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PARKER SPITZER

Tea Party Now on the Inside; Korea in Crisis; Busy Lame Ducks

Aired December 20, 2010 - 20:00   ET

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


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

ELIOT SPITZER, CNN ANCHOR: And I'm Eliot Spitzer. Welcome to the program.

Tonight with Democratic power quickly dying Congress is turning into a holiday battleground as the lame ducks try to push through their last few pieces of legislation.

One group that hasn't been heard from much is the Tea Party and they're mad about almost everything that Congress is doing right now.

Joining us to talk about this, Tea Party activist and editor-in- chief of Bigjournalism.com, Dana Loesch.

DANA LOESCH, TEA PARTY ACTIVIST: Thanks for having me back. Merry Christmas to both of you.

SPITZER: Why, thank you.

PARKER: Merry Christmas.

SPITZER: All right. So the Republicans and the Tea Party won a major battle. The Bush tax cuts are extended. You've added a trillion dollars to the federal deficit even though your whole mantra was cut the deficit, balance the budget.

What are you going to do now? Now that you won, you're in charge? Governing is different than campaigning. What's the agenda? How do you cut the budget?

LOESCH: Well, first of all there are two inaccuracies in what you just said. The first being that these are somehow tax cuts. It's not a tax cut. It's basically just an extension of the tax rate which we have had for the past 10 years and I don't really think that it does all that much truly to alleviate some of the concerns that small businesses have.

Now so far as how it adds to the deficits, tax cuts themselves aren't expensive because statistically -- and you can look all the way back to Woodrow Wilson and in either 1912-1916 -- tax cuts actually add to government revenue. The thing that costs is big spending.

Now what I would cut if I were advising this administration, it's really quite simple. And to put it in very fast soundbite terms, and I've said this before on your show, I would cut absolutely everything that is not enumerated in Article 1 section 8. Have a beautiful, luscious budget surplus and everyone is happy. It's kittens and sunshine. That's what I'd do.

SPITZER: Hey, Dana, just so we can understand, because I apologize, I'm just a lawyer and I know Article 1 section 8, and --

LOESCH: I don't.

(LAUGHTER)

SPITZER: We just want to understand.

LOESCH: Yes.

SPITZER: So can we just go through things and you know? You said it was a soundbite. Social Security? Are you going to cut -- are you going to -- I'm just trying to understand for our audience as well. You're going to cut Social Security?

LOESCH: I would if it were my choice. I would allow people to choose whether or not they want to invest their money or if they want the government to control their money.

SPITZER: Wait, wait.

LOESCH: And I know Democrats like to spend that as conservatives stealing old people's money. That's not necessarily how it works. But that's how people --

(CROSSTALK)

SPITZER: But Dana --

PARKER: Wait a minute.

SPITZER: I just go tot follow up, because I'm just trying to understand whether or not you call it --

(LAUGHTER)

LOESCH: Now you're doing the lawyer thing. That's OK.

SPITZER: No, no, no, I'm -- no. I'm just trying to follow along here. Whether or not you call it an extension, I'll put that aside. Everybody agrees there will be a trillion dollars less in revenue over the next two years.

When you say, give people a choice on Social Security, giving them a choice is also going to eliminate revenue for the government. You're not going to save a penny over the next two years. You're going to actually lose money. So are you cutting Social Security spending or not?

LOESCH: Well, wait a minute. I'm curious because you seem to think that the only way that government can collect money is by taking the fruits of someone else's labor and spending it on entitlements.

If you're concerned about cutting the budget let's talk about the $26 billion edu jobs, teachers unions payoffs. We can start with that.

SPITZER: Wait, wait, wait, Dana?

LOESCH: What is it? Unemployment benefits, 13-month extension, it's $56 billion? Let's start with Planned Parenthood funding.

SPITZER: Dana.

PARKER: Wait a minute. I want to --

LOESCH: That's now belong to the edu jobs bill.

PARKER: I'm going to interrupt.

LOESCH: We can easily get those unemployment benefits paid for.

PARKER: I'm going to interrupt both -- I'm going to interrupt both of you because I'm not a lawyer and I hope that some of our viewers are not lawyers. I'm personally sick of lawyers even though I married one. So -- married to one, I apologize to him.

But would you just tell us what Article 1, section 8 is please?

LOESCH: Article 1, section 8 is all the enumerated powers of the Constitution. What the Constitution -- what the government is allowed to do. What it's allowed to collect revenue for. For things very simple like roads, like emergency services, like national defense.

It's not supposed to go towards things like the $26 billion edu jobs bill. It's not supposed to go towards beaver management which is what there were earmarks for.

SPITZER: Dana? Dana, are you saying --

PARKER: Thank you very much.

(CROSSTALK)

LOESCH: Those things aren't supposed to go --

PARKER: Thank you very much.

LOESCH: You're welcome.

SPITZER: Are you saying that Social Security is not authorized by the Constitution?

LOESCH: Why do you keep focusing on Social Security?

SPITZER: Well, because that and Medicare --

LOESCH: I'm not saying -- SPITZER: No, no.

LOESCH: Because you seem to --

SPITZER: Dana?

LOESCH: You focus on that but you ignore everything else.

SPITZER: No, no, no.

LOESCH: And all of that stuff, actually if you add it together costs more.

SPITZER: No, Dana, it doesn't. I'm trying to talk, as you know, we've had this conversation a couple of times. I'm trying to focus on where the money really is, which defense spending, Medicare, Medicaid, and Social Security.

Those are the four big repositories of federal spending.

LOESCH: OK. Right.

