updated 2/28/2007 2:55:34 PM ET 2007-02-28T19:55:34

Guests: Bill Griffeth, Hilary Rosen, Jim Cramer, Seymour Hersh, Christopher Shays, Debbie Wasserman Schultz, Richard Holbrooke, Rick Davis

CHRIS MATTHEWS, HOST:  A bad day for the stock market, rough day for Dick Cheney, and dangerous tomorrow for Afghanistan and Iraq. 

Let’s play HARDBALL.  

Good evening.  I’m Chris Matthews.  Welcome to HARDBALL.

The stock market had its biggest one-day slide in more three-and-a-half years today.  We will talk to CNBC’s Jim Cramer to find out why stocks took such a nosedive. 

Plus:  A suicide bomber attacked the entrance of a U.S. military base in Afghanistan, where Vice President Dick Cheney was staying, killing more than a dozen people, including an American soldier.  The vice president was hurt in the attack—was not hurt in the attack.  A spokesman for the Taliban said the attack targeted the vice president, a charge the U.S.  military strongly denies. 

But, with a fivefold increase in suicide bombers in Afghanistan, and with over 10,000 Taliban fighters preparing for a spring offensive, is the Taliban getting ready to retake Afghanistan?  More on that in a moment.

But we begin with the drop in the stock market.

And, for the latest, we’re joined by CNBC’s Bill Griffeth. 

Bill, what happened?

BILL GRIFFETH, CNBC CORRESPONDENT:  Bill—Chris, it started overnight in China. 

The Chinese market has been in the last few years the kind of a bubble mania that we were back in the 1990s.  And there were signs that maybe the Chinese government had had enough; they might step in and control things. 

And the Shanghai stock index was down 9 percent, a whopping decline there, biggest in a decade that they had seen.  And that seeped over into the European markets.  They were down 3 to 4 percent.  And it seeped over into our markets today.  When all was said and done, we were down 400 points on the industrial average, a decline of about 3.2 percent, as you said, the biggest decline in about three-and-a-half years. 

The Nasdaq, a whopping decline of 96 points, or about 3.5, almost 4 percent, to 2407.  But it a lot of market psychology, that they’re just playing to what happened in China, goes to Europe, and then we had some rather weak economic data out this morning that did not help the mind-set. 

We had been in all-time-high territory right now, as well, even as our economy is starting to slow down.  So, there was a little disconnect there.  And we saw this tremendous selling wave, especially late this afternoon. 

MATTHEWS:  What do you make of Alan Greenspan, the former chairman of the Federal Reserve, saying on Monday that there was going to be a recession, perhaps, by the end of this year here in the states? 

GRIFFETH:  You know, he is not the Fed chairman anymore, but people still pay a lot of attention to him.  And he is just looking at the same things we all are, or maybe saying out loud what we have been thinking, that, you know, housing has been slowing down.

Retail sales, which were decent at Christmastime, were not great, certainly not the kind of gains we would expect for a market that was in all-time-high territory.  And, if you continue to extrapolate that out, with a Federal Reserve that has yet to cut rates—they stopped raising rates last June, and they have been kind of sitting on their hands all that time, even as the economy has been slowing down—they have been worried about inflation, which, really, not a lot of people are. 

The economy slows down, and, you know, Greenspan says, if it continued at this pace, by the end of the year, we could be in a recession.  That did not help the market either today.

MATTHEWS:  Are we going to continue to hear that it’s a better deal to invest overseas? 

GRIFFETH:  Right now, there are those who feel that that could be the case.

You know, there are still a lot of people who feel that the Chinese growth engine is what drives this world economy right now, the tremendous demand that they have for our commodities, for a lot of our raw materials, to build their infrastructure. 

And, again, that is partly what was going on today.  If they are going to slow down, if the Chinese central government is going to try and control their stock market, that could have an impact on all the things that have been benefiting us here lately, with the—the demand for our goods and our raw materials.  And, if that slows down, that wouldn’t help as well.

But, you know, generally speaking, the growth rates overseas are better than we are seeing right here.  It has been a better idea to invest overseas the last couple of years than it has been—been in the United States.

MATTHEWS:  Well, let’s hope, in a perverse way, that that command economy over there answers the command and only goes down one day. 

Anyway, thank you, Bill Griffeth, for coming over here from CNBC.

We will have much more on today’s down on the stock market with CNBC’s Jim Cramer, who is coming on later in the program. 

Now to the suicide attack outside a U.S. base in Afghanistan, where Vice President Dick Cheney spent the night. 

Richard Holbrooke was the American ambassador to the U.N. during the Clinton administration. 

Mr. Ambassador, what do you make of the Taliban’s claim that they were targeting the vice president, and they had an near miss in that suicide bombing that killed so many people today? 

RICHARD HOLBROOKE, FORMER U.S. AMBASSADOR TO UNITED NATIONS:  I think this is an irrelevant issue.  They missed the vice president.

All Americans should be grateful for that.  And whether it was an accident, a coincidence, a missed opportunity, we are never going to quite know.  Let’s move on.

MATTHEWS:  Do they have intelligence, however, that gives them a greater capability then we would have expected over there in Afghanistan, a country we thought that we had reclaimed from them? 

HOLBROOKE:  Well, let me tell you a story, Chris. 

A year ago, I went to Afghanistan.  And I came on your program right afterwards.  And I wrote a column for “The Washington Post.”  And I said, the situation was deteriorating rapidly.  We were facing an upsurge.  We had to do something about it.

Two of the most senior officials in the United States government, short of the president and vice president, both called me after I appeared on your program and wrote that “Washington Post” column to say I was too pessimistic about Afghanistan. 

MATTHEWS:  Yes. 

HOLBROOKE:  I am still angry about that. 

Why?  Because I was trying to create—help create a bipartisan position that said that Afghanistan is indispensable to our national security and should be separated from the Iraq crisis. 

And, instead, they ignored the warning sounds, until a few days ago.  President Bush finally got up and semi-admitted that things were not as good as they ought to be, or as he had said they are.  And I remain angry about that. 

Why?  Because Afghanistan is the indispensable front in the war on al Qaeda, the men who did it on 9/11 to our nation.

MATTHEWS:  Well, I think you have got a case, because I think a lot of the Democrats, although they may not have rallied as quickly as you would have liked, are saying that they don’t think of Afghanistan the way they think of Iraq.  They do agree with you that it is of strategic vitality to the United States.  We absolutely have to prevent a Taliban comeback.

