updated 11/14/2008 11:03:36 AM ET 2008-11-14T16:03:36

1600 PENNSLYVANIA AVENUE

November 13, 2008

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

Guests: Jane Harman, Debbie Stabenow, Roger Simon, Michelle Bernard, Richard Wolffe, Michelle Bernard, Lawrence O'Donnell, Haley Barbour, Peter Beinart

DAVID GREGORY, HOST: Tonight, we are facing the prospect of a global financial meltdown. That was the code red warning from the president today on the eve of an international economic summit. But as the administration essentially nationalizes key sectors of the economy, is it only making matters worse?

And what about the president-elect? His high hopes might be tempered by a full-blown depression by the time he takes office at 1600 PENNSYLVANIA AVENUE.

Just 68 days now to the inauguration of the president-elect, Barack Obama.

Welcome to the program. I'm David Gregory.

The headline tonight, "Financial Meltdown."

President Bush today previewed the upcoming G-20 emergency summit this weekend and outlined just how dire the world economic situation is. Listen.

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES OF AMERICA: ... faced with the prospect of a global meltdown, and so we've responded with bold measures. I'm a market-oriented guy, but not when I'm faced with the prospect of a global meltdown. And at Saturday's summit we are going to review the effectiveness of our actions.

The record is unmistakable. If you seek economic growth, if you seek opportunity, if you seek social justice and human dignity, the free market system is the way to go.

(END VIDEO CLIP)

GREGORY: But while the president focuses on what's best about the free market, his administration is spending billions of dollars to essentially nationalize key sectors of the economy. And the debate is ongoing about what to do about the American auto industry, with major automakers on the verge now of bankruptcy.

Through it all, although the stock market soared today, more bad economic news continued to pile up. Jobless claims jumped to their highest level since the weeks after 9/11, and the U.s. deficit soared to almost $250 billion last month, four times the amount in October 2007.

In an about-face, Treasury Secretary Henry Paulson secretary announced a major change in the bailout plan, saying yesterday the government will not buy bad mortgages from the banks. And that provoked some angry words from Capitol Hill.

Joining me now, two Capitol Hill lawmakers who have been front and center in this debate speaking out about the financial meltdown, Debbie Stabenow, Democratic senator from Michigan who voted against the financial bailout plan, and Jane Harman, Democratic congresswoman from California who voted for the bailout.

Congresswoman Harman, I'm going to start with you. Good to have you here.

REP. JANE HARMAN (D), CALIFORNIA: Thank you, David.

GREGORY: We remember covering this, you remember voting for it. This bailout plan was predicated on the idea that the administration would use all of this money from taxpayers, buy these toxic derivatives and debt that were on the books of these banks, they would sell them at some point, and there would be a nice return for the taxpayer down the road.

Well, now the treasury secretary says that's no longer the case. What happened?

HARMAN: I don't know what happened. Hank Paulson hasn't spoken to me. I don't think there has been any paper on the Hill.

I understand that he is coming up on Monday and there will be a public hearing on Tuesday, but I think the message he sent yesterday is, Hank to homeowners, drop dead. This is too complicated, so we'll move on to student loans and auto credit and a few other topics.

But there seems to me to be no strategy. This is not consistent with what Congress voted on. And why we are doing this on the eve of the G-20 meeting this weekend without coordinating it with 19 other countries who are coming to Washington, I think tomorrow, is mystifying.

GREGORY: Right. In the face of what you heard the president call just a moment ago a global meltdown, who should the government be concerned about protecting at this point, the taxpayer or the investor?

HARMAN: Well, I think the government should be concerned about protecting average people. The people in my district in California want to stay in their homes.

There were-I think it's 59,000 foreclosures this month in California and 100,000 in August. And the only reason it's down is because there is a 30-day moratorium on foreclosures. But there's a world of hurt out there, and that is why I voted twice for a recovery package.

It was recovery for those people. It wasn't some support for a bank consolidation program with no strings on bankers, which is what I think we're doing.

GREGORY: Well, but isn't part of the problem here that if the economy needs capital, we're really relying upon the investor to provide that capital, but we've given the investor no realistic upside here. By buying up banks, taking stakes in banks and the insurance companies, and now potentially the auto industry, you're killing the investor in this process when you want the investor to take a flyer, to take some risk in putting capital into the economy.

HARMAN: Well, I don't disagree with that. And I'm sure Debbie is going to talk a lot about the auto industry. She should.

Let me just observe even on that, that my district in Torrance, California, is the north American headquarters of Toyota and Honda, two automakers that are profitable, that have invented and sell the cars of the future and employee thousands of Americans. So as we talk about Detroit-and I am sympathetic to the problems of Detroit-let's remember that there are better business models out there that operate in America. And I don't want to punish those who have been efficient and successful.