SPITZER: And you -- I'm just trying to get a sense of how you're going to cut a trillion dollars from there.

LOESCH: Yes. Well, first of all let's talk about defense spending. Is that something that concerns you? Defense spending? Do you think that it's -- do you think that we either spend too much on it or do you think that it's mismanaged?

SPITZER: Well, I'm asking you how you're going to save a trillion dollars. I'm just trying to figure out whether or not we're going to cut defense spending. Do you want to cut defense spending?

LOESCH: Well, going off the presupposition that tax cuts actually cost instead of add revenue to the government, I'll play devil's advocate for just a moment, and I'll let you frame it that way when we all know that it's illogical. But I'm going to go with it for a second.

Some of the things that I would cut include, for instance, there was a defense appropriations bill that was in 2009 that our president supported within that piece of legislation.

Now for a minute remember that this was to go towards things like funding the cost of munitions and funding salaries for our military servicemen and women. Included in this legislation was like millions and millions of dollars for a visitors' center in San Francisco.

In a defense appropriations bill that has -- should have no reason for being included in it but yet it was we can talk about responsible defense spending. And by the way, that was something that was added in there by Democrats because that was a Nancy Pelosi district.

SPITZER: Dana? Dana? LOESCH: So we can start -- I'm just answering your question.

SPITZER: No, no, no. OK. But I'm trying --

LOESCH: Is what I'm doing.

SPITZER: I'm trying to get anything close to a trillion dollars in cuts. That's all I'm trying to do. Because the Tea Party, and you're one of the big --

LOESCH: I was giving you a bunch of stuff.

SPITZER: Well, you cut so far --

LOESCH: But you don't seem to like my answers --

SPITZER: No, no.

LOESCH: -- because it doesn't fit into the agenda.

SPITZER: So far we've cut a visitors center in San Francisco. And OK, I'm --

LOESCH: No, I'm giving you examples of egregious wasteful spending that are included in defense spending. Because you like to say that defense spending is wasteful. I'm actually agreeing with you on it and I'm telling you in what ways it is --

SPITZER: No --

LOESCH: -- and that can go towards being saving a trillion dollars from our deficit.

SPITZER: You've cut -- you've cut a visitors center in San Francisco. You know, with all due deference.

LOESCH: No, I gave you one example.

SPITZER: OK.

LOESCH: I gave you one example.

SPITZER: Do have you any others?

PARKER: Dana, I know that you are

LOESCH: Yes. There's a --

PARKER: Yes, go ahead. No, I'll let you finish that then I have a question for you.

LOESCH: OK. Well, but for instance -- for instance, Mr. Spitzer, we could get into I think it was the Edward Kennedy Information Center Policy Institute, millions of dollars spent towards that. I mean, we -- there are so many earmarks that are included in appropriations bills such as this that could -- that are spent. It's passed. They're bribes. It's spent.

SPITZER: The --

LOESCH: That could go towards saving a trillion dollars. But --

SPITZER: No, actually -- Dana?

LOESCH: Instead of focusing -- instead of focusing on all of those instances, because I think we both agree that billions and billions and billions and billions of dollars add up to make a trillion over a period of time. Instead of wanting to cut that wasteful spending you want to take money from people who are trying to save it up for their retirement and instead have the government loot it as has been done by Social Security over and over again.

Al Gore promised to put it in a locked box. People keep stealing from it. Why is it that everyone else has to suffer? It's their money, it's the fruits of their labor. It doesn't belong to the state.

PARKER: I feel like I've joined joining Carl Sagan in hell.

LOESCH: Cut spending.

PARKER: Not that he's there. But --

(LAUGHTER)

PARKER: Billions and billion and trillions. Hey, listen, you know, you are kind of a spokesperson. We identify you that as a spokes person for the Tea Party and you have a voice out there. But how much actual interaction do you have with the folks in D.C.?

I mean, what is your role with our legislators on the ground?

LOESCH: Oh, goodness. That's a really good question. My sort of engagement with them is -- well, I mean, every now and then I have lawmakers on my radio show and I talk to them but mostly any discourse that we have with our elected officials is usually we expect you to do this for us.

Otherwise we're going to be a little bit upset or we appreciate you voting in a way that is supportive of the platform of limited government and fiscal responsibility. So that's pretty much from my experience and from those around me, that's sort of the relationship that exists there.

PARKER: Dana, thanks so much for joining us. You're a good sport.

LOESCH: Thank you.

PARKER: And you are most important. Good TV.

(LAUGHTER) SPITZER: Coming up the two Koreas go to the brink of war and step back. We'll have the rare report from inside North Korea and dissect the war games in just a minute. Stay with us.

(BEGIN VIDEO CLIP)

PARKER: Well, it's nerve-racking to the entire world. Is this --

JAMIE METZL, EXEC. VP, ASIA SOCIETY: Yes.

PARKER: Is this our future with the Koreas back and forth? Back and forth?

METZL: Yes.

PARKER: Yes.

METZL: It's our future and it's our past.

PARKER: It's also --

METZL: These guys have an incredible ability to negotiate from nothing. They're incredibly weak. They're starving. Their economy is collapsing. And so they come right to the brink of war and then they say, all right. Now we can start negotiating to come back for this spring so they create leverage out of thin air.

(END OF VIDEO CLIP)

(COMMERCIAL BREAK)

SPITZER: With much of the media focused on business in Washington and Capitol Hill high stakes war games raged on in the Korean Peninsula last night. The U.S. military went on high alert as tensions escalated.

North Korea had warned South Korea not to carry out live fire drills just miles off North Korea's shore and threatened retaliation and potentially another war.

