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

Guests: Lynn Sweet, Jim Warren, Jill Zuckman, Jonathan Martin, Stan Brand, Chris Cillizza

CHRIS MATTHEWS, HOST: Is the second city first in corruption? Let's play HARDBALL.Good evening. I'm Chris Matthews. Leading of off tonight, the FBI agent in charge of the investigation says this, "If Illinois isn't the most corrupt state in the United States, it's one hell of a competitor." This is a story right out of the movie "The Front Page," with a prosecutor right out of "The Untouchables"-big-city politics, corruption charges, payoffs, influence pedaling, wiretaps and today indictments, big ones. Federal agents arrived early this morning at Governor Rod Blagojevich's home and arrested him and charged him with, among other things, trying to sell Barack Obama's U.S. Senate seat. The charges result from wiretaps in a five-year investigation into "pay to play" politics in Illinois. Federal prosecutor Patrick Fitzgerald of Scooter Libby fame held a news conference today that was as rich and colorful in sound bites as any we've ever heard. He said Blagojevich's conduct would make Abraham Lincoln roll over in his grave.

(BEGIN VIDEO CLIP)

PATRICK FITZGERALD, U.S. ATTORNEY: The governor's own words describing the Senate seat. Quote, "It's a bleeping valuable thing, a thing you just don't give it away for nothing," close quote. Another quote, "I've got this thing, and it's bleeping golden. I'm just not giving it up for bleeping nothing. I'm not going to do it. I can always use it. I can parachute me there," quote. Those are his words, not our characterization, other than with regards to the "bleep."

(END VIDEO CLIP)

MATTHEWS: Well, I'll give you a characterization. That's the governor of Illinois saying he's going to sell Barack Obama's Senate seat. And if he can't get a good bidder for that Senate seat being left vacant by Barack Obama, he'll fill it himself. That's the characterization and that's what you just heard. The list of recent Illinois governors looks like a police lineup. Three Illinois governors gone to prison just in the past 35 years, and the current governor may well be on they way to becoming the fourth. That'll make it 4 for 8 in recent Illinois history. Barack Obama, of course, rose to political power in a city, Chicago, in a state, Illinois, known for corruption. But Fitzgerald made it clear that Obama was not implicated today. Here he is. Quote, "The complaint makes no allegations about the president-elect whatsoever." Obama said this afternoon that he had no contact with Governor Blagojevich over who was going to fill that Senate seat. Still there are many unanswered questions, including that one. What conversations did occur between Blagojevich and Barack Obama about who would fill his Senate seat once he became president? Obama said this afternoon there were none at all. What conversations, if any, did Governor Blagojevich have with Rahm Emanuel about his replacement as a Democratic candidate in the special election in Chicago? Will this Illinois scandal in any way distract Obama from dealing with the financial crisis? What happens to Obama's Senate seat now? Who gets to fill it, the disgraced indicted governor, the state legislature? Who? And what is it about Illinois that seems to make the state's politics so relentlessly corrupt? We begin with NBC News Justice Department-or rather, justice correspondent, Pete Williams. Pete, you've got a lot to explain. Tell us what happened today in Chicago.

PETE WILLIAMS, NBC CORRESPONDENT: Well, I can answer one of your questions, and that is, yes, the governor still has the power to appoint the senator. The state senate president now says there ought to be a special session to change the law. And it's the Constitution that governs what happens if there's a vacancy in the office of governor, but it's state law that governs how a vacancy is filled in the Senate. So the legislature could easily change the law. Chris, by my count here, the governor had 29 -- is accused of having 29 separate conversations with 6 different people-and I'm being charitable about the count. I'm leaving out some where you could argue that he wasn't discussing anything corrupt-but certainly, at least some 30 conversations with 6 different people in which he suggests that in return for naming someone to the Senate, he ought to get a job with a non-profit or a union, his wife ought to get some sort of corporate job, he maybe ought to get a cabinet post or an ambassadorship, people ought to give contributions to his campaign. He's up for reelection in two more years. And he said at one point in one of these conversations, according to the criminal charges that were filed today, that he wants to try to get a job that would pay him maybe a quarter of a million to $300,000. So it's quite bald here. And the other thing that I think is so remarkable is that he's having these conversations with at least a half a dozen people when he has very strong reason to believe that he's already under investigation for some other allegations of corruption in Illinois. Now, the government says the information here came from a wiretap on his telephone and two bugs that were placed in his campaign office in Chicago, in his personal office there and a conference room. Both of those wireless listening devices were put in in mid-October. But they say he actually started to talk about what he could get out of the Senate seat on October 31 and then really ratcheted it up starting the day before the election and continuing all the way up until these charges were prepared last weekend.

MATTHEWS: OK. Thank you very much, Pete Williams. Here's more from Patrick Fitzgerald today, some rich quotes from him about the corruption and this "pay to play" tragedy in Chicago, in Illinois, where you're seeing how it's done in Chicago. Politicians see any power they have as a chance to make some money. If it's not nailed down, they auction it off to the highest bidder. In this case, the governor of Illinois was auctioning off, basically, the U.S. Senate seat being vacated by the President-elect, Barack Obama. You can't get bigger in your corruption plans than that. Here's Patrick Fitzgerald today talking about it.

(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 had the sole right under Illinois to appoint to replace President-elect Obama.

(END VIDEO CLIP)

MATTHEWS: Well, Jim Warren is an NBC contributor and former managing editor of "The Chicago Tribune" and Lynn Sweet, our old favorite, is the Washington bureau chief for "The Chicago Sun-Times." We've got the two best papers in Chicago. Jim, you first. "Pay to play"-you sell everything you get as a public employee in Chicago or Illinois to whoever will buy it from you. Is that the game?