What do you make of the numbers I produced earlier, a couple minutes ago, 10,000 Taliban fighters ready for a spring offensive, a fivefold increase in suicide bombings?  Are they more aggressive?  Are they capable of even greater aggression against the Karzai government? 

HOLBROOKE:  The reason for these figures—let’s be clear—is because the Bush administration started to downgrade Afghanistan.  Don Rumsfeld, as secretary of defense, started to pull troops out, and while the U.S. focused on Iraq, where we were doing even worse. 

And this took all the pressure off the Taliban and al Qaeda.  So, the inevitable happened.  I saw it a year ago, and was castigated by this administration for what I was trying to do, which was help create a bipartisan policy in favor of Afghanistan.

To your political point, Chris, I can assure you that every senior Democrat—and I have talked to almost every one of them, from Speaker Pelosi, to Majority Leader Byrd, to the chairman of the committees, every one of them thinks that we should accelerate the effort in Afghanistan.  Every one of them will support an increase in forces and effort and resources there, with the one critical point that the drug eradication program has been a complete failure. 

And the administration has thrown away about $1 billion for of each of the last two years in order to eradicate drugs, while the opium and heroin trade has doubled, while crop production has doubled.  But leaving drugs aside, this is, as you just said, a bipartisan issue.  And I think the administration should be held to account for its failure in Afghanistan, as well as Iraq.

MATTHEWS:  Can we win the battle against opium, and therefore the battle to keep the Taliban out of power? 

HOLBROOKE:  We cannot win the war on drugs in Afghanistan, where 90 percent of the world’s heroin comes from, simply by spraying crops, because all we are doing is denying farmers the most productive, easiest-to-grow crop, poppy seeds, eight times more productive than the next crop in Afghanistan. 

And we’re driving them into the Taliban’s hands.  If you really want to go after the drug trade, you have to go after the traffickers, not the poor farmers.  If you want to go after the traffickers, you have got to deal with the corruption at the highest levels of the Afghan government. 

The question arises in my mind, Chris, as to whether it really is the way to beat the Taliban, is to go after the poppy farmers down in the southeastern part of the country.  I don’t think that’s the way to go.  We ought to be building roads.  We ought to be creating education. 

And, above all, we and a rejuvenated Afghan police and army have to

provide security.  This Afghan war is very different from Iraq.  And it’s -

in many ways, it is like Vietnam, including the fact that the enemy has sanctuary just across the border. 

MATTHEWS:  Do you think they are going to find bipartisan agreement and save the Karzai government, our government?  Will we be able to do the job there, the way it looks? 

HOLBROOKE:  I am sure that the leaders of the Democratic Party will join in any effort to salvage the situation in Afghanistan.  It is not Iraq.  And every senior Democrat I have talked to, including those people seeking the presidency, all support the effort. 

MATTHEWS:  Let me ask you about Iraq and Iran, the connection between the two. 

A long time ago, we heard King Abdullah, a Sunni leader of Jordan, of course, who warned of the emergence of a Shia crescent—other leaders in the Sunni world have done that—that, by helping the majority rule in Iraq, we have given the Shia power.  They now have power, as well as the governments in Iran and the government in—or a good portion of the people of Lebanon now, that there is a crescent emerging there, a power of the Shia they never knew before. 

At the same time, we seem to be siding with the Sunnis against that emerging Shia crescent, we are basically backing Maliki in his efforts to hold that government together in Iraq. 

Do we have a completely contradictory foreign policy? 

HOLBROOKE:  Well, I like this Q&A system you have, Chris, where you give the answer, and I can respond to your answer-question with one word. 

Yes.  Your description is exactly right.  How many times am I going to say that to you, Chris? 

MATTHEWS:  Well, you can say it many times.

(LAUGHTER)

MATTHEWS:  But let me ask you to explain.

What are they thinking? 

HOLBROOKE:  The United States—the U.S. government opened up the door for a Shiite majority rule in Iraq. 

The Shias cheered us on day one, when we tore the statue down.  And now they are going to going to cause us enormous problems.  They are backed by Iran.  We can’t address Iran, which is our number-one strategic problem in the region, as long as we are bogged down in Iraq, because the Iranians, just by turning the spigot a little bit, can increase the damage and increase the quagmire we are caught in. 

So, meanwhile, we are getting all our old Sunni friends, the Egyptians, the Jordanians, the Moroccans, all the moderate Arab states—I put moderate in quote marks, but they are relatively moderate—furious.  They hate the Iranians, who are not Arabs.  And they are scared of Shiism. 

And the Shia minorities in other countries are getting riled up, too.  There’s a substantial Shia minority in Saudi Arabia.  So, some countries, like the Saudis, may be beginning to support the Sunnis in Syria and in western Iran—western Iraq.  This is a very explosive situation. 

It is not an exaggeration...

MATTHEWS:  Who do you fear more?

HOLBROOKE:  It is not an exaggeration to say, Chris, that we opened the door to something, and we have no way of figuring out how to shut it, and—until we figure out how to redeploy and gradually, carefully disengage from the Iraqi civil war, so that we can deal with stability in the region and the real problem, which is Iran. 

MATTHEWS:  When Americans go to bed at night, should they be more worried about the—the Sunni, the al Qaeda elements in the Sunni sector, or should they worry more about the Shia and Hezbollah, that part of the world over there?

HOLBROOKE:  Well, when I go to bed at night, I worry about America’s strategic position in the whole area from Beirut to Bombay, from the Mediterranean to the Himalayan Mountains.  And that includes both factions.  It, above all, includes American troops, who are in harm’s way, caught between Sunni and Shia.  And it includes stability and protection for the security of Israel, as well.

The whole area is either exploding or disintegrating.  And the administration has no strategic overview of it.  They’re dealing with each part of it individually.  And the kind of—and that creates the kind of contradiction which you just precisely outlined. 

MATTHEWS:  Mr. Secretary—Mr. Ambassador, thank you very much—

Richard Holbrooke, former ambassador to the U.N.

HOLBROOKE:  Thank you. 

MATTHEWS:  Coming up:  Congress is back.  What will they try next to do to try to stop the war in Iraq?  What are they going to about Afghanistan?  We have just been talking about that with Richard Holbrooke.

