updated 10/4/2007 12:41:12 PM ET 2007-10-04T16:41:12

Guests: David Yepsen, Jennifer Donahue, Rep. Jack Murtha, Rachel Maddow, Emily Heil, Patrick Healey, Jonathan Capehart

CHRIS MATTHEWS, HOST:  Hillary Clinton muscles her way to the top of the Democratic field.  Is she uncatchable?

Let‘s play HARDBALL.

Good evening.  I‘m Chris Matthews.  Welcome to HARDBALL.  The big story tonight: All hail Hillary.  A new poll has Hillary Clinton now trouncing her closest challenger, Barack Obama, by 33 points.  For the first time, Senator Hillary Clinton has majority support from Democrats in this country, 53 percent, up 12 points since September.  But how is Hillary the inevitable playing in Iowa and New Hampshire?  We‘ll talk to two political pros in those states in a moment.

Our second story tonight: A new poll shows most Americans want Congress to cut back funding for the war in Iraq.  Are the Democrats in Congress listening to the people who voted them into power?  We‘ll talk to one of the president‘s strongest war critics, Pennsylvania congressman Jack Murtha, who wants an Iraq tax to fund the war.

Plus: This morning, President Bush vetoed a bill to expand health insurance to children of moderate-income families.  Was it the right call?  That‘s our HARDBALL debate tonight.

But first, HARDBALL‘s David Shuster has this report on the polls pumping up Hillary Clinton‘s frontrunner status.

(BEGIN VIDEOTAPE)

DAVID SHUSTER, HARDBALL CORRESPONDENT (voice-over):  For the first time in this presidential campaign, the latest national polling shows that frontrunner Hillary Clinton enjoys majority support of Democratic voters.  According to “The Washington Post”/ABC News poll, 53 percent of Democrats support Clinton, 20 percent are with Barack Obama, and 13 percent back John Edwards.  For months, her rivals have hammered that Hillary Clinton is too polarizing.

Sen. BARACK OBAMA (D-IL), PRESIDENTIAL CANDIDATE:  This election is a turning point.  The American people get to decide, are we going to turn back the clock, or are we going to turn the page?

SHUSTER:  But the survey found that 57 percent of Democrats now believe Clinton has the best chance of winning the general election, 20 percent say Edwards, 16 percent say Obama.  The numbers mirror the ongoing Clinton domination of the political landscape.  Two weeks ago, she unveiled her health care plan.  Then she appeared on all five Sunday talk shows just as her husband, the former president, hit the airwaves to promote a new book.  Today, Hillary Clinton spoke to thousands of Hispanics.

SEN. HILLARY RODHAM CLINTON (D-NY), PRESIDENTIAL CANDIDATE:  ...

political divide.

SHUSTER:  First there is Iowa, the first major test of the 2008 nomination battle.  Polls in the Hawkeye State show the race there remains tight, with Clinton trailing Obama among likely voters.  Second, Iowa Democrats largely hate the Iraq war.  Clinton voted to authorize the war, and only now has Clinton‘s closest rival started ratcheting up his fire.

OBAMA:  If we‘re going to turn the page, then the first thing we have to do is end this war, and the right person to end it is someone who had the judgment to oppose it from the beginning.

SHUSTER:  Third, with frontrunner status comes tougher media scrutiny.  In this Sunday‘s “New York Times,” columnist Maureen Dowd wrote, quote, “Without nepotism, Hillary would be running for the president of Vassar.”

Fourth and perhaps most important, there is the issue of Clinton hubris.  Last week, the Democratic frontrunner voted with hawkish Joe Lieberman to give President Bush more authority to punish Iran.  This week, recognizing that she may be taking the anti-war Democrats for granted, Clinton voted with Democrat Jim Webb to require congressional approval before the president orders military action.

SEN. JIM WEBB (D), VIRGINIA:  She went on, I think, as a corrective measure for the other vote that she took.  So I‘m hoping that she understands now the danger of that particular amendment.

SHUSTER:  Nonetheless, at the national level, Clinton appears to be putting away Democratic concerns, and she leads her rivals among voters who are paying close attention to the race and among voters who haven‘t followed the campaign yet at all.

(on camera):  And so for now, Hillary Clinton is the undisputed favorite.  But it‘s a label that  is making her campaign cringe because it raises expectations and increases the potential Clinton damage if another candidate in Iowa beats her.

I‘m David Shuster for HARDBALL in Washington.

(END VIDEOTAPE)

MATTHEWS:  Thank you, David.

Jennifer Donahue is a senior adviser at the New Hampshire Institute of Politics and David Yepsen‘s a columnist for “The Des Moines Register.”  Let me go to the first state that‘s going to decide things, David Yepsen.  The polling in your state, what does it tell you in terms of the national polling advantage Hillary now has of 33 points?

DAVID YEPSEN, “DES MOINES REGISTER”:  The polls in Iowa are very different than the national polls.  As David Shuster mentioned in that set-up piece of his, the polls in Iowa are showing this thing a statistical tie.  “Newsweek‘s” poll has Barack Obama up by 2 points.  Now, that‘s all margin of error stuff, but you can ask Howard Dean what a big lead in the polls means right now if you lose Iowa.  It tends to evaporate everything else down the road in New Hampshire.

MATTHEWS:  Are you confident, as a guy who‘s probably the number one print reporter out there covering the Iowa caucuses coming up in January, that it will still have that power, power punch both ways, to help the winner and hurt the loser?

YEPSEN:  I think so, Chris, and I think so because of this business of these other states moving up their contests.  Everybody hates Iowa and New Hampshire, so the solution is to move their contests closer to Iowa and New Hampshire, which just makes Iowa and New Hampshire that much more important.  A winner gets a ball rolling here.  A challenger has to slow the frontrunner down.  The end result is, everybody pours it on out here.

That phenomenon is happening in both parties, particularly on the Democratic side, where you do have this three-way race for—among three candidates.  And right now, I think Barack Obama‘s better organization in this state than Hillary Clinton does.  He‘s got more field offices.  He‘s spending more time in small towns in Iowa.  Senator Clinton knows this.  That‘s why she‘s planning a trip out here to get into some of these small towns, where there are a lot of delegates to be had.  So these—the predictive value of these early national polls in Iowa is pretty limited.

