updated 9/19/2008 11:59:46 AM ET 2008-09-19T15:59:46

Guest: Lawrence Summers, Joan Walsh; Jay Carney; Stephen Hayes, Robert Wexler, Eric Cantor, Nancy Pfotenhauer

DAVID GREGORY, HOST: Tonight, jump ball. The candidates hustle on the economy as Wall Street thrusts the No. 1 issue facing voters back into the race.

(BEGIN VIDEO CLIP)

(voice over): Wall Street's meltdown. What does it mean to you and your vote in November? Obama back on offense today accusing McCain of being part of the problem and attacking what he called bullish take on the state of the economy.

BARACK OBAMA (D), PRESIDENTIAL CANDIDATE: We are in the most serious financial crisis in generations, yet Senator McCain stood up yesterday and said that the fundamentals of the economy are strong.

GREGORY: So, how does Senator Obama plan to repair financial crisis? Obama adviser and former U.S. Treasury secretary, Lawrence Summers goes one-on-one tonight to explain.

And while some now declare Wall Street is broken, McCain supporter, Representative Eric Cantor and Obama supporter Representative Robert Wexler face off on which party has the better plan to fix it.

Plus, together again, McCain and Palin, side-by-side on the trail, without her he is not drawing the same roaring crowd. McCain senior policy advisor Nancy Pfotenhauer weighs in on Palin's star status. Is she overshadowing the top of the ticket?

(END VIDEO CLIP)

GREGORY: Forty-nine days to go in the race to the White House.

Welcome to the show, I'm David Gregory. My headline, tonight:

fundamentals of the race. The meltdown on Wall Street wears off any trace of lipstick, pushing the fundamentals of the election back in focus. Both campaigns now engaged in an intense turf war over whose economic message better connects with voters, namely, the middle-class.

McCain declared yesterday that the "fundamentals of the economy are strong." This opened an opportunity for Senator Obama to go on offense after weeks of defending his own record against Republican attacks. He unleashed a new ad this morning framing McCain as out of touch.

(BEGIN VIDEO CLIP)

MCCAIN: The fundamentals are-of our economy are strong.

(BEGIN GRAPHIC)

How can John McCain fix our economy...

If he doesn't understand it's broken?

(END GRAPHIC)

MCCAIN: The fundamentals are-of our economy are strong.

(END VIDEO CLIP)

GREGORY: But despite a political atmosphere seasoned for a Democratic victory, Senator Obama still hasn't overcome his fundamental challenge of this race that's connecting with the voters. According to an NBC NEWS "Wall Street Journal" poll, the economy has been the No. 1 issue facing voters for the past nine months. But with just 49 days left in the race, neither candidate has clearly proven that he is the leader voters can trust to repair the financial question.

The question tonight, who faces the bigger challenge in the fight for the economy? Answering that, going one-on-one, Lawrence Summers, former secretary of the Treasury under President Clinton, former president of Harvard University. Secretary Summers is now an adviser to Senator Obama.

Mr. Secretary, welcome.

LAWRENCE SUMMERS, FMR SECY OF TREASURY: Good to be with you.

GREGORY: Let's talk about the markets, overall. After a 500 plus drop yesterday, the market is up strongly today, over 140 points. How strong a signal is that to the market place that it isn't as bad as perhaps people think?

SUMMERS: I don't think you can read much into one-day fluctuations in the market. In many cases, people who have been short the market face problems, faced calls for money from their banks and had to get out of their positions and that pushed the market up. So, I don't think we can read much from it. And indeed, if you look at some of the specific aspects within the market, what it's costing certain companies to borrow, it certainly suggests that this financial crisis is very much not fully under control at this point.

GREGORY: So, if Wall Street melts down, what does it mean to the rest of us?

SUMMERS: Ultimately, all of our jobs depend on our employers and depends on our employers' ability to get capital, to make investments, to have credit so they can put in inventory or they can pay our salaries or whatever. So, we all have a stake in a successfully functioning financial system. And if you look at really great economic disasters in history, whether it was what happened to Japan in the 1990s, or what happened to the united states in the 1930s, basically, what happened was you had to, the break down of the financial system.

Now, I don't think that's going to happen in the United States, but certainly, it does not appear as if the strategy we've been following is a strategy that gets us ahead of the curve and responds with sufficient vigor to these problems. I think Senator Obama has laid out much sounder strategies consistently going back several years.

GREGORY: All right. Let's talk, in fact, to how the campaign have responded. Here's Senator McCain's response to the Obama attack ad that McCain doesn't understand the economy is broken. Here's what he had to say:

(BEGIN VIDEO CLIP)

MCCAIN: This foundation of our economy, the American worker, is strong, but it has been put at risk by the greed and mismanagement of Wall Street and Washington. The top of our economy is broken.

