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Fareed Zakaria GPS

Financial Markets Reeling After France and Greece Elections; Under Netanyahu, Israel is Stronger than Ever; Outgoing World Bank President Says European Economic Crisis Threatens U.S. Economy; Blackrock CEO Supports President Obama's Reelection

Aired May 13, 2012 - 10:00   ET

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

FAREED ZAKARIA, CNN HOST: This is GPS, the Global Public Square. Welcome to all of you in the United States and around the world. I'm Fareed Zakaria.

We'll begin today's show in Europe. Voters in France and Greece made their anti-austerity feelings known last weekend and stock markets plunged. We'll have a panel on the big picture and what it means for politics in the West.

Then, Robert Zoellick will step down as head of the World Bank. His exit interview here on GPS.

Next, we go to Israel which has anointed a king. What in the world does it mean?

And, finally, the curious case of the guy who has come to be known as American French Fry Brother, a cultural, lost in translation all the way from China. You won't want to miss it.

But, first, here's my take. Everyone is looking at Europe these days as economic and political protests mount across the continent.

The downward spiral in Europe has produced a great debate over the virtues of "austerity," the idea that governments with large budget deficits must reduce these deficits, mainly by cutting spending.

If they don't get their budgets in order, so the view goes, they won't be able to borrow money and will face a fiscal nightmare of ever- rising interest rates.

The problem is that as governments cut spending in very depressed economies, it has caused growth to slow even further. You see government workers who have been fired tend to buy fewer goods and services and all this means falling tax receipts and thus even bigger deficits.

So, economists like Paul Krugman say abandon the austerity program, spend more and get budgets in order once the economy has recovered. The problem, in the minds of Keynesians like Krugman, is that European elites, particularly in Germany, have embraced the wrong economic doctrine.

Now, having been in Europe briefly earlier this week, I have to say don't think Europe's elites, especially German elites, have really embraced some alternative view of economics. Most do understand that cutting spending during a recession slows down the economy further.

But here is what motivates them, they don't believe at all that any of the governments in question would ever get their budgets in order once the economy recovered.

They believe that many of these countries in trouble have economies that are uncompetitive, hobbled by bad regulatory and tax frameworks and also by large or inefficient governments, with ever-increasing entitlements doled out to their citizens.

The crisis provides an opportunity to start wholesale reform. Markets have signaled that they will not lend to these governments unless they take measures to get their houses in order, so this is a golden opportunity to get this reform process going.

Many Germans and northern Europeans that I've talked to do seem to understand that, economically, the smart thing to do might be to spend now and to cut later. But many in Europe, especially in Germany, believe that later will never come.

In reality, governments spend in bad times and then spend more in good times. So the disagreement may not really be over economics, but over politics.

This is a sad state of affairs because what many people are worrying about, at root, is whether democracy has become part of the problem. After all, politicians have gotten elected over the last four decades in the West by promising voters more benefits, more pensions and more health care.

The question is can they get elected offering less? That's what stops many Europeans from abandoning austerity and embracing another round of stimulus spending. And I think these worries are shared by many in the United States as well.

Let's get started.

It's been a big week in Europe and I have some distinguished experts to make sense of it all.

Peter Mandelson is in London. He has not only held top cabinet positions under the Labour governments of Tony Blair and Gordon Brown, he's also served as a member of the European Commission.

Josef Joffe joins us from Hamburg. He is the editor of the German weekly Die Zeit.

Elaine Sciolino also joins us. She happens to be in New York, but she is the Paris correspondent for the New York Times, a beat she has covered for more than a decade.

And David Frum rounds things out from D.C; he is a regular on the show and a former speech-writer for George W. Bush. Welcome, all. Elaine, let me start with you. You know Francois Hollande. You've interviewed him. Is this -- is he a radical? Is he a moderate? How does he strike you?

ELAINE SCIOLINO, PARIS CORRESPONDENT, NEW YORK TIMES: Francois Hollande is "Mr. Normal." He got elected President of France because he promised to be a normal candidate and a normal president.

