updated 10/2/2008 1:08:01 PM ET 2008-10-02T17:08:01

Guests: Paul O‘Neill, Tom DeLay, Bob Shrum, Mike Murphy, Sen. John Thune,

Richard Wolffe, Sen. Amy Klobuchar

DAVID GREGORY, HOST:  Optimism is in the air as the Senate prepares to vote on a revised bailout bill.  But is it too late to resuscitate a U.S.  economy already on life support? 

I‘ll have an exclusive interview with former Treasury Secretary Paul O‘Neill next, as RACE FOR THE WHITE HOUSE rolls on. 

Thirty-four days to go in the race for the White House. 

Welcome to the program.  I‘m David Gregory.

My headline tonight, “The Senate to the Rescue.” 

Tonight‘s vote on that $700 billion package is expected after 8:00 Eastern Time with Senators McCain, Obama, and Biden, all back on Capitol Hill for the vote. 

On the campaign trail earlier today, McCain and Obama announced their intention to support it. 

(BEGIN VIDEO CLIP)

SEN. JOHN MCCAIN ®, PRESIDENTIAL CANDIDATE:  I‘ll be returning to the floor of the Senate to vote on a bill that marks a decisive step in the right direction. 

(END VIDEO CLIP)

(BEGIN VIDEO CLIP)

SEN. BARACK OBAMA (D), PRESIDENTIAL CANDIDATE:  That‘s why I‘ll be flying back to Washington today to cast my vote to safeguard the American economy. 

(END VIDEO CLIP)

GREGORY:  And Obama spoke on the Senate floor just a short while ago. 

This is what he said. 

(BEGIN VIDEO CLIP)

OBAMA:  This is not just a Wall Street crisis.  It‘s an American crisis.  And it‘s the American economy that needs this rescue plan. 

(END VIDEO CLIP)

GREGORY:  If the bill passes the Senate, it will then go to the House, where lawmakers are expected to take it up on Friday. 

Joining me now, Paul O‘Neill, former treasury secretary under President Bush. 

Secretary, welcome. 

PAUL O‘NEILL, FMR. TREASURY SECRETARY:  Thank you.  Glad to be here.

GREGORY:  Are we in a recession? 

O‘NEILL:  I don‘t think maybe we‘re quite there yet.  The goods-producing companies that I know a lot about still have reasonable order books, and prices are still good.  But I think we are at the point now where the financial crisis is tipping over into the hard-goods-producing services industries, and you can see in it today‘s report of Ford‘s sales last month being down 30 percent, and General Motors down 16 percent.  So that when there is no credit availability for people to buy a car, it turns into a problem that can spiral down very fast. 

GREGORY:  So if we‘re not there, you think we‘re close? 

O‘NEILL:  I do. 

GREGORY:  And when you talk about a spiral, in other words, could the economy get worse in a faster clip than people expect?  Could something happen like the failure of a major corporation, like an automaker, that all of a sudden makes people realize, this is really upon us now? 

O‘NEILL:  You know, one of the things people have said is the reason we haven‘t been able to act is because the sales job has not been very good.  And I think people don‘t really understand the consequence of what I just said about it. 

If you want to buy a car and you need a new car because your old one is broken down, and you go to get a loan, a three-or-four-year loan, and they can‘t give you a loan, you‘re not a car buyer.  If you‘re not a car buyer, they‘re not going to a build the car.  They‘re not going to build more cars. 

So that if you go into a big discount store and they won‘t give you credit, you have to pay cash, think about the implications of that for our economy.  I think people don‘t understand what a credit crunch can mean is that we convert ourselves into a cash economy.  And the results of that are horrendous to think about. 

GREGORY:  Why?  What would happen? 

O‘NEILL:  Well, people would stop being able to buy things.  You know, there are not a whole lot of people that have huge amounts of cash in a drawer some place so that they can participate in a cash economy.  And then you have the fear effect.  Right?  So even people who have a lot of cash—maybe it‘s in the bank, in a bank account—if they see this happening, they‘re going to hoard their cash rather than going out and buying things. 

GREGORY:  All right.  So let‘s talk about this bill that‘s in front of the Senate right now.  It is, effectively, a huge taxpayer loan to these troubled investment barks.  And now there will be some additional protections in there. 

Is this a good idea?

O‘NEILL:  Actually, I don‘t agree with your characterization of it, David.  As I understand what they‘re proposing to do, their front line of offense is for the secretary of the treasury to buy $700 billion worth of mortgage paper. 

GREGORY:  Right.

O‘NEILL:  Now, in order to do that, he‘s going to have to borrow $700 billion.  He doesn‘t have it in his drawer at home either.  So he‘s going to have borrow $700 billion, and then we‘re going to warehouse this paper.

I think that‘s a fundamentally flawed idea.  And in fact, that we could do ourselves much better if instead of buying the stuff, we would use the process that he‘s talked about, the value of the assets, and then guarantee that value for the assets.  And they‘ll trade like cash, so that we don‘t actually have to appropriate and spend money.  We can use the government guarantee. 

In effect, what I‘m saying is equivalent to what we did last week when we had a run on the money market accounts.  We guaranteed the accounts.  We didn‘t buy $2.1 trillion worth of money market accounts.  We just guaranteed their value. 

