FTN – 7/7/02

BOB SCHIEFFER, Chief Washington Correspondent: Today on Face the Nation, what's wrong with our business? This week the president plans a speech on corporate accountability in the wake of scandals at Enron and WorldCom. But what should he say? What is to be done? Is more regulation needed?

We'll get the views of the Senate majority leader, Tom Daschle. Then we'll get the views of Wall Street and talk with Ed Yardeni, the chief economist of Prudential Securities, and Jim Grant, editor of Grant's Interest Rate Observer.

Gloria Borger will be here, and I'll have a final word on July the 4th. But first, Democratic leader Tom Daschle on Face the Nation.

ANNOUNCER: Face the Nation, with Chief Washington correspondent Bob Schieffer.

And now from CBS News in Washington, Bob Schieffer.

SCHIEFFER: Good morning again. The Senate majority leader, Tom Daschle, is in the studio with us this morning.

Happy holiday to you. I hope you had a good Fourth.

SEN. TOM DASCHLE, Majority Leader, D-S.D.: I had a good one, very good.

SCHIEFFER: Well, let's talk about what the president's going to be talking about later this week. In the wake of all these business scandals, it's our understanding he will lay out some sort of plan, give his vision of what ought to be done. What do you think he ought to say?

DASCHLE: Well, first, we have to go after the bad actors. And I think there's no question that that has to be an aggressive effort on the part of the Justice Department.

Secondly, I think we've got to ensure that we see a lot more effort at restoring the integrity of the corporate sector. We don't have that today. And I think tougher penalties and greater oversight and a lot more resources for the SEC, Bob, are going to be required.

Finally, we've got to restore confidence in our retirement system, our pensions. There is a real lack of that confidence today. I was in South Dakota all last week, and I was surprised at how often that came up.

So he's got a big job, and we've got to work together to make that happen.

SCHIEFFER: Well, let's talk about some of the things that are being floated out right now. Should there, for example, be criminal charges against CEOs who knowingly mislead investors?

DASCHLE: Absolutely. I think we've got to make sure we're aggressive at those people that are responsible for this. There's a tremendous amount of potential for fraud today, Bob. And unless we clamp down, unless we use tougher criminal penalties, unless we ensure there's adequate oversight, a new accounting system and a far better level of transparency than we have today, I think that we aren't going to be able to restore the integrity and the sense of confidence that people have to have in the corporate sector.

SCHIEFFER: Should CEOs be required to sign the financial statements of corporations?

DASCHLE: I believe they should. I think they've got to be held to that level of accountability.

GLORIA BORGER, U.S. News & World Report: And then they should be held personally liable?

DASCHLE: Well, we can explore ways with which to ensure that that accountability can be maintained. I'm not sure at this point whether personal liability is a direction we need to go. That is something that we're going to want to assess a lot more carefully.

But clearly there's got to be a lot more oversight. What we need are more cops on the beat. We've got to have tougher enforcement of the regulations that exist, but we need a new framework, a better system of regulation than we have today.

BORGER: Senator, today there is a scathing Senate report out, which essentially says that the Enron board closed its eyes to all the financial shenanigans at the corporation. What can you do to get rid of these sort of cozy and conflicted relationships that the board seems to have with the people who run the companies?

DASCHLE: Well, the bill that we're now proposing, that we will act on this week, would allow us to set up a new auditing system to ensure that that cozy relationship doesn't exist in the future, that there is a real clear division of responsibility, that the auditing does exist, that people have a clear understanding, and that we force the board to take a lot more responsibility than they have today.

BORGER: This same report says these board members, like Wendy Gramm, the wife of Senator Phil Gramm, who said, we knew nothing about this, actually did know an awful lot more than they're telling us. Yet her husband, Senator Phil Gramm, is actually blocking this legislation.

Do you think he should recuse himself?

DASCHLE: Well, I'll leave that to Senator Gramm, Gloria. I do believe that we all have to take a very careful and appropriate position when it comes to many of these issues. We've got to restore the integrity of the system. We've got to take aggressive action. We've got to ensure that there isn't any doubt in the minds of people that their retirement is going to be secure, and that we've got the ability to go after the bad actors. We don't have that today. We've got to put that in place, and all of us have a role to play.

BORGER: But you're not going to say that Senator Gramm has any kind of a conflict here?

DASCHLE: I will leave that to others to decide. That's up to Senator Gramm to analyze and come to some conclusion about.

SCHIEFFER: Senator McCain -- there have been rumors over the past weeks that Senator McCain this week will call for the resignation of Harvey Pitt, the chairman of the SEC. Do you think Harvey Pitt is doing a good job? Do you think he ought to be replaced? Do you think he ought to leave?