When I was traveling with him in 2007, he was so normal that neither the conductor nor anyone on the train even recognized him. He's disciplined.

He ran the Socialist Party for over a decade and he did not make enemies. He's likely to be much more conciliatory and moderate than we might expect from a socialist.

ZAKARIA: Peter Mandelson, you were the architect -- one of the architects of the new Labour movement. You helped get Tony Blair elected and the effort was, by Blair and Clinton, to move the left somewhat to the center, make it more pro-market, pro-trade.

Do you look at the election of Francois Hollande in France and the kind of rhetoric surrounding him in many of his proposals as some kind of a swing to the left?

LORD PETER MANDELSON, FORMER LABOUR CABINET MINISTER/MEMBER OF EUROPEAN COMMISSION: Yes, I think it is, just to put it in simple terms. I'm not sure that Francois Hollande was ever on the Clinton- Blair bandwagon, but he's certainly not part of it now.

That doesn't mean to say that he's a mad cat, left-winger. He's not. In many senses, he's part of France's political establishment, an insider, in a sense, rather more than President Sarkozy was. He's a man of decency and common sense. He's a pragmatist.

But he's also a product of the post-financial crash era which has given markets and business and finance a worst name that it had before.

ZAKARIA: But, Peter, do you think this will reverberate across Europe? You understand how these things work. Will other politicians in Europe look at this and say, "Ah ha, there is a market for some very strong left-wing rhetoric and I'm going to fill it"?

MANDELSON: Yes, but you've seen this already with President Obama. I mean his rhetoric and what he says about finance and markets and the need for greater regulation is different from the sort of tone that we heard from President Clinton.

And here in Britain, you have the new Labour leader, a younger Labour leader who's very much in the swim of the Obama and Francois Hollande rhetoric and approach.

Now, what it will actually mean in policy terms is a different question. It will be very interesting to see how the rhetoric of the Francois Holland campaign fits with what he now he has to do in picking up the -- it's exactly the same challenges that France faces when President Sarkozy was in office.

ZAKARIA: David Frum, you look at the election of Francois Hollande and you said you can't really think of this as a left-wing reaction to the right-wing presidency because, actually, Sarkozy, in your view, wasn't particularly right-wing. He was no Thatcher.

DAVID FRUM, FORMER SPEECH-WRITER FOR GEORGE W. BUSH: Sarkozy repeatedly failed to undertake the important reforms he promised at the beginning. He had lots of courage, but maybe not a lot of wisdom.

But can a president who's elected on a promise to be normal deal with Europe in the throes of a crisis of abnormality?

It's worth remembering that the first round of the vote, the radical rejectionist parties of left and right got a bigger share of the vote together than Francois Holland did. In Greece, the parties that reject -- that want radical change won two-thirds of the vote in their election on the same day.

European political elites are telling themselves that what we have here, you know, is a normal kind of unemployment problem; some structural reforms will do it in the face of 50 percent unemployment in Spain and rising unemployment -- radically rising unemployment everywhere else.

I think we have to worry about the whole question of European political stability and I wonder whether Francois Hollande is the man with the empathy and the charisma and the courage to deal with the continent really in the most desperate economic crisis since the war.

ZAKARIA: Josef Joffe, you know that much of the rhetoric and the anger is directed at Germany. The idea is the Germans are forcing all this austerity on Europe, European governments having forced to cut their budgets. It's causing misery, unemployment. It's even causing bigger budget deficits.

But you've sort of defended the German position, isn't it fair to say?

JOSEF JOFFE, EDITOR, DIE ZEIT: Well, I mean, Angela Merkel is -- makes for a nice whipping boy for problems which are deeply rooted in the societies that we've just heard about.

By the way, a footnote, unemployment in Spain is not 50 percent, youth unemployment is and that's, of course, very serious because it tells exactly where the problem is, a (INAUDIBLE) labor market where the happy few or happy many have left unemployment and high wages whereas the outsiders get stuck in misery.

