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'Inside Job'; Education Emergency: Washington Needs to Pay Up

Aired October 11, 2010 - 20:00   ET


KATHLEEN PARKER, CNN NEWS ANCHOR: Good evening. I'm Kathleen Parker.

ELIOT SPITZER, CNN NEWS ANCHOR: And I'm Eliot Spitzer. Welcome to the program. This weekend, I saw a movie, it made me angry. Movie is "Inside Job," a documentary by Charles Ferguson tells the story of a financial cataclysm of the last couple of years, the fleecing of the middle class by Wall Street, the investment bankers, the lawyers and Washington. How everybody in Washington in on this, and you, the middle class, paid the price. If you lost a house, lost a job, paid your taxes, it went to the folks on Wall Street who came out with tens of millions of dollars and we came out with nothing.

Kathleen, we should be angry.

PARKER: Well, I am angry. You know, I went to see that movie, too, Eliot, and I loved it not only because you were in.

SPITZER: Little part.

PARKER: As one of the good guys, I might add. But also, it finally helped me understand kind of how we got here. What I really loved about this movie is that it helped me understand the complex series of events. But what really struck me -- and you can't -- you just can't blame only Republicans, you can't blame just Democrats, either. You can't pin it on President Bush or President Clinton. And it really didn't matter who controlled Congress. It's just a story of runaway greed, of a relatively small number of people who nearly destroyed our financial system.

SPITZER: Well, the only thing I'd say is it's all of the above. It was President Bush, it was also President Clinton and the folks around him. The Fed, the SEC, Congress sitting there -- everybody bought into this notion that Wall Street could just make everybody rich. But you know what they did, they made themselves rich and we are poor. This was one big Ponzi scheme because we had to bail them out and they kept all the money and they gave nothing back to us. And that is what's outrageous and I think has people really angry.

PARKER: Well, let's take a look at a few examples of what these CEOs walked away with and what it costs us tax payers. Stan O'Neal, former CEO of Merrill Lynch, walked away from his job with more than $30 million in cash and more than $100 million in stock. He made the money, you paid the money. Each and every taxpayer in America shelled out $13,000 to fix the mess made by a very rich man. He gave up not one single penny of his wealth.

SPITZER: And you know, you switch over to Goldman Sachs. Of course, everybody know Goldman these days, because of the testimony of Lloyd Blankfein down in D.C. Lloyd Blankfein, $73 million in comp in 2008, that comes out again to about $13,000, because we took a look at the whole cost of this bailout. And this is what was going on, the year before their banks went bust and right when we had to step in with trillions of dollars and they gave nothing back. Where's the sense of loyalty and integrity in any of this?

PARKER: Well, and what you heard them say was, well, yeah, it was wrong and we knew it was wrong, but everybody was doing it, right, we were just all in the same game.

SPITZER: Great moment that's in the movie when Lloyd Blankfein, the CEO of Goldman Sachs, say, yeah, we did it, but they did it too and they did more of it.

Now, what I'd love to see is somebody cross-examine him. How does he know that? When did the other folks do it? He said it under oath. I want to know why and how he knows that.

Now, let's also get back to question you asked before: Why didn't anybody give money back? Tim Geithner should have made that happen. And that is, I think, what is so frustrating to us when we have to show up with all these bags of money for these investment bankers and nobody said to them, oh by the way, that check for $10 million you took out last year, return some of it, because that's only fair.

PARKER: Well, here's another question for you, the former attorney general -- why hasn't anyone been prosecuted? Why hasn't anyone -- I mean, surely there's -- I mean, in my head, I'm just going, guilty, guilty, guilty. It's so infuriating, that I do want to see -- I want to see a perp walk, OK? Surely there's some cause for a charge of fraud or at least the shirking of fiduciary duty.

SPITZER: Well, it seems to me, that is exactly right and when I was attorney general, we made cases and everybody reviled me, they said, oh, you're challenging the financial system. I said, these guys are rife with fraud. I think we're seeing it now. We're going to talk later with Josh Rosner, a spectacularly smart investment banker who's going to show us and talk us through some documents that may be sort of the Holy Grail to explain this. Because these documents show the banks and the ratings agency knew that these mortgages, at the centerpiece of this, were going to fail. So, I think we're going to get closer. Look, somebody's got to be charged. I hope it happens.

PARKER: Eliot, we're going to be talking about this more in the next few days and weeks, but right now it's time to switch gears and talk politics. We've got two of the sharpest political minds joining us. Let's go into "The Arena."

Joining us today are John Ridley, a contributor to NPR and "Esquire" magazine, and Nick Gillespie, editor in chief of

SPITZER: Welcome to you both.


PARKER: Welcome, Nick, nice to see you. How are you? Hi John, how are you?

SPITZER: This is the season of fringe candidates, a switch has been flipped in the country and they are coming out of the woodwork. We'll get to that in a minute, but first, let's take a look at some tape from Carl Paladino, known as "Crazy Carl," the local media. He has certainly livened up the New York race for governor. He's the Republican candidate. Take a look at this little tidbit that we've got for you.


CARL PALADINO (R), NEW YORK GOV CANDIDATE: And don't misquote me as wanting to hurt homosexual people in any way. That would be a dastardly lie. My approach is "live and let live." I just think my children and your children will be much better off and much more successful getting married and raising a family. And I don't want them to be brainwashed into thinking that homosexuality is an equally valid or successful option, it isn't.


