updated 11/20/2008 1:27:49 PM ET 2008-11-20T18:27:49

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

Guest: Joe Scarborough, David Ignatius, Leon Panetta, Jeffrey Sachs, Rep. Sander Levin, Richard Wolffe, Pat Buchanan

DAVID GREGORY, HOST: Tonight, the whole world is watching. Why is Obama world, a tightly-run Chicago-based organization, allowing the Clinton and secretary of state drama to play out so publicly? Tonight, sources say she is ready to take the job, and former President Clinton is negotiating his future role to make it all work. But will it, and when?

Also tonight, some new hires at the Obama White House, and some new recession fears being watched closely at 1600 PENNSYLVANIA AVENUE.

Sixty-two days until the inauguration of President-elect Obama.

Welcome to the program. I'm David Gregory.

The headline tonight, "Slamming on the Brakes."

Although Detroit's big three spent a second day before lawmakers here in Washington making a high stakes plea for aid, hope is swiftly fading for an emergency bailout of the automotive industry. Wall Street grimly took notice today, sending stocks screeching toward an over five-year low. The Dow Jones Industrial Average tumbled once again more than 400 points.

Look at the boards. Finally closing below 8,000 for the first time since 2003.

As President-elect Obama braces for the economic turmoil he is about to inherit, he continues to move forward in the assembly of his administration. NBC News has confirmed tonight that former Senate majority leader Tom Daschle has accepted Obama's offer to head the Department of Health and Human Services. Daschle was a top adviser to the president-elect through the campaign, during which Obama made it clear that health care reform would be his top priority for a new administration.

In other transition news today, the president-elect officially announced that David Axelrod, his former chief strategist for the campaign, will serve as senior adviser in the White House. Also announced, former Clinton impeachment attorney Greg Craig, also a foreign affairs adviser to the president-elect during the campaign, will now serve as White House counsel.

Despite what we know about his team, much attention, of course, still on what we don't know, whether President-elect Obama will tap Senator Hillary Clinton to serve as secretary of state. The spin seems to be coming in from all sides of the story today.

Joining me now to weigh in on all the above is Joe Scarborough, anchor of NBC's "MORNING JOE."

Joe, good of you to say late to talk through some of the big issues of the day.

Let's talk about Hillary Clinton.

Tom Friedman, in "The New York Times" today, questioned whether this relationship is close enough after this campaign for her to serve as an effective secretary of state. And he wrote the following: "Every word that is said between them in public, and every leak, will be scrutinized for what it means politically and whether there is daylight. That is not a reason not to appoint Mrs. Clinton, but it is a reason for everyone around the president-elect to take a deep breath and ask whether they are prepared to have the kind of air-tight relationship with Mrs. Clinton that is required for effective diplomacy."

Joe, can this question be answered satisfactorily for you?

JOE SCARBOROUGH, HOST, "MORNING JOE": Well, I don't think it can until we actually see how they work together. Of course the example that Thomas Friedman gave was the relationship between George Bush Senior and James Baker, his then-secretary of state. And that was an extraordinarily close, personal relationship.

Foreign leaders knew that when James Baker went overseas, they were not just talking to James Baker, they were talking to the president of the United States. Unfortunately, there has been a very long, bitter contest between Barack Obama and Hillary Clinton. And so these are questions that have to be answered.

But David, we talked about it this morning. I know you've been talking about it all week. The stunning thing to me is that we are asking these questions now after Hillary Clinton's name has already been leaked, after the meeting has already been had in Chicago.

It remains stunning to me that this Barack Obama organization, which has been so ruthlessly efficient in a very positive way over the past 12 to 18 months, has been so sloppy out of the gates. First, with Rahm Emanuel wringing his hands in a very public way on whether he takes this job or not. And now all these questions about Hillary Clinton. Do we really want this to be debated on the op-ed pages of "The New York Times" after the offer has already been made?

GREGORY: Well, is there a reason for this transparency, do you think? It is so unlike the Obama organization, which, in my experience, having covered the Bush White House, is looking more and more like the Bush White House in terms of a press management point of view, which I think they would deem very effective.

SCARBOROUGH: Right.

GREGORY: Is there a reason for this transparency?

SCARBOROUGH: You never-of course, David, you know better than anybody. You never saw this problem with the Bush administration.

GREGORY: Right.

SCARBOROUGH: They made their appointments. They leaked it a day or two in advance. And then boom, it got out there.

I think two different things are going on from what I've heard behind the scenes on the Rahm Emanuel issue. That story got out ahead of them more quickly than they expected. It was sloppy. They regretted that it happened.

What I'm hearing on the Hillary Clinton issue is, this is a trial balloon. They've set it up there. If Hillary Clinton and Bill Clinton survive the public scrutiny, great, they'll have her on board. If not, well, then they've done all they could do to help a former rival.

