updated 12/30/2005 9:59:05 AM ET 2005-12-30T14:59:05

Guest: Mike Feldman, Ed Rollins, James Yee, Anne Kornblut, Mike Allen,

Dawn Halfaker

NORAH O'DONNELL, NBC NEWS CHIEF WASHINGTON CORRESPONDENT:  Every step you take, every move you make.  Is the super-secret NSA watching you?  The “Associated Press” reports that the National Security Agency illegally placed cookies on visitors' computers, which can track Web activity.  When exposed the agency admitted it was a mistake. 

Plus the Abramoff corruption scandal is set to come crashing down on Capitol Hill.  But exactly who is Jack Abramoff and what did he do?  Let's play HARDBALL.

Good evening.  I'm Norah O'Donnell in tonight for Chris Matthews.  Today a new development in the NSA secret spying story.  The “Associated Press” reports that the NSA was tracking the Web surfing habits of visitors to its own Web site.

A spokesman said the illegal tracking stopped when the agency became aware of it and blamed it on an unknown effect of new computer software.  As NSA comes under more scrutiny, HARDBALL was curious about the Web site of the super-secret agency, and so we went to check it out. 

And it's full of lots of general information about what they do, but one part in particular that struck us as interesting was a wealth of cartoons and games for kids.  So if your kids have been playing on that site, you may very well have been tracked by the NSA. 

Now we're going to talk about that NSA story and more with two political strategists in a minute, as well as a potentially huge development in the investigation of embattled ex-lobbyist, Jack Abramoff. 

But first for more on the White House's reaction to the NSA's secret-spying story, we turn to NBC's Kelly O'Donnell, who is with the president near his ranch in Crawford, Texas, and Kelly, is the White House going to have to spend the next couple of weeks dealing with, defending this once super-secret domestic spy program?

KELLY O'DONNELL, NBC NEWS WHITE HOUSE CORRESPONDENT:  Well, Norah, you can expect the questions keep coming, as each new revelation about some other aspects of alleged spying is put forth in the newspapers and in reports.  And the White House has sort of taken a different tact now. 

Initially the president did acknowledge that first revelation about spying, the NSA eavesdropping on calls where the White House was very fierce to say it was limited and targeted and it involved communication in which one end of a conversation was in the U.S., the other internationally. 

After making that acknowledgement, though, the White House has really clamped down.  Not acknowledging any further or more broader in scope examples of domestic spying.  The White House is saying that it's very highly classified and that it doesn't want to disclose any further details.  And so that change in public disclosure is only going to be followed by many more questions as these revelations keep coming forward.  Norah?

N. O'DONNELL:  Kelly, do you think this becomes a big debate for the president?  Because certainly he's going to return back to Washington in the new year trying to start fresh.  And not only is there calls for hearings on Capitol Hill led by Republican Senator Arlen Specter, but also this only one-month extension of the Patriot Act.  So there is going to be a battle going on about national security.

K. O'DONNELL:  That will continue.  And the White House is trying to take the tact of a fierce defense of the president's legal right to do this, citing the Constitution, citing that Congress authorized in its measure, using military force right after 9/11 to give the president these powers.

So on that front, this administration is saying the president will do anything he needs to do to protect the nation.  They think they have a lot of latitude with that as a description.  But of course, those who are concerned about privacy rights are raising questions that will continue.  Even members from the president's own party are talking about those hearings and investigation going forward.

So the White House is on a delicate balance here saying that it's trying to protect civil liberties.  At the same time, they believe that the needs of national security trumped that.  So this will be a circumstance that keeps going forward.  Now this NSA Web site, a little bit of a different response there, too. 

Quickly acknowledging what they said was a mistake, so they're not defending that.  They're chalking it up to some sort of software problem.  So that too is a subtle difference, trying to defend it in the big picture but on that specific example where it no longer appears so limited and so targeted, they're just simply chalking that up to some sort of technical glitch.

N. O'DONNELL:  All right, Kelly O'Donnell in Crawford, Texas, thank you very much, Kelly.  And let's bring in Democratic strategist Mike Feldman, a former adviser to the Clinton/Gore administration and Republican strategist Ed Rollins, who was an adviser to President Reagan. 

Mike, let me start with you.  How big of a political problem do you think this become for the president?

MIKE FELDMAN, DEMOCRATIC STRATEGIST:  Well in general, the domestic spying issue is a huge problem right now.  National security is always firm ground for the president, really solid terrain for him.  But when the president and the guys of expanded executive power begins to abuse that power, he risks undermining really what our fight about the war on terror is all about.

O'DONNELL:  Ed, do you think the Democrats, however though, end up overreaching on this particular subject?  You know, you have senators like Barbara Boxer raising the “I” word, impeachment, on this particular matter.

ED ROLLINS, REPUBLICAN STRATEGIST:  Obviously that's a way overstatement and certainly not all the facts are known at this point in time.  The critical thing is the president and the administration have to be able to do the job, to not only protect the country against terrorism as has been stated over and over again. 

Equally as important, they have to protect the Constitution and I think there's a balance here and I think the critical thing is to make sure that the leaders in Congress that have oversight on these issues are fully informed on what the president has done and what the NSA has done and then move forward.  If anything is in question that needs to be fixed, then obviously the Congress has a right to fix it.

O'DONNELL:  Mike, what is the big deal with this particular story?  I mean, we've learned over the last week that the data mining was more widespread than perhaps previously known.  The president says he has the right to do that.  Why is Congress going to be able to find out differently or perhaps challenge the president on this issue?