GREGORY: So final point here, you talked about this, Senator Dodd talked about this, protecting the homeowner, the ones who are really hurting. How does the administration go about doing that most directly?

HARMAN: Well, I don't think they are doing that at all. I think Hank has just told them to drop dead.

I think that Sheila Bair, the head of the FDIC, has had the best ideas of anybody. They would cost about $40 billion, she would take it out of the money that Congress has already appropriated for this purpose. And it would guarantee 50 percent of the loss on mortgages that are renegotiated.

It would reach millions of homeowners. And my view is, let's spend some good money, $40 billion on the right project, and let's stop throwing money at banks with no strings attached in the hopes that that somehow that generates more liquidity.

I mean, it was the same guy, I was listening to him, Hank Paulson, who said we know how to do this, and these toxic mortgages are like a cancer in these banks, and once we remove them, these banks will then-you know, the liquidity problem will be solved and these banks will lend money again. Well, I see no evidence whatsoever that this new strategy is taking hold.

I think maybe we should listen more carefully to Gordon Brown this weekend. He seems to have a better idea of how to get international banks to function.

GREGORY: All right. Congresswoman Jane Harman, thank you. Always nice to see you.

HARMAN: Thank you, David.

GREGORY: Let me turn now to Senator Debbie Stabenow, Democratic senator from Michigan.

Senator, you were opposed to the bailout as it was constructed originally. Has this only vindicated that belief, this change in plan here to no longer buy up this toxic debt and now get into the business of trying to help peopling looking for loans more directly?

SEN. DEBBIE STABENOW (D), MICHIGAN: Well, David, this really does, from my standpoint, emphasize the concern that I had from the very beginning. A huge amount of money in a bailout, and it wasn't focused in my mind in the right place.

You know, when you talk about taxpayers and shareholders, investors, both of whom are very important, there are people that are left out of this equation. The four million people who have lost their job in the last eight years in good-paying middle class manufacturing jobs, they used to be able to pay for that mortgage until they lost their job. They used to be able to pay for their credit card until they lost their job.

And done of my great concerns is that, as we watch what is being done now with the $700 billion, we are seeing $150 billion for AIG insurance. We don't know exactly where that's going, and yet we're talking about a relatively small bridge loan for the auto industry to be able to get beyond this financial crisis so that people are buying automobiles again and capital is flowing. And we're hearing no.

GREGORY: But Senator, but isn't this the same point? I mean, look, you are a politician who's representing a state that has been hit very hard in a particular industry.

STABENOW: Sure.

GREGORY: And that's the automakers. But there is a larger point here, which is if you gut the interest of the investor when you want capital to return to the economy, you are asking people to take a risk on something when there is no return. And we want capital into the economy, but the government, by all of these bailouts, has gutted the opportunity for investors in this market. Everybody is pulling back.

STABENOW: Well, I understand what you are saying, but if we go down to the basics, certainly investors have to have confidence. They have to have confidence in a business that makes a product that people will buy. It's not just about moving paper around or banks buying each other, which is some of what has been happening here now so far in terms of the $700 billion.

In this economy somebody's got to have a job. Somebody's got to be working. Somebody has to be able to make things and then be able to purchase things because they have money in their pocket. That has been lost in the last eight years, and that fundamentally, I believe, is what is causing so much of what we are seeing today.

GREGORY: All right. Let's talk about this bridge loan that you and others, other Democrats, want for the automakers.

Tom Friedman, writing in "The New York Times," critically says this:

"The blame for this travesty"-what's going on in Michigan and Detroit-

"not only belongs to the auto executives, but must be shared equally with the entire Michigan delegation in the House and Senate, virtually all of whom year after year voted however the Detroit automakers and unions instructed them to vote. That shielded General Motors, Ford and Chrysler from environmental concerns, mileage concerns and the full impact of global competition that could have forced Detroit to adapt that long ago."

Response?

STABENOW: Well, David, I'm not suggesting that every decision has been a good decision. In fact, I don't believe that it has.

But I do know this in a global economy, we're the only country that doesn't care about having a level playing field for our manufacturers. We're the only country that puts health care on the backs of our manufacturers. We're the only country that puts innovation and technology funding on the backs of our manufacturers.

Germany, South Korea, Japan, China all have major efforts to rush to get to the advanced battery technology research first for their auto manufacturers. We don't do that. We turn to them and say we're not going to have a manufacturing strategy in this country, we don't care where things are made. And then we wonder why it's been so difficult.

