updated 2/5/2009 11:25:04 AM ET 2009-02-05T16:25:04

Guest: Maria Bartiromo, Mort Zuckerman, Chrystia Freeland, Ron Wyden, Tom

Coburn, David Sanger, Tom Lauricella, Bob Shrum, Dan Gross

MIKA BRZEZINSKI, HOST:  Tonight, the Wall Street bailout will now come with a cost.  President Obama unveils a dramatic plan to cap executive pay. 

Also this hour, the Senate stimulus debate.  Democrats appear short on votes.  Republicans demand changes to Obama‘s plan. 

We will talk to senators on both sides. 

Later, it is “Myth Buster Wednesday.”  Newsweek‘s Dan Gross will tackle a crucial GOP claim about the government and job creation. 

Plus, Secretary of State Clinton meets with former British Prime Minister Tony Blair. 

And Rod Blagojevich meets with David Letterman as hot Rod‘s remarkable media tour rolls on.

All tonight on 1600 PENNSYLVANIA AVENUE.

Welcome back to the show.  I‘m Mika Brzezinski, in for David Shuster tonight. 

The gravy train is over for Wall Street‘s banks getting bailed out.  After a cascade of bad headlines from $50 million jets to $87,000 rugs, Vegas retreats, and under-the-wire bonuses, President Obama, today, issued some harsh criticism and strict new rules for companies being propped up by taxpayer dollars. 

(BEGIN VIDEO CLIP)

BARACK H. OBAMA, PRESIDENT OF THE UNITED STATES:  For top executives to award themselves these kinds of compensation packages in the midst of this economic crisis isn‘t just bad taste, it‘s bad strategy.  And I will not tolerate it as president.  We‘re going to be demanding some restraint in exchange for federal aid; compensation capped at $500,000; stock that can‘t be paid up until taxpayers are paid back, disclosed publicly; all the perks and luxuries bestowed upon senior executives.

We‘re taking the air out of golden parachutes. 

(END VIDEO CLIP)

BRZEZINSKI:  Joining me now, Maria Bartiromo, anchor of CNBC‘s “Closing Bell” and “The Wall Street Journal Report”; Mort Zuckerman, editor-in-chief and publisher of “U.S. News & World Report,” as well as chairman and publisher of “The New York Daily News”; and Chrystia Freeland, U.S. managing editor of “The Financial Times.”

Maria, I‘ll start with you.  One compensation consulting firm owner said this: “It‘s draconian.  This is pretty draconian -- $500,000 is not a lot of money, particularly if there are no bonuses.  And you know these companies that are in trouble are not going to pay much of an annual dividend.  It would be really tough to get people to staff companies that are forced to impose these limits.”

It may be tough, Maria, but isn‘t it a new day and a new climate out there? 

MARIA BARTIROMO, ANCHOR, CNBC‘S “CLOSING BELL”:  It is, Mika.  It‘s a new day and a new climate.  I think that‘s exactly right. 

And you know, I mean, I don‘t know that it‘s wrong.  I mean, if you‘re going to work at a company that is accepting taxpayer dollars, there are strings attached.  I think we should have had more strings attached six months ago when we first learned about the TARP.

You know, part of the issue here is that over the last 25 years, financial services had become so big as an industry, in the real economy as well as—even in the S&P 500, it was 25 percent of the S&P.  A huge, huge component where you had talented people coming out of schools, MBAs, and they didn‘t want to work and innovate and become entrepreneurs and get jobs in the underpinnings of our economy—manufacturing, creating things. 

They wanted to go take companies public.  Why?  Because the allure of compensation was there.  So, yes, it is a new day. 

BRZEZINSKI:  It is a new day.

Mort Zuckerman, and then Chrystia, JPMorgan Chase CEO Jamie Dimon said this: “It‘s unfair to talk about us as one.  Not every company was responsible.  Pay got a little exuberant and there were some legitimate complaints.  But I don‘t think the president of the United States should paint everybody with the same brush.”

Mort, is the bonus story being told fairly out there? 

MORT ZUCKERMAN, EDITOR-IN-CHIEF, “U.S. NEWS & WORLD REPORT”:  No, I actually don‘t think it is.  This isn‘t to say that I don‘t think there should be some bit of compensation cap in some of these firms, but they should be an overall cap, they shouldn‘t be limited to specific individuals, because the very talented people that you‘re going to need to help these companies get out of the troubles they‘re in are simply going to be able to move to non-regulated companies, and they will lose the best of their management.  So I think that is a mistake for what, in fact, we are trying to accomplish, which is trying to rebuild these companies. 

BRZEZINSKI:  Chrystia, is it counterproductive in that way? 

CHRYSTIA FREELAND, U.S. MANAGING EDITOR, “THE FINANCIAL TIMES”: 

Actually, I disagree with Mort. 

BRZEZINSKI:  OK.

FREELAND:  I think that the people—and I don‘t think this is an anti-capitalist measure either.  I think that it‘s fair enough for the president to say, if your institution needs to be bailed out by the taxpayers, you have to abide by limits. 

And after all, $500,000 might not be that much on Wall Street, but it‘s a lot of money for ordinary Americans.  And people who are attracted purely to high-risk, high-reward jobs are going to go work for more, or they‘re going to go work for a hedge fund if they‘re good enough.  But if they fail, they will go broke and they will lose jobs.  What we‘ve seen happening with these Wall Street firms is they have become utilities, government-backed utilities, and they‘re going to be more stable, but that does mean that people can‘t make so much money there.