FELDMAN:  Well, sure.  Well, these aren't technical issues, OK?  It goes right to the heart of our democracy.  Separation of powers, that's why really Democrats and Republicans in Congress are upset about this.  Even you mentioned Senator Specter plans on holding hearings, Senator McCain has said on the record that he wonders why the president didn't use existing law to solve this problem. 

So these aren't technicalities.  They really go to what's at the heart of our democracy and really what we're fighting for in the war on terror.  You know, we're out there promoting fledgling democracies around the world right now.  We're trying to support a fledgling democracy in Iraq for example.  I mean, if we don't uphold the law here, we risk undermining that whole effort.

O'DONNELL:  Ed, what about that?  I mean, is there a larger concern within Republican circles that this story about the NSA spying will focus attention on presidential power?  And certainly the argument has been made that this administration has tried to expand power, certainly executive power.  Do you think that draws some unwanted attention on that issue for this White House, when they want to fight the war on terror?

ROLLINS:  Well, first of all, they've been forced to fight the war on terror.  I mean, September 11th changed the game and I think to a certain extent, the president and his administration have tried to use all of the tools to basically protect Americans at every level. 

Now have there be abuses of that?  I don't know and I don't think anybody else does.  And I think that's certainly what the congressional hearings will be about.  Have there been abuses?  Have they gone beyond looking at terrorists? 

Where I think the Democrats leave themselves somewhat vulnerable, and I don't want to make this just purely in a partisan issue is, they are not perceived as being either pro the war or basically for strong national security.  And I think to a certain extent that leaves them somewhat vulnerable. 

I would hope at this point in time both the administration and the Congress can come together, give the president the tools and the administration the tools and law enforcement the tools, that they need to basically fight this very unique threat to America.

O'DONNELL:  Well let me just get a quick response from each of you and Mike, let me begin with you.  Is this a huge problem for the president in 2006 or a small problem for him?

FELDMAN:  Well, we don't know yet, Norah.  I mean, that's—Ed's right, we've got to get to the bottom of this and that's why these are legitimate questions that are being raised right now.

O'DONNELL:  Ed, big problem?

ROLLINS:  I don't think it's a big problem.  I think it's a short-term big problem, because I think the Patriot Act is very, very important that the president get that fully implemented for a longer period of time than the 30 days.  And certainly this will be part of that debate.

O'DONNELL:  Let's turn to what may be a big problem for members of Congress and that is, of course, the Jack Abramoff scandal that is brewing.  And we're hearing from sources that he could try and strike a deal with the Justice Department any day now. 

How many lawmakers do you think are scared that they're going to be the target of this investigation if Abramoff cops a plea?  Mike?

FELDMAN:  Well, I think there are a lot of lawmakers and probably some senior staff who aren't sleeping well over the holiday season.

O'DONNELL:  Why? 

FELDMAN:  Well, from what I've read, and again, this is all premature. 

There's a legal process going on right now.  But from the published

reports, it seems to be a wide-ranging scandal and one that's really

staggering by any metric.  I mean, Ed's a consultant, I'm a consultant, we

both work in this town and I think both of us would agree this is abnormal

by even any standard that's been applied to date.

O'DONNELL:  Ed, I was stunned.  There was a major piece in the “Washington Post” today that really details just who Jack Abramoff is.  And they had a quote by former Senator Alan Simpson from Wyoming, of course who's best friends with Dick Cheney.  And he said, “This blows the Abscam scandal away.”  And that he was sitting next to one of Jack Abramoff's attorneys on a plane and that one of Jack Abramoff's attorneys told him that there are going to be a lot of members that are indicted on this.

ROLLINS:  I don't know whether there's going to be members indicted or not.  Certainly Jack Abramoff and his method of lobbying went way beyond the pale.  And I think to a certain extent, he's going to end up in jail.  And some of his colleagues are.

Whether they went beyond that to members, I mean think that's a process we have to see yet.  I as a Republican, obviously hope that it—anybody that violated a law deserves to be brought to justice.  But I hope it doesn't do any more further damage to the process that we have today in which a lot of people today are very cynical about everything that happens in Washington.  And there are some very tough things ahead, the Republicans and Democrats together have to work on.

O'DONNELL:  Ed, but do you acknowledge this is going to hurt the Republican Party?  This is going to hurt Republican members of Congress?

ROLLINS:  Well, there's no question.  His—we've been in power for 10 years.  He basically rose on the back of that power.  He had many friendships on the Hill and some he improperly used.  So there's no question it's going to be a lot more Republicans damaged by this than Democrats.

O'DONNELL:  Mike, do you agree with that?

FELDMAN:  I do.  And here's the problem.  There's a pattern that's emerging.  You have Senator Frist in the Senate, who's under investigation.  Congressman DeLay's troubles that are well-known.  Congressman Cunningham obviously had to step down and plead guilty to a host of really bad things.

O'DONNELL:  And yet your party has had trouble though paying the Republicans as engaging in a culture of corruption.

FELDMAN:  Well again, over time, and we'll see how this unfolds.  But as Ed points out, Republicans have absolute power in the city right now.  And absolute power corrupts absolutely.  And I think the American people get a sense of that.  That's why generally they prefer divided government.  I think we saw the pendulum swing back hard in 1994 and I think we could see the pendulum swing back hard again here in 2006.  We'll see.

