Focus: Gas prices, immigration reform taxes
>> gas prices, immigration reform, taxes. congress has talkeda about a lot this year but hasn’t done much. now that a series of vacations is over, might that change? andrew parmentier follows developments in washington and on capitol hill for friedman, billings, ramsey and joins me now. the hot-button issues, gasoline prices, immigration reform, any chance we’ll see something happen on those?
>> from where i sit, you’re talking about two incredibly divisive issues. you can talk about the windfall profits tax and removing incentives for the oil and gas industry, it’s not going to happen. it’s talk, rhetoric meant to satisfy the base. we’re six-plus months out from the election. on the immigration issue, in case you haven’t noticed, the republican party is completely split over this issue and i think a lot of people fear that if it were to pass, you could have a very fragmented base going into the election. so i’m not very optimistic on either front, unfortunately.
>> what does that leave them doing for the rest of the year? anything that would be a real accomplishment?
>> i think there are a couple of things. interestingly, tomorrow you’ve got mcgraw-hill and moody’s, the two large credit rating agencies before the senate banking committee. chairman cox is testifying about new rules in that area. and we’ve been getting a lot of investor interest there. sticking with the financials, you also have fannie mae and freddie mac. the regulator, ofheo, will be releasing its final report on fannie mae and the accounting misdeeds in a couple of weeks. so that will be the final catalyst. the house has already passed a bill, the senate has a bill in committee languishing on the senate floor because it limits growth of the companies going forward.
>> you mentioned moody’s and mcgraw-hill, which runs soandard & poor’s, the two main ratings agencies. are we likely to see the s.e.c. or congress step in to create more competition there?
>> i think so. something has to give. this will be an interesting issue for investors to watch. essentially last year the s.e.c. proposed a rule, didn’t follow up it and now congress is kind of upset. they’ve noted potential conflicts of interest with the companies. they have essentially a duonalistic monopoly, if you will. and if the s.e.c. doesn’t issue a final rule, congress will be prepared to move legislation for it. you’re talking about companies with huge market caps so it’s wise for investors to pay attention.
>> the new white house chief of staff, joshua bolten, apparently making a high priority of getting the president’s tax cuts that are expiring in 2008 extended, especially on dividends and capital gains. what’s the likelihood of that? are they going to break that log jam?
>> absolutely. going into your segment just previous to this with wall street money pouring into the democratic party, going into the mid terms, you have to think that some of that is to extend the 15% tax rate on both cap gains and dividends. it’s the only wall street priority this year above pension reform or immigration or any of these other issues, they want those tax cuts extended and i think to set themselves up for 2008, it would be next to impossible for democrats to vote against that.
>> speaking of money pouring into democratic causes, what are investors beginning to think about the possibility of a democratic pickup of one of the houses?
>> i think more than ever you’ve seen this deep divide between republican policy and the democratic alternative. so you can look at this growing almost one trillion dollar prescription drug benefit that doesn’t negotiate prices, that has something in it that has a noninterference clause which prohibits the government from negotiating drug prices. democrats want that removed. so you have to think big pharma net-net would be in a tougher position incrementally as democratic seats are picked up. fannie mae and freddie mac, if you think the democrats are going to pick up any seats this november, you got to like those companies because the democrats have always been supportive of the housing subsidy. and i think a misunderstood or underappreciated issue is on the defense side. democrats want to brick the fund―bring the funding on iraq on budget as part of the defense appropriations bill. if that happens, you could see a crowding out of other defense programs and i don’t think defense investors are appropriately pricing that in at this point.
>> even some republicans are concerned about the supplementals. there’s another one before congress right now. does it pass because no one wants to be seen as voting against the troops?
>> yeah, and this is the robbery of the century, what’s happened the last few years with this budget deficit. you’re talking about $92 billion again this year, spending $10 billion a month in iraq and afghanistan. it’s wholly unsustainable given other funding needs. we’ve got roughly a $500 billion-plus budget deficit once you factor in this type of spending. and it’s got to stop at some point and i think, back to the wall street point, pouring money into the democratic party, i think that the bond market right now it may not show its worry, but it will at some point. we’re one external event―be it a commodity shock or terrorist attack or what have you, currency crisis―away from a really rough spot. and the congress doesn’t have any ability to provide fiscal stimulus.
>> just a minute left. let me ask you about a couple of issues hanging around for a long time―asbestos and the fannie mae-freddie mac regulator reform legislation. any chance of those going anywhere before election day?
>> the asbestos bill came to the senate floor, they took a good shot at it, it fell one vote short. they’re rewriting it and senator specter will reissue that this month. i’m doubtful. i’m below 1-3 that the asbestos bill gets through. my gut tells me that we’re going to get a fannie mae-freddie mac bill this year. you had $15 billion in combined restatements and everybody on capitol hill knows that if you don’t get it done this year, you know, with the report coming out and all of this momentum, it’s never going to get done.
>> thank you very much, andrew parmentier, he covers washington doings for friedman, billings, ramsey. coming up, what would you do to save energy? “money & politics’” “poll of the day” is next.
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Listen Focus: Enron
>> in a houston courtroom today, former enron chairman, kenneth lay, denied committing the fraud that destroyed his company. june grasso is in houston and joins us with more about lay’s first day on the witness stand. june?
>> well, in his first day on the witness stand, ken lay began by talking about enron’s collapse in broad strokes. he said he felt the fundamentals of the company were actually quite strong, but there were some problems. for example, the broadband unit and also with a power company that they had in india. but he blamed the collapse of enron squarely on the shoulder of former c.e.o. andy fastow, short-sellers and journalists. he testified it was what andy fastow did and hit and what the “wall street journal” with the help of short-sellers wrote that kicked off a shockwave in the market that led to a run on the bank that we just couldn’t stop. he said there was no conspiracy. he also laid the groundwork for a main theme of his defense and that he relied on outside accountants and lawyers to assure him that the actions of the company were, in fact, legal. lay also described what enron’s collapse meant to him personally, saying he was devastated by the bankruptcy of the company that he had spent half of his professional life at. he said he experienced the american nightmare. there was absolutely nothing in my life that even comes close tot same level of pain or the same enduring pain that that that has caused. in one part of his testimony, he talked about his background, he worked his way up from a poor background. he talked about his family, children and grandchildren and talked about his daughter who is a lawyer representing him, telling the jury that she’s one of the lawyers he can count on. he addressed his wife in open court, talking about their 24th anniversary coming up, saying “is that right, hun?” so he was very comfortable on the stand, talking directly to the jury, telling them his story. you barely noticed his attorney as he questioned him. very much the c.e.o. on the stand. and remember that his main attorney, mike ramsey, is not doing the questioning here because he is recovering from heart surgery. so there’s a loss there. legal experts say that ken lay’s case, the fate of his case, depends on his testimony on the stand, whether the jury believes him and finds him incredible, then they will find his credible, if not, they’ll find his case not credible. back to you.
>> june grasso in houston. more legal news, former chief executive of computer associates pleading guilty today to securities fraud, obstruction of justice and lying to officials in connection with a $2.2 billion accounting fraud while he was c.e.o. sanjay kumar admitted illegally inflating revenue at computer associates through a scheme to backdate contracts. he was scheduled to go on trial may 8. the decision to change his plea came as kumar was awaiting a ruling by a judge on whether to admit evidence kumar wiped his computer’s hard drive clean after the company told him to preserve evidence for federal investigators. the company, now known as c.a. incorporated, remains under a justice department order to install records management and accounting systems. after all these years, you may be able to pump your gas in new jersey. share the excitement when “money & politics” returns with “political notes,” next.