BRZEZINSKI:  And, I mean, there is the simple concept, Mort, that if I lend somebody I know money, and lots of it, I want to have a say in what they‘re doing with it.  I don‘t want them buying jets or going on junkets. 

ZUCKERMAN:  I don‘t disagree with that, and I don‘t disagree with saying, look, this firm can only pay x amount in total compensation.  I just think it is dangerous to limit it when—for every individual, because there is no doubt that a lot of these people on this basis are going to leave these companies.  It‘s just a practical fact. 

It‘s not a question of ideology.  It‘s not a question of feeling good.  It‘s a question of being effective in terms of restoring the viability of these institutions that, in fact, are going to lose some of their best management.  That, I think, is counterproductive. 

And let me tell you, at those salaries, no matter what you may say, there are so many unregulated financial terms that will attract these people. It will be a major, major loss. 

BRZEZINSKI:  Maria, I want to play Robert Gibbs, who touched on a few issues, including the Wells Fargo story which broke in the past 24 hours pertaining to junkets in Vegas. 

Take a listen. 

(BEGIN VIDEO CLIP)

ROBERT GIBBS, WHITE HOUSE  PRESS SECRETARY:  Citigroup‘s jet, or planned jet purchase, and the Wells Fargo retreat at the Wynn, both didn‘t happen because of the diligent work of many in the reporting of these—and the outcry that ensued.  You don‘t have to have a rule or regulation to ensure that the American people know what to get mad at.  You don‘t need a regulation to have that transparency and accountability. 

(END VIDEO CLIP)

BRZEZINSKI:  Again, Maria, it comes down to the climate.  Wells Fargo says this in a statement: “The event is not a junket for executives but a four-day business meeting and recognition event for hard-working team members who made homeownership achievable and sustainable for borrowers across the nation.  Through all economic cycles, our recognition events have been an important part of our company‘s culture.”

There is all of a sudden, though, Maria, kind of an impatience about this kind of thing. 

BARTIROMO:  Yes.  Well, it‘s true.  I mean, you know, I think it‘s because the public‘s money at this point.  And that‘s the bottom line. 

You know, compensation was such an allure at some of these firms.  And if you were a banker or a trader, you were getting 50 percent of the revenue coming in.  So, you know, of course you wanted a bigger balance sheet, of course you wanted a bigger revenue base.  So you were leveraging up 40 to 1. 

You know, so, look, I agree with what Mort is saying, that, you know, we have to be careful that the talent doesn‘t walk and go get other jobs.  But I also understand the public outrage here, because the public is saying, where is my money?  What happened to the stocks I owned that was x price, and now it‘s x price, zero price, close to zero? 

So I think that there has to be accountability, and there has to be, you know, these incentive programs that you‘re going to go work for a firm instead of doing something where your talent could actually help the broader economy in a different way, going to try to leverage up, you know, the way some of these firms were doing because the bankers and traders were getting 50 percent.  That was of the revenue and that was wrong. 

BRZEZINSKI:  Yes.

BARTIROMO:  And now we‘re back to accountability.  And I think the public outrage should be taken seriously.  And that‘s what this is all about.  We need accountability. 

BRZEZINSKI:  Chrystia Freeland? 

FREELAND:  Well, I think that what Maria and what Robert Gibbs were saying about the public anger is really important, because I think part of what we‘re seeing is President Obama trying to build up some public credibility for the next bank bailout.  And make no mistake, the financial crisis is not yet over, and significant taxpayer dollars are going to have to be spent to bail out financial services. 

And unless President Obama can convince American voters that this money is being spent carefully...

BRZEZINSKI:  Yes.

FREELAND:  ... and not on extravagance, that will not happen.  So actually, Wall Street has to say, thank you very much, President Obama. 

BRZEZINSKI:  Can I have another? 

Mort, is that a good point, credibility and trust?  Something we are lacking. 

ZUCKERMAN:  I do agree that there has been a huge decline in the confidence of the way these people run these financial institutions.  And they deserve all the opprobrium that they‘re going to get because they have really screwed up on a large scale.  And implicit in what Maria was saying, they made a lot of money on their way up and they‘re not paying any of it back on the way down. 

BRZEZINSKI:  Absolutely.

ZUCKERMAN:  Nevertheless, you still have a pragmatic problem here. 

And that is, I would be perfectly willing to set a cap on overall salaries.  I just wouldn‘t determine individual salaries, because if you lose some of the key people in some of these institutions, the cost to the government and to those companies will be much greater. 

It‘s a purely pragmatic judgment.  It is going to happen whether we like it or not. 

BRZEZINSKI:  Maria?

BARTIROMO:  Maybe, but maybe we need some of that talent to go into health care and start increasing the amount of technology we have and the advancement, and find a cure for cancer and find a cure for heart disease.  Maybe we need some of that so-called talent to spread out and not just focus on financial services, but do some of the jobs that are so necessary to keep an economy thriving and growing. 

ZUCKERMAN:  Look, I‘m not trying to criticize where these people might work.  I‘m just saying to you that this is a very sophisticated world, the world of finance.  You lose a lot of the talent at the top that you need, and I think you‘re going to have real problems.  I agree, let‘s set an overall cap on salaries. 

(CROSSTALK)

FREELAND:  The cap is actually just for senior executives. 

ZUCKERMAN:  Yes.

FREELAND:  So if you have so someone who is super, super smart, super talented, has a mathematical skill that they can be paid a great deal of money for, it‘s quite common already now for a trader to earn more than his boss.  So it‘s not an across-the-board cap on what every single person earns. 

ZUCKERMAN:  But your senior executives are going to have an enormous role in salvages whatever you can.

