Abby Joseph Cohen, to you first. What happened last week?
ABBY JOSEPH COHEN, Goldman, Sachs and Company: Last week, Bob, I think was the ugly mirror image of what we saw in early 2000. At that time, investors wanted to buy stocks regardless of price, and now they seem to want to sell them regardless of price.
And in the background is an economy which is growing, labor markets which are stabilizing, and inflation which is under very good control.
SCHIEFFER: So, as you describe it, those would be good conditions to buy stocks.
So, Allen Sinai, why are people wanting to sell rather than to buy?
ALLEN SINAI, Chief Global Economist, Decision Economics Inc.: You know, Bob, it's a look ahead, it's all the risks in the future, ranging from geopolitical risks to corporate troubles to an economy that, as we look ahead, has a lot of risk for the consumer and to housing - -areas that have been strong for a long time that are probably going to give way because of the worst stock market decline since the 1930s.
And it all rolls into a word called valuation. The valuations in light of these risks -- and I emphasize risks, because risks don't always become reality -- evaluations are simply too high. And they are getting real now, investors are getting real in terms of how they value. They want bargains.
GLORIA BORGER, U.S. News & World Report: Abby, so how would you advise the nervous investor right now? They want to know, should they buy, should they hold, should they sell their stock?
COHEN: I can't give advice to all of the different investors out there, but would I say that I think that stock prices are today priced too cheaply. Even recognizing that there are the risks that Allen mentioned, I think a good deal of that is already priced into the market. And over the next period of time, I think that the direction for stock prices is higher, not lower.
Let me point out, though, that pendulums swing too far in either direction.
Stocks went too high in early 2000. At that time we suggested to our clients to sell stocks, and we were especially cautious on technology and telecommunications.
Today, I think that the pendulum has swung too far in the opposite direction. Doesn't mean it can't go a little bit further, but over a long period of time, I think stock prices are moving higher, not lower.
BORGER: So, Allen, do you think we've reached rock bottom here?
SINAI: You know, we might get some relief at some point. After going down 14.5 percent in two weeks, there almost has to be a bounce somewhere.
But fundamentally on the expectations on the economy and earnings, interest rates, and new lower evaluations, we still have significant downside risk to our equity markets, even from these levels, I'm sorry to report another eight or 10 percent possibly down before we could bottom out and then move up.
And the problem is that what held the economy up is now under great scrutiny. The stock market collapse. This is a collapse, a big asset collapse that may not be over yet. It's going to do damage to consumption and housing. That will slow the economy down more. It could create another recession. And that, in turn, is going to disappoint everyone on profits. We don't have a lot we can do with policy to combat that, if it happens.
SCHIEFFER: Well, let me ask you this. If, as Abby says, you know, you have consumer spending is still good, inflation is down, she sees a lot of value in these stocks still, what is it that is bothering people? Is it the scandals that we've been hearing about? Is everybody afraid to get stuck with a WorldCom or an Enron? What is it that is causing investors to be so cautious and wanting to get out of the market right now?
SINAI: You know, it's a whole bunch of things, Bob, including what you said. Back of it, at least for me in my opinion, is the geopolitical risk of terrorism and Iraq and Israel and a risk parameter that we don't really control fully that takes down evaluations.
Second, it is the corporate scandals and the ability--and whether we can trust corporate America. And this is a global phenomenon. You have to remember there are investors outside the U.S., who, by the way, are moving their money out of the U.S. now. You can see it in the dollar.
And when they look at this wonderful economy and this wonderful corporate model that was the gold standard of the world in the '90s, they have real questions about the veracity of our numbers. They don't trust our numbers. We've got to get through that.
And then you have the risk to the economy, and then you have a tremendous shift in investor sentiment and taste. Look, they've lost money for many almost three years now. They've lost huge sums of money from where they were. Stocks are out of favor.
SCHIEFFER: All right, Abby, what's your response to -- add on to that.
