updated 10/1/2008 4:39:45 PM ET 2008-10-01T20:39:45

Guest: Erin Burnett, Michelle Bernard, Eugene Robinson, Richard Wolffe, Michael Smerconish, Douglas Holtz-Eakin, Austan Goolsbee, Judd Gregg, Rep. Jim Marshall, Charlie Cook

JOE SCARBOROUGH, GUEST HOST: Tonight, Wall Street rallies and Washington stalls. What a surprise. The Dow Jones rebounds nearly 500 points as the future of the president's bailout bill still hangs in the balance.

Obama and McCain now face their biggest leadership test of the general election. Two top policy advisers to the Obama/McCain campaigns face off tonight on who can get the U.S. economy back on track.

That and more as the RACE FOR THE WHITE HOUSE rolls on.

Thirty-five days left for the race for the White House.

Welcome to the show. I'm Joe Scarborough, in for David Gregory.

My headline tonight, "America Needs a Hero."

A crisis in leadership rocks Washington as lawmakers on the Hill play the blame game. What a surprise.

Our latest poll numbers show most regular Joes across the country see Washington as broken. According to the latest NBC News/"Wall Street Journal Poll," 73 percent of Americans disapprove of the job Congress is doing and only 19 percent have "a lot of confidence" in the federal government.

My question, who are those 19 percent?

Yesterday's massive failure on the bailout only made matters worse, sending President Bush to make his fourth-count it, fourth-formal public appeal to Congress this morning. Meanwhile, on the trail, Senators Obama and McCain vie for the leadership role on the financial crisis.

Today, Obama urged public support for the bill when he was speaking to a crowd in Reno.

(BEGIN VIDEO CLIP)

SEN. BARACK OBAMA (D), PRESIDENTIAL CANDIDATE: There will be time to punish those who set this fire, but now is the moment for to us come together and put the fire out.

(END VIDEO CLIP)

SCARBOROUGH: And on "MORNING JOE"-what a show that is-John McCain told me that negotiations over the bailout bill have been one of the toughest situations he's encountered in Washington, and he called for immediate action.

Watch.

(BEGIN VIDEO CLIP)

SEN. JOHN MCCAIN ®, PRESIDENTIAL CANDIDATE: We've got to do a better job of convincing them of the effect that this is going to have on Main Street, the ability to buy a car, the ability of small businesses to get credit to continue working. The whole spectrum of Main Street America's economy is going to be jeopardized unless we pass this legislation. And we didn't do a good enough job selling it.

(END VIDEO CLIP)

SCARBOROUGH: Now, while Washington is trying to figure out what to do, and as the future of the rescue plan for Wall Street hangs in the balance, the markets rebounded. The Dow shot up almost 500 points, closing at 10850, erasing yesterday's record drop of almost 800 points.

With me now, international superstar Erin Burnett, anchor of CNBC's "Street Signs" and "Squawk on the Street."

ERIN BURNETT, HOST, "STREET SIGNS": United and book ending the day.

Here we are.

SCARBOROUGH: Yes, baby. That's what I'm talking about. In the morning, in the night, all day long.

What happened today?

BURNETT: Hope that Washington is going to pass a bailout package in a couple of days. That's really what it was.

I mean, the market, yesterday, you know, they were shocked. They didn't expect it to happen. The market plunged.

Today, everyone comes out with rhetoric like you heard from Obama, like you heard from McCain, you heard from everyone on Capitol Hill. They're expecting that they're going to get legislation.

SCARBOROUGH: So this isn't the conservative Republicans hope that if they do nothing, the markets will correct themselves and everything will be fine?

BURNETT: No. I'm really glad you asked that question, because I put that question to everyone today.

I said, which is it? Is it belief we don't need a plan, or is it belief we're going to get a plan in two days? And they said, well, 90 percent or more of the rally is due to believe we're going to get a plan in two days. So that is certainly still what Wall Street is betting on.

SCARBOROUGH: So, if they fail in two days in Washington to do something responsible to bail out the banks, what happens?

BURNETT: Unclear exactly what would happen to the stock market, but certainly you would continue to have a real credit crisis. And Wall Street is picking up on exactly what you're talking about in Washington.

I love your headline. We need a hero. Wall Street says, who is in charge? And of the guys who are vying to be in charge...

SCARBOROUGH: You hear these two guys that are vying to be in charge.

Does any-let's be blunt here, OK?

BURNETT: OK.

SCARBOROUGH: Let's strip it away, because people are afraid to talk like this on TV. But let's be honest. Do the people you talk to on Wall Street have any confidence in either of these two major candidates that they can make the difference in a crisis like this?

BURNETT: At this point, no, because Obama hasn't said enough. And one thing that Obama has not said is-we all know he's got a massive plan that would cost a lot of money in term of what he would do for the economy. He steadfastly refused to talk about what parts of that plan might have to be curbed back in the debate last week.

