updated 5/14/2007 12:40:22 PM ET 2007-05-14T16:40:22

Guests: Ron Christie, Ron Brownstein, Karen Tumulty, Eugene Robinson, Michael Beschloss, Robert Hormats

CHRIS MATTHEWS, HOST:  Bad news for Bush.  A top general says things are going badly in Iraq.  Republicans warn him the war is killing the party at home.

Let‘s play HARDBALL.

Good evening.  I‘m Chris Matthews.  Welcome to HARDBALL.  Republicans dominate the national spotlight today, President George Bush under political pressure from his own party on the war in Iraq.  Looks like he‘s ready to compromise on some form of benchmarks for success with the government in Iraq.  New reports now that Karl Rove, the president‘s top political adviser, went ballistic that Tuesday‘s meeting between moderate Republicans and the president was leaked to the press.  But is Rove now the architect of disaster for the Republican Party?  And Republicans running in 2008 are dominating the news today.  Mitt Romney is “Time” magazine‘s cover boy this weekend, and the top newsmaker this Sunday on “60 Minutes.”  Rudy Giuliani, by the way, under attack from the right for his remarks on abortion at the Republican debate last week, today addressed his position in a speech to the Houston Baptist University.

(BEGIN VIDEO CLIP)

RUDOLPH GIULIANI ®, FMR NYC MAYOR, PRESIDENTIAL CANDIDATE:  In a country like ours, where people of good faith, people who are equally decent, equally moral and equally religious, where they come to different conclusions about this, about something so very, very personal, I believe you have to respect their viewpoint and give them a level of choice here.

(END VIDEO CLIP)

MATTHEWS:  The conservative editors of “The Wall Street Journal” note that the right-wing attacks on Giuliani are, quote, “just what the Republicans don‘t need, another abortion brawl.  But if the GOP wants to lose in 2008, they should keep this up.”  That‘s “The Wall Street Journal‘s” editorial page talking.

Tonight, we‘ll dig into all the politics of 2008 and look into the showdown over the war in Washington.  We begin tonight with HARDBALL‘s David Shuster.

(BEGIN VIDEOTAPE)

DAVID SHUSTER, HARDBALL CORRESPONDENT (voice-over):  Despite the U.S.  troop escalation, Iraqi officials say the violence in Baghdad is again on the rise.  And now it also appears to be getting worse in northern Iraq.  In Diyala province, suicide bombings are up and eight U.S. troops have been killed there in the last week.  Today the U.S. general in charge of the region said the Iraqi government deserves blame.

MAJ. GEN. BENJAMIN MIXON, CMDR., MULTINATIONAL FORCES IN NORTHERN

Iraq:  In a nutshell, it is the bureaucracy in Baghdad.  The ministries move too slow to provide support to their security forces, and also in the area of providing support for the governors.  It is getting better, but it‘s way too slow.

SHUSTER:  General Mixon called the work of Iraqi forces protecting oil and electricity lines minimal, at best, and he said the Iraqi government in Diyala province is “non-functional.”  The grim assessment and the striking candor from the general came one day after he and his troops received a pep talk from Vice President Cheney.

The Bush administration is getting squeezed on Iraq from all sides, and now the Iraqi parliament, which is planning to take a two-month recess, is delivering another blow.  A majority of the members have signed a draft bill that would freeze the current U.S. troops levels and require a timetable for a U.S. withdrawal.  Meanwhile, in Washington Thursday night...

UNIDENTIFIED MALE:  On this vote, the yeas are 221, the nays are 205.

SHUSTER:  ... the House of Representatives passed a war funding measure for the year that would provide part of the money now, the rest in two months, if Iraq shows progress.

REP. JOHN MURTHA (D), PENNSYLVANIA:  We need to get our troops out of the killing zone.  We‘ve lost more people in the last four months than we lost any other four months in the entire war.

SHUSTER:  Some of the violence is being carried out by al Qaeda forces in Iraq, and Republicans argue that battle makes it all worth it.

REP. DAN BURTON ®, INDIANA:  They want to destroy us, remember? 

They‘re in charge of the military operation over in Iraq now, remember?  And you want to withdraw.  If you don‘t fight them there, where are you going to fight them?

SHUSTER:  Democrats pointed to the border between Afghanistan and Pakistan, where Osama bin Laden is still based and trained his followers for 9/11.  Others lawmakers argue that four years into the war in Iraq, it‘s time to hold the Bush administration and the Iraqi government accountable.

REP. STENY HOYER (D), MAJORITY LEADER:  The Iraqi parliament must not go on vacation while American men and women are fighting and dying for them.

MATTHEWS:  The House bill faces huge hurdles in the Senate and the promise of a Bush veto.  And today, on board an aircraft carrier, Vice President Cheney.

RICHARD CHENEY, VICE PRESIDENT OF THE UNITED STATES:  And I want you to know that the American people will not support a policy of retreat.  We want to complete the mission.  We want to get it done right, and then we want to return home with honor.

SHUSTER (on camera):  But polls show most Americans support a withdrawal and say U.S. forces have already been honorable.  For the troops, however, despite all the political arguments and developments this week, nothing has really changed.  The violence in Iraq continues, and U.S.  forces remain in harm‘s way, with no end in sight.

I‘m David Shuster for HARDBALL in Washington.

(END VIDEOTAPE)

MATTHEWS:  Well, that was a brutal report from David Shuster.  I‘m joined right now by “Time” magazine‘s Karen Tumulty, Ron Brownstein of “The LA Times” and Gene Robinson of “The Washington Post.”  We got a great trio here.

You wrote an amazing cover...

KAREN TUMULTY, “TIME” MAGAZINE:  Thank you.

MATTHEWS:  ... this weekend.  I just saw it and read every word of it, on Mitch Romney—Mitt Romney.  Just getting used to this guy~!