(END VIDEO CLIP)

GREGORY: What does he mean, "the top of the economy is broken, and is he right?

SUMMERS: We've certainly got problems in Washington and we've certainly got problems on Wall Street. Senator McCain, and I'm not a politician, I don't follow all the politics, but I'm not aware that Senator McCain has opposed any of the Bush administration's measures to scale regulation way back.

I'm not aware that Senator McCain has differed with the Bush administration on the need to have substantial stimulus, something Senator Obama has advocated. I'm not aware that Senator McCain has stood up to the Wall Street complex that was pushing for more subprime lending, which led to the problem.

Of course the American people are the most able and most productive people in the world, and of course, our problems lie in the way the system has functioned. But, we've made four big mistakes over the last eight years and Senator Obama has been on the opposite side of all four. And I'm aware of no evidence that Senator McCain hasn't been comfortable with all four decisions.

GREGORY: What is the primary mistake that...

SUMMERS: The four mistakes-we've committed ourselves to deficits and foreign borrowing which blew up the bubbles. We eviscerated the mortgage regulation that prevented the kind of sub prime exploitation we've had. We abandoned the effort to have investment banks be closely regulated and turned the regulation over heavily to themselves. And as the problems mounted, we gave speeches about how the fundamentals were strong; we didn't take strong actions except when pressed by Democrats to do it.

Senator Obama warned about the deficits, voted against the legislation to produce the big deficits. Senator Obama warned about the festering subprime problem. Senator Obama called for a comprehensive rethink of financial regulation. And Senator Obama has been for much more aggressive measures, involving fiscal stimulus, involving support for the housing market, to respond to our current downturn. I'm not aware that Senator McCain has been in any of those places.

GREGORY: But, let's be cheer about strategies going forward. They have both been in the Senate. They have not been in a position, really, to advocate the kind of policies, up until now, when they're running for president. Both are talking for greater regulation. Lay out specifically, you named a couple points. What is it that Senator Obama is prepared to do to provide a remedy for what we've seen occur in Wall Street oh the past couple of years, particularly in some of these highly overleveraged bets they've been making on subprime lending.

SUMMERS: First thing Senator Obama is going to do is pass a substantial program of infrastructure and job creation so that whatever happens on Wall Street, there's will still be demand and there's still going to be jobs for people across this country.

Second thing Senator Obama has made clear that he's going to do, is it's going to be a new day for financial regulation with all new rules on predatory mortgage lending, not a continuation of the existing policies that we've had.

Third thing Senator Obama has made clear, he's laid out a set of principles for restructuring our regulatory systems. Sure, now that we've got a major problem, Senator McCain is making some suggestions about regulation is flawed. Senator Obama sent a letter 18 months ago to Secretary Paulson and to Chairman Bernanke warning specifically the subprime problems. Where was Senator McCain?

(CROSSTALK)

GREGORY: Senator Obama has such a difficult time connecting with voters. Why doesn't he have a bigger advantage on his plan for the economy if these are the-all the upsides to what you argue is his plan? They're still basically equal in terms of their command of this issue, despite the fact that Democrats have much higher trust as a party on the issue of managing the economy. Why is that the case?

SUMMERS: David, economics is hard enough for me without trying to explain voter behavior. I think that Senator Obama lays out his plan as these issues come more and more into focus, as we stop having the kind of distractions that we've had. I think the force and thoughtfulness of the plans Senator Obama has laid out will become clear. And I think come contrasts will become clear, as well.

GREGORY: Final question, this is a very specific point about the issue of regulation. Would Senator Obama advocate strict capital requirements for the investment banks, the kind of regulations that exist for commercial banks to head off this overleveraged situation that we've seen in the investment banks?

SUMMERS: He made clear-he isn't the Johnnie-come-lately to this, he made this clear many months ago that now that the fed is lending money to investment banks, there has to be the same kind of regulation that's applied to the commercial banks, absolutely. And that's a place he's been for a long time. And in anticipation of some of the serious problems that we've had, he's recognized that there was that need.

GREGORY: Has Hank Paulson done a good job dealing with all this?

SUMMERS: You know, I don't think it is a good idea to get into personalities. He's been dealt a very, very difficult hand by the mistakes of the Bush administration, by the things that the Republican Congress has insisted on and he's been wrestling very hard with these problems in very difficult circumstances. And so, I certainly wouldn't feel in a position to criticize the tactical choices that he's made.

I think he's been part of an administration that has really set the stage for these difficulties with its irresponsible fiscal policies. Its evisceration of regulation, its focus all on competitiveness in the capital markets and not on market integrity or protecting consumers and he's been part, he certainly has been part of all that, but he's been working very hard in an agonizingly difficult situation. And I admire the way he's persevered through these months of crisis.

