updated 9/19/2008 2:07:58 PM ET 2008-09-19T18:07:58

Guests: Stephen Hayes, Michelle Bernard, Lawrence O‘Donnell, Michael Smerconish, Tim Pawlenty

DAVID GREGORY, MSNBC NEWS ANCHOR:  Tonight, bounce back.  Stocks surge tonight with the Dow closing up 400 points, but the uncertainty remains.  Will either presidential candidate be able to bail us out of this economic mess?  The RACE FOR THE WHITE HOUSE rolls on. 

Just 47 days to go in the RACE FOR THE WHITE HOUSE.  Welcome to the program, I‘m David Gregory.  My headline tonight:  On the rebound.  The Dow Jones Industrials closing up over 400 points, surging more than 200 points in the final hour of trading.  Let‘s bring in Erin Burnett, host of CNBC‘s STREET SIGNS and SQUAWK ON THE STREET. 

Erin, why this big jump today? 

ERIN BURNETT, CNBC STREET SIGNS:  Well, you know, this is incredible, David.  You know, you talk about it being your headline.  Over the past four days, just this week, the market has moved a total of 1,505 points.  That is the biggest move in any four-day period in American history.  It has simply been incredible and today we were up, we were down, people started to get depressed again, and then these headlines. 

Had our own Charlie Gasparino, on CNBC, reporting that Treasury Secretary Paulson might be meeting with leaders in Congress and with the White House and trying to come up with a plan to try to take some of this toxic debt away from banks.  And it is hope of that plan that sent stocks surging. 

GREGORY:  And let‘s just explain that a little further, because some of these instruments, some of this paper that they‘re holding onto they would like to just be able to dump, even if they lose money, but they can‘t find a buyer. 

BURNETT:  That‘s right, that‘s exactly the point, I mean, right now, everyone says, gosh, interest rates are at two percent, I mean, that‘s a very low rate, why can‘t people move things around?  Because it‘s not about how cheap interest rates are, it‘s really about liquidity, just like you said.  But, no one knows the exact formula of what‘s being considered, David, but it might be something along the lines of you use some taxpayer money, you use some money from the banks out there and they just basically put it in a pool and they go out and buy pretty much every nasty, rotten thing that these banks have and then hopefully that would cleanse the banks‘ balance sheets and that would encourage them to lend again.  At least in theory that‘s why people were optimistic. 

GREGORY:  And Erin, you know, Senator McCain is talking about a new instrument, as well.  Listen to his proposal. 

(BEGIN VIDEO CLIP)

JOHN MCCAIN ®, PRESIDENTIAL CANDIDATE:  I‘m calling for the creation of the Mortgage and Financial Institutions Trust, the MFI.  The priorities of this trust will be to work with the private sector and regulators to identify institutions that are weak and take remedies to strengthen them before they become insolvent. 

(END VIDEO CLIP)

GREGORY:  Erin, how would that work, and would it work? 

BURNETT:  It‘s an interesting point and I think all depends on the acronym you use, right David?  I mean, the MFI, the RTC, the RFC, in a sense these are all different ways of describing a similar effort. 

You know, what‘s interesting, David, is maybe it might work, but when you look back at the S&L crisis, the Savings and Loan Crisis in the 1990s when we tried this, this pool of bad mortgages, they actually were able to put the properties themselves in there.  This time it‘s much more complicated, you had all these complex securities, derivatives of this and derivatives of that.  So, it is much more difficult to determine who‘s in trouble and exactly the value of the asset is. 

So, that fundamental problem isn‘t going to be made any easier whatever acronym you put on whatever pool it is.  I‘m seeking for the right word.  But, it sounds what John McCain is proposing is very similar in principal to what Treasury Secretary Henry Paulson is actually thinking about, right now, from what he said there. 

GREGORY:  So, in order for the banks to get healthy again they‘ve to get rid of this debt they have to hold on that‘s literally dragging the companies‘ down that they can‘t get rid of.  They also have to make money, they have raise capital.  Where is the capital going to come from? 

BURNETT:  You know, and that is the, well, $14 trillion question, at least that was the size of our economy, right?  But, over the past six months a lot of people were concerned, as you know, because this money is coming in overseas.  The banks have been aware of this problem for quite some time.  Maybe they didn‘t handle it perfectly, but they have been trying to raise money since last fall and you know, the money came from Abu Dhabi, it came from Dubai, it came from Singapore, it came from Shanghai, it came from Moscow and a lot of people in this country were concerned about that—do we want to sell ourselves to foreigners.  Well, at this point, any buyer is better than no buyer and the crisis that has started here has spread overseas. 

David, you know, people may not realize it, but the Russian market hasn‘t been able to open for a full day because of the crash, there.  So, the crisis that we have in this country has spread and that means more fear overseas and it means less money potentially available to help our financial institutions.  It‘s a big concern. 

GREGORY:  All right, Erin Burnett of CNBC, thanks for brining it in focus for us, Erin, appreciate it.

BURNETT:  Thanks, David. 

GREGORY:  Let me bring in Lawrence O‘Donnell, MSNBC, political analyst and Stephen Hayes, senior writher for “The Weekly Standard.”