PARKER: Fortunately North Korea backed off its threats and did not respond militarily. Instead it released a statement calling South Korea's action a, quote, "despicable military provocation."

Coincidentally as the showdown unfolded New Mexico Governor Bill Richardson was in North Korea on diplomatic mission to discuss North Korea's nuclear program. Whether he convinced the hermit kingdom to step away from the brink remains to be seen but what we do know is that a crisis has been averted for now.

SPITZER: So were Korean tensions another Cuban missile crisis in the works?

It was an unusually tense and busy Sunday night at the Pentagon. Not often the head of the Joint Chiefs of Staff works at the Pentagon on Sunday night. That's how seriously concerned America was that the situation might escalate out of control.

(BEGIN VIDEOTAPE)

SPITZER (voice-over): The conflict reignited last month when the North shelled Yeonpyeong Island the first attack on civilian areas in the South since the 1950 to 1953 Korean War.

Two South Korean citizens and two Marines were killed. The U.S.'s 27,000 troops and 50 ships in the region and satellites overhead watching for any North Korean troops or weapons movements.

Tensions rose after South Korea announced its intention to stage military drills in the Yellow Sea. At 10:00 p.m. Sunday night Admiral Mike Mullen, chairman of the Joint Chiefs of Staff, went to work at the high security National Military Command Center deep inside the Pentagon.

Mullen had two of his most trusted senior advisers on hand. All of them were concerned about what North Korea's response might be and whether they were going to have to advise President Obama to get involved.

They were in constant touch with Admiral Robert Willard, head of the U.S. Pacific command in Hawaii, and General Walter Sharp, commander of U.S. forces in South Korea.

Earlier, Sharp had gone to the American ambassador to Seoul, Kathleen Stevens, to the Blue Palace, the residence of South Korean President Lee Myung-Bak. Though the U.S. declined comment, Lee Myung- Bak's spokesman said, quote, "The U.S. side said it supports South Korea's military training plan irrespective of North Korea's response and that it will stay with us whatever happens."

Officials tell CNN the U.S. did not openly deploy any military assets wanting to stay as low profile as possible so as not to send any mistaken signals to the North. Only this morning did it become clear that North Korea was not going to respond.

(END VIDEOTAPE)

PARKER: And joining us now on the phone from Pyongyang in North Korea we have anchor of CNN's "SITUATION ROOM," Wolf Blitzer. He's just one of two American journalisms invited to travel to North Korea with Governor Bill Richardson of New Mexico and has had rare access into the hermit kingdom.

Thank you for joining us, Wolf.

WOLF BLITZER, CNN ANCHOR: Thank you, Kathleen. Good to speak with you guys.

SPITZER: Thank you.

PARKER: Well, good to hear your voice. Listen, so did Governor Bill Richardson play any role in defusing the crisis with North Korea in the last 24 hours? BLITZER: I think he did. It's hard to obviously know for sure. It's hard to really get inside the North Korean regime but based on the five, six days that we've been here and what I've seen he met with the top North Korean officials.

He met with the vice president, the vice minister for foreign affairs, the chief nuclear negotiator, Mayor General Pak Rim-Su, who's in charge of the North Korean military along the demilitarized zone. He had an unbelievable access to all of these high officials and I know he repeatedly, over and over again, because I heard him not only in these formal meetings but on -- what they say, the diplomats say on the sidelines when he had these banquets and these private dinners and private sessions, he kept urging restraint, calm down, calm down, calm down.

So I'm not sure that they responded because of what he was urging them but it seemed -- it seems to me that he probably had a -- he probably had an impact.

I will say this. Even before the North Koreans dramatically announced they were not going to retaliate for the South Korean live fire exercise they did agree to establish a -- to allow the International Atomic Energy Agency monitors to come back in and start inspecting their nuclear facility. They agreed to consider opening up a hot line between the North and South military.

SPITZER: You know, Wolf, I think anybody who knows Governor Richardson knows he is an effective diplomat, a very smooth, comforting individual, but you've also got to believe that there is something else going on here behind the scenes with North Korea that in the past couple of weeks and months had been almost -- bellicose, in fact actively bellicose launched military attacks against South Korea.

Now they suddenly take what appears to be a U-turn. How do you make sense out of that? How does Governor Richardson explain this 180-degree shift in their approach to interaction with South Korea and the United States?

BLITZER: I asked him why he thinks there's been this shift. You know, remember they're accused of destroying this -- the South Korean war ship, the Cheonan, killing 46 sailors back in March and then launching these shells at this island Yeonpyeong.

And I said, why the shift? He says maybe they came to realize the bellicose statements and actions, the aggression were not paying off in their perspective, and it could really escalate and get beyond control. Remember there's a million North Korean troops north of the DMZ.

Hundreds of thousands of South Korean troops just below the DMZ, almost 30,000 American soldiers in between right along the border there with thousands and thousands of artillery shells and launchers and missiles and even nuclear bombs, nuclear weapons now. This thing could have escalated. SPITZER: For the past couple of years they've been building all the facilities they can. We just had the recent revelation of the centrifuges that will permit them to enrich all the uranium. So how do you make sense out of this sort of two-track, you know, one very belligerent and one diplomatic track at the same time?

BLITZER: I think in part it's the result of the -- what they call the dear leader Kim Jong-Il getting ready for succession, handing over power, and we've seen this in the past few months to his youngest son, Kim Jong-Eun, and in this transition it's unclear what they need to do to give the young leader, the new leader who is going to emerge in the coming, I guess, years, as a successor to Kim Jong-Il, his father.

