updated 12/29/2008 5:01:07 PM ET 2008-12-29T22:01:07

Guests: Erin Burnett, Michelle Bernard, Bob Shrum, Richard Wolffe, Lawrence O‘Donnell, Lynn Sweet, Michael Smerconish, Brad Blakeman, Rev. Joseph Lowery, Joan Walsh

DAVID SHUSTER, MSNBC HOST:  Tonight the Obama report on Governor Blagojevich.  No inappropriate contacts, no encouragement of pay for play, and no more Blagojevich problems for Obama, it would seem, as the president-elect transitions to 1600 Pennsylvania Avenue.

Twenty-eight days until the inauguration of President-elect Barack Obama.  Welcome to the show everyone, I‘m David Shuster. 

Late today, the Obama transition team released the report on their interaction with Illinois Governor Rod Blagojevich over Obama‘s vacated Senate seat.  The report found there was no evidence that anybody, including Obama, chief of staff Rahm Emanuel, did anything improper, embarrassing, or illegal. 

(BEGIN VIDEO CLIP)

SEN. JOE BIDEN, VICE-PRESIDENT ELECT:  There was no inappropriate could that tact by any member of the Obama staff or the transition team with Blagojevich. 

(END VIDEO CLIP)

SHUSTER:  Coming up, we‘ll take a closer look at the report and the information some Democrats wished the Obama team had started releasing two weeks ago. 

Plus, bailout blow off.  Those banks that received your money and cannot explain what they did with it—they still can‘t explain.  Two days and counting. 

We‘ll tell you about our efforts to get even the most basic information from some of these banks. 

Also this hour, the Bush legacy. 

(BEGIN VIDEO CLIP)

GEORGE BUSH, PRESIDENT OF THE UNITED STATES OF AMERICA:  Being the commander-in-chief of the military is the thing I‘ll miss the most. 

(END VIDEO CLIP)

SHUSTER:  As the president transitions out of office, a few of his top defenders say problems associated with his economic and foreign policies are a myth.  A myth, eh?  Silly wing nuts.  Tonight they meet the grill. 

Later, presidential beef cake.  Sure Obama looks great, but was it really appropriate for the “New York Post” to reward paparazzi snap shots?  And will Vladimir Putin and Nicolas Sarkozy be jealous? 

Plus, happy holiday Blago-style.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE:  If Santa doesn‘t come through for you, you tell him to get his [ bleep ] [ bleep ] back up that [ bleep ] chimney and come back when he can something to [ bleep ] table. 

(END VIDEO CLIP)

SHUSTER:  We begin this hour with the latest on the Obama transition, and the headline tonight is “Here are the answers.” 

Two weeks after a criminal complaint revealed that Illinois Governor Rod Blagojevich tried to profit from Barack Obama‘s vacated Senate seat, the Obama transition detailed the contacts with Blagojevich during the period in question.

First President-elect Obama-“The President-elect had no contact or communication with Governor Blagojevich or members of his staff about the Senate seat.  In various conversations with transition staff and others, the President-elect expressed his preference that Valerie Jarrett work with him in the White House.”

Obama chief of staff Rahm Emanuel.  The report found he had one or two phone call with Governor Blagojevich.  Mr. Emanuel and the governor did not discuss the cabinet position 501-C4, a private sector position for the governor, or any other personal benefit for the governor.

In those early conversations with the governor, Mr. Emanuel recommended Valerie Jarrett because he knew she was interested in the seat.  He did so before learning in further conversations with the President-elect that the President-elect had ruled out communicating a preference for any one candidate.”

The report found Emanuel had four conversations with Blagojevich chief of staff John Harris regarding the Obama Senate seat.  “In these conversations Mr. Emanuel and Mr. Harris discussed the merits of the potential candidate and the strategic benefit that each candidate would bring to the seat. 

After Miss Jarrett removed herself from consideration, Mr. Emanuel, at the authorization of the President-elect, gave Mr. Harris the names of four individuals whom the President-elect considered to be highly qualified-Dan Hines, Tammy Duckworth, Congressman Schakowski, and Congressman Jesse Jackson Jr. 

Mr. Harris did not make any effort to extract a personal benefit for the governor in any of these conversations.  There was no discussion of a cabinet position, 501-C4 of a private sector position or of any other personal benefit to the governor in exchange for the Senate appointment.” 

That‘s the end of the quote

Regarding Valerie Jarrett who had been interested in the U.S. Senate seat until early December-“Ms. Jarrett had no contact or communication with Governor Blagojevich, with his chief of staff John Harris, or with any other people from the governor‘s office about a successor to replace the President-elect in the United States Senate or how the decision should be made, nor did she understand at any time prior to his arrest that the governor was looking to receive some form of payment or personal benefit for the appointment.

Joining us now from Washington is Lynn Sweet, Washington bureau chief for the “Chicago Sun-Times.” And, Lynn, your reaction to what was learned late this afternoon? 

LYNN SWEET, “CHICAGO SUN TIMES”:  The report shows that if Blagojevich was trying to buy something, the Obama people weren‘t selling.  Actually, in some ways, this report is at odds with the very damage dialogue and monologue that the U.S. attorney in Chicago had.  And the report basically has a very different, alternate reality here. 