FREELAND:  You think Vikram‘s going to quit his job?

BARTIROMO:  Well, hopefully it wasn‘t the same senior executives who took on all that risk. 

ZUCKERMAN:  I agree. 

FREELAND:  It is, though, Maria.

BARTIROMO:  Did they leverage off?  Hopefully that wasn‘t a talent.

(CROSSTALK)

ZUCKERMAN:  If you want to find those senior executives who are really talented and responsible, you better be able to pay them enough to at least keep them at some of these places.  And I‘m not saying let‘s put an overall cap on it, not put a cap on individual salary, because you will dumb down the management that you need for these things. 

BARTIROMO:  Mort, I don‘t disagree with you, Mort.  I actually agree with Mort.  I agree with Mort about the talent.  It is something to be weary of. 

I mean, this is something that we need to watch.  We cannot allow people to say, look, I‘m not going to go into this area because I can‘t make the money.  You should be able to make the money that you‘re able to make, as much as you can make.  But...

BRZEZINSKI:  But, but, but, but, what good is a great, effective CEO if nobody has trust in them and the system is melting down?  I mean, I think we need to go back to square one if this is what‘s happening. 

FREELAND:  I just frankly don‘t think we‘re going to see an exodus of CEOs from these institutions. 

(CROSSTALK)

ZUCKERMAN:  It‘s not just CEOs.  It goes way beyond CEOs. 

If you look at what the salary structures are—as I say, I think it‘s perfectly reasonable to establish an overall cap.  I think it is absolutely counterproductive to do what we‘re talking about here.  You will lose so many of the senior management people that you need to save these financial institutions.  It will cost way more not to have them than to have them, particularly if you have an overall salary...

BRZEZINSKI:  Maria?

BARTIROMO:  Yes, but can you justify that kind of price when they‘re taking the government‘s money?  Maybe after they pay the government back and taxpayers get their money back, they can go back to paying whatever they want. 

(CROSSTALK)

FREELAND:  And their share options will be worth more money if the bailout works. 

ZUCKERMAN:  Those share options is not going to be the issue.  They can get share options wherever they want to go. 

All I‘m saying to you, you lose one-third or one-half of the senior management, and you‘re going to pay a huge price for it.  I‘m not saying that you shouldn‘t put an overall cap on it, as I said.  I would do that.  But this is absolutely—this is killing the goose, not cooking the goose. 

FREELAND:  That laid the golden egg?  Did this goose lay a golden egg for the economy? 

ZUCKERMAN:  I am not trying to justify them.  You know what I‘ve said about this management over a long period of time, and I think they‘ve made a huge mess of things and gotten way over compensated for it.  I‘m not arguing that.

But I don‘t want to discuss an individual‘s salary.  I‘d rather discuss overall salary.  Because you‘re going to lose too many people by putting this kind of cap there, and you‘re going to need these people.  A lot of these people are still talented. 

BARTIROMO:  No, I don‘t disagree with some of that, you know, because I do get worried when government gets involved in business and starts making orders as far as what the company can spend their money on. 

But this compensation issue, Mort, you have to agree, things got way out of hand.  Give me a break.

ZUCKERMAN:  I don‘t disagree with that at all.  And believe me, you will keep it under some reasonable control.  But o put an overall cap of whatever that number is...

BARTIROMO:  Right.  No, I don‘t disagree.

ZUCKERMAN:  ... you‘re going to lose a lot of key people. 

BRZEZINSKI:  Hold on—Chrystia Freeland.

FREELAND:  Actually, I do disagree with both Mort and Maria.  I think the president is right to send out the message to the American people who are now paying for these banks, have put them on life support, are going to have to spend possibly hundreds of billions, maybe even trillions of dollars more to keep these banks going.  I think it‘s fair enough for the president to say, you know what?  I think that $500,000 a year is good enough, and if you guys are as smart as you think you are, you‘re getting share options.

ZUCKERMAN:  Excuse me.  What do you mean “you guys”?  There are women, too, who are very smart.

FREELAND:  There are very few women—no women are running these things.

ZUCKERMAN:  I know, that‘s one of the problems.

FREELAND:  So it is actually “you guys.”

ZUCKERMAN:  The women are not going to work for that salary. 

FREELAND:  So if you guys are as smart as you think you are, you‘ll rescue your banks, your share options will be worth a heck of a lot of money. 

BRZEZINSKI:  All right.

Mort, final word.  Final word.

ZUCKERMAN:  I think this is absolutely playing with dynamite.  There‘s a huge amount here where management really makes a difference, and you‘re going to lose a lot of this management for sure.  They have so many other options in non-regulated things with companies that do not receive federal funds, that it‘s going to be a huge negative for exactly what the president is trying. 

BRZEZINSKI:  All right.

ZUCKERMAN:  It‘s an easy political issue, an easy populist issue. 

It‘s totally counterproductive.

BARTIROMO:  Yes, but you know what?  My final word is the public wants accountability, period.  That‘s it. 

ZUCKERMAN:  And I agree.  They should have that. 

BRZEZINSKI:  And that‘s...

BARTIROMO:  We are in a moment in time that people want to see accountability.  And this is part of that. 

BRZEZINSKI:  I can‘t agree with you more.

ZUCKERMAN:  There are other ways of accomplishing that.

BRZEZINSKI:  Maria Bartiromo, Mort Zuckerman, Chrystia Freeland, very good discussion.  Thanks very much.  I appreciate it.

We‘ll have to...

FREELAND:  A pleasure, Mika.

BRZEZINSKI:  Yes, it was.