The problem is that the rest of Europe is ganging up on Germany and that German economic miracle, the export miracle, which everybody is complaining about, has a very simple reason. German unit labor cost didn't rise at all -- almost at all. In the last decade, it went up by, you know, 35 percent in Italy, same number in the Iberian countries and it went through the roof in Ireland.

One last point, the Irish, who went through the roof, they had 50 percent increase in unit labor cost have now come down to just 25 percent increase. So, in other words, it can be done if you put your mind to it.

ZAKARIA: All right, fascinating conversation. We will continue this conversation when we come back.

(COMMERCIAL BREAK)

ZAKARIA: And we're back with Peter Mandelson, Joe Joffe, Elaine Sciolino and David Frum.

Peter Mandelson -- I supposed I should say Lord Mandelson, but at CNN, we're a little egalitarian here, Peter.

MANDELSON: You're very egalitarian. Go through the Times.

ZAKARIA: It may be, "My Lord Mandelson." Peter, when you look at the situation in Europe, how is this going to end? Because, right now, as you cut budgets, it is producing a kind of downward spiral where it is producing more unemployment, but, also, lower tax revenues and, therefore, bigger budget deficits.

Is the idea that this is kind of a rough patch that these countries will have to go through and, then, they'll come out of it?

MANDELSON: It depends on the country you're talking about. There are some countries in Europe very highly indebted with very large deficits which have got to take the actions necessary to repair their public finances and bring them under control.

And that must be the medium term objective, to rebalance public finances across Europe as a whole, but there are other countries, surplus countries, creditor countries, like Germany and others who have more policy space at the moment and more latitude to help lift demand and to help stimulate economic recovery in the meantime, in the short-term.

But I think what everyone has to be agreed on is that, in the longer term, Europe is not going to be able to pay its way, to earn its living in a very tough competitive world unless we all take the action necessary to lift levels of competitiveness and productivity.

That, in the long run, is what we've got to aim for and it's silly, in my view, to say, in the meantime, you know, there's an argument of, on the one hand, growth versus austerity. They're a different policy -- a different policy scope which is available to different countries in Europe. And we need a combination -- a mix of both.

ZAKARIA: Elaine, how do you think the French will react to that message, the idea that, at the end of the day, you are going to have to get more competitive? France has a very big public sector, by some measures the largest in Europe and, as a result, has been somewhat shielded from these forces.

SCIOLINO: Well, look at what Sarkozy tried to do as president. I mean, he, in a way, was a very American kind of president. He promised that you work harder, you will earn more. The American dream is possible in France.

I'm going to make it easier for you to create your own businesses. I'm going to loosen up rules on employment over time. I'm going to do what I can to get rid of the 35-hour week, which was a Socialist -- a very bad Socialist legislative plan.

It didn't work. Why didn't it work? Well, we can argue that, you know, Sarkozy lost because there's an anti-incumbent wave sweeping Europe that his personality and his style of governing was unacceptable.

You've got Hollande now promising growth and saying, basically, austerity is a bad word. But it's going to move very slowly. It has to in France.

It's going to be sort of like turning around an aircraft carrier and I don't think you're going to feel very many results quickly either in terms of austerity or growth.

You know, the Bank of France has just said that there will be no growth in the French economy in 2012 and Francois Hollande has said, correctly, I want to do a complete study by the Cours Des Comptes, the government -- the quasi-governmental body about the budget before I make any big changes.

So we got to let this guy have a little bit of a honeymoon before we start making dire predictions about, you know, consumer revolt.

FRUM: There's no time. Europe's like a man who's suffering chronic arteriosclerosis and who has also been hit by a truck.

Everybody wants to put this patient on a program of diet and exercise to deal with the arteriosclerosis, but the truck, the mad Euro project, which is responsible for the disaster, that is the thing that has to be addressed now.

Joe Joffe was right to correct me. I meant -- should have said 50 percent youth unemployment. The adult -- the overall unemployment level in Spain, 25 percent, Great Depression levels and it is not because of debt. It is not because of the very structural problems that are, of course, all true.

