updated 1/14/2009 3:28:14 PM ET 2009-01-14T20:28:14

Guests: Lanny Davis, Christopher Hitchens, Michelle Bernard, Richard Wolffe, Harold Ford, Jr., Lawrence O‘Donnell, David Sanger, David Sirota

DAVID SHUSTER, HOST:  Tonight, Hillary Clinton‘s confirmation hearing.  Obama‘s pick for secretary of state was impressive, but there are still questions about foreign donors to Bill Clinton‘s foundation. 

Plus, the Obama team is facing some major foreign policy challenges.  Iran is edging closer in nuclear weapons and Israel is running out of patience. 

We will have an inside look at Obama‘s options. 

Later, can our government really spend us out of this recession?  Some economists say the Obama plan needs to be bigger. 

We will get reaction from a top blue dog Democrat. 

Also, the inauguration‘s stretch run.  Federal and city officials prepare for the biggest crowd in Washington, D.C., history. 

Meanwhile, another rendezvous with history for a not-so-famous D.C.  landmark.

All tonight on 1600 PENNSYLVANIA AVENUE.

Seven days until the inauguration of President-elect Barack Obama. 

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

For nearly six hours today, before the Senate Foreign Relations Committee, Hillary Rodham Clinton patiently and articulately answered a range of questions about her possible tenure as secretary of state.  Clinton said she intends to revitalize the mission of diplomacy in American foreign policy. 

(BEGIN VIDEO CLIP)

SEN. HILLARY RODHAM CLINTON (D), NEW YORK:  The president-elect and I believe that foreign policy must be based on a marriage of principles and pragmatism.  Not rigid ideology. 

We must use what has been called smart power, the full range of tools at our disposal—diplomatic, economic, military, political, legal and cultural—picking the right tool or a combination of tools for each situation.  With smart power, diplomacy will be the vanguard of our foreign policy. 

(END VIDEO CLIP)

SHUSTER:  Clinton sailed smoothly through an array of issues, but she did face some tough questioning about potential conflicts of interest involving her husband‘s foundation fund-raising. 

Joining us to talk about that and other issues related to Hillary Clinton are Christopher Hitchens of “Vanity Fair,” and Lanny Davis, former White House special counsel to President Clinton. 

The most striking exchange, gentlemen, both of you, came today on this issue of donors to Bill Clinton‘s foundation. 

Watch. 

(BEGIN VIDEO CLIP)

CLINTON:  I want to speak for a minute, if I can, about the work that is done because I think it‘s important...

SEN. DAVID VITTER (R-LA), SENATE FOREIGN RELATIONS COMMITTEE:  Mr.  Chairman, I have no objection listening to this, but I would like it not to come out of my time, because I would like to pursue these questions. 

SEN. JOHN KERRY (D-MA), CHAIRMAN, SENATE FOREIGN RELATIONS COMMITTEE: 

Well, I guess, it‘s fair to say that if you ask a question, you deserve an answer, and the answer traditionally comes out of the time of the senator. 

VITTER:  Well, I‘m still waiting for the answer.  I would love an answer. 

So, a yes or no, would you support expanding that disclosure? 

CLINTON:  No president has ever disclosed the contributions to his foundation.  So when my husband agreed to disclose the contributions to his foundation, that was a very unprecedented event. 

(END VIDEO CLIP)

SHUSTER:  Christopher, she‘s going to do—the Clinton Foundation is going to do it once a year.  Why isn‘t that enough? 

CHRISTOPHER HITCHENS, “VANITY FAIR”:  Well, because to borrow from her point about a president, no other president has ever been found selling his pardon power to the highest bidder.  No other president has had a senator on hand in the Senate who does favors for businessmen who are later found to have given large donations from upstate New York to the Clinton Foundation. 

Is it a case of buy one get one free?  I would maintain that it is.  It‘s a needless embarrassment to our foreign policy, to our country, in fact. 

I don‘t know why the president is doing this to himself.  It‘s also handing the secretaryship to someone who has political ambitions of her own that are not congruent with his, which is a sordid and boring thing to have to watch.  We‘ve already just been through all that. 

And it exposes us to the charge that foreign governments and shady businessmen can buy influence on American foreign policy.  And that charge is not groundless. 

SHUSTER:  Lanny? 

LANNY DAVIS, FMR. SPECIAL COUNSEL TO PRESIDENT CLINTON:  Well, I have to respectfully disagree. 

First of all, Barack Obama showed great judgment and almost unanimously across the spectrum that Hillary Clinton was qualified to be secretary of state, will be an effective secretary of state, and would act with integrity, meaning won‘t be conflicted and influenced by anything that‘s given to her husband.  Secondly, Bill Clinton has used this money from foreign governments and from others to save people‘s lives with AIDS and for a lot of good works around the world. 

So I think that the disclosure issue, when it comes down to it, Bill Clinton said, “I‘ll do what it takes to be sure that people have trust in my wife.”  And I think Barack Obama was pleased with what he had committed to, and agreed with it. 

SHUSTER:  Well, here‘s the issue.  And we‘re taking this directly from something Christopher Hitchens put on his Web site. 

This is a “New York Times” report.  I believe it‘s from about eight days ago.  This is “The New York Times.”  This is the lead story of their story. 

“An upstate New York developer donated $100,000 to former President Bill Clinton‘s foundation in November 2004, around the same time that Senator Hillary Rodham Clinton helped secure millions of dollars in familiar assistance for the businessman‘s mall project.” 

