updated 3/19/2009 10:29:33 AM ET 2009-03-19T14:29:33

HARDBALL 7pm

Guests: Bob Shrum, David Gregory, Pat Buchanan, Eugene Robinson

BARACK OBAMA, U.S. PRESIDENT:  First of all, let me thank Jerome for the wonderful introduction.  Give him a big round of applause.

We‘ve got a number of elected officials who are here and who I want to acknowledge.  We‘ve got the lieutenant governor, John Geramendi.  Give the lieutenant governor a big round of applause.  We‘ve got the secretary of labor, Hilda Solis who is here.  We‘ve got an outstanding member of Congress, Representative Loretta Sanchez.  Now, this is not Loretta‘s district, this is actually Dana Rohrabacher‘s district.

(BOOING)

No, no.

Actually, our office screwed up and I think didn‘t get the invitation to them on time.  So he‘s not here.  It was a screw-up on our part.  So I want to let him know we‘re sorry about that.  And I want everybody to give him a big round of applause.  It‘s his district.

Secretary of State Debra Bowen is here.  State Comptroller John Chung is here.  Superintendent of Public Instruction Jack O‘Connell is here.  And I‘ve got a couple of others.  We‘ve got the mayor of Santa Ana, Miguel Pulido who is here.  We‘ve got—let‘s see.  Who else.  We have State Senator Jose Corea is here.  We have State Representative Jose Solorio here.

We have the state Democratic party chair, Art Torres is here.  And great friend and supporter, Steve Wesley is here.  Give everybody a round of applause.  I hope I didn‘t miss anybody.  Now - and all of you are here.  Give yourselves a big round of applause.

All right.  Now, now, let me just say this.  For those of you who have chairs, go ahead and sit down so folks behind you can see.  All right?  Make sure to sit down if you‘ve got a chair.  We‘ll have time to shake hands afterwards.  Now, it is always good to get out of Washington for a little while.  And come to places like Costa Mesa.

Yeah, the climate is a lot nicer.  And so is the conversation.  So I am looking forward to taking your questions in a few minutes and talking to you about your concerns.  But before I do, I want to say a few words at the top.  And I‘m going to start off just by talking about these AIG bonuses you‘ve been hearing about.

Now, I know a lot of you are outraged about this.  Rightfully so.  I‘m outraged, too.  It‘s hard to understand that a company that‘s relying on extraordinary assistance from taxpayers to keep its doors open would be paying anybody lavish bonuses.  It goes against our most basic sense of what‘s fair and what‘s right.  It offends our values.

But these bonuses, outrageous as they are, are a symptom of a much larger problem.  And that‘s the system and culture that made them possible.  A culture where people made enormous sums of money taking irresponsible risks that have now put the entire economy at risk.  So we‘re going to do everything we can to deal with these specific bonuses.  And I know Washington‘s all in a tizzy and everybody‘s pointing fingers at each other and saying it‘s their fault, the Democrats fault, the Republicans fault.

Listen, I‘ll take responsibility.  I‘m the president.

(APPLAUSE)

So—we didn‘t draft these contracts.  And we‘ve got a lot on our plate.  But it is appropriate when you‘re in charge to make sure that stuff doesn‘t happen like this.  So we‘re going to do everything we can to fix it.  So for everybody in Washington who‘s busy scrambling trying to figure out how to blame somebody else, just go ahead and talk to me.  Because it‘s my job to make sure that we fix these messes, even if I don‘t make them.

(APPLAUSE)

But—but what‘s just as important is that we make sure we don‘t find ourselves in this situation again.  Where taxpayers are on the hook for losses in bad times and all the wealth generated in good times goes to those who are at the very top of the income ladder.  That‘s the kind of ethic we‘ve had for too long.  That‘s the kind of approach that let us into this mess.  That is something we have to change if we‘re truly going to turn our economy around and move this country forward.

So I‘m absolutely committed to ensuring we have tools we need to prevent the kinds of abuses that sent AIG spiraling.  And we‘ve got to make sure we‘ve got regulations that don‘t allow companies to take these huge risks that are so big that they can sort of hold us hostage.  We can‘t let them fail because it would bring the entire banking system down and hurt a lot of innocent people.  But, on the other hand, they act irresponsibly.  We have to make sure we don‘t put ourselves in that position.

And I‘m also committed to ensuring if we have to intervene again to prevent a bankruptcy that could cause a catastrophe for the whole financial system that we have some of the tools that a bankruptcy judge has, to help renegotiate contracts, to sell off insolvent parts of an institution, to protect the healthy parts, to protect depositors and creditors and other consumers.

We also want to do this because it serves the most important goal we have today, which is to rebuild our economy in a way that‘s consistent with our values.  An economy ...

(APPLUSE)

And I want to describe to you the kind of economy we want to build, an economy that rewards hard work and responsibility, not high-flying financial schemes.

(APPLAUSE)

An economy that‘s built on a strong foundation but not one that‘s propelled by overheated housing markets and maxed out credit cards.  In other words, we want to build an economy that offers prosperity for the long run.  You remember that ad they used to have out there that said, “We earn money the old-fashioned way, we earn it”?

Well, we need to get back to that philosophy.  Because that‘s what all of you do.  You‘re out there earning a living.  And we‘ve got to reward people who are working hard, not the bubble and bust economy we‘ve experienced in recent years.

