updated 12/10/2008 10:08:42 AM ET 2008-12-10T15:08:42

Guests: Richard Shelby, Daniel Gross, David Sanger, Mike Robinson, Michelle Bernard, Richard Wolffe, Lawrence O'Donnell, Rep. Sheila Jackson Lee, Rep. Tom Price, Katrina Vanden Heuvel, Scott Mendelhoff

DAVID SHUSTER, HOST: Tonight, "Is this a joke?" Those were the first words from Illinois Governor Rod Blagojevich today when told that FBI agents were at his front door to arrest him. The governor faces charges of bribery and conspiracy for allegedly trying to sell the U.S. Senate seat vacated by the next occupant of 1600 PENNSYLVANIA AVENUE.Forty-two days until the inauguration of President-elect Barack Obama. Welcome to the show, everyone. I'm David Shuster. The headline tonight, "Political Corruption Crime Spree."Prosecutors allege that Illinois' chief executive, Governor Rod Blagojevich, brazenly tried to sell Barack Obama's vacated U.S. Senate seat to the highest bidder. The 76-page FBI affidavit was unveiled today by federal prosecutor Patrick Fitzgerald. His investigators bugged Democratic campaign offices and tapped Blagojevich's home phone.

(BEGIN VIDEO CLIP)

PATRICK FITZGERALD, U.S. ATTORNEY: The governor's own words describing the Senate seat: "It's a (EXPLETIVE DELETED) valuable thing. You just don't give it away for nothing"

(END VIDEO CLIP)

SHUSTER: Prosecutors say President-elect Barack Obama did not know about the scheming. Obama's reaction to the arrest today was, "It's a sad day for Illinois." Well, it was also an embarrassing one. How corrupt is the state? Here's the lead FBI agent on the case.

(BEGIN VIDEO CLIP)

ROBERT GRANT, FBI SPECIAL AGENT IN CHARGE: I don't have 49 other states to compare it with, but I can tell you one thing, if it isn't the most corrupt state in the United States, it's certainly one hell of a competitor.

(END VIDEO CLIP)

SHUSTER: Coming up, we will have a complete roundup on the dramatic charges and arrest today of Illinois' sitting governor. But we begin this hour in Washington with some fast-moving developments in what is shaping up to be one of the largest manufacturing bailouts in U.S. history. Democratic congressional leaders say a deal with the Bush administration to help the U.S. automakers to the tune of $15 billion is now very close. One final sticking point apparently involves how much authority the oversight czar or auto czar will have. Joining us now is an outspoken critic of the automaker bailout, ranking Republican on the Senate Banking Committee, Senator Richard Shelby of Alabama. And Senator, this issue about the degree of oversight authority, do you care, or are you going to oppose this package regardless?

SEN. RICHARD SHELBY ®, ALABAMA: Well, I think it's very important to have a powerful so-called czar if you're going to have a package. I'm going to oppose the package because I think this is just the down payment on billions and billions to come, probably in the spring of next year.

SHUSTER: Senator, I know that you voted against the Chrysler bailout in 1979 as a congressman. And you said earlier today that was the right decision.

How could that have been the right decision, given that the money helped Chrysler recover, Chrysler paid back the money four years later, and the U.S. Treasury made $350 million off the loan?

SHELBY: Well, Chrysler is now back up here. That's what my reference was. Sure, they paid the money back. It was what, $1.5 billion. That was a lot of money then. But now they're looking for billions and billions, and they're not going to pay it back. As I said last week, no bank or series of banks in the world would make this loan. That's why they're here. These are either failed or failing companies. And they can be restructured. They can be restructured in Chapter 11 or short of Chapter 11. But they're not willing to do that. Short of them doing it, it won't work. And we will spend billions of dollars to make them happy for a few years.

SHUSTER: Senator, will you acknowledge that your constituents in Alabama include direct competitors of the big three?

SHELBY: Oh, absolutely. You know, the automobile industry is not just in my state, but all over the South, and it seems to be competitive.

(CROSSTALK)

SHUSTER: Right. But they've got different rules on unions. They've got incentives in some of the southern states to go there in the first place, right?

SHELBY: Well, unions don't create jobs. People create jobs. And if they want to have a union, there is a way to do it. But we have...

SHUSTER: Not in Alabama, sir.

SHELBY: ... a thriving automobile industry.

SHUSTER: Senator, you can't create a union just like that in your home state. You know better than that.

SHELBY: Well, I hope we don't. I think we have a right to work law there, and we're doing very well.

SHUSTER: All right. Senator, the Democrats need the help of 10 Republicans in the Senate to get this approved. Where do things stand with the Republican Caucus? And how hard will you be working to get your Republican colleagues to join you in blocking this?

SHELBY: Well, I haven't counted votes. We haven't seen the details yet, as you referenced earlier. We want to see the final print. We'll do it tomorrow. I don't know how many people will oppose it, but I think it will be a good many. But I think what we need to do is point out to the American people, that this is just the beginning. The installment will come later. Many installments. And I don't believe it will solve the problem.

SHUSTER: And yet, Senator, the House speaker, Nancy Pelosi, says look, this isn't going to be welfare, we're not just going to keep giving them money. Why not trust her at her word?

