updated 8/17/2007 10:31:49 AM ET 2007-08-17T14:31:49

Guests: Eugene Robinson, Frank Donatelli, Lawrence Korb, Dan Gross

DAVID SHUSTER, MSNBC ANCHOR: So much for trusting General Petraeus.  Next month‘s Iraq progress report will not be written by him, but will be written by the White House team that produced mission accomplished and no, we are not kidding. 

Hello everybody, I‘m David Shuster in for Tucker Carlson. 

All summer long, President Bush has been buying himself time for the Iraq war by mentioning at every opportunity General David Petraeus.  Suspend judgment on Iraq, said Mr. Bush, until we hear from the top U.S.  commander this September.

Well today, White House officials confirmed the general will not actually produce the report given to the American people and post it for all to be seen.  That report will be written by the White House.  General Petraeus will brief the president and testify to Congress.  But President Bush and his aides will control what the overall report says and how it is framed.

In a moment we will talk about this new controversy over the Iraq war with a former assistant secretary of defense. 

Also, tonight, campaign politics.  Republican frontrunner Rudy Giuliani is telling crowds we can end illegal immigration.  But in the 1990s, Giuliani said exactly the opposite.

(BEGIN VIDEO CLIP)

RUDY GIULIANI, PRESIDENTIAL CANDIDATE:  We are never, ever going to be able to totally control immigration to a country that is as large as ours, that has borders as diverse as the borders of the United States. 

(END VIDEO CLIP)

SHUSTER:  Tonight, Giuliani versus Giuliani and the rest of the Republican field. 

On the Democratic side, John Edwards is speaking bluntly about Democratic frontrunner Hillary Clinton.

And later, Wall Street took a nose dive through most of the day and then rallied at the end.  What does it all mean for all of you?  If the economy is really as solid as the Bush administration maintains, then why are so many investors in panic mode?

But we begin tonight with the biggest decision facing our nation this fall, whether to keep the Iraq war going or bring the troops home.  In just four weeks, the American people will be given a progress report on Iraq.  Today, a White House spokesman was asked, who will write the report?

(BEGIN VIDEO CLIP)

GORDON JOHNDROE, WHITE HOUSE SPOKESMAN:  Just like the July 15th report of just over a month ago, it is a report written by—submitted by the president.  Therefore, the White House staff, the NSC staff. 

(END VIDEO CLIP)

SHUSTER:  The difference this time is that the White House has been referring all summer long to General David Petraeus and has been suggesting the report would be his.

Joining us now are the “Washington Post” Eugene Robinson and legendary Republican strategist and former Reagan White House political director Frank Donatelli. 

Frank, why can‘t the White House let David Petraeus say whatever he wants, report whatever he wants?

FRANK DONATELLI, REPUBLICAN STRATEGIST:  Well, he is going to testify in open session in the Senate or in the Congress, and I think that‘s very, very important.  I mean, you have two separate functions here, David.  You have Petraeus is going to be giving a report as to what‘s happening on the ground in Iraq.  But the ultimate policy makers are the executive branch and the legislative branch.  They‘re the ones that are going to have to formulate policy.

SHUSTER:  But given the president‘s credibility problem on the Iraq war for the last four years, wouldn‘t it make more sense just to say, OK, we are going to trust General Petraeus to give us exactly the assessment he sees and then we‘ll have that policy fight separate from that?

DONATELLI:  Look, I think the administration would be nuts not to use as much of General Petraeus as they possibly can because as you say, he has more credibility than anyone right now.  I think it‘s just a question of framing the report so that it does speak to the 15 or so benchmarks that the report talks about, but you‘re going to get a very strong dose of General Petraeus when it comes to the testimony. 

SHUSTER:  Eugene, will you trust the report if it has been scrubbed by the White House?

EUGENE ROBINSON, WASHINGTON POST:  Well, I think the only chance the White House has, that the country will really put faith in the report is if the nation believes it comes from General Petraeus. 

It‘s what the president has been telling us for months.  We all had the impression, certainly, that the general was going to be writing the report. 

I think if it is seen as another piece of paper from the White House or something that has been scrubbed and made kind of politically correct by the White House, I think it will have the opposite impact from what the White House.

SHUSTER:  That‘s where it seems this is going.  The “Washington Post” reported in the last couple of days there were at least conversations in which the White House thought about not having Petraeus testify publicly.  Instead, you‘d have Secretary of State Rice and the Secretary of Defense Gates testifying publicly, Petraeus would do it sort of behind the scenes.

But then the White House backed down under pressure from Congress.  Yet, today we have the White House saying yes, of course it‘s the White House and the NSC that will writing the report, after General Petraeus has a conversation with the president. 

ROBINSON:  I think this is kind of an interplanetary discussion.  The president is on one planet when it comes to Iraq.  He has his policy and I think he is committed to it.  So whatever General Petraeus reports, the president, I believe, will find the positives in it that justify the course of action he really wants to continue to take. 