(APPLAUSE)

We don‘t need these house of cards, these Ponzi schemes, even when they‘re legal.  Where relatively few do spectacularly well, while the middle class loses ground.  You know what I‘m talking about.  I don‘t need to tell you these are challenging times.  I don‘t need to tell you this because you‘re living it every day.  One out of every ten Californians is out of work right now.  You‘ve got one of the highest foreclosure rates in the nation.  Budget cuts are threatening the jobs of thousands of teachers across the state.

But here is what I know—here‘s what I want you to know.  We are not only going to make it through this crisis, we are going to come out on the other side a stronger and more prosperous nation.

(APPLAUSE)

I can‘t tell you how long it‘s going to take or what obstacles we‘ll face along the way, but I can promise you this—there will be brighter days ahead, here in California and all across America.

But that‘s only going to happen if we pull together and focus on the big things.  Focus on the long term.  We‘ve got to get past this petty bickering, the constant trivialization of politics and focus on getting the job done.  And we‘re already seeing some signs of progress.  Because of the recovery act that your two outstanding senators, Senator Feinstein, Senator Boxer, along with Congresswoman Sanchez, along with Congresswoman Sanchez, worked so hard to pass.  And that I signed into law the other week.  A new hospital will be built at Camp Pendleton that will give the servicemen and women the care they deserve.

(APPLAUSE)

Over in Inglewood, the police department‘s planning to expand staff by 30 people.  Orange County is hoping to add a new lane on SR-91, creating about 2,000 jobs—creating about 2,000 jobs and easing congestion in the process.

These are just a few of the 396,000 jobs we will create or save in California and the 3.5 million jobs we‘ll create or save across America over the next two years.

(APPLAUSE)

We are also taking unprecedented steps to unlock our frozen credit market.  So families can get the loans they need to buy a home or a car.  And businesses can pay for inventory or make payroll.

That‘s why earlier this week we took a sweeping step to free up loans for entrepreneurs, helping them start and grow the small businesses that employ half of our private sector workers.  That‘s why - that‘s why we‘re creating a fund that will help support up to $1 trillion in loans, including auto loans and college loans.

That‘s why—that‘s why we‘ve launched a housing plan that will help responsible homeowners save money by refinancing their mortgage loans.

Now, none of this will make any difference, however, unless we strengthen our economy over the long term.  Unless we put our economy on a firmer footing by rebuilding its foundation.  And that‘s exactly the purpose of the budget I‘m submitting to Congress.  It‘s a budget that makes hard choices about where to save and where to spend.  Because the massive deficit we inherited and the costs of this financial crisis, we are going through our books line by line, so that we can cut our deficit in half by the end of my first term and reduce it by $2 trillion over the next decade.

(APPLAUSE)

Now, what we will not cut—what we will not cut are investments that will lead to real growth and real prosperity.  Investments that will make a difference in the lives of this generation and future generations.  Let me give you some examples.

Because of spiraling health care costs that are crushing our families, dragging down our entire economy, and represent one of the fastest growing parts of our federal and state budgets, we‘ve made a historic commitment to health care reform in this budget, reform that brings us closer to the day when health care is affordable and accessible for every single American.

(APPLAUSE)

Because we know that countries that out-educate us today will out-compete us tomorrow, this budget invests in a complete and competitive education for every American, in early childhood education programs that work, in high standards and accountability in our schools, in finally putting the dream of college degree or technical training within reach for anyone who wants it.

(APPLAUSE)

Because we know that enhancing America‘s competitiveness will also require reducing our dependence on foreign oil and building a clean energy economy, this budget will spark the transformation we need to create green jobs and launch renewable energy companies, right here in California.

It makes clean energy the profitable kind of energy.  It invests in technologies like wind power and solar power, fuel efficient cars and trucks, powered by batteries like the ones I‘ll be seeing in Rosemead tomorrow.  All of which will also help combat climate change.  Because the weather‘s already nice in Orange County.  We don‘t want it to get warmer.

(APPLAUSE)

So that‘s what this budget does.  Now, here‘s what the budget does not do.

UNIDENTIFIED MALE:  I love you Obama!

OBAMA:  I love you back.  Here‘s ...

(APPLAUSE)

Here‘s—here‘s what the budget does not do.  It does not raise the taxes of any family making less than $250,000 a year by a single dime.

(APPLAUSE)

In fact, 95 percent of all working families will receive a tax cut as a result of our recovery plan.  Now, there are those who say these plans are too ambitious.  We should be trying to do less, not more.  Obama‘s trying to do too much, they say.  Just focus on Wall Street, focus on the banks.  Well, I say our challenges are too large to ignore.

The cost of health care is too high to ignore.  The dependence on oil is too dangerous to ignore.  Our education deficit is too wide to ignore.

(APPLAUSE)

To kick these problems down the road for another four years or eight years, that would be to continue the same irresponsibility that got us to this point.  I didn‘t run for president to pass on our problems to the next generation.  Or the next president.  I ran for president to solve these problems so that you‘ve got a better shot at life.

(APPLAUSE)

CROWD:  Obama!  Obama!  Obama!

OBAMA:  So, I know folks in Washington and folks on Wall Street are saying no, no, no, one problem at a time, our problems.  I understand the thinking behind that and it‘s true, we‘ve got to solve this banking crisis.  There‘s no doubt about it.  Not because I‘m that concerned about the bankers, but because I‘m concerned about you.  And we‘ve got to great liquidity and credit flowing again, to small businesses, to people who want to buy a car, who want to refinance a home.