JIM WARREN, MSNBC CONTRIBUTOR, FMR "CHICAGO TRIBUNE" MANAGING EDITOR: Well, it's obviously the game for a certain number of politicians. The public record is pretty clear. You know, the overall context here-and I think it's a really smart comment that Pete Williams made-the audacity of Blagojevich's timing-I mean, the context here is we've got about 13 folks who have been indicted or convicted in this "pay to play" scheme over the last three or four years. The governor had-obviously knew that. And so you wonder why he didn't even have the smarts of, say, your basic run-of-the-mill mobster and go to an empty parking lot, assume that your phone is being tapped.

But if Pete's math is correct, 29 conversations with 6 people? It speaks to a vanity, a brazenness, and even a degree of self-delusion that is rather stunning.

MATTHEWS: Lynn?

LYNN SWEET, "CHICAGO SUN-TIMES": Well, let's...

MATTHEWS: "Pay to play"-the game is you kick in the campaign contributions or raw cash, personal gifts or whatever, so that you can do business with the city or state. That's not unique to Chicago or Illinois, we all know. But apparently, it's rampant in that state.

SWEET: It is. It is rampant. I spent my career, as Jimmy did when he was at "The Sun-Times" and "Tribune"-we have followed these stories. I hope this is a wake-up call because people do tolerate this "pay to play." Why do you think a Chicago alderman has a multi-million-dollar war chest? Why do governors and the Marriott (ph) want to pick a fight with Mayor Daley right now? If you look at who they have gotten contributions from, we have a tolerance for "pay to play." Now, Rod Blagojevich allegedly has taken this to a new level. And on the point of what he was trying to do, I just want to tell people out there I don't see how there is any reason to think that the Obama operation would have had anything to do with him, no matter what he cooked up and no matter...

MATTHEWS: You pointed out to me...

SWEET: ... who he wanted appointed.

MATTHEWS: ... as we were getting ready tonight that they wouldn't put him on the stand at Grant Park election night. What other examples do you have where they just dissed this guy, separated themselves from him?

SWEET: OK. Here's-here's...

MATTHEWS: Blagojevich.

SWEET: Let me give you a few. No Grant Park. He never spoke at the Democratic convention, when almost every other Democratic official in America was on the stage. He wasn't a part of the campaign in any way, shape or form that had any significance. You never saw him on the stump. He never was a surrogate. I would be laughed at if I had even bothered to call up and say, What role do you have for Governor Blagojevich? It would have been, like, a moment of comedy with me and the Obama team.

MATTHEWS: Well, we were talking about that, Jim was-James was. Here it is. Here's Blagojevich yesterday basically saying, Bring 'em on, to the press.

(BEGIN VIDEO CLIP)

GOV. ROD BLAGOJEVICH (D), ILLINOIS: I don't believe there's any cloud that hangs over me. I think 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, you know, 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 publicly. I'm going to tell you that whatever I say is always lawful, and the things I'm interested in doing are always lawful and...

(END VIDEO CLIP)

MATTHEWS: So in the taping, in fact, in the prosecution papers today, Jim, this guy daring everybody to tape him-well, somebody was wired, somebody named "Deputy A" or something, according to the documents, right?

WARREN: Yes. I mean, right-but Chris, again, reckless, compulsive, vain, brazen and perhaps even self-delusional. It's not just one guy being wired. His phone was being tapped and he was having all these brazen conversations, talking about quid, you know, pro quos, get out a-get the-eliminate a particular "Chicago Tribune" editorial writer he was unhappy with, get-extort money, essentially, from the head of one of the most famous hospitals in children, or in the United States, Children's Memorial Hospital, and tell the guy if he didn't fork over the money, 8 million bucks in state money would be withheld. I mean, it doesn't get any more matter of fact or any more blatant or simple than that.

MATTHEWS: And just to make clear how "pay to play" works, when you got a deal with somebody that was going to make a campaign contribution as sizable-I think it was 50K, and then he went ahead and gave the hospital its funding under state authority, and then he found out the money hadn't come across, they hadn't crossed his palms, he tried to stop Children's Hospital from getting its funding, just to make it clear that there was a deal here that he didn't like was being broken, right?

SWEET: That's right. It's going to be...

WARREN: And he also knew-he also knew, Chris...

(CROSSTALK)

WARREN: He also knew...

SWEET: He also tried...

MATTHEWS: Let Lynn go. Yes.

SWEET: He also tried...

(CROSSTALK)

MATTHEWS: Jim, just a second, please.

SWEET: ... on horse racing, extorting "The Tribune," the tollway authority, the children's hospital, and trying to bring in the Obama campaign in this-I mean, that is just a world class...

MATTHEWS: Well, he's a crook, I guess. What do you think, Jim? Is that too quick to judge?

WARREN: Yes. I mean, it's too quick to judge, which is why it's a real interesting question. Will he have the audacity to now do what state law allows him to do, and that is pick a replacement for Barack Obama? I think Rod Blagojevich, regardless of the storm clouds overhead, regardless of what was going to be the posturing and some of the moves to change the law real quickly-I think that he will do it. But what makes it all the more brazen is the reality...

MATTHEWS: He's still going to go ahead and pick the senator that replaces Barack Obama, right? He's still going to do this. He's still going to go ahead, fresh out of jail today...

SWEET: I wouldn't rule it out.

WARREN: And remember...

SWEET: I wouldn't rule it out because it would take...

WARREN: Remember, guys...

SWEET: ... the legislature a few days to do this.