DASCHLE: Well, that is an issue that I think we're going to want to explore a little more carefully. I think he's been a huge disappointment.
He's had too cozy a relationship. He met with the accountants on many occasions before issuing regulation. He has been the one who has said we want a kinder and gentler SEC, just the opposite of what we should have had.

So, I don't know what Senator McCain is going to do, but I have to say at this point that we could do a lot better than Harvey Pitt in that position today. That cozy, permissive relationship has to end, and he, in large measure, has orchestrated that over the last 18 months.

SCHIEFFER: Do you think this administration has been too cozy with big business?

DASCHLE: I think on many occasions there has been too much of a permissive atmosphere, Bob, all the way through. We have seen this from top to bottom. We have even seen that in relationships that some of the members of the administration have had with their own corporate roles and the responsibilities they had in the corporate sector.

So that permissive and lack of real sensitivity to this concern for integrity is something that I think we have got to be concerned about.

SCHIEFFER: How would the relationships between big business and this administration differ, for example, with the relationships of big business and Democrats?

DASCHLE: Well, Bob, you saw what Arthur Levitt did in the SEC under the Clinton administration. He was criticized for being too tough. He even advocated even tougher regulation, and he was thwarted in that effort by many in Congress.

And so you saw a clear example of the need for more cops on the beat and the effort made by Clinton administration officials to see that happen. That's what we needed then, that's what we need now.

BORGER: Senator, does the president himself have a credibility problem here, given the questions that had been raised about his own sale of stock when he was a director of the Harken Energy Company?

DASCHLE: Well, Gloria, I think the president would do well to ask the SEC to release the file, release it all, let everybody see just what is there. There have been some real questions, I think, about what happened.

We've had different explanations as to what actually occurred. I think the best way to resolve all those issues is just allow the SEC to release the file. I think that would clarify the matter a good deal.

BORGER: Do you accept the president's explanation that he did nothing wrong and that what he did was essentially going 60 miles an hour in a 55-mile-an-hour zone?

DASCHLE: Well, I think that's illustrative of this permissive environment and this attitude about business that is very destructive and very disconcerting to many of us. That's the kind of thing that got into the trouble in the first place -- winking at regulation.

I don't think that, regardless of the circumstances, we have to minimize the affect that that mentality has had and is so pervasive through the whole system today.

SCHIEFFER: How do you get along with the president these days? I know there was a time when the two of you, he gave you a hug after the speech on 9/11 that was much remarked on, and yet it seems like that situation has changed.

You really unloaded on the administration in an interview with The Washington Post recently, saying about everything they have done is a disaster, with the exception of how the war on terrorism is being prosecuted.

Is there a personal something between you and president now?

DASCHLE: Not at all, Bob. I admire him in many ways. He is a very easy person to talk to. We talk on many occasions. We haven't talked in recent weeks. But I have to say, I don't have any personal animous at all. In fact, I think we've got a good professional relationship. We differ on many things, but that's to be expected.

But we have also have professional responsibilities that have to be maintained. As president, as majority leader, we have to work together. I hope we can work even more closely together as we address this issue of corporate integrity and the need to go after the bad actors. I hope we can do that on a range of issues in the coming months. There is a lot more to be done.

SCHIEFFER: Recently, there was a mailer put out by a conservative fund-raising group that said you were more dangerous than John Walker Lindh, the American who fought with the Taliban. First, how do you respond to that? And do you believe that the White House had a role in that, or is this something separate and apart from the White House?

DASCHLE: I don't know, Bob, whether they had a role or not, but I think it stems from a lot of the attitude that we've seen and heard from the administration. They have said they wanted to change the tone in Washington, and I think it has gotten worse. So, they've changed it in that regard. It's gone from bad to worse.

And I think this letter and letters like it, and there are many others, are evidence of the tone today and how destructive that tone really is.

BORGER: You have also said, though, that President Bush is perhaps the most political chief executive you've ever seen. Now, what do you mean by that? And give us an example of what's so political about George Bush.

DASCHLE: Well, I think that so much of what the administration does today is done with a very serious effort to calculate the political consequences, a lot of what is happening. I think even, perhaps, a lot of the corporate issues that we're going to be watching the president address this week are generated out of concern for the political liability that comes in knowing of the permissiveness that has existed now for the last 18 months.

But whether it's that or whether it's his numerous trips -- he's been in South Dakota on a number of occasions, he's been in just about every one of the states that have political races this year that are of consequence -- all of that indicates to me that there is a president who is very concerned about the political considerations of his party and of his administration, and is willing to do whatever it takes to ensure that he maximizes the benefit of his position.

SCHIEFFER: You don't mean to suggest, do you, that sort of thing did not occur to the President Clinton?

DASCHLE: Not at all, not at all, Bob. I'm just saying that while President Clinton was very seriously criticized oftentimes for being political and for calculating in a political manner, I think President Bush has had the good fortune of not being subject to that level of criticism. And I was just drawing the comparison and, frankly, the contrast that I think exists in many ways.