So I understand their thinking about solving that problem.  But you know, I‘ve said before, when you‘re president, you‘ve got to walk and chew gum at the same time.

It would be nice—it would be nice if I could just pick and choose what problems to face and when to face them.  Say, no, I‘m sorry, hold off on health care.  Afghanistan, let‘s put that aside for a while and - - you know, I would sleep a little easier.  But that‘s not the way it works.  It doesn‘t work that way for you.  It doesn‘t work that way for you.  You don‘t get to choose between paying your mortgage bills or your medical bills.  You don‘t get to choose between paying your kid‘s tuition and saving enough for retirement.  You don‘t get to say, well, I‘m sorry, hold on a second, you know, I really got to take on some issues at home here so I don‘t think I‘m going to go to work for a week.  It would be nice to do.  But you don‘t do that.  You need to take all these problems on.  And you need a government that‘s going to help you on all these problems, that will do the same.  That‘s what leadership‘s all about.

And that‘s what this debate on the budget is all about.  About whether we are willing to do what needs to be done not only to get our economy moving right now, but to put it on the road to lasting shared prosperity.  It can be easy to lose sight of this.  It‘s easy for pundits to get on TV and put the ratings ahead of their own sense of responsibility and try to oversimplify what‘s at stake.  It can be difficult to break free from the partisanship that‘s held sway in Washington for so many years.  But that‘s what we have to do.  That‘s what this moment requires.

For all of you know deep down and what folks in Washington sometimes forget, in the end, a budget is not merely numbers on a page or a laundry list of programs, it‘s about your lives, it‘s about your families, it‘s about your dreams for the future.  You did not send us to Washington to stand in the way of your aspirations.  You didn‘t sent us there to say no to change, you sent us there to get things done and bring about change.  And that‘s what I intend to do.

But ...

(APPLAUSE)

I can‘t do it without you.  I can‘t do it without you, the American people.  That‘s why I‘m here today, because it will take all of us talking with one another and all of us working together to see our nation through this difficult time and bring about that brighter day.  So I hope you‘re all ready to get to work.

I want to thank you all for this opportunity to speak with you.  Here‘s what we‘re going do.  We‘re going to open it up to questions.  And I know there are a lot of folks back there, too.  I‘m going to try to not completely discriminate to folks who got here in front.

There are no rules to this except a couple.  First of all, nobody has been pre-selected here.  So, you know, I don‘t mind if you want to take me to task.  And if you think I‘m a bum and doing a bad job, you go ahead and ask your question.  The only thing I would ask if everybody raise their hands number one, not everybody now.  I mean, everybody who has a question.

Number two is that I‘m going to do girl, boy, girl, boy, so it‘s fair.  And number three, I would ask that everybody try to keep their question relatively brief so that we can get as many questions in as possible.  Now, it doesn‘t have to be a question.  It can be a comment as well. 

But, you know, we want to try to keep the speeches to a minimum.

And I will try to also answer questions as briefly as possible.  OK?  All right, and I hope you don‘t mind.  I‘m going to take off my jacket, if you guys are hot.

(APPLAUSE)

OK, thanks.  All right.  We‘re going to call on this young lady right here.  Wait till you get a microphone so everybody can hear you.  Introduce yourself if you can.

QUESTION:  Good afternoon, President Obama.  (Inaudible).  Do you have intentions when the re-election comes of running for president again?

OBAMA:  Well, first of all, let me say this, I‘ve been in office for two months now.  The last thing I‘m thinking about is reelection.

But I will tell you this, and this is a serious answer to your question.  If I could get done what I think needs to get done in four years, even if it meant that I was only president for four years I would rather be a good president taking on the tough issues for four years than a mediocre president for eight years.

(APPLAUSE)

And I will also say this.  I will also say this, that my obligation is to make sure that we‘ve improved our economy, that we‘ve gotten serious on health care, made significant progress on energy, made education more affordable and improved the excellence of our educational system, K through 12, that we have started controlling our deficits.  So there‘s some very specific standards by which I think you should hold me accountable and measure my success.  And if I don‘t deliver on those things four years from now, then I think you will be answering the question of whether I‘ll run for reelection or not.  Because ultimately I am answerable to you.  I am your employee.  OK?  All right.

(CHEERING AND APPLAUSE)

OBAMA:  Gentleman in the black shirt right here. 

QUESTION:  Mr. President.

OBAMA:  Yes, sir.

QUESTION:  My name is Cliff Cannon (ph).  My question concerns those states who have refused to take certain portions of the stimulus money.  Is there any way to reallocate that money to those states who are willing recipients...

(CHEERING AND APPLAUSE)

QUESTION:  ... such as California? 

(CHEERING AND APPLAUSE) 

OBAMA:  Well, look, you know, we had a vigorous debate on the stimulus, on the Recovery Act.  And let me just say a couple of things about the Recovery Act.  Number one, there was almost uniform consensus among both conservative and liberal economists that when you have the economy on such a freefall, that you need a big stimulus to try to make sure that goods and services are still being purchased and the decline in demand as consumers pull back is being filled. 

If you don‘t, then the recession gets even worse.  There‘s almost uniform consensus on that.  So that‘s point number one. 

Point number two, the Recovery Act that we put forward contained some—some provisions in it that I don‘t think anybody should be able to argue with, that we‘re providing extended unemployment insurance to people who have lost their job. 