(LAUGHTER)

MATTHEWS:  Ron Brownstein is the young dean of political reporters in this country, with “The LA Times.”  And Gene—I can‘t give you an appropriate—you‘re too close a colleague here, but you‘ve been writing some great columns.

You start, Gene.  This is a bad day.  As they used to say in “The Life of Riley (ph),” “a revoltin‘ development.”  Not only is the Iraqi parliament, upon which all else exists over there because they‘re supposed to meet these benchmarks and get some things done in terms of distributing the oil money and dividing up power between Sunni and Shia and Kurd, they‘re taking a two-month recess, and apparently moving a bill before they leave which tells us to leave.  What do we make of this?  Could it get worse?

EUGENE ROBINSON, “WASHINGTON POST”:  I‘m not sure it could.  I mean, you know, let‘s take them at their word, I guess.  You know, their parliament said...

MATTHEWS:  We won!  Leave!

ROBINSON:  ... we should leave.

MATTHEWS:  Yes.

ROBINSON:  Our Congress says we should leave.  Opinion polls say we should leave.  So I guess we should leave.

MATTHEWS:  If they don‘t let us stay, I guess we‘re not really there as a friendly power.  We might say we‘ve invaded them, the government over there.  Ron Brownstein, if they tell us to leave, don‘t we become the insurgents?

RON BROWNSTEIN, “LA TIMES”:  Yes.  If they tell us to leave, it will be very difficult for the president, but it‘s not clear it‘s going to get to that point.  What‘s even more interesting to me is what‘s happened at this end, where you see the Democrats in the House—and I think even in the Senate—are showing a willingness to confront Bush on this that vastly exceeds what anybody would have expected even six months ago.

(CROSSTALK)

MATTHEWS:  ... votes last night for, basically, Get out.

BROWNSTEIN:  Right now.  Extraordinary.  Even more extraordinary that after the veto, Democrats from tough districts were willing to send Bush another bill that was equally noxious to him, that they‘re sure he‘s going to veto again.  And I don‘t think they—they‘re not ready for unconditional warfare, in the sense that they‘re not willing to use the ultimate weapon of cutting off funding for the troops.  But they seem to be totally comfortable with unrelenting warfare.  And at the moment, it‘s the Republicans who are showing more nervousness about this trajectory than the Democrats.

MATTHEWS:  My question is, what cuts ice with the president, the fact that he may see the fall of the Republican Party a la 1932 under Hoover, that he may not have a single candidate behind him come next year, even McCain might break with him, or that he may lose some votes on the floor?  What‘s he afraid of, if anything?  It doesn‘t seem like he‘s afraid of anything.

TUMULTY:  Well, I think the one message he did get from the group of moderate Republicans who went to talk to him this week is that the longer this goes on, the more of their votes he‘s going to lose.  He lost...

MATTHEWS:  So do you think that scares him?

TUMULTY:  I think it does because he knows that his hand at this point weakens, again, the longer this goes on, the fact that there were...

MATTHEWS:  Karen, you and I have known each other a long time, too long to talk about.  You know the president is commander-in-chief.  He doesn‘t need anymore authorizations.  He‘s got the war authorized.  You can‘t un-authorize it.  The toothpaste is out of the tube.  What does he need from Congress right now that he‘s afraid he might not get?

TUMULTY:  What he needs is something that looks like a united strategy, something that brings in public opinion...

MATTHEWS:  Oh, he needs that?

TUMULTY:  ... and brings some sort of political force behind it.

MATTHEWS:  Gene, do you buy that, that he needs public opinion?  He‘s been operating like Harry Truman in the early ‘50s now, with—you know, Truman left office at 23 percent.  He wants to have David McCullough come along in 20 years and declare him a great president.  So all this bad news politically simply hardens him, arms him to the notion that he‘s in the bunker, but he‘s a greater man than everyone around him.  It seems to me the worse news gets, the more he‘s convinced he‘s a hero.

ROBINSON:  Right.  I‘m sure he would love to have public opinion on his side.  He doesn‘t, and he hasn‘t for a while.  And I‘ve never seen anything that indicates to me that George Bush has second thoughts about his course in this war, second thoughts about what he perceives to be the need for American troops to remain in this war through his presidency.  And that‘s where I think our troops will stay.

And you know, I mean, he doesn‘t want Congress to cut off the funding, but I think he feels he can, you know, accept benchmarks, non-binding benchmarks or something like that, that—you know, that kind of forestalls the kind of nuclear option that would create problems for him.  Otherwise, I think he‘s committed to this to the end.

BROWNSTEIN:  You know, I think they have—for a long time the president, as you suggested.  I mean, he views the lack of consensus as an indication of his willingness to make hard choices.  It‘s sort of the more opposition you get, the more it validates your tenacity and political resolve.  This is a president who responds to force, not to arguments.  If they have the power to force him to change course, he will move.  But until that happens, I don‘t see it.

MATTHEWS:  I don‘t know how they stop him.

TUMULTY:  I think, though, he did begin to show some flexibility this week for the first time on this idea of benchmarks.

MATTHEWS:  I know he did.

TUMULTY:  And I think putting General Mixon out there with those comments that we just heard in David Shuster‘s report is suggesting that they are going to be looking at something that might actually have some sanctions on the Iraqi government.

MATTHEWS:  Well, time‘s flying right now.  We got to take a break.  Here‘s—by the way, we‘re going to take a break right now.  We‘ll be right back with more in a just a moment, with more HARDBALL.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

GIULIANI:  In a country like ours, where people of good faith, people who are equally decent, equally moral and equally religious, where they come to different conclusions about this, about something so very, very personal, I believe you have to respect their viewpoint and give them a level of choice here because I think, ultimately, even if you disagree, you have to respect the fact that their conscience is as strong as yours is about this and they‘re the ones that are most affected by it.  So therefore, I would grant women the right to make that choice.

