updated 6/17/2009 11:18:37 AM ET 2009-06-17T15:18:37

Guest: Margaret Brennan, David Ignatius, Robert Baer, Roger Simon, Tina Brown, Maureen Orth, Nita Lowey, Lawrence O'Donnell, Ryan Lizza

CHRIS MATTHEWS, HOST: The mullahs pull the mikes. Let's play HARDBALL.

Good evening. I'm Chris Matthews in Washington. Leading off tonight, the roar from Iran. For those who fear democracy, its noise just got way too loud in Tehran. The mass demonstrations protesting the election results continue to rage, but now the government is doing all it can to shut down journalists' ability to get this story out from there.

Much of the video now coming out of Iran is amateur quality. Protesters are gathering with the help of the text messaging service Twitter, and the State Department even pressed Twitter to not shut down for scheduled maintenance because that's how Iranians are communicating with one another these days.

Here is President Obama today.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: When I see violence directed at peaceful protesters, when I see peaceful dissent being suppressed, wherever that takes place, it is of concern to me and it's of concern to the American people. That is not how governments should interact with their people.

(END VIDEO CLIP)

MATTHEWS: Washington Post columnist David Ignatius says the president is taking just the right tone. He'll be with us tonight along with someone who knows about Iran's ruling clerics, former CIA operative Bob Baer.

Also the Sarah Palin/David Letterman saga continues. Last night Letterman apologized for his joke about Palin's daughter. Palin accepted and then managed to drag in something about the U.S. military into the process. Tonight we'll have Roger Simon and also The Daily Beast's Tina Brown, both of whom have written very smart pieces about how Palin-well, about Palin and what she needs to do to be taken seriously.

Plus, a story close to the heart of a lot of people my age and younger, the future of the U.S. Peace Corps. I spent two years in the 1960s running a small business program in the Swaziland in southern Africa. Don't we need a stronger Peace Corps now today to improve America's positive role in the world after a war of choice and eight years of George W. Bush?

Also, what's the story that the Obama team offered U.S. Congressman Peter King the opportunity to be U.S. ambassador to Ireland? Were they out there again poaching for Republican members who their party can't replace? We'll get to that baby in "The Politics Fix."

And what does President Obama have in common with James Bond actor Daniel Craig, soccer star David Beckham, and Brad Pitt? And that's where it belongs tonight, in "The Sideshow."

Let's start with President Obama's reaction to those demonstrations in Iran. David Ignatius is a columnist for The Washington Post, and Robert Baer was a field operative for the CIA. He's author of the book "The Devil We Know: Dealing with the New Iranian Superpower," and has been covering the election in Iran and its aftermath for time.com. And by the way, David Ignatius has written a great new book, "The Increment."

Here is what the president said today, gentlemen, about the events in Iran. Let's listen then comment.

(BEGIN VIDEO CLIP)

OBAMA: I do believe that something has happened in Iran where there is a questioning of the kinds of antagonistic postures towards the international community that have taken place in the past and that there are people who want to see greater openness and greater debate and want to see greater democracy.

How that plays out over the next several days and several weeks is something ultimately for the Iranian people to decide.

(END VIDEO CLIP)

MATTHEWS: What strikes me, David and Bob, is the difference between the president, who is being very calm and not jumping up and down, and those on the right who are hitting the idiot button right now. And the idiot button is the one often pushed by Sarah Palin, but this week by John McCain and others.

They're all jumping at-Mitt Romney. They're all saying phony, bogus, let's attack Iran. That seems like exactly what the bad guys in Iran want us to be doing.

DAVID IGNATIUS, THE WASHINGTON POST: I think if you were trying to design a way for Ahmadinejad and his allies to have an enemy to blame for this crisis, you would prescribe a very vocal U.S. policy, America jumping in, strident statements from President Obama.

I think he's being very smart in expressing solidarity with the Iranian people and his consistent line since he became president is to speak to the people in the Muslim world. And he's doing that. He's doing that here in saying, we stand with you. He's just being very smart in his comments today, which was to say Ayatollah Khamenei, the leader of Iran, is concerned enough about fraud in the election that he has now asked for an inquiry.

I think that's smart. It gets him, you know, not in confrontation, but supporting the people.

MATTHEWS: Without being a buttinski.

IGNATIUS: Without being a buttinski. I mean, I wrote this morning that he needs to be very careful not to appear to meddle in Iranian politics. If he does that, he gives the mullahs a way out. He gives them a perfect target, and he discredits these brave people who we are watching in the streets.

I mean, this is the most amazing series of events we have seen in Iran since the revolution. The United States can really mess it up by making itself the enemy, by putting itself in the middle of the story. Obama so far is resisting that.

MATTHEWS: Your verdict on this, Bob, the president's role so far? Is it good, bad, whatever, indifferent?

ROBERT BAER, AUTHOR, "THE DEVIL WE KNOW": It's terrific. I completely agree with David. We do not want to get in the middle of Iranian politics, which we barely understand. And if the president were to come out and support Mousavi, the democratic opposition leader, it would be fatal for them.

We want to keep to the sidelines, worry about the violence, point to the government, saying, you're doing the right thing by doing a recount, but definitely don't get involved.

Iran is still a very xenophobic and paranoid country. And having the United States in the middle of its politics would really hurt.

MATTHEWS: Well, even if it weren't the way you just described it, and it apparently is, I remember back in the '60s when Kennedy ran against Nixon and Khrushchev was secretly rooting for Kennedy, he knew the worst thing he could do was to say he was rooting for him, because we in America would take that as compromise, saying hey, if he is for them, there must be something wrong with Kennedy.