NICK GILLESPIE, REASON.COM: I think, you know, Paladino, you know, the first sign something was wrong, anybody who calls them "homosexuals," you know what's coming next is not going to be "I love them dearly." I think that part of it is in New York, a state which you're rumored to have some experience...

SPITZER: You think I understood, yeah.

GILLESPIE: You know, look, Andrew Cuomo and Carl Paladino, it's like -- and I say this because my mother was Italian, I was born in Brooklyn. I have 100 percent insulation against anti-Italian epithets, but, we're looking at Fredo Corleone versus Fredo Corleone, I mean, this is a horribly weak pool.

SPITZER: There is such a sense of failure in the entire leadership class of our society. These and ours (ph), that people are beginning to stretch out exactly what's acceptable.

GILLESPIE: It's the followers the followers have also let us all down, I think, as well. I mean, I think there's enough blame to go around. But it is true and I it goes back to this Dems and Republicans. Look, the 21st century, I mean, we all, I suspect, grew up figuring that we'd be in our personal hovercrafts by now or doing a "Jetson"...

JOHN RIDLEY, THATMINORITYTHING.COM: Where's my jet pack I was promised?

(LAUGHTER) GILLESPIE: And it's like, we have had 10 years in this decade and it's the worst. I mean, it's really awful and we had six years of Republican rule, which was awful and disastrous on every level, and everything since then has been equally bad. I mean, of course, you're going to start looking in the bushes and you find people like O'Donnell who did run. I mean, she beat a nonentity, Mike Castle, everybody's like, oh, he's the great man of Delaware. Who cares? I mean, he's a life-long politician, he's a hack. He had no personality. And what she came out with and the reason she won is she was saying, "hey you know what, I'm going to cut spending. We're spending too much." Nobody cares about the other side.

PARKER: Well, let me ask you what you think after this. I would make the argument that the Republican Party has been catering to sort of a fringe element for a long time trying to build the base, build a base. And now, is this the devil demanding his due? Are we finally now seeing the payback? I mean, William F. Buckley spent a lot of his time trying to marginalize who he considered to be the kooks and now the kooks have come home to roost.

RIDLEY: After 2008, people thought the Republicans would be dead, there's nothing. What are we going to do, where do we get our traction? And it was very difficult to get traction. In my opinion, when you're saying no to everything. Rightly or wrongly, there weren't a lot of new ideas. But all of a sudden there was this anger cropping up and it's something that you can buy into, you can into tap into and you can use that, but it's like in California, we have all kinds of wildfires and you want make a little burn back, but all of a sudden you lose control of that.

SPITZER: Well, this is what I call pinball politics. The volatility is almost like volatility on steroids.

GILLESPIE: But, I don't think it's volatile. What we are seeing, hopefully, you know, not to go kind of Hegelian on an early evening show, but we've had thesis and antithesis, that was the Republicans saying, we're going to spend our way into the poorhouse and we're going to fight stupid wars that we can't justify anymore. Then you get the pinball which is the Democrats coming in and saying, no, we're going to spend even more, and we're going to double down on Afghanistan and follow Bush in Iraq anyway and not clarify anything.

What we're seeing now might be a synthesis, which is that people everywhere -- and it's inchoate, it's inarticulate, and often times it's stupid, but they're saying we have to stop spending, the government at the federal level, at the state level and at the local level. I'm in the private sector and I'm getting screwed and I don't see that happen -- the reason it's happening is because of the this metastasizing government at all levels. And that's why I think this is different. Nobody's for Carl Palatino, I mean, he probably won't win anyway, but the candidates who can credibly say we need to reboot government...

SPITZER: What is going on, in my view, is what we have seen here is a public desperate for an answer latching on to anybody who stands up and says, I have an answer, irrational as it may seem. RIDLEY: Yeah, nothing wrong, though. You know, part of my problem is for what's going on, I blame President Obama and the Democrats. I mean, when this thing flared up, you can go to the Birther movement...

GILLESPIE: When you say, "this thing," what do you mean?

RIDLEY: What I'm talking about, the anger that's out there, whether it's been allowed to just grow and rage. You know, nobody's really stood up against it. My problem is, I think the president -- I'm talking about the president of the United States...

GILLESPIE: Shouldn't people be angry and you were talking earlier...

RIDLEY: People should be angry, but I'm talking about...

GILLESPIE: We have an absolute reason to be angry. We just celebrated the tenth anniversary in Afghanistan and nobody in the country can say, hey, you know, this is what we're doing.

RIDLEY: You're right. I'm not talking about the anger about the issues. Everything we're talking about -- when you talk about reducing government, we've got to do this or that, we got to get out of Afghanistan. There are enough issues out there, whether left right of center, that there's something to gravitate to. What we're talking about this fringe element that feels like it can say anything and that's the way it grabs on to votes.

My problem is that the president, in my opinion, for too long has been standing above it all saying, it will burn itself out, people can say what they want, they can bring whatever argument they want to the table and at some point it will just burn itself out. You don't see that happening.

GILLESPIE: It is righteous anger at a government which is unresponsive and stupid in its major actions that it's taking. And this is -- it's going to continue as all of the little tidbits come out about Obama Care come out. OK, now with medical savings accounts you need a prescription to buy over-the-counter drugs...

SPITZER: And there would have been a way for the president to articulate what was going on had he actually not embraced Wall Street the way he did.