SHELBY: Well, she is the speaker. I like the speaker, but our politics are a little different. And I think she has some strong misgivings about this. She's voiced them before.

SHUSTER: All right. Senator Richard Shelby...

SHELBY: Thank you.

SHUSTER: ... a Republican from Alabama.

And Senator, thanks for joining us. We appreciate you being with us.

SHELBY: Thank you.

SHUSTER: Joining us now to take a look at this story is Daniel Gross, senior writer with "Newsweek" magazine, and also David Sanger from "The New York Times." And Dan, first of all, what did you make of what the senator said?

DANIEL GROSS, "NEWSWEEK": Well, it shows just how enormously complicated this whole issue is. We have effectively two auto industries in this country. There's the big three, which used to be the auto industry, but is now basically regional. It's in the Midwest, it's unionized, it's in big trouble. And you have in the last basically two decades, BMW, Toyota, Honda, foreign automakers who have set up shop, basically union-free, in the South, with big incentives, that are doing quite well. And so you're seeing this resistance from Shelby, from Mitch McConnell in Kentucky, from the core of what is left of the Republican guard in the Senate. They're not interested in the big three.

SHUSTER: David Sanger, as far as the practicalities, where is this politically right now in the Senate? Are the votes there for the Democrats to get this through with the Bush administration? Or will the force of Senator Shelby and others stop this thing?

DAVID SANGER, "THE NEW YORK TIMES": Well, it's going to be close, I suspect. And I'm not entirely sure at this point whether they have the votes or not. I suspect for the first $15 billion, they probably do, but where this gets much more interesting is what happens after that. Because certainly, Senator Shelby was right when he said this is just the beginning, and come the spring, maybe earlier, they would be back for more. By the carmakers' own description of events, there is no way that $15 billion is going to get them very far. And yet, we also know that the kind of restructuring that we've heard Speaker Pelosi talk about can't happen in a few months. This is restructuring that people have been talking about having the carmakers do for 20 or 25 years. I used to be a correspondent in Japan. They would come to Japan and promise that they were getting ready to be competitive with Japanese carmakers then. AND that was the late '80s and early '90s.

SHUSTER: Dan, you're from Michigan. You've written a lot about this extensively in "Newsweek," this issue of viability. The automakers need to establish by March that they have got viability. Is that possible with this industry?

GROSS: Well, here, again, it's complicated. Ford has basically been saying that, we're OK. We can get through 2009 with the amount of money we have. They borrowed a ton of money a while ago. They're in relatively decent shape, all things considered. You've got Chrysler, which is clearly the weakest of the bunch. It's got a private equity owner. They've been pursuing partnerships, maybe potential deals. One can imagine them perhaps being acquired or broken up. GM is really what we're talking about here, in what shape it exists going forward. And this is going to take a very big kind of coming together of the minds. It's going to take several months, because the UAW is basically going to have to be told you're going away. The management of all these companies is going to have to be told you're going away. They're going to have to shrink 30 to 40 percent. That can't happen in six weeks.

SHUSTER: David Sanger, how do we avoid a nationalization of General Motors? Or is that essentially what we're talking about here?

SANGER: Well, if you read the legislation and you see what the powers are of the car czar that they are talking about, he or she would essentially have the powers of a board of directors. If there is any investment that any of the carmakers who take this money want to make over $25 million, in the draft of the bill that was circulating yesterday it would have to be approved by the czar. Also, there would have to be an approval of any kind of restructuring. And presumably, of any kind of changes in their contracts. So while the U.S. government may not have ownership, it would certainly have control. And that is one of the essential points of nationalization. And that's why it important that we figure out ahead of time what it is we're trying to do. Are we trying to save the companies in their current state, are we trying to save the jobs? Are we trying to buy some time so that any kind of collapse doesn't happen in the midst of this recession?

SHUSTER: Well, speaking on the last point, I mean, that seems to be Barney Frank's best argument, and Chris Dodd's, saying you can't possibly have this kind of collapse in the midst of all these economic problems. How much are investors and Wall Street and everybody looking to see what happens with the bailout?

GROSS: Well, I think we learned from the collapse of Lehman Brothers when, basically, the government let it go in September and it triggered all these unpredictable events, the seizing up of the credit markets. There is not much of an appetite now to kind of let a company fail and then see what happens-see what happens to the suppliers, see what happens to the banks, see what happens to all the creditors. There is a lot of momentum for doing something and kind of cushioning the blow, especially given the state of the job market today.

SHUSTER: And you suggest, Dan, you wrote in "Newsweek," that despite the problems of the automakers, that they are worth saving right now.

SANGER: Well, look, we need some industrial base in the Midwest. I mean, what this involves is basically saying to Ohio, to Michigan, to Indiana, you're not going to have much of an economic future as states. And there are tens of millions of people who live in these states. And you would think for political reason alone, the Republicans having lost the Midwest in this past election, would be a little more concerned about that.

SHUSTER: Daniel Gross, the senior editor from "Newsweek," has written extensively about the economy and also written a lot about the automakers. Daniel, thank you very much.

GROSS: Thank you.

