updated 9/24/2008 11:56:14 AM ET 2008-09-24T15:56:14

Guest: Dexter Filkins, Doris Kearns Goodwin, Stephen Hayes, Lawrence O‘Donnell, Michael Smerconish, Sherrod Brown, Mike Pence, Chaka Fattah

DAVID GREGORY, HOST:  Tonight, deal or no deal.  Bush‘s bailout plan meets resistance from a skeptical Senate Banking Committee today as Wall Street takes another hit, with the Dow Jones falling another 160 points today. 

In the next hour, we‘ll talk to one of the members of the Senate Banking Committee who took on the architects of the $700 billion bailout plan.  Then we‘re going to hear how the economic message is playing as the candidates campaign in the battleground states across the country.

Plus tonight, CNBC‘s Erin Burnett with an eye and an update on the skittish markets.  That and more, as the RACE FOR THE WHITE HOUSE rolls on.

Welcome to the program.   Forty-two days to go in the race for the White House. 

I‘m David Gregory.

My headline tonight, “Putting the Brakes on the Bailout.” 

Treasury Secretary Hank Paulson says he wants the passage of a $700 billion rescue plan for Wall Street to be “clean and quick.”  Chairman Bernanke of the Fed said it risks a recession if Congress doesn‘t do it.  But Congress is putting the brakes on the bailout. 

Paulson and Ben Bernanke, chairman of the Fed, were met with skepticism today from both Republican and Democrats alike, members on the Senate Banking Committee who are wary of hastily writing the government a blank check funded by the taxpayers. 

Inside the Capitol, lawmakers questioned the details of the plan and called for greater oversight.  Today Paulson said he never meant to imply that the plan didn‘t need oversight. 

(BEGIN VIDEO CLIP)

HENRY PAULSON, TREASURY SECRETARY:  So if any of you felt that I didn‘t believe that we needed oversight, I believe we need oversight.  We need oversight.  We need protection.  We need transparency. 

I want it.  We all want it. 

(END VIDEO CLIP)

GREGORY:  But the text from the original draft of the president‘s three-page bill sent to Congress reads this way: “Decisions by the secretary pursuant to the authority of this act are non-reviewable and committed to agency discretion and may not be reviewed by any court of law or any administrative agency...” 

Joining me now, Stephen Hayes, senior writer with “The Weekly Standard”; Michael Smerconish, Philadelphia radio talk show host and columnist for both “The Philadelphia Inquirer” and “The Daily News” in Philly; and Lawrence O‘Donnell, MSNBC political analyst. 

Welcome to all of you. 

The big question, not only does the bailout plan succeed in Congress, but what about the presidential candidates?  Both senators, where are they on the bailout? 

Senator McCain asked about it late today.  Listen. 

(BEGIN VIDEO CLIP)

QUESTION:  If the fate of the bill is in your hands, on your vote, could you and would you still vote against it? 

SEN. JOHN MCCAIN ®, PRESIDENTIAL CANDIDATE:  Well, let me say that I hope that Democrats would recognize that this issue should not be in any way related to my vote.  This issue should be and their vote should be determined in how we can resolve this crisis and get America going again.  This is a huge crisis. 

(END VIDEO CLIP)

GREGORY:  Stephen Hayes, there has got to be a lot of—the wheels are certainly turning in Senator McCain‘s mind, because as a Republican, as somebody who has ties to the Bush administration on some issues and has taken exception on other issues, it‘s a very tight walk for him to walk at this stage.  It‘s a tightrope for him.  He is not the party that‘s out of power. 

So what‘s the political calculation for John McCain on this? 

STEPHEN HAYES, SR. WRITER, “THE WEEKLY STANDARD”:  Well, I think he needs to do two things. 

One, he needs to look like he‘s doing something.  Whatever it is, he needs to look like he‘s doing something in demonstrating leadership. 

And two, I think—and we saw this in his comment.  He needs some distance from the Bush administration. 

You‘ve seen in recent polls in the past couple of days that people, by 2-1 margins, blame Republicans more than Democrats for the current financial mess.  I think John McCain is very cognizant of that fact.  And even though the Republican brand, or the so-called Republican brand, seems to have been rehabilitated in the past couple of months, this is a problem for Republicans. 

So I think McCain wants to be seen as doing something, as taking an active leadership role, without doing sort of a full embrace of the Bush administration.  At least initially. 

GREGORY:  But Lawrence O‘Donnell, you could just hear in that answer that he was waffling a bit.  He doesn‘t like the idea of a bailout.  Democrats don‘t like that either.  But the answer to this bailout—in other words, if it‘s no, it‘s a very typical place for any politician to be, given the gravity of the stakes of the economy. 

LAWRENCE O‘DONNELL, MSNBC POLITICAL ANALYST:  Well, this is a classic example of the bipolar disorder that goes into effect when a senator runs for president.  This is a thing—this is John McCain‘s campaign saying, look, I‘ve got all this experience, I‘ve been running things in this government, doing the right thing for years. 

Now when asked, “If it come down to you, what would you do?” he literally on that tape didn‘t know what to say.  There are only about a dozen senators who actually do know how to answer that question.  And those are the senators who are involved in the final caucus committee—the conference committee meetings that really get things done, that get things across the goal line. 

