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Scandals Occupy White House; Interview with Former Senator Olympia Snowe; Bangladesh Factory Disaster Stirs Criticism of American Retailers

Aired May 18, 2013 - 14:00   ET


CHRISTINE ROMANS, CNN ANCHOR: The president probably wishes he was talking about your job, your money, your prosperity. But he's not. I'm Christine Romans. This is "YOUR MONEY." President Obama wants to steer the conversation towards his policy goals, but the smell of scandal is getting stronger in Washington.


ROMANS: The White House, knocked off message by a rash of bad headlines. The IRS allegedly targets conservative groups. The government is spying on AP reporters, new details about the deadly raid in Benghazi. Conservatives seize the moment.

REP. JOHN BOEHNER, (R) HOUSE SPEAKER: My question is who is going to jail over this scandal?

REP. ERIC CANTOR, (R) VIRGINIA: We have got to restore the trust in government.

SEN. ORRIN HATCH, (R) UTAH: I have never seen anything quite like this except in the past during the Nixon years.

ROMANS: The Watergate scandal forced President Nixon to resign, but do these rise to that level? Let's review. President Clinton had two scandals, White Water and Monica Lewinski. Warren Harding had the Teapot Dome, pervasive corruption. And Franklin Pierce and Ulysses S. Grant were arrested while in office. Yes, it was a bad week for the White House politically, maybe the worst of Obama's second term. But will it derail his legacy? After all, he promised to help us prosper.

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: We believe that America's prosperity must rest upon the broad shoulders of a rising middle class. We know that America thrives when every person can find independence and pride in their work, when the wages of honest labor liberate family from the brink of hardship.

ROMANS: This White House is stuck in crisis management, not legacy building for now.


ROMANS: Greg Valliere is the chief political strategist at Potomac Research Group. Ron Brownstein is a CNN senior political analyst and editorial director of "The National Journal." Gentlemen, welcome to the program. Greg, it is not very often I get to see Teapot Dome scandal on television. We're trying to put this in perspective, really trying to put this really into perspective. You say the scandals could push Democrats away from the president this summer. Put it in perspective for me. How does it hurt our economic recovery, or does it matter?

GREG VALLIERE, CHIEF POLITICAL STRATEGIST, POTOMAC RESEARCH GROUP: I think it is going to hurt Barack Obama's ability to spin a pretty good story with the economy improving, with the budget deficit plunging, I think that would be a slight negative for him. As you mentioned at the beginning, I think that one thing that is a little bit like Watergate is that Republicans started to flee from Richard Nixon. I am going to be watching Democrats in the next few weeks to see if they start to peel away from Barack Obama.

VAN SUSTEREN: Ron, what's the move here for Republicans? How much political capital do these scandals build the Republicans, and how does this affect other reforms like immigration that the president is pushing for.

RON BROWNSTEIN, CNN SENIOR POLITICAL ANALYST: Right. It's very much of a two-edged sword, I think, for Republican. On the one hand there is no question that this confluence of scandals, particularly the IRS issue, is going to help them mobilize their base for 2014. But historically if you look back, particularly at the Clinton years, the effect of scandal is to empower the hardline in each party. Obama is going to find a tougher I think to make deals that may alienate some of the congressional Democrats while he needs them to defend them against the Republicans.

And on the other side you're going to see the voices get louder inside the GOP who say, the president is bleeding. We don't want to throw him lifelines with any agreements. And that could be a shortsighted view for the Republicans because it makes it harder to get immigration and the net may not be a positive by 2016.

ROMANS: And I want to talk about the Obama economy. This is what it looks like now. The labor force participation right 63.3 percent, the lowest since 79. Income is up just two percent in the past year, five percent over the past two years. Overall the economy grew just 2.5 percent in the first three months of the year.

But deficits dropping, plunged 32 percent in the first half of the fiscal year. Housing is improving. Prices are rising in most areas. Consumer confidence we learned is almost at a six-year high. Stocks, I don't have to tell you, most of those people in Washington have a 401(k) so they're very well aware what's happening in the stock market.

So here is my question. Ron, I want Ron to answer this. Here you've got Republicans who can be focusing on other things and not the things going in the president's direction.

BROWNSTEIN: Right, absolutely. It gives them an opportunity to kind of take the political offensive and, as I said, to mobilize their base. But there is an opportunity cost. There is a desire in the public to see things get done, particularly on the deficit, the debt, economic growth, those kinds of issues. And to the extent focusing solely on this, there is cost.

