updated 10/16/2008 12:29:45 PM ET 2008-10-16T16:29:45

HARDBALL

October 15, 2008

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

Guests: Mitt Romney, David Paterson, Jill Zuckman, Jeff Zeleny, Steve

McMahon, Todd Harris, Rahm Emanuel, Doug Holtz-Eakin

CHRIS MATTHEWS, HOST: Tonight, the final championship bout between Democrat Barack Obama and Republican John McCain.

Let's play HARDBALL.

(CHEERING AND APPLAUSE)

MATTHEWS: Good evening. I'm Chris Matthews. Welcome to HARDBALL, live from Hofstra University on Long Island, New York, the site of the last presidential debate.

It's the 40th debate of this election season and the last, best chance for John McCain to try to pull himself out of a tailspin that has seen his poll numbers drop on almost a daily basis.

What can McCain do tonight? Does he go after Barack Obama's character and associations? Does he make some bold news-making proposal, or does he go soft and try to simply rebuild his own brand?

All this comes against the backdrop of another terrible day on Wall Street. The Dow Jones industrial average dropped another 733 points today, the ninth worst loss ever. MSNBC will have full coverage of the presidential debate tonight, beginning at 9:00 p.m. Eastern.

Then, at 10:30, my colleague David Gregory joins me for complete post-debate analysis. At 11:00, it's "COUNTDOWN WITH KEITH OLBERMANN." Then, at midnight, we're back for the best show around, the late-night debate-night edition of HARDBALL.

We begin right now with a preview of the debate with "The Chicago Tribune"'s Jill Zuckman, and Jeff Zeleny of the illustrious hometown "New York Times."

Sir, tonight, we sit here in the afterglow of your latest poll, the afterglow, if you happen to be pro-Obama, I should say, a 14-point edge. I have not seen a poll edge like that any time in this last two-year cycle. Two years of campaigning, he has broken into a lead which is so strong. What does it do to tonight to have that kind of lead sitting in the papers today?

JEFF ZELENY, "THE NEW YORK TIMES": Tonight, it certainly just confirms what has been happening, really, throughout this 20-day period since these debates started.

But the course of the race has really changed. But it gives Senator Obama perhaps some more confidence going into this. But, more importantly, if you look inside the numbers, he's now leading among independents. He is now leading among white men for the first time ever. So, the internal dynamics of this sort confirm what we have been seeing...

MATTHEWS: Right.

ZELENY: ... for the last, you know, 20 days.

MATTHEWS: So, in boxing terms, which I love, like all journalists do, does that mean, tonight, Barack Obama gets to float like a butterfly, and the other guy has got to sting like a bee?

JILL ZUCKMAN, CHIEF CONGRESSIONAL CORRESPONDENT, "THE CHICAGO

TRIBUNE": Well...

MATTHEWS: Come on. Stick with my metaphor.

ZUCKMAN: All right. Well, I was going to take the metaphor and put it in the kitchen.

And I think Senator Obama has got a Teflon coat, the way Ronald Reagan did. And I think that's why it has been very frustrating for Senator McCain to land a punch. So, I think he's going to give it another shot tonight. I think he may be more aggressive. I think he's got to be.

And I think he's got to-And some people may look at this and say, why are we talking about these extraneous things, when the stock market is dropping 700 points?

MATTHEWS: OK.

ZUCKMAN: I think we're going to see Senator McCain try to explain why all this is important.

MATTHEWS: Tonight, they are going to be sitting around a table, like two club members, except they are going to battle each other for the presidency of the United States. And only one can win.

Bob Schieffer is the third man in the room, the third person in the room. Bob Schieffer's role, it seems to me, is to serve up the issues that have been in the news for the last couple weeks. He has to bring up Bill Ayers. He may have to bring up Jeremiah Wright.

If he does so, does John McCain have any choice but to knock the other guy's block off? Does he have any choice but to hit that ball as hard as he can?

ZELENY: Well, we will see if Bob Schieffer brings those-those issues up or not.

MATTHEWS: Want to bet? Want to bet?

(CROSSTALK)

MATTHEWS: Jeff, he's going to bring them up. You know he's going to bring them up.

ZELENY: Four years ago, Swift Boats, the issue of Swift Boats was not brought up in one of the presidential debates. So, who knows if that will happen.

But, look, I think Senator Obama and Senator McCain have their talking points on that already. I think what you said earlier. Look for something unexpected tonight perhaps that we will be talking about, perhaps more debates, more town meetings, some kind of thing that Senator Obama-that Senator McCain will talk about.

MATTHEWS: Oh, I like it, a process. So, do you think he will renew his proposal that they meet in town meetings without any debate moderator?

ZELENY: Well, there's not much time left, but who knows.

MATTHEWS: Well, can he say, no moderator, just no holds barred, the two of us out there with the people?

ZELENY: Mano a mano.

MATTHEWS: But you know what happens? If he does that, Barack will just do one of these things, right? Nice try.

ZUCKMAN: He will say, oh, that's a great idea, and it won't happen.

Here's something that I think we ought to think about at this moment in the campaign.

MATTHEWS: Well, what about that? Let's stick with Jeff's idea, a novel proposal tonight that makes the headlines of the major papers, your paper, his paper, and Barack has to live with it for two or three days?

ZUCKMAN: I don't know.

MATTHEWS: Some big proposal?

