updated 12/20/2007 10:59:58 AM ET 2007-12-20T15:59:58

Guests: Sen. John McCain, Michael Isikoff, James Pindell, Holly Bailey

CHRIS MATTHEWS, HOST:  Can John McCain be this year‘s comeback kid?

Let‘s play HARDBALL.

Good evening.  I‘m Chris Matthews.  Welcome to HARDBALL, from the campaign trail, at the Common Man Cafe up in Windham, New Hampshire.  We‘ve spent time today with Republican presidential candidate John McCain.  Can he come back and win New Hampshire and win the whole thing?  Well, tonight my New Hampshire interview with John McCain.

And we take a hard look at those soft new TV ads the candidates are running on this eve of Christmas.  Are these ads bringing good will to men, or are they exploiting religious differences?  We‘ll ask CNBC‘s Donny Deutsch.

And nasty new questions tonight about whether the president and the vice president themselves OKed the burning of those CIA torture tapes.

But first, lots of new polls out today, so let‘s pick the polls apart.  The new Reuters/Zogby national poll shows Rudy Giuliani now barely holding onto his lead at 23 percent, with—catch this—Mike Huckabee at 22 percent, Mitt Romney at 16 percent.  So the Republican race is dead even at the national level between Giuliani and Huckabee.

On the Democratic side, Hillary Clinton leading Barack Obama 40 to 32, with Edwards at 13 -- 40 to 32.  So Hillary Clinton‘s national lead over challenger Barack Obama has been cut to single digits, 8 points now.

In Iowa, the Insider Advantage/Majority Opinion poll shows Mike Huckabee is still at number one with 28 percent, Mitt Romney second at 25 and Fred Thompson at 10 percent.  So that‘s a tight two-way race in Iowa on the Republican side between Mike Huckabee and Mitt Romney.

On the Democratic side in Iowa, John Edwards is now leading Hillary Clinton 30 to 26, with Obama coming in third at 24 percent.  So that‘s a tight three-way race among Edwards, Clinton and Obama out in Iowa.

Up here in New Hampshire, a new CNN/WMUR poll shows on the Republican side that Mitt Romney is leading John McCain 34-22, with Rudy Giuliani at 16.  So McCain is now within striking distance here.  Especially if Romney gets beaten in Iowa, McCain could win in New Hampshire.

The same poll shows Democratic candidate Hillary Clinton is leading Obama up here 38 to 26 in New Hampshire, with John Edwards down at 14.

Plus, the new NBC News/”Wall Street Journal” poll asked voters what should be the top two priorities for the federal government?  Well, the polls show the top two issues, Iraq and health care.  The news here is that Iraq has now dropped as the top priority from 46 percent in November, just a month ago, to 36 percent now.  It‘s even with health care as the number one issue among voters.

The big question is, if Iraq continues to fade as an issue in this campaign, who‘s going benefit the most?  Which candidate is going to come out on top in a calmer period?

And we‘ve got your “Politics Fix” tonight from the campaign trail out in Iowa.  NBC News is reporting long-shot Tom Tancredo will likely quit the race for president tomorrow.

But earlier today, I caught up with Republican presidential candidate John McCain, who‘s every bit in this race.  Here we are with John McCain here in New Hampshire.

(BEGIN VIDEOTAPE)

MATTHEWS:  Senator, thank you.  Are you concerned about the burning of these torture tapes?

SEN. JOHN MCCAIN (R-AZ), PRESIDENTIAL CANDIDATE:  Yes.  Yes, I am.  And you hear that there were judges that said that that should not take place.  I‘m told that there were people in the White House who said that shouldn‘t take place.  And even if it was cleared with everybody, it still contributes enormously to the cynicism and skepticism in the world about what America does to people who are in our custody.

And so I think it was very wrong.  Whether it was illegal or not, we‘re obviously going through the process with the judges.  I understand there‘s a story today that the judge has ordered an administration—I think it‘s administration people—to come before his court tomorrow.

MATTHEWS:  Are you concerned that administration people at the highest level, Alberto Gonzalez, the attorney general, and Harriet Miers, the White House counsel, and Addington with the vice president, and someone from the National Security Agency all were involved in a meeting where this was discussed before those tapes were destroyed?

MCCAIN:  I think if there was a meeting—and I don‘t doubt the media reports, but if there was a meeting, it should be fully explained if that issue was discussed.  You can‘t have something like that happen which would give the appearance that the CIA is a rogue agency.

MATTHEWS:  When the president‘s counsel is in a meeting like that, and the president‘s attorney general, the man he appointed, and the chief of staff to the vice president were at a meeting, do you that worry the principals themselves, the president and the vice president, were giving the go-ahead to the destruction of this evidence?

MCCAIN:  I think...

MATTHEWS:  Does that worry you as a possibility?

MCCAIN:  Well, yes, because I think most subordinates don‘t act on a major thing like that without their bosses‘ say-so.  But I‘m confident that now we will have a pretty complete investigation, either through the attorney general and/or through the courts.

MATTHEWS:  Do you think we should find out whether the president was involved in the go-ahead to destroy these tapes?

MCCAIN:  Sure.  I think we should take the investigation wherever it leads.  But I would be surprised, very much surprised if the president were involved in that decision just because I don‘t think he would do such a thing.

MATTHEWS:  It‘s hard to keep up with the way people look at things like torture.  You‘ve had firsthand experience.  Are you surprised that you‘re sort of the only one, the only voice in your party that‘s expressed really passionate concern about the misuse of the United States‘ authority when we have someone in our custody?

