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PIERS MORGAN LIVE

Shutdown Showdown: Senate Working on a Deal; Interview with Rep. Himes, Rep. Blackburn; Interview with Bill Richardson, Alan Dershowitz

Aired October 15, 2013 - 21:00   ET

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


PIERS MORGAN, CNN HOST: This is PIERS MORGAN LIVE. Welcome to our viewers in the United States and around the world. Breaking news. This country is about to drive the family car right over the cliff, and if that scares you, then it should, because look at the clock on your screen. If there's no deal by midnight tomorrow to get the government working again, and the debt ceiling extended, the result could be an unprecedented shock for America's economy, the world's economy, and most importantly, to your economy. Now, we'll ask members of Congress on the right and the left why they have failed to end this so far. Plus, some of the smartest money men and women around on exactly what will happen when the clock strikes midnight tomorrow. And then if we can Saddam Hussein to make a deal, what about republicans and democrats? I'll ask Bill Richardson, also Alan Dershowitz, the surprising reason that he says Ted Cruz - wait for it - is a brilliant man, and why he argues what the Congress is doing right now may be unconstitutional.

We'll begin with our Big Story, Harry Reid and Mitch McConnell working late into the night tonight drafting a deal under tremendous pressure. Joining me now, Senior White House Correspondent Brianna Keilar and Chief Congressional Correspondent Dana Bash. Welcome to you both.

Let me start with you Brianna, what is going on down where you are and will there be any re-election tonight?

BRIANNA KEILAR, CNN SENIOR WHITE HOUSE CORRESPONDENT: No, really at the White House, we're not expecting to see President Obama and the action very much is on the senate where allies (ph) are at the White House at this point, President Obama said today he does believe that the shutdown will be over by Thursday. Now granted that this was this morning before everything went down in the House, but that would also mean increasing the debt ceiling, and Piers, there is still a feeling here at the White House that there's time to avoid default.

You don't really see the president getting very directly involved at this point and what's going on in Capitol Hill. He did have House Democratic leaders here at White House today to show our support. But there's also really a sense here at the White House that if President Obama gets very involved price to broker a deal, that it becomes rejected just out of hand because his name is attached to it and there's so much animist between the President and House Republicans. But make no mistake, the White House is certainly in touched with House Majority Leader Harry Reid (inaudible) he is brokering a proposal with his counterpart Mitch McConnell, Piers.

MORGAN: Dana Bash, let's get to the nuts and bolts of this. So today, the latest GOP attempted a deal collapsed. Then it goes to the senate. They're now talking on both sides. And so they're working on a potential deal, which they then filed. What does that mean? And in terms of both, which may actually lead to a real deal, what is the process?

DANA BASH, CNN CORRESPONDENT: Well, there are potential scenarios which I won't get into because it will probably make your head spin in the senate. But, the headline is that we understand that they do have a tentative deal. When I say they, I mean, the democratic leader in the senate, the republican leader in the senate. They decided tonight is not the time to release it and we expect them to do it as soon as tomorrow morning, and that the framework of it will be a long lines that you and I talked about last night.

The difference it looks like is that democrats are prepared to give in one of the ObamaCare provisions that they wanted for their constituency being unions. It was something that they would have a fee for employees that union simply did not want in this ObamaCare law, and they were finding very hard against it, but it looks like democrats are going to pull that in order to get this done as quickly as possible because republicans were very much against it.

So, that's sort of the substance of the deal. Timing is still the same to fund the government, reopen it, fund it until the middle of January and to raise the debt ceiling until February 7. The question how quickly can they get it done and can they get it done before the clock strikes midnight on that October 17th deadline, meaning in just two days -- less than two days, it doesn't look like it is going to be very easy for the senate to do that if Ted Cruz or other republicans to want to slow this use their tools, so that's going to be what to watch for.

MORGAN: Certainly is. Dana Bash and (inaudible), thank you both very much indeed. So, the house is set (ph). From the senate, joining me now is democrat Jim Himes on the Financial Services Committee and Republican Marsha Blackburn, Vice Chair of the (inaudible). Welcome to you both.

Let me start with you Jim Himes. I mean, there was a rising sense of tension now, if not outright terror that because of this intransigence particularly the part led by Ted Cruz and these 40 renegades and republicans as many see them, there may not be a deal that the debt ceiling deadline may come and go, and we could face a form of financial Armageddon. Is this likely?

REP. JIM HIMES, (D) CONNECTICUT: Well, it's hard to say at this point. Look, we're at the tail end of a 15-day period that was kicked off by Senator Cruz with, you know, around this idea that he had any probability or the republicans had any probability to all of repealing the Affordable Care Act, was never going to happen. Set aside the question whether it should happen. It was never going to happen.

Today, this morning, we actually have a deal being hammered up between the two senate leaders. The House Republicans stepped in and said, "Wait, we've got a bill that we're going to put forward, and of course that came apart as the day progressed in into the evening, so now we're back where we should've been all along with a very clean deal. We don't know what it looks like yet but that would raise the debt ceiling and avoid the prospect of default, and of course get the government started again. So we just have to keep our fingers crossed within the senate, that deal get struck.

