updated 7/27/2007 1:01:35 PM ET 2007-07-27T17:01:35

Guests: Howard Wolfson, David Axelrod, Tony Snow, Bruce Fein, Stan Brand, Stephen Hayes, Sally Quinn

CHRIS MATTHEWS, HOST:  The FBI now says that the attorney general‘s not telling the truth.  Director Robert Mueller said late today that a conversation in attorney general John Ashcroft‘s hospital room was about the terrorist surveillance program.  Let‘s get to it with White House spokesman Tony Snow.

Let‘s play HARDBALL.

Good evening.  I‘m Chris Matthews.  Welcome to HARDBALL.  Late today, FBI director Robert Mueller told Congress that the government‘s wiretapping program was, in fact, the topic of conversation in a 2004 hospital visit to then attorney general John Ashcroft, contradicting sworn testimony from yesterday by attorney general Alberto Gonzalez.  This comes on a day that Senate Democrats called for a special counsel to investigate whether Gonzales has lied under oath.  And Senator Patrick Leahy, the chairman of the Senate Judiciary Committee, announced the subpoena today of Karl Rove, the president‘s top kick (ph) for politics.

Plus: It‘s day four of the Clinton versus Obama battle.  Tonight, their top advisers come here to go head to head in that big fight about whether we should be talking to foreign bad guys.

But first, White House press secretary Tony Snow.  Tony, thank you very much for coming on tonight.  You‘re a good guy to come on.  But this is a tough day for you, it seems to me.  How do you respond to the FBI director‘s statement contradicting the attorney general?

TONY SNOW, WHITE HOUSE PRESS SECRETARY:  Well, number one, he didn‘t contradict the attorney general.  I‘ll tell you what‘s going on, Chris.  And you‘re familiar with this.  You‘ve worked in the White House.  There‘s an attempt right now on Capitol Hill to try to get members of this administration to talk in open session about highly classified matters.  You will note that when the FBI director was questioned about the terrorist surveillance program, TSP, he did not answer about TSP, he talked about an NSA program.  There are a lot of classified matters at play here, and what‘s going on is members know absolutely well that they are asking about matters that cannot be answered fully in public session, and therefore, people are being very careful with their answers.

MATTHEWS:  But he was very careful.  When you watch this, I want you to listen.  Everyone at home, watch this right now, and everyone can judge this for themselves.  They don‘t have to listen to you or me.  Watch everybody now and tell me whether you think that Mueller is saying to Congresswoman Jackson Lee that she‘s right in assuming that they‘re talking about the terrorist surveillance program particularly.  Let‘s watch and listen.

(BEGIN VIDEO CLIP)

REP. SHEILA JACKSON LEE (D), TEXAS:  ... have an understanding that the discussion was on TSP?

ROBERT MUELLER, FBI DIRECTOR:  I had a understanding that the discussion was on an NSA Program, yes.

LEE:  I guess we use TSP, we use warrantless wiretapping, so would I be comfortable in saying that those were the items that were part of the discussion?

MUELLER:  It was—the discussion was on a national—an NSA program that has been much discussed, yes.

(END VIDEO CLIP)

MATTHEWS:  Well, it seems to me, Tony, watching this—and I mean objectively—he‘s saying to her, Yes, you‘re right, it‘s the one that‘s been discussed for those last few days...

SNOW:  No, it...

MATTHEWS:  ... that‘s what we‘re talking about.

SNOW:  All I can tell you, Chris...

MATTHEWS:  What else could he possibly mean besides the word “yes”?

SNOW:  What—what he could possibly mean is it‘s a lot more complex and that she knows, or maybe she doesn‘t know, that there are a series of classified matters under conversation, and I can‘t go any further.  Here I am, I got my hands tied, too.  Members of Congress have been briefed in on this program, and they‘ve been briefed in on the conversation, at least a small number of them have.  But what‘s going on now is that people are trying to go ahead and take a little sliver of it, exploit it, and try to create a misperception here.  And it‘s one of these things where you saw that the FBI director could not and did not answer in detail because he is not going to talk about highly classified matters.

MATTHEWS:  Right.

SNOW:  And so it‘s going to be one of those things where people are free to draw their conclusions, but the problem is that it‘s going to be inappropriate because the only proper forum for discussing fully what was going on is in closed session.

MATTHEWS:  Well, then we‘ll never know.

SNOW:  That‘s probably right.

MATTHEWS:  Well, let me ask you, what happens when one side of an argument is put out by the then acting attorney general, Mr. Comey, documents from Negroponte, Ambassador Negroponte, which support that, and now the current FBI director all take one side to say that there was a discussion of this area, and the current attorney general, who‘s under fire, takes the other side?

SNOW:  Well, what...

MATTHEWS:  You said everyone has to make their own conclusions, but it seems to me that people are concluding that this attorney general is not coming clean with us.

SNOW:  No, I—what I‘m telling you is that the attorney general cannot give full answers to some of those questions, and furthermore, that what he‘s saying is not necessarily in contradiction to what those other individuals were saying.

MATTHEWS:  OK.

SNOW:  This is what happens when you get into this world...

MATTHEWS:  I know.  Tony...

SNOW:  ... and it‘s why...

MATTHEWS:  ... you and I know this language.  God, some day we‘ll talk about this over a bowl of chili or something, but the fact of the matter is...

SNOW:  And you know what‘s...

MATTHEWS:  ... you know how you wave somebody on or you wave them off.

SNOW:  Well, I‘ll tell you what...

MATTHEWS:  He was clearly, it looked to me, waving Sheila Jackson Lee on, saying, yes, you wouldn‘t be wrong if you assume we‘re talking about the TSP here.

SNOW:  Well, I‘ll tell you what.  When it comes to a bowl of chili, if I‘m free to talk about it, you‘re going to say, I cannot believe they tried to pull that stunt.

MATTHEWS:  OK.

SNOW:  I‘m talking about members of Congress.