COHEN: Well, there are a number of points to be made.
First of all, we are close to the end, not the beginning, of the corporate revelations. Clearly, every instance of fraud is dreadful, and there is absolutely no excuse for it. But most of corporate America has spent the last two or three quarters making dramatic adjustments already in their accounting. And we think, in the second half of the year, these numbers are going to be very, very clean.
Also keep in mind that we have a very different approach to these problems than do many other nations. In Japan, for example, for 10 years, a lot of the problems were swept under the rug as it related to corporate earnings and so on. That's not happening here. We are seeing a very dramatic and quick adjustment here, and I think that's good news.
I also think the SEC deserves some credit for having imposed that August 14th deadline, by which time CEOs and CFOs of large corporations have to put their own name on the line as to the veracity of those corporate results. I think that's good news because investors want accountability on the part of corporate managements, and I think we're going to get it.
The movement that we're seeing now, in terms of Congress, the SEC and so on really looking very closely at a number of these issues, I think, is very important, because what we do need to do is to restore credibility in the veracity of the numbers, but also in the integrity of our leaders.
BORGER: I'd like to ask both of you very quickly, starting with Allen, does Wall Street have confidence in this president's economic team?
SINAI: Well, I'll speak for myself. I think the policies of the Federal Reserve and of the Bush administration on easing money quickly and the tax cuts, I think those were the appropriate macroeconomic policies at the time.
We are dealing with asset deflation, the breaking of some bubbles, and the overvaluations, and there may be very little that macro policy can do, and there may be very little that anybody should do, other than to look closely at the situation, look for all the possible options to shore up confidence.
But we may just have to live with this. We will bottom out. We will go up.
Abby is absolutely right. The long-run fundamentals and prospects for the U.S. economy are the best in the world. We're going to have to get through, I think, some just choppy, rough -- still a lot of wood to chop here before we can get going.
SCHIEFFER: All right, Abby Joseph Cohen, what do you think, bottom line, that the administration has it about right now, they need to be doing more, they need to be doing less?
COHEN: I think it's important that all politicians keep their hands off of the technical details, including accounting. But I think it is right to demand accountability on the part of our corporate leaders.
One final point, if I may. Our economy has gone through enormous shocks over the last couple of years -- September 11th, all of these corporate scandals and so on. The fact that we have had GDP growth of 6 percent in the first quarter of this year and probably 2 or 3 percent in the second quarter, with the employment situation getting better, not worse, I think is a very important testament to the flexibility of this economy and the structural soundness of it.
Do we have short-term issues? Of course we do. I think they're already fully priced into the stock market.
SCHIEFFER: OK. Well, I want to thank both of you very much. You make me feel a little better anyway.
In a minute, we're going to talk some more about this with some politicians.
We're also going to talk about prescription drugs. We'll talk to John Edwards and Don Nickles when we come back.
SCHIEFFER: And with is now from Atlanta, Georgia, this morning, Senator John Edwards of North Carolina. Here in the studio with us, Senate Republican leader Don Nickles.
Senator Nickles, let me just start with you. You heard what these two experts said. Do you think the Bush economic team needs to be doing more here?
SEN. DON NICKLES, R-0K: I think we have a good team. As Mr. Sinai mentioned, they've expanded money supply with the Fed probably at the appropriate time. We cut taxes, I think that's been a very positive thing. Chairman Greenspan mentioned that.
Congress needs to do some more. Congress needs to pass a budget. We haven't done that yet. Congress needs to be responsible in its fiscal policies. We also need to pass trade promotion authority, which Chairman Greenspan also asked to do and the Bush administration has asked to us do. So Congress is lagging behind, but hopefully we'll get those things done.
I'm disappointed; it doesn't look like we're going to get a budget this year. Democrats have not done it. It's the first time in about -- since 1974 we haven't passed a budget, and that's very regrettable.
