American- Style Economics Worries Europeans, Senate Passes Tax Compromise, Fed Continues Monetary Stimulus; Justice Dept. Sues BP, Anadarko, Over Gulf Disaster
FOSTER: Now the U.S. Senate has passed President Obama's tax compromise just a short while ago; 81 senators voted for the controversial bill, 19 against. The deal extends federal unemployment benefits and Bush- era tax cuts for even the wealthiest Americans. It still needs approval from the House of Representatives before becoming law though. At least 27 House Democrats signed a letter Tuesday urging acceptance of the bill without any changes. House Democrats decided in a closed-door meeting last week they wouldn't even consider it in its current form. A lot of politicking has gone on since then. Speaking before the Senate vote President Obama said there is no room for delay in passing the bill.</s>BARACK OBAMA, PRESIDENT OF THE UNITED STATES: I know there are different aspects of this plan to which members of Congress, on both sides of the aisle, object. That is the nature of compromise. But we worked hard to negotiate an agreement that is a win for middle-class families, and a win for our economy. Now we can't afford to let it fall victim to either delay or defeat.</s>FOSTER: Now a Laura Tyson is a member of President Obama's Economic Recovery Advisory Board. She is also a professor of business administration and economics at the University of California at Berkeley. She has also served on a number of corporate boards and she joins us now from Berkeley. And we appreciate you coming on the program.</s>LAURA TYSON, UNIVERSITY OF CALIFORNIA-BERKELEY: Thank you.</s>FOSTER: You are one of America's top economists and you are hooked into the Obama administration, and of course, involved in this recovery. A lot of people criticizing the tax cutting plan, whilst, in a way, more is being spend benefiting the economy at the same time. It doesn't seem to achieve anything, this plan by the Obama administration, this bill. But what do you-how do you defend it?</s>TYSON: Well, I defend it as an economist would defend it. I think if you look at major forecasters around the country, independent, private, non-partisan, have all stated that this is a second form of fiscal stimulus, in a recovery which has been too weak to really bring the unemployment rate down. And the assessments are this package will, itself, perhaps add as much as a percentage point to GDP growth. And we really need that. Because the unemployment rate is stuck at around 9.6 percent; it rose actually last month. And we really have to boost the recovery.</s>FOSTER: But the debt mountain is getting bigger all the time. And if you look at the Treasury market it does seem as though investors are starting to get concerned about the amount of debt America is in. How sustainable is this?</s>TYSON: Well, let me say two things about that; first of all, I think the reaction of the debt market to the announcement of the tax agreement is actually a sign of belief that the U.S. economy is strengthening. If you actually look behind that increase in interest rates what you'll see is not an increase in inflationary expectations, it is an increase in the real interest rate, which is usually associated with an expectation that economic growth will be stronger. So, I think the increase in long-term interest rates actually is a sign of validation for the package. I do, however, think that the Congress must move with the president next year on a long-run deficit reduction package. Now economists have said that really what the economy needs is some additional stimulus now, combined with a long-run deficit reduction plan. That is what the commission, that President Obama appointed on fiscal stability, said last week. That is what a number of private commissions have said. So, these are problems that must be dealt with together and I hope that the first order of business in the new Congress is to work with the president on a long-run deficit reduction package.</s>FOSTER: Are you concerned that you are working with a president, though, who can't act politically with the power that he could before? And as an economist you can't sort of get him, or advise him, to do the things that you really want him to do. You have to compromise on everything with all the other politicians?</s>TYSON: Well, here is some good news here. You know the commission that he reported on fiscal stability and a long-run deficit reduction package, got 11 out of 16 members supported the proposal. And that included Democrats and Republicans. So there is some bi-partisan support on the deficit reduction issue. I also think there is going to be some momentum coming from the agreement on taxes between the president and the Congress, some political momentum to do more when the new Congress comes back. That is my form of optimism. When I'm pessimistic I worry that many members of Congress see the deficit as a problem, but don't see that cutting taxes contributes to the deficit. It is as if an increase in spending contributes to the deficit, but a decrease in taxes does not. And that is not arithmetically correct. So we have to find a way to convince enough members of Congress that we're going to need a package which has spending in it, but also has revenues in it. And perhaps the best way to do that is going to be in the context of some meaningful tax reform. Again, the commissions have all agreed, the commissions on deficit reduction, have all agreed that taxes need to-revenues need to be increased, the best way to do that is through tax reform.