Gentlemen, welcome.  Let me pick up on this point that I was discussing with Erin.  And this now goes to the political point, the “Wall Street Journal” editorializing today that Congress is to blame at some level, here, that the “Treasury proposal ready to send to Congress is there, but members have told Mr.  Paulson that they don‘t want to see it until after Election Day.  [Secretary] Paulson fears if he does calls for action and Congress refuses, then the contagion would be even worse.”

Lawrence, what are the implications of Congress not jumping in right now, even in the midst of a heated campaign and getting something done? 

LAWRENCE O‘DONNELL, MSNBC POLITICAL NEWS ANALYST:  Well, I think it would be disastrous, and especially, David, disastrous politically, as you say, in the midst of a heated campaign.  The Democrats are favored to win, obviously, in the House, gain some seats in the Senate.  This would be the way to reverse that possibility, would be to simply walk out on this kind of crisis.  I don‘t see how they can do it.  They have plenty of complaints about not having been consulted on the interventions that have occurred so far.  They‘ve had no real input into it.  But, this is a situation where if they are asked for input, they‘re going to have to stay there, they won‘t be able to adjourn, they won‘t be able to walk away from this and they‘re going to have to take some tough votes. 

GREGORY:  Stephen Hayes, we talk about McCain being on the front lines of this fight because he‘s the standard bearer of the party.  But, it is the administration, it is the president coming out to speak to the country about the status of the economy, what the administration is doing, and it is Hank Paulson who‘s trying to work with the Fed to keep the economy afloat.  How do you assess that the job the administration is doing? 

STEPHEN HAYES, THE WEEKLY STANDARD:  Well, you really do, you have this actually happening on two different levels, because on the one hand, as you say, you have Hank Paulson sort of with the roll up the sleeves job of getting these people together, getting the heads of the banks together, getting the Fed chiefs together, trying to come up with some kind of a reasonable compromise solution so that we can actually start to tackle it.  And I think what‘s been interesting on the political side is in a sense you‘ve seen what I would consider to be the worst instincts or the flaws of the two presidential candidates on display this week. 

You had John McCain say on Monday, “the fundamentals of the economy are strong,” he clearly reversed himself Tuesday.  He reversed himself further and doesn‘t seem—there‘s not a lot of coherence to his position.  Barack Obama is criticizing John McCain for doing that and at the same time refusing to take any position, right now.

And then you have Barack Obama criticizing McCain for taking—for doing that and at the same time essentially refusing to take any position whatsoever to protect, in my sense, to protect his own political interests.  So, really you‘ve got this story developing on two different sides.  We‘re paying a lot of attention to the political story.  What really will matter, probably most in terms of the election, is what‘s happening with the administration. 

GREGORY:  Well, and I want to get back to that point, but let‘s talk about a new wrinkle in Senator McCain‘s approach to all of this.  He called today for the firing of the SEC chairman, Securities and Exchange Commission chairman Christopher Cox.  Listen to Senator McCain. 

(BEGIN VIDEO CLIP)

MCCAIN:  The primary regulator of Wall Street is the Securities and Exchange Commission.  We call the SEC kept in place, trading rules that let speculators and hedge funds turn our markets into a casino. 

The chairman of the SEC serves at the appointment of the president, and in my view has betrayed the public trust.  If I were president, today, I would fire him. 

(APPLAUSE)

(END VIDEO CLIP)

GREGORY:  Fire him, a quick response from Senator Obama today on that subject.  Watch that. 

(BEGIN VIDEO CLIP)

OBAMA:  He said that he‘s calling for the firing of the securities and exchange commissioner.  Well, I think that‘s all fine and good, but here‘s what I say—in the next 47 days you can fire the whole trickle down, on your own, look the other way crowd in Washington who has led us down this disastrous path, don‘t just get rid... 

(END VIDEO CLIP)

GREGORY:  And just as we talk about that political debate, we have new word on this very subject right now from Erin Burnett back at CNBC—

Erin. 

BURNETT:  That‘s right, well, it‘s interesting, David, you know, Chairman Cox no doubt listened to both of those bites that you picked, there.  In a sense it made you smile just listening to the politics, there.  But, his comment was, look, just if you‘re concerned, I‘m done at the end of President Bush‘s term and I will not stay under any terms.  So, he did come out and respond.  So, perhaps not getting fired now, but he‘s got no interest in working for either one of them. 

GREGORY:  Well, thank you very much, Erin Burnett.

What‘s interesting, Lawrence O‘Donnell, a couple of things.  First of all, Senator McCain was critical of Donald Rumsfeld during a critical point of the Iraq war, but never called for him to be fired.  He‘s calling for Secretary Cox to be—or rather SEC Chairman Cox to be fired.  At this late stage, it is certainly an attempt to break with President Bush on a subject where he‘s safe doing so. 

O‘DONNELL:  Well, it‘s also McCain saying I‘ll fire someone for carrying out the policies that I advocated.  Cox loosened regulations, that was something McCain supported up until this week.  This is one of those situations, David, where you can see that in political terms, in campaigning terms, philosophy will get you nowhere.  McCain went with his philosophy in the first reaction to the AIG bailout saying it shouldn‘t happen, they shouldn‘t do it, I‘m against it.  Within 24 hours he had to change his position over to the practical governance outcome of the AIG bailout and so McCain is feeling his way through this and consistency be damned. 