SHUSTER: And David Sanger from "The New York Times," thank you, as well. We appreciate it. Up next, what President-elect Obama had to say after learning the Illinois governor was arrested for trying to sell his Senate seat. And the governor had some choice words about the president-elect which forced U.S. attorney Patrick Fitzgerald to get a little "bleepy" when he tried to read the phone tap transcripts for reporters today.

All of that and more when 1600 returns.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

FITZGERALD: This is a sad day for government. It's a very sad day for Illinois government. Governor Blagojevich has taken us to a truly new low. Governor Blagojevich has been arrested in the middle of what we can only describe as a political corruption crime spree. We acted to stop that crime spree. The most appalling conduct Governor Blagojevich engaged in, according to the complaint filed today, or unsealed today, is that he attempted to sell the Senate seat, the Senate seat he has the sole right under Illinois to appoint to replace President-elect Obama.

(END VIDEO CLIP)

SHUSTER: That was federal prosecutor Patrick Fitzgerald today announcing, of course, the bribery and conspiracy charges against Illinois Governor Rod Blagojevich. You may remember Fitzgerald from his successful prosecution and conviction of Vice President Cheney's chief of staff, Scooter Libby. Today Fitzgerald said there was no evidence Barack Obama knew of the scheming by Governor Blagojevich.

President-elect Obama spoke about the case this afternoon.

(BEGIN VIDEO CLIP)

SEN. BARACK OBAMA (D-IL), PRESIDENT-ELECT: I had no contact with the governor or his office. And so we were not-I was not aware of what was happening. And as I said, it's a sad day for Illinois. Beyond that, I don't think it's appropriate to comment.

(END VIDEO CLIP)

SHUSTER: Joining us now is Mike Robinson, Chicago reporter for The Associated Press, and our panel of MSNBC political analysts: Michelle Bernard, president of The Independent Women's Forum; Richard Wolffe, "Newsweek" senior White House correspondent; and Lawrence O'Donnell, former chief of staff to the Senate Finance Committee. Welcome to you all. First of all, Blagojevich, to all of you, dropped plenty of "F" bombs while talking about how he could trade the Senate seat for the following-and never mind the salty language. Here's what he wanted: campaign contributions; a job in the Obama cabinet, specifically secretary of Health and Human Services; a job at a nonprofit or labor outfit; or a well-paying spot on a corporate board for his wife. Mr. Robinson, what do you make of this?

MIKE ROBINSON, ASSOCIATED PRESS: The charges are completely fantastic. You wonder if this is true, if he is in touch with reality. No one around here has ever seen any corruption. We've seen many corruption cases, but none like this.

SHUSTER: Am I missing anything? Are there other juicy aspects as far as what Blagojevich wanted in return?

ROBINSON: Well, he allegedly wanted to use financial pressure that the governor has to force the "Chicago Tribune" to fire editorial writers who were calling for his impeachment.

SHUSTER: Well, let's bring in Michelle Bernard. Michelle, what do you make of all this?

MICHELLE BERNARD, MSNBC POLITICAL ANALYST: It's really pretty fantastic. I think the last time we've seen a character this interesting or this crazy was when we were talking about Jeremiah Wright during the primary season. I mean, it's really absolutely amazing. You read the language, the way that he speaks about the president-elect, the way that he-you know, it's almost like watching a scene from "The Sopranos," to tell you the truth. It's very interesting. It will be interesting to see how it unfolds. Just when you thought thing in Washington or in Chicago would get boring, we have something very interesting and something very fantastical to talk about. It really is like a scene from "Fantasy Island." That being said, you know, one of the things that I have to ask, David, is, you know, is the crime just the conspiracy? Did he really say to some of these possible candidates for President-elect Obama's Senate seat, I want you to pay me this, this and this? It will be very interesting to see what information comes out of any grand jury proceeding.

SHUSTER: Well, one of the fascinating things about this is, how close does this get to Barack Obama? And here's a part of the indictment from page 8. This is a conversation-this refers to a conversation between Blagojevich and his chief of staff, John Harris. In a conversation with Harris on November 11th, the charges state Blagojevich said he knew that the president-elect wanted Senate candidate number one for the open seat, but "They're not willing to give me anything except appreciation. (EXPLETIVE DELETED) them." Lawrence, would you have put this in a "West Wing" episode?

LAWRENCE O'DONNELL, MSNBC POLITICAL ANALYST: I couldn't. If anyone brought this up in the writing room of the "West Wing," I would have been the first one to shoot it down based on my seven years experience working in the United States Senate. This is-you know, the prosecutor today said that this was stunning and shocking. Consider me stunned and shocked. This isn't even easy for me to talk about. I don't have any frame of reference for this kind of behavior. I do think that we have somebody here who we can wonder about his mental competence. A high school kid could figure out, Obama is not going to do anything for you in exchange for appointing a United States senator. I mean, just the basic relationships of A to B, Blagojevich does not comprehend.

SHUSTER: And Mike, before we lose you, Senate candidate number one, we believe that was Valerie Jarrett, who is joining Barack Obama as an adviser in the White House. This would clearly be seen as sort of exonerate the Obama crowd of any wrongdoing given that as this indictment stands, the Obama team, "They're not willing to give me anything except appreciation." Is that the way this reads to people in Chicago?