Wall Street hears that and says, you can't have this huge spending, $700 billion plan, and your huge spending plan. Something has got to give. Which will it be?

SCARBOROUGH: And on John McCain?

BURNETT: On John McCain's side of things, he has come out and said contradictory statements, and some things that appear to be not even fully formulated.

SCARBOROUGH: Give us an example of that today.

BURNETT: Today he came out and said to Kelly O'Donnell, he said the Federal Reserve and the Treasury already has $1 trillion. They got it this summer. The debt ceiling went up.

They could use that money, they could buy these bad mortgages. They could do it now. What are they waiting for?

Well, of course we scurried around to try to determine if that is the case. Now, there is some margin and wiggle room for Treasury, but that would not be the case.

SCARBOROUGH: I thought part of this deal though was Hank Paulson telling Congress they had to raise the debt ceiling to almost $11.5 trillion because they didn't have enough money.

BURNETT: Yes. That is true.

SCARBOROUGH: So what he said earlier today...

BURNETT: Well, it's a complicated thing.

SCARBOROUGH: OK.

BURNETT: We didn't get all the way through it, but the bottom line is, Fannie Mae and Freddie Mac, that's what that money was for. Fannie Mae and Freddie Mac can only buy certain kinds of securities. And to change that would be, at the least, an abuse of the conservativorship.

SCARBOROUGH: What are people saying on Wall Street, the smart money investors, about Washington, D.C.? Is there a total disconnect now between the center of the financial capital of America and the political capital?

BURNETT: Yes. They expected this to get done.

I think that there is understanding on Wall Street that Washington works differently. And I think a lot of people on Wall Street have learned more about how Washington works and the democratic process than they ever thought possible.

But I think one headline probably says it all about the cynicism on Wall Street about Washington. And it was what we talked about this morning.

In Michigan, a $25 billion bailout bill passed last week that nobody noticed as part of the overall spending package, right? Twenty-five billion dollar loan subsidies for Detroit.

The Michigan Congress, all the representatives, they supported that.

And nine of those congresspeople voted against this bailout.

SCARBOROUGH: This bailout. And of course...

BURNETT: So there is a feeling of, oh, when it's in my interests, I'm going to do it. When I don't want to do it, I'm going to say it's in the interest of the country. And then there's a lot of cynicism.

SCARBOROUGH: The difference being that the smartest people in American finance, global finance, say this bailout will probably be repaid, or at least a large percentage of it.

BURNETT: They do. They do.

SCARBOROUGH: Whereas the bailout for Detroit, it's anybody's guess.

It could be like farm subsidies.

BURNETT: Yes, and that is very true.

SCARBOROUGH: Yes.

BURNETT: Now, anybody's guess. Again, the big bailout, whether it pays off or no, could we have done better had we taken more time and thought about it and not let everything end in a one-week amazing crisis? Probably, we could have, Joe. But right now it's probably the best we got.

It's as good as it gets, as Jack Nicholson would say.

SCARBOROUGH: As good as it gets.

Resident international superstar Erin Burnett.

BURNETT: Good to see you, Joe.

SCARBOROUGH: Please stay with us if you can.

BURNETT: I'll stay. Yes, of course.

SCARBOROUGH: OK. I've now put you on the spot. You have to.

As a game, the blame game is now being played on the Hill. Who do Americans hold responsible for the bailout's failure?

Well, according to the latest "Washington Post"/ABC poll, 44 percent say Republicans are to blame, 21 percent say Democrats are to blame.

Let's put that to the panel right now.

Michelle Bernard is the president of the Independent Women's Forum. Richard Wolffe is "Newsweek" senior White House correspondent. Gene Robinson, columnist and associate editor for "The Washington Post." All three are MSNBC political analysts. And Michael Smerconish, Philadelphia radio talk show host and columnist for "The Philadelphia Inquirer" and "The Philadelphia Daily News."

Michael, what are your listeners telling you this afternoon?

MICHAEL SMERCONISH, RADIO TALK SHOW HOST: There is plenty of blame to go around, Joe. I mean, it was so sophomoric yesterday on the part of the GOP to come out and say, well, Nancy Pelosi blew the deal because she was partisan in her remarks. She was partisan in her remarks, but where was the substance?

I believe that everyone suffers who was a part of that transaction, and people will blame the status quo. Now, do you think the status quo is the party that controls the White House or the party that controls the Congress? Because you can point in either direction, but they all look terrible in this.

SCARBOROUGH: And Gene Robinson, in a crisis of this magnitude, people aren't looking at lowly congressmen or senators. They're looking at presidents or people who want to be president. John McCain is the big loser in this, isn't he?

EUGENE ROBINSON, MSNBC POLITICAL ANALYST: Yes, I think he is really. He kind of came out initially on the wrong side of the issue. He inserted himself into the middle of the crisis, rode in on his white horse to get this bill passed. The bill didn't pass.

SCARBOROUGH: And the horse got shot out from underneath him, Gene, didn't it?