We've got to sit back and...

GREGORY: But Senator, when...

STABENOW: I have to just say, I am so proud and excited of our incoming president, who gets this.

GREGORY: But let's talk about that. Let's talk about the incoming president.

January 20th, how bad could things be when he is inaugurated and becomes the 44th president of the United States? How much more can government do to fix this problem and the economy? Can government do it all?

STABENOW: Well, first of all, I don't think that government acted soon enough or effectively enough at this point in time. Now, that's not because there weren't people trying to do that.

Senator Chris Dodd-he chairs the Banking Committee-was trying over a year ago to focus, as was Congressman Barney Frank, on specific housing issues, subprime housing market. This administration has been incredibly slow to act. And in my opinion, it has not been focused enough.

GREGORY: All right.

STABENOW: And the concern that I have is, again, we are not focusing on those industries and strategies that will put people to work. And that's a foundation that I'm very excited about working with incoming President Obama on.

GREGORY: All right.

Senator Debbie Stabenow, thank you very much for being here tonight.

STABENOW: You're welcome.

GREGORY: Appreciate it.

Still to come, former vice presidential candidate Sarah Palin's advice for the rest of the GOP.

And also, the transition of vice presidential power. Dick Cheney invites Joe Biden to the Naval Observatory grounds. How will things change when Cheney moves out and Biden moves in?

When 1600 returns after this.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

SEN. JOSEPH BIDEN (D-DE), VICE PRESIDENT-ELECT: Vice President Cheney has been the most dangerous vice president we've had probably in American history. He has-he has-the idea he doesn't realize that Article I of the Constitution defines the role of vice president of the United States, that's the executive branch. He works in the executive branch.

He should understand that. Everyone should understand that.

(END VIDEO CLIP)

GREGORY: We are back. Strong words about the outgoing vice president from the incoming one. But just about an hour ago, Vice President-elect Joe Biden and his wife Jill arrived at the vice president's residence to meet with the current vice president and his wife, Lynne.

Joining me now to discuss all of that and the future vice presidency in an Obama administration, Roger Simon, chief political columnist for Politico.com; Michelle Bernard, president of the Independent Women's Forum;

Richard Wolffe, senior White House correspondent for "Newsweek"; and Lawrence O'Donnell, former Senate Finance Committee chief of staff.

Michelle, Richard and Lawrence all MSNBC political analysts.

Welcome all.

Roger, it's just fascinating, rhetoric from a campaign, and then you get together for the meeting. But this is what struck me. Having spent time with the vice president, then they're going to have dinner.

I mean, what is that going to be like tonight?

ROGER SIMON, CHIEF POLITICAL COLUMNIST, POLITICO.COM: I think Biden just wants to check out the house. You know, see what the closet space is like.

You know, it's a pretty nice house. It looks like the set of Obama's acceptance speech in Denver.

GREGORY: Absolutely.

SIMON: You know, seriously, though, everybody hates power until they get that power. I am sure that while Joe Biden may take pains not to expand the powers of the vice presidency in the legislative role, he will be as expansive perhaps as Dick Cheney was in defining a very active role for the vice presidency in the affairs of this country.

I mean, Joe Biden is not going to be a potted plant for four years. That's not why he accepted this job.

GREGORY: Well, and he's made that point clear.

Richard Wolffe, you've covered the Obama campaign throughout. We learned today that Ron Klain, a veteran of D.C., has been selected to be his chief of staff. Ron was with Biden from the very beginning in his Senate campaigns. He led debate prep for Obama in this campaign, debate prep for John Kerry's '04 presidential bid. He was, of course, Al Gore's chief of staff in the Clinton White House.

Definitely a signal here that Biden intends to be an insider with a big portfolio.

RICHARD WOLFFE, MSNBC POLITICAL ANALYST: Oh, for sure. Ron is a super smart guy who knows how the vice presidency and the government works. And they will together be influential.

I have to disagree with Roger though here. You've got to understand what Cheney really constructed here.

It wasn't just that Cheney put his finger into a lot of different policies, he had staff people, his own people who were enmeshed in the departments and agencies, and effectively had a parallel government that reported to him. Because the vice presidency does not normally channel the normal flow of communications. There is no need for paperwork to go through them.

I don't think Biden will do this. He will certainly have an opinion on a whole range of things, and Klain will know how to work the-pull the levers of the government. But as one transition source told me-go ahead, David.

GREGORY: No, no, no. I want to hear what he told you.

(LAUGHTER)

WOLFFE: No, I was just going to say, the transition source told me, look, this meeting is not going to be a heart to heart about the nature of the vice presidency, because they see it in such different ways. Biden and Cheney do not agree on what the definition of this job is.