WARREN: And remember also something else that the legislature has already done, is change state ethics rules, which would have put a crimp in anybody's attempt to extort contractors. There's going to be a new state ethics law. It's going to place severe limitations on political contributions for state contractors. And this was like-you know, I was reminded-remember that old '60s or '70s show, where you know, you got a minute or two to go through the aisles of the supermarket? I mean, it's, like, OK, Rod, you've got a couple of minutes to-you know, to pack your cart with as much stuff as you can because come January 1...

MATTHEWS: OK, I'm...

WARREN: ... the front door is going to be shut.

(CROSSTALK)

SWEET: ... a lot of other people. You know, there's a lot of other people who do "pay to play."

MATTHEWS: I'm only laughing because the guy got caught. I wouldn't be laughing if he got away with it. Here's Fitzgerald on the governor's fight with "The Chicago Tribune." By the way, a lot of politicians in their mind's eye would like to do this to newspaper editorial boards. When they don't like the board, get rid of the board. Now, here he is trying to do that, using his clout as governor to hold up the money that goes to "The Chicago Tribune" to allow them to sell Wrigley Field or whatever they're trying to do, and doing that, saying, If you want my help in selling Wrigley Field, you got to get rid of all those editorial writers who've been trashing me. This is an interesting move of power here. Here he is, the prosecutor, explaining that little deal.

(BEGIN VIDEO CLIP)

FITZGERALD: "The Chicago Tribune" had not been kind to Governor Blagojevich, had written editorials that called for his impeachment. In the governor's words, quote, "Fire all those bleeping people. Get them the bleep out of there and get us some editorial support," close quote. And the bleeps are not really bleeps.

(END VIDEO CLIP)

MATTHEWS: God, there's so-Lynn and Jim, there's so many reporters and editors getting fired these days and laid off. And this guy is coming in like a ton of bricks, saying, Get rid of these particular people if you want this Wrigley Field deal to go through.

SWEET: Well, it brings in, I mean, again, how much of a better Chicago story on (ph) it because if you could bring the Cubs into this-I mean, one story-we have Cubs, Obama. But there may be-you know, let's just for a moment say maybe there's some mitigating circumstance where all this, you know, isn't what it is, but it's hard to believe it. The "Trib" stuff was-shows, though, how media-savvy Blagojevich was trying to be because he knew that layoffs were in the works there, and so he...

(CROSSTALK)

MATTHEWS: Jim, you know all about layoffs and how brutal they are. What is the reaction, do you think, in the newsroom now that they had a governor trying to sack them from his office?

WARREN: Well, I think the questions in the newsroom might well be, to what extent did the new owner of the Tribune company, Sam Zell, not be forceful in rebutting these attempts to essentially be extorted? How did Zell and somebody identified as his financial adviser actually react internally? Because you would hope that you have a publisher or owner who would say, Hey, get (DELETED). But if I could mention, Blagojevich's thin-skinned nature toward the "Tribune" editorial board has been in evidence for a bunch of years. My wife until last December was a "Tribune" editorial writer, won the Pulitzer Prize. And she had written a fair number of very critical editorials about Blagojevich. And I remember a meeting between Blagojevich and us on the editorial board about a year-and-a-half ago, where Cornelia Grumman (ph), my wife, started hammering him with a bunch of questions. And then out of the blue, in ways that nobody else would have had a clue what he was referring to, Blagojevich said, Hey, Cornelia, I hear you make a mean couscous. What was that about? That had to be about the coincidence of our having had a dinner at our house and Cornelia cooking couscous for a top aide of the governor who may well be implicated in all this. But this was thin-skinned governor saying, Don't get too righteous with me, you guys, because I may have a few things up my sleeve, including the knowledge that one of my top aides has had couscous at the home of one of you folks.

MATTHEWS: That's definitely incriminating.

(LAUGHTER)

MATTHEWS: Let me go on. We're going to have to stop here. But boy, this is a story we're going to keep talking about. I'll tell you, it tells you a lot about politics at its worst in had this country. Jim Warren, thank you, sir-thank you, Lynn Sweet-of the Chicago papers-historically, at least, in Jim's case. The criminal complaint makes clear the prosecutors make no allegations that Barack Obama was aware of Governor Blagojevich's alleged scheming. That said, the Chicago connection doesn't look too savory right now. And Obama himself says he had no contact with the governor-that's Blagojevich, who just got arrested today-on anything to do with replacing him in the U.S. Senate. But if you listen to this indictment, it had to do with the way in which Blagojevich was trying to exploit his power and get something for filling that vacancy. We're going to have a closer look at Obama's Chicago connections when we return. You're watching HARDBALL on MSNBC.

(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.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

PATRICK FITZGERALD, STATE'S ATTORNEY FOR THE NORTHERN DISTRICT OF

ILLINOIS: I'm not going to speak for what the president-elect was aware of. We make no allegations that he is aware of anything. And that's as simply as I can put it.

(END VIDEO CLIP)

MATTHEWS: Welcome back to HARDBALL. That was, of course, Patrick Fitzgerald, the guy who nailed Scooter Libby, today asserting that president-elect Obama was not aware of Governor Blagojevich's activities in trying to sell his vacant Senate seat. But is the stench from the governor's mansion a problem for the president-elect? With us now, "The Chicago Tribune"'s Jill Zuckman and "Politico"'s Jonathan Martin. I guess, if you work for a paper long enough, the news comes to town, doesn't it, Jill?

(LAUGHTER)

(CROSSTALK)

MATTHEWS: Here he is today, the president-elect, talking about this case.

(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 is a sad day for Illinois. Beyond that, I don't think it is appropriate to comment.

