updated 12/18/2008 4:24:35 PM ET 2008-12-18T21:24:35

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

Guests: Steve Liesman, Harold Ford Jr., Michelle Bernard, Eugene Robinson, Clarence Page, Lynn Sweet, Joe Trippi, Chrystia Freeland, Mort Zuckerman

DAVID SHUSTER, HOST: Tonight, amidst new indications the horrific economy is getting even worse, President-elect Obama leverages the news in dramatic fashion to push for his massive stimulus plan, a plan he wants in the day he moves into 1600 PENNSYLVANIA AVENUE.

Thirty-five days until the inauguration of President-elect Obama.

Welcome to the show, everyone. I'm David Shuster.

Today the news about the awful U.S. economy went from very bad to even worse. Consumer prices plunged the most in 61 years. New home construction dropped by the largest amount in 25 years. And the Fed decided to cut interest rates to the lowest rate in its entire history.

(BEGIN VIDEO CLIP)

SEN. BARACK OBAMA (D-IL), PRESIDENT-ELECT: It's going to be tough.

And we're going to have to work through a lot of these difficulties.

(END VIDEO CLIP)

SHUSTER: Just ahead, what's bad for the economy may be great for Obama's stimulus plan. And the president-elect is now lobbying for it hard.

(BEGIN VIDEO CLIP)

OBAMA: It is critical that the other branches of government step up.

And that's why the economic recovery plan is so absolutely critical.

(END VIDEO CLIP)

SHUSTER: Later, the impeachment of Rod Blagojevich. Today, Mother Nature says not so fast. As snow delays the hearings in Springfield, the governor's lawyer promises more.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: And he's not stepping aside. He hasn't done anything wrong. We're going to fight this case.

(END VIDEO CLIP)

SHUSTER: Plus, the $50 billion Ponzi scheme that is the talk of the investment world. No joke, the perpetrator's name is Madoff, as in "I made off with your money." The damage is serious. We will talk live with one of the victims, "New York Daily News" publisher Mort Zuckerman.

And attack dog Tuesday, the vice presidential edition. Dick Cheney is asked when the Guantanamo Bay prison, a PR disaster, can be shut down.

(BEGIN VIDEO CLIP)

RICHARD CHENEY, VICE PRESIDENT OF THE UNITED STATES: Well, I think that would come with the end of the war on terror.

UNIDENTIFIED MALE: When is that going to be?

CHENEY: Well, nobody knows. Nobody can specify that.

(END VIDEO CLIP)

SHUSTER: Meanwhile, Joe Biden in some hot water over a German Shepherd puppy he just got. Animal rights activists say it should have come from a shelter, not a breeder. Biden's boss has this advice on dogs for everybody...

(BEGIN VIDEO CLIP)

OBAMA: If they do their business, if they got some poop, you've got to make sure that you're not just leaving it there.

(END VIDEO CLIP)

SHUSTER: But we begin this hour with my headline: "The Economy is Even Worse Than You Thought."

The government reports that came out today on housing and consumer prices were expected to be bad, but they were worse than that. They were awful.

Joining us now is CNBC senior economics reporter Steve Liesman.

And Steve, put in it context. How bad are things now? And also talk a little bit about the Fed decision today.

STEVE LIESMAN, CNBC SR. ECONOMICS REPORTER: Well, David, what we're basically doing is blowing out all of the records. The 625,000 on housing starts we believe to be one of the worst on record there. There may be times perhaps when they did the western land grants that was-before they did that, that there was less house building, but we don't know because we only have records going back to '69.

The inflation drop, the big month-to-month decline on record. You have to go back a very long way to find anything even close to this.

Inflation is dropping in part because of energy prices, but in part because the consumer is not out there shopping. Retailers are desperate for what consumer dollars are out there. And so they are sharply dropping prices right now when it comes to all sorts of holiday items, as well as automobiles, obviously, which went down. Everything costs less from staying at a hotel to buying a car, and especially at the gasoline pump.

When it come to what the Fed did, the Fed crossed a new rubicon today in terms of saying it will use all available tools, including buying U.S. treasuries. Anything it feels it needs to do at this point, David, to go out there and try to right this economy and get credit markets moving again. It hasn't done this, I think, in forever, David.

SHUSTER: And this is-in fact, Treasury Secretary Paulson spoke on CNBC this afternoon about the Fed's effort to a level that's never been tried before. Watch what he said.

(BEGIN VIDEO CLIP)

HENRY PAULSON, TREASURY SECRETARY: What we've done to date is we stopped a string of-we've stemmed a string or a cycle of financial institutional failures which could have led to a downward spiral here which would be very, very dangerous. A free-fall for the economy.

So working toward stabilization and then recovery is the key here. And I don't think there is any single action that we can take that is going to be a silver bullet and get us through this problem quickly.

(END VIDEO CLIP)

SHUSTER: And Steve, this issue of lowering rates, this is the last card the Fed can play, right?