It is because of the mad Euro project and unless either Europe is radically reformed and the euro is abandoned --

MANDELSON: I tend to agree with David here.

FRUM: -- this crisis will continue.

JOFFE: No, I don't think --

ZAKARI: Peter, do you want to jump in? The argument, of course, that David is making is that if these countries had their own currencies, they could devalue and become competitive in the export market.

MANDELSON: Look, if Greece were to fall out of the Euro zone now, where would it fall to? Yes, devaluation can help in the short-term, but what Greece lacks are the conditions -- the policies and the political will to take advantage of any such devaluation.

Devaluation is not going to transform the size, scale, output, competitiveness and productivity of Greece's economy and that's what needs to be done.

ZAKARIA: Joe, what will happen in Germany in the elections? Will Angela Merkel's party do well? Will the left do well? What are the political wins in Germany like?

JOFFE: There is no revolt the way you had a revolt on the left in France or the kind of revolt you had on the kind of neo-Nazi right and ultra left in Greece.

I have no worry about that and I think Angela Merkel will be chancellor again in 2013 precisely because it's not quite her own doing, precisely because she now reaps the fruits that her predecessor, Schroder, you know, is one of the new left three in the past, because he sowed the conditions -- he sowed what she can reap now.

So Germany, politically-speaking, is the least problem. There's just one footnote I would add. She is constrained by our populace from doing what everybody's now yelling about. You have to inflate, you have to let wages rise especially. Why don't you inflate some more?

If the Germans are allergic to one thing, it's inflation and so her leeway on kind of approaching Hollande is not the broadest that you can think of.

ZAKARIA: Peter Mandelson, Joe Joffe, Elaine Sciolino, and David Frum, a pleasure to have you on.

Up next, "What in the World?" Israel seems to have appointed a king, but will he make the right choices for all his subjects when we come back.

(COMMERCIAL BREAK)

ZAKARIA: Now for our "What in the World" segment. While incumbents around the world are struggling to hold on, one is thriving so much so that he's been called a king, the King of Israel.

I'm talking about Prime Minister Benjamin Netanyahu who, last week, struck a deal to bring one of his main rivals, the Kadima Party into his government.

Netanyahu, whose coalition now commands more than three-quarters of the Knesset, the largest parliamentary majority in Israeli history. He faces no plausible rival as prime minister. So he has an unusual, perhaps unique opportunity to use his new power to secure Israel's future.

You see, when pushed on the Palestinian issue, Netanyahu has often cited the constraints of his coalition to explain why he has not taken bolder steps towards resolution.

In the past, he seemed to like to be constrained. He refused to form a national unity government in 1996 with Shimon Peres, refused again in 2009 with Tzipi Livni. But now he has a broad enough base of support, a big enough base with many moderates that he could move toward a peace settlement without endangering his hold on power.

Netanyahu presides over a country that is stronger than at any point in its history. Israel's per capita GDP rivals Italy's now. It is behind only the United States and China in the number of companies listed on the NASDAQ Stock Exchange.

Militarily, Israel is the region's superpower which an armed force that could easily defeat any of its neighbors. It also has one of the world's largest nuclear arsenals, estimated at more than 200 missiles.

At home, the wall along the West Bank has essentially solved the problem of Palestinian suicide bombing rendering Israel safer than at any point in its history.

Now, while Iran does pose a threat, Shaul Mofaz, a former army chief, the head of the Kadima party and now the incoming vice prime minister of Israel has said that the far greater threat than Iran, is the danger that Israel does not solve the Palestinian problem and becomes a binational state.

In his book, "The Crisis of Zionism" the writer, Peter Beinart, observes that there is a distinction between the ethics of weakness and power. If you see yourself as weak, besieged by the world, and as a victim, Beinart argues, you will embrace any policy that allows you to survive, regardless of its impact on others.