That being said, you've got liberal blogs debating this, "The New York Times" debating it, everybody debating it. It just seems sloppy. This could go wrong in a lot of ways. And this is certainly not Obama-like.

GREGORY: Right.

Let's get away from the process. You've thought a lot about Clinton in this role, Clinton as a campaigner in the course of this election.

Do you like this idea? Do you think she would be a good secretary of state?

SCARBOROUGH: I do. I do. The "Clinton" name overseas is the most powerful American name other than Barack Obama right now.

Bill Clinton, regardless of what Americans have thought about him, even in '99 and 2000, he had extraordinarily high approval ratings overseas. What Bill Clinton could do for this country in certain areas would be extraordinary, let alone Hillary Clinton, somebody who has been a goodwill ambassador for the better part of 20 years. And of course she's devoted a great deal of her life to public service and is, again, a beloved figure across the globe.

I like the fact that Barack Obama has the confidence to go to somebody like Hillary Clinton, a very, very strong public persona, and he is not concerned about being overshadowed. I think this works.

I think it's positive. I think Barack Obama is steady enough and Hillary Clinton is tough enough that there's not going to be a lot of whining and whimpering and leaking if they do go forward as the commander in chief and a secretary of state. I think it's a great idea.

GREGORY: Are you not bothered by the prospect of Bill Clinton and all the good work he wants to do around the world also being a lightning rod-obviously, that's an issue-but someone who has got to be negotiated with all along the way? So, as he does work going forward, there will be an ethics vetting process in place to go through what he is actually doing on the world stage.

Does that make sense?

SCARBOROUGH: That's very easy to take care of. You get a secretary of state attorney, you get Mr. Craig, you get all the attorneys you want in one room, and they sit around and they work out the matrix. What can Bill Clinton do? What can't he do? Where can he get money for the Clinton Global Initiative? Where can't he get money for the global initiative?

GREGORY: Yes.

SCARBOROUGH: Where can he get money for his presidential library, where can't he do it? You can lay out the matrixes. You can set up very strict, stringent guidelines that will certainly pass the legal muster.

And then after you do that, it's very easy to pass all of these things through. Put together a political blind trust where Bill Clinton says, listen, if people want to contribute to me, I'm going to give them your contact information. They're going to contact the lawyers at the State Department.

GREGORY: Right.

SCARBOROUGH: If they say that this is legitimate, fine, we'll do it. If not, fine. I won't take the money. And you guys make the decision though. I'm just going to go out and try to do good work in my own way.

GREGORY: We're looking at Bill Clinton. He's live now at an event for Jim Martin down there in Georgia running against Saxby Chambliss. Democrats trying to get up to 60 in the Senate.

Let me turn to the other big issue of the week. And that's the auto bailout. Again, something you've been talking about each day, the economy generally, and the big three, more specifically.

The reality here, Joe, is that it doesn't look like the bailout is going to happen now. Barney Frank, over on the House side, in the Banking Committee, talking about this question about autoworkers in this country, wondering whether they make too much money. He sees a bias here.

Listen to what he has to say and let's talk about it.

(BEGIN VIDEO CLIP)

REP. BARNEY FRANK (D-MA), CHAIRMAN, BANKING COMMITTEE: I think the average AIG worker gets a good deal more than the autoworkers. Probably not the clerical people, but the people at AIG. There is apparently a cultural conditioning that is more prepared to accept aid to the white collar industry than to the blue collar industry. And I think that has to be confronted honestly.

(END VIDEO CLIP)

GREGORY: If this bailout goes down now, is it coming back and does it need to come back?

SCARBOROUGH: Yes. I think it needs to come back.

It's stunning that you have got the same elected officials that have given over $1 trillion to banking interests and Wall Street interests that aren't going to give $25 billion to an industry that employs so many people. If these company go out of business, that's three million working class Americans out of business.

You're talking about over $150 billion in salaries gone. You're talking about over $160 billion in taxes to the federal government gone.

And David, Barney Frank is exactly right. You wonder why we're willing to bail out AIG, why we're willing to bail out all the Wall Street interests, but aren't willing to get together and figure out a way to make Detroit work to help these blue collar workers.

One thing, David, some misinformation going on out there right now talking about how the workers, the union workers in Detroit, are getting paid $74, $75 per hour after benefits, retirement, et cetera, et cetera, et cetera. That is the number right now, but Detroit has already started reforming in ways that a lot of people on Capitol Hill haven't figured out.

By 2010, the average salary for a worker in Detroit, working on these assembly lines, union people, will be in line with our competitors in Japan. That's certainly competitive on the global marketplace, and that's something again that I think a lot of people in Washington are overlooking.

