updated 12/18/2008 4:28:07 PM ET 2008-12-18T21:28:07

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

Guest: Anne Kornblut, Mary Mitchell, Steven Pearlstein, Charlie Gasparino,

Scott McClellan, Joe Lockhart, Debbie Stabenow

DAVID SHUSTER, MSNBC HOST: Tonight the governor of Illinois, an alleged crook, steps back into the spotlight wearing jogging tights and quoting Elvis. As President-Elect Obama and his bewildered team try again to move the focus back to 1600 Pennsylvania Avenue.

Thirty four days until the inauguration of President-Elect Barack Obama. Welcome to the show, everyone. I'm David Shuster. This was not a good day for Mr. Obama's efforts to get beyond the Rod Blagojevich pay for play scandal. Chicago newspapers reported Blagojevich had extensive contacts with Rahm Emanuel, Obama's chief of staff, as the investigation continues.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT-ELECT: We are abiding by the request of the U.S. Attorney's office. But it is not going to be that long. By next week, you guys will have the answers to all your questions.

(END VIDEO CLIP)

SHUSTER: But all of next week, Obama will be in Hawaii raising more questions about how his team is planning to deal with this. Also this hour, Rod Blagojevich today conducted one of the weirdest press availabilities you will ever see.

(BEGIN VIDEO CLIP)

GOV. ROD BLAGOJEVICH, (D) IL: Hang loose. Can I get a run in, do you think?

(END VIDEO CLIP)

SHUSTER: Coming up, the latest from Chicago. And we will talk with two scandal communications veterans. Former White House press secretary Scott McClellan and Joe Lockhart. Plus, talk about a financial scandal. The top government oversight regulator testified today that Bernard Madoff's $50 billion investment rip-off is one of those things.

(BEGIN VIDEO CLIP)

CHRISTOPHER COX, SEC CHAIR: We have to recognize when the economic tide goes out, some of the skeletons wash up on the shore are Ponzi schemes such has the one.

(END VIDEO CLIP)

SHUSTER: Speaking of skeletons, later we'll take a look at President Bush's farewell tour. Today he revised history about the start of the Iraq War.

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, U.S. PRESIDENT: I offered Saddam Hussein a final chance to resolve the issue peacefully. It was his choice to make.

(BEGIN VIDEO CLIP)

SHUSTER: As the president plays with the past, the U.S. automakers fret the future. There is still nothing in the works for the White House and excruciating wait in Detroit continues.

And anger over something led to a brawl in Mexico's legislature. Take that, amigo.

But we begin this hour with the Rod Blagojevich scandal in Chicago. The headline tonight, what did Rahm Emanuel know? Today a Chicago newspaper record that he spoke with Blagojevich during the transition at least 20 times. That in itself would not be a surprise except that Blagojevich at the time was trying to get cash for both Obama's Senate seat and Emanuel's House seat.

President-elect Obama again today insisted there was nothing he could say for at least a few more days.

(BEGIN VIDEO CLIP)

OBAMA: Well, it is a little bit frustrating. There is been a lot of speculation in the press that I would love to correct immediately. We are abiding by request of the U.S. Attorney's Office. But it is not going to be that long. By next week, you will have the answers to all your questions.

(END VIDEO CLIP)

SHUSTER: The president-elect is scheduled to be in Hawaii all next week. Earlier today, I asked Obama transition officials if he would be taking a break from his vacation to provide those answers. And was told the logistics of the information release have not been resolved.

Joining us now, Mary Mitchell, editorial board member and columnist at the "Chicago Sun-Times," Laurence O'Donnell, MSNBC political analyst and former chief of staff to the Senate Finance Committee, and Anne Kornblut, national politics reporter at "The Washington Post."

Mary, is it your sense that Obama is not going to be part of answering all those questions next week?

MARY MITCHELL, "CHICAGO SUN-TIMES": I don't think so. Unless there is something very explosive and I don't expect it to be. Probably some kind of press release even. He is going to be on vacation. And really if there was something in it that is going to be new, I think he would have to hold a press conference. He is trying to avoid all that. I think we will probably get a press release.

SHUSTER: And yet Lawrence, since he just raised the bar by saying next week you guys will have the answers to all your questions. A lot of those questions are to Barack Obama in terms of his view of this even the evidence is look, Emanuel did absolutely nothing wrong. How can he answer those questions if he is not there to answer them?

LAWRENCE O'DONNELL, MSNBC ANALYST: Well, he didn't mean all your questions literally. No politician ever means that. But look, it may well turn out to be a Rahm Emanuel press conference in which Rahm is released to describe all his contacts and answer a few questions about each one of them. That's probably the likelihood at this point. I'm sure the media would be extremely dissatisfied with a paper press release that simply lists the phone calls, the times and the dates or something like that.