LIESMAN: Well, I'm not sure, David, that is the right way to think about it. What the Fed said today is it will use all available tools. And effectively, that means it can go out there and do what it's already announced it's going to do, which is to buy mortgages. That's one step.

The next step it could take is to buy even more mortgages than it said it was going to announce. If the Fed feels it needs to, it can buy, effectively, almost an infinite number of assets out there in the U.S. economy to try to provide the liquidity or the cash that's needed to right these markets.

So, on the one hand, this is a new step, but it's a step that engenders all sorts of possibilities that the Federal Reserve could take to try to right the economy. And we'll see if they work. As Paulson said, there is no single silver bullet, so what they're trying is a broad range of things.

SHUSTER: Steve Liesman from CNBC.

Steve, thanks for the report.

LIESMAN: Sure.

SHUSTER: The troubling economic news was front and center today for President-elect Obama. This afternoon he met with his economic team. Earlier at a press conference, Mr. Obama stressed the importance of passing his massive economic stimulus plan even though it would be another month until Obama takes office.

Watch.

(BEGIN VIDEO CLIP)

OBAMA: We are running out of the traditional ammunition that's used in a recession, which is to lower interest rates. They're getting to be as low as they can go. And although the Fed is still going to have more tools available to it, it is critical that the other branches of government step up. And that's why the economic recovery plan is so absolutely critical.

(END VIDEO CLIP)

SHUSTER: Joining me now is NBC News analyst Harold Ford Jr., also chairman of the Democratic Leadership Council; along with Michelle Bernard from the Independent Women's Forum; and Eugene Robinson, columnist and associate editor for "The Washington Post." And both Michelle and Gene are MSNBC political analysts.

Harold, I want to start with you. It's heavy handed to say we're running out of options except mine. But that's smart politics, right?

HAROLD FORD JR., NBC NEWS ANALYST: It is. I think two things.

I think Steve nailed it well when he laid out what other tools are at the Fed's disposal. But it is clear that if we're going to find our way out-or find some stabilization, at least find a trajectory, an upward trajectory here, we're going to need some coordinated action from the Fed. It's probably hurtful that the Senate did not pass some auto bridge loan bailout, whatever you choose to call it.

I think President-elect Obama was putting the whole Congress and the new Congress on notice that he is expecting-or they should expect him to be aggressive, that he will lay out far more aggressively than this president has, who I think has really been missing in action in a large part on the economic front in the past few weeks. Will lay out a very aggressive spending plan using the government as a spender of last resort and the investor of last resort. And will hopefully do it in a smarter and more effective way than we've seen over the past few weeks.

SHUSTER: Michelle Bernard, Barack Obama was asked about the Fed decision today and he said, "Well, I don't think it's appropriate for a president-elect to weigh in, but let me tell you what I think," and he went on to talk about it.

I mean, what do you make of it?

MICHELLE BERNARD, MSNBC POLITICAL ANALYST: Well, it was very interesting. You know, his approval ratings are so high right now that basically, why not go for it?

We've got the public, you know, not just here at home, but really abroad. You know, markets are failing globally. There has appeared to be a power vacuum here in the United States because we're in between administrations.

And frankly, it is only President Obama that we're seeing on television on a daily basis talking about the economy. So it was a little bit heavy handed but probably necessary.

He's got very high approval ratings right now. Why not sort of test things and see what the public is going to think, for example, about his energy program and how that's going to work in terms of an economic stimulus plan. Let people fight it out now so he can put a plan together and come in and hit the ground running with something that's going to get approved on January 20th.

SHUSTER: Eugene, is there any downside? I mean, we're still a month before he takes office and he's essentially saying this needs to happen and I want it on my desk the first day.

EUGENE ROBINSON, MSNBC POLITICAL ANALYST: No. It's a possibility that things will change on the margins before he takes office. This year, one should never say never.

But this is the central challenge of this first period, at least, of Barack Obama's presidency. And maybe-who knows how much of the first term will be occupied in the economy, in first getting the economy stabilized-I'm not quite certain that it is yet despite what Hank Paulson said-and getting it moving again?

Who knows how high unemployment will go? Who knows the situation we'll be confronting even by Inauguration Day?

So I think he is right to talk about the stimulus plan. That is big piece of legislation. That's a big task.

SHUSTER: And we also heard President-elect Obama say it's rough.

It's rough. He said it twice.

Are we beyond the point in this economy where it doesn't matter if a leader says, you know what? This is really bad. Because in the past, yes, that might spook the markets by itself, but it's hard to imagine things getting any worse because of what he says.

ROBINSON: We're way beyond that, I think. I think honesty is the best policy here. I don't think it would be credible for anyone to come out and say the fundamentals of the economy are sound or not sound, or anything that gave a false sense of security.

President-elect Obama has talked about calling upon the American people to sacrifice and to join in a shared enterprise. And it will be interesting to see how he goes about that. But it looks like that's the kind of thing that will be needed.

