INTERVIEW TRANSCRIPT

C-SPAN’S “NEWSMAKERS”

Guest: Assistant Treasury Secretary for Economic Policy,

Phillip Swagel

Reporters: Deborah Solomon, Wall Street Journal & Eoin Callan, Financial Times

Moderator: C-SPAN

TAPE DATE: Wednesday, August 29, 2007

AIR DATE/TIME: SUNDAY, September 2, 2007 at 10 a.m. and 6 p.m. ET

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PEDRO ECHEVARRIA, HOST: Joining us this week on Newsmakers is Phillip Swagel. He’s the assistant Treasury secretary for economic policy.

And also joining us is Deborah Solomon, with the “Wall Street Journal,” and Eoin Callan, the economics correspondent for the “Financial Times.”

Ms. Solomon, you have the first question.

DEBORAH SOLOMON, STAFF WRITER, WALL STREET JOURNAL: Well, we’ve obviously seen a lot of turmoil in the markets over the past few weeks related to the subprime lending problems. We’re seeing credit crunches in some places.

Median home prices are expected to decline for the first time in decades. We’ve got potentially two million more defaults over the next two years.

I’m wondering, have the downside risks to the economy changed much? And how do we know how broad this is going to spread?

PHILLIP SWAGEL, ASSISTANT SECRETARY FOR ECONOMIC POLICY, U.S. TREASURY DEPARTMENT: As we look at the economy going into the credit disruptions of the last couple of weeks, we know that we came in in a pretty good position, that the economy was strong, going in that GDP growth was quite strong. Firm profits were doing pretty well. So, we came in in a good position.

How far will it spread is hard to say. And we look at the markets every day. In a sense, when there’s any news – for bad or for good – the markets react quite strongly.

So, there’s a sense in which markets are still quite fragile. So, it’s something at Treasury we’re looking at quite carefully.

What’s the economic effect? In a sense, how does it go from the credit market and the financial markets to the economy?

It certainly has affected our outlook to some degree. Secretary Paulson has talked about the credit disruptions taking a penalty out of growth – you know, some little bit down on our growth forecast. So, it’s certainly a shaded down, what we see for the second half of the year and maybe into 2008.

But right now, the credit disruptions seem to be reasonably well contained. And so, we look at it. And as things ease, hopefully that penalty will be modest.

EOIN CALLAN, ECONOMICS CORRESPONDENT, THE FINANCIAL TIMES: We find ourselves sitting here talking about the extent to which the crisis in subprime mortgages will spread.

Only a few weeks ago, Secretary Paulson, Ben Bernanke, chairman of the Federal Reserve, said that it appeared that the subprime crisis would be contained and would not spill over.

Do you accept that, with the benefit of hindsight, that assessment was a mistake?

SWAGEL: No. You know, we look at it now, and the problem is still certainly the most intense in subprime. Certainly, many parts of the credit market are functioning pretty well.

There’s strains in some areas, but the hardest part is still, certainly, in subprime lending, where many people who might have been able to access subprime credit in the past basically are finding themselves out of that market.

The prime market is doing well. The jumbo market, which had also had some strains, seems to be coming back some.

So, I think it’s still the case that the biggest problem and the biggest strain is fairly well contained within the subprime.

And just to say one more word, looking at it in the broader credit markets, you see a little bit the same thing, that where commercial paper – the sort of revolving borrowing that firms use to fund their day-to-day cash needs – there have been some problems in that part of the credit market. But again, it’s mainly the commercial paper that ultimately has mortgages and some of the subprime mortgages underlying those credits.

CALLAN: What has the Treasury been doing to improve liquidity and help the market recover from the seizure that we saw about three weeks ago?

SWAGEL: Well, I’ll talk about the Treasury role in a second.

I have to say first, of course, the Fed is, in a sense, on the case. And, obviously, they’re independent and we respect their independence. Obviously, the Fed has taken several steps to improve liquidity in the markets. And those steps do seem to have had an effect.