And if we did the same thing, we would avoid what I‘m really concerned about with this bill, of the federal government becoming a substantial owner in private enterprise through this warrant process.  The worst thing I can imagine is having federal employees sit on private sector company boards and decide... 

GREGORY:  But isn‘t the idea here is that if you don‘t buy this toxic debt, this paper, that lending won‘t be freed up, the credit won‘t free up?

O‘NEILL:  Why do you have to buy it if you can accomplish the same purchase with a guarantee? 

GREGORY:  You simply guarantee it?  So you don‘t support this bill the way it‘s drawn right now?

O‘NEILL:  Well, I‘ll tell you what, it‘s the only game in town. 

GREGORY:  Right.

O‘NEILL:  And we have a critical need that doesn‘t have a lot of time to demonstrate to the world that we‘re going to act.  So, my view is, if we have to vote on this thing, it‘s better than nothing, but it‘s not as good as what we can do if we simply guaranteed these things. 

And then if we want to deal—there is a separate issue, which is the underlying capital base of the bank.  So if we want to deal with that, we ought to deal with it cleanly.  And I would say we should loan banks on a selective basis billion of dollars at rates of interest that are 200 basis points over the federal borrowing rate so the banks have a good reason to pay it off as soon as they can.  And that way we can inject capital into the banks and avoid owning all this stuff. 

GREGORY:  Right.  But as you know, there is some debate about whether there‘s going to be some return on the investment for the American taxpayer.  This is what Warren Buffett said on CNBC in an interview this afternoon.  He said, “If the United States Treasury offered me the chance to have a 1 percent participation in the profit or loss from the $700 billion they‘re going to spend, and if they buy the assets at market prices you know, I would feel I made myself a very sweet deal.”  Do you disagree? 

O‘NEILL:  Well, I‘ll tell you what, my way guarantees that the taxpayers are going to benefit, because I would not—I would not buy these things, I would guarantee them, as I said.  And then for the loans for shoring up the capital base...

GREGORY:  Right.

O‘NEILL:  ... if I got 200 basis points more than the federal borrowing costs, then, hey, I‘m in a really good position.  The taxpayers are going to benefit to the tune of a substantial premium over our borrowing costs.  So the taxpayers aren‘t at risk at all. 

GREGORY:  This is what the secretary of the treasury now, Hank Paulson, and Ben Bernanke, chairman of the Federal Reserve, were saying as recently as last year about this subprime mess, the housing market, and a spillover effect to the rest of the economy. 

Let‘s watch. 

(BEGIN VIDEO CLIP)

HENRY PAULSON, TREASURY SECRETARY:  We‘ve been seeing stresses and strains in a number of capital markets, but this is against the backdrop of a very strong global economy, a very healthy U.S. economy. 

(END VIDEO CLIP)

(BEGIN VIDEO CLIP)

BEN BERNANKE, FEDERAL RESERVE CHAIRMAN:  And we do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system. 

(END VIDEO CLIP)

GREGORY:  Did they fail to see this coming? 

O‘NEILL:  Well, I tell you what, two years ago it was clear that 30 percent of the new mortgages that were going to no-down payments, sub all day and all the rest of that, were failing to make the first payment.  Two years ago, we should have stopped the madness of putting people in houses when there was no equity there.  And, you know, one of the things I‘ve not heard, which I would do right now, I would say it‘s against the law to make home loans in the United States unless there is a 20 percent equity component that is stapled to the mortgage so that even... 

GREGORY:  A down payment, you mean? 

O‘NEILL:  Absolutely, so that even if it gets traded through the financial system, the 20 percent equity cushion to protect our financial system is always there. 

GREGORY:  But you‘ve been in this job. 

O‘NEILL:  I have. 

GREGORY:  You know what—I mean, two years ago you say this stuff was evident. 

O‘NEILL:  Absolutely.

GREGORY:  Did the administration fail to recognize it and take the kind of regulatory action that was necessary? 

O‘NEILL:  You know, I think generally, the system lived in fantasyland.  Countrywide was out there making unbelievable numbers of no-document loans, they and their brethren in the home financing business.  And, you know, I believe they had to know that this stuff was going to come to a bad pass because it was getting blasted into financial cyberspace and it contaminated everything. 

If you look what‘s happened today in Ireland and Germany and the U.K., and in Russia last week, where they closed their market for two days, this is no longer just a U.S. problem.  And it‘s why it‘s really essential that we do something to liquefy our credit system. 

GREGORY:  The debate about the economy, about this crisis, is front and center in the campaign.  Are you hearing what needs to be addressed from these two candidates about a problem that‘s going to be with us well into the next administration? 

O‘NEILL:  Well, not really directed to this issue.  But I have a broader concern about what we‘re hearing in the campaign. 

You know, I‘ve not heard either candidate talk about the $53 trillion worth of unfounded liabilities that we have as a nation, that we need to do something about, or we‘re going to have a problem that makes this current financial crisis look like child‘s play not too far down the road.  You know, I haven‘t heard anybody say in this campaign, the 10,000-page tax code that we have is proof that we‘re not an intelligent people. 