BERNARD: And you know, he has to manage expectations. His approval ratings are very high right now. People will give him a long leash, but you don't know exactly how long that will last.

If, for example, we see any of the big three carmakers, U.S. automakers go under in the first or second quarter of '09, eventually people will forget about George Bush and there's going to be somebody else that they're going to blame for it, whether it is members of Congress, whether it is the new president. So managing expectations at this point in time is very, very critical to the administration.

SHUSTER: Harold, you get the last word.

FORD: David, just to build on both points, I agree with Michelle and I agree with Eugene. Cars, home, and confidence.

If you consider some in the Congress, in the Senate, namely, particularly the southern resistance, as I call McConnell and Corker and Shelby, they forget that if you disrupt a supply chain in America for car manufacturers, you eventually hurt foreign makers as well. You could create an enormous global impact on the global car market, too.

This housing issue is so serious, which many believe is at the root of the problem, that the Obama administration is going to have to be very, very aggressive on that front. I think if you address the cars and the housing issue from the outset, you find some confidence coming back to the consumer. And for that matter, coming back to the markets.

We're a long way from where we want to be. But I think we've got to find a bottom here and got to find a trajectory that will take us up. I love the fact that the president-elect is moving aggressive.

I think he can't be aggressive enough, to be honest with you. Because Michelle's point is spot on. People are looking for him to lead. And I think they're going to give him-I don't like using chains and ropes and leash analogies with this president, but I think they're going to give him a lot of room to do a lot of good for the country if he's going to be honest and be candid.

SHUSTER: Well, and I think we also haven't reached bottom yet with this economy, as we found out today.

In any case, Harold Ford Jr., Eugene Robinson, Michelle Bernard, thank you all. We appreciate it.

Up next, hot Rod Blagojevich tells reporters he can't wait to talk about the pay-to-play scandal, but that is not a sentiment shared by President-elect Obama. He seemed to get a little bit snippy today when a reporter pressed him about the case.

More on all of that when 1600 returns.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

ED GENSON, BLAGOJEVICH ATTORNEY: The media is taking control. And I think the case is not what it seems. And I think when it comes to pass, you'll see it's not what it seems and you'll find that he's not guilty. He is not stepping aside. He hasn't done anything wrong. We're going to fight this case.

(END VIDEO CLIP)

SHUSTER: That was Rod Blagojevich's lawyer late yesterday denying that the governor of Illinois did anything illegal, and demanding money, an ambassadorship or a cabinet position in exchange for Barack Obama's vacated Senate seat.

The Illinois legislature appears to have a different view. They started impeachment proceedings, or at least the start of it. But today those efforts were thwarted by Mother Nature. A massive snowstorm made it impossible for the Blagojevich legal team to make it to Springfield.

The ongoing Blagojevich saga continues to put enormous pressure on Barack Obama. Members of his transition team were on some of those call with Blagojevich, and while there's no evidence they did anything wrong or helped in the pay-for-play scheme, Obama has declined to release any information.

He's been helped this week by the prosecutor in the case, who has asked Obama to hold off in providing information to the public for a few days. However, Obama is also declining to weigh in on whether there should be a special election in Illinois for the Senate seat. And though he thinks Blagojevich should leave office, even that is something he doesn't want to get into.

(BEGIN VIDEO CLIP)

OBAMA: I've said that I don't think the governor can serve effectively in his office. I'm going to let the state legislature make a determination in terms of how they want to proceed.

(END VIDEO CLIP)

SHUSTER: Joining me now is Lynn Sweet, the Washington bureau chief for "The Chicago Sun-Times," and Clarence Page from "The Chicago Tribune."

And Lynn, there is some reporting tonight that Jesse Jackson Jr. has been talking to the feds. Take us through what you know about this.

LYNN SWEET, WASHINGTON BUREAU CHIEF, "THE CHICAGO SUN-TIMES": This is a story that has been, I think, a little blown out of proportion because it's not about the selling of the Senate seat or his quest to be appointed to the Obama vacancy. It's just basically that we now know that Congressman Jackson, from time to time, ,has shared information about local corruption with federal officials and incidents regarding the Blagojevich administration, but not having to do, again, with any of the selling the Senate seat stuff that's out there.

There have been allegations of some corruption dealing with local stuff for many years. He is not wired. And again, he is not talking directly to Prosecutor Fitzgerald. He just has been involved in talks with federal officials about local corruption-local and state corruption.

SHUSTER: Now, the significance of Jesse Jackson Jr., of course, is that there was some suggestion in the criminal complaint against Blagojevich that perhaps Jesse Jackson Jr. might be able to do some fund-raising for Blagojevich in exchange for getting the Senate seat.

Based on what we know now about this information being put out, presumably by Jesse Jackson's I think spokesperson about his helping federal investigators, is this an effort, perhaps, by the Jackson team, Clarence, to try to rehabilitate his reputation?

CLARENCE PAGE, "THE CHICAGO TRIBUNE": Well, anything helps right now, because there was so much suspicion surrounding him and whether or not he had put out a signal of a quid pro quo with Blagojevich.