MATTHEWS:  You came into this very difficult political match late in the game.  You were not here from the beginning of this administration, this first term.  You‘re basically a relief pitcher.  Maybe you‘re a closer.  I hope you are a closer.  And you‘ve come in at about the 7th inning.  But this administration has had credibility problems.  I‘ve got a poll here that shows that most Americans believe they were dishonestly given information to talk us into the war in Iraq.  We got an assistant to the president who‘s been convicted of perjury.  Is there not a problem of credibility that focuses now on Attorney General Gonzales or not?

SNOW:  No...

MATTHEWS:  Has he got a problem?

SNOW:  Great question.  If you take a look at what‘s been going on, Chris, Attorney General Gonzales has been under fire from members of Congress since January.  You also remember that they kept saying, Boy, we‘re going to get—we get Kyle Sampson in here, we‘re going to slay him.  We‘re going to get Sampson‘s assistant in here.  We‘re going to kill him.

You know what you have?  You got a lot of members of Congress who have already made up their minds, regardless of the facts, and they‘ve decided that they‘re going to go after Alberto Gonzales and they‘re going to smear him up as good as they can.

And here‘s the interesting thing.  After six months of hearings, after 8,500 pages of documents, after making available everybody at senior levels of the Department of Justice, after our offering to have Harriet Miers and Karl Rover and everybody else they wanted to talk to in a session where they would be compelled legally to tell the truth, after all of this, after dry hole after dry hole after dry hole, now members are reduced to saying, Well, just because we couldn‘t prove what we suspect , we think he‘s not telling the truth, and we think there ought to be a special counsel.  This is political theater that‘s being put on by a party...

MATTHEWS:  Well...

SNOW:  ... that came in saying they were going to do the people‘s business quickly and effectively, and they haven‘t passed a single appropriations bill!

MATTHEWS:  Well, you know, they have definitely made maximum use of the subpoena power, which you and I knew was at stake in this last campaign.  However, they seem to have other figures in this dramatis personae.  They‘ve got Comey talking about what happened in that almost “Godfather” scene at the hospital.  They‘ve got the—the documentary testimony of Negroponte.  And now, I would argue, if we look at this scene two or three times, we would mostly agree that what the FBI director is saying here to Sheila Jackson Lee of Texas is, You would not be wrong, Congresswoman, if you assumed what you are assuming, that we‘re talking about the terrorist surveillance program here.

SNOW:  Well, Chris, we‘re back to the bowl of chili for a third time now.  Fact is, I‘m telling you, as you know well, that when somebody‘s trying to pull out stuff that‘s inappropriate to talk at a public forum, you got to be very careful about how you answer these things.  I think the FBI director was being properly cautious.

MATTHEWS:  You know, back when Scooter Libby was on trial in a criminal trial, his defense attorney, Ted Wells, a very bright guy, used this national security defense in saying he couldn‘t present the evidence he needed to clear his client.  It does seem familiar to you, doesn‘t it, even on the inside, that whenever somebody doesn‘t want to say something that happened inside the White House, they scream national security.  It doesn‘t always work.

SNOW:  Well, you know what?  I hate to tell you, it‘s true.  I‘m sorry.  I‘m sorry to tell you that it‘s true because I‘m sure you‘d like to find a coverup or something unseemly going on.

MATTHEWS:  Just the truth.

SNOW:  But there‘s not—let me tell you something.  What‘s really interesting about this, again—they‘ve been trying to go after Alberto Gonzales all year.  They‘ve come up with dry holes.  They have been basically waging a war of character assassination against him, of insinuation.  And the fact is that this is an attorney general who‘s worked very hard to do the nation‘s business.

There are people who were briefed in on this, who knew what went on, and we can‘t go any further.  Unfortunately, it‘s—we‘re talking about matters of high classification.  And so you know what?  Here‘s the frustrating thing.  You can insinuate all you want, and I can‘t fight back.

MATTHEWS:  I know.  I want to ask you this.  Why does the attorney general not do more in his own defense?  Why isn‘t he out there defending these point by point statements by the attorney—by the former acting attorney general, by the current FBI director?  It‘s not just Democrats, Tony, it‘s very significant, credible people who are saying things that are causing him trouble.  And you know tomorrow morning‘s newspapers are going to lead with what the FBI director said late today in committee.

SNOW:  Well, it will be interesting, again, to see, as this thing goes along because we have seen how times so far, Chris, this year, where there was going to be the big hearing and they were going to bring somebody down?  What we have here—there‘s an atmosphere in Washington of character assassination on the part of a dominant political party in Congress that can‘t get its job done.

MATTHEWS:  OK.

SNOW:  And you know (INAUDIBLE) they want to step up and do their job, that‘s fine.  But let me also make the point that the administration repeatedly has offered to give them all the facts at their disposal.  We‘re talking about nine-and-a-half man years, 400,000 pages of documents.  It‘s not as if we have been stingy with information.

MATTHEWS:  Well, you know what they want...

SNOW:  But the fact is that they have—

MATTHEWS:  ... Tony.  You and I know what they want on the Hill, what those Democrats want.

SNOW:  Yes, they want show trials.

MATTHEWS:  They want Karl Rove under oath, that‘s what they really want, the guy they believe had a lot to do with the firing of these U.S.  attorneys, and you guys aren‘t going to give them him because he‘s their number one witness they‘d like to get.

SNOW:  No, we gave them Karl Rove, and we furthermore gave them...

SNOW:  No, no, under conditions where when you talk before Congress, you got to tell the truth.  I‘ll tell you what we didn‘t give them.  We didn‘t give them a show trial.  I mean, you know, I know that there‘s this sort of Ahab-like obsession with Karl...

(LAUGHTER)

SNOW:  ... and so everything that...

MATTHEWS:  Is he the white whale?

(LAUGHTER)

SNOW:  Yes.  Yes.  I mean, it is.  It‘s become a matter of obsession to members of Congress.

MATTHEWS:  Right.