MATTHEWS:  Let me go to Jennifer.  It seems to me that if you look at the pattern of the last time, where Kerry was able to move all his resources from New Hampshire to Iowa, knowing that if he lost in Iowa, he was definitely going to lose in New Hampshire, and he was smart with that strategic move—can that work for Barack Obama?  Can he win in Iowa, even if it‘s a squeaker, and still win in New Hampshire, beating the all-powerful Clintons?

JENNIFER DONAHUE, NEW HAMPSHIRE INSTITUTE OF POLITICS:  Absolutely because the higher Hillary Clinton goes, the higher the expectations get for her.  And so Obama can do a one-two punch in Iowa, come in strong here, just as you said, as Kerry did.

The other thing is that Edwards is taking numbers from somebody.  He‘s trying to make the whole thing a two-man race.  In Iowa, they‘re huddled.  Here they‘re not huddled at all.  Edwards is way below where he is in Iowa.  So it‘s more of a Clinton/Obama race in New Hampshire.  And I think his campaign right now is frustrated because they have strong organization, but they can‘t seem to get their candidate to throw some punches, throw some elbows.  And really, what you want to see him do is actually throw his hips out there, really show the voters who he is, do more than attract the crowds, but push something forward.  You know, they took his idea of change.  Now he needs to go a step forward.  If Hillary Clinton is going to say change, maybe he needs to say, you know, really change or...

MATTHEWS:  OK.

DONAHUE:  ... or power to the people.

MATTHEWS:  OK, let me go start over that same question with David Yepsen.  I‘ve been thinking through this campaign and what‘s missing.  And having watched so many campaigns and knowing about so many in history, I see one thing missing, inspiration.  I don‘t hear a candidate who‘s promising us deliverance from the track we‘re on, the track being an endless war in Iraq and probably war with Iran.  I don‘t hear someone stepping out of that rut and saying, I‘m going to deliver you to a different place, someone who‘s not just going to impress us, like Hillary does all the time, but inspire us.

Do you see that?  Do you see anyone out there running who‘s going to take the country of ours to a different place if they get elected?

YEPSEN:  Not yet, Chris, but I think Barack Obama has the best potential for doing that.  You can see that in some of the crowds he attracts—new people, young people.  They‘re interested in what he represents, a fresh face, change.  So I think he‘s got the potential for that.  He‘s not been doing some good work on the stump, so he needs to sharpen that message.

MATTHEWS:  Sure.

YEPSEN:  He needs to do better in these debates.  And I think if he does that, he can start accomplishing what you‘re talking about here.

MATTHEWS:  Let me go to Jennifer on the same question.  Are the Democrats willing to simply nominate someone they see as competent and a slight improvement on Bush, or are they looking for someone who is going to change reality, get us out of the rut we‘re on, not just be a little more smarter, smarter than Bush, but someone who‘s going to change the game?

DONAHUE:  Chris, you‘re really onto something because they‘re looking for exactly what you described, but they don‘t see it out there in the field.  It‘s almost like the last field, with Kerry and Dean.  There was something missing.  And there is something missing this time.  If you could somehow morph Hillary Clinton and Barack Obama, you would have the winner.  But they would need to be morphed.  There are some deficiencies in each candidate.  That‘s only really trumped by the fact that the Republican Party is weaker, but—and that the Democrats are pouring money into this race because they smell blood and they think they can win.

MATTHEWS:  Well, do you see—do you see Hillary taking any risks between here and January, Jennifer?

DONAHUE:  Do I?  I certainly do.  I think that she—the risk she takes is too much—too much paid media, too much frontrunner behavior.  As you know, Chris, we sat here in 2000 and talked about how George Bush wasn‘t really campaigning in the state, wasn‘t listening to voters.  And look what happened, when McCain had a landslide victory over him.  If you were Hillary Clinton...

MATTHEWS:  I remember my daughter-

(CROSSTALK)

MATTHEWS:  Did I tell you about my daughter, who was about 11 at the time?  And Caroline (ph) with was with me.  And you know, she said the difference between Bill Bradley and George W. Bush is that Bradley had something to say.  Now, he didn‘t win, but Bush had nothing to say.  And I thought that was a very telling thing.

DONAHUE:  It‘s very telling.

MATTHEWS:  He was sitting on his lead, and John McCain upset him.  Let me go back to the same question with David.  If Hillary sits on her lead and doesn‘t say anything and simply has a smart operation, smug and smart, can she get blown away here?

YEPSEN:  Yes, she can, Chris.  I mean, I think there‘s some evidence

that that could happen.  They‘re not a very nimble campaign.  It reminds me

of Ronald Reagan in 1980, when he thought he could bypass Iowa and wound up

firing John Sears in New Hampshire, or Al Gore, when he had to strip down

his campaign in 2000, move it to Nashville.  The Clinton campaign is very -

sort of top-heavy, sluggish.  It‘s bureaucratic.  She‘s got to get rid of some of that, get out from underneath that bubble, enter—allow some media people a chance...

MATTHEWS:  Right.

YEPSEN:  ... to interview her, get into the small towns of Iowa and do some retail.

MATTHEWS:  Jennifer?

DONAHUE:  And Chris, you know what?  Also, I think she‘s a big train and she is the establishment engine.  And you know how hard it is to turn the establishment around.  They think she‘s going in the right direction to win.  Whether they‘re going to win or not, they think that.  So it would take, at this point, not only Obama or Edwards really showing a surge, but also an ability for her train to turn and catch them.  If they can catch her, she‘s in trouble.  The question is, can they catch her?

MATTHEWS:  They used to say back in the old days at the Dewey campaign in ‘48 that he had a brilliant communications operation on his train as it whistle-stopped through the country, but it said nothing.  Let me ask you about Hillary Clinton.  She went on the Sunday talk shows, all five of them, made no news in five appearances.  It was a tour de force, if her goal is to say nothing.  David?

YEPSEN:  Well, I think she‘s got to start fleshing some of this stuff out.  She‘s done a good job in some of these debates.  I mean, one reason she has taken off in national polls is she‘s had some good performances in some of these debates.  So I think, you know, let Hillary be Hillary.  Let her get out there.  Quit trying to treat her like an incumbent.  She engages well.  I think it‘s one of the reasons why she‘s come up in Iowa.  I mean, six months ago, when we looked at these polls, she was back in second or third place.  Now she‘s very competitive.