This is one of the rare times in our-not to establish any moral equivalence with that situation, but this is one of the rare times in our history where we're watching something like a democracy on the other side, a crude democracy, right, David?

IGNATIUS: Iranians have a deep fear, I want to say almost a paranoia, that their history has been written by others.

MATTHEWS: Well, we did go in there and knock off their democracy back in the '50s and gave them the "Peacock Throne."

IGNATIUS: Not without reason. They know that in 1953 we staged a coup, we installed the shah. Before we did that, they felt that the British were steering their destiny.

MATTHEWS: That was Kermit Roosevelt, wasn't it?

IGNATIUS: Kermit Roosevelt led that Operation Ajax, I think was the name that was given to it. The point is, the Iranians have a suspicion that their history has been written by outsiders. You can see again in these pictures that there are people in the streets who want to write that history themselves and we need to express solidarity with them but let them do it. This won't take, it won't be real unless they do it themselves.

MATTHEWS: I want to ask Bob, who knows a lot about Iran, you know, I think just to use that parallel of the Cold War, when you're on the other side of a global competition like we're in right now, with the zealotry of some in Iran, it's hard to read the nuance of the other side.

I mean, like when we were fighting the communists in the Cold War, the Democrats and Republicans in this country were both against the communists but they had differences of opinion about how we should do it.

In terms of Iran, what is the difference between one side and the other? Mousavi against Ahmadinejad. What's the real fight about over there?

BAER: Well, I think the real fight is not-doesn't even include Mousavi and Ahmadinejad. Ahmadinejad is president, but his powers are limited. He has limited control over the military and the police. What this is really is a power struggle between Khamenei, the spiritual leader, and the old line guard that came with Khomeini, in particular the former president, Rafsanjani.

So we're not even really completely understanding the nuances of these demonstrations and really what is at stake. I mean, if these demonstrations continue, we could see Khamenei fall. Theoretically this could happen if there are really divisions.

MATTHEWS: You mean that guy we see on television, the old man with the beard who seems to be running the country, could actually fall because of these nonviolent demonstrations? Is that what you mean, Bob?

BAER: Oh, absolutely, he could fall. He is not truly an ayatollah. He bought his license, or whatever you want to call it, and he has limited legitimacy in Iran, but he is a military leader. He controls the secret police. And if the elections were rigged, it was he who rigged them, not Ahmadinejad.

So Ahmadinejad could be sacrificed in all this. The real prize is Khamenei's position, the spiritual leader. And there are rumors that Rafsanjani is in Qom possibly planning to overthrow Khamenei in some sort.

I mean, again, we are-this is very much a black hole, Iran, and we are getting information, as you said, by Twitter.

MATTHEWS: Let's take a look at the president, speaking about the ayatollah, here he is, Khamenei, right now today, about the very man. I think he's trying to be very careful in the way he talks about him.

(BEGIN VIDEO CLIP)

OBAMA: I have said before that I have deep concerns about the election, and I think that the world has deep concerns about the election. You've seen in Iran some initial reaction from the supreme leader that indicates he understands the Iranian people have deep concerns about the election.

(END VIDEO CLIP)

MATTHEWS: The supreme leader. It's amazing these languages we use.

Well, we can't pronounce the name so we stick with the generic. Go ahead.

IGNATIUS: He's trying to say that the problems here are so severe that the supreme leader, the bearded ayatollah.

MATTHEWS: We've got the dear leader in North Korea, we have got the supreme leader over in Iran. I guess we know what the problem is.

IGNATIUS: Well, the president is saying that even the leader sees a problem. Let me just note two points that concern me. Bob Baer was saying a moment ago, I think rightly, that behind the scenes here is the face of the former president, Hashemi Rafsanjani, a wily operator if ever there was one, but a man who was regarded by many Iranians, I want to say most Iranians, as a corrupt man who has made hundreds.

MATTHEWS: An arms dealer.

IGNATIUS: Hundreds of millions of dollars. One of the real key points in the election campaign was when Ahmadinejad came right out and said, this man is corrupt. For the reformers to ally themselves with Rafsanjani may discredit them.

The second point is, it's easy for Obama to stay on the sidelines now. We've-Bob and I have both said we think that's wise, but a week or two from now, if we have more dead in the streets, it's going to be harder and harder for the American administration to stay on the sidelines as Iranians are getting killed and appealing for our help.

MATTHEWS: OK. Late breaking today, here is a late development. This is the president speaking to our own John Harwood of CNBC, talking about the difference or lack of difference between Ahmadinejad and Mousavi. Let's listen.

(BEGIN VIDEO CLIP)

OBAMA: I think, first of all, it's important to understand that although there is amazing ferment taking place in Iran, that the difference between Ahmadinejad and Mousavi in terms of their actual policies may not be as great as has been advertised.

Either way we are going to be dealing with an Iranian regime that has historically been hostile to the United States, that has caused some problems in the neighborhood, and is pursuing nuclear weapons.

(END VIDEO CLIP)

MATTHEWS: What is he doing there?

IGNATIUS: Well, I think that's an odd.

MATTHEWS: Who is he talking to, the president, right there?

IGNATIUS: That's an odd statement. I think he's trying to say, we'll deal with the Iranian government, whoever is the leader. But certainly the people in the streets in Tehran think there's a difference between Ahmadinejad and Mousavi. Are you kidding? I mean, that strikes me.