DAVIS:  I wrote about this in the book.  The syllogism goes as follows of what you just read.  The rooster crows, the sun rises.  Therefore, the rooster causes the sun to rise. 

Hillary Clinton helping this particular individual has no causal relationship to the individual helping to do good works around the world.  And if you believe it does have a causal relationship—I don‘t deny there‘s a possibility that the rooster causes the sun to rise—but it‘s also possible that they are simply parallel paths of two events.  Hillary Clinton has integrity and Bill Clinton has helped people around the world. 

HITCHENS:  We‘re not going to mention this for (ph) the first time. 

We have to break into Latin for a minute, as you knew we would have to. 

There is quid pro quo that everyone understands.  And then there‘s...

(CROSSTALK)

HITCHENS:  ... (INAUDIBLE), which is you‘re proposing, which is that you can‘t prove a connection.

Now, I‘m sorry to say that I don‘t believe that the donation from the Rich family, wonderfully named duo, to the Clinton Foundation and library is unrelated to the special treatment they got.  I‘m sorry.  I just am not as innocent in my attitude as that. 

And I think I would have to say that I don‘t think you are either, Mr.

Davis. 

Then there‘s a second question.  You said that it must be OK because the president approves it.  Well, we already know that because he‘s nominated her.  But the president is only one of very many people to have said over the last year that, as far as he knows, this woman has no foreign policy experience worthy of the name at all.  And so it is. 

The only foreign policy remark that she‘s made in the whole year, the preceding 12 months, I mean, that anyone will remember is an idiotic claim about something she didn‘t do in Bosnia, whereas what she did do in Bosnia, which I can tell you about, doesn‘t stand any examination at all.  It‘s worse than incompetent. 

So why are we running the risk of disgracing the country, exposing the secretary of state and the Department of State to the charge that any influence peddler and (INAUDIBLE) knows their way there and knows how to do business in exchange for, what expertise and qualification are we running this risk? 

DAVIS:  I get the impression that my fellow guest disagrees with Barack Obama, doesn‘t trust Hillary Clinton and doesn‘t trust Bill Clinton.  It‘s a strong impression. 

I disagree with him on all counts, but most importantly, I have faith in Barack Obama and his judgment.  I have known Hillary Clinton for 39 years in her utmost integrity.  And Bill Clinton is committed to more transparency than any former president, so, therefore, I don‘t think there will be any conflict as what she does as secretary.

HITCHENS:  And speeches that are given by Bill Clinton—he doesn‘t turn up and he gets the money from Japanese startup companies.  Money, but he didn‘t give a speech. 

Lebanese businessmen in Nigeria who have had to pay back $300 million so as to have their bank accounts (INAUDIBLE), they‘re all giving money to Bill Clinton.  Kazakhstan, (INAUDIBLE), they‘re all giving money to fight AIDS and to help the poor? 

I wonder, why didn‘t they give the money straight to the poor?  Why do they give the money to the world‘s best-known influence peddler? 

SHUSTER:  Well, let‘s take it right there.  I mean, look, granted, yes, they‘re doing a lot of good by giving $100 million or whatever it is that this one foundation is now giving to the Clinton Global Initiative.  But if they really want to help poverty, why not give it directly?  If you‘re giving it to the Clinton Global Initiative, don‘t you want something out of the Clintons? 

DAVIS:  Not necessarily.  And I don‘t know why we impugn the motives of people who give to one kind of a charitable foundation...

SHUSTER:  No, I‘m not impugning the motives.  Maybe they just...

(CROSSTALK)

DAVIS:  No, I‘m not saying you are.  I‘m just saying that I speak for an awful lot of people who believe that Bill Clinton has done a lot of good around the world, as has George Bush I.  And together they‘ve done a lot of good.  And people have given money to the Clinton Foundation knowing that Bill Clinton has the capacity of doing a lot of good because of who he is, not because of what they want.

And by the same token, there‘s no evidence whatsoever, and to my experience, there‘s evidence to the contrary, after 39 years of knowing this person, that Hillary Clinton has utmost integrity and she will follow Barack Obama‘s policies no matter who gives money to...

(CROSSTALK)

HITCHENS:  Very briefly, then, the Rich pardon is on the level, according to you? 

DAVIS:  I actually disagreed with the Rich pardon.  It had nothing to do with money.

SHUSTER:  The senior ranking Republican, Dick Lugar of Indiana, here was how he expressed this and the level of concern that he showed.  And I want to get your reaction.

Here‘s Dick Lugar from the hearing today.

(BEGIN VIDEO CLIP)

SEN. RICHARD LUGAR ®, FOREIGN RELATIONS COMMITTEE:  I assure the president-elect‘s view that the activities of the Clinton Foundation and President Clinton, himself, should not be a barrier to Senator Clinton‘s service.  That the work of the Clinton Foundation is a unique complication that will have to be managed with great care and transparency. 

(END VIDEO CLIP)

SHUSTER:  So there you have the ranking Republican saying this should not be a barrier to Senator Clinton‘s service or confirmation.

Christopher, are you disappointed? 

HITCHENS:  Yes, I am.  But he‘s at least expressing a condition, that of transparency, which the nominee repudiated.  She said, no, we‘ve already told you enough. 

In other words, when I wrote about one of the major donors in my column, I was only able to say that he gave somewhere between $1 million and $5 million to Clinton.  This is a guy you don‘t particularly want to know about when it comes to formulation of American foreign policy.