(END VIDEO CLIP)

MATTHEWS: Jill Zuckman, what do you make of all this? What is it about Chicago?

JILL ZUCKMAN, CHIEF CONGRESSIONAL CORRESPONDENT, "THE CHICAGO

TRIBUNE": It's my kind of town.

(LAUGHTER)

MATTHEWS: OK. What is it about...

(LAUGHTER)

MATTHEWS: Let's talk about Barack Obama.

(LAUGHTER)

MATTHEWS: OK, nice lyric. And, in fact, I do like those songs. But let's talk about-let's talk about the way in which this is a problem. During the campaign, here's what John McCain said. And I thought this was a cheap shot, because you should never knock a person because of the geography. You don't decide where you're born. But here he is, John McCain, taking a real-well, cheap shot, I thought-and maybe still do-against Barack Obama.

(BEGIN VIDEO CLIP)

SEN. JOHN MCCAIN ®, ARIZONA: I don't need lessons about telling the truth to the American people.

(CHEERING AND APPLAUSE)

MCCAIN: And were I ever to need any improvement in that regard, I probably wouldn't seek advice from a Chicago politician.

(CHEERING AND APPLAUSE)

(END VIDEO CLIP)

MATTHEWS: Throwaway line. Why does it work? Why does that line work with a Republican crowd, "Chicago politician," as in bad, dirty?

ZUCKMAN: Well, it-it-Chicago politician equals corruption. And it's got a long and storied history of that. The irony is, a lot of this corruption is happening downstate, in Springfield, in the state capital, in the governor's office, in-in the statehouse. And-and Chicago is not necessarily such a corrupt city anymore. It's actually a good-government kind of town. But it didn't...

MATTHEWS: To wit, Rod Blagojevich from the North Side.

JONATHAN MARTIN, SENIOR POLITICAL WRITER, "THE POLITICO": It's a good-government town?

ZUCKMAN: Well...

(LAUGHTER)

MATTHEWS: Let me go to John McCain on that, a little commentary here. Jonathan, it seems to me that you have got an interesting situation here.

(LAUGHTER)

MATTHEWS: We are going to get it into it later in this show.

MARTIN: Yes.

MATTHEWS: These governors, four out of eight now...

MARTIN: It's incredible.

MATTHEWS: ... three have already gone to prison in recent history. You have got the congressional seat, the Senate seat. There's all kinds of problem there. They just seem to be endemic-systemic is the modern word with Chicago politics. Barack comes out of there. Does this hurt?

MARTIN: Chris, let me answer your question about why that line that McCain deployed there worked so well. Here's a one-word answer: "mother-bleeper." Look at this incredible story we have today in front of us today. Look at this document, this indictment. It is phenomenal. That is the why works, because it's real, because there is a long pattern of corruption in Illinois politics, yes, downstate, in Springfield, but also in Chicago. And don't forget that Blagojevich was a Chicago pol. That's where he came up. His father-in-law is an alderman there. This is somebody who certainly is of that city. And I think that's why it does sting so much when you have a candidate who says "Chicago politician," because we know what that means. And, Chris, today reinforces that meaning.

ZUCKMAN: I have to disagree.

MATTHEWS: OK, here's a fellow, the governor, who was just arrested in in his house today. He was woken up early this morning and arrested. His chief of staff was arrested. He was hauled in, an arrest. This wasn't some sort of white-collar crime indictment.

ZUCKMAN: Handcuffed.

MARTIN: Exactly. Right.

MATTHEWS: Handcuffed, brought into jail. He just got out of jail on his own recognizance, I guess, on a rather low bail, I thought, $4,500. They obviously figured, how much cash can you raise? That's how much he could raise. They didn't want to go to a bondsman.I find it-and, by the way, I am not shocked by pay-to-play. I have heard it in other cities. It happens. Pay-to-play.

MARTIN: Of course.

MATTHEWS: Let's explain what pay-to-play is. If you want to do business with a city or you want to do business with a state...

MARTIN: Right.

MATTHEWS: ... or you want-or you're a university and you want help from your senator, well, you say, I will get you the-the earmark, $12 million. I want the $100,000 by May 1 for the campaign contributions. That's how it works. Here's what I got for you from the federal government taxpayer.

(CROSSTALK)

MATTHEWS: Here's what you have got to give me. This is how it works. I have heard of this stuff. I know it exists, and not just in Chicago.

ZUCKMAN: And the governor seemed to be putting a price tag on just about everything...

MARTIN: That's right. That's right.

ZUCKMAN: ... at least according to this information.

MATTHEWS: Everybody, ballparks, Senate seats, everything.

ZUCKMAN: But I just have to disagree with my friend Jonathan for a second.

(LAUGHTER)

ZUCKMAN: Senator McCain...

MATTHEWS: Are you a booster...

ZUCKMAN: No. No.

MATTHEWS: ... or a reporter?

ZUCKMAN: Senator McCain...

MATTHEWS: Why are you being so kind to Chicago politics?

ZUCKMAN: Listen, I'm saying-no, Senator McCain's line...

MATTHEWS: Yes.

ZUCKMAN: ... did not work during the campaign, because Senator Obama was like Teflon. It just rolled off of him.

MARTIN: Right. Yes, that's fair enough. Sure. That's fair.

ZUCKMAN: People did not associate Obama with any of the dirt going on in Illinois. It did not work.

(CROSSTALK)

MARTIN: Well, I meant the crowd response. I meant the crowd response.

ZUCKMAN: I know, yes. OK.

(CROSSTALK)

MATTHEWS: How was he able to rise up...

MARTIN: It's a good line.

MATTHEWS: ... through being a state rep and being a United States senator from Illinois without having to deal with the pay-to-play mentality?