Lynn is right. You know, this is not exactly related to that investigation. But at the same time, there is that implication that people have now that something was wrong.

There is really nothing new, first of all, about an intermediary saying, hey, if you support this guy, he'll raise money for you later. You know, there is nothing new about that. But if you put a price tag on it, and if you put a specific act to it, then you've crossed the line of federal law. And we don't know that that's happened.

SHUSTER: Now, Barack Obama was also asked about this. Again, he is refusing to provide basic information because he says Patrick Fitzgerald, the prosecutor, doesn't want him to. But watch this exchange, and I want to get your reaction on the other side.

Watch.

(BEGIN VIDEO CLIP)

OBAMA: John, let me just cut you off, because I don't want you to waste your question. The U.S. Attorney's Office specifically asked us not to release this until next week.

QUESTION: What about on the special election? Because-given the kind of chaos here in Illinois.

OBAMA: You know, I've said that I don't think the governor can serve effectively in his office. I'm going to let the state legislature make a determination in terms of how they want to proceed.

QUESTION: Do you or Duncan have a better jump shot?

OBAMA: Duncan much better.

(END VIDEO CLIP)

SHUSTER: That was a joke there about the basketball team. We'll get into that later.

But as far as the constant, "I don't want to you waste your question," I'm not going to answer-I mean, he's not even providing, here's the liaison to the Blagojevich office that everybody knows was there.

SWEET: Well, on this one, I'm going to-in the holiday spirit, I want to be generous to Obama on this one. He said a report will be out in the week of December 22nd. So he has people talking about that he might not be forthcoming today.

If he says this is what the prosecutor wants, I think we need to see the report, and we'll see it soon, in a few days. What I hope though is that it is a report that is detailed. That it has a timeline in and it tells us who talked to whom when.

SHUSTER: Fair point, but...

SWEET: And I just am more than willing to give him a few more days if that's what he wants. But I hope that when we get on it Christmas week when Obama is in Hawaii, that we actually have a report with some detail in it.

SHUSTER: Well, Lynn, I agree. Fair point. And in the holiday spirit, I'm also willing to give Barack Obama a few more days on that.

However, Prosecutor Patrick Fitzgerald, Clarence, is not asking Obama not to take a position on a special election in Illinois for this seat. And Obama wouldn't answer that.

PAGE: Right. Well, he doesn't want to get too deeply involved in that story, period.

I think that as far as special election goes, that's something that has got to be worked out by the legislature. But insofar as Patrick Fitzgerald's investigation goes, you know, he and his people want to put it all out there so this story will go away.

Whatever they say, you know we're going to pick it apart. We're going to go in there and look for whatever is not said, and we're going to be asking more questions. So they're getting ready for that.

SWEET: I have a quick point though about the special election.

SHUSTER: Sure.

SWEET: Originally when I the story broke last week, Obama and almost every major Democrat said, let's have special elections. So what you saw there was a bit of a retreat. What happened was a miscalculation because everybody thought Rod Blagojevich, of course, would just resign; we would have a new governor, the lieutenant governor; the legislature would jam through special election legislation; he would sign it right away and you would piggyback a special election with municipal elections in February.

Now it won't happen because nothing can happen that fast if Blagojevich isn't resigning. So they're rethinking it.

Also in the meantime, David, Democrats in Illinois have gotten nervous that maybe they just might lose the seat in a special. Don't like that worst-case scenario. That's why no one is talking about special elections.

SHUSTER: And I would think the longer Blagojevich tries to drag this out, the more we hear about the impeachment proceedings and all the evidence that comes out, it also increases the likelihood that Republicans do pick up a statewide seat like...

(CROSSTALK)

SWEET: It would be hard, but there is also within the state Democratic general assembly, the state house, there are members there within the Hispanic and Black Caucus, I think, that don't want a special election necessarily. So they have some internal issues to deal with too.

SHUSTER: Lynn Sweet and Clarence Page, thank you both very much.

Appreciate it. Good to see you, as always. Long live the Chicago papers.

PAGE: Here here.

SWEET: Thank you. Here here.

SHUSTER: UP next, as he prepays to leave office, Vice President Cheney looks back on the war, Gitmo and waterboarding.

Clips from the veep's revealing exit interview when 1600 returns.

(COMMERCIAL BREAK)

SHUSTER: Welcome back. It's time now to go inside "The Briefing Room," where there is no shortage of opinion about Vice President Dick Cheney.

In an interview with ABC News, Cheney vigorously defended several controversial decisions made since 9/11. When asked about the Guantanamo Bay prison, a PR debacle for the United States that has seen (ph) al Qaeda's recruiting, Vice President Cheney stood firm.

(BEGIN VIDEO CLIP)

CHENEY: If you're going to close Guantanamo, what are you going to do with those prisoners? One suggestion is, well, we bring them to the United States. Well, I don't know very congressmen, for example, who are eager to have 200 al Qaeda terrorists deposited in their district.