That we are allowing—if you‘ve lost your job, right now you can get Cobra, but you can‘t afford Cobra, so subsidizing health insurance for people who‘ve lost their jobs.  Investing in our roads and our bridges and our infrastructure so we are more competitive over the long term. 

Now, there are some people—there have been just a handful of states, two or three, who have said, we don‘t want to take some of the unemployment insurance because what we said was that a portion of this unemployment insurance, you have to make it more available to people who are temporary workers or part-time workers because the labor force has changed and there are a lot of people, particularly women, who, you know, they may have children, they may be working part time, but when they lose that job, it‘s tough for them. 

So we‘ve got to modify how we think about unemployment insurance.  And they‘ve said, well, we don‘t want to change how we do things.  I think that‘s a mistake.  And I think that the folks in those states should let them know that it‘s a mistake. 

And I‘m still hopeful that they may end up changing their minds.  But I will keep in mind what you just said, which is, there‘s at least one guy in California who‘s willing to take the money.  So...

(CHEERING AND APPLAUSE)

OBAMA:  Can I make one last point?  I hope you don‘t mind.  Can I make one last point about this stimulus package?  I want to make a larger point about the deficit and the national debt. 

Because the main argument that you‘re hearing right now in opposition to some our economic plans, including our budget, is you‘ve got all of this money going out, you‘re creating huge deficits and debt, and that‘s irresponsible. 

Well, first of all, most of these critics presided over a doubling of the national debt.  We are inheriting a $1.3 trillion deficit, so they don‘t have the standing to make this criticism, I think, given how irresponsible they‘ve been.  That‘s point number one. 

Having said that, even somebody who caused the problem isn‘t wrong when they say it is a problem that we‘ve got this big debt and these big deficits.  So what we‘ve tried to do is to say, let‘s right now just focus on getting the economy back on track, reducing unemployment, creating jobs, making sure our school systems still have teachers, cops are still on the streets, firefighters are still in the station house. 

Let‘s—let‘s do what we need to do to get through this difficult time.  Let‘s make some investments in health care, energy, education, that will lay the foundation for long-term economic growth.  But let‘s also start making some tough choices about the deficit as soon as we get out of this recovery. 

So, for example, we can‘t keep on providing the insurance companies huge subsidies under Medicare for a program called Medicare Advantage that doesn‘t make our seniors any healthier than the regular Medicare plan.  We need to go ahead and use that money for other things. 

We can‘t keep on giving these huge procurement contracts to defense industries that end up being 50, 60, 100 percent over budget, very good for contractors, not so good for taxpayers.  So we‘ve got to institute reforms .  And we‘ve already identified potentially pulling out $40 billion annually on savings on procurement. 

Those are the kinds of things—those are the kinds of steps that we need to take.  And we are going to go through this budget line-by-line.  And some of these choices may be difficult.  I won‘t lie to you.  We can‘t keep on just printing money and saying we‘ll let our children worry about it. 

But we have to do it in a way that right now focuses on just getting people back on their feet, getting the economy running again, and then we‘re going to have to make some difficult choices, especially over some of these longer-term entitlements like Social Security and Medicare. 

All right.

CHRIS MATTHEWS, HOST:  Well, that‘s President Barack Obama out in Orange County, California, taking questions in his town meeting.  We‘re going to take a break right now and rejoin the president after this.  You‘re watching HARDBALL, only on MSNBC.

(COMMERCIAL BREAK)

MATTHEWS:  Coming up, we‘ll go back to California and President Obama‘s town meeting right after this.  HARDBALL returns.

(COMMERCIAL BREAK)

MATTHEWS:  Let‘s go back to Costa Mesa, California, and President Obama‘s town meeting.  He‘s answering a question about community banks.

OBAMA:  . our Web site, the White House Web site, it will tell you about this program.  Now you‘re right, though, that we still have a problem that a lot of small businesses are seeing their credit lines restricted.  And part of that has to do with the issue you‘re talking about, which is regulators may be saying to banks, look, we‘re worried about all of these losses so pull back on what you consider riskier loans. 

Well, if you‘ve got a credit line to a small business and they‘re seeing some of their business dry up right now, then you might be saying to yourself, maybe I can‘t continue that credit line. 

We don‘t have direct authority—the White House does not have direct authority over these regulators.  These regulators are supposed to be somewhat independent from politics. 

But, you know, we have had conversations to note that, you know, during a difficult period like this, we want to make sure that the bottom line is ultimately that liquidity and lending is going out the door.

And I think that we‘re going to be having broader conversations with the community banks to figure out how can we take even further steps to help them be in a position to help the small businesses and individuals who depend so much on banks like yours.  OK? 

All right.  This young man right here.  This young man right here.  He has been—OK. 

(CROSSTALK)

OBAMA:  See, I‘ll admit that part of the reason—since I‘m getting old and it‘s hard to see back there. 

(LAUGHTER)

OBAMA:  Go ahead. 

QUESTION:  My name is Ivan Martinez (ph).  I‘d like to ask you what do you plan to do on immigration, the broken system that we have, and when do you plan on doing this? 

(CHEERING AND APPLAUSE)

OBAMA:  I just met with the Congressional Hispanic Caucus today, which Congresswoman Sanchez is a member of...

(CHEERING AND APPLAUSE)

OBAMA:  ... to talk about this issue directly.  As many of you know, during the campaign I was asked repeatedly about this and I reiterated my belief that we have to have comprehensive immigration reform. 