So I just think they need to get closer to the ground with her and get her out of that shell, get her out of the bubble...

MATTHEWS:  OK, last question...

YEPSEN:  ... let people see her because she can become the instrument of change.  She‘s a woman in this campaign with a serious chance to become president, and that has a lot of appeal to women.  And last time I checked, the majority of caucus-goers are women.

MATTHEWS:  Let me ask you last question, same question to Jennifer.  Is Hillary‘s ascendancy, her inevitability, even, at this point, helping Rudy because Republicans know they need to beat her with the best guy they‘ve got? You‘re first, Jennifer?

DONAHUE:  OK, I‘ll tell you what.  There is not going to be a scenario where two Yankees fans are running against each other, so one of those guys is going to go.  My guess, Giuliani is going to go because I saw him at events up here today.  It was not an event, it was a photo op.  I felt I was walking through Bush 2000.

MATTHEWS:  OK.  So you don‘t think he‘s going to pull it off.  I was wondering, David, whether he‘ll benefit from Hillary‘s ascendancy.

YEPSEN:  No, I don‘t think so.  I mean, I think he‘s running a pretty poor campaign out here, not here doing what he should be.  He‘s flying all over the country.  It‘s like he‘s already moved to the general election strategy.  And I do think...

DONAHUE:  He has.  He‘s running for February 5...

(CROSSTALK)

DONAHUE:  He‘s running for February 5.  He‘s not running in New Hampshire and he‘s not running in Iowa.  He‘s running for February 5.

MATTHEWS:  That‘s where all the unit (ph) rule‘s (ph) going to kick in, though.  That‘s when he wins all those delegates, if he wins those states.  Anyway, thank you.  We learned a lot today.  Hillary‘s way out front, but she‘s getting a little careful.  Anyway, David Yepsen, thank you, sir.  Thank you, Jennifer Donahue.

Coming up: A majority of Americans right now want to cut funding for the Iraq war.  It‘s all over the polls.  But will Congress listen to them?  We‘ve got an expert coming up, U.S. congressman Jack Murtha of Pennsylvania.  He‘s against the war.  He‘s talking about paying for this war.  That‘s interesting.

You‘re watching HARDBALL, only on MSNBC.

(COMMERCIAL BREAK)

MATTHEWS:  Welcome back to HARDBALL.  President Bush is requesting another $190 billion from Congress to keep the war in Iraq going, but a new poll out shows only 25 percent or 27 percent of Americans, about a quarter, support spending that kind of money on the war.  And 67 percent, two thirds, want the funds cut.  Meanwhile, some Democrats are proposing a new tax to pay for keeping up the combat operations.  They want to tack what they call a war surcharge on top of the federal income tax.  The plan was unveiled by, among others, defense appropriations subcommittee chair Congressman Jack Murtha of Pennsylvania.  And a vocal critic of the war he is.

Congressman Murtha, do you think that even really anti-war Democrats are willing to pay for this war?

REP. JACK MURTHA (D), PENNSYLVANIA:  Well, what we‘re hearing is that people recognize what happened after the Vietnam war.  We didn‘t pay for it until later on.  Finally, Johnson proposed a surtax.  And you remember inflation for six or seven years after that.  We had a 21 percent interest rate.  We‘re putting the backs of this war on our grandchildren.

I was talking to a young reporter today and I said, The calls I‘m getting from older people from the Korean war and some from World War II are saying to me, We should have done this a long time ago.  I feel very strongly that we‘re destroying the viability of our fiscal system when we don‘t raise taxes and spend $12 billion a month in Afghanistan and Iraq.  We‘ve got to find a way to pay for this so our grandchildren aren‘t paying for it.

MATTHEWS:  What did the Speaker think of that?

MURTHA:  Well, the Speaker‘s not too happy.  She took us to the woodshed and said, This is not something we want to talk about.  But let me tell you something.  fiscal responsibility is something all of us have an obligation to.  And when I voted against the taxes all these years, so many Democrats voted—or I voted against the tax cuts, they voted for those cuts because they believed they were necessary.

But Chris, let me tell you something, we got to pay for this war, and we‘re going to pay for it one way or the other.  We‘re going to pay for it now or the grandchildren are going to pay for it.  We‘re talking about 1,500 people die a day from cancer.  We spend $5 billion a year for cancer research.  And that‘s two weeks of the war.  SCHIP—that‘s the big thing now.  We deferred a vote and a veto override.  That‘s three-and-a-half months of the war spending for SCHIP, to educate young children.  We should be spending money here in this country and not continuing to put money into a war that can‘t be won militarily.

MATTHEWS:  Let me ask you about the war.  You know, when you were fighting in Vietnam as a combat soldier, the Senate, led by people like William Fulbright, were holding hearings and educating the country about that war.  Why aren‘t the Democrats, who control the committee chairs, holding hearings every day, trying to explain on national television, on C-Span, what this crazy thing is over there about the Sunni and the Shia and the old Saddam crowd who wants to come back and the Shias that are so pro-Iranian and we‘re in the middle of all that?  Why don‘t the hearings go on so we can get some picture of what‘s going on over there?

MURTHA:  Well, I tell you, I talked to a reporter today and I was telling him how—what a transition it was from the minority into the majority.  It takes a while for committee chairmen to recognize they‘re in charge.  It takes a while for the staff to recognize.

The public is overwhelmingly for cutting off the funds.  Now, I‘ve said over and over again we‘re going to have to support the troops in the field, but if they continue to restrict these funds, if they continue to not allow us to put language like the Webb amendment, the language like we put in for fully-equipped and fully-trained, or some kind of a redeployment, we‘re going to have a problem.

But here‘s the good news, Chris.  I see Secretary Gates, I see the generals saying what I‘ve been saying for over a year.  The public now understands that we can‘t sustain this.  And in addition to that, there‘s two families.  One is making the sacrifice.  That‘s the military families.

MATTHEWS:  Right.