O'DONNELL:  All right, well thank you to Mike Feldman and Ed Rollins.  And coming up, a former U.S. army chaplain who was accused and later cleared of spying at Guantanamo Bay.  He's going to be here to share his insider account and his thoughts on how the government is watching us. 

And later on the show, the biggest political stories of 2005 and some predictions for 2006.  You're watching HARDBALL only on MSNBC.

(COMMERCIAL BREAK)

O'DONNELL:  Welcome back to HARDBALL.  It's sometimes hard to remember the mood of suspicion and fear that gripped this country, even two years after the 9/11 attacks.  But it was real and at that time the Pentagon was investigating security breaches at Guantanamo Bay.  And this story blew wide open when one of the military's own was under suspicion.

(BEGIN VIDEO CLIP)

TOM BROKAW, FORMER NBC NEWS ANCHOR:  The mysterious case of a Muslim army chaplain who was working with detainees from the war on terror at Guantanamo Bay.  Captain Yee, a graduate of West Point and a man the army held out as an example of Muslims in the military, now is under investigation for espionage, aiding the enemy and spying.

(END VIDEO CLIP)

O'DONNELL:  At the time, the “New York Post” called Guantanamo Bay a nest of spies, and army chaplain James Yee was taken into custody and spent 76 days in solitary confinement without being charged. 

A few months after his release, the army dropped all the criminal counts against him.  He chose to leave the army and earlier this year was granted an honorable discharge.  He's now written a book about his ordeal titled, “For God and Country: Faith and Patriotism under Fire.”  And he joins us now from Seattle.  James, thank you very much.

JAMES YEE, FORMER U.S. ARMY MUSLIM CHAPLAIN:  Oh, thanks for having me with you today.

O'DONNELL:  Let me ask you.  Was there an anti-Muslim feeling at Guantanamo Bay?

YEE:  For sure.  There was a strong anti-Muslim hostility that was of course directed not only towards the prisoners but, of course, it was also directed towards the patriotic Muslim Americans, both military and civilians that are and were serving that joint task force.

O'DONNELL:  So even though you are—were a graduate of West Point, a chaplain for the U.S. military, you feel that you were discriminated against down there?

YEE:  Oh, without a doubt.  And I think what happened was when the American Muslims got together and prayed five times a day, bowing and prostrating in our Islamic form of prayer, that mirrored the way the prisoners prayed because they're also Muslims.

And when we read the Koran in the classical Arabic language, just as the Muslim prisoners did in the classical Arabic language, that meant to some few who were either ignorant or inexperienced or just bigoted, that meant to them that we were also the enemy and that put us under suspicion.

O'DONNELL:  James, how did you become a Muslim?

YEE:  I converted to Islam in 1991 through interfaith dialogue and it was interesting.  When I started to learn about Islam, many of the things that I believed as a Christian were found right there in Islam.  And it was really just accepting the simple belief that there's only one God and that throughout time, there are a number of people who taught that very message.

O'DONNELL:  I know you spent a great deal of time at Guantanamo Bay and Camp X-Ray.  I've actually been there with Defense Secretary Donald Rumsfeld.  You were ministering to many of these detainees there.  Did you feel sorry for them?

YEE:  Yes.  You know, many people have asked me if I was sympathetic to the prisoners.  But I'll continue to say that really what I was sympathetic to were really basic, fundamental American values, those of diversity, tolerance, religious freedom and providing humane treatment.  That was what I was sympathetic to.

O'DONNELL:  And are you saying that our U.S. military is not providing these alleged terrorists good treatment?

YEE:  For sure when I was down there, a lot of what the prisoners experienced was degrading and inhumane.  And I think the anti-torture legislation that recently Senator McCain has proposed points to many of the things that are going to today there at Guantanamo and in other places.

O'DONNELL:  Well, James, wait a minute.  Hold on here.  Are you saying that our military, which you were formerly a member of, is engaged in torture at Guantanamo Bay?

YEE:  For sure when I was at Guantanamo, there was abuse and mistreatment of prisoners.  And also...

O'DONNELL:  ... abuse is different than torture.

YEE:  Well, you know, a lot of the things is very degrading and inhumane and I think we should be sure that we don't do those kinds of things.  It doesn't help the intelligence gathering process.

O'DONNELL:  Can you explain to everyone that may be listening and that may not remember all of the details of your story—what happened to you?  And why were you brought from Guantanamo Bay, Cuba, and put into solitary confinement?  Tell us about that process.

YEE:  Right.  I had a short, two-week break and I was coming back into the United States, landed in Jacksonville Naval Air Station.  And was stopped by customs officials who searched my bags.  I was later to learn that it was actually the FBI who requested from the customs officials to specifically single me out and have me searched.

And all of a sudden, it was claimed that I had suspicious documents.  These suspicious documents were then called classified documents and then I was thrown in jail for 76 days and these accusations were flying that I had engaged in spying, espionage, aiding the enemy.  And I was essentially threatened with the death penalty.

O'DONNELL:  So you spent two and a half months in jail and then the military dropped the charges.  What did they say to you?

YEE:  They dropped every single criminal charge against me.  The accusations, those heinous ones, which are capital crimes, never materialized.  They did try and prosecute me for mishandling classified documents.  But in the end, it turned out that the government, the military, had never even really initiated any review of such documents to show that I had anything classified.  And when that was conducted, all of a sudden everything disappeared and the case was dropped. 

O'DONNELL:  So let me ask you now, given what we've learned in the news over the past couple of weeks about this super secret, domestic spy program that the NSA is using to track calls made here in the United States over there, overseas, are you concerned that your phones have been tapped? 