GILLESPIE: I don't think he gets it, though. I mean, he's a total tool of Wall Street. I mean, there's no question.

SPITZER: Well, I wouldn't say it quite that way. (INAUDIBLE)


Look, I started this show by saying Tim Geithner should be fired.

GILLESPIE: Why would you put in -- and remember everyone's like, oh Geithner, he's the only one who can do it. Save us Tim Geithner. He's a joke. He was a joke in his hearings and he's been totally ineffectual.

RIDLEY: Look, you can see how much people are saying who's a witch and who isn't, the headless bodies in the Arizona deserts and things like that, but they're not really talking about are we spending this money effectively? Because there's arguments to be made about should we have spent more money. The problem that we're -- I know that you are going to not agree with that. But you look at the bailout, $60 billion is what TARP Is basically going to cost us at this point. It may cost less...

GILLESPIE: No, no, no. Don't buy that.

PARKER: All right, gentlemen...

GILLESPIE: If you buy that government accounting, that's one of the reasons we're in this fix.

RIDLEY: Yeah, but here's my thing, if you buy that government accounting at $60 billion, it could have started -- it started $700 billion, could have gone much further. Look at procurement programs in the Defense Department.

GILLESPIE: Absolutely...

RIDLEY: Just give me a minute (INAUDIBLE) $60 billion...

PARKER: This is fascinating. Hey, listen. I'd just like to point out that President Obama is now recently lashed out at Karl Rove. Is Karl Rove the reliable bogeyman? Is this the right...

RIDLEY: Did you dis me when I was coming around to the numbers?


GILLESPIE: Defense spending could be cut in half with no loss to national security.

PARKER: They ignored me.

GILLESPIE: But yeah, Karl Rove. Karl Rove is clearly the -- you know, he's the Professor Moriarty of American politics. He's running everything. No, it's not even desperate. I mean, this is like a Brett Favre type of exhibition of, we have nothing left. If you're talking about Karl Rove, what year is it?

RIDLEY: I'm always a little suspect, honestly, when they bring up very specifically people like Rove, like Gillespie, like Boehner, things like that. The other one.


GILLESPIE: By the way, I just want to point out that I'm not part of the Ed Gillespie clan. He's from Texas, I'm with the Brooklyn Gillespie's. OK?

RIDLEY: I really don't think that it plays across America. And I'm not -- I don't want to put out there that people don't care or they're not bright or they're not dialed in. but, I don't think that that's what they care about. I don't think they care about Karl Rove's name. I don't think they go through a checklist. I mean, most people are trying to keep track of who the vice president is, as opposed to keep track to who was in Bush's hands eight years ago.

GILLESPIE: I think even the vice president is trying to keep track of who the vice president is...


SPITZER: Well (INAUDIBLE), I think we got to cut him some slack, but I'll along with you. I think this is not a strategy that's going to work. The president should be talking about what his theory is for creating jobs and solving our economic crisis. Pinning it on Karl Rove and Bush, at this point, simply isn't going to sell people. It does seem desperate (ph). This is not an affirmative argument. The president of the United States should make an affirmative argument...

GILLESPIE: He does not have one, plainly. I mean, because...

SPITZER: I think he does.

GILLESPIE: That's what the stimulus was and it didn't work. It actually made everything worse according to his own projections. He's out of ideas, if he ever had them in the first place.

SPITZER: The problem, Nick, is that...

GILLESPIE: And that's why he's doing this.

SPITZER: The slogan, it would have been worse without the stimulus, doesn't quite roll off your tongue. It isn't something you want to vote for. Thank you for coming. Fascinating conversation. We hope you'll come back.

Coming up, some simple rules on what politicians should not do on camera. "Fun in Politics" is next.

PARKER: And the man who predicted the mortgage meltdown, Joshua Rosner, has a smoking gun to show us. Don't go away, we'll be back in 60 seconds.


PARKER: Is this just pure greed or is this a conspiracy? Is it incompetence?

JOSHUA ROSNER, GRAHAM FISHER: I think it's a combination of incompetence, things are going well and every problem will be taken care of with rising home prices. I think that this was a, "what happens when the children are in charge?"


(COMMERCIAL BREAK) PARKER: OK, it's time for "fun with politics." The campaign season brings out the best and worst in people, especially when I comes to what they wear.

SPITZER: Oh, so true. A wardrobe malfunction can stop a campaign dead in its tracks. Who can forget poor Mike Dukakis, the famous helmet head picture? You know, it's just not fair. Bright, smart, savvy, three-term governor of Massachusetts, this one picture maybe cost him the presidency.

PARKER: Well, that may be an extreme example, nut let's not forget John Kerry in a NASA space suit.

SPITZER: Oh no, not good. John, don't do it again. But you know what, even Nancy Pelosi, the ever-well-dressed Nancy Pelosi, take a look at this. There she is in a mattress factory in San Francisco, last week.

PARKER: Pearls and protective goggles are a fashion no-no, Nancy.

SPITZER: Yeah, just don't do that. So, rule No. 1, no helmets and spacesuits. Rule No. 2, no goggles and pearls. But, the most important rule of all, let's take a look at this.

PARKER: Mama, don't let your cowboys grow up to wear ponchos.

SPITZER: That's tough.

PARKER: And whatever else you might say about "W," he came to play.

SPITZER: And he enjoyed it. This guy enjoyed it. No, just doesn't -- that's not a good picture.


