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STATE OF THE UNION WITH CANDY CROWLEY

Interview With HUD Secretary Shaun Donovan; Interviews With Charlie Crist, Kendrick Meek

Aired August 29, 2010 - 09:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


ED HENRY, HOST: If there was ever a week where we were constantly reminded the economy is still in turmoil, this was it. On Tuesday, we learned existing home sales in July hit their lowest level on over a decade, declining by over 27 percent. House Minority Leader John Boehner called for the resignation of Tim Geithner, Larry Summers and the rest of President Obama's economic team.

On Wednesday, it was new home sales that took a beating, plunging to their lowest point since 1963. And Thursday saw the four-week moving average of jobless claims rise to its highest level since last November. And on Friday, a report showed that GDP grew just 1.6 percent. Translation? The U.S. economy sputtered to a near stop in the second quarter. And Federal Reserve Chairman Ben Bernanke acknowledged the economy has lost considerable speed, but vowed he has quote, "unconventional measures" at the ready just in case. Haven't we been down that road before?

Today, the housing bust. What is next for you and your family? We will talk exclusively with the president's housing chief, Shaun Donovan.

(BEGIN VIDEO CLIP)

DONOVAN: We're going to do everything we can to make sure that this market stabilizes and recovers.

(END VIDEO CLIP)

HENRY: Then, two candidates from a state at the epicenter of the foreclosure crisis. Florida's independent governor, Charlie Crist, and his Democratic opponent, Kendrick Meek, slugging it out in a bigger three-way Senate race.

And here to sort out all this economic uncertainty, CNN's chief business correspondent Ali Velshi. I'm Ed Henry and this is "State of the Union."

Candy Crowley is getting a well-deserved vacation. When the housing bubble bursts, it served as the catalyst for the great recession, and now it may be blowing up all over again. Two weeks ago, Treasury Secretary Geithner wrote in an op/ed in the "New York Times," "a review of recent data on the American economy shows that we are on a path back to growth. We suffered a terrible blow, but we are coming back." Crumbling housing market is casting doubt on that claim. For decades, home sales kept soaring. Your home would be your nest egg, it was an article of faith, until it wasn't. And boom went to bust. At the beginning of the Obama administration, existing home sales started increasing again, but then it fell early this year, rebounded in April and May, but then an absolute free fall last month, all of which led to "Time" magazine's new cover, "Rethinking Homeownership: Why Owning a Home May No Longer Make Economic Sense." Perhaps there's no better time then to bring in Housing and Urban Development Secretary Shaun Donovan. I spoke with him earlier from New Orleans.

(BEGIN VIDEOTAPE)

HENRY: Secretary Donovan, thank you joining us to discuss the Katrina anniversary, which we will get to in a few moments, but first, I have to ask you some broader questions about housing. Many analysts believe that started this whole financial crisis. We saw some pretty grim headlines this week sparking some fears about a double dip recession. What can you tell Americans today as the president's housing chief to reassure them that there will not be a double dip recession?

DONOVAN: Well first of all, Ed, let's remember that the president acted quickly and comprehensively. And folks across the spectrum agree that this housing market would be a lot worse had we not brought down interest rates to record lows, provides a home-buyer tax credit, helped millions of families stay in their homes. But as you saw, what American families are concerned about today is they're at risk of losing their home. Or even if they're concerned about what's going to happen to the equity in their home is the future.

And in July, we all expected the home sales numbers to go down as a result of the end of the tax credit, but they were clearly worse than we expected. And so in addition to the tools we already have in our toolbox, we are going to be launching in the next few weeks, two additional tools that are critical.

One is that we are going to be rolling out an FHA refinancing effort to help borrowers who are under water in their homes get above water, and second, we are launching an emergency homeowners' loan program for unemployed borrowers to be able to stay in their homes. And Ed, in the biggest picture here, let's remember, when we came into office what was driving this housing problem was bad loans. Today, it's jobs. That's the key issue. So in addition to focusing on the housing market, the president also focused like a laser on jobs.

HENRY: Let's stay on housing for a moment, though. You are saying it could have been a lot worse without some of the president's initiatives, but over the last year, you have been pretty rosy about your scenario in the housing scenarios.

I want to go through some of your statements. In December of last year, you said, "We believe we may finally be seeing the light at the ends of the tunnel." You said in May, "The truth is that our housing market like our economy has begun to turn the corner." You also said at the beginning of this very month, "There's no question that the state of today's housing market is in significantly better shape than anyone predicted a year ago." Mr. Secretary, do you still stand behind those rosy statements?

DONOVAN: Look, Ed, here is what happened. For 30 months before the president came into office, housing prices fell every single month. They have stabilized as a result of our policies up to now. American homeowners added a trillion dollars in equity over the last year. So I think there is no question that our policies have made a real difference. The real issue is today, and as I said before the July numbers were worse than we expected, worse than the general market expected and we are concerned. That's why we are taking additional steps to move forward.