They need to give him some credibility especially with the military and maybe, maybe some of those bellicose actions were designed precisely for that. I -- that's what some experts on North Korea have suggested. I'm not an expert on North Korea but it probably has something to do with this transition of power that seems to be in the works right now.

PARKER: Wolf Blitzer, reporting from Pyongyang, North Korea. Thank you so much, Wolf.

BLITZER: Thank you.

SPITZER: Joining us now to discuss further the dramatic events of the past few days the executive vice president of the Asia Society, Jamie Metzl.

Jamie, welcome.

METZL: Thank you.

PARKER: Hi, Jamie. Just how close do you think we came to just an all-out explosion between the two Koreas?

SPITZER: Yes.

METZL: We came close in some ways and not close in others. Obviously, this was a big, big deal. The attack on the Cheonan in March and then the attack on Yeonpyeong Island in November were big, big deals.

At the same North Korea knows how far they can push and both sides have a real reason to not want this to head to full scale war because the South knows how easily Seoul can be destroyed and because the North knows ultimately how weak they are. And if -- so they can escalate to a point and then they need to pull back. And we've seen that over and over. And I think we're seeing it again now I think.

PARKER: Well, it's nerve-racking to the entire world.

METZL: Yes.

PARKER: Is this -- is this our future with the Koreas back and forth, back and forth?

METZL: Yes.

PARKER: Yes?

METZL: It's our future and it's our past.

PARKER: It's also --

METZL: These guys have an incredible ability to negotiate from nothing. They are incredibly weak, they're starving, their economy is collapsing and so they come right to the brink of war and then they say all right now we can start negotiating to come back for the spring. So they create leverage out of thin air.

SPITZER: Yes, but Jamie, let me take a more, more cynical perspective.

METZL: Yes.

SPITZER: You're right. It's back and forth. The pendulum swings continue.

METZL: Right.

SPITZER: But the arc of the pendulum goes farther and farther. We now have a military strike --

METZL: Yes.

SPITZER: -- first against the South Korean naval vessel. Then South Korean soldiers are killed. Now the North Koreans we know have centrifuges, are making enough enriched uranium to build more and more nuclear weapons. So are they not taking us down a path where we're lulled into believing they always pull back?

METZL: Right.

SPITZER: And they're getting more dangerous?

METZL: That's absolutely right and the reason is because the red lines are shifting. Let me take you back in history. 1994 there was the same thing when there was this fear that North Korea was going to start processing plutonium. We went right to the brink of war and then pulled back from it. And at that time in '94 the United States really was in a position to in many ways dictate the terms.

Now we -- it's here 16 years later. China is playing a very strong role. There are no red lines anymore and so there isn't that same kind of moderating force except for the extremes.

SPITZER: How do we know -- Governor Richardson comes back, apparently successful trip. They've agreed to take the enriched rods, ship them overseas.

METZL: Right. SPITZER: IAEA inspectors will be permitted in. What degree of confidence do you have that they will abide by the terms of this three-part agreement?

METZL: None.

SPITZER: No, no.

(CROSSTALK)

METZL: We've been through this. The inspectors have been in, they've been kicked out twice. It's always a back and forth. But the ultimate question for the United States and the world is, is North Korea going to give up its nuclear weapons? And obviously -- I mean we can try to negotiate but these guys are -- they feel their back is to the wall and the nuclear weapons are their ace in the hole.

SPITZER: Their economy is still heading the wrong direction.

METZL: Absolutely.

SPITZER: Stagnating, starvation by some counts within North Korea.

METZL: Yes.

SPITZER: What is the long-term prognosis there? Who's going to take care of it?

METZL: Yes. The long-term prognosis is, it is going likely to get worse and worse and worse unless there is some kind of radical transformation beginning with an economic transformation but we don't see that and the problem with the North Korean regime and ones like it is that -- as soon as things start to open up the regime starts to get really worried.

As I've said when I was sitting at this table last time, it's like when you're in that kind of position either you're in power or you're dangling from a tree, and these guys are trying to balance between the two.

PARKER: Well, as you've said the North Korea wants respectability in the world.

METZL: Right.

PARKER: And the next thing that needs to happen is how does President Obama respond? What's his next move? And if you were advising him what would you suggest?

METZL: Yes. Well, we have to respond to the positive measures that were taken, the announcements that they're willing to let IAEA inspectors back in, even though there are all kinds of problems with that, that they're willing to sell fuel rods even though there are all kinds of problems with that. Because what other alternative do we have? We're not going to invade. We're not going to do any of those kinds of harsh measures so there is this constant back and forth and we -- on one hand we don't want to get played by the North Koreans. On the other hand we don't want to be pushing this thing to war because that's not going to help the South, it's not going to help us, and it's not going to help the world.

SPITZER: Jamie Metzl, thank you for coming by.

METZL: My pleasure.

PARKER: Thanks.

SPITZER: Coming up, just when you thought the housing crisis couldn't get worse one of the largest banks is accused of mortgage fraud. We'll talk with the man spearheading the suit. Stay with us.

(BEGIN VIDEO CLIP)

SPITZER: Will the Republicans in the House genuinely be willing to confront Medicare and Social Security in that budget? Because if not, then I think we're back to where we have been.

TIM PHILLIPS, AMERICANS FOR PROSPERITY: I'll say this. If they don't directly confront the spending issue and bring genuine cuts and reforms, not just short-term cuts, but budgetary reform they'll be out of power for a generation.

(END OF VIDEO CLIP)

(COMMERCIAL BREAK)

PARKER: The lame duck Congress suddenly has become very busy. Over the weekend there was a reversal of "Don't Ask, Don't Tell" and the next few days look jam-packed as well as the Senate takes on the START treaty, a government funding extension, and a 9/11 health care bill.