ZUCKMAN: I don't know, personally. I mean, McCain tried it, saying, let's have the 10 town hall meetings. Let's just talk to the people, you and I. It didn't go anywhere.

Obama said, oh, that sounds like a great idea. And then it just fell flat on the floor. McCain didn't get that much mileage out of it. I'm not sure that making another proposal like that really gets him anywhere.

MATTHEWS: But the idea of a Hail Mary, when you're 14 points behind -and maybe that poll is a little overestimating the-the stretch. But we have watched this creep up now to eight points, nine points in the national averages. It is going in one direction.

And the reason why, I think-I want to ask you guys both-every time something different has happened, whether it's the selection of Sarah Palin, the Russian invasion of Georgia, the government of Georgia, the country of Georgia, it has helped the other guy. It has helped McCain.

Whenever nothing big is happening, it is just the rolling on of the bad economic news, the usual eight-year swing when we want a new government, a new party to take over from the other party, that-that regular business, order of business, helps Barack.

Doesn't McCain again have to change the subject tonight, and do something heavily dramatic?

ZELENY: If he does, perhaps he has to do it somewhat gently.

One interesting finding from our poll was that, now some 60 percent of American voters think that Senator McCain was doing all the attacking. He got hit for that. They're viewing Senator Obama now in a more favorable light.

It's not that Obama is not out there throwing his own attack ads. He just has them mixed with positive ads.

MATTHEWS: OK.

ZELENY: So, I think, if McCain is going to do something, Senator McCain has to do it sort of with a smile on his face.

MATTHEWS: OK.

One other prospect. Have the Republicans given up? I mean given up. Today, it was announced that the Republican National Committee has pulled out of the states that were in contention, Maine and Wisconsin, leaving only Pennsylvania as a traditionally or recently Democratic state they're going for.

In other words, they're only trying to held to base at this point. They know they can't win if they just hold the base, unless they hold the base and Pennsylvania, and really don't take any losses anywhere else. That's a hell of a vulnerable position to be in.

ZUCKMAN: Look, Senator Obama is in a better position, and the Obama campaign knows it.

But I think that, even if there are Republicans out there who are counting McCain out, John McCain is not counting himself out. And I think that is the thing we have to remember.

Let's look back, a year ago, when everyone said the McCain campaign was dead. Suddenly, he is the Republican nominee. I just think he is a-he's a fighter. He is not going to give up until Election Day.

So, we have to see, you know, what he might do.

MATTHEWS: Your assessment. If the Republicans fall back, and don't try to take any Democratic states, how do they expect win this thing?

ZELENY: Well, they can win this thing by just winning the same states that George W. Bush won four years ago.

The next three weeks are going to be about Ohio. They are going to be about Virginia. They are going to be about Florida.

(CROSSTALK)

MATTHEWS: They're 10 back in Ohio-in Virginia right now.

ZELENY: Well, we will see if that's actually right or not. The Republicans are doing better among absentee votes, we're told. This Obama ground game is sort of an experiment. It's untested. It looks good.

MATTHEWS: OK.

ZUCKMAN: We will see about that.

MATTHEWS: Let's poll the Empire State.

How many people here for Obama?

(CHEERING AND APPLAUSE)

MATTHEWS: OK. OK.

Now I want to offer-OK.

(CHEERING AND APPLAUSE)

MATTHEWS: Now, everybody who is for Obama, please hold back for two seconds.

Everybody here for McCain.

(CHEERING AND APPLAUSE)

MATTHEWS: OK. OK.

(AUDIENCE BOOING)

MATTHEWS: Now, a lot of this is generational. We have seen polling that, if only people under 45 get to vote, Barack wins by 16. If only people over 65 vote, Obama-McCain...

ZUCKMAN: McCain...

(CROSSTALK)

MATTHEWS: ... wins overwhelmingly, by 17 points.

So, will these people vote?

ZELENY: We will find out.

What if their cell phones aren't working that day...

MATTHEWS: Are you guys all going to vote?

(CHEERING AND APPLAUSE)

ZELENY: ... and the text messages don't work?

(CHEERING AND APPLAUSE)

(LAUGHTER)

MATTHEWS: Do you swear to God you're going to vote?

(CHEERING AND APPLAUSE)

MATTHEWS: You see-see, historically, young people don't end up voting. Is there any way to measure whether they will?

ZELENY: Well, I think we certainly have indication that enthusiasm is higher this year. And a lot of them have voted in primary races. We will see.

MATTHEWS: Jill, how do we measure whether these people are actually be there on November 4?

ZUCKMAN: Well, we can look back at history and say they have never done it before. But we can look at this year and say, this is an election like we have never seen. Senator Obama has really energized people. And he has taken a community activist approach to registering so many people who are aren't registered.

MATTHEWS: I have got to ask you an ethnic question. Will these kids grow their-tell their grandparents, usually their grandmom, who is still alive down in Florida, but she has got a nice tan, and she is getting more and more conservative in her voting-will they get them to vote for Barack Obama?

(CHEERING AND APPLAUSE)

ZUCKMAN: I think that...

MATTHEWS: Are you guys all going to tell your grandparents to vote for Obama?

(CHEERING AND APPLAUSE)

ZUCKMAN: I...

MATTHEWS: This is Sarah Silverman's whole thing, you know?

ZUCKMAN: Chris, I think that even...

MATTHEWS: The big schlep.

ZUCKMAN: Just because you're a grandparent and you live in Florida doesn't mean you can't think for yourself. I think those voters are going to make their own decisions, and not necessarily...