ROBINSON: Yes, it is. The one thing I would say is, I'm not sure that it was Valerie Jarrett. It may have been, or it may have been somebody else. But there is nothing in here that says that Barack Obama or anybody around him did anything for Rod Blagojevich or was willing to.

SHUSTER: All right. Mike Robinson from The Associated Press. Mike, thank you very much. And I want to go to Richard Wolffe. Richard, you've been covering the Obama campaign and now transition for some time. Clearly, the investigation was pointing towards Blagojevich, and there was a lot of corruption investigations that Fitzgerald was working on. And yet, how has the Obama transition reacted? Were they surprised by some of this?

RICHARD WOLFFE, MSNBC POLITICAL ANALYST: Well, they knew for a start that Blagojevich was radioactive well before any of the discussions, the broad discussions, began about replacing the president-elect and that Senate seat. And to the extent that there were any contacts with anyone in Obama' circle, it was done at such a long arm's length distance, that they were exceptionally careful. I don't know that they knew there were wiretaps and surveillance, but it was a reasonable assumption. And look at the reporting. Look at the stuff that's in this lawsuit. Blagojevich was making so many demands of so many people, that I think there were lots of folks in Chicago who knew that this was out of control. Maybe they didn't know it was criminal, or maybe they suspected there was wrongdoing at the end of it, but I have got to say, from the get-go, the transition folks, Obama's circle, have been incredibly careful about approaching this. And to the extent they've had any involvement, it has been with an eye to the background, the reputation and the corruption charges swirling around the governor.

SHUSTER: Michelle Bernard, if he is corrupt-I mean, if Blagojevich is proven to have been a crook-what is the benefit of trying to get into the Health and Human Services agency? I mean, how does that help you as far as your criminal enterprise?

BERNARD: All I can imagine is that maybe he thinks that he could bribe somebody that does business with the Department of Health and Human Services to further enrich himself. Or possibly, he just figured that there was no chance that the president-elect would ever consider him for the State Department or some of the other sexier departments, so he figured, what the hell? I'll just try for HHS. I mean, I can't even begin to fathom what this man has been thinking.

SHUSTER: All right. Michelle Bernard, Richard Wolffe and Lawrence O'Donnell sticking with us. And we'll talk to them just ahead. But coming up next, it was prosecutor Patrick Fitzgerald who made famous the phrase, "A cloud over the vice president's office." Has Fitzgerald struck again in the Blagojevich case? The governor's profanity-laced diatribes and the word "bleep" when 1600 PENNSYLVANIA AVENUE returns.

(COMMERCIAL BREAK)

SHUSTER: And we're back with our segment "Inside the Briefing Room." At the White House and in state capitols across the country, the briefing room, or news conference room, is known for spin. But imagine how difficult it may be in Illinois for Governor Blagojevich and his supporters to spin conversations and evidence recorded on tape by prosecutor Patrick Fitzgerald, especially the conversations laced with profanities.

(BEGIN VIDEO CLIP)

FITZGERALD: The governor's own words describing the Senate seat: "It's a (EXPLETIVE DELETED) valuable thing. A thing. You just don't give it away for nothing. I've got this thing and it's (EXPLETIVE DELETED) golden, and I'm just not giving it up for (EXPLETIVE DELETED) nothing." "Fire all those (EXPLETIVE DELETED) people. Get them the (EXPLETIVE DELETED) out of there."Those are his words, not our characterization, other than with regard to the bleep.

(END VIDEO CLIP)

SHUSTER: And a little trivia for all of you keeping score. Potty mouth Blagojevich is now the fourth governor out of the last seven in Illinois to face corruption charges. Yes, it is bleeping amazing. Speaking of amazing, just yesterday Governor Blagojevich was asked about the possibility of being indicted, and he dared investigators to tape his conversations.

(BEGIN VIDEO CLIP)

GOV. ROD BLAGOJEVICH (D), ILLINOIS: There's nothing but sunshine hanging over me. Let me answer that. Her question is-and by the way, I should say, if anybody wants to tape my conversations, go right ahead. Feel free to do it. I appreciate anybody who wants to tape me openly and notoriously. And those who feel like they want to sneakily-and wear taping devices, I would remind them that it kind of smells like Nixon and Watergate. But I don't care whether you tape me privately or publicly. I can tell you that whatever I say is always lawful, and the things that I'm interested doing are always lawful.

(END VIDEO CLIP)

SHUSTER: Ouch! By the way, the big news in Chicago today was supposed to be Barack Obama's face-to-face meeting with Al Gore. It happened, and they did talk about climate change and the environment. But the true news that came out of it was Obama's reaction to Governor Blagojevich's arrest. Obama said it saddened and sobered him. Al Gore did not comment. Coming up next, cross off the Illinois governor from any and all Obama invitations to 1600 PENNSYLVANIA AVENUE. Could Blagojevich be headed to a federal prison? We'll talk to a former federal prosecutor about the strengths and weaknesses of the felony charges and the timing of the case.

Back after this.