And I would agree, as a campaign tactician, don‘t worry about consistency now, just try to take the best shot.  I think in that exchange my sense is, my guess is that Obama probably gets the better of it by broadening the focus out to the entire Bush approach to these issues, not just one person Bush appointed. 

GREGORY:  And Steve Hayes, quickly here, show you the head-to-head from the “New York Times”/CBS News poll, Obama back up five points, here.  So, we see a small single-digit lead coming out of this economic mess with a little bit of distance now from the conventions.  There is an effort here on the one hand to make it all about the economy, if you‘re Obama.  If you‘re John McCain, as Mike Murphy told us on the program last night, to make this about a crisis that requires experience, that requires some Washington experience. 

HAYES:  Yeah, I think that‘s right.  I mean, these polls, the national polls, of course, are useful only in the sense that they tell us, they are sort of a reflection of how the campaigns have been doing in the news in the past week, and I think given the news that we‘ve had this week and given the fact that McCain seems to have stumbled no this, it‘s not surprising it would end up that way.  And I agree with Lawrence that, I think Barack Obama‘s sound bite today, the one that you just played, will appeal to people whose, you know, most of whom don‘t really understand the complexities of this issue, but think, jeez, this is a big deal, I don‘t want these guy.  You know, you fire this guy a couple months before he‘s supposed to leave anyway, what‘s that going to do?  Throw them all out. 

GREGORY:  All right, we‘re going to take a break, here.  Our thanks again to Erin Burnett, especially with that late word from CNBC about Chris Cox saying he has no intention of staying on here beyond the end of this second term.  So, some news developing here in our first settlement. 

We‘re going to take a break here, when we come back, more on these new polls.  How voters view Governor Sarah Palin.  Plus, do voters think Obama is prepared to be president?  I‘m going to go inside the War Room with former congressman and NBC NEWS analyst, Harold Ford, Jr. The RACE FOR THE WHITE HOUSE returns right after this.

(COMMERCIAL BREAK)

GREGORY:  President Bill Clinton has a warning about Obama and for Governor Palin, as well.  I will go inside the War Room with former Democratic congressman, Harold Ford, Jr. when the RACE returns.

(COMMERCIAL BREAK)

GREGORY:  Back now on RACE FOR THE WHITE HOUSE, I‘m David Gregory.  Time to go inside the War Room with Democratic leadership counsel chairman and MSNBC NEWS analyst, Harold Ford, Jr.

Harold, good to see you. 

HAROLD FORD, JR., MSNBC NEWS ANALYST:  Good to see you, too.  Thanks for having me. 

GREGORY:  Let‘s hear from former president Bill Clinton weighing in with some analysis on the race, particularly on Governor Sarah Palin. 

(BEGIN VIDEO CLIP)

BILL CLINTON (D), FMR U.S. PRESIDENT:  She‘s an instinctively effective candidate and with a compelling story.  I get why she‘s done so well.  She—it‘s a mistake to underestimate her, she‘s got good instincts her intuitive skills are...        

(END VIDEO CLIP)

GREGORY:  Former president, of course, speaking to Maria Bartiromo on CNBC for her program.  It‘s interesting, the analysis, I think, Harold, because it‘s very similar to what President Clinton said about President Bush, then Governor George W. Bush, said, don‘t underestimate him, this is a very effective politician who knows how to connect with the voter.  Do you think it‘s a fair comparison to make, here? 

FORD:  I do.  He‘s been elected twice, this president, and has a great understanding and grasp of what voters are looking for and what connects with voters.  I think Sarah Palin benefited from a couple of things.  One, there was instantly an underestimating of her on the part of the Obama campaign and even many in the press handicapped her as being—lacking sort of the abilities, the qualifications and, frankly, the capacity to go up against Joe Biden. 

The more the Obama campaign moves from addressing her as a candidate and as a nominee the more successful they‘ve been.  When they take the RACE back to John McCain, reminding people what‘s at stake economically and our foreign policy, our standing in the world, the better off we do.  My advice, as it was on the first day when she was selected, you don‘t want to take on a mom of five who‘s been elected governor.  She knows a little something about people and she knows a lot about politics.  But this race will boil down to John McCain and Barack Obama and that‘s what Senator Obama has done very well over this last week. 

GREGORY:  Yeah and in many ways boiled down even further to a sense about Barack Obama and whether people trust him.  Let‘s look at some of numbers from the “New York Times”/CBS poll, specifically relating to Sarah Palin -- 55 percent indicate that they relate to her.  I think that‘s what former president Clinton was speaking to, 52 percent said that she‘s not prepared to be vice president, 75 percent picked to help McCain win not for her qualifications, 69 percent McCain supporters enthusiastic about the Palin pick. 

Look at this from both ends here, of the political spectrum, Harold.  What is it that you fear will settle in about Sarah Palin in the voters‘ mind and what is it that you hope will actually settle in by the end of this process? 

FORD:  Well, again, I don‘t think the focus ought to be Governor Palin.  Governor Palin will be No.  2 to John McCain.  John McCain has stated throughout the campaign that much of his economic philosophy would mirror that of the last seven or eight years.  He‘s indicated that he would extend many of the tax cuts, he‘s indicated that the approach in Iraq he fully agrees with.  At the end of the day, that‘s what‘s at stake in the campaign. 