On the other hand, an ethic of power recognizes that you are strong and while you must promote your interests, you do so with some concept of responsibility as well. Worse, Beinart argues, the obsession with victimhood has prevented people in Israel and the United States from focusing on the gravest threat to Israel's existence

It's its identity as a Jewish and democratic state. If there is no progress toward a two-state solution, at some point Israel will not to be able to continue to rule over millions of Palestinians without giving them the right to vote, at which point Israel will cease to be a Jewish state.

Look, Israel faces real dangers. It sits in a hostile neighborhood, anti-Semitism rising, there are obstacles to Israel-Palestinian peace and they include the weakness of Palestinian Authority, radicalism from Hamas, the terror group.

But a politician of Netanyahu's skill can find ways to navigate this terrain. The larger questions are, does he see an opportunity to become a truly great figure in Israeli history? Can he use his power for a purpose other than his own survival?

Up next on GPS, the outgoing president of the World Bank. His first exit interview. (COMMERCIAL BREAK)

CANDY CROWLEY, CNN ANCHOR: I'm Candy Crowley in Washington. FAREED ZAKARIA GPS will return in a moment. But first, a check of the top stories.

A key peace negotiator was killed Sunday morning in Kabul, Afghanistan, authorities said. Moulava Arsala Rahmanis (ph) was a former member of the Taliban who worked to bring the militant group to peace talks. The Taliban has denied involvement in the killing.

Two U.S. drone strikes killed 11 suspected al Qaeda militants in Yemen's Marib Province on Saturday. The air assault follows another drone attack Thursday that killed eight suspected militants in southern Yemen.

The U.S. State Department may be on the verge of eliminating a training program for Iraqi police officers. Officials tell the "New York Times" that the multi-billion dollar program will now send just 50 American law enforcement officers to Iraq instead of the 350.

The program was supposed to be the centerpiece of the U.S. civilian mission. It has already cost U.S. taxpayers 500 million dollars.

Soccer fans in Turkey went ballistic after their team lost the league championship in a 0-0 tie. Spectators stormed the field with flares and battled with police before spilling on to the streets. Amid the broken windows and vandalized cars, there were no reports of injuries.

Those are your top stories. Now back to FAREED ZAKARIA, GPS.

ZAKARIA: For most people, the pinnacle of their career is reaching the top of one field, banking or development or foreign affairs. My next guest has actually done all of those things. And he is still going strong.

Robert Zoellick is a former managing director of Goldman Sachs. He has been deputy secretary of state under George W. Bush. He has been U.S. trade representative. And most recently, he has been president of the World Bank, a position he steps down from at the end of next month.

Bob, welcome to GPS.

ROBERT ZOELLICK, OUTGOING PRESIDENT, WORLD BANK: Glad to be with you.

ZAKARIA: So let me ask you first about the burning crisis. You've had a lot of experience dealing with Europe, with international economic diplomacy. Is this Eurozone crisis going to get solved, or is there a kind of inevitable spiral downward from where we are?

ZOELLICK: Well, I certainly hope it's not the latter, but I suspect my best guess is we'll stumble along, and it could be worse than stumbling along. And I think the key, while Greece is in the news, I think the strategic issue relates to Italy and Spain. Those are the very big economies. Those are the economies that had been undertaking some very strong fiscal reforms, but also structural reforms.

But it's devilishly difficult to do in a no growth environment. And so I think part of the question will be whether their European partners will figure out some ways to sort -- support them with the politics of reform.

ZAKARIA: From your time in the World Bank, what do you think is the answer? I'm going to ask you a big question. What do you think is the answer to overcoming poverty? If you were tomorrow given a poor country and told Bob Zoellick, you have to make this country develop and grow, what's the answer?

ZOELLICK: Well, growth is still the best anecdote for poverty. But one of the things we've learned over the years is growth alone isn't enough, so we try to talk about inclusive growth. So that means you need all the components. You need the environment for private sector investment. You need the opportunity for creating jobs through companies.

But at the same time what inclusive growth means to me is that you also need an efficient social safety net, so that when the vicissitudes of economies or world events strike, that people at the bottom aren't crushed or you don't lose a generation through proper -- improper nutrition or education.