SNOW:  What the obsession ought to be is find the truth.  We‘re perfectly happy to share the facts with you, but you know, if you want to have fights and you want to have constitutional showdowns, it‘s not very constructive.

MATTHEWS:  You‘re the best relief pitcher since Jim Constani (ph), the fireman (ph) in the Phillies back in the 1950 “whiz kids (ph)” team!  Thank you, Tony Snow.

Coming up: How far will congressional Democrats get with their investigations of White House officials?  And later, Clinton versus Obama, the intramurals on the Democratic side.  He‘s calling her foreign policy “Bush-Cheney lite.”  What are you talking about?  One person‘s naive, the other person‘s embarrassing.  They‘re finally going at it.  Campaign heavyweights Howard Wolfson and David Axelrod meet on the HARDBALL debate right here tonight.

You‘re watching it, only on MSNBC.

(COMMERCIAL BREAK)

MATTHEWS:  Welcome back to HARDBALL.  As you just heard, the White House is defending attorney general Alberto Gonzales in the controversy over his testimony to Congress.  But testimony by other Bush officials contradicts what Gonzales has told Congress under oath.

Stan Brand is a former counsel to the U.S. House of Representatives, and Bruce Fein was with the Justice Department under President Reagan.

Bruce, from your point of view, what is this Gonzales defense about?  What—are they actually saying he‘s telling the truth about what happened in that hospital room, where his predecessor, Ashcroft, was in bad shape and they were basically working him to agree to this surveillance program?

BRUCE FEIN, FORMER REAGAN DOJ OFFICIAL:  Well, I think the background is this.  The attorney general has been trying to create the impression that there was legal unanimity about the lawfulness of what the NSA was doing, and...

MATTHEWS:  Which is wireless wiretapping.

FEIN:  Wireless wiretapping—without warrants...

(CROSSTALK)

MATTHEWS:  Not wireless wiretapping, what do you call it...

FEIN:  Warrantless wiretapping to gather foreign intelligence, which would violate the Foreign Intelligence Surveillance Act because ordinarily, warrants are required.

MATTHEWS:  And who was, in fact, disagreeing?

FEIN:  Well, it appears from the testimony is that Mr. Comey himself was disagreeing and Mr. Mueller, the FBI director, was disagreeing.  It appears from other public statements that...

MATTHEWS:  Well, not only disagreeing about the issue of whether we should be conducting warrantless wiretapping, they are disagreeing right now as to what happened in that hospital room.

FEIN:  Well, the issues...

(CROSSTALK)

MATTHEWS:  ... that scene that looks just like out of “The Godfather.”  It looks like “The Godfather,” Stan, when you go in the guy‘s hospital room, who‘s under sedation, in very bad shape with pancreatic problems, and you start saying, Hey, why don‘t you approve this thing?  Why are you letting your—the guy deputized—why are you letting this guy make the decision?  Why don‘t you make it?

FEIN:  If I could—if I could interrupt?  The reason why they‘re asking the question is because—or Gonzales makes this important is because this presence of legal unanimity is important to defending what the NSA is doing.  It isn‘t just an academic question, as, Well, did you recollect properly what conversation was had, because if there was clear dissent and people who were recommending at the expert level...

(CROSSTALK)

FEIN:  ... this is illegal, then that creates a criminal vulnerability for a whole slew of...

MATTHEWS:  So Gonzales could be a criminal here, at the end of this discussion, if it comes out that he was alone out there in defending the use of warrantless wiretaps.

FEIN:  In violation of FISA, that‘s a criminal defense, correct.

MATTHEWS:  Do you read it that way?

STAN BRAND, FORMER U.S. HOUSE COUNSEL:  Well, I read...

MATTHEWS:  Do you read the law that—that strongly?

BRAND:  Absolutely.  And the reason he‘s put—he‘s put—he‘s put himself at risk now for a separate offense, which is lying to the Congress under oath about what transpired.

MATTHEWS:  But according to Bruce, he had to lie to back up his original offense.

BRAND:  Well, pick your poison.  Do you want to lie about the substance of the program to protect unanimity, or do you lie about it to protect yourself...

MATTHEWS:  Do you think you see a case of perjury here, Stan?

BRAND:  Well, I don‘t know, but...

MATTHEWS:  I mean, you got—you got Negroponte‘s document saying what they talked about.  You‘ve got James Comey saying what happened.  He was there, right, very much a participant in what happened in that hotel (SIC) room.

(CROSSTALK)

MATTHEWS:  And then you—in that hospital room.  And now you find, apparently, Robert Mueller, the FBI director—I read it.  I watched.  Let‘s watch this, by the way.  I want to get some more views here.  Both of you guys weigh in.  Watch this and tell me if you are not seeing, in fact, the FBI director leading a Texas Democratic congresswoman, Sheila Jackson Lee, to believe that she‘s correct that what they talked about in that hospital scene that night, that ghastly scene, was, in fact, what they were talking about.

(BEGIN VIDEO CLIP)

LEE:  Did you have an understanding that the discussion was on TSP?

MUELLER:  I had an understanding the discussion was on an NSA program, yes.

LEE:  I guess we use TSP, we use warrantless wiretapping, so would I be comfortable in saying that those were the items that were part of the discussion?

MUELLER:  It was—the discussion was on a national—an NSA program that has been much discussed, yes.

(END VIDEO CLIP)

MATTHEWS:  That was his way of saying yes, right?

FEIN:  Exactly because he is not naive.  He knows exactly what that committee‘s going to ask him, and he knows it‘s the attorney general‘s testimony that‘s the target.  If he wanted to exculpate the attorney general, he would have said, Ms. Congresswoman, the attorney general was correct.  This is the distinction to be made.  He did not do that.  He did not try to defend the attorney general today.

BRAND:  And he‘s under oath, too, and so he knows there are other people privy to this.  So this is all now...

MATTHEWS:  Mueller‘s under oath.  The FBI director, who just testified this afternoon...

BRAND:  Sure.