(END VIDEO CLIP)

MATTHEWS:  Finally, a candidate without round heels.  There‘s a candidate defending his position which doesn‘t sell with a lot of people in his party.  That‘s, of course, Rudy Giuliani in Houston today, defending his pro-choice position.

We‘re back with “Time” magazine‘s Karen Tumulty, Ron Brownstein of “The LA Times” and Eugene Robinson of “The Washington Post.”

Ron, what do you make of that?

BROWNSTEIN:  Well, you know, if you look at Rudy Giuliani on abortion, on guns, on a series of social issues, he‘s lurching toward a position that makes intellectual sense.  He‘s basically arguing for a federalism solution, allowing these issues to devolve to the states and letting states set different courses.  Now, he‘s having trouble articulating that so far.  In the debate that you did last week, he really struggled with an answer about Roe.  But he is ending up in a place that has something that holds it together, not unlike, by the way, what Howard Dean was saying about guns in 2004, let different states go their own way, and maybe that‘s the way to...

MATTHEWS:  Very Jeffersonian...

(CROSSTALK)

MATTHEWS:  Very Jeffersonian for the Republican Party, but it sounds like it might sell with businesspeople downtown who go to meetings.  I don‘t know if it will sell to the church people.

TUMULTY:  I think the—there‘s one reason that this is a potentially tenable strategy in a Republican primary, and that‘s February 5, the fact that so many moderate, large...

MATTHEWS:  Name the states.

TUMULTY:  California...

BROWNSTEIN:  California‘s not a moderate Republican state.

TUMULTY:  ... New Jersey...

MATTHEWS:  New York probably.

(CROSSTALK)

TUMULTY:  But wait a minute.  California has a Republican governor who is pro-choice.

BROWNSTEIN:  Yes, but...

(CROSSTALK)

BROWNSTEIN:  It is—it is...

(CROSSTALK)

BROWNSTEIN:  ... the share of Republican voters in California who call themselves very conservative is as high as it is in South Carolina.  It‘s a very conservative primary.  But your point—your point...

(CROSSTALK)

MATTHEWS:  Why do I keep talking to guys like Jerry Parske (ph), who don‘t have that view?

BROWNSTEIN:  Well, there you go.  But the reality is—and that‘s what happened to John McCain in 2000...

(CROSSTALK)

MATTHEWS:  They love Rudy in California.  You know that.

BROWNSTEIN:  They like him.  But again—I mean, he—what he has to do is be able to sell Republicans, I think, on this broader idea, that he is offering the solution that is a way to a truce on these issues that does not violate their principles.

MATTHEWS:  So many journalists I know grew up in Democratic families, they think that the Republican Party is someplace out in Utah somewhere.  They don‘t even know it.

Gene, enlighten us.  It seems to me there are a lot of Republican business guys who vote on security and taxes and practical, temporal issues, not so much the theological or the philosophical or even the moral.  What do you make of it?

ROBINSON:  Sure.  Absolutely.  And I think the federalist position that Giuliani is evolving toward makes sense for that group of voters.  Absolutely.  I do think, on abortion, it‘s more difficult to articulate than on guns or on, you know, gay unions or whatever because, you know, people who really, really object to abortion tend to think that it‘s murder, tend to think that it is a horrible, horrible crime, in which case, you know, why is it OK in California and not in Montana?

MATTHEWS:  Well, let me tell you, Gene, Catholics who—like myself, who don‘t like abortion, have been voting for pro-choice candidates for years.  You got to get used to living in this country.  You can‘t always get what you want, morally even.

Anyway, thank you, Gene.  Thank you, Karen.  Did you want to say something, Ron?

BROWNSTEIN:  (INAUDIBLE) what she says is right, but one thing Giuliani has going for him is that the evangelicals are very hawkish.  They‘re very concerned about national security, and that is his strongest issue.

MATTHEWS:  And they may like Rudy.

BROWNSTEIN:  Yes.

MATTHEWS:  Every time I hear about Rudy, he goes to Jackson, he goes to Atlanta, every time he goes to a downtown business group in the South, in the Bible Belt, they love him.

Anyway, up next, NBC‘s Lisa Myers with a report on accusations of corruption against Nevada‘s governor Jim Gibbons.

You‘re watching HARDBALL on MSNBC.

(COMMERCIAL BREAK)

MATTHEWS:  Welcome back to HARDBALL. 

The FBI is investigating Nevada Governor Jim Gibbons.  They want to know if Gibbons, when he was a U.S. congressman, used his influence to swing lucrative federal contracts to a friend. 

NBC‘s senior investigative correspondent, Lisa Myers, has an exclusive investigation. 

(BEGIN VIDEOTAPE)

(CHEERING AND APPLAUSE) 

LISA MYERS, NBC CHIEF CONGRESSIONAL CORRESPONDENT (voice-over):  The new governor of Nevada...

GOV. JIM GIBBONS ®, NEVADA:  This election is finally over with. 

(CHEERING AND APPLAUSE) 

MYERS:  ... is now being investigated by the FBI because of alleged gifts and payments from this man, Warren Trepp, a defense contractor whose Nevada firm received tens of millions in federal contracts. 

The FBI wants to know if Jim Gibbons, while a member of Congress, improperly used his influence to help Trepp get those contracts.  Sources close to the investigation say a key focus is a lavish weeklong Caribbean cruise aboard this ship in March 2005 by Gibbons, his wife and son and Trepp, who paid for almost everything. 

In photos obtained by NBC News, Gibbons is seen hamming it up, kicking back with a drink, and posing with his wife, Dawn, Trepp and Trepp‘s other guests. 

(on camera):  What would you estimate that trip cost per person? 