GREGORY: I want to get to Lawrence and Michelle quickly before we have to go to a break.

Michelle, one thing that is clear from talking to sources in Obama's campaign before they made the selection-or right after they made the selection of Biden is they didn't necessarily envision that relationship, Obama/Biden, as being like Bush/Cheney.

MICHELLE BERNARD, MSNBC POLITICAL ANALYST: Yes. I mean, given the way that they campaigned, also, I don't think anyone ever imagined that if Obama was elected, that they would run the government the same way that the Bush/Cheney White House ran. And remember, Senator Obama, or President-elect Obama, I should say, ran against everything that in any way smelled of the way George Bush has done anything.

So I think that it's fair to suspect that although Senator Biden is going to have a very important role in this White House, he will not be running a second government and he will not have the type of powers that we saw in the Bush administration, simply because it was the Bush administration. And also, there have been so many questions raised about the constitutionality of the role that this vice president has played in this administration.

GREGORY: Lawrence O'Donnell, that weekly lunch that the president would have with Vice President Cheney, does that go on in this administration? And what do you think the subject is of these lunches going forward?

LAWRENCE O'DONNELL, MSNBC POLITCAL ANALYST: Well, the weekly lunch schedule is typical of any administration. But the Cheney vice presidency has completely eclipsed it predecessor, the Gore vice presidency, which was the most activist vice presidency we had seen in the modern age prior to Cheney.

That is going to be the model for Joe Biden. And Ron Klain is the perfect person to implement that model. He was there with Al Gore. And so -- and that is a model that does not include a separate track of government that Richard was talking about that Cheney did definitely instituted, according to Bob Woodward's books and all the other books that have covered that period.

GREGORY: Right.

Roger, is there a specific portfolio that Biden wants to have as his own?

SIMON: I'm sure he will have a large voice in foreign affairs. He's an expert on it. That's his specialty.

There was talk that before-in fact, there was an article in "The New Yorker" that in the first conversation between Barack Obama and Joe Biden, Barack Obama asked him, look, I'm not offering it to you, but would you rather be secretary of state or would you rather be vice president? And Joe Biden reportedly went back to Ron Klain, who was even then advising him and said, you know, what is the upside and downside of these two jobs? And he decided on vice president.

GREGORY: All right.

Panel, stick around. We'll come back to you in just a few minutes.

O'DONNELL: But he also has expertise in the judiciary.

GREGORY: Yes, exactly.

O'DONNELL: He was judiciary chairman also, so he has a tremendous amount of expertise there.

SIMON: As does Ron Klain.

GREGORY: Right. Right, as does Ron Klain, and relationships on the Hill that could be very important.

All right. Panel, stand by. We'll come back to you in a few minutes.

Still ahead, the new New Deal, what Barack Obama can learn from another president who also faced an economy in crisis.

And she's off the campaign trail but still very much in the spotlight.

How does Sarah Palin plan to fit into the Republican Party's future?

All of that when 1600 returns.

(COMMERCIAL BREAK)

GREGORY: Back now with a look at what's going on inside "The Briefing Room" tonight.

For the first time since he has lost his bid for the presidency, Senator John McCain hit the campaign trail again today, this time stumping in Georgia for incumbent Republican Senator Saxby Chambliss. Chambliss and Democratic challenger Jim Martin are heading into a December 2nd runoff after neither candidate received 50 percent of the vote.

Chambliss's $12 million war chest dwarfed the $3 million Martin raised, but between Chambliss' slow campaign start and his support for the Wall Street bailout, the dynamics of the race changed, giving Martin a big boost. The Georgia race is crucial to the Democrats bid for the 60 votes necessary for a filibuster-proof majority in the Senate.

Arkansas Governor and one-time presidential candidate himself Mike Huckabee will also hit the trail for Chambliss this weekend.

A short segment here. We'll take another break.

Coming next, rebuilding the Republican Party. Will Governor Sarah Palin play a starring role? And could today's meeting in Miami hold the key to her future?

Also, Barack Obama's biggest challenge is to stabilize the economy.

How can he do it? Some say he might take a cue from FDR.

That's coming up next on 1600.

(COMMERCIAL BREAK)

GREGORY: Tonight the Republican Party looks toward the future. Does it include Alaska Governor Sarah Palin? And Barack Obama's future includes tough economic challenges. We're going to explore his options, including what he might learn from previous occupants of 1600 PENNSYLVANIA AVENU.