MORGAN: Marsha Blackburn, let's talk about Ted Cruz for a moment because he's the man at the moment, good or bad depending on your view. He's clearly seems the most in part observed, he's making a bit of a dash to be a front runner for the republican nomination perhaps in 2016 and that's his real agenda here. But what's good for Ted Cruz and his personal political career might be disastrous for the American people if not his own party. What is your view of his behavior?

REP. MARSHA BLACKBURN (R) TENNESSEE: Well, I think that one of the things we all should do right now is not talk about personality. What we should be talking about is how we make certain that we get this nation on the track to fiscal health and responsibility. And one of the things we cannot do is continue borrowing $2 billion a day to keep the lives on. And, regardless of whether we like someone or don't like someone, what we have to realize is we've been through a process of people who were elected by their constituents to come to D.C. and express the point of view.

And so, many of us have constituents who say, look, jobs, the economy, getting us on the road to fiscal health, returning us to where we are going to see jobs growth, where we're going to see economic growth. That is item number one, dealing with the impact of ObamaCare on the economy. That's an important thing to do. And, Piers, we come, everybody bringing their best ideas and their best thoughts. And what we have right now is ...

MORGAN: The trouble -- the problem is...

BLACKBURN: ... the debt fund.

MORGAN: But the problem is ...

BLACKBURN: I wish we weren't here but we are.

MORGAN: Right. But Marsha Blackburn, the problem is it may be the best idea, the best thoughts for you and for Ted Cruz, but like I said, these best ideas and thoughts might be absolutely catastrophic ones ...

BLACKBURN: Yes. But, Piers, we're...

MORGAN: ... for the American people and the global economy. At what point is the out right selfish, self-interest of Ted Cruz and his colleagues outweigh the American interest in the global economic interest?

BLACKBURN: There again, I think that we don't do is talk about personalities ... MORGAN: Oh, come on please, Marsha. Marsha.

BLACKBURN: No, not that. What we have to do is say ...

MORGAN: Of course it's about personalities ...

BLACKBURN: ... how do we deal with the debt ceiling and debt ...

MORGAN: Marsha ...

HIMES: Well, if we want to ...

(CROSSTALK)

BLACKBURN: No. This is what we need to put it ...

MORGAN: Marsha. Marsha, Ted Cruz ...

BLACKBURN: ... that the American people ...

JIMES: ... stop talking about Barack Obama ...

BLACKBURN: ... wants us to get this dealt with. We didn't want a government shutdown. We don't want to have a default on the debt. What we are doing ...

MORGAN: Right.

BLACKBURN: ... what House Republicans have done is we have passed four different continuing resolutions and a budget. And, you know ...

MORGAN: OK, let me ask you a question.

BLACKBURN: ... let's have it like this.

MORGAN: Let me ask you a question, Marsha.

BLACKBURN: The way eight bills we have passed since the last ...

MORGAN: I know. You've been unbelief (ph) of your response which the government's been shutdown for two weeks. Let me ask you this ...

BLACKBURN: Well, we wish it weren't shut down.

MORGAN: Well, I know you do. I know you do but sadly it is.

(CROSSTALK)

MORGAN: Let me ask you this Marsha Blackburn. Obviously you didn't want the government shutdown but it has shutdown ...

BLACKBURN: We know.

MORGAN: ... but it already has ... BLACKBURN: Right.

MORGAN: ... for two weeks. Do you want the debt ceiling to run into default? Are you prepared to see that risk?

BLACKBURN: Absolutely not.

MORGAN: So what would you ...

BLACKBURN: Absolutely not.

MORGAN: ... what will you be doing ...

BLACKBURN: And ...

MORGAN: ... as a Party to avoid that?

BLACKBURN: I continue to work with other republicans in the House to see if we can find a resolution to this issue. We did not want to get right here to the last minute. What I want to see is as work through a plan so that we're dealing with our long term fiscal issues. Borrowing the amount of money that we are borrowing everyday is not a sustainable ...

MORGAN: All right. Let me go back to Jim Himes.

BLACKBURN: .... every economist around here tells us that.

MORGAN: Every economist around here tells me what is going on this utter (ph) none sense and should never been on (ph) to get this far ...

BLACKBURN: Right. But the borrowing is a part of that none sense.

MORGAN: There are many issues to deal with Obamacare ...

BLACKBURN: That's right.

MORGAN: ... and the American economy, and all sorts of things. What you don't do is shut the government down over what is a law. Let me turn back to Jim Himes. I mean, look, you know, you can take a view about this. It is all (ph) Ted Cruz is (inaudible) or you can say politically, him and the Tea Party element of the republicans, he seems to be holding all the cards playing them very intently, making himself extremely famous, and probably as I say a front runner for presidential run. But, how do we get to a stage where President Obama is so far has not managed to stop his shutdown, is on the brink of this awful debt ceiling deadline and largely how is he going to get into a room and make people see sense of the moment. You have to say, he is not shown greater this year because if he had, he would gotten insulted.