ZUCKMAN: He always-Senator Obama was always a little bit apart from the establishment. He managed to work...

MARTIN: That's right.

MATTHEWS: So, his aloofness worked here?

ZUCKMAN: His aloofness worked. He also always talked about ethics.

MARTIN: Right.

ZUCKMAN: Ethics was one of those things on his agenda from the very beginning.

You know, when he first got to Washington and was in the United States Senate, he was the...

MATTHEWS: Let's watch how the McCain campaign, a bit...

(CROSSTALK)

MATTHEWS: ... perhaps, too prematurely. Jonathan, let's take a look at the McCain campaign ad that linked Barack Obama, then the candidate for president, with Blagojevich, who had not yet been arrested.

MARTIN: Yes.

(BEGIN VIDEO CLIP, MCCAIN CAMPAIGN AD)

NARRATOR: Born of the corrupt Chicago political machine.

OBAMA: In terms of my toughness, look, first of all, I come from Chicago.

NARRATOR: His economic adviser William Daley, lobbyist, mayor's brother. His money man, Tony Rezko, client, patron, convicted felon. His political godfather, Emil Jones, under ethical cloud. His governor, Rod Blagojevich, a legacy of federal and state investigations. With friends like that, Obama is not ready to lead.

MCCAIN: I'm John McCain, and I approve this message.

(END VIDEO CLIP)

MATTHEWS: Well, that was prophetic.

ZUCKMAN: And-and, yet, Senator Obama was never really friends with Governor Blagojevich.

MATTHEWS: That's true.

ZUCKMAN: That was one of the failings of this ad.

MARTIN: Jill...

ZUCKMAN: Everybody in...

(LAUGHTER)

MATTHEWS: It's true.

ZUCKMAN: Everybody in Illinois knew that the governor was under investigation.

MATTHEWS: Who is friends with Blagojevich at this point?

ZUCKMAN: I think he could count them on one hand, probably.

MATTHEWS: I heard that Blagojevich didn't like Jesse Jackson Jr. I have heard a lot of these rumors.

MARTIN: Maybe his wife, not his father-in-law.

(CROSSTALK)

MATTHEWS: Well, as a victory has a 100 fathers, defeat is an orphan. He suffers defeat. As Jack Kennedy would say, he ain't got too many friends today...

MARTIN: Very, very few.

MATTHEWS: ... even though he's got bail money. Hey, thank you very much, Jill Zuckman. We're talking about the governor of Illinois and his chief of staff, been to jail this morning already, out on their personal recognizance, facing innumerable charges, among them that they tried to sell the Senate seat of Barack Obama. Much more on the arrest of the Illinois governor coming up-what a day in politics. It's called pay-to-play. You can watch for free. Up next, the effort to save the legacy of President Bush, we have got that. And the talking points, by the way-you may-if you're a big Republican, you may want to get a pencil out and a notepad. These are the best things you can say, if you're sharp, about the record of George W. Bush. It's a short list. You won't need a lot of paper-up next in the "Sideshow." You're watching HARDBALL, only on MSNBC.

(COMMERCIAL BREAK)

MATTHEWS: The whole show is a sideshow tonight. Anyway, back to HARDBALL. Time for the "Sideshow." First up: corruption of a different sort. That Larry Craig saga lingers on. An appeals court today rejected the Idaho senator's bid to withdraw his guilty plea in that airport sex sting, which effectively ended his career. The senator, you remember, was arrested back in June of 2007. He entered a guilty plea, but then insisted on his innocence once news of the arrest became public. Despite today's ruling against him, Senator Craig said in a statement that he's-quote-"reviewing the decision and looking into the possibility of appealing." Next up: The bid to save the Bush legacy has begun. "The L.A. Times" snagged a copy of a White House talking points memo that's been distributed to Cabinet members and other high-ranking officials as a guide to commenting on the Bush presidency. The memo suggests that supporters of President Bush hit the following points. One, President Bush kept the American people safe after September 11. He-quote-"maintained the honor and dignity of the office." Three, he lifted the economy after 2001 through tax cuts, and, four, responded with bold measures to prevent an economic melt turn-meltdown. Well, if I were a supporter of the president, officially, I would not be selling those last two items. I would be sticking away from the economic issues to those first two, about what happened after 9/11, when he was such a strong leader. And, of course, he has been no problem to the dignity of the Oval Office. Speaking of Mr. Bush, it's time for "Final Daze," D-A-Z-E, a daily look at the president's schedule as his term winds down. With the economy in crisis and a political firestorm brewing over in Illinois, President Bush today returned to the main theme of his presidency, Iraq. Here's the president today speaking before the cadets at West Point up in New York.

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: After seeing the destruction of September 11, we concluded that America could not afford to allow a regime with such a threatening and violent record to remain in the heart of the Middle East. So, we offered Saddam Hussein a final chance to peacefully resolve the issue. And, when he refused, we acted with a coalition of nations to protect our people and liberated 25 million Iraqis.

(END VIDEO CLIP)

MATTHEWS: Well, I don't remember it that way. Bush, Condi Rice and the rest sold the nuclear case, that old mushroom cloud case, when they got us into the war. They got us inspections in that country. Then, they kept blowing the trumpet for war, even after they got the inspections for weapons. President Bush sold the WMD case all the way. And now he's hiding from that case he made. He's changing the story. The men and women of West Point, who swore to defend their country, deserve the truth in matters of peace and war, not political flackery, like they got today. Up next: Take a listen to Patrick Fitzgerald today characterizing the charges against Governor Blagojevich and his chief of staff.