HENRY: But in May, you said we are beginning to turn the corner. Can you still say that? Are we still turning the corner when these numbers are so awful?

DONOVAN: Ed, compared to where we were -- and I am talking about where we have been for the last 18 months, the housing market, no question was significantly better. The issue now and what we are focused on is the future.

HENRY: OK, let's talk about New Orleans, where you are. It was devastated after Hurricane Katrina in terms of housing. What is your progress this morning for the American people? They are hearing mixed reports, frankly, about how much of the city has been rebuilt.

DONOVAN: Well overall, this is the place, New Orleans in the Gulf Coast, where I think the American people witnessed a real loss of faith in their federal government. I have been really moved by the spirit of the people in New Orleans in the Gulf, and their rebuilding, and the optimism in progress that I have seen. More than 90 percent of the population is back in the New Orleans area. And there is still much ahead of us.

But let me give you some of the key things we have done on the housing front. When we came into office, there were 40,000 families who were in trailers or using emergency vouchers, and literally tens of thousands of them were at risk of losing their homes within just weeks of us coming in. Today, 98 percent of those families are in permanent housing. Another issue that was a major one when we took over, the four -- big four public housing developments here in New Orleans had been demolished and not a single one of the families had moved back. Today construction is moving forward and hundreds of families have already moved back into their homes.

HENRY: Mr. Secretary, let's end on the big picture, because all of what is happening in New Orleans is happening in the back drop of a huge economic crisis. People have been hard hit there because of the oil spill as well. And now there is this cover story in "Time" magazine, rethinking home ownership, and it is basically saying why owning a home may no longer make economic sense. And one of your deputies, Raphael Bostic, is quoted in here saying, "There is this notion that being housed well is synonymous with being a home owner. That narrative has got to change." This is kind of a radical new idea that is being talked about, a debate throughout the country that maybe homeownership is not for everybody. Where does the administration come down on that?

DONOVAN: Well, I have said consistently that -- and the president has said this, that we need to have a more balanced housing policy in the country. For too long, our focus at the federal level was only on homeownership to the exclusion of rental.

Homeownership is important, and we are going to continue to make sure folks have access to homeownership, but we need to make sure that we have decent, affordable rental housing in this country as well. And New Orleans in the Gulf Coast is a perfect example. That is why we have been focused on making sure the public housing residents can get back in their homes. That's why today there are more federally assisted rental units in New Orleans than there were before the storm. And so we're going to continue to focus on having a truly balanced housing policy in the country.

HENRY: What about the fact that "The New York Times" had a piece this week that was suggesting that really a radical shift in how homes are used and that's no longer going to be the piggy bank that a lot of our viewers expected it to be, maybe helping them with their nest egg. And there's a quote in there saying, "Housing values will only keep up with inflation. A home will return the money an owner puts in each month but will not multiply the investment." Do you agree with that assessment?

DONOVAN: I think it's too early to say whether we're going to see prices continue to rise only with inflation. What most analysts are still predicting is that we would see a rise over the long term that's somewhat above inflation, but I think the key here, Ed, is that we've got to get back to basics on homeownership. We've got to have decent, safe, smart loans that help families not just get into a home but stay in a home. And look, the issue here is families can choose homeownership. They ought to be able to choose homeownership, but if they do that, they ought to get it with a safe mortgage loan that will keep them in that home long term.

HENRY: Let's end on two quick points. First of all, along the lines of this debate, there are some critics saying the federal government can't keep up the intervention to try to prop up the industry much longer. Along those lines, you mention the $8,000 first-time home buyer credit expired a couple of months ago. Many people believe that's why some of the housing numbers were so bad this past week. Is that housing credit now dead?

HENRY: Or does the administration think you should try to revive it to try to prop this industry up?

DONOVAN: Look, Ed, I think it's too early to say after one month of numbers whether the tax credit will be revived or not. All I can tell you is that we are watching very carefully. I talked earlier about new tools that we will be launching in the coming weeks, and we are going to be focused like a laser on where the housing market is moving going forward, and we are going to go everywhere we can to make sure this market stabilizes and recovers.

HENRY: Thank you, Mr. Secretary, for joining us. Good luck in New Orleans. We hope you'll come back.

DONOVAN: Thank you.

HENRY: Up next, we will look at the struggling economy from the perspective of one of the hardest hit states and talk to two men who are fighting to be Florida's next senator.

(COMMERCIAL BREAK)

HENRY: Housing, jobs and the economy will dominate the coming election, and nowhere is that clearer than Florida. Its rate of foreclosures is more than twice the national average, third highest in America. Its unemployment rate is two points above the national average, making it one of the five highest in the country. Both problems were exacerbated by the Gulf oil spill, which undercut the summer tourist season. All that's at the center of one of the most closely watched Senate races in the country, a three-way battle royale.