Detroit has started to make the steps they need to make to reform themselves, to be more competitive globally. The only question is, are they going to survive until it kicks in, in 2010?

GREGORY: All right. Joe Scarborough, anchor, of course, of "MORNING

JOE."

Joe, loved having your analysis and your views tonight. Thanks for coming on.

SCARBOROUGH: Thank you so much, David.

GREGORY: Coming next, more on the prospects of Senator Clinton as secretary of state with The Washington Post's David Ignatius. He's made the case against her in this high-profile job. He'll explain after a break.

(COMMERCIAL BREAK)

GREGORY: Welcome back.

Bill and Hillary Clinton are going to "extraordinary lengths" to assist Obama advisers vetting her for secretary of state. "The Washington Post" reported this afternoon the former president is now making all donors to his foundation public, something he did not do during the primary campaign, as well as clearing his future speeches and activities with the Obama team. At least he said he'd be willing to do that.

He is campaigning now down in Georgia for that outstanding Senate seat. Jim Martin taking on Saxby Chambliss.

Joining me now, David Ignatius, columnist and associate editor at "The Washington Post."

David, you were here a few days ago making the case that has been made more broadly. You've done it, others have picked it up, whether or not she is the right choice when you really think about the nuts and bolts of the job. Thomas Friedman talked about that today.

It's the nature of the relationship between a president and a secretary of state that foreign leaders will pick up on in a heartbeat.

DAVID IGNATIUS, "THE WASHINGTON POST": Let me say at the outset, secretary of state is the one job I can think of for which Hillary Clinton would not be a good choice. She would be a wonderful Supreme Court justice. She'd be a great Senate majority leader, a very gifted politician. But the problem with her a secretary of state, in my mind, is that she would undercut the real game-changer, as I put it last Friday on your show, which is Barack Obama.

Barack Obama has really excited the world. If you want to see the unsettlement in the world, just look at this crazy racist statement from Zawahiri, the al Qaeda man who is obviously frightened about this new face in American politics and what it would mean for al Qaeda.

So I like to think that Obama is going to be a decisive voice in foreign policy. This very high visibility, super-prominent person, Hillary Clinton, as the secretary of state, a lot of that goes away. You know, he really...

GREGORY: Why does it necessarily go away? If she's not an effective agent for him, it might go away. But why do we assume that that's not the case?

IGNATIUS: Because she is at a level of super stardom. You do get to a place in American life where you just can't be a worker bee anymore. You can't be delegated to do something by the boss.

She carries with her this reputation, this entourage. And I think it would be harder for Obama himself to put his personal imprint on foreign policy in a way that is potentially very valuable.

So, you know, that bothers me. Then there is the problem obviously of Bill Clinton.

Bill Clinton is, again, immensely gifted. I know few people who are wiser about foreign policy. But he comes with a lot of baggage that's now being investigated by the Obama vetting team and we'll see what they decide.

But I worry that this is a self-inflicted wound. This was not a necessary appointment.

There are many qualified people. I don't really understand why the Obama team in the end decided this was the right thing to do. Now I think they lose-if they don't pick her, having gone this far, I think it's going to be an embarrassment for them.

GREGORY: And they do have this account that has to be managed. Not only whatever relationship that is emerging between Obama and Hillary Clinton have to be managed, but then the Bill Clinton aspect of this.

And it's interesting what you say, because it's not just the management of what he does on the world stage. But there is a Clinton establishment foreign policy that the world knows and understands. I think about all of his work in the Middle East that will continue that she would step into. And there are all kinds of people that we both know who are sort of waiting for a secretary of state run by Hillary Clinton to sort of get back in the fold.

IGNATIUS: There are networks that surround the Clintons. There is a value to that.

If I didn't think that Barack Obama had the opportunity to do really new and creative things in foreign policy, I would be all for this. If you had a new president who had less aptitude, was less a person who was seen by the world as turning a page, as representing a new America, I wouldn't be so concerned. But we do have an unusual opportunity here.

I've been abroad since the election. And what you here abroad is striking. And I worry that Obama's going to dissipate some of that, and I'm not sure why. I'm not sure why...

GREGORY: And again, does he dissipate it because of preconceived notions about what Hillary Clinton represents if she is secretary of state? Is it a sense that no one is actually going to believe that she speaks for him and that they can speak through her right to the president?

IGNATIUS: If they do this, one hopes, they're smart people. They'll work out rules of the road and it won't be as bad as one could hypothesize.

GREGORY: Yes.

IGNATIUS: But you have a lot of big egos, big personalities. You have Barack Obama, the new president. The world is curious about him. You have Joe Biden, a big guy with lots of views about foreign policy. You have John Kerry, a former presidential candidate, taking over as chairman of the Senate Foreign Relations Committee.