(BEGIN VIDEO CLIP)

FITZGERALD: But we ask that the press, in particular, recognize that we're not casting aspersions on people other than the two people we charged, and bear that in mind, and be responsible.

(END VIDEO CLIP)

MATTHEWS: Well, the thing is, prosecutor Fitzgerald sang a very different tune during his previous investigation involving Dick Cheney chief of staff Scooter Libby. Here's what Fitzgerald said in the closing statement of Libby's perjury trial in February 2007 -- quote-"There is a cloud over the vice president. And that cloud remains because this defendant-that's Scooter Libby-"obstructed justice"-which brings us to tonight's "Big Number." Just one man, Scooter Libby, was held accountable and convicted of multiple felony counts of lying and obstructing justice in the CIA leak investigation. While the president did commute Libby's sentence just one -just this last year, it seems to be a matter of when, not if, he will complete the cover-up by giving Libby a full pardon. How many days left for Bush to give him a pardon? Forty-two days. The Scooter Libby pardon watch is on. President Bush has 42 days left to get the vice president in the clear and protect Cheney from that cloud from breaking over his head-tonight's "Big Number." Up next: Rostenkowski, Ryan, Blagojevich, Walker, Kerner, the list of Illinois politicians read like a police blotter. Why is corruption rampant in that state? And what is it about big-city politics that breeds corruption? You're watching HARDBALL, only on MSNBC.

(BEGIN VIDEO CLIP)

ROBERT GRANT, FBI SPECIAL AGENT IN CHARGE: 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)

MARGARET BRENNAN, CNBC CORRESPONDENT: I'm Margaret Brennan with your CNBC "Market Wrap." A triple-digit decline in the Dow Jones industrial average, after two days of big gains-the Dow lower by 242 points, the S&P 500 down 21, and the Nasdaq lower by 24. Oil prices also fell, as the U.S. government predicted world demand would continue to shrink next year. Crude dropped $1.64, closing at $42.07 a barrel. Pending home sales dipped seven-tenths-of-a-percent in October from the previous month. But that drop was less than expected-good news there. And, among the latest job cuts, Sony says it will eliminate 8,000 jobs worldwide and close several manufacturing sites. Anheuser-Busch, just taken over by the Belgium brewer InBev says it will cut 1,400 jobs. That's about 6 percent of its work force.And even the National Football League isn't immune from layoffs. It will cut 150 jobs, or 10 percent of its work force. That's it from CNBC, first in business worldwide-now back to Chris and HARDBALL.

MATTHEWS: Welcome back to HARDBALL. Governor Blagojevich is just the latest in a long line of Illinois politics who have been caught up in corruption scandals. So why does Illinois have an extended family tree of corrupt politicians? And what does the governor's arrest mean for Obama's Senate seat? Pat Buchanan is an MSNBC political analyst. And Stan Brand is a former counsel to the U.S. House. He also represented former Illinois Congressman Dan Rostenkowski in his case. Let's take a look at some of this. Governor Blagojevich held the same congressional seat as Dan Rostenkowski, who was convicted of mail fraud back in '96. That's one example. Let's keep going. Governor Blagojevich was preceded in office as governor by Governor George Ryan who was himself convicted for two years-two years ago for the illegal sale of government licenses and contracts. So his predecessors both as a congressman and governor went to prison. Take a look at this list of convicted Illinois politicians. And these aren't old lists, by the way. These are fresh lists. You've George Ryan, the governor, convicted in 2006, two years ago. Daniel Walker, convicted in '87. Otto Kerner, convicted in '74. Rostenkowski in '96. Fast Eddie Vrdolyak, convicted in 2008. He wrote the review in The Wall Street Journal of my book "Hardball." I remember that guy, he gave me a good review actually. I guess the justice system is not as nice to him as he was to me. Let me start with Pat Buchanan. What is it about Chi-town? And by the way, what is it about big city politicians that there always seems to be this sort of pay to play thing going on.

PAT BUCHANAN, MSNBC POLITICAL ANALYST: Right.

MATTHEWS: Which you see that in a lot of states, where you can't do business with the government unless you pay in campaign contributions at least.

BUCHANAN: Well, I think there's a feeling on a part of a lot of politicians in these big cities, they're going in there, they're not going to make much money, but you can basically work the system and do very well yourself making deals. And I think a lot of things slip over the line. Chris, this is a much this is a very big deal for this reason. This is going to a grand jury. And these guys, Blagojevich and his chief of staff, didn't just talk to one another. How many of those senate candidates talked to Blagojevich, heard him make some request of him?

MATTHEWS: You mean, the ones who want the appointment?

BUCHANAN: Yes. And then basically demanded a bribe and did not report it. Take a look at your.

MATTHEWS: Well, how do we know anybody demanded a bribe? How do we know he wasn't insisting on a bribe?

BUCHANAN: Well, that's just it. That's just it. If it's just this guy and his aide sitting there shooting the bull about what I'm going to do.

MATTHEWS: Well, Fitzgerald says he no evidence of any other criminality, that's what he says.

BUCHANAN: Well-look, well, then where was the crime that was committed other than talk? Take another look too at Barack's tape where he says, look, we didn't-wait a minute, I didn't know anything about this. They're going to ask-Axelrod is going to go to the grand jury, Rahm will go to the grand jury.

MATTHEWS: Wait a minute, let me go, Stan Brand, to an attorney here. Is it criminal for a governor and his chief of staff to sit there and connive how they can sell public office? Is it criminal in the very fact of taking the step of having the conversation on tape?

STAN BRAND, FMR. ROSTENKOWSKI ATTORNEY: Well, before we get there, Illinois has no monopoly. I can go to every state, Maryland, Governor Marvin Mandel, Spiro Agnew. Pennsylvania, Buddy Cianfrani, Ray Lederer, you know, Myers.