Now, I know this is an emotional issue.  I know it‘s a controversial issue.  I know that people get real riled up politically about this.  But ultimately, here‘s what I believe.  We are a nation of immigrants, number one.  Number two, we do have to have control of our borders. 

Number three, that people who have been here far long time and put down roots here have to have some mechanism over time to get out of the shadows because if they stay in the shadows, in the underground economy, then they are often times pitted against American workers.

Since they can‘t join a union, they can‘t complain about minimum wages, et cetera.  They end up being abused and that depresses the wages of everybody, all Americans. 

(CHEERING AND APPLAUSE)

OBAMA:  So I don‘t think we can do this piecemeal.  I think what we have to do is to come together and say, we‘re going to strengthen our borders.  And I‘m going to be going to Mexico.  I‘m going to be working with President Calderon in Mexico to figure out how do we get control over the border that has become more violent because of the drug trade. 

We have to combine that with cracking down on employers who are exploiting undocumented workers.  We have to make sure that there‘s a verification system to find out whether somebody is legally able to work here or not.

But we have to make sure that that verification system does not discriminate just because you got have an Hispanic last name or your last name is Obama. 

(LAUGHTER)

OBAMA:  You‘ve got to—and then you‘ve got to say to the undocumented workers, you have to say, look, you‘ve broken the law.  You didn‘t come here the way you were supposed to.  So this is not going to be a free ride.  It‘s not going to be some instant amnesty. 

What‘s going to happen is you are going to pay a significant fine.  You are going to learn English.  You are going to go to the back of the line so that you don‘t get ahead of somebody who was in Mexico City applying legally. 

But after you‘ve done these things over a certain period of time, you can earn your citizenship.  So that it‘s not—it‘s not something that is guaranteed or automatic.  You‘ve got to earn it, but over time you give people an opportunity. 

Now, it only works, though, if you do all the pieces.  I think the American people, they appreciate and believe in immigration, but they can‘t have a situation where you just have 500,000 people pouring over the border without any kind of mechanism to control it. 

So we‘ve got to deal with that at the same time as we deal in a humane fashion with folks who have put down roots here, have become our neighbors, have become our friends, they may have children who are U.S.  citizens.  That‘s the kind of comprehensive approach we have to take.  All right? 

(CHEERING AND APPLAUSE)

MATTHEWS:  That‘s President Obama dealing with the tricky question of immigration in Orange County.  We‘re going to take another break and rejoin the president after that.

(COMMERCIAL BREAK)

MATTHEWS:  Let‘s go back to President Obama‘s town meeting.  He‘s answering a question from a teacher who is about to be laid off.

OBAMA:  So he is going to—he is going to—he was in a meeting with Arne Duncan, our secretary of education, and I stopped by in the meeting, and these were the school superintendents for all—all across the country, to come together and work on how do we both deal with the immediate short-term crisis, but also how do we think about long-term reforms. 

You‘re right that class size is something that we‘ve got to deal with.  You can‘t have a fifth grade class with 40 kids.  There‘s no teacher who can deal with 40 kids all at the same time especially if many of them are at different levels in terms of reading and math skills and so forth.  So we‘ve got to do something about that.  What‘s also true, though is we‘ve got to provide better teacher training.

There are teachers who may not know their subject matter as well as they should.  They have got to be given more time for professional development.  We‘ve got to have more flexibility, I believe, in terms of how we reward teachers.  I think that it is important for us to make sure that we have assessments that everyone can agree because ultimately we‘ve got to know our kids are meeting high standards.

Now, it can‘t just be a single high-stakes standardized test but we do need to have strong, powerful measures of performance.  Because schools are like anything else.  We can‘t afford our kids to be mediocre at a time when they‘re competing against kids in China and kids in India who are actually in school about a month longer than our kids.

So there‘s a whole bunch of reforms that we‘re going to have to do.  And the last point that I always make, so I‘ll make this again, is we‘ve got to do our jobs as parents.  You can‘t put all the burden on a teacher.  You can‘t put all the burden on a teacher if you‘re not making sure your child does their homework, if you‘re not reading to them, instill ago sense of excellence and a thirst for knowledge in them, then they‘re not going to do well no matter how good your teacher is.

OK, so that‘s very important.  One last point I want to make about education.  This budget that we are now arguing about—and you‘re going to be hearing a bunch of arguments about, oh, you know, Obama, he‘s a spendthrift, et cetera, et cetera.

We reduce non-defense discretionary spending as a percentage of domestic product but what we insist on is that we make some investments in education.  And one of the things that we haven‘t talked about is higher education.  I‘ve said we‘ve got to increase student loan, student grants, the Pell grant program, that‘s got to be a priority.  That‘s our future.  And I‘m going to fight for it.  I don‘t care how long it takes.  We‘re going to make it more affordable to go to college.  Because that‘s what everybody needs.

All right.  We need a gentleman.  Gentleman in the tie, right here. 

Says he wore a tie today.  I appreciate that.  All right.

QUESTION:  It‘s awful hot.

OBAMA:  It‘s hot.  I want to take mine off, too, but ...

QUESTION:  I‘m Bob Balganorth (ph), I am president of the state Building and Construction Trades Council of California.  The umbrella organization for construction unions.  I would like to thank you for your leadership on the stimulus package, and particularly, for trying to get construction workers back to work.