Why can‘t I know more than that?  Because that‘s the most they‘ll tell.  How long do I have to find out any more?  Another year.  It‘s an annual disclosure.  This is enough to make a cat laugh.

SHUSTER:  Lanny, what‘s wrong with the Clinton Foundation disclosing every donation over $50,000 from a foreign entity, whether it‘s a government, as required now, or a foreign individual?  What would be wrong with that? 

DAVIS:  I don‘t think there‘s anything wrong than it.  I think that they have gone further than anyone else, and I think they‘ve set an agreed-upon limit with the president-elect if he wanted Bill Clinton to do more.  Bill Clinton would do more. 

The one thing that I know personally is that when Hillary Clinton was asked to be secretary of state, Bill Clinton sat down with the transition and said, “Whatever you want me to do, I will do.”  And what they‘ve now done, I think they consider to be much more than anybody else.  If there‘s more that needs to be done, I see nothing wrong with doing more.

(CROSSTALK)

HITCHENS:  I happen to agree with Mr. Davis on this, on one thing he says, that they have gone a lot further than anyone else.  They sure have gone a lot further than anyone else.  They sold the Lincoln Bedroom to Chinese defense contractors...

(CROSSTALK)

SHUSTER:  Now we‘re going down a road where we don‘t want to go because we need another segment, or at least another year worth of shows to do it. 

Christopher Hitchens, good to see you, as always.  Thanks for coming in.

Lanny Davis, welcome back.  Nice to see you again on MSNBC. 

DAVIS:  Nice to be back, David.  Thank you.

SHUSTER:  Up next, we will talk about the politics of Hillary Clinton‘s confirmation hearing, not just the issues, with an all-star panel of political experts. 

It‘s all straight ahead, when 1600 PENNSYLVANIA AVENUE continues. 

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

CLINTON:  Well, Mr. President—the president-elect, Mr. Chairman.

KERRY:  I‘ll take that. 

CLINTON:  Yes.  It was a Freudian slip.  The president-elect...

KERRY:  We‘re both subject to those, I want you to know. 

CLINTON:  Yes, indeed, on this subject especially. 

(END VIDEO CLIP)

SHUSTER:  Welcome back. 

A humorous moment and a great line there by Senator John Kerry in today‘s confirmation hearing as the Foreign Relations Committee chair and the secretary of state nominee, Hillary Clinton, got caught in a Freudian change regarding their failed presidential bids.  It highlights the political dance that went on today as Democratic and Republican senators dealt with questioning a former colleague, the wife of a former president, a former candidate, and an icon for many women in the United States and abroad. 

Let‘s bring in our panel: Harold Ford, Jr., chairman of the Democratic Leadership Council and an NBC News analyst; Lawrence O‘Donnell, former chief of staff for the Senate Finance Committee; Michelle Bernard, president of the Independent Women‘s Forum; and Richard Wolffe, senior White House correspondent for “Newsweek.”  Lawrence, Michelle and Richard are all MSNBC analysts.

Michelle, I want to start with something that you pointed out.  Hillary Clinton made it very clear that women‘s issues, trying to help women around the world, that would be a top priority for her. 

Watch this.  Hillary Clinton talking about that today. 

(BEGIN VIDEO CLIP)

CLINTON:  They want to maintain an attitude that keeps women, as I said in my testimony, unhealthy, unfed, uneducated.  This is not culture.  This is not custom.  This is criminal. 

(END VIDEO CLIP)

SHUSTER:  The idea of oppression of women around the world.  And Hillary Clinton talking about that. 

Why was it so important? 

MICHELLE BERNARD, MSNBC POLITICAL ANALYST:  Well, it‘s very important, because it has never—it has never been a very strong part of U.S.  foreign policy.  We saw it at the beginning of the Bush administration.  They have made women‘s human rights a part of foreign policy.  But Hillary Clinton took it a step farther today. 

She made it very, very clear that this is going to be one of her top priorities.  Now, she‘s made it very clear, implicitly, that when we are talking to people that are allies, for example, Egypt and Pakistan, that those countries that have really very despicable records in terms of women‘s human rights, despite the fact that they are allies, she will go to them and say this is a crime and something must be done about it. 

Hillary Clinton, Madeleine Albright, Condoleezza Rice are all demonstrations here in American of just how much American women have achieved and how far women, particularly in Islamic countries, have to go. 

SHUSTER:  And Richard, I know that Hillary Clinton has always been concerned of this, but there is a political benefit for having a secretary of state and having Hillary Clinton talk about these issues now. 

RICHARD WOLFFE, MSNBC POLITICAL ANALYST:  Well, it‘s a political benefit for a start because this is bipartisan.  Everyone supports this.  It has strong backing from Christian communities as well.  And it‘s a classic American ideal. 

The problem is, as the Bush administration found in its second term, that it‘s incredibly hard to square those basic fundamental human values with the national security interests of the United States of America.  So when you go to Pakistan, and you say, you‘ve got to take on the Taliban, you‘ve got to do more to get the al Qaeda leadership, and, oh, by the way, you also have to deal with women‘s issues and women‘s rights, how do you square the two?  Are you going to push for both?  The answer is, inevitably, human rights falls by the wayside. 

So how important can it be? 

SHUSTER:  Harold Ford and Lawrence, I want to get you guys to react to the Republican seeming love-fest for Hillary Clinton today.  It took a lot of people by surprise. 

Watch this. 