So I think you have a right to expect a little more than that and probably something laying the lines of Rahm Emanuel doing some talking within the confines of what the U.S. Attorney has asked him not to disclose. They will probably try to disclose something.

SHUSTER: Anne Kornblut, you've been covering Washington politics for a long time. You know Rahm Emanuel pretty well. Do you get sense that he would be willing, given that of course he had contacts with Blagojevich, that of course was his job even if the Obama campaign doesn't want to go that far. Do you think do you think he is the sort of person who will say, yes, here's the kind of contacts I had, here's my recollections of the conversations, here's what you might hear if these audio tapes are ever released. Is that in Emanuel's make-up and do you think it will help?

ANNE KORNBLUT, "THE WASHINGTON POST": I think. In short, yes. I think if he is allowed to, if the prosecutors say that he can, he is the kind of person who would want to talk about it. I also think next week, contrary to Obama's being off hiding on vacation, there could be something of a news vacuum. So if somebody doesn't talk, even if it is not Rahm Emanuel himself, it is somebody else from the campaign, they run the risk of having this be the only news on Christmas week that anyone's talking about.

So I think at some point they have suggested they're going to address it. It everyone is willing to wait and let them see what they do when they actually do put out the piece of paper or hold a press conference or whatever it is next week.

SHUSTER: One of the things giving rocket fuel to the story right now and could next week is Rod Blagojevich. I want to show you some video of the Illinois governor today. Here he is in his jogging tights. He went for a six-mile run in the snow and ice which will undoubtedly raise questions about his sanity. But in any case, he did chat with reporters. Watch.

(BEGIN VIDEO CLIP)

BLAGOJEVICH: I'm not going to answer any questions. I'm just going to be very brief and I'm going to say that I can't wait to begin to tell my side of the story and to address you guys and most importantly the people of Illinois, that's who I'm dying to talk to. There is a time and place for everything, that day will soon be here. You might know more about this today, maybe no later than tomorrow.

(END VIDEO CLIP)

SHUSTER: It got even stranger. The governor of Illinois went on to say that running keeps the love in his heart and then he quoted Elvis, telling reporters to hang loose, just hang loose. Lawrence, I've got to imagine the Obama transition team is pulling their hair out every time they see this guy.

O'DONNELL: I also don't think they're surprised, David. In my experience, if you're the senator from a state that has a crazy governor, you know he's crazy long before that is publicly revealed. So that by the way is why I would suspect that the Obama transition team was extremely careful in communications with Blagojevich. They all knew he was under federal investigation. They all knew there were likely wiretaps around town on Rod Blagojevich. So he was radioactive before any of this emerged publicly. And the people who knew that best were Rahm Emanuel and Barack Obama and other Chicago politicians.

SHUSTER: And yet Anne Kornblut, it does seem like Obama can't get away from this until some of these questions are answered or until Blagojevich leaves office one way or another.

KORNBLUT: Well, that's right. And he did get asked about it at his press conference today, I think you played the clip earlier.

And today he answered it in a little more of a direct way. He has sort of made light of it. Or he said don't waste your question on it.

The answer he gave today about putting information out next week was a real answer. It keeps coming you. I think they all believe and hope it's going to be somewhat behind them by the time they move to Washington, not having the proximity of the national press corps where this is all happening in Illinois will help. He'll move here in the beginning of January, unless something really explosive that we heard about comes out, I would expect that there will be a topic change as of about January 5 if not sooner than that much.

SHUSTER: Mary Mitchell, what is the key piece of information you want to see next week when they release the information?

MITCHELL: I really want to know whether or not there was a list, who was on that list, who present it to the governor's people. And why if the president-elect had any influence whatsoever on the process, I want to know what that influence was. So I think there a lot of questions that need to be answered and the sooner they answer them, the better it will be for the president-elect.

SHUSTER: I agree. I don't think this has been the finest moment of the Obama transition largely because things are out of their control right now. But I think we can all probably agree that maybe they regret to how this was handled initially. In any case, Mary Mitchell, editorial board member and columnist, "Chicago Sun-Times," Lawrence O'Donnell, MSNBC political analyst and of course Anne Kornblut with the "Washington Post." Thank you all.

Up next, were federal regulators asleep on the job as a Wall Street insider bilked charities and investors out of billions? Hmm? In the midst of this terrific economy, that's just the kind of confidence booster we need right now.

1600 returns right after this.

(COMMERCIAL BREAK)

SHUSTER: Welcome back to 1600 PENNSYLVANIA AVENUE.