And the answer to the question, David, is very simply for any senator, if this come down to my vote, then I will have the power to perfect this bill and pass this bill.  I want it to come down to my vote so that I can be the most powerful person in the process.  If this does come down to one senator‘s vote, that person will be far more powerful than Hank Paulson or the president of the United States. 

GREGORY:  All right, Smerc.  Let‘s talk about Barack Obama.  He said in a press conference today, look, I‘m not going to commit exactly where I am on this.  But if this is going to be forward, there should be some conditions here.  And of course, McCain is talking about that as well.  McCain wants an oversight committee on this commission to look at all this.

Obama wants some specific help for mortgage holders, for homeowners in the country.  He also wants to make sure there are some guarantees for a return on the investment for taxpayers. 

But he was asked by Matt Lauer today on “The Today Show” about the reality of the economy today given this bailout, whatever the shape and size and time of the bailout is, in that it‘s going to affect some of the promise that‘s he‘s making to the American people.  Watch this. 

(BEGIN VIDEO CLIP)

SEN. BARACK OBAMA (D), PRESIDENTIAL CANDIDATE:  Although we are potentially providing $700 billion in available money to the Treasury, we don‘t anticipate that all that money gets spent right away, and we don‘t anticipate all that money is lost.  How we‘re going to structure that in budget terms still has to be decided. 

Does that mean that I can do everything I‘ve called for in this campaign right away? 

MATT LAUER, “THE TODAY SHOW”:  Probably not. 

OBAMA:  Probably not.  I think we‘re going to have to phase it in. 

And a lot of it‘s going to  depend on what our tax revenues look like. 

(END VIDEO CLIP)

GREGORY:  All right, Smerc.  What is the political calculation for Barack Obama as he watches this unfold? 

MICHAEL SMERCONISH, RADIO TALK SHOW HOST:  Well, $700 billion, as “First Read” from Chuck Todd pointed out late this afternoon, we‘re talking about more money than has been spent in Iraq.  It‘s a staggering sum.  I think it is three Ohios.  And I think that Barack Obama is confronting the reality that he can‘t offer the tax break for middle class Americans that he‘s been talking about on the stump when faced with that shortfall that now has to be attained somehow by the government. 

What I sense is going on with both Obama and McCain, and in that Senate hearing today, is a lot of the angst that they‘re hearing from constituents, from folks across the country who are saying, wait a minute, this is borderline socialism.  That‘s a term I‘ve heard kicked around in the talk radio realm today, David.  And there‘s a lot of concern that in the end, somebody‘s going to get a golden parachute and these lawmakers are going to be embarrassed.  I think that‘s what‘s worrying them. 

GREGORY:  All right, guys.  Stick around for a second. 

One senator who questioned Treasury Secretary Paulson and Chairman of the Federal Reserve Ben Bernanke today on Capitol Hill is Democratic Senator from Ohio, Sherrod Brown, member of the Senate Banking Committee, Housing and Urban Affairs.  He joins me now from the Russell Rotunda inside Capitol Hill.

Senator, good to see you again today here on MSNBC.

SEN. SHERROD BROWN (D), OHIO:  Good to see you again.  Thanks. 

GREGORY:  All right.  Let me pose this question to you.  If this bailout plan comes down to your vote in the Senate, how will you vote? 

BROWN:  I heard you talking earlier about that.  It‘s a little bit like a shortstop with the bases loaded in the World Series.  You want the ball to come to you because you want to make the play.  And if it comes to that, there are a lot of things we need to do on this proposal. 

We need to make sure the middle class is protected, first and foremost, that investors, meaning taxpayers, get something.  That means equity, that means a low enough price on these troubled assets.  That the chances are that the troubled assets will grow in value, so taxpayers get at least what they put in.  That there be limits on executive compensation, all the things that need to be in this bill. 

I would love to play a major role in it if it comes to that.  But so far, the Bush administration and Paulson and McCain and this whole crowd that supported deregulation for the last 15 or 20 years is not having it that way. 

GREGORY:  But let‘s talk about political reality, because the administration, whether you like what they‘ve done over the past eight years on this particular issue or not, they have—Democrats and Republicans alike, in a very delicate position.  Chairman Bernanke said it bluntly today—you either support this or you‘re going to be responsible for a deepening recession. 

Is no an option here, Senator? 

BROWN:  Well, no is an option until they write it in a way that really works for Main Street, not just Wall Street.  I mean, the nerve of Secretary Paulson and Chairman Bernanke—and I have a lot of respect for Chairman Bernanke, but the nerve of them to come in and say, if you don‘t do it our way or the highway, it‘s the same way that Bush and Cheney and McCain did the Iraq war.  It‘s the same way that Bush and Cheney and McCain did the Patriot Act.  And they‘re not going to play that game now where they come in and say, it‘s our way or the highway. 

Paulson comes in and says, here‘s a three-page bill, I want $700 billion.  I‘ll tell you later how I‘m going to spend it.  That doesn‘t wash, and we‘re not playing that game.  And if George Bush thinks that‘s the way it‘s going to happen, and if John McCain, who has supported all this deregulation as chairman of the Commerce Committee, thinks that‘s the way to fix it, they‘re dead wrong. 