(BEGIN VIDEO CLIP)

SEN. BOB CORKER ®, TENNESSEE:  Madame Secretary-designate, we welcome you.  We‘re always glad to see when one of our own does well and has a real job. 

SEN. LISA MURKOWSKI ®, ALASKA:  Thank you for your leadership, for your willingness to step forward and assume this very, very important position for our country, for the nation. 

SEN. JOHN BARRASSO ®, WYOMING:  And I always found you to be very prepared, very thorough, very thoughtful.  And I‘m sure you‘re going to bring all of those same things to the State Department.

(END VIDEO CLIP)

SHUSTER:  Harold, were the Republicans frightened today? 

HAROLD FORD, JR., NBC NEWS ANALYST:  No, I think they realize, like all Americans, that we face a number of difficult challenges across the globe.  Some have re-emerged and have flared in Gaza, and certainly the ongoing challenges in Afghanistan and Iraq, and obviously the growing challenge we face in Pakistan and India. 

I think they recognize her strengths, her talents.  They don‘t always agree with her politically or ideologically, but I think you saw a kind of camaraderie and, frankly, a manifestation of what Hillary Clinton said in the outset of her remarks, outset of her prepared statements, when she said, “I hope that we can return to an era where foreign policy is done on a bipartisan and cooperative basis.”

And to hear those Republicans speak in the terms that they did has to be encouraging not only to Hillary Clinton, but more importantly, to her boss, the president of the United States. 

SHUSTER:  And Lawrence, it‘s hard to imagine that Hillary Clinton could have done this any better today than she did. 

LAWRENCE O‘DONNELL, MSNBC POLITICAL ANALYST:  Oh, you can imagine it, because 14 years ago, when I had a front row seat in her first Senate hearing, when she testified to the Senate Finance Committee about her health care reform proposal, she was actually received more warmly than she was today.  And she was in all the committees, both in the House and the Senate, that she testified to back then. 

And, in fact, the crusade that she started in those committees drew tremendous acclaim and warmth by the committee members.  That crusade turned out to achieve absolutely nothing. 

And so there are doubters on the Senate Finance Committee—I‘m sorry, on the Foreign Relations Committee—about the whole conflict of interest issues, as well as Hillary Clinton‘s capacity to bring something new to the job of secretary of state that will somehow advance American interests in the world.  There are doubters about that, but they will never express themselves in a serious way, in a committee setting like this, especially with a colleague, especially with a member of the Senate. 

They know that this appointment is going through.  She‘s going to be confirmed with an overwhelming vote.  And there‘s no reason to try to create any sort of roadblocks on a day like today, which is clearly Hillary‘s day.  And so there are doubters on the committee, on the Republican side, especially, but this is just not the place where they let you hear all that.

SHUSTER:  Great point. 

Panel, stay with us, because up next, is there more confirmation trouble ahead for somebody else?  Treasury secretary nominee Tim Geithner faces the hot seat.  And it was just revealed he has $34,000 in previously unpaid taxes to explain. 

How much will this complicate his confirmation? 

More 1600 in a minute. 

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

SEN. MAX BAUCUS (D), FINANCE COMMITTEE CHAIRMAN:  The country needs a treasury secretary quickly given the (INAUDIBLE).  But in my judgment (INAUDIBLE).

(END VIDEO CLIP)

SHUSTER:  Welcome back. 

That was Senate Finance Committee Chairman Max Baucus talking about new issues involving treasury secretary nominee Tim Geithner.  It was revealed today that Geithner failed to pay $34,000 in taxes from the years 2001 to 2004.  He did end up repaying it all by 2006. 

Will this complicate his otherwise smooth path to the confirmation? 

Our panel is still with us: Harold Ford, chairman of the Democratic Leadership Council; MSNBC political analyst Lawrence O‘Donnell; Michelle Bernard, president of the Independent Women‘s Forum; and Richard Wolffe, senior White House correspondent for “Newsweek.”

Richard, does this have any legs at all? 

WOLFFE:  Well, it‘s embarrassing, but I don‘t think it‘s disqualifying. 

The IMF has a complex tax situation.  If you‘re an overseas national, then you don‘t pay taxes.  If you‘re an American citizen, then you‘re in this gray area.  You do pay taxes.  But it‘s complex. 

So, he cleared it up.  He‘s obviously got issues about his domestic employees as well.  But again, those issues were ultimately cleared up. 

Look, if you‘re treasury secretary, anything to do with taxes is embarrassing.  But ultimately, the economic crisis demands having good, quality people.  And I suspect the Senate will look at his credentials and say this guy is actually qualified to do the job. 

SHUSTER:  Michelle, we‘re already starting to get reaction from Harry Reid and others who says that this is essentially a few little hiccups. 

BERNARD:  Well, it‘s more than a few little hiccups.  But on the balance of things, given the economic climate and what we are facing as a nation, it is a large hiccup that the nation will be able to get over. 

I mean, no harm, no foul is something that we like to say sometimes in the legal profession.  He‘s paid the taxes, there are some lingering issues.  But I think on balance, he is widely considered more than qualified for this position.  And I suspect that the Senate will confirm him. 

SHUSTER:  Here‘s what the transition said today, Robert Gibbs, press secretary for Barack Obama.  He said of Geithner, “He made a common mistake on his taxes and was unaware that his part-time housekeeper‘s work authorization expired for the last three months of her employment.  We hope that the Senate will confirm him with strong bipartisan support so that that he can begin the important work of this country.” 

Harold, your reaction to this?