New York financier Bernard Madoff charged with orchestrating a $50 billion Ponzi scheme, perhaps the biggest fraud in history, made a surprise appearance at a federal courthouse in Lower Manhattan today to sign over his Upper East Side apartment and homes in Palm Beach and the Hamptons for his $10 million bond. Madoff is now under house arrest in his $7 million apartment and scores of charities and individuals who invested with Madoff are in shock. Mort Zuckerman, one of many well-known investors, who lost money with Madoff told us on this very program yesterday that the Securities and Exchange Commission in failing to uncover the giant scam had dropped the ball.

(BEGIN VIDEO CLIP)

MORT ZUCKERMAN, "U.S. NEWS & WORLD REPORT": I can't imagine that 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.

(END VIDEO CLIP)

SHUSTER: Today SEC's chair Christopher Cox responded to critics at a press conference in Washington.

(BEGIN VIDEO CLIP)

COX: I was very concerned to learn this week that credible allegations about Mr. Madoff had been made over nearly a decade and yet never referred to the commission for action.

(END VIDEO CLIP)

SHUSTER: But many questions remain. Joining us now, two journalists who have driven the coverage of the story.

Steven Pearlstein, Pulitzer Prize winning business columnist at the "Washington Post" and Charlie Gasparino, CNBC's on-air editor. Charlie has a piece titled, "How the SEC got in bed with the Madoffs" in the dailybeast.com.

Steven, I want to start with you as far as the SEC. It doesn't seem like Chris Cox's outrage seems to match the level of anger that's out there. Is that the first problem right now?

STEVEN PEARLSTEIN, "THE WASHINGTON POST": Well, he was trying to suggest that there was some distance between the commission, which is appointed by the president and the permanent staff, and that it is just too bad the permanent staff hadn't let them know about it. Because his implication was that he would have done something about it. Let me assure you that the staff right now is pretty upset with Mr. Cox, has been for the last few years. They felt that he has denied them the support and the resources they need to do their job well. That said, I tell that you the SEC gets a lot of complaints and a lot of information. A lot of dimes get dropped. And they probably don't have the resources to follow them all up. That's not an excuse. That is just an explanation why some things fall through the cracks.

SHUSTER: Charles, you've written about something that I just find so intriguing. Walk us through the Madoff family relationships that are tied up in this.

CHARLIE GASPARINO, CNBC ON-AIR EDITOR: : I will. I just want to make a couple points here about Chris Cox. You have to realize that I'm not defender of Chris Cox. I've been very critical of him, 1999 was the first examination of the Madoff firm. He was not in office back then. I think the second examination was in 2004. I don't believe Chris Cox was the chairman at that point either.

And let me make this point. It doesn't take a lot of money to ask questions and they were in the offices. This is the problem with this concept of do we need more regulation? Could we need to spend more money? The SEC were in this guy's offices. They were examining it. I don't think that takes more money. It just takes a little more skepticism going in there and asking questions.

And yes, there is part of the problem, there were so many conflicts involving the SEC staffers, the SEC and Bernard Madoff. Bernard Madoff sat on commissions appointed by Arthur Levitt, the former SEC chairman, I guess two removed from Cox.

Here is something interesting. One of the examiners on the 1999 and the I think 2004 examination of Madoff's operations is a guy named Eric Swanson. He is now the son-in-law of Peter Madoff who is the head of compliance of the Madoff firm. It doesn't get more bizarre than that. This guy Swanson was actually in there. Part of this examination that looked at the Madoff books at the time when they were getting a lot of complaints that this guy's numbers weren't adding up.

And I think that really, when we revealed that on CNBC I think Monday night, when that started making the rounds Tuesday morning, from what I understand, that got the SEC really concerned. Not just the fact that there were all these complaints over the years. Those letters were made public. I think someone wrote a letter to the SEC back in '99 about these problems.

But the fact that there was actually this family connection, an examiner of the SEC that actually went in there was related to the Madoffs. He is actually married to Shana Madoff (ph) who is the compliance counsel for the Madoff firm. I think that really lit the fuse and showed there were lots of conflicts here. I will say that Chris Cox gets a lot of criticism deservedly so.

But the conflicts of interest that go on at the SEC predate him. Arthur Levitt basically came out the other day and said he has known Bernie Madoff for 35 years and he would consider him no different than Sandy Weill and Dan Tully. Sandy Weill runs Citigroup, Dan Tully used to run Merrill Lynch. Guess what. He was Sandy Weill's partner in one of Sandy Weill's earlier firms. The conflicts go on and on.

Here is a list of the charities that have all been hit. And we'll deal with a little breaking news on the SEC after we get through this graphic. But here are the charities that have been hit by this. Bernard Madoff has bilked charities for millions including the Elie Wiesel Foundation for Humanity, the Carl and Ruth Shapiro Family Foundation, Yeshiva University, the Innocence Project, UJA-Federation of New York, Jewish Federation of Greater Washington. It goes on and on and on .