At the Treasury, of course, Secretary Paulson has talked about – he’s really been in close contact, both with other regulators, with the Fed, with market participants, and also with members of Congress, and really with people in the business community as well. So, he’s been monitoring the situation.

The president directed the secretary – and obviously, the secretary told us, his staff – to really think broadly about what steps can be taken and to focus on homeowners.

That’s really the underlying problem, is that we want to make sure that people can stay in their houses. And we know there are people who are being hurt now and could be hurt in the future. And that’s who we want to focus on.

CALLAN: And what answers did you come up with? If you were asked to think broadly about what you could do, what’s the answer?

SWAGEL: Well, I have to tell him first before I tell you and the C-SPAN audience.

You know, there’s a sense in which many people have ideas. And we’ve seen this in the sort of press releases, on the campaign trail, in the newspapers. There’s many ideas, and we’re looking at all of them. There’s no sense of, you know, that’s something we’re not going to touch, we’re not going to look at. We want to look at all of them.

I have to apologize. I can’t go into specifics now about what we’re doing and not doing, just because, obviously, that’s for the president and Secretary Paulson.

SOLOMON: Well, aside from people who maybe didn’t understand the terms of their loans, aside from the fraud that is out there, there’s also been a lot of blame apportioned to the credit ratings agencies, which are paid by Wall Street, and maybe didn’t take quite as objective a view of the risk involved in some of these securitizations as they should have.

This was a problem back in the corporate scandals where credit ratings agencies were sort of called on the carpet for not being – you know, basically telling people that there were risks in companies like WorldCom and Enron.

Is the administration concerned about the role that credit ratings agencies played here? And what can you do to help prevent this from happening again?

I mean, there’s obviously going to be a lot of focus on this from Congress, and they’re going to want some sort of policy changes.

I’m curious, A, if the administration thinks there’s a problem, and B, what it can do to prevent this from …

SWAGEL: No, you’re exactly right, that a lot of people have looked in that direction – in a sense, the underpinnings of the markets – and say, is there the right information and the right transparency?

And Treasury certainly has a role here. The Treasury leads the president’s working group on financial markets.

And one thing that Treasury has done in the past, I should just briefly mention, is put out principles to financial market participants. And one of the key principles there was that people should, in a sense, understand the risk they’re taking. If you’re a lender, you should understand your borrower and have transparency onto that.

Now, that is not the problem. In a sense, that – you know, that lending and the credit agencies – that’s slightly different than the problem of people in danger of losing their houses.

There’s a little bit of a disconnect there, you know, sort of figuring out what’s wrong with credit agencies, and all that. That’s something, obviously, that a lot of people are going to look at, that’s not the short term, you know. How do we help people who are in danger of losing their houses?

SOLOMON: But there must be some concern about the fact – just, the average person looking at this, thinking, OK, you’ve got a lot of people who put no money down for their mortgages, who had these balloon payments coming up, who probably couldn’t meet an income test to pay them. Yes, not a surprise that we’re going to have problems when these things start changing.

How could the credit ratings agencies not give a greater sense of the risk? And how could Wall Street not sort of understand that this was going to wind up being a time bomb?

Isn’t there – yes, the onus is always on the person getting the loan to do their homework. But if you have people telling them, you know, this isn’t such a bad deal, and you have Wall Street sort of selling these packages to other people to back the loans – isn’t there some – didn’t somebody fall down on the job behind the scenes?

SWAGEL: And this is something Secretary Paulson has talked about. When, in a sense, market conditions are benign for a long time, people – it’s not that they get lazy, but in a sense, people’s standards slip, and so, you get comfortable.

But I think that’s what you’re talking about. That clearly has happened, that credit was very easy and conditions were good. Housing prices were appreciating for a long time. And we’re seeing some of the aftermath of that.