HIMES: Yes. Look, you know, the president doesn't legislate. He signs laws that are sent to him by the Congress of United States. And despite what Marsha is saying, you know, there has been nothing celebratory (ph) about what has happened in the last 15 days. It has been devastating for our economy, throwing people out of work. The economist will tell you that the kind of, you know, management by crisis that the Republican Party in the House has demanded for years now has probably caused the economy a million jobs. Far more jobs than they can point to any credible source as suggesting that the Affordable Care Act is damaging.

And by the way, forget about the jobs and everything else out there that is hurting the American people, it's devastated the republicans political fortunes. 74 percent of Americans disagree with how the republicans have handled this. So, if we're really had talked about what the American people want, the American people don't want this country to be managed from crisis to crisis with government workers or head start programs or military contractors being used as negotiating tools in some absurd political fantasy.

MORGAN: Let me ...

BLACKBURN: And that is why we continued to pass the bill and send them to the Senate.

MORGAN: Marsha, wait a minute. Wait a moment. Let me play you a clip.

BLACKBURN: It's not -- OK ...

MORGAN: Let me play you a clip ...

BLACKBURN: Yes, sure.

MORGAN: -- from President Obama talking about Speaker Boehner today.

(BEGIN VIDEO CLIP)

PRESIDENT BARACK OBAMA, UNITED STATES OF AMERICA: Speaker Boehner for example. Him negotiating with me is necessarily good for the extreme faction in his caucus focus. It weakens him. So, there been repeated situations where we have agreements, then he goes back and it turns out that he can't control his caucus.

(END VIDEO CLIP)

MORGAN: This is a problem isn't Marsha Blackburn. Isn't it President Obama doesn't know who to talk to? Does he talk to Speaker Boehner that de facto (ph) representative of Republican Party or should he go straight to Ted Cruz, cut out the middleman, go to the guy who's wielding the power to shut down the government, threatening the default.

BLACKBURN: Well, it's amazing to me that the president would think that he should not be talking to Speaker Boehner. And, it is up to the President as the Commander in Chief and the leader to assemble people with the negotiating table.

I would remind you, Piers, that over the last 40 years or so, we've had 53 lifts to the debt ceiling. 27 of those have yielded spending cut to what our nation spend. All of those have been negotiated with some type policy reform and we have talked about this previously on your show.

Standard operating procedure in dealing with budgets and continuing resolutions and debt ceilings has been for one side to take their plan, the other side to take their plan to bid at the negotiating table and to work this out. It has been blatant lack of leadership that has been on full display for the world to see that we have a President who has chosen that he would rather see a shutdown than go to the table who is waiting until the last day to meet everyone at the negotiating table.

That is unfortunate. It is something that I wish should not happen. We have continued in good faith to pass the budget every year to send it to the senate, to pass appropriations, bills, which is the way we fill out our budget, send them to the senate. It is the senate that chooses not to take the action. That is Harry Reid's choice and decision.

MORGAN: OK. All right. All right, (inaudible).

BLACKBURN: And we would prefer that it not have happened.

MORGAN: Final words would you mind (ph), it's all the democrats fault, nothing to do with Ted Cruz, nothing to do with republicans, in fact, laid over (ph) the House of the White House, it's all their fault.

HIMES: Now, look, it's absurd. And there's just -- there's very few Americans who believe the story that this is the president's fault. John Boehner at any point in the last 15 days could have opened up the government by passing the Clean Senate C.R. and the republicans -- and look, tonight Marsha is talking about the debt in a long-term deal. And by the way, we agree on that, we should negotiate that. But remember, two weeks ago, we had nothing to do with negotiations in a long-term debt. It was about a repeal of ObamaCare and then it was a two-year delay of ObamaCare.

BLACKBURN: The continuing resolution (inaudible) ...

HIMES: And so, everyday, as the republicans have realized that their position is increasingly untenable and untenable it is, they have changed their position. So, even if the president were in -- you know, if the president had any ability to control the republicans and the House of Representatives, which by the way, the Speaker of the House does not have as evidence by the failure of his idea today even if the president could control the House of Representatives, what would you be negotiating on?

MORGAN: A little later there (ph), Jim Himes and Marsha Blackburn, thank you both very much indeed.

BLACKBURN: Thank you. Thank you.

HIMES: Thank you. MORGAN: Coming next, time is running out, what if Washington fails to make a debt deal. What will it mean to (ph) Wall Street to Main Street and around the world? What you need to know, coming next.

