updated 12/11/2008 11:58:08 AM ET 2008-12-11T16:58:08

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

Guests: Howard Fineman, Michael Isikoff, Christopher Christie, Ron Brownstein, Ron Brownstein, William Ayers, Joan Walsh

CHRIS MATTHEWS, HOST: The Chicago corruption story breaks this city wide open.

Let's play HARDBALL.

Good evening. I'm Chris Matthews. Welcome to HARDBALL. Leading off tonight, naming names. We're beginning to put the pieces together of the stunning Rod Blagojevich Senate seat for sale scandal. Today we learned that Congressman Jesse Jackson, Jr., of Illinois is Senate candidate number 5 named in that criminal complaint against Governor Blagojevich. The complaint says Blagojevich was overheard saying of Candidate 5, quote, "We were approached pay to play, that, you know, he'd raise me 500 grand. An emissary came. Then the other guy would raise a million if I made him a senator."

Late this afternoon, Jackson denied any involvement in the scandal.

(BEGIN VIDEO CLIP)

REP. JESSE JACKSON, JR. (D), ILLINOIS: I reject and denounce "pay to play" politics and have no involvement whatsoever in any wrongdoing. I did not initiate or authorize anyone at any time to promise anything to Governor Blagojevich on my behalf.

(END VIDEO CLIP)

MATTHEWS: Jackson did not take any questions in that press conference.

Plus, what's at stake for President-elect Obama? Obama today called for Blagojevich's resignation, but a lot of people want to know what, if anything, Obama or advisers, like Rahm Emanuel, knew about what was going on in Illinois. The Republican National Committee today demanded that Obama come clean with whatever he knows. We'll take a deep look at this deep scandal in just a minute.

And another Chicago figure who became notorious recently is Bill Ayers. Ayers is the former Weather Underground leader whom the John McCain campaign used to try to link Obama with terrorism. His group set off bombs at, among other places, the Pentagon and the U.S. Capitol.

But in a recent op-ed piece in "The New York Times," Bill Ayers wrote the following. "We did carry out symbolic acts of extreme vandalism directed at monuments to war and racism, and the attacks on property, never on people, were meant to respect human life and convey outrage and determination to end the Vietnam war." Well, I'm just not sure it's that simple, and we'll tell you why when Bill Ayers joins us later on to talk about what he did and why he did it during that Vietnam era.

We're going to look at all the possible fallout tonight, of course, from the Blagojevich "pay for play" scandal in tonight's politics.

And we all know that Joe the Plumber didn't like-well, didn't think much of Barack Obama. Now wait until you hear what he says about his pal, John McCain. That's in the HARDBALL "Sideshow."

We begin, however, with the big story of the week, the Rod Blagojevich scandal with "Newsweek" investigative reporter-and he's the best there is-Michael Isikoff, and former U.S. attorney Christopher Christie.

Let me go with Mike Isikoff. Let's take a look at some more of what Jesse Jackson, Jr., had to say this afternoon. Let's look at another bite of Jesse Jackson, Jr., defending himself just a few minutes late this afternoon.

(BEGIN VIDEO CLIP)

JACKSON: That's what I shared with Governor Blagojevich on Monday when I had the opportunity to meet with him for the first time in four years. I want to repeat that. I met with Governor Blagojevich for the first time in four years on Tuesday. I presented my record, my qualifications and my vision. The media saw me enter the governor's office, and after a 90-minute meeting about my record, my qualifications, the media saw me exit Governor Blagojevich's office. Despite what he may have been looking for, that's all I had to offer.

(END VIDEO CLIP)

MATTHEWS: Mike Isikoff, where is this story going?

MICHAEL ISIKOFF, "NEWSWEEK": Well, it's going in a lot of directions, but at least as far as Jesse Jackson, Jr., going, it's going to who's the emissary and what did the emissary say...

MATTHEWS: Who came in and saw Blagojevich, the governor, according to the governor...

ISIKOFF: Right. Yes.

MATTHEWS: ... and offered him a half million dollars up front and a million dollars later in campaign contributions if he named Jesse, Jr., the U.S. senator to replace Obama?

ISIKOFF: That's the allegation and the complaint, than an emissary came, and it's backed off by the transcript of Blagojevich talking on tape about an emissary coming to him, saying, you know, We're here to pay to play and offering to put up that money.

(CROSSTALK)

MATTHEWS: ... crooked politician language. I never hear of a guy saying, He came in with a "pay to play" proposition-in other words, he came in and used the lingo of corruption...

ISIKOFF: Right.

MATTHEWS: ... in the very transcript here.

ISIKOFF: Yes, I mean, there-I mean, there are so many weird things about Blagojevich on this tape and you got to wonder how delusional he was, and you know-you know, really, how sort of off his rocker he was to be talking the way he was.

But one can presume-I think the government presumes-that there was such an emissary. They presumably, by this point, know who it is. The question is, What is that emissary going to say, and why he was offering the money? We have to take Jesse Jackson, Jr., at his word. He says he knew nothing about this. So somebody-if Jesse Jackson, Jr., is telling the truth, and we have no reason at this point to question that. Somebody without his knowledge was offering up to put up a lot of money to get Jesse Jackson, Jr., the seat. The question would be why?

MATTHEWS: And your question you raised to me before we went on the air is not just did he ever authorize an emissary to offer a half million dollars-Jesse Jackson, Jr.-or offer a million dollars to get this Senate seat, did he authorize anybody to be his emissary in relationship to Blagojevich? Because he made a point-Christopher Christie, you were a prosecutor. You know about these cases. Where is this headed, this case right now, as you watch it?

CHRISTOPHER CHRISTIE, FORMER U.S. ATTORNEY: Well, it's headed in a bunch of different directions. I think the first thing, as a U.S. attorney who did a lot of corruption cases in New Jersey, Pat Fitzgerald had to have taken this case when he did because he thought something even worse was going to happen, that perhaps an appointment of a senator was imminent.

