingly enough, the superintendents are very grateful we have this money. because clearly about the stimulus dollars it would have been chaos and school systems around america. having said that, there were two basic goals for the dollars. one was to stimulate economy and the other one was to bring about innovation and reform and education. we find our superintendent of the latter. the money has been used primarily to backfill budget deficits created at the local and state level. so after they have done that, they have very little money left to engage in any kind of change for innovation or reform of schools. that is pretty much the bottom- line of what we found in terms of that survey. host: let me put sun numbers out and asked to explain. recovery.gov -- the roughly $46 billion allocated, and k-12 --

post secondary, $17.5 billion. the earlier point about money being used for infrastructure with in the schools vs. personnel. can you break it down any further? guest: very little has gone for infrastructure. that was part of the original bill, actually, that there would be a substantial amount of money to schools for infrastructure. the bill that was actually passed removed all of the money. the only things work -- left were bonds they have to apply for predicted interest-free but they have to repay the principal. at this stage of the game there are not many school districts that have gone out and applied for the bonds. most of the money has been used, as a said earlier, to fill in budget gaps. there are only about 5% of our respondents who indicated that this was money above and beyond what they needed. and they could, indeed, use

these dollars for some sort of reform. that tends to be, by the way, in those states -- wyoming, montana -- those who have gas and oil and their economy has been fairly stable through this period of downturn for the rest of the country. host: put on your hat as former supervisor of fairfax county and the work -- if you are a school administrator in me get this money, what happens in 2011 or 2012? guest: exacta. that is the concern that has been stated. they are frightened to death of the funding cliff. what happens after the stimulus dollars on out? they are concerned about retaining staff that they know they will have to let go in one year or two years. or starting programs that are going to require that level of funding and then a year or two, they will not have that level of funding. what happens then?

i kentucky in the 27 years of superintendent, the worst thing you can do is start a successful program and then say, we have to stop this program because we don't have the money. it does not work well in most communities. host: percentage wise -- and i know it varies -- how much money comes from local and regional governments for schools verses what you get from the federal government? guest: generally the highest percentage of revenue comes from the local, property tax. that is part of the problem. property taxes have been reduced significantly due out the country because of a drop in property values. that is the number one impact on school district budget. the second is the state. you figure when an average of 60% of the money, comes from local revenue, about generally 30% of the money comes from the state, and then at most, you are looking 8% to 10% of federal dollars making of the rest of the budget. it is the local first and the

state second that makes up the bulk of district revenue. host: our topic is the stimulus money and the schools and what impact it has on primary and secondary schools. our phone lines are open. you can also send an e-mail or send eight tweet @ twitter -- a tweet at twitter. swine flu -- what should schools be on the lookout for? guest: we are very concerned, given the experiences we had this last spring. schools certainly have done everything it possibly can to prepare for it. they have guidelines, they have plans, the terms of whether they are going to keep schools open or close them down. they sent guidelines home to parents and students in terms of the measures they need to take. we are asking students and staff

to stay home if they come down with the flu. but nevertheless, we're really anticipating a rough fall season in schools, particularly because of the swine flu. host: we're talking about the vaccine, and the administration has had a series of meetings preparing for the swine flu pandemic, if it -- that point. if you look at the numbers, it could impact up to 2 million people and up to 90,000 deaths as a result. schools are incubators. guest: school -- school superintendents are eager to go out, making the schools basically the site for inoculating our students and staff. to do everything we can to become basically centers to help out in the community. nevertheless, it could be a major issue this fall despite

the preparation. host: bringing it back now to the stimulus money. looking at this good versus teacher ratio -- what is the optimum for first 3/6 great, and what impact of the economy have for class sizes? guest: the economy, from service we did this past year prior to stimulus money coming out, all of the forecasts were of that class sizes were going to increase because of the number of layoffs. that indeed is the case. we will see most school systems around the country opening up with a larger class sizes. the impact of class size, though, has to be taken into context. it depends very much on the type of student you have in class. the rule of thumb -- basically the will of thumb is that students that require more intervention and assistance from the teacher benefit from being in smaller class sizes. so what we tend to do, for

example, in fairfax county where i used to be superintendent of schools, we provide class sizes of about 15 for those situations where we have youngsters that need that kind of intervention. the average class size of 23 or 24 is fine for your average student. and there is a tendency in most school districts to place a higher achieving students in higher class sizes because of those students tend to be fairly independent and capable of doing a lot of work on their own. but generally you talk of the class of 24 to 25 of being -- as big, dumb systemwide, understanding there will be a divergence depending on the needs of the schools. host: daniel domenech, executive director of the association of school administrators. a new report on their website, aasa.org, and a link available at c-span.org. graduate of hunter college and hofstra university.

pick former school superintendent of fairfax county. co-founder of new york association of bilingual education. caller: good morning. i'm sorry. the question that i had was, are the administrators taking a serious pay cut so they can actually put more money into what the school really needs and the children's needs? or are they operating at the same level that they have in the past few years? guest: generally you see salaries and school systems throughout the country are remaining stable. in some cases, there are some increases, primarily because school systems in general have collective bargaining units and they establish contracts with their employees and a legally their contracts have to be honored. there are school systems around the country in selected areas that have bargained for

maintaining the same level and avoiding the increases that were dictated by the contracts. in other cases, where there have been reductions. but and generally it is mandated by a contract and those districts have to abide by those contracts in most states. host: steve, vermont. republican line. caller: good morning. how're you. i have some questions, too. i am 45. back when i was in school -- i was in massachusetts. the schools were so overcrowded, back then they have to go to split sessions. half of high school went to 11 and the other half went in the afternoon to reduce the amount of children in school per teacher ratio.

my friends of kids -- american history is next to nil. a lot of people don't know american history, because they are not taught it. with this stimulus package, everything drops off the cliff. it is not just education, but it is the economic recovery money, all of it, including the jobs such as construction and all of that. but the schools that will suffer -- if the kids are not educated properly, we cannot compete with the world. host: we will get a response. he picks up on your off the cliff remark. guest: i very much agree with you. education is important, particularly if we want to be competitive with nations like china, india, and the rest of the world. certainly this administration is one of the few in recent times that has been willing to put their money where their mouth is in terms of the stimulus dollars going to education.

