updated 1/8/2010 11:19:47 AM ET 2010-01-08T16:19:47

Guests: Bob Shrum, Katrina vanden Heuvel, Roy Sekoff, Peter DeFazio, Laura

Flanders, Susan Molinari, Stephen A. Smith

ED SCHULTZ, HOST:  Good evening, Americans, and welcome to THE ED SHOW from New York tonight.

Three stories hitting my hot button tonight. 

The president talked about citizenship, not partisanship.  And I hope Dick Cheney and his daughter were watching this evening as President Obama talked about the Christmas terror plot. 

That is what strong leadership is all about, bringing people together, making them recognize the moment of how serious this is.  The president said, “The buck stops with me,” “it‘s about accountability,” and “We are at war, but we won‘t let the terrorists define the character of our country.” 

What more needs to be said?  Now it‘s time to put it all into action. 

Plus, stop the doomsday talk, the other hot button tonight about the Democrats.  OK, the Democrats took a hit with Dorgan and Dodd, they are retiring.  But the Republicans, my friends, are still, in my opinion, in the toilet.  We‘ll talk about that tonight.  Their prospects for 2010, in my opinion, don‘t look very good. 

And the Washington Wizards may need to change their name back to the Bullets.  Jarvis Crittenton allegedly locked and loaded a gun in the locker room.  OK?  And we‘ve got Stephen A. Smith talking about that later on this evening in the program. 

All right.  Later today—late today, President Obama made a very strong statement on the foiled Christmas Day terror plot.  He says security officials had the information to stop the alleged terrorists on Christmas Day but they failed to connect the dots.  OK? 

The president put it this way when it came to responsibility...

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES:  I am less interested in passing out blame than I am in learning from and correcting these mistakes to make us safer, for, ultimately, the buck stops with me.  As president, I have a solemn responsibility to protect our nation and our people, and when the system fails it is my responsibility. 

(END VIDEO CLIP)

SCHULTZ:  Well, that kind of leadership and accountability was seen down the chain.  Here‘s the top counterterrorism adviser, John Brennan, at a news conference after that statement. 

(BEGIN VIDEO CLIP)

JOHN BRENNAN, DEPUTY NATIONAL SECURITY ADVISER:  I told the president today I let him down.  I am the president‘s assistant for homeland security and counterterrorism.  And I told him that I will do better and we will do better as a team. 

(END VIDEO CLIP)

SCHULTZ:  Not only has this been a thorough review, but it appears to me that this has been a real gut check by the people in charge. 

Let me bring in Bob Shrum tonight, longtime Democratic strategist and professor at New York University. 

I couldn‘t help, Bob, tonight, by watching all of this, just sense the severity.  And it‘s almost like in private business, somebody got a real ass-chewing and there‘s a wakeup call going on, and this is how we are going to run this shop. 

Did you sense that tonight? 

BOB SHRUM, DEMOCRATIC STRATEGIST:  Oh, very much so.  And I think the president conveyed not only to the people internally, but to the country, a sense of both strength and honesty, which will serve him in very good stead over the long term.

There have been some cheap shots taken at him and the administration by Liz Cheney, Dick Cheney, some of the Republicans, Peter Hoekstra, who‘s running for governor in Michigan and tries to use this incident to raise money.  The president resisted the temptation even to take a fair shot back. 

I mean, there has been none of the comment, which they could make, that these procedures were put in place by the Bush administration.  He, instead, is trying to really function as a president of the whole country, and that‘s why I love that phrase that this is about citizenship, not partisanship. 

SCHULTZ:  Are we seeing a real example of humility here, that there was a time, I believe, in the past administration the word “arrogance” was thrown around quite a bit by a lot of analysts who were watching how the Bush people were operating, but there was never really any admission that something went wrong?  We are seeing humility here and not arrogance. 

What do you think? 

SHRUM:  Yes, I think that‘s right.  And I think we are also seeing realism. 