</s>FOSTER: OK, we're talking here about the world's biggest economy. The whole world has a stake in it. Just talk to me about your concerns, though, about this hot money that is being created by the monetary policy easing in the U.S., effectively, a lot of hot monies are rushing into emerging markets and causing them problems. Causing bubbles in those markets, isn't it?</s>TYSON: Well, I think that Chairman Bernanke was very brave this summer. When people were-when the debate about what to do in the U.S. was essentially not moving forward. He said, clearly, the U.S. economy needs more stimulus and a strong U.S. economy, growing faster than it was growing in the middle of the summer, is good for the world economy. And he proposed his QE2 policy as part of that. But he also said, clearly at the time, we will monitor this. We will look at what happens to the growth of the economy. We will look at the effects and we will make adjustments. Now, as far as-</s>FOSTER: OK.</s>TYSON: -the hot money is concerned I would say the following: Some of that is pressure on currencies that in fact should appreciate. I go to the issue of China here. China is grappling with its own inflation problem.</s>FOSTER: Yes, Laura Tyson, I'm really sorry. We're going to have to interrupt you. Eminent economists, and we would never do it normally.</s>TYSON: Sure.</s>FOSTER: We have some breaking news coming to us from Washington. Thank you so much for joining us on the program. This just in to CNN, the U.S. Justice Department is suing BP, and other companies, over the Deepwater Horizon oil spill in the Gulf of Mexico in April. A Justice Department statement says the government wants a court to declare the company is liable for costs and damages caused by the spill. Now, we are hoping to hear from Eric Holder. He is the attorney general in the United States. That is where he is going to be speaking. We understand that he is going to have a press conference any moment now, uh, which is linked to this story about BP. It would be a major story. Not just for BP but also for the American legal system, because it would start off a whole process of legal wranglings in the United States, which could last for months, if not for years. These are live pictures coming to us from the Washington Justice Department. Eric Holder, the attorney general, due to speak at the podium, just in front of us any moment. Just to remind viewers, the U.S. Justice Department is suing BP, and other companies, actually, over the Deepwater Horizon oil spill in the Gulf of Mexico in April. We do want to understand the nature of this legal action. What is it actually they are holding against BP and where are the costs. This will be a huge story for BP. We will get a sense of what kind of legal costs they will face in future. BP shareholders around the world will be interested. And of course, pension funds heavily invested in BP around the world. So it does affect everyone. I am told we can speak to Stephanie Elam. Oh, there he is, Eric Holder. Let's listen in now.</s>ERIC HOLDER, ATTORNEY GENERAL, U.S. JUSTICE DEPARTMENT: Good afternoon. I am pleased to be joined by the administrator from EPA, Lisa Jackson; assistant attorney general from the Civil Division, Tony West; and assistant Attorney General Ignacia Moreno, who heads our environmental and natural resources division. In the wake of the largest oil spill in our nation's history, Tony and Ignacio helped to lead the Justice Department's efforts to build-to hold accountable any and all parties found responsible for this disaster. Today we are here to announce the initial results-the initial results-of our civil investigation. Now this investigation began shortly after April 20th of this year, when an explosion and fire destroyed the Deepwater Horizon offshore drilling rig that was located in the Gulf of Mexico, approximately 50 miles from the Mississippi River Delta. This incident claimed the lives of 11 rig workers. And it marked the start of a massive oil spill that would take more than three months to contain. And it set off a chain reaction of devastating consequences for the people, for the environment and for the economy of the Gulf Coast, a region still struggling to recover from Hurricanes Katrina and Rita. Now, while oil spill response efforts were underway the Department of Justice launched both criminal and civil probes into this matter. We dispatched dozens of top attorneys to the Gulf Region, and members of the department's senior leadership have also made multiple trips to the area. For months department lawyers and investigators have been working night and day and in close coordination with the local U.S. attorneys offices as well as our colleagues in the state attorneys general offices as well. As a result of this work, today, the United States has filed a civil lawsuit in the United States District Court in New Orleans against nine defendants. The defendants named in the lawsuit include: BP Exploration and Production, Incorporated; Anadarko Exploration and Production, L.P.; Anadarko Petroleum Corporation; MOEX Offshore 2007, LLC; Triton Asset Leasing, GMBH; Transocean Holdings, LLC; Transocean Offshore Deepwater Drilling, Incorporated; Transocean Deepwater Incorporated, and QBE Underwriting Limited, Lloyds Syndicate 1036. Now, in the complaint the United States alleges violations of federal safety and operational regulations, including failure to take the necessary precautions to secure the Macondo