And now you have the prospect of Hillary Clinton, the secretary of state. That's a lot of elephants in the room. And you have to ask, is that the way you want to manage your foreign policy? Will that be effective?

GREGORY: We've seen that movie. We've been watching it for the past eight years.

IGNATIUS: Well, you know, somehow Obama bought into this idea that the team of rivals, that bringing discord under the same tent, is a good idea. I've been covering foreign policy for 30 years, and I'll tell you, whenever you have these kinds of rivalries, different cabinet agencies feuding with each other, the kind of thing we saw with Rumsfeld fighting against Colin Powell during Bush administration, I think you end up with problems.

Why build that in at the outset? I just-honestly, I don't get it.

GREGORY: Before you go, I do want to talk about Zawahiri and this new tape from al Qaeda that came out with these-you know, propaganda at its most base level, casting aspersions upon Obama.

What do you make of this?

IGNATIUS: What I make of it is that they're very unsettled. I wrote a column last weekend making that point, that for al Qaeda, this is a strange new event. This is not the adversary they thought they would be confronting.

The other thing it shows you is that these people-this is really racist. Raw, racist language about Obama. And al Qaeda keeps doing dumb things. It keeps doing things that offend ordinary people around the world.

You know, it keeps killing Muslims, and Muslims get angry. I have to think that Africans, Asians, when they read this language describing the new American president that's got the world's interest, they'll be offended. And I think that will add to al Qaeda's problems, which from our standpoint is a good thing.

GREGORY: This is a quick question, but I realize the answer is perhaps for another visit as a longer conversation.

If Obama is successful in targeting his counterterror efforts in Afghanistan, Pakistan, in a way that some critics would think that-should have been done under the Bush administration, and Iraq is not a central theater as it became, what is the potential potency of that kind of narrow effort?

IGNATIUS: In terms of being able to really nail al Qaeda?

GREGORY: Knock out al Qaeda.

IGNATIUS: So long as al Qaeda in Iraq stays quiescent. In other words, so long as it doesn't return with the return of ethnic violence in Iraq, you can go aggressively after al Qaeda.

I've been in Afghanistan three times this year. And one of the things that's striking is that al Qaeda is already on the run in Afghanistan. The opportunity to really finish that story by making some new alliances, by peeling off some people who are alive with the Taliban but are not Taliban believers, and getting them involved in the fight against al Qaeda, means that we could, I think, continue to have success. And that this could look a good deal better in a couple of years.

GREGORY: All right. We'll leave it there for tonight.

David Ignatius, always a pleasure to have you on. Thanks, David.

Coming next, the latest on Al Franken's Senate quest and the Democrats' quest for a filibuster-proof Senate. It's coming up next inside "The Daily Briefing" when we return on 1600.

(COMMERCIAL BREAK)

GREGORY: We're back with a look at what's going on "Inside The Briefing Room."

One down, two to go. Senate races, that is.

The results are in from Alaska, where Republican incumbent Ted Stevens lost to Democrat Mark Begich, ending an era in Alaskan politics. Stevens, who turned 85 today, was the longest-serving Republican in Senate history. His pursuit of a seventh term was marred when he was convicted just days before the general election of lying on Senate disclosure forms to cover up more than $250,000 in gifts and home renovations courtesy of an oil company. Had he won, Stevens would have been the first convicted felon to be elected to the Senate.

And today marks the start of the recount in Minnesota's contentious Senate race, where after the first vote count, Democratic challenger Al Franken trails Republican incumbent Norm Coleman by just 215 votes, less than one half of 1 percent. City and county workers have until December 5th to finish the manual recount of the nearly three million ballots. That translates to about 60,000 ballots a day and a total cost of about $86,000 to Minnesota taxpayers.

Meanwhile, in Georgia, Bill Clinton, as we mentioned, the former president, showed up in Atlanta to campaign for Democratic challenger Jim Martin today. Martin faces incumbent Republican Saxby Chambliss in a December 2nd run-off after neither candidate took 50 percent of the vote in the general.

And run-offs aren't immune to ad wars. Martin's campaign is running a radio ad featuring Barack Obama urging voters to vote for Martin, while Chambliss is running a campaign ad attacking Martin for his support of Obama's tax plan.

With the Alaska win, Democrats are within two seats of a 60-vote filibuster-proof majority in the Senate. So these are big races.

And some late-breaking news tonight. President-elect Obama gave VP-elect Joe Biden an early birthday surprise in Chicago today. The campaign just released this picture of Obama presenting his number two with cupcakes. He also led the staff in singing "Happy Birthday."

As a gift, Mr. Obama gave his veep, an avid Philly sports fan, Chicago White Sox and Chicago Bears hats.

Joe Biden turns 66 tomorrow.

Coming next, I'm going to go one-on-one with former Clinton chief of staff Leon Panetta about the future of the Obama administration when 1600 returns after this.

