updated 11/20/2008 1:50:06 PM ET 2008-11-20T18:50:06

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

Guests: Connie Schultz, Paul Krugman, Evan Kohlman, Lawrence O'Donnell, Mark Begich

(BEGIN VIDEO CLIP)

RACHEL MADDOW, HOST: Hi, again. It's another day off for me, my last one for awhile. But, my pal Alison Stewart is here again for Wednesday night's show. I will be back tomorrow. But now, I'm going to join you and enjoy this one.

(END VIDEO CLIP)

ALISON STEWART, GUEST HOST (voice over): Another day, another appointment leaked from the Obama transition. The Tom Daschle as HHS secretary won't stop anyone from talking about this season's new hit drama Hillary Clinton for secretary of state, depending on about a million things including, to whom you speak. Pulitzer Prize winner Connie Schultz joins us with a bit of specific insight into Hillary Clinton's disposition about leaving the Senate.

Al Qaeda's number two said-what? Ayman al-Zawahiri threatens the west in uniquely offensive and racist terms. Evan Kohlmann is here to explain how Barack Obama's election may already have struck a blow to public enemy number one.

Just coming off election night withdrawal? Bad news to your recovery. Bill Clinton campaigns in Georgia. Senator-elect Mark Begich joins us live from Alaska.

And we have live breaking news. Actual vote counts released this hour from the Al Franken-Norm Coleman race in Minnesota. Do we get to play the election night music?

And, lame duck watch continues. The stock market crashes again today as car companies CEOs get off their private plane to plead with Congress for fresh $25 billion of relief. And the White House? Don't look at them.

(BEGIN VIDEO CLIP)

DANA PERINO, WHITE HOUSE PRESS SECRETARY: If they don't act, what is clear is that they don't agree that there needs to be an additional $25 billion for the auto industry. And he doesn't allow a vote on it, it hardly seems that it would be our fault.

(END VIDEO CLIP)

STEWART: Nobel Prize-winning economist Paul Krugman on what he thinks has to happen to avert disaster. All that, plus, important updates on pirates-arrgh, on Sarah Palin's ethics-you betcha, and the sorest loser of the 2008 election, (INAUDIBLE).

THE RACHEL MADDOW SHOW starts now.

(on camera): There is plenty to say and to wonder about Hillary Clinton and Bill Clinton and the secretary of state job and-well, before we head down that rabbit hole, because we are going to go there with Pulitzer Prize-winning author Connie Schultz, we begin tonight with actual breaking news, election-style.

The recount began today of the vote in Minnesota's critical Senate contest between Democrat Al Franken and Republican incumbent, Norm Coleman. With 58 seats in the upper chamber of Congress already gone blue or bluish in two cases, the remaining races in Minnesota and Georgia are perceived as critical to both parties.

The breaking news-let's get to it. From the day one of the Minnesota recount, here is where we stand. With 23 percent of the precincts reporting, Senator Coleman is ahead with 43.25 percent while Al Franken is close behind with 39.99 percent. Going to today's recount, GOP incumbent, Norm Coleman, held a 215-vote lead over Al Franken or a 0.008 percent, if you want to be all precise about it. It's safe to call tonight's results are way too early to call.

Franken hit Capitol Hill this afternoon to brief Senate Majority Leader Harry Reid and Senator Dianne Feinstein about the state of the race, calling himself, quote, "cautiously optimistic" about his chances of winning. While Franken toured what he hopes will be his new digs, election workers back home in Minnesota started the grueling recount process-hand recount, re-tabulating more than 2.9 million ballots across the state, one by one. They have until December 5th to complete the recount.

Want to know how laborious the process is and just how seriously they are taking it? Here are the ground rules in Ramsey County which includes the capital city of St. Paul. In total, they have 300,000 ballots to count. The mandate is to count 30,000 ballots each day, which would be one ballot every five seconds for each counter. Only county election employees or election judges may touch the ballots, no food and drinks are allowed, and absolutely no talking. It makes the SATS sound like a party.

He's (ph) hoping no repeat of the Florida hanging chad affair in 2000 because I still can't get this guy out of my head.

The other state still on our election minds - Georgia, where the post-election lingo is runoff not recount, since neither incumbent, GOP Senator Saxby Chambliss nor his Democratic challenger, Jim Martin managed to get more than 50 percent of the vote the first time around. Today, Martin called in the Democratic big guns, former President Bill Clinton, who made his best sales pitch for what could be the key race in the Democratic hunt for 60 seats in the Senate.

(BEGIN VIDEO CLIP)

BILL CLINTON, FORMER U.S. PRESIDENT: This is not about Republican and Democrat, it's about yesterday and tomorrow. It's about the bridge against the firewall. And I want you to go home tonight thinking about that and I want you to think about it every time you got a free hour between now and December 2nd, that you could go out and make phone calls or knock on doors or do something to tell people Jim Martin ought to be the senator for Georgia. He's the kind of person we can respect, and honor, and support and be proud of.