What is interesting, David, is that we now know that Valerie Jarrett was perhaps far more interested in the Senate seat than we thought, to the point that Rahm Emanuel went out and freelanced for her on her behalf on talking to Governor Blagojevich about getting her the appointment. 

SHUSTER:  I was struck with sort of how the report went at this, David Axelrod, to clear him.  David Axelrod is, of course, the senior adviser who had told a Chicago television station that Obama did have conversations with Blagojevich.  Axelrod subsequently said that he had been mistaken. 

And here is how the report deals with that-“Mr. Axelrod recalls that after the election the President-elect discussed with Mr. Axelrod and Mr.  Emanuel a number of individuals who were highly qualified to take his place in the senate.

Mr. Axelrod was under the impression that the President-elect would convey this information to or to someone from the governor‘s office, which explains why Mr. Axelrod gave an inaccurate answer on the subject in questions from the press. 

He later learned that it was Mr. Emanuel who conveyed those names to the governor‘s chief of staff, John Harris.” 

Does that satisfy the sort of question about David Axelrod in the confusing statements that he gave? 

SWEET:  I think it does, because there is no other evidence that there is any direct conversation between President-elect Obama and Governor Blagojevich.  So I think that is a side bar to what, is the side show to the main event, which is the overall corruption charges against Governor Blagojevich. 

But, David, there are some thing that we learned that‘s interesting here. 

SHUSTER:  Sure.

SWEET:  Valerie Jarrett talked to Tom Balanoff(ph), who is a big time union official in Illinois.  He‘s a big supporter of—big and early supporter of then Senator Obama for the presidency. 

It is not clear yet why she was talking to him.  It appears that she might have had an interest in feeling him out for support on the Senate seat, but I‘m not sure right now. 

That‘s when we learn that Balanoff in talking to Jarrett, if Blagojevich could ever even think about being in the appointment—in the cabinet.  For reasons that we all know now, Valerie Jarrett said that‘s ridiculous.  And she just tells him that.

And we learned in the conference call that the Obama people just had a short while ago, that she thought it was ridiculous because everyone knew he was under a criminal cloud. 

So some of this gives us more of a backstage look as to these behind the scenes maneuverings in the filling of the senate seat. 

One other thing of note—Jesse Jackson Jr.‘s name was on the list of the people that Obama wanted to recommend.  Last week we thought he was not. 

SHUSTER:  Lynn, stay with us. 

I want to bring in now Michelle Bernard, MSNBC political analyst and president of the Independent Women‘s Forum, and veteran Democratic strategist Bob Shrum. 

Michelle, we‘ll start with you.  Last week Barack Obama said all of the answers would be provided this week.  Have all answers been provided?  Is there anything else that you can imagine that‘s still sort of left up in the air out of this? 

MICHELLE BERNARD, MSNBC POLITICAL ANALYST:  No.  Obviously, this is a report that has been put out by the president-elect‘s office, so there will always be another side to the story, and people will have additional questions. 

But the most important question to be answered, I think, was whether or not the president-elect had any direct contact with Blagojevich.  We‘ve got a very clear cut answer to that question now.  Any contact was between Axelrod and Blagojevich, and, most importantly, between Rahm Emanuel and Blagojevich. 

Those answers, we got those answers today, and I would find it very hard to believe that we will ever see any evidence that is in direct opposition to what we see in that report. 

SHUSTER:  Bob Shrum, when I look at this report, and when I saw the criminal complaint, to me this looked like maybe a two-day story.  How did it manage to go into a two-week story? 

BOB SHRUM, DEMOCRATIC STRATEGIST:  Because what Blagojevich allegedly was doing was trying to sell the Senate seat of the president-elect.  If it had been some other state, it would have been a two-day story.  It would have been an interesting story. 

And it will roll on and on because of these wiretaps and the kind have colorful language.  This guy, the governor of Illinois, is either a foul mouthed buffoon or a blatant felon.  We‘ll find out in the next few months. 

But the one thing we know today is that there is no story here about the president-elect.  There is no story here about Rahm Emanuel. 

The one thing I‘m sure of, by the way, is the prosecutor would not let Rahm Emanuel listen to one of the wiretapped conversations if there was any suspicion whatsoever that he was involved in any wrongdoing. 

So I think he is off the table, Axelrod‘s off the table, the president-elect is off the table, and we‘re now going to watch this circus unfold in other ways. 

SHUSTER:  It did become something of a circus simply because the basic information—if Obama or even Emanuel had come out two weeks ago and said of course I had a couple conversations with the governor.  That was my job, of course I informed the chief of staff that I was leaving my congressional seat, nobody would have batted an eyelash. 

Did they hurt themselves possibly, are there any lessons learned, Bob, from the fact that they maybe, according to some Democrats, could have handled this better two week ag? 

SHRUM:  I think, from what they‘re saying, that they were following the direction of Patrick Fitzgerald, that he was asking them to please be careful what they put out there, what they said. 

SHUSTER:  Except not initially.  At least there were three or four days—and, Lynn, correct me if I‘m wrong, but at least there were three or four days initially where they weren‘t saying anything, and that was their own choice. 

SWEET:  It was three days until Obama said that he would produce the report. 

BERNARD:  David, can I also add, though.  We‘re talking about a lot of lawyers here.  Anyone who has ever dealt with a public corruption case knows that, number one, they are always fascinating. 

