McCain on Fiscal Policy, Congress: Capitol Gains

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Oct. 18 (Bloomberg) -- U.S. Senator John McCain, an Arizona Republican, and former U.S. Representatives Tom Davis and Martin Frost talk about the outlook for progress on long-term U.S. fiscal policy following the partial government shutdown, political gridlock in Washington and the likely consequences of the shutdown for Republicans and Democrats. Bloomberg Government health analyst Peter Gosselin talks about early problems with implementation of the U.S. Affordable Care Act. They speak with Peter Cook on Bloomberg Government's "Capitol Gains." (Source: Bloomberg)

This week on "capitol gains." if we do not lift this cloud of uncertainty -- crisis averted.

The government reopens.

The threat of default off the table for now.

Senator john mccain on the economic and clinical damage left behind.

One of the more shameful chapters i have seen in the years i have spent here in the senate.

The deal gets done, but d.c. still looks dysfunctional.

Former congressman tom davis and martin frost offer their prescription.

The rough start for obamacare.

Where did it go wrong?

Nothing was built to nasa- style get to the moon and back.

We go under the hood of the health care law.

I am peter cook.

Welcome to "capitol gains." congress finally reached a deal to end the shutdown and avoid the first ever u.s. default.

The agreement does not solve the nation's fiscal issues but does lift the crisis cloud over washington, at least temporarily.

The deal funds the government through january 15, lifts the debt ceiling until february 7, and gives the house conference committee the job of brokering a broader agreement.

The compromise does not include any of obama care changes pushed by conservative republicans at the start of the shutdown.

At the end, john boehner had little to show.

For more on where the budget battle goes next and the damage left behind, i sat down with one of the lawmakers who tried to prevent the standup from the start, senator john mccain.

What is to burn us from being in this place -- what is to prevent us from being in this place three or four months time?

In 1995 we tried this before.

The american people reacted in a totally negative fashion.

So we did not do it again.

We lost all memory except for a few of us old geezers.

You call this one of the most shameful chapters in your time in the senate.

It was even worse than 1995. i think the impact was more devastating.

In 1995 we passed at least four appropriations bills.

The shutdown did not affect those portions of government.

This affected every aspect of government.

So therefore the damage was more significant.

You had your own issues with ted cruz and the strategy pursued.

At the end of the day, republicans are taking the brunt politically.

Do they bear the blame?

I predicted from the beginning we would not defund obamacare, because we have been through and election in 2012 where that was a major issue.

The republicans only control one of the three house, senate, and the presidency.

I knew it was a full's errand to start with.

-- fools's errand to start with.

But the president was damaged, democrats were damaged.

Americans'overall view of congress and government was damaged.

There is a lesson to all of us, to stop it.

There was a group of us but came together.

We came forward with a plan that was pretty agreeable.

There was a lot more people who wanted to join that group.

That group should stay together?

That group is going to stay together and we will work on other issues together.

Remember, a group like that can only address rifle shots.

When other groups get together, gangs, and try to do overall solutions, that never works.

My advice to them, having been a veteran of all these different gangs, is let's rifle shot rather than have some kind of grand bargain.

Grand bargain's have not succeeded, as you know.

Grand bargains should take face with a budget committee from the house, and senate, meeting and coming up with a budget.

Is and that it was -- that -- isn't that what is now supposed to take place?

I think they can.

I really do.

At least we ought to try.

For four years we did not have a budget in the senate, thanks to harry reid and the democrats.

Then we finally got a budget, then it was republicans in the senate, a handful who blocked us from going to conference.

Now finally we are going to a conference.

I'm not predicting we will succeed, but i am saying, thank out at least their meeting.

Are we going to have the same problems as the supercommittee?

The president says he is willing to offer entitlements but needs more revenue.

There are some loopholes that i believe could be closed easily , that have been put in by special interest, that i post when they were put in.

Why shouldn't i report -- support having them removed?