(END VIDEO CLIP)

STEWART: Voters in Georgia head back to the polls for a runoff election on December 2nd. Meaning, that he whole Election Day thing they had earlier this month was more of a dry run, -- a practice, if you will.

And then, there's Alaska, which up until last night, found itself in the undecided category, but now, has an apparent winner, and he is Democratic challenger and Anchorage mayor, Mark Begich, who defeated incumbent GOP senator and convicted felon, by the way, Ted Stevens, the longest-serving Republican in Senate history. Begich will become the first Democrat to represent Alaska in the Senate in nearly 30 years.

Had Begich lost to Stevens, the Democratic quest for the filibuster-proof 60-seat majority in the Senate would have been a moot point, but Begich won. They're now at 58, with the two independents, in the quasi-baseball Senate races, the drive for 60 seats, the Democrats are mathematically alive, two away with two to play. We'll talk about what 60-Senate seat actually means with Lawrence O'Donnell. We'll do that in just a minute.

But first, joining us from Alaska, Senator-elect Mark Begich.

First of all, congratulations on your victory. Thanks for being with us.

SEN.-ELECT MARK BEGICH, (D) ALASKA: Absolutely. Thank you very much. I'm honored to be on the show today.

STEWART: I'm a big fan of your state, some of the best hiking in Chugach Mountains, I've never been on.

BEGICH: Absolutely. It's a beautiful state and a lot of territory when people come and visit. Their first time, they want to come back multiple time because there's so much to see up here. But, it's a great state and it's a great day today.

STEWART: Senator Stevens, he's an institution in your state. He was involved in politics before Alaska was a state. The airport is named after him in Anchorage. So, how much responsibility do you feel replacing him?

BEGICH: Well, first off, you know, there's a lot of years, 40 years of service he had for our state. And we respect him for that. But the reality is, Alaska was changing. And people were seeing a different kind of state. People were staying here, living here, and retiring here. And what I saw was this constant change that was going around the state.

So, there's a lot of new opportunities for our state.

When I think about the energy crisis we face in this country, how Alaska can be part of the equation or the issues we face in how we deliver healthcare throughout our very rural communities. So, in a lot of ways, there's a lot to follow through on, but there's a lot of new ideas that Alaskans have been telling me about since I've been on the campaign trail for the last six months.

So, I'm excited about it. It's an unbelievable opportunity. And at the same time, we respect his service, but it is now, Alaska has spoken and it's time to move forward.

STEWART: And Senator Stevens was almost reelected even though he was convicted on seven felony counts. Do you feel you have a mandate from Alaska voters?

BEGICH: Well, I can only tell you my race in 2003 for mayor, I won that with 18 votes. So, winning with over 3,700 votes is-in Alaska politics is somewhat a landslide. So, I appreciate the support. I'm humbled by how much we receive throughout the state. But everyday, I'll be working to earn the votes and the continued support of Alaskans.

So, you never take anything for granted like this race, I always keep saying it would be close. I never took anything for granted. And I'll-being elected to the U.S. Senate-I'll be working every day to make sure that all Alaskans are heard in Washington, D.C. So, you know, you never take any race no matter what your percentages are, as any mandate, you work hard every single day to prove up on what you said you would do.

STEWART: And you will likely be working hard or, at least, working closely with Governor Palin. Is she someone you think you can work closely with?

BEGICH: Absolutely. As mayor, I worked with her in regards to many of the issues we had here in Anchorage. We have road projects and revenue-sharing, and many of the issues we faced as the largest city in Alaska. Also, just this morning, I saw her at an event we're at together, she congratulated me and we're planning to meet over the next two weeks to talk about Alaska's issues and how we can join together to make sure Alaska's issues are heard on the national front, but also, what I can do from the federal and to ensure that Alaska continues to grow as it is. So, I see a great opportunity.

STEWART: What was the temperature up there today?

BEGICH: Well, it varied a little bit. I think we're in 15-20 range today. Last night, when I did an interview, it was seven degrees. So, but you know, we have a great sunset tonight, and if you've ever seen an Alaskan sunset in a winter, it's unbelievable. It's-as I would tell my son, it's Santa Clause making cookies when you see the red and orange along the cloud line.

STEWART: And it probably happens 3:00 o'clock in the afternoon or something like that at this point?

BEGICH: It happens a little earlier than you probably use to where you are. Yes, it does.

STEWART: A little bit early.

BEGICH: Yes.

STEWART: Well, stay warm. Alaska Senator-elect Mark Begich, thank you for your time tonight, and congratulations, sir.

BEGICH: Thank you very much for the opportunity.

STEWART: With that win in Alaska, the Democrats moved a few inches closer to that magical 60-seat majority in the U.S. Senate. If they somehow manage to win both the runoff election in Georgia, and the hand recount in Minnesota-presto chango, you have yourself a 60-seat filibuster-proof majority. Would it really be just cause for the Democrats to break out the champagne?

Joining us now is MSNBC political analyst, Lawrence O'Donnell.

Lawrence, thanks for being with us.

LAWRENCE O'DONNELL, MSNBC POLITICAL ANALYST: Eighty degrees and sunny in Burbank today, as usual.