MURTHA:  The other are doing nothing.  One person called our office today and they said a Republican leader that they called, they asked him what sacrifice he‘s making when he said he‘s against the tax.  He said, well, I support the troops.  He says, you mean that‘s a sacrifice? 

That‘s the attitude of some of the Republicans.  This is not a Bush war anymore, Chris.  This is a Republican war.  When they continue to vote against the restrictions that are needed to withdraw the troops or redeploy the troops, it‘s their war. 

MATTHEWS:  What‘s holding them together, politically?  You have worked in the caucuses.  You know—you walk the floor all the time.  Why are the Republicans, who have these problems with the war at home—and they‘re going to face reelection and people—I‘m looking like Chris Shays up in Connecticut.  They have got ridiculously hard reelection campaigns. 

Why are they sticking? 

MURTHA:  You know, somebody said to me not long ago, they said they can support the Bush administration right down the line, right down the line, to the unemployment line. 

And, you know, the public, I can remember—and you remember this, Chris.  When I came in, in ‘74, we picked up 60 seats.  The next two years later, we picked up 53 seats.  The public was irate about what was going on in the Watergate years. 

They‘re irate about this war.  They want something to happen.  And—and they know that the Republican members of Congress...

MATTHEWS:  OK. 

MURTHA:  ... are the ones that are delaying this. 

MATTHEWS:  What did you think of Rush Limbaugh‘s comment the other day that somebody was a phony soldier because they opposed the war?  He also said they were a phony Republican, by the way, because he said Republicans couldn‘t possibly—a Republican couldn‘t possibly be against the war. 

What do you make of that? 

MURTHA:  I don‘t watch Rush Limbaugh. 

(LAUGHTER)

MATTHEWS:  You don‘t have to watch him.  You have got to hear about him. 

I don‘t—I hear about him. 

MURTHA:  Yes.  Well, a lot of his people call my office.  And, today, some called and said they were against this tax cut I was proposing. 

And my office said, are you for the war?  They said yes.  Well, then you ought to be paying for the war, not letting our grandchildren.  But an awful lot of people, more than 70 percent of the people that called our office today, thought that we ought to start paying for this war. 

MATTHEWS:  You know what the bad news is, Jack?  I remember when you came to Congress in 1974.  I remember. 

(LAUGHTER)

MATTHEWS:  That‘s a long time ago, sir.

(LAUGHTER)

MATTHEWS:  Thank you very much, Jack Murtha, chairman of the Subcommittee on Military... 

MURTHA:  Congratulations on your 10 years. 

MATTHEWS:  Oh, thank you, Jack. 

MURTHA:  OK.

MATTHEWS:  Thank you very much. 

Up next:  The McCain campaign previews an attack on Hillary Clinton‘s war position, but refuses to give the speech.  And Rudy Giuliani is on the rise in New York.  He‘s moving up, up there—political headlines all coming up next. 

You‘re watching HARDBALL, only on MSNBC.  

(COMMERCIAL BREAK)

MATTHEWS:  Welcome back to HARDBALL. 

Time now for some rough-and-tumble politics. 

Today, Hillary Clinton won the endorsement of the American Federation of Teachers, one of the largest teachers unions in the country.  It‘s a big boost from a powerful voting bloc.  The Obama campaign saw this one coming, after Obama backed merit-based pay for teachers, which that union strongly opposes. 

On the Republican side, John McCain was all set to give a speech today at a military prep school, the Camden Military Academy, in South Carolina, blasting Hillary Clinton for being two-faced on the Iraq war.  Well, the Associated Press reports that, in prepared remarks e-mailed around, McCain was going to say—quote—“The Democratic front-runner wants to have it both ways when it comes to foreign policy.  On the one hand, the New York senator voted for the Iraq war.  On the other hand, she now opposes it, sort of.”

But McCain didn‘t say that.  The McCain campaign decided to skip the Hillary attacks altogether, saying the venue wasn‘t appropriate. 

Rudy Giuliani has moved into a effective tie with Mitt Romney up in New Hampshire, according to the WMUR poll.  Romney‘s support has fallen 10 points just since July.  Giuliani‘s has increased by four. 

Today, Giuliani is out with a new radio ad running in the Granite State. 

(BEGIN AUDIO CLIP, GIULIANI CAMPAIGN AD)

RUDOLPH GIULIANI ®, PRESIDENTIAL CANDIDATE:  I have been tested in a way in which the American people can look to me.  They‘re not going to find perfection, but they‘re going to find somebody who has dealt with crisis almost on a regular basis and has had results, results people thought weren‘t possible. 

(END AUDIO CLIP)

MATTHEWS:  Well, a new “Washington Post”/ABC poll has most Republicans now saying that Giuliani has the best chance of winning the general election against the Democrats. 

Now to Atlantic City, where the mayor, Bob Levy, has gone missing.  No one has seen the guy for a full week now.  Levy is under investigation for lying about his military service for financial gain, specifically, that he lied about receiving a combat infantryman‘s badge and about having post-traumatic stress disorder, all so that he would entitled to more money.

Well, the mayor drove off in a Dodge Durango and literally has not been seen yet. 

And Republican Senator Pete Domenici of New Mexico—a good guy, by the way—intends to retire from the Senate when his term ends next year.  That will be 36 years in Congress for Domenici.  He‘s the fourth Republican senator who won‘t be seeking reelection next years, bad news for the GOP.

Some British backlash to Al Gore.  Get this.  Gore‘s Oscar-winning documentary, “An Inconvenient Truth,” has been sent to every secondary school in England.  But, this week, a British judge said that the movie promotes—quote—“partisan political views”—close quote.  Even though the judge contends to rule that the movie can still be shown, the judge says teachers need to present it as a debatable argument, not simply fact. 

Up next, the HARDBALL debate:  President Bush vetoes a bipartisan bill that would have expanded health insurance for children.  He says it‘s socialized medicine, while Democrats in Congress say his veto is heartless.  That‘s the debate.

And a program note.  Tomorrow on HARDBALL—that‘s Thursday—my wife, Kathleen, the queen, is going to play HARDBALL with me for the second hour—the second half-hour on this show.  That‘s Kathy joining us tomorrow, hasn‘t been on this show in years. 

You‘re watching HARDBALL, only on MSNBC.  