(COMMERCIAL BREAK)

SHUSTER: Tonight there are some headlines we are watching, that President-Elect Obama does not need as he prepares to deal with two wars and the worst financial crisis since the Great Depression. The governor of his home state of Illinois has been charged with trying to sell Obama's vacated Senate seat. Prosecutors say Obama was not involved. There are some indications his chief of staff Rahm Emanuel may have been the one to blow the whistle on Blagojevich. Still, all of this for politicians in Illinois is highly embarrassing. Plus, liberals are increasingly unhappy about some of the Cabinet choices made by the president-elect. Will the left wing chill, the way Obama's team is asking, as 1600 PENNSYLVANIA AVENUE continues. Welcome back to 1600 PENNSYLVANIA AVENUE. I'm David Shuster. Tonight in Washington the news is, well, there's no news on the auto bailout. Late today top Democrats said they were still working with the White House on a deal but were optimistic that a bill could come to a vote perhaps as early as tomorrow. The biggest sticking point? The role of the so-called car czar, who would oversee how U.S. automakers were using the $15 billion in bailout funds. Joining us now for a face off over the auto bailout Congresswoman Sheila Jackson Lee, Democrat from Texas, and Congressman Tom Price, Republican from Georgia. And first of all, Congresswoman Sheila Jackson Lee, do you believe that any car czar can come up with some guidelines in three weeks?

REP. SHEILA JACKSON LEE, (D) TEXAS: Well, David, first of all I think there is news. It is good news that the White House and Democrats, the House leadership, are still working. And yes, I do. Why? Because, frankly, I believe that a nation without a domestic automobile industry is a nation on a deep continuing decline, an economic decline of which we will never come out of. We need to continue to make things. And it is one of the anchors of our capitalistic system, that is the automobile industry, and the millions of people that work with their hands everyday to provide for their families. We have to come up with solutions. The drug czar, I would hope, would want to be part of the solution. We've put some really steep requirements on the table. Frankly, I think all members of Congress believe the automobile dealers and the automobile industry, frankly, should be sustainable and viable in order to give them this money. We also believe they shouldn't take federal taxpayer dollars and replace working factories in the United States with those overseas. And lastly, none of us should run away from a more efficient emissions reduction-type vehicle that will move us further into the 21st century. Is America saying that we are not the America of ingenuity and talent and we can't do this? The Congress has to help them and they have to commit to us that they are going to get the job done.

SHUSTER: Congressman Price, what are you saying?

REP. TOM PRICE, ® GEORGIA: Well, absolutely, we need to get economic engine rolling. We need to make certain we have a domestic auto production, manufacturing-businesses in this country. But the way to do it is not to put the federal government in charge. A car czar that has complete authority over all of the decisions, that the three domestic auto producers would make, is not the right answer. Ms. Jackson Lee is correct. We need to put the work the American ingenuity and spirit and optimism and entrepreneurship. And the way that you do that is to allow these companies to go through a structured reorganization that brings everybody to the table and make certain that we have legal consequences for folks who will not participate in that reorganization.

SHUSTER: Congressman Price, would you support this? Would you support this if-suppose the Democrats said, OK, fine, let's let the automakers spend the money as they want. Would you then support this?

PRICE: What I support is a legal structured reorganization that puts everybody at the table, the manufacturers, the suppliers, the dealers, the union, everybody at the table. And arrive at concessions from every single individual. What I believe, however, is that you're not going to get the concessions you need to provide for that vibrant automobile manufacturing industry in this nation without the legal hammer over their heads.

SHUSTER: Congresswoman Sheila Jackson Lee, so much of this depends on viability. That if the automakers cannot establish their viability by March, then that's it, the money can be recalled. Do you think the auto industry can establish its viability in three months?

LEE: Absolutely. Frankly, I appreciate the comments of my good friend, but in Texas we wear tall hats and pointed boots. I'm not prepared to kick the automobile industry with my pointed boots while they're down. I frankly believe that there is hope. The hope is this: that is that there is enough of the, I guess, pride both in the workers and those who have to redesign their whole mindset, that they have to be productive. There is enough of that going on that I believe that the three months is a good deadline to put in place. Let me just say this. When we were down and out, after the Depression, yes, we had to have an FDR that came in and almost looked like he was an economic czar with federal programs. It didn't last long. We picked ourselves up. We had an economic engine in the 1950s and we were on our way. This is what we have to do now. Automobile dealers in our home towns are calling us. Suppliers are calling us. Worker are locking themselves up in buildings. This is a time for the federal government, the United States Congress, to show what it is made of, and to say we're here to help the American people. How is it going to look if we're working and they're not?

(CROSSTALK)

SHUSTER: Hasn't the United States government already shown, in terms of what its made of, in terms of these bailouts, that sometimes it's made up of things that don't work. You've seen the reports in the General Accounting Office with all of the problems, all the lack of oversight, with the Wall Street bailouts. Why should the American people expect that this bailout will be run any differently?

LEE: Well, the times are a-changing. You know, we missed some of the fine points in Wall Street. And I'll be the first to admit it, we've learned from our lessons. We've got a drug (sic) czar now that has a Texas hat on, and a Texas boot and is ready to kick those who need to be kicked those into order. In addition, I think it is important to note that the economic times are worse. We've now declared a recession. And frankly, many economists are saying a $600, or $500 billion -- $600, $700 billion stimulus package is what we need to get this economy going. So, it is night and day from Wall Street. And I, frankly, I believe - as a member of Congress - I want to invest in people who are making things with their hands, who are out there creating a product. I love Wall Street for what it does, but we really need to turn ourselves around creating a new market and a new generation of builders, civil engineers, and people who make things like cars, and putting our money there. That's what turns the economy and make us a capitalistic engine that we once were.