Politically, your numbers, it is a fascinating sub-current here, which is that the groups at the core of this new Obama coalition, minorities and young people, are actually having the toughest time in this economy. You kind of wonder how long they can levitate above that in the Democrat Party. If things don't get better for those groups by 2016, can they hold the overwhelming levels of support that they've seen in the last few elections?

ROMANS: Let me ask you, Greg, the debt ceiling fight during the summer of 2011, it actually makes me sick to my stomach remembering about it, and it cost America its AAA credit rating. So here we go again. Treasury is now using, quote, "extraordinary measures" to help the country pay its bills. How does this play out? We have seen this movie before. How does it play out this time?

VALLIERE: We don't have to fight the fight until November. I think the chance of another downgrade is pretty remote because of the spectacular progress on the deficit. Here is the interesting angle to me. It is not that Obama's agenda is in tatters. It was in tatters a month ago after he lost the background check vote in the Senate.

I think what may happen is the things he doesn't want may get shoved down his throat, Keystone Pipeline, and maybe another sequester. In November to get a debt ceiling he may have to accept sequester for 2014.

ROMANS: All right, slowly healing jobs market and a plunging deficit mean there is a lot of other things, scandal things they're talking about in Washington. If we are talking about those things, I can assure you Democrats would be talking about the other two. Thanks, guys.

Coming up, forget the president's legacy. A former senator, Olympia Snowe, is worried about the entire U.S. political system.


ROMANS: Partisanship and the inability of our elected leaders to put our prosperity ahead of politics paralyzed Washington, and that paralysis brought us debt debacles, sequesters, fiscal cliffs. It has gotten so bad Olympia Snowe, a three term U.S. senator from Maine, decided last year she could serve no more. She has a new book "Fighting for Common Ground," a memoir of her career as a moderate Republican in Washington, and it's an indictment of today's hyper- partisanship in Congress.

When I sat down with her recently, I asked her point-blank, what is wrong with these people in Washington?


OLYMPIA SNOWE, FORMER U.S. SENATOR: We're a can-do country, and the failure in Washington now is to talk about the politics, the next election, and nothing but policies advancing this country's interests over the political interests of the next election or one's political position.

ROMANS: Are we going to see moderates become extinct?

SNOWE: Well, it is moving in that direction. I hope not. I hope that there is some way that we can avert it. I have encouraged people to get involved, speak up. Just as those who have fanned the flames of polarization, they can use the social media to organize, to protest, to demand that people are held accountable and to do their jobs in Washington and come up with results.

ROMANS: You talk about the socially conservative wing of your party that has really swayed Republicans.

SNOWE: It is true. And I think that the unfortunate dimension of the Republican Party today has been one of intolerance of the diverse views within the party. I don't know how the party expands if, one, they don't change their positions and their views on issues that will appeal to a broader segment of the population. But if you're not tolerant of individuals who have different views within the party, how can you appeal to those outside of the party?

ROMANS: There are actually people who say bipartisanship is a bad thing.

SNOWE: Biggest economy in the world, the greatest nation on earth, and we can't manage to pass a budget in the United States Congress. In the Senate we're in the fourth year. We finally -- the Senate passed a budget this year, budget resolution, but the House and Senate haven't gotten together. And it is required by law.

ROMANS: Is Congress breaking the law?

SNOWE: Budget resolutions are supposed to pass and become law by April 15th.

ROMANS: The only leadership is the Fed chairman, and he is pumping $85 billion a month into the economy. Is he doing the right thing?

SNOWE: I don't think he has any choice. There is disagreement about that because they worry about the implications.

ROMANS: He doesn't have another choice.

SNOWE: He doesn't because there is no fiscal policy. There is no budget. There is no management in Congress, and the president, there is no debt reduction plan. He has begged Congress. He has argued, because he doesn't want to be in this position. To have zero interest rates for this long and into 2014, and he has said he doesn't feel comfortable drawing down -- I mean, raising interest rates or pulling out for purchasing these bonds on a monthly basis because of the unemployment rate. He understands the only way it can turn around is for Congress to collaborate and get it done. There is no other way and there is no other choice.


ROMANS: Coming up most U.S. retailers probably hope you will forget the teenaged girl trapped for 17 days in the collapsed factory building in Bangladesh.


UNIDENTIFIED FEMALE: I heard the sounds of voices, and I wondered, where is the sound coming from?


ROMANS: Question, will you remember her face the next time you shop for clothes?


ROMANS: I want to introduce you to a woman named Reshma. Maybe you heard her speak and maybe you've already heard her story. But we're not going to forget it here. Last week recovery workers pulled the 19-year-old woman from the rubble of a collapsed garment factory in Bangladesh. She had been buried underneath the debris for 17 days. Cracks in the building had previously been detected, but Reshma says no one told her it was unsafe.


