During lunch I was a bit surprised that the subject of the bailouts had not come up. As lunch was winding down, I asked the Vice President his thoughts. He'd been quoted in the past, whether accurately or not, that deficits do not matter. I wanted to know if he thought they did. I never got a direct answer on that, but what he said was most interesting.
"It is important to distinguish between different problems," the Vice President told me. The recession is one problem and the financial/liquidity problem is another.
He transitioned back in his life to the Nixon and Ford days on price and wage controls. He said they were "an inappropriate exercise of government . . . motivated by politics" not sound economic policy. "I don't put that on my resume," he laughed.
He said government should not meddle in the free market, but he viewed last summer as different because it was a financial crisis. "If the [financial system] does not work, nothing else will work," he said soberly.
The Federal Reserve and the supply of money are government responsibilities, not marketplace responsibilities. Banks don't print money, the government does, he implied. "Whether you agree or disagree that we got the policy right, we had a responsibility to act," he said in a very matter of fact way.
He also said he decided something had to be done by the government to fix the problem because he believes "past government policies contributed to the crisis." He cited Freddie Mac, Fannie Mae, sub-prime lending, and the rise of mortgage backed securities.
Government, he told me, has regulatory authority and responsibility. "When the crisis developed, there was no one to look to in the private sector. We had to do it."
He made very clear that he was talking about the TARP and the liquidity crisis. He then transitioned into the automobile industry bailout. What I noticed, unintentionally by him or not, was that he transitioned from using "we" and "I" to using the "administration" and the "President" when it came to the automobile bailout.
He pointed out that he had testified before Congress with David Stockman against the Chrysler bailout in the eighties. "That reflected my view," he said. The private sector, he added, should be operate and have new businesses rise up from old ones.
Vice President Cheney explained that under normal circumstances the automobile industry needs fundamental restructuring, which would be done under Chapter 11 of the bankruptcy code. But, he said, the President made the decision not to go that route for three reasons: (1) the existing financial crisis; (2) the recession; and (3) the transition ("We're not going to be here long enough to see it through," he explained).
I left with the impression that were it up to him, he would have let the free market sort it out. As he said going into his explanation, that does reflect his view.