Up next, the battle over billions.  We‘re going to hear two differing opinions on the economic stimulus plan from Senators Ron Wyden and Tom Coburn, live from Capitol Hill. 

Also ahead, the former vice president warns of a terror attack, saying the way the country is moving under the Obama administration could make it more vulnerable. 

Plus, we all know Oprah Winfrey is the queen of talk.  But does Oprah owe most of her recent success to President Obama? 

That and more, straight ahead on 1600 PENNSYLVANIA AVENUE.

(COMMERCIAL BREAK)

BRZEZINSKI:  Welcome back to 1600 PENNSYLVANIA AVENUE.

One of President Obama‘s closest economic adviser, Larry Summers, told reporters today he was confident Congress will pass a stimulus bill and get it to the president‘s desk by mid-February.  But Democratic leaders acknowledge that the bill doesn‘t really have the votes, at least not yet. 

Joining us now to share their views, two senators who are driving the debate, Democratic Senator from Oregon Ron Wyden, and Republican Senator from Oklahoma Tom Coburn.

Welcome, gentlemen, to you both.  And I know you have a vote in about five minutes, so we‘ll rip through this. 

Senator Coburn, you‘ve called the stimulus bill the “Generational Theft Act.”  What needs to be cut from the bill to get your support?  Do you plan to block it? 

SEN. TOM COBURN ®, OKLAHOMA:  No, I don‘t plan to block it.  I think we need a bill, but this bill has about $700 billion worth of spending, and it‘s not a stimulus.  It‘s a spending bill. 

And what we want is a bill that‘s actually going to make a difference.  And we shouldn‘t be stealing $1.2 trillion from our kids to be able to say we passed a stimulus bill. 

One point I‘d make is there‘s no cut of any program that‘s not effective in this bill.  So not only are we spending a ton of money, we‘re not doing the hard work that every family is doing right now of making priorities. 

BRZEZINSKI:  All right.  I would like to play President Obama and how he thinks this should play out, especially in terms of the timeline.  Take a listen. 

(BEGIN VIDEO CLIP)

OBAMA:  I urge members of Congress to act without delay.  No plan is perfect, and we should work to make it stronger.  No one‘s more committed to making it stronger than me.  But let‘s not make the perfect the enemy of the essential. 

(END VIDEO CLIP)

BRZEZINSKI:  Senator Wyden, what is the rush?  I mean, this is our economic future, which is in crisis, and last time we rushed something through, I don‘t think it went too well. 

SEN. RON WYDEN (D), OREGON:  We need to move quickly, but we need to move responsibly.  And led by President Obama, we Senate Democrats are going to be reaching out to Senate Republicans like Dr. Coburn to do this right. 

For example, on the Senate Finance Committee on which I serve, we accepted Senator Grassley‘s amendment to deal with the crushing costs of the alternative minimum tax.  That‘s a killer tax; it‘s something Republicans felt strongly about. 

We‘re going to do more in the area of infrastructure, roads and bridges and transportation systems.  It seems to me that private investment always has followed public investment.  So there is a need to move quickly because you have to restore confidence among the people, but I think we can do that and still move responsibly. 

BRZEZINSKI:  All right. 

Senator Coburn, I‘m actually—Jameson (ph), my producer, I‘m flipping to full screens here. 

You‘re known as a true fiscal conservative.  And here‘s what you wrote in “The Wall Street Journal” today. 

You say, “The bill‘s sponsors have made zero effort to pay for this new spending by eliminating programs that aren‘t working.  Congress remains focused on finding shovel ready projects when at least $300 billion in wasteful programs are scissors ready today.”

I would think it‘s good to get rid of waste.  But at this point, is this the priority?  What I‘m looking for from either side is something that I know is a sure-fire solution.  Is that possible? 

COBURN:  Well, sure it is.  The problem is, is the political class in this country doesn‘t want to offend any interest groups.  So if something is a very low priority, why shouldn‘t we spend the money on something that‘s a much higher priority and wait on things that are lower priority? 

What we do is we put a credit card into a machine and charge it to our grandkids.  We‘re going to decrease their standard of living because we don‘t want to do the tough things that every family is doing now, which is prioritize the spending so that we don‘t waste money.  And we can have a great stimulus bill, one that is truly stimulatory. 

BRZEZINSKI:  Yes.

COBURN:  But what we‘re doing now isn‘t going to work, and it‘s got to be changed. 

WYDEN:  I would only add that Dr. Coburn is right about waste.  Let‘s use this legislation to toughen up the rules on earmarks. 

Senator McCain, Senator Feingold have one approach.  There may be others.  Tom Coburn has done excellent work in terms of blowing the whistle on wasteful government spending.  Before this legislation is through, we‘re going to have tough anti-earmark provisions. 

COBURN:  Well, what I would add to that—and thank you, Ron, for that comment—there‘s probably $200 billion in this bill of waste.  Of waste.  It will not make an impact. 

BRZEZINSKI:  You know, I don‘t know anyone who really loves the bill, which confuses me when I try and think about whether or not it‘s going to have any good, positive impact.  I‘m told it‘s going to create or retain jobs. 

Senator Wyden, let me put it to you this way.  Let‘s look at a microcosm in your state.

The city of Tulsa is asking for, among other things—and I‘ll list a few of them -- $200,000-plus for road improvements; $100,000 for economic development; $46,750 for rail infrastructure.  You know, there‘s a budget shortfall, and you know that the stimulus package would create some jobs and pay for some of these projects. 

Are you willing to go back and tell your constituents that you opposed money to pay for these projects and to make these jobs, that you just wouldn‘t go for it? 