but still, as i mentioned earlier, because of the severe budget cutbacks at state and local levels, it is creating higher class sizes because districts have had to lay off staff, reductions in programs, and we need to find ways in order to get back key to providing the kind of education our students need in order to be competitive in the world. host: former role as a supervisor in fairfax county. a county-wide system. many districts with an accounting would have cities and suburbs and there is a lack of consolidation in terms of forming a larger core group within the county or several counties. will we see more of that in the years ahead? guest: action we have a been seeking that. that has been a steady reduction in the number of school districts in the country. there are 14,000 school districts in america, and the medium district size is 1200

students. so there are 7000 school districts out there that have 1200 students or less. washington, d.c., new york city, chicago, los angeles, there are very few districts in america of that size. what we have seen over the years is a consolidation process of these smaller school districts combining so that they can become more cost-effective and efficient. host: robert from butler, indiana. caller: a lot of this could go away, our problems with the economy, for teachers and everyone, if they would pass the bill -- sending jobs overseas of the ceo posset a tax break. it seems they want rescinded. the lobbyists will not allowed. who is running the congress, lobbyists or congress? thank you appeared -- thank you.

guest: there hasn't been too much outsourcing, at least in terms of education. possibly in the area of technology, and most recently, by the way, in terms of on line to bring, a lot of the online tutoring companies that are from india and other parts of the world. generally, education has not been subject to the kind of outsourcing we have seen in other industries. host: with all of the spending and increase we have seen short term as a result of the stimulus, what impact of further cuts have on special needs, title 1 and of the programs? guest: that is an interesting point -- by the way, reflected in the survey. the way the stimulus package was directed, it was in essence, three buckets. one was for idea, special ed, and once for title i, children of poverty, and third, state stabilization dollars.

the state stabilization dollars came through the state and district had a great deal of flexibility. idea special ed students -- directed specifically at those programs and had to be used within the guidelines. specialist needs have not been affected by the economy. in any case, it has been doubled. it has been great for the programs but it has created difficulties for school districts that did not have the flexibility in how those moneys were going to be used. they had to lay off regular classroom teachers affecting classroom size, or populations, student population size. in the idea entitle one, they are not affected. if anything, additional dollars to hire additional personnel. host: as schools reopen, we have

the executive director of the american association of school administrators. david is joining us from georgia. caller: how was your day? host: fine, good morning. caller: there is a fundamental flaw. we tried to make everything on getting rich instead of trying to provide a service. in the medical field, if you are becoming a doctor to help people, monition not be a factor. i'm a shade -- monition not be a factor. i'm ashamed about people try to it which. as far as the lottery and things

like that, why is there a money issue in america right now? host: in many states, the lottery funds to benefit public education. guest: but here is the issue with lottery funds. the lottery funds are not necessarily, in addition to the dollars the state legislature might allocate for education, they are mostly used to supplant. in other words, if my education budget is going to be $100 million and we are getting $20 million for the lottery, it is not like it is now $120 million. it is like, ok, take $20 million offer of $100 million and use the $20 billion to make of the $100 million. the dollars to not generally come from lottery in addition to, but really, to supplant its budget dollars for what ever is going to be allocated for education. so it hasn't had the impact. not unlike what is happening

with the stimulus money right now. where stimulus dollars have been used to supplant state budget dollars or local budget dollars. host: let me go back to an earlier point. in fairfax county, property values are down. in new york, property values are down. in last vegas, time magazine did a cover story on the impact the economy is having on home foreclosures and that part of the state. as you are looking through budgets in the last couple of years, what does an administrator do? what does a supervisor do? guest: what they have done, which is to make cuts in staff. all of these districts have made significant staffing cuts and eliminated a number of programs. that is a major concern, again, going off the funding cliff. what will happen in a year or two? i say a year or two, because a lot of districts will have used all of a stimulus dollars in one year.

it is conceivable when you go through the next fiscal year as they put budgets together -- and a lot of districts are going to be looking at programs again and staff again and seeing where we going to make the next round of cuts. unless there is some sort of money, either from another stimulus package or from a sudden recovery in the economy to begin to bring about an increase in sales tax and property tax at the local level. host: you can read the report, the website is linked through c- span.org. johnny from austin, texas. caller: my question is, administration-wise and sports- wise, if we cut out the sports programs -- not sports between the school itself but sports between individual schools, how much money are we going to save with transportation costs to go to football games. the small town i live in --

hired a coach, $300,000 he is being paid. a new stadium, $8 million. this is insane. this is not educating students. 100 miles west from me, in small areas, the administrators don't make anywhere near the money they make in big areas, yet students are coming out of those schools smarter and better educated than coming out of city schools. i see the problem in big city schools. big city areas that are charging -- you know, they cost 7000, a thousand, 9000 a year to educate the students in the go to west texas and the small towns, it cost 4500 years. guest: it sounds to me i went into the wrong business. i should have stayed in coaching if they are making that kind of money. it is a culture, really. education is a local prerogative. in spite of the federal

government involvement in the state involvement, communities and local boards of education and those local boards determine the kind of education and how the dollars are going to be spent. in many areas throughout america, the sports program is a very important part of the education process. that community, those localities, will not give those programs up. they decided that is their priority, that is where they are going to spend their dollars. clearly, when we look at the quality of education, that is probably one of the reasons we see the push to establish national standards. because we do have right now 50 difference that -- a set of educational standards and within the states, different standards by localities. that is going to be the direction we will move been pared host: -- we will move in.

there is a bucket of money for technology apart from the idea and title i as the stabilization dollars. host: daniel domenech, thank you for joining us. now to martha's vineyard. >> i apologize for and to look into relaxing i told all of you to do. but i have an important announcement to make concerning the federal reserve. the man next to me, ben bernanke, has led the fed through one of the worst financial crises that this nation in the world has ever faced. as an expert on the causes of the great depression, i am sure he never imagined that he will be part of a team responsible for preventing another. but because of his background, his temperament, his courage and his creativity, that is exactly what he helped to achieve. that is why i am reappointing him to another term as chairman of the federal reserve.

he approached the finance system on the verge of collapse with calm and out of the box thinking that help put the brakes on our economic freefall. almost none of the decisions that he or any of us made have been easy. the actions we have taken to stabilize the financial system, to repair our credit markets, restructure the auto industry and pass a recovery package have all been steps of necessity, not choice. facing a number of critics, some argue we should stay the course of the nothing of all. but this bold experiments haitian has brought the economy back on the brink. our recovery plan has put tax cuts in people's pockets, extended health care and unemployment insurance to those who bore the brunt of the recession and continues to save and create jobs that otherwise would have been lost.