GREGORY:  Senator, I know that taking on CEOs on Wall Street or CEOs anywhere makes for good political sound bites.  But in the scheme of things here, with the amount of money on the line, with the fate of the mortgage market, does it really matter that it should hold up the rest of this regulation? 

BROWN:  Well, you only took part of the picture.  I said CEO compensation needs to be limited.  You don‘t get public support for it unless you do.  But there has to be a whole host of other things: accountability, making sure that the troubled assets, that we pay a reasonable price, not an inflated price, so that bankers and many of these executives make more money than they should at taxpayers expense.  That there is help in there for people are losing their homes. 

This does not need to be—this cannot be just a Wall Street bailout.  Executive compensation aside, it needs to be assistance for Main Street, too.  And they don‘t get votes for me and most of my Democratic colleagues unless they do. 

GREGORY:  All right.  Finally here, how does it become a Main Street bailout as well?  What has to happen specifically for homeowners who are having a hard time making the mortgage? 

BROWN:  Well, you include bankruptcy provisions.  You make sure that taxpayers get their money back so that we don‘t lose a big portion of that $700 billion. 

You go back and look at how the Hope Act, and what we did earlier, which was a good idea but was filibustered and threatened with veto repeatedly by the president until we finally got a decent bill, it didn‘t go far enough.  We want to fill in some of those blanks.  There‘s a lot of things we can do. 

GREGORY:  All right.  Senator Sherrod Brown on the Hill for us tonight.

BROWN:  Thank you, David.

GREGORY:  Thanks a lot for being with us. 

BROWN:  Glad to.  Thanks.

GREGORY:  Going to take a break now. 

Up next, both McCain and Obama have some harsh words for Wall Street and the proposed $700 billion bailout.  Which ticket has the best plan to get us out of this financial mess? 

Two lawmakers face off right here, when THE RACE returns after this.

(COMMERCIAL BREAK)

GREGORY:  Welcome back to THE RACE.

The proposed $700 billion bailout of Wall Street is taking center stage in Washington and on the campaign trail.  And a new poll shows McCain may be at a disadvantage. 

Take a look at this.  A new CNN/Opinion Research poll asked voters, “Which party is more responsible for the current economic situation?”  Forty-seven percent said the Republicans, while 24 percent said the Democrats.

Today on Capitol Hill, the bailout plan was met with outrage from lawmakers in both parties. 

Our question today, which party, which side will get us out of this current economic crisis? 

Facing off, Obama supporter and Democratic Congressman from Pennsylvania, Representative Chaka Fattah, as well as McCain supporter and Republican Congressman from Indiana, Representative Mike Pence. 

Mike, let me start with you.  Congressman Pence, let me start with you.

REP. MIKE PENCE ®, INDIANA:  You bet.

GREGORY:  Make the case at this stage for why Republicans, led by John McCain, are the best suited to lead the country out of this. 

PENCE:  Well, because I think in John McCain, David, you have got someone who understands, this isn‘t just an instance of Wall Street greed.  There is a lot of Washington greed here. 

And the reality is that the American people, as they go deeper and deeper into this, are going to find out that all roads lead back to Fannie Mae and Freddie Mac.  There has been over the last 10 years, an effort by many liberals on Capitol Hill to push Fannie and Freddie deeper and deep into a portfolio that was not responsible, was politically motivated. 

John McCain has a long record of challenging the status quo on Capitol Hill, being willing to confront the status quo in the American marketplace.  And I think he is particularly well suited to bring real reform to this area and revitalize our economy through entitlement reform, through tax relief for working Americans, through an energy plan that allows more drilling.  The American people know, the last thing we need to do is a massive transfer, $700 billion, with all kinds of add-ons by a liberal majority in Congress. 

(CROSSTALK)

GREGORY:  Well, but you may be out of step a little bit with McCain on this, because he does not sound like he is going to oppose this bailout. 

PENCE:  Well, we don‘t know.  I opposed the bailout.  I think we should not be transferring $700 billion from Main Street to Wall Street.  I don‘t think nationalizing every bad mortgage in America is the right answer. 

But I listened to John today, and he hasn‘t signaled what he‘s going to do on this.  But he leveled a warning.  He said no earmarks in this bill, we need accountability, we need transparency. 

That‘s the kind tough-mindedness the American people need.  Someone who will go to Wall Street and go to Capitol Hill and get serious about reform. 

GREGORY:  All right.

Congressman Fattah, look at the poll that just came out from the Pew Research Foundation in terms of support for a bailout generally among the public.  And it does show 57 percent support or favor a bailout, 30 percent oppose. 

Make the case for the Democrats under Barack Obama, why they‘re best suited to lead the country out of this. 

REP. CHAKA FATTAH (D), PENNSYLVANIA:  Well, the last time the Democrats were in charge, when Bush came into office, the discussion in front of the Senate Banking Committee was whether the country could deal with being debt-free.  We had a $3 trillion projected surplus. 

What Bush and the Republican have done over eight years with John McCain‘s help has put in place a set of tax cuts benefiting the wealthiest people in the country, has run our country‘s nation debt up to now what will be $11 trillion.  So they‘ve run up the national debt card because they promised us everything for free. 

We can go to war without paying for it.  We can do anything—tax cuts.  Let‘s just keep borrowing money and borrowing money. 