YEE:  Oh, without a doubt.  Especially after going through what I went through and being accused of being a terrorist spy.  You know, my family right now is overseas in Damascus, and I wonder if when I called my daughter last week to tell her happy birthday if that was under surveillance. 

O'DONNELL:  And how does that—given your own experience and given what we know now about this super secret spy program, what does that lead you to believe about this administration? 

YEE:  I think a lot of what this administration is doing is very much far and overreaching.  Especially if you look at what happened to me in my case, we saw, the military, for example, getting it so wrong.  Not only in the military, but also our intelligence agencies getting it so wrong, and I think a lot of times they're going down the wrong...

O'DONNELL:  But James, do you have some sympathy for those out there that say we had—that 9/11 was such an unexpected and terrible event that we had to do more, that we had to tighten up, and that in this case this was just an example of gone wrong—do you understand that point of view? 

YEE:  Oh, for sure.  National security is very important, and you know, I think the American Muslim community can be very instrumental in helping to increase that national security, but when we see things like the NSA approval of spying and the radiation monitoring of Islamic centers, I think that builds distrust amongst American Muslims, who could help improve national security by building those bridges with law enforcement. 

O'DONNELL:  All right, well, thank you to James Yee.  We appreciate you coming on.

And up next, from Iraq to Katrina, the CIA leak case and Harriet Miers, not forgetting Jack Abramoff.  We're going to review the top political stories of 2006 (sic), take a quick look at 2006 as well, and later on in the show, Chris Matthews talks to a young war veteran who lost an arm in Iraq, about her rehabilitation in the past year.  You're watching HARDBALL, only on MSNBC.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

AL PACINO, ACTOR:  Senator, you can have my answer now if you'd like.  

My offer is this: Nothing. 

(END VIDEO CLIP)

O'DONNELL:  Welcome back to HARDBALL.  That was a steely, ruthless Michael Corleone from “The Godfather.”  And we now know these classic lines were favorites of none other than Washington super lobbyist Jack Abramoff, the man at the center of what may be the biggest congressional scandal in generations.  And in many ways, this scandal resembles a Hollywood movie.  An ultra powerful deal maker, accused of bribing, cheating and cutting corners in a mad dash for money, power and glamour. 

He's now on the brink of cutting a deal with prosecutors, an offer he couldn't refuse, so to speak, and lawmakers around Washington are scared stiff.  So here to talk about these brewing scandals are “Time” magazine's Michael Allen and “The New York Times'” Anne Kornblut.  Thank you to both of you.

Anne, you've done a lot of reporting on Jack Abramoff.  Who is he? 

ANNE KORNBLUT, NEW YORK TIMES:  He is, well, as the clip showed, and as you have said, he's been for years, really since about 1994, the biggest Republican lobbyist, the most well connected and certainly the most lucrative of the Republican lobbyists in Washington. 

If you think about it, when Republicans came to power in the early '90s, there was a parallel subculture of sort of private citizens who made money off the system.  Jack Abramoff took it to incredible new heights, and prosecutors think pushed the envelope into what was illegal, essential bribing members of Congress with campaign contributions, trips abroad, and things like that. 

O'DONNELL:  How do we get to the point where we are today, though, where Abramoff is about to cut a deal with the Justice Department, and we have what may be half a dozen members of Congress who could get in real trouble for this? 

KORNBLUT:  It's just breathtaking.  I mean, for quite some time, this investigation took place in basically in secret.  I mean, it's been going on for a number of years now.  It began when some members of the Washington community started noticing he was bringing in tens of millions of dollars from Indian tribes, who had hired him to do casino work.  That tipped off the prosecutors to something that they thought might be nefarious.  And once they started pulling the thread on the Abramoff, you know, scandal we now call it, but at the time it was just his business, they began to really grow suspicious of what has become common practice in Washington.  Again, campaign contributions, are they bribes, or are they just the way business was done? 

O'DONNELL:  Well, I was stunned to read that there is one Republican congressman who is actually defending Jack Abramoff, and that was Republican Congressman Dana Rohrabacher of California.  He said, “I think he's been dealt a bad hand, and the worst raw deal I've ever seen in my life.  Words like bribery are being used to describe things that happen every day in Washington and are not bribes.”  Is this something that happens every day in Washington?

KORNBLUT:  Well, this is the fascinating question about this case.  I mean, certainly we've all grown accustomed to seeing it happen.  Some of these prosecutors are now saying, now, hang on just a minute.  If we can prove there's a quid pro quo here, where somebody got a huge cash infusion to their campaign coffer, and you know, a month, two months later they've done something legislatively to benefit those people, is that legal?  Or did Jack Abramoff simply take what was legal and take it a step further?   That's what is at stake here. 

O'DONNELL:  Mike, quickly, let me ask you, do Republicans suffer from this in the midterm elections if Abramoff is indicted and you have several members of Congress who look like they were taking bribes for legislation? 

MIKE ALLEN, “TIME” MAGAZINE:  Norah, you know the Hill super well, and you know that members are extremely worried about it.  They think that they could lose the House over it.  There is a lot of members who are lawyering up.  They know that Jack Abramoff has a lot of e-mail.  A lot of them are mentioned in it.  A lot of people think they're going to be swept into it for things that they didn't do.  Of course, they're even more worried about being swept into it for things that they did do.