Even if the story completely goes away in terms of its connection to the new president-elect‘s office, people will be continued to be fascinated because public correct cases are always fascinating and always interesting. 

But we‘re talking about a lot of people who have been trained as lawyers, and anyone who has any sort of connection to white collar criminal defense work or prosecutorial work, I believe would have directed the Obama transition team to handle this case exactly the way that they did.  Less information in a criminal case is better. 

SHUSTER:  And it‘s always great legal advice, but from a pure political perspective, Bob, is that sometimes the wrong strategy, because it sometimes creates the perception that you‘re hiding something when, in fact, in this case, they‘re not. 

SHRUM:  Sure.  It would have been better off if they could have come out and said this on the very first or the second day.  I think Greg Craig needed time to gather all the facts, talk to everybody, make sure they were accurate. 

And, David, we don‘t really know what kind conversations in those first two or three days the Obama campaign or the Obama official might have been having with Patrick Fitzgerald.  I think at every point, they have tried to respect the legal process here, and that was the right thing to do. 

SHUSTER:  And Lynn Sweet, I want to circle back to something that you mentioned earlier, and that is this idea that there does seem to be something of a contradiction between the way the conversations were perceived by Rahm Emanuel and at least the way the prosecutor portrayed what Blagojevich was doing. 

How might that play out as far as the Blagojevich case?  Is it possible now that maybe the Blagojevich case has been weakened somewhat by this? 

SWEET:  Well, I always thought that what Blagojevich was talking about was political fantasy about his idea of ever thinking he could be in the Obama cabinet.  Certainly that underscores that point. 

One other thing, looking about the time lag, and I was just double-checking the note from the press, telephonic press conference that just happened.  And Craig does talk about that Valerie Jarrett at least had counsel. 

So maybe it took some of the players time to get themselves together in how they wanted to proceed, because in talking about Jarrett, when she is telling Tom Balanoff how ridiculous it would be for Governor Blagojevich to even dream of being in the Obama cabinet, Craig says that‘s what she told her counsel, and that‘s what her counsel told me. 

So getting this stuff organized takes more than a day. 

So again, the thing here to look at is not whether or not Obama responds in the one day or two.  He did do something that is pretty different, and that is you did get a report on an ongoing criminal ongoing investigation. 

You usually don‘t do that.  Usually in the public corruption cases the players are told simply not to talk until the U.S. attorney says it is OK to talk.  So I want to give credit where credit is due. 

In term of the internal politics, yes, there are some questions I have, having to do, again, with Valerie Jarrett‘s Senate ambitions, what she might have been doing behind the scenes to look at an appointment. 

It is also interesting that Obama is saying that he in the end was not going to try to anoint a successor but just to give the governor a list of potential candidates. 

SHUSTER:  Lynn Sweet, I would suggest that the question of Valerie Jarrett is more of a political one.  It does seem like all of your questions and a lot of our questions about the investigation itself have been answered. 

And any time Lynn Sweet‘s Lynn Sweet is satisfied, we know that the Obama team has had a great day. 

Lynne Sweet, thank you very much.  Bob Shrum, thank you as well.  And also Michelle Bernard, thanks to you as well.  Happy holidays. 

SHRUM:  Thank you, Happy holidays. 

BERNARD:  Happy holidays.

SWEET:  Happy holidays.

SHUSTER:  Up next, the banks won‘t say where the $700 billion bailout money is going.  But what we found out about what some of the CEOs of these failed company are taking home this year, wait until you see these numbers when “1600 Pennsylvania Avenue” returns right after this.    

(COMMERCIAL BREAK)

SHUSTER:  Welcome back.

And now to a story that we reported on yesterday but which I have to go back to.  More egregious details about how our bailout money is being spent.  The banks that we the taxpayers have doled billions of dollars to gave their corporate execs $1.6 billion in salaries, bonuses, and others perks last year. 

Here‘s what the Associated Press found among the benefits these supposedly struggling companies have recently paid for—cash bonuses, stock options, personal use of company jets and chauffeurs, home security, country club memberships, and, this is great, professional money management. 

“Money management.”  Rather than working on their own portfolios, perhaps these execs should apply those money management principles to their banks, which don‘t seem to be doing a great job of keeping track of the dough. 

The Associated Press contacted 21 bank that got at least $1 billion in bailout money, and none of them could give specific answers about where it went. 

Joining us now to explain this corporate dodging to us is Erin Burnett, anchor of CNBC‘s “Street Signs,” and Michael Smerconish, Philadelphia radio talk show host and columnist for both the “Philadelphia Daily News” and the “Philadelphia Inquirer.”

Erin, Goldman Sachs told the AP it needed to retain and motivate its talent to ensure its “continued success.”  Isn‘t this rewarding failure?

ERIN BURNETT, CNBC‘S “STREET SIGNS” ANCHOR:  That‘s a fair point.  When you see those headlines, your jaw does sort of drop, I will give you that.

Part of this, when you talk about rewarding talent and trying to retain talent, this is something they‘ve always done in this industry.  Usually if you do something well, someone will pay you more to do it somewhere else. 

And at the end of last year when all these bonuses were set, that was still the case.  Certainly, we were coming into the crisis, but not in the full brunt of it. 

So that is ordinarily the way this works.  And we could do with some serious reform in terms of how Wall Street is compensated. 