But during the last eight years, the administration chose not to enforce the Davis-Bacon requirements, chose not to enforce wage and hour conditions and many thousands of workers were denied the wages that they were legally entitled to.  What can your administration do to make sure that people get the wages that they are entitled to in this terrible economic downturn?

OBAMA:  Well, look, I‘ve already said that we are going to promote Davis-Bacon.  We think it is important that unions have the opportunity to organize themselves.  Now, you know, sometimes, you know, the business press says, oh, that‘s anti-business.  And whenever I hear that, I‘m always reminded of what Henry Ford said when he first started building the Model T.  And he was paying his workers really well.  And somebody asked him, they said, why are you paying your workers so well?  He said, well, if I don‘t pay them well, they won‘t be able to buy a car.  Think about that.

Part of the problem that we‘ve had with our economy over the last decade at least is that—well, there are a number of problems.  Number one, it turns out that a huge amount of the growth that was claimed was in the financial services industry.  And now we find out that a bunch of what stuff was just a paper growth that wasn‘t real and vanished as soon as somebody pulled the curtain.

Another part of the problem with our economy and the way it was growing was that wages and incomes for ordinary working families were flat for the entire decade.  Now, I don‘t need to tell you this because you‘ve experienced it in your own lives.  You‘re—just barely kept up with inflation while people at the very top—and, look, I‘ll be honest with you, I‘m now in that category—we were seeing all the benefits.

So when I say that we should make it easier for unions to organize and observe Davis-Bacon, all I‘m trying to do is restore some balance to our economy so that middle class families who are working hard, they‘re not on welfare, they‘re going to their jobs ever day, they‘re doing the right thing by their kids, they should be able to save, buy a home, go on a vacation once in a while, you know, they should be able to save for retirement, send their kids to college.  That‘s not too much to ask for.  That‘s the American dream.

And the only way we get there is if we have bottom-up economic growth instead of top-down economic growth.  And that‘s why—that‘s why the debate about this budget is so important.

Let‘s talk tax policy for a second.  Because, again, some on the other side have said, oh, Obama, he‘s a tax and spend Democrat.  Tax and spend.  Well, it turns out, yes, you know what I‘ve said is we should return to the tax rates that we had under Bill Clinton.  Which means—which means this, which means that for people who are making more than $250,000 a year, they would pay, instead of 36 percent, they‘d pay 39 percent.  Like a three percent increase on their tax rate.

Now, these folks can afford it.  They were rich—they were rich back in the ‘90s.  It‘s not like suddenly they‘re going to have to go to the poor house.  But what that does is it allows us to pay for health care reform for a lot of people who are out there working every day about are just one illness away from bankruptcy.

Now, that‘s—I don‘t think that‘s unreasonable.  I don‘t think that‘s socialism.  I think that‘s part of understanding that we‘re all in this together and that if the middle class is doing well, if working people are doing well, then everybody does well, then they can buy products and services and businesses will succeed.  That‘s the philosophy that we are pursuing in this budget.  That‘s why I need your support.

I‘m going to take two more questions.  Two more questions.  In the back.

MATTHEWS:  We‘re going to take a short break and be right back with the president in Orange County.  You‘re watching HARDBALL on MSNBC.

(COMMERCIAL BREAK)

MATTHEWS:  Let‘s go back to President Obama‘s Orange County town meeting.

OBAMA:  .more thoughtful about how we use them and ultimately we‘ve got to take responsibility if we are going on shopping sprees that we can‘t afford.

On the other hand, it‘s also important that we have consumer safety laws and that‘s something I want to promote and get done as president of the United States.

Now, let me talk about the larger issue of banks just for a second.  Because a lot of people I know just are so frustrated and I am so frustrated with this banking situation.  I just want to just briefly explain to you sort of what‘s happened.

These banks purchased a lot of what are securitized mortgage instruments.  They took a lot of these subprime loans and they bundled them up.  So they weren‘t just holding a mortgage, they were holding a whole bundle of mortgages that were made into a security, a stock, and they were sliced up.  And so you could buy different pieces of these mortgages.

And unfortunately, what ended up happening was a bunch of these mortgages, and this was certainly true in California, it was true all across the country.  A bunch of these mortgages were based on people who never had the income to buy the house, nobody tried to verify whether or not they could actually afford it.  It was based on these complicated mathematical formulas.  And then what happened—and this is where AIG and some other companies come in—what happened was since the banks knew that there might be some risk around having these financial instruments, they bought these things called credit default swaps that were supposed to be guarantees or insurance on these instruments or on these securities, these mortgage-backed securities.

The problem was, companies like AIG, they‘d sell, like, 50 policies without having the money to cover the possibility that they would all go belly up.  So they were way overleveraged, overextended, just as the banks were way overleveraged and overextended.  And in some cases, they‘d take a dollar worth of assets and they‘d loan or use $30 off that $1 just to make bigger and bigger bets and take bigger and bigger risks out in the financial system.  And these started getting into trillions of dollars.  And as long as nobody was checking to see if anybody was going to be able to pay back these mortgages and as long as housing prices were appreciating, and this housing bubble was continuing, everybody was making a lot of money.  So nobody wanted to check.

And there was no serious regulation to say hold on, stop a minute, you guys are getting way overextended.  You‘re putting the entire financial system at risk.

So when the economy started slowing down and in some markets like Miami and here in California, the housing market starts really weakening and suddenly some of these subprime loans start defaulting, this whole house of cards just began to collapse.