GASPARINO: And that is tragedy. He preyed upon-he basically that, listen. He focused on people from the Jewish community. He is Jewish. And he preyed upon their faith. This is what make this such a horrible, horrible scandal. He went to people and said you can trust me. We're of the same faith. And then he literally abused their faith. I talked to a lot of people in New York who were snookered by this guy. They want to put a bullet through his head. I will tell you that.

SHUSTER: Steven, I want to get your reaction. Breaking news has just been confirmed by CNBC's John Harwood. Obama is going to name Mary Schapiro chief of the Securities and Exchange Commission.

She, as you know, is the CEO of the Financial Industry Regulatory Authority, the largest nongovernmental regulator for all securities firms doing business with the U.S. public. Your reaction to that. And is the problem here not just of course at the top of the SEC but far more institutional regarding all these conflicts of interest that you pointed out?

PEARLSTEIN: Charlie knows about these could be afflicts of interest. I don't think the SEC is rife with all that. That may be a problem in this case. Of all the problems at the SEC, I don't think that's fairly high. I've known her from when she was on the SEC before. She was part of the NASDAQ. She was part of the NASDAQ enforcement regimen, the self regulatory enforcement regimen. She is well regarded as a straight shooter and a tough regulator.

The only thing I would say about it, given what has gone on in the financial world in the last decade, I wonder whether we dope need someone from the outside who does not buy into the culture of Wall Street and the way they do business. That's my concern at this moment.

GASPARINO: That is absolutely true. There is no bigger insider than Mary Schapiro. She was the head of the NASD. She came in after some of the scandals at the NASD when they said the NASD was too lax on enforcement. She came in, she did a decent job, but still, she is part of this problem because she is one of the insiders.

And I'll say this. There are way too many. You look at any sort of enforcement staff at the SEC, they often become lawyers for the big Wall Street firms. Let me ask you this. This is human nature. Why would you be tough on somebody you're going to go work for? That's the problem. They craft regulations with each other, this is called self-regulation and it doesn't work.

And if anybody thought that Obama was going to come in and maybe clean house and maybe take SEC in a new direction, I think the appointment of Mary Schapiro, a nice woman, very smart, did a decent job at the NASD, but she is part of the insider club. There is no doubt about that.

PEARLSTEIN: Can I go back?

SHUSTER: Steven, real quickly, go ahead.

PEARLSTEIN: Back to something Charlie said?

You're assuming that Bernie Madoff was a crook and a fraud from the very beginning, number one. And that he set out to hurt these charities.

GASPARINO: No, I'm not.

I'm just pointing out. When you are appointed by Arthur Levitt on some of these boards. When people on your firm are on boards with SEC - and by the way, it is not just Bernie Madoff. This is across Wall Street. The natural tendency is to go easy.

SHUSTER: We'll that have argument about Madoff's intentions, whether he started off this way, we will have that argument another day. Because again, this scandal is going to go on when you're talking about the huge amount of money. $50 billion and the number of people affected. There is going to be a lot to digest for a while.

In any case, Steven Pearlstein, Pulitzer Prize winning business reporter for the "Washington Post", thank you, and Charles Gasparino, on air editor at CNBC, thank you as well. We appreciate it.

Coming up, he and his hair have provided us with days of entertainment and countless opportunities to speculate on his mental status. But just when we thought it couldn't get any richer, Illinois Governor Rod Blagojevich offered this greeting through reporters this morning.

(BEGIN VIDEO CLIP)

BLAGOJEVICH: Hang loose. Hang loose. Can I get a run in, do you think?

(END VIDEO CLIP)

SHUSTER: And we're back with a look at what's going on inside the briefing room. First a little bit of breaking news. NBC News has confirm that President-Elect Barack Obama will name Illinois Congressman Ray LaHood, a Republican, as transportation secretary at a news conference tomorrow in Chicago. That makes LaHood the second republican after Defense Secretary Robert Gates to join the Cabinet.

Turning now to the potential Cabinet nomination that went sour. California Congressman Xavier Becerra has now taken himself out of the running for U.S. trade representative. And he did it in amazing fashion, in an interview with a Spanish newspaper, Becerra criticized Barack Obama's priorities.

Quote, "My concern was how much weight this position, U.S. trade representative would have and I came to the conclusion that it would not be priority number one and perhaps not even priority number two or three." Ouch.

Well, somebody got to Becerra or maybe he realized that infuriating the president-elect is not smart politics when Obama is looking at where to spend $1 trillion on infrastructure. So Becerra quickly issued this clarification.