MATTHEWS:  ... knows that he could be corroborated or contradicted...

BRAND:  That‘s right.

MATTHEWS:  ... that he could be in big trouble, so he was very careful there not to give away the specifics but to allow the truth.

BRAND:  That‘s right.  And so now you have is what we lawyers would call a prima facie case.  I don‘t know whether it‘s perjury or not.  You certainly...

MATTHEWS:  Well, how can Tony Snow come on this show, as the president‘s spokesman, and deny seeing and hearing what we just heard and saw?

BRAND:  Well, he‘s not a grand jury and he‘s not a prosecutor.

FEIN:  He‘s Ron Ziegler during Watergate.  And you remember all of the equivocations that were made by Mr. Nixon, that these are just concocted allegations and John Dean is lying?  Well, John Dean wasn‘t lying.

One of the ironies there about this attempt to split hairs right now is what it‘s a reminder of to Republicans.  It‘s President Clinton, the meaning of the word “is” is.

MATTHEWS:  Yes.

FEIN:  What‘s the meaning of the word alone?  Well, this is not games when you‘re under oath and you‘re testifying with regard to an oversight function...

MATTHEWS:  OK, let me ask you this...

FEIN:  ... of Congress.

MATTHEWS:  ... the toughest question in the world.  So what?  Can those guys on the Hill, Chuck Schumer, et cetera, and Patrick Leahy, for judicial or political reasons or constitutional reasons really bring the case to this White House and this attorney general?  Can they really put him in jail for lying?

FEIN:  They cannot because they cannot enforce the law and initiate a criminal prosecution.  What they can do and what they would have to do is begin impeachment proceedings.

MATTHEWS:  Well...

FEIN:  The president has the duty to faithfully execute...

MATTHEWS:  So you don‘t think they‘re going to...

FEIN:  ... not sabotage the laws.

(CROSSTALK)

FEIN:  ... has already said he won‘t do that.

BRAND:  Let‘s remember what happened with Valerie Plame.  They resisted an independent counsel in that case.  They resisted for six months, until the house of cards collapsed and they were forced to do the right thing.

MATTHEWS:  Yes.

BRAND:  And that could well happen here, just as Bruce points out it did in Watergate.  At some point...

MATTHEWS:  Well, they weren‘t too happy with the results of what...

BRAND:  Well, yes...

MATTHEWS:  ... Fitzgerald did.  He convicted their assistant to the president for perjury and obstruction of justice, then they had to give him clemency to cover up.

(CROSSTALK)

BRAND:  Let‘s remember what happened with Valerie Plame.  They resisted an independent counsel in that case.  They resisted for six months, until the house of cards collapsed, and they were forced to do the right thing. 

MATTHEWS:  Yes. 

BRAND:  And that could well happen here, just as Bruce points out it did in Watergate.  At some point...

MATTHEWS:  Well, they weren‘t too happy with the results of what Fitzgerald did.

BRAND:  Well...

(CROSSTALK)

MATTHEWS:  He convicted their assistant to the president for perjury and obstruction of justice.

(CROSSTALK)

MATTHEWS:  Then they had to give him clemency to cover up. 

(CROSSTALK)

FEIN:  ... that the president said, if you initiate perjury, the special prosecutor, I‘m going to pardon him in advance, so that the issue is now...

(CROSSTALK)

BRAND:  Then they‘re creating more Watergate precedents for themselves at that point.

FEIN:  That is right.  And that is why you have to look at—ultimately, impeachment has got to be the road if the president does not faithfully execute the law. 

MATTHEWS:  Can you imagine people sitting in barrooms tonight talking about this administration and how they take care of their own? 

FEIN:  I think there‘s a great amount of cynicism there.  And nothing can be more corrupting than the rule of law than the feeling that there are a certain class of people, a nobility that can defy the law with impunity.

MATTHEWS:  Well, it‘s a safe place to work, isn‘t it?

Anyway, thank you, Stan Brand. 

Thank you, Bruce Fein.

You didn‘t debate much here.  I think you agreed on the facts here. 

(LAUGHTER)

MATTHEWS:  Up next: Clinton vs. Obama.  He is hitting back hard, calling her foreign policy Bush/Cheney-lite.  Is this fight breathing new life into the Obama campaign?  And, if so, why did Hillary give him a title shot?  Why did she let the number-one challenger take her on by taking him on?

I‘m wondering.  I‘m going to get the answer, the campaign top dogs.  Clinton communications director Howard Wolfson is going to be sitting right here.  And Obama chief media strategist David Axelrod is going to also be on, I think, from Chicago.

And don‘t forget to make your own campaign ad for a presidential candidate, whether you like him or not.  Coming up, upload your videos at HARDBALL.MSNBC.com.  And we will play them on the show.

You‘re watching HARDBALL, only on MSNBC.  

(COMMERCIAL BREAK)

MATTHEWS:  Welcome back to HARDBALL.

The war of words between Democratic presidential candidates Barack Obama and Hillary Clinton is turning a tad serious.  It started with Hillary criticizing Obama as inexperienced on foreign affairs, and Obama firing back at what he called a fabricated controversy.

Today, President—Senator—there‘s a mistake—Senator Obama went as far as comparing Senator Clinton‘s foreign policy to the current one of President Bush. 

Let‘s listen.

(BEGIN VIDEO CLIP)

SEN. BARACK OBAMA (D-IL), PRESIDENTIAL CANDIDATE:  If we want fundamental change, then we can‘t be afraid to talk to our enemies.  We can‘t be afraid to—I‘m not afraid of losing the P.R. war to dictators.  I‘m happy to look them in the eye and say what needs to be said. 

(CHEERING AND APPLAUSE) 

OBAMA:  I‘m happy to tell them what I think.  I‘m not going to avoid them.  I‘m not going to be—hide behind a bunch of rhetoric.  I don‘t want a continuation of Bush/Cheney.  I don‘t want Bush/Cheney-lite. 