MCCAIN:  Well, it concerns me when people think that somehow that it‘s effective.  It gives reliable and unreliable information.  But the thing that concerns me most of all, Chris, is the moral standing of the United States in the world.  By the way, I‘m not the only Republican.  Colin Powell has weighed in heavily on this, as have...

MATTHEWS:  Another soldier.

MCCAIN:  It‘s interesting.  Those who have served in uniform are uniformly against such a thing, and those who haven‘t seem to think that it‘s effective.  It‘s not effective.  It‘s not reliable.

We‘ve tried Japanese for war crimes after World War II who waterboarded American prisoners of war.  Now, how do you then justify—if we tried Japanese for committing war crimes, how can we justify doing that same thing?  So there‘s many arguments I can have, whether it be the moral high ground, whether it be effective or not and whether we think that—well, let me put it this way.  I believe we‘re going to win this war against a radical Islamic extremists on the ideological battleground and that...

MATTHEWS:  We‘ll be the good guys.

MCCAIN:  We‘ll have the moral high ground.  You lose the moral high ground when you do something like that.  Let me relate one instance that I had recently.  I was in Iraq.  I met with a former high-ranking member of al Qaeda.  I asked him, what was the reasons for their success?  He said two.  One was the lawlessness and total chaos after our initial victory because we didn‘t have control of the country, and two, Abu Ghraib.  Abu Ghraib, he said, was his greatest recruiting tool.

MATTHEWS:  Yes.  You have...

MCCAIN:  I rest my case.

MATTHEWS:  Well, you have some hostages to destiny yourself.  You‘ve got service people in your family.

MCCAIN:  Yes.  Yes.  And also my constituents and—what Colin Powell and a lot of the military worry about, of course, as you well know, is that if we do this to people, then what‘s going on happen in future wars, not against al Qaeda, but if we‘re at war against another nation and they decide that they‘re going to torture people because—our men and women in the military because we did.

And let me just add one quick—why do you think it is the British didn‘t torture German pilots during the Battle of Britain, where the survival of the British empire, the island, was at stake and they captured German pilots?  I‘ll tell you the main reason is because they knew that British pilots were going to be in the hands of the Germans.

MATTHEWS:  Pretty soon.

MCCAIN:  OK?  So anyway, it just—it baffles me.  It baffles me that people could say that the United States of America would get the reputation in the world for doing such things.

MATTHEWS:  What do you make of Governor Romney being somewhat different in his view than what you have?

MCCAIN:  You know, I‘ve had—I had a fairly spirited discussion with him at a debate, and I just said, I don‘t think you understand the issue if you would condone such behavior.

MATTHEWS:  This race here up in New Hampshire—up here—we look out the window—the snow, by the way, doesn‘t go away until May here!

(LAUGHTER)

MATTHEWS:  Let me ask you about—you‘ve been going through the snows of New Hampshire, and the latest polling we‘ve got out tonight has you in the top two, and I think it‘s fair to say without pushing it that you two seem to be out there alone now, you and Governor Romney from the nearby state of Massachusetts.  Do you have to beat him here in his own bailiwick to call it a victory for you that night, on the 8th?

MCCAIN:  You know, Chris, I have to, quote, “win,” but whether I “win” or not is up to you and others.  In other words, the expectation level, how you do compared to what is expected...

MATTHEWS:  How about getting the most votes?  Is that a win?

MCCAIN:  I think that‘s a win, but...

MATTHEWS:  Clinton last time won by—he lost by 8 points to Tsongas, the former governor—senator from New Hampshire—from Massachusetts, and he called himself the “comeback kid.”  Can you pull a Clinton?

(LAUGHTER)

MCCAIN:  You know, I think...

MATTHEWS:  Are you as quick (INAUDIBLE) to claim victory here?

MCCAIN:  I‘m not sure you get away—pull that off twice!

(LAUGHTER)

MCCAIN:  I‘m not sure.  But in other words, somebody said, you know, How can you win in Iowa, you know?  And it is exceeding expectations is obviously a very big part of this thing.  You and I have known too many times where someone was expected to win big.  They didn‘t win very big, and all of a sudden, they were losers.

MATTHEWS:  Sure.

MCCAIN:  So it‘s expectations level.

MATTHEWS:  I remember Muskie was supposed to win up here by a certain amount, and one of his staffers said, If we don‘t get 50 percent, I‘ll cut my throat.

MCCAIN:  Whoops.

MATTHEWS:  Well, he should have.

(LAUGHTER)

MATTHEWS:  Anyway, let me ask you about authenticity.  Without again

biasing anything, it seems like your comeback in the polls—and it‘s real

and Obama‘s thrust in the polls and are being driven by the sense that you two are who you look like.

MCCAIN:  Yes.  And it may be a reexamination, in my case, of the candidates.  I think that the endorsements don‘t lead someone to say they‘re going to vote for you, but I think they say, I‘ll have another look at this individual.

MATTHEWS:  Right.

MCCAIN:  And I think also that...

MATTHEWS:  I mean, do you think Mr. Lieberman, your colleague in the Senate from Connecticut, a hawkish Democrat—do you think he helps you up here with the independents?

MCCAIN:  Enormously.  Enormously.  But I also think the fundamental here is that so many—such a large percentage are still undecided.  As you well know from many years back, New Hampshire citizens are undecided a lot, but there‘s more undecided, I think, than there has been at any time in the past because there‘s no establishment candidate.  There‘s no Ronald Reagan, Bush one, Bob Dole, Bush two.  There‘s no establishment candidate here, and so I think we‘re going to—and 42 percent of the voters now are independent registered.  So how that independent vote goes and which side they decide to vote on is going to be a fascinating—we‘re going to be in for a fascinating evening.

