updated 10/9/2008 1:20:05 PM ET 2008-10-09T17:20:05

RACE FOR THE WHITEHOUSE

October 8, 2008

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

Guests: Pat Buchanan, Michael Smerconish, Richard Wolffe, Lawrence O'Donnell, Claire McCaskill, Katrina Vanden Heuvel, Dylan Ratigan, Douglas Holtz-Eakin, Mike Murphy

Tonight, taking it to the streets. Obama and McCain take last night's debate from the stage to the stump and turn up the heat with a slew of fiery attacks. With just four weeks to go in a race that seems to be staying the course, what is McCain's next move in the RACE FOR THE WHITE HOUSE?

If you can believe it. Twenty seven days to go in the RACE FOR THE WHITE HOUSE. Welcome to the show. I'm Mika Brzezinski in for David Gregory tonight. My headline tonight? Obama wins by default.

His campaign double teamed McCain on trail today, launching a series of attacks at their Republican rival after round two of the presidential debates produced no clear winner.

(BEGIN VIDEO CLIP)

SEN. JOE BIDEN. (D) VICE PRESIDENTIAL CANDIDATE: You can't call yourself a maverick when all you've ever been is a sidekick.

SEN. BARACK OBAMA, (D) PRESIDENTIAL CANDIDATE: I can take four more weeks of John McCain's attacks but the American people can't take four more years of John McCain's Bush policies.

(END VIDEO CLIP)

BRZEZINSKI: In battle grounds Indiana and Florida, Obama and Biden delivered the counterpunch to what McCain put forward last night in Nashville, Tennessee.

(BEGIN VIDEO CLIP)

SEN. JOHN MCCAIN, ® PRESIDENTIAL CANDIDATE: Nailing down Senator Obama's various tax proposals is like nailing Jell-O to the wall. There have been five or six of them. If you wait long enough, there will probably be another one.

(END VIDEO CLIP)

BRZEZINSKI: By most estimates, John McCain did not deliver knockout punch he needed to change the direction of this race. But we cannot forget card in his back pocket. His running mate Sarah Palin. An overnight sensation still joins huge crowds and relishing her attack dog role as she did today in battleground Pennsylvania.

(BEGIN VIDEO CLIP)

GOV. SARAH PALIN, ® VICE PRESIDENTIAL CANDIDATE: You know, when this campaign started, John McCain had asked Barack Obama to join him in 10 town hall meetings across the country. And our opponent, though, said no. And now I think that we know why. John McCain won, the truth won out.

(END VIDEO CLIP)

BRZEZINSKI: She's good. But the big question tonight, are they flocking to Sarah Palin for the substance or the spectacle of it all? Joining me now to take it on. Richard Wolffe, "Newsweek" senior White House correspondent and MSNBC political analyst.

Pat Buchanan and Lawrence O'Donnell also, MSNBC political analysts.

And Michael Smerconish, Philadelphia radio talk show host and columnist for both the "Philadelphia Inquirer" and the "Philadelphia Daily News."

Pat, let me start with you. Talk about your girl, Sarah Palin. She can draw a crowd. We watched her today in Bethlehem, Pennsylvania, working it with brilliance, really. But can she help John McCain overcome how the economy seem to really be changing the direction of this race? At least at the moment in the polls.

PAT BUCHANAN, MSNBC POLITICAL ANALYST: Well, not simply with her personality and her star power. The only way McCain is going to turn this around, I think, Mika, is to change his message. He doesn't have apparently a credible message on the economy or the financial collapse that is going on. And they have not successfully made Barack Obama unacceptable as the alternative to what's going on in Washington.

I think they've got to do the latter and they'd better figure out very fast how they're going to do it. Because I don't think McCain successfully did it last night. I thought he won on points but he did not win the debate by knocking the other fellow out. And that's two. He has only got one fight left.

BRZEZINSKI: All right, we'll talk about the debate in just a second. But Smerc, I want to ask you about Pennsylvania and Sarah Palin. David Brooks, which we're going to talk about a little later, calling her, and this is pretty unbelievable. A fatal cancer to the Republican Party. When you look at the pictures of her working the crowd in Bethlehem, she doesn't look like a cancer, she looks like a miracle drug.

MICHAEL SMERCONISH, RADIO TALK SHOW HOST: By the way, she was at my alma mater today so a little shout out for Lehigh University. Mika, the dynamics in this particular state are such that she's going to secure that base. James Carville made famous the dynamics of Pennsylvania. There is a central T in our state that is very conservative. But I have long maintained that Pennsylvania will be swayed by what takes place in the Philadelphia suburbs. I'm talking Bucks, Chester, Mont. Co. and Delaware County. These are still largely Republican areas but they voted for Democrat Ed Rendell. And I don't think she necessarily helps in that territory. So the base is coming out. But those swing voters, I think in many respects, are turning away from her.

BRZEZINSKI: Huh.