Congressman Chris Shays of Connecticut and Congresswoman Debbie Wasserman Schultz of Florida are going to be here.

You’re watching HARDBALL on MSNBC. 

(COMMERCIAL BREAK)

MATTHEWS:  Coming up:  Is Bush pushing us to war with Iran? 

When HARDBALL returns.

(COMMERCIAL BREAK)

MATTHEWS:  Welcome back to HARDBALL.

Will Congress do something binding on Iraq?  What will they do about the Taliban’s apparent resurgence in Afghanistan and in Pakistan?

U.S. Congresswoman Debbie Wasserman Schultz is a Florida Democrat and member of the Appropriations Committee.  Congressman Chris Shays is a Connecticut Republican and a member of the Homeland Security Committee. 

Congressman Shays, you first. 

Let’s talk about a bipartisan area, which is Afghanistan.  Richard Holbrooke was just on.  He said that is an area your both parties can agree on. 

Are we working together?  Is the United States operating in a way that is going to keep Karzai in power and the Taliban out of power? 

REP. CHRISTOPHER SHAYS ®, CONNECTICUT:  Well, I hope so.

And I do think we are working together with both Republicans and Democrats.  The key in Afghanistan is, we have gotten the Europeans to do some lifting there, where they don’t want to do it in Iraq.  So, we have, I think, more of the world community with us.  But...

MATTHEWS:  But I hear the Dutch haven’t fought a war since ‘45.  Some of these armies over there have not been in the field since World War II. 

SHAYS:  Well, but...

MATTHEWS:  And we wonder—people wonder whether they have the fighting ability.

SHAYS:  Well, I’m not sure they do.

But give this administration credit for at least finding a way to engage the Europeans in something.  As someone told me, Europe has never had what they call an away game since Afghanistan. 

MATTHEWS:  Yes. 

SHAYS:  They have always depended on the United States. 

MATTHEWS:  Well, that’s a question.  Do you trust the blue helmets? 

Do you trust—do you trust Europe to fight our fights with us? 

REP. DEBBIE WASSERMAN SCHULTZ (D), FLORIDA:  I wish I shared my colleague’s enthusiasm for the bipartisan cooperation.  But, you know, the president has asked for—and we only have about 20 percent of the total funds committed to the war in Iraq and Afghanistan to what should be and should have remained the central front.

MATTHEWS:  You mean it’s getting the short end of the stick? 

WASSERMAN SCHULTZ:  Oh, completely.  And that is why there has been a resurgence of the Taliban.  I mean, that’s why we had a situation with the vice president last night. 

We have moved the focus from the place it should have been, where we really knew that al Qaeda was, to Iraq, where...

MATTHEWS:  OK.  Look, we have got a spring offensive coming up.

We just—Congressman—Congressman Shays, 10,000 troops from the Taliban forces, they’re al Qaeda, basically,  For all practical purposes, they are al Qaeda.  They are our enemy.

(CROSSTALK)

SHAYS:  Right. 

MATTHEWS:  They’re the people we knocked out back when the president promised, from 9/14 on, he was going to go get them for doing what they did to us in New York and Washington and Pennsylvania.

(CROSSTALK)

SHAYS:  Well...

MATTHEWS:  Are we going to keep—continue on that front, to be prosecuting that war against them, or have we let it—let them go too far? 

SHAYS:  Well, I think we should have been able to capture a number of the Taliban.  And we made some mistakes there. 

But—but Debbie and I do disagree significantly.  I think you could have hundreds of thousands of troops in Afghanistan, and we would end up like the Russians.  It’s not the kind of territory where you have roads.  You have to fly your troops by helicopter.  You have to march your troops in single file along passes.  So...

WASSERMAN SCHULTZ:  All the more reason why we shouldn’t have taken the focus off Afghanistan. 

SHAYS:  No.  No.

(CROSSTALK)

WASSERMAN SCHULTZ:  ... pulling our troops...

MATTHEWS:  No, but he says you’re arguing it’s number of troops. 

(CROSSTALK)

MATTHEWS:  Is it?

WASSERMAN SCHULTZ:  It’s focus.  It’s commitment.  It’s dedication. 

It’s funding.  It’s strategy.

Instead, we shifted the central focus from Afghanistan to Iraq and created...

SHAYS:  Those are all words, Debbie.  They’re all words.

WASSERMAN SCHULTZ:  They’re not words.  That is reality. 

The reality on the ground there is that there is a resurgence of the Taliban.  And—and now, instead of having the ability to...

MATTHEWS:  OK. 

WASSERMAN SCHULTZ:  ... continue to press on and find—find the—the—the people who actually perpetrated 9/11...

MATTHEWS:  OK.

WASSERMAN SCHULTZ:  ... our focus is in Iraq. 

MATTHEWS:  Let me try to use this partisanship, and—which is appropriate in America, to argue between the two parties.

Let me ask you this, Congressman Shays, about this partisan use the president is putting partisanship to.  He is warning, through Dick Cheney over there the other day, he warning the Musharraf government, if they don’t get tough enough with the Taliban, who are obviously holed up over there in Pakistan, behind the border, that the Democrats in Congress are going to cut them off.  In other words, the president is playing good cop to the Democrats’ bad cop. 

(CROSSTALK)

MATTHEWS:  Is it going to work?  Is it smart politics?

SHAYS:  Well, I mean, we do have to put pressure on Pakistan, because that is where the haven is. 

It is not in Afghanistan.  And, you know, I guess Debbie and I disagree on the fact I do think we have more agreement in Afghanistan than we do in Iraq.  And, my God, if we are losing agreement on Afghanistan, then we will really have problems. 

But we had—the Democrats had an opportunity to be bipartisan.  They could have brought forward a resolution supporting the Iraqi Study Group recommendations, three recommendations, the third saying there should be a real effort to have us engage the entire community, including Iran and Syria. 

And they would have had support for that. 

WASSERMAN SCHULTZ:  We—we brought forward a resolution that opposes, like the vast majority of this country...

MATTHEWS:  I hear today that we are beginning to call the—their neighbors into this discussion. 

SHAYS:  Well, and we should be.  And—and—but the point I am just trying to make is, why aren’t we using the Iraq Study Group that Democrats and Republicans both support?

WASSERMAN SCHULTZ:  Ask the president.

SHAYS:  Debbie, you’re interrupting me. 

WASSERMAN SCHULTZ:  Chris—Chris...