(LAUGHTER)

STEWART: Oh, he's rubbing it in.

So, 60, 60, 60. I think I myself said the number 60 about 60 times tonight. You know, is it that important? Is it a symbolic number? Or is it-give us a reality check on what that means.

O'DONNELL: It's not as important as people think. They're awfully close now with 58. And if they were to get to 60 with Al Franken seat and then the seat in Georgia, they might actually be able to put together some 60-vote filibuster breakers, not necessarily using all Democratic votes. For example, it may be easier to get Susan Collins or Olympia Snowe, Republican senators from Maine to vote with the Democrats on certain items than it would be the senator, the new Democrat from Georgia.

You know, I was working in the Senate, we had Sam Nunn from Georgia. It was difficult to get him on Democratic votes in the crunch. And frequently, we would pick, say, John Chaffee, a Republican from Rhode Island instead. And so, I would expect to see those kinds of things happen. And there's a bunch of Republicans who can be picked off to get to 60 votes in the Senate now. I would start with the two senators from Maine and then also Arlen Specter from Pennsylvania who's always lean toward the left side of the Republican Party.

There are some Republicans who were up for reelection whose states went to Obama this time who have to be a little nervous. Judd Gregg in New Hampshire who saw a Republican lost re-election to the Senate in New Hampshire this time. George Voinovich in Ohio, he's had an independent streak here and there. Mel Martinez in Florida. And then there's wild cards like John McCain and Lindsey Graham. There's eight Republicans right there who you might be able to pull into a governing majority for Democrats, when they don't have all of their Democrats lined up.

STEWART: And then you have the fellow named Joe Lieberman. And, you know how the Senate works. Does Joe Lieberman owe Barack Obama and the Democrats if there's a close vote that Democrats, they need him on? Even if he wouldn't ordinarily voted with them, will they call in for that favor?

O'DONNELL: Well, the lost truth about Lieberman is that he voted mostly with the Democrats even when he was in this renegade position on the McCain campaign. Yes, he does owe Barack Obama. He basically said that explicitly yesterday.

But the disciplining of Joe Lieberman in terms of the Democratic Party is going to come from Connecticut, the voters of Connecticut, according to recent polls, are extremely dissatisfied with his performance in the last year. He can't get reelected there right now based on his numbers in Connecticut right now. He can correct that by getting in line with the Democrats and he knows it.

So, Lieberman needed to stay in the Democratic Party. The Democrats needed him to stay in the Democratic Party. And, I think, it worked out the way both sides needed it to work out.

STEWART: Let's head south for one more quick question-Georgia Senate race. Bill Clinton was there campaigning for the Democrat Jim Martin today. John McCain campaigned there for Saxby Chambliss last week. Why hasn't Barack Obama-we all know he's busy, obviously-but why isn't he traveling down there to help this Democrat win?

O'DONNELL: Well, I think, the calculation so far is, he can't help. You know, he did not win the state of Georgia. It's very unlikely that Obama could get as big a turnout for Martin in this runoff as they got last time around. And so, what Obama doesn't want to do and what his people don't want him to do is to go down to Georgia after this big presidential win, go down to Georgia, test his political capital in Georgia and lose. That would kill the momentum he has right now-not kill it, but would hurt the momentum he has going into his inauguration. So, they don't want to see that happen.

STEWART: No political bus got (ph) there, I guess.

MSNBC political analyst Lawrence O'Donnell, thanks for your time.

And that you try to keep warm there in Burbank.

O'DONNELL: Thank you. It's not a problem here. Not a problem.

STEWART: I don't know if you can imagine this, but someone has leaked the name of another Obama cabinet appointment. This time, it's Tom Daschle, to head of Health and Human Services but still-no confirmation, denial, secret high sign from the worst keep secret, Hillary Clinton may become the secretary of state.

Ahead: Pulitzer Prize-winning columnist Connie Schultz tells us what Clinton had to say yet to her about the possibility of leaving the Senate.

Plus, before the election, everyone wondered when we would hear from al Qaeda. Well, now, we have. Do they really think racial slurs against Obama will work? It's so November 3rd.

But, first, one more thing about unfinished business when it comes to congressional races, specifically, the congressional race in the fourth district of Colorado. Republican incumbent congressman, Marilyn Musgrave lost. And she's flat out lost by 12 points to Democrat Betsy Markey. Fair and square, no need for a recount, no need for a runoff-she lost.

So, what gives with Representative Musgrave, it's now been 15 days since that double-digit blowout and Politico.com, among many others, reports that Musgrave has yet to concede the race. No call of congratulations to her opponent. Her campaign has no comment. And Politico.com reports that no one has seen or talked to Musgrave and she, quote, "all but disappeared." But Congressman-elect Markey probably shouldn't feel so bad, Musgrave reportedly hadn't thanked her staff, either. (INAUDIBLE), Marilyn Musgrave.