(COMMERCIAL BREAK)

SCOTT WAPNER, CNBC CORRESPONDENT:  I‘m Scott Wapner with your CNBC “Market Wrap.”

Stocks close lower, with analysts blaming concern ahead of Friday‘s September jobs report.  The Dow Jones industrials dropped 79 points.  The S&P fell seven.  And the Nasdaq lost more than 17. 

Oil prices dipped today.  Crude fell eight cents in New York, closing at $79.97 a barrel.

Bear Stearns says it‘s cutting another 310 jobs in its mortgage units.  The company had already cut about 40 percent of its mortgage staff this year. 

Yesterday, Morgan Stanley said it would cut 600 jobs from its mortgage business.  Also on the mortgage front, new applications for mortgages fell 2.7 percent last week, despite a drop in interest rates.

Meantime, globe-trotting former Fed Chairman Alan Greenspan, in Europe on a book tour, says the worst of the subprime crisis is over. 

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

HARDBALL. 

MATTHEWS:  Welcome back to HARDBALL. 

President Bush lived up to his word today, vetoing a children‘s health insurance bill that would increase health coverage for poor children to families making up to three times the poverty level, or about $60,000 a year, and up to $80,000 a year in income in some states like New York. 

The president says it‘s a case of creeping national health care. 

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES:  I happen to believe that what you‘re seeing when you expand eligibility for federal programs is the desire by some in Washington, D.C., to federalize health care. 

I don‘t think that‘s good for the country.  I believe in private medicine.  I believe in helping poor people, which was the intent of SCHIP, now being expanded beyond its initial intent. 

(END VIDEO CLIP)

MATTHEWS:  Democrats try—will try to override the veto later this month. 

So, the HARDBALL debate tonight, it‘s a hot one and right on time:  Is the president right in vetoing this children‘s health care bill? 

Rachel Maddow is a talk show host on Air America Radio.  And Pat Buchanan is an MSNBC political analyst. 

Rachel, why should the president not veto this bill? 

RACHEL MADDOW, RADIO TALK SHOW HOST:  He shouldn‘t veto this bill on policy, because this is one of the most phenomenally successful health care programs we have ever had in this country.  Expanding it would go—it would halfway toward getting rid of all uninsured kids in this country. 

In political terms, he shouldn‘t veto it because it‘s going to—it‘s the wrong thing to saddle Republicans with who are going to be running for reelection next year, on the grounds that they‘re against health insurance for kids.  It‘s a wrong political move.

MATTHEWS:  Pat Buchanan, the politics and the policy, what‘s—what‘s good about the veto? 

PAT BUCHANAN, NBC POLITICAL ANALYST:  Well, let‘s talk about the politics of it, Chris. 

Look, the Republican Party is supposed to be a party that is against socialized medicine.  You have got a doubling of the size of an entitlement program by the federal government, takes it from $25 billion to $60 billion, doubles the number of kids, almost, under it.  This is creeping socialism. 

More than that, Chris, this country is headed down the road to a massive collision with these entitlement programs, Social Security, Medicare and Medicaid, which we can‘t afford.  This country cannot be now expanding entitlement programs.  Everybody that‘s looked at these programs knows that can‘t happen. 

MATTHEWS:  What do you make, Rachel, of the moving up of the ceiling of eligibility to $80,000 in some states? 

MADDOW:  I think that makes—it takes account of what the reality is for families and the cost of living and the price of health care. 

Listen, if—if we were playing fantasy politics, instead of fantasy baseball, this—this—this bill would win the World Series.  This is a bill that expands private health insurance for poor kids, and pays for it by raising the cigarette tax.  Like, you can‘t make this a prettier bill unless you added puppies to it or something.  I mean, this is a...

MATTHEWS:  Well, it does—it does go up to three or four times the poverty level.  But you would call that poverty? 

MADDOW:  But—no, but you can‘t—listen, you‘re—this is about getting eight million kids who are uninsured in this country some sort of health—health care.  This would get rid of half of the uninsured kids in the country and get them under the private health insurance system. 

BUCHANAN:  But wait a minute.  Wait a minute, Rachel. 

MADDOW:  Yes.  

BUCHANAN:  We‘re not talking about whether they are going to be deprived of health care.  We‘re talking about who should pay for the health care of folks making $60,000 and $80,000 a year.  I think they should.

MADDOW:  But, Pat, eight million kids don‘t have health insurance right now. 

BUCHANAN:  I think they should.

MADDOW:  Nobody‘s paying for their health care. 

BUCHANAN:  But the point is not that they don‘t get cared, but who—who is paying for these things?  I don‘t think you ought to transfer the burden from folks who are making $60,000 and $80,000 a year should get something from people who are making more.  They should pay for it themselves.

MADDOW:  Who is paying right—who is paying—who is—who is paying right now for the eight million kids who don‘t have health insurance?  Those kids...

BUCHANAN:  They‘re paying—families are paying themselves or they get it free. 

MATTHEWS:  OK. 

MADDOW:  They get it free. 

MATTHEWS:  Let me...

MADDOW:  That‘s what President Bush said.  Oh, you can just go to the emergency room for treatment. 

MATTHEWS:  Let—let me ask an old...

MADDOW:  That‘s not a health care system.  That‘s a policy failure. 

MATTHEWS:  This is really about health care financing, not health care. 

Let me ask you, Rachel, where are we going to get the extra $35 billion?  Where is it going to come from?

MADDOW:  Cigarette tax, 61 cent increase on the cigarette tax.

MATTHEWS:  But that‘s not been passed.  But that hasn‘t been passed. 

MADDOW:  That hasn‘t been—that‘s what they‘re proposing to do to pay for it. 

MATTHEWS:  But—but that‘s...

(CROSSTALK)

MATTHEWS:  That‘s not part of this bill.

BUCHANAN:  Excuse me.  Chris...

(CROSSTALK)

MATTHEWS:  There‘s no reason to believe that that will happen, is there? 

MADDOW:  There‘s—that‘s what the Democrats are proposing to spend it on.  The Bush...

(CROSSTALK)

MATTHEWS:  Proposing, but I will gladly pay you on Tuesday for a hamburger today.  Once again, they‘re borrowing money, saying they will some day pay for it. 