PRICE: David, you can't -

SHUSTER: Congressman, go ahead.

PRICE: David, you can't be a capitalist engine if you're going to put the governor in charge. I've got hope, too. And it is hope and optimism and faith in the American people. And what we need to do is to allow the automobile manufacturers to go through this process of reorganization and come out the other end a vibrant and vital industry. And they will. But they cannot do it with the fingerprints of Congress or the federal government on it. Because Congress won't ever let that go. I've got great confidence in all of my colleagues here in the House of Representatives about their individual expertise. But I promise you, what they don't have is expert nice how to run global companies. That's why we need to leave -

(CROSSTALK)

SHUSTER: Why don't we just trust the American people? I mean, if we allow the automakers to go bankrupt, the American people, according to every survey that I've seen, at least 60 percent say they wouldn't buy a car from a company that was bankrupt.

LEE: Absolutely. You cannot put a -

(CROSSTALK)

SHUSTER: Congressman Price, if you allow them to go bankrupt, isn't that the end of these companies?

LEE: That is -

PRICE: What the American people don't want is to have question marks at the end of their purchase. And through a pre-packaged, or a pre-arranged, or that organization of all of those folks at the table, in a process of reorganization, that's what would give the American people confidence. It would give manufacturers confidence, the dealers confidence, the suppliers confidence, all up and down the chain. There are wonderful ways to do this that don't rely on a car czar; somebody who can dictate and veto every single decision of a private company in this nation.

LEE: Restructure -

PRICE: That is not what an American economic philosophy is all about.

LEE: Restructuring is nothing but bankruptcy, all you can see is these large signs over GM, or Chrysler and Ford saying, we're bankrupt. Take a chance on us. What we need is the drug (sic) czar really to protect the taxpayers' dollars. The American people have already said that to us. We want to make sure they're using our dollars right. That's what we're doing. We aren't going to hold on forever. Believe me, that is not the intent of this particular figure or the intent of the United States Congress.

PRICE: If it's not, David-

LEE: Hold on for a moment, and then finish, and let the ingenuity and creativity go to protect the taxpayer dollars and that's what we're going to do.

PRICE: David, if it is not, then have them put that in the legislation. That's not what is in the legislation. Legislation gives this car czar absolute authority over every single transactional decision at these companies. That's not the kind of entrepreneurship and ingenuity that I believe the American people support.

SHUSTER: Well, the negotiations continue.

LEE: This will be collaborative. It is not going to be despotic. It is not going to be a dictatorship. It is going to be collaboration that car czar is going to have expertise, but they are going to be pushing the companies to move forward on their own genius by protecting the taxpayer dollars.

PRICE: Put the language in the bill, David. Put the language in the bill.

SHUSTER: All right. We'll take a look at the bill, see what comes out.

PRICE: Thank you.

SHUSTER: Congressman Tom Price, Republican from Georgia;

Congresswoman Sheila Jackson Lee, Democrat from Texas, thank you both. We appreciate it.

PRICE: Thank you.

SHUSTER: Up next, is President-Elect Obama giving the cold shoulder to the liberal who helped him beat Hillary Clinton and John McCain? And what exactly should progressives expect policy-wise from the next president? 1600 returns, right after this.

(COMMERCIAL BREAK)

SHUSTER: Welcome back to 1600 PENNSYLVANIA AVENUE. For some columnists and activists on the left, the hope that Barack Obama will usher in a new progressive era is dimming as Obama selects people they perceive to be centrist, who's serve in his administration. Here is some of what we're hearing. Quote, "He has confirmed what our suspicions were by surrounding himself by with a centrist to right Cabinet." "Isn't there ever a point when we can get an actual Democratic administration?" "I mean that is why most of us voted for him, right?" Joining me now with her take on all of this is Katrina Vanden Heuvel, publisher and editor of "The Nation". Katrina, what is the biggest single complaint that you have about these selections?

KATRINA VANDEN HEUVEL, PUBLISHER, EDITOR, "THE NATION": Let me back up if I could, because there is a debate among progressives. We are not a monolith.

SHUSTER: Sure.

HEUVEL: And at "The Nation" we're thinking hard about what these appointments mean. But we're also going to be as clear-eye and pragmatic about these appointments as Barack Obama is about progressives. I think we have to look a little bit beyond the appointments and understand that the grim conditions of this time have already compelled Barack Obama to take extraordinary steps. In his speech, just this past Saturday, he talking about a half trillion public investment in the infrastructure of a country. He's talking - I mean, these are bold-

SHUSTER: So, why then aren't all progressive, the left, celebrating that Barack Obama is essentially going to spend $500 billion, the government will spend $500 billion.

VANDEN HEUVEL: Yeah.

SHUSTER: I mean, Democrats ought to be thrilled with this, aren't they?