(COMMERCIAL BREAK)

STEWART: Governor Sarah Palin will stay closer to Wasilla than Washington. After John McCain lost the election, Palin's other potential and immediate road to D.C. was blocked yesterday when Ted Stevens Senate seat went to Mark Begich. Now, a fellow Wasillian has filed a complaint against Governor Sarah Palin with the Alaska personnel board saying that all those interviews that she did after November 4th from the governor's office, violated ethics rules by promoting her future political career on state property.

I'm guessing here, but somehow this new complaint would be the media's fault. So, sorry, again, Sarah.

(COMMERCIAL BREAK)

STEWART: Think back to the campaign season, a whole two weeks ago, when the Republican talking points against Barack Obama for president included plenty of suggestion, implicit and explicit, that Obama was a dangerous choice in terms of our terrorist enemies. Senator McCain asserted that Hamas preferred Obama. Senator Lieberman also explicitly tried to raise doubts about Obama's fitness to combat our adversaries.

(BEGIN VIDEO CLIP)

SEN. JOE LIEBERMAN, (I) CONNECTICUT: In a dangerous world, al Qaeda, Iran, Iran trying to get a nuclear weapon, I want a president who our enemies will fear. I don't believe that Senator Obama will be that kind of president.

(END VIDEO CLIP)

STEWART: Well, the opposite might be true. In the last 24 hours, Osama bin Laden's top lieutenant, Ayman al-Zawahiri appears to have released the first-known al Qaeda message to the world since the U.S. election. In the video, with service on the Internet overnight, a man appearing to be Zawahiri criticizes President-elect Obama's foreign policy positions in Afghanistan and Israel. He also launches a barrage of racial and religious attacks against Obama complete with English subtitles for his audience.

Among his verbal assault was this. "You represent the direct opposite of honorable black Americans like Malik a-Shabazz or Malcolm X." The speech went further crossing lines of accepted language and slurring Obama and other African-American leaders. "In you and in Colin Powell, Condoleezza Rice, the words of Malcolm X concerning 'house negroes' are confirmed." Threatening an offensive, the message calls for a continued holy war against America, asserting Barack Obama represents more of the same from the United States. Quoting here, "America has put on a new face, but its heart is full of hate, mind drowning in greed, and spirit."

What to make of this message, particularly the racist language? Does the message do anything to prove or disprove the campaign claims about Barack Obama's vulnerability to our enemies?

Joining me now is Evan Kohlmann, NBC News terrorism analyst.

Hello, Evan.

EVAN KOHLMANN, NBC NEWS TERRORISM ANALYST: Hi.

STEWART: So, why is al Qaeda putting this tape and this kind of message with racial epithet against Obama? Why is it coming out now?

KOHLMANN: Well, the purpose is pretty clear. I think Al Qaeda is trying to counter this wave of Obamamania. This wave of enthusiasm and support and interest that we've seen not just in the United States but also in the developing world, and in Africa, which are places that al Qaeda has an eye on and al Qaeda has a strong interest in.

And it's certainly disappointing for al Qaeda, I think, to see that Obama has won so much support in areas that al Qaeda has worked so many years to develop a constituency in, to develop people who support al Qaeda. And now, we're seeing all of this people rising up, and at least, out of interest in the election of Obama. It's fundamentally disturbing to al Qaeda. And I think that's why you see this response before Obama has made a single policy decision, before he's even step foot in the White House. They are attacking Obama as a symbol of change in America, not because of any particular policy move or policy decision he's made.

STEWART: So, the election of Barack Obama and sort of the worldwide embrace of Barack Obama is the opposite of a recruitment tool?

KOHLMANN: Yes, I think it's pretty clear. I think Barack Obama challenges a lot of the preconceptions that these people have about the United States. It challenges a lot of the underlying facts that they put into their propaganda. I think, in some way, it's confused them. And they've come out with this response which, you know, there are ways of attacking Barack Obama, which can be very effective in their language and with their propaganda.

And certainly, one of the ways which they found is to put Barack Obama's image at the Wailing Wall in Jerusalem when he's wearing a Kipa. And he is, you know, the implication is he supports the Israelis. That may work. But, to come out and to call him a "house slave" or a "house negro" and having Doctor Ayman al-Zawahiri being the one issuing these charges in the name of Malcolm X is a bit ridiculous. I think.

STEWART: That's interesting, Evan. I want to dive in there. Have we seen references to Malcolm X ever before in any of these al Qaeda messages?

KOHLMANN: Yes, it's a bit strange but the answer actually is, yes.

In recent years, particularly in recordings relating to Doctor al-Zawahiri and the American al Qaeda spokesman, this rather eccentric individual from Southern California named Adam Gadahn, there are frequent references to Malik al-Shabazz. And despite the fact that Adam Gadahn is a white guy from Southern California, he, for some reason, feels like he can speak on behalf of Malik al-Shabazz. He's channeling Malik al-Shabazz and he can thus interpret what Malcolm X would have said. And Zawahiri seems to have the same predilection towards interpreting what Malcolm X would have seen in today's politics.