SPITZER: This is a swamp, a cesspool, and somebody should be dropping 1,000 subpoenas right now on it.

ROSNER: And, by the way, this information has been sort of floating around in the ether, in the public ether, in the law enforcement ether, for the past three years.



PARKER: Now for tonight's "Headliner." Remember at the top of the show when we talked about the new documentary "Inside Job," one of the many things in the film that really made me mad was that it seemed like Wall Street investment banks knew they were selling bad loans before the mortgage crisis. Well, that turns out to be true. There's new proof that banks knew that the hundreds of thousands of loans were bad, but they sold them to investors anyway. SPITZER: It appears to be fraud, plain and simple, which is why Josh Rosner is here tonight. He's been shouting about the mortgage crisis from the rooftops for years. He's the head of the research firm, Graham Fisher.

Josh, tell us about these documents, what they say and how they came to light.

ROSNER: Sure, what the documents are is -- when a mortgage was bought by an investment bank with the intent of then turning around and selling it to investors, they would hire a due diligence firm who would come in and explain to them how many of the loans met the underwriting standards that were agreed to and the ones that didn't, were they fundamentally flawed or was there something minor that was flawed. And what they found in these documents that just came out through the Financial Crisis Inquiry Commission, is about 28 percent of the loans that were bought by the investment banks, with the intent of then turning and selling them, didn't meet the underwriting standards that the investment banks agreed to with the...

PARKER: And yet they got these high ratings. So, if the banks knew and the ratings agencies knew that these were not good loans, is there not some basis here for a charge of fraud?

ROSNER: I'm not a lawyer; I don't play one on TV. He is, ask him.


But it does seem to me that there's a real problem here and these documents really highlight that the investment banks had every reason to know that these loans didn't even meet their own standards.

SPITZER: OK, let's just go through this in tiny bit more detail. So, these documents were shown to the investment banks and the investment banks did what?

ROSNER: The investment banks appear to have waved in the securities anyway, these loans.

SPITZER: Just ignored it.

ROSNER: Seems to have ignored it. Turned around, pull them, packaged them, securitized them, sold them to investors, which we should also remember, not only has the taxpayer been harmed here, but the investor which, again, is the taxpayer, right?

SPITZER: And when you talk about securitize, you mean this process of taking all these investments, putting them into big pools and then selling them into pension funds so that these are the retirement investments of people across America.

ROSNER: That's right.

SPITZER: These are the middle class retirement dollars that have been injured. ROSNER: Correct.

SPITZER: Now, you mentioned, Kathleen, the ratings agencies. The rating agencies saw the documents, as well?

ROSNER: Well, the rating agencies have long said, we don't have an obligation to verify any of the information that provided to us by the issuer nor to do our own due diligence. So, they, it seems intentionally avoided collecting this information.

PARKER: And they're going to make money from giving this a hot rating?

ROSNER: Of course. The more deals that are able to be done, the more the rating agencies profit. And so that really became a big piece of this crisis. So now what you've got is you've got investors who actually were told that the pools were full of loans that met underwriting standards that the investment banks seemed to have known they didn't meet.

PARKER: All right, may I just pause here a moment?


PARKER: Eliot, you as the former attorney general of New York, is there not some basis here for a criminal charge?

SPITZER: Well, look, you talk criminal, you get into -- there is a basis without any question for the most rigorous examination. What I would be doing right now would be to drop a subpoena on every investment bank saying, I want to track this information, these documents came from Clayton, the due diligence firm, see where in the company they went, who saw them, who knew about them, who had a conversation about them, and what did they do? And somebody who saw these documents, and as Josh said, saw that there was 29 percent noncompliance and still pushed these mortgages into the security, boom, charge them right there -- failure to apply the rigorous standards. Charge them, recover all the money. And this time, I would hope the ax comes done, no bailout, we claim every...

PARKER: I mean, as a layman, it just sounds like fraud, pure and simple.


ROSNER: Well, and the investment banks in the prospectus would essentially say, there may be loans in the pools that don't meet the underwriting standards and at times, those exceptions may be material. But, so they covered themselves.

SPITZER: This was the so-called fine print in about a 50-page document, one paragraph.

ROSNER: Correct.

SPITZER: Now, why did it take this long for these documents to sort of emerge from this swamp?

ROSNER: Well, that's a good time. It took the FCIC, the Financial Crisis Inquiry Commission, and a subpoena to force these documents out. Why? Because the investment banks certainly didn't want anyone to see the due diligence reports. You would suspect that Clayton, who was hired by the investment banks probably didn't want to throw their own customers overboard.

The rating agencies seemed to have done everything they could to have avoided knowing these documents existed. And the investors now have been fighting to try and get the information to prove that the loans that were in the security that is they bought did not meet the standards that they were told and the servicers of those loans have been pushing back and avoiding giving investors the information they need.

PARKER: So, what's going on here? This is what I want to know, is this just pure greed or is this a conspiracy? Is this incompetence...

ROSNER: I think it's a combination of incompetence, things are going well and every problem will be taken care of with rising home prices. I think that this was a, "what happens when the children are in charge." We saw the risk management culture of the investment banks disappear; the trading desks really took over this business.

And actually, Eliot raised an interesting question: What if the trading desk saw the due diligence documents, knew that 29 percent didn't meet the underwriting standards, knew that those were sold as securities to investors and then with that knowledge traded against that by going short these securities.