Now, if Governor Palin were at the top of the ticket, I think you would raise some of these questions in a different way about her.  She‘ll have one debate with Joe Biden and the country will have an opportunity, on full display, to see there, and to hear their thoughts about Iran, North Korea, Pakistan.  We‘ll have an opportunity to hear their thoughts about Afghanistan, about the economy, about housing and education, and the country will make a determination. 

But the big show, there are three of them, September 26, October 7 and October 15, where the country will see both of these men, McCain and Obama, stand side-by-side and discuss the firing of the SEC chairman, discuss whether or not we should pass an RTC to help take some of these bad loans and toxic stuff off the balance sheets of some of the banks and allow the economy to begin growing again. 

GREGORY:  Well, let‘s talk about the economy.  You‘ve a unique perspective, expertise, and experience in politics and experience now in the financial markets because of your work at Merrill Lynch.  Put those two disciplines together and give me your sense of what the leadership test is for these candidates, now, on the economy. 

FORD:  I think two things, one to understand the anxieties, the angst and the real-life pains of everyday Americans.  I was just here, in our building, on the elevator coming up, and a fellow that works in the building got on and said, you know, I work my tail off every week and I get a couple hundred dollars taken out of my check by the government every week and I want to make sure they‘re spending my money right. 

This is, at it‘s heart, about the American dream and I think the country wants to hear both McCain and Obama talk about creating jobs, using government in a way, the power of government in a way to help, not only help markets to grow, but to help small business people in this country create jobs again, provide healthcare for their workers, the very basic things. 

Two, we face an immediate problem.  And there‘s no doubt what Secretary Paulson has attempted to do over the last week or two has been laudable in some ways.  I think his work with Barney Frank and Democrats on the Hill is really the model that we‘re looking for in our Treasury secretary and I hope the next Treasury secretary will follow that model. 

Chuck Schumer and Paulson come out today with an exciting proposal, interesting proposal, that will allow banks to begin lending again, because you‘ll take some of the really, really bad stuff, there‘s a lot of blame to go around here, and we could have a whole show on who‘s to blame here, but the reality is we‘ve got to figure out how to get banks lending again, how we get people taking risks again and how we settle this notion in the housing market, (INAUDIBLE) the instability in the housing market.  And I think Paulson and Schumer‘s plan can do that. 

GREGORY:  Another reality here is that the taxpayer is on the hook for a really big bill and nobody knows exactly how big that bill is just yet.  What we do know is that there is a projected budget deficit to the tune of about $480 billion, entitlement spending is still a huge problem, Social Security, Medicare, a deficit and a financial crisis that doesn‘t yet have a bottom, and that‘s a problem that people even inside of this don‘t really no where that bottom is.  What reality, economically, is the next president going to walk into, particularly with the size of the taxpayers‘ bill, here?  What challenge do they face coming in? 

FORD:  It will be tall, the challenge.  You add to what you just shared the spending on the wars in Iraq and Afghanistan, which have generally been off balance sheet, in other words, we‘ve not calculated that into the overall debt the country‘s facing. 

The next president‘s going to have a challenging time, but we can‘t ignore the moment we find ourselves in now.  The thing that makes capitalism in this system work is liquidity, it‘s money.  And when people aren‘t lending and people can‘t risks and people can‘t hire people, people can‘t spend, the consumer doesn‘t have confidence, that hurts our overall economy and frankly, impairs our ability to compete around the globe. 

So, you have an immediate set of challenges, then you have a longer set.  I have some different views than both of the candidates on entitlement reform.  I think you have to look at some sort of raising the age requirement, or I should say, raising the age eligibility and even means testing (INAUDIBLE), otherwise I‘m 38 years old.  You‘re going to handicap an entire generation of Americans who simply won‘t be able to afford to pay the enormous bill that is coming our way. 

GREGORY:  Before I let you go, we talk about crisis in the financial markets.  The “New York Times”/CBS poll, it‘s John McCain who still has a huge lead on who‘s prepared to be president, on that question it‘s 71/48, McCain over Obama.  One of the biggest hurdles, wouldn‘t you agree for Obama here, as we‘re down the stretch? 

FORD:  Over the next several weeks, again, the next few weeks, as they prepare for this first debate on September 26 on foreign policy, I think Senator Obama‘s performance will determine if he‘s elected president.  If he conveys a kind of confidence that I know that he has, a kind of smarts, a kind of foresight and a wisdom that I know he has, he will be elected.  If he does not come across as sure of himself, does not come across with the grasp that John McCain clearly has on some of these issues, Barack will find himself in a tough spot. 

I also hope over the next few days that he even campaigns more so, Barack campaigns more so in some of these battleground states with the governors in those states, with Strickland in Ohio, and Rendell in Pennsylvania and connect even more with voters on these economic issues and some of the hardship that many people across this country are facing day in and day out. 

GREGORY:  All right, we‘ll leave it there.  Harold Ford, thank you so much. 

FORD:  Thanks for having me.

GREGORY:  We‘re going to take a break, here.  Coming up next, new polls.  Are two key battleground states no longer too close to call?  They‘re on the RACE‘s radar, tonight, and we‘re going to share some new polling with you, right after this.