On the Jesse Jackson front, I think what you have take into consideration here is Jesse Jackson used some very, very specific language. He said that the government told him he was not a target. He never said that the government told him he was not a subject of the investigation. Those are important distinctions. They're legal distinctions. And he did not say he was not a subject.

And so I think there's a lot of water still to pass under this bridge, Chris, and Pat Fitzgerald is going to be talking to everyone he can now to try to fill in...

MATTHEWS: Right.

CHRISTIE: ... the rest of the pieces of the puzzle.

MATTHEWS: Well, let's go to his point. Here he is-the point you're making-U.S. Congressman Jesse Jackson, Jr., on what the U.S. attorney told him about him not being a target. And you point out he doesn't make clear if he isn't not a subject.

(BEGIN VIDEO CLIP)

JACKSON: We pressed to make what would have been a private process a public process that their voices might be heard. Know this. I spoke to the U.S. attorney's office on Tuesday. They shared with me that I am not -I am not-a target of this investigation and that I am not accused of any misconduct.

In the days ahead, federal law enforcement officials want to meet and discuss what I know about the Senate selection process. I look forward to cooperating.

I've retained the advice of legal counsel, Mr. James Montgomery, Sr., who held his own press conference earlier this afternoon in Chicago. On his advice and due to the ongoing investigation, I will not be taking any questions.

(END VIDEO CLIP)

MATTHEWS: OK, let's start here, Mike Isikoff, with a real presumption of innocence, not just a legal one or a constitutional one. Everyone has a right to that in court. But let's assume that Jesse Jackson is completely innocent here. The reason I say that, not just because I know him, but also because the prosecutor here made clear that he wasn't a target of this in any way now.

ISIKOFF: Well, just-I mean, just going back...

MATTHEWS: Well...

(CROSSTALK)

MATTHEWS: ... am I wrong there by saying he's been basically declared not the target of this investigation?

ISIKOFF: Yes, but that actually doesn't mean much at this point. A target is somebody you're about to indict...

MATTHEWS: OK, what's a subject?

ISIKOFF: ... as Mr. Christie can tell you. A subject would be somebody of interest in the investigation. Clearly, he's going to be a subject. We have him referred to...

MATTHEWS: Well, he's a witness, perhaps.

ISIKOFF: Right. Right.

(CROSSTALK)

ISIKOFF: It may not be bad at all. I'm just saying it doesn't tell us very much at this point to say he's not a target of an investigation.

MATTHEWS: (INAUDIBLE) Christie, suppose some big shot sleazeball went in to see Blagojevich-and Blagojevich probably knows a few of them-and said, I'm here speaking for Jesse Jackson, Jr. I'm going to give you fat money for yourself, a half million bucks, in fact, to make your life easier, and I'm going to raise you a million dollars in campaign contributions so you can get reelected governor, if that's even feasible at this point. And I speak for Jesse Jackson, Jr.

What would be that case? Would there be any reason-what would the U.S. attorney do, then? Why-I noticed in this case, Patrick Fitzgerald, who's one tough prosecutor, did not take the second step and try to investigate further whether Jackson, Jr., had anything to do with that guy's offer, if there was such an offer.

CHRISTIE: Well, hold on. Hold on, Chris. You don't know that he hasn't done that yet. You know, it's...

MATTHEWS: Only because he said nobody else is guilty here, as far as he's concerned.

CHRISTIE: Well, what he said was that there's no other targets at this time. And Michael is exactly right, a target is a very specific phrase which means you are about to be indicted. A subject or a witness-a subject is someone who's come within the ambit of the investigation...

MATTHEWS: Right.

CHRISTIE: ... and that there still needs more to be found out about what's going on. I think right now what Pat Fitzgerald is probably doing is talking to as many people, interviewing as many people as he can and making sure that he gets to the bottom of this. He's not going to be in the business of giving anybody a clean bill of health at this point. And no one should read...

MATTHEWS: Why didn't he wait-why didn't he wait, Christopher? Why didn't he want until the deal was done? In other words, if there was going to be a $500,000 payoff or a million-dollar payoff, wait for that to be done, like most investigations do, let the crime be committed, then you can nail the perps-the perpetrators, rather than just having conversation as your crime?

CHRISTIE: But Chris, I'll tell you, from doing these cases, there comes a point in time as U.S. attorney when you're dealing with a high-profile case-and nothing more high-profile than a sitting governor-you have to decide-if that person is going to take some action which might be difficult or impossible to unwind, like he was getting ready to appoint a new United States senator, you have to decide whether you're going to allow your investigation to rule when you take this down or public policy to rule it. That's the toughest decision a U.S. attorney has to make.

And I think Pat Fitzgerald, from what I can tell from this, came down on the side of saying, I can't allow that kind of public policy to happen, and I'll deal with the ramifications for my investigation another time. That's the responsible thing to do. That's what you want a prosecutor to do, not to blindly just continue to do it the way you always do it. Stakes are too high.

(CROSSTALK)

MATTHEWS: ... they didn't want to let him pick a bad guy?

ISIKOFF: First of all, he found several crimes in the process of taking place and he intervened to prevent the completion of those crimes. But you know, one thing one should know about Patrick Fitzgerald, and the way these investigations generally work is, you know, he most likely knows a lot more than is contained in that criminal complaint...

CHRISTIE: Definitely.

ISIKOFF: ... you know, that was released yesterday. If you remember, Chris, you and I talked a lot about the Scooter Libby case...

MATTHEWS: Sure.

ISIKOFF: ... which was also done by Patrick Fitzgerald, and we learned a lot more after the original Libby indictment...

MATTHEWS: Yes, but he said in that case...

ISIKOFF: ... about what he knew about Vice President Cheney...

MATTHEWS: Right, but in that case...

ISIKOFF: ... and conversations that had taken place.

MATTHEWS: (INAUDIBLE) and said the vice president has a cloud over his head. He made a point...