(CROSSTALK)

MATTHEWS: OK.

Jeff-we're having a little fun here in Long Island.

Anyway, thank you, Jeff-Jeff.

(LAUGHTER)

MATTHEWS: Thank you, Jill.

(LAUGHTER)

MATTHEWS: Up next, our strategists, one Republican and one Democrat, they are going to join us to tell us what they would advise McCain and Obama to do tonight.

You're watching HARDBALL, only on MSNBC.

(CHEERING AND APPLAUSE)

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

SEN. JOSEPH BIDEN (D-DE), VICE PRESIDENTIAL NOMINEE: While the economy is going to hell in a handbasket, while people are losing their jobs, while things are going under, they are running the most scurrilous campaign in modern history, trying to tie a decent, honorable man, raised by his grandparents and his mother, who worked his way up, who fought in a way that few people have to fight to make something of himself.

(APPLAUSE)

(END VIDEO CLIP)

(CHEERING AND APPLAUSE)

(LAUGHTER)

MATTHEWS: Welcome back to HARDBALL.

Here with me-it's a great honor-the New York governor, David Paterson, who is also an alumnus of Hofstra University.

Governor, and thank you about this state.

GOV. DAVID PATERSON (D), NEW YORK: Thank you.

MATTHEWS: What do you think about this having this out here tonight?

PATERSON: I hope that's why they're cheering.

MATTHEWS: Well, they're cheering because you're here, is what they're cheering about.

Let me ask you about the heavyweight fight we got tonight. Who you betting on?

PATERSON: Well, I'm betting on Obama. I think...

(CHEERING AND APPLAUSE)

(LAUGHTER)

PATERSON: I think that he's had the most consistent message.

And, in many presidential races-and I will give the Republican Party credit for this-many times, they have had the candidate who you would like to have at your barbecue...

MATTHEWS: Yes.

PATERSON: ... who is a regular person around the neighborhood.

But the neighborhood has changed now, a lot of tall grass. A lot of houses have been foreclosed, a lot of people without jobs. People's 401(k)s became a 201(k). So, what we need right now is someone that makes people feel comfortable. And I think that's why Obama has surged ahead, because he certainly gives the feeling that he can handle the situation, whereas Senator McCain's answers have been sporadic and somewhat inconsistent.

MATTHEWS: Well, you are-are you getting into that use of language that the Democrats are using? Joe Biden says lurching. Barack Obama says erratic. And you just said sporadic.

Do you have a sense that John McCain has a stability problem? I mean, you keep talking about the guy's balance.

PATERSON: No. I don't think he has a balance problem, in terms of himself. And I think he has been a person who has represented his point of view very well for a number of years.

MATTHEWS: Is he too old to be president?

PATERSON: No. No, because I'm getting toward that age myself, you know?

MATTHEWS: No, you're not. No, you're not. No, you're not. .

PATERSON: But what I think it is, is that his message is just so mixed. He thinks the economy is stable. Then he thinks it is unstable. He wants to give back money to people whose houses are foreclosed on. Then he doesn't want to do it.

And, so, I think that's just the inconsistency of the message. Right now, at a time when we need leadership, when we need someone to stand but, we're getting a clear message from Senator Obama and a feeling of strength emanating from him.

From Senator McCain, I just get the feeling that he is-he is chasing himself around more than he is chasing the issues.

MATTHEWS: We have watched John McCain over the years do things like the patients bill of rights, the McCain/Feingold reform bill, a number of cases when he has been able to reach across the aisle and get things done, even with Kennedy and Edwards and people like that, Feingold, people like that on the Democratic side.

Can you give me a case where Barack Obama has reached across the aisle and cut a deal and got something done for the country, one example?

PATERSON: Well, Senator Obama has been there two years. And I can't cite the example right now, but I know that did he collaborate with one other Republican senators on-on one of the issues, where-I just can't name it off the top...

MATTHEWS: But the problem is, you're basing his success on a lack of achievement, aren't you? You're saying he is going to succeed, and you can't name a success.

PATERSON: No. You asked me about a success across the aisle.

MATTHEWS: OK. Give me-give me another...

PATERSON: OK.

MATTHEWS: Give me-give me a legislative achievement of Barack Obama.

PATERSON: Success on the same time of the aisle-same side of the aisle...

MATTHEWS: Any achievement of Barack Obama.

PATERSON: Well, I think Senator Obama's consistent stance against the war was an achievement, because, by the time he became a candidate, that became the real issue that separated him from other Democrats.

MATTHEWS: Do you think that's why he won the nomination over Hillary Clinton; he was against the war and she voted to authorize it?

PATERSON: I think that-and I'm a big Hillary supporter, and continue to be, but I think that what he was able to do was to have a very clear message, which, sometimes, is more important to voters than what might be their actual choice, that-the fact that the candidate is comfortable within himself or herself and is delivering the same message.

And I think we see it happening again here in the general election.

MATTHEWS: Yes.

Let me ask you about, how do you get-this is a question in my mind all the time-my heart, too. I have admitted many times I am inspired by what Barack Obama says about our country, about unity in this country, about our role in the world. I openly admit, those words inspire me, because they're about our country, and you, too, I'm sure.

But what gives you confidence that he can be an executive? Jimmy Carter said some pretty good things about our country before he got elected, and didn't prove to be a strong executive. How do you know that Barack Obama, who has never been an executive, can be a great one?