But I think a better question is that-is Zawahiri here taking a very dangerous step? Because, you know, al Qaeda itself has had problems with racism and bigotry within the ranks. And it was only about a decade and a half ago that al Qaeda was paying different salaries to its Arab members and its black African members. And the person administering that financial scheme, that payment scheme, is now the number three in charge of al Qaeda. He wasn't demoted, he wasn't punished for this, he was promoted.

So, I think the question is-is al Qaeda really in a position to be, you know, spouting off about the evils of racism when clearly, they have as much problem with it as anybody else?

STEWART: Evan Kohlmann, thanks for your time tonight.

KOHLMANN: Thank you very much.

STEWART: Now, Rachel had one request for me before she left.

That, Alison, please continue lame duck watch. Somebody's got to do it. She didn't, really. But, in any case, tonight, the ball is in President Bush's corner of the auto industry bailout. Paul Krugman will join us to explain.

And, is the suspense killing you? Where does that come from? No, not the cliffhangers from last week's "True Blood," although that one is killing me. I love that show. I mean, will Senator Hillary Clinton become secretary of state? Connie Schultz will along to offer her insight on the subject.

(COMMERCIAL BREAK)

ALISON STEWART, GUEST HOST: In keeping with the no drama Obama vibe, you have Tom Daschle and Eric Holder and Greg Craig. But when it comes to the soap opera that is the secretary-of-state position, the stars of that drama go by the name Clinton.

The day's developments in the daytime drama that is the appointment of secretary of state with the analysis of Pulitzer Prize winner, Connie Schultz, is coming up.

First, it's time for a few underreported, holy mackerel stories in the news today. Arrgh! Yes, that is the official cue that we have an update on the pirates wreaking havoc off the east coast of Africa where some of those buccaneers in the Gulf of Aden have met their match.

Their downfall - the Indian Navy. Get this, after the crew from an Indian warship, the INS Tabar, demanded a suspected pirate mother ship to stop for inspection, the pirates threatened to destroy them and then fired on them. File the pirates move under tugging on Superman's cape. The Indian frigate returned fire and blew up the pirate ship, setting the ship on fire and setting off explosions on board, sending two speedboats packed with pirates retreating for safety.

Just eight days ago, the Indian warship foiled an attempt by the pirates to hijack an Indian and a Saudi ship off the Somali coast. A reason the Indian Navy has taken a lead in the fight against pirates? The country sends 38 Indian-owned ships carrying nearly $100 billion worth of cargo through the pirate-infested waters each month.

So in the past week, India has blown up a pirate mother ship and planted a flag on the moon and is dating John Mayer. All right. I made that part of that up.

How about a genuine feel good story about honor and honesty? Come on, all you cynical grumps. This will be good for you. It's from the sports world and it's not about gambling or performance-enhancing drugs.

Golfer J.P Hayes played a tournament last week in Texas trying to qualify for a full-time spot on the PGA tour next season. After playing his round, Hayes was back in his hotel room and he realized that he unintentionally played two shots on the 12-hole with a titlist prototype golf ball. The prototype had not been approved for use in professional competition.

Now, he hadn't meant to, but J.P. Hayes had broken the rules. And he could have gotten away with it. Nobody else knew. But with tour spot and all that money in the balance, Hayes called an official with the tour and revealed the truth.

He was disqualified and his spot on the PGA tour went by the boards for the next year. Hayes' summation, quote, "It's disappointing." It must be to him, but it's kind of reassuring to the rest of us to see honor in the sometimes dishonorable world. So good on you, J.P. Hayes. Hello, some big advertisers out there. Help a golfer out, especially a good guy.

(COMMERCIAL BREAK)

STEWART: Welcome back. I'm Alison Stewart in for Rachel Maddow who will be back tomorrow. The big Obama treasures and talk tonight should be about Tom Daschle. The former Senate majority leader was offered the post of Secretary of Health and Human Services by Obama.

NBC News confirms he's accepted the job and he will oversee Medicare, Medicaid, the FDA and possibly oversee reforms to a national healthcare system. That should be the talk.

And in related news, you should eat more broccoli. But what everybody really wants to chat up is the daytime and nighttime drama featuring a tough, but determined lady trying to figure out the ups and downs of her political life, the soap opera that has become the nomination for secretary of state.

Like sand through the hourglass, so are the days of our transition. What will become of Madame Secretary? Is she torn between power and healthcare reform? Will her husband, Bill, cooperate with the vetting process? Who is leaking all this information all over Pine Valley? All we need is someone with amnesia to get involved - wait, that has been the Clinton's in the '90s.

Well, for the record, today, "Politico.com" reports that negotiations are moving toward a formal offer and acceptance according to officials involved, quote, "Both sides want to get it done and believe she can be announced before Thanksgiving."

Meanwhile, other reports at "Politico" and the "New York Times" quote a source saying that she is, quote, "agonizing over the decision." A Clinton ally told the "New York Times," quote, "She hasn't decided whether she wants to leave the Senate."

And amid all of this dramatic sequences, more analysis today. "Washington Post" columnist, David Broder, calls it a mistake, "The last thing Obama needs is a secretary of state carving out an independently based foreign policy."