(CROSSTALK)

MATTHEWS: Is he trying to take the monkey off the back of Mousavi of having pro-American support behind him?

IGNATIUS: Maybe. You know, that's so Byzantine, Chris. You know, you sound like an adviser to the ayatollahs.

I think what he's trying to do is say, we're going to do business with this regime no matter who is in charge.

MATTHEWS: What do you think of it, Bob? What is the president trying to signal there? His own thinking or is he trying to project the fact that we don't have a dog in this fight?

BAER: Well, Mousavi was also a hard-liner through most of his political career. I mean, he was hand-selected by the regime to run for president. I mean, he was screened out of 200-some -- 270 candidates, he was selected. So he was trustworthy until about the middle of these elections when he started to win and went off the rails.

MATTHEWS: Yes. Well, here is the president again explaining why he's not getting involved here, why he's not pushing what I call the idiot button of American influence where we've had too much in that country over the years.

They don't like it. He's making clear we're not trying to tell them who to vote for, although we are on the side of the people and hope that some day the people do the right thing.

Here he is again saying we don't have a dog in this fight.

(BEGIN VIDEO CLIP)

OBAMA: The easiest way for reactionary forces inside Iran to crush reformers is to say it's the U.S. that is encouraging those reformers. So what I've said is, look, it's up to the Iranian people to make a decision. We are not meddling, and, you know, ultimately the question that the leadership in Iran has to answer is their own credibility in the eyes of the Iranian people.

And when you have got 100,000 people who are out on the streets peacefully protesting, and they're having to be scattered through violence and gunshots, what that tells me is the Iranian people are not convinced of the legitimacy of the election.

(END VIDEO CLIP)

MATTHEWS: Well, that says it pretty well, right?

IGNATIUS: Boy, he is really walking a fine line, Chris. He's just trying so hard not to lean too far in either direction. Tricky one.

MATTHEWS: OK. Your thoughts, Bob? Is he saying the right thing? Again, he seems to be really saying, we're watching this, we're not taking sides because we know it's your election, Mr. and Mrs. Iran, not ours.

BAER: He-I couldn't have said it better. You know, it's-we want to stay out of this. We can't win it. We can only make things worse, let the Iranian people decide and they're doing pretty well so far.

MATTHEWS: By the way, we keep advertising democracy in the world as a method of government. We ought to push for honest elections and keep pushing for them.

IGNATIUS: Well, when it's working, let it work, let it-let it happen.

MATTHEWS: Yes. And I think that what's really interesting here is not the election, which was probably rigged-to a certain extent, we're not clear how much it was rigged, but it certainly was rigged to a large extent.

It's what has happened since, which I find phenomenal, that there is a real sense that a democracy matters, clean elections matter, and even the ayatollah is worried that the people are angry.

David Ignatius, thank you for joining us, Bob Baer, we had the experts tonight.

Coming up, on a somewhat lighter note and a less consequential note, I must say, David Letterman apologizes to Sarah Palin. We're going to have a palate cleaner coming up here with Sarah Palin. She sort of accepts it and then throws in some-something about the U.S. military that you have to hear to believe. I think we have to hold up the digression sign here, but what the heck.

We'll be right back with this one. Is this woman still running for president? I think so, and I think she's running next time. We'll be right back.

(COMMERCIAL BREAK)

MATTHEWS: Coming up, funding for the U.S. Peace Corps. We'll talk about why Congress and the president need to fulfill President Kennedy's vision, and by the way, Barack Obama's promise, to double the size of the Peace Corps. HARDBALL returns after this.

(COMMERCIAL BREAK)

MATTHEWS: Welcome back to HARDBALL.

The David Letterman/Sarah Palin feud appears to have reached a detente. Letterman apologized for a joke he made by Palin's daughter. Let's listen.

(BEGIN VIDEO CLIP)

DAVID LETTERMAN, HOST, "THE LATE SHOW": Now people are getting angry and they're saying, well, how can you say something like that about a 14-year-old girl? And does that make you feel good to make these horrible jokes about a kid who is completely innocent, minding her own business?

And, turns out, she was at the ball game. I had no idea she was there. I feel that I need to do the right thing here and apologize for having told that joke. It's not your fault that it was misunderstood. It's my fault that it was misunderstood.

(APPLAUSE)

LETTERMAN: I would like to apologize, especially to the two daughters involved, Bristol and Willow, and also to the governor and her family and everybody else who was outraged by the joke. I'm sorry about it, and I'll try to do better in the future. Thank you very much.

(CHEERING AND APPLAUSE)

(END VIDEO CLIP)

MATTHEWS: Wow. Well, Governor Palin responded with a written statement that reads, quote: "Of course, it's accepted on behalf of young women, like my daughters, who hope men who joke about public displays of sexual exploitation of girls will soon evolve. Letterman certainly has the right to joke about whatever he wants to and thankfully we have the right to express our reaction.

"And this is all thanks to our U.S. military women and men putting their lives on the line for us to secure America's right to free speech. In this case may that right be used to promote equality and respect."

Joining me to assess the state of play, Tina Brown, editor-in-chief of thedailybeast.com; and Roger Simon, the political columnist who we love dearly here with the Politico.

Tina, you're laughing because it is outrageously digressive here.

TINA BROWN, CO-FOUNDER, THEDAILYBEAST.COM: It's just that-it's just that wonderful...

(CROSSTALK)

MATTHEWS: ... here.