And now the debt has come to a hold on Wall Street.  It threatens people‘s 401(k)s, their mortgages, the livelihood of our economy. 

And you have the same Republicans who would spend $10 billion and $12 billion a month in Iraq, but they‘re saying, no, we don‘t have a dollar to spend to save millions of Americans from economic catastrophe.  We need the structure to build better, but we need to find a way to be responsible about our own nation‘s economy. 

GREGORY:  Congressman Pence?

PENCE:  Well, I just think, you know, I‘m someone who, along with John McCain, has been fighting that big government Republicanism on Capitol Hill.  John McCain opposed the Medicare prescription drug entitlement that massively increased our public obligation.  John McCain has never taken an earmark throughout his career. 

John McCain has had his arguments with the big government Republicanism over the last eight years.  No doubt about it. 

But what you see John McCain saying right now—and you know, Senator Brown was just on a few minutes ago talking about the things that needed to be added to this bill.  It seems like the Democrats on Capitol Hill are saying the $700 billion is not enough.  They need to add additional benefits, additional requirements, additional regulations. 

John McCain is saying, look, we have got to put the interest of the taxpayer first, we don‘t need to run up the national debt. 

GREGORY:  All right.  But let‘s talk about the tax...

(CROSSTALK)

PENCE:  And John has a long record of commitment to limited government and fiscal discipline. 

GREGORY:  Let‘s talk about his core beliefs on the economy, Congressman Pence, because the last big tax cut in this country was under George W. Bush, and John McCain opposed it. 

PENCE:  Right.  Yes, I remember that.  It was a point upon which he and I differed and he and the president differed.  But if you‘ll remember, David—and I know you do...

FATTAH:  But he is on Bush‘s side now.  He‘s for those tax cuts.

PENCE:  ... John McCain—well—but John McCain opposed it because he said then and he says now that he wanted to see budget cuts to accompany those tax cuts.  He said he ultimately realizes that those tax cuts, whether Chaka admits it or not, did work.  The economy, through very difficult times in recent years, has grown. 

But John McCain has a long record of commitment to fiscal discipline and reform, which is what this country desperately needs right now, is someone who will stand up to Capitol Hill and stand up to Wall Street.  And that‘s John McCain. 

FATTAH:  Well, John McCain said that the fundamentals were sound.  Six hundred thousand people have lost their jobs this year, 9,000 homes are foreclosed on every day. 

We have a major crisis on Wall Street.  And John McCain wants to keep in place a tax cut for multimillionaires, when Warren Buffett says he should be not paying the same amount of money that he‘s paying, that his secretary is paying.  That he‘s paying a lower percentage than his secretary, even though he is one of the wealthiest people in the country.  Even John McCain should be able to see that there is something wrong with our tax code. 

PENCE:  Well, I think John McCain knows that the last thing you do during an economic downturn is increase the tax burden on working families, small businesses and family farms.  But what we absolutely have to do is bring fiscal discipline back to Washington, D.C. 

I frankly want to see a president that‘s willing to confront Capitol Hill, confront greed on Wall Street, and bring a real transformational message to government and to public life. 

FATTAH:  Well, the last time we had a Democratic president we had a balanced budget, we had surpluses.  We were talking about what it would be like to be out of debt completely. 

Now we‘ve almost doubled the national debt, $11 trillion.  We have a major catastrophe on Wall Street.  And we have Republicans who are responsible for this running and hiding. 

Democrats are going to act responsibly this week.  We‘re going to find a way to help those people stay in their homes. 

GREGORY:  All right.  We‘re going to leave it there.  A strong and serious philosophical debate.  And the debate‘s going to continue. 

Thank you, Congressmen, both, for being here to exchange your views.

FATTAH:  Thanks, David.

PENCE:  Thank you. 

GREGORY:  Coming next, a world leader weighs in on VP nominee Sarah Palin.  It‘s on THE RACE‘s radar tonight.  We‘ll have it for you after this.

(COMMERCIAL BREAK)

GREGORY:  We‘re back with a look at what else is on THE RACE‘s radar for tonight.

Vice presidential nominee Sarah Palin had her first face-to-face meetings with some world leaders today at the U.N., meeting with Afghan President Hamid Karzai, the president of Colombia, and former secretary of state Henry Kissinger.  But Governor Palin has already won over one leader.  That‘s Georgia President Mikheil Saakashvili. 

Here‘s what he told NBC‘s Brian Williams for an interview on “NBC Nightly News” tonight. 

(BEGIN VIDEO CLIP)

MIKHEIL SAAKASHVILI, GEORGIAN PRESIDENT:  I had a conversation with Sarah Palin and she was very interactive, very amicable, and very—you know, I‘ve never met her, obviously, but she really made a very good impression on the telephone call.  She is somebody that is ferociously smart. 

(END VIDEO CLIP)

GREGORY:  Coming up next, how is the Wall Street bailout playing with voters in the battleground states?  We‘re going to go inside the war room.

Plus, the very latest on our economic crisis from CNBC‘s Erin Burnett. 

She‘s going to piece it together for us when THE RACE returns after this.

(COMMERCIAL BREAK)

GREGORY:  Pony up or risk recession; that‘s the choice the Fed chairman laid out for Congress today.  Many voters are angry.  How is the bailout backlash playing in the battleground states, especially ones where early voting is already underway? 