(COMMERCIAL BREAK)

GREGORY:  Back now with a look on what‘s on the RACE‘s radar, tonight.  With 47 days to go, a snapshot of what‘s happening in the battleground states.  The “National Journal” released four new polls today showing a dead heat in Ohio and Colorado.  In Ohio, it‘s McCain 42, Obama 41, dead heat, there.  And in Colorado, it‘s Obama 45, McCain 44. 

But, the “National Journal” polls find that two battleground states seem to be breaking for one candidate.  In New Mexico, Obama now has a seven-point lead; it‘s Obama at 49 percent, McCain at 42 percent.  New Mexico, of course, went narrowly for President Bush in 2004, hard fought in 2000, as well. 

And In Virginia, state getting a lot of attention this cycle, McCain now has a seven-point lead over Obama.  It‘s McCain 48 percent and Obama 41 percent.  President Bush, of course, won Virginia in 2004, but this is a key pickoff opportunity, this cycle, for Barack Obama. 

Going to take a break, here.  Coming next, Governor Palin answers voters‘ questions in her first town hall meeting.  What she said about women‘s issues, in particular.  And in our next half hour, Governor Tim Pawlenty of Minnesota, he‘ll be back to talk about John McCain on the trail.  The RACE is back after this.

(COMMERCIAL BREAK)

GREGORY:  Governor Sarah Palin holds her first town hall meeting, as a new poll shows Obama regaining ground with women voters.  Obama says he wants a new kind of politics.  Why is he running more negative ads than Senator McCain? 

Plus, Minnesota Governor Tim Pawlenty on McCain‘s big bounce in that state and McCain‘s call to fire President Bush‘s top Wall Street regulator. 

We are back on RACE FOR THE WHITE HOUSE, the back half.  Good to have you here.  I‘m David Gregory.  Governor Sarah Palin took questions from voters for the very first time last night at a town hall in Grand Rapids, Michigan.  She emphasized her readiness for the White House. 

(BEGIN VIDEO CLIP)

PALIN:  Certainly, we‘ll be ready.  I‘ll be ready.  I have that confidence.  I have that readiness.  If you want specifics with specific policies or countries, go ahead and you can ask me.  You can even play stump the candidate if you want to.  But we are ready to serve. 

(END VIDEO CLIP)

GREGORY:  Joining me to talk about the Palin factor, MSNBC political analyst Lawrence O‘Donnell, Michael Smerconish, radio talk show host and columnist for both the “Philadelphia Inquirer” and the Daily News, and MSNBC political analyst and president of the Women‘s Forum, Michelle Bernard.  Welcome all. 

Michelle, let‘s start with you, stump the candidate.  What do you make of it? 

MICHELLE BERNARD, MSNBC POLITICAL ANALYST:  That‘s not a question I would be ask this early on into Sarah Palin‘s introduction to the public.  Particularly coming on the heels of the Charlie Gibson interview, which according to some people didn‘t go as well as it could have possibly gone.  The interesting thing about the town hall meeting was she threw that out there, but I didn‘t notice any questions that came her way where anyone tried to actually play stump the candidate last night. 

She is obviously a very charismatic figure.  The Republican party is very energized by her.  It will be interesting to see what happens with the vice presidential debate coming up in a few weeks with Senator Biden. 

GREGORY:  Lawrence, what matters?  Stumping her at this point, getting her exact views on issues, testing what she actually knows?  Or are there other leadership qualities voters are trying to discern? 

LAWRENCE O‘DONNELL, MSNBC POLITICAL ANALYST:  I don‘t think there‘s much chance of developing a sense of leadership qualities with Sarah Palin, based on the polling we are looking at today.  There‘s a very, very small minority believe that she was chosen for her qualifications.  In the “New York Times” poll, 17 percent say they think she was chosen for her qualifications.  The rest think she was chosen for political reasons. 

The stuff the candidate happened at the very end of the program.  There were no questions after that.  If you‘re going to say it, that is the safe time to say it, when you are just about to leave the stage.  The amazing thing, David, is how much, at this stage, according to the polling we are seeing now, how much Sarah Palin has not accomplished for the ticket, when you see that in the “New York Times” poll, the biggest change in voters was among white women, and that was a migration to Barack Obama.  That was the biggest change in the poll. 

GREGORY:  You set me up perfectly.  We‘ve got some of that poll that we‘ll put up on the screen here.  You look from August to September, what the numbers are.  This is among all women, Barack Obama 54-38, when back in August, it was a lot tighter there. 

MICHAEL SMERCONISH, RADIO TALK SHOW HOST:  Here is the intangible; what you don‘t see in those numbers are the effect she has had on the base of the party.  By way of anecdotal evidence, David, I can tell you that tomorrow night, the Republican State Committee here in this swing state of Pennsylvania will gather, and people are banging down the door to get into the event.  Whereas preceding the Sarah Palin nomination, they would have had difficulty selling tickets. 

I‘m surprised at this protective nature of the roll out, that people are having such a high level of patience with it.  I thought by now there would be a cry and more of a demand that she sit and answer a whole variety of questions, like she did with Charlie Gibson.  But I don‘t hear that. 

GREGORY:  It is interesting to me, if you look also, Michelle, compare this to the 2004 exit polls, and you look at the gender gap, which was actually very small.  President Bush narrowed that considerably.  It was Kerry 51 to 48 among women.  Barack Obama has to create a big spread here.  He needs a big gender gap, because he is so close on men or he‘s going to fall behind on men to John McCain. 