One thing that’s interesting is that, I was looking back at what happened a little bit in 1998, when there was also a credit disruption back then. And then-Treasury Secretary Rubin was testifying before Congress and had a similar statement, that things have been benign and, in a sense, people’s standards slipped.

So, this is, in a sense, not the first time this has happened. It’s human nature. We understand it. You know, it’s something that, obviously, a lot of people are going to be looking at.

And I would imagine that, going forward, credit markets will be different. So, there’s a lot of – it’s not quite turmoil, but things are fragile still, right now.

One can imagine in the future that, once the markets calm, the subprime market will be different than it is now. You’re not going to have these kind of – you know, the rating agency says it’s fine, and we’re done. There will probably be a lot more scrutiny, in a sense, a lot more analysis being done of the underlying credit. And that’s probably a good thing.

CALLAN: Just picking up on what Deborah was saying, it’s clear that in this situation, perhaps more so than ’98 or previous market seizures like we’re witnessing now, it’s been apparent that there were problems brewing in the subprime market. All of the difficulties that Deborah listed have been flagged by a lot of observers, commentators, economists, consumer advocacy groups for many, many months now.

So, I’m a little struck that the Treasury is still talking only about looking at problems, beginning to explore solutions. So, I have a two-part question.

One is, can you point to anything concrete that the Treasury has done or is going to do in response to the developing crisis in the subprime market, and now as we have seen it spill over into credit markets more broadly?

And then a follow-up question. You also talked about not ruling things out. Do you think it was premature to rule out allowing Freddie and Fannie to play a greater role – the government-backed mortgage lenders – to play a greater role? Do you think you might revisit that?

SWAGEL: OK. Let me answer the first part first.

CALLAN: Sure.

SWAGEL: You know, again, there’s a sense, which I have to leave it for the secretary and the president to talk about what will happen, or what is happening. Obviously, this is something that people have looked at. It’s not a surprise that there’s some people are having troubles with subprime.

From a broader perspective, what’s gone on in the subprime, it’s certainly challenging for families. There’s lots of families who have a home, who wouldn’t have had one. So, there is some good and some bad.

And it’s a tough problem. It’s the usual, you don’t want to throw the baby out with the bath water.

There are things the administration has proposed that would have an impact and would help. The administration has proposed reforms to the settlement procedures for real estate.

When you close on your house, you get this long document. It’s certainly in English, but it’s not necessarily the English that all of us would sort of read, you know, sort of read easily. So, the administration has proposed reforms there, adding transparency, adding information.

In a sense, consumers have to be more educated. And certainly, that’s going to be part of the solution going forward.

The administration has also proposed reforms to the Federal Housing Administration, essentially making it possible for the FHA, as it’s known here in Washington, to be more involved and to help more people. So, those are some things that the administration has proposed and that will be helpful.

And again, beyond that, I have to apologize that others will, you know, will be – can I try to answer the second …

CALLAN: Please, yes.

SWAGEL: The second question was on the …

CALLAN: Freddie and Fannie.

SWAGEL: … Freddie and Fannie, the government-sponsored enterprises.

And there it’s important to remember that the GSEs, Freddie Mac and Fannie Mae, have an independent regulator. And so, the sorts of changes that you mentioned, that’s a decision for the independent regulator. And as we discussed a minute ago, the problems that we face now are mainly in the subprime market. And Freddie and Fannie, as everyone calls them, are involved in subprime a little bit – not too much – at the very top, really, of the subprime.

They’ve made very large pledges – it’s on the order of $40 billion, with a “B” – $40 billion pledges over the next several years to, in a sense, do more in subprime. And they’re just beginning now to do that. They’ve done something in the millions, with an “M.”

So, obviously, I think everyone would encourage them to keep going and to make good on the pledges they’ve done so far.

The last thing I’ll mention real quickly is that there is a bill to reform the GSEs, that the administration and the Treasury worked very closely with Chairman Frank – Chairman Barney Frank of the House Financial Services Committee – worked very closely and very well with the chairman and with the staff, that’s passed the House. It has not been acted on yet in the Senate.