Back on RACE FOR THE WHITE HOUSE.  I‘m David Gregory.  The point today, act quickly or it is only going to get worse.  That was Fed Chairman Ben Bernanke‘s message to Congress today, the first of two days of Congressional hearings on the 700 billion dollar bailout plan.  He painted a grim picture of what we as a country might be facing if Congress does not act soon. 

(BEGIN VIDEO CLIP)

BEN BERNANKE, FED CHAIRMAN:  The financial markets are in quite fragile condition.  I think, absent a plan, they will certainly get worse. 

I believe if the credit markets are not functioning that jobs will be lost, the unemployment rate will rise, more houses will be foreclosed upon, GDP will contract. 

(END VIDEO CLIP)

GREGORY:  Are we in a risk of another recession?  One of the big questions coming out of this hearing today.  Joining me now for a better understanding on what it all means, what‘s happening on Wall Street, Erin Burnett, anchor of cNBC‘s “Street Signs” and “Squawk on the Street” programs.  Erin, good to see you, after a long day of covering these hearings. 

I know in some of your coverage this afternoon, you‘ve gotten into the question.  You interviewed Barney Frank, among others.  You got into the question of what it is going to take to get agreement on this bill.  Barack Obama is going to probably influence a lot of Democrats on this score.  He talked this afternoon about his conditions for supporting the bailout. 

(BEGIN VIDEO CLIP)

OBAMA:  First, the plan must include protections to ensure that tax payer dollars are not used to further reward the bad behavior of irresponsible CEOs on Wall Street.  Second, the power to spend 700 billion dollars of tax payer money cannot be left to the discretion of one man.  Third, if tax payers are being asked to underwrite hundreds of billion of dollars to solve this crisis, they must be treated like investors.  Fourth, the final plan must provide help to families who are struggling to stay in their homes. 

(END VIDEO CLIP)

GREGORY:  So what is he really going to get?  What are Democrats and Republicans who oppose this, for that matter, going to get out of all that? 

ERIN BURNETT, CNBC ANCHOR:  This is an incredible moment, David.  I was watching your coverage today as well.  You come with the biggest bailout in American history and the plan for it was two and a half pages.  I mean, we‘re used to legislation being hundreds of pages, and this might be when it is done.  That‘s how little a sense we had of what the Treasury Department wanted.  Everyone is trying to push for certain elements in there. 

I think one of the things Barack Obama spoke about there was help for people facing foreclosure?  It appears certain that in some way, shape or form, that will be part of the bill.  Some of the Democrats have been pushing for the ability to amend bankruptcy court rulings for people facing foreclosure.  We‘ll see what they get there, probably something. 

The big issue is the thing he mentioned first, and the thing I spoke about with Congressman Frank today, CEO compensation.  There are some on both sides of the aisle, and as you‘ve reported, John McCain has talked about this, saying if you want to put your bad assets in our pool, you have to take limits on compensation.  That‘s something that Hank Paulson has desperately tried prevent from being part of the legislation.  And that is going to be a fascinating one.  You heard Chairman Frank saying he won‘t vote for it and doesn‘t think it will pass unless that gets in there.  That could be a key sticking point. 

In terms of that investor stake point you raise, that‘s a fascinating one.  In some way, shape or form, the Democrats will get that.  Some of the Republicans support that as well.  It is unclear how it will be structured.  They‘ll find some way for tax payers to get some stake in the banks. 

That‘s about as specific as I can be right now. 

GREGORY:  Here‘s the thing that is complicating to me, is that both sides in this debate, Republicans and Democrats, they want some fairness for the tax payer, and there really isn‘t going to be any fairness.  The way this seems to work, as I understand it, is the government is saying to the tax payer, loan me a bunch of money, a lot of money, 700 billion dollars.  What we‘re going to do with that money is we‘re going to buy these bad assets that are dragging down these banks and, really, preventing them from lending money or getting loans.  They‘re not able to do business. 

We‘re going to have to pay for this bad stuff.  We‘re going to have pay more money than it is actually worth.  If we don‘t do that, they‘re not going to get healthy.  There‘s nothing fair about that.  But that‘s the debate going on about how much do you actually pay for this junk. 

BURNETT:  And you just nailed it on the head.  That is the most important question.  And the bet thing Hank Paulson is trying to convince the American people to take is this: he says, you‘re right.  The market price right now, banks won‘t sell it at that price.  But he believes, as do most people in finance, that these assets in a full, fair, calm market, would be worth more. 

Most people in this country, as a matter of fact, more than 90 percent of them, pay their mortgages.  Right now, a lot of this mortgage debt is behaving as if most people don‘t pay their mortgages.  That‘s the fine line they‘re trying to say.  They‘re saying the current price in the market is really unfair.  They don‘t know what the right price is.  That does come down to the question.  But that‘s the fine needle they‘re trying to thread, to tell the tax payer look, we‘ll pay more than it‘s worth today, but one day it might be worth more than you paid for it, Mr. tax payer, and we‘ll give you a piece of that upside. 

GREGORY:  OK.  We‘ll keep watching.  Erin Burnett from cNBC, thanks very much.  Appreciate it.