BERNARD:  Absolutely.  One of the things we have always said, which is why I find the “New York Times” poll interesting, is that women are not a monolithic voting bloc.  There has been traditionally a gender gap in this country.  We saw George Bush shrink it.  In 2004, women, Democratic and Republican women, put George Bush back in office.  It was on matters of national security. 

One of the things that I think was important, if you look back in 2004, the Belson (ph) school massacre in Russia, when all of those children were basically murdered in that school in Russia.  It was a few months before our election.  I think women took a close look at that.  The key in this election for Senator Obama and Senator McCain is to seize on the issues that matter to women in this electorate and really hit home.  I think in this election, it is going to be pocketbook issues.  It‘s going to be the economy. 

It is a mistake to think women will vote for Sarah Palin just because she is a woman, nor will they vote for Barack Obama just because he heads the Democratic ticket.  Both of these campaigns are going to have to work very, very hard to demonstrate to American women, conservative and liberal women, that they have the right answers to make their lives better. 

GREGORY:  Just to give you another sense of Sarah Palin on the stump last night at this town hall meeting, she was asked about the Title Nine programs in our schools. 

(BEGIN VIDEO CLIP)

PALIN:  I‘m a product of Title Nine in our schools, where equal education and equal opportunities in sports really helped propel me into, I guess, into the position that I‘m in today.  Sports were very, very important to me growing up.  Just learning all about self-discipline and about healthy competition and about what it takes to win, and even how to graciously lose sometimes, but how to win.  That‘s what it teaches you. 

(END VIDEO CLIP)

GREGORY:  Lawrence, more generally, you have this picture of the two of them campaigning together which is still striking, because it is largely unprecedented to have them on the road most of the time.  We can measure her effectiveness in terms of drawing crowds and on the base.  I‘m struck by watching John McCain on the trail and reading those who cover him day in and day out, taking note of the fact that Steve Schmidt, who was with the Bush campaign, seems to be bringing a certain level of discipline to both the campaign and the candidate. 

He is starting to get more like George W. Bush on the trail.  I mean that in a positive way, in terms of having more message discipline and the like.  It is a striking contrast to the way we‘ve seen McCain campaign in the past. 

O‘DONNELL:  And it limits your capacity.  When both candidates have to be in the same place at the same time in order for the show to work, that really cuts down by 50 percent the amount of territory you can cover in a day as they campaign.  I hope Sarah Palin has a thank you note ready for Senator Ted Kennedy when she talks about Title Nine.  She doesn‘t have any Republicans to thank for that.  It is fascinating to see her out there campaigning in a way that doesn‘t have a connection to any kind of governing philosophy on any given moment. 

They are non-interventionist, or they are interventionists, depending on what the business requirements are of that day, in terms of the economy.  For the Title Nine thing for a Republican candidate on a Republican ticket is an unprecedented shout out to Ted Kennedy. 

BERNARD:  If I could add about Title Nine, though, should Senator McCain be elected, one of the things that you would see many conservative women in particular looking at for this quote-unquote reform ticket is for Title Nine to be reformed.  You will see many conservatives and Republicans, particularly women, who say that the objectives of Title Nine were wonderful, but one of the unintended consequences is that it has had a disproportionately negative impact on men in sport. 

For those us who are mothers like Sarah Palin, we want our daughters to be active in sports and have an equal opportunity in education, but we want that for our sons also.  Male sports have been cut all across the country as a result of the way Title Nine has been interpreted.   

GREGORY:  Smerc, a comment here, in general terms, about Lawrence‘s point about whether there‘s a real governing philosophy that we‘re seeing.  It is so difficult for these campaigns, both of the campaigns, in real time to respond to a financial crisis that is befalling Wall Street at the moment.  Yet, they are very much subject to doing the play by play and some instant analysis on what the administration is trying to do. 

SMERCONISH:  My belief is that the issues confronting right now elected officials are beyond the grasp of most of the electorate.  I‘m certainly in that category.  It is hard for me to follow what is going on, no matter how much I read.  I think what people are looking for is some comfort level that the individuals for whom they are about to vote, that they understand it, and that they have a plan. 

I think the Republican side of the aisle has been shaky thus far.  I noticed that John McCain seems to be more scripted, as you made reference to, particularly on these issues.  I don‘t know that there is a comfort level there that is engendered by Sarah Palin when you‘re talking about the intricacies of Wall Street. 

GREGORY:  All right, we‘re going to take another break here.  Coming next, negative ads.  Which candidate is running more of them?  You might be surprised.  THE RACE returns right after this.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP

MCCAIN:  I will not take the low road to the highest office in this land. 

UNIDENTIFIED MALE:  What‘s happened to John McCain?  He is running the sleaziest ads ever, truly vile.  Dishonest smears that he repeats even after it has been exposed as a lie.  Truth be damned.  A disgraceful, dishonorable campaign. 

After voting with Bush 90 percent of the time, proposing the same disastrous economic policies, it seems deception is all he has left. 

(END VIDEO CLIP)

GREGORY:  That is a new campaign ad from the Obama campaign.  It is out this week, taking a swipe at John McCain for his negative as.  Take a look at this, a new study from the Wisconsin Advertising Project says that it is Obama slinging the most mud on TV; 77 percent of Obama‘s ads after the GOP convention were negative, compared to 56 percent of McCain‘s. 