the auto industry is showing signs of life. business investment is showing signs of stabilizing. our housing market and credit markets have been saved from collapse. as i said before, we are a long way away from completely healthy financial systems and a full economic recovery. and i will not let up until those americans looking for jobs can find them, until qualified businesses, large and small, well have capital to grow and find loans at rates they can afford and responsible mortgage holders can stay in their homes. that is why we need ben bernanke to continue the work he is doing. that is why i have said we cannot go back to an economy based on over-leveraged banks, and act out credit-card. for even as we have taken steps to rescue our financial system and economy, we must now work to build a new foundation for growth and prosperity. we have to build an economy that

works for every american, one that leads the world in innovation, investments, and experts -- exports. part of the foundation has to be a financial reglets or system that ensures we never face a crisis like this again. we have already seen how lax enforcement and weak regulation can lead to enormous wealth for a few and enormous pain for everyone else. that is why even though there is some resistance on wall street for those who would prefer to keep things the way they are, we will pass the reforms necessary to protect consumers, investors, and the entire financial system. and we will continue to maintain a strong and independent federal reserve. we will also keep working towards the reform of health insurance system whose costs and discriminatory practices are bankrupting our families, businesses, and government. we will continue to build a clean energy economy that creates jobs can within our borders and will give our children and our workers the skills and training they need to

compete for these jobs in the 21st century. much like the decisions we made so far, the steps we take to build this new foundation will not be easy. change never is. as ben and i both know, it comes with debate and disagreement and resistance from those who prefer the status quo. that is all right. because that is how democracy is supposed to work. but no matter how difficult changes, we will pursue it relentlessly because it is absolutely necessary to lift this country up and create an economy that leads to good jobs, growth, and a future our children can count on. that is what we are here to do. that is what we will continue to do in the months ahead. so, i want to congratulate them on the work he had done so far, wish him continued success in the hard work that he has before him. thank you so much. >> thank you, mr. president. i would like to express my gratitude to president obama for

the confidence he has shown me with this nomination and his unwavering support for a strong and independent federal reserve. it has been a particular privilege for me to serve with the extraordinary colleagues throughout the federal reserve system. they have demonstrated remarkable resourcefulness, dedication, and stamina under trying conditions. long nights and weekends and the time away from their families, they have never lost sight of the critical importance of the work of the fed for the economic well-being of all americans. i am deeply grateful for their efforts. i especially want to thank my own family, my wife and i, and children, joel and elissa, without a sacrifice i would not able to undertake this task. the federal reserve, like other economic policy-makers have been challenged by the unprecedented events of the last three years. .

>> the president in martha's vineyard with ben bernanke, first appointed by former president george w. bush and now sending his nomination to the senate as chairman of the federal reserve. the president is spending this

week on vacation in martha's vineyard. >> we want to welcome to walter reed -- "washington journal" with author of "bailout nation," barry ritholtz. let me begin with the news of the day, the renomination of ben bernanke. does this surprise you? >> guest: not at all, we have been debating this amongst my colleagues, strategists and economists, a number of people have been scratching their head. i thought from a game-theory approach, the safe bet was to reup with ben bernanke. if anything goes wrong, it's hard to blame the president if you just reappoint somebody who has been widely thought of as doing a good job. on the other hand, if you were to put his own personal in and there were problems down the road, it comes back to the president. so this was a safe, conservative pick.

>> last week mr. bernanke met with the president in the oval office and he headed to wyoming to meet with colleagues. do you have any other becomeground on the dynamics that led to this decision? >> guest: not really. it has been closed mouth. a lot of people are wondering why the president hadn't said anything and why it it was going on so long. we were waiting to see how the economy played out, what was going on with interest rates, with jobs, with economic activity and most importantly, what was going on with the credit crisis. you know, i give ben bernanke high marks for being the right guy there when the emergency struck. in terms of how well he's going to operate as a fed chair under normal circumstances, well, the jury is still somewhat out on that. in terms of a great depression like threat it was the right guy to have there at the right time. he's an expert on depression.

he's looked at the things that the fed did wrong in the 1930s that either made the depression worse or prevented it it from getting better sooner, and took aggressive stops to avoiding that happening. as a fed governor when he was working under greenspan, i'm a little less impressed with him. a lot of the blame, by that by no means all, a lot of blame ends up on greenspan's plate and he was very much a -- like the rest of the fed, not very challenging, far too deferential to former chairman greenspan during the formative period that led to the crisis. >> host: that gets to your book. you write how the united states ended up a "bailout nation" is the work of just more than one man. greenspan looms in this story, but it it took irresponsibility and misguided philosophy of many

players, presidents, senators, sec chairmen, treasure secretaries and members of congress all contributed. how so? >> guest: well, remember there's two major groups responsible for this. later on we go over what the private sector, the wall street bank, the investment houses did to contribute to this. but washington, d.c. was the great enabler of what various corporate interests wanted. so for example, for a long time a number of people who were ideologically driven, that is what keeps the investment banks which are riskier and the traditional depository banks where you keep savings and checking accounts insured, keeps them straight. it was repeald and we allowed the two groups to come together and what that ended up doing was making the crisis much worse. instead of keeping it contained to wall street it spread

throughout the entire economy. that is one thing that washington, d.c. did that was then treasury secretary robert ruben, along with his replacement treasury secretary larry summers, now key advisor to president obama, and bill clinton, all pulled for the repeal and they got what they wanted. ruben ended up at citigroup on the executive committee, so he got to reap what he sowed to so. when we look at the commodity future monetization act of 2000, passed 99-0 in the senate. unread it was attached as rider by senator phil graham before the christmas break in 2000. this essentially created the shadow banking system for derivatives. it treated the derivatives, including credit debt swaps and

all the acronyms that people have pointed to as a key factor in bringing down lehman and bear stearns and aig. there were no reporting requirements, no loss reserve requirements. if you are an insurance company and you are writing hurricane policies or life insurance policies you don't know exactly what you will spend every year over the next 10 years, but you have a ballpark of what history suggests you will pay out in actual claims. you have to reserve for that and put money aside. this allowed derivatives to not do that and not be traded on any exchange, to not have any state or sec, regulatory supervision. it it was left to his own devices and things ran wild, which again led to a.i.g., lehmen, bear stearns going the way of the do-do.