ISIKOFF: He only did that at the end. That was in his trial. That was the summation at the trial, not when he brought his indictment...

(CROSSTALK)

CHRISTIE: Chris, I can guarantee you that he knows more than is in that affidavit.

MATTHEWS: OK, I want...

CHRISTIE: As a U.S. attorney, you never put it all out there.

MATTHEWS: Let's go through the whole thing. Move past Jesse Jackson, Jr., for a second. What about the array of candidates that were involved in potentially getting this appointment to replace Barack Obama in that appointment situation? What about the other areas of criminality, Christopher? What do you see there as possible lines of attacks by the prosecutor?

CHRISTIE: Oh, there's plenty of lines of attack. You talk about the $8 million he wanted to withhold from the hospital because the executives hadn't made the requisite amount of campaign contributions. That's in the complain.

MATTHEWS: Children's Hospital.

CHRISTIE: The children's hospital in Chicago. You talk about...

MATTHEWS: What about the Wrigley Field...

CHRISTIE: The Tribune company...

MATTHEWS: ... deal with "The Chicago Tribune"?

CHRISTIE: The Tribune companies one of the most outrageous things I've ever seen, you know, to think that you can extort a media company to be able to give yourself editorial page editors you don't light fired-this guy was clearly off his rocker, arrogant and drunk with power because you just can't do that stuff. That's going to be another area of inquiry. Also, the bill regarding horsetrack racing and money going from the casino industry to horsetrack racing in return for getting some more campaign contributions.

I have to tell you, this is a potpourri of corruption, and what's going to happen here is Pat Fitzgerald's going take his time. He's going to methodically work his way through it. And I will tell you this. This governor is toast. He is done. Absolutely.

MATTHEWS: Is this front page of "Newsweek" this week?

ISIKOFF: I don't make the cover decisions.

MATTHEWS: Well, you're going to write the cover piece?

ISIKOFF: No, no.

MATTHEWS: In other words, how big is this...

ISIKOFF: No, it's-look, it's huge. It's huge not just because it's so rich, you know...

(CROSSTALK)

ISIKOFF: ... but you know, with all the interlocking...

MATTHEWS: Right.

ISIKOFF: ... connections with Obama and his world, it makes it a very uncomfortable situation for the new administration coming up and the new Obama Justice Department.

MATTHEWS: These guys should be wearing fedoras with those big striped suits, you know, like in gangster movies. You know, Joe Mantegna could play one of these guys. Anyway, thank you, Michael Isikoff. Thank you, Christopher Christie.

CHRISTIE: Thank you.

MATTHEWS: Coming up: So what's going on with Obama's Senate seat?

We're talking about it, but what's new there? Who's going to get it? Obama says Governor Blagojevich should resign so he doesn't get the appointment but his lieutenant governor should get to pick Obama's replacement. That's what he says. The governor could dig in, by the way, and go ahead and make the appointment. I'm not sure if anybody could Stop it. By the way, the U.S. Senate, Democrat caucus, Democrats have voted to say they won't accept that senator that Blagojevich tries to pick, if he tries to pick it.

You're watching HARDBALL, only on MSNBC.

(COMMERCIAL BREAK)

MATTHEWS: Welcome back to HARDBALL. President-elect Obama joined the calls today for Governor Blagojevich of Illinois to resign. How much of a headache could Blagojevich be for Obama if the governor stays on the job much longer, and by the way, tries to name his successor, Barack Obama's successor?

Ron Brownstein's the political director for Atlantic Media and Clarence Page is a columnist for "The Chicago Tribune."

What happens if Blagojevich just toughs it out and says, Under the law, I get to name the next senator, I'm going to name him-name Jesse Jackson, Jr., name anybody he wants, name himself?

CLARENCE PAGE, "CHICAGO TRIBUNE": You're going to see the Senate resist seating whoever it is. You're going to see the Illinois legislature push for impeachment, push for changing the constitution possibly, all of which can take months with Illinois not having a senator. So that's a bit more chaos, you could say.

MATTHEWS: So he's not going to get away with it.

PAGE: I don't think he'll-not in the long run.

MATTHEWS: No more bullets in his gun...

(CROSSTALK)

MATTHEWS: There's no way Blagojevich can tough this out and just start naming the next senator.

RON BROWNSTEIN, ATLANTIC MEDIA: As Clarence knows, the state legislature is talking about trying to move perhaps as early as next week to call a special election. There may be problems with that. But certainly, the Senate's ability to say no, that anybody coming in appointed by Blagojevich would be under a cloud, is kind of a final backstop here.

MATTHEWS: Everything has gone pretty smoothly in this transition for Barack Obama. He's named Hillary Clinton, other appointments, some Republicans. It's gone well. This is not good news because it shows the context in which he arose politically.

Here's Barack Obama's spokesman, Robert Gibbs, in a statement today. Quote, "The President-elect agrees with Lieutenant Governor Quinn"-that's in Illinois-"and many others that under the current circumstances, it is difficult for the governor"-that's Blagojevich-

"to effectively do his job"-talk about an understatement! -- "and serve the people of Illinois."

Isn't that understatement beautiful? It's almost British, like, it wouldn't be quite right for him to name the next senator, having been caught in this "pay to play" scandal.

BROWNSTEIN: Might have been a little-might have been a little more forceful there. Of course this is a problem. You know, before a president takes his oath of office, that people are asking what did he know and when did he know it is not an ideal circumstance. Although this does kind of, in a way, make the case for why Obama moved so quickly to run for president. I mean, this is not...

MATTHEWS: Get out of town.

BROWNSTEIN: You don't not want to be marinating yourself, perhaps, in this milieu indefinitely. But look, I mean, I think this is a difficult situation for him. There are going to be questions, as both of your previous guests said, going in every direction now. He has enough on his plate with this transition. I mean, he's being asked to provide leadership, as well as organize a government. And to add this to it is just another complication.