Welcome back to the program. I'm David Gregory. Yesterday Governor Sarah Palin arrived in Miami where a group of Republican governors are meeting to plot the future of the GOP. Today for the first time since she was named John McCain's running mate two and a half months ago she held a national news conference.

(BEGIN VIDEO CLIP)

GOV. SARAH PALIN, ® AK: We are now the minority party but let us resolve not to become the negative party, too eager to find fault or unwilling to help in this time of crisis or war. Losing an election does not have to mean losing our way. And for governors the lead forward leads through our own state capitols in reforms that we will carry on or begin anew.

(END VIDEO CLIP)

GREGORY: Back with us to talk about the future of the GOP and how Palin will factor in to that future, Roger Simon, chief political columnist for politico.com, Michelle Bernard, president of the Independent Women's Forum, Richard Wolffe, senior White House correspondent for "Newsweek" and Lawrence O'Donnell, former Senate Finance Committee chief of staff.

Michelle, Richard and Lawrence all MSNBC political analysts.

Roger, the future of Sarah Palin. She is on a kind of victory lap here down in Miami and nobody seems to have told her that they didn't win.

ROGER SIMON, POLITICO.COM: Well, do not count out Sarah Palin. Save this videotape. This is a celebrity driven culture. Sarah Palin is a celebrity. In the press conference when there were 13 people on stage, all governors, you couldn't recognize anybody except Sarah Palin.

She obviously has flaws but she had a good speech at her convention. She didn't do all that badly in her debate with Joe Biden. I'm not saying she won it but he didn't wipe the floor with her.

Maybe he forgot to ask her whether Africa was a country or continent.

But she did OK. She needs to bone up and she needs to learn a few things. She has got a few years to do what Ronald Reagan did after he lost. Which is go around the country, make speeches and retool yourself but retain the personality which many people find appealing.

GREGORY: But my question, Michelle, is we can measure the disadvantage, the negatives she had for John McCain and on this race. Whether she was qualified, 60 percent told-voters told pollsters she was not qualified for the job. It's not clear what besides enthusiasm she brought to the ticket. So she had a huge spotlight, a huge amount of attention, but what did she actually deliver here?

MICHELLE BERNARD, MSNBC POLITICAL ANALYST: You can't really underestimate the enthusiasm factor that John McCain very seriously needed going into the Republican campaign. His election was almost dead again. A year ago over the summer we were talking about the resurrection of John McCain. Well, his campaign was dying and one of the things people might ask themselves is how badly would he have lost if Sarah Palin was not on the ticket? She rejuvenated the Republican base. People were going out, thousands of people at a time, to see her, not to see John McCain. She obviously had some pretty abysmal interviews with Katie Couric, with Larry King, with other people.

But she also has that sort of "it" factor and there are many, many people are interested in her. And quite frankly, the McCain campaign might have gone nowhere if she had not been on the ticket.

GREGORY: Lawrence, I want to play you a sound bite from her appearance with Larry King. This was last night. Take a look at this.

(BEGIN VIDEO CLIP)

PALIN: If I have to call an audible down the road here and circumstances change and the door is open for me to do so, it would be something that I would take that challenge on, that responsibility if I believe that it is in the nation's best interest.

(END VIDEO CLIP)

GREGORY: There she's talking about the future for herself running in 2012. Lawrence?

LAWRENCE O'DONNELL, MSNBC POLITICAL ANALYST: Well, she has history against her, David. Her name comes at the end of this list. Geraldine Ferraro, Dan Quayle, Jack Kemp, Joe Lieberman, John Edwards, Sarah Palin.

You can go back before that list. You won't find anyone, anyone, who got back on to a national ticket after losing in the vice presidential slot. It does not happen. And the polling evidence showed very clearly that the majority of the country thought she was a serious negative in this campaign.

Most of those other people's names I mentioned actually survived the vice presidential campaign very well and they still didn't have a chance of a comeback after that.

GREGORY: But it is interesting, Richard, she does, as Roger pointed out, she's got something a little bit different. She has her own base of power. She has it really in the course of the campaign. She became a phenomenon independent of the ticket.

RICHARD WOLFFE, "NEWSWEEK": Yes. She certainly has star power and the ability to perform on TV, but there were a unique set of circumstances that propelled her on to the ticket this time around and the base that she inspired. She is going to have a lot of competition there for it next time. People are speaking on issues of life, people speaking on faith.

And when it comes to the reform message her desire to criticize the party, well, every governor, every elected official in the Republican Party is going to be criticizing the Republican Party of today.

So I just think this is going to be a very crowded field and she won't have the support of a ready made campaign. Remember, there are lots of people with ambition. Not that many people that can execute it by building a whole machine to get them there.