(CROSSTALK)

MATTHEWS: So, what on God's Earth has this got to do with our brave fighting men and women in uniform defending-defending the right of David Letterman to trash-I don't even want to get through it. It is so outrageous.

This was written, like, by the Kremlin.

(LAUGHTER)

(CROSSTALK)

MATTHEWS: It's so awkwardly written.

(CROSSTALK)

BROWN: The thing about Palin...

(CROSSTALK)

MATTHEWS: What is this stuff about women and girls and the fighting men and women?

All she could have said was, "I accept his apology." But she had to get some extra points.

BROWN: Well, I mean...

MATTHEWS: Your thoughts.

BROWN: No, it is-it is strange with Palin the way this-the way these things come out of her mouth. I mean, it is a bit as if she has a sort of Tajik going on in her earpiece from a U.N. interpreter half the time.

(LAUGHTER)

BROWN: But, in that one, she just kind of wrenched around in this-like a car screaming to a-you know, to a halt, and turning around and doing a completely add-on digressive comment.

I mean, the thing is that this-this has just completely got out of hand, this-this whole apology thing she's done. I mean, why, as you say, she didn't just give one graceful comment about sort of, "Leave my daughter out of this," and move on...

MATTHEWS: Yes.

BROWN: I think-I'm in favor of that. I think she absolutely had the right to say, "Leave my daughters out of this." And that...

(CROSSTALK)

MATTHEWS: Well...

(CROSSTALK)

BROWN: That's it.

MATTHEWS: ... that was like the ping-pong ball in the tile bathroom.

It just kept bouncing around in there...

(CROSSTALK)

MATTHEWS: ... pinging around from corner to corner, until she finally said nothing.

BROWN: But...

(CROSSTALK)

ROGER SIMON, CHIEF POLITICAL COLUMNIST, THEPOLITICO.COM: Well, respectfully, if-this may be...

MATTHEWS: I'm sorry. It's Roger's turn.

SIMON: This may be digressive, but it-it wasn't a mistake. This is called a talking point.

Sarah Palin was hitting her talking points.

(CROSSTALK)

MATTHEWS: Which are?

SIMON: Which are, she supports the military.

(LAUGHTER)

SIMON: She supports our women and men fighting for our freedoms.

That's called adding on, value-added to the issue at hand.

You know, six months from now, a year from now, no one is going to remember the Letterman thing. They're going to remember that Sarah Palin is out there talking about supporting our military.

It may seem dumb, but it is-it is helpful to what Sarah Palin is doing, which is laying the groundwork for running for the Republican nomination in 2012.

MATTHEWS: Has she managed, Tina, to become a-a gender figure, a person who is defending the rights and respect of women of all ages? Has she won the fight, in terms of the generic field? Has she found the upper ground?

BROWN: Well, I absolutely-you know, I respect the way Roger feels, that-you know, that these kind of things are going to be remembered four years from now.

I absolutely don't think any of it is going to be remembered. It's going to just fade instantly. What will happen, of course, is that every time she does do anything in politics, Sarah Palin will bring in a new grudge match. It won't be Letterman.

She seems to have a kind of Nixonian chip on her shoulder the size of a boulder. You know, she-she just can't stop sort of sticking it to people as she goes along. And that, I don't think, is laying the groundwork for anything.

I also think she should just study up and shut up at this point and just get with the issues. You know, she's made her point about her daughter. Good for her. Don't keep repeating it. Just go off and learn something. And-and-and, you know, you actually said the same thing, actually, Roger, really, in your piece. I mean...

MATTHEWS: I have been saying it for a while, because I have seen so many politicians of average ability-and she certainly has that-and I don't mean that as a knock-at least average ability-who have grown in politics because they have done what Arthur Schlesinger said years ago, learn, grow. You're young. Get better at it.

Your thought?

Roger has a whole...

SIMON: Well...

MATTHEWS: ... about this today...

SIMON: ... I agree with...

(CROSSTALK)

MATTHEWS: Not that you're in her corner.

SIMON: I agree 100 percent with 50 percent of what has been said.

(LAUGHTER)

SIMON: She should study up, although the race for the Republican nomination is not going to be an I.Q. test.

But she shouldn't shut up. To-to many Americans, this was a mother defending her daughter. Now, I laughed when I heard Letterman's joke. I just assumed he was-he was talking about Bristol, the 18-year-old, that wasn't talking about Willow. To tell you the truth, I forgot that Sarah Palin had a younger daughter altogether.

MATTHEWS: Yes.

SIMON: And I don't think Letterman even remembered she had a younger daughter.

But, you know, once it was clear that it was the 14-year-old with her at the ball game and the object of the joke, it was a mother and father defending their kid. Did they go over the top? Yes, went way over the top. They brought in statutory rape and all the rest of the stuff.

But I will bet you a lot of people seeing this ping-pong ball bounce back and forth, saying, yes, Sarah Palin stood up for her family. That's what mothers do.

BROWN: Well...

(CROSSTALK)

MATTHEWS: Let me ask you-let me ask you about what we have learned. You say this will be forgotten. I disagree. I think fights like this do get remembered more than discussions of issues.

The old rule of politics-and Pat Buchanan has been on this show reminding us of that, because Nixon taught him that-which is, you fight up. You always pick a fight with somebody bigger than you. Tip O'Neill fought with Ronald Reagan. Jack Kemp fought with Tip O'Neill. The winner is the guy who fights with somebody bigger than them. It always works out that way.