But I don't think there's one mechanism. I guess if there's one thing that I would stress is it won't work unless countries own it. So this, again, relates to the role of the World Bank, as opposed to an old elite model where people from excellent universities would come and say here's the three things that you have to do. I think the lesson that people have learned the hard way over time is these are complex political economy problems.

We have to listen to the clients, but you bring some of the international experience to try to help address these issues. The good news is, in terms of overcoming poverty, there have been huge strides. This is one of the Millennium Development Goals that will be reached, in significant part because of some of the progress in China and India. But you have seen it in Latin America. You have seen it in sub-Saharan Africa.

At the same time, there's still a lot of people just above the poverty line. So there's a need to sort of create the opportunity. But to feed that back for developed countries, in over the past five years, two-thirds of global growth has come from developing economies. So this is no longer a question of charity. It's a question of self- interest to help these countries grow to help the United States and Europe and Japan grow.

ZAKARIA: When people look at China's development, the fastest development of any country in history really, almost 10 percent a year for three decades, they look at it and then they look at South Korea and Japan and they say, well, clearly what you have here is the combination of a very strong state that is pro-market, pro-growth, pro-trade. You know, the people who have argued that this is the rise of something called state capitalism. What do you think? Looking at so many of these countries on the ground, is state capitalism a particularly effective form of economic development?

ZOELLICK: I think what you'll see, just as you saw in Korea in the late '90s and you will also see at a time in China, is what might work at an early stage may not necessarily work at a later stage. Those state institutions sometimes become rigidified. It's harder to move capital to more innovative uses. So I guess I would also say what's important in the development community is no one size fits all.

My own belief is a relentless pragmatism to see what works. And my own, you know, belief is there comes a point where the state plays an important role in terms of rule of law, contracts, property rights, and that there's no way, as you get the higher levels of innovation, that you can avoid making those adjustments.

ZAKARIA: It's no secret, Bob, that many people think if Mitt Romney were elected president, he would turn to you perhaps to be secretary of state, perhaps secretary of treasury. You're an unusual figure in that you could plausibly take both jobs or either job. You couldn't take both.

Will you get more active in advising Governor Romney once you leave this job?

ZOELLICK: I think it's important not to be presumptuous. And so I appreciate the compliment that you pose, but in this job, I haven't been able to be engaged in politics, so that question will have to wait until I leave on June 30th.

Historically I've tried to be of help, but I've also tried to work across the aisle. When I was trade representative and as World Bank president, I have been pleased try to work with Republicans and Democrats, because I'm of the school that you can make the American Constitutional system work.

And, frankly, I think some of the issues that we face on the economic side will be the core foreign policy issues. Just to give you one that's sort of stuck in my mind, the Bob Carr, the new Australian foreign minister, came to the United States recently, good friend of America, very successful premier in New South Wales.

I asked him what was his main message, and he said the United States is one budget deal away from restoring its global preeminence. But, on the other hand, be aware there's people out there saying if you don't, turn to us because the United States' time has passed. So this is I think a time in our history where the connection of the economic issues with our foreign policy standing is as strong as I have ever seen it.

ZAKARIA: Do you think President Obama has pursued a successful foreign policy?

ZOELLICK: In this job, I don't really feel I should be criticizing. I would say, you know, the -- there are aspects tactically that I think he and his team have executed well. I work with some of them on the development topics. I guess I would come back to say that when the Bowles/Simpson report came out, given what I just said, I was a little disappointed that it wasn't pursued.

So whoever is president the next time around, I hope we get at that core issue.

ZAKARIA: Of course, the Bowles Simpson plan calls for a great deal of raising of tax revenues. Will you be telling Governor Romney that?

ZOELLICK: I think it's presumptuous for me to be saying what I would be telling Governor Romney. I think what I took away from the Bowles/.Simpson was the need to do a broad-based tax reform, like the one that I had a chance to work with, with Secretary Baker in the mid '80s. Part of this, again, is a message that I don't think it's enough to talk about fiscal adjustment. You have to also be focusing on the structural aspects, as we talked about in Europe, and the microeconomics to create incentives for the private sector.