ROBINSON: Exactly. Exactly.

SCARBOROUGH: I hate when that happens.

ROBINSON: The bill didn't pass. No, we all hate when that happens, Joe. And you know, it's a terrible experience.

(LAUGHTER)

ROBINSON: And in the process, however, he managed to identify himself with a deeply unpopular piece of legislature. And so I think he shot himself in both feet.

SCARBOROUGH: Richard Wolffe, the Obama campaign has been criticized over the past couple of weeks for not taking stands on AIG, not taking a strong enough stance on the bailout. But in the end, that looks like pretty darn smart politics, doesn't it?

RICHARD WOLFFE, MSNBC POLITICAL ANALYST: Yes. They set out broad principles, but they weren't very specific.

And you know, there is a cliche in these financial crises that appear in all the business pages, which is the flight to safety. And I think that's what is happening in politics right now.

Why is there a double-digit gap? It's because people are looking for the safe pair of hands, the idea of the calm in the storm. And McCain just hasn't been projecting that.

You can criticize Obama, should he have been more involved, should he have been more specific? But one thing he has been throughout this is fairly constant and measured. And I think that's why these number are reflecting that gap.

SCARBOROUGH: And Michelle, if Barack Obama has been measured over the past several weeks, John McCain has looked erratic, hasn't he?

MICHELLE BERNARD, MSNBC POLITICAL ANALYST: He has. This is a very difficult time period for the McCain campaign. He has looked erratic, he's looked irascible.

It's almost as if every movement he is making is like an epileptic fit. He has really got to get it together.

What happened was-hindsight is always 20/20, Joe, in these things. And you know, John McCain could have come out looking like the savior of this. It was a huge risk that he took last week when he injected himself into the process. And because of the revolt that happened within the Republican Party, he's put his campaign in a very difficult place, and it could cost him the election.

SCARBOROUGH: Gene, we sat next to each throughout primary season. We were able to tell when there were twists and turns.

Do you sense that this campaign, at least recently, started going Barack Obama's way after the first debate?

ROBINSON: Yes, I do. I mean, the economy issue is clearly a good issue for Obama and a bad issue for McCain.

I think fundamentally it is, because McCain represents the incumbent party. And when the economy is bad, people blame the party of the president. So basically, it was going to be better for Obama, worse for McCain, you know, not necessarily by as much as it has turned out to be because of the way the two politicians have played this issue. And I think McCain has made it a bit worse for himself.

SCARBOROUGH: I think so.

Gene, panel, stay with us.

Coming up next, two of Obama and McCain's top economic advisers face off on whether the candidates have the clout to get a bailout bill passed. And who has the best plan for the economy?

THE RACE returns right after this with the answer to that question.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

GEORGE. W. BUSH, PRESIDENT OF THE UNITED STATES: We're facing a choice between action and the real prospect of economic hardship for millions of Americans. For the financial security of every American, Congress must act.

(END VIDEO CLIP)

SCARBOROUGH: Welcome back to THE RACE.

That was President Bush calling on Congress to pass a bailout bill. This morning, the president called the two men who hope to get his job in 35 days, Senators McCain and Obama, to help make it happen.

Now, the question is, can either candidate help the bailout plan get passed? And who has the best chance to get the economy back on track?

With us now for a "Face-Off" are Obama senior economic adviser, Austan Goolsbee, and McCain senior policy adviser Douglas Holtz-Eakin.

Thank you, gentlemen, so much for being with us.

Douglas, it's not been a good couple of weeks for Senator McCain when it come to the economy, does he still believe the fundamentals of this economy are strong?

DOUGLAS HOLTZ-EAKIN, MCCAIN SR. POLICY ADVISER: Oh, obviously the workers, the factories, the technologies, the culture of innovation remain in place. Sadly, they're being crushed by this credit crunch, which he has made great efforts to address and which sadly, the House of Representatives turned its backs on the American people yesterday.

But he'll continue the efforts to put the country first, take the actions necessary to get relief both to the financial markets, get them stabilized, and to help Main Street America do ordinary business. You know, get the loans they need just to carry their inventory or make their payroll, and then pass that to create jobs.

SCARBOROUGH: Well, Doug, you talked about how the House Republicans turned their back on America. Didn't they also turn their back on John McCain, who told us that he went down to Washington to help the bailout pass?

HOLTZ-EAKIN: Look, John McCain went down to Washington because there

was a great national problem. Secretary Paulson had put forward a piece of

a plan that was unacceptable to the American taxpayer. Economists everywhere and the senators' advisers were saying that the economy was in peril. And there were no votes in either the House or the Senate.

I mean, Speaker Pelosi had said clearly, Republicans had to participate. Harry Reid was saying to John McCain, you have got to help get Republicans.

So he suspended his campaign, he went down, he put the country first.

And we went from something that was dead in the water to a vote yesterday.