GREGORY: Well, Roger, one of the things that strikes me as important is not just her ability to bone up on issues and become a more seasoned candidate which she could do and frankly she didn't have that the opportunity being plucked out of the field that she was in this campaign, but what is her ability to reach out beyond the Republican base, which as we saw in the returns of this election, is getting a lot smaller geographically and beyond?

It is just becoming a smaller party. What does she do to break out of that? Because there is nothing I heard her campaign on here that foretold her ability to reach beyond the base of the party.

SIMON: At this point she is not a candidate who will reach beyond the Republican base. At this point her future is first of all winning over the remaining Republican base and growing that Republican base and getting that Republican base to the polls. It is really not a matter now, it is a little presumptuous to talk about whether she will actually win the nomination.

It is whether she can be a credible candidate. I think she can be a credible candidate. Look at the other names in the Republican Party. Mitt Romney, Mike Huckabee, Bobby Jindal is a very interesting candidate.

But she is better known right now than all of them. And listen, the Tina Fey stuff helps her. It's gold. And when you get down to it. Her biggest critics are in the media. The American people when it comes to a contest between the media and a charming personality, they'll take the charming personality every time.

O'DONNELL: The parties never go back and support proven losers.

Parties do not support proven losers. They just won't do it.

SIMON: They don't until they do

O'DONNELL: They never have. Find me one.

GREGORY: You interviewed Newt Gingrich talking about the future of the party overall and we'll put it on the screen. This is what he told you in part.

The Republican Party right now is like a mid size college team trying to play in the Super Bowl. It is pretty hard to say our losses were because of John McCain's campaign. McCain performed way above plausibility compared to where the Republican president was in the polls. We have to look honestly at what went wrong."

Lawrence, let me go back to you on this question and back to Roger in a second. Where does that leave John McCain in this equation? Certainly the Republican Party will look to him and say this is a big loss. But a lot of people still feel he was the best Republican to field in this climate.

O'DONNELL: Absolutely. He was a legitimate winner in the primaries. I was always betting on McCain to emerge even when he was at his lowest because there was something seriously wrong with all the rest of them. And I don't think there was a Republican candidate who could have scored better in the finals against the Democrat this time around. So McCain was never really loved by that party. I don't think he has any real future in it. I think he knows he doesn't have any real future in it after this. I don't think they are going to be looking to him as a senior statesman who can advise where to go from here.

BERNARD: Can I add something?

GREGORY: Roger-Go ahead, Michelle.

BERNARD: I'm sorry because it's a very important point that you're raising.

Because there is an opportunity for John McCain. I don't know if Republicans will listen to him and look at him and look at him as an elder statesman going forward. But the Republican Party is in tatters. If the Republican Party is going to win elections in the future they cannot forego the votes of African Americans. They cannot forego the votes of Latinos. One of the things that John McCain did during this campaign season that I personally commended him for was going out and reaching out to African Americans. There were many people in the Republican Party who said that is ridiculous. They are always going to vote for Democrats and basically advised him to sort of just write off that vote.

He didn't do it. And I think that if he can find a way to get back in the immigration debate, continue to win over African American voters, continue to reach out of Hispanics and to all the demographics that put Barack Obama into the White House I think that that could possibly be the future of the Republican Party if Republicans decide that they want to be a party with a big tent and reach out to as many Americans as possible or whether or not they're just going to stay geographically where they are now which is really just in the South.

GREGORY: Just quickly on this point, Roger, talking to Newt Gingrich as you did for your piece. Does he believe that the party has to get bigger or does it have to return to its roots of conservatism?

SIMON: Oh, he believes it has to get better. That's the interesting thing about this. He calls himself a tripartisan which seems to me the same thing as a post-partisan. But now he talks at reaching out to Republicans, Democrats and independents. A very different message than Newt Gingrich, Mr. Republican, used to sell. But he recognizes that the Republican Party brand is at one of its lowest ebbs in modern times and that if Republicans are going to win they are going to have to get beyond the same old hot-button issues they have been pushing.

GREGORY: All right. We're going to have to leave it there. Thank you very much.

Still ahead, Sarah Palin is not the only name being mentioned as a potential candidate in 2012. I am going to talk one-on-one with another potential presidential candidate, that's Mississippi Governor Haley Barbour. We'll speak to him in a few minutes when 1600 returns.

(COMMERCIAL BREAK)

GREGORY: Welcome back. President-Elect Obama campaigned with promises of hope and change but as the nation faces crushing financial woes how far can he and will he go to move the U.S. economy in a new direction?

Will he as "Time" magazine suggests on its latest cover mirror FDR and bring to this nation a New New Deal?