(CROSSTALK)

MATTHEWS:  Do you really believe a cigarette tax will be signed by this president, an increase in the cigarette tax will be signed by George Bush?

MADDOW:  If Bush didn‘t sign it, I would still be in favor of this bill.  And I think 72 percent of Americans would still be in favor of it, too. 

BUCHANAN:  What are you talking about?

(CROSSTALK)

MATTHEWS:  So, we‘re going to borrow the money from the Chinese? 

MADDOW:  No, listen.

(CROSSTALK)

MADDOW:  No, listen.  Right now, listen, George Bush discussing fiscal conservatism on this issue would be like you telling me that Pat Buchanan just discovered multiculturalism right now.  It doesn‘t make any sense.

This guy airlifted $12 billion in cash...

BUCHANAN:  All right. 

MADDOW:  ... into Iraq in shrink-wrapped bricks...

BUCHANAN:  All right. 

MADDOW:  ... and didn‘t care when half of it walked off.  You can‘t discover conservatism now.

BUCHANAN:  But, all right, look, Rachel, I think you have got a valid point.  You have got a valid point, in that George Bush has not been an economizer.  But I think it‘s good that he starts. 

But let‘s take the cigarette tax.  Who do you think pays that tax?  It‘s working-class folks.  It‘s African-Americans.  It‘s people who enjoy cigarettes.  You hammer them constantly with taxes, sin taxes.  These things go after people who work for a living.  This is outrageous, that you‘re taking their money and paying for a benefit to people making $60,000 and $80,000 a year. 

MADDOW:  Pat, you can yell about sin, and you can yell about socialism, and you can call this communist, and you can do whatever you want.  I think that people in this country are ready for something to be done about health care.  And they don‘t care what names you throw at it. 

BUCHANAN:  You know...

(CROSSTALK)

MADDOW:  People want eight million American kids to have health insurance.

MATTHEWS:  Well, let me ask you...

BUCHANAN:  Rachel, that doesn‘t make it right, because want it and they may vote it. 

(CROSSTALK)

MATTHEWS:  On the merits, Rachel...

MADDOW:  Yes. 

MATTHEWS:  ... do you believe in a cigarette tax to pay for this, on the merits? 

MADDOW:  I think that a—if a cigarette tax could pay for it, yes, I believe in that.  But, if it wasn‘t the cigarette tax, I would still be for it.  This is...

MATTHEWS:  What tax would you be for to pay for it? 

MADDOW:  At this point, this is the—if there‘s one thing that‘s going to be added to the deficit, I would add this, and I would bring our troops home from Iraq to pay for it.  How about that?

MATTHEWS:  But—but—OK, well, you know, this is a marginal question.  He‘s going to stay in that war.  He ain‘t getting out of that war or not.  It‘s a question of whether we do this health care bill or not. 

(CROSSTALK)

MATTHEWS:  Bush ain‘t coming home with the troops.

MADDOW:  The health—the health care bill is $30 billion.  Bush is saying that‘s absolutely unfindable, unspendable. 

(CROSSTALK)

MATTHEWS:  Go ahead, Pat.

(CROSSTALK)

MATTHEWS:  I‘m sorry.  Pat‘s turn.

BUCHANAN:  The other night, our colleague Tim Russert hit the—hit all those Democratic candidates, where they‘re going to cut or what taxes they‘re going to raise to save these gigantic Social Security programs.  And here we are talking about increasing entitlement programs? 

MADDOW:  But you guys are completely missing the forest for the trees. 

Come on.  This president, this administration, with a Republican-led Congress for the whole first part of his term, turned the biggest surpluses in history into the biggest deficits in history.  Now, all of a sudden, there can‘t be health care for poor kids because we‘re worried about the deficit, because we‘re worried about the deficit. 

BUCHANAN:  That doesn‘t mean you keep going—if we‘re going down the wrong road, Rachel, you don‘t keep going down it. 

I credit the president with at least standing for—up against a program which, you are right, is very, very popular.  It took guts to do this.  And, when Republicans act with guts, I don‘t know whether that‘s politically smart, but it‘s about time they did the right thing. 

(CROSSTALK)

MADDOW:  The reason that he‘s standing up against this program is because this is a phenomenally successful program that is socialized medicine, in the same way that Medicare is socialized medicine and Medicaid is socialized medicine, in the sense that the government helps out in a market that‘s broken. 

That‘s incredibly dangerous to the Republican world view that government can never help. 

BUCHANAN:  Why don‘t you let...

MADDOW:  So, they have got to shut down this working program, so they can continue to say that government is the problem.

BUCHANAN:  Well, you know, I don‘t understand this.  You say the Republicans are voting—are stopping a program that would be good for them politically. 

MADDOW:  Yes. 

BUCHANAN:  Isn‘t that what we elect people to do, to act on principle, even when it hurts them politically? 

(CROSSTALK)

BUCHANAN:  For heaven‘s sakes, Rachel, I agree with you. 

Look, it‘s unpopular, what the Republicans are doing.  But, if they had done the unpopular thing again and again and again, this country would not be in the strategic, fiscal mess it is in right now.

MADDOW:  Pat, the Republican health care plan right now, the proposal for fixing the health care disaster on this program, could be written on the back of an envelope in invisible ink, and still nobody would miss it.  There‘s no Republican proposal.  The Democrats have come up with something here that would work. 

BUCHANAN:  You‘re idea is we have to have a national health care program.  And the Republicans aren‘t doing what‘s right because they‘re not going in your direction.  They‘re not socialists, Rachel. 

MATTHEWS:  All I know is this: I think we need a national health care system and the Democrats say they‘re for one.  But when it comes time to create one, they don‘t even have the guts to finance it.  If we‘re going to have a 200 billion dollar health care program, like Hillary and the others are talking about, you have to be willing to finance it.  If all they‘re going to do is a number of saying, someday I‘ll raise the cigarette tax, that‘s not exactly a profile in courage, Rachel. 

Either you‘re going to pay for this stuff or stop talking about it. 

Hillary and Barack and Edwards are all talking about national health care.  And all they can think of is some cigarette tax they know they will never pass.  Why don‘t they put up their money where their mouth is, and say, we‘re for national health.  And damn it, we‘re going to pay for it.  We‘re going to cut something here.  We‘re going to raise taxes here.  It‘s going to add up.  Why don‘t they say that? 