But I will say this—even though they won‘t account specifically for how this TARP money is being used, it would be inaccurate to say they are using taxpayer money for compensation.  That would be the one thing I would say. 

SHUSTER:  All right.

Michael, what about the idea that they are not even going that far?  They‘re not even giving any statements, at least to the Associated Press and other news organizations.  How problematic is that? 

MICHAEL SMERCONISH, PHILADELPHIA RADIO TALK SHOW HOST:  Well, my beef is not necessarily with the lending institutions.  I think many of us are familiar with that seemingly idiotic statement from J.P. Morgan where they say, “Yes, we‘ve lent some money and we haven‘t lent some money.” 

I think the legitimate beef is with the Congress that appropriated $700 hundred billion with no strings attached and no system for accountability. 

And, David, I can‘t help but compare the twice grilling of the big three auto manufacturers, the schlep that they had to make to Washington, and then to subject themselves to that interrogation as contrasted with has taken place here, with zero strings and no accountability.  It is the congress‘ fault. 

SHUSTER:  Right.  And I can‘t understand why some members of congress, why haven‘t they come out and said of course we‘ll have hearing and who will testify and we‘re setting up the subpoenas if necessary.  You would figure, somebody in congress would figure that one out.  That seems like a no brainer. 

In any case, a recent survey found, Erin, that the average CEO made 344 times the amount of the average worker in 2007.  But the report today that the median home price, the most valuable asset most families have, is down 13 percent.

I want to take you through some of what the AP found as the most egregious examples of executive compensation.  First, Merrill-Lynch John Thain took home $83 million.  Merrill-Lunch got $10 billion in taxpayer money.

Capital One Financial Richard Fairbanks took home $73 million.  John Mack at Morgan Stanley, $41 million, again $10 billion this year in taxpayer money.  Jamie Diamond at J.P. Morgan got $29 million in executive compensation, after getting—this year they got $25 billion in taxpayer dollars. 

How do they justify it all? 

BURNETT:  Right now, and I think we should make this clear given that they have gotten taxpayer money, they‘re not taking any money this year.  None of those individuals are. 

Jamie Diamond, I spoke to him last week, actually his first interview since all of this, and he has not yet determined whether he‘ll take a bonus.  I‘m going to say right now he won‘t take a bonus.  I just don‘t see how it‘s going to happen.  But neither John Mack, John Thain, none of them have. 

John Thain appears as if he considered taking one, and then did not. 

And that is primarily because of the public perception.

So those numbers were big last year.  A lot of that is in stock options.  It doesn‘t make it any better or worse, but it was stock options as opposed to cash.  But this year none of those individuals are actually taking compensation. 

And when you think about it this way, David, this is just one way—I‘m not going to defend it, but I think it‘s an interesting nugget here--$200 million in taxable income lost to the state of New York just because the top five people at Goldman Sachs won‘t be getting bonuses.  There are repercussions here. 

SHUSTER:  That‘s a great point. 

And Michael, with all the money they do have sloshing around anyway, whether in 2007 or not, you figured they would be able to find some better communication experts who could help explain to them that maybe giving flippant answers to news organizations is not the way to deal with us? 

SMERCONISH:  Again, I think it is the congress.  You made a great point, which needs the public relations device.  You would think that by now someone would have seized the moment, jumped on the soap box and said this will not stand. 

But here‘s the practical effect of all of this.  The next time, and hopefully there won‘t be a next time, but the next time the Congress is contemplating a bailout, the sort of issue that you‘re putting before people tonight resonates, and they will be opposed to it, and the Congress will have its feet to the fire. 

SHUSTER:  But on that very point, here‘s what Joe Biden talking about a separate issue, and that is the economic stimulus.  Here‘s what he had to say at his economic team meeting today.  Watch. 

(BEGIN VIDEO CLIP)

BIDEN:  I know it is Christmas, I know it is the Christmas season.  But President-elect Obama and I are absolutely determined that this economic recovery package will not become a Christmas tree.  Every dollar will be closely watched to make sure it is being used in an effective manner. 

(END VIDEO CLIP)

SHUSTER:  Erin, final thought? 

BURNETT:  Quick final thought on that.  One, I hope they do it, because they‘ve got some grand ambitions in this, ambitions in areas like infrastructure frequently fail, and they‘d better account for every dollar. 

And the second on this, J.P. Morgan may need some help on the press side of thing, but Jamie Diamond did say how they are using the money, and he did walk through with me, and we have it on tape that they‘re increasing loans in every single area even though he won‘t give you specifically where the $25 billion is going. 

And we may have maybe another conversation on that, but I actually think it makes sense.  They are using it to make loans. 

SHUSTER:  We give credit then to J.P. Morgan.  And, Erin, thanks for getting that information.  And Michael, thank you for coming on.  And Erin, thanks for coming on as well.

With most of the banks, however, refusing to provide any information to the Associated Press or to anybody else about how they spent their bailout money, we‘ve decided to try to keep trying ourselves every day until we get some answers. 

So today I tried to get information from Bank of America, which received $15 billion of your money.  That is considerably less than other banks, including J.P. Morgan. 

A call to media spokesman of Bank of America headquarters in North Carolina prompted a recorded message that she was on vacation until after the first of the year, but to call another media contact in Boston. 

I called that contact and got a recorded message that he was out, and that urgent calls should go to his assistant. 