And so what are the candidates talking about?  They‘re talking about more credits, they‘re talking about more deductions, they‘re talking about more complication in the tax code.  None of them, neither one of them, are talking about, we need to fix this monster, which is also part of our problem. 

None of them, neither one of them with a really credible energy plan.  You know, they had an opportunity in June of this year.  American people drove 12.2 billion miles less because the price of gas was over $4.  I didn‘t even hear Al Gore say, you know what?  We ought to keep the gas price up because it causes people to conserve and it reduces the greenhouse gas that we‘re putting in the environment. 

You know, when I hear a presidential candidate tell the people, hey, you know what?  Four dollar gas is maybe not even good enough, maybe it ought to be $5, then I‘ll say, this is the truth teller.  We should vote for this person. 

GREGORY:  All right.  We‘re going to leave it there. 

Former Treasury Secretary Paul O‘Neill. 

Thank you for your views.

O‘NEILL:  My pleasure.

GREGORY:  Appreciate you coming on.

O‘NEILL:  Thank you.

And coming next, I‘ll go one-on-one with former GOP majority leader Tom DeLay about the politics of this rescue package, bailout bill, and the presidential campaign. 

RACE FOR THE WHITE HOUSE returns right after this.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

MCCAIN:  I‘ll tell you bluntly that America is already $10 trillion in debt.  And to make our economy strong again, we must reduce the burden of federal spending.  We can‘t...

(APPLAUSE)

We can‘t tax our way to prosperity. 

(END VIDEO CLIP)

GREGORY:  Welcome back to THE RACE. 

That was Senator McCain today on the trail in Missouri, with both candidates trying to prove they can better handle our economy.  What does each need to do to make the case to the American people?

Joining me now to discuss that, Tom DeLay, former House majority leader. 

Leader DeLay, welcome. 

TOM DELAY, FMR. HOUSE MAJORITY LEADER:  Thank you, David.  Good to be with you. 

GREGORY:  First, let me ask you about this package for Wall Street on Capitol Hill.  Would you be against it? 

DELAY:  I would have voted against it Monday as a rank and file member, but if I were a leader, this wouldn‘t have been the bill.  I hope they‘re not going to write this in the textbook somewhere, how to pass a bill, because this has got to be the most incompetent Congress I‘ve seen in my lifetime. 

GREGORY:  What went wrong? 

DELAY:  Well, it started with the administration.  Paulson put out an answer to what he called a crisis, and then told the Congress—didn‘t check with anybody.  Laid it out there, said take it or leave it, and we wanted a bipartisan approach. 

Then the Congress picks it up with a Democrat majority and they leave out a very significant group of people called the House Republicans in the negotiations.  Then they bring them in at the last moment, and then they take bill to the floor, not knowing where the votes are.  I mean, this is just amazing to me. 

GREGORY:  You talk about what is needed, whether there is a crisis here.  Former Treasury Secretary Paul O‘Neill was on just a couple of minutes ago saying he would have to support this, this is the only game in town.  And basically, the price of doing nothing is too high. 

Do you disagree? 

DELAY:  No.  I would vote for it now.  And the reason I would vote for it now is because I know that if this bill goes down, really bad things are going to happen. 

What will happen is the administration will be desperate for a bill.  They‘ll link up with the Democrat majority.  The Democrats will throw all kinds of bad stuff into this bill.  They‘ll take out all the good stuff. 

I mean, look at the housing bill, a $300 billion housing bill they passed a couple of months ago with the administration, without any Republicans.  Giving a slush fund to leftist group ACORN.  And no good is going to come of it, except the taxpayers have a huge bill to foot.  That could be the bill tomorrow if this bill does not pass tonight in the Senate. 

GREGORY:  Well, let talk about economic policy, specifically the issue of tax cuts, which, as you know, is a big debate this election cycle, as it is always.  Back in 2003, when there was again a deficit approaching $500 billion—we appear to be back there now—this is what you said on “MEET THE PRESS” about the needs for tax cuts. 

Listen.

(BEGIN VIDEO CLIP)

DELAY:  You cut taxes, it leaves more money in people‘s pockets.  They save, they invest, the economy grows.

As we restrain spending and revenues grow in the government, we‘ll get back to balance.  But it will be the Republicans in the House and the Republican president that did it, not the big-spending Democrats that want to take everybody‘s money and dampen this economy that is starting to show signs of booming. 

(END VIDEO CLIP)

GREGORY:  Now, Leader, Republicans controlled Congress for much of this president‘s presidency.  And now we‘re back up to deficits approaching $500 billion. 

Did tax cuts fail under George Bush? 

DELAY:  Not at all.  In fact, the revenues to the government increased by huge amounts. 

What happened was we went to war.  And we‘re paying for that war. 

That‘s the biggest part of the deficit. 

And I can get into the weeds on it, but we‘re paying for this war and it‘s not even part of the budget.  So it all goes to deficit.  And people don‘t realize that. 