Now, a lot of people say, well, why not just let the banks fail?  Right?  See, somebody‘s clapping.  Why not just, you know, they were making all these bad bets.  Why don‘t we just let them fail, let them go bankrupt, what‘s the problem?

Well, here‘s the problem.  If you‘ve just got one small bank, I mean, unfortunately, let‘s say, take the community bank—what‘s the name of your community bank?  Fullerton Community Bank.  All right.  Now, let‘s just say this, if Fullerton Community Bank fails, heaven forbid, we‘ve got something called the FDIC, the Federal Deposit Insurance Corporation that would take it over, it would guarantee all the deposits so you don‘t have to worry about your deposits.  There are not at risk.  And it would be able to kind of sort things out and then resell the bank fairly quickly and it doesn‘t threaten the system as a whole.

When you‘ve got big banks, Citicorp or Bank of America or, you know, Wells Fargo that controls 70 percent of the banking system, and all of them are weakening, you can‘t afford to have all those banks all at once start going under.  Even though the deposits might be guaranteed, you‘ve got the entire economy resting on that credit.  We‘ve got to get that credit lending because they can take down businesses large and small alike if we don‘t make sure that they are still providing loans and so we had to step in and it was the right thing to do, even though it‘s infuriating, even though it makes you angry because you‘re thinking, I was responsible and these folks are irresponsible and somehow I‘m paying for them.  It was the right thing to do to step in.

The same is true with AIG.  It was the right thing to do to step in.  Here‘s the problem.  It‘s almost like they‘ve got—they‘ve got a bomb strapped to them and they‘ve got their hand on the trigger.  You don‘t want them to blow up.  But you‘ve got to kind of talk them, ease that finger off the trigger.

We‘ve got to, over the next several months, come up with a plan that separates out the bad assets that—the loans that shouldn‘t have been made, these credit default swaps, et cetera.  We‘ve got to separate out some of those from the good assets, because there‘s a lot of very healthy banks.  The vast majority of banks are healthy.  We‘ve got to figure out how to raise their capital, the point that you were making earlier so that they can start lending again.  This is a very complicated, difficult task.  It‘s not easy.  We‘re talking about a huge system that‘s not just national, but international.

And so we‘re not going to unwind this all in a day.  But what I do have confidence in is that with the plans that we‘re putting forward, slowly you‘re starting to see the system stabilize.  You‘re starting to see more loan activity taking place.  Some of the security markets are coming back.  And if we continue to provide some guarantees and help depositors and help strengthen some of the banks that are weakened, then my expectation is that we‘re going to be able to work our way out of this problem and we‘re going to be able to get back to a point where banks are lending, businesses are investing, jobs are being created, and the economy gets back on its feet and when that happens, we should get a bunch of the money that has been lent to these banks back.

Now, we‘re not going to get all of it.  I just—you know, we‘re not going to get 100 percent of it back in some cases.  In some cases, we may get 100 percent back.  In some cases, we might even make a profit.  I don‘t want to pretend that this is going to be cheap.

But the point is that instead of looking backwards, the main thing we‘ve got to do is look forwards and say, how do we make sure that we get out of this mess, but also prevent this mess from ever happening again, and that requires the kind of financial regulation that‘s going to be so important for our long-term future.

All right.  I‘ve got—it‘s a guy‘s turn.  It‘s a man‘s turn.

MATTHEWS:  Well, we‘re going to take a break and be right back to finish off the president‘s town meeting out in California.  We‘ll be right back with HARDBALL.

(COMMERCIAL BREAK)

MATTHEWS:  President Obama is still out in California with the town meeting, asking—or answering a question right now from a convicted felon who is out of work.

OBAMA:  Let‘s talk about the auto industry for a second.

(LAUGHTER)

OBAMA:  Now, first of all, you worked for Toyota which is obviously one of the best companies and so you—when Toyota‘s having problems and laying off, that tells you how tough the problems are in the auto industry right now.  We are going to have to work to move in the direction of fuel efficient cars and trucks.  I would have expected you to say you were working for an American car company because they‘re having much bigger problems.

But whether it‘s Toyota or GM or Chrysler or Ford or any company right now, the future‘s going to be in fuel efficient cars.  It‘s going to be in these plug-in hybrids.  It‘s going to be in developing the battery technology that allows electric cars to run for 150 miles for every gallon of gas.

And what we need to do is to invest in research and development around this clean energy auto technology.  And one of the things we‘ve committed to doing in our budget is to spend $15 billion every single year in new technologies that maintain cutting edge auto technologies that will ensure that good efficient clean cars are made right here in the United States of America and hopefully we‘re going to put you back to work in the process so ...

QUESTION:  Thank you.

OBAMA:  So, all right, everybody, thank you!

(CHEERING AND APPLAUSE)

OBAMA:  Careful, careful, careful, careful.

MATTHEWS:  That‘s President Barack Obama, of course, wrapping up what looks to be a very positive town meeting out in Costa Mesa, California, in Orange County, otherwise known as “The O.C.” We are joined right now by MSNBC political analysts, they have got a band there, too. 

Pat Buchanan, I know you‘re roused up by the—just the mere sound of that—God, who is that, that‘s John Philip Sousa. 

(CROSSTALK)

PAT BUCHANAN, MSNBC POLITICAL ANALYST:  . band could be Whittier College. 

