Watch this broadcast on Video: Part 1, Green Room (not transcribed)

SYNOPSIS:

ANNOUNCER (POLITICAL AD): Obama's blind ambition. When convenient, he worked with terrorist Bill Ayers. When discovered, he lied. Obama, blind ambition, bad judgment.

ANNOUNCER (POLITICAL AD): John McCain admits if the election is about the economy, he's going to lose. Now as Americans lose their jobs and savings, McCain's resorting to smears and false attacks. Barack Obama launched his first campaign here, not in anyone's living room.

GEORGE STEPHANOPOULOS (ABC NEWS): Those are the ads that voters are seeing in the battleground states this week. We're going to talk about the campaign in a minute, but first, let me get to the economic crisis with our roundtable. George Will, Dan Balz of 'The Washington Post," Paul Krugman, of Princeton and 'The New York Times," and of course, Cokie Roberts. And George, I was just stuck this morning, have been struck for the last couple of weeks. We just saw Ronald Reagan's treasury secretary, Republican Congressman Roy Blunt, a trader on the floor of the New York Stock Exchange, Democrats as well, just agree unanimously the government has to take over banks.

GEORGE WILL (ABC NEWS): Which two weeks ago, they did not agree on. And I wonder if two weeks from now, they will. I mean this was not a part of the package which when the House defeated it, people said the sky is falling.

GEORGE STEPHANOPOULOS (ABC NEWS): The authority was there but they didn't explicitly say you have to do it.

GEORGE WILL (ABC NEWS): Exactly right. What we're dealing with here is public policy as psychotherapy. We're trying to get people to act because the world is awash in money right now. It's just on strike. Sovereign wealth funds. Money market funds. We can re-liquefy the system and get things going again in a hurry, once it seems to me, people understand how many bargains are out there. And let me give you one example. Charles Schwab today has a market capitalization of $23 billion. It has cash and net receivables, assets of $28 billion. That's a bargain.

GEORGE STEPHANOPOULOS (ABC NEWS): Now George Will is not saying go buy Charles Schwab. Let me get to Paul Krugman. You wrote on Friday in 'The New York Times" that it would be absolutely alarming if the world didn't come together this weekend and reach a deal. So far, there isn't one.

PAUL KRUGMAN ("NEW YORK TIMES"): Right, it's no good. By the way, just on your previous point, you yourself made two Freudian slips earlier today. You said partial privatization of the banks and we're actually talking about partial nationalization.

GEORGE STEPHANOPOULOS (ABC NEWS): Nationalization, exactly right.

PAUL KRUGMAN ("NEW YORK TIMES"): Whiplash here. No, this is really bad. I mean if something doesn't come out by late today, you know, we don't know, but it's very scary. And I have to say it's been really disappointing. The communiqué, the G-7, the big economic powers released a communique on Friday which was boilerplate. It was not an actual plan. It was, in fact, if you're used to reading communiques, which alas I am, it had all signs of basic disagreements papered over. So this is not good. You know, at each stage during this crisis, policy has been less than people expected and that builds up a cumulative loss of credibility here. And, you know, I just heard this morning that someone from treasury is saying well, we plan to begin these equity injections into banks within two weeks. Two weeks? You know, Gordon Brown in Britain...

COKIE ROBERTS (ABC NEWS): You say next forever.

PAUL KRUGMAN ("NEW YORK TIMES"): Yeah. Gordon Brown in Britain announced a plan on Wednesday and they're going to do the equity injections in Britain tomorrow. This is slow.

COKIE ROBERTS (ABC NEWS): I must say the notion that we are all at mercy of the G-7 coming out with some agreement today is terrifying. And, you know, these are not people who easily agree. And we're not used to our fate being in their hands. It is not just that everybody is saying that we need regulation which is, as you say, remarkable. I mean one English newspaper had a headline this week - we're all socialists now. But it is also that regulation by international entities.

GEORGE STEPHANOPOULOS (ABC NEWS): And the simplest plan but it's difficult to actually implement, Dan Balz, just simply guarantee lending between all the banks to free up the markets.