UNIDENTIFIED MALE: So when do you think we'll be at a point where Guantanamo could be responsibly shut down?

CHENEY: Well, I would think that would come with the end of the war on terror.

UNIDENTIFIED MALE: When's that going to be?

CHENEY: Well, nobody knows. Nobody can specify that.

(END VIDEO CLIP)

SHUSTER: That's right. In Dick Cheney's world, Guantanamo Bay stays open forever.

The vice president also seemed to brag about his role in waterboarding a top al Qaeda leader.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: Did you authorize the tactics that were used against Khalid Sheikh Mohammed?

CHENEY: I was aware of the program, certainly, and involved in helping get the process cleared. As the agency, in effect, came in and wanted to know what they could or couldn't do, and they talked to me, as well as others, to explain what they wanted to do. And I supported it.

(END VIDEO CLIP)

SHUSTER: Cheney went on to declare the results successful.

The problem is that according to intelligence officials, much of the information provided by Sheikh Mohammed was debatable and of little use. But why let the facts get in the way of Mr. Cheney's tough guy image, right?

The incoming vice president is also on the defensive today. But for Joe Biden, it's about a puppy. And Biden is in the doghouse, literally, with People for the Ethical Treatment of Animals, or PETA.

PETA says it was inappropriate for the vice president-elect to buy a German Shepherd from a breeder rather than rescue a dog from a shelter.

I believe the larger issue is the German Shepherd thing. I mean, why not get a pug? They're so much cuter.

This is my wife's family pug, Webster Goldman (ph), also known as "Brother." And here is a puppy photo. How cute.

Anyway, Joe Biden and Barack Obama spoke to some kids today and brought up the dog issue. Obama was talking about a pet for his daughters. Watch.

(BEGIN VIDEO CLIP)

OBAMA: You guys may have heard, one of the things I promised was we would get a dog. So, they've been asking for a dog for years now, but I'm not sure that-Joe Biden just got a dog. And so I want to make sure that my daughters do what I'm sure Joe is going to be doing, which is to make sure that you take care of your dog. You have to feed your dog. You have to walk your dog. And then, you know, if they do their business, if they've got some poop, you have to make sure that you're not just leaving it there.

(END VIDEO CLIP)

SHUSTER: That's right. Thank you, Mr. President-elect. I do hope some of my neighbors in D.C. are listening. And you know who you are.

Coming you, fixing the economy. Stocks rallied to a big finish today after a bold rate cut. But what is the long term plan to get the economy back on track? And could you be part of Obama's governing effort? The Obama campaign collected 13 million e-mail addresses this past year and their are plans to try and leverage all of that support in policy battles to come, when 1600 PENNSYLVANIA AVENUE returns after this.

(COMMERCIAL BREAK)

SHUSTER: Tonight, out of ammo; as the Fed slashes interest rates again, President Elect Obama doubles down on a stimulus plan, a roster of ambitious projects that could top one trillion dollars. Is a massive spending plan really the cure for what ails the American economy? That and more as 1600 continues.

Welcome back to 1600 PENNSYLVANIA AVENUE. Today, the Federal Reserve made an aggressive and unprecedented move to deal with the economic crisis, cutting a key interest rate to a record low. Wall Street liked that news. The Dow soared more than 350 points to close above 8,900. But today at a news conference, President-Elect Obama warned that there will be no quick fix for the current crisis.

(BEGIN VIDEO CLIP)

OBAMA: We're going to have to work through a lot of these difficulties, these structural difficulties that built up over many decades. Some of it having to do with the financial industries, and the huge amounts of leverage, the huge amounts of debt that we're taking on, the speculation and the risk that was occurring, the lack of financial regulation. Some of it having to do with our housing market, stabilizing that.

It is going to be, I think, critical for us to look at some of the long term issues that I talked about during the campaign, health care and energy.

(END VIDEO CLIP)

SHUSTER: Joining me now, Joe Trippi, Democratic strategist. And back with us, Eugene Robinson, columnist and associate editor for the "Washington Post," and Michelle Bernard, president of the Independent Women's Forum. Joe, good to have you back. We haven't had you on in a little while. Welcome.

JOE TRIPPI, DEMOCRATIC STRATEGIST: Great to be here.

SHUSTER: Let's start. I think a lot of our viewers would be curious to hear your take on the Obama transition so far overall, but also how you think he's handling the economic crisis.

TRIPPI: I think he is doing just fine. I think there is a lot of hope out there among people. We want to see him do well. They're buying him and I think he is handling it just fine. I think Change.gov and a lot of the other stuff he's gotten going, getting people involved, has really made a difference so far.

SHUSTER: Can any of you name the Education Secretary that got rolled out today? There has been so much attention on everything else that you sort of wonder-I'm not going to put you on the spot.