(COMMERCIAL BREAK)

GREGORY: Tonight, the stock market plunges again as US auto makers teeter on the brink of bankruptcy. And opposition to a federal bailout only grows. President-Elect Obama is about to take office against these economic head winds. What does that mean for his agenda? That's next as 1600 PENNSYLVANIA AVENUE rolls on.

We're back on the program. I'm David Gregory. Welcome. A lot of developments today from the future Obama Administration. The big news, former Senate Majority Leader Tom Daschle has been tagged to lead to the Health and Human Services Administration. He is going to deal with health policies, a key adviser to President-Elect Obama and has been throughout the campaign.

Also today, NBC News has confirmed that Peter Orszag will be for the new director for the OMB, the Office of Management and Budget. It's the first major economic post to be filled in the Obama administration. It comes on a day when the stock market took another serious hit. The Dow dropping more than 420 points to close below 8,000.

Joining me now is Leon Panetta, former OMB director, chief of staff for President Clinton. He also was a member of the Iraq Study Group. So he's got a view of the world. Most importantly, he is the director of the Panetta Institute, which keeps him busy in his home area, a beautiful part of the world. Leon, it's good to have you here.

LEON PANETTA, CHIEF OF STAFF TO PRESIDENT CLINTON: Nice to be here.

GREGORY: We talk about a key economic posting in this new Obama administration, the Dow doing what it is doing, the financial industry in such distress and the prospect of an auto bailout. As Obama puts together this economic team, what is incumbent upon him now, as he inherits, not only huge problems but an infrastructure for dealing with the crisis that is already in motion, this bailout plan?

It is really tough. And even tougher than you all dealt with in '92.

PANETTA: Without question. I was thinking, he is going to walk into the Oval Office and he is going to face the largest deficit in the history of the country. It will be about a trillion dollars. Facing an economy in recession. And he will face the responsibility for the 700 billion dollar bailout package, and running the banks. So clearly, it is an unprecedented challenge that is going to face him.

For that reason, he has to put his economic team in place early. I'm glad to see that Peter Orszag was nominated as director of OMB. He's a good man. He ran CBO up on Capital Hill, Congressional Budget Office, and I think he'll be good at that job. He has to put the rest of his economic team in place, so that they can make the transition, because they're going to have to go into Treasury. They're going to have to find out what's going on with the 700 billion. They' re going to have hit the ground running.

In addition to that it, it is clear right now, with Congress not passing any kind of stimulus, at least it doesn't look like that is going to happen, that president of the United States is-one of his first responsibilities will be to put in place an economic stimulus.

GREGORY: How does it reorient his priorities in the first 100 days and even the first year? You made the comment recently in print somewhere, that you come in there; you've made a lot of promises. But this thing is going to wash over you, this crisis that is getting worse by the day.

PANETTA: I don't think there is any question that as a result of what he's facing, he is going to have to set some priorities. He's not going to be able to meet all the promise that were made in the campaign. He might somewhere down the road. But immediately, I think he will have to set some priorities as to what is most important, because when you're facing this level of debt, when you're facing this kind of crisis in the economy, you just to have face first things first. And the first thing you have to do is try to get the economy back on the right track.

GREGORY: Let me ask you about leadership and putting together a team. I mentioned, you also studied what went wrong in not finding WMD in Iraq with your study in the Iraq Study Group. The prospect of Hillary Clinton at the State Department, the building of a national security team; what does Obama have to be careful about here?

PANETTA: I think presidents, first and foremost, have to focus on qualifications and experience and people that can do the job. That's number one. You want people that understand that job and that know how to handle it. I think that's important. You also want people at the table who are going to bring their views to the table. You don't want to have just a bunch of yes people around you. You want to have people in a room who are telling you honestly what they believe.

Once the president makes the decision, they have to salute and carry out that decision. Those are the kinds of people that you want. Basically what you want are team players. Yes, they present their views. Yes, they may have their differences. But in the end, when the president of the United States makes a decision, they follow through.

GREGORY: Are you persuaded that Hillary Clinton is the right choice?

PANETTA: There's no question in my mind that she has the experience and the qualifications and the discipline, and someone who I think could really effectively represent the United States abroad in terms of our State Department. I think she would be an outstanding choice, if he decides to do that.

GREGORY: The auto bailout is something that looks like it is failing on Capitol Hill, even though we've had these hearing this week. Yet, the president-elect says this is an industry that can't fail. Add that on top of his financial worries. How do you go about tackling this problem?

PANETTA: David, I think one of the mistakes that's been made with this 700 billion dollar rescue plan is that there are absolute no standards or guidelines as to how this is going to be applied. It creates some very dangerous precedents, because the fact is once you've given this kind of money out to the banks, once you've bailed out AIG and others, then you'll have a whole series of others that are going to line up and say what about us?