My guest wrote the cover story and argues that if Obama merely begins to restore order Democrats will reap the rewards politically for a long time to come.

Peter Beinart of "Time Magazine," welcome, good to have you here.

PETER BEINART, "TIME MAGAZINE": Nice to be here.

GREGORY: This is what you say in part in your piece. Talking about the potential for an Obama majority.

"The Obama majority is sturdy for one overriding reason, liberalism which average Americans once associated with upheaval now promises stability instead. If Obama can do what FDR did, make American capitalism stabler and less savage he will establish a Democratic majority that dominates U.S. politics for a generation. And despite the daunting problems he inherits he has got an excellent chance."

How does he restore that stability?

BEINART: First is to rebuild the system of financial regulation that was systematically dismantled over the last couple of decades. The second is to make a massive effort to stimulate the economy even though it won't rebound overnight and the third is to start patching up the American welfare state that has grown weaker over time. And a big part of that will be health care.

GREGORY: But how much more government do Americans want now? I mean, the predicate here is that liberalism has found a new day. One of the questions I've had in my mind in the course of this election have Americans changed their view of what role they want government to play in their lives?

BEINART: I think they have. I think one of the things we have to keep in mind is government has grown far weaker in comparison to the market over the course of several decades. I think that there is a recalibration that Americans want. One of the really interesting things that the Pew Research Center found when it surveyed the American electorate was that there is a significant chunk of the conservative coalition, of the Republican coalition, people who are culturally conservative, hawkish on foreign policy who wanted more of a government role in trying to help people survive and prosper economically. Those people moved to Obama in significant numbers.

GREGORY: But the question is some of the structural changes you talk about are not necessarily things he can do right away.

I mean, look what's happening real time here under the Bush administration, $700 billion to bail out the financial system and now they are changing the direction for how that money is going to be used. By the time President Obama takes office things could be worse still. He is going to have to stop the bleeding all over the place here.

BEINART: That's true. People are going to give him some slack. I think people realize that we are in a very, very serious mess. Ronald Reagan-the economy was terrible in Ronald Reagan's second year, in 1982. But it really started to improve by 1983 and 1984 and he cruised to reelection.

We were still in Depression by 1936 when Franklin Roosevelt won one of the biggest election victories ever. So I don't think things have to be completely solved but I think people have to see light at the end of the tunnel at the third and fourth year of an Obama administration.

GREGORY: But is the idea here that government spend the economy out of its recessionary state or even depressionary state?

BEINART: Yeah. This is called Keynesian economics. That's how we got out of the Depression because of the massive spending in World War II in particular.

And I think it is going to take massive amounts of government spending to help get this economy moving again.

There will be long term problems that we have to face with the national debt and the Baby Boom generation. But that I think now will have to take second place.

GREGORY: The political upside to all of this is substantial. And you make that case in the piece here that if he is able to show some progress, it doesn't have to be complete progress, but I mean, if it hits rock bottom by the time he takes office it is going to be a head spinning first year, but there is a lot of upside.

BEINART: I think what is striking about the Obama coalition is that there are people in that coalition who may disagree about cultural issues like gay marriage, they may disagree even on some foreign policy issues.

They all care pretty much most about economics right now. And on economic issues the Democratic Party from working class people up through people of college degrees is pretty united. It is the Republican Party that is very deeply divided on economic issues. If Obama can deliver on economic issues I think the cultural and foreign policy divides in the Democratic Party won't matter that much and the coalition will stay together.

GREGORY: Final point on this which is what happens if by 2010 the first midterm elections which are always tough on an incumbent party, George W. Bush and FDR were exceptions to that rule, what happens if conservative cans run on a platform saying look, we were against the George W. Bush bailout. We thought that bailout was a mistake and an incoming Democratic administration wanted to spend and tax our way out of this economy. And we have a real mess here, let's get back to conservative principles.

BEINART: It would be entirely likely to imagine the Democrats will lose in two years. That's usually what happens after landslide elections. Reagan lost big in 1982. But I think fundamentally the problem the Republican Party has is their fundamental core message is still about getting government out of the way and off your back and that is not, I think, the way most Americans see things today. Most Americans really believe that they need government's help.

GREGORY: All right. Peter Beinart with "Time Magazine", he has got the cover story, "the New New Deal" in "Time Magazine" this week. Peter, thanks a lot.

BEINART: Thank you.

GREGORY: We'll take a short break here and come right back.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

PALIN: We're focused on the future and the future for us is not that 2012 presidential race. It's next year and our next budgets and the next reforms in our states. And it's 2010 when we'll have 36 governors' positions open across the U.S. That's what we're focused on.