(END VIDEO CLIP)

MATTHEWS:  Something else. 

Howard Wolfson sits in front of me right now.  He‘s communications director for Senator Clinton‘s campaign.  And David Axelrod is the chief media strategist for Senator Obama‘s campaign.

Let‘s start with you, David. 

It looks like your candidate, Senator Obama, likes this fight with Hillary.

DAVID AXELROD, CHIEF OBAMA CAMPAIGN MEDIA STRATEGIST:  Well, I think that he thinks there is an important principle at stake here. 

We have had six years of a disastrous foreign policy, Chris, that had, at its core, the sense that we can somehow punish our enemies by not talking to them, and that would produce results.  And it plainly has not, not in North Korea, and not in other places in the world.

So, he feels strongly that we need to turn the page on that foreign policy and be much more aggressive diplomatically about pushing our interests and our—as a country, forward.  So, this is an important—it‘s an important discussion to have.

(CROSSTALK)

AXELROD:  Excuse me?

MATTHEWS:  So, he‘s happy with this?  He‘s happy with this fight?  He thinks it is a legitimate, important issue between the two candidates? 

AXELROD:  Well, I think it is a legitimate and important issue.  And, absolutely, he feels that way. 

MATTHEWS:  Let me go to Howard.

Do you believe it is a legitimate difference between the two candidates? 

HOWARD WOLFSON, CLINTON CAMPAIGN COMMUNICATIONS DIRECTOR:  Well...

MATTHEWS:  Is this the real thing?  Is this the real fight that we expected for a while?

WOLFSON:  Well, it is a clear difference between the two candidates.

We were disappointed today that, after entering the race six months ago, and promising to change the tenor of our politics...

(LAUGHTER)

WOLFSON:  ... that Barack Obama is now...

(CROSSTALK)

MATTHEWS:  Are you still working this line, trying to make him meet up to his own standards by saying he can‘t fight with you guys?

(CROSSTALK)

WOLFSON:  How about that—well, do you think that—that Hillary Clinton is—is George Bush-lite? 

MATTHEWS:  OK.  I‘m asking you...

WOLFSON:  Is that an appropriate thing to say?

MATTHEWS:  Let me come back to the—not to the wording exactly, but is this a legitimate difference between the two candidates?

The one candidate, the challenger—he‘s a couple points behind, several points behind—is saying, look, I‘m willing to get out there and say right now, I want to meet with Ahmadinejad and the bad guys of this world, because I think we better stop hiding from them. 

Hillary Clinton says, wait a minute.  Don‘t get trapped into a situation where you have got to meet with these bozos, because they will play it again you. 

What do you—is that a legitimate difference?

WOLFSON:  Well, the distinction is this.  Senator Clinton believes that we need to turn the page on the Bush-Cheney diplomacy, the cowboy diplomacy that we have seen.  She‘s been pursuing that a long time.

Where you had a difference was, at the debate, both candidates were asked, will you commit to meeting, in the first year of your presidency, with this rogues‘ gallery of dictators?  Senator Obama said yes. 

Maybe they‘re planning the meetings now.  I don‘t know.  I don‘t know who is first, whether—whether it‘s...

MATTHEWS:  You think he might be—you think he might be planning to break the Logan Act right now?

WOLFSON:  No, whether it‘s...

(CROSSTALK)

MATTHEWS:  Why did you say that?  You just said you think they are planning it right now. 

WOLFSON:  Chris, I said maybe they‘re planning it right now.

MATTHEWS:  That‘s a criminal violation you just suggested.

WOLFSON:  Oh, come on. 

MATTHEWS:  No, seriously.  You‘re saying that they‘re—they‘re already meeting—planning meetings with Ahmadinejad. 

WOLFSON:  I did not—don‘t put words in my mouth, Chris.  I said... 

MATTHEWS:  Well, we can play the tape back.  You just said maybe they‘re already meeting now.

WOLFSON:  Yes, play it back.

I said—no, that‘s not exactly...

(CROSSTALK)

MATTHEWS:  All right, maybe they are already planning the meetings. 

WOLFSON:  Maybe they are. 

MATTHEWS:  What do you make of that?

You respond to that, David.  He has just said your candidate may be already out there having ex parte conversations with the dictators. 

WOLFSON:  That‘s not what I said, that...

(CROSSTALK)

WOLFSON:  ... having ex parte conversations with dictators.

MATTHEWS:  OK.  They‘re planning—they‘re maybe—are you guys planning any meetings right now with Ahmadinejad? 

(LAUGHTER)

AXELROD:  Obviously not.

And, you know, we can trivialize this whole discussion, but there are some big things at stake here.  Our foreign policy, as I said earlier, has been a disaster because of this attitude that we were going to wall ourselves off from the world and not talk to our adversaries.

But I have to take issue with one thing that Howard said.  He said—first of all, let‘s make it clear, Senator Obama said he does not want to embrace a Bush/Cheney-lite foreign policy.  He didn‘t anybody Bush/Cheney-lite.  But Howard said the senator—Senator Clinton...

(CROSSTALK)

MATTHEWS:  Well, who was he referring to? 

(CROSSTALK)

AXELROD:  Wait a second.

(CROSSTALK)

MATTHEWS:  Who was he referring to? 

(CROSSTALK)

WOLFSON:  David, who was he referring to? 

AXELROD:  He has a big critic—he has been a great critic, a strong critic of the...

(CROSSTALK)

WOLFSON:  Who was he referring to, David?  Was he referring to Senator Clinton or not?

(CROSSTALK)

AXELROD:  Howard, Howard, Howard, I understand, when things are not going well, one gets overwrought.  One tries to interrupt. 

MATTHEWS:  He‘s not overwrought.

AXELROD:  Let me finish my piece.  Let me finish my piece and you say yours.

WOLFSON:  I wonder what would happen if we weren‘t 15 points up in the polls.