MATTHEWS:  Are you concerned about this election getting so focused on religion?  I never saw so many religious messages to come on TV.  I was up this morning, Mr. Huckabee, Governor Huckabee, with a very religious ad, Rudy Giuliani with kind of a more light-hearted, more secular religious ad.  Your ad didn‘t do that, that I recall.  What‘s this—is this now a battle of who‘s the most Christian?

MCCAIN:  No, but I think that it seems to be a lot of emphasis on that.  But I really think that Governor Huckabee‘s popularity has a lot do with his performance in the debates and his likability.  In other words, he comes across as a very kind of...

MATTHEWS:  Right.

MCCAIN:  ... of decent person who has a good sense of humor—that line he had about Jesus had a good enough sense not to run for public office.  So I—the thing I regret about this debate is that we have not talked more about health care.  We‘ve not talked more about education, the war, Iran, you know, a lot of these...

MATTHEWS:  Well, let‘s do that right now.

MCCAIN:  OK.

MATTHEWS:  We have a few minutes.

MCCAIN:  Sure.

MATTHEWS:  I was impressed by Joe Lieberman, a good friend of yours, endorsing you in the way that he did.  And I said, Well—looking for news, which is my job, I said, What‘s the difference between him and the president we have now, the president of the United States, George W. Bush?  And will he be better than Bush?  And he said, yes, he‘ll be better than Bush.  He said, He‘ll be better.  And I said, Why?  And he said, Because he‘ll be more open, that Bush does have a bit of stubbornness, and that you‘ll be open.

So there I come to you with the endorsement from your friend, Joe Lieberman, and I ask you, Is that a correct endorsement?  In other words, are you going to be more open on issues—well, let me ask you more positively.  Are you a guy who can see the other side?

MCCAIN:  Yes, and I can reach across the aisle.  I‘ve proved that on many occasions.  But the thing—number one, of course, is to win the struggle against radical Islamic extremism.  But we got to restore trust and confidence in government, and you‘ve got to do that by frequent press conferences, by going on television, even if it‘s C-Span, and of course, HARDBALL...

MATTHEWS:  Right.

MCCAIN:  ... carries it.  You‘ve got to increase the level of communications because there‘s such skepticism out there.

MATTHEWS:  If you win, we‘ll cover your press conferences.

MCCAIN:  Thank you, sir.

MATTHEWS:  OK, let me ask you about...

MCCAIN:  And maybe some (ph) -- you may regret that.

(LAUGHTER)

MATTHEWS:  Well, let me ask you about those—if you‘re open-minded to negotiation, is there any way to unite this country around very difficult foreign policy questions?  Let me start with one, Iran.  Is there a way to build a 70-some percent majority in this country where most people substantially agree with the policy?  Is that possible?

MCCAIN:  Yes, because I think that progress in Iraq affects Iran, Syria and the entire region.  Yes, I do.  I think it‘s got to be explained to people.  There‘s got to be a—listen, I‘ve got to explain to people I don‘t want to sit down across the table from the president of Iran as long as he‘s sponsoring terrorist organizations, as long as he‘s dedicated to the extinction of the state of Israel.  But if he wants to communicate, there‘s plenty of ways to communicate without me enhancing his prestige, sitting across the table from him.

Those kinds of things have to be explained to the American people.  And look, you travel around.  You know as well as—the level of skepticism about government is higher than I‘ve seen it.  I don‘t know if it‘s higher than you‘ve seen it.  You go back to Tip O‘Neill.

MATTHEWS:  Yes, well, I‘m looking at issues like WMD and the particular question of nuclear weapons.  And we weren‘t able to find any.  Maybe they‘re there somewhere in Iraq and we haven‘t found them yet.  The National Intelligence Estimate—well, the National Intelligence Estimate says we don‘t have an immediate near and present danger from Iran right now.

But I‘ll tell you one thing about something I do cover, and that‘s politics.  And up here and across the country, for the first time, Iraq is receding as a current campaign issue.  It‘s gone down from 46 to 36 percent as the number one mentioned issue.  What does that tell you about your prospects?

MCCAIN:  Well, I say thank God.  I think it‘s gone down, obviously, because it‘s off the front pages because the violence is down dramatically.  And I want to emphasize al Qaeda is not defeated.  They‘re on the run, but they‘re not defeated.  And there are still enormous challenges in Iraq.  Been a lot of good news.  Suicide bombers are the hardest thing to counter in warfare.

Could I go back to Iran one second?  I think that NIE may have misled us to some degree because I think that the weaponizing of nuclear weapons is the easiest part.  And if they continue the enrichment process, then I think we‘ve still got a major challenge on our hands.

MATTHEWS:  But if they‘re going build a weapon, why wouldn‘t they be building a weapon?

MCCAIN:  I think because you can wait until you have sufficient enriched material and then move forward with the weaponization, as well.  If they had (ph) taken the Russian deal or they had halted their enrichment of the uranium, I would feel a lot better.

Switching back to Iraq again, I‘m glad it‘s fading from the front pages because that‘s the only sure sign of success.  But I hope even though it has receded as an issue—and I say this with great selfishness—that people would recognize that I‘m the guy that opposed Rumsfeld and supported this strategy, which I think would help them make a judgment, would help them make a decision about my judgment.

MATTHEWS:  Will troops in Iraq be an issue in the next presidential election?  Will we still have so many troops in Iraq?  I really need to know this from you.  Will it still be such a crying issue at home?  We have so many troops in Iraq that it‘s going to be an issue that hounds us in the next presidential election?