I pressed zero for the assistant and got another recorded message.  I left one asking for a returned call.  I explained the nature of my inquiry, that I was hoping Bank of America could provide even some of the most basic information about the $15 billion on where it is spent or why they can‘t account for it. 

I‘ve received no phone calls back. 

But no worries—we‘ll be calling Bank of America and some of the others again every day.  Sooner or later, they will cry uncle.  I think.  But we‘ll see. 

Up next on “1600,” what does Sarah Palin say was the biggest mistake of the campaign?  Not saying enough.  Hey, governor, we regret it, too, but probably not for the same reasons as you. 

(BEGIN VIDEO CLIP)

TINA FEY, COMEDIAN, “SATURDAY NIGHT LIVE”:  Well, Alaska and Russia are only separated by a narrow maritime border.  You‘ve got Alaska here, and this right here is water, and then that‘s, up there is Russia. 

(LAUGHTER)

So we keep an eye on them. 

(LAUGHTER)

UNIDENTIFIED FEMALE:  And how do you do that exactly? 

FEY:  Every morning, when Alaskans wake up, one of the first things they do is lookout side to see if there are any Russians hanging around.

(LAUGHTER)

If there are, you‘ve got to go up to them and ask, what are you doing here?  And if they can‘t give you a good reason, then it is our responsibility to say, shoo! Get back over there.

(LAUGHTER)

(END VIDEO CLIP)

(COMMERCIAL BREAK)

SHUSTER:  We‘re back with a look at what‘s going on inside the briefing room.

Never one that minces words Vice President-elect Joe Biden does actually have a soft side, sort of.  We did see him get choked up more than once on the campaign trail, but who would have pinned him as the type to feel sorry for President Bush?  Listen. 

(BEGIN VIDEO CLIP)

BIDEN:  Maybe it‘s presumptuous to feel sorry for another man, but I feel somewhat—I feel somewhat badly for him.  I think that President Bush, and unlike Vice President Cheney, is, upon reflection, beginning to acknowledge some of the serious, if not mistakes, misjudgments that he made.

(END VIDEO CLIP)

SHUSTER:  Biden also made a point to say that the infamous shoe throwing incident was, quote, unfortunate and uncalled for.  Come on, that‘s a gimme.  Who wouldn‘t feel sorry for someone, much less the leader of the free world who was on the receiving end of a shoe attack. 

And from a story about pity for someone else to a story about self-pity.  In an interview with the media outlet “Human Events,” her third interview this year with them, Sarah Palin was asked what she thought was the biggest mistake in the 2008 campaign.  Get out the violins, quote, “the biggest mistake made was that I could have called more shots on this: the opportunities that were not seized to speak to more Americans via the media.  I was not allowed to do very many interviews and the interviews that I did were not necessarily those I would have chosen.  But I was so thankful to have the opportunity to run with John McCain that I was not going to argue with the strategy decisions that some of his people were making regarding the media contacts.  But I had been in charge, I would have wanted to speak to more reporters, because that‘s how you get your message out the electorate.”

Poor Sarah Palin!  If only she had her way, you betcha, the election would have turn out differently.  Right. 

Coming up next, there was once a year when America elected a global leader, a fierce advocate for diplomacy and the environment.  It was 2000.  You heard that right.  According to the White House, everything you think you know is wrong; the Bush administration busts a myth.  And we bust a gut in laughter when 1600 returns. 

(COMMERCIAL BREAK)

SHUSTER:  Welcome back to 1600 PENNSYLVANIA AVENUE.  It‘s time now for the Grill.  WE normally reserve the grill for people, but the Bush administration has been serving up so many whoppers lately, we‘re making an exception.  On the menu tonight, a myth buster article that President Bush‘s counselor Ed Gillespie recently wrote for “Real Clear Politics,” in which he sets the record straight on the most unpopular administration since the dawn of polling. 

Apparently, we‘re all just remembering it wrong.  Joining me now, two guys who are never afraid of the heat, Lawrence O‘Donnell, MSNBC political analyst and former chief of staff to the Senate Finance Committee, and Brad Blakeman, former deputy assistant to President Bush. 

Brad, let‘s start with you.  Myth number one, the Bush economy has been bad for Americans and deregulation led to the economic collapse.  Gillespie argues there were six straight years of economic growth during which after tax per capita income rose 11 percent.  As for the financial collapse, Gillespie says the president called for more oversight on Fannie Mae and Freddie Mac. 

You let me write some hot checks, Brad, and I could show you economic growth, too. 

BRAD BLAKEMAN, FMR. BUSH DEPUTY ASSISTANT:  There was unprecedented growth for the majority of the Bush presidency.  Eight million job were created.  That‘s not fictitious.  That‘s real.  Fifty two straight months of growth, that‘s real.  I think the Bush presidency will fair well, even economically, for the majority of his presidency, once history bears out the facts.  And Ed is trying to do that now, because, look, perception sometimes becomes reality, but history will judge it on facts, not the perception and not living in the moment.  Many presidents are not appreciated in their time. 

LAWRENCE O‘DONNELL, MSNBC POLITICAL ANALYST:  Look, growth in the American economy is the norm.  We had growth every quarter in the Clinton presidency, too.  The Bush presidency began with a gift from the Clinton presidency of a trillion-dollar surplus, a trillion-dollar surplus. 