BROWN: Well, no, that's-that's...

MATTHEWS: Sarah Palin, did she pick a fight with someone bigger than her?

BROWN: Well, no, I think she...

(CROSSTALK)

MATTHEWS: Is-in the eyes of most Americans, is Letterman bigger than Palin; therefore, she won by just engaging in the fight?

BROWN: I think the first round, she really did win. I thought that was great.

But I don't think she's won the subsequent rounds, except that she's kept herself as catnip for cable, which is-seems to be really her goal right now. And that's my-that's really my problem with it, actually.

You know, last week, I...

MATTHEWS: Are you calling me a cat?

(LAUGHTER)

BROWN: No, catnip.

(LAUGHTER)

BROWN: I said, you know, she...

(LAUGHTER)

BROWN: Cable-she's on cable all the time.

MATTHEWS: You're calling me a cat.

(CROSSTALK)

MATTHEWS: It's OK, Tina, but I get the point.

(LAUGHTER)

BROWN: You know, the-and the thing is, last Friday, I-I went to the swearing-in at the State Department of Hillary Clinton with her swearing-in Melanne Verveer, her-as her new global ambassador for women.

MATTHEWS: Right.

BROWN: And the room was full of these kind of amazing women of substance.

And, you know, I looked at Hillary, and I just thought, she really has figured out a way to kind of evolve and grow, and just kind of swallow a lot of stuff that's thrown her way in-in ways that you just have got to really admire, as, by the way, you know, Condi Rice also has always comported herself with enormous dignity.

And, by the way, there's one woman who has been forgotten in this whole tirade. What about Mrs. Eliot Spitzer?

(LAUGHTER)

BROWN: And, you know, Letterman referred to her and said, you know, maybe the-the daughter should be kept away from Eliot Spitzer.

Well, you know, Silda Spitzer is someone who is just very dignified about what she went through. You know, she...

MATTHEWS: I agree with that.

BROWN: She really did. I mean...

(LAUGHTER)

MATTHEWS: You know, we say these good things, but the fact is, a lot of women-Elizabeth Bagley has got a big appointment coming up in the State Department for public-private partnership around the world.

There's a lot of big jobs out there, hugely important in the running of this world right now that women are holding. But we're talking about the governor of Alaska, because she's catnip.

(LAUGHTER)

MATTHEWS: I got the message, Tina. I will never forgive you.

Thank you, Tina Brown.

(LAUGHTER)

(CROSSTALK)

MATTHEWS: Thank you, Roger Simon.

She's the editor of my favorite organ. It's called The Daily Beast.

BROWN: Oh, thank you for that.

MATTHEWS: Named in honor of that great book by Evelyn Waugh, "Scoop."

BROWN: You knew. I can't believe you know that.

(CROSSTALK)

MATTHEWS: Up next-well, I found out a minute ago.

(LAUGHTER)

MATTHEWS: Up next: What does President Obama have in common with actors Brad Pitt, Daniel Craig, and David Beckham? Well, stick around for that in the "Sideshow."

We will be right back.

(COMMERCIAL BREAK)

MATTHEWS: Back to HARDBALL. It's time for the "Sideshow."

First up, wow. You know Peter King, the Irish-American U.S. congressman, who is on this program a lot, the guy from Long Island who roots for Sinn Fein, a Republican here and in the Old Sod? Well, it turns out that Peter King, proud Republican, was the first choice of Barack Obama, the Democratic president-elect, last fall to be the new American ambassador to Ireland.

But there's a side story to this tale of un-of the unrequited offer of an ambassadorship to the land of the forefathers. It's this pattern we have been noticing, you know, this bipartisanship that has the added advantage of reducing the power of the other side, this naming of good Republicans to jobs, so that there are fewer good Republicans on the other side.

So, watch as the Democrats shanghai Utah Governor Jon Huntsman off to China, try to send New Hampshire Senator Judd Gregg off to Commerce, pack New York State Congressman John McHugh off to the Army secretaryship. Get this. This invasion of the body-snatchers is working. If they had grabbed Peter King in this baggie of good Republicans, there would have a good-not a single Republican-only been a single Republican left in the entire New York State delegation.

Well, they didn't get King, but they got the others.

Next up-next up, Hollywood. Finally, it's no secret this president has got a movie star quality to him. Even when you allow for his-his-its historic nature, the guy's family is straight from central casting.

Just take a look at President Obama last month returning from dinner and a Broadway show with Michelle up in Gotham. No wonder that our president was dragged into this new survey of the most stylish male icons out there today.

The group also included "James Bond" actor Daniel Craig, soccer star David Beckham, and, of course, Brad Pitt, who is in all the magazines at Safeway. Anyway, the envelope, please. It turns out that our newly elected president, Barack Obama, tops them all as numero uno, the most stylish guy in this land of the free.

There he is, ahead of Brad. Not since Jack Kennedy have we had a president like this.

Up next: a big issue near and dear to me, funding for the U.S. Peace Corps. President Obama promised to double the number of volunteers and pump up funding. And, right now, Congress is deciding whether to do it. We're going to talk about it and how to do it and why to do it with more.

You're watching HARDBALL on MSNBC.

(COMMERCIAL BREAK)

MARGARET BRENNAN, CNBC CORRESPONDENT: I'm Margaret Brennan with your CNBC "Market Wrap."

Stocks fell for a second straight day, with the Dow Jones industrial average closing lower by 107 points, the S&P 500 down nearly 12, and the Nasdaq took about a 20-point hit.