(COMMERCIAL BREAK)

MORGAN: Down there at Wall St, investors watched congress and wonder, will the U.S. government default with the whole world watching. Joining me now is Chief Business Correspondent, Christine Romans, (inaudible) International Business Correspondent, Richard Quest, Host of the CNN's Quest Means Business. Josh Barro, Politics Editor (ph) for Business Insider and Mohamed El-Erian, CEO of the Investment Firm, PIMCO.

Probably, one of the greatest assembles of business talent I've ever seen. And Christine, congratulations to your new title Chief Business Correspondent.

CHRISTINE ROMANS, CHIEF BUSINESS CORRESPONDENT: Thank you.

MORGAN: Maybe I'm one the first to say that on air, which you deserve.

Richard Quest, let me talk to you first. What is this mean, we get to meet Mike (ph) tomorrow night and Ted Cruz (inaudible) with his Gang 40 and he forces this deadline to a lapse (ph) without a deal. What happens to money in America and around the world?

RICHARD QUEST, CNN INTERNATIONAL BUSINESS CORRESPONDENT: Nothing immediately unless there's delay in payment by the U.S. Treasury. But what happens after Thursday is that the wiggle room becomes much tighter.

If you look at the numbers on treasury, they'll have $20 billion to $30 billion on hand and they may have to pay out more than that. So, the hard decisions have to be taken. And what we'll be looking for is to see spiking bond yields (ph). They'll be looking to see what happens to the dollar and that any given moments, Piers. And we d know whether it's going to happen on the Thursday on Monday or Tuesday, whatever. But at some given moment, the market will take fright.

MORGAN: Right. Christine Romans, this is going to be chaos (ph), how Wall Street. response so far, you could argue that over the last two weeks that been remarkably patient with the situation, assuming as more on Buffet said that the idiots would go to the edge of the cliff effectively to give a different analogy and then they would pull back.

If they go over the cliff, what happened to Wall Street you think and what about the rating agency Fitch? Did they put in the United States on a warning of a possible downgrade? How does that factor rate?

ROMANS: Look, let me tell you the first part of that question is what happens if they don't raise the debt ceiling and the U.S. is in this case where Richard was talking about, we're trying to pick and choose which bills to pay that would be really terrible for your 401K, it would be terrible for stock.

And there's some pretty dire predictions out there just how big it fell off in stocks would be. Now, what is Fitch telling us today? Well, Fitch is telling us what we already know. Fitch is saying it is warning that it could downgrade the U.S.'s credit rating because they didn't raise the debt ceiling in time and that there are -- frankly, they're not doing their job. They're not running the books of United States and that's a problem. Now, Fitch also went on to say that they think there will be a deal eventually. So going back to that big stock market sell off, that sell off could maybe cause Washington to get it back together and unlike a wasted day today maybe a big stock market sell off with fraud lawmakers to find a deal.

MORGAN: Well, let me bring in Mohamed El-Erian. You said this. Some republican lawmakers are now playing Russian roulette with the debt ceiling. What did you mean by that?

MOHAMED EL-ERIAN, CEO, PIMCO: It's very simple Piers. The U.S. is at the call of the global system and treasuries are (inaudible). So, if this second default or if you actually default, you can disrupt the whole planning (ph) of the global system and you can tip the global economy to recession.

MORGAN: Josh Barro, just talk about the politics of this as well as the business and the money.

JOSH BARRO, POLITICS EDITOR, BUSINESS INSIDER: Yeah.

MORGAN: What are the republicans need to get out of this deal save any kinds of face and make sure we don't all go to the cliff.

BARRO: Oh, I think that's gone now. I think the thing the house republicans were trying to do today was come up with their face-saving proposal to send over to the senate and say here's our final offer. This is the very small thing we're going to get this provision related to healthcare just for employees of the U.S. Congress. They couldn't even get the votes together to pass that. I think we're going to see a deal come out of the senate tomorrow aids to both Harry Reid, the majority leader, and Mitch McConnell, the minority leader have been saying they're close to a deal.

There will probably an announcement in the morning and all republicans are going to get is a minor strengthening of provisions of ObamaCare that require that the government verify people's incomes to make sure they're eligible for the subsidies they're getting. This is basically nothing for the republicans. It won't be face-saving. It's going to be very embarrassing, but I do think that means we're going to get a deal that saves us from this financial market crisis.

MORGAN: Mohamed El-Erian, this gets the clock ticking down tomorrow. You study these markets around the world but almost anybody I know, at what point do they start to really tank (ph) and at what point does it become almost inevitable that massive financial damage will be done regardless of whether they reach any kind of law second settlement?

EL-ERIAN: So, on the second issue, Piers, damage has been done, has been done to the real economy, people are spending less, companies are hiring less, so that's a real problem because it's not like our economy was growing very fast to begin with. There's also damage being done to the standing of the U.S. in the global economy. People ask me the question, do we outsource to this country, our currency, and our financial intermediation, I mean, after all, they use us as to reserve currencies. So there's a lot of damage being done.