SCHIEFFER: So you're basically saying he's just as political as President Clinton?

DASCHLE: I would say, in some ways, he's more so. That's correct.

SCHIEFFER: More so.

Well, let's talk a little bit about Al Gore. He made a speech last week, in which he said had he had it to do all over again, he'd just say "let her rip."

(LAUGHTER)

SCHIEFFER: He'd no longer pay attention to all of these consultants who gave him bad advice.

Do you think the race that Al Gore ran for president is the fault of his consultants, or could it have been something else?

DASCHLE: Oh, Bob, I don't know. I really haven't got an opinion on that.

We have to remember that Al Gore won the numerical vote. He won by 600,000, 700,000 votes. He generated more votes than almost any of his predecessors as a candidate. So you can't fault that.

Obviously, there are many things we'd like to go back and reverse if we could, but second-guessing the last election is not something I'm prepared to do.

SCHIEFFER: Do you think he ought to run again?

DASCHLE: If that's his choice, I think he has a lot of support out there, and I wouldn't see any reason why he shouldn't.

SCHIEFFER: What about you? Have you given any thought to running?

DASCHLE: Well, I'm not giving any serious thought to running until after the election. I've got to decide after the election just what I intend to do politically. I've got some very tough decisions in that regard. But I'm not going to make that decision until at the end of the year at the earliest.

SCHIEFFER: Well, many people say you really do want to run if you can find a way to do that.

DASCHLE: They do.

(LAUGHTER)

BORGER: If you keep control of the Senate, would you be more or less likely to run for the presidency?

DASCHLE: Oh, Gloria, I don't know. Those are all hypothetical questions that -- frankly, I want to keep my focus. We've got a big job to do, and that's to govern as effectively as we can during the rest of this session and maximize our chances for building on the majority that we have right now.

I think we can do both of those things. And that's exclusively my focus until the end of this year.

SCHIEFFER: One question on foreign policy. We saw the assassination yesterday of one of the vice presidents of the new government in Afghanistan. Does this in any way change the role of the United States there? Will we now have to take a more active role in the security of that country?

DASCHLE: Well, Bob, I think two things are things we ought to recall.

First of all, the president said that we needed Marshall Plan for Afghanistan. And that's a high bar to set, but I think he was absolutely right when he said it. We don't have anything close to a Marshall Plan in Afghanistan today.

Secondly, this illustrates the degree of challenge we still have in Afghanistan. We've got a long way to go to accomplish our goals, and we haven't done it yet.

SCHIEFFER: All right. Tom Daschle, thanks so much for coming by this morning.

DASCHLE: Thank you, Bob.

SCHIEFFER: In a moment, we'll come back and talk some more about the situation on Wall Street with some different perspectives, in a minute.

(COMMERCIAL BREAK)

SCHIEFFER: And we go back to business now. With us from New York City, Ed Yardeni of Prudential Securities and Gim Grant, who writes the investment newsletter "Grant's Interest Rate Observer," two of Wall Street's most astute observers.

Gentlemen, let me ask you first -- and, Ed, why don't you go first -- the same question that I asked Senator Daschle. What do you think the president needs to say this week?

ED YARDENI, Investment Strategist, Prudential Securities: Well, I think, in many ways, the president is probably going to enumerate many of the proposals that are out there already. The SEC is just last week requiring many of the biggest companies' CEOs to sign off on the financial statements. I think that's a great idea, and I think he'll probably endorse that.

The New York Stock Exchange has many proposals that are now being floated about that will probably be implemented later this summer, and I suspect the president will endorse them, like more independent directors, a Chinese wall between the auditors and the account consultants.

So a lot of the proposals are already out there. They're, I think, going to be implemented by the regulatory bodies and by the exchanges themselves, and I think the president's more or less going to endorse these proposals.

SCHIEFFER: Jim?

JIM GRANT, Grant's Interest Rate Observer: If the president is not above politics, and Senator Daschle insists that he is not, he want not to forget the two words: Clinton bubble. What preceded this crisis of confidence was a crisis of overconfidence not recognized by many at the time. But not only do booms precede busts but, to an important extent, they cause them.

And the difficulties we face today are not so much a crisis of the 10 commandments, although there certainly is that, but rather a crisis of finance and evaluation.

SCHIEFFER: Explain to us what the significance of it is when a CEO signs off on the financial statements. What does that mean to the average investor out there?

YARDENI: My feeling is that it just lends another layer of credibility to these accounts. I mean, right now investors have lots of things to worry about. We shouldn't just be preoccupied with just this corporate issue. There's also issues of terrorism.