Our panel is still with us, Lawrence O‘Donnell, Michael Smerconish and Michelle Bernard.  Michelle, of course, you get the argument about what is a fair contrast and what‘s actually negative.  There is no question that Barack Obama, who understands at a core level, this will be a referendum on him, would like to turn the tables and make this a referendum on McCain/Bush. 

BERNARD:  Absolutely.  What we have learned, for better or worse, the American public does not like negative ads.  The way the polls go with the wind, we know the negative ads absolutely work.  And the bump that the Republican party received after John McCain named Sarah Palin to the ticket and after the Republican convention, I truly believe the Obama camp never expected it.  After that, one should have fully expected that they were going to go very negative. 

The danger here is that Barack Obama is running as the change candidate.  If he is going to go negative, he has to make sure that in every ad that he puts out that is negative, that he is using 100 percent accurate information or it will come back to haunt him. 

GREGORY:  Lawrence, I have talked to Democratic strategists who said look, there was a lot of hand wringing in the Obama campaign and in his own mind, in Senator Obama‘s mind, about is he going to hurt his brand.  Should he not go after him too hard.  All that went by the wayside when they realized they have to get in the game here and fight this out. 

O‘DONNELL:  They always knew in the seventh inning, they were going to have to use this kind of ammunition.  Negative ads are such a tricky thing to talk about.  The one we just showed was a negative ad.  All the negativity, most of it, was communicated by “Time Magazine,” CBS News and these other sources that are quoted in their. 

What gets scores as a negative ad—for example, if there is a McCain ad that says Obama wants to raise taxes, which is true, that will be scored as a negative ad.  If there‘s an Obama ad, which says McCain wants to privatize Social Security, which is true, that will be scored as a negative ad.  So there are negative ads that are actually very helpful and informative to viewers who care about issues like that. 

GREGORY:  Right.  Let‘s look at First Read today, some analysis from our political unit, led by Chuck Todd; quote, “a lot of smart political types have been surprised by the lack of stickiness of Obama‘s TV ads.  McCain‘s ads might be getting killed by the truth squanders, but they are being talked about and voters seem to remember them.  There is not a memorable Obama TV ad that anyone can point to and say wow, that is an interesting ad.” 

It got us thinking at the program today about some of the effective ads from the last cycle, from 2004, including this Bush/Cheney ad against John Kerry.  Take a look. 

(BEGIN VIDEO CLIP)

UNIDENTIFIED FEMALE:  In an increasingly dangerous world, even after the first terrorist attack on America, John Kerry and the liberals in Congress voted to slash America‘s intelligence operations by six billion dollars.  Cuts so deep they would have weakened America‘s defenses.  And weakness attracts those who are waiting to do America harm. 

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES:  I‘m George W. Bush and I approve this message. 

(END VIDEO CLIP)

GREGORY:  Smerc, looking back on the campaign, which I covered, it crystallized the race.  That is what the race came down to, that question of who is going to keep the wolves at bay. 

SMERCONISH:  I thought First Read had an excellent observation.  David, I don‘t think there is a media market in the country in which more television money has been spent than the one in which I‘m located right now.  We‘re already at a point of saturation where it is a blur.  If you were to say to me right now, what stands out in your mind?  I would say it‘s that celebrity commercial that the McCain campaign ran.  Although, I have seen ever other commercial, I would be hard pressed to quickly identify them.

I think reason for that is they‘re more focused on rapid response than they are development of a consistent message.  Every time one candidate says one thing, immediately the other says something else. 

GREGORY:  We have to take a break here.  Thanks very much to the panel.  Coming next, I‘m going to go one-on-one with Governor Tim Pawlenty of Minnesota, where a new poll shows McCain and Obama in a dead heat.  We‘ll come back with him when THE RACE returns after this.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

MCCAIN:  The chairman of the SEC serves at the appointment of the president, and, in mu view, has betrayed the public trust.  If I were president today, I would fire him. 

(END VIDEO CLIP)

GREGORY:  Back now on RACE FOR THE WHITE HOUSE.  Surprising turn from Senator McCain today, calling for the firing of SEC Chairman Christopher Cox, former conservative Congressman from southern California.  Joining me now is Minnesota Governor Tim Pawlenty, a McCain supporters, of course.  Governor, welcome. 

GOV. TIM PAWLENTY ®, MINNESOTA:  Thank you.  It is always good to hang out with you, David. 

GREGORY:  Thank you very much.  it‘s good to have you here.  We know from our colleagues at cNBC that Chairman Cox is indicating that he does not plan to stay on as head of the SEC when Bush leaves office.  As a political matter, how effective do you think this is?  How necessary do you think it is for John McCain to take a step like this, to try to get some separation from the Bush administration on the economy? 

PAWLENTY:  Well, this is not new for John McCain.  Back in 2002-2003, when we had the Enron scandal, he was speaking and authoring legislation to try to crack down on corporate governance, accountability and transparency.  2005, 2006, he foreshadowed the troubles Fannie Mae and Freddie Mac and offered legislation to clean that up.  It didn‘t pass the Congress. 