WYDEN:  I think you‘re asking about in Oklahoma City.  But the basic point is there is no economic multiplier like well-targeted investments in roads and bridges and transportation systems. 

You look at somebody like Zandi at Moody‘s, he has consistently said that, if you‘re going to wring the maximum dollar out of the stimulus dollar, it is well-targeted investments in roads and bridges and transportation systems.  I‘m willing to work with some of those that we‘re lucky enough to have as fiscal hawks like Tom Coburn to make sure that we wring every possible cent of value out of the stimulus dollar. 

BRZEZINSKI:  All right.  But again, when we look at—and Senator Coburn, I‘ll ask you this.  I don‘t see how jobs will be created by welfare programs.  And I also am not sure about these tax breaks that the Republicans want. 

What do we know will actually stimulate the economy?  And what in this bill defines “stimulus?” 

COBURN:  Well, I don‘t think there is a definition in this bill. 

That‘s part of the big problem with it. 

We know things that can be stimulatory, things that we know we‘re going to buy anyway and we advance the purchase on it—resetting the military, roads and bridges.  We have 243,000 bridges that are dangerous in this country today.  And a good portion of those we can fix. 

We have sewer projects.  There‘s no question we can do that. 

As far as telling the people of Tulsa, they know me.  I‘m not about to vote for anything that isn‘t a priority for this country or won‘t solve the problem.  So half of what they‘re going to want I‘m not going to support, and they know that. 

WYDEN:  And look at what is being done on the energy side.  We‘re enhancing the energy production tax credit.  You don‘t get that tax credit unless you actually produce energy.  Now, that may be too logical for traditional government approaches, but it makes sense and it‘s in this bill. 

COBURN:  Yes, but none of that is to lessen the risk of us and our dependence on hydrocarbon fuels.  It‘s all for alternative, which is fine.

But let me tell you, Oklahoma is unwinding from drilling.  That‘s a big business in our state.  And we‘re going to see big-time layoffs on that and we‘re going to see regularization rates go down.  So we ought to be doing it across the board in terms of energy. 

BRZEZINSKI:  Well, Senators...

WYDEN:  It does reduce our dependence on foreign oil.  We‘ll start turning wood waste into clean fuel.

BRZEZINSKI:  Hey, nice bipartisan effort co-anchoring this segment. 

WYDEN:  Thank you.

BRZEZINSKI:  Thank you very much, gentlemen. 

COBURN:  Good to be with you.

BRZEZINSKI:  I know you have to go vote, so I appreciate you coming on the show. 

WYDEN:  Thank you.

COBURN:  Thank you.  Bye-bye.

BRZEZINSKI:  Good luck.

All right.

Up next, a closer look at one of Hillary Clinton‘s first challenges as secretary of state, Iran, and new reports about the country‘s nuclear program. 

But first, good news for people with old televisions.  You now get four more months to buy that digital TV converter box.  Congress has passed a bill delaying the analogue TV shutdown until June 12th.  President Obama has said in the past he would sign the bill into law. 

You‘re watching 1600 PENNSYLVANIA AVENUE.

(COMMERCIAL BREAK)

BRZEZINSKI:  Welcome back to 1600 PENNSYLVANIA AVENUE.  Shuttle diplomacy was on the schedule at the White House and at Foggy Bottom today, as the president and Secretary of State Hillary Clinton welcomed new Middle East envoy George Mitchell back from the region.  Clinton hosted former British Prime Minister Tony Blair, now an international peace envoy to the Middle East.  And another newly appointed diplomat, Richard Holbrooke, departed for his first trip as U.S. special representative for Afghanistan and Pakistan. 

This team of envoys has their work cut out for them for sure.  That became very clear yesterday, when Iranian President Mahmoud Ahmadinejad announced the launch of the country‘s first domestically made satellite. 

Joining me now to talk about the diplomatic and strategic challenges facing Obama is a “New York Times” reporter David Sanger.  He‘s the author of “The Inheritance, the World Obama Confronts and the Challenges to American Power.” 

Let‘s start with Iran as a challenge, David.  Thanks for being with us. 

DAVID SANGER, “THE NEW YORK TIMES”:  Thank you, Mika.  Good to be with you. 

BRZEZINSKI:  Tell us why this Iranian announcement of this satellite launch is troubling at the very least. 

SANGER:  You know, it shows a fair bit of precision that the Iranians have been able to put together in their launch vehicles.  Remember, they bought many of their missiles from North Korea, but they‘ve improved them significantly.  And putting a satellite up in orbit is no small feat.  It requires a two-stage rocket.  That means you have to learn the science of doing that. 

This particular satellite was very light.  It was about 25 kilograms.  It‘s lighter than what a warhead would weigh, but it‘s the same science, basically, as delivering a warhead.  And that‘s the reason that people are so concerned, because the evidence would suggest the Iranians are probably only a few years away from being able to have the full complement of warhead, a missile, and, of course, the nuclear materials they‘ve been enriching. 

BRZEZINSKI:  It‘s not an understatement, then, when the State Department spokesman Robert Wood said today that—he said this, “Iran‘s development of a space-launch vehicle establishes the technical basis for a long-range ballistic missile system.”  Having said that—

SANGER:  He‘s got that just right.

BRZEZINSKI:  Having said that, the Iranian government has been known to lie.  How trustworthy is the information we‘re getting? 

SANGER:  We saw the launch and confirmed that there was a very small satellite up there.  The North Koreans also launched a small satellite a number of years ago.  It didn‘t stay up for very long.  The feat of actually just getting it done is just another incremental step, Mika, in what has been a program that‘s made a lot of progress in the past year or so. 