BLAKEMAN:  Also a recession.

O‘DONNELL:  What is it that we have to show now for the—for losing the trillion-dollar surplus and creating the massive deficit in the other direction?  What is it that we point to and say, thank the Bush administration for that really wise blowing of the trillion dollars surplus and the digging a deeper, deeper hole on the deficit?  We don‘t have a single thing we can point to and say, there‘s the proud achievement.  

BLAKEMAN:  We had a bunch of things. 

SHUSTER:  Save your answer.  Hold on a second, Brad.  Here‘s myth number two that Gillespie targets, the Bush tax cuts only benefited the wealthy and forced federal cuts to health care and education.  Gillespie says the tax cuts were across the board.  Tax receipts grew more than 542 billion and federal spending in education increased nearly 40 percent.  Brad? 

BLAKEMAN:  That‘s the truth.  And when you look at the facts, it bears it out.  We‘ve had—if it wasn‘t for the Bush tax cuts, this country would have been in terrible shape.  And let me remind Lawrence that look, we inherited a recession.  We had corporate scandals under the Clinton watch, which Bush inherited, World-Com and Enron and others.  We had the largest terrorist attack on American soil, 9/11.  We had the largest natural disaster, Katrina.  We‘ve had this financial and housing meltdown.  It‘s been one incident after another. 

So when Lawrence talks about where did the surplus go to, we had to reinvest that money, both because we wanted to in health and education, and because we were forced to with the calamities that we faced with 9/11 and Katrina and some of the others things. 

SHUSTER:  Well, you‘ve given us a lot to work there with, Brad.  Lets go on to number three.  Myth number three, the president‘s go it alone foreign policy ruined America‘s standing in the world.  Gillespie says, an international coalition backed the Iraq invasion.  Multi-national diplomacy led to North Korea agreeing to abandon its nuclear program and that pro-American leaders have been elected in Germany, France and Italy, clearly all proxy voters for George W. Bush. 

I won‘t even start there.  Lawrence, I seem to remember that there wasn‘t al Qaeda in Iraq until we went there? 

O‘DONNELL:  Yes.  Look, I mean there was no real alliance.  Bush‘s father put together a real alliance to go into the first Gulf War.  This was done as unilaterally as you can possibly imagine it being done.  There was some cooperation from the British.  That was about it. 

I need to reach back into that previous thing.  Most of the trillion-dollar surplus went to the Bush tax cuts.  The overwhelming majority of that money went to the upper end of tax payers.  Most tax payers in this country pay more in Social Security tax than they do in income tax.  So if you want to cut someone‘s income tax who is in the 15 percent bracket, you couldn‘t do—that‘s the slightest possible impact on their economic life.  So to talk about what it did in the 10 percent bracket is utterly meaningless.

BLAKEMAN:  President-Elect Obama thinks so much of the Bush tax cuts that he is continuing them.  He‘s going to continue them until they expire on their own.  He is going to find out in short order that raising taxes is going to be a calamity for this country.  And he is going to have to think of ways to cut taxes and cut spending in order to be successful. 

So cutting tax when the economy is bad is what America needs to do, because you grow through growth.  You don‘t grow through taxation.

SHUSTER:  Right, but there‘s also a certain element of fundamental fairness.  The tax cuts disproportionately benefit the wealthy, not the middle class.  Middle class—

BLAKEMAN:  Who do you think pays tax in this country?

(CROSS TALK)

O‘DONNELL:  Bill Clinton did the biggest tax increase in history and the economy roared after that. 

SHUSTER:  Here‘s Myth number five, that Bush has been bad for the environment.  I‘ll agree with that, but Gillespie says the Bush administration has reduced air pollution by 12 percent, replaced the Kyoto treaty with an allegedly more effective one you‘ve never heard of called the Major Economies Process, and invested 44 billion dollars in programs to combat climate change.  What is the Major Economy‘s Process, Brad? 

BLAKEMAN:  Well, look.  Let me say this about the Bush—

SHUSTER:  No, no.  You can say that in a second.  What is the Major Economy‘s Process? 

BLAKEMAN:  I don‘t know what it is. 

SHUSTER:  OK, that‘s my point. 

BLAKEMAN:  I don‘t know what it is, but here‘s what I do know:

President Bush passed energy legislation, although not perfect.  It certainly was a generational change in how we looked at energy.  And President Obama needs to continue that.  We‘ve increased solar.  We‘ve increased electric.  We‘ve increased geothermal.  What President Bush has suggested, which the Democratic Congress wouldn‘t entertain, is nuclear.  We haven‘t built a nuclear plant here in 40 years.  President Obama must make that part of his plan in order for us to be energy independent.  There‘s a lot of things President Bush did. 

SHUSTER:  Brad Blakeman, Lawrence O‘Donnell, thank you both very much.  I‘m sorry we have to cut it short.  Maybe, instead of Major Economies Process, which I think most people have never heard of, major we can call it Major Historical Revisionism.  In any case, we thank you both for coming on.  Good to see you always.  Happy holidays.   

Coming you, inauguration uproar.  President-Elect Obama picks Rick Warren, a mega-church leader, who has compared gay marriage to incest, to give the invocation at his inauguration.  Up next, we‘ll talk to a pastor who supports gay rights and gay marriage who is giving the benediction.  What does he think of Warren‘s involvement?  When 1600 returns after this.