SPITZER: Let me explain what you're saying, because this is such a huge point. At the hearings and in this movie, there is an outtake of Lloyd Blankfein saying, we traded against the very documents and very mortgages that we sold to the entire investment community, meaning we shorted them, we were betting on them going down, not up. If they did that when they had knowledge from these documents that they we're now talking about, that in fact they were going to blow up because 29 percent or more were not compliant, that is trading on inside information, could create critical liability. So again, the critical issue is who saw these documents, when, what did they do with that information? This is a swamp, a cesspool and somebody should be dropping 1,000 subpoenas right now on this.

ROSNER: And by the way, this information has been sort of floating around in the ether, in the public ether, in the law enforcement ether, for the past three years and there's been...

SPITZER: Why is the SEC not jumped all over this to see if these mortgages were safe and secure...

ROSNER: True. Very good question.

SPITZER: You know, I'm just flabbergasted when, you know, you called me a while back and you had seen about these things and we began to talk. This is, it seemed to me, the Holy Grail that explains and is the blueprint for unmasking how absolutely venal the behavior was inside these investment banks.

PARKER: All right, this has been fascinating and depressing, but thank you so much for coming.

ROSNER: Thank you.

PARKER: Up next, the party you don't want to miss, "Our Political Party."

SPITZER: We'll be right back.

UNIDENTIFIED FEMALE: We're not having the best and the brightest running anymore. When you have a Christine O'Donnell with an ad starting off "I am not a witch," we know we've sunk to a new level in politics.

GILLESPIE: No, actually, the low was when she said, "I'm you."



PARKER: Welcome to "Our Political Party." This is a show about strong opinions and we thought what better way to serve up these points of view than with a party right here in our studio.

SPITZER: Let's meet our guests. Dave Zirin is author of the "People's History of Sports in the United States" and sports columnist for the liberal magazine "The Nation" and also author of "Bad Sports: How Owners Ruin the Sports We Love."

All right. We're going to give you 10 minutes.


SPITZER: We'll get into that later.

ZIRIN: But for this party, I'd like you to refer to me as "Dave Sunshine."

SPITZER: "Dave Sunshine." And you're going to be Ken Zirin. And then Ken Sunshine who is a PR guru, whose firm is the eponymous (ph) Sunshine Sachs.

PARKER: And we have Nick Gillespie who is the editor-in-chief of, the libertarian Web site, and Julie Menin who is a television star and a civic leader in New York.

Thank you both, and all four of you, sorry, for joining us. I'm sort of partial to my side of the table.

SPITZER: I'll stand up for my side. That's all right.

PARKER: There's a new word in circulation, refudiate, which Sarah Palin tweeted not long ago. And then last night, Ed Gillespie used it on "Meet the Press."

NICK GILLESPIE, REASON.COM: And I do absolutely no relations --

SPITZER: No relations.

PARKER: Oh, yes, absolutely.

GILLESPIE: That's why I'm here tonight.

SPITZER: Well, the leather jacket let us know you were from Brooklyn.

GILLESPIE: I understand he wears leather somewhere else but that's --

PARKER: I'd hate to refudiate you guys, but what is this new word? It seems to have become a part of our lexicon, so we thought we'd toss it out to the table. Do you all have any new words for us?

ZIRIN: I have a new word.


ZIRIN: That I'm using.

SPITZER: You've used a bunch that I didn't understand before.


SPITZER: So give us another one.

ZIRIN: This is a new word. Are you upset that your civil rights heroes have been hijacked by racist ideologues? Well, you just got "Becked." That's what happens.

PARKER: To be "Becked."

ZIRIN: To be "Becked," it's like New Gingrich invoking Martin Luther King -- oh, don't beck King Newt. It just doesn't sound good.

JULIE MENIN, HOST, "GIVE AND TAKE": OK, I have one, too, which is with Carl Paladino and all of the crazy talk he's had lately, whether he's gay bashing or taking on a woman's right to choose, saying women don't have the right to choose even in the case of rape or incest. Paladinuts.

SPITZER: Paladinuts.

PARKER: Paladinuts.

MENIN: Which also applies to Delaware and Nevada as well.

SPITZER: All right. So to be Paladinuts. All right.

PARKER: We're definitely into the proper nouns.


GILLESPIE: I've got one which may be too blue for CNN. But it's a colleague of mine came up with the idea of re (Expletive Deleted), which is you're full of refute (Expletive Deleted) if you say, we've got to stop government spending and then when they say, OK, what are we going to cut? And like Newt Gingrich we'll start saying, (INAUDIBLE). So you're full of (Expletive Deleted).

PARKER: All right, then.

SPITZER: All right. We'll see if we get bleeped on that one. But, you know, we may not include it within the next six months. It's a good concept.


KEN SUNSHINE, PR CONSULTANT: I hate to -- you know, Julie took my thunder. But I -- a verb to be Paladino'd. Now to be Paladino's at first you think it's the greatest gift you can get as a candidate to run against an idiot like him. But after a while, it's so icky and so embarrassing that you've been Paladino'd.

PARKER: I'm not sure someone can steal the thunder from a "sunshine" person.

SPITZER: I want to come back to your point. The whole thing is kind of icky these days. There's no debate. There's no race out there where you can kind of say, yes, there are some smart people. I wouldn't mind either one of them winning.


SPITZER: And there used to be races like that, right?

SUNSHINE: There's something just icky about the whole process. And it's not only the kind of people that are getting into it because, you know, some of the people that are being caricatured are not terrible people. I think Paladino is a terrible person and there's nothing good about him. But it soils everything and it besmirches people.