you have the five largest investment banks on wall street led by then goldman sachs c.e.o., hank paulson going to the sec and saying we are prevented from leveraging capital more than 12-1 and we find it constraining. it is an accounting issue, now and then. we are big boys and we can take care of ourselves, we would like a waiver of this rule. the five banks were given waiver of this rule. it was called the bear stearns exemption because it was anyone as large as bear stearns or bigger $5 billion in assets or larger and all five of the companies now no longer exist as they did at that time. merrill lynch got absorbed by bank of america. goldman and morgan stanley became holding companies. bear is now part of j.p. morgan and the bulk of lehman is now part of barklay's.

it is not just the government's fault. the government granted special dispenizations, special legislation at the behest of wall street and ultmeatally these firms ended up blowing up. >> host: we are talking to barry ritholtz. he is joining us from our studio at pace university in new york. our phone lines are open. we will take your calls and e-mails, as well. you spend time talking about the culture in washington and mentality of america's largest industries, most notably the automotive industry. you said, and this goes back to bailout of chrysler. had senior management been forced it would have served as wake-up call to all too many layers of management of the remaining two companies. what happened instead was failure of imagination at ford and g.m. >> guest: that is pretty much, look at the bailout of chrysler, to speak broadly and i'll nary

it down to the automobile makers. whenever there is a bailout or a lot of money thrown into a company that is in trouble, typically what it does is paper over structural defects. it papers over problems. with the bank its had to do with leverage and risk management and how close to the edge they were running. with the automaker its had to do with their ability to put out parts the public wants it it to buy. in the late 1970s, the baby boom was expanding and so while everybody was selling more cars, the big three were selling a smaller percentage. their market share was going down. so that demographic boom kind of covered up some structural problems underneath. by bailing out chrysler, we prevented three things from happening. first, someone would have come along and bought the remnants of of chrysler. i strongly believe unlike us humans who shuffle off, when a

company with factorys and trademarks and know-how goes belly up, if you can pick those assets up for pennies on the dollar without debt attached to it, you end up getting a really, really reasonable platform to go forward. if you look at the history of booms and busts in the united states, every time there is a new technology introduced, you end up with a ton of companies, they expand to the point where competition becomes so fierce they subsequently collapse and what is built on the collapse is the industry going forward. so there were thousands of car companies and automobile companies. radio, telephone, every time there is new technology, you go through a boom and bust. automobiles were no different and chrysler was still carrying on a lot of negative baggage, a lot of bad structure. all the automakers signed a very tough contract with the union in the 1950s.

again, after world war ii, a lot of economic expansion really covered up some structural cost problems and when i say tough contract, it was generous to the union and tough on the companies and it took about 15 or 20 years before those problems started to reveal themselves. the old joke is g.m. used to stand for generous motors. very lucrative pension plan, lucrative healthcare plan, better than most industrial employees got. that eventually came back to haunt the big three or the big 2-1/2 as barrons called chrysler in the 1950s, it it came back to haunt chrysler. had they been allowed to collapse normally, someone would have taken them over and would have started with a correctly structured relatively debt free car company. a lot of other things come from that. management of g.m. and ford should have been forced to do deep look and then the union would have been forced to look

at the pay structure and said, hey, maybe we need to rethink this. if we put one of the big three out of business, there might be something wrong with this. throw enough money at a problem and temporarily it goes away and we are dealing with the exact same situation only putting g.m. and chrysler into bankruptcy this time. i think it was the better approach than just throwing a lot of money at them without causing them to restructure. >> host: our viewers are lining up to ask you questions. kenneth joining us from oklahoma city. good morning. >> caller: good morning. am i on? >> host: you are. >> caller: thank you, c-span. i live in oklahoma city and i drive to chickasaw, oklahoma. there is a large road sign i see every time i go down there that says: government takes from the needy and gives to the greedy and contributed to ronald

reagan. in my opinion that is what ronald reagan did and bush one did and especially, especially, especially george w. bush. thank you. >> host: we'll get a response. >> guest: well, i'm not a political analyst. i'm an independent and i throw stones at both their houses, but it is pretty clear that what took place with the bailouts last year was money going from the american taxpayer to very reckless and irresponsible companies who were poorly managed and who quite frankly had enjoyed the fruits of that risk for many, many years. mean, they were well paid and highly compensated, enormous bonuses. capitalism says when you fly too close to the sun and you come crashing back down to earth you are supposed to go through a normal bankruptcy process. you are supposed to suffer the fate that you built for yourself and i think what we did and what the caller refers to is we ended up throwing far too much money

at reckless banks and reckless brokerage firms and what we're left with is not a lot to show. i mean on the one hand, hey, the system hasn't fully collapsed, isn't that a good thing? but i think if we would have put each of the companies through a controlled bankruptcy, through a structured reorganization without costing the taxpayers trillions of dollars, we all would have been much better off. the lesson the bankers learn is if i really mess up i go out of business. the lesson that the bond holders learn is if i lend money to companies insolvent, then i don't get that money back and everybody else who has been cautious with their money and conservative and not wildly speculative learns that that is not a bad approach. but instead we rewarded the reckless and we did it on the backs of the american taxpayers. my biggest complaint about the current administration is that the obama team has been moror

less carrying out the same policies that the bush team did when it came to bailouts. we continue to give money to a.i.g., continue to give money to citigroup and bank of america, straight down the line. i think that this sends just a horrifically long message. think about where we'll be 10 years from now. some banker will be looking at some possibility, thinking, gee, this is an aggressive risk. if i'm wrong, well, it could bring the company down. what the hell, the government will back me up. if i'm right, i make a ton of money. that is the beauty. heads i win, tails you lose. >> host: from book "bailout nation," the first rule of economics is there is no free lunch and mass of ultralow rate stimulus came at a price. cheap money led to inflation fueled by americans worst consumption habits and added a ton to consumers' total debt.

reginald is is joining us from houston, texas. good morning. >> guest: good morning. >> caller: thank you for taking my call. the in the complex we don't have oversight on the spending. that spending was done on the military we are spending for the -- going to healthcare and everything to bail us out and supposed to be holding the ubs bank in switzerland accountable. president was golfing with one of the people he was supposed to be holding accountable. this group is controlling a lot of what goes on. so we had accountability from this war and i think we would be able to get back online w. that problem with the torture, bring the accountability for the war and all administration and that will open the door for the other stuff and he will be able to

have this pressure off to implement some things he's trying to do. >> host: reginald, thanks. let me go to this viewer tweet. the fed will print all the money obama wants, but remember we have to pay it back. wait and see when the interest goes up. >> guest: well, that is the big risk. the debate today is are we in for deflation or inflation and what the tweet is referring to is hype inflation. so i was one of the people before the crash that thought we had excess inflation, that the fed had taken rates too low that, money supply had grown too fast and the cost of of everything had gone up too much. and when you look at -- let's talk from 2001 to 2008, we saw the price of oil go from $26 to $147. healthcare going up 18% a year. education going up 15% a year. food prices going up.