I think the question will be how Congress sees the report, and I think he has a better shot at a fair hearing from Congress if it comes from the general and not from him.

SHUSTER:  And Frank, some of the people who were infuriated over the way this was developing over the last couple of days were Republican members of Congress who said to the White House no, Petraeus is going to testify publicly and furthermore, you‘re going to cause yourself a lot of problems if it is not clear that this report speaks for him. 

DONATELLI:  Yes, it was a trial balloon and I think it was a very bad idea.  I‘m not sure that the White House really was serious about this.  I think maybe they were throwing out a lot of options and this was one of them. 

Look, I agree with Eugene.  If the administration is going to win more support for their policy in Iraq, you are going to need a big dose of Petraeus on this. 

The one thing I would caution again is he can testify to a degree as to how we are doing as far as the benchmarks are concerned, but he isn‘t the ultimate decider of fact.  He gives the facts, but based then on those facts it is up to the Executive Branch and Congress to formulate policy. 

SHUSTER:  There was a fascinating editorial today by John Podesta, who was Bill Clinton‘s White House chief of staff who was suggesting that lame duck status is not a guarantee for President Bush, that if he keeps his agenda positive, finds common ground, uses the executive power wisely, he can still accomplish a lot left in this term.  Are there any similarities between the last year and a half of the Clinton administration and what President Bush is facing?

ROBINSON:  I think in theory a president can mitigate lame duck status by reaching out and finding issues on which you could forge bipartisan consensus.  I‘m having trouble figuring out what issues the president is going to work on, how he is going to accomplish that. 

Immigration is a kind of issue that you need that sort of broad consensus about.  A lame duck president doesn‘t have to worry about expending political capitol on it.  That didn‘t work. 

I don‘t think he is going to go back to Social Security.  What is he going to do? What issue is going to pick?  I don‘t know the answer to that. 

SHUSTER:  Frank, is there one issue you can think of where the Democrats and Republicans in the White House can compromise on?

DONATELLI:  The one that occurs to me is education, No Child Left Behind.  They were able to come together years ago and pass something.  It seems to me, the differences are not so vast if they both wanted to come together to pass a bill, they might be able to do that.

SHUSTER:  But the issue of education, I believe, is going to be blown away by this debate we‘re going to have this fall over Iraq.

But in any case, Frank Donatelli, GOP strategist and Eugene Robinson are coming back later.  We‘ll talk about Iraq again on the other side of the break. 

Coming up, President Clinton‘s former chief of staff, as we just said, has now weighed in on whether President Bush is a lame duck.  As you heard the answer is somewhat surprising.  He says that the president does not have to be a lame duck.  We‘ll talk it over again a little bit later.  Plus, the debate over immigration is back, and it got nasty on the Republican side of the presidential campaign.  All that and more is just ahead.  You‘re watching MSNBC.

(COMMERCIAL BREAK)

SHUSTER:  The September update from General David Petraeus from Iraq is the next scheduled landmark in the course of President Bush‘s remaining 17 months in office.  Skeptics in the Washington press corps wonder aloud today about the fact that the Bush administration, not General Petraeus himself, will pen the actual report document. 

The administration dismisses the skepticism, noting that Petraeus will testify publicly on his view of on the ground circumstances in Iraq after months of the troop surge.  Is skepticism well founded or is the administration correct to accuse the state of creating a controversy where none exists?

Here with his view is Lawrence Korb, a senior fellow of the Center for American Progress and he joins us here in Washington.  Thank you very much, Mr. Korb.

What‘s your reaction to the Bush administration handling this report now admitting—saying, no, it‘s not General Petraeus who will be writing this, it‘s the White House?

LAWRENCE KORB, CENTER FOR AMERICAN PROGRESS:  Well, they want to get the first word out.  They went to ensure that whatever General Petraeus says supports their own policy, so if in fact he would not be as supportive as they might not like, they can come out first and that will be the first story.  Then you‘ll put General Petraeus in an awkward position of going before the Congress and contradicting the commander in chief.

SHUSTER:  I mean we counted today, some of the research we did for this show and for “HARDBALL,” at least 25 different times over the last three or four weeks where President Bush said David Petraeus, wait for David Petraeus.  David Petraeus will report in September.

And yet, now it becomes sort of clear that yes, Petraeus will have some impact, but the same people who brought us mission accomplished, the same people who said, things are going well are the same people who are going to be writing this report. 

KORB:  Well not only writing, but speaking about it.  Look what they did when they gave the benchmark report here a couple of weeks ago.

The Iraqi government didn‘t meet any of the 18 benchmarks, but they made it seem like they had met eight of them.  In other words, by putting if you will a spin that they wanted on it, by saying well, they made a little progress here or they did talk about it here.  And the headline reads well, they met half of them.  No, that‘s not true.  If you read the report, they met none of the 18 benchmarks. 