FORD:  I share Michelle and Richard‘s point.  It‘s embarrassing to have the treasury secretary have to answer these kinds of questions.  But as Max Baucus said, I mean, I don‘t consider this very serious, but it certainly won‘t disqualify him.  He‘ll move forward and be confirmed by the Senate here in the next few days. 

SHUSTER:  And Lawrence, on average, the Obama transition is doing pretty well as far as so some of these issues; right?  I mean, they‘ve had a few stumbles.  Bill Richardson, obviously.  But it seems like it‘s inevitable that when you have so many people that you‘re putting forward, that some of these things are going to crop up. 

O‘DONNELL:  Yes, there are so many tripwires now in the Senate confirmation process, that this is inevitable.  I don‘t see any real difficulty here. 

You know, the Senate Finance Committee has 20 members.  And every year they tend to do a hearing around April 15th about the complexity of the tax code in which all 20 confess that not one of them is capable of filling out their own taxes every year. 

And so for them to hold a nominee to the treasury secretary to a higher standard than they hold themselves to and their ability to comprehend the tax forms that their own committee has, in effect, written would be ridiculous.  And so they know that plenty of us overpay taxes during certain periods of time and get refunds.  Some of us underpay over periods of time and catch up with it at a certain point with interest.  This is one of those situations. 

SHUSTER:  Lawrence, Harold, Richard, Michelle, thank you all very much.  Great to see all of you.

FORD:  Good seeing you.

WOLFFE:  Thank you. 

SHUSTER:  Still ahead, a look to the future.  What are the biggest foreign policy threats facing President-elect Obama and his secretary of state nominee, Hillary Clinton?  Here‘s a hint: Iran.  And the news about Iran is a big deal. 

Plus, the president-elect hits Capitol Hill to talk with Democrats about TARP money and a separate pool of dollars for economic recovery plans.  The price tags are making some centrist Democratic lawmakers really nervous. 

We will talk with a blue dog Democrat about that coming up. 

You‘re watching 1600.

(COMMERCIAL BREAK)

SHUSTER:  Still ahead tonight, a bad economy on the home front, several wars abroad, and a dramatic confrontation that may be brewing between Iran and Israel.  They‘re just a few of the big issues facing the president-elect as he prepares to move next week to 1600 PENNSYLVANIA AVENUE. 

Welcome back to 1600.  As our next guest writes, the score card at the end of the Bush years is unforgiving.  It will leave the Obama foreign policy team facing one of the toughest strategic and economic climates in recent memory.  Joining us to talk about some of those challenges is David Sanger.  He covers Washington for the “New York Times.”  He is also author of the book “The Inheritance, The World Obama Confronts and the Challenges to American Power.”

David, on Iran, you write that last year Israel wanted the United States to provide equipment and Iraq over-flight permission in order to attack Iran.  The Bush administration said no.  How much patience does Israel have?  How quickly do you think—how much patience do you think Hillary Clinton and Barack Obama have towards Iran? 

DAVID SANGER, “THE NEW YORK TIMES”:  You know, David, I think we‘ve got two different clocks running here.  You‘ve got an American clock running pretty slowly, because both President-Elect Obama and Secretary Designate Clinton are just now trying to figure out how they‘re going to make this first initiative to Iran.  Meanwhile, the Iranians are enriching uranium, working their way.  It looks as if they already have about one bomb‘s worth of uranium.  That‘s not enough to break out and say we‘re a nuclear power.  But they‘re making progress fast. 

The Israelis have a much faster clock running.  That‘s what we learned from this experience when the Israelis secretly came to President Bush last Spring, asked for bunker busters, asked for refueling capability, asked for those over-flight rights you mentioned.  The president came back and said, we‘re not going to give you that right now.  But give this some time, because we have new covert operations that we hope will accomplish the same thing. 

SHUSTER:  And, yet, as far as covert operations, whether it‘s jamming up their commuters or trying to foul around with their science, at a certain point, the Iranians will figure out a way around that.  The incoming Obama administration and Hillary Clinton must know that, right? 

SANGER:  They do.  Look, this has been going on for a long time.  There was a moment early on in the Iranian project when the Iranians put a number of centrifuges in place and they put these power supplies in that they had brought in from Turkey.  What do you know, 50 of those centrifuges blew up. 

They figured it out pretty quickly.  They got a different supplier.  These kind of things have been going on for some time.  I think what the president is hoping he hands off to President-Elect Obama is a more comprehensive, fulsome covert operation. 

I have to tell you, in working on the inheritance, some people said to me, you know, none of this is going to work over the long term, in part because we don‘t know where all the Iranian program is. 

SHUSTER:  What do you think the end game is for an Obama administration? 

SANGER:  They‘re going to make a big initiative to see if diplomatic engagement will work.  We all hope it does.  Let‘s face it, the reality here is you need to do diplomatic engagement for one of two reasons.  In a good world, it will work.  In a bad world, if it doesn‘t work, and you‘re heading into a confrontation, you have to make the point, David, that we tried every diplomatic outlet. 

So far, George Bush didn‘t do that, even though as I mentioned in “The Inheritance,” several of his senior staff had requested that they make much bigger diplomatic outreach to the Iranians. 

SHUSTER:  You‘ve pointed out in the book that Afghanistan really got hurt by the U.S. focus on Iraq, to an extent that few Republicans will acknowledge.  How much of a challenge is Afghanistan, therefore, for Hillary Clinton and Barack Obama? 