Congressman Kendrick Meek won the Democratic primary Tuesday with the support of President Obama. Republican Marco Rubio used the backing of conservatives and some members of the Tea Part to seize the Republican nomination. He painted Governor Charlie Crist as too moderate and too close to the president, prompting Crist to bolt the GOP and run as an independent. All three will debate on "State of the Union" right here with Candy Crowley October 24th at the University of South Florida. Marco Rubio declined our invitation to appear today, but when we come back, Governor Crist, whom we talked to earlier, and then Kendrick Meek live right here on "State of the Union."

(COMMERCIAL BREAK)

HENRY: Welcome back to "State of the Union." I am Ed Henry filling in for Candy Crowley.

Joining me now from Jacksonville is Governor Charlie Crist, the independent candidate for U.S. Senate in Florida. Thank you for joining us, Governor.

CRIST: Ed, it's great to be with you. Thank you.

HENRY: I just spoke to the president's housing secretary, and he signaled the door may be open to extending this $8,000 tax credit for first-time home buyers. Would that help your state? And would you urge the president to push it now?

CRIST: I think it would help enormously. I mean, just last night I was in Orlando at the Florida Realtors Association meeting, and one of the participants asked me that exact question, you know, could we get this $8,000 so that we could kick-start home sales in Florida again. And you know how important that is for the Sunshine State. I think anytime you can reduce taxation in order to spur the economy forward, that's a good thing to do, and that would be great to do. I would absolutely encourage the president to support that, because it would certainly help my fellow Floridians.

HENRY: Now, how would you rate the president's overall approach to housing? In his big picture plan last year, he promised to help 3 to 4 million people who are underwater, their mortgages are worth more than their homes, but in fact it's helped less than half a million people. Do you believe every little bit helps your state or do you think this plan has been a failure?

CRIST: Well, I think that it has been incremental, and that's frustrating for a lot of people. I think the issue we just talked about, you know, extending that $8,000 reduction would be a great lift. It would help people an awful lot. It would stimulate the economy. It would increase home sales in Florida. The more of those type of things that we can do to stimulate home sales in the Sunshine State and, frankly, throughout the country, is exactly what we need to be doing. This is a tough economy. People are hurting, and they're looking for answers. And that would be a good one, I think.

HENRY: Now, you say the president's plan has been frustrating. Other people -- critics have said that as well. But I want to take a closer look at your role in this whole crisis. If you look back to shortly after you were elected, January of 2007, one in every 624 Florida housing units received a foreclosure filing, that was 10th in the country. It's now third in the country, one in every 171 Florida housing units received a foreclosure filing. This is July of this year.

Don't you bear some responsibility for this foreclosure crisis?

CRIST: Well, I think there is blame to go around everywhere. Listen, we are dealing with a global meltdown in the economy. People have said that, you know, rather than the Great Depression, this is the great recession. And there's no question about it. This is the most difficult economic time we have had in America since the Great Depression. I think dealing with that is hard on everybody, and all of us have a duty and an obligation to try to pull together to get us out of this thing.

HENRY: Let's talk about jobs, Governor. Pardon me, there was a lot made in February 2009 when you were a Republican then and you were embracing the president's stimulus plan in Florida. There was that famous hug. Before the stimulus, January of 2009, the unemployment rate was 8.7 percent. July 2010, 11.5 percent. Hasn't the stimulus failed in your state based on your own test, sir?

CRIST: No, I don't think it has, and I will tell you why, very specifically. After we got the money, the stimulus money from the federal government, that helped us save or create 20,000 jobs in education alone, a total of about 80,000 jobs that otherwise we would not have right now. In other words, the statistics that you just talked about, the unemployment rate, would be even higher than it is without that help.

HENRY: But, Governor, your Republican opponent in this Senate race now, Marco Rubio, is just not buying that explanation. He delivered the Republican radio and Internet address this weekend. Let's take a listen to what he said about jobs.

(BEGIN VIDEO CLIP)

RUBIO: You know, since the stimulus was passed, more than 200,000 Floridians have lost their jobs. And for the first time in our history, more than one million Floridians are out of work.

(END VIDEO CLIP)

HENRY: How do you respond to your Republican opponent?

CRIST: Well, if we hadn't taken the stimulus money, instead of 200,000, it would be almost 300,000 Floridians without a job. I mean, the math is not hard to figure out. Obviously we needed it. We saved a lot of jobs. And that's important for my fellow Floridians. So I think he's just got it wrong. It would have been worse if we did not have the money to help those teachers and people in law enforcement and firefighters throughout the state.

HENRY: OK, I want to turn quickly to another important issue to Florida voters who are looking at voters all around the country, health care. You just told a Florida TV station that you would have voted for the president's health plan, then you said misspoke, but your Democratic opponent Kendrick Meek put out a press release saying, breaking, the diagnosis is that Governor Crist has a pre-existing condition, political amnesia. Because after all, you previously said you would push to repeal the president's plan. So which one is it? Do you support the president's health plan, or would you repeal it?

CRIST: There are parts of it I do support and there are parts of it that I take issue with. That's the beauty of being an independent candidate. Had I been there, I would have voted against it. Do I get elected, I'd like the opportunity to help fix it. Now only an independent could look at this one bill and find parts of it that are good and parts of it that are bad. In many weeks, I feel almost like an umpire calling balls and strikes.