SHUSTER:  Let‘s talk about the idea the administration is putting forward that in fact it doesn‘t matter because there‘s still some security progress that is being made and that will create more breathing room.  Do you buy that?

KORB:  Nonsense.  The whole purpose of the surge, the president said, look the reason they‘re not making political progress is that they haven‘t had breathing space. 

Give me 30,000 more troops, six more months and then we‘ll see.  Well, he‘s got more, he‘s getting nine months, he‘s got the 30,000 more troops, still no political progress.  In fact, half the cabinet posts aren‘t filled.  The parliament is on vacation.  And so basically, even if General Petraeus can say security is improved, the whole purpose was not just to improve security.  It was to get them to make the benchmarks.

SHUSTER:  One of the reasons the Bush administration, the White House have such credibility problems is because of the statements that have been said.  And I want to read something that the Center for American Progress, your organization complied and gave to us and this is a series of quotes from top administration officials and various politicians over the last two and a half years. 

May 2005, Vice President Cheney, “I think they‘re in the last throes of the insurgency.”  October 2005, General David Petraeus, “Developments over the next several months will be critical.”  November 2005, Senator John Warner, “The next six months is a critical period.”  November 2005, Senator John McCain, “The war‘s outcome will be seen within the next several months.”  November 2006, Prime Minister Maliki, “Our forces will be ready by June 2007.”  January 2007, Secretary of State Rice, “At six months, we will know.”  February 2007, Senator John McCain, “We can know fairly well in a few months.”  August 2007, this month, Vice President Cheney, “We‘ll know a lot more in September.”  President Bush this month, “This summer is a critical time for the new strategy.”

And then Michael O‘Hanlon in a column that everybody in the White House has been passing around and urging us all to read and to consider.  Michael O‘Hanlon, “Give it six more months or so, maybe nine more months.”

KORB:  They keep moving the goal posts, they hope that Americans forget what they have said before.  They‘ll say, well just look at the situation now. 

The fact of the matter is that they are nowhere close to getting the reconciliation, which is necessary for Iraqis to stop killing each other. 

It doesn‘t matter how long you stay.  Until they do that it won‘t make any difference.  And since President Bush has given that speech in January—OK, about 600 Americans have died.  No place close to it. 

We are losing a battalion‘s worth of soldiers and marines, killed or wounded a month, while the Iraqis have made no progress.  That‘s what they are fighting for, for the Iraqis to make it, and they‘re not.  So it‘s time for us to set a date to get out, to give the Iraqis the only incentive we have left with them.

SHUSTER:  I want to ask you about a report from last week that I just found incredible, that a lot of us haven‘t really spent a lot of time focusing on.  Something like 190,000 weapons that the United States has given to the Iraqis have suddenly gone missing in Iraq and may in fact be used against U.S. troops.  Is that something that should concern us or is that just part of the cost of doing business there?

KORB:  Very definitely.  My colleague Brian Katulis and I have been arguing for the longest time.  Stop arming the Iraqis because you don‘t know where this stuff is going.  The fact of the matter is that these weapons are going to be used against Americans and against other Iraqis.

SHUSTER:  Lawrence Korb, senior fellow at the Center for American Progress, thanks for coming in, we appreciate it.

KORB:  Thanks for having me.

SHUSTER:  It is a border battle between Rudy Giuliani and Mitt Romney.  Some say they have both have jumped the fence on this issue.  Who wins this battle? There‘s another battle right now between Hillary Clinton and Karl Rove or wait, is it Barack Obama or could they be one and the same?  This is MSNBC, the place for politics.

(COMMERCIAL BREAK)

SHUSTER:  Illegal immigration has been infuriating the conservative base of the Republican Party for most of the past political year. 

President Bush‘s support of comprehensive immigration reform turned his party against him.  And John McCain‘s support of similar proposals has all but killed the Arizona senator‘s chances of winning the GOP nomination. 

Now the immigration issue has two Republican front-runners, hammering each other hard.  And at the moment, it is Rudy Giuliani on the defensive.  Here‘s what he said recently in South Carolina. 

(BEGIN VIDEO CLIP)

GIULIANI:  We can end illegal immigration.  I promise you we can end illegal immigration.

(END VIDEO CLIP)

SHUSTER:  Now, listen to what Giuliani said about immigration back in 1996, when he was not a Republican presidential candidate. 

(BEGIN VIDEO CLIP)

GIULIANI:  We‘re never, ever going to be able to totally control immigration to a country that is as large as ours, that has borders that are as diverse as the borders of the United States.  If you were to totally control immigration into the United States, if you were to totally control the flow of people in the United States, you might very well destroy the economy of the United States. 

(END VIDEO CLIP)

SHUSTER:  As you might imagine, Rudy‘s rival Republicans are having a field day with all of this.  That‘s especially for Mitt Romney, who has been frequently painted as a flip-flopper. 