SCHIEFFER: Well, now what you didn't mention is that tough new law cracking down on accountants and putting in new regulations and so forth that was just passed by the Senate unanimously, and now it's in the conference committee. Is that a priority to get that passed, and is that going to help the market?
NICKLES: I don't think it will help the market.
NICKLES: No. I do think we need corporate accountability. We need to have greater penalties for those people who really abuse positions of power, which I believe are very much in the minority. So we need maybe -- and greater accountability standards and oversight board.
I think the Senate bill went a little too far. It said you can only have two accountants on the board. For an oversight board for accounting, to me, you should have real experts on it.
But I'm confident between the House and Senate, the House passed a good bill, we passed a decent bill in the Senate. Let's merge the two, and hopefully we'll get a good bill out.
But I don't think that's going to rescue the market. When we pass a bill, I don't think you're going to see a big surge in the Dow Jones.
SCHIEFFER: What would be your response to that, Senator Edwards? Do you think that will help?
SEN. JOHN EDWARDS, D-NC: Well, I think actually, Bob, people have lost confidence, particularly regular folks like the people I grew up with in a small town in North Carolina. And I think what they think is the CEOs of corporate America seem to be doing fine while they're not doing very well.
And I do think they worry some about whether this president and his administration see things through the eyes of CEOs. I think they want to see action, not just speeches and words.
I think in at least a couple of areas, you mentioned corporate responsibility. The president has not yet embraced the strong corporate reforms on accounting and conflicts of interests and conflicts of interests within brokerage houses. Strong regulatory oversight of the accounting industry and more money for the SEC that we passed in the Senate, the president's not embraced.
The president, as you know, ran on a theory of bringing integrity to the White House, and there are issues about Harken and Halliburton with him and the vice president. They ought to be open about that. He's got an opportunity, I think, here to prove that he meant what he said about integrity and openness and sunshine.
BORGER: Well, Senator...
EDWARDS: I do think -- if I could say one other thing, Gloria, I do think there is an issue about the economic leadership team. I think there is a general lack of confidence in this team, as opposed, for example, to his foreign policy team or as opposed to Bob Rubin and Larry Summers.
And the third and, I think, critical component of this, that the government can do something about is we've gone from a projected surplus in January of 2001, $5.6 trillion -- we've lost over $5 trillion of that. And I think we have to get back on the path to fiscal discipline, because that's what works. We need to have spending caps that we enforce. We need to have pay-as-you-go rules that we follow.
And we also, in order to make this work, we're going to have to do something about the tax cut that's scheduled to come into place in 2004 for the 1 percent of the richest Americans because it is the only way...
SCHIEFFER: Senator, can I just -- if we could just hold kind of hold those answers to be a little more concise.
EDWARDS: Sure, absolutely.
BORGER: Well, Senator, it seems to me that Senator Edwards is saying that the vice president, first of all, ought to come out and talk about what went on at Halliburton, which is now being investigated by the SEC. Do you think that should occur?
NICKLES: No, I think that's ridiculous. I think what happens is you have a lot of Democrats, about half the Senate, running for president and a lot of people are trying to play politics and they're trying to gang up.
And as a matter of fact, if you read Roll Call, the little local, said, you know, Congressman Gephardt was saying, "Hey, this is our chance now. We can gain 40 seats if we really exploit the corporate turmoil and really try and tar and feather President Bush and Vice President Cheney." And I think there's nothing -- I just think it's ridiculous. I think they're playing politics.
Instead of doing that, I heard Senator Edwards say we need to show fiscal discipline. We need to pass a budget. Democrats are running the Senate and they haven't even put the budget on the floor of the Senate. They said we need fiscal discipline and they're introducing a prescription drugs bill that's twice as expensive as the one we had last year -- that was in last year's budget and is hundreds of billions -- no one knows how much it's going to cost. It hasn't been scored, and yet Senator Daschle is saying, "Oh, we want to have this on the floor." Hadn't even had a hearing, wouldn't even allow it to be marked up in committee.