Now, did that vote go the way John McCain wanted? No. But the American people are the ones who suffered, and we need to see House Republicans, House Democrats, Senate Republicans, Senate Democrats come together in the process that John McCain helped foster and do the right thing for the American people by getting this through.

SCARBOROUGH: All right. Let me bring in Austan right now.

Austan, Barack Obama has kept his head low throughout this entire crisis. A lot of people on Wall Street are wondering what his position is not only on this issue, but on AIG.

And what's his solution? Are you guys going to come out and be more specific in the coming days and weeks?

AUSTAN GOOLSBEE, OBAMA SR. ECONOMIC ADVISER: No, hold on. I totally disagree with the premise of that question, Joe.

He organized meetings with lead economic advisers from both sides of the aisle-Paul Volcker, Warren Buffett, Paul O'Neill, Bill Donaldson, a number of people. He outlined clear and specific principles.

SCARBOROUGH: Well, aren't all those guys Obama supporters, though?

GOOLSBEE: No, no, no, no. Paul O'Neill is not an official Obama supporter. He was the former secretary of the Treasury under George Bush. Obama has been consulting leading figures to get their ideas. He has been talking with the administration and with Congress, put forward specific plans.

SCARBOROUGH: All right. So he's organized meetings and he's been consulting with them. What...

GOOLSBEE: No, that was the first thing.

SCARBOROUGH: Tell us what they told him and how that's going to impact him if he is the next president of the United States on this issue. What did they tell him?

GOOLSBEE: They told him many things of many different views.

SCARBOROUGH: Like what?

GOOLSBEE: What he said-look, Joe, what he said his specific plan was, let us not give the administration a blank check, which is what they were asking for. Let us insist on conditions to the plan, which he got and the Democrats insisted on, which included making sure it doesn't cost the taxpayer a dime.

We got a guarantee of that. That there is an upside that the gets. And that if after they sell off the stuff there is a shortfall, the financial industry will foot the bill for the difference. So the taxpayer will not be on the hook.

SCARBOROUGH: All right.

Doug, let me turn it over to Erin Burnett. She's got a question.

HOLTZ-EAKIN: Joe, be fair to poor Austan if you could, because, you know, Senator Obama usually has two, maybe three positions on every issue. So he is struggling to catch up.

(CROSSTALK)

BURNETT: Doug and Austin, I'm lucky to be here for the CNBC perspective. A couple questions.

Doug, for you, though, first, I know today, Senator McCain said-actually to Kelly O'Donnell here-that the Treasury might have this trillion dollars. I spent a lot of time looking into this, and everything that I'm hearing from sources in the government is that's not really the case, there might be some wiggle room, but not that much.

Do you really think that if they had a trillion dollars to use, they wouldn't just use it?

HOLTZ-EAKIN: Well, what they choose to use, I don't know. But the reality is that the legislation that passed, the housing bailout bill, allowed the debt limit to be increased by nearly a $1 trillion, which means the Treasury can borrow, and it gave the government to purchase MBSs.

BURNETT: For Fannie and Freddie though.

HOLTZ-EAKIN: You can put those two together and do it. Certainly, but the Treasury would direct it through the conservatorship. And you could, as a result, make purchases of the core instrument that's at the trouble of our financial system.

So that's an authority that is there. And, you know, it's available to be used.

BURNETT: And some-I mean, look, I looked into it today. People seem to think in practicality, it wouldn't happen. I mean, technically, potentially. But practically, that wouldn't happen.

But let me ask you a question, Austan, quickly, and then I'll...

HOLTZ-EAKIN: Well...

BURNETT: Sorry, Doug.

HOLTZ-EAKIN: Yes. That's all right. That's all right.

BURNETT: I don't want to take all Joe's time.

I just want to ask you a question, Austan.

The big concern on Wall Street still seems to be people perceive there to be a real question over what Obama's stance on this plan is, and if he supports it, he has got a big price tag on his economic policy. Something would have to be cut.

What?

GOOLSBEE: Well, Barack Obama's program, as he outlined and as the Tax Policy Center in Washington documented, his program has been paid for. We've paid for each thing as we went along. So it's a little weird to say which of the paid for things he proposed...

SCARBOROUGH: Well, paid for before they slipped you a $1.2 trillion bill.

GOOLSBEE: No. A, Barack Obama insisted on and got in this legislation that the net cost to the taxpayer will be zero at most, and may make money.

SCARBOROUGH: Really?

GOOLSBEE: Any difference that they owe-yes. They will have outlays to purchase the securities. Then they will resell them. And any difference will be paid by the financial industry. They will pay a fee so the taxpayer will not be on the hook for any money.

SCARBOROUGH: I mean, how long it will take to get that bill paid off though? I mean, won't that eat up at least the first four years of an Obama term?

GOOLSBEE: No. I'm saying the government is not going to be on the hook for this bill.