Let's talk about the debate last night. Lawrence O'Donnell. Roger Simon agrees with me. Let's read this. "If you had to say that somebody lost Tuesday night, it was McCain. Because he had to win and he did not. He is the one who has to change current trajectory of the campaign, and he did not do that."

Did he miss an opportunity last night? Or like I think, did he miss an opportunity when he voted for a bill with tons of pork in it?

LAWRENCE O'DONNELL, MSNBC POLITICAL ANALYST: Well, according to the polls, he did not come close. All the polls of the debate audience say that Obama won by a very, very wide margin.

Same thing, by the way, with every one of these debates. The Obama-Biden ticket have won them all by very wide margins. And so those polls I don't think are ignorable. I don't think it matters what our individual impressions are of who we think did what on points, as Pat would put it.

So that was a, according to the polls, strong, clear victory for Obama on Obama's terms.

And so McCain, not only did he not do the knockout punch but he did not come close in any way and so it doesn't seem as though anything has been altered in the campaign. And when you look at the Sarah Palin performances in some Republican audiences, in Pennsylvania, the audiences look very happy. As long as you ignore the polls about Sarah Palin, as long as you ignore the "Washington Post" poll that showed she is definitely a drag on the ticket, as long as you ignore the polls recently including the NBC poll that shows her negatives skyrocketing, soon to be competing with John McCain in terms of the highest negative in the campaign.

Then you can think she might be working. Right now, Sarah Palin is a serious drag on the Republican ticket.

BRZEZINSKI: Let's talk about in term of the debate last night and the campaign overall, Richard Wolffe, I want to read this editorial by the "New York Times", race baiting.

"Senator John McCain and Governor Sarah Palin have been running one of the most appalling campaigns we can remember." And this is "The New York Times." They have gone far beyond the usual fare of quotes taken out of context and distortions of an opponents' record into the dark territory of race baiting and xenophobia. Senator Barack Obama has taken some cheap shots at Mr. McCain, but there is no comparison."

Richard, is that fair? Is this potentially really dirty politics at play or just the destiny of a race when it is very close in tough times?

RICHARD WOLFFE, "NEWSWEEK": Well, there is no question it can get worse than this. So if they're shocked by this then they should just wait around for a couple more weeks as this week plays itself at.

The difference here is race. There is no question about it and it's very easy to push the buttons on this one for both campaigns but there is also no doubt that the McCain campaign is hinting strongly at the racial element and the unknown exotic terrorist element that they would like the pin on Barack Obama. It isn't subtle. But it can be more explicit than it is right now.

Now having said that, the problem for the McCain campaign, if they were doing this a year ago, if they were doing this maybe even over the summer, then it may be more effective than it is right now. But you're in for three debates into this process. People have watched the conventions and at least in the Obama campaign's point of view, people have already formed strong opinions about both of these candidates.

So to paint Barack Obama as scary, when they see him on the debates being very calm and collected, and maybe presidential as well, it is very tough for them. You cannot raise question marks about someone who seems very comfortable in everybody's living room.

BRZEZINSKI: It is a very difficult and dicey time when you have, for example, Sarah Palin being called into question over the weekend for even potentially questioning Barack Obama's patriotism when she talk about his allegiances, the William Ayers situation. Pat Buchanan, I want to play then for you a piece from the debate where John McCain referred to Barack Obama but did not use his name.

Here it is.

(BEGIN VIDEO CLIP)

MCCAIN: It was an energy bill on the floor of the Senate, loaded down with goodies. Billions for the oil companies. And it was sponsored by Bush and Cheney. Do you know who voted for it? You might never know. That one. You know who voted against it? Me.

(END VIDEO CLIP)

BRZEZINSKI: All right. Pat Buchanan. Is there something to that? There has been much ado about it. What do you think?

BUCHANAN: No. It is this is a-there is nothing there other than John McCain is miffed that this guy is beating him. Just like he was miffed with Mitt Romney. Let me talk about "The New York Times." The good gray lady of 43rd Street has become a hysterical old women. There is nothing wrong with Sarah Palin raising the fact that Barack Obama has these associations with a guy who was a terrorist in the '60s and didn't apologize, or bringing back Reverend Wright who is an anti-American Afro-racist.

I do agree with Richard's point. If you take these things seriously, as some of us do, why in heaven's name haven't you been bringing him up in the campaign before this so it looks now opportunistic. But it is perfectly valid.

As I have said before, if I were hooked up with a Klan bomber in the '50s, at the time of Oklahoma City said I wish I had done more, that would be draped around your neck and finish you. Republicans should not listen to the "New York Times." The people who win, Nixon twice, Reagan twice, George W. have ignored the "New York Times" and "Washington Post" editorial page and the David Brookses of the world.

BRZEZINSKI: All right. Pat Buchanan, you say it might look opportunistic? Lawrence O'Donnell, take on Pat. Does it look opportunistic or does it look desperate at this time when we are facing an economic crisis where there are opportunities to be a leader and to talk like a leader? And then to have these issues coming up.