VANDEN HEUVEL: Well, I think there is concern about the centrist economic team he's put around him. Larry Summers, Tim Geithner, who is complicit in some of the bank mess we've seen. Larry Summers repealing some of the legislation, regulation. But at the same time, think of the lessons of our history. Franklin Delano Roosevelt, moderate Democrat, comes in, into a situation. We're not in the Great Depression, but we're in the great recession. I think we're seeing Barack Obama compelled, because he does have a progressive sensibility to move beyond the politics of this team. Even Larry Summers, as I said in "The New York Times" today, is not the Larry Summers of 1999. The key, David, is that progressives need to mobilize and organize. All the great changes in this country have come from movements; the New Deal, from unemployed counsels in the labor movement, the civil rights legislation from the civil rights movement. Yeah, there is grumbling. I think it is more about the foreign policy team. Which is what I wrote about at TheNation.com. Robert Gates, holding him over, could be protecting his flank, Obama's flank from the right, from opposition. On the other hand, it will require pushing this administration not to, for example, escalate in Afghanistan, which could be a real disaster.

SHUSTER: Your response from Steve Hildebrand, who used to help run the Obama campaign ricocheted all over the blogosphere yesterday. Here's what he wrote. "This is not a time for the left wing of our party to draw conclusions about the Cabinet and White House appointments that President-Elect Obama is making. Some believe the appointments generally aren't progressive enough. Having worked with former Senator Obama for the last two years I can tell you, that isn't the way he thinks. And it is not likely the way he will lead. After all, he was elected the president of all the people - not just those on the left." Why did so many on the left take offense at that statement?

VANDEN HEUVEL: I think tone is half of life and there was a tone in there like, don't speak up. And what this country is about, and what Obama's campaign in the moment, the movement around his campaign was around respect, empower, include. That was his mantra. It was bringing people and their voices into a system. This is a former community organizer. He is the first community organizer in the White House. And he talks about change from below, fighting for change from below. Hildebrand isn't on the right page. He didn't need to say that. And you know, the left-progressives, I think, we need to get beyond the labels. As I - centrism today, David, has been redefined. Centrism today is about improving the conditions of people's lives through massive government intervention and stimulus and showing the government can do that.

SHUSTER: Well, fair enough. But if the argument is over tone of something that a guy posts on the blogosphere, doesn't that suggest that perhaps the media is giving more of a voice to some who are angry than perhaps we should, because - I mean -

VANDEN HEUVEL: Yes.

SHUSTER: We can always argue over tone.

VANDEN HEUVEL: Let's talk media criticism for a moment, David.

(LAUGHTER)

And thank you for having me on. Because I'm trying to reflect the range, because there - you know, there is disagreement with the Obama appointments. But I think the media, at the moment, has a lull in the coverage of important things. May I suggest the media to go Chicago and not look at Blagojevich, though that's important because of corruption, but the workers who are staging a sit-down strike to get fair compensation and severance their company owes them. And Barack Obama is supporting them. Even Roosevelt, before he was president, did not support the sit-down in Flint, Michigan.

SHUSTER: I know of a lot of the media, they are actually covering that story, and a lot of people at this network.

VANDEN HEUVEL: All right. Fair enough.

SHUSTER: So, you'll be pleased.

VANDEN HEUVEL: OK.

SHUSTER: Katrina Vanden Heuvel. Katrina, thank you as always.

VANDEN HEUVEL: Thank you. Thank you.

SHUSTER: Good to see you. Up next, New York's governor says the chase for Hillary Clinton's seat is turning into a reality show. Will Caroline Kennedy be the last one left on the island? Democratic politics and a growing controversy over entitlement when 1600 returns.

(COMMERCIAL BREAK)

SHUSTER: Legal experts are now weighing in on the two-count indictment that was released today against Illinois Governor Rod Blagojevich. A number of these experts say they've never seen anything quite like this. And even the FBI agent in charge of the case was asked today about the level of corruption in Illinois compared to other states and he gave this remarkable answer.

(BEGIN VIDEO CLIP)

ROBERT GRANT, FBI SPECIAL AGENT IN CHARGE: I don't have 49 other states to compare it with. But I can tell you one thing if it isn't the most corrupt state in the United States, it is certainly one hell of a competitor.

(END VIDEO CLIP)

SHUSTER: Joining us now from Chicago is former assistant U.S. attorney, Scott Mendelhoff. Scott, what do you make of this 76-page FBI affidavit? How strong is the case that Fitzgerald and his FBI team have put together?

SCOTT MENDELHOFF, FMR. ASSIST. U.S. ATTORNEY: It is remarkable. I have to tell you, having spent five or six years intimately involved with the public corruption work in Chicago when I was at the U.S. attorney's office, having been aware of that public corruption work over the last 25 years, this case is really something. The depth and breadth of the graft is reflected in this complaint is something that is really - there isn't much comparison.

SHUSTER: I was so struck by the description that the FBI essentially called the governor and said there are a couple agents waiting for you outside, they need to you arrest you. He said, is this a joke? Then in some of the evidence you hear this constant profanity. Even Blagojevich's wife is heard on one of the tapes saying, BLEEP the Cubs, the Chicago Cubs. I mean, it seems like the evidence was extensive, the wiretaps and all the rest.