SHAYS:  Debbie, you’re interrupting me. 

WASSERMAN SCHULTZ:  Ask the president why we’re are not asking the Iraq Study Group, Chris.

(CROSSTALK)

SHAYS:  No, but what I’m asking the Democrats in Congress is, why not bring a resolution that Republicans and Democrats can both agree on?  We can support that.

And there are three recommendations: transfer the Iraqis to do the work that we are doing on the streets, have the Sunnis and Shias sit down, with consequence, and, finally, engage Iran and Syria.  I could support a resolution like that.  And so could a lot of other Republicans.

WASSERMAN SCHULTZ:  What we need to make sure we do, Chris, is, we need to make sure that we have the armor and the protection and the funding and the training for our troops that we are sending over there. 

We should not be escalating this war.  We should be making sure that we develop a plan and we press the president to develop a plan to eventually bring our troops home, and make sure that the Iraqis can stand up on their own and move forward with the democracy that we helped them create.

SHAYS:  Can I ask you a question?

WASSERMAN SCHULTZ:  That is on the president.  It is his responsibility. 

And Congress is finally, under Democratic leadership, pressing the president, and putting the accountability where it belongs, where you and your colleagues asked no questions and gave him a blank check for the last six years, which was absolutely inexcusable. 

SHAYS:  Well, you know, it’s strong, fierce words. 

But I have been direct 15 times.  I have had...

WASSERMAN SCHULTZ:  This is a strong, fierce situation, Chris. 

(CROSSTALK)

SHAYS:  I have had... 

(CROSSTALK)

WASSERMAN SCHULTZ:  And the American people, on November 7, insisted and voted to make sure that we could address what is going on in Iraq.  They are deeply, deeply concerned. 

(CROSSTALK)

MATTHEWS:  Let me ask you—let me ask you both...

(CROSSTALK)

SHAYS:  You got a great indication of how bipartisanship we will be able to be.  I’m trying to give a suggestion of a way to be bipartisan.

MATTHEWS:  Well, let me ask you about a problem.  This country has got some problems.  I sometimes worry about our country. 

SHAYS:  Right. 

MATTHEWS:  And, right now, I am worried about a few fronts. 

I’m worried about losing the war against the Taliban, because Karzai may be a real Viktor Lazlo good guy, but he apparently only is mayor of Kabul.

SHAYS:  Well, that’s true.

MATTHEWS:  And I worry about that.

SHAYS:  Yes. 

MATTHEWS:  I worry about the fact the countryside over there is being dominated by the opium dealers, because money talks, here or there.

SHAYS:  Right. 

MATTHEWS:  And, as long as there is a market for the drugs, as we know there is in the world, including here, people make a lot more money on that than they do on corn...

SHAYS:  Right. 

MATTHEWS:  ... when they’re growing corn.

Let me ask you about the market today...

SHAYS:  Sure.

MATTHEWS:  ... Congressman Shays.  You are up in Connecticut.  You are near the Wall Street situation. 

Is it the Chinese market drop of 9 percent that led to our drop of about 4 percent today?  Is it a cross—is it just a correction in the price of stocks? 

My guy, Dan Saunders (ph), I talked to him today at Wachovia.  I said, “What is going on?” Like everybody else in this business.  He said, it’s a correction.  He said, it’s...

(CROSSTALK)

MATTHEWS:  You know, we thought one was coming.

And the other concern is maybe that, you know, the former Fed Chairman Alan Greenspan, just by saying that word—I think in the old days, they used the word banana, rather than the word recession, so they wouldn’t say the word.  He said it. 

SHAYS:  Well...

(CROSSTALK)

MATTHEWS:  And, now that he said it, it’s out of the bag.

Is this going to bring more trouble in the next couple days?

SHAYS:  I got elected in ‘87.  In October, we had a drop of 20 points. 

That was disastrous. 

This is three-and-a-half points.  You have what in China I think is quite significant.  You have a market that was—was, many people think, well—it was well extended beyond what it should be. 

MATTHEWS:  Yes. 

SHAYS:  So, time will tell, Chris.  We will know tomorrow and the next day what it means. 

MATTHEWS:  Well, I’m hoping, as everybody who is in the market hopes, that the Chinese have a command over their economy.  And this is one time I want them to be what they are, which is dictators, and dictated only it should be 9 percent, because if gets any worse, we will get a lot worse. 

Anyway, thank you very much, U.S. Congressman Chris Shays...

SHAYS:  Thank you. 

MATTHEWS:  ... and Congresswoman Debbie Wasserman Schultz from down in Florida, where we all would like to be.

Up next:  What is going to happen with Iran?  “The New Yorker”‘s Sy Hersh is coming here with more about what this administration may be doing.  Maybe they’re pushing a war.  They get closer and closer to engaging the enemy on the Iranian front.

And, later, CNBC’s Jim Cramer on the day today on the stock market. 

You’re watching HARDBALL on MSNBC.   

(COMMERCIAL BREAK)

MATTHEWS:  Welcome back to HARDBALL. 

Investigative journalist Seymour Hersh reports in this week’s “New Yorker” magazine that the Bush administration is engaged in clandestine operations against Iran that have not only brought the United States closer to an open confrontation with that country, but may have also made us bedfellows with Sunni extremists sympathetic to al Qaeda.

How close are we to war with Iran?  And is the White House’s shift in Middle East strategy benefiting our enemies in the war against terrorism?

Sy Hersh, three big questions for you.  The first one is, back in 1940 and ‘41, President Franklin Roosevelt, rightly or wrongly—and many people think rightly—tried to engage the Nazi fleet in the North Atlantic.  He was hoping they would be stupid enough to shoot at one of our ships, and we could, you know, do what—like we did with the Lusitania back in World War I, and go to war with them.  They were smart to keep away from us.  It took Pearl Harbor to get us in that war. 

Are we trying do that with Iran right now, try to get them into a war with us? 

SEYMOUR HERSH, INVESTIGATIVE REPORTER, “THE NEW YORKER”:  A lot of people think so.  Nobody knows.

MATTHEWS:  Do you?

HERSH:  No, I don’t know.  I just don’t know.

We don’t know what the president really wants.  We don’t know what Dick Cheney really wants. 

But a lot of people in the system believe what they’re—what they have done, what I wrote about a little bit, is what they have is, they have increased the tempo of operations against Iran from Iraq, more cross-border stuff. 