(COMMERCIAL BREAK)

SHUSTER:  Welcome back to 1600 PENNSYLVANIA AVENUE.  Today, we got our first sight of the Bible Barack Obama will be sworn in to office on next month, the same Bible that Abraham Lincoln used for his first inauguration in 1861.  The head of Obama‘s inaugural committee is called the bible a symbol of national unity, saying, quote, “the president-elect is committed to holding an inauguration that celebrates America‘s unity and the use of this historical bible will provide a powerful connection to our common past and common heritage.” 

But as we‘ve been reporting this week, many progressives are unhappy with Obama‘s decision to have Pastor Rick Warren give the inaugural invocation.  Warren has compared gay and homosexual relationships to incest and pedophelia.  Warren will be sharing the inauguration spotlight with Reverend Joseph Lowery, a pastor who supports gay rights.  Reverend Joseph Lowery will be giving the inaugural benediction, and he joins us now. 

Reverend Lowery, what was your reaction when you heard about the Warren pick? 

REV. JOSEPH LOWERY, REV. UNITED METHODIST MINISTER:  Well, it is interesting.  My job is not to critique the program but to close it with prayer.  So I‘ve not taken any position, except it is ironic.  We usually criticize politicians for failing to keep their word.  And here Obama is catching flak for keeping his word.  He promised during the campaign to bring diverse groups together, to reach across the divide. 

SHUSTER:  Except, Dr. Lowery, you‘ve spent your entire career crusading for civil right for all Americans.  In 2000, you gave a speech at the general convention of the United Methodist Church in defense of gay clergy.  Recently, you said to “Southern Voice,” quote, “I‘m strongly opposed to propositions or amendment that put into law any discrimination against citizens because of sexual orientation.” 

So, again, isn‘t it incumbent upon you to take a position now, given that you have spoken out before? 

LOWERY:  No.  That‘s not my job in this instance.  I differ with the young pastor who is going to give the—brother Warren.  I differ with him sharply on his position on this issue.  I don‘t think we ought to put into law any discriminatory action against people because of race, ethnicity or sexual orientation.  I oppose that.  But that doesn‘t stop me from being on a program with him. 

SHUSTER:  Fair enough.  But is it incumbent upon you then, at that program, or at least elsewhere, to make those sharp differences clear, to say, you know what, I took a very different view on Proposition 8.  I support gay marriage.  Others do not, but it is important that my voice be heard. 

LOWERY:  Well, I‘ve never said I support gay marriage.  I support gay rights and I support civil unions.  Like a whole lot of people, I have some difficulty with the term gay marriage, because deep in my heart, deeply rooted in my heart and mind, marriage is associated with man and woman.  So I have a little cultural shock with that.  But I certainly support civil unions and that gay partners ought to have all the rights that any other citizens have in this country. 

SHUSTER:  Fair enough.  But when somebody suggests that gay partners are like incest or pedophiles, what should the response be from people to that? 

LOWERY:  I think that‘s wrong.  I condemn it.  I take all kinds of sharp and robust differences with that kind of denigration.  Even so, I will not refuse to be on a program with him because we have this difference.  That‘s what the president-elect proposes to do, bring people together with different views, and hopefully, out of the discussions and out of association, we can find common ground to serve common good. 

SHUSTER:  Reverend Lowery, you‘re a terrific advocate for that.  Certainly, certainly the president-elect and his team are lucky that you‘re going to be involved in the inauguration, giving the benediction.  We look forward to it.  Reverend Joseph Lowery, thanks for coming on and happy holidays. 

LOWERY:  Thank you very much.  Same to you. 

SHUSTER:  Up next, President-Elect Obama is snapped shirtless on a beach and it is making headlines around the world.  It is apparently the latest in world leader wear.  Vladimir Putin, prime minister of Russia, sported the look on vacation in Siberia.  Nicholas Sarkozy, president of France, showed it off on vacation in New Hampshire.  And Mr. Borat of the great nation of Hey Now—although that‘s one last-minute gift idea.  I think there‘s no question that America wore it best.  You decide when 1600 returns.

(COMMERCIAL BREAK)

SHUSTER:  Barack Obama enjoying his last getaway before being sworn in as president isn‘t enjoying it as much—as much privacy as he probably would like.  A stealthy photographer wearing a Hawaiian shirt to blend in relied on his camera zoom lens to capture the President-Elect Obama innocently enjoying some R&R.  Media outlets went nuts, plastering his photo everywhere, with captions pointing out his toned abs and pecks.  He‘s on Hawaiian vacation.  What is he supposed to wear to the beach?  A suit of armor?  Good for him for being in such great shape.

Though I suppose he shouldn‘t be too surprised at the attention he‘s getting.  After all, he is not the first to be captured in his bathing suit.  Here is a very fit President Kennedy.  Gerald Ford going for a dip at the White House pool.  Ronald and First Lady Nancy Reagan enjoying a stroll in Honolulu.  President Clinton cooling off.  And Obama himself in Hawaii back in august. 

So is all this an invasion of his privacy?  Joining us now, Joan Walsh, editor in chief of Salon.com, and Richard Wolffe, MSNBC political analyst and “Newsweek‘s” senior White House correspondent.  Richard, you covered the Obama campaign and transition.  I imagined they were steamed at this photographer. 