PATERSON: Well, personally, it wasn't when Senator Obama was talking that he most impressed me. It was the times that he was in the room and wasn't trying to be the stellar presidential candidate that out-talks and outshines everyone else in the room.

He is a great listener, a great coordinator, a person who brings people together. And the way he ran his campaign was amazing. The numbers of people that he was able to get to work together, even though they had only known him or two or three years, I think that's astounding. And...

(CROSSTALK)

MATTHEWS: Well, what is...

(CROSSTALK)

MATTHEWS: Here's something you have had that nobody here-I have never the advantage of being in a meeting with Barack Obama. What is it like to be in a room-what is his command like? What is his leadership style like, when you're in a room with him?

PATERSON: I would call it quiet strength. He listens. He deliberates. For a while, you're wondering what he's going to say, because everyone else is talking. And then he gives a message which seems to synthesize all the good points that everyone made.

And the first time it happened to me was about four or five years ago, when he comes to New York and starts talking about the administration of Mayor Lindsay. I was 11 years old...

(LAUGHTER)

PATERSON: ... in 1965, when Mayor Lindsay became mayor. And he started analyzing his anti-poverty program. And I'm thinking, who is this guy?

(LAUGHTER)

PATERSON: And that put...

MATTHEWS: So, he's a student of the system all around, everybody?

PATERSON: Absolutely.

MATTHEWS: But this idea that he is a good listener, that he can accumulate and-and splice together, that he can assimilate thoughts and points of view in a room, and come out with what? What is the value added when he is in the room? What do you get when you hear from him?

PATERSON: I think the value added is not with a lot of double-talk, not without grandiloquence.

He is able to get you to see that he is weighing options based on what he heard in the room. He didn't come in to deliver a shopping list, or a memorized presentation, or something where-too many times, the superego, I think, drives people in public service to start talking. And, then, when you talk, they go right back into what they were talking about.

MATTHEWS: Thank you, sir, Governor Paterson.

PATERSON: Thank you very much.

MATTHEWS: I knew your dad, Basil Paterson, the son of, David.

PATERSON: David. David.

MATTHEWS: Thank you very much.

PATERSON: I'm David.

MATTHEWS: OK. I'm sorry. David, I know.

(LAUGHTER)

MATTHEWS: Your father was Basil, right?

(LAUGHTER)

MATTHEWS: Up next: McCain supporter and former presidential candidate Mitt Romney joins us from the debate spin room.

(CHEERING AND APPLAUSE)

MATTHEWS: Some spin from Mitt.

(CHEERING AND APPLAUSE)

MATTHEWS: You're watching HARDBALL, live from Hofstra, for the first and final presidential debate.

(COMMERCIAL BREAK)

(CHEERING AND APPLAUSE)

MATTHEWS: Welcome back to HARDBALL.

Former Massachusetts Governor Mitt Romney was once, obviously, a rival of John McCain's back during the primaries. Now he is a big McCain supporter.

Governor Romney, it's great to have you on, as always.

I have to give you a quote from Maureen Dowd today. She was interviewing David Brooks, the conservative columnist, her colleague. And she said, what do you think of Governor Palin as vice president and whether she is qualified? And he says: "The short answer is no. She has reinforced the worst of talk radio culture." But here's the important part. "The party will need a leader to strike out in a new direction, a fiscally conservative president, more like a high-tech Teddy Roosevelt, someone with gravitas."

Well, that sounds like you, Governor, like you would be a better V.P. nominee. And there's-there's David Brooks, one of the smartest columnists around, saying, wrong choice, John McCain. You picked the wrong V.P.

What do you think?

MITT ROMNEY ®, FORMER MASSACHUSETTS GOVERNOR: Well, I think Sarah Palin has-has really fired up our base. And I also think that you see in John McCain the kind of leader that our nation needs, as well as our party needs.

And I think you are going to see him tonight do the same kind of thing he did at Saddleback, where he was able to look directly at the camera, talk to the American people. And he emerged as the overwhelming winner in that-that debate there. I think you're going to see that tonight.

MATTHEWS: But aren't you the fiscally conservative, high-tech leader with gravitas that the party seems to be looking for?

ROMNEY: Well, we have a lot of them in the Republican Party. I sure hope I'm one of them.

But John McCain certainly knows how to lead our party and lead our nation. And you have got great governors and senators that have the kind of experience that I think our nation needs to call on.

But, you know, it is good to have two parties in America. I'm glad we have got two strong parties. And I'm certainly planning on seeing John McCain in the White House to balance Harry Reid and Nancy Pelosi.

MATTHEWS: What do you think about the judgment of John McCain in picking the vice president he did? And I raise that because Sarah Palin has been dropping in the polls almost ever since her appointment. She's lost her new-car smell, if you will, not as popular as she was. What do you think is going on here?

Was it a smart move? Was it a wise move? Was it a good judgment on his part to pick the relatively new governor of Alaska?

ROMNEY: Well, I think he wanted to pick the person who he thought would work best with him in the White House, and an individual that had the kind of executive experience that he was looking for.

And I think there was the added benefit that she has been able to really excite the base of the Republican Party, draw in contributions from all over the nation. She continues to draw huge crowds that, frankly, very few of us in the Republican Party were able to draw. So, she is doing the kind of job I think he was hoping she could do.

But, you know, in the final analysis, when people decide who they want to have lead our country, they don't focus on the vice president. They focus on the president.