What are we going to get out of this week? Can the Senate get through this ambitious agenda?

SPITZER: Tonight in "The Arena," we're joined by Tim Phillips, the president of the conservative group Americans for Prosperity, and Steve Kornacki, editor and columnist for Salon.com.

All right.

PARKER: Tim, what do you think? What are we going to get?

PHILLIPS: We're going to get a continuing resolution which would just fund the government at current levels. I think that's a mistake.

SPITZER: For how long?

PHILLIPS: It'll go through the new budget cycle which I guess will be through the spring time.

SPITZER: START treaty? Does it get through?

PHILLIPS: I think in the end it does.

SPITZER: Everybody seems to agree they will pass a bill of some sort just to keep the lights on for two months.

PHILLIPS: Right.

SPITZER: Essentially kicking the can down the road.

PHILLIPS: Right.

SPITZER: They just passed -- it seems to me there is whiplash here. Three weeks ago or so we had the Bowles-Simpson report saying deficits as far as we can see. We've got to cut, cut, cut. The week after they have a good long weekend and everybody gets happy and says, let's pass a tax cut that adds a trillion dollars to the deficit, $4 trillion over 10 years depending on the --

PHILLIPS: No --

(CROSSTALK)

PHILLIPS: You know that, Eliot.

SPITZER: But then they -- now they then pass a budget that doesn't cut anything. I mean how do you square these things? Steve, does this make sense?

STEVE KORNACKI, NEWS EDITOR, SALON.COM: Well, the budget you're talking about is basically I think the Republican Congress recognizing that if they can kick the can down the road for a few months they're going to have a very different Congress.

SPITZER: Right.

KORNACKI: -- that's taking up these issues and one that is much more favorable to their cause. But when you look at the decision that was made in the Senate to basically say let's punt on -- to mix metaphors here, let's punt on the funding until --

SPITZER: Pop the can down the road.

KORNACKI: For a few months. You know I think what was interesting to me about that is if there was one issue that was driving that it was the question of earmarks. And earmarks made about $8 billion of this bill, when you --

(CROSSTALK)

SPITZER: 1.2 trillion. Right.

KORNACKI: It is a fraction of a percent of this bill but it represents I think something we have to really pay attention to in the next Congress and that is the effect that the Tea Party movement has on Republican legislators.

The earmarks are so powerfully symbolic to the Tea Party movement and Republican legislators are so scared of running afoul of the Tea Party movement right now that they're willing to say --

(CROSSTALK)

PHILLIPS: They're symbolic to the American people. I mean if it were just the Tea Party movement jostle that's important, it's symbolic to the American people. They're fed up with this kind of spending, this kind of log rolling that goes in Congress, and there's a genuine revolt out there among a lot of Americans, a majority of Americans.

PARKER: All right. When the budget, though, is introduced next year and we have the Republicans in charge in the House, what are some of the things that are going to go missing?

PHILLIPS: I think there are two areas that they're going to address. Well, many areas but two specifically. Number one, I think pensions and the size of the federal work force, 2.1 million federal workers, $123,000 average annual salary far above what the private sector gets for comparable work. And a pension package which is three to four times what the private sector gets.

Eliot, you were governor. You know there is no way around fixing government spending until you fix that issue. I think they're going to have to take --

(CROSSTALK)

SPITZER: Sure. But I'll get to that in a second. What is the secondary?

PHILLIPS: The second one is going to be welfare reform spending. You look at 1996. They're looking at that. Paul Ryan, those guys are looking at historic welfare reform. Clinton is president. Republicans in Congress. The block grant to the state. Cut the total amount, gave the states freedom to experiment. It worked. It cut spending.

(CROSSTALK)

SPITZER: Here's the thing. And part -- you and I disagree at a whole slew of things, but part of the reason I really admire you is you've had the guts to face up to the reality of what the deficit. So when you say we've got to cut it you individually and your organization have said yes, we've got to deal with entitlements, we've got to deal with defense spending.

PHILLIPS: We do. That's another one.

SPITZER: Now you did not mention entitlements or defense spending as things that you thought the Republicans in the House would really go after. These two things -- you're right. Pensions, it's an issue. Welfare, not so much after the Reform Act. It really -- PHILLIPS: But there's over 140 means tested programs that can still be reformed.

SPITZER: But if you want to bring means testing into government in order to be both progressive and to save money, are you -- is the Republican Congress willing to means test Medicare, Social Security? Because that's where the dollars, that's where the bucks are.

PHILLIPS: I used -- you know, in the old days I was a campaign operator.

SPITZER: Right.

PHILLIPS: But I know this about entitlements. Unless it's bipartisan it's not going to get done.

SPITZER: Well --

PHILLIPS: And that's generally -- and sometimes people say that and they don't really mean it.

Guys, it's got to be bipartisan.

SPITZER: You're right.

PHILLIPS: Because the opportunity for hyperbole and demagoguery is beyond anything or any other issue. So it's got to be a bipartisan effort.

KORNACKI: What I note, though, that's interesting to me is if you look at -- if you take a Republican in the House who I think is the most serious one about really, you know, cutting the deficit and rethinking the role of government when it comes to social programs it's Paul Ryan who's going to be the chairman of the Budget Committee.

And he's released a very detailed plan to do this. But what is most striking to me is how few Republicans have been willing to sign on to this.

PHILLIPS: Yes.

KORNACKI: And I think when you start coming down, when you start looking at when it comes to making cuts in Medicare -- because that's the real driver of costs.

SPITZER: Yes.