(CROSS TALK)

SHUSTER: But the issue is, nobody is really talking about Arne Duncan on a day when the economy tanks and a day when the Fed has to cut interest rates to historic levels. Does that matter, that Obama clearly is choosing to focus on the economy, merely by the fact that he organized his economic team? They certainly knew these reports were coming out. Michelle?

BERNARD: It does matter. I think it is big news. I would venture to guess that we'll see more people talking about it a little bit more I think once the teachers unions begin to take a look and actually see what might be happening with the naming of this new secretary of education. This is a guy who has worked very hard on charter schools. There's a very big school choice movement in this country. And maybe education policy, as we've seen it in the past, is going to be a lot different in the future.

So it is surprising, given the economy and the importance of jobs in the 21st century, that we're not seeing more discussion about what the impact of this education secretary could mean for public education in the United States.

SHUSTER: Eugene?

ROBINSON: I agree with Michelle. We're going to hear a lot about Arne Duncan. We're going to see an examination of his record in Chicago. He's identified with-to oversimplified-the reformist wing of educational experts these days. And how will the teachers unions react to his naming? What does this mean for policies around issues like charter schools and vouchers and school choice and the like? I don't think it means some huge departure in education. But it means a different direction from the one we've been going in, I think. So we're going to talk about it.

Meanwhile, the house is on fire. So we talk about the house burning down and that's the economy.

SHUSTER: Whether we're talking about economic policy or health care or education, the Obama transition is in the process of trying to figure out a way to leverage these 13 million e-mails that they collected. The "Washington Post" had a great story on this the other week. I want to put part of that up. It says, "The Obama team, which recruited about 13 million online supporters during the presidential campaign and announced its vice presidential selection via text message, is not moving to apply those tools to the earliest stages of governing, and seeking to translate it's political skills to policy making. The incoming administration faces potential legal and political pitfalls. It is not clear, for instance, whether Obama can legally use this list of campaign supporters in the White House. The database would probably become government property. So far, the transition team has gotten around that issue by encouraging people to register on his website, Change.gov."

Joe Trippi, assuming they get a significant portion of these e-mails to Change.gov, how they leverage them? What do they do with them?

TRIPPI: First of all, he's not going to have to get those e-mails.

People are going to go there on their own. We forget that when John F. Kennedy, at his inaugural address, said "ask not what your country can do for you, ask what you can do for your country;" if the Internet had been there, how many millions of Americans would have joined their president at that stage to help him pass their agenda? We're about to find out. Barack Obama-that was 13 million American who joined a campaign, a candidacy, a partisan candidacy, no less. Now their president is going to ask them to join in the cause of passing an agenda for this country: health care, getting the economy going again, energy reform, energy independence.

I think it is going to be 20, 30, 40 million Americans could join during the month after the inauguration to pass his agenda. And the Congress is going to find themselves between a Barack and a hard place.

SHUSTER: Eugene Robinson, imagine the Congress and the administration are stuck with a crucial issue over health care, for example, and all of a sudden, Barack Obama says to his supporters, OK, here are the e-mail addresses of the members of Congress who are holding things up. Does that work? Is that the basic idea?

ROBINSON: That works. Why should anybody be surprised? Barack Obama talked about this during the entire campaign. He talk about a kind of post-partisan, if you will, approach to governing, where almost like a community organizer, where you bring pressure to bear on Washington from the outside, from-by establishing a consensus about some solutions to these problems out there in the country, and then focussing that back Washington. And I think that's exactly what he's setting out to do.

SHUSTER: We are still seeing the videos even now. There was David Plouffe, the campaign manager, with an online message just last week. Watch.

(BEGIN VIDEO CLIP)

DAVID PLOUFFE, OBAMA CAMPAIGN MANGER: Hey everybody, it is David Plouffe. It's been a while since I was able to talk to you like this. As you can see, I'm not at my desk today. I'm here in Washington, D.C. Behind me is the White House. And in about 50 days, Barack Obama will be sworn in as our 44th president. He and his family will move here. That's all because of your hard work. It truly is the people's house again.

What we want to do is make sure that the million of Americans who helped get Barack elected continue in influencing the direction of this country.

(END VIDEO CLIP)

SHUSTER: Michelle, what do you make of this effort?

BERNARD: Look at the tag line on that, my.Barack.Obama.com. I think people are going to really, really like this. Whether you are a Republican or a Democrat, people want this president to succeed. We have not seen this type of economic turmoil in this country since the Great Depression. And I think you will see the same sort of enthusiasm and energy that we saw in the Democratic primary happen during this transitional period in government.

TRIPPI: One of the great ironies is that a lot of folks thought that the Bush administration would become an imperial presidency, too much power to the presidency. I think this may be the most powerful president we've ever seen, because no other president has been this directly connected to the American people before. I was getting to that earlier, Barack and a hard place. If you're one of the 25 members of Congress standing up to health care reform or taking money from the health care industry, you're not going to want to be between the president and those millions of people out there saying, pass it.