O'DONNELL: Well, you know, I actually do think the "New York Times" went a little bit far in that editorial. But then Pat Buchanan here just went way too wild on the other side. I agree with Richard completely. It is just too late. Barack Obama has been in too many living rooms for too long. Via all the debates and the Democratic primaries.

The American public does not believe that some kind of dangerous person makes it to the, to be nominee of either one of these parties. Trying to suggest that he is dangerous is not going to work. That kind of seed should have been planted while Obama was still struggling for the nomination, by the way.

The McCain campaign had plenty of open field back then in May and in June to be laying the seeds for this and they didn't. Maybe they didn't think they were going to have to. Maybe they stupidly thought they would be facing Hillary Clinton. Right now it comes way too late. It comes when people know that McCain is behind in the polls. It comes when they're watching him lose debates. The American public in their polling is telling us that they believe that McCain is losing debates. Much more importantly, within all the polls. A huge majority say they believe Obama will win. A much bigger number believes Obama will win then will actually vote for him.

BRZEZINSKI: Go ahead, Pat.

BUCHANAN: Let me just disagree to this extent. There is no doubt the country doesn't want the Republicans. But Obama has not yet closed the sale. He has clearly begun to. He has reassured a lot of people but there are still doubts. And that's the only opening I think the McCain has right now. They ought not to close it because "The New York Times" tells them that's foul.

BRZEZINSKI: OK. There are questions, definitely, Pat, as to whether Barack Obama has the ability to close the deal. That's a fair question to raise. And it's possibly a question that could have been raised last night. Neither candidate really standing out on these issues. Especially during this crisis. We'll talk about this more with our panel.

Coming up next, is the Obama campaign happy with his debate performance? I'm going to go one-on-one with his national campaign co-chair, Senator Claire McCaskill, when the race returns right after this.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

OBAMA: You know, back in 1980, Ronald Reagan asked the electorate whether you were better off the four years ago. At the pace you're going, you're going to have to ask whether you were better off four weeks ago.

(END VIDEO CLIP)

BRZEZINSKI: Welcome back to THE RACE. That was Obama in Indiana today invoking the line that Ronald Reagan used to define the 1980 campaign and defeat incumbent President Jimmy Carter. Obama had a solid debate performance last night. But having made the case to undecided voters, going to the poll in just 27 days. Joining me now, Claire McCaskill, Democratic senator from Missouri and the national co-chair of Obama's presidential campaign.

Senator, thanks very much for being with me tonight.

SEN. CLAIRE MCCASKILL, (D) MO: Thank you.

BRZEZINSKI: All right. I'm going to go right to it. I'm going to read from the "Wall Street Journal." I want to you respond to this. "One of Mr. Obama's gifts is his ability to glide over contradictions with the greatest of ease. He spent minutes explaining that we spend $10 billion a month in Iraq that should be spent here in the U.S. but a short time later he was promoting what sounded like a surge in Afghanistan and vowing to spend even more money to assist the economies of Eastern Europe.

"He also proposes to provide free health care while claiming he'd cut more spending from the overall budget than his new ideas would cost."

First of all, does he need to be more clear about how tough it is going to be once the next president takes over given the economic crisis we face? And is he resting on this economic crisis to get by in the polls and not doing more to define what he's about?

MCCASKILL: Well, I think the reason that he is doing well is because his economic policies and philosophies are much different than John McCain's and George Bush's.

You have to understand that George Bush and John McCain have the same view on how to fix the economy. It is called more tax breaks for wealthy people, more tax breaks for big corporations. It is not about building a green sector economy. It's not about middle class tax cuts.

So that's why Barack Obama's plan is resonating with Americans. It is why he is doing well. Because they know that what Bush did didn't work. It got us into this ditch in the first place.

BRZEZINSKI: There certainly are a lot of things going on right now that are helping Barack Obama. The question is what can he do to close the deal? What can he do to make those polls show a huge gap? I want to show you an ad that the McCain campaign about Barack Obama's liberal record. Take a look.

(BEGIN VIDEO CLIP)

ANNOUNCER: Who is Barack Obama? The "National Journal" says he is the Senate's most liberal. How extreme! But when pressed, how does he defend himself?

OBAMA: They're not telling the truth.

I hate to say the people are lying. But here's the situation where folk are lying.

ANNOUNCER: Mr. Obama, we all know the truth.

OBAMA: Folks are lying.

Folks are lying.

ANNOUNCER: Not presidential.

(END VIDEO CLIP)

BRZEZINSKI: Mmm! Senator McCaskill, your response.

MCCASKILL: I think this is probably one of those Internet ads they keep doing to try to get media talking about it. I don't think it is a very effective ad. I think what Barack Obama is saying is that there have been distortions and things have been done by the McCain campaign that are not truthful. And I'll tell you how he is going to close this deal, Mika. He is going to continue to talk about change.

This is somebody who was forceful and factual in the debate. He was clear and concise. Whether it was domestic policy, foreign policy, energy, health care. And you know what? He was downright presidential. And he is lifting people up. And if John McCain thinks he is going to get there by being petty, small and personal and attacking his character, he is mistaken. It is not going to work.