And I think the tax code is now become riddled again with a whole series of inefficiencies and special favors. And so I think on the tax side, the main message is broaden the base and lower the rates.

ZAKARIA: Very diplomatic set of answers.

ZOELLICK: I'm a diplomat.

ZAKARIA: Robert Zoellick, pleasure to have on you. Up next, a fascinating look at the economy from the vantage point of the world's largest money management firm. Larry Fink of Blackrock joins me next.

(COMMERCIAL BREAK)

ZAKARIA: Global markets continue to be unsettled. Here in the United States, questions linger over whether enough credit is flowing to small businesses and homeowners. And the big banks are unhappy with the new regulations that have been imposed on them by the Obama administration.

What to make of all this? Which way are the economic winds blowing? Who better to ask than the man who is said to be at the hub of the wheel of American capitalism? Larry Fink is the chairman and CEO of Blackrock, the world's largest money management firm.

Larry, thanks for joining me.

LARRY FINK, CHAIRMAN AND CEO, BLACKROCK: Hi, Fareed.

ZAKARIA: So the first question, let's talk about the U.S. The housing market you think, so, so. In other words, it's hit bottom. It's kind of moving along the bottom now. But does that mean in a year you see a recovery?

FINK: In 2007, we had close to eight million unsold homes. And nobody was calling out loud, we have a problem in housing. We needed a crisis and a bubble in 2008 really to identify the depth of the problem. We have less than three million unsold homes now in America.

ZAKARIA: Down from eight million.

FINK: Down from eight million. You can say from a perspective, we've come a long ways. On the other hand, if you are that family that's struggling, trying to meet payments or in a neighborhood and seeing all the vacancies and unsold homes, it's a big burden.

But I do believe you are seeing now evidence that housing has stabilized. Even in California, you began to see a modest rising of prices there. You are seeing foreclosures sales accelerate now. So you are starting to see in pockets of the United States a stabilization.

ZAKARIA: So you are bullish about America?

FINK: I am very bullish on America. But I am nervous about once again our time frame. We demand change so rapidly and change doesn't happen that rapidly today. It evolves. The news cycle is so short.

ZAKARIA: What kind of change do you think people are demanding?

FINK: Well, we are going to have a fiscal crisis, or we do have a fiscal crisis? We have the sequester that we have to deal with at the end of the year. And that's going to start impacting our economy this year.

ZAKARIA: Why?

FINK: Well, if you are a military company that derives a large component of your revenue through military, and you are looking at a potential 700 billion dollar cut in military spending over 10 years, you're not going wait until Congress maybe on December 30th is trying to delay it. You have a responsibility to your shareholders to start focusing on contingent plans.

So the question, you know, are you going to be sitting there hiring more people this year in front of the threat? Possibly you might have to downsize some divisions where you think you have a real threat of reduction in revenues from the military.

ZAKARIA: So it's going to choke off investment unless we do a budget deal before January. But the problem is you're in an election season and then you have a lame duck Congress and president.

FINK: This is one of our biggest issues right now, where we have the tax cut roll off at the end of the year in the Unites States. We have the sequester. And if we don't address these two issues, we will go back into a recession next year.

ZAKARIA: What your analysis suggests is that what is the most likely outcome, which is another punt, another kicking of the can down the road, is no solution. Because let's say Congress does what I think realistically is the most likely, is push it off for another six months or a year. Well, that doesn't help you because businesses are still going to be stuck sitting there thinking, wait a minute, will the sequester take effect six months from now.

You want an actual budget deal.

FINK: You have to understand, as a CEO, we have the same insecurities as everyone else. In America, the average CEO only has a term of five years. That's shorter than U.S. senators. We, in many cases, are making investments for the next CEO. And so our job is to make decision that hopefully have an impact on our companies.

And right now the CEOs are saying, by their behavior, we don't understand the future. We are frightened of the future. We're frightened how government is playing with our future. And therefore, the best conclusion is let's keep all this -- all the gain from our earnings into cash.