MENIN: I think that's exactly right and I think we're not having the best and the brightest running anymore. When you have a Christine O'Donnell with an ad starting off "I am not a witch," and we know we have sunk to a new level in politics.

GILLESPIE: Well, actually, the low was when she said "I'm you."


ZIRIN: Yes, exactly.

GILLESPIE: But in the same token, let's not forget -- let's not forget the wonderful moment in the past when we had such great people running for office. I mean, to pretend that this crew is any worse than historical average, I can't believe that. PARKER: Well, everyone is --

ZIRIN: Yes. Because there's no privacy.


GILLESPIE: What do you mean there's no privacy? Carl Paladino -- I mean, we're not learning --

MENIN: But everything goes viral. Everything that you say -- for example, when Paladino bashed gays, it's all over the Internet. There's no escape. So every dirty trick it's out there.

UNIDENTIFIED MALE: Can I say something?

SPITZER: Do we have a moment where Pat Moynihan would stand up and give a speech --


SPITZER: Massive alcoholic but with more -- than 99 percent of the folks in the Senate right now.

SUNSHINE: It's worse now. You didn't have jerks like these people actually running for office winning primaries. I mean --

PARKER: Well, what you're saying is that -- yes, the fringe has become mainstream, unfortunately.


GILLESPIE: Are Meg Whitman and Carly Fiorina fringe candidates?

PARKER: No, they're not.

GILLESPIE: You can point to, you know, nut jobs and people who are not. And again, Christine O'Donnell, you know, I think she's got more than a few screws loose. But her campaign, which nobody wants to talk about, all she said is that I'm not going to be like Mike Castle, a career politician. And I'm not going to be like -- I was going to say Jeff Coons, which would be very interesting --

MENIN: But she's more qualified.


PARKER: If you watch "Inside Job," when you see that movie, you will no longer make the argument that someone is not qualified because these are the brightest people in the world and they completely screwed us.

SPITZER: The plutocracy of this nation so utterly failed in the last 15 years. People are saying toss them all out, we don't care. And I get that.

GILLESPIE: Get rid of plutocracy. I mean, this is a libertarian conversation. If the people who are going to run the government are incompetent and fools, then let's minimize the role that the government has in affecting --

SPITZER: We'll be smarter. We'll be smarter.

ZIRIN: But the problem with the libertarians is that then you hand everything over to the people who ran Goldman Sachs and the stock market.

GILLESPIE: No, actually, you don't.

ZIRIN: Absolutely. It's all about, well, let's have the market then in charge of everything.


ZIRIN: There's a slight problem. There's a slight problem with that because the market is what's gotten into a lot of these problems right now in the first place.

GILLESPIE: No, actually the government got the markets into problems by bailing out either -- implicitly or explicitly, what part of the economy did the government not bail out?

ZIRIN: But that's part of the problem now.

SPITZER: What you need is a government that creates markets. And if you don't protect the market from monopoly power, whether it's Goldman, then the role of government is to --

GILLESPIE: The government is running. It has a monopoly on the money supply, et cetera. The government creates monopolies.

ZIRIN: You end up being a mouthpiece for plutonomy (ph) and that's the problem.


That's what you end up being. You end up being -- when you're leaving in Detroit.


GILLESPIE: Detroit really, it was unfettered markets that destroyed Detroit clearly.

ZIRIN: That's Glenn Beck's argument. That's good.

PARKER: All right.

Hold that thought. We'll be right back.

ZIRIN: That you've been "Becked."

PARKER: Hold that. Hold that thought. We're going to be right back with more of "Our Political Party." Don't tough that clicker. (COMMERCIAL BREAK)

SPITZER: Welcome back to "Our Political Party." Let's do one more quick wraparound at the table.

President Obama's been out in the campaign trail with wonderful killer lines like "we no longer face the possibility of a second Great Depression." Now that gets people on their feet. All right. What should the Democrats' slogan be this fall?

ZIRIN: Just what I think it would be or get people to the polls. At least we believe the earth is round.


ZIRIN: What do you think?

SPITZER: Are you sure we do?

ZIRIN: I'm not sure. But I think just putting it out there, it's like, you know what? Cavemen and dinosaurs did not exist together at the same time. The earth is not, in fact, 6,000 years old and we don't believe in replacing the constitution with the 10 commandments and just trying to stoke that feeling that says the government might have got to be taken over by people -- yes.

SPITZER: Good line.

ZIRIN: But not the good kind of line. Not the people destroying --

SUNSHINE: The Democratic phrase could be, we may have had a rough two years but we don't want the inmates running the asylum.

SPITZER: Most people think the inmates are running the asylum.

PARKER: Well, some of the inmates are running the asylum.

SUNSHINE: If some of those Republicans at one primary is actually getting the Senate, the inmates will be running the asylum.

PARKER: Well, I think we need to say something nice about Republicans, guys. This has been pretty much a Republican bash here.

GILLESPIE: I have nothing to good to say about Republicans, but the Democrats had their shot. Just like the Republicans did for the first six years of this horrible 21st century and they screwed it up, the Democrats had a clear shot and they screwed it up. And, you know, what the Democrats -- the best thing that can happen to them is to, you know, say, wait until 2012, because you're going to hate the Republicans as much as you hate us right now.

SPITZER: So this is Halloween politics? No worse than we are.