RESHMA, SURVIVOR OF SAVAR DISASTER (via translator): No. No warning. No one told me. Everyone was looking to see which parts are cracked and I went in and see there is a wall where a little is cracked. The managers said it is water damage and you guys can work.


ROMANS: More than 1,100 people were killed when that building, home to five different garment factories, crumbled to ground, burying those people alive. They died making clothes for brands that are very likely hanging in your closet.

Americans have short memories, and retailers know that. That's why we're going to remember Reshma, because U.S. companies have an opportunity here. They can make garment producing in Bangladesh safer and they are balking. More than two dozen European clothing companies have agreed to a new five year legally binding safety agreement that requires independent inspections and safety upgrades. Only two American companies have signed on, Abercrombie and Fitch and PVH, the maker of Calvin Kline, Tommy Hilfiger, and Izod. The rest are saying no thanks.

Wal-Mart says it is hiring its own inspectors and will make the results public. Companies like Wal-Mart don't want to lose control of the supply chain or the inspection process. But I am here to tell you they already have. Wal-Mart just found out a year ago a supplier used one of the factories inside that collapsed building to produce jeans. Before this devastating collapse it had no idea production ever happened there.

And this is not the first time Wal-Mart has been caught unaware. Gap has a different reason for not signing on. It's worried about legal exposure. Gap doesn't want to end up dragged into court and potentially liable if there is another preventable tragedy in Bangladesh.

Other companies aren't offering much reason at all. Here is the statement we got from Sears, quote, "Sears intends to continue participating in discussions on the accord as updates are made and more information is available but is not prepared to sign the current proposal as it is written today." This goes on like this for 18 more words before ending with this. "Meanwhile we will continue ongoing efforts to work collaboratively with other brands and retailers to improve working conditions in Bangladesh," 71 words in all to essentially say it is status quo for Sears in Bangladesh.

We invited all companies to come to talk to us on camera, Sears, Wal-Mart, Target, J.C. Penney, Gap. All declined or didn't respond to our request. The National Retail Federation declined as well.

So let's bring in Dana Telsey and Dara Ward. Dana is the CEO of Telsey Advisory Group covering retailers and their business for years. Dara is a professor of environmental and labor policy at University of California, Berkeley.

Dana, let's look at these numbers, multibillion dollar businesses who have made a ton of money chasing the cheapest labor in a race to the bottom. Look at some of the profit number. Wal-Mart made $17 billion last year. Target made $3 billion. Gap more than $1 billion. How can a company that knows everything about me at the point of purchase, know exactly what I am doing, how can they not know where their jeans are being stitched?

DANA TELSEY, CEO, TELSEY ADVISORY GROUP: I think one of the things that happens with these companies, they're very large companies. They are subcontracting out some of the garments that they make, and it could go from an agent to a subcontractor. Certainly the agents, there is lots of legal issues and lots of legal stipulations in the contract about worker safety. But even saying that, worker safety can be enhanced by all.

ROMANS: How can Wal-Mart or Sears, how can they say we'll do our own inspections if they don't know where it is being made? That's what I don't understand.

TELSEY: Because what's happening is sometimes if this happened through one of the agents, they take it back themselves. There are higher costs to do it themselves and put the inspections in themselves. But they do value the safety of the workers that the garments are being produced at.

ROMANS: A lot of people, Dara, are asking do they value the safety of the workers more or less than they value the low input costs of making that garment. When I buy something, when American consumers buy something, I think you assume it's not being made with slave labor. The European trade commissioner said "This is slave labor in Bangladesh." Do American consumers, Dara, do they make the assumption or not care?

DARA O'ROURKE, ENVIRONMENTAL AND LABOR POLICY PROFESSOR: No, I think American consumers do care when they learn, when they know, when these types of tragedies occur and becomes kind of front and center and connects us from the stylish, quality, low price garments we think we're buying with the reality of these supply chains and the reality of Bangladesh, which, as you point out, lowest apparel wages in the world, horrendous conditions, building conditions, infrastructure conditions, that when they see it I think they are shocked and I think they really do care.

But what you just point out is this is a system that has been set up for the outsourcing of production and, quite frankly, the outsourcing of responsibility. This is not an accident that Wal-Mart doesn't know whether these factories are producing their goods. This is part of a system of pushing down prices, speeding up delivery times so that the industry can drive what they call "fast fashion." That is stylish products changing very quickly at reasonable quality but at low prices in the stores.

So this really is an industry problem driven by the brands and the retailers, and this really is a situation where the U.S. brands and retailers are shirking their responsibility.