HENRY: The bottom line though on health care is that you have flipped on the repeal question. You once said that you would repeal the president's health plan. You are now saying, "I don't like all of it," but you would keep it, you would try to amend it if you were elected to the Senate, isn't that right? You backed off of saying you would repeal the plan?

CRIST: Well whatever word you want to use, what we need to do is fix it and we need to go forward. This is about doing what's right for the people. This election is about the future.

HENRY: Another big issue, same-sex marriage. Many conservatives like Marco Rubio support a constitutional ban on same-sex marriage. But this week, the former Republican Party Chairman Ken Mehlman came out and said he's gay and he called on conservatives to kind of move to the political center and be more tolerant on this issue. You have previously said in your gubernatorial campaign, you supported a constitutional ban on same-sex marriage. Now that you're trying to occupy the political center, are you still in favor of a constitutional ban on same-sex marriage?

CRIST: I feel the same way, yes, because I feel that marriage is a sacred institution, if you will. But I do believe in tolerance. I'm a live and let live kind of guy, and while I feel that way about marriage, I think if partners want to have the opportunity to live together, I don't have a problem with that.

And I think that's where most of America is. So I think that you know, you have to speak from the heart about these issues. They are very personal. They have a significant impact on an awful lot of people and the less the government is telling people what to do, the better off we're all going to be. But when it comes to marriage, I think it is a sacred institution. I believe it is between a man and woman, but partners living together, I don't have a problem with.

HENRY: But governor, doesn't it sounds like you having it both ways by saying live and let live, but I also support a constitutional ban on same-sex marriage. If it's live and let live, why would you ban same-sex marriage?

CRIST: Well, everything is in a matter of degree, Ed, and when it becomes to the institution of marriage, I believe that it is between a man and a woman, it's just how I feel.

HENRY: OK let's talk about another important issue. You refuse to say whether you would caucus with the Democrats or Republicans if you were elected. Some might think it's sort of an inside baseball Washington question, but I want to make clear to our audience, it's not, because there are so many Senate races up for grabs in this election that if you're elected, your decision about whether you would caucus with the Democrats, Harry Reid and make him the majority leader or Mitch McConnell, the Republican, to make him majority leader, that could set the whole agenda. If the Democrats are charged, they get to control things with the Republicans. So let's be clear with Florida voters. If you're elected, do you caucus with the Democrats or do you caucus with the Republicans?

CRIST: I caucus with the people of Florida. I think the most important thing for me to do -- number one, this is a moot question unless I win. So I've got to work very hard to continue to achieve the trust and support of my fellow Floridians to continue to be a public servant for them.

HENRY: Pardon me, but don't the people of Florida, before they go to the voting booth, don't they have a right to know which way you are going to go if you're elected? This could control the balance of power.

CRIST: Well I think they know the way I'm going to go. I'm going to go the way that is best for them, and I sincerely mean that. And that's very important. I don't have to say I'm going to caucus with the Democrats or the Republicans --

HENRY: OK, but you're not going to answer the question because in fact, Joe Lieberman, even though he was elected as an Independent, he found that if he didn't pick the Democrats or the Republicans to caucus with, he wouldn't get committee assignments. So the state of Connecticut would be penalized. So when you say you want to caucus for the people of the Florida, in fact if you don't pick sides, the people of Florida are going to be probably be hurt, they're going to have less clout. You're going to be a man without a country. You're going to be sitting there in the middle of a caucus of one.

CRIST: Well I think the important thing to do, is if I have the honor of winning, ask tough questions. What are you going to improve job creation around the country? What are you going to do to help reduce taxes? What are you going to do to make sure we have good education for our children? Those are tough questions that I'll ask if I have the honor of getting elected to the U.S. Senate and then we'll make a decision thereafter of what is in the best interest of the people of Florida.

HENRY: Now I want to ask you finally about Sarah Palin. You were out on the campaign trail with her in 2008, you did a little bus tour with her, and someone else sent me a note on Twitter saying, quote, "Crist once said Palin would do a great job as president." Do you still feel that way? And we checked the tape, and in fact 13 days before Election Day in 2008, you said this on CNN.

(BEGIN VIDEO CLIP)

CRIST: I think she would do a great job. I mean, realize that she really is the only executive that is running.

(END VIDEO CLIP)

HENRY: Now that you are an independent, do you still think Sarah Palin would be a good president?

CRIST: Doesn't really matter. You know, what does matter is I am trying to be a United States senator and represent the people of Florida, and it is a tough campaign, it's going to be close in my estimation, I believe that I will win, and really what matter is not somebody from Alaska, but my fellow Floridians, and that's what I'm focused on.

HENRY: But governor, you were willing to comment in 2008. It certainly seemed like a Sarah Palin fan. Should I take from this, you are no longer a supporter of Sarah Palin?