And so, some of the other things that you’ve mentioned require legislation. And that’s something that, in a sense, I think everyone’s waiting for the Senate to take up.

ECHEVARRIA: Our guest this week on Newsmakers is Phillip Swagel. He’s the assistant Treasury secretary for economic policy. And our reporters joining us this week are Eoin Callan, the economics correspondent for the “Financial Times,” and Deborah Solomon with the “Wall Street Journal.”

Ms. Solomon?

SOLOMON: Some of this problem in the subprime market, while it may be contained there, fuels perceptions among people that things are getting bad. They see on the news they can’t get a jumbo loan, or they can’t buy a house for more than $417,000, if they want one. They’re worried about taking out a home equity loan.

This comes at a time when you’ve already got some deep economic angst in the country. The “Wall Street Journal” did a poll that showed about two-thirds of the Americans we talked to expect the country to go into a recession. There’s concerns about wages. Wages, while they’re up a little, they’re still not back to their ’99 levels.

Is the administration trying to figure out ways to address this angst, which is real? I mean, it’s not just that people are basically sitting out there thinking, well, my paycheck is getting smaller, or I can’t afford as much stuff. There’s a deep-seated sense among a lot of people that things just aren’t getting better.

And I wonder what the administration’s approach to this is going to be in the next year and few months that you have left.

SWAGEL: When I look at the economy, I recognize you have to look at it at different levels. You can look at the data, the macro statistics. And as an economist, that’s always the first go-to place. And the data say the economy’s doing pretty well.

But I think – I understand, and at Treasury and in the administration, we do understand that there are these broader concerns.

You can obviously see them reflected at times in the data, as well. We had consumer confidence earlier this week, which was down. And we understand, families – beyond the challenges you mentioned – you have gasoline prices had risen quite sharply in the spring. They’ve come down a bit, but they’re still at pretty high levels. And, of course, the housing situation has an impact.

So, yes, we realize that this is going on and it has an effect on the economy, on consumers.

The best thing we can do is two-fold. Make sure the economy stays strong, and then take actions to help make sure that gains from the economy are spread broadly.

The first one is really the overall program of the administration, starting with the tax cuts and free trade agreements, and other things, to really make sure that we have a strong economy.

Making sure that it’s shared broadly, that’s hard, because there’s a sense in which the, you know, what’s happening to people at the bottom and some of the anxieties of workers and wages, it’s really a symptom that too many people don’t have the education and the skills that are needed as the economy changes.

And obviously, the administration, the president’s focused on education with the No Child Left Behind. But that’s something that will take a long time.

SOLOMON: Right. So, what can you do – sorry …

SWAGEL: Yes.

SOLOMON: … in the interim?

I mean, on the campaign trail we’re hearing from a lot of the Democrats, that there’s just not a lot being done in Washington. Washington’s basically turned over economic policy to Wall Street.

Whether you agree with that or not, they have all these prescriptions – you know, tax credits and going back to NAFTA and redoing it.

What concrete things is the administration thinking about doing to help spread the wealth more broadly? I mean, assuming you can keep the economy strong, how do you make sure that people are benefiting at the bottom?

SWAGEL: Sure, sure. You know, again, I have to apologize, in the sense that I can’t talk about things that haven’t been announced.

Some of the things the administration has proposed would, in a sense, help share the gains and make, for example, the tax code more fair.

We can talk briefly about one, which is health care, that the president had, I think, a very good proposal in the budget to change the tax treatment of health care, to give what he called a standard deduction to people.

Essentially, if you buy your health care through your employer, you get a tax break. If you don’t, you get nothing. And so, he proposed to change that, and in a sense to make sure that that tax benefit is shared more broadly.

Other people had other ideas, and he said, you know, look, I’m open to all these other ideas. And that’s an area he’s focused on, is really health care. And I think that’s one of the chief sources of people’s anxiety, is health care.