"The New Republic's" Martin Peretz says, "Barack is playing with fire." And "New York Times" columnist Tom Friedman says, "When it comes to appointing a secretary of state, you do not want a team of rivals."

So we are essentially at the cliffhanger part of the soap opera at the end of the hour where someone stares off knowingly to the side. But in cable TV, that's bad television.

So joining us now is Connie Schultz, Pulitzer Prize-winning columnist for "The Plain Dealer" in Cleveland, Ohio. Connie, thanks for being with us.

CONNIE SCHULTZ, PULITZER PRIZE WINNING COLUMNIST FOR "THE PLAIN DEALER":

Thanks, Alison. Actually, I'm in D.C. today.

STEWART: I was about to say, it's a really nice Capitol they have in Cleveland.

SCHULTZ: We're very versatile here in Cleveland.

STEWART: I like Cleveland. All right. You talked to Sen. Clinton about her future before the election. Did she seem resigned to return to the Senate to continue her term.

SCHULTZ: Well, I would never use the word "resigned" with Hillary Clinton. I did feel at that point when I was listening to her talk that she certainly was interested in getting back to work in the Senate. But she certainly also was leaving open options. The Supreme Court didn't seem to be one of them. She's too much of an advocate for that. So I wasn't surprised that she wasn't landing there in terms of her ambitions.

But I think it's interesting, don't you, that it's all these guys are already weighing in again, saying, "No, no, no. Not Hillary Clinton." I'm not sure that everyone is feeling that right now.

STEWART: Well, is there any sort of reason that Sen. Clinton would not want to be part of President-elect Obama's cabinet?

SCHULTZ: You know, nobody knows the relationship between Hillary Clinton and Barack Obama except those two people, really. And I think it's been interesting to watch all the speculation and listen to it. But I don't think anyone knows it except for those two.

And I don't think the Barack Obama camp would have leaked this if they didn't feel pretty confident she was going to be a team player. Of course, she's got some considerations. Her husband's career is certainly - I would say hanging in the balance, but I can't work up a lot of sympathy if what ends up happening for Bill Clinton is he'll have to stay closer to home, the home shores.

Hillary Clinton has given up a lot over the years for her husband's career. And I think there are an awful lot of women supported her, who really welcomed the chance for her to take center stage.

STEWART: What skill sets do you think she has that would make her a good secretary of state, and what political habits that she have that might not suit her for this job?

SCHULTZ: Well, when I look at her role in the Senate, what she's been doing and when I look at her run for the presidency, I do think her personality is better suited for executive roles. And this will give her that opportunity. I also think any speculation that she's not a team player is pretty much defeated by looking at what she did after she lost her primary.

Just this week, the Democratic caucus gave her a standing ovation when I think when Sen. Harry Reid acknowledged all that she had done to help Barack Obama elected. So I don't share the concern of some that she would not be a team player.

I think the question for her is going to be, where does she - you know, I'm not willing to make it all about ambition because we don't talk that way about male candidates ever. I mean, men have ambition and we accept that.

I think it's normal that women would, too. And I think for her, she just has to really take a look at the lay of the land and decide where she can make the biggest difference. My guess at this point would be that she's tilting towards secretary of state.

STEWART: Well, it's interesting. I spoke to two journalists today, one who is a woman and one who is a man. And they both of sort of toss off casually and said, "Oh, you know, the Senate, her getting to be a senator - it really was a steppingstone to something bigger. And he said it with such conviction it sort of - it surprised me a little bit. What's your take?

SCHULTZ: I think when you look at a person who runs for elected office, for higher office, or in her case, her first elected office. I guess you can always speculate that that is a steppingstone. But I'm not quite sure what else she was going to - I saw that as her break-out move.

I mean, she had been a first lady for a long time, and it made sense, I thought, that if she was going to enter the political arena, she ought to aim high. Was that setting the stage for a presidential race? I think only Hillary Clinton and her closest advisors know that. I don't know that.

But I wouldn't be surprised if certainly she was considering that. I just don't see the criticism in that. Again, I think we see it in men all the time. And I'm not willing to criticize her simply for being ambitious.

STEWART: Now, a question I have been wondering about is why is Hillary Clinton's camp sending out messages that she's not 100 percent sold on the idea of accepting this offer should it really be a really followed offer again. Politically, what's behind a move like that?

SCHULTZ: I'm wondering if this more about a staff. That isn't certain yet what the discussions have led to between her and her husband. You know, nobody knows a marriage like the two people in it.

And in the strongest of marriages, it really is a dance, is it not? Sometimes, you know, the man leads and sometimes the woman leads. Her staff - they're a very loyal group as you know, and they believe in her deeply. And I believe they are going to support whatever she does to do.

I think most of them, if you ask them privately, will tell you they really think it's her turn. And who knows what is going on right now behind the scenes in terms of making sure that everyone's lined up and needs to be where he needs to be for her to do this.

STEWART: Ready for another installment of this soap opera tomorrow.