CRIST: I am not going to issue a statement on Sarah. What is important to me are the Sarahs that live in Florida, the people of my home state. I respect anybody who puts themselves in the public arena, and she certainly has done that and is to be admired for working very, very hard in doing so. But my issue is about Florida. I care about my fellow Floridians, and what is important to me is doing what is right for them, first and foremost every single day.

HENRY: I appreciate it, Governor Crist, thank you for joining us today from Florida. We hope you'll come back soon.

CRIST: Look forward to it, thank you, Ed.

HENRY: And up next, we'll talk to Governor Crist's Democratic opponent, Congressman Kendrick Meek.

(COMMERCIAL BREAK)

HENRY: And joining me now from Orlando is Kendrick Meek, the Democratic congressman from Florida, and now a candidate for the U.S. Senate. Welcome, congressman.

MEEK: Good morning.

HENRY: Great to have you on. Congressman, you heard from Governor Crist say that he wants the president to now push for an extension of that $8,000 tax credit for first-time home buyers. Are you onboard as well?

MEEK: Absolutely as a member of the Ways and Means Committee, it was essential to helping individuals buy a home again. That tax credit means an awful lot here in Florida. We need more of it.

HENRY: now you are trying to separate yourself from the governor in this race, competing for Democratic voters since he's now running as an independent. But on at least one big issue, you're in lock step and that's the stimulus bill. You both supported it and there are now questions about whether it really worked. I want you to take a look at the unemployment numbers on the screen in your state before and after. January 2009, before the stimulus passed 8.7 percent unemployment in Florida. This summer, 11.5 percent. Series of questions here. First, do you have confidence in the president's economic team? Because CNN has confirmed that one of your fellow Democrats in the House, Tom Perriello, he is in a tight race in Virginia, as you know. He has now called on the treasury secretary to resign.

HENRY: Do you want to see some changes with Tim Geithner or anyone else on the president's economic team?

MEEK: Well, A, we need more of a forward lean. We need more private-sector investment. We have a lot of banks that are holding on to a lot of cash, we have a lot of businesses, especially multinational companies, that are holding on to cash for some reason, not investing in local communities.

We have to have a private sector and public sector approach. I think it's very, very important also to understand that we are still under two years in trying to help this economy rebound, several years of it being ignored. More on foreign issues such as war, versus domestic investment. The stimulus was about...

HENRY: Pardon me, sir, but what do you think about the performance of the president's economic team? I know about -- that businesses are not lending right now, but what about the president's economic team? Have they gotten the job done?

MEEK: Well, I can tell you, it's not just the president and it's not just Washington, D.C. It's also states and local communities. We all have to work together with the private sector to getting folks back to work. Of course there is always room for improvement. If you ask me, the president's economic team, there is always time to huddle, it's always time to evaluate, it's always time to bring players on and take players off.

But what is important right now is that we work as a group effort in getting an economy back up and running again. And I am excited about having an opportunity to run for the United States Senate, become the kind of senator that will push green initiatives and green jobs here in Florida, which we are poised and ready for.

HENRY: So real quick on that point, though. It sounds like you are at least open to the idea of taking some players, as you put it, off the field?

MEEK: Well, when it comes down to it, if certain things are not moving, absolutely. But that's the decision of the White House and not necessarily a decision that I have to make a judgment call on. I have to make sure that I work with local areas here in Florida as a United States senator to make sure that we get new market tax credits, a number of tax credits that will -- other tax credits that will stimulate economic growth here in Florida. HENRY: OK, let's talk about something that you will have to make a decision on, though, either in the House now if you stay there for the rest of the year or in the Senate if you are elected in 2011. Some of your fellow Democrats, like Laura Tyson, she was a top Clinton White House official now on President Obama's outside economic recovery board as an adviser, she is now calling for a second stimulus package. She makes the case, in fact, in this morning's "New York Times." She says, quote, "by next year the stimulus will end and the flip from fiscal support to fiscal contraction could shave 1 to 2 percentage points off the growth rate at a time when the unemployment rate is still well above 9 percent." Nationally, she's talking about.

"Under these circumstances, the economic case for additional government spending and tax relief is compelling."

First, do you believe there needs to be a second stimulus bill and will you push for it?

MEEK: I believe with the Bush tax cuts that are coming in for a sunset that was set by the Republican Congress and also the Republican president at that time, George W. Bush, must be more targeted towards the middle class and small businesses. The super, super wealthy that did not even ask for the tax cut, it's important that we take those tax cuts back, give them to the middle class, that will expand economic growth and will give relief to the middle class and relief to small businesses that are needed for that time.

Of course, I know that the first and second quarter is going to call for. It's going to call for more investment, it's going to call for tax cuts for small businesses and middle class, and that's the platform that I am running on. That's how we get our pay force in bringing about tax cuts for the middle class.