BRZEZINSKI: Well, let me ask you this, then. Because we have an NBC News "Wall Street Journal" poll among independent voters that shows that McCain is bleeding some independent voters but Barack Obama doesn't seem to be picking them up.

Do you think the McCain campaign is perhaps helping, whether it's distortions or reality, being effective in not letting people really see Barack Obama as someone who could be the commander in chief? Look at these numbers.

MCCASKILL: Well, Barack Obama has had a statistically significant lead now for nine, 10 days. And the independent voters are going to, at this late date, as we get closer and closer to the election, they're independent and undecided at this point for a reason. They have a hard time making up their mind. And they will make up the mind between now and Election Day. But I really think that this notion that this country is ready to embrace the same economic policy that's have us in this crisis just doesn't make sense. I know it doesn't make sense in the heartland. It doesn't make sense in Missouri.

BRZEZINSKI: Certainly, people are looking for answers. I don't think they're looking for a friend in their next president. I think they're looking at someone who can guide us through this economic crisis. And I wonder if Barack Obama needs to do more to explain exactly how. Even John McCain talked about the foreclosure situation and put out some ideas. Barack Obama, it seems to me, some could argue is resting on his laurels and letting this situation take care of itself, monitoring the situation, keeping out of it because it's politically safe to do so.

Is that leadership?

MCCASKILL: I think if you can track not just their policies but their leadership style over the last few weeks. One candidate has been steady. Consistent. Constructive. The other has been all over the map. And one day, the economy is strong. The next day, no bailout. The next day bailout. And he supposedly was shaping this agreement. We do this agreement last week and then he those out like throwing a bone to people who are hurting, throws out something different last night. It is not well thought out. It is almost like he is searching. He is erratic when it comes to how he is handling this crisis.

BRZEZINSKI: That's the campaign word! I've heard that all across the board. Come on now.

MCCASKILL: It is an accurate word. When someone jumping all over the place, maybe I should just say he is jumping all over the place. I won't use the word erratic. He is jumping all over the place. He is not steady on the tiller, like he said last night. Anything but.

BRZEZINSKI: OK. But when you see parallels in strategy that's the campaigns put out and the words being used by similar campaign folks, I have got to call you on it. But OK. Jumping all over the place works as well. Senator Claire McCaskill, thank you very much for joining me this evening. We're going to talk to the McCain campaign coming up.

MCCASKILL: Thank you.

BRZEZINSKI: And up next on THE RACE, the campaigns step up the rhetoric. And Cindy McCain gets into the act. What she said about Obama on the trail today. It's on THE RACE's "Radar" right after this.

(COMMERCIAL BREAK)

BRZEZINSKI: We're back with a look at what's on THE RACE'S "Radar" today. Cindy McCain had some strong words about Democratic nominee Barack Obama today. Mrs. McCain joined her husband and Governor Sarah Palin on the trail in Pennsylvania and she told the crowd, she was speaking as a Blue Star Mom who took Senator Obama's 2007 vote against war funding personally.

(BEGIN VIDEO CLIP)

CINDY MCCAIN, JOHN MCCAIN'S WIFE: The day that Senator Obama decided to cast a vote to not fund my son, when he was serving, sent a cold chill through my body. Let me tell you. I would suggest that Senator Obama change shoes with me for just one day. And see what it means. And see what it means to have a loved one serving in the armed forces, and more importantly, serving in harm's way.

(END VIDEO CLIP)

BRZEZINSKI: At the time, Obama supported a rival funding bill that included a timetable for withdrawal.

Coming up next, how is the McCain campaign feeling about his debate performance? I'm going to go one-on-one with McCain's senior economic adviser. Plus, CNBC's Dylan Ratigan (ph) of THE RACE on the economy.

(COMMERCIAL BREAK)

BRZEZINSKI: Welcome back to THE RACE FOR THE WHITE HOUSE. In the most coordinated financial policy action in history, today financial leaders around the world slashed interest rates to halt the global economic slide.

Back on Wall Street, the markets closed down again after a day of wild swings. The Dow Jones Industrials down nearly 190 points. Back on the trail, voters are still wondering what each candidate plans to do to dig us out of our economic hole.

Here with me now to outline John McCain's next move, Douglas Holtz-Eakin, senior economic adviser to the McCain campaign. And also with me here on the set, Dylan Ratigan, anchor of CNBC's FAST MONEY and THE CALL and CLOSING BELL. Douglas, thanks for joining us.

DOUGLAS HOLTZ-EAKIN, MCCAIN ECONOMIC ADVISER: My pleasure.

BRZEZINSKI: Do you think John McCain missed an opportunity to really, truly define his economic vision last night?

HOLTZ-EAKIN: I think John McCain did a great job of talking to the American people about his record of reform in Washington about, his plans to take on the great homeownership problems that are facing Americans, to create jobs, and take care of small business and grow the economy. Barack Obama spent the night talking about running against George Bush. The only person in that arena who ever ran against George Bush was John McCain. And Barack might wish he was running against him. He will have to come one a plan to beat John McCain.