"Working for and with incoming President Barack Obama would be an opportunity of a lifetime. I will get to experience that thrill by working by his side in the people's house just down the street from 1600 Pennsylvania Avenue. The clock is ticking, I'm ready to go."

Rah, rah, Obama.

Well, anyway, so what prompted his initial swipe at the president-elect? Well, I'm told that Obama transition officials are becoming increasingly nervous over a potential confirmation problem. You see eight years ago, Becerra helped convinced the Clinton administration to issue a pardon that Carlos Vignali, who was found guilty of shipping cocaine from Los Angeles to Minneapolis. Vignali's father had donated almost $14,000 to Becerra's campaign.

Still, the Democrat noted today Becerra's initial jab at Obama while pulling out of consideration underscores that the congressman probably wasn't a good pick to begin with.

Now if Cabinet selections and policy don't work out well for Mr.

Obama, he can always blow off steam with that passion of his, basketball. And yesterday the president-elect underscored his love of hoops while announcing Arne Duncan as his education secretary.

(BEGIN VIDEO CLIP)

OBAMA: I just want to dispel one rumor before I take question. I did not select Arne because he is one of the best basketball players I can. I can say that I think we're putting together the best basketball playing Cabinet in American history. And I think that is worth noting.

(END VIDEO CLIP)

SHUSTER: So noted. With former basketball jocks including Eric Holder, Susan Rice, James Jones, Arne and you, Mr. President-Elect that's quite a squad. And given the way your basketball squad tends to get treated by opposing teams, I'm sure you're quite confident of your skills. Notice how easily the North Carolina Tar Heels play defense against you?

But here's a challenge Mr. president-elect: I think my boys and girls can take you. This is our championship softball team. Don't be fool by the bats and gloves. My peeps can play hoops, too. Just name the court and the time, we'll be there. If we win, you must dispense of that lame three questions only rule at press conferences. However, if you win, I promise never to badger you at a press conference. Plus, I'll never again question your athleticism. Deal?

And finally, we would be remiss if we passed up the opportunity to highlight another sport: boxing. This video comes from the Mexican Legislature division. What started out as a fairly standard parliamentary debate on the construction of a tunnel turned into a brawl. Elected officials were so set on delaying a vote on the issue that they stormed the podium and started slugging away at their opponents. The scuffle lasted several minutes, forcing the parliamentary session to be canceled. No word on when it is rescheduled for and if boxing gloves will be required for the next attempted vote. And remember, this is all over a tunnel.

Up next, President-Elect Obama said it is frustrating not to be able to give any answers on the Illinois governor scandal. Sir, just imagine how the press corps feels. Is the president-elect ham-strung from answering or just playing smart PR when 1600 returns.

(COMMERCIAL BREAK)

SHUSTER: Tonight, hitting a wall; forget answers, reporters are being ridiculed by the president elect for even trying to ask questions about the pay to play scandal surrounding Mr. Obama's vacant Senate seat. The president-elect says he is frustrated with not talking, but is the overall approach making people doubt that team Obama will really bring a new kind of transparency to 1600 PENNSYLVANIA AVENUE?

Welcome back to 1600 PENNSYLVANIA AVENUE. Today, President-Elect Obama rolled out two more cabinet nominees, Colorado Senator Ken Salazar for secretary of the Interior, and former Iowa Governor Tom Vilsack for secretary of Agriculture. That's Salazar there in the cowboy hat. The president-elect took just three questions at the news conference, two of them from the nominees' home town papers, neither about the unfolding pay to play scandal in Illinois that's been dominating headlines across the country.

Although Mr. Obama has promised to release the results of an internal review on Monday, he and his team are coming under fire for stone walling the press. One reporter asked the president elect about his campaign promises of transparency. Watch.

(BEGIN VIDEO CLIP)

UNIDENTIFIED FEMALE: You ran on a platform of transparency. How difficult is all of this having to wait to release your inquiry business when the American people expect transparency?

OBAMA: Well, it is a little bit frustrating. There has been a lot of speculation in the press that I would love to correct immediately.

(END VIDEO CLIP)

SHUSTER: Joining us now, two pros who know a lot about talking to the pregnancy and shaping a presidential message, specially during school, Joe Lockhart, former White House press secretary for President Clinton, and Scott McClellan, former White House press secretary for President Bush. Thank you both for coming in.

Scott, let's start with you. How is Barack Obama handling this particular set of questions and the fact that right now he's not answering them?

SCOTT MCCLELLAN, FMR. WHITE HOUSE PRESS SECRETARY: Well, we'll see, I think fine so far. It all depends on what happens next week. He has said that he is going to release all this information about any contacts they had and that he will also make sure that all the questions are answered. I don't think he'll answer them personally, but he'll make sure that the questions are answered related to it. If he does, then he would have handled it well in the end. I think it was a little slow getting started.