well, prior to the April 20th explosion; failure to utilize the safest drilling technology to monitor the well's condition. Failure to maintain continuous surveillance of the well and failure to utilize and maintain equipment and materials that were available and necessary to ensure the safety and protection of personnel, property, natural resources, as well as the environment. Now we intend to prove that these violations caused or contributed to the massive oil spill and that the defendants are therefore responsible under the oil pollution act for government removal costs, economic losses, as well as environmental damages. We are also seeking civil penalties under the Clean Water Act, which prohibits the unauthorized discharge of oil into the nation's waters. We allege that the defendants named in this lawsuit were in violation of the act through the months that the oil was gushing into the Gulf of Mexico. And we intend to hold them fully accountable for their violations of the law. Over the past year, I myself have visited the Gulf Region multiple times. I have seen the devastation that this oil spilled cost throughout the region, to individuals, and to families, to communities and to businesses, to coastlines, to wetlands, as well as to wildlife. Even though the spill has been contained and even though it no longer is the focus of around-the-clock news coverage that we saw, and the subject of front page headlines, the department's focus on investigating this disaster and preventing future devastation has not waivered. While today's civil action marks a crucial first step forward, it is not, it is not a final step. Both our criminal and civil investigations are continuing. And our work to ensure the American taxpayers are not forced to bear the costs of restoring the Gulf area and its economy goes on. As I have said from the beginning, as our investigations continue, we will not hesitate to take whatever steps are necessary to hold accountable those who are responsible for this spill. The civil investigation into the Gulf Coast spill is being handled by the United States Environmental Protection Agency, the United States Coast Guard, the National Oceanic and Atmospheric Administration and the Department of the Interior's U.S. Fish and Wildlife Service, and Bureau of Ocean Energy Management Regulation and Enforcement. And I want to thank all of these partners for their tremendous efforts. Now as our investigations move forward Justice Department attorneys will continue to- (</s>END LIVE FEED, IN PROGRESS) FOSTER: Eric Holder there, in the Justice Department of the United States, announcing that the Obama administration is actually suing BP, its- and several other companies involved in that Gulf of Mexico spill, back in April. We were listening out for some level of damages they are seeking. We haven't got that. That is what investors wanted to hear. So we are going to cross to Stephanie Elam, who is in New York monitoring market reaction there. What have they made of it there? This has a huge impact on a lot of companies, doesn't it?</s>STEPHANIE ELAM, CNN FINANCIAL CORRESPONDENT: Yes, well, you know, Max, right when the news broke and you first mentioned it, I took a quick look at BP stock here and it was off about a 0.25 of a percent. Now it is off about 2.33 percent at this time. So, obviously investors don't like what this means, probably, for BP stock, even though there wasn't a monetary number that was mentioned in there. Overall, the markets have turned negative since this news came out, too. I'm looking at the Dow now, on the downside, a slightly larger loss here for Nasdaq as well. It wasn't like we were going gangbuster to begin with though, so it is worth pointing out at this point. I don't know if necessarily this was much of a surprise to people on Wall Street that there maybe more lawsuits ahead after we saw the severity of what was going on this spring.</s>FOSTER: The problem, I guess, Stephanie, is that we don't have any idea about where the costs will end. Because Holder is basically saying that the American taxpayer isn't going to foot the bill for this. And the legal process will continue until all the companies are made accountable. But they can't make any calculations based on this, can they?</s>ELAM: Yes, no, it is very murky waters that we're going into-and that was a pun I wasn't even trying to make, but after I said it, I realized it. But it is true. At this point, if there is not a monetary number to put on it, and when you think about, well, what is the exact cost of what happened? How do you qualify or quantify how much it is for someone who maybe lost their job, or for someone whose business was put out? Business because of the fact that people weren't coming to visit the Gulf of Mexico? All of these things that were affected and people who went then for government aid, after that period. How do you quantify that amount of money? And that is what makes it so difficult. And that is probably why didn't actually hear a monetary number in this case. Because I bet you they don't want to limit it at this point, Max.</s>FOSTER: OK, Stephanie, thank you very much indeed. Back with you as you get more market reaction in the next hour, to that press conference still continuing. If you are still in a gambling mood the odds of Spain avoiding economic meltdown might just have gotten narrower. Confidence in Spain could be slipping, but will it be the next domino to fall here in the Euro Zone. We'll bring you an update in just a moment.