MADDOW:  I think whatever they proposed for paying this would pass.  Seventy two percent of people in this country want this program extended, because right now the people who pay for it are all of us who have private insurance, who are subsidizing the emergency rooms, and the kids that don‘t get health care. 

BUCHANAN:  This veto is going to be sustained.  Bush is going to win this fight. 

MATTHEWS:  That‘s a bet; we‘ll have to see if it‘s covered.  Thank you Pat Buchanan.  Thank you Rachel Maddow.

Up next, the HARDBALL round table on Hillary‘s growing lead in the polls, Bush‘s veto and whether Democrats will step up and stop the war.  This is HARDBALL, only on MSNBC. 

(COMMERCIAL BREAK)

MATTHEWS:  Welcome back to HARDBALL.  Time, now, for the round table.  Patrick Healey of the “New York Times,” Jonathan Capehart of the “Washington Post,” and Emily Heil of “Roll Call.”  Let‘s talk about this huge advantage that Hillary Clinton seems to enjoy now.  Healey, you are all over Hillary Clinton.  I watch you with great interest every day when you write about her.  Tell me, is she getting a big head over this big lead, 30, what 33 percent lead?  I‘ve never seen a lead like it. 

PATRICK HEALEY, “NEW YORK TIMES”:  Chris, they are confident.  They‘re having celebratory dinners.  There‘s a lot of pats on backs right now.  They‘re feeling really good.  You remember, back in late spring, early summer, a lot of people were saying it‘s going to be Barack and Hillary neck and neck.  He‘s going to creep up on her. 

They feel like they‘re swamping this guy, that they‘re doing a lot of damage—putting a lot of space between them and Edwards, as well.  So she feels really good.  But it‘s Bill Clinton.  It‘s Hillary Clinton.  They say you never know what‘s going to be around the corner.  We don‘t want to get over-confident. 

MATTHEWS:  Is Bill part of this new security pack?  Is he going to be careful—I shouldn‘t say that.  Does he realize how dangerous the situation is, in terms of the scrutiny that you guys are giving to the campaign now?  Everybody is looking at someone 33 points ahead.  The thought police and everybody else are going to be out. 

HEALEY:  Absolutely, I mean, the degree to which she‘s been declared a front-runner moves to a new threshold.  Real scrutiny starts bearing down on all of them.  And, you know, the campaign says we‘re going to be as disciplined as we‘ve been.  She‘s not a problem, in that extent.  She‘s very—her performance tends to be very fine-form.  But they need to be looking at all the people around her.  Not to get too over-confident, where they start making mistakes. 

MATTHEWS:  Jonathan, what do you say about this?  I thought—I‘ll admit I picked this whole thing wrong.  I thought by May of this year, several months back, based on the incredibly hot start he had back when he announced in Springfield and we were out there, that Barack would have caught up to Hillary by May.  He never really got started after the first out of the shotgun thing he did in Springfield.  What‘s going on here? 

JONATHAN CAPEHART, “THE WASHINGTON POST”:  I think a year ago, if someone said to me that Hillary Clinton would be this far ahead, this strong, this well-placed, I would have said, that might be a lot of wishful thinking.  What we‘re seeing is a candidate and a campaign that‘s working really hard for every one of those percentage points that she‘s ahead of Barack Obama.  And, you know, I‘m hard-pressed to tell you just why Barack Obama isn‘t—you know, like you said, bursting out of the starting gate. 

I think maybe—maybe it‘s because—even though he has raised more

he has raised more money than Senator Clinton in the first two quarters, and is drawing huge crowds, and tons of new contributors. 

MATTHEWS:  Yes. 

CAPEHART:  He‘s not closing the deal.  And it might be because this dichotomy of change versus experience; experience is winning. 

MATTHEWS:  Let me go to Emily on that.  It seems like if you look at the voting blocs, and I guess I‘m old-school enough to do that.  Look where Hillary is winning.  She‘s winning, I believe, among African-Americans.  She‘s leading among women.  She‘s leading among older people.  She‘s clearing the bases, in terms of poor people, people with lower school—lower educations.  All of the basic elements of the Democratic party, except the college crowd, she‘s winning in. 

EMILY HEIL, “ROLL CALL”:  Well, the college crowd is a very interesting and hard to get a handle on sort of group.  What Hillary is doing is she‘s playing to her strong points to get to the parts of the base that she has.  Health care is a huge issue for her.  That plays well with those segments. 

MATTHEWS:  Women with needs. 

HEIL:  Women like Hillary.  And, of course, that was expected.  She‘s doing everything she can to get the parts of the base where she was expected to win. 

MATTHEWS:  But, Emily, how can she get away with leading a party by 33 points that‘s so totally against this war?  We had the number on last night, four out of five Democrats want the Congress to be much tougher in taking on this war policy.  And yet, Hillary doing that sort of interesting back and forth play she does on the war, where she‘s hawkish, in terms of Iran, hawkish in terms of keeping troops in Iraq.  Yet says the right things most of the time about ending the war. 

How can she get away with that pyramid play in a party that‘s so overwhelmingly anti-war? 

HEIL:  I think she‘s doing something really interesting here.  She‘s actually running a general election campaign from the get-go. 

MATTHEWS:  How is she getting away with it? 

HEIL:  I think she‘s not necessarily—the Democrats are so eager to win, you know, against a Republican candidate, that they see her as electable.  And therefore, she‘s getting the vote. 

HEALEY:  According to the Clinton people, she‘s getting away with it because Barack Obama and John Edwards are not holding her feet to the fire.  You know, their confidence level is so high that a Clinton adviser told me the other day, if Barack had spent the spring and the summer going after her on every, you know, little change, little nuance on Iraq policy, saying, you know, there she goes again, they could have done some real damage to her. 

But instead, Barack has been, from their point of view, stuck in this box of the politics of hope, where he can‘t go after her in the traditional way. 

MATTHEWS:  They put him up on the pedestal.  He likes it up there.  He gave a speech on nuclear disarmament the other day.  Is he just too National Public Radio?  You all know what I mean.  He‘s too above the grit of politics.  Jonathan, you‘re chuckling.  Please explain. 