SANGER:  I think the first thing that they‘re going to do, David, is take Afghanistan and Pakistan as a single issue, which the Bush administration ended up doing at the end of this past year, but really before that had not.  As one military commander said to me for the book, you can‘t win Afghanistan without Pakistan.  But even if you got rid of the sanctuary in Pakistan, you might still not win Afghanistan. 

I think we‘re probably in Afghanistan for 20 or 30 years.  Whether Pakistan can be solved is a question—a much harder question, because it‘s where terrorism, nuclear weapons and an unstable government all meet. 

SHUSTER:  I must say, watching the hearing with Hillary Clinton, it was almost shocking how few questions there were about Afghanistan and Pakistan.  In any case, the big issue in the Middle East right now that seems to be on a lot of people‘s minds is Israel‘s war against Hamas in Gaza.  Did you pick up anything from Hillary Clinton that will signal how the Obama administration will deal with that issue? 

SANGER:  It seemed to me she was being pretty careful.  I‘m not sure they‘ve sorted it out for themselves.  The big issue for them, and a very difficult question for a senator from New York, is at what moment do you squeeze the Israelis quietly to say, this has gone far enough, and public opinion is beginning to turn around the world against Israel.  You‘ll do yourself more harm than good. 

One of the issues I keep coming back to in the book is that we‘ve gone through a period where we were distracted from all of these issues: Iran, Afghanistan, and Pakistan, to some degree the Middle East, certainly dealing with a rising China, because so much of the central authority of the United States and the upper echelon of the United States were dealing with Iraq.  In many ways, that‘s the biggest cost of Iraq, apart from the tragic loss of 4,000 lives and 800 billion dollars.  The real loss was an opportunity cost. 

SHUSTER:  David Sanger with the “New York Times,” who has got a terrific book: “The Inheritance, the World Obama Confronts and the Challenges to American Power.”   David, thanks so much for coming in.  Good to see you. 

SANGER:  Thank you, good to see you. 

SHUSTER:  As the Obama administration and the out-going Bush administration try to sort out the foreign policy challenges, there are also the domestic ones, led by the ailing U.S. economy and the troubled financial institutions.  The president-elect went to Capitol Hill today to meet with Democratic congressional leaders to talk about the second half of the 700 billion dollar fund.  This comes on top of an economic stimulus plan that Obama wants and will cost upwards of 775 billion dollars. 

With the dollars and the budget deficits mounting, some fiscally conservative Democrats are asking how much spending can we afford?  Congressman Jim Cooper of Tennessee is a member of the Blue Dog Democrat Coalition.  He joins us now.  Congressman, answer that question.  How much can Congress, can the American people afford?  How much would you be willing to vote for? 

REP. JIM COOPER (D), TENNESSEE:  Well, David, you‘re right.  We are deeply worried.  Every American should be, because we‘re getting so deeply in debt.  Our lenders, like China, folks like that, are getting colder and colder feet about lending us more money.  We don‘t know how much our credit limit is.  But with trillion dollar annual deficits, with probably 56 trillion plus in cumulative liabilities, we‘re in deep trouble. 

SHUSTER:  Congressman, some well-regarded economists say that the 775 billion dollar number that Obama‘s is proposing, as far as infrastructure spending, what not, is simply not big enough.  Here‘s Paul Krugman, Nobel Prize winning economist.  He writes, “Mr. Obama needs to make his plan bigger.  To see why, consider a new report from his own economic team.  Even with the Obama plan, the Romer-Bernstein report predicts an average unemployment rate of 7.3 percent over the next three years.  That‘s a scary number, big enough to pose a real risk that the U.S. economy will get stuck in a Japan type deflationary trap.” 

Are you willing to accept unemployment figures that are over seven percent for the long haul.  Secondly, would you be willing to see a roughly 800 billion dollar plan ballooning up to 1.3 or 1.4 trillion? 

COOPER:  I do not think Blue Dogs want to see a much larger package. 

Now, Paul Krugman is a very excellent economist.  He‘s won the Nobel Prize.  That does not give him an monopoly on wisdom.  Among economists, he would be probably on the left end of the spectrum. 

Why don‘t we start with Barack Obama‘s package of about 800 billion.  And let‘s make sure it‘s a clean package, with not a lot of pork in it.  We need to stimulate job, not re-election of Congressmen. 

SHUSTER:  Having said that, what about the argument that a certain portion, as it stands now, 40 percent goes to tax cut, then, out of an 800 billion dollar package, you may only be talking about 450 to 500 billion that‘s actually spent on infrastructure, on sort of government creating jobs.  Is that a problem? 

COOPER:  Barack Obama has said he wants shovel-ready projects, science-ready projects.  This isn‘t a wish list for Congressmen and senators.  This is a way to get jobs actually created in this Spring, this summer, not next year.  So I‘m thinking that there are probably not more than about 100, maybe 200 billion of those jobs that are available right now.  Otherwise, you‘re talking about a Congressional wish list.  Already on the Hill, they‘re talking about adding all sorts of things to the bill, essentially using this bill to hide a lot of Congressional dirty laundry.  That would be a serious mistake. 

Blue Dogs support the Obama administration having a clean, tough, tight, temporary stimulus package.  Let‘s not go beyond that and fill it with a lot of pork. 

SHUSTER:  Congressman, the other issue that Barack Obama is asking Congress to deal with is the second tranche of the TARP money, the money that was used to essentially lubricate the financial institutions.  Congress is now getting ready for another 350 billion dollars to give to the Obama Treasury Department.  Are you OK with that? 