GREGORY: We will leave it there. Secretary Larry Summers, thank you very much for coming on the program, tonight. I appreciate it.

And coming next, we go inside the "War Room." How is the dire situation on Wall Street changing the tone and messaging for both of these campaigns? Will either side reveal a secret weapon when it comes to the economy? Could it be time for Senator Obama to bring back President Bill Clinton? Stay tuned, right after this.

(COMMERCIAL BREAK)

GREGORY: Coming next, Democrats traditionally have the advantage on economic issues, but is Governor Sarah Palin helping McCain connect on these kitchen table issues. We're going to go inside the "War Room" when the RACE returns, after this.

(COMMERCIAL BREAK)

GREGORY: Back now on RACE FOR THE WHITE HOUSE, I'm David Gregory, time to go inside the War Room. The McCain campaign has just released a new ad about the economy and it's called "Enough is Enough." Watch.

(BEGIN VIDEO CLIP)

MCCAIN: The economy's in crisis. Enough is enough. I'll meet this financial crisis head on. Reform Wall Street, new rules for fairness and honesty. I won't tolerate a system that puts you and your family at risk. Your savings, your jobs, I'll keep them safe.

ANNOUNCER: Experienced and leadership in a time of crisis.

(END VIDEO CLIP)

GREGORY: Both campaigns honing the messages on the economy. We're going to go inside the "War Room" now with John Harwood, CNBC's chief Washington correspondent, political writer for the "New York Times," Joan Walsh, editor-in-chief at Salon.com, Jay Carney, Washington bureau chief of "Time" magazine will join us momentarily, and Stephen Hayes, senior writing with "The Weekly Standard."

John Harwood, this new ad, I mean we have seen an effort now, in real-time, hour-by-hour, an attempt to get this message back on track for both campaigns.

JOHN HARWOOD, CNBC: We have. And it is a debate that inherently favors Barack Obama because Barack Obama, because as Larry Summers was just telling you, has been calling for some of these steps for a long time. He represents the party of change, so he's naturally in a position to inherit some of the dissatisfaction. John McCain's got to try in some way to turn this back to the experience issue. You saw that in that ad. Americans think that Barack Obama is a somewhat riskier choice, and try to sell the idea that the problem is the system and John McCain can reform the system.

GREGORY: You have to assume that a lot of people, this is complex for people even in the middle of it all. They don't understand the fine points of what's happening on Wall Street and what's happening with the investment banks. So, the political test here for these candidates is what at this stage?

HARWOOD: Well, is to try to be credible and look credible in talking about the problem. Again, inherent advantage to Barack Obama. Why? Because Wall Street troubles from the standpoint of the main stream viewer who is looking at this is a bunch of rich guys and they know that Democrats associate the party of the rich with Republicans, so they stand to inherit, to some degree, those problems, there. But, they've got to try to show that they can do something about it. Barack Obama hasn't taken full advantage of the economic issue because he hasn't convinced people that what he's talking about, and there's lots of specifics out there, would actually make a real difference in their lives.

GREGORY: Well, he also hasn't, Jay Carney, put this issue of regulation on the agenda. It's fine for Larry Summers to say he is not a Johnnie-come-lately, he's been talking about this for a long time. The truth of the matter is, his message hasn't broken through on the issue of regulation. It takes something like this for everybody to really start talking about the issue of, are we allowing these banks to just keep borrowing money and get so highly leveraged that if something goes wrong, that they're in the kind denial that your average homeowner is in who doesn't understand why they can't sell their home for the amount that they think they should?

JAY CARNEY, TIME: Well, that's right, David. You know, Barack Obama's advantage here is not that he's been leading on the, in the call for reform or more regulation of the banks or insurance company. It's strictly that he's the Democrat and John McCain is the Republican and McCain's been in Washington a lot longer and has been in Washington and in the Congress during the time that Congress, at least according to some critics, has failed to keep control of these markets. So, he's not a leader in these issues, but he is certainly stands to benefit from the crisis.

JOAN WALSH, SALON.COM: I would disagree with that. I would disagree with that, David. I think Barack Obama has been a leader. I think some of it, is I have a blog, I haven't blogged about this in months, but you know, back in March, Barack Obama laid out the broad outlines of the plan that he reiterated today. And I think we haven't been paying as close attention as maybe we should have. But, I think he has led, and at the same time that he was making those remarks back in March, John McCain in some ways to his credit, because he's a resolute guy is saying, hey, I'm basically a deregulator. I'm basically against regulations, that's what I am about. And now in the last 24 hours, he's had to change his tune. So, I would give Obama a little bit more credit than you guys have.