Is it Rudy‘s turn now?  “The Washington Post‘s” Eugene Robinson joins us now again in studio and legendary Republican strategist and former Reagan White House political director Frank Donatelli is here as well.  And he also just said he‘s an expert on 1970s rock bands.  We‘ll get to that in a minute. 

But Frank first, Eugene, this whole issue of Giuliani versus Giuliani, how much does stuff like this hurt him?

ROBINSON:  I guess he changed his mind.  I guess that‘s what he said, I changed my mind.  I reevaluated the situation based on new data.  It hurts him, potentially on the issue and on some other issues as well, but what is he going to do? He can‘t say now what he said in 1996 and expect to win the Republican nomination.  That‘s for sure.

SHUSTER:  Frank Donatelli, Mitt Romney is saying, oh Rudy is flip flopping, which is sort of ironic coming from Mitt Romney of all people of all the issues that he has changed positions on.  But, is this an issue?

DONATELLI:  Well, immigration is a big issue as far as the Republican Party is concerned.  That‘s very clear what happened to President Bush‘s proposals. 

Look, here is essentially what you have with Romney and Giuliani.  You‘ve got two - I think it‘s fair to say, moderate politicians within the context of the Republican Party, that governed as moderates in New York City and Massachusetts respectively, that are now seeking the nomination of a conservative party, and they are both tacking to the right very heavily. 

They are looking for an advantage to see who can get to the right of the other.  Rudy is having difficulty with issue to video.  Peter King, Congressman Peter King, who was an ally of Rudy‘s, pinned a piece today or yesterday in which he attacked Mitt Romney for flip-flopping on the same issue. 

SHUSTER:  And in fact, it was “The Washington Times,” I believe where he said illegal immigration was not on Mitt Romney‘s radar as governor and Peter King accused Romney of now engaging in exploitation because Romney said on the campaign trail that his plan would end illegal immigration. 

DONATELLI:  My view has always been as strong as the Republican base feels about this that in a final analysis, the party is going to make its decision on who the nominee is going to be on issues other than this. 

Just historically speaking, how you have to govern as president issues of national security and economic policy, primarily when we get closer to the primaries, that really count, are going to take center stage.

SHUSTER:  Interesting.  One of the attacks that Mitt Romney made on Rudy Giuliani in the last week is he said that New York City had become a haven for immigration while Giuliani was mayor.  Does that kind of charge stick?

ROBINSON:  A haven for illegal immigration?  New York City is a city of the quintessential city of immigrants. 

And Rudy Giuliani knew how to be mayor of that city just as Mitt Romney knew how to be governor of extremely liberal Massachusetts. 

I think Frank is right.  I think they‘re both, obviously trying to get to the right.  They are both going to have quite a bit of back pedaling to do or complete reverses of direction, and that will create opportunity for them to shoot at each other across the fence, I think. 

SHUSTER:  We had Mike Huckabee, who was—came in second on the Iowa straw poll, the former governor of Arkansas.  We had him on the air in that seat yesterday.  Compelling guy, he did pretty well in Iowa.  Is there a chance for him to muscle into this debate that Rudy Giuliani and Mitt Romney are having over issues like immigration, gain some traction based on what happened this weekend and pull a surprise?

ROBINSON:  He can certainly try.  I think there is room in this race for the authentic, died in the wool conservative. 

If the Republican Party wants to nominate somebody who has been a reliable, Republican conservative, for any length of time, it ain‘t Mitt Romney and it ain‘t Rudy Giuliani. 

They are going to look elsewhere.  And I think that‘s one reason why people are anxiously anticipating the entry of Fred Thompson into the race, which we have been anticipating for sometime now. 

SHUSTER:  And Frank, did you ever imagine that somebody who was pro-gay rights, supports abortion rights, supports gun control, now just five months before the first votes are cast in Republican caucuses, would be leading the Republican field?

DONATELLI:  On this program several months ago I said, absolutely not.  But I‘m beginning to change my mind.  I think Rudy is developing some staying power. 

I think it does speak to the hierarchy of issues that Republicans are going to be considering in 2008 where foreign policy to a lesser extent, and economic policy is going to dominate as opposed clearly to 2004 and 2000, when social issues were more important.  Rudy‘s trump card is leadership.  Whatever else you think about me, I am a strong leader who can wage the war on terror.  That covers a lot of ground.

SHUSTER:  Before we end this segment, do you want to try to work in say a reference to, I don‘t know, The Carpenters?

DONATELLI:  You were talking about Romney and Rudy going at it, and I said, to quote The Carpenters, they have only just begun. 

SHUSTER:  In other words, it‘s going to get worse, but will it get worse on something like immigration or can we expect to see through the fall the battle will become much more where Rudy wants it, and that is on issues of security, who will best protect you?

DONATELLI:  Everybody has their seminal issue.  Rudy has leadership.  I think McCain is still in it.  He has the commander in chief mantle.  Romney is desperately trying to establish the strong, credible, conservative mantle. 

