FTN - 7/28/02

BOB SCHIEFFER, Chief Washington Correspondent: Today on Face the Nation, Treasury Secretary Paul O'Neill on the state of the economy and the troubles on Wall Street. What will it take to restore investor confidence in the stock market? Will the bear market drag the economy into recession?

Until now, Treasury Secretary Paul O'Neill hasn't said much, but he's here today, and we'll ask him.

Then we'll turn to that legislation to create a Department of Homeland Security. The president wanted it, but now he's threatening to veto the version being considered in the Senate.

What happens next? We'll talk about it with Democratic Senator Joe Lieberman and Republican Fred Thompson.

I'll have a final word on the new version of arms control madness. But first, Treasury Secretary Paul O'Neill on Face the Nation.

And good morning again. If you are just turning on your television set this morning, we start today with some very good news. All nine of those miners who were trapped in Pennsylvania are alive and they are safe.

They were rescued overnight, after being trapped 244 feet underground since last Wednesday. The rescue team drilled a shaft and reached the area where they were trapped last night, then lowered a rescue capsule and brought them out, one by one. One of them complained of chest pains, but otherwise, they all appear to be OK.

So after being trapped 77 hours, it is over with the happiest of endings.
Our congratulations to the team that brought them out.

Mr. Secretary, that's quite a story.

PAUL O'NEILL, Treasury Secretary: A wonderful way to begin the day.

SCHIEFFER: I'll start with a story that is not so happy these days, and that is the tale of what's going on on Wall Street.

You are saying this morning, Mr. Secretary, you said earlier this week, that all the fundamentals are good, that the economy is growing. So I guess the question is, why is the market going down?

O'NEILL: Well, I'll tell you, if someone really understood why the markets go up and down in any profound way, they'd be enormously rich, because I don't think we really know it. We have movements in the market.

The thing, ultimately, though that I think determines where markets will be is what happens in the basic economy. And there, again, the fundamentals are very good. We're headed toward going out the end of this year with a growth rate of 3 to 3.5 percent, which is consistent with a sustainable growth rate without inflation. We have no inflation. We're putting jobs into the economy.

I think it's because Alan Greenspan took good measures to reduce interest rates early last year and through last year. The president convinced the Congress to pass a tax reduction that provided an infusion of money at just the right time after 9/11.

And so, I think the fundamentals continue to improve, and I'm really optimistic.

SCHIEFFER: But you're saying you don't know why the market is going down, with all of that going on.

Let me tell you what your critics are saying, as you well know. I'm not telling you something you don't know. They say "The administration needs a central figure who can deliver a clear, potent message on the economy." That is a quote from a Republican member of the House.

But people are saying that you've kind of been absent, that you ought to be talking, you ought to be saying something. Why haven't you, Mr. Secretary?

O'NEILL: Well, I've been talking quite a bit, as a matter of fact, and I've called attention to the fundamentals.

You know, I try to call attention to things such as the fact that 85 percent or so of the second-quarter earnings reports from corporate America have either met or exceeded the estimates. But I find it very hard to get air time for good news. Everyone seems to be looking for the nugget of bad news. Even in a sea of good news, a growth rate in our first quarter of over 6 percent real growth, which is terrific...

SCHIEFFER: Well, I guess what I'm talking about is you were out of the country when the markets started going down. And I read a statement in Time magazine that, I must say, sort of surprised me. Time says that you scoffed at the notion that your job is to calm the market or to reassure the public. What, then, is your job?

O'NEILL: Well, you know, my intent in what Time magazine has said is really to say, I don't think one individual can say words that will cause the market to go one direction or another for any sustained period of time.

I think our job is to work on the fundamentals and make sure that the fundamentals of the economy are sound.

And as I've said, I think they are really quite good and improving, going forward, adding jobs, getting things done in the Congress.

The president has asked the Congress to pass trade promotion authority, which will create new jobs and opportunities for products in the United States and other markets. That's very important. Passing terrorist risk insurance, the president asked the Congress to do late last fall. That's yet to be done. Passing legislation to protect the pensions and 401(k) plans from Enron-type abuses, something the president asked the Congress for.

So we're working on those fundamentals. And homeland security is another that we're hoping is going to be done this week because it is about national security and economic security.

So we're pressing on all these fronts which we consider to be fundamental. And we believe if we do that, the markets will end up reflecting the strength of America's economy.

SCHIEFFER: Are you concerned that this market could drag this economy into a recession?

O'NEILL: Well, I think, again, as fundamentals are strong, the market will reflect the fundamentals.

And so, all of our time and effort is going into getting the fundamentals right, making sure that they don't deteriorate, making sure that we take action that moves us in a good direction. And then I think the markets will follow.