GILLESPIE: You know, the Democrats are so bereft of ideas after focusing on things like -- you know, the fact is that Christine O'Donnell as a senator might be totally incompetent, which means that she'll be in the upper third of the distribution, I suspect, of the world's greatest Democratic legislative body or whatever. But there's very little that she can actually do to screw up people's lives in terms of the 10 commandments. Is she going to -- are you going to start --

ZIRIN: I was just asked as a Democratic strategist what am I going to do to stoke up my base if I can't put marijuana referendums on all 50 states.

GILLESPIE: And by the way, there's nobody on the Democratic side who's in favor, you know, at the national level who's in favor of pot legalization. They should be. Candidate Obama talked about it.


MENIN: Short but sweet, we prefer coffee. It can go on mugs, it can go on buses. We're not in favor of the Tea Party. We prefer coffee.

SPITZER: That's good. That's good.

Coming up next, the best idea where we cut through the political fighting to find some real solutions.

Tonight, we're talking to Matt Miller who has some real solutions for our struggling education system. We'll be right back.


MATT MILLER, AUTHOR, "THE TYRANNY OF DEAD IDEAS": It starts with, I think, presidential leadership and talking about it right now. And I know Obama's had a full plate. There's been literally no conversation out of the White House talking about the deep inequity in funding. The fact that our teacher crisis is huge, we've got half the teacher corps turning over in the next decade. That's a huge opportunity or a huge problem.



SPITZER: Now for the best idea where we cut through the political bickering and figure out how to fix something.

PARKER: We both immediately thought of Matt Miller because he wrote a book called "The Tyranny of Dead Ideas" and it is full of good, lively ideas.

So, Matt, talk to us about Obama's educational agenda. What's your appraisal of that?

MATT MILLER, AUTHOR, "THE TYRANNY OF DEAD IDEAS": There's been literally no conversation out of the White House talking about the deep inequity in funding. The fact that our teacher crisis is huge, we've got half the teacher corps turning over in the next decade. That's a huge opportunity or a huge problem. The U.S. is the only wealthy nation that leaves it to 15,000 small local school districts to fund basically themselves and decide what kids should learn.

SPITZER: What are the numbers? Give us a sense of magnitude. How much is federal money? How much is local at this point?

MILLER: When you look at the spending, the federal contribution is around nine percent out of the total kindergarten to 12th grade dollar. And that compares to most other wealthy nation is basically all done nationally. And what that does is because local property taxes are such a big piece of the financing and related state taxes, that means the U.S. has these huge inequities between wealthier districts typically in suburban areas and high-poverty areas that no other advance nation tolerates. So thousands and thousands of dollars per pupil more are spent in these wealthy districts than are spent in the little ones. And while money isn't the only things that matters, it means that because teachers are the biggest portion of the school district budget, it means that the best teachers end up gravitating to the best suburban schools because they get paid more, because there's better working conditions and we rely on the missionary plans to educate poor kids.

PARKER: So poor children really don't have a fair shot at getting a good education. That's not going to change until --

MILLER: Until we change this locally based funding and we say that the Feds have to take a bigger role in helping poorer districts lift their funding so they can compete.

SPITZER: OK. But what's the other piece of this bargain? It's not just a question of pouring federal money in. What comes with that, in your idea?

MILLER: You need to have a grand bargain where we put new money in from the federal level, I believe, in exchange for real reform. So for example, a grand bargain for teachers would say, the Feds are going to put up billions of dollars. And in exchange, the teachers unions will have to give up the lockstep pay scales that they currently require where everybody has to be paid the same based on how many years they've been in the classroom or -- and how difficult it is to fire --

SPITZER: Give up seniority as the basis of pay and put in place --

MILLER: The ability to pay up for specialties like math and science where promising young people have better opportunities outside the classroom so we can attract a new generation of teaching talent to the toughest schools --

PARKER: It sounds sensible. But people don't want any hand over. They don't want any more federal involvement in their local school system, and then teachers are going to rebel against that. So have do we get passed that gridlock?

MILLER: Well, I'm not sure teachers would rebel against it because right now --

PARKER: The union.

MILLER: Well, the unions I think would be open to this grand bargain. Because if you said you're going to put more money in, in exchange for some of these reforms, I think you have the beginnings of a deal. The real opponents are the 95,000 local school board elected officials who have a huge constituency and they want to become state legislators and they want to become, you know, higher officials. And I think we have to challenge that because in a global economy, we're going to leave millions and millions of kids behind.

SPITZER: How do you make sure that when you put this federal money in, localities don't just simply reduce the amount of money they've been putting in so you end up with no additional money?

MILLER: You have to find a way to make sure they keep skin in the game. And you can design the program in a way that would make sure that they have to match what the Feds are doing.

SPITZER: How do you pay teachers based on performance, which is the critical piece of this bargain that you're talking about and paying certain specialties?

MILLER: It's a piece of it. But it shouldn't be the only piece. Other countries do performance-based pay. There are countries like Singapore, where, for example, they've got the top kids, the top young college graduates going into teaching. Finland, South Korea, they attract from the very top of the class. So we tend to recruit for our teacher corps from the bottom two-thirds of the college class which is one piece of the problem. Not all those countries do performance pay, but we do want to pay up for those who are getting demonstrable gains as part of what they're seeing and for the shorter specialties where kids have really other options.

PARKER: How do you measure what makes a good teacher?