(END VIDEO CLIP)

GREGORY: That, of course, Governor Sarah Palin speaking today at the Republican Governors' Association putting faith in her fellow governors to pull the party out of the political free fall it has found itself in. Joining me is a Grand Old Party governor from the Deep South, Mississippi's Haley Barbour, governor, good to see you as always.

GOV. HALEY BARBOUR, ® MS: Hey, David, thank you very much.

GREGORY: What is your postmortem on this campaign?

BARBOUR: Well, look, we've been in the White House eight years. Only once since World War II has a party kept the white house more than eight years. Americans don't like long wars and we had a financial cataclysm about six weeks before the election.

So historically and for every other reason, the odds were on the Democrats' side. Governors here are very upbeat. Much more than it might have been. Of course, every incumbent governor won who was up this year.

And we feel very good about the future. There is a difference between Republicans in Washington right now and Republican governors out of the states where we're doing very well. I mean, we are not immune to what is happening in the national economy. But you see Republican governors are getting the job done and that is what their constituents expect out of them.

GREGORY: When you talk about the way forward. In 2004 President Bush is re-elected. There is talk of a permanent Republican majority based on an emerging coalition out of that race. Four years later there is a much different coalition and now it is a Democratic coalition behind President-Elect Barack Obama. Top Republicans shared with me there are two pillars of conservative Republican rule, controlled spending and competence in leadership.

Were those two pillars destroyed in the course of these past eight years?

BARBOUR: No. They may have been scuffed up a little bit but they weren't destroyed. David, I was executive director of the Mississippi Party during Watergate. I can remember talking about changing the name of the party. The national chairman literally appointed a committee to say we should change the name of the party. About 15 percent of Americans identified themselves as Republicans.

So I have seen a lot deeper hole than we are in right now. Politics is cyclical. The Democrats thought after the '92 election that they had everything, had the world by the tail. Two years later Republicans had a majority in both houses of Congress. Republicans thought everything was mighty peachy after 2004, now we have got our comeuppance. We need to understand we don't have anybody to blame but ourselves. But it is not like this is some sort of cataclysm for Republicans.

GREGORY: You have a unique perspective because you certainly know the ways of Washington, the ways of a national party having run the party. But of course you are also a chief executive in a state. So you have seen all aspects of this. So as you look ahead how does the party have to change?

BARBOUR: Well, I look back to 1992. We had the White House for 12 years and we lost not only - we had 174 members of the house, 42 senators and only 17 governors compared to 21 today. And our candidate for president just got the lowest percentage of the vote of any Republican candidate for president since 1912. I told people it was a great time to be chairman. Turned out I was right.

So that is how I look at it. We rebuilt the party from the bottom up because Republicans are better as a bottom up party.

The Congress didn't lead the party at the beginning. The governors did. Tommy Thompson, Bill Weld from Massachusetts, Pete Wilson, John Engler from Michigan. Carol Campbell from South Carolina.

And I think we will rebuild the party around governors again because that is the only place in America where you can look and see Republican principles implemented and to see that they're successful. I'm very confident this set of Republican governors can do that and confident now we are out of the white house we will are build our party from the bottom up.

GREGORY: What do you do in the Republican platform? The platform of ideas and issues to reach out and court those voters that mirror the demographic trends, to reach out to Hispanic voters and to African Americans without which numerous professionals in the party have said you cannot have a majority?

BARBOUR: Well, look, fact of the matter Republicans have to do better among both of those groups. We don't have a lot of Hispanic voters in our state so I can't really judge from research how I did. But I got more than 20 percent of the black vote for re-election. A lot of them voted for me despite the fact I was republican. They voted for me because of results. They wanted somebody that got things done.

That is what African American voters and Hispanic voters and everybody else wants out of their leadership. They want results. And Republican governors get those. It is not unusual for a Republican government to get more than 20 percent of the black vote, not just in states like Indiana, but in states like Georgia, Alabama and Mississippi, but you have to try.

GREGORY: Right.

BARBOUR: Most of the issues we talk about are good for all Americans and unless we don't push those issues we won't get their vote. But if we do push those issues they understand it is good for them.

GREGORY: All right. Governor Haley Barbour, we're going to have to leave it there. Thanks for your time tonight, appreciate it.

BARBOUR: Thank you, David.

GREGORY: And that is our program for tonight. 1600 PENNSYLVANIA AVENUE. We're back here tomorrow night, 6:00 p.m. I'm David Gregory. Thanks very much for watching. Stay tuned on MSNBC, HARDBALL.

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

END

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