Is there enough consensus among republicans in the senate?

I don't know.

But what i do know, rather than trying for the grand bargain, maybe a smaller bargain so we can at least alleviate some of the devastating affects in 2014 of sequestration.

Do you think sequestration, because both democrats and republicans do not like it, is that the wildcard, the opportunity for the two sides to 40 larger agreement?

I think there is a large -- there is an opportunity to have a smaller agreement to limit affects of sequestration.

That is what we should, i think, focus our attention on.

By the way, lindsay graham and i , the military has been devastated.

The military is devastated by this.

Defense is 13% of the budget, and because they exempt somebody branches of government from sequestration, defense has taken 50% of the cuts.

This is a dangerous world, and i'm disappointed, friendly, in many of my colleagues both democrat and republican.

They do not realize how devastating this is on our nation's defense.

Al qaeda is not standing down, is not shutdown.

The president -- there is a sense, i talked to republicans were convinced this is a president that does not want to give an inch on entitlements, does not want to fix the country's fiscal future.

I see this president, like all presidents in the second term, interested in his legacy.

No doubt about that.

There has been a change in his behavior and attitude.

I spent more time in the white house in the last several month than i did in the previous four years.

And i think the president already said in his budget that there are some entitlement changes, such as the cpi, chained cpi, consumer price index.

Other small areas he is willing to compromise on.

So all i have to do is be helpful.

Because even though the debt and deficit has come down due to sequestration, the long-term impact of our entitlements is they eat up the whole budget.

Nobody disagrees with that.

They disagree with how we get there, but -- and when, but we are going to have to make some fixes.

What is your relationship like with ted cruz right now?

It is fine.

We were at a dinner a few weeks ago.

We had spirit conversations.

I respect ted cruz.

He told the people of texas when he ran for senator, what he was going to do.

It should come as a surprise to no one.

We strongly disagree.

One thing about this place, you have to stop being so disagreeable with each other.

John boehner.

How has he handled all this?

Is his job safe as speaker?

I think his job is safe.

He has handled it as well as he possibly can in a very divided conference.

I have great respect for him.

But i also think that is some point speakers have to be able to govern their conference and have more support from their conference, i guess is the best way i can describe it.

I'm a great admirer of john boehner.

The house-senate budget conference committee is due to report by december.

Still to come, what would it take to fix washington?

Two former lawmakers give us their prescription.

Later, obamacare rolls out that fails to launch.

Who is really to blame for all the glitches?

We will take a closer look.

The latest crisis may be over, but washington is still broken.

Republicans and democrats will face the same issues a few months from now.

How could things be different?

For some ideas, we want to bring into veterans of washington.

Regina republican tom davis and texas democrat martin frost.

Both served in leadership and headed campaign committees in the house.

Thank you for being here.

Tom davis, let me start with you.

Where does this episode ranked?

It is about the lowest they have been.

This is as bad as it gets at this point.

These are all congressional-may problems.

The shutdown going up to the edge, twice on the debt ceiling, the ramifications on the economy are all washington-may.

Martin frost, you agree?

Absolutely.

In 1995 you did not have the debt ceiling issue.

He did not have the world is coming to an end.

All you had was will people get back to work, will we reopen the government, the monuments?

This is much worse.

Congress has a long way to go to recover.

A pox on both houses, both parties, or do you believe republicans took a bigger hit?

The republicans took a hit, but the democrats took a hit, too.

Polling data shows it is worse for republicans, but the election is not to -- until a year from now.

You agree from that -- agree with that?

First of all, you have a year to recover, but this is worse than the house banking scandal or anything else.

What it does, it hurts institutions and people's faith in the institutions.

It hurts your ability to govern.

Congress needs to quickly recover.

They need to get something done at this point.

Hopefully this will bring something about.

What you have to look at, filing deadlines for office for next year are different state to state.

So there is time for people to file against incumbents to run in primaries.

That is what a lot of the incumbents are worried about.