ROMANS: Are they or, let me ask, I have been very closely watching and no one is going on camera for me. I have been closely reading these long PR department written statements, policy statements that they have and this is a lot of we want to continue the ongoing dialog. You know, many people, myself included, say that dialog should have happened before a bunch of people died, right? You should already have a grapple, an idea of what's happening in your factories. But could it really be that Gap and Wal-Mart and others, maybe they don't like the European deal and there will be some sort of North American deal that will make things safer?

DARA: So the North American retailers came together and made an announcement this week which you probably already read which was a four-page press release rather than a plan for safety in Bangladesh. If one of my under graduate students had turned that plan into me I would give it an f. It was so vague, noncommittal, and filled with self-congratulatory platitudes with no detail about what they are actually going to do. It continues a program of voluntary self- monitoring with no binding, no enforceable agreements.

And this is what the Gap is saying. The code word, we don't want liability. The real thing is they don't want responsibility. They want flexibility, which is, again, what the Americana peril and footwear said. They want flexibility. They don't want to commit to the real solution, a binding and enforceable agreement that would involve them committing to contracts, not to cutting and running, not to voluntary auditing, which has failed over the last 10 years, but to them committing for the next five years to actually commit to improving conditions in Bangladesh. ROMANS: Let me bring Dana back in, because the issue here is do they have a responsibility? The responsibility is to the shareholders, these retailers right? If there is a public outcry that's big enough, do shareholders start to say, hey, you have to do a better job? You can't just let people subcontract and subcontract and subcontract, it's bad press.

TELSEY: I think you have seen retailers over the past few years and frankly over the past few decades enhance their operations, whether it comes from the systems side, whether it comes from labor and payroll costs.

ROMANS: By enhance their operations, do you mean make things better safety-wise?

TELSEY: I think they got it in the U.S. I think the agents part of the business given how much so many of them use the subcontractors and agents, I think now it is going to come onto a new level, and I think you will see retailers address the issue.

ROMANS: Do they know? Do the retailers know when they are signing the contracts, do they everyone there is not a lot of transparency and so much corruption with the local governments? Do they close their eyes and hope for the best?

TELSEY: I think you have seen retailers over the past few years, whether U.S., Mexico, Cambodia, Asia, you name tons of different countries they diversified into, many of the different annual reports and discussions that these CEOs talk about is here is how we diversified our sourcing. And they can be able to know more about what is being produced in each country so they're not solely dependent.

ROMANS: Bottom line, does the American consumer pull back?

TELSEY: Bottom line, they don't pull back. If there is something new they to want wear, they'll keep buying it.

DARA: I would absolutely say the American consumer shopping at the Gap, Abercrombie, the stores we're talking about not searching for the cheapest garments. They're searching for stylish, quality garments at a good price. They are willing to pay more. They will pay more. What we're talking 25 cents for to cover the cost of renovation and improving the buildings in Bangladesh. American consumers will pay when they know and they will punish these brands that don't sign.

ROMANS: We'll watch. Thanks so much to both of you. Have a great weekend.

Up next, the have and have-nots and the bull market run.


ROMANS: The rich versus the rest, the one percent and the 99 percent. The stock market seems to be the dividing line between those two groups right now. Are you in or are you out?

This cartoon printed in the "Washington Post" this week illustrates this divide perfectly. There is a man on the ground down on his luck with a sign that says "I have been looking for work for five years." Meanwhile another man dressed in a suit and smoking a cigar and reading a newspaper leans over and says "Hey, a better strategy would have been to buy stocks." The front page of the paper he is holding says "Dow" with a big up arrow.

Let's not forget, we still have 7.5 percent unemployment in this country. The underemployment rate is almost double that. It is easy to look back and say you should have jumped in this market in 2009. But some of you were still struggling just to survive. Others of you are still struggling right now. The job is the most important thing for you, not the stock market rally.

Another example, Facebook's one year anniversary as a public company this week, remember all of that incredible hype? Retail investors dying to get in, thinking this was their chance to prosper, the little guy was going to get a piece of a big company and make their fortune, too? The stock plunged and it's still down 30 percent from the initial offering price. You have every reason to be skeptical when people tell you the only way to make money is get in the stock market. It is a reminder that in the stock there are no guarantees and we're living in one America with two economies.

Thanks for joining the conversation this week on "YOUR MONEY." We're here every Saturday 9:30 a.m., 2:00 POWER AND MONEY eastern, on Sunday at 3:00 p.m. Until then you can find me on Facebook and Twitter. My handle is @ChristineRomans.

Coming up on "The Next List," can you teach innovation? Dr. Sanjay Gupta is talking to one Stanford professor that says you can, and his formula is giving students the experience of a lifetime.