And Anne mentioned this sort of subculture.  And I think what we're seeing is, there's a different environment.  People were not thinking about how these things would look in retrospect.  Just like this year with travel became—people became much more careful with their trips.  Before, people didn't think about taking a meal from someone else, but now they would.

O'DONNELL:  All right.  Well, we're going to have more on the Abramoff scandal, Karl Rove and domestic spying with Mike Allen and Anne Kornblut after the break.  And a reminder, for the best political debate online, just go to Hardblogger, our political blog Web site.  And now, you can download podcasts, like Mike Allen does every night, of HARDBALL.  Just go to our Web site, hardball.msnbc.com.  This is HARDBALL, only on MSNBC.

(COMMERCIAL BREAK)

O'DONNELL:  Welcome back to HARDBALL. 

We are talking with “TIME” magazine's Mike Allen and “The New York Times”' Anne Kornblut. 

Thank you to both of you.

I want to ask you both about this piece in “The New York Times” today, which I thought was really interesting. 

It said it's looking towards 2006, as the president is down in Crawford, Texas, and how the Bush team is talking about a recovery, and how their new approach could save a second term. 

And I will read you a bit from the piece.  It says—quote—

“President Bush shifted his rhetoric on Iraq in recent weeks, after an intense debate among his advisers about how to pull out of his political freefall, with senior adviser Karl Rove urging a campaign-style attack on critics, while younger aides pushed a more—Bush for more candor about setbacks in the war, according to Republican strategists.”

Anne, what's going on that there's this now setup that Karl wanted to do it one way and that the younger aides wanted to do it another one, and that the younger aides won out over Karl Rove? 

KORNBLUT:  Well, this is that—this is the great parlor sport over coffee in Washington, is reading a story like this and trying to figure out who said what about whom. 

I read that great story, and it was a really great story by our competitors.  I read that story, and it seemed to me that this is evidence that Karl Rove is not running a campaign.  Bush is not up for reelection, and, you know, whether or not Karl has been hurt by the CIA leak story, that there are now other power centers within the White House that could include Dan Bartlett, Nicolle Devenish, and the rest of the White House team. 

I don't know.  What did you think? 

O'DONNELL:  Mike, how do you explain that, before we did see this president offer some more candor?  They did try to show the president a little bit more out of the bubble, if you will, in these last four speeches.  They had him sitting there in the Oval Office, so you could see him sort of gesticulating a lot with his hands, sort of admitting a little bit more, not really admitting a mistake, but getting kind of close.  What's behind the strategy? 

ALLEN:  Right. 

Well, Norah, in that week, we saw the president give six television interviews, three of them to Brian Williams.  We saw him take questions in public, which I don't think had happened since the campaign.  We saw a news conference, a live radio address.

And—but when we got to the news conference—and, Anne, tell me if you disagree—after those small concessions to critics, at one point, the president even said he would entertain constructive criticism, which is something we have never heard him say. 

(LAUGHTER)

ALLEN:  At the news conference, I thought he was back to his old self, pushing back, giving no quarter, teasing the reporters, reminding people who is president, which is what he enjoys doing. 

And we went through this extraordinary period, where we saw the president on camera almost every day, again on camera as he departed to Camp David for Christmas.  And, as you guys know, going back to '99, the Bush—a precept of the Bush people has always been that the president is his best salesman. 

And, so, they're trying to give—sort of giving him the chance to do that.  It's an echo of the let-Reagan-be-Reagan strategy that they had in the second term years ago. 

O'DONNELL:  Well, this is so interesting, as he does try and look at 2006 and try and continue his move upward in the polls. 

And another quote from the “Post” piece today, it says: “Some are concerned that, although Bush has changed his approach, he has not changed himself.  He has been reluctant to look outside his inner circle for advice.  And even some closest to Bush call that a mistake, because aides have been giving—have given up trying to get him to do things they know he would reject.”

So, are we going to see a new Bush in 2006, or it's the same old guy? 

ALLEN:  This is—this is the guy. 

(LAUGHTER)

(CROSSTALK)

ALLEN:  This is the guy.

KORNBLUT:  I don't think...

(LAUGHTER)

ALLEN:  And you can see this, like the—I'm told the president laughed at the stories of people suggesting that there should be a shakeup. 

You know, they continue to say that there's going to be individual departures.  But the president does not want any more changes.  And—and, if these people can't get him to do things he doesn't want to do, which, as you well know, is very difficult, someone new definitely isn't. 

KORNBLUT:  And—and, you know, if anything, stories like this will only make him dig in his heels harder.  He does not want to be told he needs to change.

And when—I mean, I think the greatest example was when there were calls for Rumsfeld to be fired.  Well, that just guaranteed that it wasn't going to happen.  So, I—I would not expect a whole new Bush any time soon, especially, because, as we have said, he's not running for reelection himself. 

O'DONNELL:  So, talking about this, whether the inner circle stays the same, we heard Rumsfeld, in the last week or two, pretty much suggest that he's planning to stick around for the full term.  You know, he doesn't have anything else he wants to do.  He wants to hang out and continue as secretary of defense.  And he has got his hawk's necks—nest—next to Cheney now out in Maryland, as your newspaper called it, right?

(LAUGHTER)

O'DONNELL:  The two of them together vacationing. 

But what happens in the second term if something happens to Karl Rove?  We're starting up 2006, and special prosecutor Patrick Fitzgerald has impaneled this new grand jury.  Many people think that he's close to a decision.  Do you think he gets indicted, Anne? 

KORNBLUT:  It's impossible to say. 