GREGORY: Stephen...

CARNEY: Well, I think having a position paper is not leading in Congress, but I take your point.

WALSH: Well, he's on the trail. Well, you're right...

GREGORY: But, the point is, Stephen Hayes, yes, that's right, that John McCain said he's a deregulator, but he's also made clear, not just in the last 24 hours, that when it came to taking on Wall Street, he'd like to see it done differently, like to see business done differently.

STEPHEN HAYES, THE WEEKLY STANDARD: Yeah look, I mean, I think we can go back and point to, as the campaigns have done over the last 48 hours, point to different statements the candidates have made. John McCain's campaign sent out something this morning talking about how he was taking on Freddie Mac and Fannie Mae two years ago when other people weren't talking about it as much. You can go back and forwards and do that a lot.

I think the fundamental, I think, strategic question that the McCain campaign faces right now, is he going to handle this as a populist or is he going to be sort of all about presidential leadership. And I think we saw that struggle play out yesterday in public a little bit where John McCain said, as he has said repeatedly over the previous several weeks, the fundamentals of the economy are strong, trying to be presidential, trying to be reassuring, trying to be strong, trying to be calm in the face of a crisis. And then you also have him coming out today and being a little feistier and saying, look, this is about greed, this is about Wall Street. So, I think they're sort of settling into what their message going to be going forward.

GREGORY: They're also settling into a point that he's making as did he this morning on the "Today" show where Senator McCain said there ought to be an investigation into what went wrong. Listen to that.

Well, we'll get to that in just a moment. The point that he was making, Jay, is that there ought to be a 9/11 commission to look into the economy, just as there was a 9/11 commission to look into the attacks back in September of 9/11. Is that a fair point to make?

CARNEY: Well, I think it's a little-I think he's trying-as a political point, he's trying to show that he care and this is serious and he understands how grave the situation is. As a practical matter, it is a little silly. The 9/11 commission was about looking backward at a specific event, finding out what happened and how it was allowed to happen and what transpired. The crisis in the economy is ongoing, it's happening today, it's going to happen again tomorrow and will probably happen right through the elections. And calling for some sort of 9/11 commission is not taking action to resolve the problem.

GREGORY: And David, before we get to another comment, let's just roll that tape and the response from Obama.

(BEGIN VIDEO CLIP)

MCCAIN: There's too much corruption, there's too much access. We can fix it. I believe in America, we can have a 9/11 commission such as we had after 9/11.

OBAMA: This isn't 9/11. We know how we got into this mess. What we need now is leadership that gets us out. I'll provide it.

(APPLAUSE)

John McCain won't. And that's the choice for Americans in this election.

(END VIDEO CLIP)

GREGORY: John, go ahead, comment.

HARWOOD: David, I think that potentially is a bigger mistake by John McCain than saying yesterday the fundamentals of the economy are sound...

WALSH: I agree.

HARWOOD: Essentially, he is underscoring the idea that I don't have a clue as to what's going on and so we need to get some gumshoes and try to investigate. As I said, Barack Obama has been making these economic change argument for some time. It is pretty resident with the American people and he has a fresh piece of sound that he can use to try to argue this guy doesn't get it.

GREGORY: And the reality, Stephen Hayes, that there are people who were raising red flags about subprime lending, what was happening on Wall Street. Pick up "Fortune" magazine, Jamie Diamond at JPMorgan was doing that back in 2006. So, we understand what the ideas in terms of being too leveraged in the markets were when it came to this kind of lending.

HAYES: Yeah, well I think that's right. I mean, the real question-

I agree with John-I think the real question is, does this proposal of a 9/11-style commission make John McCain look like he's being sober-minded and presidential or does it make him look like he doesn't know what he's talking about.

WALSH: I think he's out to lunch.

HAYES: And I think there's a risk. I think there's a risk that John points out.

GREGORY: OK, I got to take a break, here. We're going to come back here in just moment. Coming up next, the Palin bounce is making McCain competitive in one reliably Democratic state. We're going to show you today's new polling. They on the RACE's radar. I'll show it to you right after this.

(COMMERCIAL BREAK)

GREGORY: Back now with a look at what's on the RACE's radar, today. New polls show the Palin bounce is changing the game in some key battleground states. In Ohio, a new poll from Suffolk University has McCain at 46 percent, Obama at 42 percent within the 4-point margin of error. And in New Jersey, McCain is now within striking distance of Obama. A new Quinnipiac poll has Obama at 48 percent, McCain has 45 percent. Obama's three-point lead is just outside the margin of error. But, it's a dramatic reversal from last month's poll before McCain picked Governor Palin to be his running mate showed Obama with a 10-point lead. A quick snap shot of the polls.