The second part was, these things that now have come home to roost, like forcing lenders to give loans to people that can‘t afford them, and guaranteeing—the government guaranteeing any losses, is what has brought us to this point.  That was going on.  And so all of that came—we restrained spending as much as we could with the votes that we had, particularly—I mean, if you look at it, if there was a Democratic Congress, spending would be three to four times what it is right now. 

GREGORY:  Let me get your general assessment about how the economy plays as a campaign issue and the state of the Republican Party as we get now 34 days before the electric.  Size up the state of the party. 

DELAY:  Well, I think the state of the election is that nobody likes either candidate.  That‘s why I think there is so much volatility in the polls. 

You‘ve got people that already have decided they‘re going to vote for McCain.  You‘ve got people that have already decided they‘re going to vote for Obama.  But the people that have not decided now are switching back and forth. 

And I think the economy is going to play a big, big role in it.  And I would hope that McCain would continue from today on and give more substantive, more basic understanding to the American people about what our economy is and what it needs, and particularly contrast that with what Obama is saying. 

GREGORY:  Do you grade Senator McCain poorly on his economic vision? 

DELAY:  Well, I don‘t think the economy, obviously, is his strong suit.  But I like his leadership. 

I mean, last week he understood that he had to be part of this.  And unlike Obama, who said, call me if you need me, he came to town.  He made sure the House Republicans were listened to. 

There were some good things put into the bill because the House Republicans resisted the agreement cut with the administration and the Senate and House Democrats.  And he followed through with that. 

Now he‘s back in town.  He is going to vote tonight.  And I‘m sure he‘s going to be talking to House Republicans again. 

So that is leadership.  And that‘s what I want to see in my president. 

You don‘t have to be an economist.  You don‘t have to be an expert.  But do I want you to understand our economy, what drives it.  And therefore, you can make the decisions that you need to make when they come to you. 

GREGORY:  All right.  Former leader of the Republican Party in Congress, in the House, Tom DeLay.

Thanks very much for your views tonight. 

DELAY:  My pleasure.  Thank you for having me. 

GREGORY:  And coming next, former president Bill Clinton held his first campaign even just today for Obama.  What did he say? 

It‘s on THE RACE‘s radar, coming up right after this.

(COMMERCIAL BREAK)

GREGORY:  Back now with a look at what else is on THE RACE‘s radar tonight. 

Former president Bill Clinton is back.  The former president made his first campaign appearance for Senator Obama, his very first, just 34 days to go, talking to a crowd of more than 5,000 in Florida, the first of two stops today.  While throwing his support behind Obama‘s policies, he managed to give a small nod to his wife as well. 

(BEGIN VIDEO CLIP)

WILLIAM JEFFERSON CLINTON, FMR. PRESIDENT OF THE UNITED STATES:  I

have carefully read everything these candidates have put out.  And I‘m telling you, it matters, because the history is this—notwithstanding what people think about us politicians, the truth is, virtually every person elected president does his and someday I hope her very best. 

You need to know what they stand for.  Obama‘s answers are better. 

(END VIDEO CLIP)

GREGORY:  Taking the stage, Clinton also joked that, “Hillary sent me,” referring to her program to shore up support for Obama.  She has made more than 40 appearances for Obama since suspending her campaign and dropping out of the race. 

A short segment here.  Going to take another break.

Coming next, bailout politics and the impact on the presidential campaigns.  We‘ll go live and speak with senators from both sides of the aisle as we wait for tonight‘s vote.

Plus, Governor Palin and Senator Biden prepare to square off in tomorrow‘s vice presidential debate.  A preview coming up on THE RACE. 

(COMMERCIAL BREAK)

GREGORY:  Take two on the bailout bill.  McCain, Obama and Biden rush back to Capital Hill to vote for the economic rescue package tonight.  Plus, Governor Sarah Palin talks about her strengths on the eve of the first and only vice presidential debate. 

Back now on RACE FOR THE WHITE HOUSE.  I‘m David Gregory for the back half.  THE RACE moves to Capital Hill tonight, as the Senate prepares to vote on a bailout bill.  You‘re looking live now at the Senate floor, where the vote is expected to happen sometime after 8:00 p.m. Eastern.  Senator Shelby on the floor now. 

Senators McCain, Obama and Biden are all expected to vote in favor of this rescue package.  Also tonight, on the eve of the vice presidential debate tomorrow, some new polls are giving us a glimpse of how the first McCain-Obama debate is playing with voters in the all important battleground states.  Let‘s go inside the war room tonight with Democratic strategist Bob Shrum and Republican strategist Mike Murphy.  Welcome to both of you.

We‘ll get to Mike Murphy in just a minute.  Bob, let me go through some of the recent polling here that we have out of the battleground states.  Quinnipiac in Ohio has Obama at 50 percent now, McCain at 42 percent.  You look at Florida, Obama 51, McCain 43.  Quinnipiac in Pennsylvania, Obama 54, McCain 39.  Is there a real movement in this race now, Bob? 

BOB SHRUM, DEMOCRATIC STRATEGIST:  I don‘t think it is that big, but I think there is real movement.  I think it has been going on since before the first debate, driven by the economy.  Then I think Obama did the one thing that was fundamental to him in that debate.  He passed the threshold as a credible commander-in-chief.  Once that happened, once people got a level of comfort with him, I think they were able to begin to move toward him. 