we had a huge inflationary run, which the crash and collapse flipped into deflation. right now we're in the deflationary portion of the economic cycle and that means we see stock prices have come down, even with the 52% rally off the march lows we're still 30 or 40% off the highs. we look at home prices, continuing to fall. look at a variety of factors, wages, income, on a real basis, actually negative for the past 10 years. so right now we're in a deflationary environment, that will eventually end and the question is: what is that replaced with? inflation or hyperinflation? the only thing we have as comparison, at least in the modern era, is japan from 1989 to 2003. they had a 10-year long recession. they ran deficits. they printed a ton of money. and obviously japan isn't the

united states. their culture is different, their spending habits are different, but they managed to avoid inflation over that period. they never ended up, despite the low rates and the money printing, in a real inflationary environment. so right now the fact is deflation. the forecast is possibly inflation. it really depends on how the fed pulls out of this very liquid, very stim laative monetary posture they have us in and are likely to continue having us in for the next couple years. the final word on piehyper inflation, speak to the goldbugs and people who compare us to the republic in germany in the late '20s and '30s. that is a possibility, but i think it is a lesser possibility if the fed acts responsibly and takes some of the stimulus away. that is no means or guarantee.

no such thing as a sure thing. i would say 1-4 chance we get a high level of inflation and it would require the fed to mess up a bit as they remove the stimulus. i don't have a lot of faith they will get it perfect. we're all hoping they get it closer to right than wrong. >> host: this e-mail from a viewer who says, the bailout is in progress, regardless of whether or not it was a good idea in part or total, it's here. so if you could wave a magic ju wand, what would you do and how would you do it? >> guest: that is a tough question. if you give me that magic wand, i will go back in time and stop the bailouts, but if it you are now saying from no earlier than august 25th forward, i would make it very clear somehow that these bailouts are not acceptable going forward. the companies in capital system have to live and die on their own. i would very aggressively go

after the excess bonuses that were taken by people who were driving their companies into the ground at the time. and that is everyone from the c.e.o.s of barry ritholtz and lehman brothers and a.i.g., down the line, merrill, bank of america, citigroup, the people who pockets not just tens of millions of dollars, but hundreds of millions of dollars and saddled taxpayers with trillions of dollars in debt. that money has to come back. i would make it very clear that all the various things that led to this crisis, i would reverse, so that means reinstating -- monetization act, repealing the be bear stearns exemption. making rules that prevent the fed from taking rates too low and keeping them there. look at the european central bank. they have one charge, fight inflation. in the united states, we gave

our central bank two charges, full employment and fighting inflation. often those two are at odds with each other because what is good for the economy is often bad for inflation and vice versa. so if the feds' only charge was to fight inflation, you wouldn't have seen rates below 2% for over 36 months from january 2001 to late '05. you wouldn't have seen rates at 1% for over a year. that was part of the "we want to get the economy moving again," and that is where we run into problems. so if the sole charge of the fed would become fighting inflation, we might be better off in terms of dealing with hyperinflation and the spiral that was caused by 1% rates. now recognize as soon as you do that, the next time there is recession and people are screaming, you got to cut rates to stimulate the economy, the fed will turn around and say our charge is not to stimulate the

economy tis to fight inflation and we are comfortable with rates up here. it is very much a double-edged sword. those are things i would do, go through and undo all the bad legislation that was done over the past 10 or 15 years and revitalize the idea of in a capitalist system when your company fails, you lose your job and value of your stocks and bonds based on that company and someone else will come along and try to run the company better. >> host: a comment from kathleen wright. the bush admin stragsz loved "mrauszible deniability," and wall street was drunk on the liquor the bush administration gave them, all the rules out the door. and tala is joining us. >> caller: i would like to have history on the spread and libor rate and how this affects our economy and a little history

there. if barry doesn't know the answer, would c-span do a seg oment this particular item and have someone on that can answer the question? >> guest: understand what libor is, london lending rate and the ted spread is you want to see how wide the difference between essentially u.s. rates and u.k. or european rates. i'm grossly oversimplifying it it, but let's just put it in that way. you want to see how wide that difference is between rates. the ted spread basically gives us insight into how confident people are in american fixed income markets versus overseas. it also gives us a snapshot of the general state of distress of lenders and so during the height of of the crisis a lot of the spreads and you could do when you do a spread you are looking at the difference between any two different fixed income

products. so a lot of people like to look at the difference between grade a corporate bonds and junk or the difference between u.s. treasuries and either grade a or junk and it will provide some insight as to what is the sentiment, how willing are lenders to put money at risk? how much money, meaning interest, do you have to pay them in order to get them to lend? as we saw, spreads became tremendously wide throughout the height of the crisis. it started after lehman fell and spreads have gone in dramatically, not coincidentally at the same time as spreads coming in, the stock market has rallied. that is telling you two different aspects of the capital markets are saying they're more comfortable with the amount of risk that is out wh the possibility of of default and the expectation of how well the economy is going to do going forward. neither of those markets are

perfect, they both get it wrong from time to time. it is not a coincidence that the spreads narrowed at the same time the markets rallied and same time people started to become more confident the worse is over. we're in a mild recession at this point, but the general sense is the real hair-raising free-fall tailspin, that part of the show is over. >> host: barry ritholtz, the book is "bailout nation," how greed corrupted wall street and shook the world economy. this is part of a series of conversations this month. an excerpt from the book: wall street has been a brutal mar to being rase, success is based on skills and smarts and ability to identify opportunity while simultaneously managing risk. eat what you kill is the classic wall street attitude toward risk and reward, profit and loss. so based on that, a viewer in maryland has this. as long as greed runs our economy, nothing will change on

wall street. we need to regulate the industry more tightly because they will not do what is right, only what puts the most money in their pockets. your response? >> guest: well, that is partly true. one thing you have to remember is -- and in the book i lam blast a lot. i don't by any stretch of of the imagination, exxonor rate wall street. the companies had run a muck and need to be held accountable. we paint with too broad a brush and forget something, the vast majority of people working on wall street had nothing whatsoever to do with this. with the crisis, with the collapse, with everything across the line, probably the wildest example of that is if you look at a.i.g. at their peak, they had something like 115,000 employees and the division that caused all the trouble was