MATTHEWS: And common sense tells us, those who cover politics, that he has been in conversation with Blagojevich about who's going to replace them. He's obviously has named Rahm Emanuel or somebody to talk to-they aren't completely in radio silence here, like, Pick anybody, you want, I'm not involved, right?

PAGE: Well, he didn't say there was no intermediary, he said he hasn't talked to Blagojevich. And that's what Axelrod backpedaled on. But I know Obama goes way back in avoiding much contact with Blagojevich, and Blagojevich-you did not see him up there in Grant Park that night. He was about the only major Democrat who was not there...

MATTHEWS: Uninvited to the party.

PAGE: ... at that victory celebration. He was not a governor speaking at the Democratic convention. I mean, they have deliberately distanced themselves from Blagojevich because he's an embarrassment.

MATTHEWS: In all fairness, I hear Jesse Jackson Jr. was never on his on his dance card. He never liked-Blagojevich never liked Jesse Jackson Jr.

(CROSSTALK)

MATTHEWS: It's no accident they haven't spoken to each other in four years, not until this Monday night meeting.

PAGE: He's been cool to him. He's been cool to him.

RON BROWNSTEIN, POLITICAL DIRECTOR, "ATLANTIC MEDIA": Yes.

PAGE: Jackson has been lobbying Blagojevich in various ways...

MATTHEWS: For the job.

PAGE: ... but lobby externally. Like he says, he hasn't met with him in four months.

(CROSSTALK)

MATTHEWS: He said that. He said that he's been campaigning for the job for two years.

(CROSSTALK)

PAGE: No secret. He lobbied me and other media people. He's been running a campaign for...

(CROSSTALK)

MATTHEWS: Well, there's nothing wrong with that. It's a political job.

(CROSSTALK)

BROWNSTEIN: Something for Obama in this is that it's very clear in the tapes that were released by Fitzgerald that Blagojevich is complaining that the Obama camp will not provide him anything in turn for the naming, I mean, basically only their gratitude. And he reacts with what seems to be a David Mamet-style dialogue. Maybe he took it from...

(CROSSTALK)

MATTHEWS: "Glengarry Glen Ross."

(CROSSTALK)

BROWNSTEIN: No, from "The Untouchables," the Chicago-the Chicago movie.

(CROSSTALK)

MATTHEWS: OK. Let's take a look at...

(CROSSTALK)

BROWNSTEIN: Yes.

MATTHEWS: This is no surprise. The Republican national chairman, Mike Duncan-now I know who he is now-this is a first.

(LAUGHTER)

MATTHEWS: "President-elect Barack Obama's carefully parsed and vague statements"-this is the Republican chairman speaking-"regarding his own contact and that of his team with Governor Blagojevich are unacceptable. Considering the severity of the allegations against Governor Blagojevich, the president-elect should immediately disclose any and all communications his transition team has had with the governor's office, along with any Services-any Service Employees International-SEIU-officials involved in the matter. Obama's promise of transparency to the American people is now being tested."

Of course, that gets to one of the concerns, that one of the possible candidates to replace Barack Obama had some kind of relation with the SEIU, with Unite for Change kind of thing, right, that big union operation, it seemed?

(CROSSTALK)

PAGE: Well, Democrats are the union party.

(CROSSTALK)

BROWNSTEIN: Well, Blagojevich-Blagojevich was-in one of the scenarios, Blagojevich was looking for some kind of appointments at Change to Win...

MATTHEWS: Yes.

BROWNSTEIN: ... as the price of naming someone that Obama wanted.

And SEIU and Change to Win would be the ultimate beneficiary in policy.

That was the scenario that Blagojevich sketched out.

It's not clear whether anybody-anybody else-anybody else was involved in this...

(CROSSTALK)

BROWNSTEIN: ... although is an unnamed consultant in Washington that shows up.

Look, what the RNC chairman said is largely correct. I mean, I think the Obama campaign and transition will have to provide detail about exactly who spoke, I mean, who did what when. I mean, these are difficult questions. The evidence so far...

(CROSSTALK)

MATTHEWS: Who is going to-there is no tribunal to investigate this.

BROWNSTEIN: There is no tribunal. But there's all of us.

MATTHEWS: Yeah, right.

BROWNSTEIN: The media is going to ask a lot of questions. And I don't think they're going to-they are going to have to provide more detail about exactly what happened.

MATTHEWS: OK.

Let's assume that, within a week, there's expeditious action. Blagojevich resigns. Quinn, the lieutenant governor, takes over. He makes a quick appointment of some good-government person who everyone recognizes is as clean as a whistle. The story is dead a week from now? Is that possible, the story is dead?

PAGE: Well, it's possible.

MATTHEWS: It doesn't screw up the inauguration?

(CROSSTALK)

PAGE: First of all, that's a lot to speculate, that Blagojevich, all of a sudden, is going to get sensible and actually step aside.

MATTHEWS: Yes.

PAGE: I wouldn't put money on it.

Number two, this is the-this is the brightest moment for Republicans since the Reverend Jeremiah Wright tapes came out. They are going to have a lot of fun with this.

(CROSSTALK)

MATTHEWS: They're flashing like E.T. all of a sudden.

PAGE: Exactly.

(CROSSTALK)

MATTHEWS: They're getting...

(CROSSTALK)

PAGE: They are going to have a lot of fun with this. This is fresh meat for that smear machine. But I don't think it's going to last long.

(CROSSTALK)

BROWNSTEIN: First of all, don't you think there is an argument to be made for whoever makes the appointment, if it's not a special election, to appointment someone who would not run in two years, to someone who would be a good government caretaker to kind of eliminate the stain?

MATTHEWS: Yes.

BROWNSTEIN: And, secondly, for Obama, obviously, this is going to be a headache, but the country is in a very serious circumstance.

And, as I said, he is being asked not only to organize a government and to provide leadership on the economy, and that I think is going to be the principal way that people look at him over these next few months.