DAN BALZ ("WASHINGTON POST"): Yes, but I'm struck by the fact that the degree to which this whole crisis has overwhelmed everything that we're used to turning to. I mean, it's overwhelmed policymakers. As Paul said to me, it's like every step they have taken has been overrun by events. It's overwhelmed leadership. I mean there's nobody that has proven to be a real leader who can in any way begin to restore confidence. President Bush has not been able to do it.

GEORGE STEPHANOPOULOS (ABC NEWS): Nineteen statements over the last three weeks.

DAN BALZ ("WASHINGTON POST"): Secretary Paulson has not been able to do it. Ben Bernanke has not been able to do it.

COKIE ROBERTS (ABC NEWS): Warren Buffett has not been able to do it.

DAN BALZ ("WASHINGTON POST"): Warren Buffett hasn't. And certainly neither John McCain nor Barack Obama has really stepped up in any sense. It's overwhelmed the campaign. And the campaign has continued as if it almost doesn't exist.

GEORGE STEPHANOPOULOS (ABC NEWS): Although they did seem to be playing catch-up this week. Senator McCain came out with his plan to buy up the bad mortgages. Senator Obama by the end of the week was talking about a life line for small businesses.

COKIE ROBERTS (ABC NEWS): And he has an op-ed today in the 'New York Daily News" Obama did about his economic plan, which is basically is a stimulus package that you were talking about.

GEORGE WILL (ABC NEWS): But again, they're all improvising. And I come back to the fact that this is psychotherapy. They're trying to change the world's mood to get the money that's out there, off strike, off the sidelines and back into the game. I mean we see every day, we see this cascade of numbers as people selling off. For every seller, there is a buyer. These are transactions. So there's activity out there. And once, it seems to me all of the cash in the world gets in, we're going to have an increase in the market value.

PAUL KRUGMAN ("NEW YORK TIMES"): It's not just psychological. I mean we had a housing bubble. The end of the housing bubble is eliminating something like $7 or $8 trillion of wealth. Something like a trillion dollars of that is falling on financial institutions one way or another, the loss on mortgages. That leaves the financial system badly undercapitalized. You don't want to deal with a financial institution where assets don't clearly exceed the value of the liabilities. And these institutions don't have that position. And it's not just if we all feel better. It's much more than psychotherapy. They have to have more actual cash. They need to have more capital.

COKIE ROBERTS (ABC NEWS): That was so interesting that you also had Republicans agreeing on the foreclosure issue and buying up mortgages. And it's because you look around and, you know, this is where you see Congress coming from all over the country and in various parts of country this is turned into a...

GEORGE STEPHANOPOULOS (ABC NEWS): They're hearing fix this even though the people don't trust them.

COKIE ROBERTS (ABC NEWS): Absolutely. I mean in Los Angeles, more than half of the houses in the area on the market are foreclosed houses.

GEORGE STEPHANOPOULOS (ABC NEWS): Paul, how are these two programs though going to work together? I guess the three programs. Buying up the bad of mortgages, taking the toxic assets off the books of the banks and then partially nationalizing the banks.

PAUL KRUGMAN ("NEW YORK TIMES"): You know, there are actually - there are two kinds of problems here. There's the high speed. Essentially we've got a global bank run. And the global bank run requires guaranteeing some of those loans and capital injections. You have to make sure that the banks are solvent. You have to make sure that there is some trust until the banks are clearly perceived as solvent. And then there are the things that are about relieving the underlying stress on the economy. And actually, relief on home mortgages is part of that. Even if we have a great program on home mortgages, it would not calm the markets in the next month. That's something that's going to work out over many months, maybe even years. So you really want to make that distinction. And the campaigns, by the way, are not weighing in very much on the immediate rescue, which is understandable. This is technical, it's hard. It's the kind of thing that governments are supposed to do.

GEORGE STEPHANOPOULOS (ABC NEWS): They can't know all of the details?

PAUL KRUGMAN ("NEW YORK TIMES"): Right.

COKIE ROBERTS (ABC NEWS): And they don't want to screw it up.

