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Senate Races to Finalize Debt Plan; Investors Anxiously Wait for Deal; Interview with David Walker; Edward Snowden "Free" in Russia

Aired October 16, 2013 - 09:00   ET

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

KATE BOLDUAN, CNN ANCHOR: That's it for me in Washington and us -- all of us in New York. Thank you for watching NEW DAY today. Much more coverage on the debt ceiling showdown. Carol Costello continues our coverage.

Hey, Carol.

CAROL COSTELLO, CNN ANCHOR: Got lots of stuff for you. Thanks guys, have a great day.

NEWSROOM starts now.

Good morning. I'm Carol Costello. Thanks so much for being here. Well, here we are, it's October 16th and the nation is on the edge of default. In other words, we're staring down the very debt crisis that lawmakers told us not to worry about. Remember all the reassurances? The promises that Congress could come together at crunch time and not risk an economic disaster.

Well, as you can see from our countdown clock that deadline is now less than 15 hours away, the debt ceiling closes in, the partial government shutdown drags on and Washington's dysfunction is shaming even the lawmakers.

(BEGIN VIDEO CLIP)

SEN. JOE MANCHIN (D), WEST VIRGINIA: It's not a big thing or don't worry about it, that's ridiculous. This is a big thing and it's going to harm not just this economy but economies all over the world. And we're not going to do that. And we -- there's -- you know, if we do, I think they should all ask for our resignation. They should ask for all of our resignations if we can't come together for the good of our country.

(END VIDEO CLIP)

COSTELLO: OK, let's get the latest from CNN's Jim Acosta. He's at the White House this morning.

Good morning.

JIM ACOSTA, CNN NATIONAL POLITICAL CORRESPONDENT: Good morning, Carol. Yes, so what we can tell you right now is that Senate leaders Harry Reid and Mitch McConnell are working on a deal right now but how all of this gets out of the Senate, how all of this gets out of the House and over to the president's desk before the nation hits the debt ceiling at midnight tonight is still a mystery but in the words of one top GOP Senate source, fear not.

(BEGIN VIDEOTAPE)

ACOSTA (voice-over): Time is running out. The debt ceiling is within sight and the last best hope of avoiding a potential default once again rests with Senate leaders Harry Reid and Mitch McConnell who were back to working on a last-minute deal.

REP. CHARLIE DENT (R), PENNSYLVANIA: John Boehner will likely be in a position where he will have to essentially pass the bill that is negotiated between Senators McConnell and Reid. And I believe that the House will first pass it then send it to the Senate.

ACOSTA: President Obama called for quick action.

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: We don't have a lot of time and so what I'm suggesting to the congressional leaders is let's not do any posturing. Let's not try to save face.

ACOSTA: The president appeared to put the blame on House Speaker John Boehner's inability to corral Tea Party-backed Republicans.

OBAMA: There have been repeated situations where we have agreements then he goes back, and it turns out that he can't control his caucus.

ACOSTA: That caucus is once again up in arms despite Boehner's tough talks.

REP. JOHN BOEHNER (R), HOUSE SPEAKER: I have made clear for months and months that the idea of default is wrong. And we shouldn't get anywhere close to it.

ACOSTA: The speaker failed to convince House conservatives to line up behind Republican proposals to lift the debt ceiling and end the shutdown. It didn't matter anyway, as Reid said the GOP's plans were dead on arrival in the Senate.

SEN. HARRY REID (D), MAJORITY LEADER: Extremist Republicans in the House of Representatives are attempting to torpedo the Senate's bipartisan progress with a bill that can't pass the Senate.

ACOSTA: That portrait of Washington dysfunction was all the respected Fitch Ratings Agency needed to see. Fitch issued a warning it may downgrade the nation's AAA credit rating, a potential repeat of what Standard & Poor's did after the last debt ceiling debate of 2011. Although Fitch continues to believe that the debt ceiling will be raised soon, the agency said, the political brinkmanship could increase the risk of a U.S. default. Some House conservatives were brushing off talks of dire consequences to come.