SCHIEFFER: Do you think the publicity about these companies that have gone bust--the Enrons, the WorldComs, where you've had this latest episode where you have CEOs led out in handcuffs from their homes -- has that sort of thing hurt the market?

O'NEILL: Well, I think as investors look at those things...

SCHIEFFER: Yes.

O'NEILL: ... they certainly cannot be happy about seeing that people they've entrusted with their funds and their investment hopes and dreams have abused their responsibilities.

So, for sure, it does not help to have a demonstration that there are people, such as those at WorldCom and Enron and Adelphia and other places that have abused their trust. And I think it does have a weight in investors' minds as they look forward.

But again, I think as investors assess the choices of what to do with their money, they will find that investing in America has always been and will continue to be a great investment.

SCHIEFFER: Some of the president's and the administration's critics say that both the president and the vice president should make available more information about the days when they were CEOs, or the days when they were in business, the president at the Harken Energy Company; questions raised there. Also the vice president in the days when he was at Halliburton.

What would you advise them on that? What should be done here?

O'NEILL: Well, I think the president has said that the questions have been raised about Harken have been thoroughly vetted by the SEC, and the SEC said everything was OK. The vice president said there is no truth to the allegations that have been made, and that's the end of it.

So, I think they're in the right place. They're continuing to focus on making sure that we don't have more terrorist events and prosecuting the war on terrorism and working on the things that concern regular Americans, making sure the fundamentals of the economy are right. And I think that's what they should be doing. I think that's what I should be doing.

SCHIEFFER: But let me ask you this. I mean, the vice president, since this publicity happened, since the market has gone down, has almost become the stealth vice president. He was the number-one spokesman for the administration; now you don't hear anything from him.

Do you think it's because of that? And should people -- should that concern people?

O'NEILL: Well, I don't know, it seems to me the vice president has been available to the media. He's been around the country speaking to people.

SCHIEFFER: Not much since this happened.

O'NEILL: And, you know, my own experience says you can be available, you can be traveling the country and unless somebody's there with a camera, no one seems to know or think that you're actually doing it.

So, I think the truth of the matter is that the vice president is out there, he's available to people.

You know, I'm looking for every place that I have an opportunity to talk about the good news from the economy because there is lots of it. So I appreciate having the opportunity to be with you this morning.

SCHIEFFER: OK. All right. Well, we have to end it there. Thank you, Mr. Secretary.

O'NEILL: My pleasure.

SCHIEFFER: We'll be back in a minute to talk to Senator Joe Lieberman, in a second.

(COMMERCIAL BREAK)

SCHIEFFER: With us now, Senator Joe Lieberman, who is basically the father of the bill in the Senate to create the Department of Homeland Security.

I would think it's fair to say and give you credit, you were for it before it was cool, before the president thought it was a good idea.

SEN. JOSEPH LIEBERMAN, D-CT: Thank you, Bob. And I'm a proud father. And I think our committee did a good job.

SCHIEFFER: But now we have the president saying he's going to veto this homeland security bill because he says it restricts his flexibility to move people around in the department.

I know you met with him on Friday. Did you get the idea that he is serious about that?

LIEBERMAN: Well, I'll leave it to him. I know this is a concern to the president, but in saying that he might veto the homeland security bill because of the fact that we will not accept the dropping of civil-service protections and collective bargaining rights of federal employees, President Bush is putting a totally unnecessary obstacle on the path to what we all want to do, which is to create a strong Department of Homeland Security whose purpose is to close gaps, shortcomings, vulnerabilities that existed, that contributed to the attacks of September 11th.

Nobody argues that civil-service protections or union rights contributed to September 11th. In fact; quite the contrary. The firefighters and the police officers whose heroism we celebrated in New York were all union members. The president paid tribute to them.

And it's really not only irrelevant but, in my opinion, an insult to public employees who are unionized to suggest that, for some reason, they can't carry out their job as customs inspectors or border patrol just because they're members of the union.

If the president determines that any particular job has changed its responsibilities and is now involved in national security, and union membership will affect that, he can, under our bill, remove that individual's rights to be part of a union.

SCHIEFFER: Well, that's my understanding; it's already in the law.

LIEBERMAN: That is in the law.

SCHIEFFER: ... that he is able to do that, if I understand you.

So it brings me to this question. Do you think there is something else that he's got a problem with here?

LIEBERMAN: Well, I've asked myself that, Bob, because we've worked very closely with the White House. More than 90 percent of the bill that came out of our committee, the important parts about shoring up border security, protecting our infrastructure, developing for the first time one place in our government where all the intelligence will come together on one board so we can know what might be happening and prevent it, all of that we're pretty much in agreement on.