Connie Schultz columnist from "The Plain Dealer" in Washington, D.C.

Thanks very much.

SCHULTZ: Thanks, Alison.

STEWART: Next, "Lame Duck Watch" continues. Building cola coal plant and oil refineries in your wilderness areas and national parks seems like a good idea to somebody. That will show those meddling trees.

Meanwhile, auto industry big shots go to Capitol Hill trying to get in some bailout action of their own. But Congress appears tonight to be punting to the president. Noble prize winner Paul Krugman will join us to break down the quackitude, next.

(COMMERCIAL BREAK)

STEWART: And now, something of a tease for all you pronunciation sticklers out there waiting impatiently for change you can listen to. Here is the President-elect.

(BEGIN VIDEO CLIP)

BARACK OBAMA, UNITED STATES PRESIDENT: We'll invest in clean coal technology, safely harness nuclear power.

(END VIDEO CLIP)

STEWART: Did he say "nucular?" No. It's a new age, but it doesn't officially start for another 61 days. Meanwhile, the country has problems. President Bush has authority and so, as continuing public service, it's another issue of "Lame Duck Watch." Animation.

Nice duck. Let's start with ducks, actually. Ducks. Wildlife. And we learn tonight the Bush administration is planning to relax regulations covering endangered specie and wildlife and their environment which is protected by the Environmental Protection Agency.

Does the EPA mission jive with this lame duck news? The agency is currently finalizing new air quality rules making it easier to build coal plants, oil refineries and other major polluters near national parks even though half the EPA's 10 regional administrators formally dissented from the decision.

The proposal would change how pollution levels are actually measured which in written statement EPA administrators say would undermine critical air quality protections for parks such as Virginia Shenandoah seen here which is frequently plagued by smog and poor visibility. Remember, dear viewers, the P of EPA stands for "protection."

On the president's calendar, the reopening of the National Museum of American History in Washington, which he calls a, quote, "fantastic place of learning." He also talked about some of the items displayed in the museum.

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, UNITED STATES PRESIDENT: You can see George Washington's military uniform, one of Thomas Edison's early light bulbs, the desk on which Thomas Jefferson drafted the Declaration of Independence.

(END VIDEO CLIP)

STEWART: So what artifact of the Bush era will be displayed at the museum? Here's hoping it's not some representation of America's shrinking collective nest egg, but it might be.

Stocks closed down 400 points today to a more than five-year low amid worries about the fate of the American auto industry and economy. And a bailout for the troubled sector grows increasingly unlikely.

The $25 billion Democratic bailout proposal in the Senate has stalled due to weak support. Late today, Majority Leader Harry Reid cancelled the scheduled Thursday showdown vote on the proposal. So will there be a bailout for the so-called big three car makers? Harry Reid says it's up to the president. The AP reported that Senate is preparing to, quote, "punt to the White House. White House, what say you?

(BEGIN VIDEO CLIP)

DANA PERINO, WHITE HOUSE PRESS SECRETARY: The Congress will bear responsibility for anything that happens in the next couple of months during their long vacation.

(END VIDEO CLIP)

STEWART: So nobody knows the lame duck congress nor the lame duck president appears to want to do anything. What should they be doing?

Joining me now, Paul Krugman, "New York Times" op ed columnist and professor of economics at the Woodrow Wilson School at Princeton University. Mr. Krugman, thank you so much for taking the time tonight.

PAUL KRUGMAN, NOBEL PRIZE LAUREATE AND "NEW YORK TIMES" COLUMNIST: Sure.

STEWART: I know this is complex and layered but I hope you will permit to start with a basic choice. Should the auto industry receive a $25 billion bailout, or should it be allowed to fail and file Chapter 11 bankruptcy?

KRUGMAN: I think it should be rescued. And it's not, you know, a less deserving bunch of chief executives who would be hard to find. And industry - it's been badly run. Lots of bad decisions. But you want to, you know, sort of off-handedly take the chance of letting this thing really disappear.

Because, you know, Chapter 11 is supposed to keep a company in being, right? To stave off the creditors to keep in being, but it won't work in this case. The trade credit, the sort of the credit you need to keep operating is not available because the financial markets are a mess.

And will people buy cars from a bankrupt auto company? Very doubtful. So if you let this thing slide and you just say, "Well, you know, I don't really want to give them the money." You can wake up three months from now - two months from now - 61 days from now, that's the whole thing we're worried about - and find you've lost those companies on a permanent basis.

It's an irreversible decision and I think we should just - it makes a lot of sense to kick this can 61 days down the road so we can deal with it intelligently.

STEWART: But why is the auto industry so special? Why should it be given money for essentially extremely poor management?

KRUGMAN: No, it's not that it's special. It's just that it's big and that it's on the verge of failure. It's just we are in the middle of a very - you know, the economy is in a nose dive. And this is something that will greatly accelerate the nose dive.

If GM goes under, which looks like a real possibility, then that's a huge blow to huge anti-stimulus program at exactly the wrong moment. If this was 1999 and we had four percent unemployment and the credit markets were working, I would say, let it fail. Let bankruptcy do its work. But this is not a good time to be having a really major industry just turn belly-up.