It‘s going to be—you know, the St. Louis Cardinals won the World Series last year, and they got on a roll at the very end.  In this primary process, if you get on a roll at the very end, win a couple of primaries, the situation changes dramatically.

ROBINSON:  Everybody is going to have to play on Rudy‘s turf eventually, everybody is going to have to talk about security. 

SHUSTER:  Because even in Iowa, you‘re convinced, that there‘s still concern about the next 9/11. 

ROBINSON:  The war is still going on.  That‘s the big issue. 

SHUSTER:  Eugene Robinson, Frank Donatelli are still sticking with us.  We will talk about the Democrats on the other side of this break. 

One wants out of the White House, we‘re talking about a Republican of course.  The other wants back in.  What has brought Hillary Clinton and Karl Rove back to campaign fist cuffs?

And Elizabeth Edwards weighs on what she believes is behind the country‘s love/hate relationship with Hillary Clinton.  TUCKER returns after this.

(COMMERCIAL BREAK)

(MARKET REPORT)

SHUSTER:  Clean up and recovery is under way in Peru, where an 8.0 magnitude earthquake struck just south of its capital, Lima.  The United Nations estimates that at least 450 people have been killed and more than 1,500 have been injured.  Both numbers are expected to rise.  Joining us now on the phone with the latest from Lima is NBC News‘ Mark Potter.  Mark, give us a sense about how the recovery effort is going. 

MARK POTTER, NBC NEWS CORRESPONDENT:  Well, it has been difficult, David, as you can imagine.  It‘s rough terrain and a complicated situation out there.  As you indicated, that death toll is up over 400, and throughout the day it has been rising.  Rescuers say the more they look, the more they get into the outlying areas, the worse it gets.  Now they are saying that some 17,000 homes were destroyed and some 80,000 to 90,000 people have been left hopeless. 

Here in Lima, the capital, where I am now, frightened residents felt the hurricane—excuse me, the earthquake.  There were aftershocks.  The buildings swayed.  But the damage is relatively light.  One hundred five miles to the south, however, it‘s an entirely different story, along the coast and towns, such as Pisco and Ica. 

There rescuers found bodies in the streets.  They were stacked up in hallways in the hospitals.  Makeshift morgues were set up in town squares.  In some areas, entire neighborhoods were wiped out.  The adobe homes, traditional homes made with adobe bricks, were certainly no match for the earthquakes and they came tumbling down. 

David, in two of those towns there were churches where people had gathered last night for Catholic services.  In Pisco 200 people were killed in one church when the roof and the walls came tumbling down.  And in Ica, another 17 people were killed.  Rescuers said today, as they began their efforts, the hardest part initially for them was getting to the disaster site, because many of the roads were destroyed, bridges were knocked down. 

On top of the damage, those roads were crowded and blocked by the frightened residents trying to get out of the area.  David?

SHUSTER:  Mark, it sounds like they are having a difficult time just getting to the area south of Lima. 

POTTER:  It‘s very tough.  It‘s a long drive anyway through mountainous territory and now this complicating it.  We are talking about the relatively big towns in that area where they are having difficulty getting to.  There the little pueblos, the villages out in the mountains, that are even more difficult.  They haven‘t tried to get to those yet.  They have a long road ahead of them, a difficult road.  As the rescuers have said, the more they look, the worse it gets. 

SHUSTER:  NBC News correspondent Mark Potter reporting from Lima, Peru.  Mark, thanks very much.  We appreciate it.   

POTTER:  Thank you. 

SHUSTER:  Engaging in rhetorical battle with Karl Rove is tricky and perilous business, but the Hillary Clinton campaign appears willing to take the risk.  After Rove attacked Senator Clinton on the Rush Limbaugh radio show as fatally flawed and so weak on national defense, she expressed near glee that she merited attacks from the so called architect of the Bush administration. 

Referring to Rove‘s attack, Clinton spokesman Phil Singer took extra risk by saying it sounds like Mr. Rove and Senator Obama are reading off the same set of talking points.  Can Hillary Clinton come out ahead versus the crafty Mr. Rove?  Or is she unwittingly playing into the hands of the Republicans or perhaps, Barack Obama? 

Here to discuss it are the “Washington Post‘s” Eugene Robinson and legendary Republican strategist and former Reagan White House political director, Frank Donatelli.  Frank, what do you make of this?  That‘s a good introduction, isn‘t it. 

FRANK DONATELLI, REPUBLICAN STRATEGIST:  That‘s a fabulous introduction.  I should leave right now. 

SHUSTER:  What do you make of this battle between Hillary and—now

for Phil Singer to take it an extra step.  Never mind it‘s a battle between

Rove and Hillary.  Now they are twisting it, and putting it on the Obama

campaign, or at least saying it sounds like Barack Obama.  That seems to go

DONATELLI:  I think both of them love this and it‘s good for both of them.  Think about it, would Hillary Clinton rather be attacking other Democrats or would she rather be going after the White House that all Democrats dislike?  Every Democrat wants to be in that position.  Remember when Elizabeth Edwards picked a fight with Ann Coulter, of all people?  Because she was part of the right wing cabal. 