But this has been-what it has been for the administration, the incoming administrations, is they test run. They can learn some lessons from it. It also gives people a window into how they might handle a controversy that actually involves members of their team being involved. This one, by all accounts, no one is actually involved in the deal that Governor Blagojevich was involved in.

So we'll see going forward. But it also seat standard that the press comes to expect going forward, that you're going to release information going forward when it come to major controversies or scandal involving your administration. We will expect that in the future. We'll see how it goes forward.

SHUSTER: Did they botch the first 48 hours, Joe, given that the information was all in their favor? No indication anybody did anything wrong. Of course, the transition is going to have a liaison to the Blagojevich office. Why not say, here is who our contact was. Here are the number of people we think were probably involved in some of these calls; we're going to collect the information. We'll get it to you, instead of going into the shell.

JOE LOCKHART, FMR. WHITE HOUSE PRESS SECRETARY: Two things here. First is, if they released information before they had a chance to check it out and they left something out, you set your hair on fire. You would think, that's the biggest scandal ever.

SHUSTER: Even if you say, the information-

LOCKHART: Even if we say that. You would could that back and the cable TV would light up with people screaming, they stone walled. They held this back. You have to be careful. The second is, this is being completely underplayed, there is a reason the U.S. attorney wants to delay this until next week. He is putting a case together. There is a piece of his puzzle he needs to put in before this gets out, so the people he's going after don't have the advantage of knowing what he's doing. I think it would be a much bigger scandal if Barack Obama put his own relations with the press, which are fine-this will not be a big deal in the long run-ahead of a legal proceeding. I think everybody-I watched the press conference today. People didn't seem to be foaming at the mouth.

SHUSTER: And yet, Scott, you know full well, as you were reminded by the White House press corps during the CIA leak case, that there is nothing that keeps an administration or president from releasing information, even if a prosecutor suggests maybe that's not just a good idea.

MCCLELLAN: That's true. In fact, we have handled that wrong. We should have gotten to the bottom of it ourselves and gotten that information out. At least everything that didn't relate to something that would interfere with the investigation and put as much information out as possible quickly as possible.

But Joe is right. You have to gather that information first and know what you have before you go and put it out. You also want to do it all at once, if you can, or as much as possible. And in terms of the Obama team, they have said, look, it is only a week. They're saying that Fitzgerald's office asked them only to hold off for a week. That's a reasonable request to be made.

LOCKHART: I think he is right. You have to get to the bottom of it. They went very thoroughly got to the bottom of it. Then the US Attorney's Office made a very specific request. He didn't say, never tell anyone. He said, give me until next week. That suggests that we're at a critical time in his investigation and these days were important to him. So they have information. But I think it would be-and I think everybody in that room, every reporter would admit, if they had to tell the truth, it would be a much bigger scandal. It is actually not a scandal. It would be a big scandal if somehow a political operation impeded a legal investigation.

SHUSTER: Has though-even in suggesting, yes, we're going to release it next week; could it be argued that Obama didn't handle that very well today? Everyone who is covering Obama knows he's going to be in Hawaii next week. He's probably not going to be the one releasing this information. Why not come out and say, look, we're going to get you all the answers. If there is a reason for me to weigh in, of course I will, of course I'll provide with you what you're looking for. But all the people that you would want to talk to, they're going to be made available. What's wrong with that?

LOCKHART: Listen, I think we're at the level of nit picking now. You can argue anything you want. I think that somehow that the Obama team and the U.S. attorney conspired to make it a time when he would be in the 50th state is a little silly.

MCCLELLAN: Those are fair questions though. We'll see what he does next week. I think they are going to do that, make everybody available to make sure the questions are responded to. I hope that's the case. I think, if that's the case, this will go away rather quickly next week.

SHUSTER: I do want to play something that illustrates a little bit of the tone. That is Barack Obama's changing tone on all of this. And then I'll get your reaction. Watch.

(BEGIN VIDEO CLIP)

OBAMA: What I'm absolutely certain about is that our office had no involvement in any deal making around my Senate seat. That I'm absolutely certain of.

This appalling set of circumstance that we've seen arise had nothing to do with my office. And those facts will be forthcoming to all of you in due course.

Let me just cut you off. I don't want you to waste your question. As I indicated yesterday, we've done a full review of this. The facts are going to be released next week. It would be inappropriate for me to comment.

(END VIDEO CLIP)

SHUSTER: I get there is such a great temptation when you're at that podium, when you're the president or the press secretary, to say, what a stupid question, give it up. You have to be careful, don't you? You have to be careful. Tone is a lot of it. These are people who can zing you the next day if they're angry at you.