HENRY: We'll get to tax cuts in a moment, pardon me, but you did not answer whether or not you are in favor of a second stimulus plan? MEEK: Well, I need to look at the situation at the end of the fourth quarter and in the first quarter of next year. Of course I do take into consideration what mayors are sharing with me, what economic officials are sharing with me, and I am looking forward to looking at those numbers to see what will work best for economic growth. I don't want to prejudge, but we do know that there has to be more middle class tax cuts, they have to be targeted towards small businesses, that will expand job opportunities. That I do know.

HENRY: OK, let's talk about tax cuts, then. You are on record, as you are saying now, that you want to end it -- at least the tax cuts for the wealthy -- but you want to continue the Bush tax cuts for the middle class.

Mark Zandi, an economist who advised John McCain in 2008, but now is advising Democrats like Speaker Pelosi, he is saying it's just plain reckless to end any of those tax cuts while we are still in a recession. Here is what he told the Washington Post on Thursday. He said, quote,"with 9.5 percent unemployment, which is clearly going to move higher, raising taxes is a gamble that is unnecessary." Congressman, why are you willing to take that gamble when people in your own state are hurting right now?

MEEK: Well, I can tell you, the middle class has taken it on the chin pretty hard. The tax cuts are needed for the middle class, versus the super, super wealthy. I can tell you right now, there are families that are hurting right now that are trying to make ends meet. I am talking about targeting those tax cuts in the places where we need them that will bring about economic growth.

When we look at the Bush tax cuts overall, some are good and some are also not so good, but it's based on borrowed money. Let's just face it. China and India paying for the tax cuts. China and India paying for the war. So we have to look at how do we come into balance under a Democratic Congress. And one of the things that I push in making sure that we move to pay-go. We have to find pay-fors if we're going to talk about it.

We have two conservatives, my two conservatives -- I just want to make this point -- my two career-long Republican opponents, they talk about tax cuts, but they don't talk about how they are going pay for it, where are they going to get the money for them, for those tax cuts from? Are they going to borrow the money again? These are the kinds of policies that we are trying to move away from and move more to the responsible policies that are going to grow the economic environment that we need here in Florida and throughout the country.

HENRY: You raise a good point. How would Charlie Crist and Marco Rubio pay for the tax cuts for the wealthy, but we need to ask you, you say you want to continue middle-class tax cuts, how are you going to pay for those? The administration has not yet come up with a plan to pay for those tax cuts. How would you pay for it?

MEEK: Well, I'm going to tell you, part of it will be rolling back those tax cuts for the super wealthy, rolling back tax cuts that have not shown economic growth. It's very, very important to show where you are going to start. I think a good move in getting our combat troops out of Iraq is going to save this country money. As we look at Afghanistan in the fourth quarter and in the first quarter of next year and second quarter, figuring out how we can move more towards diplomatic solutions versus boots on the ground, because for a pair of boots on the ground in some cases in Afghanistan, we are talking a million dollars per person in the military, which, you know, hey, I support making sure that they are secured and that they are safe and that we have force protection, but at the same time, we have to look at the affordability of what we are doing.

HENRY: Let's talk about the political situation in Florida. Most of the polls seem to show you in third place, behind Governor Crist and Marco Rubio. I was struck by something a top official at the League of Conservation Voters told Politico on Friday. He said, quote, "there is a path of victory for Crist. He is close enough right now to the win number. What we are doing is giving Meek a chance to prove not just that there is a theoretical path to victory, but whether there's an actual path to victory or not."

Here you have an environmental group that tends to back Democrats, and basically, they think you have not made the sale, sir?

MEEK: Well, we have to do a wait-and-see. We still have over 65 days before election day. I have a 100 percent voting record with the League of Conservation Voters. I think they'd be hard pressed not to be for me. But I think it's important to note that the polls are already moving here in Florida. Remember, I just beat a billionaire that spent $26 million, almost 5 to 1 he spent to try to win the race, with a lot of falsehoods. I have shown that I have not only political toughness but a message that Floridians like and resonate with voters. There is no way in the world I would be sitting and talking to you right now as the Democratic nominee if I did not have staying power.

I can't say the same for everyone that's in this U.S. Senate race. The governor had an opportunity to beat Marco Rubio. He decided to bail out at the last minute, right before qualifying and run as an independent. I stand with the nomination and the votes of Democrats in this state. The governor stands with the decision that he made to walk down to the supervisor of elections office in St. Petersburg and register as a Democrat -- I mean, as an independent. He wants to register as a Democrat, but registered as an independent. And also, Marco Rubio was untested in this primary with very little opposition. So I am the only one that has been tested here.

HENRY: Well, Congressman, you are being tested, but I was struck by something you said last night on the campaign trail. You mentioned a former basketball player, used to play in Miami, now playing in Boston. You said, quote, "I don't know if those guys" -- meaning Crist and Rubio -- "want to stand next to me, because I am going to look like Shaq next to them."

Now, was that a reference to Shaq, Shaquille O'Neal playing center and you're trying to beat Charlie Crist to the political center, or are you going to slam dunk on these guys?