(CROSSTALK)

MATTHEWS: OK.

In all fairness, we don't know whether Blagojevich is nuts and we don't know whether a lot of the conversations he with his people in that room where he was being bugged relates to reality.

(CROSSTALK)

MATTHEWS: We just don't know that.

(CROSSTALK)

MATTHEWS: The SEIU stuff, the stuff with Jesse Jr., we don't know what he was assuming that was true or not.

BROWNSTEIN: Right. Absolutely.

PAGE: Well, one of the editorials he didn't like was memorably headlined "Governor Goofy." He has a long reputation for being a little weird, not having an unspoken thought. He joint runs off at the mouth, like he had done the other day.

MATTHEWS: But how about when he refers to pay-to-play in his own lingo as a corruption case when he is in the corruption?

(CROSSTALK)

PAGE: Exactly.

(CROSSTALK)

PAGE: It's important to remember he is the one who called it pay-to-play, not the so-called intermediary, who we don't even know who that was.

(CROSSTALK)

MATTHEWS: I don't think hookers call themselves hookers.

(CROSSTALK)

PAGE: I think you're right. I think you're right.

(CROSSTALK)

MATTHEWS: You don't usually call yourself by the bad name.

PAGE: Not in Chicago. Not in Chicago. That's for sure.

(LAUGHTER)

BROWNSTEIN: These quotes from him do not suggest exquisite mental balance, but that is not going to preempt the likelihood that who were at the other ends of his suggestions are going to have to answer questions about what in fact their contacts with him were.

I suspect we are going to see a lot of it over the coming days, regardless of whether he resigns.

MATTHEWS: Yes, they used to say that mobsters would dress like George Raft and Edward G. Robinson, because they thought that was what mobsters were supposed to dress like that.

(CROSSTALK)

MATTHEWS: He talks like the guy that is in trouble in here.

Anyway, thank you, Ron Brownstein. Thank you, Clarence Page.

Up next: Governor Blagojevich is the latest and perhaps most appalling member of what you might call the pathetic group or club of corrupt politicians that has just come out. We are going to name a few of them. Wait until you catch this barrel of bad apples we are going to run through in the "Sideshow": famous, infamous names of recent vintage.

You're watching HARDBALL, only on MSNBC.

(COMMERCIAL BREAK)

MATTHEWS: Back to HARDBALL. Time for the "Sideshow."

Governor Blagojevich's arrest is a reminder that, oftentimes, absolute power corrupts absolutely, that corruption scandals, particularly those involving money are not just part of the old days. They seem to haunt us wherever some people have power and that some of those people are best kept away from power. It's the old bad apple phenomenon, which brings us to the HARDBALL "Barrel of Bad Apples," an end-of-year look at some of the more cartoonish stories of politicians caught with their hands in the barrel, if you will.

First up, Alaska Senator Ted Stevens, he was convicted in October on seven felony counts of lying on Senate disclosure forms. What was he hiding? Hundreds of thousands of dollars in stupid stuff, really, home alterations to his A-frame, stuff he could have easily lived without.

Then there's Ohio U.S. Congressman Bob Ney. He got caught in 2006 as part of the investigation involving lobbyist Jack Abramoff, another humongously bad apple. Ney admitted to giving favors to lobbyists in exchange for campaign contributions, expensive trips, and skybox sports tickets.

Next up, Duke Cunningham, there is that eight-term House member making his tearful resignation from Congress back in '05. He confessed to pocketing $2.4 million in bribes, including a Rolls-Royce, a yacht and antique chest of drawers.

Next to last comes that old Democratic favorite Louisiana Congressman Bill Jefferson. Back in '05, federal agents found $90,000 of alleged bribe money stashed in Jefferson's freezer. He will likely trial next year on bribery and money-laundering charges.

Finally, just in time for the joyous season, Governor Rod Blagojevich, the street corner seller of Senate seats. Hey, this guy at least thinks big. Senator Stevens got his roof fixed. This guy was out there selling, for upwards of $1 million, Barack Obama's office, even before the boxes were packed.

Up next: It was only a matter of time, given the nature of those ill-fated campaign romances. Joe the plumber is jumping off the Straight Talk Express. The so-called regular Joe told a radio show just yesterday he felt dirty about being on the campaign trail with John McCain.

Why? Joe says that, at one point, he asked McCain direct questions about that $700 billion bailout, and was-quote-"appalled and angry" at McCain's answer. As for McCain's running mate, Sarah Palin, Joe the plumber was all raves, calling her the real deal-which brings us to tonight's "Big Number."

What do you think that turkey that was getting gobbled up by that machine behind Governor Palin last month worth? See it there getting-well, getting chewed up? What would someone ask for that turkey who got his head cut off while the governor of Alaska spoke calmly about the passing political scene?

Well, it turns out that the farm there put out-put one of those deceased turkeys up on eBay, and it got $225 for that turkey. One not-so-lucky turkey from Governor Palin's Thanksgiving time photo-op goes for $225 on eBay. Thanksgiving Day is over. Gobble, gobble, gobble, gobble-that's "Big Number."

Up next: William Ayers, the Weather Underground leader John McCain used to continually link Barack Obama to terrorism during the presidential campaign, is finally speaking out about the campaign that has passed, his relationship with Barack Obama. He is coming here live next.

You're watching HARDBALL, only on MSNBC.

(COMMERCIAL BREAK)

JULIA BOORSTIN, CNBC CORRESPONDENT: I'm Julia Boorstin with your CNBC "Market Wrap."

A rally faded, as the auto industry bailout hit bumps. However, the Dow Jones industrials still finished higher, gaining 70 points, the S&P 500 up 10, and the Nasdaq up 18 points.

The White House and congressional Democrats agreed on a $15 billion bailout for U.S. automakers. It includes a car czar to be appointed by the president to oversee the bailout, but Senate Republicans and some Democrats have expressed major concern about the agreement. And congressional approval is far from certain.