DENNIS MONTGOMERY, SOFTWARE DESIGNER:  Probably $20,000 a person. 

MYERS (voice-over):  Software designer Dennis Montgomery was also on that cruise with Gibbons.  Montgomery says his former business partner, Trepp, chartered this 727 to fly guests from Nevada to Florida and back, and picked up the tab for penthouse rooms, private meals, and expensive wines.

Trepp also paid for a party that week at the Atlantis Hotel and Casino in the Bahamas. 

Here‘s Congressman Gibbons out on the balcony.  How much did Trepp spend just to charter the 727? 

MONTGOMERY:  The cost, I believe, was around $220,000. 

MYERS (on camera):  How do you know that?

MONTGOMERY:  Because I saw the invoice. 

MYERS (voice-over):  Other charter operators also tell NBC, that‘s about what they would charge for a similar route. 

In an exclusive interview with NBC, Montgomery, who is now at war with his former partner, makes an explosive charge.  He says that, near the end of the cruise, he saw Trepp pass money to the congressman. 

MONTGOMERY:  There was a lot of alcohol and a lot of drinking.  And that‘s when I first saw Warren give Jim Gibbons money. 

MYERS (on camera):  How much? 

MONTGOMERY:  Close to $100,000. 

MYERS:  How can you know? 

MONTGOMERY:  Because he gave him casino chips and cash. 

MYERS:  That‘s pretty brazen, to publicly hand over cash and chips to a sitting member of Congress. 

MONTGOMERY:  I was somewhat surprised. 

MYERS:  Are you sure about what you saw? 

MONTGOMERY:  I‘m absolutely positive and sure. 

MYERS (voice-over):  So sure that Montgomery has made the same allegations in federal court.  Montgomery‘s wife also says she saw Trepp pass casino chips to Gibbons. 

In addition, Montgomery has provided NBC with hundreds of e-mails, he says, from Trepp‘s computer. 

Days before the cruise, Trepp‘s wife e-mails her husband: “Please don‘t forget to bring the money you promised Jim and Dawn on the trip.”

Hours later, Warren Trepp e-mails back: “Don‘t ever send this kind of message to me.  Erase this message from your computer now.”

There also is a paper trail showing Gibbons helped Trepp‘s company, eTreppid, get government contracts.  In this 2003 e-mail, an eTreppid executive tells Trepp that Gibbons helped secure a contract, and “We need to take care of him like we discussed.”

Two years later, the same executive writes, “He has always been really good to us.”

Gibbons, a Republican, says he would help any Nevada company, and strongly denies any wrongdoing. 

GIBBONS:  I‘m not the kind of an individual, as a congressman or a governor, that would ever accept any kind of payment or bribe or gift or whatever it is. 

MYERS:  Gibbons says Trepp is a longtime friend, that he reimbursed him $1,654 for the trip, and that he only flew one way on the 727. 

Trepp also strongly denies any wrongdoing, and suggests the e-mails were doctored. 

REID WEINGARTEN, ATTORNEY FOR WARREN TREPP:  The allegation that Warren Trepp provided cash to Gibbons is preposterous.  We believe we have solid forensic evidence that those e-mails were fabricated by Montgomery. 

MYERS:  Both men also question Montgomery‘s credibility, arguing, he‘s involved in a vicious legal battle with Trepp over ownership of their company, with millions of dollars at stake. 

Montgomery admits he‘s no angel, that he‘s been known to gamble, and he was sued for sexual harassment.  But now he‘s cooperating with the FBI in the criminal investigation of Gibbons and Trepp. 

In court and in our interview, Montgomery claims that Trepp gave Gibbons cash twice.  The second time allegedly was in Trepp‘s office at eTreppid. 

MONTGOMERY:  He took $100,000 out of his desk, two $50,000 bundles, and asked me to go get a briefcase, which I did.  Fifteen minutes later, Jim came in and picked it up and left. 

MYERS (on camera):  Did you see the congressman with the briefcase? 

MONTGOMERY:  Yes. 

MYERS:  And you‘re sure the money was in there? 

MONTGOMERY:  Yes. 

MYERS (voice-over):  Montgomery, a registered Republican, says he never reported the alleged payments to the FBI.  He says he did tell the Air Force official who was handling their contracts, as he had been instructed. 

(on camera):  Why didn‘t you go to the police? 

MONTGOMERY:  Because I had been informed, because of the nature of the work that we do, that this is the only person I am to go to. 

MYERS:  Because you do classified work for the government? 

MONTGOMERY:  We do work for the government. 

MYERS (voice-over):  NBC News called Montgomery‘s Air Force contact, and asked whether he ever knew about or reported any alleged payments to the congressman.  The official said, “No comment,” and hung up. 

Montgomery also says he confronted Trepp, to no avail. 

(on camera):  Did you raise the possibility that this was improper? 

MONTGOMERY:  Yes. 

MYERS:  And he said? 

MONTGOMERY: “Stay out of it.”

MYERS (voice-over):  Montgomery‘s credibility will be put to the test.  But so will Trepp‘s.  Trepp was chief broker for junk bond trader and convicted felon Michael Milken. 

The Securities and Exchange Commission tried to bar Trepp from the industry for what a judge called egregious, recurring and intentional misconduct.  The case against Trepp eventually was dismissed because the government waited too long to bring charges. 

(on camera):  Some people are going to look at this and say, this is just one angry, disgruntled man.  Why should we believe you? 

MONTGOMERY:  Because I know what happened for the last five years, and I can prove it. 

(END VIDEOTAPE)

MATTHEWS:  We received this statement from Governor Gibbons‘ attorney

quote—“NBC chose to run old allegations by a disgruntled and apparently vindictive former business associate of Warren Trepp‘s.  It is wrong for this man to try to use the governor to advance his business lawsuit.  And it is wrong for the media not to see this attempt for what it is.  Governor Gibbons did not accept cash or chips or any improper gifts from the Trepps.  And, when the truth comes out, Dennis Montgomery will have more to explain than the governor.”