So when the president says he might veto this bill because of civil-service protections, I wonder whether he's getting bad advice from some folks in the White House who are following a more extreme agenda or a political agenda or reflexively anti-public employee. I mean, the public employees are the ones, again -- firefighters, police officers, emergency medical folks -- whose heroism we celebrated as they risked their lives, and in fact hundreds of them gave their lives.

So this is a phony issue, and it ought not to stop the president from signing this bill. This bill will protect the American people.

SCHIEFFER: I keep hearing reports that the White House is having a hard time coming up with somebody to run this agency. In the beginning, there was a lot of talk that maybe Tom Ridge would be selected. Now we're hearing that, well, maybe he'll just stay on the president's White House staff. There was some report going around Washington last week that the deputy secretary of state, Dick Armitage, might be picked for that post.

What do you hear? And why should they be having trouble finding somebody to take this job?

LIEBERMAN: Yes, I'm surprised. I don't hear much different than you hear, Bob.

This is a big job, it's going to be a difficult job. But if ever there was a call to serve America at a time when America needs to get its homeland-security act together, this is it.

And I'm sure there are loads of people now in the public sector, including Tom Ridge and Rich Armitage, both who would be excellent at this as far as I'm concerned, and a lot of people in the private sector. I think we ought to look maybe outside to somebody who was the head of a large business, was used to merging different employees together, and see whether somebody strong and focused can come in and run this department.

It is a great opportunity for service, and I'm sure the president ultimately will have no lack of high-quality candidates to fill this job.

SCHIEFFER: Can I talk a little bit about politics? It's my understanding you had dinner the other night, you and your wife, with former Vice President Gore and his wife.

You have said in the past that if he decides to seek the Democratic nomination for president again, you will not. What did you come away from that dinner feeling? Do you think he is going to seek?

LIEBERMAN: I came away from the dinner feeling that Al Gore and Tipper Gore were friends of Haddasah's and mine before 2000, they were great friends in 2000, and we remain very good friends.

It was mostly a social dinner, but at the end of it we talked a little about this, and the former vice president said to me that he's undecided. And I said to him that the sooner he decides, the happier I'll be.

(LAUGHTER)

LIEBERMAN: I'm going to be true to my pledge and not run if he decides to run.

SCHIEFFER: If he does decides to run and if he again asks you to be on the ticket with him, would you accept that?

LIEBERMAN: Well, that one I'm pushing off. And I frankly haven't allowed myself to think about it, maybe because I've been thinking so much about the possibility of seeking the presidential nomination, but also because the first decision has to be made by Al Gore, and then the rest will follow.

SCHIEFFER: And if he does -- if he decides not to, you definitely are going to do it?

LIEBERMAN: Well, I'm sure leaning in that direction. I'm grateful for all the encouragement I've had from Democrats and independents and even a few Republicans around the country, who have said, "Give it a try, you can help your country."

SCHIEFFER: All right. Thank you very much, Senator Lieberman.

LIEBERMAN: Thank you, Bob.

SCHIEFFER: Always nice to see you.

When we come back, we'll get the Republican perspective on all of this from Senator Fred Thompson, in a minute.

(COMMERCIAL BREAK)

SCHIEFFER: And with us now, Senator Fred Thompson, who is of course the ranking Republican on Senator Lieberman's Governmental Affairs Committee.

You just heard Senator Lieberman say that he thinks the president's getting bad advice from advisers who are telling him to veto this bill. He also said this business about whether or not these people get civil-service protection is a phony issue. What's your take?

SEN. FRED THOMPSON, R-TN: I think the president understands just how important these issues are. They're issues we've been dealing with in Governmental Affairs for several years now.

Bob, we have many departments in our government now, before we address this homeland security problem, that are having real problems, waste, fraud, abuse, mismanagement, inability to coordinate their computers, dysfunctional personnel systems and all of that.

Now we're coming along and trying to merge 22 of these departments into a new entity. It's going to be extremely difficult under the best of circumstances, so we've got to have some management flexibility.
And we've been talking about that for years. It just hasn't risen to the public view up until now. But the president and the OMB and all have understood from the very beginning that a new person coming in without the flexibility to deal with a lot of these problems is going to be involved in a failure. And we can't afford a failure here.

SCHIEFFER: You just heard Senator Lieberman say that in fact the president already has the authority to move these people around, to get rid of people that are bad. He says that any time that it's already the law, that you can invoke it, if it's a matter of national security, you can move these people out. So is that right?

THOMPSON: The president will come out of this, if this bill passes the way, the form it's now, with less authority than he has today. The new secretary who's appointed to run this new department will have less authority than other secretaries have today.

Bob, since 1979, presidents have had limited authority on national security grounds to abrogate particular collective bargaining rights if it affected national security at a particular time. Jimmy Carter started out with that. Other presidents have used it sparingly.