Now, he has called for a series of additional steps to crack down on this crisis and clean up the mess.  One of the things that is going on is this naked short selling, which sounds like a weird term.  It‘s something of great concern.  The SEC, arguably, was not aggressive enough and forceful enough in overseeing that.  So Senator McCain‘s concerned.

He‘s also today foreshadowed something call the Mortgage and Financial Institutions Insurance Trust, which he‘s going to spell out in more detail tomorrow.  But it would be another vehicle to intervene before these companies get in to a catastrophic state. 

GREGORY:  Governor, let me show you the latest from the “New York Times”/CBS News poll on trust on the economy.  And the advantage there goes to Barack Obama, 66 to 58.  You mentioned a couple of the line items here where Senator McCain has favored more government intervention or more regulation.  The truth of the matter is that he has a history of favoring deregulation.  He also is not in tremendous disagreement with Senator Obama on this point.  They both agree, it seems, that there was not enough regulation in the Bush years. 

For most voters, governor, that you encounter every day, when they talk about economic philosophy, where is the evidence there was a big break from President Bush?  I can think of a big issue, which was taxes, and Senator McCain opposed the Bush tax cuts before changing his minds and later backing them, and now wanting to see them made permanent. 

PAWLENTY:  Senator McCain has a record as a maverick and a reformer.  That‘s for good reason.  His whole career reflects that, not just on marginal issues, but big issues.  For example, he took on the Bush administration, President Bush, on numerous high-profile spending issues.  Barack Obama did not.  In 2005, Senator McCain voted against President Bush and Vice President Cheney‘s energy bill, because he thought it was too much of a give-away to oil companies.  Barack Obama voted in favor in that bill.  The list goes on.

Those are a couple of just high profile ones that relate directly to the economy, David. 

GREGORY:  What do you expect?  You are out in the states as a governor, as an executive.  What kind of challenge does John McCain face if he gets into office and faces the economy in this kind of turmoil? 

PAWLENTY:  A lot of Barack Obama‘s efforts are to try to link John McCain to President Bush.  That is not working because of John McCain‘s maverick record.  Keep in mind, the Congress, run by the Democrats, is half as popular as the president.  Barack Obama would be a rubber stamp for that.  Nobody wants that.

John McCain has a record of maverick reform.  Here is the thing, the country is only going to improve if we get somebody in the Oval Office who is willing to work across party lines.  John McCain has done that, time and time again on big issues.  Barack Obama has not.  I think people see that.  Barack Obama‘s rhetoric does not line up with his record.  He is a straight partisan, both in the Illinois legislature and in the Congress.  He‘s not somebody who is going to bring the country together, notwithstanding his pretty speeches on the teleprompter. 

GREGORY:  You‘ve got a tight race at this point, governor, in your state of Minnesota.  The polls showing a dead heat there.  What is going to make the difference down the stretch?  Still going to be pretty tough for a Republican to take the state, wouldn‘t you say? 

PAWLENTY:  We always have a bit of an uphill climb in Minnesota, the land of Humphrey, Mondale, Wellstone and McCarthy, but it has become more competitive.  People in the upper Midwest want straight talk.  They like populism, a bit of a populist, a maverick.  I think some of those characteristics are going to be very appealing in Senator John McCain.  He is the kind of Republican who can win in Minnesota and Wisconsin and Iowa and places in the upper Midwest. 

GREGORY:  Is he losing this change argument in picking Palin, in his acceptance speech in St. Paul?  That was the cornerstone.  Who do you trust to bring change?  If you look at the polling, he is still well behind on that score. 

PAWLENTY:  David, if you look at the rhetoric of change. Barack Obama has voted partisan lines, according to the “Congressional Quarterly,” almost 100 percent of the time.  There is no issue of national significance where Barack Obama has led the charge to break the grid lock, break the partisanship and take a risk and lead.  There is nothing—he said he reached across party lines to work with Senator Lugar on rounding up loose nuclear weapons.  Who is against that?  It passed on voice vote unanimously. 

John McCain on climate change, on spending, on earmarks, on importing prescription drugs from Canada, on torture, on nuclear proliferation, on energy, the list goes on and on and on.  John McCain has reached across party line, taken a beating from his own party.  He did it because he thought it was right for the country.  That is what‘s going to bring the country together.  Not pretty speeches with a partisan record, like Barack Obama has.

GREGORY:  Lastly, governor, Sarah Palin, what is the impact you can measure in Minnesota?  She has energized the base.  Do you see any evidence that she is reaching out and really having an impact with swing voters? 

PAWLENTY:  Well, the Minnesota poll we just had spoke to that.  Of course, she is somebody who can open doors and speak to groups of voters that perhaps are a little more non-traditional Republicans or independents or Democrats, for example, parents of special needs children, for example, people who love the outdoors, people who hunt and fish and snowmobile.  There are a lot of those in Minnesota.  People who have concerns about being fiscally disciplined, fiscally conservative. 

The list goes on and on.  She has a life story that people say, you know what, she is one of us. 

GREGORY:  We‘re going to leave it there.  Governor Tim Pawlenty in Minnesota, always a pleasure having you on.  Good talking to you. 

PAWLENTY:  Thank you.

GREGORY:  That‘s the program.  I‘m David Gregory.  We‘ll see you back here tomorrow night.  “HARDBALL” with Chris Matthews up next.

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

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