BRZEZINSKI: Dylan?

DYLAN RATIGAN, CNBC ANCHOR: Safe to say, considering unprecedented federal bank action last night, market action not seen in 80 years' time, credit markets that are completely seized up, the financial markets, and for that matter the American people's tolerance for Harry Potter economics from anybody at this point, is in effect gone. People want to know in specific, what you are going to do. How is it you are going to deal with the bad debt that is on the balance sheets of these banks.

HOLTZ-EAKIN: We think that the right thing to do is to number one, take a crack at putting some of the resources that Congress has already devoted to this task, basically almost $1 trillion at this point, and put that money straight into homeownership. Make sure people stay in their homes. And by solidifying the value of some of these mortgage that would otherwise go into default, you solidify the valuation of the MBSs and that has been a huge cancer on the balance sheets of the financial institutions.

RATIGAN: So you would specifically fund and rework the mortgage themselves on street level and deal with it on Main Street in an effort to then support the Wall Street aspect, which is the bonds that are backed by those mortgages. Is that correct?

HOLTZ-EAKIN: Yes. That would be one part of the program. A homeowner could raise their hand basically go to a mortgage originator, a broker, and say I need a refinance out of this McCain resurgence plan. The government would go in and buy out the existing mortgage that takes that problem off the table entirely. Its value is no longer a mystery. Its weight is no longer bearing down on the homeowner.

RATIGAN: That's $1 trillion. You realize, we don't know how much that problem will cost American taxpayers. You recognize that.

HOLTZ-EAKIN: We know that we've already devoted resources at the federal level. We think that those resources ought to go to American homeowners and solve the financial stability problems that are clearly evident. The Fed did I think did a remarkable job. And Senator McCain applauded their move. But these are all reactionary steps. We need to get ahead of this. This problem began in the housing finance sector. It needs to be solved in the housing finance sector at least in part.

BRZEZINSKI: Well, some would argue that John McCain, Dylan, at least put some specifics out there last night. As opposed to Barack Obama who did not so much. I want to show you the Barack Obama on the campaign trail today. Responding to John McCain's mortgage plan. Here is Obama on the trail.

Oh, I'm actually reading a full screen here. This is what Barack Obama said. "John McCain wants the government to massively overpay for mortgages in a play that would guarantee taxpayers lose money and put them at risk of losing even more if home values don't recovery. The biggest beneficiaries of this plan will be the same financial institutions," Doug, "that got us into this mess, some of whom even committed fraud."

Is that the case? Do you agree?

HOLTZ-EAKIN: Obviously, I don't agree. If Barack Obama wants to make the case it is better to put this money into Wall Street, we're happy to have that debate. We think this is an effective way to solve two problems. Number one, the declining homeownership, people in foreclosure, the kinds of bad blight problems that produces in neighborhoods.

And number two, if do you this right, you can get interest rates down in the mortgage market, stabilize housing values. It has been a huge downdraft in the economy. And number three, put a floor under these housing-related securities.

That's a big objective here.

RATIGAN: And no one would not be in favor of that. It is just a matter of understanding, that is a multi-trillion-dollar problem. That the administration itself has made it very clear, the $700 billion is basically an estimate to try to restart a marketplace. What you are talking about, if I understand you correctly, Doug, could amount to two, three, $4 trillion in additional expense, if in fact the housing market continues to depreciate at even half the rate that it has over the past year.

BRZEZINSKI: Oh, there he goes. Go ahead, Doug.

HOLTZ-EAKIN: I think those numbers are a bit high, Dylan. I think the bottom line here is we know that they're about 10 million of the mortgages that are underwater out there. There are estimates of the negative equity that would be out there that range somewhere between the $300 and $600 billion mark. We won't have this be eligible to anyone. There is going to be an underwriting process for these did not supply credit information at the original mortgage. Those who weren't living in the home as a primary residence.

There are going to be sensible criteria to scale down which of that gets attracted to the program. We're going to target to real needs. People who want to be in their home. Are really struggling. And the fallout that has on the financial sector.

BRZEZINSKI: And Doug, finally something I want to ask the panel about. But I wonder if your candidate missed an opportunity, not last night but during the bailout vote when he didn't hold folks on Capitol Hill there until they came up with a bill that had no pork in it. So it sounded like John McCain's bill.

HOLTZ-EAKIN: Well, I tell you, it is hard for him in the end to see that kind of practice being jammed into a bill that he worked so hard to get relief to the financial markets. But this is a situation where as president, he can make sure that never happens again. In the moment when the pressing needs are visible in financial markets, it was the wrong time to have them do that. But he felt the greater bill was to get bill through. He worked awfully hard to build a bipartisan process to get a bill through.

What you're seeing with his proposal last night, the resurgence plan, is a continuing effort to shape the use of those resources in the most productive way for this economy.