SHUSTER: If I'm one of those members of Congress, I'm hiring Joe Trippi to come up with a response strategy. Or if I'm the Obama campaign, I'm hiring Joe Trippi to figure out how to make this thing work.

In any case, Joe Trippi, thank you very much. Eugene Robinson, thank you. Michelle Bernard, always a pleasure.

TRIPPI: You just got me fired.

SHUSTER: Up next, will Detroit get a Christmas miracle? The latest on the stalled multi-million dollar bailout and what the White House said today about the status of the rescue package, when 1600 returns right after this.

(COMMERCIAL BREAK)

SHUSTER: Welcome back to 1600 PENNSYLVANIA AVENUE. Nearly a week after an auto bailout bill failed in the Senate, the issue is now in the hands of the White House. Today, the president's spokeswoman said the administration will not be rushed into any intervention on behalf of the big three.

(BEGIN VIDEO CLIP)

DANA PERINO, WHITE HOUSE SPOKESWOMAN: I don't know of an imminent announcement coming from us. We are taking the time to try to do it right, and weighing all of the options. Of course, we're talking to them and we're talking amongst ourselves.

(END VIDEO CLIP)

SHUSTER: The White House and Treasury Department have been looking at the auto makers' books, as they consider whether to tap the 700 billion dollar bailout fund and throw a life line to Detroit. The waiting has been excruciating for the auto makers and their supporters. Joining us now is Chrystia Freeland, US managing editor of the "Financial Times."

Chrystia, how tough has it been for the auto makers to wait this one out?

CHRYSTIA FREELAND, "THE FINANCIAL TIMES": Well, absolutely. They're really, really in trouble. As they have said, particularly GM and Chrysler, they're worried about whether they have enough money to keep going until the end of the year. Having said that, the auto makers are also playing a game of chicken with the White House. They've resisted the idea of a pre-packaged Chapter 11, which a lot of economists think would be right for the companies, because they think, at the end of the day, they will be able to avoid bankruptcy and get government money to keep them going.

SHUSTER: The White House has said throughout that in order to get the money, these companies must prove that they can be viable. Listen to what Treasury Secretary Paulson said today about viability. Watch.

(BEGIN VIDEO CLIP)

HANK PAULSON, TREASURY SECRETARY: People throw around viability. That's a word that gets thrown around. Everybody's for viability right now. Just like everybody is for taxpayer protection. But as someone who has spent a lot of time in the markets, I can tell you, viability is challenging to achieve. It is necessary to achieve. And it is going to have to be financial viability and viability to build the kind of product that the market wants. Competitiveness is something that government can't confer on anyone.

(END VIDEO CLIP)

SHUSTER: Can the auto makers do that by the end of March?

FREELAND: Can they become viable by the end of March?

SHUSTER: Yes.

FREELAND: Yes. I think it is possible. The difficulty is there are a lot of vested interests who will have to take a real hair cut. And it is not just the unions, which a lot of people focus on. It is also the dealers. It's also the equity holders. It's also the debt holders. The big question is what mechanism you think has the power to cut through all of those relationships? But I do think that Hank Paulson is being a little bit disingenuous in focusing on viability, because the question between now and the end of the Bush administration is not going to be what does it take to make the automakers viable. It is going to be, how much pain do people worry a collapse of the auto makers would impose on the U.S. economy? I think Hank Paulson in particular, as the guy who is going to be blamed for letting Lehman bankrupt, is really going to want to be careful about being blame for being the person who allowed the second big blow to be delivered to the already extremely frail American economy.

SHUSTER: Such a great point. And, Chrystia, the main argument from the automakers has been, look, it is not that we don't have products people want. It is that people can't buy the products because the credit crunch. They can't get the loans. That's causing us to suffer much more than we might normally have in a tough time. Whereas, you heard Paulson say, well, the issue is people don't want to buy their cars. What is the ratio there, if you can give us a sense?

FREELAND: Well, I think there is some truth to the auto makers' argument. It is interesting, when you look at the figures for the foreign auto companies, which actually are not in the same kind of economic trouble, they're also seeing their sales fall really, really massively. At a time of recession, when people are losing their jobs, when there is this huge deflationary spiral, it is not a time when people go out and buy a new car.

Having said that, structurally, the auto makers are not in a position to be really viable. I think it is actually less about the model, less about the cars they produce than about the fact they produce too many models; they have too many different brands; their dealership network is too expensive and so forth.

SHUSTER: Chrystia Freeland, U.S. managing editor of the "Financial Times," great stuff. Chrystia, thanks for coming on.

FREELAND: Pleasure.

SHUSTER: Up next, a massive frog scheme on Wall Street. Did regulators know and turn a blind eye? We'll talk to a victim of the scam when 1600 returns right after this.

(COMMERCIAL BREAK)

SHUSTER: Welcome back. Today, brought the news that the Securities and Exchange Commission may have turned a blind eye to a 50 billion dollar fraud scheme, possibly the largest securities fraud in US history. Bernard Madoff, as in made off with your money, was charged last week with bilking 50 billion dollars from banks and charities. Today, the "Washington Post" reports the SEC was warned as early as 1999 about the possible fraud but did not act on the tip.