MEEK: Let me tell you, this is going to be a very interesting race down here. A lot of folks are looking at it, because we are all individuals that have political records. I am the only Democratic candidate in this race. I am running against two career-long Republicans. And I am not just talking about back benchers. We are talking about the CEO of the state of Florida that was elected as a Republican. We are talking about the former speaker of the House of Representatives here that embraced policies that brought us to the situation that we are in now.

So I look forward -- I also have a record, but my record is more in line with the middle class and being able to fight for the issues that are important to Floridians, smaller class sizes, always being against the privatization of Social Security, standing up for our environment.

MEEK: It's going to be very important, especially with the BP spill that took place, I am the only candidate in this race that was against offshore oil drilling before and after the spill. So I look forward, I really look forward to the debates and I think Floridians, the League of Conservation voters, and others that may have doubts about my candidacy will see the clear difference between me and the other two conservative candidates in the race, and I look forward to that debate. I do not feel that it will be a three-way race all the way to the end.

HENRY: We will see you debating your two opponents right here on CNN in late October with Candy Crowley. In the meantime, I hope for your sake, you are talking about the Shaq of about 10 years ago, not the Shaw of today, because he's kind of lost a step or two.

MEEK: Well, you know, I am more a LeBron, Wade kind of guy right now, because of course I'm a Miami Heat fan.

HENRY: All right, we appreciate you coming in, congressman, we hope to have you back soon.

MEEK: Thank you.

HENRY: And up next, are there any silver linings amid all the bad news about the economy? We'll get some answers from CNN's own Ali Velshi.

(COMMERCIAL BREAK)

HENRY: If there is one state that is harder hit than Florida, it's Nevada where the unemployment and foreclosure rates are the worst in the nation. That's left the Democratic incumbent, Senate Majority Leader Harry Reid, fighting for his political life. But when I caught up with the majority leader on the trail in Las Vegas this week, he was glass half full.

(BEGIN VIDEO CLIP)

HENRY: You have been pushing these policies and yet unemployment is still high here. Why then shouldn't voters fire you?

SEN. HARRY REID (D-NV), MAJORITY LEADER: I don't understand why you folks were always -- you love the bad news. We should look at some of the good news. The good news is we have created 3.5 million jobs, this Congress. We started with an $8 million hole because of what went on in the prior administration. (END VIDEO CLIP)

HENRY: We decided to take Senator Reid's challenge, so we're going to look for good economic news along the slew of negative headlines this week. Who better to separate fact from fiction other than CNN's chief business correspondent, Ali Velshi, right here when we come back.

(COMMERCIAL BREAK)

HENRY: When Candy gave me the keys to the show for at least one Sunday, I thought I would at least have a little bit of fun, so joining me now from Atlanta is my pal, CNN's chief business correspondent Ali Velshi. Ali, I am trying to decide -- I've decided to create a new segment here. Do we call it the Ali Velshi segment or is it like bromance weekend edition? What do you think?

ALI VELSHI, CNN CHIEF BUSINESS CORRESPONDENT: You know, all I know is that I love the show, Ed, but this must have been like -- you must have won a bet with a somebody or something, because normally I'm watching this thing after waking up from a drooly sleep on TV. It's like a bit of a dream being here.

HENRY: All right, well, you cleaned up nice. You're doing the best, the whole three-piece suit thing, so I appreciate you coming in with your Sunday best.

Let's turn to substance. Housing, you heard the Housing Secretary Shaun Donovan, he doesn't do a lot of Sunday interviews. He came out, it was a rough week for the administration with all this bad news. But bottom line, he laid out some new policies. He says they are going to focus like a laser. What do you make of what he said?

VELSHI: Well, you know, here is the problem. Housing was supposed to be the thing that was recovering, and several months ago we thought it was because the Federal Reserve had put so much money into keeping interest rates low combined with the government's programs that came out last spring, to help people stay in their homes.

As you know, Ed, those programs haven't worked all that well, or they haven't worked as well as the government said they would last year. So I was interested to hear that Shaun Donovan is considering a couple more programs he said are going to come out in the next few weeks helping lower-income people and people who lost their job stay in their homes. That might help stabilize home prices.

It's going to reignite the debate though heading into the mid- term elections about how much the government should be doing to keep home prices stable, because the government is spending a great deal of money on this, and there are a lot of people, as you know, think government should be out of the business of sustaining or supporting home prices. HENRY: Let's talk now about the Fed chairman, Ben Bernanke, who gave a big speech on Friday in Jackson Hole. And I remember when Alan Greenspan was Fed chairman, they had this thing called Greenspan Speak and he might say look -- he might go to the Hill and testify saying I had a roast beef sandwich for lunch and a lowly person like me would say, oh, he had a roast beef sandwich. And somebody smart like you would say, ah, no, he meant that the mortgage industry is about to -- and we've got three hours before the mortgage industry melts down. It was coded and you had to decipher it. Go through Bernanke's speech, what he says on Friday, look, I've got unconventional measures at the ready that I may have to use, what is he really saying? What do people watching need to take away from that?