Can I say one more thing, sort of on the same line? This week we also had the new poverty data from the census, which showed a decline in the poverty rate, which I think is good news and no surprise. We’ve had pretty strong growth, and, of course, poverty responds to that. And that’s good news, you know, fewer people in poverty.

The number of people without health insurance went up. And in a sense, this is what the administration is focused on. People not having insurance, that’s a symptom that health care costs are rising very quickly and it’s very expensive. So, the administration has proposed things to try to stem the cost pressures in health care.

CALLAN: As Deborah is aware, there are a lot of calls out there, including from Wall Street, for a new discourse about the way in which the benefits of globalization are spread, and the acknowledgement that free trade in an era of technological change can cause a lot of disruption, and does indeed create losers.

Do you, given your sort of wide background and experience of international institutions, as well, think that perhaps it is time for a new discourse in America about globalization and about trade?

SWAGEL: I certainly favor a conversation on globalization and the benefits of trade and our international engagement.

CALLAN: And the costs of trade, as well?

SWAGEL: Yes, and I was going to say, the first place to start is that there are costs and benefits. I mean, this is the usual joke about the two-handed economist and, well, they’re both there.

And it’s true that trade helps the nation as a whole and many people benefit, but many people are affected. And the people who lose are hurt very specifically and very greatly.

And there are a set of policies in the U.S. to help people affected by trade. They sort of have mixed results.

And one of the things that Secretary Paulson has talked about is revisiting those policies and making sure that we’re doing the right thing for people affected – not just by trade, but by technology, by all the changes in the economy. So, it’s something that he’s focused on.

I don’t have, in a sense, an answer right now to say, here’s what we’re proposing, because, again, that’s not my role.

CALLAN: So, let me ask you then about something that has already been floated. And perhaps you can tell us a little bit more about Treasury’s plans, particularly in light of the hit that businesses may experience from tightening lending conditions.

Do you think the corporate tax cut that was floated recently, both by Secretary Paulson and mentioned then by President Bush, is something the Treasury is going to move forward with in the next year-and-a-half?

SWAGEL: OK. Well, just to – the answer is, yes, for sure. The Treasury is going to move forward on looking at the corporate tax code.

I have to correct one thing, which is that the secretary and the president talked about looking at the corporate tax code. They didn’t float a particular cut. So, just to …

CALLAN: Well, there was a document floated that was circulated by the Treasury that had looked at the possibility of a cut from a corporate tax rate of sort of 35 plus, if you take into account state taxes, to around about 27 percent, to make it more – to make the U.S. more competitive compared to OECD countries.

So, I’m asking specifically about that proposal.

SWAGEL: Oh, sure. No, I understand.

And just for the viewers, I encourage everyone to go to the Treasury Web site and take a look at the background paper that Eoin is referring to.

What the background paper goes into is to say, the corporate tax code that we have now has all these preferences. You know, if you do this activity or that activity, you get a little or big, targeted tax break. And the background paper made the point that, if we in essence cleaned up the code and what we call “broaden the base” – basically treat everyone the same, not have these sort of preferences – if you do as much as you could there, you could lower the corporate tax rate from 35 percent down to 27 percent.

So, that would be revenue – what we call “revenue neutral.” We wouldn’t collect any more or any less tax. We’d just, in a sense, be more even about it. So, I just had to make that point.

And again, that’s something that people are looking at. There’s a long background to this in the economics profession of people looking at the corporate tax code and the tax regime on corporations, and on capital more broadly.

And it’s tough thing to talk about, because, ultimately, corporations write checks, but, ultimately, people bear the burden of the tax. There’s a lot of reasons to believe that the ultimate effect of corporate taxes in large part falls on workers.

It sounds funny. It sounds like, oh, if the boss pays a check, the worker doesn’t benefit. And just to take a second to say, way round about, that that happens.