I think the importance of the next two presidential debates is they‘re actually going to be looking at Obama as a potential president.  I think he‘ll live up to that, but that‘s going to be the real test for him. 

GREGORY:  Mike Murphy is with us from Los Angeles.  Mike, you good? 

MIKE MURPHY, REPUBLICAN STRATEGIST:  Yes, hello.

GREGORY:  David hear.  I just want—we just established you from Los Angeles.  I asked Bob about the polls, Ohio, Obama 50, McCain 42; Florida, Obama 51, McCain 43; Pennsylvania, Obama 54-39.  My same question to you, is this race moving? 

MURPHY:  Yes, I think it has been creeping in Obama‘s direction.  I think and I heard Bob say some of this.  The focus on the economy is helping him generically.  I think that‘s true.  But this thing is very much in flux.  These debates are huge data points.  With a movement towards you also comes higher risk, because in the debates now, people are going to have a real electron microscope eye on Obama. 

But fundamentally, it has inched Obama‘s way.  The number that I think is most terrifying to the Republicans, though there is still plenty of time for it to move the other way, is Florida.  We can‘t lose Florida and win the election. 

GREGORY:  Bob, what about bailout politics here and the politics surrounding this vote in the Senate tonight, and perhaps later in the week in the House?  This bailout package for Wall Street—we heard earlier from former Treasury Secretary Paul O‘Neill.  He said if we‘re not in a recession, we‘re close, and that if this does get worse, the economy could tail spin and things could happen very dramatically, where credit starts to tighten up at every level for American consumers in a way that has a real effect.  How does that play right now? 

SHRUM:  Well, if all that happens, it will give more impetus to Obama.  By the way, the person who is under the microscope is McCain.  People are going to try to figure out how can this guy come back?  He is falling behind.  If those economic events accelerate, it is just going to be worse.  Now, it could happen after the election, in which case, President Obama is going to inherit one of the biggest messes since 1933. 

GREGORY:  I mentioned Paul O‘Neill, former secretary of the Treasury.  He spoke earlier on the program.  This is what he said about both candidates and the economy.  Listen. 

(BEGIN VIDEO CLIP)

O‘NEILL:  I have not heard either candidate talk about the 53 trillion dollars worth of unfunded liabilities that we have as a nation that we need to do something about.  We‘re going to have a problem that makes this current financial crisis look like child‘s play. 

They‘re talking about more credits.  They‘re talking about more deductions.  They‘re talking about more complications in the tax code.  Neither one of them are talking about, we need to fix this monster, which is also part of our problem. 

(END VIDEO CLIP)

GREGORY:  Mike? 

MURPHY:  Well, I‘ve been telling people, if you don‘t like John McCain or you don‘t like Barack Obama, and you really want to screw him over, elect him president.  No matter who gets this job, Secretary O‘Neill is fundamentally right.  We have an entitlement time bomb ticking.  We have this Wall Street bailout.  We probably have a pretty deep recession.  We‘ve got nothing but problems.  So it‘s a very high stakes rice.  I think whoever wins, we‘re going to all get behind him, because it is going to be a very tough time to be president of the United States. 

GREGORY:  Let me talk about Governor Palin.  I‘ll stick with you, Mike, and this debate coming up tomorrow night.  Senator McCain did an interview with the “Des Moines Register” editorial board and it was captured on camera.  He bristled at the suggestion that she doesn‘t have right amount of experience.  This is what he said. 

(BEGIN VIDEO CLIP)

MCCAIN:  I disagree with your fundamental principle that she doesn‘t have the experience.  I remember when a governor came out of California, didn‘t have the experience.  I remember when a governor came out of a small state called Arkansas.  He didn‘t have the experience.  She has been a mayor.  She‘s been overseer of billions—I don‘t know how many billions of dollars of natural resources.  She‘s been a—she‘s been a member of the PTA.  She‘s been a governor.  She‘s been a mayor. 

(END VIDEO CLIP)

GREGORY:  Mike Murphy, the comparisons to Clinton and Ronald Reagan. 

Is that what Sarah Palin needs going into tomorrow‘s debate? 

MURPHY:  I think comparisons like that help.  My heart goes out to anybody who has to sit through an editorial board at the Register.  It‘s one of the most liberal papers in the country.  Why McCain is even in Iowa right now is a puzzlement to me. 

As far as Palin is concerned, it is in McCain‘s interests to not have to talk about his running mate anymore.  She can move that needle at the debate if she does well.  If she doesn‘t do well, she is going to be a weakness all the way through to election day.  There is a lot riding on that debate for her.  I think while her expectations are low, they have risen a little bit because of the bumpy ride she‘s had the last two weeks.  So her destiny is going to be in her hands at that podium.  We‘ll see how she does. 

GREGORY:  Ultimately, is it about demonstrating that she‘s qualified? 

Is that the leadership test for her? 

MURPHY:  I think we‘re at a point now—

(CROSS TALK)  

MURPHY:  I think, quickly, we‘re at a point now where she has to show, because perception is reality in politics, a certain fluency in national issues, a certain crispness about it, in addition to her natural charisma.  She puts those two together, she‘ll move the needle.  If she doesn‘t, she‘s going to have nothing but trouble. 