MILLER: It's a very tough question. And I don't pretend to have the full answer. There's lots of experiments going on now where they talk about using student achievement gains as a piece of it, using the standardized test. Also using peer observations, using the principal, using all this other stuff. Some countries don't do any of this.

Finland, for example, has outstanding world class results but because they recruit so selectively, one in eight or 10 people get accepted to teacher training, as opposed to open admissions. Here, they have a kind of training in advance in a sort of professional ethic that says, we're going to work as a collaborative group of professionals like doctors in the schools.

SPITZER: Because you described something and you just put out a report with some other folks on this issue. How do you create within those -- the universe of people graduating from college that desire to become teachers? How do you create that?

MILLER: One piece is clearly money. PARKER: Money.

MILLER: You know, when you talk to young people who are at the top of their class, in the U.S., the options available to top third college graduates are obviously huge. And when you've got average salaries today, they're around -- starting salaries around $37,000. The maximum average salary in the country is around $67,000, that just doesn't compete. It used to be a generation ago.


MILLER: But partly because women and minorities didn't have opportunities outside the classroom.

PARKER: That's right.

MILLER: The quality of the teacher corps was subsidized by discrimination in the U.S. Those days are gone.


MILLER: We need to pay up in exchange for reform if we're going to get the kind of people we need to teach our kids.

SPITZER: Is anybody out there carrying this message, this notion of a grand bargain, money for fundamental reform?

MILLER: Michelle Rhee, the D.C. chancellor, was the closest -- I think the closest of anyone to even be serious putting these issues on the table. There are people who think she's been an imperfect messenger for this because she can be very no-nonsense and somewhat abrasive.

SPITZER: Abrasive, right.

MILLER: But she does it because she says, this is not going to be about the adults, it's going to be about the kids.

PARKER: All right, Matt, thank you so much. This is so interesting. We appreciate you coming. We hope you'll come back.

MILLER: Thanks for having me.

PARKER: We'll be right back.


ANDERSON COOPER, CNN CORRESPONDENT: I'm Anderson Cooper. More of "PARKER SPITZER" in a moment. First, the latest.

In Chile, the first of 33 trapped miners could be pulled to safety within the next 24 hours. The latest test of the capsule that will carry the men to the surface one by one was a success. And final preparations to reinforce the escaped tunnel were completed today. We'll have the latest tonight on "360" at 10:00 p.m. Eastern. In Mexico, we're getting conflicting reports from authorities about whether two suspects are being pursued in the case of a missing American man. David Hartley's wife said he was shot in the head while jet skiing on Falcon Lake which straddles the U.S.-Mexico border in south Texas. I'll talk to Tiffany Hartley tonight on "360."

New York gubernatorial candidate Carl Paladino is defending incendiary remarks he made about homosexuals. He told an Orthodox Jewish group that it was, quote, "disgusting" that his opponent, Andrew Cuomo, took his children to a Gay Pride parade. Paladino also says he doesn't want children to, quote, "be brainwashed into thinking that homosexuality is an equally valid or successful option." Today, Paladino said he was referring the difficult path homosexuals face because of discrimination. Meantime, Rich Iott, a Republican candidate for Congress in Ohio, is taking heat for his former hobby, being a World War II re-enactor on the German side pretending to be a member of Adolf Hitler's elite killing machine, the SS. He says his hobby is being taken out of context. I'll talk to him tonight on "360."

That's the latest. Now back to "PARKER SPITZER."

PARKER: All right, Eliot, you're the one who loves bumper stickers.

SPITZER: Indeed, I do.

PARKER: Tonight we have one that works for both of us. It is "Lord, help me be the person my dog thinks I am."

SPITZER: Is that why we got a new addition to the set here tonight. And this is why there's a dog sitting on my lap.

This is Ollie (ph). Ollie is a blind toy poodle. I adopted him about a year ago. He was delivered to a shelter. But my friends -- my friends, Steve and Squeaky Weinstein (ph) loaned him to me one night after I had dinner at their house and here we are a year later.

SPITZER: And you never gave him back.

PARKER: I never gave it back.

SPITZER: And he is attached to you.

So what does he think you are? In keeping with our bumper sticker theme here, what does he think you are?

PARKER: Well, he thinks I'm a goddess, of course.

SPITZER: When they're blind, you can persuade them of anything. I'm not going there. I'm not going to get into trouble.

PARKER: You stole my line. He's blind, so he thinks not only am I a goddess, he thinks I'm perfect in every way.

SPITZER: My dog thinks that. But you know -- PARKER: OK, you have what?

SPITZER: We have a little bichon. We got a little bichon that's like this. A little bit bigger and then our terrier, James, who thinks I'm his personal trainer because whenever I show up we go for a walk or run and you know, he thinks I do good stuff for him.

PARKER: So, Eliot, you have hairdo dogs, too?

SPITZER: Hairdo dogs.

PARKER: Hairdo dogs.

SPITZER: No. My dogs don't have hairdos. No.

PARKER: No, dogs that look like a hairdo.

SPITZER: Oh, they look like dogs. This is -- my Wheaton (ph) is like real dog.

PARKER: Yes. He's been done. He's got --

SPITZER: He's been done. When you meet James, I'm not going to tell him you said he'd been done. He may not take to you the way Ollie here has.

PARKER: Well, thanks so much for joining us. Be sure to join us tomorrow night.

Good night from New York. "LARRY KING LIVE" starts right now.