Obama insisted on getting the language into the bill that will cost the taxpayers zero. So this thing is not a $700 billion blank check. This is a program where they're spending $700 billion to buy securities, they're turning around and reselling them. If they don't make up the money when they resell it, then the financial industry pays a fee so the taxpayer is made whole. So it is not a deficit increase.

SCARBOROUGH: All right. We've got to go, guys.

Thanks so much for being with us.

Thank you, Doug.

HOLTZ-EAKIN: Thank you.

SCARBOROUGH: Thank you, Austan.

Greatly appreciate it.

GOOLSBEE: My pleasure.

SCARBOROUGH: Guaranteed. Have you heard this? I mean, is it guaranteed? Is anything guaranteed? Or is this sort of..

(CROSSTALK)

SCARBOROUGH: I'll tell you what, that mortgage guarantee for me sure seemed like a great idea.

BURNETT: Right. Yes.

SCARBOROUGH: Interest only.

All right.

Coming up next, Bill Clinton is the star of the McCain campaign's new ad on the eve of the first campaign event for Obama.

The RACE FOR THE WHITE HOUSE continues right after this.

(COMMERCIAL BREAK)

SCARBOROUGH: Blame game. Both parties are quick to point fingers about why the 700 billion dollar bailout failed, but can either candidate help get the bill back on track? Obama and McCain head to battleground states today. But whose message on the economy is breaking through? And gaffes abound, as VP nominees Sarah Palin and Joe Biden ready themselves for Thursday's big debate.

Back with RACE FOR THE WHITE HOUSE. After yesterdays failure of the bailout bill in the House, some Senate Republican are now pushing for a vote on the Senate floor, where it has strong bipartisan support. With me to talk about it, one of the key negotiators, Judd Gregg, Republican senator from New Hampshire, and ranking member of the Banking Committee. Senator, thanks so much for being with us.

SEN. JUDD GREGG ®, NEW HAMPSHIRE: Thank you. Actually, I don't want to take over Dick Shelby's job. I'm ranking on Budget.

SCARBOROUGH: Well, you know, Dick, god bless him, sort of walked away from this bill. So we're going to go ahead and promote you today.

GREGG: He's a great guy, and a very strong member of the Senate.

SCARBOROUGH: He is. No doubt about it. And an Alabama fan, too. So he has that going for him. Let me ask you this, senator, the markets obviously rebounded dramatically today. That's in anticipation of the Senate and the House passing this bailout plan in the next couple days. Can they expect that to happen?

GREGG: Well, obviously, they do. I certainly hope it does because we have to pass this bill, if we're going to have any chance of restoring the economy. Otherwise, the credit is going to simply freeze up and Main Street, which functions on credit, is basically going to be put in dire distress. Jobs will be lost and the ability to do things like send your kids to college or buy a car or the local schools to expand or the local hospitals to get revenue bonds, all that is going to be lost.

It is very, very important that we pass this. It is like a soccer-you know, in soccer games, they have injury time. The clock has run out and we're on injury time right now. It is time to act.

SCARBOROUGH: We're in the 94th or 95th minute of this match. Senator, there was a miscalculation on the House side as far as counting votes go. Is it going to be that close in the Senate or can we expect broad bipartisan support when this bill comes to the floor?

GREGG: We have very broad bipartisan support in the Senate. And there is a genuine feeling in the Senate that is something that has to be done, has to be done quickly in order to relieve the situation, make sure, to the extent we can, we relieve the pressure on the credit markets and let's get the economy going.

SCARBOROUGH: Senator, have you been talking to House colleagues, House Republicans that voted against this bill? Has there been an effort to bring them along?

GREGG: I haven't personally been talking to any House Republicans who voted against the bill. I've been talking to the House leadership and I've been talking to a couple other folk. But there is, obviously, a very genuine effort being made to get some folks to reconsider. And I would think what happened with the market on Monday should cause people to take a second look. And what happened on Monday, I think, would happen much more dramatically on Friday were we to defeat this bill, or was this bill defeated again.

I think today, as you mentioned, probably the markets were reflecting the fact they thought common sense would prevail and it will be passed. I'm hopeful people will take another hard look at this, because there aren't too many options for us to get this credit market freed up and get the economy at least relieved of the pressure that we're seeing because of the lack of credit.

SCARBOROUGH: We're just heard Barack Obama's economic advisers saying that this bailout would be paid for. The tax payers would end up either making a profit or not paying for it in the long run. Is that your position also?

GREGG: Yes. We're buying assets. It has been unfortunate, it has been misrepresented and demagogued and hyperbolized as taking 700 billion dollars and throwing it to Wall Street. What we're doing is taking 700 billion dollars and buying real assets, assets that have value. Then we'll add value to those assets by stabilizing the market, making the economy-and helping the economy be stable. We're going to buy these assets as a deep discount. Thus, when we resell them, we should be able to resell them for more than we paid for them. So the tax payers should get money.

More importantly, for somebody like you and I, Joe, all that money will go to reduce the debt. None of it will go to create new programs.