MCCAIN:  No.  I believe that if we proceed along this path and don‘t withdraw too quickly, that the key to it that casualties will be way down.  It‘s not American presence, it‘s American casualties.  We‘ve still got American troops in Bosnia.  We‘ve got them in South Korea.  We‘ve got them in Japan.  Americans will willingly accept deployment of troops, but they want the casualties down.  And if we can continue this way under this great guy, Petraeus, who should have been “Time” magazine‘s “Man of the Year”...

MATTHEWS:  Will you, to use your phrase—and I know you‘re not as dainty as this—will you—I know you would never do this.  Will you win in New Hampshire?

MCCAIN:  Yes.

MATTHEWS:  Thank you.

MCCAIN:  Thank you, Chris.  Thank you.

(END VIDEOTAPE)

MATTHEWS:  Still ahead on HARDBALL, brand-new ads as the candidates make their final push before Iowa and New Hampshire.  And up next: Were Bush and Cheney themselves behind the decision to destroy those CIA torture videotapes?

You‘re watching HARDBALL, and we‘re live on the campaign trail here in New Hampshire, only on MSNBC.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE:  We feel that as—as a citizen of this country, as a member of the Republican Party, that we did not get the candidate that we thought we were voting for.

MATTHEWS:  And do you like any of the Republicans this time?

UNIDENTIFIED MALE:  I think Senator McCain is probably the best of the lot.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

MATTHEWS:  Welcome back to HARDBALL. 

Today‘s “New York Times” reports that four top U.S. lawyers discussed with the CIA whether to destroy those interrogation videotapes of al Qaeda suspects. 

How bad does this look for the White House?  And could it mean that the Bush administration, perhaps the president or the vice president, or both, gave those orders to destroy those tapes? 

Mike Isikoff is an investigative reporter for “Newsweek,” I think the best investigator around. 

Michael, we just had John McCain say that he wants to know.  He wants this investigation to find out whether Bush or Cheney had a hand in calling for the destruction of those tapes. 

MICHAEL ISIKOFF, INVESTIGATIVE REPORTER, “NEWSWEEK”:  Sure.  This is a big issue for McCain. 

I mean, he‘s the one who tried to put curbs on the use of enhanced interrogation techniques. 

Look, the latest report from “The Times” is just the furthest—the latest indication that the whole, complete story of what happened here and the use of techniques that some have argued is tantamount to torture is much more complicated and much—and goes to the highest levels of the administration. 

We have known for some time—and have reported for some time—that the use of these techniques and what techniques the CIA was going to use was being discussed at—among top White House lawyers from the beginning, right after 9/11.

Gonzales, top lawyers in his office, David Addington, the vice president‘s chief lawyer, all of them were—got into the weeds on this stuff, in terms of discussing which particular techniques to use, what might go too far, and then demanded the Justice Department, and sought the Justice Department legal opinions that essentially gave the green light. 

I think there‘s a consensus that what was done by the CIA, if it overstepped boundaries, if it violated Geneva Conventions and possibly domestic laws in the United States banning torture, the CIA didn‘t take those steps on its own.  It was all discussed at the highest levels of the White House. 

MATTHEWS:  McCain said he doubts that these deputies, like Harriet Miers and Gonzales, would have acted without the boss‘ approval. 

ISIKOFF:  Well, whether they sought the boss‘ approval on the destruction of tapes, which clearly, you know, takes things to another level—that‘s a whole other matter—we don‘t know, and it‘s unlikely we‘re going to get testimony from the likes of Harriet Miers or David Addington or Alberto Gonzales on what they told Bush and Cheney. 

They will almost certainly...

MATTHEWS:  Right. 

ISIKOFF:  ... cite lawyer-client, attorney-client privilege on that.

But we may well get testimony about agency officials consulting them about this process. 

MATTHEWS:  Yes. 

Are they going fall on the grenade, the way Scooter Libby did in the CIA leaks—tapes case—the CIA leak case? 

ISIKOFF:  Well, I don‘t think...

(CROSSTALK)

MATTHEWS:  Clearly, as you know, because you reported this in your book, there was a tremendous amount of discussion going on between Scooter and his boss, Cheney, except Scooter was the one that got the conviction and the sentencing and needed the commutation of his sentence, and the vice president walked. 

Are we going see the same pattern here? 

ISIKOFF:  Well, the only reason we know about what Scooter Libby discussed with Cheney is because you had an aggressive prosecutor with Patrick Fitzgerald, a special counsel, who was acting independently, aggressively, was subpoenaing documents, putting witnesses before the grand jury.

And, as a result of that process, documents emerged that directly implicated the vice president...

MATTHEWS:  Right. 

ISIKOFF:  ... in discussions about Valerie Plame. 

We‘re not there yet on this matter. 

MATTHEWS:  Right. 

ISIKOFF:  We do have a preliminary inquiry being conducted by the Justice Department and the CIA inspector general.  And we have a parallel inquiry from the House Intelligence Committee in particular, which does seem to be quite aggressive on this.

But whether they would ever take it to the levels that Patrick Fitzgerald took the Plame matter I think remains to be seen.  I think it would be unlikely. 

MATTHEWS:  OK.  Thank you very much, Michael , who is the best. 

Up next:  “TIME” magazine names its person of the year.  And while Al Gore did well, he finished just short.  We will have the latest.  We will have the winner of “TIME” magazine‘s man of the year when we come back. 

You‘re watching HARDBALL, on the campaign trail up here in New Hampshire.  

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE:  I think any of the candidates could do well.  Obviously, it appears to be a three-person race between Hillary and Barack and John Edwards. 

(END VIDEO CLIP)

(COMMERCIAL BREAK)

MATTHEWS:  Welcome back to HARDBALL up here in New Hampshire in front of this roaring fire. 