They could still the primary challengers.

Martin won his races before the filing deadline.

I believe in early filing deadlines.

You draw, that determines.

The prospect for this budget conference, to try and solve some of these issues.

The supercommittee could not do it.

Susan balls tried to do it.

What are the realistic -- simpson-bowles try to do it.

What are the realistic prospects?

They have one easy task, to get allocation levels for discretionary spending for the year.

They are $91 billion apart.

The cr number is much closer to the republican number.

If they can figure out how much they want to spend and how much each appropriations committee can spend, you can get your bill signed.

That is number one.

Number two, the sequester.

They would like to get rid of the sequester but you will have to find offsets for that.

You will not find that in discretionary spending, meaning you have to get into entitlement spending or find added red -- revenues.

Those are not difficult tasks, but that is about all we can expect.

What about revenues?

The hard part is revenues.

An awful lot of the republicans will not vote for anything that raises revenues.

Democrats would, but i'm not sure.

You have to have a majority of house conferees and senate conferees to get something out of conference.

I am not sure how a majority of the house conferees where the republicans are in control can vote to increase revenue.

The chances of success for this committee?

They will do something.

They can deal with the spending side and maybe deal with sequestration, but it is a very heavy lift for them to deal with revenues.

If washington is indeed broken, what sort of changes -- what changes the dynamic year?

Voters have to change it.

Institutionally, interest groups are stronger than ever.

Campaign financing, citizens united has empowered interest groups and her parties' abilities -- hurt parties' abilities to function.

You have single-party districts.

Institutionally, this is set up for gridlock.

Unless voters start to elect different people, start saying something to put the fear of god in elected officials, you will get more of the same.

I got the congress in 1978 by defeating an incumbent democrat in the primary.

That was kind of unusual back then.

This could be a very, it very interesting election year in both parties.

Democratic primary challengers?

You could see democratic primary challengers.

All kinds of things going on.

The public is in such a sour mood that somebody who is a new face and is relatively clean in terms of their record can make a real contest.

We will see how that plays out.

Unfortunately, on the republican side it may mean more tea party people to feed more regular republicans, and that will make it even harder for us to govern, harder for a consensus to be reached.

Did this process do anything to diminish the prospect of tea party challengers, or are they just as emboldened?

They are more emboldened and never.

After this election, the leaders need to act as leaders.

That has not happened often.

It is hard to lead if nobody follows you.

Boehner had a great game plan to get through this thing i must move it out, give everybody their votes.

But he could not sell it to his caucus.

I think he is stronger than ever within the conference, but at the cost of basically running the party branded down about 20 points.

Thanks for a much.

Appreciate you joining us here on "capitol gains that" when we come back, glitches, crashes, delays -- who is really to blame for what went wrong at healthcare.gov.

The cost of the crisis still tallied up.

We run through numbers.

While democrats and republicans have been fighting in washington, obamacare opens to less than rave reviews.

After weeks of glitches, delays, and criticism, it is clear the problems are more than too many eager ernrolees.

Megan hughes takes a closer look.

The first week of the rollout was plagued with technical problems.

The site got more than 9 million visitors, but only one million completed registrations.

270,000 successfully log in.

Just 36,000 enrolled.

That is fewer than one percent of visitors.

We talked to the former chief technology officer for the obama administration to find out what went wrong.

Nothing in here was built nasa-style, get to the moon and back.

This was essentially a complex integration challenge.

So each individual component is a known and understood technical piece of work.

Making sure they all fit together and can handle the volume expected, that is where the judgments came in and that is where the glitches were uncovered.

Users ran into problems setting up usernames and passwords.

How do you validate the person's identity, and how does that fit with the underlying systems in that intersection of public sources and private sources?

Wasn't the idea to have more people use the system?

Is there precedent for demand to create this amount of havoc?

Watch the cash for clunkers program.

Too many auto dealers were trying to login at the same time.

Even nasdaq had a glitch.