Now, in the short term, I agree with Richard, nothing dramatic is going to happen on October 17th, but the wiggle room as he puts in is going to be reduced and the probability of a mistake goes up and a probability of an accident goes up. If you get to November, then the probability of a huge accident is very large. So, we've got to be really careful. There wasn't much room for maneuver but nothing is going to happen immediately at midnight on October 17th other than market is getting more and more nervous.

MORGAN: Mohamed El-Erian, I know you got to go, so thank you very much indeed for joining me. The rest will stay with me Christine, Richard, and Josh when we come back. For now, this is all going to put us back into recession, with that is a key question here.

(COMMERCIAL BREAK)

MORGAN: A picture of the White House where absolutely nothing has been happening basically for two weeks. So Breaking News tonight is that the senate is working -- I'm sorry, you see Capitol Hill (ph) of the White House. And back with me now is Christine Romans, Richard Quest, and Josh Barro. And I'll turn to you Richard Quest on this. We were just talking in the break there about the way you forward (ph) here, in terms of America's reputation around the world, this is already been I think hideously embarrassing and I'm not sure how many people in Washington really appreciate it.

QUEST: I was at the IMF in the World Bank over the weekend, every finance minister you met on Central Bank that you spoke to had nothing other than scorning contempt. Now, people like George Osborne of UK and Ms. Moscovici (ph) of France, they all said they understood the difficulties and they understood how tough it was for the Americans. But then, they were just go on to say -- but they have done nothing but elect everybody else for the last five years about what to do and now they need to do it themselves.

And as Fitch said, that I was just referring earlier, what Fitch says one of the reasons U.S. tonight is on a negative ratings watch by the agency -- the Ratings Agency is because it says, the debt ceiling (inaudible) confidence in the effectiveness of the U.S. government and political institutions. Piers, the U.S. has been here several times before in the last few years constantly trying to promise to do something about it and failing.

MORGANS: Christine Romans, let's talk about the state of the economy in totality without all this, because the fed have already been propping everything out. ROMANS: Yeah.

MORGANS: You got to come to the $17 trillion in debt. There are already endemic problems in the system as it is. But there had been ironically a few green shoots sprouting. Is all this just going to kill that, but also we're heading back to a potential risk of recession again?

ROMANS: Look, it is kind of productive at best. It is down right dangerous and congressional malpractice at worst and I feel like we are at the worst here, you know, that is what this is. What you got congress actually choking off what has been a slow and steady recovery, but we've had jobs created ever single month since the last debt ceiling crisis we have a couple of years ago, right, and that's even with a sequester, that's even with all this budget -- budget nonsense we've had for the past couple of years and probably in large part because the fed is the only functioning body in Washington right now.

So, yeah, Congress is working across purposes with job creation in America. And remember, remember in the election how's all that jobs, jobs, jobs, that's completely gone away. It's now complaining about ObamaCare, trying to gut (ph) ObamaCare and trying to balance the budget. No one is talking about jobs anymore. They're only talking about this (inaudible) fighting and it's completely counter productive and today was another waste of day. We're getting closer to these important moments, when things can unravel, and they're wasting time Piers.

MORGAN: And you know Josh Barro, we had a moment last on the show about Martha Kelly (ph), Gabby Gibson's husband, obviously an astronaut (ph) as well, as is his brother, his brother is being furloughed as of 97 percent of NASA, his brother is actually looking for work. He's been encouraged to go on the employment market. He's supposed to be in space representing America in 2015.

BARRO: Right.

MORGAN: And this is almost -- this is embarrassing. But let me read you this. This is Bill Carter of the New York Times, a very wise man in many ways who just tweeted this. Not seeing this passed out that Boehner brings the senate bills likely to be put forward maybe by tomorrow morning, Dana Bash thanks. And it passes Tea Party moves to Austin who becomes speaker, it conflict worse after that. This could unravel. I mean, it's not likely but it could happen that way.

BARRO: I think it's probably not going to happen that way. And the reason is that most of the republican caucus didn't want to get into this mess in the first place. You have about, you know, 50 or 60 of them who really wanted to have this government shutdown to fight debt limit fight over ObamaCare. The rest of them understood this was a dumb strategy but they never wanted to take vote saying it was a dumb strategy because they are afraid of republican primaries in which people will demand that they shutdown the government and fight to the dead end against ObamaCare. So I think a lot of republicans in the House will actually be relieved when John Boehner gives them a reprieve from this and brings the senate bill to the floor. Boehner also has a good excuse now that the House hasn't been able to agree on a package of his own. He can say, "Look, what else was I going to do? We don't have a plan to put forward to send to the senate. We have no option other than to vote on the senate's plan."

So I think, you know, we're talking about this being some hideously embarrassing thing which it is. But it's just an extension of what we've been doing for the last two years. We had a debt limit fight like this back in 2011. A lot of this I think is already priced in and will discontinue to limp along like this and I think the only possible endgame is democrats take back the House in election in a year, and republicans learn the lesson, they don't get away with this forever and we have normal governance.