New home construction surged a larger-than-expected 17 percent in May.

Meantime, applications for building permits, which are an indicator of

future construction, rose 4 percent. But the industrial production fell

1.1 percent in May. It was the seventh straight monthly drop.

And General Motors has a tentative deal to sell its struggling Saab unit to a Swedish custom sports carmaker called Koenigsegg. The price of the deal has not been disclosed.

And President Obama is expected to announce as soon as tomorrow his plan for sweeping new regulation of the financial industry. It includes a new watchdog agency to look out for consumer interests. The president tells CNBC that systematically important financial institutions should be under a single regulator.

That's it from CNBC, first in business worldwide-now back to Chris and HARDBALL.

MATTHEWS: Welcome back to HARDBALL.

Ever since 1961, nearly 200,000 Americans have served in the U.S.

Peace Corps. And, as you heard me say before, I'm lucky to be one of them. There I am in Swaziland, where I was in the Peace Corps back in '68 up until 1970.

Right now, almost 7,500 Americans are working around the world to help others develop better lives for themselves and their communities.

During last year's campaign, Barack Obama promised to double the size of the Peace Corps, to about 16,000 by the year 2011, and-quote-"get Congress to really pay for it."

And Congress and the president are on track to do it. Are they?

Let's find out. Maureen Orth is a special correspondent for "Vanity Fair" and a great former Peace Corps volunteers-in fact, one of the great Peace Corps volunteers. I know that. She served in Colombia and keeps going back to continue her work. And New York U.S. Congresswoman Nita Lowey, who chairs the appropriations committee that is handling the Peace Corps funding.

So, Congresswoman, you have the ball in your hand. Are they going to do good things on the Hill for my old organization and Maureen's old organization?

(LAUGHTER)

REP. NITA LOWEY (D), NEW YORK: Well...

(CROSSTALK)

MATTHEWS: Are you going to do the right thing here?

LOWEY: Now that I know that you were a former Peace Corps person, of course I will.

But, of course, there are members like Sam Farr and Congressman Petri and others who are also Peace Corps alumnae. So I am going to-and you're the first to announce it-increase it to $450 million, which will expand the Peace Corps to 20 more countries.

We now have just a little under 8,000 volunteers around the world. And I am thrilled to be in a position where I can do this, and I'm sure Maureen is delighted.

MAUREEN ORTH, "VANITY FAIR": Oh.

(LAUGHTER)

ORTH: No kidding.

(LAUGHTER)

ORTH: I sure am.

MATTHEWS: Well, Maureen has been bugging me for weeks.

(LAUGHTER)

MATTHEWS: So I'm sure she is.

Let me ask you this. Is this going to fulfill-I like when politicians do what they say they're going to do. Congresswoman Lowey, you have done it. Now is this going to be happy that he got-is this going to say what he did-is this going to do what he said?

LOWEY: Well, I think...

ORTH: Well...

(CROSSTALK)

LOWEY: I think the money that we are putting into the Peace Corps, which is $450 million, is an increase from last year, when it was $340 million. So, we're on an important glide path.

And I have to tell you, Maureen and Chris, I recently met with the Peace Corps in Ghana. And to see these young people so enthusiastic, they are exactly what we have to do to expand the respect for Americans around the world. And it's an important part of our national security.

MATTHEWS: You know, I-I think it's a good-a good money bet, too, because, you know, I don't know what you made a month.

(LAUGHTER)

MATTHEWS: I was making two bucks a day when I was in the Peace Corps, which is...

ORTH: I think I made $60 a month, two bucks a day.

(CROSSTALK)

MATTHEWS: I think it was $72 I think we made.

ORTH: Yes.

MATTHEWS: So, tell me about the Peace Corps. It doesn't cost much.

They don't get much.

ORTH: You know, Chris, the Peace Corps costs the United States, everybody in the United States, about $1.20 -- I think about $1.23. With this increase-and we're-thank you. Thank you, Congresswoman Lowey. Thank you.

(LAUGHTER)

ORTH: We have been fighting so hard.

LOWEY: Thank you for your advocacy.

(LAUGHTER)

ORTH: We have been fighting so hard, but, you know, we also have the Senate now. I mean, it's not a done deal, just because...

MATTHEWS: Yes.

ORTH: ... the House is saying this. We have-we have a fight in the Senate to go.

But the Peace Corps budget is 1 percent of the foreign policy budget of the United States, which is 1 percent of the entire budget.

MATTHEWS: That's nothing.

ORTH: So, we're 1 percent of 1 percent. And for the good that we do around the world, it's extraordinary.

MATTHEWS: Congresswoman-Congresswoman Lowey, let me ask you about where they're going to go, because it seems to me that there's two kinds of Americans you can get to meet.

You can meet our fighting forces that go in when there's trouble, which they're not always nice to meet, because they're meeting trouble.

And then you get to meet pushy American tourists once in a while, loud. And, by the way, we are loud when we go places.

(LAUGHTER)

MATTHEWS: I'm loud.

We make our presence...

ORTH: No. You, Chris?

MATTHEWS: So it's nice that they meet some hard working teachers and people helping with rural development and stuff like that in a low key way, so they see that we're not all big shots. Are we going to get into the Middle East. Are we going to get into countries where we could actually have some positive influence on people like, you know, where they might learn that women are equal to men, because of the way we act with each other, things like that?