MATTHEWS: OK.

ROMNEY: And I think, in that case, you are going to see that John McCain will stand out and describe a vision which America has long-is longing for.

MATTHEWS: Let me ask you. I want to give you a minute. You're probably the only politician I will ask to do this, because I think you know the answer.

Let me give you a minute or so. Explain to the American people watching right now, of all political persuasions, why is the stock market dropping 730-some points today? Why is everything so rocky out there economically right now?

ROMNEY: Well, there are really two problems that-that investors are concerned about.

The first and most treacherous, in some respects, would be a collapse of our financial system. And Congress and the president have acted in a bipartisan manner to try-to try and prevent that kind of an economic collapse, a financial collapse, a collapse in-in confidence in our currency and so forth. And that-that was essential.

And-and that, I think, has calmed a lot of people. That fear, I think, is dissipating.

The second fear is that we're going to slip into a recession, or perhaps even a prolonged recession. And that's something which people are coming to grips with. I think that is more likely than not. And people are seeing that. And that's, of course, causing a double dip, if you will, in the stock market, as people come to grips with the decline in retail sales and forecasts coming more and more clearly that we're going to see a recession in the future year or two.

MATTHEWS: Is it smart-is there a smart move right now to soften the landing, the economic landing we're about to see? Everybody says we're looking.

I talked to some people last night. We're talking perhaps double-digit unemployment coming down the road. Is there any way to soften that blow for most of the people watching right now, any way to do it or not?

ROMNEY: Well-well, first of all, to keep the economic collapse, or, if you will, the financial collapse from occurring, that-that action is in place. And, hopefully, it's going to be effective in stopping that.

With regards to the recession, you have seen John McCain lay out a plan to soften the potential blow, for instance, by not taxing unemployment benefits, as well as lowering the capital gains tax rates, all in a desire the try and boost the strength of our economy, to reignite the economic engine that creates jobs here.

But, of course, we have had some extraordinary excesses over the past 10 years or so, particularly in the area of housing.

MATTHEWS: Yes.

ROMNEY: And those excesses and-and extraordinary debt that we have taken on is going to have to wash through our system.

And it's-it is painful, it's awful, but you have seen in John McCain a plan to actually get ourselves, as a nation, going again.

MATTHEWS: I'm a Keynesian, I guess. And maybe you are as well. Do you believe there is any way the government, through-either through stimulus of the economy, the private sector, or action by the public sector, in terms of investment, can actually create enough demand to turn this economy around? Can they do it? Or do they have to wait this storm out for a couple of months, or even a year or so?

(CROSSTALK)

MATTHEWS: I mean, I'm talking about a real economic change.

ROMNEY: Yes. Yes.

I don't think that you can stand in front of a tide and keep it from occurring. And there's going to be the backwash of the excesses of the last 10 or 15 years. And that's going to happen.

At the same time, as you begin initially by saying, can you soften the blow, the answer is yes. You can help people who might lose jobs, help them find new jobs, create incentives for companies to hire them, try and ignite the economy again by lowering our capital gains tax rates, as John McCain is proposing. Those are the very things that Senator McCain is laying out to get our economy going again.

And frankly, I'm concerned that if Barack Obama were elected president, the kinds of actions he would take would actually slow the recovery and make us less likely to be able to get out of recession in a hurry.

MATTHEWS: OK thank you very much, Governor Mitt Romney, still very much in national politics. When we return, our strategists, one Republican and one Democrat on what they think Barack Obama and most importantly John McCain need to do tonight. You're watching HARDBALL, live from Hofstra, site of the third and final presidential debate.

(COMMERCIAL BREAK)

(NEWS BREAK)

MATTHEWS: Welcome back to HARDBALL. Having some fun out here live at Hofstra University for the third and final debate. Now it's time for the strategist. The two pros are going to show us what the fight is like tonight. Steve McMahon, Democrat. Todd Harris, Republican. Go at it. You first, Todd. Throw the first punch. I suggest the topic Bill Ayers.

Go for it.

TODD HARRIS, REPUBLICAN STRATEGIST: Well ironically Chris, I think that McCain probably shouldn't be talking a lot about Bill Ayers tonight. If I were going to be his corner man tonight, I would say focus on two things. No. 1, remember there is no secret talking point, no magical zinger that is going to somehow expose some serious flaw in Barack Obama that somehow we never saw before, the public never saw before.

The campaign tried that and it hasn't worked. So we've got to go back to the basics. Let's talk about real plans to fix economic problems facing real Americans. Give some straight talk about the Republican Party's own culpability in creating some of the mess in Washington, and then use that as a spring board to talk about his own long history of working in a bipartisan fashion.

Talk about his plan to help people facing problems with their mortgages. This is not sexy stuff. This is not the Hail Mary. This is-three yards in a cloud of dust. But this is the kind of thing that he needs to do. There is no magic zinger anymore. This is real basic.

MATTHEWS: Well this is Ohio State football and it couldn't be more boring. Here's the question. Here's the question. Let me to go Steve. Steve, it seem to me that no matter what, McCain wants to talk about Bob Schieffer is going to be puckish enough out there to bring out the stuff that they've been throwing at Barack.

They're going to make John McCain own the charges against Barack. They're going to make him-Bob is going to say to him, you've been calling this guy, palling around with terrorists. You're going to go after him in terms of his patriotism. You've been playing that game. Now stick it to him or back off. Isn't Bob Schieffer going to ask him to do that? Put up or shut up, to be blunt about it. Steve McMahon?