COOPER:  Well, the bailout is essentially stopping the bleeding.  That‘s stage one of the process.  Stage two is the stimulus, rebuilding our economic strength.  What we really need to focus on, David, is diet and exercise, a long-term sustainable lifestyle for our country, so that we‘re living more within our means.  We need to address the entitlement and tax expenditure problems that so far Congress has not faced up to, but President-Elect Obama has. 

He‘s mentioned Medicare.  He‘s mentioned Social Security.  We need to look at those longer term liabilities, because that is ultimately where America‘s credit is going to be determined.  So I am hopeful that Congress will step up to all three problems, not only step one, the bailout, step two, rebuilding our strength with stimulus, but, most important of all, step three.  I have proposed a commission, the so-called Cooper Wolf Commission, so that men and women of goodwill on both sides of the aisle will start addressing these problems, and Congress will have to vote on it, instead of continuing to duck these problems. 

Most Americans don‘t realize that the Bush legacy is about 56 trillion dollars of economic borrowing, economic obligation, liabilities in very essential, very important programs like Medicare and Social Security, which we simply must keep as strong programs.  The best way to do that is to prepare for the needs of retirees and beneficiaries.  Right now, Congress is ducking those responsibilities. 

SHUSTER:  Congressman Jim Cooper of Tennessee, a member of the Blue Dog Democrat Coalition.  That is a coalition that for all of you watching at home and are going to follow the politics of all of this—that is a coalition worth watching in the weeks and months ahead.  And Congressman, thanks for joining us. 

COOPER:  Thank you, David, appreciate it. 

SHUSTER:  Still ahead, our Muckraker of the day.  He has four compelling reasons why Congress should just say no to releasing more TARP money for the Obama administration. 

Up next, the segment we call the Briefing Room.  It will include the honest odd couple round.  The incoming and outgoing chiefs of staff, Rahm Emanuel and Josh Bolten, they‘ve been working together, so well in fact that you won‘t believe what they‘re saying about each other these days. 

But first, some late night inauguration humor, courtesy of Conan O‘Brien. 

(BEGIN VIDEO CLIP) 

CONAN O‘BRIEN, “THE LATE LATE SHOW”:  Three days before his inauguration, Barack Obama is going to retrace Abraham Lincoln‘s historic route by taking an Amtrak train from Philadelphia to Washington, D.C.  Isn‘t that cool?  Yes.  Obama‘s making the trip three days early, because it‘s Amtrak and even he only has so much hope. 

(END VIDEO CLIP)

(COMMERCIAL BREAK)

SHUSTER:  We‘re back with a look at what‘s going on inside the Briefing Room.  We begin with the transition of power.  Earlier today, the Bush administration and Obama officials held what they called an incident exercise, basically a practice run on how to handle a theoretical national emergency. 

(BEGIN VIDEO CLIP)

TONY FRATTO, DEPUTY WHITE HOUSE PRESS SECY.:  They‘re watching.  They are able to ask questions and interrupt if they—if they need to.  It‘s an opportunity for them to see how we do it and how our team has done it. 

(END VIDEO CLIP)

SHUSTER:  Today‘s session was the first ever exercise to include both current and outgoing senior White House officials and cabinet members.  The entire transition process is going so well, incoming White House chief of staff Rahm Emanuel has said he‘s going to, quote, miss the man he‘s replacing, Josh Bolten.  Emanuel called the Bush administration‘s cooperation during the transition of power unprecedented.

We have just seven days to go.  Some official inaugural gifts have now been delivered to Washington, D.C.  They include two Lennox custom crystal bowls given by Congress to Barack Obama and Joe Biden.  President Elect Obama‘s bowl depicts the White House, while Vice President Elect Biden‘s has an image of the Capitol.  Each bowl is one of a kind, took more than 100 hours to make, weighs nearly eight pounds and costs about 2,500 dollars. 

The Lennox company is based in Bristol, Pennsylvania, and it‘s actually more famous for its China than crystal.  Lennox was the first American china used in the White House.  The company has delivered on some impressive orders through the years; 28 years ago, then First Lady Nancy Reagan turned to Lennox to provide 4,370 pieces, enough 19-piece place settings for 220 people.  Eight years ago, it replenished the China Hillary Clinton commissioned Lennox to create 312 piece place settings. 

So if you find yourself at a White House state dinner, now you know;

Lennox China, made in the USA. 

And if you think that‘s interesting, this next story is appetizing.  Pastry chefs at Eli‘s Cheese Steak in Mr. Obama‘s hometown of Chicago have begun baking the giant inaugural cheese cake.  The cake is expected to weigh 500 pounds, big enough to serve everyone at the Commander in Chief‘s Ball next week.  Here is a sketch of what the cake will look like.  The top layer will feature the inaugural seal in chocolate, the middle layer apple flavored, a tribute to the favorite food of Abraham Lincoln.  The cake will be Royal Blue and decorated with red and white stripes, as well as white and gold stars. 

If you‘re headed to Washington for the inauguration, you may want to make sure you plan to visit a Washington, D.C. culinary landmark that‘s also part of U.S. history.  This past weekend, Barack Obama and D.C. Mayor Adrien Fenty stopped to eat at the local restaurant on U Street known as Ben‘s Chili Bowl.  Ben‘s Chili Bowl was opened more than 50 years ago.  In 1968, during the D.C. riots, while most of the city closed and many restaurants and shops along the U Street corridor were damaged, Ben‘s Chili Bowl stayed open.  Stokely Carmichael of the Student Non-Violent Coordinating Committee was located across the street, and he obtained special police permission to keep Ben‘s open after curfew to provide food and shelter for activists, fire fighters and public servants trying to restore order. 