MORGAN: Richard Quest, let me ask you this. What we hadn't really talked about much is the impact on the average American in terms of mortgages, loans, all the basics in normal financial life. Suze Orman last night was painting a pretty grim picture of what is likely to happen. Everything basically will be going up.

QUEST: I just got to take a little bit of issue with (inaudible) ...

BARRO: OK.

QUEST: ... suggesting because things will not go back to normal. The world has changed in the sense that you have China talking about de-Americanizing, you have the European Union which likely has a -- by no means a bastion of sobriety on the questions of fiscal probity (ph). But they are there. The U.S. cannot continue to play this sorts of role and expect to get away with it.

BARRO: They said this in 2011 too and there were real cost from the debt ceiling fight that we have in 2011. But treasuries are still the safe haven investment for people all over the world ...

QUEST: But it will change. It will ...

BARRO: ... (inaudible).

QUEST: That will change, it may take time. But those sort of little changes are taking place. To answer your question, Piers, and it will -- it's a slow burner, it's not going to be a massive thing overnight but everybody will start to notice the effects. People talk about the 1979 debt little bit of hiccup interest rates not stop a little bit, some people pay high on their mortgages for that. Overtime, it will have a corrosive effect. You cannot have this sort of dislocation in financial markets and not see an effect.

MORGAN: Christine Romans, final word to you. What is your gut feeling about how bad this is going to be?

ROMANS: I'm worried about the complacency. I'm worried that I hear so many people say, "Oh, it's not a big deal." or, "Oh this (inaudible) faster up so much since last time we were here, you know, (inaudible) have had a good run, we've had job creation in economy (inaudible) are going to fall out of bed on October 17th, we're not going to worry about it and worried -- by the time you worried about it that's when my grandmother is going to get a social security check and the social security trust fund, might get an IOU for the interest paid and you start to see things really getting ugly. An unforeseen links in the financial systems start to come unraveled and then it's too late to stop it.

MORGAN: Christine Romans, Richard Quest, and Joshua Barro, thank you all very much indeed. When we come back, Alan Dershowitz says what Congress is doing is unconstitutional but why Ted Cruz is a genius? Yes, you heard me. And (inaudible) negotiate to Bill Richardson, the man who got Saddam Hussein to negotiate. You see any hope here?

(COMMERCIAL BREAK)

MORGAN: Now we're bringing two people here who wrote the book called "The truth on how America should work "Alan Dershowitz was the man and (inaudible) his new book is called "Taking the stand, My life in the law" Also joining me tonight and negotiate with (inaudible) from Saddam Hussein (inaudible) but could he handle Ted Cruz, former New Mexico Governor Bill Richardson, the author How to Sweet-talk a Shark, strategies and stories from a mass negotiator. Welcome to you both. Two perfect people to follow through the earlier conversation.

Alan Dershowitz, let me start with you because this is fascinating, do you taught Ted Cruz at Harvard?

ALAN DERSHOWITZ, "TAKING THE STAND, MY LIFE IN THE LAW" AUTHOR: Well I'm not sure how much I taught him but I sat in the front of the class while he was in the class raising his hand, always his right hand making very intelligent points and really winning debates all the time in the class including winning debates with his professors.

MORGAN: One of the best students you've had?

DERSHOWITZ: One of the sharpest students I had. In terms of analytic skills, I've had 10,000 students over my 50 years at Harvard. I write all about that in my book in, "Taking the Stand". And, I write about my great students. He has to qualify among the brightest of the students.

MORGAN: So we have to assume from that, because of the extraordinary piece of inside into him did it come really from nowhere to many people. We have to assume from that this is all a part of a strategy. What do you think his strategy is?

DERSHOWITZ: I think he deeply believes what he's doing. I don't think of him so much as a tactical or strategic thinker, he's deeply principled. He thinks he's doing the right thing, but doesn't mean it's the right thing. And he's very hard to get off that principled argument. I saw that years ago when he was a student. He was not a comprise. He was not somebody who tried to make friends by accepting what was then the political correctness of the day. If you want to defeat Ted Cruz, you have to appeal to his principles not to his tactics.

MORGAN: Right. But a final point (ph) on that, I mean, you're a top lawyer. When he is basically taking an established law like ObamaCare, whether you like possibly don't know or even know a thing and using that as a stick to shut down the American government, that's taking you a bit far, isn't it principle?

DERSHOWITZ: Not only that I think it really raises very serious constitutional questions of the kind that Ted Cruz should be interested in. Can you imagine Hamilton and Madison sitting around and drafting the constitution and they federalist papers, they're talking about how the government has to pay its debts, how it has to secure the credit of the United States, how the House of Representatives to originate bills on revenue. Nobody, in a million years would have contemplated a power of congress to shut down the government, to create doubts about our credit worthiness. I think you can make a very strong argument that Ted Cruz is doing is deeply unconstitutional whether the court would accept that or say it's a political question is another issue. But Cruz is a principled man you were to look at the constitution and look into his heart and ask himself, what would Alexander Hamilton have done?.