Coming up next, which candidate has the plan to pick the economy and put more money into the pockets of average American voters? Congressman Robert Wexler and Eric Cantor face off on the economy when RACE FOR THE WHITE HOUSE returns, from San Francisco, tonight.

(COMMERCIAL BREAK)

GREGORY: The economic jump ball; McCain vows to get tough on corporate greed, while Senator Obama pounds McCain for saying the fundamentals of the economy are strong. Which candidate do you trust to turn the economy around?

Back on RACE FOR THE WHITE HOUSE. I'm David Gregory in San Francisco tonight. The back and force on the economy has been pretty tough all day long between these two candidates. The Obama campaign released an ad slamming Senator McCain on the issue, using his words from just yesterday. Listen.

(BEGIN VIDEO CLIP)

MCCAIN: Our economy, I think-still, the fundamentals of our economy are strong.

(END VIDEO CLIP)

GREGORY: Senator McCain hit back this morning on "The Today Show," trying to clarify his words.

(BEGIN VIDEO CLIP)

MCCAIN: Well, it is obviously true that the workers of America are the fundamentals of our economy and our strength and our future. And I believe in the American worker. Someone who disagrees with that is fine. We are in crisis. We all know that.

(END VIDEO CLIP)

GREGORY: At a rally, Obama came back yet again, trying to drive home the idea that McCain is out of touch with voters when it comes to the economy.

(BEGIN VIDEO CLIP)

OBAMA: He tried to explain himself again this morning by saying that what he meant to say was that the American workers are strong. But we know that Senator McCain meant what he said the first time because he has said it over and over again throughout this campaign, no fewer than 16 times.

(END VIDEO CLIP)

GREGORY: Despite all the back and forwards on the campaign trail, the central question remains unanswered. Who has the better plan to fix the economy? The Democrats or the Republican? Joining us now for a face-off for Obama supporter and Florida Congressman Robert Wexler. He joins us from Washington. And McCain supporter and Virginia Congressman Eric Cantor. He joins us from Capitol Hill. Welcome to both of you.

All right, each of you get a chance to make the case. Congressman Wexler, I will start with you. Why does Senator Obama have the better plan for the way forward on the economy?

REP. ROBERT WEXLER (D), FLORIDA: Because Senator Obama will invest in the American people. We've lost over 600,000 jobs in the last nine months. We need to invest in jobs here at home, building roads, building bridges, mass transit systems, laying broad band.

We also need to develop our alternative energy sources. Tonight, we need to pass an energy bill, which is what Senator Obama wants us to do, which will open up domestic supplies of oil and natural gas, but also begin preparing us as a nation for the 21st century, the green economy. We need to invest 150 billion dollars to create that green economy, jobs here at home.

But most importantly, let middle income people share in the tax breaks that have largely gone only to the wealthiest among us. That will begin to allow the middle class to afford the energy costs that are sky-rocketing, maybe better afford health care costs that are also skyrocketing. But give them a chance to catch up. That is the biggest difference between the Democrats and Obama and McCain and the Republicans. We are going to really focus on the needs of the middle class.

GREGORY: OK. Congressman Cantor, make the case for John McCain.

REP. ERIC CANTOR ®, VIRGINIA: David, it is very obvious who has, I think, the right vision going forward. That's John McCain. Take a look at what Barack Obama has been saying. Yesterday, there was an evaporation of 750 billion dollars in market caps in the stock exchanges after the 500 point drop. But yet Barack Obama is talking about taxing capital formation. He wants to increase capital gains taxes. He wants to increase dividend rates. He wants to increase income taxes.

And all those things that Robert listed about what we need to be investing in, that comes on the backs of the tax payers. So let's remember this. We want to be a place where we can grow jobs and John McCain has the plan to grow jobs through green-creation of green jobs, to absolutely address the energy question once and for all. Robert mentions the fact that we have an energy bill on the floor in the House today. You're right, it is an energy bill but it produces no energy.

The Democrats have been in charge now almost two years. Barack Obama says he is for drilling, says he is for everything we can do to produce more American energy production. You take a look at the bill on the floor. It will get us nowhere. That's why we are proposing a comprehensive counter to that so we can get some relief to the American people. Get some relief, some real relief to the middle class.

GREGORY: Congressman Cantor, here's the reality of John McCain's position. He supports the federal bail-out, up until now, of the Bush administration of Fannie and Freddie, supports what has been done for Bear Stearns and no federal funds up to now have been offered for any of the blood bath that we've seen over the last couple of days. So he's supported the bail outs. He is also on record in the past of saying that he is not a big fan of regulation. So what make him different in approach than President Bush?