REP. TIM HUELSKAMP (R), KANSAS: I just think most folks understand October 17th is not the drop dead date. There are no payments due for a couple of weeks.

(END VIDEOTAPE)

ACOSTA: Now according to top Senate Republican and Democratic sources here is how the deal looks right now. Let's put it up on screen. The government would be reopened, according to the Senate deal as it stands right now, through January 15th -- and funded through January 15th. The debt ceiling would be raised until February 7th.

A budget conference would be put together for Republicans and Democrats to work through some of these thorny budget issues. That date was tentatively set for December 13th last night but that is kind of up in the air at this point and that those income verification requirements in Obamacare that Republicans want, that appears to be in the deal right now.

But, Carol, of course, you know, we can't really guarantee that anything that we're talking about right now will actually be in the final deal because things have been changing so much but that's sort of where things stand right now. The big question is how does it all get passed, does Harry Reid send a piece of paper over with these details -- in it to House Speaker John Boehner and then he tries to get it through the House and then send it to the Senate?

But to be really honest with everybody, we just don't know how it's going to develop over the course of the next several hours.

COSTELLO: OK. So let me get this straight. As thing stands now this is a Senate deal that will likely go to the House of Representatives for a vote because the House of Representatives can't come up with its own bill.

As you know, Jim, this is not the way it's supposed to work. I know that. We all know that. Hasn't anybody watched "Schoolhouse Rock"?

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: You sure got to climb a lot of steps to get to this Capitol building here in Washington. Well, I wonder who that sad little scrap of paper is?

UNIDENTIFIED MALE: I'm just a bill, yes, I'm only a bill, and I'm sitting here on Capitol Hill. Well, it's a long, long journey to the capitol city. It's a long, long wait while I'm sitting in committee, but I know I'll be a law someday, at least I hope and pray that I will, but today I am still just a bill.

(END VIDEO CLIP)

COSTELLO: But sadly, Jim, in the House of Representatives it's not even a bill yet.

(LAUGHTER)

ACOSTA: Yes. Well, to paraphrase "Schoolhouse Rock," I think we're at dysfunction junction instead of conjunction junction. (LAUGHTER)

Carol, let's just see how the day develops. I don't think we're at end times. Maybe just read end times. So if I could throw that out there, I did talk -- I've been exchanging e-mails with a top House Republican source who says, as for that idea that they might take the Senate bill on a piece of paper and try to get it through the House, they're not at that stage just yet.

They're going to make that call after they see what the Senate has to offer but as you just pointed out, Carol, not exactly "Schoolhouse Rock."

COSTELLO: No. Jim Acosta, many thanks.

Washington's brinksmanship has angered other countries knowing that the U.S. economy is vital to their own well-being. But investors seem to have mustered some confidence in a deal getting done. London's FTSE 100 index and Germany's DAX each down less than 0.5 percentage point. Japan's Nikkei closed up albeit slightly. But what about Wall Street which opens later this hour?

CNN's chief business correspondent Christine Romans joins us from Washington with that.

Good morning.

CHRISTINE ROMANS, CNN CHIEF BUSINESS CORRESPONDENT: Good morning. And futures are higher, pretty sharply higher here because OK, you had "Schoolhouse Rock." I will -- I guess I will channel "War Games." What investors are telling you is that there will not be mutually assured destruction here on Capitol Hill, that they are not stupid enough to really not raise the debt ceiling so investors are betting, Carol, that they are going to do something and they're going to do something soon.

Let me give you a little bit of timing. First of all, no one wins. No one wins if you don't raise the debt ceiling. I've been wracking my brain trying to figure out who could possibly win if you don't win the -- if you don't raise the debt ceiling because that's what Washington is about, right? Who's going to win? No one wins.

So what happens next if they don't raise the debt ceiling? I don't think the lights go out on October 17th. I think you've got a couple of days while the Treasury figures out which bills to pay and then slowly, slowly the momentum would continue after that and you'd start to see the cracks in the financial (INAUDIBLE), you know, yields spike and you'd see -- you know, you'd see the stock market probably come unglued.