I mean, it's—you know, you're—again, someone I interviewed a while back on this said, you know, it's good news that you're not indicted, until you are indicted.  I mean, there's no—there's no real saying. 

I—I guess that, you know, unless Karl decides to play a very serious role in the—in the '08 campaign, his influence, as President Bush's, will be diminished naturally.  It's a second term.  People in Congress, as you know, are already starting to figure out who is going to run.  All the talk is Hillary, McCain.  There's—there's—over time, all of the White House will become less the center of a focus.  And I don't know whether I would pin that on Karl Rove or the leak or just the natural occurrence of events.

O'DONNELL:  Mike, do you get any sense, because I was—I was interested to see that at, for instance,, the White House Christmas party, that Karl Rove was roaming around like his old self, talking to reporters and everybody.

ALLEN:  Posing for photos. 

O'DONNELL:  Posing for photos, exactly.

That there's been any change of his role in the White House?  I mean, he's still under investigation.  He may be facing indictment.  This is a really big deal.  There's a lot of questions about, what took him so long to correct the record with the grand jury?  Do you sense any change inside the White House about his role, his power, his influence? 

ALLEN:  Well, I checked on this again today.

And there is increased comfort, as you have been reporting, in his world that he won't be indicted.  But there's no question that his relationship with the president has changed by what has happened.  I think his—his feelings about other people in the White House, about public life, may have changed.

Friends of his think that he could depart, something that once was unimaginable.  And, you know, I think the president—there had been some talk of would he have to be replaced by three people or whatever?

(LAUGHTER)

ALLEN:  I think one...

O'DONNELL:  Superman Karl Rove, yes.

ALLEN:  Right. 

And I think the president—the president, who has always said that he's the president, not Karl Rove, that I think he would enjoy showing that Karl Rove is replaceable.  Mr. Rove has already given the president the best gift he could, which is reelection.  And he remains the most brilliant, you know, Republican strategist alive. 

And, so, obviously, his ideas are going to be very intensely sought in '08.  But whether it's from a desk in the West Wing or whether it's from Texas or northwest Washington I think is not known. 

O'DONNELL:  Well, as the first lady, Laura Bush, once said in an interview, that Karl Rove's power is overestimated, that he's not as powerful as everybody thinks. 

Well, thank you to Anne Kornblut and Mike Allen.  Great discussion.

Up next, we are going to see Chris Matthews, who visits Walter Reed Army Medical Center again, and talks to a young war veteran who lost an arm in Iraq.  And she is going to tell us about her rehabilitation in the past year. 

This is HARDBALL, only on MSNBC. 

(COMMERCIAL BREAK)

O'DONNELL:  Coming up, more on the best and worst of 2005's political stories.  And will the Jack Abramoff scandal dominate the news in 2006? -- when HARDBALL returns.

(COMMERCIAL BREAK)

O'DONNELL:  We are back. 

One year ago, Chris Matthews toured the rehabilitation center at Walter Reed Army Medical Center, where he met Captain Dawn Halfaker, the West Point graduate who lost an arm while on patrol in Iraq.  And like the thousands of other wounded troops returning home, her recovery was another hard-fought battle she was determined to win. 

Chris sat down with Dawn once again last week for an update. 

But, first, let's go back to Walter Reed, where he and General Barry McCaffrey first met her. 

(BEGIN VIDEOTAPE)      

GENERAL BARRY MCCAFFREY (RET.), NBC MILITARY ANALYST:  Hey, Dawn, can we say hello? 

(LAUGHTER)

CHRIS MATTHEWS, HOST:  Hi.

MCCAFFREY:  General McCaffrey and Chris Matthews. 

MATTHEWS:  Chris Matthews.

MCCAFFREY:  Yes. 

CAPTAIN DAWN HALFAKER, WOUNDED IN IRAQ:  Good to meet you, sir.

MCCAFFREY:  Yes. 

MATTHEWS:  Good to meet you.

MCCAFFREY:  Well, you know, I'm teaching up at West Point, Dawn.  I don't know if I told you that. 

HALFAKER:  Yes. 

MCCAFFREY:  Yes.  I've been back five years.  Everybody is very proud of you. 

HALFAKER:  Thanks, sir.  Appreciate it. 

Well, how were—your hip, how were you wounded?

HALFAKER:  I was actually in an up-armored Humvee.  And we were on a routine patrol mission, M.P., over in Iraq in Baquba.  And an RPG came through the front and it took off my arm and left some other nasty shrapnel wounds and things like that.  But that's basically what happened. 

MATTHEWS:  Could you see the shooter? 

HALFAKER:  No.  I couldn't see him.  It was 2:00 a.m., 3:00 a.m.  So, I mean, we didn't really see anything.  So it was tough.

MATTHEWS:  Who treated you first? 

HALFAKER:  Actually, the combat medic in my unit treated me first. 

So...

MCCAFFREY:  Kept you alive? 

HALFAKER:  Basically.  I was in and out.  I kind of knew what was going on, kind of not.  I was in a lot of pain.  I was pretty worried.  I did not see him putting on a tourniquet, but I knew my arm was fairly damaged.  So, I was worried.  I was telling him not to cut it off. 

MATTHEWS:  So where is it?  Where is it? 

HALFAKER:  It's actually...

(CROSSTALK)

MATTHEWS:  Right on the shoulder. 

HALFAKER:  Yes.  It's just I have a shoulder bone—the RPG basically took the humerus right out of the socket. 