One of the strongest relationships in economics is between a worker’s productivity and their wages. So, when workers become more productive, they get paid more. You know, it doesn’t happen year to year, but on average over a period of time, that’s the case.

So, if firms invest more – essentially, they put in more machinery, more computers – that will raise worker productivity. You do better with a bulldozer than a shovel. That will raise productivity and over time raise workers’ wages.

So, that’s ultimately the goal. It’s not, you know, be nice to corporations week. It’s how do we improve the living standards and the wages of American workers.

CALLAN: The clock is ticking on this administration. Do you think it’s enough of an achievement to broach what you rightly say is a difficult subject? Or do you think that the Treasury is likely to actually do anything concrete about a corporate tax in the next 18 months?

SWAGEL: You know, it’s hard.

One thing I’ve observed in my time in Treasury, is that the discussion of winners and losers, just in town in general – in this town, that is, in Washington, D.C. – is a hard one. We’re talking about a revenue-neutral change in the tax system. If you did that, there would be winners and losers. You can imagine the political difficulty of moving it forward.

So, will it happen in the next 17 months? I can’t say for sure. Are we looking at it? My colleagues in the Office of Tax Analysis, they’re working on it very hard. The secretary is very engaged. The president is very interested. So, sort of stay tuned.

ECHEVARRIA: Ms. Solomon, you get the last question.

SOLOMON: Just switching gears for a minute, I wanted to ask you about global warming.

The issue of a carbon taxes and cap-and-trade is pretty hot on the campaign trail. Congress is expected to take up some bills when they back. Your former colleague, Greg Mankiw, from the Council of Economic Advisors, is one of the loudest advocates for a carbon tax out there.

What’s the administration’s view on carbon tax versus cap-and-trade? And would you expect to have any sort of legislative proposals, or are there any bills in Congress that the administration is particularly interested in supporting at this point?

SWAGEL: Yes, I mean, the administration doesn’t have a position on the particulars of cap-and-trade or if there’s a carbon tax.

The president has talked about global warming over the last couple of months. And even before then, he’s talked about it – it’s a phenomenon that’s important. And he’s directed his advisors to consult with other nations about ways to go beyond the current system, the Kyoto-based system now.

And that’s what the administration is focused on, is consulting with other countries and figuring out, in a sense, what’s the process going forward. So, that’s the – you know, that’s the things that the administration is working on right now.

ECHEVARRIA: Mr. Swagel, about 30 seconds.

How does the performance of the stock market factor into how the federal government looks at the overall health of the economy in the United States?

SWAGEL: Ah, it’s interesting, because, of course, that’s what people think of. You think of what’s the economy, you look at Wall Street, because that’s the number that people see all the time.

You know, there is a relationship, of course. People’s behavior depends on psychological factors and also on their wealth. When the market is up and housing prices are up, people’s wealth is up and they spend more. That’s not – you know, it’s not the be all and end all.

So, the market is volatile. And you have to sort of keep in mind a broad view of the economy. Look at all the data. When we look at all the data, we see a healthy U.S. economy. And we understand that markets are going to be volatile and are fragile a little bit right now.

ECHEVARRIA: Phillip Swagel is the assistant Treasury secretary for economic policy. Thanks for joining us on Newsmakers.

SWAGEL: Thank you very much. It’s my pleasure.

ECHEVARRIA: We’ll be right back to talk with our reporters.

(BREAK)

ECHEVARRIA: We’re back to talk with our reporters.

And Eoin Callan, we talked a lot about the subprime mortgage situation and what’s been the effect of that.

What did you get from what Mr. Swagel was saying about the posture that the Treasury Department is taking?

CALLAN: Well, I think they’re taking a very cautious, hands-off approach at the moment, almost as though they’re trying to escape responsibility, escape blame, when there’s so much to go around, given the scale of the crisis, its depth, the likely duration.

That said, they’ll have time to respond and come out with concrete proposals.