So, you know, to hear people say, "Oh, we need fiscal discipline" and not to even have a budget on the floor, oh, but we want to investigate some stock transaction that happened 10 years ago that was already investigated and cleared sounds a lot more political to me than real positive economic theory.
SCHIEFFER: Senator Edwards, we'll let you respond to that, briefly if you would, and then I want to get to these prescription drugs.
EDWARDS: Sure. I hope we get a chance to talk about that, Bob.
The response is that this is not political. This is a chance to look at the future, to do what needs to be done to restore confidence in the market.
We can do that by doing something about corporate responsibility, which we just talked about. We can do that by getting the federal budget back in a disciplined state, which it is not right now.
And I think those two things are things that government can do. There are some things, world events, what's happening in the market; that we can't do anything about. But those are two areas that we have some responsibility for, the president has some responsibility for.
And in the area of corporate responsibility and in the area budget discipline and operating the federal government in a responsible way, we can do something about that.
SCHIEFFER: All right. Let's talk a little bit about what we invited you here for, and that is to talk about prescription drugs. We've gotten ourself in a situation in this country where American citizens can drive over to Canada and buy American drugs and buy them at a fraction of the cost that they could buy those drugs in their own country. So that's the situation we're in.
The Senate is now locked in debate over various kinds of bills to help senior citizens get prescription drugs.
Senator Nickles, do you think, in the end, that -- as I understand it, nobody has the votes to pass any of the plans now being considered. Do you think this Senate, this Congress is going to wind up doing absolutely nothing on prescription drugs? Because that's what a lot of people say is going to happen in the end.
NICKLES: Well, I'm afraid that might happen. I hope not. I hope that we can pass something. But unfortunately, Senator Daschle is changing the order in the Senate. Usually, if you're going to take up a major bill like this, it goes through the appropriate committee -- in this case, the Finance Committee -- and the Finance Committee would mark something up and put it on the floor.
We actually had the votes, I believe, to pass a pretty good bipartisan -- actually tripartisan, because Senator Jeffords supports it, as well -- a pretty good proposal, put it on the floor of the Senate. Senator Daschle didn't allow us to do that, Senator Baucus.
We couldn't have a markup. We tried to have a markup. We've requested a markup. We haven't even had a hearing on the major proposals. Instead, he said, oh, no, we're going to having it on the floor of the Senate, knowing that probably neither -- or probably maybe no proposal has the 60 votes. The two major proposals, both of which a budget point of order lie against, so it's not likely those would happen.
If and when -- if that does happen, and I think the one that the Democrats, which, incidentally, they've rewritten in the last three days, very expensive, is not a permanent program and it very much limits a -- government-run program, frankly, that limits people's choices in drug. It's a terrible bill, in my opinion.
Once that's defeated, this tripartisan proposal, I think maybe is one our better chances. If we can't get that done, hopefully we can come up with something that gives seniors at least a prescription benefit that I think they deserve.
SCHIEFFER: Senator Edwards?
EDWARDS: Well, I think we need to think about this in the big picture, Bob. First, we need a real and meaningful prescription drug benefit for all those folks out there who need it. But we need to bring the cost of prescription drugs down, so that we can, in fact, afford to have a meaningful prescription drug benefit.
And at the same time, we have to find a way to pay for whatever prescription drug benefit we pass, which is this whole issue of fiscal discipline that we've already talked about.
So back to the issue of what we might be able to do. We actually have a bill on the floor right now, which I think we can pass, that stops the filing of frivolous patents, allows generics to get into the marketplace and compete and bring the cost of prescription drugs down.
We have an amendment that passed -- you mentioned cheaper drug prices in Canada and people having to go to into Canada -- that allows those drugs to be brought into the United States, in a safe fashion, approved by the FDA, and that'll help bring the cost of prescription drugs down.