(CROSSTALK)

MCCAFFREY:  You were a terrific basketball player at West Point.  Has that helped you, being an athlete? 

HALFAKER:  I would have to say yes. 

Every experience in your life, you know, you can kind of draw from that, because, being a basketball player, it is competitive.  There's a lot of physical—you go through a lot of—I don't want to say physical pain.  But you know what it is like to work hard, to work for a goal.

MCCAFFREY:  Tough discipline and—yes.

HALFAKER:  To have discipline, exactly, to work as a cohesive team, which I look at Walter Reed as a cohesive team.  Everyone is working together, including the patients, to move on.  And...

(CROSSTALK)

MATTHEWS:  Were you a performance athlete?  Did you play intercollegiate? 

HALFAKER:  I did, sir.

MATTHEWS:  Why did you pick West Point over other colleges? 

HALFAKER:  That's an interesting question. 

I actually got to visit several—well, I would say five different schools.  I think that's the maximum you're about to allowed to take for official visits.  And West Point was one of them, which I really didn't know much about, coming from the West Coast and having never been to New York before.  So, the first time I saw West Point, I just—I took one look and I stayed there for a weekend, I think it was and met some of the cadets.  And it's just a different caliber of people. 

I had no idea really what I was going into.  But I knew that what I was going into would definitely present me with some interesting challenges and life experience. 

MCCAFFREY:  Yes. 

MATTHEWS:  What year did you get out of the Point? 

HALFAKER:  I graduated at 2001. 

MATTHEWS:  So you were aware that there was going to be war probably in the Mideast and you had seen the Persian Gulf War. 

(CROSSTALK)

HALFAKER:  Yes.  I had seen the Persian Gulf war when I was younger.  And I think, when you go to anything, it's not like I expected what war would be like.  I had really no idea. 

But, of course, there's always—that's what the military is training for.  We're training for situations like Iraq. 

MATTHEWS:  Yes. 

HALFAKER:  So, that was, yes, definitely always a possibility.  But I can't say that it was something that was always on my mind as I was going through West Point. 

So, but—obviously, there's a point where you get to where it's like, OK, I used to have this life and I don't have that anymore.  So you say, all right, well, I do still have a life, thank God.  And you know what?  I'm going to do something with it.  I'm going to move on and I'm going to be happy.  And I can truly say that I'm—I mean, I'm a happy person.  So, that—and there's—I feel terrible for the soldiers that aren't—were not as lucky as me.  So...

MCCAFFREY:  Well, Dawn, you are one tough soldier. 

HALFAKER:  Thank you, sir. 

MCCAFFREY:  We're very proud of you.

HALFAKER:  Thank you for your leadership, sir, for our country. 

MCCAFFREY:  All over the face of the earth, these soldiers come home to Walter Reed if they get really serious injuries.  The system is terrific.  The care is first rate.  The whole notion is, get them back to their families OK, get them back into active service or out into civilian life with more education. 

So, it is a very uplifting thing to see what the Army and the Marine Corps do to take care of their own when they're injured. 

MATTHEWS:  Do you think their optimism is a little bit too extreme? 

MCCAFFREY:  No. 

MATTHEWS:  Really?

MCCAFFREY:  God, you know, they're in their 20s.

MATTHEWS:  They're so gung-ho. 

MCCAFFREY:  Yes.  No, it's really encouraging, isn't it?  The first thing we hear out of them is, they wish they were back with their unit. 

MATTHEWS:  I've heard that.

MCCAFFREY:  Yes.  And then they want to see the unit come home.  So, it's a tremendous commitment to their idealism, their dedication, their physical courage.  This is hard work.  They're in pain and they have to work through it.  And it is just amazing, the young soldiers and Marines and service members that we've got in uniform and what they can do. 

(END VIDEOTAPE)

O'DONNELL:  And, when we come back, Dawn Halfaker tells Chris Matthews how her life has changed one year later.

This is HARDBALL, only on MSNBC. 

(COMMERCIAL BREAK)

O'DONNELL:  Welcome back to HARDBALL.

Much has happened to Dawn Halfaker since Chris Matthews first met her in Walter Reed's rehab center one year ago.  He recently talked with the retired Army captain about her life and career and how she's dealing with the injuries she suffered in Iraq. 

(BEGIN VIDEOTAPE)

MATTHEWS:  Well, you were one of the people that got hurt bad over there in Iraq.  You lost your right arm.

HALFAKER:  I did.

MATTHEWS:  And now you have got what's called a cosmetic arm, right?

HALFAKER:  Yes. 

MATTHEWS:  Why did you choose the cosmetic arm, rather than what is called the usable arm?

HALFAKER:  I chose a cosmetic arm because I had worked with usable arm, as you're calling it, and...

MATTHEWS:  Well, what do you call it?  I'm sorry.  Correct me.

HALFAKER:  Well, you call it the myoelectric arm, or, you know, electric prosthesis. 

And, you know, I—I didn't find it to be very functional.  I—it's sort of a cost-benefit analysis, the energy required to use it, the wear and tear on your body from wearing it, and just the overall effect it had on my mood.  And, so I—what was more important to me was—was probably looks, aesthetics, and, you know, being a woman.

MATTHEWS:  You didn't want to stand out.

HALFAKER:  Exactly, being—working, I wanted just to be able to go to work and—and feel good about the way I looked and to...

MATTHEWS:  Well, you look great. 

(CROSSTALK)

MATTHEWS:  And let me—now we're going to do this thing.  Let me see your cosmetic arm.  How does that work? 