GREGORY:  Bob, listen to Governor Palin on Hugh Hewitt‘s radio program yesterday talking about her appeal. 

(BEGIN VIDEO CLIP)

PALIN:  I think they‘re not used to someone coming in from the outside saying, you know what?  It is time that normal Joe Six Pack American is finally represented in the position of vice presidency.  I think that is kind of taking some people off guard.  They‘re out of sorts and they‘re ticked off about it.  But it is motivation for John McCain and I to work that much harder to make sure our ticket is victorious, and we put government back on the side of the people of Joe Six Pack, like me. 

(END VIDEO CLIP)

GREGORY:  Bob, here‘s a proposition from former President Clinton, which is for those undecided, independent voters who might like John McCain and aren‘t sold on Barack Obama as of yet, what is the test then for Governor Palin tomorrow? 

SHRUM:  I think the test is that she has to meet—and Mike said this; she has to meet a standard where people think she could be president or vice president of the United States.  And I don‘t think tomorrow Jersey Kozinski‘s (ph) example, it‘s Chance the Gardener and just being Joe Six Pack is going to satisfy people.  She is going to have to be able to answer real tough questions. 

And I‘m not spinning for anybody.  So I‘ll say that I think there is a chance, a real chance that she‘ll live down to her lowered expectations. 

GREGORY:  Mike?  Final words. 

MURPHY:  Well, I would say that in past debates, she‘s done better than expected, though if it‘s an answer like that radio answer, I‘m going to need a six pack. 

GREGORY:  I‘ve got nothing else to say.  All right, Bob Shrum, Mike Murphy, thanks to you both.  A quick reminder here, be sure to tune in to MSNBC tomorrow for the vice presidential debate.  Governor Sarah Palin and Senator Joe Biden facing off for the first and only time, 9:00 p.m. Eastern from Wash University in St. Louis, a great venue for a presidential level debate.  I‘ll be bringing you special coverage of the debate all night. 

Just a short time away from the vote on the bailout bill.  Coming up, I‘ll talk to two senators about the rescue package and the impact the financial crisis is having on their state‘s economy as this debate rolls on.  Lindsay Graham on the floor of the Senate right now.

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SEN. RICHARD SHELBY ®, NEW HAMPSHIRE:  I have voiced my concerns all along.  I don‘t know if you have this, but I have a five page—five pages of the leading economists in America that wrote to me and the leadership saying the Paulson plan is a bad plan.  It will not solve problems.  It will create more problems. 

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GREGORY:  That was Republican Senator Richard Shelby at the White House late last week illustrating the dilemma some Republicans are facing with this vote tonight in the Senate.  Joining me now to talk through the political stakes is a Republican who plans to vote in favor of the bill, Senator John Thune of South Dakota, and he is on Capitol Hill tonight.  Senator, welcome.

SEN. JOHN THUNE ®, SOUTH DAKOTA:  Good evening, David. 

GREGORY:  So why yes tonight on this bill? 

THUNE:  I just don‘t think we have much choice.  This is something that has been obviously happening for a long time.  And we‘ve gotten to where we are.  And there are a lot of people who want to affix blame, but I think right now we have a problem to solve.  We have credit tightening up.  It is affecting all sectors of our economy.  If we don‘t do something about it, my fear is we‘re going to see more and more people get sucked into this vortex.  That would be disastrous for the economy in this country. 

I think this is a tough vote for Republicans, but I think you‘re going to see a lot of them make this vote tonight because they think it is that important. 

GREGORY:  What are you hearing back home in South Dakota from people in term of the real impact?  We talked so much about bad debt on Wall Street and the investment banks.  The inability to get a loan for a car, to help finance college education and the like, is really affecting people, as we said on Main Street.  There is that relationship.  What are you hearing when you go home? 

THUNE:  This was very poorly communicated, I think, as you know, David, in the initial stages.  It was perceived by a lot of people as a bailout for fat cats on Wall Street.  I think what people are coming to grips with is this is affecting Main Street.  We‘ve reached out to a lot of constituencies in South Dakota, farm organizations, bankers, of course, Chamber of Commerce, South Dakota Investment Council, car dealers.  And everybody is convinced that if we don‘t take steps to shore up our financial markets right now that we‘re going to see this credit freeze continue to impact more and more. 

There is a ripple effect.  I think what you‘re hearing in states like mine across this country, and you have farm who obviously need to have access to credit.  You have people, as you said, who want to buy homes or get auto loans, who need to have access to credit, student loans.  There are a lot of implications to this that I think are going to be very widespread.  And like I said, this is not someplace I want to be.  I think a lot of people have that same view.  But most of us believe we don‘t have really any choice at this point but to move forward with a plan that we think will bring some stability to our financial system. 

GREGORY:  I want to play a piece of tape for you.  Senator Obama speaking on the bill this afternoon on the floor of the Senate.  Listen to this. 

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OBAMA:  If this is managed correctly, and that is an important if, we will hopefully get most or all of our money back, and possibly even turn a profit on the government‘s intervention, every penny of which will go directly back to the American people.  And if we fall short, we will levy a fee on financial institutions so that they can repay for the losses that they cost. 