LOWEY: Well, there are currently Peace Corps volunteers in 76

countries. And this money will expand it to 20 more countries. And I

don't think the Peace Corps has made a decision, because they didn't know

that they were going to get the additional funding. But there is currently

and I want to make sure that we all understand-we currently have a GAO report that's going to do an analysis, because I'm sure Maureen and Chris would agree that the Peace Corps already does exciting things and builds friendships and understanding and respect for the United States.

But with increased technology, investment in training the Peace Corps workers in environmental activities and food security, teaching, et cetera, they can really do so much more. So I am so enthusiastic about the possibilities of the Peace Corps with this additional money.

MATTHEWS: OK. Well, I feel great to have you on the show, Maureen.

ORTH: Thank you.

MATTHEWS: And we all remember Tim. We remembered Tim the other night. It's been about a year now. We've missed him here. He was our leader and our friend and great company. Thank you for coming over, Maureen.

ORTH: Thank you.

MATTHEWS: I'm glad we did some good. You got some news out of this congresswoman. Thank you, Congresswoman Nita Lowey of New York, who is now telling us tonight the Peace Corps will be on its road to being doubled thanks to her, and thanks to President Obama, who understands greatness.

Up next, is President Obama taking the right approach towards Iran, a much trickier subject than the Peace Corp? And is he saying the right things in response to the civil noise over there? It's so interesting to watch him walk this tightrope. We know he wants change. We know he wants democracy. We know he doesn't want that nuclear weapon over there. But he's got to be careful how we say it, and he can't be hitting the idiot button those other guys have been hitting, like McCain has been pouncing on.

Never mind. This is HARDBALL, only on MSNBC.

(COMMERCIAL BREAK)

MATTHEWS: We're back. Time for the politics fix. Speaking of fixes, we've got some news for you tonight. Lawrence O'Donnell, by the way, joins us right now. He's our political analyst. It's great to see him out there in L.A. In New York is Ryan Lizza.

We have a story that's just moved on the AP wire. Republican John Ensign from Nevada, a United States senator from out there, is admitting to an extramarital affair with a member of his campaign staff. He said to the AP, "I deeply regret and am very sorry for my action." An aide to Ensign's office said the affair took place between December of '07 and August of '08, with a campaign staffer who was married to an employee in his office.

So apparently he had some guy working for him while this guy-while he was involved in an extramarital way with the guy's wife. This is a story which may hurt him. Lawrence, do you want to pooh-pooh this or do you want to exploit it for some higher meaning here?

LAWRENCE O'DONNELL, MSNBC POLITICAL ANALYST: There's no higher-

Chris, a couple things. It isn't-these things are no longer surprising. There's nothing unique about the circumstances of his case. Gavin Newsom got involved in much messier stuff. Obviously, this is very problematic politically in the Republican world, when it comes to thinking about him as a possible vice presidential nominee next time, which he could have been.

Maybe he could have even taken a run at the top spot. So this certainly is a giant setback for his future beyond the Senate. I don't know how much trouble it causes him in Nevada. I would think Nevada is one of the more understanding states on these matters.

MATTHEWS: I would think Las Vegas knows how to forgive. But let me -

like New Orleans, it's another forgiving area. Let me ask you, Lawrence, because you ask novels about politics. You write the fictional area. This guy just went to Iowa to run for president. In his head was this knowledge and the knowledge he wants to be president. How do men-let's stick with our gender here. How do you reconcile these two worlds, what you've done recently, and what you want to do in the future, and put them together in the same pot and say I can still be president?

O'DONNELL: I think Bill Clinton confused a lot of these guys by basically getting away with it. Look what Bill Clinton knew when he went into the 1992 race for the presidency. He knew about Jennifer Flowers. He didn't know she had tapes of him talking about Mario Cuomo and all that crazy stuff.

But Bill Clinton knew his past was filled with madness in this area. And he got away it. I'm not sure what lesson this guy and John Edwards have taken from that. I think Bill Clinton is this very rare exception. This stuff does kill other people.

MATTHEWS: Well, Bill Clinton, not to knock him further at all, but he was a Houdini-in this area because he was able to deny he was talking about Mario Cuomo in that taped conversation with Jennifer Flowers. And then he called up Mario Cuomo and apologized to him for something he denied ever doing.

RYAN LIZZA, "THE NEW YORKER": The political truth here is that this does matter, for better or worse, more in a Republican primary or caucus, especially the Iowa caucus, because religious conservatives, especially in Iowa, control that process. And they happen to be less forgiving on this kind of thing. So if John Edwards had had an affair several years before the 2008 campaign, had admitted to it, put it behind him, I don't think it would have harmed him all that much in 2008.

I think with Ensign, who already isn't all that known a quantity in presidential politics, this is probably going to end his presidential prospects for the next time around.

MATTHEWS: So this is probably going to kill Sarah Palin/David Letterman story tonight, do you think, Lawrence?

O'DONNELL: Yes, this jumps over that one.

MATTHEWS: Let's trump the other baby.

O'DONNELL: Absolutely puts that one away.

LIZZA: -- we can joke about without worrying too much.

MATTHEWS: We're going to come right back and talk about something serious. We're going to save some time and come back with something important tonight. This is really important, how our president deals with the opportunity that may be there in the troubled waters off Iran. I do believe our president, our new president, is a game-changer. I think we have new opportunities over there. Maybe his election, maybe his speech in Cairo a couple of days back had something to do with the fact that Iran is in play. That's an astounding fact here, it's in play. It's close over there.