Lisa, what—how do you—well, first of all, this—one thing about it I thought was interesting, you kept asking this source of yours whether he could tell how much money was given to Gibbons, if it was ever given to him.  How did he know how much money was given? 

MYERS:  Well, in the brief—in the case of the second payment, which he claims was a briefcase that Warren Trepp gave him in the company office, he said he saw the briefcase open and saw stacks of money being put in. 

In the other case, on the cruise ship, he saw—says he saw Trepp give Gibbons cash and a number of casino chips that were...

MATTHEWS:  Yes. 

MYERS:  ... from a casino in Nevada, which could be exchanged for cash. 

MATTHEWS:  But, you know, when you see somebody hand money over, it could be singles.  It could be $1,000 bills.  How does this guy know what was in those bundles? 

MYERS:  Well, I think he was close enough to see the bundles. 

MATTHEWS:  Oh, he was?

MYERS:  He says he was.

MATTHEWS:  Let me ask you about what might be his motive.  Does he have—does he have an ulterior motive for being such a—a happy source here to bring down Jim Gibbons? 

MYERS:  Well, I mean, he—he made these allegations first in federal court.  This is the only interview...

MATTHEWS:  So, he‘s under oath on these things? 

MYERS:  Well, he—he—this is the only interview he has granted.

Yes, he does have an axe to grind, because there are millions of dollars at stake in his battle with—with Trepp. 

MATTHEWS:  Yes. 

MYERS:  But we did extensive reporting, over a period of months, on these allegations.  We found that everything that he told us that we could check out did check out. 

MATTHEWS:  Yes. 

MYERS:  That doesn‘t mean it‘s all true, but what we—was confirmable did hold up under scrutiny. 

MATTHEWS:  Well, Lisa, you‘re the best.

Well, I want to ask you a technical question.  How do you—how does anybody determine the—the age of an e-mail? 

MYERS:  Well, I don‘t know that you can determine the age of an e-mail.

But I think that there are people smarter than both of us who have the ability to go into computers and determine, forensically, whether something has been tampered with.

MATTHEWS:  I see.

MYERS:  As you know, it‘s very easy to tamper with e-mails.

Now, in terms of the—the authenticity of some of the e-mails, certainly, the ones between Trepp and his wife, we can—we‘re not able—they deny that those are authentic.  We were able to check out some of the other e-mails written by eTreppid executives.  And the executives acknowledged, they had indeed written—written those e-mails. 

So, some of the e-mails, we were able to validate...

MATTHEWS:  Well...

MYERS:  ... but by no means all of them.  There are hundreds of them. 

The FBI will have—take—take a while to check them all out. 

MATTHEWS:  Well, you have done your work.

Thank you very much, Lisa Myers, for bringing us that report about the governor of Nevada. 

MYERS:  Thank you, Chris. 

MATTHEWS:  Up next:  NBC‘s Jim Miklaszewski with details of a new and grim Pentagon report about corruption and military problems over in Iraq. 

And, later, presidential historian Michael Beschloss is coming here tonight. 

And on Monday, on HARDBALL, MSNBC‘s Tim Russert is joining us. 

You‘re watching HARDBALL right now on MSNBC.

(COMMERCIAL BREAK)

REBECCA JARVIS, CNBC CORRESPONDENT:  I‘m Rebecca Jarvis with your CNBC “Market Wrap.”

Stocks rebounding after yesterday‘s big losses—the Dow Jones industrial average gaining 111 points, the S&P 500 climbing back above 1500, after gaining 14 points, and the Nasdaq up 28 points. 

Investors welcomed a government report of mild inflation in April as a sign the Fed might consider cutting interest rates later this year. 

So-called core inflation at the wholesale level was flat for a second straight month. 

And, even as California battles its latest wildfire on Catalina Island, Allstate insurance says it will stop writing new homeowner policies in the Golden State in July.  The company said it wants to limit its exposure to catastrophes.  It had previously stopped writing new policies along the Gulf and Atlantic coasts. 

And oil prices climbed today, gaining 56 cents in New York trading. 

Crude closed there at $62.37 a barrel.

That‘s it from CNBC, America‘s business channel—now back to

HARDBALL. 

MATTHEWS:  Welcome back to HARDBALL. 

The commanding general of U.S. forces in northern Iraq offers a bleak assessment of the performance of the Iraqi military and the Iraqi government. 

And NBC‘s chief Pentagon correspondent, Jim Miklaszewski, has more—

Mik.

JIM MIKLASZEWSKI, NBC PENTAGON CORRESPONDENT:  You know, Chris, it was a pretty candid and somewhat rare news conference here today at the Pentagon, when reporters talked with Major General Benjamin Mixon in northern Iraq via teleconference today.

And he was pretty blunt about the fact that both the U.S. government -

or the Iraqi government and Iraqi military are just making too little and too slow progress in the northern regions of Iraq, particularly in the Diyala Province, which has been one of the deadliest areas for American troops so far this year.

Nearly 60 American forces have been killed in combat in Diyala Province so far this year.  Now, Major Mixon—Major General Mixon asked for and received U.S. reinforcements just a couple of weeks ago; 1,200 additional American forces went into the Diyala Province. 

But he says even that‘s not enough.  He‘s asking for more, and not only U.S. reinforcements, but Iraqi reinforcements on the Iraq side.  It‘s still unclear whether they will be able to deliver—Chris.

MATTHEWS:  Mik, how does this report by General Mixon lead toward a more comprehensive report this September from General Petraeus?