CAPEHART:  I‘m chuckling because that‘s actually a very vivid description of maybe what‘s going on with Senator Obama.  I think it was Pat who just said that the senator has painted himself into this box, into this corner of the politics of hope.  And when you talk about the politics of hope, you really can‘t criticize the front-runner.  And also, when you‘re up on that pedestal, it seems as though, when you paint yourself into that corner, you‘re kind of afraid to get down.  You can‘t get down from the pedestal. 

MATTHEWS:  We‘ll come right back.  We‘re going to get down a bit more with our round table.  It‘s a great round table tonight.  You‘re watching it, HARDBALL, only on MSNBC.

(COMMERCIAL BREAK)

MATTHEWS:  We‘re back with HARDBALL round Table and how sweet it is;

Patrick Healey of the “New York Times,” Jonathan Capehart of the “Washington Post,” and Emily Heil of “Roll Call.”  Emily, I want to start with you.  It seems to me that the more Hillary does well, and she is doing swell, 33 points up, the more it builds a case for Rudy, because Rudy, according to latest poll numbers I‘m looking at, 55 percent according to Republicans, according to the “Washington Post” poll -- 47 percent of Republicans according to our NBC poll, both out in the last couple days, all say that Republicans think that Rudy is the giant-killer.  He can beat Hillary. 

Is that going to be his biggest booster rocket?  He‘s the one that can. 

HEIL:  That would be a fascinating match up.  Rudy Giuliani versus Hillary Clinton?  It would be so New York.  It would be so fun I think for people watching the election. 

MATTHEWS:  Well, for us.  For me.  It would be great for the “New York Times,” I think. 

(CROSS TALK) 

HEIL:  They would have a field day. 

MATTHEWS:  The “New York Post,” they could put wood on this every day.  It would be bad news, good news.  It would be like the Mets and the Yankees.  It would be great stuff.  I‘m getting into my syncopatic thing here.  Let me go to Patrick on this.  Does Hillary know that she‘s boosting Rudy? 

HEALEY:  They have an idea that, you know, the extent to which she looks unbeatable.  She looks inevitable, you know, is going to make the Republicans say, you know, let‘s—we‘re going to care less about finding someone who meets all these party litmus tests.  We need to find someone who can beat her.  And the extent to which Rudy can develop—and he‘s definitely nurturing this—an image that he‘s the one who can slay her, it‘s definitely going to help him. 

MATTHEWS:  Do you think—before we go to Jonathan—do you think when they get in the room together that he‘ll definitely be the one that‘s calm and confident?  And she‘ll be the one sweating?  Or maybe he‘ll be the Nixon in this duo. 

HEALEY:  It‘s hard to predict, you know—

MATTHEWS:  Come on. 

HEALEY:  Well, no.  Rudy has—

(CROSS TALK)

MATTHEWS:  Come on, Patrick Healey.  You‘re so sharp.  You‘re so smart.  Have the greatest job in the world.  Take a chance.  Who is going to be sweating, Hillary or Rudy?  You‘ll never do this. 

HEALEY:  Judy and Bill. 

MATTHEWS:  Let me go to Jonathan, who is an editorial writer and can take a chance.  Who‘s going to be sweating? 

CAPEHART:  Chris, you know what, I don‘t think either one will be sweating.  You can‘t forget, the two of them were supposed to go up against each other when Hillary ran for—

MATTHEWS:  And who dropped out? 

CAPEHART:  Well, Rudy dropped out for various reasons. 

MATTHEWS:  Yes, like he didn‘t want to fight her because she had the lead.  It was New York State, too. 

CAPEHART:  Come on.  He had more baggage than that.  But also, remember, he also revealed his prostate cancer diagnosis.  I think both have been chomping at the bit, particularly Rudy‘s been chomping at the bit to go after Hillary Clinton.  And if he could take her—the whole point was, he runs against her for the Senate.  And he takes her down and he becomes the giant-slayer.  And he becomes perfectly positioned to run for president now. 

Well, now, he‘s getting a second shot at it.  I think a Clinton/Giuliani match up would be really incredible.  And personally, I think in that entire field, he is the one person who should make her sweat.  Whether he will make her sweat is the question. 

MATTHEWS:  So, Patrick, why doesn‘t Hillary pick Ed Rendell, the governor of Pennsylvania, just kill Rudy‘s chances to pick up Pennsylvania, which is the whole salient her.  Rudy‘s opportunity to pick up on the Bush vote is clearly in the east, New Jersey, Pennsylvania, maybe Ohio.  Pick up some opportunity there.  They already have Ohio.  Pick up some eastern, more ethnic cities, where people like gritty people like Rudy. 

Put Rendell in there and stomp them, trump them. 

HEALEY:  She sort of leans towards that.  She sees herself as the blue collar candidate, you know, in all of this, that she‘s got—she‘s tougher than Barack and Edwards put together, from her point of view.  So it will be interesting.  If Rudy is the nominee, and you still got Mike Bloomberg talking about it, because he doesn‘t think Hillary can get a majority—

MATTHEWS:  Not going to happen. 

HEALEY:  If Hillary is the nominee and Rudy is the nominee, he is going to—

MATTHEWS:  Don‘t get greedy, Mr. New York.  You want three New York candidates. 

CAPEHART:  I‘m with pat on this.  If it‘s a Clinton-Giuliani race, pay attention to Bloomberg. 

HEIL:  It‘s a subway series. 

MATTHEWS:  I don‘t buy that.  I think you‘re all wrong.  I think Mike Bloomberg knows how to spend his money.  He is not going to spend 200 million dollars on nothing. 

(CROSS TALK)

CAPEHART:  How much money did you say, Chris? 

(CROSS TALK)

HEALEY:  New York, New Jersey, Connecticut, there‘s places that Bloomberg can play.  Bloomberg‘s point of view is that Hillary will not get a majority of the vote.  If she‘s only going to get a plurality and Rudy is going to throw everything off, there‘s some kind of opening, possibly, for a Mike Bloomberg. 

CAPEHART:  That‘s right. 

MATTHEWS:  Unlike Ross Perot, he‘s not insane.  Anyway, thank you very much Patrick Healey, what a great discussion this has been.  And Jonathan Capehart, and Emily Heil.  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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