But I don't want to minimize the issue here. The reality is, investors have loss their confidence in earnings, earnings reports. A couple of years ago, investors were more than happy when companies reported a penny better than expected, and there wasn't really that much interest in how this was accomplished.

Now, investors want to know how companies are actually accounting for their earnings. And if you have the very top people certifying with their signature that they've every single word, they've read all of the footnotes and they buy into it, then that just lends more credibility, especially if they are accountable in some legal fashion.

SCHIEFFER: Does that mean it is easier to bring charges against them, Jim?

GRANT: I suppose it does. But I would urge that reform take the direction of emphasis on the reading of the financial statements rather than the certifying or even of the writing of them. Throughout the late '90s into the early '00s, people did not read the footnotes. Indeed, they most often did not read the text preceding the footnotes. There was no reason to. It was known that stocks went up.

Four years ago, four years ago this summer, BusinessWeek, in kind of an advertorial, published a survey of 160 chief financial officers conducted at a BusinessWeek forum in the spring of 1998. And the question put to these people was, have you been asked by an executive at your firm to misrepresent corporate results? 52 percent or thereabout said they had been asked but had resisted. Twelve percent said they had asked and had yielded. In other words, two-thirds had been asked to misrepresent their numbers.

Now, we wrote about this, taking it to the immensely important news. It fell flat; nobody cared. The reason was that people were preoccupied to the point of obsession with, just as Ed says, with whether the earnings would be better than or less than expectations.

So, the crisis to me is one of -- it's a crisis of cycles. It's as old as the hills. People have to read the financial statements before they can criticize them, and I dare say that many have not read them.

SCHIEFFER: So basically what you're saying is that people don't worry about these things as long as the stock price is going up? It's when they start going down, then we start worrying.

GRANT: This is operation barn door.

(LAUGHTER)

SCHIEFFER: Gloria?

BORGER: So, Ed Yardeni, what would you tell the small investor right now who has absolutely no faith in corporate America? Should they invest?

YARDENI: That was probably the correct attitude a couple of years ago, but now, with all the scrutiny, with all the regulatory oversight, with the new rules that are going to be implemented by the exchanges that are already being imposed by the SEC, I think the quality of earnings is going to be a lot better.

Companies now are not going to report a penny better than expected unless it's really justified, because people are going to be looking at these earnings very, very closely.

I think the good news is the quality of earnings is going to improve. The other good news is the economy's in pretty good shape so that profits themselves are recovering here. Thank God this didn't happen last year when profits where going straight down. And if we had quality of issues back then, the market would have been in much worse shape last year.

SCHIEFFER: But let me ask you, Jim. If the problem is what you say it is, should we expect more of this? Is this only the tip of the iceberg here?

GRANT: I don't know if it's the tip, the top half, or -- I think it's not all of it. Invariably, bear markets are accompanied by bad news. Bad news makes bear markets. Or, better still, the best adage in Wall Street, markets make opinions. In a bear market, problems are identified, whereas in bull markets, they are denied.

It seems to me that apart from the quality of earnings -- I think Ed is quite right, the quality of earnings will improve -- there is the question of the quantity of earnings.

A couple years ago, Wall Street was selling $100 hamburgers. $100 hamburgers, that's very good. They were going to $150. People knew that. And now Wall Street is selling $18 hamburgers. They're certainly cheaper. The question is whether they are cheap enough, whether corporate earnings are sufficiently strong to justify prices at which stocks sell.

And by most historical measures, they are still not so cheap. Stocks are not nearly so expensive as they had been, but they're not compellingly cheap yet. And on form, on the bottom of great bear markets, they become compellingly cheap.

SCHIEFFER: All right, I think we have to leave it there. Thank you so much. Very helpful.

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

(COMMERCIAL BREAK)

SCHIEFFER: Finally today, I cannot remember a Fourth of July weekend quite like this one, when our first emotion was simply a feeling of relief that nothing terrible happened.

We had more than hot dogs and baseball to think about this time. Our place in the world has been secure for so long that we sometimes have taken our freedom for granted, but no more.

The metal detectors that went up around the symbols of freedom in Washington, and the ongoing hassles that increased security in our all public places has brought, reminded us just how fragile freedom really is and, sadly, that there are still those who would take it from us.

But as it has always been, this crisis, like those before it, has given us new reason to appreciate the remarkable achievement of that summer of 1776.

If we are apprehensive this weekend, think how those who signed the Declaration of Independence must have felt that weekend.

It all seems so logical now, so natural in the course of events, but they had no idea how what they started would end, only that the odds were greatly against them and that, if they lost, they would hang. And yet they went ahead, because they loved freedom enough to risk their lives and all they had in its pursuit.

On the Fourth of July, we celebrate their genius and what it wrought. But on this weekend, we are reminded to appreciate first their courage, which made all the rest of it possible.

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