a.i.g. financial products, essentially unregulated hedge fund hidden beneath the skirts of well regulated insurance company and so out of 100,000 plus employee firm, four people causeded the mayhem that brought a.i.g. down. same is true with bear stearns lehman brothers. the vast majority of people working in the firms had nothing to do with the recklessness that led to the firms going belly-up. most of wall street is looked at, and motivated by money. they do what they do, it is a stressful job. it is not easy. a lot of these guys end up having ulcers and coronary problems. it is a very tough job for which they're extremely well comp s t compensat

compensated, but these aren't the people that cause the problem. look at each of the major wall street firms, i think lehman brothers at peek had 26,000 employees. it is less than a thousand people responsible for what went -- what was the problem. i'm in favor of more aggressive regulation. i think when we talk about regulation, what we are talking about is moderating the behavior of the worst element necessary a firm and making sure there is a bright line and people know how far they can go and not further. what i've been calling in the book radicalness that took place over the last 20 or 30 years led to that bright line becoming fuzzier and fuzzier until it was just a gray...well, that is less desirable zone. so as opposed to a bright line, there was a gray area and people venture into it and through it and now it it is the other side. so you ended up with a lack of guidance, a lack of understanding of what was

acceptable, even within the confines of of wall street. and understand wall street is a profit and loss driven place. if you do well you get promoted. if you don't do well, you fail out pretty quickly. it is a darwinnian society. that doesn't mean you have to risk the entire economy and your company doing all you can do. if you think about it, for the past 50 years since we put the rules in if place after the great depression, wall street more or less operated fairly well without threatening the economy. every now and then a company would do something stupid. remember what happened out in california? it ended up being bankrupted and we had the analyst scandal in 2000 and the dot-com collapse. a lot of things are foolish, but they don't threaten the global economy. i think the caller's suggestion we regulate some of the behavior

is not a bad idea. you need a bright line. people need to know how far they can go and not a step farther. >> host: the book dedicated to wendy, who bailed me out of a few jams. do you want to elaborate? >> guest: sure, that is my wife. she's one of the people who early in my career, you know, i was educateded as a lawyer. found when you become a lawyer, you're basically surrounded by other attorneys and trust me, that's no fun. so i had always been interested in the stock market as a kid growing up. my mother was a real estate agent and is played the market and this was dinner table conversation. so i had done some work for a friend who was running a firm. i ended up starting as a trader with him and eventually worked my way into the research half of wall street. but that was a long transition and very often i would stop and say, what am i doing? i could have an easy life as a

lawyer. why am i involved in this craziness and my wife kept me going. that is why the book was dedicated to her. >> host: the book is called "bailout nation." he is's graduate of nyu. howard is joining us from columb columbus, ohio. welcome to the program. >> guest: thank you. this is boo my 500th episode of c-span. i appreciate mr. ritholtz, he seems to be an executive guest. i'm curious, if barack obama does what he says he's going to as far as reducing healthcare, the price of healthcare, ending the iraq war, cutting back the bush tax cuts, would that help stimulate the economy eventually considering that he hasn't used even half the stimulus money?

if he was to do what he says he would do when he was campaigning, shouldn't that help our economy? with that, i'll just let it go. >> guest: you know, one thing i find fascinating, when you ask most economists something like that, you usually get a very xyz, here is what is going to happen. i have to tell you, i have no idea what is going to happen. the bush tax cuts are scheduled to sunset next year. when you look at how the economy did pre-tax cuts in the '90s, they seemed to do fine, so i don't think they'll be the be all and end all. a lot of economists have said once the tax cuts end, the economy will grind to a halt. most of those people are telling you what the politics are, not what the economics are. the war has been unbelievably costly. if you want to make the argument that the war in iraq was a war of of choice as opposed to the war in afghanistan, which is

where the 9/11 attacks came from, you're not going to get an argument from me. i think we've spent about a trillion dollars in iraq. quite frankly, there are better things that could be done with a trillion dollars than losing 5000 soldiers and causing that situation in iraq to be so unstable. on the other hand, i don't know what is going to happen with the healthcare policy. there is no doubt in my mind as the country, we spend more per person and get less from our healthcare system than any other industrialized country in the world. so the system is right for a change. quite frankly, i would love to get rid of the absurd advertisements for various drugs. we're the only westernized country that has drug companies advertising. that should be a decision that a medical doctor makes, not something that you're basically advertising to the public.

the public is not capable of necessarily making an informed decision based on an ad on some of the complex medications and medical conditions. all that said, i think the cure for what ails the united states more than anything else is time. it's going to take time to work through the mass amount of foreclosures we're dealing with, for home prices to revert back to normal levels. even at these low rates home prices are above their historical metrics relative to income, relative to renting and relative to overall g.d.p. when you look at the massive amount of debt taken on by both the government and by consumers, consumers completely leveraged up in the '90s and 2000 and spent money they didn't have. right now we're dealing with the deleveraging of that, that will take a couple years to work through and eventually things will get better. what the government can do around the margins is lay the

groundwork for the private sector to create jobs, to create businesses, to go forward without getting too much in the way. the healthcare question is the one that i find most intriguing. i'm not a healthcare analyst, it's not an area i cover remotely. i just continue to wonder why we spend as much as we do and relative to other nations, get so little. if you have unlimit resources, you can get fantastic healthcare coverage in the united states, but you have to be willing to write a big fat check. for most you may not have access to the top medical options. then you are fighting your insurance company to get whatever you need done and it is a whole crazy universe. my own experience with a torn rotator cuff, i used to pitch in high school, just unbelievable insurance nightmare to deal with.