PAUL KRUGMAN ("NEW YORK TIMES"): Although we also - they don't want to screw it up.

DAN BALZ ("WASHINGTON POST"): Well, they want to win the election first and foremost.

PAUL KRUGMAN ("NEW YORK TIMES"): Right. Then, you know, it is unfortunate, you know, Paulson, has really let us down here. He came on three weeks ago, I'm daddy, I know what has to be done. And three weeks later, it's well, daddy has changed his mind and he's actually agreeing that maybe what the academic economists and some of the Democrats in Congress said was a better plan than his.

GEORGE STEPHANOPOULOS (ABC NEWS): He has been taking heat, George Will, for the decision not to save Lehman.

GEORGE WILL (ABC NEWS): He has. And again, it comes back to the inherent conflict of interest between a man from Goldman Sachs dealing with his old friends, colleagues and rivals on Wall Street. I'm not imputing any bad motives to him. I'm just saying that perception matters in this case.

PAUL KRUGMAN ("NEW YORK TIMES"): There was a really great line, by the way, from William Bowder, who's a British Dutch economist, who said that what has happened to the Fed and other institutions is cognitive regulatory capture. It's not that anybody's actually corrupt, but they do - the way they think comes from the investment banks and that is not a good thing.

GEORGE STEPHANOPOULOS (ABC NEWS): Let me bring this back to the campaign. Dan, up until this week the campaigns were relatively vague on the crisis. We saw some more specificity this week. It seems to have helped Senator Obama so far, but we're starting in here from the McCain camp, it was reported in Politico this morning that he now knows he has to come out with a more comprehensive plan, probably in this last debate, something to carry him through these final three weeks.

DAN BALZ ("WASHINGTON POST"): Well, George, I mean he came out with a plan in the last debate and it was almost - people almost missed it. I mean it was - he didn't explain it adequately. I think we're beyond the point in the campaign in which a candidate or another candidate can come out with a proposal that's in some way or another going to affect voters. I mean I think, you know, this crisis has fundamentally changed the election in a way that is helpful to Senator Obama and harmful...

GEORGE STEPHANOPOULOS (ABC NEWS): Or reinforced underlying trends.

DAN BALZ ("WASHINGTON POST"): Well, it did that, but it broke this open in a way that it hadn't up until now.

COKIE ROBERTS (ABC NEWS): I mean the only thing that John McCain can...

DAN BALZ ("WASHINGTON POST"): I think the individual proposals now are not going to...

COKIE ROBERTS (ABC NEWS): The only thing he can do is not be a Republican.

PAUL KRUGMAN ("NEW YORK TIMES"): Yeah. I mean every Democrat dreams of running against Herbert Hoover all over again. And Obama's getting to do that.

COKIE ROBERTS (ABC NEWS): That's right. And here it is. Right.

GEORGE WILL (ABC NEWS): General Douglas MacArthur said that every military disaster can be explained by two words - too late. Too late to anticipate the danger, too late to prepare for the danger, too late to strike against it. And it's too late now really for John McCain who has been running for president after all, for ten years, to come up with a new persona.

GEORGE STEPHANOPOULOS (ABC NEWS): That's probably right. And that's definitely true. But, it's almost impossible and this goes to your point, Dan Balz, when you have a financial crisis like this hit on the incumbents watch three weeks away, four weeks away from the election, the incumbent party is going to get penalized no matter what.

COKIE ROBERTS (ABC NEWS): And in the Congress as well.

GEORGE WILL (ABC NEWS): But George, remember where the John McCain campaign was 14 months ago. It was in the ditch, widely criticized for being improvisational and chaotic. 14 months later, we're back at the same movie.

GEORGE STEPHANOPOULOS (ABC NEWS): We are.

DAN BALZ ("WASHINGTON POST"): On the other hand, at this point, as George said, the fundamentals of this election have always been bad. And if you talked to the McCain campaign this week, as opposed to three weeks ago, they're in despair about their situation. Now, your point is exactly right. I mean they have been an improvising campaign and that's the way he has always operated, kind of out of his gut and his hip pocket. It has not served him well in this period. On the other hand, they look around them and see this just enormous weight on top of them right now. They feel that they're...