BRZEZINSKI: All right. McCain senior economic adviser Douglas Holtz-Eakin. Thank you very much for coming on the show tonight.

Dylan, will you stick around?

RATIGAN: For a moment, sure.

BRZEZINSKI: We want to show you some live pictures right now. This is Democratic vice presidential nominee Joe Biden. He is at a campaign event in Ft. Myers, Florida, earlier today in Tampa Biden went after Sarah Palin's attacks on his running mate.

(BEGIN VIDEO CLIP)

SEN. JOE BIDEN, (D) VICE PRESIDENTIAL CANDIDATE: There is one other option. The one they have chosen. Is to appeal the fear with the veiled question. Who is the real Barack Obama?

Ladies and gentlemen, to have a vice presidential candidate raise most outrageous inferences. The ones John McCain's campaign is condoning is simply wrong.

This is beyond disappointing. This is beyond disappointing. This is wrong.

(END VIDEO CLIP)

BRZEZINSKI: All right. Talking about the tone of the McCain campaign. Back with us now along with Dylan Ratigan, Richard Wolffe, "Newsweek" senior White House correspondent and MSNBC political analyst, Pat Buchanan and Lawrence O'Donnell also MSNBC political analyst and Michael Smerconish, Philadelphia radio talk show host and columnist for both the "Philadelphia Inquirer" and the "Philadelphia Daily News."

Gentlemen, thanks for coming back. All right. First of all, I want to put the same question I put to Doug to you guys. And that is about John McCain's missed opportunity. Was it during last night or was it during bailout crisis and getting that bill through?

Pat Buchanan, take it away.

BUCHANAN: I think it was during bailout crisis. It would have been a high risk thing to come back and say, the American people don't want this for good reasons. I am going to hold this up until we get a far more credible program. It is not simply a bailout of Wall Street. I think he would have risked his whole campaign. At that point I think he had to. And I think if he had held it up, and put into it, Mika-I'm not sure this mortgage idea is the right one. But really a policy of somehow injecting real liquidity straight into the banks and get American people warrants like we got in Chrysler, I think it would have been a far better bill. It wouldn't have been-couldn't have been any worse than the market dropping 1,500 points since then.

BRZEZINSKI: So look. Michael Smerconish, let's talk about what people are looking for. I don't think they fully understand the magnitude of this crisis or what exactly the details are. I certainly don't. But what are people looking for when it comes to leadership? And what was it that perhaps John McCain could have done when that bill was going through with all that pork in it that might have meant something to people in Pennsylvania, for example?

SMERCONISH: Well, I think he should have stood his ground and stayed in Washington. Because at a time when there was a debate as to whether he was putting country first or being a political opportunist, when he left Washington without their being some resolution, it seemed to err on the side of being a political opportunist.

And Mika, you just said something that was top of my mind, which is folks' eyes glaze when this discussion takes place. And so to answer your question directly, what are we looking for, I think we're looking for some affirmation that the individual for whom we will vote has the intellect for them to understand it.

We may not get it but we sure want to vote for someone who does get it. I must say, I believe that's why on the economic issues, Obama is being rewarded in these polls. Because I think folks look at him and say, he is a smart guy.

RATIGAN: Lawrence, I'm curious. If you were to look at the political failures that led to this calamity, whether it was the mandating of subprime and the forcing of the taking of bad loans, going back to the late '90s, or the idiocy of allowing 40 to one leverage in the middle of 2004 so that Wall Street firms could do this. What could either of these do that would prove they will do neither of something as idiotic as the Democrats did in the '90s or the Republicans did in the middle of this decade?

O'DONNELL: I really don't think there is something either one of them could say that suggests he knows exactly what to do. Remember, this is a story that's changing every single day. They can take position today that has no relevance next week. I think it comes back to exactly what Michael just said. Exactly what he said. Which is they want to vote for the person who they think is smart enough to handle this situation in January. Which may be a dramatically worse situation than it is today on an order of magnitude.

They are electing possibly the first president since the '30s who may have to deal with something that feels like not just a recession but feels like something worse than that. So there is no way to predict in terms of exactly what they say this week, whether that will work, or next week. And so it really is what Michael said. It is about which one seems smart enough to handle it.

BRZEZISNKI: Richard Wolffe, dive in.

WOLFFE: Mika, I think the mistake made by McCain was to drop the argument about experience. This is a guy had been in Washington a long time. Who is obviously older than the other guy. They laid great foundations for this attack with the celebrity driven line over the summer.

They dropped it when they picked Sarah Palin. Right now what do people want? They want to know who is the safe pair of hands? Who can reassure them in a crisis and tell them things are going to be OK. McCain took that off the table with the Palin pick. That's the only line that could have worked right now.

RATIGAN: It is almost as if, we were talking about. This there is an as that he can of playing an "American Idol" card which is who is the most popular. And then there is the aspect of playing the "Jeopardy" card. It is as if the economic crisis is looking for the most popular candidate to the person who is the smartest and can deal with this.