In the 2010 fifa world cup, twitter had their famous they'll whale appeared -- fail whale appeared.

Who is to blame this time?

At the highest level, cms, the department overseeing medicare and medicaid, is on point.

They worked with private companies to build up the pieces and parts we now know.

Soap private -- so private contractors built the system.

They got $69 million to build out the data hub that drives -- draws information.

Cgi won a $90 million contract to develop the code.

But the government did not give cgi the specs until this spring according to "the new york times." if we had political certainty about where the rules were and how they were being set up given all the dynamics of congress and the supreme court, if all that happened earlier that would have been helpful.

In the meantime, health care customers continue to have a whale of complaints about the site.

Joining me now is bloomberg government senior health analyst peter gosselin.

Are these still bumps in the road that can be overcome, or a much larger problem?

I think they are pretty serious problems.

To a large extent, they are self-inflicted.

We at bloomberg government have been taking a look at a pattern of obama administration contracting for i.t. for the formal care act.

What it shows is that they have spent almost as much in the last few months as they spent in the previous three plus years since the law was passed.

Which means the i.t. is a rush job.

Winners and losers -- obviously the administration is taking a hit.

It would be a bigger hit if we were not all worried about the shutdown and debt ceiling.

What is the fallout from all this?

The first winner is the tech companies owning the system.

They are all cost-plus contracts, so they will be paid and paid well to fix problems the administration created and that they created themselves.

I think the next winners in this could well be the insurance companies.

What insurance companies get out of the problems with technology is that they do not have to take people, they do not have their product compared to other people's products.

They can bring people into their own websites.

The insurance companies are doing that, using their own websites to bring in traffic and do not count on the government system running.

Absolutely.

I know you will continue to watch it for us.

Thanks very much.

Coming up, the government may be back in business, but there is a lot of damage left behind.

That is next.

To drop -- join the conversation, drop us a line.

You can always find more research and analysis from bloomberg government at bgov.com . washington stepped back from the abyss, but the man-made crisis still carries a cost to the economy and beyond.

Here is a look at the standoff by the numbers.

It began as a fight over funding obamacare.

I intend to speak in support of defunding obamacare in july and no longer able to stand.

But 251 business groups did not sign on.

Instead they signed a letter to congress urging lawmakers to keep the government running and raise the debt ceiling.

There is a consensus we should not do anything that hurts this recovery.

That is a little bit shallow, not very well established, and quite formal.

The shutdown of the government, particularly a failure to raise the debt ceiling, with e- commerce that.

But the head-on collision happened anyway.

Shutting down the government and forcing 450,000 federal workers on furlough and damaging confidence in the fragile u.s. recovery.

The consumer comfort index plunging to its lowest level in almost two years.

Not just federal workers.

You work at a restaurant in d.c. and somebody cancels, that money is not coming back.

Starbucks ceo howard schultz started a petition calling for an end to the shutdown, gathering more than 1.5 million signatures.

According to gallup, just 20% of americans approve of the rebirth of an -- approve of the republican party now, a record low.

Democrats smell blood.

One faction of one party in one house in congress, in one branch of government, shut down major parts of the government.

All because they did not like one law.

The hit to the economy over the first 15 days of the shutdown, $24 billion according to s&p. shaving 0.6% from fourth-quarter growth.

With no deal to raise the debt ceiling, fitch put the u.s. on creditwatch, the aaa rating once again in danger.

The markets largely ignored the risk, assuming correctly that cooler heads would finally prevail.

Like the motion is adopted.

Without objection, a moment -- motion to reconsider is laid upon the table.

On thursday, it was back to work at the epa with a handshake and a muffin from vice president joe biden.

Federal employees will have to wait a little longer for their paycheck.

There are no winners here.

The last two weeks have inflicted completely unnecessary damage on our economy.

That does it for this week's "capitol gains that" -- gains." anchor watching.

. .

This text has been automatically generated. It may not be 100% accurate.

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