We'll be back with Ryan Lizza and Lawrence O'Donnell.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

SEN. JOHN MCCAIN ®, ARIZONA: We should speak out that this is a corrupt, flawed, sham of an election. The Iranian people have been deprived of their rights. We support them in their struggle against a repressive, oppressive regime. And they should not be subjected to four more years of Ahmadinejad and the radical Muslim clerics.

(END VIDEO CLIP)

MATTHEWS: That's Senator John McCain criticizing President Obama for not speaking out stronger against the crisis in Iran. We're back with Lawrence O'Donnell and Ryan Lizza with more of the politics fix.

You know, McCain just gets further and further into Lieberman country, further and further into that far-right mentality about everything is simple and manechian. All you have to do is push that idiot button now. I don't know why he's doing it. Ryan, why is he talking like that, when he knows it's complicated. The worst thing we could do is get involved over there.

LIZZA: Right. It's very clarifying to see him say that and how he would have acted as president, versus what Obama's doing, which is, frankly, very nuanced, being very careful not to be the issue. The last thing the American government wants is to be the issue in the streets right now. You don't want Ahmadinejad to say, ah, see?

MATTHEWS: That is the point of view that would have bombed Cuba in 1962. I'm talking about McCain.

LIZZA: Absolutely right. Just-and everything's black and white. Obama is saying, look, we have to be careful. I support in principle the right to dissent. We want to get to the bottom of what happened in this election. But, at the same time, America has a history here and we don't want to be the issue there.

MATTHEWS: Lawrence, I do go back to the Cold War way of looking at this. Khrushchev may have been rooting for Kennedy. He knew not to say anything in a totally morally different situation. The worst thing our president could do is start rooting for the other side over there, because then they'll start rooting for their side. They'll say, we're not dupes.

O'DONNELL: And John McCain does actually know that. What you're seeing here is the difference between a senator's position and a president's position. If McCain was president, I am absolutely convinced he would take the presidential position on this kind of thing.

LIZZA: I don't think so.

O'DONNELL: Which has always been consistent, always. You know, we don't go into this kind of condemnation, from the presidential perspective, ever in these situations. The president always keeps his head, whether it's Democrat or Republican, in these situations. Senators always shoot off their mouths in these situations. It's classic.

LIZZA: I disagree.

MATTHEWS: I think McCain's ticked off.

LIZZA: I think McCain is representing a certain view on the right-

I know this is a loaded term now, but the neo-conservative right used to mean something. And Lawrence, if that was the view, we would have thought that George Bush never would have listened to the folks in his administration who say, you go in and take out Saddam Hussein.

O'DONNELL: No, but the comparable event was what you do when China takes down one of your planes. What did George Bush do? He didn't do any saber rattling. He just did a very careful, slow, presidential-exactly what a Democratic president would have done. A presidential treatment of the situation.

You see Democrats do it with trade. They always say, we're going to reopen NAFTA. No, they're not. Not when they become president, they're not. They shut up about it.

MATTHEWS: OK, let me try to get to your left, Lawrence. I feel like getting over there tonight, snuggling over to your left, Lawrence O'Donnell, because I disagree with you. I think there's become this new idiot button on the right, where you have to punch this button in order to be considered a real conservative now. Obama's a socialist on health care. He's a socialist. All his fiscal programs are insanely socialistic.

You have to punch that button. Then you got to say this election was bogus. You got to punch that button. If you don't talk in that right wing idiot talk, you're not considered a conservative anymore. The idea of being a thoughtful person is wrong now politically on that side of the aisle. That's where I think it's going.

O'DONNELL: I completely agree with you. What I'm saying is John McCain is actually more thoughtful than his public statements.

MATTHEWS: Ha! Ha ha! Boy, there's a presumption of innocence that I haven't heard in a while.

LIZZA: What McCain's saying is not part of what you're talking about with respect to socialism and abusing Obama. This is what McCain believes. This is what he has believed for years. This is what the foreign policy thinkers around McCain believe. They believe that what McCain said as a senator is exactly what you should say as president. I don't think it's just a senator speaking.

(CROSS TALK)

MATTHEWS: Let's look down the road now. If we see more violence on the street over there between now and the end of the week, if we see the resurgence of the non-violent protests by the opposition guys, if we see efforts by the Revolutionary Guard to crack this thing, what do we do then?

LIZZA: Honestly, I don't know. We continue to say what Obama is saying. You speak up for the principle of the people there, their right to dissent peacefully. You speak out against any harsh response from the government. And you watch and wait and look for a moment of opportunity. But first principle here is do no harm. Don't let-don't make your actions-allow your actions to back fire.

MATTHEWS: What if it turns really bad over there, Lawrence? What's the president do?

O'DONNELL: Well, we don't-we don't publicly do anything. We do what we did with the Soviet Union, which was a lot of inside, quiet, secret support for the dissenting groups over there that are against the regime. And I think we've already-I suspect we are either getting very lucky here, or we've already done a good deal of that in Iran.

MATTHEWS: I'm hopeful the world has changed. It can only change by nuance. But I do believe that the battle in Iran is now between the 40 yard lines. Those who want change are up there closely contesting the reality over there. Even the Ayatollah has to admit it.

Thank you, Lawrence O'Donnell. Thank you, Ryan Lizza. I think we live in a new world. Join us again tomorrow at 5:00 and 7:00 Eastern for more HARDBALL. Right now, it's time for "THE ED SHOW" with Ed Schultz.

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

END

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