BURNETT:  Good to be with you. 

GREGORY:  Let‘s get back to the panel.  The debate over how to handle the economy still playing out.  Get this, some voters are already weighing in.  Early voting is already underway in these 11 states: Pennsylvania, North Carolina, South Carolina, Kentucky, Virginia, Maine, Michigan, Mississippi, Georgia, Missouri and South Dakota.  We‘re back inside the war room.  Steven Hayes is here, senior writer with “The Weekly Standard,” Michael Smerconish, Philadelphia radio talk show host, columnist for the “Philadelphia Inquirer” and the “Philadelphia Daily News,” and Lawrence O‘Donnell, MSNBC political analyst. 

Lawrence, you look at that list of states, there are some battlegrounds in there.  All of this voting going on early in the middle of this crisis.  How does it play? 

O‘DONNELL:  Well, it is very hard to say how it plays.  Most of the early voting tends to be conscientious voting, David, people who have had their minds made up well ahead of time.  They tend not to be swing voters in that mix.  However, this does mess up everything the polls are going to be telling us the rest of the way.  What good is a poll in an early voting state, say, in the last week of October, when it is telling you how that state breaks down in the last week of October?  What difference does it make if maybe 20 percent of the voters have already voted by that time? 

So this is a complicating factor that is going to be difficult for all of us to try to analyze the rest of the way. 

GREGORY:  Smerc, how do you see it? 

SMERCONISH:  The debates have yet to take place.  This is like laying a wager on the Super Bowl before you see the playoff games.  I think it‘s nuts, unless someone is in a position where because of lack of access of something else, they have to cast a ballot.  I, for one, would never do so until I see what plays out Friday night and there after. 

GREGORY:  Let me go through a few polls here from the battlegrounds.  Michigan: Obama 48-44.  This is according to the latest Quinnipiac/”Wall Street Journal” numbers.  That‘s Michigan.  There‘s Michigan.  Minnesota, it is Obama 47-45, pretty tight there as well.  Look at this, in Florida, a state that Republicans didn‘t think they would have to worry about, it‘s Obama 47, McCain 45. 

Steve Hayes, we see Obama starting to inch back up in the polls nationally head to head.  Is the economy as an issue making itself manifest in these battlegrounds as well? 

HAYES:  I think it is.  We‘ve been talking about for two months that the economy was going to be the number one issue.  I think this obviously increases the likelihood that it is the number one issue, or increases the number of people who think it is the number one issue.  I think what is interesting about the state by state polls—as you said before, David, those are the most important polls going forward.  You see these battle ground states drift in and out of battleground status.  There was a while where we thought Minnesota was maybe shifting toward a safer Obama state.  There was a time where we thought Florida was shifting towards a safer John McCain state. 

People are playing where they didn‘t expect to be playing.  There was news out today that John McCain or the Republican party is going to be going up with ads in Indiana, which would certainly be a surprise, given how staunchly Republican Indiana has been, at least on the president level, now for quite sometime. 

GREGORY:  Right.  But obviously in Barack Obama‘s backyard, in the region of Illinois.  Let‘s listen to Senator Hillary Clinton today.  We know another battleground here is the Hillary Clinton voter.  She was on “MORNING JOE” and asked by Mika Brzezinski about Governor Sarah Palin, whether she has the chops to deal with an economic crisis like this.  Watch Senator Clinton.

(BEGIN VIDEO CLIP)

MIKA BRZEZINSKI, MSNBC ANCHOR:  Do you think Sarah Palin can handle a crisis like this? 

SEN. HILLARY CLINTON (D), NEW YORK:  Well, I think voters look at the top of the ticket, Mika.  They look at the two men, Senator Obama and Senator McCain, because that‘s where policy is set.  And I don‘t think that most people believe that the Republican ticket will radically change direction from what we‘ve seen the last eight years. 

(END VIDEO CLIP)

GREGORY:  Lawrence, what was interesting to me about this, she made this both a debate about the top of the ticket and a brand debate between Democrats and Republican.  She chose not to train her fire on Sarah Palin.  Why? 

O‘DONNELL:  She‘s watched some of her voters go in the Sarah Palin direction and she doesn‘t want to—that was spoken like a candidate who doesn‘t want to alienate anyone who has voted for her in this process in the last year, just in case she may be coming back four years from now asking for those votes again. 

GREGORY:  That‘s interesting.  And Smerc, by not taking on Sarah Palin on the experience issue, did it speak to that?  Or did it speak to the vulnerability of Obama on the experience issue as well? 

SMERCONISH:  I‘m really surprised by this.  I think the Obama campaign is flummoxed as to what to do relative to Governor Palin.  Here we have a candidate for vice president, I have to say this, who is essentially running in a cocoon.  I am in one of the most contested media markets in the country and today I was offered Sarah Palin‘s father as a guest on my program.  I‘m not interested—no disrespect to Mr. whatever his last name might be.  I guess it is not Palin. 

I‘m not interested in questioning him.  I‘m interested in questioning, with dignity and respect, his daughter.  And I think a whole host of journalists who play on a higher level than do I are interested in questioning his daughter.  And no one can have access.  She had a meeting today with Hamid Karzai and there was an effort undertaken by the McCain campaign to keep the editorial presence out of the room. 