Where are the standards? Where are the guidelines? It can't just rest with the secretary of the Treasury. What they should be putting in place, and it is obviously not going to happen in this administration-but what they should be putting in place is some kind of RTC board, some kind of board that was similar to was done with S&L, that can establish some standards and guidelines and can handle these kinds of requests as they come in. Otherwise, politically, this is going to be a disaster, because everybody is going to line up for help.

GREGORY: Do you think the auto makers have to be bailed out at this stage because of the hit they've taken from the economy?

PANETTA: Well, there is no question. It is a huge industry. It's three million jobs. I do think that you ought to take a serious look at what kind help ought to be provided to the auto industry. But there is no question in my mind that you ought to impose some very clear conditions that says to them, if you're going to get this kind of money, then you'd better come into the 21st century and meet some responsibilities with regards to fuel efficiency.

GREGORY: You're a guy who knows how to balance budgets and make presidents pay attention to that. You mentioned a trillion-dollar deficit that President Obama is going to face. Does he need to worry about that in the first year? Can he afford to worry about when it the economy is in need of so much stimulus?

PANETTA: He has to worry about it. The last thing that we want are four more years of what we have had the last eight years, which is largely borrow and spend. George Bush never really got serious about dealing with the deficit at all, which is a tragedy. And now we've got this huge debt. I realize in the short term, all of us recognize that in the short term, in dealing with the economy and the problems we're facing, the deficit is going to have to go up. But at some point, he has to fashion a budget that sets a four or five-year track that returns to us some kind of fiscal discipline.

I hope he not only looks at the short term but also that he also focuses on that long term.

GREGORY: Leon Panetta, thank you very much for being here. Nice to see you in Washington. Appreciate it.

Coming up next, the heads of the U.S. automakers went before Congress, as we've been talking about, for a second day to beg for a bailout. Up next, I'm going to talk to a Michigan lawmaker and an economist who testified today on their behalf. Where is room for innovation in this very important industry, when 1600 returns right after this.

(COMMERCIAL BREAK)

GREGORY: Back now on 1600. The CEOs of GM, Ford and Chrysler returned to the Hill today to appeal for a federal bailout. But it appears their efforts were unsuccessful, at least in the near term. This hour, Senate Majority Leader Harry Reid announced he will not hold a planned vote on the auto bailout because the measure simply would not pass.

Joining me to talk about the auto bailout and its prospects and what it will take for the big three to survive, two men who testified on the Hill today, Sander Levin, Democratic congressman from Michigan, and Jeffrey Sachs, director of the Earth Institute and Columbia University. He's also the author of "Common Wealth, Economics for a Crowded Planet." Welcome both.

Jeffrey, let me start with you. Today on the op-ed pages of the "Times," Mitt Romney, a son of Michigan, wrote some tough words about the auto industry and whether it should happen. His answer, no. This is what he wrote, "without that bailout, Detroit will need to be drastically restructured or restructure itself. With it, the auto makers will stay the course, the suicidal course of declining market shares, insurmountable labor and retiree burdens, technology, after feed, product inferiority and never ending job losses. Detroit needs a turn around, not a check."

Your message was different today on the Hill. Explain this.

JEFFREY SACHS, EARTH INSTITUTE: I would say that's wrong on every count. First, we have no banking system working right now. So a normal thing to do would be that GM would go to the banks during this difficult period where demand has collapsed. There are no banks. So the problem is we have a cash and carry economy right now. We have our most important industrial sector collapsing under the weight of no demand and no financing. If we just step back, what we're going to have is turning a recession, which is already going to be the steepest in 75 years, into the real gamble of a depression.

And I think it is mind-boggling that we're not right now taking less than four percent of the 700 billion and putting an insurance policy for the American people in place. That's what they're not doing. It would be so straight forward to do it. In fact, I think it is going to happen because it is so straight forward to do. This gamble is reckless.

What Mitt Romney says is wrong on all counts. The industry is making big changes already. There has been tremendous rationalization, downsizing. There's new technology coming. But the demand collapsed last month after Lehman Brothers went under. There's no financing to see them through to the breakthrough models like the plug-in hybrid Chevy Volt, likes Chrysler's extended range electric vehicles. So you can't do it by just standing back.

GREGORY: Congressman, if all of that is true, then where is the political will in Congress to get financing, to get a bridge loan together for the auto industry?

REP. SANDER LEVIN (D), MICHIGAN: I think it will be here. The testimony of today shows they're in the process of restructuring. They've also undertaken innovation. The electric car is coming. More hybrids from the big three. They are restructuring, and the workers have taken some sacrifices in terms of future pay. So this in the process. As Professor Sachs has said, what has happened is there has been this credit crunch that has affected the entire economy of the U.S. Look, in Europe, the auto companies have said to the government, help us over this hump. Those governments are responding.