CANTOR: Listen, John McCain has a proven track record, has demonstrated an understanding that we need fix some serious things that have gone wrong in Washington. Back in 2002, John McCain made a speech about corporate government, spelled out the dangers that were lurking out there and the fact that we needed more transparency and some more action on the part of the agencies here in Washington.

In 2005, John McCain was a sponsor of a bill to overhaul and reform the government sponsored entities of Freddie and Fannie. You know, this is a track record. John McCain has seen the problems. He has spoken out on the problems for years.

Barack Obama has made one speech in 2007 and now claims to be such a reformer. It is just not the case. You have to do more than just speak. You have to put these words into action. There has been no action on the part of Barack Obama as far as what we need to do.

GREGORY: Congressman Wexler, go ahead.

WEXLER: Let's get this straight about the tax proposals. If you make 250,000 dollars or less, you will benefit from Barack Obama's policies. John McCain's policies will benefit the wealthiest mopping us.

CANTOR: That's not true.

WEXLER: Give me a chance. With respect to deregulation and privatization, what Senator McCain has proposed say for Social Security, which is so important in my state of Florida, is to essentially invest Social Security in the same stock market that tanked on Monday 500 points. That's not reform. That's irresponsible.

Senator Obama, on the other hand, has said if you're a retiree and you make 50,000 dollars or less, you will be entirely exempt from federal income tax. That is what we're talking about, honing in on the needs of middle income people, retirees on modest incomes. And let, for once, the economy trickle up.

The point of your question, David, was exactly right. John McCain has the same exact economic policy that George Bush has promoted the last eight years. Now it has come home to roost in unemployment rates that exceed six percent, historic deficits. Our fiscal policy is in shambles and today we have an energy proposal to begin providing a domestic source of oil and natural gas beyond which we've ever done. All the Republicans say is no, no, no.

GREGORY: Here's where we are in terms of voter attitudes about these two candidates on the issue. The new Gallup Poll shows that McCain is actually gaining ground with voters on the economy; 48 percent say that Obama would better handle the economy, 45 percent say that about McCain. While Obama has a slight lead, it's a huge drop from August, when he had a 16-point advantage over John McCain. To both of you, first to Congressman Wexler, there is a connection problem. Is there not? If your party has the advantage, Obama is not breaking through.

WEXLER: Well, I think you're going to see those number probably dramatically shift in the next few days. But it is not a question of polls. It is a question of what will McCain and Obama do for the American people? What will they do for the family making 50,000.

GREGORY: I'm going to-I'll give Congressman Cantor the last word.

Take about 20 seconds.

CANTOR: The bottom line is people understand that John McCain knows the best thing we can do for the middle class in this country is to grow jobs. We want to be a place where there is investment. We can attract capital. It is not now the time to go and start taxing American people. Robert talks about owning the middle class. You know what, Barack Obama has voted for tax hikes on those making 42,000 dollars a year.

Whenever anyone says, we're going to only tax the wealthy, never believe it, because Washington never keeps to that. Now is not the time to raise taxes.

GREGORY: The debate continues. Passion on both sides. Congressmen, thank you very much.

WEXLER: Thank you.

GREGORY: Coming up next, I'll go one-on-one with McCain adviser Nancy Pfotenhauer when RACE FOR THE WHITE HOUSE returns.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

MCCAIN: In short order, we'll put an end to the reckless conduct, corruption and unbridled greed that has caused a crisis on Wall Street. We'll put a stop to it.

(END VIDEO CLIP)

GREGORY: Welcome back to RACE FOR THE WHITE HOUSE. That was Senator McCain on the trail today in Tampa, Florida, promising strict regulation on Wall Street if he is to be elected president. Joining me now to break down the other changes a McCain administration would bring both to Wall Street and main street, senior policy adviser to the campaign, Nancy Pfotenhauer. Nancy, good to see you. Thanks for being here.

NANCY PFOTENHAUER, MCCAIN SENIOR POLICY ADVISER: Thank you.

GREGORY: Let me start with something you heard earlier on the program from former Treasury Secretary Larry Summers, who said rather pointedly that John McCain is a Johnny come lately when it comes to understanding some of the real problems both in the economy and specifically what's been happening on Wall Street.

PFOTENHAUER: I just fundamentally disagree Larry Summers. Not the first time. Probably not the last time, but definitely disagree with him. Whether you talk about the Freddie and Fannie mess or whether you talk basic anti-corruption, and whether you talk about pursuing what the free market needs and what we need right now to bring jobs and economic growth. John McCain has been out there. That's why his economic plan is designed to be a job creation plan, not a redistribution approach, which is more Obama's.