MATTHEWS: Ozzie Myers.

BRAND: All of the Abscam defendants. I can go to Louisiana with.

BUCHANAN: You can go to Rhode Island.

BRAND: . Governor Edwin Edwards. I can go to New York with Eliot Spitzer. I mean, sadly, in one sense, Illinois has no corner on the market. Now as to whether we have illegality here, it is not a crime yet to make promises in the political arena. It is a crime to expect an exchange for a specific official act like an appointment to the U.S. Senate something of value, either in terms of a campaign contribution or something else. That's what they would have to prove.

MATTHEWS: Well, how about an appointment to running a labor union? How about an appointment-I don't even know how you get an appointment to run an international labor union like Change to-Unite to Change (ph), I mean, SEIU, I don't even know how that would even happen. But the idea that he would get to run a big major international union or combination of unions in exchange for giving somebody like Barack Obama the person he wanted as his replacement part. I mean, is that illegal if that were the case?

BRAND: I don't think that's a crime. I don't know how you prove the benefit to the person who-to Blagojevich. It's not the kind of benefit that traditionally falls within the U.S. criminal code. And maybe Fitzgerald is going to break new ground here.

BUCHANAN: All right. Stan, Stan, let me ask you a question. It looks to me like Fitzgerald moved prematurely. I'll tell you why. You've got Blagojevich obviously talking about what his idea is, basically selling the senate seat. But I don't know that there has been any felony committed, anybody gave him anything. All we seem to have so far is him and this character talking to each other about what they would like.

(CROSSTALK)

MATTHEWS: Are we reliving Nixon? Are we-Patrick, we're reliving the old days. I always hear it from you.

BUCHANAN: Right.

(LAUGHTER)

MATTHEWS: Because Nixon is talking to Haldeman, talking to Charles Colson about some slam bag attempt to break into Brookings, break into.

BUCHANAN: And they don't do anything!

MATTHEWS: See, you're defending Nixon again here.

BUCHANAN: I'm not defending him. I'm asking to Stan, is he-can you convict him if he didn't do anything?

BRAND: I think Pat raises a good question. I think that, like Abscam, where they went overt because the thing was leaking before they really had closed the door on everybody who they've had as a suspect, this may have had to go public prematurely before Fitzgerald was finished with his investigation.

MATTHEWS: OK. Stan, you're a good guy and a friend of mine, and I know you've defended some people very effectively. But when the public hears this, they hear that a guy is on tape using obviously bad language, but a lot of people use bad language, but talking about how he's going to try to make some money on what he calls a valuable asset, his ability to name Barack Obama's replacement. And I'm going to get something for this. I want money. I mean, the line in the quote is, I want money. And he's talking about how he's going to try to sell it for something like a campaign-not a-like a job for his wife, like something for him. Is that illegal? It seems illegal to the public.

BRAND: Well, I think it has got to be a direct financial benefit to him, and I don't know a job from a third party.

MATTHEWS: How about a $250,000 a year job? Just a minute, Stan.

BRAND: I don't know.

MATTHEWS: He's looking for a $250,000 a year job with somebody.

BUCHANAN: If he got it. He didn't get it. Chris, he hadn't got anything.

BRAND: Right. He didn't get it.

BUCHANAN: But I do think that this is why they're going to the grand jury. Everybody is going to be asked, did you talk to the governor? A lot of them talked to him. And what did he ask for?

MATTHEWS: OK. We've got to balance these panels out more. We've got one lawyer who defends everybody, Stan, they're all innocent. And then we've got this guy, Pat, who thinks everybody is Dick Nixon. Thank you very much, Pat Buchanan. Thank you, Stan Brand. I'm going to find some.

BUCHANAN: Well, you're part of a cover-up, Chris.

MATTHEWS: We need a prosecutor here. Come on.

BUCHANAN: This is a cover-up, Chris.

MATTHEWS: Up next, as Illinois governor-the governor tries to sell Barack Obama's Senate seat before it's not even cold yet, Senator Ted Kennedy is pushing his niece Caroline for Hillary Clinton's seat. We'll see if he's really doing that. The latest is he says he's not doing that although a lot of people say he is doing that. We'll talk about that other Senate vacancy up in the Empire State. The "Politics Fix" continues with no abuse further from Pat Buchanan or Stan Brand. This is HARDBALL, only on MSNBC.

(COMMERCIAL BREAK)

MATTHEWS: Coming up, so with the governor arrested this morning, what happens now to Obama's Senate seat? Who gets to pick the person to fill it? It's still Blagojevich's job to name a successor to Obama. But what will that person have even a-will that person even have a shred of legitimacy if they get the job from Rod Blagojevich who just got arrested? The "Politics Fix" is next when HARDBALL returns.

(COMMERCIAL BREAK)

MATTHEWS: We're back now, time for the "Politics Fix" with John Harwood of The New York Times. He is also CNBC's Washington bureau chief. And Chris Cillizza, he writes for the washingtonpost.com. We've got two pros on right now. Let me ask about Caroline Kennedy, it was all over the New York tabs yesterday and again today. And the argument was made-or the report, I should say, hard reporting in The Times was that Senator Ted Kennedy of Massachusetts-there he is standing with Caroline Kennedy and Barack Obama and his son Patrick there. I think that was out at the American University during the primary season here. Is Ted Kennedy trying to get his niece appointed U.S. senator from New York, John Harwood?

JOHN HARDWOOD, CNBC WASHINGTON BUREAU CHIEF: Well, Chris, I think my answer might be kind of valuable. What do I get for it?