SCARBOROUGH: That's good news, obviously, not only for you and me, but will for American tax payers. Rough times for them. Thank you so much, senator.

GREGG: Thank you, Joe. Always a pleasure.

SCARBOROUGH: Greatly appreciate you being here. Let's move on now to our next guest. He is a Democratic Congressman who voted for the bailout bill yesterday, Representative Jim Marshall of Georgia, a member of the Financial Services Committee. And Congressman, what is wrong with you? You are one of the few members not in a safe seat that actually dared to vote for this bill. Why did you do that when your political future is on the line?

REP. JIM MARSHALL (D), GEORGIA: Are you telling me, Joe, I voted the right way? Is that what you're saying?

SCARBOROUGH: I'm telling you that you were one of the few profiles in courage. Whether you support this bill or not, there were very few people that stuck their neck out a couple days ago. You were one of them. Why did you do it?

MARSHALL: Obviously, I think this is a huge deal for the future of America. Frankly, it's a credit problem that very many people don't understand. And that itself is understandable, that people would not understand this. So I was deluged, just like other members were deluged, with phone calls, saying don't this, don't do this, don't do this. And if you understand the problem, and you understand the severity of the risk, you've got to say, I've got to do this for the sake of all those folks I represent, the sake of America's future, its financial future, my kids, et cetera.

I can't sit here and play roulette with stakes like this. It was a big deal. And I just figured, you have to do what you have to do. And take the lumps when you get them.

SCARBOROUGH: Congressman, you are a conservative Democrat from the state of Georgia. Every campaign is an up-hill battle for you. When you get those phone calls, when you talk to constituents, when they tell you that they shouldn't pay for the sins of Wall Street, what do you tell them?

MARSHALL: I tell them I absolutely agree. The bill, as structured, if it works as we planned, they won't pay for the sins of Wall Street. Wall Street should pay for its own sins, and frankly, then some. We've been dragged down by-it's not just Wall Street. There are a whole bunch of irresponsible people involved in this, from borrowers to mortgage brokers to lenders to investors, the rating agencies, Greenspan. This has been going on for some time.

People in the know knew that, in fact, this was a house of cards and it has come back to haunt a lot of innocent bystanders. There is no reason why they shouldn't really be mad about this, just like you are, just like I am. And they don't want Wall Street bailed out at their expense. And I agree with them. This bill doesn't do that.

SCARBOROUGH: Conservatives don't like this bill. A lot of progressives also don't like it. Representative Emanuel Cleaver, A colleague of yours, said, quote, "this isn't a Wall Street bailout. It is a George Bush bailout. There is no for to us bail Bush out when the Republicans won't vote for it." Do you think that is going to change significantly enough in the next couple of days that we will get ten votes to support this bill?

MARSHALL: Joe, here's what I hope: I hope that my Republican friends went home, talked with their constituents, watched what happened where the market is concerned, listened to what people are saying. I also hope that we stick some things into a new bill passed by the Senate that will permit some of my Republican friends to vote for this. Frankly, this needs to be a bipartisan bill. It doesn't need to be a Democratic bill. It doesn't need to be a Republican bill. We have had way too much of that stuff. It doesn't work for the country.

And it would be a big mistake on something as huge as this is for us not to come together, House, Senate, administration, Democrat, Republican, and pass something. And it is certainly the case that the wings, and you're familiar with who I'm talking about on both sides, aren't going to be with us. For the sake of the country, what we ought to be doing is not looking for additional Democratic votes. We should be looking for additional Republican votes. We should be trying to do the sort of things that make them comfortable.

I think we ought to be increasing FDIC insurance limits. I think that's real important right now, to stop some runs going on medium and small banks. We ought to give some relief to the independent and community banks. Let them get to the Fed window at low interest rates to offset some of these distress loans they've got on their books. There are a number of things we can do to make this more attractive, to permit some of my colleagues, who voted no, to step to the plate and vote yes.

SCARBOROUGH: Congressman Jim Marshall thank you for being with us.

We appreciate it.

MARSHALL: Sure Joe.

SCARBOROUGH: Talk to you soon. Coming up next, both McCain and Obama talked up the bailout and the economic issues in battle ground states today. Whose message is resonating with voters? Charlie Cook joins us to go inside the map and the new swing state polls right after this.

(COMMERCIAL BREAK)

SCARBOROUGH: Welcome back. As the bailout drama plays out in Washington and on Wall Street, voters across America are already weighing in. Voting starts today in battle ground Ohio, the state that could once again decide the presidential election. Ohio is one of the seven states the Cook Political Report has identified as too close to call, along with Nevada, Michigan, Colorado, Virginia, Iowa, New Hampshire. With me now, NBC News political analyst Charlie Cook of the Cook Political Report.

Charlie, tell me how dramatically these battleground states have shifted Obama's direction over the past couple weeks?