AXELROD:  You can‘t say that you are a strong—you can‘t say you are a strong critic of the Bush/Cheney foreign policy, when you were a strong supporter of the centerpiece of that foreign policy, which was the war in Iraq. 

And Senator Clinton was a strong supporter of that policy and a strong defender of it, until...

WOLFSON:  You know that is not true. 

(CROSSTALK)

AXELROD:  ... the public turned on that war.

(CROSSTALK)

WOLFSON:  David, why is it the case, then, if we were such a strong supporter, that Senator Clinton and Senator Obama have the same voting record on Iraq in the Senate? 

MATTHEWS:  OK. 

(CROSSTALK)

AXELROD:  Howard, the history of this is very, very clear.

MATTHEWS:  Hillary Clinton has accused...

(CROSSTALK)

MATTHEWS:  David, give me a minute here.

(CROSSTALK)

MATTHEWS:  I want to raise a separate question here.

(CROSSTALK)

MATTHEWS:  Hillary Clinton, in that debate—and I want to get the word right—correct me if I‘m wrong—didn‘t she say that Obama was naive on foreign policy? 

WOLFSON:  She didn‘t say that in the debate.  She said that after the debate. 

MATTHEWS:  How would you describe her position in voting to authorize the war in Iraq, believing we weren‘t going to war, that Bush really didn‘t intend to go to war?  Was that naive? 

WOLFSON:  Look, she has taken responsibility for the vote.  She has been asked about this.

MATTHEWS:  But wouldn‘t you call that naive, to believe that...

WOLFSON:  No.

MATTHEWS:  ... we weren‘t going to war, when everybody thought we were going to war?

(CROSSTALK)

MATTHEWS:  I knew we were going to war.

WOLFSON:  I guess 80 percent of the country was naive, then. 

MATTHEWS:  They didn‘t think Bush would take us to war?

WOLFSON:  I think were—were—people believed that George Bush was going to do what he said he was going to do, which was to try diplomacy.  And he didn‘t. 

(CROSSTALK)

MATTHEWS:  Anybody that didn‘t think we were going to war, in the months leading up to the war in Iraq, wasn‘t paying attention. 

Anyway, Howard Wolfson.

Stay back.  We‘re going to have Howard—more Howard and more David coming back.

Stay with us.  You‘re watching HARDBALL, only on MSNBC.  

(COMMERCIAL BREAK)

MARGARET BRENNAN, CNBC CORRESPONDENT:  I am Margaret Brennan with your CNBC.com “Market Wrap.”

Panicked selling on many trading floors today sparked by mixed earnings reports, a credit squeeze, and the housing slump.  Red arrows really hit all sectors on the New York Stock Exchange, with the Dow Jones industrial average closing down some 311 points, broad-market S&P 500 also losing about 35.  And it was the second worst day of the year for the Nasdaq, which tumbled by some 48 points.

Now, one big reason that stocks are trading down, it‘s being called a credit squeeze.  Investors are worried that some of those big companies may have trouble getting the financing that they need for big mergers and acquisitions.  That could put a damper on the buyout boom that‘s been fueling the Dow‘s recent gains.

And add to that more evidence in today‘s report showing that new home sales fell more than 6 percent in June.  That is the biggest one-month decline since January. 

And the energy sector also put some pressure on stocks today.  The world‘s largest publicly traded energy company, ExxonMobil, reported record profit, but quarterly results fell short of what Wall Street was looking for.

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

HARDBALL. 

MATTHEWS:  Welcome back to HARDBALL. 

We‘re continuing our debate over the Hillary-Obama war of words over what their foreign policy would be, if elected. 

Howard Wolfson is communications director for Senator Clinton‘s campaign, and David Axelrod is chief media strategist for Senator Obama‘s campaign.

Try to explain, since you are a very smart person, what the difference is that this debate over whether we talk to these dangerous people in the world, and when we talk to them, under what conditions, what does that tell us about the two possible presidencies of Hillary Clinton and Barack Obama? 

You first, Howard.

(CROSSTALK)

WOLFSON:  Sure.

Look, I think voters are looking for the candidate with the strength and experience to make real change.  And, in debate after debate, Hillary Clinton shows that she is that candidate. 

This is the kind of answer that voters are looking for in a president, somebody who understands that we need to break from Bush-style cowboy diplomacy, but that you don‘t commit ahead of time to meeting with Castro and Chavez and the president of Iran, who is a Holocaust denier.  That is not the right way to keep America safe.  It is not the right way to practice smart diplomacy.

(CROSSTALK)  

MATTHEWS:  What was wrong with what he just said about the distinction between the two candidates? 

(CROSSTALK)

AXELROD:  Well, I think that there—that there is a distinction, in that one candidate represents change.  And he just illustrated why, which is he basically is mimicking the Bush rhetoric on how we should deal with our adversaries. 

(CROSSTALK)

WOLFSON:  I just criticized George Bush, David.

(CROSSTALK)

AXELROD:  But I want to go back to a point he made.

(CROSSTALK)

AXELROD:  I want to make—I want to go back to a point that Howard made before the break.  In explaining why Senator Clinton voted for the war, he said, well, 80 percent of people of the United States were for the war. 

(CROSSTALK)

WOLFSON:  That was not my explanation for why she voted for the war, David. 

AXELROD:  That‘s not leadership.

WOLFSON:  Don‘t take my words out of context.  And don‘t twist them.

(CROSSTALK)

AXELROD:  Barack Obama stood up in 2002 -- Barack Obama stood up in 2002 and he said we should not go to war because we are going to get mired in a civil war with ancient ethnic rivalries that would be of undetermined length, cost, consequences.  And he said it would distract us from al Qaeda and the real mission in Afghanistan. 

And now we know that al Qaeda has regenerated itself in Afghanistan, while we were mired in this war. 

(CROSSTALK)

AXELROD:  That is leadership, standing up when it is hard, not when it‘s easy, not waiting for 80 percent...

(CROSSTALK)

AXELROD:  Howard, standing up when it‘s not easy...