So, it—it—it—it's light.  I think it's interesting—let me move this coffee cup here—that—it's interesting that it's the same complexion as you. 

HALFAKER:  Yes.  They—we had some very talented artists.  Actually, they came from Hollywood. 

MATTHEWS:  I mean, it looks real from here. 

HALFAKER:  Yes. 

And, you know, they painted it according to this hand, and did an excellent job in matching the—the skin and—and the freckles and all that. 

MATTHEWS:  Let me ask you.  You have got your watch on there.

HALFAKER:  Yes. 

MATTHEWS:  And—and how often during the day do you think about it? 

HALFAKER:  Well, pretty much constantly. 

I mean, I'm—as much as I think it looks very nice, it's also somewhat inconvenient, because it just kind of hangs there.  It's just like having something hanging off of you.  So, you know, in wintertime, putting a coat on and off, gloves, is always an issue.  It's like—you know, obviously, this hand is not cold, but you look kind of funny walking around with one glove on and one glove off.  But, then, it's logistically a hassle to take it on and off. 

MATTHEWS:  That seems pretty hard to figure out how to do that.

HALFAKER:  Yes.  Yes. 

It just—and a lot of it is time-consuming.  And, you know, the way we are today, in this world, it's—there's never enough time for anything.  So... 

MATTHEWS:  You know, we talked to Bob Dole, who is a disabled veteran from World War II.  And all these years old now, since 1945 -- he was shot in Italy—and all these years later, he is still figuring out how to, you know, put his coat on, put his shirt on, put his tie on. 

And do you think about the incident, when you were shot?

HALFAKER:  Every now and then, I do. 

You know, there's lot of things that remind me and—and take me back to that instant.  I had a friend who died last week over in Iraq from an IED.  And, you know, just knowing what he went through, and although he did pay the ultimate sacrifice, it's—you know, I can relate to those few moments where, you know, he was trying to hold on and—and pull through.  But, unfortunately, he couldn't. 

MATTHEWS:  Did he die on the battlefield or back here?

HALFAKER:  No, he died on the battlefield. 

MATTHEWS:  And you were with him? 

HALFAKER:  No.  This just happened a week ago.  He was—he was over in Baghdad.  Some of my good friends are still—still deployed over there and in combat.  And, so, you know, they—they called right away with the news. 

MATTHEWS:  When you pay a price for your country like this, and you provide service and guts, and you did everything everybody else did over there who didn't get hurt badly, and, you know, you had as much guts as any of them, and you took all the risks they did, but, then, on the top of that, you got—you lost your right arm. 

Do you feel—do you think—do you have a different calculation about a war like this, or the cost—you said cost-benefit.

HALFAKER:  No. 

I mean, it's—it's totally random.  I mean, the insurgents

definitely don't discriminate over there.  And, you know, some people are -

·         are more unlucky.  And some people pay bigger sacrifices. 

But I think what it comes down to is—is, in life, in general, you -

·         you know, you have to look at the entire span of—of your life.  And some people, they go through different things at different times.  I think, you know, I went through a major trauma fairly early in life.  And, hopefully, I won't have too many bigger than this to go through. 

But it just makes me very sensitive to the fact that everyone experiences loss in their life, whether it's a limb or a loved one and—and go through hard times, you know, and they need to be able to get through it and—and move on. 

MATTHEWS:  Well, you were always a jock, right? 

HALFAKER:  Yes.  Yes.  Pretty much. 

MATTHEWS:  Are you still a jock?  You were a basketball player before. 

HALFAKER:  I—I try to be.  I'm more like a wanna-be jock now.  I kind of—I participate.

You know, I—I ran in the Army Ten-Miler Army last—or a couple months ago.  And that was fun, but I, by no means, broke any records.  But, you know, I don't really play basketball too much anymore.  That was my sport in college.  I play tennis every now and then.  So, it's just more casual.

MATTHEWS:  You know, we used to play basketball at Holy Cross with a guy who lost an arm when he was a kid.

HALFAKER:  OK.

MATTHEWS:  He was tough.  He was a good player.

(LAUGHTER)

MATTHEWS:  He had a hook shot, you know?

HALFAKER:  Oh, OK.

MATTHEWS:  I mean, it's just you have to play a different kind, obviously, a different...

HALFAKER:  Right. 

MATTHEWS:  ... kind of ball. 

You're not getting back into the—on to the court though, huh? 

HALFAKER:  Not too much, just for fun, just for fun.

MATTHEWS:  But you can play --  you can play one on one, can't you? 

HALFAKER:  I can, you know, a different kind of one on one, like you said, so, you know, just kind of adapt and come up with different shots, be a little bit creative. 

MATTHEWS:  Yes.  I will bet you can. 

You're great.  Thank you.  Thanks a lot for coming on.  And thanks for

·         we have got to keep up with you. 

(LAUGHTER)

MATTHEWS:  And we keep rooting for you. 

Anyway, thank you, Dawn Halfaker.  Thank you for what you have done your country, obviously. 

HALFAKER:  Thanks for having me.

MATTHEWS:  It's great to have you back on HARDBALL.  Thank you. 

(END VIDEOTAPE)

O'DONNELL:  (AUDIO GAP) I will talk to General Peter Pace, chairman of the Joint Chiefs of Staff from Kandahar, Afghanistan. 

Right now, it's time for “THE ABRAMS REPORT,” hosted by Lisa Daniels.

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

END   

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