KORNACKI: If you're looking at making cuts in Medicare, I remember what happened to the Republicans when they tried this with Bill Clinton in 1995 and they realized that when you start, you know, making the tough cuts people get really upset. I don't see the Republicans signing on anything like --

SPITZER: But Paul Ryan's reputation has exploded because he's smart, he's an intellect. Everybody admires him. Nobody wants to stand next to him. (CROSSTALK)

PHILLIPS: I think he's the most politically courageous guy in the House of Representatives right now. And there are three differences between '95. I was on the Hill at that time as a chief of staff and today. Number one, the situation is much more dire. It is and people --

SPITZER: Financially dire.

PHILLIPS: Americans know that. Number two, there was not a free market ground game army then. There is now. And number three, the new media that exploded online, blogs, everything else, I do think it's given our side a chance to win that battle.

SPITZER: I'm not sure the public is there yet. The consequence of having the $1.2 trillion spending bill be rejected and passing what you call the continuing resolution.

PHILLIPS: Right.

SPITZER: Is that the Republican House now has control of the budget. That was a huge power shift that I think the president again failed to negotiate, that he shouldn't let that happen. Put that aside. The question is will the Republicans and the House genuinely be willing to confront Medicare and social security in that budget? Because if not, then I think we're back to where we have been.

PHILLIPS: I'll say this. If they don't directly confront the spending issue and bring genuine cuts and reforms, not just short-term cuts but budgetary reform, they'll be out of power for a generation. I really believe that.

SPITZER: Wow.

PHILLIPS: The expectations are so high among the -- our base and I think among average Americans. They said, they looked at this election they said, OK. One party is for big government, big spending. We believe that. We're going the other way. And if this party fails to address that, I think they'll be in the wilderness for a long, long time.

SPITZER: Tim Phillips, Steve Kornacki, great conversation as always. Stay with us.

(COMMERCIAL BREAK)

KATHLEEN PARKER, HOST: When the real estate bubble burst in 2007, borrowers across the country were faced with an epidemic of foreclosure. In the years since, the nation's largest bank, Bank of America, agreed to help borrowers facing foreclosure refinance or renegotiate their loans.

SPITZER: Now, Bank of America stands accused of fraud. In a new lawsuit, the attorney general of Arizona accused the bank of the following. Assuring customers they would not be foreclosed upon while continuing to pursue foreclosure. Misleading customers about how to pursue loan modifications and providing false reasons for denying loan modifications including paperwork that was misplaced or misdirected on purpose.

Joining us to talk about the suit is Arizona Attorney General Terry Goddard. Welcome, Terry.

TERRY GODDARD, ARIZONA ATTORNEY GENERAL: It's my pleasure. Thank you.

PARKER: Attorney General Goddard, we'd like to just start if you could just tell us briefly what led to your filing the complaint.

GODDARD: Well, I think you summarized it right there in the lead-in pretty well. We've had a terrible hit here in Arizona from homeowners facing foreclosure. The one statistic that was not part of your introduction was that about half of our mortgages, all the mortgages in our state are under water. In other words, the mortgage is worth more than the house than the house is in the current market. So homeowners are being stressed. Many of them are in acute financial distress, so the investors are gone. There were a lot of investors in the high heyday of easy money and the financial market. But now it's individual homeowners trying to hang on with everything they can to the home that their family lives in. and that's who we're trying to stand up for and Bank America is our number one servicer.

What I can tell you is this. That the attorney general's office, we get more complaints about financial irregularities from Bank of America than from any other source.

PARKER: Just give us an example. Just walk us through a human example of how this worked. I mean, how did a person suddenly get to lose their home when they thought they were just essentially refinancing?

GODDARD: Well, let me give you an example of one of the people that appeared a victim that was at our press conference on Friday. This was a 69-year-old single woman living in a retirement community. She didn't have any acute financial distress. She just thought that perhaps she could get a better deal on her mortgage. She called up and said, can you -- can I process an application for modification? Through that procedure which dragged on for over a year, she heard nothing from the bank until finally she got an eviction notice. Well, you might wonder exactly how could that happen. And she's wondering the same thing right now. She was thrown out of her house. And her house is still empty almost a year later. This is the kind of just very strange and nontransparent procedures that seem to be typical of Bank of America.

SPITZER: Many people and if you read the complaint your blood boils when you see and then read the stories such as the one you just described of the bank malfeasance. But then people ask, well, wait a minute, why does the bank gain by this? Wouldn't they be better off if, in fact, they modified and kept somebody in the house paying at least something on the mortgage? So what is the bank's financial incentive to act the way they've been acting. GODDARD: I don't know. I think there must be one because for so many years these procedures have gone forward not just with Bank of America but with other major financial institutions. And it doesn't make sense. Now, only one-third of Bank of America's product in Arizona is owned by Bank of America. The rest is service for other people. And just this weekend in the "New York Times" there was an article that said that some servicers have essentially been ripping off the client. Now, I don't know if that's true in this case but it needs to be investigated.

SPITZER: General, let me, if I might, you referred to the multistate investigation that is being led by Tom miller. Bank of America in response to your filing of your lawsuit put out a statement and let me read it. And I think they and you can appreciate and our audience the irony of my reading of Bank of America response to a lawsuit filed by attorneys general. But anyway, on their behalf, let me be clear.

GODDARD: The irony is --

SPITZER: The irony is harsh. Let me read what Bank of America said about your lawsuit. It says, "We are disappointed that the suit was filed in General Goddard's last days in office, particularly because we and other major servicers are currently engaged in discussions led by Attorney General miller in Iowa to try to address foreclosure related issues more comprehensively. In addition to our own ongoing program improvements we have committed to, we believe that is the approach that will best serve Arizonans who need assistance." That is where things stand.