STEVE MCMAHON, DEMOCRATIC STRATEGIST: I think Bob Schieffer may try to get him to do that. And for John McCain, the interesting thing is going to be what does he do? He obviously isn't comfortable making these claims face to face because he's never done it before. On the other hand, his campaign and his running mate have certainly made a big deal about it.

I suspect that John McCain might employ the old Lillian Carter tactic, Chris. You'll remember this back in 1980, when Lillian Carter used to say, you know, Chappaquiddick isn't an issue. We're not going to talk about Chappaquiddick in this campaign.

MATTHEWS: Come on! You are so crazy, Steve. That's like saying some people think that Bill Ayers is a terrorist and you've palled around with him. I wouldn't say that. Come on.

MCMAHON: No, no, I think he'll say, I don't give a damn about an old washed up terrorist. This campaign isn't about the terrorists. I think Senator Obama's plan for America is what I object to. And he'll try to raise Ayers without claiming it or owning it. And I think that's what his campaign has tried to do all along. Bob Schieffer is going to try to get it.

MATTHEWS: You guys, you guys are letting me down here. You are letting me down. You are letting me down, Steve and Todd. The skinniest sumo wrestlers I've ever seen. You are pulling back. You are pulling back. You are not going in for it, Todd. Now you're a big fat sumo wrestler here. I want you to go in for the guy. Say what's going to win this fight tonight for him. What is going to win the fight for John McCain? He's 14 points back. He needs a Sunday punch tonight.

MCMAHON: He's going to lose.

HARRIS: Chris, every week when we've come on this show before the debate, every single week you've been looking for blood. And every single week I've been saying that there is just not going to be blood tonight. And I don't think that there is going to be. If there is, it is going to be because Bob Schieffer hands John McCain the dagger. But given the state of the economy right now...

(CROSSTALK)

MATTHEWS: By the way, every week you've been on this show, John McCain has been going down in the polls following your advice. Anyway, that's not fair. I take that back. The crowd here even let me know it was below the belt.

Steve, here's the danger for Barack, it seems to me. The word I'm hearing lately in the buzz circles is complacency. He is riding his lead. He thinks he is Dean Smith in North Carolina with the four quarter offense. He is moving the ball around but he is not taking the shot. Can he go through a whole 90 minutes tonight and not try say something important and interesting to the country which is dying financially right now?

We just lost 700 points. That's a whole lot of money lost again today on the stock market. Doesn't he have to bite into that issue and take a chance and admit maybe the Democrats haven't been perfect, the regulators haven't been doing their jobs. The oversight people in the Capitol haven't been doing their jobs. Congress hasn't been doing it. Does he have to bite in and say something important and authentic tonight, Barack Obama?

MCMAHON: I think he will do that. I think that he just unveiled a new economic plan yesterday that will enable him to do that. And I believe what he mostly has to do is remember that he's running to be president of the United States. And he needs to inspire confidence and lift people up.

He has been doing a very good job of being aspirational and positive and telling America and Americans that we can meet any challenge. Sure, it is very, very bad. It is very challenging but we've done it before. And if we work together, we can do it again.

Meanwhile, you see John McCain out there lecturing and basically trying to sound a little bit like Huey Long. And let me say something in defense of my friend Todd. If the McCain campaign had been listening to Todd and following his advice, the advice that people like Mike Murphy have been giving for months, they would be in this thing. But instead, they decided that before you can have a third Bush term, you had to have a third Bush campaign. That's what they've been running. And America is tired of it and they're rejecting it and John McCain is going to lose.

MATTHEWS: McMahon, just keep up the lovey-dovey stuff and we'll get two other tankers to get in there and fight, OK? This lovey-dovey stuff is killing me.

Let me tell you, Todd, so basically, just to settle it, your best advice to McCain tonight is stay on the economy, don't go on the character issues. Push hard on the economy. Say something important and powerful but don't go after character. Don't question the guy's loyalty again. Right?

HARRIS: They've been on character for weeks, if not months. And Obama's negatives go down, his positives go up and McCain's negatives go up. It is not working. The American people are struggling. Talk to them about the one thing that matters and that's the economy.

MATTHEWS: Well said, thank you. We'll see how that works tonight.

Go ahead, quickly, Steve.

MCMAHON: The other problem with the character stuff, Chris, it is all 40-years-old. Nobody remembers Bill Ayers and nobody cares. They're looking at their 401(k)s saying who will do something about that. And for John McCain to even talk about Bill Ayers suggests he is totally out of touch.

MATTHEWS: OK, we'll see tonight. Thank you, gentlemen. You seem to agree what he has to do. We're talking John McCain, the guy who has to carry the fight to Barack Obama because he is 14 points back in today's "New York Times" poll. Steve McMahon, Todd Harris.

Up next, with just over an hour to go before the final debate, we'll talk to more surrogates from both camps about what the candidates hope to do tonight in this final bout for the battle for the presidency in 2008. This is HARDBALL, live on Hofstra, the third and final debate.

(COMMERCIAL BREAK)

MATTHEWS: We're back with U.S. Congressman Rahm Emanuel of Illinois, member of the House Democratic leadership. And perhaps most importantly, he's chairman of the campaign committee. He's the guy that knows all the races in the country. Barack Obama, how well is he doing in the country when you look at your races for the House? How well is he doing nationwide?