I think there is the will here in Washington. I think the next few days will show there is that will. There is no alternative. There is an urgency here has to be met because bankruptcy-Mitt Romney is totally wrong. Bankruptcy means the end of one or more of these company. No one is going to buy a car from a company that is bankrupt. No one. They may fly in an airplane, they won't buy a car.

GREGORY: Professor Sachs, where is the innovation? What does innovation in these company look like?

SACHS: Innovation is to long mileage vehicles. They've been producing SUVs. That's what the American public has wanted. Now everybody has woken up that because of the energy crisis, because of the climate crisis, because of the price of gasoline, we've going to go a different way. What GM is doing, for example, is bringing out what I think will be the leap frog technology. That is to take hybrid and add in another battery for recharging to get 100 miles per gallon. That's the Chevy Volt.

They've already spent, also, more than one billion dollars for the so-called hydrogen fuel cell technology. That's ten years off. They're spending a tremendous amount of money on that right now. Very promising for the longer term.

What Chrysler is focussing on is so-called extended range electric vehicles. They promise to bring one out in the 2010, lithium ion battery based, extended range electric vehicle for the 2010 market. These are huge breakthroughs. And we have a major world class industry which has been producing one kind of car principally, and now it will lead, I believe, on another.

GREGORY: But Congressman, the question is can this management team that is in place at the big three, can it really lead that innovation effort? Can it lead these company to that future where you have a new breed of worker producing these cars and get consumers back into the fold buying American cars?

LEVIN: I think so. Look, mistakes were made in the past. These company have changed. This is not the car industry of five or ten years ago. They are changing. What they need is a chance. And the chance means a bridge loan, so they can get over this hump that they're not responsible for.

Look, as I said, other countries are responding and there is a military aspect here because the synergy between a domestic industry and our military vehicles is complete. We're going to turn all of this over the foreign automakers, no way. We have to take the lead in terms of technology, in terms of batteries. And we are not going to forfeit that chance. This institution, with the help of the president, and the president-elect who has said the automobile manufacturing is the back bone of manufacturing in this country. We have to rise to the occasion in these next 48 hours.

GREGORY: All right. There is, however, a political head wind here where a lot of people around the country are wondering where the bailout stops, where the return on the investment is. It is going to take a new Congress, it's going to take a new administration, it seems, before we get to this kind of bailout.

SACHS: We may get to this much faster than it looks right now. I think that, in the end, when they look straight at it, they are not going to gamble with a Depression. It is nothing less than that. The important point, David, very quickly. This isn't just about an auto industry changing course. This is about a collapse of the economy after September 15th, when Lehman went down. The whole world economy is in collapse. So it is not really about the auto companies. It is about the absence of financial markets right now and how the respond to that in an urgent way so that we don't have a Great Depression.

GREGORY: OK. We're going to leave it there. Professor Jeffrey Sachs, thanks for being here. Congressman Levin, appreciate you being here as well. We'll be watching this.

Coming up next, looking at the team President-Elect Obama is building. Pat Buchanan and Richard Wolffe, our political round table, join me right after this short break.

(COMMERCIAL BREAK)

GREGORY: Back now with our round table. The Obama transition team announced more key White House appointments today, as speculation continues about which big names will make up the Obama cabinet. Joining me for two of our own MSNBC political analysts and all stars, Richard Wolffe, "Newsweek's senior White House correspondent, and Pat Buchanan, former Reagan White House communications director and Nixon speech writer, former presidential candidate himself. Welcome to both of you.

I want to start with something we haven't talked a lot about today. One of the announcements today, Richard, is that David Axelrod, the chief strategist for the campaign, he is going inside the White House. He will be senior adviser, a very Karl Rove like move. No?

RICHARD WOLFFE, "NEWSWEEK": It is. There was a fair amount of discussion early on for Axelrod, whether he should do this or not. In the end, the gravitational pull of seeing his friend-and he is close to the president-elect. Seeing his friend move into the White House I think was just irresistible. In any way, whether you're in the White House or out of the White House, this is the kind of character who would always get his phone calls responded to from the Oval Office.

Being a piece of there, yes, look, he could become a lightning rod for criticism. I suspect he will have a lower profile than Karl did and he'll be a less divisive figure. That's a matter of style. And who knows how this White House is going to play out.

GREGORY: Karl worked on the re-elect almost from day one.

PAT BUCHANAN, MSNBC POLITICAL ANALYST: Karl was also the pivotal guy in communication with all the political figures. He was the political man in the White House before he was elevated to deputy. I think Axelrod is going to have a problem. When you're in the White House, what you want is some measure of line of responsibility where you have to see the president, domestic counselor adviser, NSC adviser, press secretary, chief of staff. If you're upstairs, as we had Bob Finch up there on the second floor as adviser, the president doesn't need to call on you and you go to meetings and things. And you're just in the line of responsibility. It makes it very tough.