I‘m just shocked that people are standing for this.  I question my technical producers for my radio show more extensively than this has been done in public with this particular candidate.  Yet, it is taking place. 

GREGORY:  I have to get a break in here.  Thanks very much.  Coming up next, veteran journalist Dexter Filkins just back from Iraq.  I‘m going to talk to him about the remarkable changes in that country.  President Bush spoke about this today and the challenges the next president will face, both in Iraq and throughout that region.  THE RACE is back right after this.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES:  In Iraq, the fight has been difficult.  Yet, daily life has improved dramatically over the past 20 months, thanks to the courage of the Iraqi people, a determined coalition of nations and a surge of American troops.  Whatever disagreements our nations have had on Iraq, we should all welcome this progress toward stability and peace, and we should stand united in helping Iraq‘s democracy succeed. 

(END VIDEO CLIP)

GREGORY:  That was President Bush today giving his final address to the United Nations General Assembly.  Today, vice-presidential candidate Sarah Palin was also at the UN, meeting with foreign leaders, including Afghan President Hamid Karzai.  Joining me now is Dexter Filkins, foreign correspondent for the “New York Times,” author of the new book, “The Forever War.”

Dexter, good to see you.  Congratulations on this book.  I want to commend you on your incredible courage, year in and year out, covering this conflict and bringing us all this story.  With that, give me your sense of Iraq today.  You‘ve gone back to visit.  Is it a safer place? 

DEXTER FILKINS, “THE NEW YORK TIMES”:  Yes.  I mean, it really is.  I went back.  I was there a week ago Friday.  I was really struck, really, really struck by the changes.  I mean, they‘re very—they‘re fragile.  They‘re tentative.  They‘re not self-sustaining.  But the violence has dropped dramatically.  Life has returned to the streets. 

It‘s a nice thing to see.  If I just think of the park, Abu Nuas (ph) Park, which is out in front of the “New York Times” house.  That park two years ago was an empty, dead, spooky place.  And the other night, when I was out there, there were 2,000 Iraqis walking around at dusk, which was completely unheard of.  So it is much better. 

GREGORY:  General Ray Odierno, of course, deputy commander in Iraq from late 2006 to 2008, he helped execute the troop surge.  In Sunday‘s “New York Times” you wrote the following, “By any measure, General Odierno faces a huge challenge in the coming months: consolidating the gains the American military has achieved through the surge with possibly fewer troops, depending on the decisions made by Iraqi leaders and America‘s next president.”

One of the determinations about—the next president will rely on is a question of dependency.  How dependent is Iraq on the presence of U.S.  troops for stability? 

FILKINS:  Well, it is a question of how many troops do they need.  But the short answer is they need them there.  If you want to maintain—I think it is fair to say, if you want to maintain the calm they‘ve achieved, you‘re going to need some American troops there in pretty sizable numbers, I think, still.  Just even to—there are these very fragile arrangements that are keeping the peace.  And those arrangements were basically erected by the Americans.  And they kind of brought everybody together. 

So I think, you know, they‘re not stable enough to kind of stand on their own yet.  So I think if you want to keep that, you‘ll have to keep a lot of American troops there. 

GREGORY:  You and others have documented the influence of Iran, both in Iraq today and, of course, in the region.  Throughout the Middle East, there is a great deal of fear about Iran.  And in fact, that out-paces in some countries in the region fear of what the outcome will be in Iraq.  It is Iran, Iran, Iran.  What is the biggest challenge with regard to Iran that you see facing the next president? 

FILKINS:  Well, it‘s basically there‘s two things.  There‘s the nuclear question and then there‘s Iraq.  If you just take Iraq, for example, Iran has been active in Iraq since 2003.  It is pretty clear they have an interest in a weak government there that doesn‘t stand on its own.  And they put a lot of chips pretty clearly behind Moqtada al Sadr and the Mahdi Army.  That hasn‘t worked out. 

I was in Sadr City a couple weeks ago and the Mahdi Army really has

taken it on the chin in the last several months.  So it seems to me, as the

Iraqi government has gotten stronger, that‘s clearly not in the interests -

it is not in Iran‘s interests.  So I think at the moment, they‘re probably trying to recalculate and figure out what to do next.  And I don‘t know what that is going to be.  It is hard to imagine that Iran, which is sitting right on the border there, is going to go away. 

GREGORY:  All right.  The book is “The Forever War” by Dexter Filkins of the “New York Times.”  Dexter, thanks again, very much.   

FILKINS:  Thank you.  Appreciate it. 

GREGORY:  Coming next, the current mess on Wall Street has been called the worst financial crisis since the Great Depression.  Can the candidates take a  cue from history?  Presidential historian Doris Kearns Goodwin joins me to talk about that when THE RACE comes back.

(COMMERCIAL BREAK)

GREGORY:  Back now on RACE FOR THE WHITE HOUSE.  We‘re going to take a look back now to see what we can learn from other presidential campaigns during times of economic instability.  How to best use the past to predict the future is the question for my next guest, NBC analyst and presidential historian Doris Kearns Goodwin, joining me to examine the state of the race.  Doris, welcome.  Good to see you. 

DORIS KEARNS GOODWIN, PRESIDENTIAL HISTORIAN:  Thank you, David. 