And since the...

(CROSSTALK)

MATTHEWS:  When will that ignite Ahmadinejad into declaring war on us or beginning to attack our people, having a Gulf of Tonkin situation? 

HERSH:  I don’t think it will, because I think they won’t take the bait, because, as far as I know, they’re very...

MATTHEWS:  They don’t want to fight?

HERSH:  Well, why should you?  I mean, they are not going to win a war against us.  They will be pounded. 

And they are doing a lot of stuff—I didn’t write about it, but I have been told they are digging holes.  They’re putting their leadership in holes.  They are getting ready to dig deep holes.  They are preparing for a war.  They are reinforcing some of their buildings.  They are moving—all the sensitive nuclear stuff is out of the main place and into downtown Tehran. 

MATTHEWS:  Is it your assessment, talking to the military people you do, that we could strike at their military, at their nuclear facilities, if we wanted to? 

HERSH:  Sure.

MATTHEWS:  So, we could strike and hit them?

HERSH:  Sure.  We could destroy—there’s a place called Natanz. 

It’s underground.  We might have to hit it with an awful lot of stuff, because it’s 70 -- 50 or 70 feet underground. 

MATTHEWS:  So, if President Bush decided one night, I’m going to leave this—this term, my second term as president, my legacy will be not an incomplete war in Iraq, but a removal of the nuclear threat from Iran, he could do it? 

HERSH:  I think they really believe that is the biggest threat going.  They think—as far as they’re concerned, Iran is going to get or has the bomb, no matter what the intelligence says, and it will be delivered by Hezbollah, the Lebanese Shia party.  And they have contacts in America...

MATTHEWS:  Delivered by...

HERSH:  Hezbollah.  They believe in the White House that Hezbollah—as somebody said to me, Hezbollah’s the brown shirts of the Iranian operation.  Hezbollah has an ability to reach into America with cells here and do what al Qaeda did in 2001, get a device from Iran and lift it off and...

MATTHEWS:  You mean an actual nuclear event.

HERSH:  They believe they’re saving us from that.

MATTHEWS:  An actual bomb?

HERSH:  The think the threat is here.  I know that sounds sort of off

the wall, but that’s what they’re—that’s what the president -- -

MATTHEWS:  Well, I know that’s what Tony Blair’s afraid of, too.  I mean, he’s afraid of a combination of terrorism and a nuclear weapon.  Are you?

HERSH:  No.  I think it’s loony.  There’s no intelligence to support the fact that either Iran is close to a bomb or that Hezbollah has anything significant here in this country.

MATTHEWS:  Who says Hezbollah’s been at war against the United States?  (INAUDIBLE) obviously struck us before, but aren’t they primarily against Israel?  That’s what they do.

HERSH:  Well, they hit Israel with—they were involved in some of this—supporting the terror bombing very early.  But you know, they haven’t done—it’s been a long time since...

MATTHEWS:  (INAUDIBLE) hit our Marines back in ‘83.

HERSH:  That was ‘83.

MATTHEWS:  We were the back-up (ph).  We were there, going after them, basically.

HERSH:  We’d been shelling Lebanon for weeks with our fleet, so you know, that’s slightly different.  But the...

MATTHEWS:  How do—let me ask you about the big question.  Do you think we’re going to war with Iran in the next two years?

HERSH:  How do I know?  Come on.

MATTHEWS:  Well, you’re doing all this research.

HERSH:  I don’t think the president will leave office without dealing

with Iran in some way.  And I think they think they can maybe—they can

shake—they’re putting a lot of squeeze on them economically, but that’s

I don’t think that’s going to work.  And I think they maybe think they can scare them into something, but that’s not...

MATTHEWS:  But Cheney’s always putting the gun back on the table.  He always says, Everything’s on the table, meaning the gun’s on the table.  We’re going to bomb those guys.  If it gets down to the final weeks of this administration and economic sanctions don’t work and diplomacy doesn’t work, will they say goodbye to the American people, give the power of the presidency to someone else, without dealing with the nuclear threat from Iran?

HERSH:  I’m giving you opinion.

MATTHEWS:  OK.

HERSH:  They wouldn’t wait that late because it’d already be close to an election.  They don’t—they want the Republicans to hang in there somehow in ‘08.  If he doesn’t anything, he’ll probably do it this year.

MATTHEWS:  And that would be helpful to the Republican candidate, whoever it is.

HERSH:  No.

(LAUGHTER)

HERSH:  Of course not.  Nothing they do is helpful to the Republicans. 

I mean, every day, they must be shrieking.

MATTHEWS:  You said something interesting.  Do you believe that this president really wants to hold onto the White House for the Republicans, or he’d rather, like, turn it over to Hillary or an Obama and then elect a kick (ph) and get it back in four years?

HERSH:  Hey, you’re asking those questions about which...

MATTHEWS:  OK, let me ask you...

(CROSSTALK)

MATTHEWS:  ... question about psychology, or philosophy.  This administration seems to be focused on fighting Iran.  As you say, it’s the number one threat.  Well, then, why did we turn over Iraq to the Shias, who are allied with the Iranians?  Why did we do the one thing they most wanted, give them a neighboring state?

HERSH:  Because the neoconservatives from the beginning of the war wanted to dismantle the Ba’athist Party, the Sunni Ba’athist Party.  They wanted to get rid of anything connected to Saddam.  They wanted to get rid of the military.  They...

MATTHEWS:  But they knew that the majority of voters in a democratic society would call the shots.  That means the Shia.

HERSH:  They believed that because of the war between Iraq and Iran in

the 1980s, that the—that the Shia from Iraq would stay loyal, they hated

Iran because they all died and fought against each other.  And what they’ve

done now, as I was writing about—now we’re in business (ph), we’ve

expanded this to go and support the Shia—we’re going against the Shia in

all over the world now.doing business, we have expanded to go support the Shi’ites all over the world.

MATTHEWS:  What’s your biggest worry in the world?  Is it Iran?  Is it this administration going to war with Iran?  Is it a civil war in Iraq?  Is it Musharraf’s inability to fight the Taliban in his own soil?  What’s your biggest worry?

HERSH:  George Bush.

MATTHEWS:  OK, thank you very much, Sy Hersh of “The New Yorker.”  He’s got another huge story there about the Iranian situation.  He’s always fascinating because he’s always right.