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GREGORY:  Senator, do you agree with that? 

THUNE:  I think there are a lot of tax payer protections that have been put into this, David.  I hope that statement is correct in the sense that we‘ll actually see a profit.  I‘m not predicting that.  But I do think there has been a lot of misinformation about 700 billion dollars.  People think that we‘re just throwing that at Wall Street.  That is a line of credit, essentially, the Treasury can use to acquire illiquid assets, non-performing loans, turn around and sell them.  There will be revenue coming back in. 

It would be great if we could turn a profit on that.  If this program doesn‘t work as it‘s intended, there is a requirement in there that these levies be imposed on financial institutions.  So I think there are lots of safe guards for tax payers and that‘s what everybody wanted to accomplish before we got to this vote. 

GREGORY:  What is going to happen in the House?  Are you talking to your House Republican colleagues about their vote last week and whether they‘ll pass a bill this week? 

THUNE:  I have been.  I talked to a number of them yesterday.  I think what came out of that was adding this—fusing the rescue bill and a tax bill together, because that is hoping to attract Republican votes in the House.  There is a widely held view over there that that is something that will draw more Republicans.  I think adding the FDIC insurance component too was important in that regard.  They‘re going to get another whack at this tomorrow or on Friday.  Hopefully, if there‘s a big vote coming out of the Senate tonight, it will provide some momentum for the House when they have their next vote. 

GREGORY:  Senator John Thune, thanks for your time tonight. 

THUNE:  Thanks, David.

GREGORY:  Coming next, the view from the other side of the aisle.  We‘ll go one-on-one with Democratic Senator and Joint Economic Committee member Amy Klobuchar of Minnesota.  The clock winds down to tonight‘s vote on the financial recovery bill.  Senator Kerry of Massachusetts on the floor now speaking his peace.  Back on THE RACE after this.

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GREGORY:  Back no on THE RACE.  Time for our daily debrief.  All eyes turning to the Senate floor as we wait for tonight‘s vote on the financial recovery bill.  Joining me now with the latest is Richard Wolffe, “Newsweek” senior White House correspondent, MSNBC political analyst.  He‘s been covering the Obama campaign for “Newsweek,” of course.  And Richard, as we watch Senator Kerry of Massachusetts, of course, on the floor of the Senate, where are both these campaigns right now on the politics of this bailout?  They‘re both back.  They spoke about it today, Obama on the floor.  Now, they‘re preparing to vote for something that will still be a pretty unpopular measure with a lot of Americans. 

RICHARD WOLFFE, “NEWSWEEK”:  Well, David, interesting to see both these candidates striking very similar tones here.  Both of them expressing outrage that they have to do this, but saying this is a necessity.  Everyone has to step up to the plate.  While there is veiled criticism of the other side here, whether it is about the economy or about the state of politics in Washington, they‘re really setting aside the partisan and personal attacks that have, frankly, followed on with both these candidates when they talk about this crisis. 

So less of the personal, more of the patriotic, let‘s all come together and deal with this. 

GREGORY:  We heard two guests on the program tonight, Paul O‘Neill, former Treasury secretary, and Tom Delay, saying a lot of people don‘t like either one of these candidates.  They‘re not hearing from either one of these candidates what they want to hear on the economy.  Inside the Obama campaign, what more do they think they have to do to navigate these waters, where it is unfolding.  It is a problem that is likely to get worse, that‘s going to be more complicated.  And yet it is still an issue of the economy, which they want to have ownership of. 

WOLFFE:  Of course, the polls have been pretty good for Barack Obama on the economy.  What you‘re seeing from them is a desire to move on, not just because the bailout is complex and people don‘t really like any of the solutions here, but they really want to relate the economy to people‘s regular lives.  That‘s why you‘re hearing him talk more about Main Street, about his middle class tax cuts.  That‘s the area where they also like to portray John McCain as being out of touch, not in tune with the concerns of regular working folks. 

So, in many ways, they want to move back to the regular debate that characterized the interchange on the economy before the bailout dominated the discussion. 

GREGORY:  How much movement in these battleground polls we‘ve been seeing matches up with what the campaign may be seeing internally as well in the big battlegrounds, post the first debate? 

WOLFFE:  Well, they are seeing movement, maybe not so much as these hard line numbers.  But it is hard to say whether it is to do with the debates, whether it‘s to do with the bailout.  Remember, the trend line has been moving for a couple weeks before the debate.  The suspicion is that it is Obama‘s response to the crisis, his even keel through this whole affair that has had some impact. 

Interestingly, by the way, Joe Biden, one of the three senators who is obviously on the ticket, not expected to showboat or give a big floor speech today about the bailout.  He is going to be traveling back on the train from Wilmington, where he is finishing up his debate prep. 

GREGORY:  Right.  Richard Wolffe from “Newsweek.”  Thanks, Richard. 

WOLFFE:  Thank you. 