One of the points that I make in “The Inheritance” is that the great distraction of Iraq kept the U.S. from focusing both full diplomatic leverage and full sanctions leverage on the Iranians.  So President Obama is left in a situation where some of his advisers are calling for what they call bigger sticks and bigger carrots.  In other words, much larger sanctions, but also a clarity to the Iranians about what is ahead.  And there‘s supposed to be another special envoy just for Iran issues.  That‘s supposed to be Dennis Ross, who you know well as a Mideast negotiator. 

So we‘re going to have a traffic jam out at Dulles of all the special envoys taking on and off. 

BRZEZINSKI:  Maybe we need them.  Lets me ask you this; Under Secretary of State Nick Burns, who was George Bush‘s lead negotiator with Iran, and Obama now has asked him to stay on.  He was in Germany today meeting with the Europeans on Iran strategy.  I‘m wondering, first of all, what is the Obama administration signaling about Iran with that and other moves they‘ve made?  Is there any change, yet, in the signals Iran is giving, in terms of U.S. diplomacy and how we connect with them? 

SANGER:  We haven‘t seen many changes yet from the Iranians.  But remember, the Iranians have an election coming.  That‘s what makes this all the more difficult.  President Ahmadinejad, you know, who has led the sort of anti-American mood of all this—it‘s not clear whether he‘s going to be running or whether he gets the support of the mullahs.  One of the pieces of thinking right now is that President Obama may not make any big moves or big initiatives prior to these elections, which are in June; that instead, he may wait for this to get past a political moment, because you could imagine any offer the U.S. makes could get wrapped up in those elections. 

BRZEZINSKI:  David Sanger, author of “The Inheritance, The World Obama Confronts and the Challenges to American Power.”  Thanks very much for joining me this evening. 

SANGER:  Thank you. 

BRZEZINSKI:  Up next on 1600.

(BEGIN VIDEO CLIP)

HARRY MARKOPOLOUS, MADOFF WHISTLE BLOWER:  I‘m suggesting that if you flew the entire SEC staff to Boston, sat them in the Fenway Park for an afternoon, that they would not be able to find first base. 

(END VIDEO CLIP)

BRZEZINSKI:  Strong words at a House hearing investigating just how alleged Ponzi schemer Bernie Madoff could defraud people out of 50 billion dollars. 

Plus, former Vice President Dick Cheney issues a dire warning.  Why he says the U.S. is now more vulnerable to a terrorist attack.  More 1600 after this. 

(COMMERCIAL BREAK)

BRZEZINSKI:  Welcome back to 1600 PENNSYLVANIA AVENUE.  It‘s time for Smart Takes.  Today‘s Smart Take comes from Capitol Hill and the guy who tried for more than eight years to blow the whistle on accused Ponzi schemer Bernie Madoff, eight years.  When financial analyst Harry Markopolous first looked at Madoff‘s books, he told a colleague, quote, “this doesn‘t make any damn sense.  It has to be a Ponzi scheme.”  That was 1999, the first year he tried to alert the Securities and Exchange Commission about the fraud. 

In 2005, he submitted a full report to the SEC‘s New York office, with the headline, “Madoff‘s Returns Aren‘t Real.”  But Madoff continued to allegedly defraud investors of 50 billion dollars until he was arrested in December.  Today, Harry Markopolous told lawmakers about his crusade to catch Madoff and why the SEC failed to act. 

(BEGIN VIDEO CLIP)

MARKOPOLOUS:  Mr. Madoff was one of the most powerful men on Wall Street.  He owned a prestigious brokers firm.  He and his brother held numerous top level positions on the most influential industry association boards.  Clearly, the SEC was afraid of Mr. Madoff.  I gift wrapped and delivered the largest Ponzi scheme in history to them, and, somehow, they couldn‘t be bothered to conduct a thorough and proper investigation, because they were too busy on matters of higher priority. 

If a 50 billion dollar Ponzi scheme doesn‘t make the SEC‘s priority list, then I want to know who sets their priorities? 

(END VIDEO CLIP)

BRZEZINSKI:  OK.  The movie should be about that guy.  Let me bring in “Wall Street Journal” reporter Tom Lauricella, who has been following this scandal from the get-go.  Tom, I mean, eight years.  I don‘t even know where to begin, because I had heard there had been red flags about Bernie Madoff.  This guy‘s angry and probably rightfully so. 

TOM LAURICELLA, “THE WALL STREET JOURNAL”:  This is a real black eye for the Securities and Exchange Commission.  This guy basically laid it out.  There were people who raised questions about Bernie Madoff over the years.  They‘d said, maybe he‘s doing a few things that are elicit.  Nobody had really sort of said, this is a Ponzi scheme.  This is outright fraud.  Markopolous, he had it nailed. 

BRZEZINSKI:  Yes, OK, so let me ask you this.  He talked about the fear that the SEC had for Madoff, being captive to—I don‘t understand.  They‘re to regulate him.  Where did the fear play in and how did he have a hold? 

LAURICELLA:  Well, at this point, that‘s sort of an unknown.  We really don‘t know why it was that the SEC did not pursue it.  Bernie Madoff was a very respected guy on Wall Street.  He was very well-known.  On the other hand, these are regulators.  It‘s their job to go after people on Wall Street.  It may be that these folks didn‘t understand, that Bernie was able to outtalk them.  It‘s really not clear whether there really was fear involved. 

BRZEZINSKI:  He has some broad comments about the SEC, about the current fraud and lack of oversight.  Let‘s take a listen to him. 