(CROSSTALK)

WOLFSON:  Senator Obama represents one of the most liberal...

(CROSSTALK)

AXELROD:  ... and saying the hard truths is what we need in a president.

(CROSSTALK)

WOLFSON:  David, Senator Obama represented one of the most liberal state Senate districts in the country.  You‘re telling me that it took courage from Hyde Park to be against the Iraq war?  Please.  Please, David.

AXELROD:  Howard—Howard, he was running for the United States Senate.  He was running for the United States...

(CROSSTALK)

WOLFSON:  In a Democratic primary? 

(CROSSTALK)

WOLFSON:  Oh, come on, David.

AXELROD:  He was running for the United States Senate...

WOLFSON:  OK.

AXELROD:  ... in the state of Illinois, Howard.

(CROSSTALK)

AXELROD:  And you are familiar with Illinois.

WOLFSON:  I am.

AXELROD:  Illinois is pretty much of a microcosm of the nation.  The war was as popular here as it was everywhere else.  So, that is not really germane.

(CROSSTALK)

AXELROD:  The point is that he got it right, that he analyzed what was available, and he got it right.

(CROSSTALK)

WOLFSON:  ... position that wasn‘t at all courageous.

AXELROD:  And that is what you want in a president of the United States.

(CROSSTALK)

MATTHEWS:  First, let me go to—let him answer a strategic question only he can answer.

Will this be a continuing battle, David, this issue about when to meet with foreign bad guys?  Will this be a continuing debate in the fall?

(CROSSTALK)

AXELROD:  I think, Chris, changing the Bush/Cheney policy of non-engagement is going to be a continuing debate in this campaign, not just with us, but with the Republicans. 

I noticed Mitt Romney embraced Senator Clinton‘s position today. 

Well, I think they are both on the wrong side...

MATTHEWS:  OK. 

AXELROD:  ... of this debate.

MATTHEWS:  Will this remain an issue, what you call the naivete of the other candidate?  Will this continue to be a debate?

WOLFSON:  The issue of strength and leadership in this election is a huge difference.  If David Axelrod and the Obama campaign want this election to be about strength and experience, bring it on.  We‘re up for it.

MATTHEWS:  What did you think Jack Kennedy meant when he said we should never fear to negotiate?  What do you think he meant, never fear to negotiate?

WOLFSON:  You shouldn‘t fear to negotiate.  That‘s not the same thing as saying you‘re going to commit, a year-and-a-half before an election...

MATTHEWS:  But your candidate.

WOLFSON:  No, no, Chris, let me finish—a year-and-a-half before an election to meet, within the first year of a presidency, with Castro and Chavez and the president of Iran, who is a Holocaust denier. 

(CROSSTALK)

WOLFSON:  It is one thing to say the—Bush/Cheney position is, let‘s never meet with anyone under any circumstances. 

(CROSSTALK)

WOLFSON:  Other people apparently have the position that, we‘re going to meet with everybody, any time, anywhere, without condition.

(CROSSTALK)

MATTHEWS:  The problem is, it is unlikely...

(CROSSTALK)

MATTHEWS:  First of all, it‘s unlikely, if you say don‘t meet with a Holocaust denier, that Ahmadinejad is going to change on that issue, because it‘s politically useful...

(CROSSTALK)

WOLFSON:  I didn‘t say don‘t meet with him.  I said don‘t commit to meet with them. 

(CROSSTALK)

MATTHEWS:  But your candidate said you‘re afraid to meet because of a propaganda advantage they might seize upon this.  Kennedy said don‘t fear. 

WOLFSON:  I don‘t think you should ever fear to do anything.

MATTHEWS:  OK. 

WOLFSON:  The question is whether you commit to do something.

(CROSSTALK)

MATTHEWS:  OK.

I think we have found the first campaign issue between these two candidates. 

We will be right back with Howard Wolfson and David Axelrod, the top kicks in communicating the distinction between these two front-running Democratic candidates for president.

You‘re watching HARDBALL, only on MSNBC.  

(COMMERCIAL BREAK)

MATTHEWS:  Welcome back to HARDBALL.  Here to break down the political stories of today are Sally Quinn, who so co-moderating a joint blog with the “Washington Post” and “Newsweek” called On Faith; Stephen Hayes, author of the new book, “Cheney” --  I think it‘s pronounced Cheney by some.  His real name is Cheney.—“The Untold Story of America‘s Most Powerful and Controversial Vice President;” and NBC News political director Chuck Todd. 

Chuck, break down what you just saw that.  I am amazed that Howard Wolfson and his candidate, Hillary Clinton, have decided to engage this early with someone they had such a big lead on.

CHUCK TODD, NBC NEWS POLITICAL DIRECTOR:  I think ultimately that that probably was a mistake.  I‘ll tell you, watching these two debate back and forth, I think the Clinton campaign likes that match up every time.  Howard reminds me of Hillary Clinton.  He‘s just a lot crisper in his responses. 

MATTHEWS:  But why fight on this line of taking a position somewhat to the right of Obama on the whole approach to the third world. 

TODD:  Frankly, I think if they could replay the last 48 hours, I think the Clinton campaign would.  I think they realized they probably should—they tactically saw an opening.  They took it and then they realized, oh, wait a minute, he is going to hit back.  Oh, he might get the last word.  And all of a sudden he gets to compare us to Bush/Cheney and we have to deny for an entire news cycle that we‘re not Bush/Cheney. 

MATTHEWS:  Lots of offsets here.  Let me go to Stephen Hayes.  Is this smart?  She‘s given tactically—She says I‘ll let him play the base, and I would rather hold that center, which is what she‘s been holding politically.  Is it smart to do this this early with a guy that‘s way behind her? 

STEPHEN HAYES, AUTHOR, “CHENEY”:  Yes, the key words in her comment from yesterday were irresponsible and naive.  They said it again and again.  And that‘s what we‘ve seen—

MATTHEWS:  Is naive a good choice of words for somebody who supported the president‘s authorization for war believing he wouldn‘t use it?