Oil prices rose, as Saudi Arabia reportedly told its major customers it would cut supplies substantially next month. Crude gained $1.45, closing at $43.52 a barrel.

And Office Depot announced it will close 112 underperforming stores and six distribution centers, eliminating 2,200 jobs. That's more than 4 percent of its work force.

And that's it from CNBC, first in business worldwide-now back to

HARDBALL.

(BEGIN VIDEO CLIP)

GOV. SARAH PALIN ®, ALASKA: Our opponent is someone who sees America as imperfect enough to pal around with terrorists who targeted their own country.

(AUDIENCE BOOING)

(END VIDEO CLIP)

MATTHEWS: That was Sarah Palin on October 4 of this year. And the "palling around" reference was to William Ayers. He became a flash point in the election because of his association with Barack Obama and his association with the Weather Underground, a radical anti-war group active in the early 1970s.

William Ayers is an education professor at the University of Illinois in Chicago. And his 2001 book, "Fugitive Days: Memoirs of an Anti-War Activist," has been re-released with a new afterword.

Mr. Ayers, thank you for joining us. I know you don't know do much of this. And I appreciate you coming on. Your book is out in paperback.

Let me ask you, what was your personal reaction when you saw Governor Palin exploiting your relationship with Barack Obama?

WILLIAM AYERS, AUTHOR, ""FUGITIVE DAYS: MEMOIRS OF AN ANTI-WAR

ACTIVIST": I think I saw it after everybody else saw it, because I don't tend to watch television news.

And I have three grown sons who kind of filter those things. And they sent it to me. And I thought it was outrageous, really. It was outrageous and profoundly dishonest. And I chose not to react to it at the time. I couldn't see any honest way to react to it.

MATTHEWS: What's the phrase "palling around" mean in reality? You were not pals with Barack Obama, obviously. Well, explain.

AYERS: Well...

MATTHEWS: What was your relationship with him?

AYERS: You know, I-I-again, I don't know what-what they were thinking, exactly.

We certainly-I was on a board with Senator-president-elect Obama. We did live in the same neighborhood. But the dishonesty of the narrative really is about the fact that, if you can place two people in the same room, or prove that they took a bus downtown together, that they are somehow responsible for one another's politics, policies, outlook, and behavior.

And that seems to me patently absurd. It's guilt by association. And I think, thankfully, the American people rejected it this time.

MATTHEWS: Well, let's talk about what they were up to.

They were trying to tie Barack Obama to you and there to the terrorism threat we are under right now, by the fact that the Weather Underground was involved with bombings of the Capitol Building and the Pentagon, which obviously has resonance today, because both those structures were hit on 9/11.

What's your reaction to that, to the particular reference to the fact that you were involved with that?

(CROSSTALK)

AYERS: No, I don't think-I think what they were trying to do was to get anything that would raise the question, who is this man?

And, so, in association with me or in association with Jeremiah Wright, all these things were attempts to say, this guy can't be trusted.

And, again, I think people rejected that.

MATTHEWS: Let me ask you about this quote. I read it in "The New York Times" the other day. And, honestly, it bothered me, but, you know, I certainly shared your anti-war views. I demonstrated and did all that stuff.

But let me ask you this. "The Weather Underground went on to take responsibility for placing several small bombs in empty offices-the ones at the Pentagon and the U.S. Capitol were the most notorious-as an illegal and unpopular war consumed the nation."

Do you stand by that decision by the Weather Underground to plant those bomb? Do you think that was a good thing to do at the time?

(CROSSTALK)

AYERS: You know, I don't defend those actions. And I didn't-I don't defend them in my book "Fugitive Days."

What I try to do in "Fugitive Days" is to understand how this young man set down in that context could find himself in these extreme positions. I think we made enormous mistakes. And I think that there were terrible things done.

I think we ought to have in this country a truth and reconciliation process, where we really tell the truth about who did what when during the Vietnam years and try to sort it out.

MATTHEWS: Yes.

AYERS: I feel I would like to take responsibility for the things I did. I also think people who murdered millions of people should take responsibility as well.

MATTHEWS: You refer to those acts of-those bombs planted in the Capitol and the Pentagon as extreme vandalism directed at monuments to war and racism.

Well, what about the possibility that they might have killed somebody?

AYERS: That would have been horrific.

MATTHEWS: Those bombs?

AYERS: That would have been despicable.

And we were fortunate it didn't happen.

MATTHEWS: Because, you know, back-I have a little history on this.

I-I was taken by your comment about it being, you know, empty offices. You know, the bomb that went off in the U.S. Capitol in early-well, actually late winter of 1971 went off in a bathroom in the Capitol Building, the old part of the Capitol Building. It goes all the way back to the beginnings of our republic.

And there were police officers in that area. In fact, one I knew at the time had just been in that bathroom and only a second, or actually about a minute later had checked in the door there. So we knew he had been in that bathroom within a minute or so of the bomb going off.

What do you make of that? It isn't just vandalism. There are people involved when you try to blow up the Capitol building.

AYERS: Well, it's horrific, absolutely terrible if someone were to be hurt. But let's, again, remember the context. We had created conditions where the majority of people were a posed to the war in Vietnam. Every month that the war went on, 2,000 Vietnamese were killed, murdered, innocent people.

And what could we do to stop that terrible destruction? And I'm not claiming what we did was terrific, but then again, those who demonstrated, which I did, we were not that effective either. Those who went into the Democratic Party and tried to create a peace wing, they were not that effective either.

So the dilemma remains, who did the right thing? I'm not so sure. And I don't-again, I don't want to defend what we did, but nor do I think it was completely insane.

MATTHEWS: Well, let me get to you on that, because it seems to me-

I mean, I was there, I was a Capitol policeman at the time, so I was one of the guys who could have been killed, obviously at the time you put that-your guys put that bomb in there. So I have a little personal interest. It wasn't just vandalism to me, it was life-threatening to the guys I worked with. And there were some pretty good guys working there.