Now to continue to explore this issue, we have William Black who is a professor of economics. And law at the University of Missouri in Kansas City and as litigation director of the federal home loan bank board in the '80s, Professor Black was instrumental in investigating the SNL crisis we all may remember that was an earlier iteration of the banking frauds that we've just lived through. And your investigations, Professor Black, led to over 1,000 criminal convictions. And so the first question I would have for you is why back then when you investigated the SNL crisis and the attorney general is still with us were there so many criminal convictions and in the more recent wave of bank frauds where the frauds run very deep we not seeing so many criminal cases at all?

WILLIAM K. BLACK, WHITE COLLAR CRIMINOLOGIST: Because in that era we, the regulators, investigated every failure intensively. We made thousands of criminal referrals. We made criminal convictions one of our top priorities and we prioritized the significant cases, the top 100, and made sure we got those done. Currently, in this crisis, this entire decade, the office of the comptroller currency and the office of thrift supervision did zero criminal referrals.

SPITZER: Let me just clarify for the audience. Those are federal agencies.

BLACK: Those are federal banking regulatory agencies that dealt -- were supposed to deal with the worst of this crisis. SPITZER: And in fact what was their response as the subprime scandal was burgeoning through the economy?

BLACK: They helped make it worse.

PARKER: Hold that thought just a moment please. We've got a take a quick break. And when we come back, we'll ask our guests who some of the other villains in this story are. Stay with us.

(COMMERCIAL BREAK)

PARKER: We're back with Arizona Attorney General Terry Goddard and white collar crime expert Bill Black.

What is a proper settlement for Bank of America, for example, that would protect homeowners but also protect investors? What is rational here? What we've recently expect -- you don't want the bank to go belly up. Correct? That would not be good.

SPITZER: They already did if they have.

PARKER: No, they have no money.

BLACK: Your question really goes to the essence of the broader crisis because the wonderful thing about free markets is that typically you're better off and I'm better off when we engage in a deal. And that's a really good thing for the world. We want to encourage that. In this crisis, typically both the lender and the borrower were made worse off. The lender lost and the borrower lost. Who won? The agents won. And that means the CEOs, the corrupt appraisers, the corrupt loan brokers, the corrupt mortgage bankers. And all of those people were protected by the federal government, which, a, refused to use its authority. The Fed had unique authority to regulate all of these state chartered entities, absolutely refused to do so and, b, they spent all of their passion not going against the frauds but going against the state attorney generals that were trying to prevent the frauds.

SPITZER: Professor, let me ask you this question. Do you think that there has been a shift in psychology so that now we are beginning to see the appropriate regulatory response against the banks that perpetrated these, this malfeasance or these frauds?

BLACK: Absolutely not. It's gone the completely opposite direction. You would think that President Obama would have done what the first President Bush did when he came in after President Reagan, which is to say that was President Reagan's crisis and I'm going to manifest it's a completely different world. And we had orders in essence to put heads on pikes, you know, to cut through it. Get the worst fraudulent perpetrators and go after them. Obama promoted Geithner who had been Bush's key guy. Obama renominated Bernanke, who had been, you know, is a Republican, Bush's key guy. Obama left in charge the OCC head who was a disaster, that the general was just talking about, Mr. Dugan, and such. It left it, you know, for an entire term where he proceeded not to regulate. So it's an appalling policy but it's bizarre politics on the part of the Obama administration as well.

PARKER: Well, it seems from everything I've heard and read and that Eliot has explained to me over the course of this show that it is a systemic problem and to the extent it is systemic how do you -- do you see that certain -- that individuals should be punished or do you see just reform is the answer?

BLACK: Again, I think you hit exactly the right points. Our emphasis, and this comes from economics, from white collar criminality, which is what I am as well, and a former financial regulator, is you've got to look at incentive structures. You've got to fix the incentive structures because they're what shapes the individuals and the behavior. And so we have to focus on the things that are causing the disasters.

GODDARD: We have to find a way to put personal accountability back in the equation. And if the head of Bank of America had felt personally liable for the procedures on the ground, I assure you that they would have had much quicker action than we've seen here. The kind of, five years ago we thought we had agreement with the major servicers to put, transfer -- put transparent procedures in place and I have an answer, by the way, to the question about what we can do right now but I'd be happy to get into that if you got a minute, but nobody was accountable. Nobody was made accountable and that runs up through today.

I should say that the AGs are working much better with the federal agencies than we used to, and we're very hopeful that as the 50-state agreement comes through some kind of procedural reforms that they will embrace by treasury and OCC. That remains to be seen, however.

PARKER: All right. Terry Goddard, William K. Black, a fascinating discussion. Thanks to both of you for being with us.

BLACK: Thank you.

SPITZER: When we come back, for a lame duck Congress, this Congress has covered a lot of ground but what will they ultimately do that will matter to us? Join us in the arena coming right up.

(COMMERCIAL BREAK)

PARKER: The bank bailouts, the stimulus health care reform, those are just a few of the areas Republicans are promising to investigate as soon as they take control of the House. They've promised seven hearings a week for 40 weeks of the year.

SPITZER: Democratic Congressman Elijah Cummings of Maryland will be under enormous pressure as the Democrat head of oversight. He joins us tonight.

Congressman, thank you for being here.