REP. RAHM EMANUEL (D), ILLINOIS: He's doing very, very well. Obviously we're looking at the races in the marginal swing area. The most important thing to consistently we see, is he is outperforming the generic Democrat/Republican numbers.

MATTHEWS: So he is running ahead of the party.

EMANUEL: Yes, as our congressional candidates are.

MATTHEWS: In other words, Barack Obama is a pretty good candidate compared to other presidential candidates over the years.

EMANUEL: Right. But if you go backwards, just go back two months, one of the concerns people were raising just two months ago was that Barack was barely performing at party levels. He is now exceeding people's identification with the Democratic Party. So if the Democratic Party has a 47-37 edge in a congressional district, he is exceeding that 47. And that's different than where we were two to three months ago.

MATTHEWS: OK, let me ask you the question I asked Governor Patterson.

Name the major legislative accomplishment of Barack Obama.

EMANUEL: Legislative accomplishment? Lobbying and ethics reform, changing the rule for lobbyists. One of the reasons we got it done was part of the class that I helped and others helped elect in 2006, said they wanted to change the culture in Washington. He was the sponsor of that legislation in the Senate. And after 30 years from Watergate no legislation like that had passed because of him and others who came to Washington changed it. We made major reforms.

MATTHEWS: What has it done to improve Congress?

EMANUEL: Well one of things is-look, if you step back, campaign finance reform changed the relationship between donors and candidate.

This legislation changed the relationship between lobbyists and legislators and put some distance there, made sure there was transparency so people knew who was lobbying and who they were lobbying for. The fact is, that's why all the groups, in fact the editorial said the most significant reform since the Watergate era.

MATTHEWS: OK, let talk about tonight. It seems to me you have got a party and a candidate who are hitting the numbers right now. You're at three weeks out. Does this suggest that it is smart, do no harm tonight, four corner offense? Move the ball around, but don't take any shots tonight?

EMANUEL: No, no. First of all, if you're going to use a basketball metaphor given that Barack plays basketball, that's not the way he plays basketball. He's an aggressive player. He is very competitive.

I think tonight is a repeat and you make sure that people understand. This is a fundamental choice, a choice between change that focuses on the middle class, or stay the course that abandons the middle class.

Because the politics of the last seven years have allowed the middle class to work harder, earn less and pay more because their incomes have gone down and their costs have gone up.

Now do you want to stay the course, John McCain is your guy. If you want change that focuses on the middle class, you go with Barack and I would make sure that people know in this closing argument, which is what this final debate is, the closing arguments to the jury, the voters, that in fact Barack represents change on behalf of the middle class, the hard working middle class of the country, and John McCain represents stay the course that is set out by George Bush and the Republicans.

MATTHEWS: We're pregaming this big debate tonight. It's going to be 90 minutes. Somewhere during the debate, Bob Schieffer, who is a veteran, will bring up the name Bill Ayers. I can absolutely predict it because it has been a big part of the McCain/Palin campaign. She's accused-

Governor Palin has accused the Democratic candidate for president of palling around with terrorists. Now, you know Chicago politics. You know the mayor, Richard Daley. Who is Bill Ayers in terms of today's politics in Chicago? Who is he?

EMANUEL: He is a professor at a university, a distinguished professor on education policy and education reform. People come to Chicago to look at the city because all the reform we've done for public education. But let me get back to one thing.

MATTHEWS: Is he a good guy?

EMANUEL: I don't know him. But let me get back to one thing.

MATTHEWS: But you just said he's a distinguished person in education.

EMANUEL: He is, but I don't know him well. You asked me, is he a good guy? I can only answer that if I knew him.

Second point and most important point, Bill Ayers is a fixation for John McCain. The American people's fixation is of the fact that they just saw their savings go down the drain on the stock market. The fact is what they're fixated on is that the jobs today that they're working harder at are paying less. I think John McCain doesn't understand where the American people are. He's fixated on Bill Ayers and the American people are fixated on their pocketbooks.

MATTHEWS: Is there any way that your candidate, Barack Obama, can get rid of that issue for the next few weeks by answering some questions tonight?

EMANUEL: I think John McCain is wasting his breath, but I'm not in the business of giving him political advice.

MATTHEWS: You're not in the business of what?

EMANUEL: Of giving John McCain political advice.

MATTHEWS: Let me tell you, I'll tell you what Bob Schieffer is going to do tonight.

EMANUEL: That's fine.

MATTHEWS: He's going to throw the ball in the air. It's going to be a jumper ball and the word on the ball is going to be Bill Ayers.

EMANUEL: Yeah, but you cannot sustain a debate for 90 minutes when the American people are focused on the economy about Bill Ayers. Barack will answer that question, talk about it, answer it, and I think that will be satisfying to the American people.

I'm telling you, it is not where-I've been now close to 30 districts in the last three months. The American people, in my own district, they are holding on by their fingertips economically. If you think they are concerned about an individual who did something when Barack was 8-years-old versus what is facing them today, you don't understand the challenges the middle class families are facing for them and their children's future.

MATTHEWS: OK, Rahm Emanuel, one of the leaders of Congress.