This bill would take that authority away from the president. Other secretaries have been given personnel flexibility. You know, we're behind the curve from private industry, in terms of the way we hire people, giving promotions, giving incentive pay. We're going to need a lot of qualified people who can make a lot of money on the outside, transferring people from one place to another to better utilize their talents and all of that...

SCHIEFFER: Well, where's the compromise?

THOMPSON: And we've given that authority to the IRS, to the FAA, and the Transportation Security Agency. This new secretary would not have that authority.

So we're going the wrong direction. I'm afraid some of our friends on the other side are using this bill as an opportunity to take away authority that's already been granted in other cases, with regard to the very department that's in charge of our homeland security.

SCHIEFFER: Well, do you really think there's a possibility that we'll wind up with no legislation because of this, or do you think it's possible, still possible to work something out?

THOMPSON: Well, this is the first step. The other day we had a markup for two days and vetted all these issues. The Democrats were able to hold their folks together, and they were together and didn't deviate on any of these amendments that we tried to interject a little flexibility in.

But I think that that was probably the low-water mark. I like to think, from here on out, as we go to the floor, as we go to conference; that we'll have an opportunity to amend some of these provisions and get a little bit closer to the flexibility and the managerial capability we'll need.

I heard you talk about the fact that a lot of people apparently are not jumping forward to take this new job.

SCHIEFFER: Yes.

THOMPSON: You may be seeing the reason why right here. A person would be foolish to come in and take on all this additional responsibility, with arguably the most complex and important department in the government, and be given fewer tools than some of his colleagues have.

SCHIEFFER: It occurs to me, as you're sitting here, has anybody talked to you or approached you about the possibility of taking this job?

THOMPSON: No.

SCHIEFFER: Would you be interested if it were offered?

THOMPSON: No.

SCHIEFFER: Because it seems to me you have the familiarity with government, you've dealt with national security issues, and you're an articulate spokesman.

THOMPSON: Bob, with all due respect to the job...

SCHIEFFER: I'm not here as your publicity agent, I guess I should underline that.

(LAUGHTER)

THOMPSON: ... I have got the best job in government, as far as I'm concerned, right now. And I've thoroughly enjoyed it, but eight years is enough for me. I'm going into the private sector.

My job is to try to make it so whoever does take this job has a chance for success. If you talk to a lot of corporate CEOs who have had mergers much less complex than this, they'll tell you that some of them put -- I've seen 20, 30 percent chance of success with regard to this large merger that we're putting together with some of these dysfunctional government agencies.
If we don't have managerial flexibility and get away from the previous century's thinking with regard to some of these personnel issues, it won't be successful.

SCHIEFFER: It sounds to me, as you sit here, the Congress keeps talking, the president, everybody's talking about they'd like to get this done by 9/11, by the anniversary, which would have a nice ring to it. But from what you're saying, I'm not sure that's going to be possible, because the Congress is getting ready to go out for its August recess.

Do you think it will be done, realistically, or do you think it may take a little longer?

THOMPSON: I think it probably will not get done by 9/11. We were planning on bringing it up -- my understanding is that it would be brought up, I think both Joe Lieberman and I both thought, perhaps this week. Don't think that's going to happen now.

9/11 is not important to me. There's some symbolic significance there, but it's much, much more important that we take the time necessary to do this right. There's no reason we can't do it by the time we go out of session this year, though.

SCHIEFFER: Thank you, sir.

THOMPSON: Thank you.

SCHIEFFER: We'll be back with a final word in just a minute.

(COMMERCIAL BREAK)

SCHIEFFER: And finally today, figure this out if you can, because I can't.

The president has been telling us every hour on the hour, and rightly so I think, of the danger that terrorists might somehow get their hands on a nuclear or chemical weapon and set it off.

So why is it then that some of his political appointees at the State Department are suddenly blocking funds to pay for the one U.S. program that helps the Russians destroy their old nuclear and chemical weapons, a program started 10 years ago by Republican Senator Richard Lugar and former Democratic Senator Sam Nunn?

Well, it's not because those weapons are stored in a safe place where the terrorists can't steal them. Quite the contrary. The Washington Post reports that 60 percent of Russia's nuclear material is still not properly guarded.

But the State Department says it can't release the money to destroy those weapons because it can't certify that Russia is complying with all arms control agreements, the certification that Congress requires and won't lift.

And in fact, the Russians are not doing all they should.

But is this the way to punish or pressure them? To me, it's more like setting your house on fire to show the inefficiency of the fire department.

During the Cold War, we kept the peace with a nuclear policy called mutual assured destruction, MAD for short. This is not MAD, it is madness.

That's it for us. We'll see you next week right here on Face the Nation.