MIKLASZEWSKI:  Well, you know, it‘s interesting, because the surge operation apparently has achieved some success there in Baghdad. 

But what‘s happened is, it‘s driven some of the insurgents, extremists and terrorists out of Baghdad into Diyala, where they‘re now engaged in attacking not only Iraqi citizens, but U.S. troops. 

So, it‘s another one of those situations in Iraq where you achieve success in one area, only to have the problems and the violence squeeze out and move to another area. 

But, in terms of overall progress, what‘s most telling about what General Mixon had to say is the lack of efficiency or even desire, apparently, if you listen to what General Mixon says, on the part of the central government in Baghdad to make things work, not only in Baghdad, but around the rest of the country. 

And that, as you know, will be a key to any assessment on the part of General Petraeus on whether the overall U.S. military operation is working. 

MATTHEWS:  You know, I guess I‘m a Vietnam era skeptic.  And I, therefore, question how this is going to happen. 

I remember, at the end of the—our involvement in Vietnam, General Westmoreland was still asking for a quarter-million more troops.  And they never said they weren‘t winning.  And they weren‘t actually losing military.  But, politically, the war wasn‘t going where it had to go for it to work at home. 

Do you expect Petraeus, General Petraeus, as well respected as he is, to actually come out in September and even consider saying, we can‘t win this war, as a public statement? 

MIKLASZEWSKI:  Well, he‘s already said you can‘t win the war militarily.  And, so, that‘s a matter of fact, at least from General Petraeus.

The key to this, again, will be whether the Iraqi government is able to stand up and assume some responsibility, reach reconciliation, resolve this issue of profit-sharing for oil there in Iraq, as—as to whether that‘s going to be spread evenly. 

And I have got to tell you, so far, in listening to senior military leaders, there‘s—I don‘t hear too many people that believe that that can happen, certainly by the end of summer, if by early next year. 

MATTHEWS:  But suppose we have a situation where, two weeks before Petraeus is to report publicly, the presidential people get to him, and they say, well, can you make the Iraqi government pass a couple resolutions?

And then the president of the United States, President Bush, could go on the air and say, well, we have just heard from the Iraqi government.  They have agreed to share the oil money.  They have agreed to power-sharing with the Sunnis in a more favorable fashion to the Sunnis.  And the Kurds are happy.  And they declare victory again, and we‘re stuck there another year-and-a-half or three years more.

MIKLASZEWSKI:  Quite frankly, Chris, at this point in time, I just don‘t see how that‘s possible. 

MATTHEWS:  Because?

MIKLASZEWSKI:  Because I—I just don‘t think it can happen. 

I don‘t think that General Petraeus has the kind of power—can wield the kind of authority over an Iraqi government, over—not even Prime Minister Maliki...

MATTHEWS:  Yes. 

MIKLASZEWSKI:  ... can control the Iraqi government, to the extent that they could do that. 

If elements of the Iraqi government are, in fact, intent on driving U.S. forces out of Iraq, they may in fact have the wherewithal to make that happen, if they freeze the governmental process entirely. 

MATTHEWS:  Wow.  Well, this is a revolting development.

Thank you very much, Jim Miklaszewski, at the Pentagon. 

MIKLASZEWSKI:  You bet.

MATTHEWS:  How does this grim report from General Mixon affect the fight between President Bush and the Democrats over funding this war?

Ron Christie is a former Bush-Cheney adviser.  And Eugene Robinson, who was with us earlier, is back from “The Washington Post.” 

Ron, I don‘t know how you can sell the war to the American people, if the people over in Iraq are talking about passing a resolution to tell us to leave. 

RON CHRISTIE, FORMER ADVISER TO VICE PRESIDENT DICK CHENEY:  Well, Chris, absolutely.   In order for us to win this war, it can‘t all be done militarily.  There has to be a political component to it.  You saw the vice president was in the region earlier this week.  The United States government has been putting increasing pressure on the Iraqis and saying you have to own more of what‘s going on over here.  You have to do more for security.  You have to do more for the oil fields.  You have to do more to stop the sectarian violence. 

So I‘m not as pessimistic as you might be, but I think it underscores the fact that the Iraqis have got to resume more control.  And if they kick us out, Chris, make no mistake about it, al Qaeda and there are a number of people over there who want that country to be destabilized.  Those who think that they might be doing something cute to kick us out now will find themselves in a country that‘s doesn‘t exist anymore. 

MATTHEWS:  Gene, politically we‘ve watched the Republican members of Congress troop down to the White House this week, concerned this is killing them politically.  This latest bad news seems like it‘s going to make more trouble for the Republicans. 

ROBINSON:  I think it absolutely will.  I mean it‘s—you know, as you and Ron said, it‘s pretty impossible to defend a war, this war if the Iraqis don‘t want us to be there.  And I think what this latest possibility of this resolution indicates is that there does not seem to be the will in Iraqi political circles to make the kinds of agreements that—we keep saying the Iraqis have to do this; the Iraqis have to do that.  I don‘t think the Iraqis have any intention of making the kinds of agreements we want them to make. 

The Shiites are in control and they‘re holding the cards.  They don‘t want to share it with the Sunnis.  And, you know, that‘s the reality that I think we‘re seeing, getting a glimpse of here. 

MATTHEWS:  So it‘s winner take all.  Let me ask you about two things.  First of all, Ron Christie, this talk of a resolution coming out of the Iraqi parliament talking about a timetable.  This isn‘t the Democrats on Capitol Hill here in Washington.  This is the leading party figures in that government in Iraq talking about a timetable which would drive us out of Iraq.  This seems to be incredible. 

CHRISTIE:  It‘s incredible.  I think it‘s incredibly foolish. 

MATTHEWS:  And they‘re taking two months off this summer, while our troops are getting killed over there, to give these people time to get their political act together.  And they say while you‘re getting killed, we‘re taking two months off to go France or somewhere.  I don‘t know where they‘re going.   