so i'm biassed, i'm not objective and probably not the right person to ask about healthcare. the bottom line is as we look forward five years we'll eventually work our way out of this. the united states always has and i'm confident we will again. >> host: our guest has his own blog, a link available to c-span.org, his financial blog is called the big picture. from the book, lockheed bailouts led to the chrysler bailout in 1980, the chrysler bailout kickd that can further down the road and by 2008, g.m., chrysler and ford were in shambles and allowed toyota to become the largest automaker. had the chrysler bailout not occurred in 1979, it is very likely the detroit automakers would look quite differently than they currently do. sherry is joining us from texas. good morning to you. >> caller: thank you very much. the united states has a

legalized bribe system where lobbyists give all the campaign money to congress. tom delay paid his wife a half million a year. he paid his daughter $100 ,000 year salary. the discretion aary cost from t funds is -- when we look at stimulus, look at the bailout, shouldn't we be highly suspicious of plunder? >> guest: absolutely. in fact, when we look at every company that's gotten a bailout, it's not just small companies or mid-sized companies. it's the companies large enough to have a very effective and costly lobbying effort. it's companies that are very well connected politically that have been making donations and in fact if you look at each of the major bailouts they seem to take place around a presidential

election. lockheed in '71 and '72, presidential election. chrysler in '79 and '80 and 2008, obviously those bailouts that took place before november, another presidential election. these things don't take place in a vacuum and in fact in the middle of the crisis it was either january or february, senator dick durbin was complaining about the banking lobbyists running around capitol hill. i'm paraphrasing, but he said, we are in the middle of a crisis and the guys are running around like they own the place. it makes them very, very unconfident that we're going to see any major form of regulatory reform take place. whatever is going to get through will be a compromise and we'll be back to business as usual before you know it it. and i think there's a lot of truth to that. >> host: we welcome kevin joining us on the republican line from tampa, florida. good morning.

>> caller: hi. i would just like to ask a general question to you. i always hear economists on, you know, whether they are from the left or the right, talking about how the federal reserve set the interest rate too high or too low and that is the cause of our problem right now. i mean, what would your opinion be on retaining, just having a free-market interest rate that wasn't manipulated and allowed everything to coordinate? >> guest: well, remember, we actually have that right now. the bond market sets the long-term interest rate. all the fed can do is set the shorter-term interest rates. the fed fund rate is is not the same as 10 or 30-year yield. obviously all the other bonds follow that. but here is is the problem and we've had a number of people say, you know, if if we could get rid of of the fed all these problems go away. go back to the crisis that took place after the 1906 earthquakes and the fires. what happened is most of the

insurance for san francisco was written out of london. the cost back then was staggering, the equivalent of billions of dollars in actual money. london found themselves shipping all this cash and gold to the united states to make good on those insurance payments. it became a problem because they started running into not sufficient capital in the u.k. when that was taking place. so the bank of england came up with a simple solution. they raised interest rates and said if you lend the bank of england money or put capital with us, we will pay you 6% and everybody else was paying 3% or maybe 5.5%. all this cash flooded into the u.k. and filled the hole they had from having paid out that money to san francisco. that is the risk of if every country agreed to get rid of the central bank, that would be one thing, but it is almost like

nuclear disarmorment. if you get rid of of the central bank and let the bond market set prices, what will end up happening, instead of looking to federal reserve for leadership, it will look to the bank of england and the european central bank for leadership and they'll set rates to the benefit of their nation as opposed to ours. so you almost need a federal reserve just as a defense against other federal reserves. it's hard to imagine a system where there isn't a central bank operating in a major country like the united states, but japan and england and the e. u. and china all have central bankers operating. i think it would put us at tremendous competitive disadvantage. >> your colleague at nyu, albani, who wrote "praising your work," had a piece in the financial times getting a fair amount of attention. he is talking about higher

prices and has this conclusion frchlt yesterday's financial times, the recovery is likely to be anemic and below trend in advanced economy and there is a big risk of a double-dip recession. your comment? >> guest: in the stearn school of business, he's been very right on this crisis for quite a while. and one of of the things that we're doing and again this comes back to noey free lunch, you have to pay the piper. a lot of the stimulus programs that are in effect, look at the cash for clunkers as an example. they're not causing new economic activity. at least not completely. what they're really doing is pulling forward from the future activity that would have happened anyway, but instead of happening in the first half of 20t 2010, it's happening in 2009. of the cash for clunkers, 3 billion that was spent as of yesterday, my best guess is that

two-thirds of it was cars that would have been bought eventually, we are just buying them now. perhaps some people were motivated on the margin to turn in a clunker, the $4500 made the difference to buying a new car. look what we are doing with the $8000 new home tax credit for first-time buyers. along with the voluntary mora r moratori moratoriums on foreclosures, you are not stopping foreclosures, you are not selling more houses. you are just putting people into them a little earlier. instead of saving and building up that extra $8000, which the tax credit gives them, the government is giving it it to you. you are pulling it it forward a couple months. that is the risk of what nurreal calleded the w, the double dip. what we normally get on a normal healthy recession recovery is a gradual improvement and then it starts to go up and now what we're doing is a short

improvement and then when the stimulus fades, you slide right back down to where you were. i'm a believer that the great recession is over. it started at the top in december 2007 and it probably ended around march 2009. but now when you look at things like industrial production and retail spending and employment and wages, we're in a run of the mill recession and we still are dealing with the hangover from the great recession. so i think it is going to take us a good couple years before it it feels like a healthy recovery. we'll probably be in full-on recovery sometime in 2010, but it is not going to feel great. we will not see plus 500,000 jobs or retail sales going up 15 or 20%. the u.s. consumer is pretty spent out. they're working off excess leverage and if we go back and look at the great depregsz as an example, after an event like this, you tend to see a change

in sentiment in how consumers behave. what i call sports shopping or some people call retail therapy, that's not going to come back any time soon. i think people are going to be more cautious and more concerned about their jobs, more concerned about having a little nest egg, saving some is cash for a rainy day and that's going to, you know, impact the entire economic system. so i think nureal is right, we'll see a real possibility of a double-dip recession and again, the cure for what ails us is going to be time. it will take a few years to work out the excess leverage, excess debt before we start a normal healthy recovery. >> host: the comment from lynette, sends this tweet. this country will not recover until we have jobs. dennis from north miami beach, florida. good morning, dennis. >> caller: yes, thanks for taking my call.