CHARLIE COOK, COOK POLITICAL REPORT: Well, there tends to be a little bit of a lag in state polls. They're a little more sporadic in terms of how often they're conducted and they are a reported a little slower. A lot of time, you have an echo effect. You'll see the national numbers move and then a couple days later, you start seeing state polls move. That's what we're starting to see.

We saw that Obama's numbers started moving up about a week or so ago. And then now you're starting to see the state polls starting to creep up, sort of parallel, but back a little bit.

SCARBOROUGH: So let's talk about some of the polls. First, Pennsylvania. What does that battleground state look like?

COOK: There was a poll that came out today-yesterday, that had Obama up by seven. I think that's a little wide. I think it is still more four or five points. Clearly Obama is going to win southeastern Pennsylvania and Pittsburgh. He will win that big. But the fight is in the T, the central and across the top. Those are the areas where Hillary Clinton did very well and where Obama has his work cut out for him, not to win. He can't win it, but just to cut McCain's margins down there.

He has an advantage there, but, boy, it is not big.

SCARBOROUGH: What about Missouri? It's a swing state every four years. Is it still comfortably in the McCain camp or getting tight?

COOK: Well, it is a state that had been trending Republican. It has pulled back now. I think McCain should-if McCain is losing Missouri, it is a sign that this election has gone horribly wrong, and that he is going to get completely blown away. I would say, it is not a weather vane in the sense that there will be other states that would tip first. If it goes, it means the whole-it means everything is going over the side. McCain should win Missouri.

SCARBOROUGH: Can you say the same thing about Florida? This is a poll that McCain was up five, six, seven points a month ago. Now, a lot of polls showing that's a dead heat. If John McCain is fighting in Florida and Missouri in the last couple weeks of the campaign, it is over, isn't it?

COOK: If he loses Florida, it is over. Florida is more of a tipping point state. I think Missouri would be a little bit more of a lag state. But if he is fighting there-when you think of all reasons why Obama should be having difficulty in Missouri, because he does have-Florida, excuse me. He does have problems with older white voters. He does have problems in the Jewish community, under performs where most Democrats do. So there are good reasons why Obama shouldn't be doing so well in Florida.

If he is running even there, that is a very good sign for him.

SCARBOROUGH: It is also a very good sign for John McCain, at least over the past couple of weeks, that he has been running more closely in Wisconsin and Michigan. Are those two states still fairly close? Or is Obama starting to put a little space between himself and McCain?

COOK: I haven't seen the space increase much there, but it's interesting how untethered some of these states are. Wisconsin, we think of Wisconsin as a Democratic state, But Kerry only won it by a half a percentage point. I think what happens is that you have more and more voters voting on social and cultural issues. Maybe they're down scale, working class, white voters that are voting on other issues. And they are resistant. They were resistant to John Kerry. They're a little resistant to Barack Obama.

He is starting to pick up there, but they're not comfortable yet at all. That's for sure.

SCARBOROUGH: All right. Charlie Cook, thank you so much for being with us, as always. Greatly appreciate it.

COOK: Take care.

SCARBOROUGH: Coming up next, just two days away from the vice-presidential debate. The McCain campaign is hitting VP nominee Joe Biden hard for a gaffe he made on the trail. THE RACE comes right back after this.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

GOV. SARAH PALIN ®, VICE PRESIDENTIAL CANDIDATE: Just recently, Senator Biden made it perfectly clear, in an Obama/Biden administration, there would be no use of clean coal at all. Joe Biden said, sorry, Ohio, we won't use it. As for Senator McCain and I, we will make clean coal a reality.

(END VIDEO CLIP)

SCARBOROUGH: Sarah Palin earlier this week in Ohio. Welcome back to

THE RACE. As the presidential candidates continue to push for a financial

rescue plan, their vice-presidential counterparts are prepping for the

first and only debate, which is this Thursday night. A brand new Marist

poll shows 61 percent of voters expect Biden to win. Just 28 percent say

Palin will be better informed. When asked who is going to win the debate -

the previous was better informed -- 45 percent say Biden will win; 36 percent say Palin; 19 percent say unsure.

Back with us to share their predictions, our panel, Michelle, Richard, Eugene, and Michael. Michael, let's begin with you. We'll go in reverse order here. Sarah Palin couldn't have lowered expectations much more than she already has. In politics, that's not a bad thing, is it?

SMERCONISH: Joe, first of all, don't call my house Thursday night. This is like the Super Bowl. I can't wait for them to get it on. But I have to tell you this, you make the point. It is so well teed up for Sarah Palin. First of all, she's been terribly mismanaged by this campaign. They have got to take the reins off her. The perception is she can't stand on her own two feet.

But that bodes well for her. If at the end of 90 minutes, we all look at the television and say, hey, not so bad, then people will conclude perhaps that she held her own. They've got to take the reins off her.

SCARBOROUGH: Richard, George W. Bush won debates throughout his career as governor and president by people being surprised when he completed sentences. It seems like Palin now is in the same position. And again, that's good political news, right?