So, what else is new out there? 

Well, “TIME” magazine revealed its 2007 person of the year today.  Climate crusader Al Gore, Nobel-, Oscar-, Emmy-winning former vice president, missed out this time.  He came in second, ahead of “Harry Potter” author J.K. Rowling, Chinese President Hu Jintao, and U.S. General David Petraeus. 

So, who‘s “TIME” magazine‘s person of the year? 

Here‘s managing editor Richard Stengel on “The Today Show.” 

(BEGIN VIDEO CLIP, “THE TODAY SHOW”) 

UNIDENTIFIED FEMALE:  The person of the year is?

RICHARD STENGEL, MANAGING EDITOR, “TIME”:  The person of the year for 2007 is Russian President Vladimir Putin...

UNIDENTIFIED MALE:  Very interesting.

STENGEL:  ... for an extraordinary feat of leadership in taking a country that was in chaos and bringing it stability and making it important for the future of the 21st century. 

(END VIDEO CLIP)

MATTHEWS:  But don‘t get the idea that “TIME” magazine is calling the former KGB agent some swell guy. 

Khrushchev, who was called “The Butcher of Budapest,” also won “TIME” magazine‘s person of the year.  And dictator Joseph Stalin, who killed 20 million people, he was also man of the year at “TIME” twice. 

A fire broke out today in the White House grounds at the Eisenhower Executive Office Building.  I used to work there when I was a presidential speechwriter.  It was once home, by the way, to the State Department, the Navy Department, and the War Department, back when we called it that.  There‘s a lot of history in that century-old place. 

There was fire.  There was smoke.  There was water damage, but, fortunately, no one was hurt.  Fire officials in the old executive office building said Vice President Cheney‘s ceremonial office was—the damage as significant.  There was smoke and water damage to the V.P.‘s office.

Finally, it‘s time for the HARDBALL “Big Number” tonight.  President Bush and Congress have abysmal approval ratings.  As you know, lots of people think they just can‘t, won‘t and don‘t get anything done anymore.  Well, today, President Bush signed new energy bill. 

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES:  Today, we make a major step with the Energy Independence and Security Act.  We make a major step toward reducing our dependence on oil, confronting global climate change, expanding the production of renewable fuels, and giving future generations of our country a nation that is stronger, cleaner, and more secure. 

(APPLAUSE)

(END VIDEO CLIP)

MATTHEWS:  Well, the new law is the product of hard work by lots of people, notably Massachusetts Congressman Ed Markey. 

It forces America‘s automakers to do something they might not

otherwise do, increase the fuel-efficiency standards of our cars and trucks

by 40 percent. 

And that brings us to tonight‘s big HARDBALL number: 35, as in 35 miles per gallon, which will be the required fuel efficiency average by the year 2020 under this new law. 

Up next: ad watch, new campaign commercials from Hillary, Huckabee, Giuliani, with our own guru, Donny Deutsch. 

You‘re watching HARDBALL, on the campaign trail up here in New Hampshire, only on MSNBC. 

(BEGIN VIDEO CLIP)

UNIDENTIFIED FEMALE:  I go back and forth between Hillary, Obama, and Edwards.  And I really like John Edwards, and—but he hasn‘t sold me 100 percent. 

(END VIDEO CLIP)

(COMMERCIAL BREAK)

MICHELLE CARUSO-CABRERA, CNBC CORRESPONDENT:  I‘m Michelle Caruso-Cabrera with your CNBC “Market Wrap.” 

Stocks closed mixed.  The Dow industrials fell 25 points.  The S&P 500 lost almost two points.  And the Nasdaq, it gained almost five points. 

After the closing bell, software-maker Oracle reported, quarterly profits rose 35 percent, earnings easily beating analyst estimates.  In after-hours trading, Oracle shares are up more than 4 percent. 

Meantime, Morgan Stanley reported a $3.5 billion quarterly loss.  That‘s the first quarterly loss in its 73-year history.  That followed a $9.4 billion write-down related to mortgages.  CEO John Mack accepted the blame, says he will forego his annual bonus, which last year topped $40 million.  All led to the company accepting a $5 billion investment from China. 

Oil prices rose as U.S. inventories fell last week to their lowest level in nearly three years.  Crude gained $1.16 in New York, closing at $91.24 a barrel. 

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

HARDBALL. 

MATTHEWS:  Welcome back to HARDBALL.

We‘re reporting tonight with the theme “Common Man” playing from the Common Man Cafe in Windham, New Hampshire, one of these snug little inns you find around the way up here, but nothing quite as nice as this one, the Common Man in Windham, New Hampshire. 

Right now, it‘s time for the campaign ad watch.  There are a few dueling Christmas ads out there right now.  The question is, do they work?  Do they get votes? 

Donny Deutsch is an expert.  He‘s the host of CNBC‘s “THE BIG IDEA” and chairman of the ad agency appropriately named Deutsch Incorporated. 

Donny, sir, why don‘t you take a look at the first Hillary ad?  And we will run through each of these.  I would love your brisk and brilliant commentary. 

Here we go with the first ad.  It‘s from Obama.

(CROSSTALK)

DONNY DEUTSCH, HOST, “THE BIG IDEA”:  You look—you look so warm and --- you look so warm and cuddly, I want to give you a hug there, Chris. 

MATTHEWS:  Later. 

OK.  Here we go.  This is the first ad from Obama. 

(BEGIN VIDEO CLIP, OBAMA CAMPAIGN AD)

MICHELLE OBAMA, WIFE OF SENATOR BARACK OBAMA:  We would like to take a moment to thank you and your family for the warmth and friendship that you have shown ours, for sharing your hospitality and your stories. 