Up next, we'll hear from the McCain camp and senior policy adviser Douglas Holtz-Eakin, who was once a policy advisor to economist to George W. Bush. That's a record. This is HARDBALL, live as we await the third and final presidential debate.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

GOV. SARAH PALIN (R-AK), VICE PRESIDENTIAL CANDIDATE: Both Joe Biden and Barack Obama have opposed offshore drilling. Of course, they flip-flopped recently in debates and statements that they made. But that goes on someone's judgment also in trying to figure out, where are they on some of these issues. Just straight talk, tell Americans what you feel, what you believe in, what you stand for. Straight talk.

(END VIDEO CLIP)

MATTHEWS: Welcome back to HARDBALL with the presidential debate just a little more than hour away. Let's get a preview of John McCain's agenda tonight from his senior campaign advisor, Doug Holtz-Eakin. Doug, would you rather have dinner with Sarah Palin or Tina Fey?

DOUG HOLTZ-EAKIN, MCCAIN SR. CAMPAIGN ADVISER: Oh, Sarah Palin, absolutely.

MATTHEWS: Why would you choose that? Just for intellectual and stimulation or what?

HOLTZ-EAKIN: Absolutely. I had a chance to travel with her up in Alaska. Fascinating woman, great story.

MATTHEWS: You would turn down Tina Fey for a dinner partner?

HOLTZ-EAKIN: Yes.

MATTHEWS: OK, tell me about Governor Palin, the woman we don't know, because I do only know about her from her very delightful and sometimes inspiring speeches, but I've not been impressed with her ability to answer tough questions. But go ahead.

HOLTZ-EAKIN: Well, I have been impressed by her ability to capture material. It's my job to brief her on domestic economic issues. We had great visits during the time in Alaska. Since then, I've been back in D.C. But she picked up material quickly. She has experience, as you know, at different levels of government and at the private sector and she can make the connections that are important.

MATTHEWS: Would you trust her to be one of the two people getting us out of this economic mess?

HOLTZ-EAKIN: Absolutely.

MATTHEWS: What would be the skill set she'd bring to dealing with the economic complications of our times?

HOLTZ-EAKIN: What you need in a president in this day and age is the ability to make some decisions, to recognize that something has to be done. We let this drift far too long. You ought to take it right to the people. The biggest problem we have in America right now is the housing market is tearing apart the rest of the economy. We need to fix the housing market, keep people in their homes. Don't let them go to foreclosure. I know Obama has a 90 day moratorium, but that's just extending a financial death sentence. You need to keep people in the house and allow them then to pay their bills, pay their grocery and their gasoline bills.

MATTHEWS: So what do you do when a person buys a house, they're a working couple, they buy a house for $100,000 not that they're easy to find. The house value now is about 70, if they're lucky. Their mortgage is 90. What do you do to keep them in the house?

HOLTZ-EAKIN: You refinance. You give them a 30-year fixed rate mortgage at the market value.

MATTHEWS: At the value of the house now?

HOLTZ-EAKIN: Now. You've got to be able to keep them in the house.

MATTHEWS: So they only owe that percentage of the $70,000 house that they borrowed. They don't owe the 90? They owe the something less than 70?

HOLTZ-EAKIN: We're going to spend ...

MATTHEWS: I'm asking what happens to the 90 they owe, the differential, that's my question.

HOLTZ-EAKIN: The negative equity has to be absorbed by the taxpayer out of the $700 billion.

MATTHEWS: So the American taxpayer is going to buy, going to swallow the losses of everybody who overindulged in a house.

HOLTZ-EAKIN: Not everybody. You have to pass a credit check. You can't have a liar loan, no documentation loan. You've got to have a primary residence, a real family trying to stay in it. Every American homeowner will benefit. If we stop seeing housing values slide, people who are making their payments are watching their values go down and they're probably taxed as well.

MATTHEWS: OK, a bigger question. I was talking to some people last night who say we are facing possibly a 9 percent unemployment rate. It's now 6.1. Can your candidate, John McCain, soften the blow of this recession or avoid it? What can he do?

HOLTZ-EAKIN: I don't think you can avoid it going down because right now the economy is contracting. Looks bad out there.

MATTHEWS: Nobody can avoid a recession

HOLTZ-EAKIN: You can't avoid it. At this point, it's going to be going negative.

MATTHEWS: You don't mind that headline, "McCain's economist says you can't avoid recession?"

HOLTZ-EAKIN: The Federal Reserve today put out a statement, all 12 districts show signs of contraction. Those are the facts on the ground. You have to deal with the facts on the ground, be aggressive about doing the right thing. John McCain talked yesterday about ways to ameliorate the blow for savers, for seniors, for the folks who are unemployed and for homeowners.

MATTHEWS: Why does the American people, why don't the government do things anymore like build bridges, build trains, build subway systems, build stuff that puts me to work instead of writing checks to Wall Street? Why don't we build things instead of writing checks? I don't understand this.

HOLTZ-EAKIN: This is the campaign, Washington is broken. Look at what's going on out there.

MATTEWS: I don't get it. We don't build anything anymore.

HOLTZ-EAKIN: You've got a Congress with a single digit approval rating.

MATTHEWS: It's both parties. The willingness to be enterprising and do things seems to be lost. But Doug, I know you will change everything if you get into power. Doug Holtz-Eakin, thank you very much, chief economist for John McCain, who is going to be one of the duking out guys tonight.

In one hour, it's the third and final presidential debate. I'll be back at 10:30 with David Gregory for post-debate analysis and then again at midnight Eastern for a wild, special edition of HARDBALL right here at Hofstra. "COUNTDOWN" with Keith Olbermann starts right now.

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

END

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