Let's build our cash balances. And by the way, since I don't know what I'm going to do, my shareholders are mad at me for keeping large components of cash, let's buy back stock. Now, that doesn't help the economy. It will help the stock market. It will help the performance of that stock. But does it really encourage greater growth for the economy? The answer is no.

ZAKARIA: Final question. You're a very prominent member of the financial community. Will you support President Obama in his re- election?

FINK: It is absolutely my position to support the president.

ZAKARIA: So at the end of the day, with all this, you still think --

FINK: I still think he has proven, despite some members of my industry's criticism towards the president, I think once again, we've had -- he came into the presidency with the worst financial crisis in our lifetimes. And I have a view that these problems occurred over many years, and the fix is not four years. The fix is going to be longer than that.

So I support President Obama. And I believe he is the right man for the next four years. On the other hand, I would say very clearly, we need to create that engine of growth. We need to make sure that those CEOs feel comfortable not to buy back their shares, but to invest in that factory and create those jobs and those jobs create other jobs and we have the multiplier effect for new jobs.

ZAKARIA: Larry Fink, pleasure to have you on.

FINK: Fareed, thank you.

ZAKARIA: We will be back.

(COMMERCIAL BREAK)

ZAKARIA: President Obama this week expressed his support for same-sex marriage. And that brings me to my question of the week. Which of the following countries has a federal government that does not legally recognize same-sex marriage? Is it, A, Britain, B, the Netherlands, C, Argentina, or, D, South Africa?

Stay tuned, and we'll tell you the correct answer. Go to CNN.com/Fareed for more of the GPS Challenge and lots of insight and analysis.

Also, you can follow us on Twitter and Facebook. Now, remember, if you miss a show, go to iTunes. You can get the audio podcast for free or you can buy the video version.

This week's book is the one I mentioned earlier on the show, Peter Beinart's "The Crisis of Zionism." This book has been debated across America and Israel. In it, Beinart argues that Israel has to deal with two major threats, and he is not talking about Iran and Hamas. Instead, he means the continuing occupation of the West Bank and the resulting alienation of young Jews in the United States.

Peter writes with passion and intelligence. It is a compelling read.

Now for the Last Look. You might think Chinese social networks would be all a-Twitter -- yes, pun intended -- with mentions of the Bo and Chen scandals, but the censors continue to make heroic efforts to tamp that talk down. So what has been trending there is talk of American French Fry Brother. This is he, otherwise known as Jason Lus (ph). He is a recent graduate from Arizona State, currently working in Nanjing.

And this is Jason after he bought a bag of McDonald's French Fries for a homeless woman there. And then he poured her some water. A bystander took these pictures, and the images have been rocketing around Chinese cyberspace, where someone lovingly called this new hero American French Fry Brother.

There's been coverage in newspapers and on TV. Why the hubbub over a simple act. Lu says many of his Chinese correspondents have told him that Chinese society has grown cold and uncaring. And when China saw someone from outside the country doing a nice thing on their home turf, it struck a nerve.

I have another theory. Maybe the Chinese were desperate for a shred of good news.

The correct answer to our GPS challenge question was, A, seam-sex marriage was notably left off Queen Elizabeth's list of legislative goals for Britain that she laid out on Wednesday. And the governments of the Netherlands, Argentina, and South Africa were each the first on their continents to recognize such marriages on a federal basis.

But David Cameron supports gay marriage strongly. So Britain will probably soon join the same-sex marriage club. Listen to how Cameron explains his support.

(BEGIN VIDEO CLIP)

DAVID CAMERON, BRITISH PRIME MINISTER: Conservatives believe in the ties that bind us, that society is stronger when we make vows to each other and we support each other. So I don't support gay marriage in spite of being a conservative. I support gay marriage because I am a conservative.

(END VIDEO CLIP)

ZAKARIA: Thanks to all of you for being part of my program this week. I will see you next week. Stay tuned for "RELIABLE SOURCES."