Coming up next, The CEO of John McCain’s presidential exploratory committee, Rick Davis, the ramrod of the campaign.

You’re watching HARDBALL on MSNBC.

(COMMERCIAL BREAK)

MATTHEWS:  Welcome back to HARDBALL.

What would it take for Al Gore to jump into this race for president?  What have we learned today about Mitt Romney’s strategy?  And has the Clinton campaign figured out how to deal with Bill?  These questions and more for Rick Davis, this CEO of the McCain exploratory committee—it sounds like something out of “Star Trek”—and a Democratic activist and all wise person, Hilary Rosen.

Hilary, let me ask you this about a couple things.  First of all, it turns out that Mitt Romney today has had a memo released to the public—not of his own volition.  And one of the things they’re going to do is try to turn Hillary into French.  They’re going to say somehow they’re running a chauvinist against the Europeans.  They’re corrupt and they smell and all this, and Hillary’s part of that problem.  Is that too crude to be true?

HILARY ROSEN, DEMOCRATIC STRATEGIST, MSNBC POLITICAL ANALYST:  It’s too—it’s too crude to be serious.  It’s laughable.  I think...

MATTHEWS:  Well, what are they thinking about, this ridiculous French fries thing we went through a couple years ago—are we going that way again?

ROSEN:  Well, you know, if people try the sort of the xenophobia routine, it’s the Republicans who are going to end up losing because the Republicans are the ones who so alienated the rest of the world, and all you’ll do is remind people that the president has made an enemy of the rest of the world.  That—I just don’t think...

(CROSSTALK)

ROSEN:  The more interesting thing...

MATTHEWS:  It’s a memo!

(LAUGHTER)

ROSEN:  No, the more interesting thing about this memo...

(CROSSTALK)

RICK DAVIS, CEO, MCCAIN EXPLORATORY COMMITTEE:  The first ounce of blood hasn’t been spilled on the...

(CROSSTALK)

ROSEN:  ... of John McCain and...

DAVIS:  I don’t think I’d—I don’t think I’d advise...

ROSEN:  ... Rudy Giuliani.

DAVIS:  ... John McCain to be anti-French.

MATTHEWS:  The year of the French and...

(CROSSTALK)

DAVIS:  When the xenophobia cropped up, John, you know, gave a floor speech, talked about how these are our allies since World War II, they fought shoulder to shoulder with us.  They are allies ongoing.  We need all the friends we can have in the world.

But you know, this—look, it’s a memo.  Nobody’s attacked anybody on the French field.  I mean...

ROSEN:  Well, but the good part about the memo is that...

DAVIS:  You’re debating what’s going to happen...

ROSEN:  The one thing...

(CROSSTALK)

ROSEN:  ... talking about how, you know, McCain and...

(CROSSTALK)

MATTHEWS:  ... think we’re crazy.

DAVIS:  Absolutely.

MATTHEWS:  There’s a memo that got leaked today from the Romney forces that one of the things he’s going to try to push, besides the fact he’s got to deal with the fact he looks too good—that’s another concern he’s got...

ROSEN:  Yes, I loved that.

MATTHEWS:  We should all have that problem.  And then the other thing is he’s going to try to make Hillary look like she’s part of the Europe deterioration of America.  In fact, there’s one line where it says, Hillary equals...

ROSEN:  Equals French.  Right.

MATTHEWS:  ... French.

(LAUGHTER)

MATTHEWS:  Does this stuff work, this dog whistle stuff?

DAVIS:  Well, what I don’t understand is why we’re even talking about it.

MATTHEWS:  OK...

(CROSSTALK)

DAVIS:  I mean, it’s a memo.

(CROSSTALK)

MATTHEWS:  ... in the hopes that Romney will never do that, he’ll never start (INAUDIBLE) Let me ask you about Hillary and—what did you think of Hillary’s rapid-fire response to the discussion about Bill this last week?  Rapid-fire, right off the bat.  She’s just blew away.  In fact, Hillary—we found an old quote from her saying—not you, Hilary, the other Hillary, although you can join her—that—she (INAUDIBLE) to deck any opponent that criticizes (INAUDIBLE)  Well, she tried to deck Obama when he went after—his buddy went after Bill Clinton’s lifestyle issues.

DAVIS:  Yes, I think that part of what we learned in the 2006 election is that people want a different kind of politics.  I mean, they’re really trying, I think, to reject this, you know, duke it out this early kind of warfare.  And I think that was Obama’s line, is that, Look, I really didn’t want to get trapped into this kind of byplay.  It’s classic Clinton technique.  I mean, you know, don’t let a minute go by where you let somebody’s charge go unresponded to.  And if you have to respond, respond in twice the fierce...

MATTHEWS:  So that’s going to be your guy’s attitude, his MO.

DAVIS:  Oh, no.  I’m not...

MATTHEWS:  No attacks on the other candidates.

DAVIS:  I mean, John McCain doesn’t attack other candidates.  I mean, you—you never see him talking about people in a partisan fashion.  He debates the issues...

ROSEN:  Well, he’ll get it.

DAVIS:  ... and he thinks...

ROSEN:  He will.

DAVIS:  He thinks that—he thinks that that’s what the public is looking for, is a real debate, not one that’s charge, countercharge...

MATTHEWS:  OK...

(CROSSTALK)

DAVIS:  Does anybody know what the fight was about?

MATTHEWS:  ... speaking for John McCain, do you hereby say on his behalf that it was wrong on the Obama people to bring up Bill Clinton’s lifestyle issues?

DAVIS:  No, we’re not going to get into the Democratic primary fight at all.

MATTHEWS:  In other words, you’re going to...

(CROSSTALK)

ROSEN:  He’s going to reserve his options for...

MATTHEWS:  Let’s take a look at this numbers.  I find polling fine (ph).  I like the Zogby poll.  It’s—all polls are polls, but fascinating.  Obama beating Giuliani by 6 points, Giuliani beating Hillary.  So it doesn’t work the same way.  Obama’s beating McCain, your guy, by 4 points.  Hillary loses—loses to McCain.  Why’s Obama a stronger candidate right now, this day—these polls have been taken by over a thousand likely voters—pretty good poll, I would say.  Why’s Obama doing so well against the Republicans mano a mano, Hillary is only beating—only beating, according to this poll, Romney?