Just when that would happen no one knows for sure but today, today, right now, a half an hour before the market closes investors around the world are betting that Washington will not be that stupid -- Carol.

(LAUGHTER) COSTELLO: I hope they're right.

ROMANS: I hope they're right.

COSTELLO: I really hope they're right. So what about the action that Fitch took? What should we read into that?

ROMANS: You know, Fitch essentially warning the U.S. and telling us, Carol, what we already know. That the -- Congress doesn't know how to run a business. It should have raised the debt ceiling by now, that's exactly what Fitch said. Fitch said that -- it assumes that there will be some sort of deal in the days to come. They don't think we're going to default on our obligations to investors. And that's really, really important that you have to pay the interest on your -- on your loans, on your bonds.

No indication Fitch says that we wouldn't do that, but look, every day that we don't raise the debt ceiling and get a real agreement here, a comprehensive agreement to end these budget battles is a wasted day in Washington.

And these days just keep wasting away, Carol, and I don't think you can count on the optimism in the markets and the stability in the market to continue forever if you don't have any kind of coherent strategy just this warfare in Washington, so there are super -- there are so many risks still for your money, for your interest rates, for your mortgage, for your credit card bills, for the availability of loans, for your stock investments and your portfolio.

It's still pretty scary here.

COSTELLO: Yes, it is. Especially for those late on in life with 401(k)s.

Christine Romans, thanks so much.

ROMANS: Yes.

COSTELLO: Just ahead in the NEWSROOM, calls from Republicans in Congress to investigate the Obamacare Web site glitches and the president's response, next.

(COMMERCIAL BREAK)

COSTELLO: Shopping for insurance? Have you been on healthcare.gov? Did it work? Well, it has been two weeks since the launch of the Obamacare Web site and for the second morning in a row the government still isn't telling us how many people have been able to successfully sign up or when those problems will be fixed.

The "Miami Herald" says House Republicans plan to investigate the launch. The paper says the House Energy and Commerce Committee will ask Health and Human Services secretary Kathleen Sebelius and federal contractors to explain exactly why things went so wrong, after their earlier testimony which they said the site would run smoothly.

On Tuesday President Obama further expressed his frustration with the disastrous launch.

(BEGIN VIDEO CLIP)

OBAMA: I am the first to acknowledge that the website that was supposed to do this all in a seamless way has had way more glitches than I think are acceptable, and we've got people working around the clock to do that. And we've seen some significant progress, but until it's 100 percent I'm not going to be satisfied.

(END VIDEO CLIP)

COSTELLO: The president went on to say people are still able to sign up for programs by phone and by mail, with little or no problems at all.

But there are clearly problems with Obamacare and guess what? Those big glitches are not addressed in the Senate's deal, potential deal to reopen the government, but let's move on from that for now.

The Senate might or might not pass a bill that funds the government through January 15th and extends the debt limit until February 7th. In other words, at best this is a temporary fix and aren't you sick of hearing that?

So is my next guest. David Walker is the former comptroller general for the United States or put more simply he was the nation's top independent accountant under President Clinton. He also supported Mitt Romney in the last election.

Welcome, David.

DAVID WALKER, FORMER U.S. COMPTROLLER GENERAL: Good to be with you, Carol.

COSTELLO: OK. So you kept the books for the government?

WALKER: No, no, no.

COSTELLO: So you know what's going on.

WALKER: I audited the books for the government.

COSTELLO: Audited. OK.

WALKER: I was not responsible for this accounting because it's atrocious, I can tell you.

(LAUGHTER)

COSTELLO: I totally get while you're explaining more carefully.

So it astounds me the number of people who don't believe anything will happen if the debt limit isn't raised.

WALKER: Well, something will happen. Let's separate the wheat from the chaff. But we have more than enough revenue to service our debt, only about 10 percent of our revenue is necessary to service our debt. There's one thing guaranteed in the Constitution of the United States, that's bondholders and U.S. debt.

Now, the Treasury is admitting they have, well, maybe it's not October 17th, maybe a few days past October 17th.