WOLFFE: It's true. You don't want to mis-underestimate anyone in this campaign, but I'm not sure that Sarah Palin is really playing the expectations or facing the expectations game here. What she is really facing is this big gap between her and Joe Biden on the question of, are you qualified to be president, or at least cross the vice-presidential bar, whatever that is. For Sarah Palin to have gone through, especially, that Katie Couric interview, she has to show that she can sustain a three-minute, five-minute answer, not just a 20 or 30-second sound bite.

That may be expectations. But it actually, judging from the Couric interview, is also going to be quite a test for her.

SCARBOROUGH: Gene, has Sarah Palin done anything in the Katie Couric interview or anything else since being selected McCain's vice-presidential nominee to suggest that she can stand toe to toe with Joe Biden for 90 minutes?

ROBINSON: Not in the interviews, frankly. You don't want to underestimate Sarah Palin. She is a skilled politician. She has that X factor, and she showed at the convention what she can do with a speech. However, there is a threshold question. This is a threshold that I think she has to meet in this debate. We know she can give a speech. We don't know if she can answer complicated questions in complete sentences, frankly. Just to put it out there, she hasn't done that yet in the interviews. And if she can do that, then she will be perceived to have won the debate. But we'll have to see if she can do that.

SCARBOROUGH: But Michelle, how does she get a fair hearing when "Saturday Night Live" has turned her into a living and breathing parody?

BERNARD: You know what? Ignore "Saturday Night Live." I think she herself has said she is a fan of Tina Fey. She thinks the parodies are fun. If the McCain camp will let Sarah Palin be Sarah Palin-people I think need-What is really important, Joe, people need to remember, the Clintons very badly underestimated Barack Obama. And he is now the Democratic nominee. I think that the Obama camp would be remiss if were to underestimate Sarah Palin.

The Sarah Palin who spoke at the Republican convention in St. Paul just a few weeks ago absolutely rocked the house. And there is always the possibility that she will do that tomorrow night. I can't wait to see what happens. I won't say it is the Super Bowl in my house. I will say it is like watching Hussein Bolt at the Olympics. I'm going to be watching with baited breath and I can't wait to see what happens.

SCARBOROUGH: Richard, if she doesn't measure up to even the low expectations that have been placed at her-let's say she turns in another Couric like performance-isn't that damming for John McCain, the man who selected her to be his number two?

WOLFF: Yes, this is very quickly going to revolve around John McCain's judgment. If she lands the zingers that I'm sure they're preparing for her right now, she could actually reinforce his judgment, in the sense that she has been revving up the base, proving to conservative that's McCain is one of them. So she could fulfill that function. But if she stumbles, if she makes a serious gaff, not just about foreign policy, but about McCain's positions on the issues, there will be those questions McCain's pick. Why did he do it? Why now? Is this the team to lead him through a crisis?

SCARBOROUGH: Michael, what are your listeners saying to you, your conservative listeners? Are they still energized by the Sarah Palin selection?

SMERCONISH: What a great question. Yesterday, I enter viewed the man here in Philadelphia who in a cheese steak line had the temerity, some would say, to ask her about Waziristan. I thought that was a wholly appropriate question. And John McCain, in the Katie Couric interview last night, said that was gotcha question. You must be joking. When I offered that view, Joe, they beat up on me. They think I'm being too rough on Sarah.

This reinforces Richard's point, which is she is still playing very well with the base.

SCARBOROUGH: Of course, Gene, the more main stream media attacks her, the more the national media attacks her, the more conservatives love her.

ROBINSON: That which does not kill her makes her stronger.

SCARBOROUGH: Or actually, with some conservatives, it's Obi Wan Kenobi philosophy, strike me down and I will only become stronger.

ROBINSON: That's right. Look, she is a formidable figure. But remember the Couric interview. She cannot repeat that. Seriously, she cannot gave a rambling answer about Vladimir Putin rearing his head and flying in American air space. And she can't give a rambling answer when she's asked about the economy.

For example, she will be asked about the bailout plan. It's a logical question to answer. She has to give a better answer than she gave to Katie Couric when she wandered from point A to point X to point H, all over the map.

SCARBOROUGH: Michael, by the way, just for the record, Waziristan, is that where the Phillies play AA ball?

SMERCONISH: The Phillies will be winning the World Series this year. I wouldn't be laughing. The New York Mets and the Yankees will be watching on TV, my friend.

SCARBOROUGH: All right. Thank you. We'll leave it there. That does it for RACE FOR THE WHITE HOUSE. I'm Joe Scarborough. One reminder before we go, be sure to tune in to MSNBC for the vice presidential debate, Governor Sarah Palin and Senator Joe Biden facing off this Thursday, October 2nd, at 9:00 pm Eastern at Washington University in St. Louis. Thanks for a our panel and thank you for watching. David Gregory will be back tomorrow night. Stay right here because "HARDBALL" with Chris Matthews starts right now.

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

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