SEN. BARACK OBAMA (D-IL), PRESIDENTIAL CANDIDATE:  In this holiday season, we‘re reminded that the things that unite us as a people are more powerful and enduring than anything that sets us apart.  And we all have a stake in each other, in something larger than ourselves. 

So, from our family to yours, I‘m Barack Obama, and I approve this message. 

UNIDENTIFIED FEMALE:  Merry Christmas. 

UNIDENTIFIED FEMALE:  Happy holidays. 

(END VIDEO CLIP)

MATTHEWS:  Donny Deutsch, your take? 

DEUTSCH:  You know, I‘m not a big warm and fuzzy guy.  I think all these Christmas ads are a waste. 

You know, we all know it‘s Christmas.  We all know these people have

families.  I just think we have a very smart consumer out there.  And it‘s

I think all of these Christmas ads are just very transparent.  They are what they are.  Great.  Send me a Christmas card.  Spend some money on an ad that does something for me. 

(LAUGHTER)

MATTHEWS:  Here‘s Hillary Clinton‘s. 

(BEGIN VIDEO CLIP, CLINTON AD)

SEN. HILLARY RODHAM CLINTON (D-NY), PRESIDENTIAL CANDIDATE:  Where did I put universal pre-K?  Oh, OK.  Ah, there it is.

I‘m Hillary Clinton, and I approve this message. 

(END VIDEO CLIP)

MATTHEWS:  Donny, your thought on that one.

DEUTSCH:  You know, at least she‘s trying to do something fresh.  You know, you could say it‘s a little obnoxious on the one hand.  Oh, wait, she‘s giving out gifts for Christmas.

But, you know, I think there‘s a little tongue-in-cheek quality.  At least she didn‘t do the same stale seasons greetings from Anheuser-Busch, you know? 

(LAUGHTER)

MATTHEWS:  Here‘s Edwards, John Edwards. 

(BEGIN VIDEO CLIP, EDWARDS CAMPAIGN AD)

JOHN EDWARDS (D), PRESIDENTIAL CANDIDATE:  One out of every four homeless people on our streets is a veteran.  Thirty-seven million Americans live in poverty.

Who speaks for them?  We do.  This is the season of miracles, of faith and love.  So, let us promise together, you will never be forgotten again.  We see you.  We hear you.  And we will speak for you. 

In America, the chance to build a better life is a promise made to each of us.  And the obligation to keep it rests with us all. 

I‘m John Edwards, and I approved this message. 

(END VIDEO CLIP)

MATTHEWS:  Too Dickensian for you?

DEUTSCH:  You know what‘s interesting?  At least it‘s on brand for him.  He took the Christmas season, which is the gift of giving.  We‘re going to go after the guys with big money, take care of the little man.  It‘s a Christmas, but at least it‘s not out of left field. 

MATTHEWS:  OK, here comes Huckabee.  This will be a big one. 

(BEGIN VIDEO CLIP)

MIKE HUCKABEE ®, PRESIDENTIAL CANDIDATE:  Are you about worn out of all of the television commercials you‘ve been seeing, mostly about politics?  I don‘t blame you.  At this time of year, sometimes it‘s nice to pull aside from all of that and just remember that what really matters is the celebration of the birth of Christ, and being with our family and our friends. 

I hope that you and your family will have a magnificent Christmas season.  And on behalf of all of us, god bless and Merry Christmas. 

I‘m Mike Huckabee, and I approved this message. 

(END VIDEO CLIP)

MATTHEWS:  Donny Deutsch, I just saw a cross being super-imposed behind the candidate for president.  Is this to make this guy look messianic or what? 

DEUTSCH:  I‘m Donny Deutsch and I‘m getting frightened over here.  That might play in some narrow parts of the country, but boy, we‘re getting in dangerous turf here.  And I think there‘s a real transparency with that.  I think people are going to find out this guy Huckabee.  That is one of the more frightening things I‘ve seen in a long time, I‘ve got to tell you. 

MATTHEWS:  You‘ve made a lot of commercials.  You know the business world.  Is there any way that that cross behind him, that well lit cabinet area, which shows a very dramatic cross in the form of a crucifix—is there any way that was an accident of art? 

DEUTSCH:  Just like when you used to see the penises in the ice cubes in the Vodka ads, there‘s no mistakes in advertising.  I‘ve got to tell you, this is really troubling to me—I‘ve got to tell you, Chris.  You and I have seen a lot of stuff.  That almost starts to get into the “Saturday Night Live” bit routine. 

MATTHEWS:  I think this is the worst product placement since the movie “2001.”  Here‘s Giuliani‘s Christmas card us to.  Product placement? 

(BEGIN VIDEO CLIP)

RUDY GIULIANI ®, PRESIDENTIAL CANDIDATE:  With the primaries coming so early this year, I‘ve got to tell you, I‘m having a little trouble getting my holiday shopping done.  So I‘ll be working to get everyone the same gift, a safe America, lower taxes, secure borders, job growth, fiscal discipline, strict constructionist judges and probably a fruit cake or something. 

UNIDENTIFIED MALE:  A fruitcake? 

GIULIANI:  What?  It would be a really nice fruit cake with a big red bow on it, or something like that. 

I‘m Rudy Giuliani, and I approved this message. 

Merry Christmas, happy holidays. 

(END VIDEO CLIP)

MATTHEWS:  Well? 

DEUTSCH:  He looks like a greeter from Wal-Mart in that red vest.  To me, he‘s like Dick Nixon, you know.  Every time Nixon used to try to be funny and off-the-cuff, you just cringe.  He‘s a nuts and bolts guy.  He‘s a security guy.  Stick to that.  Don‘t try to be funny.  Don‘t take calls from your wife at press conferences.  It‘s always awkward.  And get a new stylist. 