Look, we shouldn't be in a position to decide what bills we're going to pay and not.

COSTELLO: This is a bad thing. Make it clear for people.

WALKER: It's a bad thing. But they should not keep on moving the ball. They lose credibility. If you say this is what the deadline is, at a minimum you can say, "Well, it's going to be around there. We don't know the exact date."

Here's the real thing we need to get it done before this, the deadline is November 1 because November 1 Social Security payments, payments to Medicare providers are supposed to go out. And right now, Social Security and Medicare are negative cash flow, and the only thing they can pay benefits out of is what's in the trust fund. What's in the trust fund? Death.

COSTELLO: We hear lawmakers say we can pick and choose what we want to pay out.

WALKER: Well, they don't know. I mean, most of them don't know how to do math, OK? Much less to figure out the accounting.

Look, here's the problem -- the Treasury does have visibility over bond holders of U.S. debt, they're going to get paid on time. What they don't have visibility over is all the ongoing day-to-day payables from the departments and agencies, so they would have to prioritize. They'd have to end up paying certain mandatory payments, discretionary payments, they'd have to prioritize.

And the sad thing is we would end up paying more penalties and interest because the Prompt Payment Act, you know, which is ridiculous. So I think what's going to happen. The Senate is going to pass something and that the House will ultimately pass what the Senate does. It may not happen by the so-called deadline, but I think it will happen by the beginning of the week.

COSTELLO: But still this plan that the Senate is thinking of passing is just a temporary fix. We're going to have to go through all this again next year.

WALKER: Well, what we need to do is to have substantive negotiations to deal with the three things we haven't dealt with that are needed to restore fiscal responsibility.

COSTELLO: I thought you were going to say the budget.

WALKER: Well, yes, we haven't had a budget in five years. But that's correct. We need social insurance reforms, we need to rationalize our health care promises and better control cost and we need to do comprehensive tax reform.

They're not going to do all of that December 13th. Maybe they can come up with a framework we can begin implementing in installments over time, as that's what it takes to deal with the fiscal cancer we're stricken with.

COSTELLO: OK. So, everybody agrees this fiscal cancer exists but has this been such a terrible experience for lawmakers, do you think, that we won't ever be at least, that we won't be in this position again? That we'll never bring it as close to the deadline as we have?

WALKER: My parents taught me, you never say never, and they're right, OK?

The fact is the American people frankly have a very short-term area, and if they can get through this and the next election is not until next November so people are largely forgetting, but we need to get through this.

The other thing is, the polls came out basically giving the president, the Democrats and the Republicans all an "F." Some got a lower "F" than others, but they all got an "F."

The people are disgusted with what's going on in Washington. We have a republic that's not representative of or responsive to the public. We're going to need political reforms, and we need a state-led constitutional convention to focus on fiscal electoral and states rights reforms.

COSTELLO: OK, the odds on whether that will happen?

WALKER: Better than you know, better than some other things happening in D.C. But we'll see. The founders gave us this.

COSTELLO: Thank you so much for joining us.

WALKER: Good to be here.

COSTELLO: We appreciate it, David Walker.

Still to come, Edward Snowden's father reunites with his son in Russia.

(BEGIN VIDEO CLIP)

LON SNOWDEN, FATHER OF EDWARD SNOWDEN: Certainly very emotional to know that my son is safe, secure and is he free.

(END VIDEO CLIP)

COSTELLO: Lon Snowden tells CNN about the NSA leaker's life in Russia, next.

(COMMERCIAL BREAK)

COSTELLO: Checking our top stories at 22 minutes past the hour. Police have arrested a suspect in connection with two dry ice explosions at Los Angeles International Airport. Twenty-eight-year- old Bennett Dicarlo was booked with possession of an explosive or destructive device near an aircraft. Two bottles filled with dry ice exploded in restricted areas.

(BEGIN VIEO CLIP)

DEPUTY CHIEF MIKE DOWNING, LOS ANGELES POLICE: I think it does reveal a vulnerability that we're going to shore up and that is that you have cameras in public access areas, we should also have cameras in restricted access areas to maintain the integrity of the security system.