And the third thing we're doing to help bring the cost down is we're saying -- we have an amendment that's already passed that says states, if they choose, can allow people who don't have health insurance to buy prescription drugs at the same price that folks who have health insurance or in the Medicaid program can buy them for.
EDWARDS: But I think, at the end of the day, those will make an enormous difference in the cost of prescription drugs. And like Don, I'm hopeful that we can bridge the gaps that we have between the Democratic and Republican plan so that we can get a benefit package passed too.
BORGER: Senator Nickles, though, some Republicans are saying that the Democrats really want an issue, they don't want a bill, they want an issue they can take to the voters this November in the election. Where do you come out on that?
NICKLES: I'm afraid that's true, because I think if Senator Daschle really wanted a bill, he would have said, "Finance Committee, report out a bill and we'll take it to the floor." That gives the bill great momentum. And he was afraid that we would report out a bill that wouldn't be his bill. And so, therefore, basically prohibited the Finance Committee from marketing up a bill.
That's almost unprecedented. Every major bill that we've had dealing with Medicare in the last 20 some years has been always been bipartisan and usually passes overwhelmingly.
In this case we had bipartisan support, Senator Breaux, Senator Jeffords and Senator Snowe have done great work in committee with Senator Grassley and had maybe the momentum to get it done, and basically they were told not to mark it up.
SCHIEFFER: Senator Nickles, in very, very general terms, what the Democrats want to do is simply make drugs part of Medicare, a benefit of Medicare. What Republicans generally want to do is, as I understand it, is subsidize the drug companies and, in that way, bring the cost of these drugs down. Now, there are a lot of other details, I understand that.
But what's wrong with just making it a part of Medicare?
NICKLES: Well, what their proposal is is a lot worse than your description. Their proposal is we're going to have a government-financed system, government system. And if you buy this drug, you pay $10. If you buy this drug, maybe you pay $40. If you buy any other drug, it's all on you. That's a big change in their original proposal.
The cost of drugs will skyrocket, and the cost to the federal government will skyrocket. And then they come up with a program that says, "Oh, we know it's going to cost too much so we'll just sunset it. We'll stop it after five or six years." That's absurd.
SCHIEFFER: OK, I'll give you 20 seconds, Senator Edwards. What's wrong with the Republican approach?
EDWARDS: Well, there are two things wrong with it. First, it leaves the coverage in the hands of insurance companies, who said themselves that this won't work, because they're going to go to the places that's most profitable, so it's undependable.
The second thing is it leaves a big gap. People who have to pay $400 a month for their medicine, there are going to be three or four months a year where they're paying premiums and have no coverage at all. Those are the problems we need to deal with and bridge the gap on.
SCHIEFFER: All right. Well, I want to wish both of you the best of luck in coming up with something.
We'll be back in a moment with a final word.
Thanks, both of you.
SCHIEFFER: Finally today, here is what I was wondering Friday as I watched the stock market tumble: Whatever happened to old-fashioned businesses, companies that thrive because they turned out the best products or provided the best service?
WorldCom made a lot of money for a while there. It gobbled up telephone companies, and that was supposed to be good for everybody, but was it? Was it easier to get a phone installed or repaired, or even get the phone disconnected? Of course not.
But that didn't matter, because WorldCom was focusing on keeping the price of their stock climbing. Then the bottom fell out.
A lot of people made a lot of money when Time Warner and AOL merged. But if that merger made their products better, I missed it. And maybe it wasn't so good for business after all.
Has the mania to make businesses bigger made airline service better, or anything else?
Yes, we do need tougher laws to stop the kind of shenanigans that went on at Enron and WorldCom. But our real problems began when we changed our minds about what made a good business. As more and more Americans invested in the stock market, a good business was defined by only one thing: the bottom line. That required a different kind of executive, and American businesses got some real lulus.
We won't get this straightened out until we remember what we used to know, that the price of the stock will take care of itself if a company makes a good product. As I remember it, that used to work.
And that's it for us. We'll see you right here next week on Face the Nation.