VELSHI: They continue to say the Fed stands ready to support the economy in whatever way they need to. Usually that means keeping interest rates low, but they have the ability to print more money, basically. He is saying they will stay at the ready to do that. Let me give you my translation of what he said. He divided it into consumers and businesses. What he said about consumers is something we already know, that credit remains very, very tight for consumers. It is loosening, it's getting a little bit better, but it's still tight.

Now take a look at this, the piggy bank with 6 percent. That means Americans are saving that much money right now. That's incredible, because when we headed into this recession, Ed, we were saving nothing. The problem with saving means we're not spending, we're not triggering the economy.

So Ben Bernanke thinks all of that pent-up saving will lead to spending, but he thinks that's getting pushed into 2011, so the recovery will come later. Now part of the problem, what you talked to Shaun Donovan about, houses, people want to buy them. The price is pretty good, but they cannot get those mortgages, and if they can't, you need a big down payment. Again, some people think that's a good idea, not making houses too easy to buy. The reality is prices do remain low and those mortgages for a 30-year fixed around 4 percent.

He thinks the housing market, again, starts to recover later on. So basically for consumers he was pushing everything back into 2011. Let's talk about what businesses are doing right now. Bottom line is they are spending some money, they're buying business equipment and they're buying computers. They are just not hiring people right now. In terms of actual structures and things getting built in America, we know the stimulus is getting some of that done, but outside of that, private enterprise, they are only really investing when it comes to oil or mining. So the energy sector is hot. Businesses are not building capital structures and buildings and plants right now.

Now can businesses get credit? But businesses can get credit. They can get credit because they don't use the banks, they use the larger system. Smaller businesses have to use the banks and they are not getting money as easily as they should be. Now as you know, Ed, we depend on smaller businesses to create jobs. And if they don't get credit, they are not doing it. Finally, big businesses that have been making money, they are making money, they're not spending it right now because they are waiting for consumers who are feeling better about the economy to start buying things so there is demand. So as you can see Ed, this remains that whole chicken and the egg thing. Who goes first -- the consumers, businesses or government?

HENRY: And we took Senator Reid's challenges. You had some good news there, savings rate is up, mortgage rates are down. That's good news and businesses are starting to spend. We'll see how long it takes to turn around. Ali, I appreciate you coming in, I sort of like this power shift where I'm the anchor and you're the reporter. But we'll go back to normal tomorrow, 2:40 Eastern time on your show, you'll be back in the anchor chair.

VELSHI: As long as we're hanging out together, any way you want to do it.

HENRY: Appreciate it, Ali. Up next, a check of today's top stories and then Housing Secretary Shaun Donovan shares his story from his high school days when he launched the career of one of CNN's own.

(COMMERCIAL BREAK)

HENRY: Now time for a check of today's top stories. Two NATO service members were killed today in separate attacks across southern Afghanistan. Fighting has intensified in the south as troops attempt to drive the Taliban out of their stronghold.

President Obama meanwhile is traveling today to New Orleans to mark Hurricane Katrina's fifth anniversary. He's expected to discuss efforts to rebuild the region and the latest cleanup efforts from the Gulf oil spill. CNN will bring you the remarks live in the 3:00 p.m. Eastern hour.

Two states held primaries on Saturday. In West Virginia, Democratic Governor Joe Manchin won his party's primary. Republican John Raese will be the GOP Senate nominee. The election will determine the late Senator Robert Byrd's seat. And in Louisiana, Incumbent Republican Senator David Vitter will face Democratic Congressman Charlie Melancon.

And in Indonesia, a volcano that had been active, inactive rather for more than 400 years, erupted early this morning causing thousands to people to flee their homes. Thankfully, there were no reports of casualties or injuries. Those are the top stories.

Up next, Housing Shaun Donovan reveals his stint as a political operative for someone you may have seen maybe once or twice on this very network.

(COMMERCIAL BREAK)

HENRY: Now a footnote to my conversation with Housing Secretary Shaun Donovan. I closed that interview by pressing him on the fact that with the help of an anonymous source, I uncovered a little something in his past, allegations of political activity back at Dalton High School in New York.

(BEGIN VIDEO CLIP)

HENRY: My source alleges that you actually managed the vice presidential campaign of a man named Anderson Cooper.

DONOVAN: Well, your sources are actually very good. And what I would say, you know Anderson has a lot of fans out there. I was in on the ground floor. I gave his endorsement speech for vice president in high school. So you can say maybe I had a little crystal ball, I was a little freshman and I knew Anderson was going someplace.

(END VIDEO CLIP)

HENRY: For the first time ever, I am now going to reveal an anonymous source on the air. It was Anderson Cooper gave me the goods. He also offered to send me a picture of Secretary Donovan from their high school yearbook. I decided to be a little generous and decline. After all, I want the secretary to come back right here on "State of the Union" down the road and talk to Candy, who will be right here on set next Sunday. Thanks for watching "State of the Union". I'm Ed Henry. For our international viewers, "World Report" is next. For everyone else, Fareed Zakaria's "GPS" starts right now.