(LAUGHTER)

MATTHEWS:  John Philip Sousa, of course, Eugene Robinson of The Washington Post, a popular columnist as well.  “Stars and Stripes Forever.” Many people wanted that to replace “The Star-Spangled Banner” at one point.  A lot have moved for that. 

Let‘s go to this, did he make news tonight or did he distract from news and build on his own popularity tonight? 

EUGENE ROBINSON, MSNBC POLITICAL ANALYST:  I don‘t think he made news tonight.  He certainly didn‘t really make news on the topic of what everyone was talking about today, the bonuses in AIG and the financial crisis, except to this extent, he did advance the campaign he began as he took off from the White House to kind of cool this thing down by saying, look, if you are looking for somebody to blame, blame me, I‘m the president, ultimately I have the responsibility. 

MATTHEWS:  But who is he protecting? 

ROBINSON:  Well, I don‘t know.  But one gets the sense that he doesn‘t want a search for a villain. 

MATTHEWS:  OK.  Let me tell you who the potential villains are.  Geithner, who has had a hard time explaining himself.  We‘ve Bob Shrum joining us here, I want him to jump in.  Geithner has had a very hard time explaining himself. 

We also have the unknown villain, somewhere, some way the federal government led by the Treasury Department and the president and the Senate Democrats, including Chris Dodd, somehow they protected these bonuses.  Somehow that was done. 

Chris Dodd was on earlier tonight and told us that he was told by Treasury Department staff, or staff from the White House, to get that language out of there and delete the effort to remove these bonuses. 

BUCHANAN:  Well, that‘s exactly what—well, here is the thing.  What the president of the United States is doing getting away geographically and politically from this problem.  Let‘s move on.  But the whole city is convulsed with it, Chris. 

They are going to follow up on who is responsible for pulling that out.  They are going to get the timeline on Geithner.  I think Geithner is the guy in the cross-hairs now.  He is the most visible guy.  I have seen Democrats—or heard Democrats going after him.  The Republicans are focusing on him.  Fairly or unfairly, there is almost always someone.

MATTHEWS:  Right.

BUCHANAN:  . in crises like these who gets thrown to the wolves. 

MATTHEWS:  Shrummy (ph), the problem here is that we now know—we know that the—according to the treasury secretary, and as you said in the early edition of the program, take him at his word he didn‘t know about AIG until Tuesday. 

But we also know that several weeks ago when they were writing the final language for the stimulus package, officials from Treasury somehow went to Senator Dodd, the chairman of the Banking Committee, and convinced him that you couldn‘t stand up legislation which would vitiate those contracts.  That they had to be allowed to stand, those previous contracts which permitted... 

BOB SHRUM, DEMOCRATIC STRATEGIST:  And they were wrong. 

MATTHEWS:  . bonuses.

SHRUM:  Yes.  They were wrong.  They made a mistake.  Look, the lawyers came in.  And, Chris, you and I have seen this when we worked up there on the Hill, someone comes in, makes a legal point, the staff accepts it, everybody sort of accepts it, nobody sees where it is going to go. 

I thought what was interesting about Obama today is he actually understands what the American people care about.  Washington is consumed with this.  People are not happy with these bonuses, but fundamentally what they care about is their jobs, health care, the economic plans he‘s setting out there. 

And I‘ll tell you, watching him tonight I thought I was watching a great political pro. 

MATTHEWS:  But I think the public is angrier about the rot at the top.  It‘s not the mobs at the gate.  It‘s not poor people they are angry with this time.  The public really feels that they were hurt by people.

SHRUM:  Yes.

MATTHEWS:  . at the top who have betrayed their power, betrayed their responsibilities to power. 

BUCHANAN:  Congress—that‘s why the Congress of the United States is responding as it is, Chris, because it is hearing from the grassroots, it‘s hearing from the people. 

And, frankly, we‘ve got the right to know if a couple of staffers can walk in and pull an amendment out of a bill which has been agreed to by the full Senate and the full House and change like that‘s responsible for this damned—excuse me, this—we‘re going to find.

(CROSSTALK)

SHRUM:  And, Pat, they can.  They can.  They did it when you were in the Nixon White House.  This is what happens with legislation... 

(CROSSTALK)

MATTHEWS:  OK.  Thank you very much.  Eugene Robinson, please come back next time.

(CROSSTALK)

(LAUGHTER)

MATTHEWS:  . Pat Buchanan, Bob Shrum.  Join us again.

BUCHANAN:  Send me an e-mail, Bob!

MATTHEWS:  . tomorrow night at 5:00 and 7:00 Eastern for more HARDBALL.  And watch midnight Eastern time as we rerun the show from tonight which will give you a full picture of this scandal involving these bonuses. 

“COUNTDOWN WITH KEITH OLBERMANN” starts right now with David Shuster sitting in for Keith. 

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

END   

Copy:     Content and programming copyright 2009 MSNBC.  ALL RIGHTS

                RESERVED.  Transcription Copyright 2009 CQ Transcriptions, LLC  ALL

                RIGHTS  RESERVED. No license is granted to the user of this material

                other than for research. User may not reproduce or redistribute the

                material except for user‘s personal or internal use and, in such case,

                only one copy may be printed, nor shall user use any material for

                commercial purposes or in any fashion that may infringe upon MSNBC and

                CQ Transcriptions, LLC‘s copyright or other proprietary rights or

                interests in the material. This is not a legal transcript for purposes

                of litigation.

Watch Hardball each weeknight at 5 & 7 p.m. ET

Discuss:

Discussion comments

,