MATTHEWS:  Can I can remind you that Nixon won the presidency and got

re-elected by 60 percent?

DEUTSCH:  Yes, but he didn‘t do it trying to be cute and trying to be funny.  That was once he was president, he tried to be silly.  I want to cringe when I see that.  It‘s just so transparent. 

MATTHEWS:  I know, but corniness works sometimes.  You know what, I agree with you on everything, especially the one with Huckabee.  That ad was product placement like I‘ve never seen. 

Anyway, thank you, sir, Donny Deutsch, an expert on many things. 

Happy holidays to you, buddy. 

Tonight on the Big Idea, special broadcast called “Making Your First Million.”  The Big Idea airs week nights at 10 p.m. Eastern on cNBC. 

Up next, the latest on the battle for Iowa, just a little over two weeks away right now, and that includes holidays.  Plus, we‘ll dissect all the new poll numbers from Iowa and New Hampshire.  Those numbers come in like an avalanche.  This is HARDBALL, on the campaign trail up here at the Common Man Cafe in Windham, New Hampshire, only on MSNBC. 

(COMMERCIAL BREAK)

MATTHEWS:  Welcome back to HARDBALL in New Hampshire.  It‘s time for the Politics Fix with the round table.  Let‘s pick the polls apart with the “Boston Globe‘s” James Pindell, who is sitting in front of the fire place next to me.  And out in Iowa, we‘ve got HARDBALL‘s own David Shuster, and “Newsweek‘s” Holly Bailey.  Let me go to James. 

Let‘s take a look; here‘s the CNN poll right now in New Hampshire, on the Republican side.  Romney leads with 34 percent.  McCain is second, but pretty far back at 22.  Rudy‘s down there at 16, Huckabee at 10.  James, it seems to me that for McCain to do what he said he wants to do and told us he would do on the program tonight, he needs a break.  It‘s like one of those NFL playoffs.  He needs Huckabee to knock off Romney in Iowa so he can knock off Romney up here. 

JAMES PINDELL, “BOSTON GLOBE”:  I think that‘s right.  I think for all of the Republican candidate scenarios, besides Romney, they need Huckabee to do well in Iowa so Romney can‘t run the table.  New Hampshire has been his fire wall.  He‘s consistently had this double digit lead for months. 

MATTHEWS:  You‘re talking Romney?

PINDELL:  Yes.

MATTHEWS:  That explains why John McCain, who was on the show on the Straight Talk Express about a half hour ago, was talking up what a nice guy Huckabee is. 

PINDELL:  What a great ad he had.

MATTHEWS:  I know you heard it all.  Let me go out to Iowa.  Let‘s take a look on the Democratic side of New Hampshire.  CNN‘s poll has Clinton leading up here, pretty substantially, 38 to 26 for Obama, and Edwards down at 14.  You know, the same question here.  If Obama wins in Iowa, then he gets about a 10-point bounce, everybody says, over that weekend, first weekend in January.  He can win here. 

PINDELL:  Not only does he get the bounce, but Hillary Clinton loses points.  And that‘s where he can make up the ground.  It‘s also what John Edwards is counting on.  His only scenario to do well is by doing well in Iowa, knocking her off. 

Here‘s what I found interesting, Chris; I talked to a lot of independents in the state last week and what they were saying is, if Hillary wins Iowa, they‘ll all vote in the Republican primary.  So if Obama wins Iowa, they could be all voting in the Democrat primary. 

MATTHEWS:  Let‘s go to Iowa and David Shuster, where all else depends.  It looks to me, David, without getting into the numbers—because they‘re absolutely crunched together in both parties out there.  Let‘s go to this simple question; who do you see has the heat out there?  Who‘s moving ahead out there in Iowa right now as we speak on the Democratic side?

DAVID SHUSTER, HARDBALL CORRESPONDENT:  On the Democratic side, I would say it‘s an even heat, and that‘s because the John Edwards campaign, Chris—when you look beneath the polling, and you break it down to likely caucus goers, Edwards does very well.  And keep in mind that his supporters, two out of every three have caucused before.  With both Hillary Clinton and Barack Obama it‘s only one out of every two.  In other words, those Clinton and Obama supporters are going to be going into caucus night and a lot of them never having done this before.  They may be intimidated.

The Edwards people have done it before.  And furthermore, Chris, over the last two weeks, when it comes to getting out your vote, the Edwards people—they‘ve already identified their supporters from four years ago.  So they start at a higher level.  That‘s why I think you‘ve got to watch caucus goers—certain caucus goers, they‘re going to bend towards Edwards. 

MATTHEWS:  Holly, don‘t the Edwards people have to worry that if it doesn‘t look like he‘s in the running, if it looks like a battle royal between Hillary and Obama, people won‘t waste their votes. 

HOLLY BAILEY, “NEWSWEEK”:  I think so.  The fact is that John Edwards needs to come out there and talk up this electability argument.  And he needs to pick up some momentum here.  The fact is that I agree with David; this race out here is in a dead heat.  Everyone is looking at the polls and claiming certain positive things for their own campaign. 

But I don‘t even want to predict what‘s going to happen out here. 

It‘s crazy. 

MATTHEWS:  Do you see any signs yet or do you smell anything yet, David, of a Hillary or Bill Clinton effort to try to undermine Obama, even if it allows Edwards to go on the left and pass them both? 