MCCLELLAN: That's right. You're right, initially out of the blocks, he stumbled a little bit. He probably-on lesson he can learn from it is that he should never be vouching for anybody else on his team. He can vouch for himself. He should do that. But when it comes to saying, I'm certain that no one else on my team was involved-he is probably right in this case. It appears to be. But I would be careful about that in the future, and leave a little bit of wiggle room there. Because you never know, unless you're actually there on the call, or in the room with that person, if they were involved. They might not be telling the truth, as I learned myself.

SHUSTER: We could go chapter and verse, or write a book, as Scott just did, about how he learned that experience the painful way. In any case, Scott and Joe, stay with us. Up next, we're going to talk about what President Bush said today about winning hearts and minds in the Middle East. Hey, if the shoe fits.

And the late night crew won't have President Bush to kick around much logger. Luckily, other politicians are stepping up for the good of the country.

(BEGIN VIDEO CLIP)

JAY LENO, "THE TONIGHT SHOW": Rough weather in a lot of the country. Ice storms in the northeast, cold snap in the Midwest. In fact, it was so cold in Chicago, Governor Blagojevich actually had his hands in his own pockets.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: I recognize that the war on terror is more than a battle of arms. It is an ideological struggle for hearts and minds. And to prevail, we must counter the terrorists' hateful ideology with a more hopeful alternative, based on liberty and justice.

(END VIDEO CLIP)

SHUSTER: That was President Bush today at the U.S. Army War College, talking about how the wars in Iraq and Afghanistan are a struggle for hearts and minds. If recent events are any indication, that struggle hasn't necessarily been successful.

The Iraqi journalist shouted, this is a farewell kiss, as he hurled his shoes at the president who liberated his country. Now, he is only one heart and mind, but the shoe thrower is being hailed as a hero by thousands of Iraqis, who took to the streets in celebration and across the Middle East. Still with us, Scott McClellan, President Bush's former White House press secretary, and Joe Lockhart, White House press secretary under President Clinton.

Joe, what do you make of this whole episode?

LOCKHART: Unfortunately, pictures are more important than any words, any speeches. I was reminded when I saw this that that was a well planned trip. When President Clinton was impeached, and we went off and did a spectacular post-State of the Union speech out in Springfield, Illinois, and Air Force One got stuck in the mud as we were trying to take off. It was irresistible. It didn't matter what we did. It didn't matter what we said.

I think the president handled it well. And there are some times that there is nothing you can do. It's just pictures will overwhelm a story.

SHUSTER: Scott, there are a lot of historians who suggest there is nothing that the president can do to erase some of the crucial decisions and the results. And they look at this farewell tour as an effort at historical revisionism. Is it?

MCCLELLAN: Well, I think certainly there is too much effort trying to go into shape and extend the legacy in a more positive direct, too much of what we saw during the time in office. And I would prefer that they would address these issues in a more straightforward, honest way, and talk about not only successes, but honestly talk about some of the shortcomings and missteps that were made along the way. I think that would serve them better.

But what you have here is, yes, a big effort to try to shape for the better the legacy. And I don't think that they're going to be able to succeed in that effort. I think they would be much more successful if they were to be more candid about what went wrong.

SHUSTER: Here's one of things that came out today. This is President Bush talking about the start of the Iraq war, and who started it and how it started. Watch.

(BEGIN VIDEO CLIP)

BUSH: I offered Saddam Hussein a final chance to resolve the issue peacefully. It was his choice to make. When he refused, we acted with a coalition of nation to protect our people and liberate 25 million Iraqis.

(END VIDEO CLIP)

SHUSTER: The idea that it was Saddam's choice at the time-I mean, there is so much contrary evidence that the momentum was building. On Scott's point, better for the president, just forget about this. Let's just talk about-

LOCKHART: I wouldn't forget about it. The problem is when he is not candid like he was in that sound byte. He is creating the impression that somehow the world was behind him when there was a coalition of-you can count on one hand the number of countries with us. He undercuts what could be a serious point. He does have the ability here-He has been president to look at what has happened and to promote the war on terror. But as long as he continues to try to politically shape that he was right and everyone else was wrong, people won't listen.

So I agree with Scott. I do think that it is important to shape your own legacy, because no one else will do it for you. But here, a little dose of humility and candor would go a long way.

SHUSTER: What do you think is in the president's mind? You wrote about the permanent campaign. Has that just sort of seeped into everything and made it-even if he wanted to take Joe's point and he feels that, that he is surrounded by people who won't let him go there.