MORGAN: I would and I might get Ted Cruz back on here with you Alan Dershowitz, his old professor or mentor. Bill Richardson, you sat down with some of the most evil tyrants in the history of planet earth, I'm not putting Ted Cruz in that category or even speak of him obviously, or even the president. But, they did not seem to be a problem here in the ability, the key players in this particular debacle to sit round a negotiating table and get things done. What is the problem and from all your experience and is detailed in your book, how do we get through this?

BILL RICHARDSON, FORMER GOVERNOR OF NEW MEXICO: Well, I had suggested a mediator but it's too late now we're on the brink of a major decision, a catastrophic decision that we don't take action. Here's what I would do, I would test Ted Cruz with the vote. I would test and John Boehner I think confessed (ph) his own members. I think the key player is John Boehner. He can go tomorrow to his caucus after the senate presumably passes a bill possibly overwriting Ted Cruz in a filibuster and say, "Look, I've achieved the goals that you wanted me to." This is his caucus, his 40 Taliban (ph) members of Tea Party. I've shut the government down. We've succeeded in doing that. We now have the outlines of a potential deal, tax reform, some kind of entitlement reform, spending cuts. We tried in ObamaCare, it didn't happen, we have to move on.

I think he in the end -- I served in the congress 15 years, all of these deals were made at the last minute and I think that John Boehner and Mitch McConnell, Harry Reid, Nancy Pelosi and the president that they're all reasonable people.

MORGAN: Right, but the person you (inaudible) of this bill is the man we've just been talking about, Ted Cruz who seems to be on his own mission and many believed his real game plan is to raise his own profile high enough to have a run at the presidency which may seem ridiculous but actually (inaudible) outlandish that people imagine.

RICHARDSON: Well, there's no question. The only think I think Alan had an outstanding view of what's happening I don't think his principles, I do think he loves the attention, he loves to be darling at the Tea Party, but what you do with people that are bullies is you test them and I think the senate tomorrow will test Ted Cruz. Is he got to -- is he got to try to obstruct a senate deal that a majority of this party and the senate is supporting? And, in the end I don't think you'll be able to stop it and he may say, "OK he may declare victory." And this is what I think John Boehner can do. I mean, look, we've gone to the last brink (ph), we can have this nation to fall, it's hurting us internationally, people are getting hurt, let the house work its will.

MORGAN: Alan Dershowitz is (inaudible) fiddling (ph) while the world is getting on without a staff? In other words China is a key, they're saying increasingly, this is ridiculous, is de-Americanize the world, you know, well American burns in these guys that towing around with each other of a tiny points of principle will they get on with the bigger picture. I mean that's a real danger right now which America had some faith before with all these sort of situations with the debt ceiling or, you know, with on a debt issues. Now, they got a real alternative.

DERSHOWITZ: I agree. And, not only that we're trying to negotiate to deal with Iran, you only negotiate in strength, they want us to stop the sanctions, if we are in a precarious economic situation as the result to this we'll have far less leverage when it comes to sanctions, for or less leverage when it comes to world influence. This is bad for America, this is bad for the world, this is bad for democracy, this is bad for the war against terrorism, this is bad for virtually everything at this country should stand for and that's why that appeal has to be made to Cruz. Cruz doesn't care whether the other senators like him, he wants to get reelected and he has his constituents who are saying, "You are the most wonderful person in the world. Thank you to standing up for us." We have to persuade him that what he's doing is inconsistent with his own principles.

MORGAN: What about President Obama's performance in all this because, you know, it's easy to say we'll blame Ted Cruz, blame the republicans, and so on but it comes a point when the commander-in- chief has to take charge and try and prevent the country being damaged as best he can, sitting back in this rather professorial manner that he has, and so there's slightly -- if you don't mind me saying, he arrogantly say, "This is your problem republicans." I'm quite enjoying you all sweat." Is that great leadership?

RICHARDSON: Well, if you look at the record, Piers, the president has called the leadership then (ph). He has tried, but when one house says, "It's our way or the highway." He has no choice but to resort to having Harry Reid take the lead, senate democrats take the lead.

MORGAN: What will you do -- what will you do if Bill Clinton tells (ph). What all you do if Bill Clinton -- when he was dealing with Newt Gingrich in the last shutdown in the mid '90s or with lot of (inaudible) America, you get in room, you chuck (ph) everybody out.

RICHARDSON: Right.

MORGAN: ... and you go at each other.

RICHARDSON: Well, this is one of ...

MORGAN: (Inaudible). I've see that has not happened so far.

RICHARDSON: Well, what I would do, and maybe it' too late to do this, if I were the president -- and I think he has done the right thing. I would get everybody into the White House, the leadership, no staff, and say, "Unless you guys make a deal you're not going to leave here. You're not going to talk to your caucuses. You're not going to talk to the press." because that locks in so many members. He can still do that tomorrow, shut the White House store, maybe have a (inaudible) the Lincoln bedroom (ph). But, I do think the time has come for everybody to get in a room away from the enormous pressure. Everyone is tired or angry. This is a time for remediation and perhaps the president can do it. But I think he has acted appropriately.