(BEGIN VIDEO CLIP)

MARKOPOLOUS:  After Merrill Lynch paid out six billion dollars in bonuses after losing untold tens of billions of dollars, it is being propped up by government bailout money.  Only the New York attorney general‘s investigating.  The SEC continues to roar like a mouse and fight like a flea.  When an entire industry that you‘re supposed to be regulating disappears due to unregulated, unchecked greed, then you are both a captive regulator and a failed regulator. 

(END VIDEO CLIP)

BRZEZINSKI:  OK.  So what kinds of changes are we going to see in light of this?  I can‘t imagine the SEC continues as is. 

LAURICELLA:  This is going to be one of the big questions coming up.  What does Congress do to overhaul the regulatory structure that governs Wall Street?  He‘s right.  We‘ve seen example after example in recent years of regulators not being on the ball.  A similar thing happened several years ago in the mutual fund industry, which affected a lot more people.  Now, of course, there‘s the same issue, in terms of how they handled mortgages across Wall Street.  That‘s really come to hurt back the whole economy.  Something‘s going to change. 

BRZEZINSKI:  Really quickly.  Bernie Madoff, you‘ve been following it from the get-go.  I‘m just sort of fascinated by him as a character.  What‘s your gut?  Do you think he intentionally wanted to bring people down or he just thought this would go on forever? 

LAURICELLA:  Well, that‘s a really good question.  We‘re still trying to learn more about his psychology.  He had this thing going for decades.  He had a lot of people convinced.  It‘s not clear what he thought the end game was.  It does seem to have come as a bit of a surprise to him that it happened now.  You know, this could have kept on going for years. 

BRZEZINSKI:  That‘s what I‘m thinking.  I‘m trying to find out what kind of criminal, if convicted, he is.  There‘s a lot of different dimensions there.  Tom Lauricella, thank you very much for coming in.  I appreciate it, of “The Wall Street Journal.”

Moving on now, not really, though.  Gone but not forgotten; former Vice President Dick Cheney talked to “Politico” yesterday at his, quote, transition office in a nondescript Mclean, Virginia office building and warned of a new terrorist attack on the United States.  Take a listen. 

(BEGIN VIDEO CLIP)

DICK CHENEY, FMR. VICE PRESIDENT OF THE UNITED STATES:  The biggest threat has been since before 9/11 -- there has been that you get a 9/11 type event, where the terrorists are armed with something much more dangerous than an airline ticket and a box cutter.  You know, they‘re equipped with nuclear weapons or a biological agent of some kind.  That‘s the ultimate trap. 

(END VIDEO CLIP)

BRZEZINSKI:  That was a lovely headline we woke up to on “MORNING JOE” this morning.  Joining me now to talk about this, Democratic strategist Bob Shrum.  What do you make, Bob, of Cheney‘s warnings?  Clearly, to me, it seems like he‘s basically speaking what is exactly the truth out there, but it seems like he‘s trying to sort of undermine the Obama administration before they‘ve even had a few weeks in office. 

BOB SHRUM, DEMOCRATIC STRATEGIST:  Yes, there are two things going on here.  The first is he‘s says something the Bush administration said along.  No one disagrees with there‘s a danger of a terrorist attack.  Then he‘s saying, in a kind of attempt at his own rehabilitation, sort of a political Ponzi scheme, based on secret information he can‘t share with us; we need torture and Guantanamo to prevent this from happening. 

The last time, based on secret information, we took his word for something, we went in to Iraq looking for weapons of mass destruction that weren‘t there.  Secretary of Defense Gates has seen this information.  Former Secretary of State Rice has seen this information.  They both want to close Guantanamo. 

So I think there is tremendous resistance from taking advice from Dick Cheney on this question. 

BRZEZINSKI:  Isn‘t it safe though to make that argument that, first of all, the Bush administration kept us safe since 9/11.  Nothing has happened.  Whatever has been carried out in terms of Homeland Security actions has worked.  If you change policies and if you change your approach to Homeland Security, and if you change the situation in Guantanamo, you‘re going to increase the risk of being attacked. 

SHRUM:  I don‘t think for one second you would believe that Secretary

of Defense Gates, looking at all this information, would support the

closing of Guantanamo if he thought it was going to increase the prospects

of attack.  Look, President Bush, in his rehabilitation effort in his last

days in office, told this tall tale about Sheikh Khalid Mohammed and how,

somehow or other, water boarding him, we had prevented attacks.  The next

day, you looked at every newspaper; there were leaks from all over the

government saying we didn‘t get any useful information from Sheikh Mohammed

by torturing him. 

I think there‘s another problem here, by the way, for the Republicans.  I think they would prefer Dick Cheney just be quiet.  Otherwise, if he becomes the face of their party, the way Herbert Hoover did in 1934, they‘re going to be really hurt in the mid-term elections.  I don‘t think they want him out there.  I don‘t think they want him talking.  Frankly, after his record, I don‘t think we need his advice. 

BRZEZINSKI:  OK, but at the same time, he may deserve an opportunity to justify the actions of the Bush administration, which have been under fire.  They‘ve been dealing with a lot of obviously classified information that the Obama administration is now privy to.  Fair to say that some of the actions that the Obama administration want to make, especially pertaining to Guantanamo, could end up with people back working for al Qaeda, if these guys end up in the system again. 

SHRUM:  You know, he said that.  He said, look, we released some people and they went to work for al Qaeda.  By the way, Russia is on a slippery slope the last few years back towards authoritarianism.  Wait a minute, that is not Obama‘s problem.  It‘s his problem now.  He has inherited it.  Somehow or other, the Bush people were sitting there or pursuing policies that didn‘t prevent that not from happening. 