GEORGE STEPHANOPOULOS (ABC NEWS): Well, and then they point out that the day the crisis hit, they were two points up. But the fundamentals were always against him. Meanwhile, we're seeing the crowds in the McCain campaign events get a little more riled up as they see his chances diminishing. And I want to show one exchange from Minnesota where Senator McCain confronted a voter who had some fairly harsh words about Barack Obama.

MINNESOTA VOTER (FEMALE): I can't trust Obama. I have read about him. And he's not - he's an Arab. He is not...

SENATOR JOHN MCCAIN (REPUBLICAN, PRESIDENTIAL CANDIDATE): No, ma'am. No, ma'am.

MINNESOTA VOTER (FEMALE): No?

SENATOR JOHN MCCAIN (REPUBLICAN, PRESIDENTIAL CANDIDATE): No, ma'am. No, ma'am. He's a decent family man, citizen, that I just happen to have disagreements with on fundamental issues and that's what this campaign is all about.

GEORGE STEPHANOPOULOS (ABC NEWS): Cokie, at other points where Senator McCain did that, he was actually booed this week.

COKIE ROBERTS (ABC NEWS): I know.

GEORGE STEPHANOPOULOS (ABC NEWS): And this creates a big debate. The McCain campaign says they've been trying to calm this down. You saw him doing that there. On the other hand, Democrats would say, you look at the campaign that McCain has run over the last several weeks, painting Obama as an other, and he's unleashed the furies.

COKIE ROBERTS (ABC NEWS): Well, yes and no. I mean you have to expect a certain amount of negative campaigning at this stage in a campaign. But I think that what you're seeing there is John McCain looking at the numbers and thinking it's highly likely that he will lose and that he is not going to have his reputation go at the same time. That he is going to come out of this campaign with his integrity intact. I think that's really what you're seeing there.

GEORGE STEPHANOPOULOS (ABC NEWS): Do you think that final decision has been made in the McCain camp? We didn't see, for example, Senator McCain bring up Bill Ayers, the connections between Obama and Bill Ayers in last week's debate. Still an open question probably for this week's debate.

DAN BALZ ("WASHINGTON POST"): I suspect so. I don't think they have made that final decision. They have a totally different view of what's been going on not, just this week, but recently. Their view is that there is a huge double standard going on. That Senator Obama can get away, you know, attacking in the most negative and often personal ways and gets at most a slap on the wrist if nothing more. And that anything that happens around the McCain campaign, whether it's generated by Senator McCain or not, the press and everybody else comes down on their head. They are looking for some way to figure out how they can fight back without being attacked for fighting. And it's a very hard situation. Particularly given the intensity you're seeing in these crowds.

GEORGE WILL (ABC NEWS): Well, one way to fight back is not by saying - the candidate myself saying he's a decent family man, his ad is saying he's a decent family man but a liar and his running mate says he's a decent family man, but a liar and he pals around with terrorists. I mean the dissonance is paralyzing.

PAUL KRUGMAN ("NEW YORK TIMES"): You know, this is also - this is not just McCain and what he did. The fact of the matter is for a long time we've had a substantial fraction of the Republican base that just not regard the idea of Democrats governing as legitimate. Remember the Clinton years, it was craziness, right? That they were murderers, they were drug smugglers. And the imminent prospect of what looks like a big Democratic victory would drive a lot of these people crazy even if Sarah Palin wasn't saying these inflammatory things. It's going to be very ugly after the election.

GEORGE STEPHANOPOULOS (ABC NEWS): It led to one of the...

COKIE ROBERTS (ABC NEWS): On both sides that's true. I mean I think that you've also had a huge number of Democrats who think that the Republicans are illegitimate. And that was particularly outdrew after the 2000 election and to some degree after 2004. And so, you know, you really do have at the core of each party people who are not ready to accept the verdict of the election.

PAUL KRUGMAN ("NEW YORK TIMES"): I reject the equivalence.