MCCLELLAN: Yes, to some extent. He has embraced the Washington game the way it is played, instead of changing it, as he pledged to do upon coming into office, or when he was running for office in the first place, which is why I was so attracted going to work for him. And now he's left clinging to one last hope that things will turn out successfully in Iraq in the long term, that it is going to become a thriving democracy; it is going to help transform the Middle East. That's what he put his hopes in at this point. There's nothing else left to cling to.

And I think that he would be much better served if he addressed-yes, you do want to try to shape your legacy for the better. But you do that by embracing candor and embracing honesty and talking openly about your own personal mistakes, instead of trying to shift the responsibility for those mistakes outside of the administration or someone else. He is the ultimate decision maker.

LOCKHART: I think Scott makes a really interesting point. It's a way to put these two stories we've talked about. I think Bush is playing the Washington game and not very well. I think what you're seeing play out in Chicago every day is a struggle over whose game you are going to play. Barack Obama's presidency is transformative-or the campaign was. The real question is, will his administration be transformative, and breaking the way the press likes the game, the way the pundits like to play the game here, where everything that comes out is big news, when it really doesn't impact a lot of Americans.

It is an interesting struggle. We'll see who wins. My money is on Obama right now, because the facts in this case are-I don't think are going to play out. And the problem we face are so large. Just saying, I'm focussing on those is a good strategy. Who knows? We may be six months from now, we may be playing by the same set of rules.

SHUSTER: Speaking of interesting, it is always interesting hearing from both of you. Thank you so much for coming on, Joe Lockhart, press secretary for President Clinton, Scott McClellan, press secretary for President Bush. Thank you both.

Up next, new polls show Americans don't want Uncle Sam to open his wallet for Detroit. Could that put a bailout from the White House in jeopardy? I'll talk to Michigan Senator Debbie Stabenow when 1600 returns.

(COMMERCIAL BREAK)

SHUSTER: Welcome back to 1600 PENNSYLVANIA AVENUE: Auto makers held out for White House help for another day today, as the cash strapped industry struggles to survive the worst US auto sales environment in 26 years. Tonight, President Bush said he knows he has to act, quote, relatively soon with regards to a bailout, but declined to give a specific date.

Joining us now, Democratic senator from Michigan Debbie Stabenow, supporter of the auto makers. Senator, how excruciating is this wait?

SEN. DEBBIE STABENOW (D), MICHIGAN: Well, David, we're seeing other evidence just a short time ago of how serious this is. Chrysler just announced that they are going to idle all their plants in the United States. It affects people directly in at least six states, indirectly across the country. They're going to idle them for at least the next 30 days.

Ford is also stopping production at a number of their plants, as well as GM. So this is extremely serious. People are playing with fire the longer we wait on this. And the president has indicated that he would step up and provide help. I'm taking him at his word. But every day counts right now.

SHUSTER: Are you mad there hasn't been any action yet?

STABENOW: I wouldn't say mad, but I am very concerned that we haven't seen something happening yet. Every single day that goes by, particularly when the financial markets are still closed, the credit markets-a large part of the problem with Chrysler, they've indicated, is the fact that there are no-there is no loans available for people to buy automobiles. People want to buy automobiles. These huge bailouts were given on Wall Street and to the banks and the financial arms of the auto makers were included in that. And yet they're not releasing the money. That's where I am extremely upset that the things that could be done right now by the banks who have gotten the money have not been done.

They're holding the money. They're buying up other banks. They're doing whatever they're doing. But they are not releasing funds to consumers.

SHUSTER: Yet senator, when you look at the latest "Washington Post"/ABC poll, as far as the fault of the auto problems, even though you are absolutely right that this economic crisis, the financial crisis is hurting them in a big way. But most people, 75 percent of Americans, blame management. Only 22 percent say it is the economy. What do you make of those numbers? And does that reflect a failure by the auto makers to make a successful case the last couple weeks?

STABENOW: Well, David, I understand that there is a lot of interest right now in beating up on auto companies. And certainly I have had frustrations with past decisions as well. But the important thing right now really is the facts. We're in a global credit crisis. Every other country in the world-every other country in the world, from Canada to Germany to France to China to Sweden-All around the world, if they have auto makers, they understand the crisis and they're stepping up.

Why? They want a middle class in their country like we have had in America. And they know the way you do that is to make things, starting with automobiles. We seem to be the only country that doesn't understand that. That's my biggest frustration. Millions of people's lives at stake. We're coming into Christmas right now. I have to tell you, I meet people every day. I talk to people every day who are so frightened, so concerned. There is no excuse for this.

SHUSTER: Senator Debbie Stabenow, thanks for joining us. We appreciate it. That is the view from 1600 PENNSYLVANIA AVENUE tonight. I'm David Shuster. Thank you for watching. We'll see you back here same time tomorrow night. "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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