And, you know, presidents who are willing to do this—I mean, JFK, Ronald Reagan, who, in other respects, I didn‘t necessarily agree with—presidents who are willing to say this sort of thing when something bad happens, the country tends to respond because people aren‘t dumb.  They know that there has been a mistake.

That‘s why the first weekend, those first Sunday talk shows when several officials went out and said the system worked, was so bad.  I think the president saw that, he sensed how bad that was, sensed it was wrong, got this whole thing under control, and we‘re seeing a real example of strong presidential leadership. 

SCHULTZ:  Bob is it really about intensity when it comes to security? 

That is the feeling I got today watching this. 

It was very politically charged at the end, the president talking about citizenship, not partisanship, willing to take responsibility and saying, basically, this is a big wakeup call, this is what we have got to do better.  But as that‘s going on, you know, we are playing all day long a piece of videotape about a woman who was lifting up—and I believe we‘ve got it—lifting up a piece—lifting up a rope and letting someone slip in underneath. 

Now, whether it‘s overseas or right in our own back yard, it appears to me that the due diligence has got to be done every single day by the TSA, and there has to be management and oversight.  We can have all the intelligence in the world, if we don‘t do the job, boots on the ground, we‘re not going to make any progress. 

SHRUM:  Every single day, at every single airport, at every single entry to a concourse or a gate, it‘s a very tough assignment.  The terrorists only have to get by once.  The system has to work over and over again. 

But the real failure of the system here—and they were quite honest about it today—was that if they had just put together a couple of facts, this guy would never have been allowed on the plane in the first place.  And the real question is, can that be fixed, can this system of overlapping intelligence agencies that was created during the Bush administration—and on a bipartisan basis, by the way—can that be rationalized and can we make the system work so that when we have the information, we can actually use it to prevent this from happening? 

SCHULTZ:  All right.  The political fallout on this is going to be very interesting, because I think the president really challenged the Cheneys to shut up. 

Stay with me, Bob.  I want to go to another big story that I want your intake or insight on tonight. 

RNC chair Michael Steele is out crowing about two Democratic senators, Chris Dodd and Byron Dorgan, retiring.  Steele says it‘s a wakeup call for the Democratic Party? 

If two retirements is a major wakeup call, what is six retirements? 

Because that‘s how many the Republicans have got to date. 

Forget all this doomsday talk about 2010.  It‘s going to be better than you think. 

The political landscape may not be that bad for Democrats, in my opinion.  In fact, I think it looks worse for the Republicans.  Republican senators are retiring in New Hampshire, Ohio, Kentucky, Missouri, Kansas and Florida. 

Now, three of those states were won by President Obama in the last election.  McCain won Missouri with less than 50 percent.  Two of those states, Ohio and New Hampshire, were won by Obama, have a sitting Democratic senator today and a Democratic governor. 

So, in Missouri and Florida, the second senator is also a Democrat. 

Kentucky has a Democratic governor. 

Now, the bottom line in all of this is that people are pretty unhappy with the economy and they are taking the frustration out, or at least it looks like they are going to seem to take the frustration out, on the majority party.  President Obama‘s approval rating is down 50 percent in the latest Gallup poll.  Democrat poll numbers are dropping. 

And Republican numbers, well, they are at rock bottom.  The last time the Republican party had a net favorable rating on our NBC News poll was back in 2005. 

Let‘s face it, the Democratic wins in 2006 and 2008 were the biggest in a generation.  Now they have to play defense, and it won‘t be easy.  But I think the Democrats are going to get a lot of help from candidates like this...

(BEGIN VIDEO CLIP)

ALLEN QUIST ®, MINNESOTA HOUSE CANDIDATE:  Terrorism, yes, but that‘s not the big battle.  The big battle is in D.C. with the radicals. 

(END VIDEO CLIP)

SCHULTZ:  Yes.  And candidates like this...