STEWART: I'm wondering if some of the opposition to all of this - could it be a bit of bailout fatigue? Fannie, Freddie, AIG? If the car companies had shown up first, perhaps they would have been given an easier ride.

(CROSS TALK)

KRUGMAN: That's not - I think it's a little more complicated than that and a little less creditable than that. It's partly that we basically are seeing the White House and the 49 seats that the Republicans have in the current Senate. They are just sort of checking out, sort of, you know, not our responsibility. We don't want to deal with stuff and we don't want to take any difficult decisions.

And part of it is just there are regional things. You know, we do have the big three and not the whole auto industry. There are a lot of foreign companies operating in the United States. They are in different states. It would be really bad for Michigan and pretty bad for the U.S. economy if GM goes under. But not so bad for Alabama, let's say, which had a lot of factories.

So there's a lot of - you know, there's special interests on all sides here. And the trouble is that we're on the verge, possibly, of making a really irreversible decision, almost in a fit of absence of mind.

STEWART: Now, do you think a bailout should come with conditions?

KRUGMAN: As much as you can, but time is - you know, it's going to take some time to get a reasonable plan together. We're really talking about a bridge loan here. We're really talking about giving us a couple of months so that the thing doesn't shrivel up before we have a chance to figure out what can be saved.

If you say, you know, we have to have a comprehensive plan and we have to have it in three weeks, and/or we have to have it, you know, now for a vote this week. We're not going to have it. And yet, if we don't do something, we may see these companies go under. It's just this - it's a terrible way to make decisions, but you know, it's a terrible economy.

STEWART: You touched on something in your very first answers. I'm sure people watching at home or watching on their computers, these CEOs asking for a huge amount of money when their base salaries are in the millions. And once you put together the incentives, they can go up to $13 million or $14 million. Yet they're asking people, "Give us $25 billion."

KRUGMAN: Sure. No, like I said, these are not good guys. And they took corporate jets to plead for money in Washington, right? They are idiots. This is the theatrics. It was really stupid, right?

But nonetheless, that's not the point. The point is that there are - you know, estimates run from one million to three million jobs lost if GM goes under. And so there's probably 12 guys out of those one million to three million people who are really bad guys and fly corporate jets and really don't deserve any bailout.

But the other 999,000 - I can't do the subtraction right here - all those other people are, you know, people making a living, people who will lose their jobs, and lose their health insurance. That's where you should be putting the priority.

STEWART: Paul Krugman, "New York Times" op ed columnist, Nobel laureate and Princeton economics professor. Thank you for you time tonight, Mr. Krugman.

KRUGMAN: Thanks a lot.

STEWART: Next up, just enough pop culture with Kent Jones. Hugh Jackman, Brad Pitt and Mickey Mouse. That's hot!

(COMMERCIAL BREAK)

STEWART: Now it's time for "Just Enough" with Kent Jones. Take it, Kent.

KENT JONES, POP CULTURIST: Good evening, Alison. It's that time of year when "People" magazine names its sexiest man alive. This year's winner?

Wait for it -

Hugh Jackman, star of the upcoming movie "Australia." Congrats buff Aussie man. I should point out that "People" made the list of the 10 best gimmicks to boost circulation and the list of the 10 best 10 best lists. Speaking of living men and sexy-tude, proud dad, Brad Pitt had this to say about his two-year-old daughter Shiloh today on "Oprah." Pay no mind to that weevil on his upper lip.

(BEGIN VIDEO CLIP)

BRAD PITT, ACTOR: Right now, Shie(ph) is in this thing. First of all, she only wants to be called "John." John or Peter, so - it's a Peter Pan thing so we've got to call her John. I said, "Shie(ph). Do you want - "John, I'm John."

(END VIDEO CLIP)

JONES: Shiloh Nouvel Jolie Pitt wants to be called John. Her teen years promise to be very interesting. As for the other children, Maddox Chivan, Zahara Marley, Pax Thien, Knox Leon and Vivienne Marcheline Jolie Pitt - they would now like to be known as Bob, Mary, Ted, Wally and Jennifer - OK, well, maybe not Jennifer.

And finally, happy 80th birthday to a beloved American icon. On November 18th, 1928, Walt Disney's first synchronized animated cartoon premiered in New York. It was called "Steamboat Willie" and starred Mickey Mouse. Currently living in Florida, the 80-year-old Mickey is still a favorite with the young people.

In the recent election, Mickey voted for Obama because, one, the ears and, two, he worried that McCain would privatize social security. Besides that, he's a libertarian. Alison?

STEWART: Kent Jones, thank you so much.

JONES: Thank you.

STEWART: And thank you everybody for watching tonight. Rachel will be back tomorrow. In the meantime, hey, you can hear me on NPR's "Talk of the Nation" on your local public radio station. Thanks so much for having me, RACHEL MADDOW crew. "COUNTDOWN" with Keith Olbermann starts now.

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

END

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