Joining us now is Mort Zuckerman, chairman, editor-in-chief and publisher of "U.S. News and World Record," as well as chairman and publisher of the "New York Daily News." Mort, you were essentially a victim in part of this story. Explain. How much did you lose?

MORT ZUCKERMAN, "US NEWS AND WORLD REPORT": Well, this was a charitable trust that I had set up about eight years ago and it had substantial funds. And about 10 percent of those funds, 30 million dollars was invested with a fund manager. The fund manager was somebody who took the entire fund-this was the Ascot fund. It was a billion, 600 million dollars-and put the entire amount, which is really stunning if you know anything about investment and diversification-put the entire amount with this man, Madoff.

I have never heard of Madoff. I never met Madoff. I don't know Madoff. But this particular fund manager put the entire amount in the hands of Madoff. When he went upside down, everybody in the fund lost their entire investment. And this charitable institution, not the only one, I might add, a number of them, lost a substantial amount of money, in this case, 30 million dollars, which was intended to be devoted to charitable purposes. And many other charitable funds lost vast amounts of money.

So this is a really sad event, not only in terms of the people who were wiped out, but of the many people who could have benefited from the charitable institutions whose endowments were dramatically reduced or in some cases, wiped out.

SHUSTER: Well, in addition to the whole situation being so sad, it must make you personally quite angry.

ZUCKERMAN: For sure. I think it is an outrage. I can't imagine that somebody sits there at home and knows what he's doing and knows how many families he will destroy and how many charitable institutions he will bankrupt, and yet, goes ahead and does that. I can't imagine people who were fund managers, who transferred these funds in such a reckless, irresponsible way, often in violation of the agreements they made with the people who invested with them.

But even worse than that, we must have a way of regulating this emergence of this shadow banking system. Otherwise, we're going to be faced with more and more of these kinds of scandals and frauds that are going to inflict such damage to individuals and to, in this case, charities.

Beyond that, as we have seen, the savants of Wall Street, if I may say so, have created havoc for the entire US economy, because this shadow banking system, which now makes up 70 percent of the finance of America, which has emerged in the last several decades, is fundamentally unregulated. That has to change. It is not going to be easy to change, because this is a very sophisticated world and it is very difficult to find people in government who understand this.

We're going to have to have some special mixture of public and private people who understand this world and can do the kind of regulation to protect innocent people, innocent charitable organizations, innocent investors, and, in broad terms, the whole financial health of the American economy.

SHUSTER: Mort, what do you make of these reports? There's one in the "Washington Post," that we mentioned, that the SEC was warned in 1999 and essentially looked in the wrong place. Our colleague, Eamon Javers of "Politico," was pointing out that at a certain point, Madoff was essentially bragging about one of his relatives being married to an SEC investigator. No indication that that was anything other than just sort of a coincidence. What do you make of all these reports?

ZUCKERMAN: Well, you know, this is the kind of issue that when you come up with later on, it makes your teeth gnash. Who knows what he could have found out had that particular investigator been persevering enough and knowledgeable enough to know what to look for. I can't imagine anybody who works for a public authority would not have seen that this man literally had false transactions listed every month that he sent out to his investors and was taking money through this, more or less, Ponzi scheme.

It just is absolutely mysterious to me, unless somebody was sort of some bureaucrat who just sort of walked past the real problems and didn't really get into it. That, unfortunately, happens too often. When this seems to be a casual event, instead of something that turned out to be very serious. You have to have some kind of rigorous regulatory approach here, where everybody has to go through the kind of regulatory review to make sure that they have the legal and the accounting support, which this man Madoff simply lacked.

I can't believe that somebody didn't notice that when they went into his organization in 1999. It just beggars the mind.

SHUSTER: Mort, what happens to the charity that you've been involved in now?

ZUCKERMAN: Well, we lost 10 percent of our assets, and somebody whom I believe I know was associated with the charitable fund will make up the difference at some point. But it is really sad, because we had a lot of wonderful programs dealing with cancer care, dealing with cancer research, dealing with education, dealing with student fellowships. And it is going to be restricted for a while. That's really sad, because that was the purpose of it. It makes me sad, because I've really had the pleasure of being involved in these charitable things, and I'm not the only one. Believe me, there are many people who are much more seriously damaged. And it is going to hurt a lot of people, because these charitable organizations have lost big pieces of their endowment.

SHUSTER: Mort Zuckerman, chairman and editor in chief and publisher of "U.S. News and World Report," also publisher of the "New York Daily News." Mort, thanks for coming on tonight. We appreciate it.

ZUCKERMAN: My pleasure.

SHUSTER: That's the view from 1600 PENNSYLVANIA AVENUE tonight. I'm David Shuster. Thank you for watching. We'll see you back here tomorrow night, same time. "HARDBALL" with Chris Matthews starts right now.

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

END

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