i have two short questions. >> host: we'll take one at a time. >> caller: okay. the first one is this is a repeat, large repeat of the s&l bomb that fell on the united states in 1998 and 1999. we cleaned that up real fast. we didn't give people money. we put people in jail. why isn't this taken care of the same way? >> host: we'll come back with the follow-up. >> guest: that's a really good question. the s&l crisis was different in a number of ways. first, we were just starting the process of deregulating banks, but hadn't completely deregulated them. there was little in the way of oversight of s&l's. a lot of them made bad loans to friends, to family, to other companies. there was a real element of

willful corruption to begin with and remember the depository banks are covered by fdic insurance. with s&l we had to set up separate sl d-insurance to cover it it. the beginning part was an insurance payment, but it was about $185 billion and that is in 1980 dollars, not in modern dollars. and that was essentially an insurance shortfall that the taxpayer had to make up. so in some ways there was some similarities, there was recklessness, krupgcorruption, of irresponsibility, but it was different. the bailout there was not so much a bailout as an insurance payment. we had basically guaranteed the depositors if you put your money with banks that the government ensures your money will be safe. even if the bank fails we'll

recover you. look who has been bailed out today. a.i.g. is not covered by fdic insurance, bear stearns, goldman, merrill. look at bank of america and citigroup, we didn't make good on the losses of the deposits, we made good on the investment banking side, the derivative and the bet they made, not the loans they had made in general. if if you look at where most of of the bad lending took place it was not necessarily the banks, but it it was the nonbank lenders, a lot of of them located in southern california. if you go to mlimplode.com, we have over 350 of these banks have already gone bellyup. nobody is bailing them out because there were no deposits, they weren't really banks. they start with a pool of money, lend it and as soon as it is gone they sell mortgages and start all over. those guys have gone bellyup. it is a different set of factors

that led to this. you have the ultralow rates from the fed, the giant housing spiral, you have all of the deregulations of commodities and just a tremendous amount of leverage in the system. all those factors led to a -- you know, not a perfect storm, it was inevitable this happened, but they led to a point we call it it a singularity where it all blew up and hit at once. i look at that differently than the government making good on their promise to depositors if approximate your bank goes bellyup, we'll cover the insurance and we'll make sure that you're doing the right thing, you are saving money in a savings account, we want to make sure people don't go back to hiding it under their mattress. that is guaranteed. different background. >> host: back to miami beach for the follow-up. >> caller: the follow-up is what happened to rating agency? they were given triple a ratings on these. why aren't they accountable?

thank you very much. >> guest: you are 100% right. they are amongst the worst offenders out there. in the book i quote columbia professor, joseph stiglet, and stiglet won the nobel prize, two nobel prizes. he said, the rating agencies were the prime enabler of the problem, but without that, none of this would have happened. let me give you a specific people don't realize, we have junkie mortgages, which are sold to wall street, who then takes them and turns it into a derivative, turns it it into something once removed. cmo's collateralized mortgage obligations, which they then sell in trauyches. 95% of them have as part of

charters and is rules, they are only allowed to buy investment-grade paper. these are the foundations, the trusts, the big pension funds. a number of mutual funds and number of bond funds. all the buyers of this paper, which is based on junkie mortgages, sub-prime mortgages, poorly written mortgages, their rules say you can only buy investment grade. no double b or c, has to be a rated or better. in order for 95% of the stuff to be sold, the rating agencies had had to slap a triple a on it. in the old days, going back to the 1970s, when the sec gave the rating agencies a special recognition for their purpose in the financial landscape, they were paid by the bond buyers. in other words, if you were a bond fund and wanted to know more about the bonds, you would pay the rating agencies and get

their research. that changed over the past decade and leading right up to this crisis, instead of the buyers paying the rating agencies, the investment banks paid the rating agencies. and not just a little, but tens of billions of dollars. look at their sales, they went like this and so did profits and bonuses. you end up with a situation where the people who are writing the checks are also saying, i need a double a or triple a on this paper. it is absolutely corrupt. there is no reason why the rating agencies shouldn't be put through the same terminal execution that arthur anderson did with enron. they are more at fault than arthur anderson was. it is criminal they are allowed to continue in this form. i think what should happen is we remove their special status, we open up ratings to competition. there are lots of small companies out there that do this

and you also find yourself in a situation that all the special protection they get, it's absolutely unacceptable. we should completely strip them of the benefits they had because they clearly can't handle it and lastly, investment banks shouldn't pay rating agencies for ratings. i call it pay for play in the book and payolah, it should be strictly purchaseded on the bond buyers side and that will prevent the same situation from ever happening again. >> host: "bailout nation," the guest is barry ritholtz. in another book, -- you have criticized regulators and she does, too, but innovators will seemingly inevitably find ways around regulation.

we have richard on the phone from houston. we'll go to him next. good morning, richard. >> caller: good morning, thank you to c-span. i will definitely buy the book and i have two questions for barry, please. first of all, you mentioned that you would go after the executives who had big compensation packages. can we really do that if the executives acted within the law? second question is you had mentioned that many of these companies use chrysler as an example and you mentioned a.i.g., should go bankrupt. what would have happened to the employees of the company fist those bankruptcys occurred? thank you so much. great program. >> guest: two good questions. ken feinberg is now the pay-czar and the basis for this claw back, i'm not suggesting the government operate outside the law, the legal basis of the claw

back is fraud. if if you are making representations to your board of directors, your shareholders and claiming that you're earning a certain amount of profit, but the reality is that profit is a phantom because at the same time you're taking so much risk that it is inevitable that that profit will go away, that is his basis and i think that is a valid approach. essentially the losses over the past two years have wiped out 10 years of profit. so go back over that past 10-year period and you're looking at any profits that were based, any bonuses, stock options, etcetera based on the profits and that will be the basis of his proceeding. i assume he will threaten litigation and then settle for $.50 on the dollar. if you are sam o'neal and have millions you may be kicking back

millions. he was the c.e.o. of merrill and a few before him. the second question, refresh my recollecti recollection, what was the second question beyond the pay? >> caller: actually it it leads to something you write in the book, which is how this whole process works. you wrote the cliche no one should see how sausage logs are made is true when it comes to bailouts. the amounts involved are especially egregious. >> guest: no doubt. you end up with bailout companies are often or always politically connected. they have given a lot of money in campaign donations. they dump a lot of money into lobbyists and so the whole idea of a democracy formed by the people becomes a plutocracy formed by the wealthy interests and that is not how the system should work. the other question someone had asked about was: aren't

innovators always going to work their way around regulation? the answer is for most of history, the answer is no. it is only when we basically drop the recognition that regulation is necessary and tell people don't worry about it it it, the free market will cover it, we don't need real regulation, i think we created a culture that ignored the idea there is a rule of law and things that you are allowed to do and things you aren't. if you draw a bright line and say, you know what, you are not allowed to take loans from your clients and use that to buy speculative investments, then people won't take loans from their clients. there is a dozen examples of what was done that could have been easily precluded with a simple law. are there people around the margin that will come up with clever ways to test it? yes. but look at the sec, they are the biggest law firm in the country and for the past 10 years we've cut their