It‘s much better if you are attacking Republicans than attacking Democrats.  Conversely, Karl Rove and the White House relish the opportunity to take a shot at the leading Democrat right now.  It works to both of their advantages. 

SHUSTER:  But, Eugene, for Hillary Clinton‘s campaign to suggest that Karl Rove is now sort of using talking points that Barack Obama might have used or vice versa, that seems to cross the line. 

EUGENE ROBINSON, “THE WASHINGTON POST”:  First of all, I can‘t disagree with the legend here.  But, you know, it was sticking a needle in.  This contest between Hillary Clinton and Barack Obama is getting very interesting.  Clearly, it has been heating up.  Each sees the other as the major impediment to the nomination.  And so, you know, I think you‘re going to see more of this. 

This is kind of gratuitous, yes.  But that‘s what you‘re going to see. 

SHUSTER:  Some of the fascinating poll numbers, when you look at them with Hillary and Barack Obama is that Hillary is actually doing much better than Obama when it comes to sort of rural, down scale voters.  Obama is appealing more to the highly educated.  Obama had this sort of famous incident in July, captured by “Newsweek Magazine,” where he was apparently talking to Iowa farmers and talked about the prices are going up, and the price of Arugola at Whole Foods—and the farmers were like, arugola, what‘s arugola.  There are no Whole Foods.   

ROBINSON:  One learns as one goes through a campaign like this.  Barack Obama is going to a lot of places he has never been before, in terms of his first big national campaign.  He hasn‘t been on the national scene that long.  One doesn‘t talk to Iowa farmers about arugola.  It‘s—he is going to try to popularize his image, I think.  And we‘ll see if he can do it. 

SHUSTER:  To be fair, Frank, there was Hillary Clinton at the Iowa State Fair and apparently she didn‘t look like she fit in when she was touring around looking at the butter cow, eating corn dogs and the pork rinds.  It‘s not exactly a match made in heaven. 

DONATELLI:  This strikes me as an episode of “The Simple Life,” doesn‘t it?  I don‘t know if either of these folks really feel at home in rural America.  I guess the good news, Gene, is that I don‘t know that rural America is a huge slice of the Democratic electorate. 

ROBINSON:  True, and Rudy Giuliani isn‘t really comfortable around cows either. 

SHUSTER:  I want to get to the guy who is trying to get into the mix, and that is John Edwards, who is actually polling even with Clinton and Obama in Iowa.  Last night on HARDBALL, he had a pretty interesting sound bite where he described Hillary Clinton and what‘s at work with her.  Let‘s watch. 

(BEGIN VIDEO CLIP)

JOHN EDWARDS (D), PRESIDENTIAL CANDIDATE:  The reality is people in this country either love Hillary Clinton or they don‘t.  That‘s just where she is. 

(END VIDEO CLIP)

SHUSTER:  That‘s a blunt thing for John Edwards to say. 

ROBINSON:  Yes, it is, but it‘s true.  Look at her numbers.  Her positives and negatives, 47 or 49, or 49 and 47.  She has very high negatives and she has good positives now, too.

SHUSTER:  That statement, Frank, doesn‘t exactly inspire confidence, if you‘re a John Edwards supporter, and your candidate is suddenly saying, some people are going to love her.  Some people are going to hate her, as if it‘s not up to John Edwards. 

DONATELLI:  Senator Obama said basically the same thing on the front page of the “Washington Post” this week.  The fact is, of all the presidential candidates, she inspires the most positive and negative feelings of all.  The good news for her is that I don‘t think Democratic primary voters are in a mood this year to make their vote based on who can bring the country together.  They are an ornery group right now and they‘re looking for red meat. 

SHUSTER:  Fred, what about the argument that some people are making, some critics of John Edwards are making that by having Elizabeth Edwards go out there and criticize Hillary Clinton, criticize Barack Obama, as she did on health care issues this week, that it somehow emasculates John Edwards.  Is that really in play, as for as primary voters are concerned? 

DONATELLI:  I think there is something to that.  I really do.  We now have the most aggressive set of spouses we have ever had in a presidential campaign.  These are people that have their own independent existence.  They are quite opinionated on issues and so forth.  I think the spouse should be talking about their husband or wife and let the negative campaigning to others. 

SHUSTER:  Frank Donatelli, the legendary Republican strategist, and Eugene Robinson, the legendary “Washington Post” columnist, thank you both. 

It was another volatile day for the stock market.  What does this trend mean and how will we see the economy come into play in the 2008 election? 

Plus, Elvis isn‘t being remembered only in the U.S.  Wait until you see and hear how Israel commemorated the 30th anniversary of the King‘s death. 