GREGORY:  The Senate is expected to vote sometime after 8:00 p.m.  Eastern on that rescue package.  Joining me now from Capitol Hill with the latest on where the Democrats stand is Senator Amy Klobuchar of Minnesota.  Senator Klobuchar is a member of the Joint Economic Committee and is also a supporter of Senator Obama.  Senator, good to see you.  Sorry about those Twins, but that‘s what happens.

SEN. AMY KLOBUCHAR (D), MINNESOTA:  What a hard game last night.  I watched it at Thirsty Bernie Sports Bar. 

GREGORY:  Good for you.  Tell me where you are on this bill and how you think it will go. 

KLOBUCHAR:  Well, I think that there will be good support for this bill in the Senate.  We all know that this is unpopular.  I know from the calls I‘ve gotten.  I know when I go home this weekend there isn‘t going to be a parade waiting for me.  We know it is the right thing to do.  Senator Obama gave a very good speech tonight, explaining how the bill had been so vastly improved with a lot of his ideas and the ideas from the Democrats over that three-page bill we got from the Bush administration. 

We now have protection for tax payers and we have limits on executive pay.  We have oversight of Paulson‘s activities.  And we have tax payers with the ability to see the upside in this.  There have been some major changes with a lot of hard work to go on how we changed the regulations of Wall Street, that has basically been operating like a casino under this administration. 

GREGORY:  Warren Buffett said he is saying tax payers might make money off this deal.  When you go home to Minnesota, is that what you‘re telling people who are skeptical about this? 

KLOBUCHAR:  I don‘t start with that.  I suppose it is a possibility.  I tell them my concern is that this could roll into Main Street.  We‘re already seeing tightening credit markets with student loans, with some of our private colleges in Minnesota, with car loans, with difficulties all across the country.  We‘re already starting to see the affect.  The idea here is to stem the immediate crisis, but then to make the changes that Senator Obama has so well articulated about what needs to be done to stem in what has been going on Wall Street, something John McCain didn‘t do for the years he was chair of the Commerce Committee. 

GREGORY:  There is a question about whether the time frame for this is workable, where you have a year-long effort to buy up this bad debt.  Is that nearly enough time for this to work through the system? 

KLOBUCHAR:  This is a start.  And I‘m hopeful that it will be.  I think our focus should not just be as we go into the next year on oversight and doing this right.  It also should be on changing the regulations and then looking at the economic policy going forward.  One of the good things, David, about the Senate bill that wasn‘t in the House bill is we have those long-term incentives in place for renewable energy, wind and solar, something important to my state, the Paul Wellstone Mental Health Parity Bill.  There are things in the Senate bill that are important for the long term. 

GREGORY:  I have to ask you about tomorrow night‘s debate.  There are report that Senator Biden has taken some advice from female colleagues in the Senate about how to debate Governor Sarah Palin.  What do you think he has to keep in mind tomorrow night? 

KLOBUCHAR:  I think, first of all, people have created all these expectations about Sarah Palin.  She‘s debated many times successfully in Alaska.  There was an article today in the “Christian Science Monitor” by one of her opponents, a guy named Andrew Halcro, who ran as an independent.  He talks about how she sort of charmed the audiences with her folksy stories and what he called her glittering generalities. 

Do I think this is what the people of America want now?  No.  But I don‘t think we should underestimate her abilities as a debater.  And Senator Biden is a very experienced in policy.  He needs to emphasize that.  Mostly, he needs to show that stark contrast between the McCain/Palin policies and the change that he and Barack want to bring to Washington. 

GREGORY:  Do you worry there are some pit falls? 

KLOBUCHAR:  There are always pit falls in any race.  I think he has shown—I loved what he said after Barack and John McCain‘s debate, how he came on, tough fighter, went on and told it like it was.  People always say he talks a little long, but he has a lot to say.  I think that he will do well.  The other thing to remember is don‘t underestimate Sarah Palin.  She‘s giving good speeches.  She knows how to deliver a one liner.  And all this expectation game, people better remember, she‘s been governor of a state and she‘s won debates before. 

GREGORY:  More generally about the economy, we heard on the program tonight, Tom Delay, former Treasury Secretary Paul O‘Neill saying, Americans are not hearing what they want to hear on the economy from either one of these candidates, an issue that should benefit Barack Obama more than it appears to, despite the fact that we see some movement in the polls.  What more would like to see him do?

KLOBUCHAR:  Well, I think, first of all, every time the American electorate turns away from ads about lipstick to the real issues in this campaign, Barack Obama shines as a leader.  I think he is doing what he needs to do.  He‘s been a leader in this economic crisis.  It was Barack Obama that suggested the increase to the FDIC insurance that we see in the bill today.  It is Barack Obama that was willing to come out with his principles, all of which are reflected in the bill, which I believe is ultimately going to pass the Congress. 

It is difficult.  People are pissed off.  I‘m pissed off.  These guys on Wall Street have made all this money and then they leave us, the tax payers, to figure this out.  It is not a good situation.  The American people are mad.  Barack Obama has the plan to get them out of this mess. 

GREGORY:  Senator Klobuchar, thanks very much.  Watch for the results of the vote tonight here on MSNBC. 

KLOBUCHAR:  I‘ll see you at the debate.  I‘ll be there tomorrow night. 

GREGORY:  Good night everybody.

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

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