BRZEZINSKI: Likeability, connectability, rock star status. We have it all on either side. I don't think anyone is looking for a friend in this election.

RATIGAN: Not these days. No, they're not.

BRZEZINSKI: I don't think so. Coming up next, McCain's path to victory. What states does he need to win? How can he capitalize on the excite generated by Governor Sarah Palin overnight sensation that she is?

And does he have another game changer up his sleeve? We're going to go inside the war room when THE RACE returns.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

PALIN: When this campaign started, John McCain asked Barack Obama to join him in campaigns in 10 town hall meetings across the country. And our opponent though said no. Now I think that we know why. John McCain won. The truth won out and the path to victory became so clear in the next 27 days.

(END VIDEO CLIP)

BRZEZINSKI: That was Governor Sarah Palin on the trail in Pennsylvania today, suggesting McCain handily won the second presidential debate against Obama.

But not everyone in her party shares her confidence. The Politico reporting today, quote, "The mood within the Republican Party, so buoyant after Sarah Palin's selection as McCain's running mate and her dramatic national debut in St. Paul has turned morose. Party leaders on hand the past few days in Nashville have stayed loyal in public but behind the scenes it was a litany of complaints about the McCain campaign's basic competence and its bungling of the economic issue in particular."

McCain needed a game changer. And the consensus is he did not get it last night.

The question now? What is McCain's path to victory in just 27 days. Let's go inside the war room with Mike Murphy, Republican strategist and NBC News analyst. Mike, what is the path to victory? What do they do now?

MIKE MURPHY, REPUBLICAN STRATEGIST: Hi, Mika, how are you?

Well, look, it is a tough situation. They've had two things happen to them. And they're both rough. One is the environment has gone from the economy to being a major issue, to it being an absolute tidal wave issue. That generically has helped Democrats. And second, I think there were some strategic mistakes made that have hurt the McCain brand as a different kind of Republican which is vital if he is to win in this kind of environment.

So from here on I think they first need to totally engage on economic issues. I think McCain did a good job at the debate in starting that. So I think they're moving in the right direction there. They have to be careful. They are in a very tough position about attacking Obama. They have got to attack him and slow him down. But they have got to watch the tone.

If the tone is too nasty, too stridently negative or too much on the side show issues off the economy, I don't think it will do them any good. I think they have to get into the business of talking about the run-away, one party train we could have in Washington with Obama, the big Democratic Congress and Senate. Talk more about balance, the need to have a bipartisan get it done mentality there. And get McCain back in the uplifting business again.

BRZEZINSKI: Here are some questions being raised in "The Washington Post" by E.J. Dionne. I want to read this to you. Because I think some would say this is the issue right now for John McCain.

"Who is the real John McCain? Is he the man who used to tout himself as a problem-solver or is he the desperate candidate who lurches from attack to attack?" The Obama campaign uses the word "erratic." "The first McCain showed up last night insisting that our situation today cries out for bipartisanship. But is that the McCain who would govern? Is that the McCain who is authorizing all those attack ads? Is that the McCain we'll see tomorrow and the day after?"

And Mike, in an economic crisis, I think we want to know what we're going to see tomorrow and the day after. I don't think we want erratic.

MURPHY: Right. No we don't. E.J. is a smart guy but his mind is made up.

He is a Democratic partisan from day one.

BRZEZINSKI: Absolutely.

MURPHY: So that's pure Obama party line there. Twenty seven days is a long time in politics. I think McCain has to do two things. He has to directly engage on economic issues, middle class economic pain and worry. And give the country what it is looking for. Which is hope and firm leadership.

Talk about how in Washington, he'll go in a bipartisan manner to get it done. They have to watch the tone, though. I think that's the thing E.J. was getting at in his deal. And I was speaking about it before. A pure attack campaign where it is just McCain grinding every day, which may be the path they're on. I don't know. I'm in commentator land. I think ultimately doesn't pay off.

They have to compete on the economic issues. And I think somebody said earlier, and I agree. They have got to put experience back in the mix here. John McCain is a tested guy in a crisis. That's I think what people will look for. But they can undercut that if the tone is too flashy and they've got to be really careful.

BRZEZINSKI: Experience and gut, Mike. The Obama campaign by the way is putting out the word erratic in trying to sort of draw the distinction between John McCain's different decisions that he's made along the way pertaining to the economy. But I look at experience. John McCain has it. And I look at guts in a crisis like the one we face. You have got a guy who has picked someone like Sarah Palin out of nowhere. It seemed to be brilliant. It was clearly a gut decision on his part. Follow through and I think be a leader and stick to your message.

Don't let a bill like the one that went through go through. Make them stick there. And make them answer to you as to why the heck they're putting anything else in this bill but the things that they need to get the economy back on track. I think he missed an opportunity to be a leader.

MURPHY: I'm not too sure I agree there. Because I think the bill was necessary. And you can't play politics with potential economic collapse. So I think McCain did the adult thing. I think he got a lot of political criticism for the theater of how he stopped his campaign to go back to Washington but I think his motives were very pure.