GREGORY:  I want to talk a little about FDR.  The comparison has been made more than once now that there has not been this kind of financial crisis since the presidential race of 1932.  It is interesting, if you look at his inaugural address, FDR said the following—I want to put it on the screen for our viewers to see: “practices of the unscrupulous money changers”—he‘s talking about the throes of the Great Depression, of course—“stand indicted in the court of public opinion, rejected by the hearts and minds of men.  Faced by failure of credit, they have proposed only the lending of more money.  Stripped of the lure of profit by which to induce our people to follow their false leadership, they resorted to exhortations, pleading tearfully for restored confidence.  They only know the rules of a generation of self-seekers.  They have no vision.  When there is no vision, the people perish.”

Eerie similarities in language to the current crisis.  This question comes out of this, which is: what kind of vision does a president need faced with a crisis like this? 

GOODWIN:  What FDR showed was I think two things.  That part you just read showed that he understood that it was us versus them, that the people themselves had feared at the time of that crisis that maybe they were responsible for what had happened.  They couldn‘t understand what had been going on.  So he is saying, no, it is not you.  It is them.  It‘s this few people over there.  And if you band together with me, if you have confidence in leadership and confidence in yourself, then, of course, the fame words, “the only thing to fear is fear itself.” 

He was able to project his confidence on to the people.  The incredible thing is think about what his theme song was in the midst of a much worse economic crisis, “Happy Days Are Here Again.”  He made people feel that the future would be better than the present.  That‘s what these two candidates have got to do.  Not just talk about the misery, but make people believe their leadership will make things better for them. 

GREGORY:  What is the difference?  Do you see some fundamental difference in the country, in the leadership now? 

GOODWIN:  The interesting thing is that both candidates are trying to be above partisanship in a certain sense.  McCain is obviously trying to run away from the Republican problems of these last years.  And Obama has been trying to be a post-partisan candidate.  When in a certain case, what FDR did was to say this isn‘t just an election between two men.  It is between two doctrines.  He laid out the difference between the Republican and the Democratic party, one concerned about government favoring the few and the other one wanting the masses to be sound and that would help the country. 

It seems to me Obama is missing a chance.  I‘ve thought that all along.  My husband is arguing that all along, as an old Democrat.  To not argue about the doctrine of the Democratic party.  Yes, he wants independents.  Yes, he wants to be post-partisan after wins.  But right now is the time when the Republican-Democratic brand is so contrasting and I think he has desired to not be in that fight.  It‘s not helping him in a certain sense. 

GREGORY:  There is also a need for a great deal of power here on the part of the administration.  And in his inaugural again, FDR‘s, he talked about his constitutional duty.  He said this: “I am prepared under my constitutional duty to recommend that measure that a stricken, in the midst of a stricken world, may require.  But in the event that Congress shall fail to take one of these two courses, in the event that the national emergency is still critical, I shall not evade the clear course of duty that will then confront me.  I shall ask the Congress for the one remaining instrument to meet the crisis, broad executive power to wage a war against the emergency as great as the power that would be given to me if we were, in fact, invaded by a foreign foe.”

We‘re not suggesting that there is a direct relationship between the Great Depression and the financial crisis we‘re facing now.  Certainly, this is a serious crisis but it‘s not on that order yet.  Yet, there is a leadership model here by President Roosevelt, which is to say, I‘m going to treat this like it is a war in confronting the problem.  And yet you see the reaction on Capitol Hill today, a great deal more skepticism when the warnings come their way, which is that this is serious. 

GOODWIN:  Well, the reason it worked for FDR was that he had already showed his leadership strength as the governor of New York.  New York faced the Depression for three years.  He had done unemployment relief, unemployment insurance.  He had put people to work in public works projects.  People knew the man.  So he had the authority and the gravitas behind him that perhaps Secretary Paulson may not have in the majority of the country as well. 

And I think the other things what he called for, I will use war powers if I need to.  On the other hand, he worked with Congress.  He worked brilliantly with Congress in those 100 days.  Right after that speech itself, a half million telegrams came into the White House saying, things are going to be all right.  You‘re there!  In a certain sense, expressing faith in his leadership.  That‘s the temperamental quality that a great leader has.  Somehow his smile, his confidence, people felt in themselves.  That‘s what we need. 

GREGORY:  Just about 15 seconds, the leadership test is what for both of these candidates? 

GOODWIN:  Both of them have to somehow project confidence in the future and make people feel they know what they‘re going to do.  That they will have the authority to do it if we put them in office. 

GREGORY:  Very interesting.  Doris Kearns Goodwin, always great to have you on.  Great to see you.

GOODWIN:  Thank you, David. 

GREGORY:  All right, that‘s going to do it for our program tonight for RACE FOR THE WHITE HOUSE.  One programming note before we go, be sure to turn to MSNBC for the very first presidential debate.  It will be pretty consequential, don‘t you think.  It‘s this Friday, September 26th, 9:00 p.m. Eastern.  I‘ll be bringing our special coverage of the debate that night. 

Thank you for watching.  See you back here tomorrow night at 6:00 p.m.  Eastern time on MSNBC.  “HARDBALL” with Chris Matthews with more on the financial crisis and Washington‘s response starts right now.

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

END   

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