DAN BALZ ("WASHINGTON POST"): I think one aspect of this though is that this was a campaign in which because of the two nominees there was an expectation that you might get some of what Senator Obama and McCain have talked about, which is a turning away from the kind of politics that we have had for many years. This crisis calls out for that obviously.

COKIE ROBERTS (ABC NEWS): Right.

DAN BALZ ("WASHINGTON POST"): You're going to need beginning on November 5th...

COKIE ROBERTS (ABC NEWS): And you heard it from the members of Congress on the program earlier. They were...

DAN BALZ ("WASHINGTON POST"): Right. You're going to need beginning on November 5th and certainly January 20th, some kind of coming together. And yet, the way this campaign is closing is pushing it farther apart.

GEORGE STEPHANOPOULOS (ABC NEWS): Now you started out and if you looked at what people were calling for at the beginning of this campaign was also a candidate who could bring the country together as well. But George, both candidates ended up running some version of a turn out the base election. It just so happens that this year the Democrat base is much bigger than the Republicans.

GEORGE WILL (ABC NEWS): That's right. The Republicans do that because that's what they know how to do. The Democrats do it now because it's in their advantage.

PAUL KRUGMAN ("NEW YORK TIMES"): I was critical of Obama early on for this notion that we were going to be bipartisan. It wasn't going to happen in the campaign.

GEORGE STEPHANOPOULOS (ABC NEWS): You wanted a base election.

PAUL KRUGMAN ("NEW YORK TIMES"): I wanted it. And here it is. But after November 5th, we don't do this in America, but we actually do need effectively a government of national unity the day after the election to deal with this crisis.

DAN BALZ ("WASHINGTON POST"): But how do you do that at the end of a campaign in which you're getting this kind of dialogue and these...

GEORGE STEPHANOPOULOS (ABC NEWS): I'll tell you how you do it...

PAUL KRUGMAN ("NEW YORK TIMES"): What we really need is the Treasury Department needs to be consulting with the incoming administration immediately after the election. It needs to be - we can't be doing this.

GEORGE STEPHANOPOULOS (ABC NEWS): Before the election, probably the most important, the single most important appointment the Treasury Department is going to make in the next few months is who's going to head this entire rescue plan. They should be consulting with both candidates right now over that because whoever's going to be president is going to have to deal with that.

PAUL KRUGMAN ("NEW YORK TIMES"): This wasn't a partisan thing. Unfortunately I think - I mean I don't know if the guy is any good or not, but Paulson has chosen somebody from Goldman Sachs.

COKIE ROBERTS (ABC NEWS): A 35 year old.

GEORGE STEPHANOPOULOS (ABC NEWS): But he's just an interim choice. And they're saying they have to put somebody...

COKIE ROBERTS (ABC NEWS): But we are going to see a lame-duck session of Congress. I think that's very, very likely. And then, we'll see. We'll see whether that turns into a brawl with a lot of people who will actually be defeated members of Congress at that session. And whether that's what happens. Or whether they do come together and say, okay, we're going to have some kind of stimulus package. We're going to try to make it something sensible, even though we don't have any money, and go from there. I would be very surprised to see that kind of harmony in a lame-duck session.

GEORGE STEPHANOPOULOS (ABC NEWS): It's very difficult to get. The other answer to your question I think, Dan Balz, is that whoever wins could come out in November, December, and announce members of the other party for their cabinet. They're probably gonna have to do based on where it is.

GEORGE WILL (ABC NEWS): It could be Secretary of Defense, it could be Secretary of State. But not, I think, Treasury.

GEORGE STEPHANOPOULOS (ABC NEWS): You know, even though Warren Buffett was the choice of both men at the debate this week.

COKIE ROBERTS (ABC NEWS): He's got a job.

PAUL KRUGMAN ("NEW YORK TIMES"): Great businessmen are not necessarily great economic policymakers. This is a really bad idea.

GEORGE STEPHANOPOULOS (ABC NEWS): Okay, that's all we have time for today. This roundtable is going to continue in the green room on ABCNews.com. And coming up here, "The Sunday Funnies."

COMMERCIAL BREAK

Originally broadcast, 10.12.08