And unfortunately, that's a job killer. It's a bad path for the economy to follow. I think Senator McCain has been a leader on these issues and he's got the record to prove it.

GREGORY: There are obviously, problem-questions about the policies of deregulation. The current-what is behind the financial crisis now. Here's what the "New York Times" wrote about McCain's record of Wall Street regulation. We'll show it to our viewers. "While Mr. McCain has cited the need for additional oversight when it comes to specific situations like the mortgage problems behind the current shocks on Wall Street, he has consistently characterized himself as fundamentally a deregulator. He has no history prior to the presidential campaign of advocating steps to tighten standards on investment firms."

Can you cite an example since the sub prime lending came on the scene, that John McCain actually advocated specific regulation on the investment banks?

PFOTENHAUER: First, I don't know if they've applied that same lens to Senator Obama. We obviously frequently disagree with the "New York Time." But Senator McCain has consistently called for strong, consistent, stable regulation, not the patch work quilt that we've got. That's the problem as you're aware, David. I can name at least five off the top of my head. There are probably seven different government agencies that are supposed to have oversight. And there's overlapping in some areas and gaps in others.

GREGORY: But do you disagree the "New York Times." Are there specific areas where Senator McCain has taken issues with that patch work of regulation on this particular issue, regulating investment banks and how over-leveraged they were with some of these sub prime products and lending products?

PFOTENHAUER: I can't go back mentally right now through every speech he's ever given. But, for example, I can remember once in 2002 where he talked about problems like this. He laid out a whole protocol. It was a very-it showed a tremendous foresight, where he said, look, we have to have careful regulation balance. We don't want bureaucracy but we want careful regulation. He specifically pointed out the potential problems and the pit falls that we were facing, particularly with corporate abuse and the fact that it was at oversight these things occur, and that oversight is an important part of making sure the consumers are protected.

GREGORY: Should there be specific capital requirements for the investment banks like there are for commercial institutions?

PFOTENHAUER: I think that's a natural place to start. There is a whole list of them. Obviously, you have the problem that really nobody has been minding the store on in investment banks. And there has to be certain basic things that make sense, put in place. Then there needs to be consistency. So that similar financial instruments, similar financial institutions, things that perform virtually the same role, should be treated the same from a regulatory perspective. And all of that should be very transparent. There should be increased accountability.

GREGORY: Let me switch gears and talk about Governor Sarah Palin. There are now numerous conservative columnists who are making the argument that she is simply not prepared to be vice president, to be a heartbeat away from the presidency. Today, conservative columnist David Brooks of the "Times" argues that experience matters, and that Sarah Palin may not have it, writing this, quote, "democracy is not average people selecting average leaders. It is average people with the wisdom to select the best prepared."

Does she have the required preparedness for office?

PFOTENHAUER: I think without question. In fact, as I have said, Governor Palin-the bottom of our ticket is more experienced-has more executive ability, a better record of reform than the top of the Democratic ticket. So any type of comparison like that, Sarah Palin is more qualified than Barack Obama, which is why I think, it is a huge mistake for their campaign to push the experience line. The American people, when they look at the accomplishments of Sarah Palin, compared to the tissue paper thin resume of Barack Obama. Governor Palin-

GREGORY: Beyond the rhetoric, Nancy, the reality-beyond the rhetoric, her views and her record, her record of preparedness, her view of the world, view of the world, those have not been tested on the campaign trail, as has Senator Obama's. That's a true statement.

PFOTENHAUER: Oh, my goodness. Senator Obama's basically-all we've got is a bunch of speeches with Senator Obama. And David, you know that. He's been in the Senate for what? Like three years. He's been running for president for two. I'm sorry. Running for president doesn't make you qualified for being president. The guy has never shown a willingness to buck his party leadership. His list of achievements, his bipartisan achievements are voice votes and things that passed 96-two.

He never took on the entrenched interests and his own party to get the right thing done. Senator McCain has done that and so has Governor Palin.

GREGORY: The debate continues. Nancy Pfotenhauer, thank you very much.

Come up next, which former Hillary Clinton backer is headlining tonight's start studded Obama fund raiser? We'll get a daily debrief from southern California when THE RACE returns after this.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

MCCAIN: Talk about siding with the people. Siding with the people just best flew off to Hollywood for a fund-raiser with Barbara Streisand and his celebrity friends. Let me tell you, my friends, there is no place I would rather be than here with the working men and women of Ohio.

(END VIDEO CLIP)

GREGORY: Welcome back to THE RACE. That was Senator McCain in Ohio today, taking a swipe at Obama for his Hollywood fund-raiser tonight. Joining me now for a daily debrief, Richard Wolffe, who covers the Obama campaign for "Newsweek Magazine," also an MSNBC political analyst. You know what became the joke, the attack line from the 2004 campaign was when John Kerry said Hollywood was the heart and soul of America, which the Bush campaign had a pretty good time with here. What is the risk/reward analysis of Obama being there tonight?