(BEGIN VIDEO CLIP)

RUSH LIMBAUGH, RADIO TALK SHOW HOST:  I don‘t think there‘s one thing wrong with the American health care system. 

(END VIDEO CLIP)

(LAUGHTER)

SCHULTZ:  Talkers like that.  Remember earlier this year, we were asking the question, just who is the head of the Republican Party? 

And wacko mobs like this are going to help. 

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE:  The future of the powerful. 

(END VIDEO CLIP)

SCHULTZ:  And that‘s just from last week, my friends.  You see, the American people are frustrated, but the Republicans have offered zero solutions.  The Tea Partiers have declared civil war on the party establishment. 

I think Americans know President Obama is cleaning up this Bush mess.  It‘s going to take time.  The Republicans have yet to provide an acceptable alternative. 

Now, conventional wisdom is that the party in power right now, the majority, is going to take a real hit.  I‘m not so sure.  I‘m not convinced of that.

Tell me what you think in our telephone survey tonight, folks.  The number to dial is 1-877-ED-MSNBC. 

The question tonight is: If the midterm election were held today, would you be motivated to vote for the Democrats?  Press “1” for yes and press “2” for no.  And I will bring you the results later on in the program. 

Let‘s bring back Bob Shrum.  This is his expertise, getting people elected. 

Bob, the mood of the country right now, obviously, if history plays

itself out, the majority party is going to take the hit.  But I make the

case that the Republicans are in such disarray, and that this president,

what he was dealt with to deal with in the last year, from the last

administration, if he can get health care, if he can keep the country safe

and I think today is a benchmark day, because a lot of people are going to remember the aftermath of this attempt on Christmas Day—I think there‘s a lot of great things the Democrats can do in 2010.

Your thoughts on that?

SHRUM:  Well, you and I may be lonely voices on this, because there‘s a whole mainstream consensus, conventional wisdom that‘s building out there, that led to absurd things yesterday, like “Dodd and Dorgan Retire, Black Day for Democrats.”  The truth is, Chris Dodd is one of the most honest people I‘ve ever met in public life, by the way, and who took a very bad hit on some of this stuff, very unfair hit.

He did something that was very good for the Democratic Party when he left yesterday, because the person who‘s replaced him, Attorney General Blumenthal in Connecticut, is going to win that race.  So, that seat which the Republicans thought was very much in play isn‘t.

The deeper realities that you‘re talking about, one, the character of the Republican Party, the party of no.  Two, the fact that the president did inherit this mess and people are smart enough to understand that.  And three, the fact that I think we ought to be reading the business pages these days, not just the instant political analysis. 

And all the indications are that we‘re in an economic recovery and that we are at the beginning of a long period where we are going to be creating jobs.  If we are creating jobs in substantial numbers in July and August, we‘re going to be standing in a very different political landscape than we are today. 

SCHULTZ:  Bob Shrum, great to have your take tonight on THE ED SHOW. 

Appreciate your time. 

SHRUM:  Thank you.

SCHULTZ:  For more on this, let‘s go to Katrina vanden Heuvel, editor of “The Nation,” who I think has a real good pulse on the progressive community in this country. 

Katrina, I‘m an optimist.  After all the big battle of health care, OK, take what we can get, let‘s go to 2010.  I think that there‘s some disgruntled folks in the base, but when they look at the big picture, they sure don‘t want to go back to the last eight years. 

Can the president bring that part of the party around again? 

KATRINA VANDEN HEUVEL, EDITOR, “THE NATION”:  Well, let me just say I agree with you and Bob in the sense that we need to get a grip.  It‘s been ridiculous commentary these last few days about the black state of—you know, the Democratic Party in such disarray.  In fact, the real story would have been out of Florida if Dodd and Dorgan hadn‘t retired, which is that the Republican Party is at war with itself with ousting and purging the Florida GOP chair, Jim Greer. 