(COMMERCIAL BREAK)

SHUSTER:  A dramatic late rally saved the day on Wall Street this afternoon, a bright spot after a punishing slide over the last few weeks.  And there are new worries that the once blistering real estate market is cooling.  All of this is coming on the heals of another recall of imported goods from China.  What does it all mean for the U.S. economy as the election season kicks into full gear? 

Let‘s ask Daniel Gross.  He reports on business issues for “Newsweek.”  He‘s a long time friend, but even if he wasn‘t, I would happy happily promote his latest book—it‘s terrific—the title is “Pop,” why bubbles are great for the economy.  Dan, thanks for joining us.

DAN GROSS, “NEWSWEEK”:  Thanks for having me, David. 

SHUSTER:  Dan, the stock market is off by 10 percent this summer. 

Explain what‘s going on and whether or not ordinary Americans should care. 

GROSS:  We‘re seeing a lot of crazy gyrations, down two hundred points, up a hundred points.  It all has to do with fears about credit.  We have just finished a several year period that I call the Henny Youngman (ph) economy.  Henny Youngman used to say, take my wife, please. 

For several years, lenders were saying, take my money, please.  They were doing zero percent car financing and giving mortgages to anybody who could breathe.  Companies could borrow as much as they wanted to buy other companies.  The assumption was that as long as people had jobs, and the economy grew, that people would pay back their loans.  And if they couldn‘t, they could always refinance their way out of trouble. 

What‘s happened in the last few weeks is people have realized that a lot of these loans, particularly sub prime mortgages and even regular mortgages are going bad.  The economy is slowing down.  That‘s causing everybody who lends money to freak out, to stop lending money, to raise interest rates.  And that has seizing up the markets. 

Credit is the fuel that makes the stock market and the economy go. 

And now there is fear that this fuel will become scarce and very expensive. 

SHUSTER:  So if I understand you correctly, the problem isn‘t just then for people who have mortgages, who cannot meet their obligations, but also investors who see the economy slowing down, and therefore that explains why the stock market is lower.  Is that right? 

GROSS:  Well, it‘s spilling over into the stock market primarily through trading in financial institutions.  In other words, people are now worried about these big banks, big mortgage lenders.  They constitute about 20 percent of the overall economy and lend a lot of money for people to do mergers and acquisitions, which helps keep other stocks afloat.  So there is this great fear that if credit is not available, if loans don‘t get paid back, many companies in the market will suffer.  And that‘s why you see a lot of these stocks falling. 

SHUSTER:  Dan, the president, as you know, and the White House, they say the economy is fundamentally strong.  Do you agree with that? 

GROSS:  It‘s fundamentally not bad.  Here, again, we have one of these issues where the White House sees reality a certain way and the American people see it another.  There was a recent poll where two-thirds of people said they thought the economy was in recession already.  We are really nowhere near a recession, but for many people, relatively slow growth, their wages not rising, interest rates rising, making things more expensive, rising fuel costs, concerns about health care, pension benefits, et cetera, all those factors make people feel as if the economy is not doing so well. 

The economy is growing.  It‘s kind of chugging along with all these issues.  But a lot of individuals feel that they aren‘t doing so well. 

SHUSTER:  Dan, you also write a lot about politics.  How is this playing as far as the political campaign?  Are any of the candidates speaking articulately about the economy?  And will their plans make any difference or is it just talk at the margins? 

GROSS:  Well, I think the place where you see most talk is around health care.  Hillary Clinton is campaigning on that.  She ran an ad the other day that talked about if you don‘t have health insurance in this country, you are invisible to the administration, which provoked a very strong reaction. 

Obviously, on the Democratic side a lot of talk about health care.  Rudy Giuliani tried to come out last week saying, I have some domestic policy as well, aside from fighting crime, and gave a proposal about tax breaks for people to buy health insurance.  But when a woman asked him at a town meeting how am I going to this?  It still costs, ten or eleven thousand dollars, he said, I don‘t know. 

That sums up the divide you have generally on the Republican side, an approach that says, the existing system isn‘t so bad.  And through some tax cuts, some tax credits, people will be able to buy their own.  The Democrats saying, we have to come up with some sort of comprehensive solution, that it‘s time to guarantee health care to everybody.  One of the wild cards in this is Mitt Romney, who, in one of his last acts as governor of Massachusetts, enacted a universal health care program for his state.  He is now running against that as almost socialist in nature. 

SHUSTER:  Dan Gross, you are such a great author, but you ought to do more TV, as I have been telling you for years.  Thanks for coming on and explaining it all for us.  We appreciate it.  Dan Gross with “Newsweek” magazine. 

Wedding bells will be ringing for Matthew McConaughey and Jenna Bush.  No, they aren‘t engaged to each other.  They aren‘t the only famous people whose marriage plans came to light today.  We‘ll bring you the details when we come back.