DAVIS:  Look, I think that it’s like bacon in the skillet.  It’s sizzling.  And when it sizzles, it’s hot and it smells good.  You take it out, you put it on the table, and it cools off.  Obama has definitely got the sizzle.  I mean, everybody’s talking about Obama.  It’s a phenomenon of politics.  This is the way we play the game now.  I mean, people get hot and people get cold.  His test is not going to be where the polls are today but where the polls are 10 months from now.

MATTHEWS:  You’re saying it’s all sizzle and no steak?

DAVIS:  I don’t know.  He’s got to convert it.  I mean, the good politicians can take sizzle and turn it into steak...

MATTHEWS:  Look, I know a lot of politicians, and so do you, without any sizzle at all.

(CROSSTALK)

MATTHEWS:  And they’ve been pretty good people.

DAVIS:  I’m not saying everybody gets to sizzle...

(CROSSTALK)

MATTHEWS:  Walter Mondale was a great American.

DAVIS:  Right.

MATTHEWS:  No sizzle.

ROSEN:  OK, you’re talking about...

MATTHEWS:  There’s a lot of people...

ROSEN:  ... two people who’ve now lost...

MATTHEWS:  Right.  I know.

ROSEN:  ... the presidential race.

MATTHEWS:  You usually lose if you don’t sizzle, by the way, I’ve noticed.

ROSEN:  You absolutely lose in this day and age without the sizzle.  I actually agree with Rick.  I think that...

DAVIS:  Uh-oh!

(LAUGHTER)

ROSEN:  We’ve got a year ahead of us.  This looks sexy.  This looks fun.  But the—you know, the tortoise is going to win this race, not the hare.  And I think that that’s where Obama is right now.  Who knows where Obama verses anybody else is going to be.

DAVIS:  Are you calling Hillary a tortoise?  Is that what...

ROSEN:  It’s going to be the person who can sustain both the attacks and the issues over a long period of time.  That’s one of the reasons why I think fighting—your strategy of only fighting back as your strategy...

MATTHEWS:  Yes.

ROSEN:  ... ends up losing you people instead of thinking—taking the high ground once in a while and not just only fighting.

MATTHEWS:  I love the way you smile.  I’m just thinking, is Bill Clinton going to stop trying to play Holly Golightly up in New York.  I’m just wondering when he stops that, if he’s doing it, she’ll be better off.

Anyway, thank you, Hilary.

ROSEN:  Holly Golightly!

MATTHEWS:  Hilary.  Thank you, Rick.  I lost my Teleprompter.

DAVIS:  Thank you.

MATTHEWS:  We’ll be right back with more HARDBALL.

(COMMERCIAL BREAK)

MATTHEWS:  Welcome back to HARDBALL.

What did trigger that 400-point plunge on the Dow today, and what does it mean for the market and investors tomorrow?  Jim Cramer’s the host of CNBC’s “Mad Money” and the author of “Jim Cramer’s Mad Money: Watch TV, Get Rich.”  By the way, CNBC broke that story today about a technical glitch that helped complicate that sell-off today.

Jim, was it worse than it should have been?

JIM CRAMER, HOST, CNBC’S “MAD MONEY”:  Yes, the...

(CROSSTALK)

MATTHEWS:  ... market conditions?  In other words, it’s not real, maybe?

CRAMER:  Chris, there were 200 points that should not have happened.  They happened between roughly 2:55 and 3:02.  The machines that run the market now can have kind of a T-2 terminator approach at times.  They just had that happen.  I liken it to the blackout that we had that started in Ohio, then spread to the East.  It turned out just to be one machine problem.  We had that today.

MATTHEWS:  Well (INAUDIBLE) how it works.  Is there, like, automatic machines that sell your stock when the market starts to drop?  Is that what’s going on?

CRAMER:  Well, there are automatic machines that can sell billions of dollars worth of stock, and that could happen.  That’s what my sources indicate.

Now, look, it was—you can’t get that situation unless you already have something going down, and we had that because China was down almost 10 percent.  Remember the new world that we’re in, Chris.  China is a little more important for markets than we are at times.  When China sneezes, we now are the guys that get the cold.

MATTHEWS:  So we’re sleeping with an elephant.  Right.

CRAMER:  Indeed.  And I’ve got to tell you, when it comes to a lot of the products that are bought worldwide, they end up in China.  Classic example, copper.  They use 30 percent of the world’s copper.  We use 10 percent.  Ten years ago, we used 30 percent and they used 10 percent!

MATTHEWS:  Does this have anything to do with the fact that we sell so much paper over there, that we have borrowed so extensively from China?

CRAMER:  Not in this particular case, but it’s absolutely true that we do.  The Chinese are trying to cool their own market.  I know that they did not intend what happened in reaction.  I know our market was headed toward a not a great day, roughly what was Europe was down, a couple percent.  And then the machines went haywire.

In 2001 after 9/11, in 1987 after the crash, if you looked back three months later, you wish you bought something, not sold something.  I don’t think this is going to be that different.

MATTHEWS:  Well, that’s the analysis.  What’s the forecast?

CRAMER:  Well, you know, I think we’re going to have a couple days where people are going to say, Wait a second.  I thought this was like cash.  I thought this market was under control.  Get me out!  I bought at 7,000.  I bought at 9,000.  We’re at 12,000.  I’m happy to ring the register.  We need to see those people get scared out before we find our sea legs.

MATTHEWS:  You mean people are just approaching retirement or in retirement or—are saying to themselves, I’ve got enough gain here to last me.  I’m not going to risk losing what I need.

CRAMER:  Well, a lot of times, people get carried away.  I preach both diversification, and as you get older, owning some bonds, which by the way, were screaming up today, meaning interest rates going down.  But a lot of people, I think, just—you know, most of the Baby Boomers, Chris, we know, they’re living to (ph) 120.  And those people have yet to be able to take anything off the table.  It’s not as we’re as complacent as we were in 2000.  But I think it’s reasonable to think that there was an element of greed that got the big wake-up call today, and those people are going to get chilled and do some selling.

MATTHEWS:  Well, that’s because you constantly bump into somebody 25 years old who tells you they’re getting huge returns on investment, huge annual salaries or incomes.  And you go, Where’s all this money going?  I want to get a piece of that.  I mean, it does bother you to hear that you’re doing something reasonable and sane, like you describe, diversifying your investment.  And then you hear that somebody out there’s making a killing, you say, I want to get a piece of that.  Is that what’s going on, that greed?