CHRISTIE:  You and I have long talked about this.  I might the war.  And I support the objectives for why went over there and trying to stabilize this country and not have it be an al Qaeda safe haven.  At the same time, for goodness sakes, Chris, we have had thousands of American soldiers who have gone over there, who paid the ultimate sacrifice, and these guys want to gone on vacation? 

They need to step it up over in Iraq.  The Iraqi politicians, those who have greeted us as liberators—

MATTHEWS:  Well, let me just say, you‘re right, we disagree, because I believe a president is responsible for understanding the region in which he takes the American army.  And if he‘s taking the American Army into a country like Iraq, and positioning them there to play this incredible role we‘re playing there, he should have shown there were Sunnis.  He should have known there were Shia.  And they have been fighting for 1,300 years.   

CHRISTIE:  Let me push back and disagree with you, Chris.  We‘re there now.  One of the things that I find most distressing of what you hear in the media is our troops are over there.  Our people are in harm‘s way.  Let‘s talk about how we‘re going to win this thing, Chris. 

MATTHEWS:  But nothing that‘s happened over there was not predictable. 

Gene, what‘s the surprise?  I keep waiting for somebody to tell me what‘s happening over there is surprising.  It is consistent with the regional history. 

ROBINSON:  It is consistent with the history of, you know, this patch of Mesopatmaia that is called Iraq, but is not really a polity of a nation that holds together.  What is—what—maybe this will cause people to ask the question that I‘ve been asking all along, which is, at this point, what is victory in Iraq? 

MATTHEWS:  Let me ask you this: maybe this is race; maybe this ethnicity, but do you really think we would have dared go back into Yugoslavia after the end of the Cold War and insisted that all those countries that are now independent sovereign states rejoin each other and become Yugoslavia again.  We wouldn‘t presume to do that to a European country.  We would allow self-determination to be the natural order of things in Europe. 

So why are we doing it in the Middle East.  Why are we presuming, as Westerners, that we can go into a country that doesn‘t feel like a country and dictate their political organization? Anyway, thank you Gene Robinson.  Ron, you and I are getting Christie.

CHRISTIE:  No, we‘re not getting closer.  We got to win this war. 

MATTHEWS:  Up next, presidential historian Michael Beschloss on the upcoming 2000 (sic) race and the battle over presidential leadership, and, in fact, his new book about presidential courage.  And this Sunday on “Meet The Press” a big ratings grabber whenever he appears, because people do watch this guy‘s future.  That‘s John McCain.  This is HARDBALL, only on MSNBC.

(COMMERCIAL BREAK)

MATTHEWS:  Welcome back to HARDBALL.  With the presidential campaign officially underway, does anybody in the 2008 field have what it takes to be a brave and courageous president?  Michael Beschloss is a presidential historian.  His new book is called “Presidential Courage: Brave Leaders and How They Changed America, 1789-1989.”  Michael, congratulations, a very well written book. 

Here‘s a quote, by the way, from your book.  “We should always be wary of president shall courage.  Wary, in the absence of wisdom, leaders who defy public opinion may take the nation over a cliff.  But we must still demand that presidents will, at vital moments, be willing to jeopardize themselves for an essential cause.” 

So courage in itself is not enough?

MICHAEL BESCHLOSS, PRESIDENTIAL HISTORIAN:  No, You can‘t just take a political risk without having judgment.  Richard Nixon, in 1970, expanded the Vietnam War into Cambodia and you remember, he gave these speeches, my advisors unanimously advised me not to do that, but I ignored them. 

MATTHEWS:  I know.  But he was watching “Patton” every night. 

BESCHLOSS:  He was, which was not a good influence.  And the problem was that he did something that wasn‘t wise.  Because it may have been courageous—the campuses opened up in arms against him because of this.  But it expanded the war, opened the way to Pol Pot.  So unless you also have wisdom and judgment, courage is --  

MATTHEWS:  Two examples from your book that grabbed me personally; one is, why did Jack Kennedy, who had always been, quote, a moderate on civil rights, a conservative really, lot of southern support, white support.  Why did he turn in 1963 and become one of the great champions of civil rights in that speech?  Where did it come from? 

BESCHLOSS:  That‘s the big mystery I wanted to discover.  Well, I listened to these tapes that he made of these private conversations of his.  And in the spring of 1963, Martin Luther King was trying to put on pressure by creating a crisis in the south.  There were riots in Birmingham.  And Bobby comes to Jack and says, Jack, I know you don‘t want to take the risk of a civil rights bill, but unless you do that, the northern cities are going to go up in flames this summer.  And also white voters would say why doesn‘t the president do something about this.

MATTHEWS:  So political expediency moved him? 

BESCHLOSS:  It did, but in the end, he knew that, at the same time, he was taking a big risk, because he instantly lost the white south that had assured him election. 

MATTHEWS:  Well, Johnson did.  That‘s right. 

BESCHLOSS:  And actually—

MATTHEWS:  So it was political events that moved him to become a great civil rights champion? 

BESCHLOSS:  Yes, indeed.

MATTHEWS:  OK, what moved Ronald Reagan, an historic Cold Warrior to embrace Michael Gorbachev in almost a friendly partnership?

BESCHLOSS:  Conviction.  The supporters of Reagan, as you know, thought he only meant it when he said he was going to be tough on the Soviets.  He also said if there‘s a Soviet leader who wants to end the Cold War, I‘ll sit down with him for as long as it takes and he did. 

MATTHEWS:  So what will it take for this president we have now, George W. Bush, our president, to make a similar shift in approach?

BESCHLOSS:  I think it‘s a little bit hard to expect that, given his history.  I think what you have to say—I think Bush‘s hope is that from historians that 30 years from now they will say he had gut on the war in terrorism. 