(LAUGHTER)

MATTHEWS: Just answer the question. I'm just kidding. No, if you've got something, please report it, are you holding it for tomorrow, for the paper or what? I mean, I understand the need to get credit from the person who gives you most of your income but, whatever.

HARWOOD: No. Look, I think Caroline Kennedy is exploring her interest in this.

MATTHEWS: Oh, I got the joke! I'm sorry, just got the joke. I'm sorry, John. I'm so slow. That was a joke, I'm sorry.

CHRIS CILLIZZA, WASHINGTONPOST.COM: John steals all my A material, Chris.

HARWOOD: That's all right. I'll give it to you for free.

(LAUGHTER)

MATTHEWS: All right, thanks.

HARWOOD: Look, I think Caroline Kennedy is exploring her interest in this. I think she has to decide whether this is what she wants to do with her life. There hasn't been much evidence that that's what she wants to do heretofore. Senator Kennedy denied that he had been making phone calls on behalf of his niece. And I talked to a couple of Democrats today who say they don't believe he was either. But David Halbfinger is a good reporter. You don't know how people are parsing or what sort of communication might have been going on through associates. I suspect that if she wants this, if she decides that she wants it, she has a very, very good chance to get and it and to hold the seat.

MATTHEWS: Let me ask you, Chris, isn't it Governor Paterson's decision, pure and simple, as we're learning in the case of Illinois, it's up to the governor-the calls to Bob Menendez, the head of the campaign committee, the calls to others, really aren't that relevant. Isn't it up to-this is a big patronage appointment in New York State.

CILLIZZA: You know, Illinois and New York in this regard at least, Chris, have that in common. This is solely a decision of David Paterson, just as the appointment right now of Barack Obama's replacement is solely the decision of Rod Blagojevich.

So you're right, but that doesn't mean that bringing pressure to bear, especially in a family as prominent in Democratic politics, and frankly in American politics, as the Kennedys, doesn't mean something. One thing I will say, though, I think this idea-Andrew Cuomo is the other big name out there, former cabinet secretary in the Clinton administration, now the state attorney general, obviously also the son of Mario Cuomo. This.

(CROSSTALK)

MATTHEWS: And former husband of Kerry Kennedy. Let's not un-involve the complexity here.

CILLIZZA: That's a very, very good point.

MATTHEWS: Andrew was married to Kerry Kennedy, the daughter of Bobby, yes, go ahead.

CILLIZZA: Absolutely. I was just going to say, the idea that David Paterson would name Andrew Cuomo just to get Andrew Cuomo out of the way so Andrew Cuomo doesn't run against him in 2010, I think is farfetched. I don't think Andrew Cuomo is going to run for governor against David Paterson. He may well wind up in the Senate, but I don't think David Paterson just shoves Andrew Cuomo out.

MATTHEWS: But I think Rudy Giuliani is going to run-Rudy Giuliani is going to run against him though. I'll bet you that right now. Rudy is running for governor and I think he is going to be the favorite to beat Paterson. We'll see when we come back with John Harwood. Let's talk more about this thing in Chicago. An amazing story today. The home of the president-elect caught up in huge corruption today with the governor arrested in his home this morning, hauled into jail. His chief of staff, the same deal, now you face charges that the governor of Illinois tried to sell for something big Barack Obama's Senate seat. This is about as corrupt as the worst Third World government corruption story. The worst banana republic, nothing this bad, it's all happening here. You're watching HARDBALL, only MSNBC.

(COMMERCIAL BREAK)

MATTHEWS: We're back with John Harwood and Chris Cillizza for more of the "Politics Fix." Well, this is getting complicated. Barack Obama said today that he had no communication with the now arrested governor of Illinois about who would replace him in the Senate. However, a senior Obama adviser says that David Axelrod misspoke when he said he had-when he told a local news program in November about Obama's dealings with Blagojevich in connection with finding Obama's replacement in the Senate. Axelrod said back then, quote: "I know he has talked to the governor." That's saying that he in fact-Barack Obama did talk to the governor. Now the campaign is saying there was no communication. This is getting a little bit murky. John Harwood, did Barack Obama ever talk to Blagojevich about his replacement? That becomes an issue perhaps in court because now the governor is being accused of selling that seat-or trying to.

HARWOOD: You know, I take the president-elect at his word today, saying that there had been no contact. But all of those things, and everything anybody in the Obama circle has said about this between the election and now is going to be picked over with a fine-toothed comb. And of course, nobody is going to forget that one of the people caught up in this Blagojevich scandal was Tony Rezko, who also was involved in that real estate deal with Barack Obama that caused so much embarrassment during the primary campaign.

MATTHEWS: Is it your sense, Chris, you cover politics relentlessly, that the Republicans will jump on this? Is it too early to spoil the honeymoon?

CILLIZZA: No.

(LAUGHTER)

CILLIZZA: I don't think they view it as too early to spoil the honeymoon. You know, Chris, I think nothing exists in a vacuum in politics. Republicans already have jumped on the fact that indicted Louisiana Congressman Bill Jefferson lost. They're pushing hard on Charlie Rangel, head of the Ways and Means Committee. Both Democrats, and now Blagojevich...

MATTHEWS: Right.

CILLIZZA: is a third. I think you're going to see them paint this culture of corruption, the exact same argument, remember, that Democrats used against them to take over the House in 2006.

HARDWOOD: Chris, I think they're delighted to have this opportunity, the Republicans.

MATTHEWS: OK. Guys, thank you very much. John Harwood, thank you, Chris Cillizza.

Right now it is time for "1600 PENNSYLVANIA AVENUE."

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