In fact, I-like a lot of Americans, I look at the United States Capitol not as a symbol of war and racism, but as a-although there was some history there certainly with building the Capitol Building and how it was built, I understand all of that. I understand the motives.

Don't you think the anti-war demonstrations where millions of people came for the moratorium and then marched on the Pentagon and things like that were more effective demonstrations of opposition than bombing, which was...

AYERS: Perhaps.

MATTHEWS: . as you say.

AYERS: Perhaps, and I.

(CROSSTALK)

MATTHEWS: . horrendous.

AYERS: Perhaps. And I was involved in those as well. And you are right. I want to think of the Capitol as a symbol of freedom and a symbol of democracy. The problem is these symbols cut a lot of different ways. To you and me, that's what we would like to believe. But actually, to people who were kind of the targets of American power, they represent something quite different.

MATTHEWS: What do you think is the lesson of Vietnam right now? Here we are, I'm going to give you a shot. What's the lesson?

AYERS: I'm sorry? I missed what you said.

MATTHEWS: What the lesson of Vietnam for America?

AYERS: Well, I think one of the lessons is that we should be very, very wary when the United States government tells us that we must invade and occupy a country. We should be wary of being led down that path. And we should be rethinking right now. Most of all, we should rethink America's role in the world.

Do we have to be the policeman of the world? Do we have to be the one and only superpower, or could we imagine ourselves a nation among nations? Could we imagine a foreign policy based on justice rather than power?

MATTHEWS: Yes. Are you scared a little bit? I certainly am, by the willingness of the American people to assume language-brand-new language like "weapons of mass destruction," "homeland security," all of these references to a new kind of foreign policy, forward-leaning, preemptive, "preventive war." Preventive war sounds like an oxymoron to me.

But aren't you scared that the American people bought every one of those words, bought the whole argument, we had to go to Iraq?

AYERS: I actually think that those are contested. And I think you are right to worry about how much we did buy into that, but on the other hand, I think we should be very hopeful that people rejected a month ago. Rejected eight years of the politics of fear, the politics of terror, the politics of violence and war, and said, let's turn in a different direction.

So we have ended the era, I think, of 9/11 or at least turned a page on it. And we have entered an era of "yes, we can," but the question remains, "yes, we can" what? And in foreign policy, can we become a nation among nations? Can we become a nation who believes in justice for everyone?

MATTHEWS: Yes, well, those are good things. I think you are a different man. I think you are a different man than the one that was in the Weather Underground. You have said so.

Let me ask you, are you concerned that the centrist positions of the people that Senator Obama-President-elect Obama has named, Senator Clinton, Jim Jones-General Jim Jones, Bob Gates, the holdover defense chief? Are you concerned that he is putting establishment figures who supported the war authorization in Iraq in powerful positions of influence over him?

That the people in the room all around him now will be people who disagreed with him and you about the Iraq War? Are you worried about that?

AYERS: A bit, but I think that people like you and me and probably most of the people who watch your show are suffering a kind of postpartum depression. That is, we were so used to reading the polls and getting agitated about every nuance of what was happening, that we now don't know what to do with ourselves, so we try to read the mind of the president-elect.

I think it's much less important that we do that than that we pay attention to building on the ground forces that want to rethink and reimagine what America could be.

MATTHEWS: Well, Mr. Ayers, with all due respect, you agitate your way, I agitate my way. Thank you very much for coming on HARDBALL. The name of your book is "Fugitive Days." Thanks for coming on, Bill Ayers.

AYERS: Thank you very much.

MATTHEWS: Up next, back to Blagojevich. Does the arrest of the Illinois governor yesterday morning give fodder to Republicans looking to paint the Democrats as corrupt? The "Politics Fix" is next. This is HARDBALL, only on MSNBC.

(COMMERCIAL BREAK)

MATTHEWS: Coming up, Republicans are trying to make hay out of the arrest of Illinois Governor Rod Blagojevich. That's no surprise. They're trying to use it against Barack Obama. That's no surprise. Is Blagojevich such a solitary bad apple he won't be a problem? Or is this a problem of context for the elected president?

The "Politics Fix" is next.

(COMMERCIAL BREAK)

MATTHEWS: We are back now. Time for the "Politics Fix" with Michelle Bernard, she is an MSNBC political analyst; and Joan Walsh.

Coming fresh off that interview with Bill Ayers, Joan, you and I share a lot of views about things, and I have to ask you, what was your reaction? We just had Bill Ayers, who was a figure of almost lightning rod intensity during the campaign.

He said that what he did back in '70s with regard to the Weather Underground, the bombings of the Capitol and things like that were wrong. He was very confessional in a sense. Why didn't he do that during the campaign I'm wondering?

(LAUGHTER)

JOAN WALSH, EDITOR-IN-CHIEF, SALON.COM: I think he wanted to just stay of it entirely and not dignify what the McCain campaign and others were doing. I guess I still feel-you know, I'm happy that he has been such a good force on education reform in the Chicago community.

I still feel like I would like a little bit more clarity on the fact that you cannot blow up bombs in an empty office and not risk human life. I went to the University of Wisconsin-Madison, and years before I got there, the campus was still feeling the effects of the death of a young graduate student in a supposedly empty office.

So there's no such thing as mere property damage, Chris, and you know that. And I think he is still a little bit too light in terms of taking responsibility for the way he fought at that time. But, you know, in general, it was good to hear him say he had those regrets.

MATTHEWS: Yes, well, Michelle?

MICHELLE BERNARD, MSNBC POLITICAL ANALYST: I was looking at him and I was just really-if you look at his appearance, there is a reason they didn't want him out four months ago saying what he said. It not just the language that he used, which was not really strong enough, I believe. But I mean, a man of his age who wears two earrings, he is scruffy, he looks like an overgrown hippy. He did not look contrite.