This "erratic" thing is a cheap character shot by the Obama guys. They're not choir boys either. The difference is on the television, Obama is smearing the hell out of McCain with some very misleading ads. The McCain campaign is using the candidate to go after Obama. Leave the fighting to the TV ads which could improve on both sides. And I think the McCain campaign could learn from the Obama campaign, the position the candidates in a strong steady, presidential way with that kind of message.

BRZEZINSKI: And I think people are smart. I don't think they need to be spoon-fed words. I think they're watching these guys and saying, gosh, which one am I going to choose? My economic future depends on the right choice here. So it is kind of interesting. I think people are savvy to these games.

MURPHY: I think I'm a little worried that neither are going to rise to the occasion. This is a real crisis. And I think we can actually have a bit of an uplifting campaign for 26 days. Not a race to the bottom to see who can use the most loaded words against each other. And McCain is getting a lot of criticism. But the Obama campaign is keeping up with them in terms of distortions and negativity.

BRZEZINSKI: All right. Mike Murphy. Got to go. Thanks so much. Appreciate it. Talk to you soon. See you on MORNING JOE. Coming up, she was the biggest game changer of the campaign. Can Sarah Palin help McCain get the edge over Obama? THE RACE comes back right after this.

(COMMERCIAL BREAK)

BRZEZINSKI: Welcome back to THE RACE. Sarah Palin still drawing large crowds and relishing her attack dog role. But what is she accomplishing for the Republican ticket?

Joining me now, Katrina Van Den Heuvel, editor and publisher of "The Nation" and still with us, Pat Buchanan. All right, let me read to you both from "The Washington Post," Kathleen Parker, here is what she says now.

"The real Sarah Palin is free at last. She is not just a hockey mom after all. She is a Palin the Impaler. Pit bulls beware. No one who watched the vice presidential debate should be surprised. Democrats and other critics distracted by her winks may have missed the message but Palin's target audience heard it loud and clear. She is like the high pitched whistle only dogs can hear. While Democrats heard non answers, superfluous segues and cartoon words - shout out, I'll betcha, doggone it, extra credit, Republicans heard God, patriotism, courage, victory."

Katrina, is there that big a disconnect? What do you see?

KATRINA VANDEN HEUVEL, "THE NATION": You know what I see? I see a country in pain, Mika, 10,000 foreclosures a day. A country seeking some answers to this spiraling, cratering economic crisis.

You have a vice president out there, a vice presidential pick out there at these rallies essentially inciting hatred, division, fear. Among groups which are now heckling the media.

BRZEZINSKI: Is that what she's doing?

VANDEN HEUVEL: They, one person in a crowd Sarah Palin incited insulted an African-American cameraman. I think this country deserves better than this politics of fear and distraction. The McCain campaign can do better but they don't want this election to be about issues which is what the McCain campaign manager said just a few weeks ago. But they can't avoid it now.

BRZEZINSKI: The Palin factor, is that what she brings to the table, Pat Buchanan?

BUCHANAN: The Palin factor is a phenomenon. When she was picked, Barack Obama was eight points ahead after his speech. Suddenly McCain gained ten points, was two points ahead. No vice president in history has energized a party that was down in the dumps. And is now often enthusiastic, as you mentioned. Vitality, courage, Americanism.

All these things she projects. Are there people in crowds that do stupid things? Of course. But she is a tremendous voice in the party. She is the one, Mika, who can help carry central Pennsylvania and southwestern Pennsylvania. And Smerconish is right. McCain has got to carry the collar counties, the liberal Republicans. That's not her base.

VANDEN HEUVEL: But Mika, she has energized a base Pat speaks about. But she hasn't moved the independents McCain needed. When they pulled out, the campaign camp pull out of Michigan last week. To me that was the most telling thing. Palin and McCain went the day after the Republican convention. They saw in Michigan the white working which is a they could appeal to. They pulled out because Sarah Palin isn't doing her magic around that. She isn't even winning women. She is winning the white male vote. But Obama is doing as well as Gore or Kerry. I think what it does, the focus has to be on the top of the ticket.

This pick, and I'm not talking just myself. I'm talking Charles Krauthammer, Fareed Zakaria, reflects the failure of judgment of John McCain. That's devastating.

BRZEZINSKI: Pat, real quick.

BUCHANAN: Look, Katrina. She gets the blue collar male vote. It is McCain's job to get the liberal Republicans, not her job. She is doing her job. He has got to start doing his job.

BRZEZINSKI : Pat Buchanan, Katrina Vanden Heuvel. Thanks to both of you.

We will follow Sarah Palin every step of the way.

And that does it for THE RACE FOR THE WHITE HOUSE. But before we go, we have programming note for you. Be sure to tune into MSNBC next Thursday October 15 when John McCain and Barack Obama face off at Hofstra for the third and final debate.

I'm Mika Brzezinski. See you on MORNING JOE tomorrow. Same time, 6:00 Eastern time is RACE tomorrow. Stay right here for HARDBALL.

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

END

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