MORGAN: Let's take a short break and we'll continue this. (Inaudible) longer term damage potentially to the republicans holds a record lose (ph) for them. Midterm is coming out then a big election again. Many are thinking this is totally self defeating once (inaudible). Let me get your take on that (ph).

(COMMERCIAL BREAK)

MORGAN: Back with me now (ph), Alan Dershowitz his new book "Taking the Stand, My Life in the Law". Bill Richardson, author of "How to Sweet Talk a Shark" and that was indeed White House just then. (Inaudible) the Capitol is pretty dead quiet tonight. Two great books jobs (ph). Bill, you were just a half a size of Alan Dershowitz.

(CROSSTALK)

MORGAN: But size is not everything and he is (inaudible) for that terrific books. Let's talk about the Republican Party going forward, because many on the republican side including Senator John McCain and others fear this is causing really severe damage to the GOP. And they got some big stuff coming up. The midterms and then they got the (inaudible). What do you think (inaudible)? I mean, is this split between a newly galvanized Tea Party on the main body politic of the GOP, going to be a very much of problem form (ph)?

RICHARDSON: It's going to be a problem form (ph). However, both sides look bad, both parties look bad. But I do think republicans, their dream of taking over the senate, I think is now gone, because of this shutdown debt limit issue.

The house republicans, the Tea Party guys are going to get reelected because of gerrymandering, they're probably even going to be stronger. But what I think may emerge is -- and what I think is needed in this country is a stronger and moderate Republican Party that can pass legislation with democrats in the house and the senate.

But, yeah, I do think it's going to hurt the republicans with Newt Gingrich and Bill Clinton. Bill Clinton came out of big victor in that shutdown (ph). I was there. But what I think is very important now in the end is find a way not to denigrate each other. Don't go public blaming. Let's have the last day we want about shutdown of all the press, the caucuses, everybody in the room, make a deal, and I think it's going to happen.

MORGAN: I mean, this is -- and these are the people (ph), right? Would you like to see most members of congress reelect next election among rich (ph) voters?

DERSHOWITZ: No. 74 percent ...

MORGAN: And this is almost like a staying in all your houses.

DERSHOWITZ: But I don't think that Ted Cruz thinks of himself as having a constituency among other senators or congress or even the Republican Party. He is the ultimate populist. He is adored by the people who support him. That's where he gets his energy and I think his feeling is the republicans loose in the term election that's their problem.

The (inaudible), that's not my problem, I represent the state of Texas, the people who elected me and the principles for which I stand. And I think ...

MORGAN: Did you imagine him actually making a serious run for presidency?

DERSHOWITZ: I think he's heard (ph) his chances of doing that because to get to be the president it's not enough to win some primaries. You have to have the establishment in your corner. You have to be able ultimately to get a majority, at least the majority of the electoral votes, and I think that he has mortgage that in the interest of maintaining his control over the small group -- relatively small group of people who support him.

MORGAN: And what about President Obama, Alan? I mean, you can easily say like he's been put in possible position here by the multi- factions GOP behavior, particularly using ObamaCare, establishing law with support from the Supreme Court and everything else, as the stick to beat him. And he's perfectly entitled to stand back because they know what we held a (inaudible).

DERSHOWITZ: It's a mistake.

MORGAN: But in what point do you need to move from intransigent no to -- OK, let's get in a room (ph), let's get this done, because at moment we're not seeing that.

DERSHOWITZ: The American people want to see their president assume a leadership role. They want to see the president above congress, above the senate. They want to see the president say I'm in charge, come into the room. This is my administration. This is my responsibility. These are my rules. I'm the one who has the face, the European countries and China, you're going to have to seat in room, you're going to have to resolve this and you're not going to get out of this room until you come with some (ph) satisfactory resolution. He has to do that.

RICHARDSON: The president has said, look let's put ObamaCare aside. Let's solve the debt limit. Let's have a continuing resolution in the shutdown. Look, I'm ready to talk about spending cuts, the budget, a long-term budget deal. I'm ready to talk about tax reform, ways to make the tax system more equitable. I'm ready to talk about entitlement reform. And I think what they should follow doing too Piers, is a jobs plan and economic agenda plan, investments and education, regulatory reform, technology incentives, an energy bill. I think they can actually look good after this tobacco in a forward agenda, immigration reform.

(CROSSTALK)

MORGAN: ... I think that's (inaudible) from being negative overtime, how to stop things happening. This is collectively where you (ph) making things happen that the benefit the American people's lives (ph). Anyway, Alan Dershowitz and Bill Richardson, thank you both very much, fascinating (ph) conversation.

That's all us tonight AC360 later will start in a few moments, and we'll be back with all of these drama of course tomorrow.