WALSH: Michelle.

BERNARD: Well, if you-look at the way the media talked about Reverend Wright. Now we have somebody who is a little bit opposite. Barack Obama didn't need that. There was a reason to keep him away four months ago. He is not nearly contrite enough and he looks strange.

WALSH: I'm not worried about the earrings...

(CROSSTALK)

MATTHEWS: . but I think Michelle is going after my generation here.

I think.

(LAUGHTER)

(CROSSTALK)

MATTHEWS: . going after earrings, and I mean-not earrings, but the guy, he has a little left-wing look. I was expecting him to be blunt about it. He doesn't watch television, which was like, who is this guy, Adlai Stevenson?

I mean, is he some old liberal who only watches a little bit of public television occasionally? I mean, I thought that was elite. Go ahead.

WALSH: He might not know who Michelle and I are. I mean, how outrageous.

(LAUGHTER)

WALSH: I'm not going to join you on a scruffy thing.

MATTHEWS: Well, what a loss for him and us. Let me ask you what the bottom line is.

WALSH: But I thought he wasn't contrite enough either.

MATTHEWS: Let's be journalists here. If he had come out in the midst of the turmoil and the controversy and said, I shouldn't have bombed, bombing was wrong, I'm not going to judge it completely because there are a lot of other bad things that happened, including the Vietnam War, but it was not the right way to go. Would Barack Obama have benefited by that statement or not?

WALSH: I don't think so. I just don't-I think that it was right for him to stay under the radar. I don't really think there was anything he can do. He's never going to be strong enough in his denunciation of what he did for some people, including me, to be honest with you.

MATTHEWS: Yes, I'm with you.

WALSH: And so, you know, I think it would have just given everybody more to parse, more to ask about. It wouldn't have gone away. So I actually think did he the right thing and now he is out trying to tell the world he is not such a bad guy, even if he is a little scruffy. And, you know.

BERNARD: He's selling books.

WALSH: He's selling books, right.

MATTHEWS: By the way, you are so tough. We'll be back with Michelle Bernard. We'll try somebody else to get past her tough muster. Joan Walsh, we'll be right back with the "Politics Fix." You're watching HARDBALL, we'll get to Blagojevich next on MSNBC.

(COMMERCIAL BREAK)

MATTHEWS: We're back with MSNBC political analyst Michelle Bernard and Salon's Joan Walsh. Let's talk about Blagojevich, Michelle. It seems to me that just in the moment that the picnic was beautiful, the numbers are fantastic for Barack Obama. Everything is swimmingly wonderful for him. And along comes Chicago, the cruel wind of corruption, Blagojevich, and the pay-to-play scandal which even he uses the term pay-to-play. It is cartoonish, it's Runyon-esque, and it smells.

BERNARD: It smells. It smells awfully stinky. The Republican Party will try to use this to their advantage. They'll get a little bit of mileage out of it, but the bottom line, Blagojevich will do for the Republicans what Sarah Palin did. He is going to revive the base. It gives Republicans something to be angry at, a reason to try to go after the Democrats, a reason to try to link him with Barack Obama.

But it's not going to last long when you have Republican members of Congress who might be pedophiles and you have people at the Republican Convention taking pictures of the.

MATTHEWS: Who is a Republican pedophile? Let's get our facts straight. Who is the pedophile? Who are you talking about?

BERNARD: The former Florida congressman. You know.

MATTHEWS: Older teenagers, get it straight.

BERNARD: Jack Abramoff, we've had a lot of problems-there have been a lot of problems in the Republican Party, it won't last long.

MATTHEWS: We've got a lot of smell on both sides. It is bipartisan corruption. Is this just the strange story of big city politics, Chicago-style, where you have people that see every office as an opportunity for making money, Joan?

WALSH: I think it's not just Chicago. I think there are other cities and other state houses where this goes on.

MATTHEWS: Certainly not San Francisco?

WALSH: But absolutely not San Francisco. That's why I chose to live here, Chris. It is so clean. Clean living.

(LAUGHTER)

WALSH: But you know, I think even more to Michelle's point, why this won't work, you know, I watched Mike Duncan, the RNC chair, with Norah O'Donnell a few hours ago. She did a great job of just kind of taking him apart. There is really-there is very little relationship between Blagojevich and Obama. They do not like each other. Obama did not endorse him in 2002. He did not endorse Obama for the Senate seat in 2004.

And even more to the point, you had Patrick Fitzgerald almost go out of his way to point out the fact that Blagojevich was mad at Obama and the people around him because all they would give for their Senate choice, whoever that may have been, was, quote, "appreciation." And he said "bleep them."

So Obama comes off as this-as what he is, really, which is this good government guy who will not pay to play. So where does this scandal go?

MATTHEWS: You know what I think the problem here is? One-party rule. The Democrats are so strong in Illinois at the state level now that they get a guy like Blagojevich in there and get him reelected with all of his problems. You know, it just seems to me that you need more competition.

BERNARD: Absolutely.

MATTHEWS: It's just as simple as that.

BERNARD: There's a reason we a system of checks and balances. I like a split government. It is a problem.

MATTHEWS: I mean, a guy like him shouldn't have been able to pass muster. Anyway, thank you both. It has been an amazing time. Blagojevich, pay-to-play, it's a sleazy term, it means you buy government officials.

In this case, you have got a guy apparently trying to buy a Senate seat from a government official. Double jeopardy, double sleaze, and it involves a new president who has just come into office clean as a whistle. Now he has got to explain what conversations-I think the Republicans have a point here.

He has to explain, Joan and Michelle, what conversations remain on his behalf with regard to who is going to fill that Senate seat. That's the next shoe to drop here. It could be completely clean. We'll see. Michelle Bernard, Joan Walsh, join us again tomorrow night at 5:00 and 7:00 Eastern for more HARDBALL.

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

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

END

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