CRAMER:  People call me all the time on “Mad Money,” and they are loaded to the gills with the hottest stocks possible.  And when I come in and I preach something like diversification or maybe own some dividends, I know what they’re thinking.  Hey, what is that old guy doing?  I mean, you know, he used to be one of us.  Well, no!~  I’m a guy who has made money and lost money.  You lose money when you’re all concentrated.  You lose money when you don’t have dividends.  You lose money when you’re buying expensive stuff.

Chris, we talked just—we were on the show last Sunday.  There’s a lot of people who became reckless under the guise of prudence.

MATTHEWS:  OK, we’ll be right back with Jim Cramer with more about what happens tomorrow.  I want to ask about Alan Greenspan and about his statement earlier this week using that terrible word “recession” and whether it’s really coming or not.  People tell me it’s not, Greenspan’s wrong.

You’re watching HARDBALL only on MSNBC.

(COMMERCIAL BREAK)

MATTHEWS:  Welcome back to HARDBALL.  We continue with the host of CNBC’s “Mad Money,” the author of a hot new book, “Jim Cramer’s Mad Money:

Watch TV and Get Rich.”  Jim Cramer, they’re watching us now.  I want you to explain this as simply as you can to the people that are watching.  You mentioned in your article today that back in ‘87, we developed some stabilizers that are supposed to prevent some explosive reaction by the market to something that should be more limited in terms of its economic impact.  How did those stabilizers fail today to restrain the big loss on the Dow?

CRAMER:  I think the stabilizers only work, Chris, when there is a human being who’s looking at them and being sure that they are acted upon.  This is supposed to be like a Taft-Hartley cooling-off period.  It didn’t work.  There will be an investigation.  We will discover that there were a couple of machines that went awry.  But mostly, what we’ll discover is, is that market’s more fallible than we thought.

I do not believe that there was a major, major seller.  I think there was someone who meant to sell something, and there was a computer—a keypuncher that allowed that order to be much bigger and magnified the sell-off.

MATTHEWS:  Let me ask you about the healthy economy.  Where are you in terms of the outlook?

CRAMER:  I think things are good.  I think that the economy is slowing a tad, but that’s OK.  I believe that the Federal Reserve is going to have to wake up and start cutting interest rates because the poor people in this country are having a hard time getting loans because of the problems in the mortgage market.

MATTHEWS:  Does Paulson (ph) know that?  Does he know that he has a response requirement to regular people, not just to...

CRAMER:  Does Bernanke know?

MATTHEWS:  ... the fear of inflation—Bernanke.  Right.

CRAMER:  I think that he’s trying to figure that out.  I think that there is a perception among this—in this new Federal Reserve to be a little more clinical and not as much heart (ph).  I think that that is going to have to change because we have a system now where if you’re not making a lot of money, it’s going to be very hard for you to get a mortgage.

MATTHEWS:  Why is the Federal Reserve always more anti-inflation than anti—than worried about too much unemployment?

CRAMER:  Well, it’s interesting.  It was set up 100 years ago to meet a panic, to be able to make it so we didn’t have panics, and now it’s gotten very antithetical to that mission.  But I think that there’s a bias which says, If we keep inflation in check, as people get older, their money will be worth something, and isn’t that better than trying to put a lot of people to work with lower rates?

It is a protection example, a capital preservation Federal Reserve, not a capital appreciation Federal Reserve.  Very good if you’re on a fixed income, not so good if you’re looking for a job.

MATTHEWS:  Last question, back where we began.  China, the—what we used to call the gerontocracy that runs China—it’s not a gerontocracy anymore.  They’re pretty hot in terms of their age and their experience and their business acumen.  Can they control their market so that the loss over there of 9 percent will hold, it won’t go any deeper?

CRAMER:  I believe they can.  In the end, they are not a capitalists country.  They are a communist country, where the market is run by them ultimately...

MATTHEWS:  That’s the good news this time around, isn’t it.

CRAMER:  Yes.  Look, they can stop it.  I mean, it’s not Mao, OK, but it’s a bunch of guys who understand the damage they can cause, and they don’t want to do it.  They’ll stop the decline very quickly.

MATTHEWS:  When they see that the New York stock average—or rather, the Dow- Jones dropped 400 points today, will they say, We over did it?  We better...

CRAMER:  Absolutely.

MATTHEWS:  ... go the other way?

CRAMER:  Absolutely...

(CROSSTALK)

MATTHEWS:  So we could have a hell of a morning.  So sometime around midnight, or whenever China opens or whatever, we could have a really good bit of news coming from over there.

CRAMER:  That’s why I’m telling people to buy, not sell, Chris.

MATTHEWS:  Well, you know, I like that clarity.

CRAMER:  Absolutely.

MATTHEWS:  And they should buy your book...

CRAMER:  Thank you very much.

MATTHEWS:  ... which is entitled “Mad Money:Watch TV, Get Rich.”  I like it.  Jim Cramer...

(CROSSTALK)

MATTHEWS:  You know why I like you, Jim?  Because you make me seem calm.

CRAMER:  Well, you know, look, in the end, we’re from down the block from each other, Chris, so we probably drank the same water.

MATTHEWS:  I know.  In Philly, we talk fast.

CRAMER:  You bet we do.

MATTHEWS:  And we say “watta”—we don’t say “water,” we say “wawter.” Anyway, thank you very much, Jim Cramer...

CRAMER:  Thank you, Chris.

MATTHEWS:  Play HARDBALL with us Wednesday.  We’ll have the latest on Scooter Libby’s trial, if it ever ends, and what Congress is going to do next on Iraq, if they ever get to it.

Right now, it’s time for “TUCKER.”

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

END    

Copy: Content and programming copyright 2007 MSNBC.  ALL RIGHTS RESERVED.  Transcription Copyright 2007 Voxant, Inc. (www.voxant.com) ALL RIGHTS  RESERVED. No license is granted to the user of this material other than for research. User may not reproduce or redistribute the material except for user‘s personal or internal use and, in such case, only one copy may be printed, nor shall user use any material for commercial purposes or in any fashion that may infringe upon MSNBC and Voxant, Inc.‘s copyright or other proprietary rights or interests in the material. This is not a legal transcript for purposes of litigation.

Watch Hardball each weeknight at 5 & 7 p.m. ET

Discuss:

Discussion comments

,