SHUSTER:  Chris, there‘s a lot of stuff that‘s going on under the radar, whether it‘s flyers, whether it‘s push phone calls, whether it‘s radio messages, whether it‘s canvassing operations; there‘s a lot of stuff going on under the radar.  I think over the last two weeks—As you know, in tight races, especially with national implications, there is a lot of dirty pool that is played.  Whether or not you can trace that back directly to the Clintons or simply their supporters, to say OK, now it‘s crunch time.  Now it‘s time to raise the issue of Obama‘s electability because of his race; now it‘s time to raise the question beyond his experience.

Those are things that are being talked about now by some of the canvassers.  And whether or not it‘s because they are trained improperly or whether they‘re just doing this on their own, it‘s still an issue and it‘s only going get worse. 

MATTHEWS:  Let me go right back.  Back to the Republicans in the next break when we come back.  Let‘s finish up on the Democrats.  James, how do you see it going?  Iowa, New Hampshire, who wins this thing?  What‘s the current best bet right now?  Can you bet it? 

PINDELL:  You can‘t because the race in Iowa is the defining state for Democrats, where New Hampshire is the defining state for Republicans.  And because Iowa has been so important for this Democratic race, whatever happens there is going to have a dramatic impact. 

MATTHEWS:  Good chance for a one-two punch for somebody.  If Hillary wins there, she can win here.  If Obama wins there, he can win here.  Same deal.  The guy that can‘t get a one-two punch is Edwards. 

PINDELL:  I think you‘re right. 

MATTHEWS:  Do you see it the same way, David? 

SHUSTER:  No, I think that‘s right.  I think Hillary gets two bites at the apple.  Hillary can afford to lose here and she can move on to New Hampshire and pick up steam there.  As for Edwards—Edwards has to win and Obama is in deep trouble if he doesn‘t win.  Hillary just needs to move on, but obviously it‘s horrible news for Hillary.  If she comes in third here in Iowa, she‘s going to lose that lead, whatever lead she has in New Hampshire, and her campaign is in serious trouble at that point. 

MATTHEWS:  So it all suggests a hard push over Christmas for all three candidates, a must win for—It seems to me a must win for almost everybody but Hillary in Iowa.  Hillary can survive a loss in Iowa.  The other guys have to win.  We‘ll be right back to talk about the Republicans.  What a tight race between Huckabee running as the Christian leader against the Mormon. 

That‘s a hot one out there.  It is religious.  If you don‘t believe it, check their Christmas cards. 

(COMMERCIAL BREAK)

MATTHEWS:  We‘re back from New Hampshire with the round table.  Boy, it‘s developing into the hottest race out there in Iowa.  We have a new “Washington Post” poll that just came in tonight that shows Huckabee up by 35 to 27.  David Shuster, you first.  What I‘m also hearing in this new poll is that among evangelical Christians, Huckabee is leading three to one over Romney.  It‘s apparently a not Romney vote.  Women religious people are voting for Huckabee. 

Huckabee has apparently created a situation of he is running against Romney, the Mormon, in a race that only two of them are getting double digits in.  This has become a religious war, and he is winning. 

SHUSTER:  That‘s absolutely right, Chris.  It‘s not only three to one the evangelicals, but also people who identify themselves as conservatives.  They‘re breaking Huckabee‘s way.  The other thing, Chris, that we keep hearing from evangelicals is they say it‘s not just the issues.  They like the fact that Huckabee is a great communicator.  They like that he speaks well.  They like that he is a likable guy. 

You put all of that together, and conservatives are telling us, Chris, they have fond their man, and he is Mike Huckabee. 

MATTHEWS:  Let me go to Holly Bailey.  Your thoughts on that, because I‘m seeing a situation where really only two candidates are competing out there now, after all these years for campaigning for these Iowa caucuses on the Republican side, and one guy is running as the Christian leader.  He is running Christmas—a Christmas eve ad on television, which has a big cross in it.  He is running such a religious campaign.  Is that what this campaign is going to be written down as by the history books? 

BAILEY:  I think, you know, there‘s no question that religion is going to be a big part of it.  But the fact is I wonder if Mitt Romney—the fact that he is going negative against Huckabee isn‘t hurting him here.  He is really—everyday, it seems like we hear him attacking one thing or another.  Today was foreign policy.  The fact is that Iowa voters don‘t like people who are attack dogs.  You can look at the past, and I wonder if that‘s not hurting Mitt Romney just a little bit out here. 

MATTHEWS:  James. 

PINDELL:  Well, what‘s interesting about this is I believe the Republican race really starts here in New Hampshire.  Iowa certainly sets the stage, certainly could knock off Mitt Romney.  But we have seen here is this is where everyone is all in.  You have McCain also.  You‘ve got Huckabee.  You‘ve got Romney.  You‘ve got Giuliani that‘s sort of playing in New Hampshire.  This is what is setting the stage.  What we see in the polling, this is becoming a two-person race in the state, McCain and Romney.  

MATTHEWS:  Unless Romney calls foul, if he loses in Iowa in the caucuses to Huckabee and calls foul, comes back to New Hampshire, and says, I was rooked out of this by a religious campaign? 

PINDELL:  Race begins in New Hampshire.  He clearly has his fire wall here.  He obviously has the money to stay in.  I severely question whether or not Huckabee can take a win in Iowa and translate it to New Hampshire.  He just does not have the infrastructure here. 

MATTHEWS:  I think the big winner here if Huckabee wins in Iowa is clearly the guy we had on the show tonight, John McCain. 

Thank you James Pindell.  Thank you Holly Bailey.  Thank you our own David Shuster.  In one hour, we‘ll be back with brand new numbers from our NBC News” Wall Street Journal” poll hot out tonight.  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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