MATTHEWS:  Is David McColluck (ph)  waiting around the corner to make him the second Truman? 

BESCHLOSS:  I think you would have to ask him.  I‘m not sure if he is. 

MATTHEWS:  Well let me ask you about presidents.  Do they sometimes get the point that the more criticism they take, the more Lincolnesque they are, the more grand they are, simply because they‘re surrounded by people making fun of their positions?  Does that convict them of their positions? 

BESCHLOSS:  Well, I think it actually helps.  The real Truman actually did that in recognizing Israel.  The secretary of state threatened to resign.  His wife Bess was basically a bigot.  She didn‘t allow Jewish people in the house.  On the other side you Jewish old business partner who came to him and said Harry, recognize Israel. 

MATTHEWS:  Key guy, smart, one of the best lobbyists in history.  He got through the door.  Michael Beschloss, I have read his books, he‘s got another one that is so easy to read.  If your mother likes history, this is a great Mother‘s Day present.  If your father likes history; if you like history, “Presidential Courage.”  It‘s right up there with “Profiles in Courage.”  Lots of good stories about people we know and love in history. 

Up next, how is the Iraq war affecting America‘s economy.  We‘ll talk about it with former State Department official and current Goldman Sachs VP Robert Hormats.  Weren‘t the Iraqis supposed to pay for this war?  Weren‘t they supposed to get us cheap gas if we won this war?  What happened to those two promises?  We‘re going to ask Hormats. 

And join us on Monday when our guest will be NBC‘s Tim Russert. 

You‘re watching HARDBALL, only on MSNBC. 

(COMMERCIAL BREAK)

MATTHEWS:  Welcome back to HARDBALL.  Who is paying for this war in Iraq?  We were promised it would be paid for by Iraqi oil.  And what happened to the cheaper gas we were supposed to get at the pump?  Robert Mats is vice chairman of Goldman Sachs International.  He served in the State Department and National Security Council during four presidential administrations.  His new book is called “The Price Of Liberty, Paying For America‘s Wars.”  

Bob, you have an unpleasant job tonight.  It‘s not only to push this very well written book.  It‘s also to explain to me about the sales pitches that got us into this war.  Among all the arguments, WMD, connections to 9/11, were these neat little sugar plums, one from Paul Wolfowitz that the Iraqis themselves, with their economy, would finance the cost of this war.  True or false.

ROBERT HORMATS, AUTHOR, “THE PRICE OF LIBERTY”:  That is just what he said and others in the administration said the same thing.  It was very misleading, because at the same time there were a number of reports to the affect that the oil facilities had been destroyed, in part by the war and in part by Saddam.  The electric grid, which was needed to produce oil, was in very bad shape.

It was virtually inconceivable they would generate enough revenues to pay for this war. 

MATTHEWS:  Have we even tried to exact from the Iraqi economy enough payment for this war?  Have we even tried, or was that just a sales pitch to get us into the war?

HORMATS:  It was inconceivable because they need whatever they can generate from just to meet their own domestic needs.  They haven‘t even gotten an oil revenue sharing bill.  So their oil facilities are simply not good enough.  The other thing is, don‘t forget, in the earlier coalition for the first Gulf War, we had a lot of foreign support.  We didn‘t have any foreign support.  There were no Muslim countries, no Arabs in this war.  In the last one, they provided us with a lot. 

MATTHEWS:  We had what Bill Sapphire of the “New York Times” called the checkbook powers.  We had Japan and Germany paying for the war. 

Let me ask you about this other one, because this is a real disastrous statement.  Larry Lindsey, who was chief of the president‘s economic advisors, said—this is back right before we went to war, at the end of 2002, “the key issue is oil and a regime change in Iraq would facilitate an increase in world oil, which would drive down oil prices, giving the U.S.  economy an added boost.” 

The idea that we were going to get cheaper gas is a promise that sold some people.  Where did that come from? 

HORMATS:  Wishful thinking, by and large, that this would lead to big increases in the production of oil.  But that was predicated on the notion that there would be a lot of stability very quickly.  And you could put more money in the oil facilities and have them grow production very rapidly.  That was simply not the case.  You know, in every war we fought up until this, and up until Vietnam, presidents were very candid about telling people that wars cost money.  Roosevelt goes out to the American people in 1942, says, wars cost money.  That means taxes and bonds, bonds and taxes. 

It means sacrifice.  There is none of that this time around.  We were given the notion that somehow oil would pay for it.  It didn‘t.  And Americans were never prepared for the fact that this was going to be a costly war, and they‘re not prepared for the war on terrorism, which is a longer war, is also going to be very costly. 

MATTHEWS:  So, instead of FDR selling war bonds, and the movie stars selling war bonds on those tours back in the 1940s, which obviously were a great break to the country, because people were getting a lower interest rate than the market would give them.  Now the president goes on to the bond market.  He goes on every time.  Every time he wants to pay for this war he‘s going on to this market so people who are lending money are making the money.  It‘s like the war is making money for some people.  He‘s not making any effort at all to have this war paid for in some patriotic sense.  Is he?

HORMATS:  That‘s right.  Wartime funding is about two things, raising money and engaging Americans in support for the troops.  The latter has really not existed during this war at all.  The troops are making sacrifices—

MATTHEWS:  Thank you, Bob.  Robert Hormats, thank you for joining us to give us one more reason why this war is—it shouldn‘t have been fought, but now it‘s being fought on the cheap.  Anyway, “The Price of Liberty,” what a great book.  Join us again Monday at 5:00 and 7:00 Eastern for more HARDBALL.  Our guests will include my colleague, NBC‘s Tim Russert and retired General Paul Eaton.  Have a—by the way, this is more important than anything else tonight—have a happy Mother‘s Day.

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

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