GREGORY: You don't have the troika. You don't have the Karen Hughes, Karl Rove kind of set up that Bush had around him, where he had all that access. Or do you with Axelrod?

WOLFFE: He is going to get access. There is no question about it. These guys are incredibly close. This has been a joint project from the beginning for both of them. I imagine it will be moving forward. You now have three people with the title of senior adviser already. There haven't been that many people named as White House staff. You have Valerie Jarrett, who also has two jobs in the White House. Pete Rouse, who was Senator Obama's chief of staff, and is now senior adviser in the White House, and David Axelrod. That's a lot of people with these broad portfolios. How that labor-division of labor is going to be-

GREGORY: Pat's going to be a senior adviser soon.

BUCHANAN: Those three don't have to-the president doesn't have to see them. He's got-his chief of staff is going to be a political adviser all these others are. Frankly, they're wheels out there with no line responsibility. That's a real formula for problems internally in the White House.

GREGORY: Let's talk about problems internally and with the White House, potentially a problem. This business with Hillary Clinton. It looks like-I talked to a top Clinton world adviser today who said there is a lot of momentum behind this right now. Which means it doesn't look there is going to be a lot that will stop this at this point. And yet, it is playing out the way it is. Is there a reason for this transparency that we're not getting?

WOLFFE: I think this has become like the Middle East. You don't know who started it. Was it the Israelis or the Palestinians? In any case, there are all these theories and conspiracies about why certain leaks have happened. Why there's this dance, this latest twist of well, maybe she is conflicted about it. I hear from senior Democratic officials, this deal is moving forward. The vetting is moving forward. This is on track to go through. And everyone is cooperating. The only question is, why are certain people spinning out certain stories?

For the principles, I think it is pretty clear where there is going.

The people around them are the ones who may be playing these game.

GREGORY: Look, if this doesn't go through, look out for Lady Macbeth, I'll tell you. This thing is so far down the road that there is going to be an element of humiliation for Hillary Clinton if she doesn't get this secretary of State. And I think Barack Obama will have a real problem. And I think it is so far down the road, my guess is, I can't see what would interrupt it that they haven't found yet.

GREGORY: Should he be stung by some of the criticism from the likes of Tom Friedman, who question out loud and seriously whether there is the closeness of relationship to make her as effective as she can be?

BUCHANAN: What you do when you have something like this, the best thing to do, like a Supreme Court nominee, is put it out there. It is decided. And then everybody has to deal with it. Once you just float it, and then it is out there, everybody on both sides gets involved in the battle. I think they would be very well off to get this decided as soon as possible because forces continue to build on both sides.

GREGORY: Let's talk about another potential cabinet secretary. That's Robert Gates staying on at the Pentagon. Some reporting from your former publication about the fact that they're negotiating this. How real is this?

WOLFFE: Well, Secretary Gates had put this out even before we knew who was going to be the out president-elect. This is something he wanted to do. He's worked the Hill very well, He's laid the ground work for it. And everything I'm hearing from people close to Obama say, it is probably going to happen. This looks like it is a wise move. Of course, you don't know how temporary it is. Who they would line up to take over, that is an important area.

BUCHANAN: This would really send the left up the wall. Hillary Rodham Clinton as secretary of State and Gates is held on as secretary of Defense, the two key positions, they're already as unhappy as they can be.

WOLFFE: Unless president-elect saying, your mission now is to engineer the withdrawal of American troops. Go do it. That's what the president elect has said he's going to do.

GREGORY: Are they sensitive, though, Richard, to this idea of restoration? How sensitive are they to the criticism that is this really the change we were talking about? All these Clinton hands in major positions, then a potential Republican? This goes back to Hillary Clinton at secretary of state. Are they worried about some of that blow back?

WOLFFE: I think there are a lot of people in that transition building who stuck their neck out through the primaries who stuck their neck out through the primaries, stuck with the candidate Obama, and are unsettled, as everyone is in a transition. I don't think the president-elect is unsettled at all. His view is excluding people with experiences is a dumb move. The Clintons did it with the Carter folks and it didn't serve them very well. So he is looking for experience. He is looking to get thing done, but does it unsettle his own team, people who stuck with him in the dark days? Yes.

BUCHANAN: It has to. This is a retread. This administration is very much retreads from the Clinton era and the Clinton government so far. One from Bush.

GREGORY: We'll see. To be continued. Pat Buchanan, Richard Wolffe, thanks very much. That's the view from 1600 PENNSYLVANIA AVENUE tonight. I'm David Gregory. Thanks for watching. We'll be back here tomorrow night.

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