(END VIDEO CLIP)

COSTELLO: Dicarlo was being held on $1 million bond.

The 75-year-old mother of baseball great Cal Ripken Jr. managed to thwart a gunman who said he wanted to steal her car. Cal Ripken used the panic button on her key ring to scare him away. The suspect was arrested two hours later.

Police say the attempted car-jacking is not related to her abduction last year taken at gun-point from her home in Maryland and found the next day.

Oreos are just as addictive as cocaine. That's according to a study from Connecticut College. Researchers found that eating Oreos activated more neurons in the pleasure center of rats brains than exposure to cocaine or morphine. Like most humans, rats like to eat the Oreo cookies creamy middle first.

Oh, man. A cable failure in Detroit's electrical grid knocked out stadium lights during last night's ALCS three. That's according to DTA energy. Officials say the power to Comerica Park was took 15 minutes for the lights to fully reset. The game was delayed though it was still daylight and I don't want to read the next part so we'll skip over it, the Tigers lost.

COSTELLO: Edward Snowden's father, he leaves Moscow after meeting with his son for the very time since the son leaked NSA secrets.

Lon Snowden talked to CNN's Phil Black outside the airport and describe the emotional reunion.

(BEGIN VIDEO CLIP)

SNOWDEN: It was, you know, enormous, and the first hug that I gave him wasn't simply for me. It was for the entire family, and it was much in the way that I last saw him in April. I hugged him. It was, "I love you ,son. I love you, dad."

We hugged a little longer, a little harder, and it was certainly -- it was an important moment because on June 7th, two days before this story broke, I wasn't certain my son was alive. I didn't think I would have ever see him again. In mid-June, I didn't know if I was going to see him again. So certainly very emotional to know my son is safe, secure and he is free.

(END VIDEO CLIP)

COSTELLO: CNN's Phil Black is on the phone from Moscow.

Hi, Phil.

PHIL BLACK, CNN INTERNATIONAL CORRESPONDENT (via telephone): Hi, Carol.

You can see he was emotional when he was describing that reunion. He was also much relieved, different Lon Snowden, the one we first meet week, when the About a week ago he flew in for the first time we spoke to him then, he hadn't seen him son, worried about what he was going to find.

He said having been here for a week now he is much relieved, is he satisfied that his son Edward has a comfortable life, that he is free, safe, independent and in his words he said he is absolutely committed to the decision that he made. He said that Edward has a very strong support network of people here in Russia, and he hinted at others he said in the support network, people in Russia and Intel (INAUDIBLE), he said crosses international borders as well.

Because of that he says his son doesn't have to work at the moment but that might change in the future in his view having been here for a week now, is that this is the place for Edward to be because he believes that he is safe -- and to paraphrase he doesn't have to worry about an individual or groups affiliated with the United States, trying to snatch him and return him to the U.S. government, Carol.

COSTELLO: Phil Black reporting live from Moscow, thanks.

Still to come, the stock markets on edge with a default deadline hours away, opening bell in just about four minutes. We'll be back.

(COMMERCIAL BREAK)

COSTELLO: Good morning. I'm Carol Costello. Thanks so much for joining me.

You're looking right at it opening on Wall Street -- ringing now, investors on edge, waiting to see if Congress members can agree on a last-minute deal.

CNN's Alison Kosik is in New York. Christine Romans is on assignment in Washington.

Let's start with you, Alison, and the opening bell. So far so good.

ALISON KOSIK, CNN BUSINESS CORRESPONDENT: Yes, so far so good.

You know what, when it comes down to it, I think what you're seeing are investors hopeful. They're optimistic that lawmakers are going to come to their senses and come up with some sort of solution to the debt ceiling. You know, they say as embarrassing as it is, they think something will happen because Congress knows all too well what will happen if it doesn't come up with a solution.

You know, one trader putting it this way saying, "Look at Wall Street like a voting booth, and they've shown their displeasure by seeing, you know - by showing several sell-offs over the past couple of weeks or so since the government shutdown.