HAYES:  I think that‘s an understandable for them to argue. 

MATTHEWS:  Nobody believes—

HAYES:  It plays to Obama‘s vulnerability.  His vulnerability is that he‘s young and he‘s relatively new to Washington politics.  So naive works.  It reinforces that.

MATTHEWS:  Sally, why are they fighting so early?  It‘s July.  Why is Hillary, who‘s got the lead, giving a title fight to the challenger? 

SALLY QUINN, “NEWSWEEK”:  I think there are two issues here.  One of them is political and one of them is whether the issue is right or wrong.  I—my feeling is that if i had been Hillary, I might have left it alone because I think she‘s now taken on Obama as an equal.  And the fact is the new word these days is dialogue.  And so many of these dictators—quote dictators, are really sort of shallow people who are looking for respect.  And if you talk to them, you can immediately sort of get them down and get them on your side. 

(CROSS TALK)

MATTHEWS:  on Cheney, because Cheney is the kind of guy who represents to me the hard case.  He‘s not going to go negotiate with anybody.  Is it fair to say that Cheney would take the position, you don‘t deal with Ahmadinejad, for whatever reason, you don‘t deal with Castro, you don‘t deal with Kim Jong il or any of these guys.  You stiff them.  Is that the Cheney view?

HAYES:  To play off of what Sally said, it actually is for the opposite point.  You don‘t play with them precisely because it gives them respect.  It gives them stature on the world stage that they don‘t deserve.  Ahmadinejad, as Howard said several times—he‘s a holocaust denier. 

That‘s crazy talk.—ridiculous, insane position. 

MATTHEWS:  Does that mean never talk to them? 

HAYES:  Yes, absolutely. 

MATTHEWS:  Then what do we do?  How do we negotiate? 

HAYES:  We don‘t negotiate somebody who‘s denying the holocaust, with somebody who‘s killing our soldiers. 

MATTHEWS:  What do you do with them? 

HAYES:  I think you confront them.  I think you confront them in a stronger way.

MATTHEWS:  How do you do that?  What should we do with Iran? 

HAYES:  Certainly we should be having units, at the very least, taking out the Iranian Revolutionary Guards who are killing our soldiers. 

MATTHEWS:  So we should cross the border? 

HAYES:  I think if we need to cross the border, we should cross the border?  Yes. 

MATTHEWS:  You think we should be acting aggressively towards Iran?

HAYES:  Yes.

MATTHEWS:  Chuck, would that sell politically right now to go to war what Iran right now?

TODD:  No, it would be a disaster politically.  So, of course it wouldn‘t sell.  But I want to go back to this Clinton/Obama thing a minute, because I think the most fascinating part of this argument is that it was almost an acknowledgement on the Clinton side that, you know what?  The debate in the primary is about Obama. 

If you think he‘s ready to be president, you‘re supporting him.  If you have doubts, you‘re going to Hillary side.  Ultimately, we‘re having a debate about Obama and his readiness.  We‘re not having the debate about Clinton.  There is no debate about her and her readiness to be president, which is a positive for her side.  But the fact is that the debate is being dictated in some cases, or might be, by Obama.  That ultimately might not be a good thing for the Clinton side either. 

MATTHEWS:  I like the way Ron Brownstein of the “L.A. Times” looks at the Democratic party the last 30, 40 years as I‘ve been paying attention to it.  Sally, it‘s always a battle between the candidate, in this case, Hillary, who‘s very good with the interest groups.  She knows all the different groups in the party.  She plays them like an zylaphone (ph).  She knows how to work their erogenous zones. 

And then along comes this wonderfully romantic, Bobby Kennedy, Gene McCarthy, Gary Hart, Paul Tsongas, this figure that is going to change it all in a big picture way.  And that person always drowns in the water.  And the person who wins is always the interest group brilliant person.  Howard Wolfson knows how to play the groups like a banjo.  Isn‘t that the case here? 

You‘re smiling because inevitably a cynic must say the Democrats always go with their interest groups because it‘s a party that‘s a combination of interest groups. 

QUINN:  They always eat their own.

MATTHEWS:  Who‘s right?  Doesn‘t it look like Hillary will win this thing simply because she‘s better at playing to the concerns and sensitivities of people who vote Democrat?  This holocaust denial thing is brilliant.  They‘re putting this guy, whose middle name is Hussein, out there, saying he wants to go play in the sandbox with a holocaust denier.  That‘s brilliant politics if you‘re a Democrat.  And now he‘s got to deny it.  Axelrod kept saying, you hit me, that‘s not fair. 

QUINN:  I don‘t see it that way.  I see it—I don‘t think that he looks naive by saying that.  I think he looks as though someone—I just came back from a trip around the world and everywhere I went, people were interested in Obama and saying he could change the face of the United States, because he would be reaching out to people who have not been reached out to and who feel disrespected by the United States. 

I‘m not saying this is my position; I‘m just saying that the perception of Obama—

MATTHEWS:  The problem is we‘re not having a world election.

QUINN:  That‘s exactly right.  But I‘m just saying that you can look at it another way, by saying how do we want to be represented in the world today.  How do we want to be seen? 

MATTHEWS:  I share your sentiments.  But as a journalist, I have to look at the politics of this thing.  Your last words? 

HAYES:  I think if he continues down this course I think he‘s in serious trouble because it‘s unsustainable. 

MATTHEWS:  Too far left? 

HAYES:  Absolutely. 

MATTHEWS:  OK, Stephen Hayes, good luck with the book.  Chuck Todd, thank you.  We like having you here as the umpire.  Don‘t get upset, Chuck.  I had so little time, so little time. 

TODD:  I‘m not upset. 

MATTHEWS:  I‘m upset.  Sally Quinn, it‘s delightful to have you on.  Stay with the faith.  Join us again tomorrow night at 5:00 and 7:00 Eastern for more HARDBALL.  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   

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