This past election night, Ben‘s had a rendezvous with history again.  When Barack Obama was declared the winner, thousands of neighborhood residents converged on the Chili Bowl to celebrate.  The crowd was large and boisterous, and soon D.C. police were called to the restaurant.  Within minutes, the crowd and many police officers were seen dancing and celebrating together.  Somebody said, let‘s go to the White House, and they did.  Thousands of people, with a police escort.  They walked from Ben‘s Chili Bowl to the White House, where the celebration continued. 

Other people joined in.  Once local television showed these images live that night.  It all began at Ben‘s Chili Bowl, a D.C. landmark and part of the wonderful fabric of this great city. 

Coming up, President-Elect Barack Obama wants TARP money ready to use when he takes office in seven days.  Our Muckraker of the day argues that Congress should just say no.  You‘ll hear from him up next. 

(COMMERCIAL BREAK)

SHUSTER:  Welcome back.  Earlier today, President-Elect Barack Obama made another trip to Capitol Hill, this time to meet with Democratic Congressional leaders to talk about something known as the TARP, or Troubled Asset Relief Program, or, as critics call it, the Wall Street bailout money. 

Last fall, Congress approved 700 billion dollars, but said it would have to come in two trenches, the first 350 billion dollars immediately, the second tranche around now and with Congressional approval.  But many of the banks and financial institutions that received the first tranche of money still can‘t say or refuse to say what they did with the money. 

And consider the reporting of our next guest.  He notes the Treasury Department doesn‘t have an urgent need for the money.  The new conditions that will be attached to the tranche are filled with loopholes.  Congress, he notes, has abdicated its oversight responsibilities.  And nobody has explained why this 350 billion is best spent on financial institutions, as opposed to something like universal health care. 

Joining us now is that guest, David Sirota, a syndicated columnist and our Muckraker of the day.  David, thanks for joining us.  Of those four reasons, what do you think is the best reason to vote against the TARP, in your view? 

DAVID SIROTA, SYNDICATED COLUMNIST:  The last one.  This has been not talked about in this debate at all.  It wasn‘t talked about when they originally passed the bailout.  Nobody has explained how spending 350 billion dollars more dollars on Wall Street, effectively handing it over to Wall Street executives, is a better way to stimulate our economy than doing all sorts of other things, like expanding health care, making a more robust economic stimulus package, shoring up unemployment benefits, shoring up food stamps.  Nobody‘s explained that because it‘s inexplicable. 

SHUSTER:  What about the argument on the other side, that the financial institutions, no matter how much we may hate them, they need this in order to keep the credit market fluid? 

SIROTA:  That might make a credible argument, except for the fact that the Treasury Department has been saying for the last couple months that it doesn‘t need the second half of this money yet.  That was reported in the “New York Times.”  I would also let you know that when we originally passed this bailout measure, the Federal Reserve Bank of Minnesota—of Minneapolis had said that the case about the credit crisis had not been made.  Nobody had made the case effectively that we had to cut a blank check for 700 billion dollars to the industry.  That case just has not yet been made. 

SHUSTER:  David, as far as the new conditions on the second tranche, what are the biggest loopholes that you found? 

SIROTA:  The biggest loophole is the one about executive compensation, which limits executive bonuses, but doesn‘t limit companies from paying their executives big salaries.  You can get paid a million dollars a month, but may not be able to get a bonus. 

There‘s an issue of what‘s been omitted.  No one has put into this bill, or talked about putting into this bill in any real way, efforts to force the banks to renegotiate the terms of the loans.  In other words, this is a giveaway of taxpayer money to the banks, instead of forcing the banks to come to the table with home owners and do some foreclosure relief. 

SHUSTER:  David, have you gotten any indication from the banks how they spent the first tranche?  We‘ve tried.  Some of our colleagues, like the Associated Press, they‘ve tried.  Nobody can seem to get the banks to give—at least all the banks—some of the banks have given answers.  But a lot of the banks have said, we‘re not going to tell you or we can‘t figure it out ourselves. 

SIROTA:  That‘s not surprising.  What we know is that a lot of banks have been using this money to consolidate the banking industry, to buy up smaller competitors.  We know that banks have been spending this on executive pay, on executive bonuses.  Obviously, the banks don‘t want to tell us how they‘re spending the money. 

This is another fundamental problem that the Congressional oversight committee of this bailout has said.  There has been almost no accountability and oversight.  We‘re going to spend another 350 billion dollars on the same program?  That seems ridiculous. 

SHUSTER:  David Sirota, a syndicated columnist and our Muckraker of the day.  David, great stuff.  Thanks so much for coming in. 

SIROTA:  Thanks for having me, David. 

SHUSTER:  You‘re welcome. 

That‘s the view from 1600 PENNSYLVANIA AVENUE tonight.  I‘m David Shuster.  Thank you for watching.  We‘ll see you back here tomorrow night, same time, 6:00 p.m. Eastern on MSNBC.  Remember, you can get the latest political news and a sneak peak of what‘s coming up on the show sent straight to your inbox with the 1600 Daily Briefing.  Plus, we‘ve got some fun contests there. 

I‘m David Shuster.  “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.

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