MENDELHOFF: Yeah. The way these cases tend work is they usually combine some active consensual recordings like wiretaps or people wearing wires, and historical witnesses. This one follows that pattern. There are a number of witnesses whose testimony is not going to be supported by tapes. Then you've got all the other tapes that do support it. The thing that is really remarkable is each one of the pieces of this many faceted case is completely independent of one another. You've got him involve in the graft of every degree. And really, the other thing that's remarkable is, the amount of money involved. The attempted pay off to the Cubs $100 million. That's something we haven't seen in Chicago, I can tell you that.

SHUSTER: Scott Mendelhoff, a former U.S. attorney. Scott, thanks for joining us.

MENDELOFF: Any time.

SHUSTER: We appreciate it. Today as Illinois Governor Rod Blagojevich was arrested in part for trying to sell Obama Illinois Senate seat, quote, "Like a sports agent", the jockeying for another Senate seat may have been turning into, as New York Governor David Paterson put it, some sort of reality show. Several politicians in New York City said that Caroline Kennedy is interested in Hillary Clinton's New York Senate seat, when Clinton moves over to the State Department. Joining us now to talk about that, Jane Hamsher, founder of the blog Firedoglake.com and Ruth Marcus, columnist at "The Washington Post". Thank you both. Jane, you think that this is not appropriate. Explain why.

JANE HAMSHER, BLOGGER, FIREDOGLAKE.COM: Well, I think Caroline Kennedy is quite probably a great woman. I think she come from a family with a long history, a tradition of, you know, being of a public service. I think that the best way for her to get into office is to actually, roll up her sleeves and be willing to run. I think the idea of calling someone up and saying I want to join at the top of the pyramid is sort of undemocratic. It is more appropriate for an aristocracy than it is for a democracy. As one of my commenters said, if she gets this, in this way, let's call at this time House of Lords and be done with it.

SHUSTER: Ruth Marcus, how about that?

RUTH MARCUS, "THE WASHINGTON POST": Well, I have to say my head agrees with absolutely everything Jane said. And I wrote a column on this, this morning. And said, I have a problem with political dynasties. I have a problem with-even in political dynasties usually people kind of climb up the rungs of the ladder and don't just call up the governor. On the other hand, there is an emotional piece of me that responded very well and actually, I was sort of surprised to the notion of Caroline Kennedy. There are so many people my age, at least, remember this little girl at her father's funeral. They remember her on her pony. And she has sort of been-I described it as a fairytale. She's been somewhat, kind of isolated, first by her mom and then by her own choice, living a kind of private life. And there is something sort of fitting and nice in some way for her to come out of that tower. And take the Senate seat, serve with her uncle. And I just have an emotional reaction that says, oh, that would be just so great.

SHUSTER: Well, you know, Ruth, I have some photographs of myself from some interesting times in my life that I think are pretty cute. Does that qualify me for the U.S. Senate?

MARCUS: Of course not. And I hope I didn't sound quite that silly. I'm just saying that the heart part is that Caroline Kennedy is something of an icon for women, I think, especially of my generation. And then on the-

SHUSTER: Fair point.

Jane Hamsher, what about that?

HAMSHER: Well, you know, I think that she is an icon. But the bottom line is that we're just getting out of a presidency with a faux cowboy who is selling his stunt ranch because he doesn't find it useful anymore. One of the wonderful things with Barack Obama's presidency is that it was a truly earned meritocratic win. He came from nothing and now we have this wide playing field of people we can choose from, of any race. So, why not get the best people we possibly can, who are willing to be test themselves in the election process. By going out and listening to people and hearing what they have to say and making stump speeches, and doing all of the - auditioning for the public in the way that we do during elections. If Caroline Kennedy really wants that seat, she ought to be willing to do that.

SHUSTER: Ruth Marcus do you envision -

(CROSS TALK)

SHUSTER: Go ahead, Ruth.

MARCUS: I'm sorry. I was going to say, we have this situation where governors, this may not be the best way to fill vacant Senate seats, as we're seeing. But she doesn't have the opportunity to run now. There is this vacancy. She is clearly very interested in it. If she were to get it, she would have to do what senators do, which is in New York is doing a lot of going around to Schenectady and Poughkeepsie and every place else, and she would have to run in two years.

SHUSTER: Has she ever done that before? Has she even campaigned for anybody before in Upstate New York?

MARCUS: She has not. I think there is a completely reasonable question about whether this would be to her liking. I think on the experience question, sort of interesting, a lot of people questioned then-Senator Obama's experience and whether he had enough experience for president. Look, not all of our senators have come up through the normal political ranks. There is something to be said for some different kinds of experience in the Senate. We've had business people, we've had other celebrities.

SHUSTER: Good point. Ruth Marcus, columnist at "The Washington Post". Ruth, thank you very much.

MARCUS: Thank you.

SHUSTER: And also, Jane Hamsher, founder of the blog Firedoglake.com. Jane, thank you as well. We appreciate it. That's the view from 1600 PENNSYLVANIA AVENUE tonight. I'm David Shuster. Thank you for watching. We'll see you tomorrow night. Same time, 6 p.m. Eastern, on MSNBC.

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

END

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