(COMMERCIAL BREAK)

SHUSTER:  Now, to the segment you have all been waiting for.  The man who always has good credit and pays his bills on time, Bill Wolff. 

BILL WOLFF, MSNBC VICE PRESIDENT:  You have no idea, Shuster.  No idea.  Please, no last names, friend.  Like Tofu or Michael Jordan‘s back up, I am a poor substitute for Willie Geist.  One thing I want to follow up on Frank Donatelli that he did mention—I don‘t always agree with Frank.  He‘s right.  The Saint Louis Cardinals are the world champs buddy.  They won again today. 

That‘s not what we‘re here to talk about today.  We are here to talk about matrimonial news, David.  It‘s widespread, presidential, muscular, and deeply troubling.  First, Jenna Bush, the daughter of George and Laura, the twin sister of Barbara is now the fiancee of Henry Hager of Virginia.  Mr. Hager popped the question yesterday in Maine.  He is a grad student, an MBC candidate at UVA.  He is 29 and his dad is reportedly a prominent Virginia Republican. 

His father-in-law to be also a prominent Republican.  Now, another famous Texan whose party affiliation is listed not as Democrat or Republican, but as constant, has also reportedly taken himself off a very busy market.  According to “Star Magazine,” which to my knowledge has never been wrong, well-muscled and usually shirtless, Matthew McConaughey has proposed to head turning Brazilian uber beauty Camilla Alvis.  And she has reportedly said sure or yes or some version thereof. 

The “Star Magazine” says a spring wedding is the hope.  No report on what, if anything, old Matt McConaughey will wear.  As a journalist, you know that these things happen in threes.  It has come to light today, thanks to the “Atlanta Journal Constitution,” that one-time prime suspect in the Jon Benet Ramsey case, Mr. John Mark Carr is also engaged.  The 42-year-old person put a ring on the 23-year-old finger of Brook Simmons. 

They hope to marry soon.  Carr says he wants to be treated like everybody else. 

SHUSTER:  Hey Bill, Note to self, we should book Brooke Simmons because there is a story there. 

WOLFF:  Funny you should say that, David.  Now, I am not joking.  Tonight, on the live—MSNBC Live with Dan Abrams, 9:00 eastern, 6:00 p.m.  pacific, John Mark Carr, special guest.  And if you think I‘m kidding, tune in and find out what a truth telling I am. 

Now, David, if you are planning on smuggling luxury cars, and I‘m not saying that you are, but I don‘t know you that well, avoid the Philippines.  This actual videotape showing what the Philippine government does to smuggled luxury cars.  And they do it with heavy machinery for everyone to see.  And they do it in order to discourage luxury car smugglers. 

Who knew there was such a thing.  This smashing wrecked 18 cars, including BMWs and a Lincoln Navigator.  Total value of the cars, 652,000 dollars.  Total value of the tax revenue forsaken, 217,000 dollars.  And the total value of petrified luxury car smugglers, priceless.  Makes a tow with the dreaded boot, with which I am personally familiar, seem charming, Dave.

SHUSTER:  Bill, as somebody who is also familiar with fires, as far as a car heating up, I would happily send my most recent car to the Philippines. 

WOLFF:  We are not going to name brands because we respect our sponsors, Dave.  There is more evidence that America is falling behind south Asia in yet another critical era, bizarre record setting human behavior.  Dateline, India; that man is Richie Sexina (ph).  Behind him an airplane weighing close three tons.  Between his teeth a rope and away they go. 

Mr. Sexina has reportedly wanted to set world records of whatever variety since he was ten years old.  This footage represents his attempt to be the greatest ever puller of an airplane with his teeth.  It‘s a noble pursuit.  Credit to him and his family.  He tried, but Richie is going to have to go back to the dental floss and cleaners and try again, because he failed to pull an airplane with his teeth the record of 820 feet. 

I‘m not sure what‘s more amazing, the fact that he actually tried to pull a plane with his teeth for 820 feet, or the fact the somebody somewhere on this mysterious planet already has, Dave.

SHUSTER:  That‘s great.  Why is it that they are so obsessed with world records over there in India? 

WOLFF:  They are obsessed with them here too, buddy.  You ever heard of the state of Florida?

Finally, as you and everyone else know, today is the 30th anniversary of the death of the King, Mr. Elvis Presley, who passed away on this day—possibly on the commode—in 1977.  That day was marked with worldwide remembrances, seances and impersonations.  The celebrations reached as far away as the holy land of Israel.  This footage from the Elvis American Diner on the Jerusalem/Tel Aviv highway, where they had a day-long tribute to Mr. Presley. 

Among the favorites over there are “Hound Dog,” “Jailhouse Rock” and “Hunk of Burning Love,” Dave. 

SHUSTER:  Bill Wolff, you are the best.  Shalom everybody.  HARDBALL is coming up next.  They have a great interview with Jim Cramer on the economy.  You don‘t want to miss it.  HARDBALL with Chris Matthews starts right now.

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

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