RICHARD WOLFFE, “NEWSWEEK”:  I don‘t know how it actually really happened.  I know the story of how he got on to the beach.  If all it takes to pierce the security cordon is a Hawaiian shirt, then I think there are a couple Secret Service agents who probably are getting a talking to from at least the next first lady.  I mean, those pictures of her in the towel may not have been the ones she wanted out there. 

Remember that when this first happened, right at the start of the campaign, the Obamas themselves were actually annoyed, not just that their privacy had been intruded upon, but the kind of focus that it took.  I wouldn‘t be surprised if personally they‘re annoyed at all of this. 

SHUSTER:  Joan, is this the sort of image we want of our president-elect out there, even if he looks great? 

JOAN WALSH, SALON.COM:  Oh, David, you know, last time I was on your show, I told you that Barack Obama had nothing to hide.  And now we have the proof. 

SHUSTER:  Let me set this up for you.  Here‘s what the “Daily Mail” said—this is a paper over seas—quote, “he wore down Hillary Clinton and wiped out John McCain, so we knew he had the stomach for a fight.  The US president elect is throwing down something of a challenge by being photographed in his swimming trunks.”

He‘s not throwing down a challenge to anybody. 

WALSH:  No, he‘s not.  He clearly isn‘t and he clearly isn‘t seeking this.  This is the kind of thing that he runs away from and that he doesn‘t like about the spotlight.  So it is an invasion of privacy.  And I agree with Richard.  But, you know, it doesn‘t seem like a huge issue to me, and it is a very flattering, flattering photograph.  But I really respect him for his mind.  I just want to make that clear. 

SHUSTER:  Well, Richard, tell us about the other side of the pond, where you were originally from.  They must love this stuff. 

WOLFFE:  Oh, sure they do.  Look, there is obviously the fascination with everything to do with their life.  But there is also the voyeuristic element to it.  London is the center of tabloid newspaper life.  And some of us even worked at a place called “The Daily Mail” once.  So, you know, there is a whole mini industry of writing those little captions, those little witty things that sell newspapers. 

I don‘t know that he can expect as president-elect any privacy.  He is a public figure.  He has to expect this kind of thing.  I‘m just surprised again at the security piece of this.  Just because you lock up the pool reporters and those photographers, the wire photographers, in their pool van or lock them in the hotel, make them agree to the ground rules, doesn‘t mean you stop every photographer.  And, of course, what if it wasn‘t a photographer? 

I just find it extraordinary.  We never saw pictures of Bush in eight years of being in Texas that were anything like this, nevermind clothed or unclothed. 

SHUSTER:  And Joan, the “New York Post,” which is owned by the Murdoch empire, of course.  Is there something else that they‘re doing in here.  

WALSH:  I don‘t know.  I‘m not sure.  This does sell papers.  I‘d love to look at the circulation figures for today, David.  It really doesn‘t shock me.  It‘s a news worthy photograph.  I do think his privacy has been invaded.  I do wonder if the security questions Richard raises.  Once I saw them, I knew they would be everywhere and we‘d be talking about this. 

SHUSTER:  I think, obviously, he looks great.  Part of my problem is that he may make some of us look not so good, if we were to try the same pose.  Richard, I don‘t know about you. 

WOLFFE:  Speak for yourself.

WALSH:  And over the holidays, too. 

SHUSTER:  True. 

(CROSS TALK)  

SHUSTER:  Richard Wolffe, MSNBC analyst, also with “Newsweek.”  Richard, thank you very much.  And also, Joan Walsh, chief—editor in chief of Salon.com, thank you very much.  We appreciate it.  Good to see you and happy holidays to both of you.  

WALSH:  Happy holidays. 

WOLFFE:  Happy holidays.

SHUSTER:  That‘s the view from 1600 PENNSYLVANIA AVENUE tonight.  I‘m David Shuster, thank you for watching.  Happy holidays.  Now, on a day of news about Blagojevich, here‘s our gift to all of you. 

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE:  Hi, kids.  Uncle Rod here.  How many of you have been good boys and girls all year long?  Well, you know, sometimes you‘re good all year and all Santa wants to show you is appreciation.  Well, kids, (EXPLETIVE DELETED).  You‘ve got to remember that Christmas is (EXPLETIVE DELETED) golden.  And if Santa doesn‘t come through for you, you tell him to get his (EXPLETIVE DELETED) back up that chimney and come back when he can bring something to the (EXPLETIVE DELETED) table. 

So for me and Patty, have a golden (EXPLETIVE DELETED) Christmas, kids. 

UNIDENTIFIED FEMALE:  Hey, honey, did you remind them that Christmas is (EXPLETIVE DELETED) golden?  Santa is a big fat (EXPLETIVE DELETED) ATM machine. 

UNIDENTIFIED MALE:  Yes, honey, I already did.  That Patty, she is something.  Hey, kids, I wrote a song especially for today. 

(SINGING)

UNIDENTIFIED MALE:  Holy Christmas.  That man scares me. 

(END VIDEO CLIP)

SHUSTER:  Special thanks to Alexis Vena (ph).  This is her last day.  Alexis, thanks as always.  Thanks everybody.  Happy Holidays.  I‘m David Shuster.  “HARDBALL” starts right now.

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

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