RICHARD WOLFFE, "NEWSWEEK": You won't hear from the candidate. If the campaign had its way, you probably wouldn't hear from Barbara Streisand either. There is some private concern about what unpredictable Streisand could say. Of course, she is a big Democratic favorite. She can raise a lot of money. The campaign is looking for a lot of money now that it has opted out of public financing. But the campaign also points out it was only a few weeks ago that John McCain himself was holding a fund-raiser at the Beverly Hilton with a bunch of celebrities, among them Robert Duvall, Angie Harmon, Jon Voight.

And a few days ago, McCain was raising millions in Miami. So you know, both sides are raising money here and they both like their own celebrities.

GREGORY: Barbara Streisand, you mentioned one time ardent supporter of Hillary Clinton will be performing at Senator Obama's fund raiser tonight. She recently posted this message about John McCain VP pick, Governor Sarah Palin, on her website-this is what she said, "this calculated cynical ploy to pull away a small percentage of Hillary's women voters from Barack Obama will not work. We are not that stupid. I believe John McCain chose Governor Palin because he truly believes that women who supported Hillary, an experience, brilliant, life long public servant, would vote for him because his vice president has two X chromosomes."

The only problem with that is that you can see the McCain campaign taking the statement in full, and using it on the campaign trail. Governor Palin herself might like to use it.

WOLFF: Yes. That's exactly why the Obama campaign would prefer respectfully that Barbara Streisand refines her comments, restrains her comments to the economy and the serious position that the economy is in right now, rather than talking about Sarah Palin. That is an uncontrollable, unpredictable set of events because Barbara Streisand with a microphone can say just about anything.

GREGORY: Let me-before I widen this out, let me ask you about the economy, how the Obama campaign insiders feel like it is going for them. This is an issue they've been pressed on for the past couple months inside Democratic circles. When are you going to do more to own this issue of the economy? What do you think they think is standing in their way and what adjustments do they feel they have to make to really demonstrate some ownership over the issues?

WOLFFE: Well, they feel that they are hitting a much punchier, more robust, more aggressive tone this week, especially, both in terms of ads, but also in term of the candidate. I don't know if you heard the candidate's speech today, but there are a number of zingers at John McCain and his chief economic adviser, Phil Gramm, on lobbyists, on the economy, on regulation. They feel that they're actually-they're in a position here where they're striking pretty hard.

Whether or not that gives them ownership is another question. But in terms of going much more aggressive here-remember, this was a campaign that once said it didn't want to pull a Tonya Harding. Those days are long gone here. And they are being much more robust and really hitting the economic issues every single day.

GREGORY: Let's bring the panel back in. We still have Joan Walsh with us, the editor-in-chief of Salon.com, and Steven Hayes, senior writer at the "Weekly Standard." Steven, let me start with you. There are going to be a series of debates where we're going to actually get a chance to go through their economic records, their philosophy, tax cuts and all the like in greater detail. What is the political test for John McCain as he moves forward on what is a tricky topic for him given his experience with the economy?

HAYES: I think he needs to look like he can handle a crisis. I think it is really that simple. He has said in the past, and the Obama campaign has made great hay of this, that he is not an expert on economic issues. But I think if he talks about his broad philosophy, and does in it counter distinction to the Bush philosophy, the Bush administration, maybe lays out a new tax reform package, for instance. It is a way that I think John McCain can talk about the economy in a compelling way, that will appeal to the middle class voters that we all agree are at the center of this, and also sound presidential.

GREGORY: And the same question for you, Joan, in terms of Obama's political tests here over the next 49 days.

WALSH: I agree with Richard that he sounded punchier today. He's been punchier in the last couple weeks. People are happy to see him fighting. But I still think he needs to get more specific. I still wanted to see in that speech today, my plan will keep tens of thousands or however many people in their home. It will stop this many foreclosures. I think he needs to get more nuts and bolts.

Those Gallup number you put up on McCain closing the gap on the economy, those have to be scary for the Obama campaign. There's no reason for those numbers to be this close on this issue.

GREGORY: We're going to leave it there. Thanks very much to Joan Walsh, Steve Hayes, and Richard Wolffe in Hollywood tonight. Actually, he's in Burbank at the moment. That does it for the program. I'm David Gregory. Thanks to the panel. Thank you for watching. We'll see you back here tomorrow night from San Francisco yet again, 6:00 p.m. Eastern time on MSNBC. Stay right where you are. "HARDBALL" with Chris Matthews starts right now.

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