REP. ELIJAH CUMMINGS (D), HOUSE OVERSIGHT COMMITTEE: It's good to be with you. SPITZER: Congressman, I almost feel that there's been a degree of a whiplash over the last couple weeks. Several weeks ago when the Bowles/Simpson deficit report came out, everybody was screaming about the deficit. Then suddenly there's a tax cut extension that adds billions of dollars to the deficit. And now, precisely what you predicted has come to pass. When the Republicans would not agree to passing the budget that was before both Houses of Congress so that now we need to confront the deficit immediately. So are you ready and the Democrats and House ready to take a hard, draw a line in the sand and say we will not permit these tax cuts to be financed on the backs of the middle class in terms of the education expenditures and the other things you do care about?

CUMMINGS: Very much so. I -- you took the words right out of my mouth. I feel actually emotional about this because I realize that there are a lot of people depending on us and a lot of children to be the best that they can be. When we've got a situation for example where we will be possibly cutting money, not possibly, I know we'll be cutting money going to states, and you having served as a governor, you know what I'm talking about. Most of our states are in big trouble already. And people are going to feel these cuts in every single aspect of their life. And so, yes, we've got to draw the line in the sand and we will.

I just -- I just think that the president could have carried out a better deal. I just think that -- and as I talked to my Republican friends, they are absolutely giddy about this deal. They are happy as they can be. But again, I see it being something that we are going to have to revisit and we're not going to be revisiting in a way that we would like.

PARKER: Congressman, as you know, Congressman Issa has promised investigations. What's your feeling about his call for seven hearings a week?

CUMMINGS: Well, I've already talked to Mr. Issa and he's agreed that he is going to reduce that number. Because you cannot be doing an effective job I think having that many hearings because your members just won't be able to do it and do all the other work that they have to do. And it would tie up committee staff tremendously. But I do believe that we have to be about the business of holding the government to a high standard.

SPITZER: Do you feel that you need to redefine the relationship between House Democrats and the White House? The White House seemed to take the Democratic Party for granted over the course of this tax so-called negotiation. Is it time for you and other Democrats in the House to say, look, if you're going to take us for granted we're going to be outside the tent, we're going to hold you accountable? We're going to pull you towards us by forcing you to negotiate with us?

CUMMINGS: Well, I think that I'm going to leave that to leader Nancy Pelosi who I have just a tremendous amount of admiration for. But clearly, we have got to be -- we have got to do our duty in the House as Democrats. And I think we must try to work with the president wherever we can. But if we have differences, I mean legitimate differences, we have to speak up and do what we think is in the best interests of our constituents. But let me be clear that we in the Democratic Party love our president. We support him and we want him to be successful and we want him to consistently remember that, you know, when you look at Senator McConnell, we want to remind him that Senator McConnell said his number one objective is to make sure he not have a second term while our number one objective is to make sure this president is successful. And so sometimes the president has often said when he was running for office, I may not tell you what you want to hear but I will tell you what you need to hear. And I think that's what we must do. We must tell him what we believe that he needs to hear and hope that we can work things out. And I'm sure we will.

I mean, I ran his campaign by the way in Maryland, and his primary and general. And so I see him as a very good friend. But sometimes, you know, friendship can -- you can go through some tough times.

SPITZER: Rocky moments. All right. Representative Cummings, thanks so much for being with us.

CUMMINGS: It's been my honor.

SPITZER: Thank you.

PARKER: Next, so you're ready to say goodbye to 2010? When we come back, the president closes out the year "JibJab" style. You don't want to miss it.

(COMMERCIAL BREAK)

RANDI KAYE, CNN CORRESPONDENT: Hello. I'm Randi Kaye. More of "PARKER SPITZER" in a moment. First, the latest.

A new study by a watchdog group has found the cancer-causing chemical chromium 6 in tap water samples across the country. Samples from 31 U.S. cities tested positive. In 25 cities, tests found levels higher than those considered safe by California. Chromium 6 is the same chemical that Erin Brockovich fought to expose in the town of Hinkley, California more than a decade ago.

And tonight on "360," new developments in a story we've been following closely. The man behind a how-to guide for pedophiles was arrested today in Colorado. Philip Greaves was charged with felony distribution of obscene material after mailing a copy of "The Pedophile's Guide to Love and Pleasure" across state lines. Once available on amazon.com, the book is actually protected under free speech laws. Coming up, we'll hear from legal analyst Jeffrey Toobin about the strength of the case against Greaves.

That is the very latest. Now back to "PARKER SPITZER."

PARKER: Tonight's postscript. Lost your appetite for lame ducks?

SPITZER: I'm done with them. PARKER: Had your fill of Tea Parties?

SPITZER: Never drank it in the first place.

PARKER: And I know you, Eliot. Sick of labels including no labels.

SPITZER: Oh, my goodness. Don't want to ever hear about no labels ever again. Anyway, good news, Kathleen. The folks at JibJab, the online funny guys who put out a year-end review, they are also and you know what, they put their review out. You know who stars in it? The president and vice president. Take a look.

PARKER: No way.

(BEGIN VIDEO CLIP)

MUSIC: And mountains of debt, politicians and nuclear threats. As president that seems to be what you get.

That's why I want one.

He only wants one.

Just give me a dance. So long to you 2010.

UNIDENTIFIED MALE: That's definitely going to need stitches.

(END VIDEO CLIP)

PARKER: Come on, I think this is a new skit for Joe and Obama. Don't you think? I mean, they look pretty good.

SPITZER: I thought that was real. That wasn't Joe pushing the president out of the window here?

PARKER: Well, I loved it. Can't wait for 2011. And I know we say this every year but Eliot, it's got to get better.

SPITZER: This time it's true. Thanks so much for being with us. Be sure to join us tomorrow night.

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