Obama is not talking about releasing all these people out into the world to go back and join al Qaeda again.

I go back to my fundamental point.  Secretary Gates, Secretary Rice, months ago, supported closing Guantanamo, saying—they‘ve seen all the same intelligence Dick Cheney has.  So, you know, it‘s going to be 40 or 50 years before we all read it.  Given his track record, his lack of truthfulness, his recklessness going into Iraq, I tend to believe Barack Obama and Secretary Gates and former Secretary Rice a lot more than I believe Dick Cheney. 

BRZEZINSKI:  All right, Bob Shrum, thank you very much.  Good to see you, sir.

Up next, find out why disgraced former Governor Rod Blagojevich thinks President Obama may be able to help him fight some criminal charges. 

Plus, talk show queen Oprah Winfrey‘s support probably helped President Obama in the race for the White House.  It appears the president, whether he knows it or not, may be helping Oprah.  This is 1600.

(COMMERCIAL BREAK)

BRZEZINSKI:  We‘re back with a look at what‘s going on inside the White House Briefing Room.  We begin with David Plouffe, the man who managed Barack Obama‘s presidential campaign.  What do you do after you run a successful presidential campaign?  Apparently write a book about it.  Plouffe has signed a deal that is estimated to be worth 1.5 and two million dollars.  The working title of the book is “The Audacity to Win, The Inside Story and Lessens of Barack Obama‘s Historic Victory.”  The publisher hopes it will be on store shelves by the fall of this year.  That‘s a quick turn.

During the 2008 presidential campaign, there was a lot of talk about how much Oprah could help Barack Obama.  As it turns out, President Obama is the one helping Oprah, at least in terms of her show‘s ratings.  Driven by her two inauguration specials in Washington, the show audience spiked 11 percent.  Her ratings had actually dropped a full 15 percent just the week before. 

Finally, I‘m being forced to cover him again.  Rod Blagojevich continues his media tour, even though he is no longer the Illinois governor and means nothing to any of us.  Last night, Blagojevich insisted to David Letterman that people will realize this is just one big misunderstanding and he‘ll continue to taint his jury pool too.  Letterman didn‘t let up on Blagojevich, and asked him some pretty tough questions.  What did the former governor think of that? 

(BEGIN VIDEO CLIP)

DAVID LETTERMAN, “THE LATE SHOW”:  You think I‘ve done anything wrong? 

ROD BLAGOJEVICH, FMR. GOV. OF ILLINOIS:  I think some of your questions have been pretty tough.  But no, other than that, I think you‘ve been pretty good. 

LETTERMAN:  Are you going to continue to be on TV? 

BLAGOJEVICH:  Look—I don‘t know.  Are you going to invite me back? 

LETTERMAN:  Just in terms of filling time, you‘ve been tremendous. 

(END VIDEO CLIP)

BRZEZINSKI:  Wow.  In another interview, the former governor said he may call President Obama as a witness in any federal trial he may face.  Another circus.

The new leader of the Republican National Committee says the government doesn‘t create jobs.  Isn‘t that the whole idea behind President Obama‘s economic stimulus plan?  Up next, myth buster Dan Gross tells us who is right.

(COMMERCIAL BREAK)

BRZEZINSKI:  Welcome back to 1600.  It‘s now to separate some economic fact from fiction on what we like to call Myth Buster Wednesday.  Newly elected Republican National Committee Chairman Michael Steele has taken up his role as party spokesman with enthusiasm.  What he‘s using his new bully pulpit for?  Well, he‘s taking a stand against President Obama‘s stimulus package. 

(BEGIN VIDEO CLIP)

MICHAEL STEELE, RNC CHAIRMAN:  The government doesn‘t create jobs. 

Let‘s get this notion out of our heads that the government creates jobs.  Not in the history of mankind has a government ever created a job.  Those two to four million jobs that are projected won‘t happen.  Trust me. 

(END VIDEO CLIP)

BRZEZINSKI:  OK.  Joining us now to bust a myth, Dan Gross, senior editor at “Newsweek.”  Welcome.  What‘s the myth here?  That government creates jobs? 

DAN GROSS, “NEWSWEEK”:  In the history of mankind, government has created many jobs.  In fact, if you look at the latest data, 15 percent of payroll jobs in this country, more than 25 million, are from government: schools, defense, government itself, huge industries.  And with—we‘ve cut interest rates all we can.  Tax cuts don‘t necessarily work, because people use that money to save. 

BRZEZINSKI:  Right. 

GROSS:  Government spending is basically the only thing we have left; government buying goods and services to keep the economy going. 

BRZEZINSKI:  How about investing in businesses so that they hire people? 

GROSS:  That‘s part of it. 

BRZEZINSKI:  That‘s part of it? 

GROSS:  That‘s part of it.  But the area with the lowest unemployment rate, the metropolitan area with the lowest unemployment rate, Washington, D.C.

BRZEZINSKI:  There you go.  All right, busting a myth.  Dan Gross, that‘s what you do.  Thank you very much.  That is the view from 1600 PENNSYLVANIA AVENUE tonight.  I‘m Mika Brzezinski, in for David Shuster.  Thank you so much for watching.  I‘ll see you back here, bright and early, at 6:00 a.m. on “MORNING JOE.”  You‘ll hear us on the radio after that, from 10:00 to Noon.  Then you‘ll see David right back here tomorrow at 6:00 p.m.  “HARDBALL” is next.

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