But I also get a sense that this administration is looking for a fresh start. It’s recently ditched Karl Rove. It’s gotten rid of Gonzales. It’s supposed to be launching from the starting blocks again and making a bit of a sprint to the ’08 election.

But they seem stalled at the moment, and that’s a little curious. It’s a little surprising. I think the market turmoil has put them in that position a bit, and I think they’re probably trying to find ways – or I certainly got that sense from talking to Phil – trying to find ways to regain the initiative, but they’re not quite sure what that way is going to be yet.

ECHEVARRIA: And Ms. Solomon, how would you respond to that? What did you take away from what Mr. Swagel was saying?

SOLOMON: Well, I thought it was interesting that he said, obviously, they see the market turmoil having some penalty on growth going forward.

But I think it’s clear that they don’t exactly know. Nobody knows how far this is going to spread. And some of it is sort of snowballing on itself. When people don’t feel like they can take out home equity loans, consumer spending goes down and it can kind of be a self-fulfilling prophecy.

And so, I think Eoin’s right. There’s sort of this sense at Treasury and in the administration that they need to do something. The question is what. And part of the problem is figuring out who you help.

Do you help the people who are hurt now? Do you help the people that might be hurt down the road? And how do you help them? Do you work with the mortgage lenders? And what can you really do?

They’re not going to advocate a bail-out. Some in Congress might want that. But I think that they’re just basically going to have to find some pretty narrow ways to try and help people who have good credit but got caught in a squeeze, as opposed to people who maybe tried to profit quickly from the booming real estate market.

But how do you figure out who those people are? I think that’s a real challenge for them.

ECHEVARRIA: And Mr. Swagel had mentioned some proposals, such as reforming the settlement procedures, reform to FHA and to work with Freddie and Fannie.

How do those proposals go into the light of what happens in the end as far as stability in the market and stability for the consumer?

CALLAN: I think the Treasury’s emphasis – and I think we saw that from Phil – has been very much on homeowners. But there are also broader systemic issues.

There’s issues about the way in which the sub-subprime lending is regulated, the way the issues that Deborah raised so well about credit ratings agencies and how they performed, and how perhaps they should be reformed.

And so, there’s a whole gamut of areas where the Treasury at the moment probably couldn’t be said to be taking a real leadership role, in my view.

ECHEVARRIA: How much power does Treasury have over this?

SOLOMON: That’s part of the problem. I mean, what can they really do? They can use the bully pulpit. They can try to prod some of these agencies.

I mean, FHA is a government agency, so they can do things internally, and they are trying to do some things internally, like being able to refinance mortgages that are in default now, which they currently can’t do.

But some of this is out of their hands. OFHEO, which he mentioned, that oversees Fannie and Freddie, basically is their regulator and is the one who’s going to have to say what they can do.

That said, I mean, Treasury is part of the administration. The administration has a loud voice. And if they wanted to do something pretty bold, they at least could give it a shot and see what happens.

ECHEVARRIA: But the undertone of his whole conversation was optimism as far as this situation was concerned.

SOLOMON: Well, I think it has to be optimistic. I mean, you don’t want people panicking that they’re not going to be able to – you know, that the economy is going to go into a tailspin.

And I think there are certain things they can do to try and help people who are stuck to refinance. But I think the policy prescriptions are probably going to be pretty limited.

ECHEVARRIA: So, if you had to write a story about all this, what would be your lead?

SOLOMON: Oh, I won’t answer that.

(LAUGHTER)

CALLAN: Well, I thought he was very pessimistic about the prospects, the political probability of getting that corporate tax cut through. And I think that that sounded to me like a concession. That’s something that I know some viewers are certainly going to take away from his comments.

ECHEVARRIA: Eoin Callan writes for – is the economics correspondent for the “Financial Times.” We’ve also been joined by Deborah Solomon of the “Wall Street Journal,” a staff writer for that paper.

To both of you, thanks for joining us on the Newsmakers.

SOLOMON: Thanks.

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