You know, I don‘t agree with Bob Shrum in one sense, Ed.  I do think that President Obama is now president for one year.  This is his country, these are his conditions, and what will be key—jobs, jobs and jobs. 

And we may read some bullish commentary in this next period, but there are communities in the pain, there is a need for a full employment agenda.  If we don‘t have that, we are seeing conditions created for a right-wing populism in this country that is very ugly, as you know. 

So I do think we—and I think President Obama needs to remobilize his base and remobilize people in these communities by showing, with some real economic recovery, job creation, that he is on the side of working people in this country and not on the side of big banks, which, sadly, the bank bailout did put this administration on the side of.  And the recovery program, largest net new investment in any poverty programs in this country got ignored in too many ways.

SCHULTZ:  Well, you know, I don‘t think the Republicans can win by default.  They‘ve been on the sidelines, being obstructionists throughout this entire first year.  They haven‘t brought forward anything constructive, except to just rile up everybody‘s emotion. 

Why couldn‘t the Democrats win a Senate seat in Florida, a Senate seat in Ohio?  You create jobs in Ohio and you get this health care bill through, I really believe that Obama‘s charisma, his moxie, his way with people and his ability to communicate can make a big difference out there on the trail.  I think the Democrats can pick up Senate seats in at least four of these states that are held by Republicans right now. 

VANDEN HEUVEL:  Ed, I think the core thing is that Republicans have no alternatives, except to go become to a failed past, failed ideas.  Lower taxes, no government, no jobs?  Hey, what happened to all the tax cuts that were supposed to create jobs?  We haven‘t seen them. 

But I do think it‘s a mistake, by the way, heading into 2010 to make this an election about Obama, because that will mobilize the Republican base.  We need to make it about issues. 

We need to talk about creating jobs, Republican failure, and what Democrats can do for you.  We need populists.

If the Democrats run as a managerial party, Ed, I think it‘s a big mistake because the passion and conviction should be on our side.  And we also need, you know, deep reforms. 

We need to get the big money which has corroded our democracy out of our system and we need to look at this dysfunctional Senate.  I do think one of the grassroots progressive campaigns for 2010 should be begin to look at this filibuster, any Democratic, distorting our process, unable to get through reforms this country desperately needs. 

SCHULTZ:  Katrina, great to have you on with us tonight. 

VANDEN HEUVEL:  Thank you.

SCHULTZ:  Thanks so much. 

I still think that President Obama has a lot of political capital, and I believe that he is still the MVP in this whole thing.  He turns it around with jobs in 2010, I think the Democrats will do well in 2010.  I‘m an optimist on that. 

Coming up, we finally have a president who accepts responsibility when bad stuff happens.  He addresses the nation on security today, says the buck stops here.  We‘ll talk more about that. 

Also, Sarah Palin goes into “Psycho Talk” because her talking points just are so screwed up. 

It‘s all coming up THE ED SHOW.  Stay with us. 

(COMMERCIAL BREAK)

SCHULTZ:  Welcome back to THE ED SHOW.

Now, get a hold of this one.  Tim Geithner took the American taxpayer for a ride before he even started as treasury secretary in the Obama administration.  Insurance giant AIG was one of the worst culprits in the financial crash. 

Bloomberg reports today that when Geithner was running the New York Fed, the regulator told AIG not to disclose how it was unloading its toxic assets.  The New York Fed pushed big banks to buy some of those assets, with the promise they would be repaid, in full, with AIG bailout money. 

For more, let me bring in Roy Sekoff, founding editor of “The Huffington Post.”  They had it headlined on their Web site today.  How can he survive this? 

It was on this program several weeks ago that Congressman DeFazio from Oregon suggested that Tim Geithner should be relieved of his duties as treasury secretary. 

I‘ll tell you what, Roy, if this isn‘t a classic where there‘s smoke, there‘s fire, I don‘t know what is. 

ROY SEKOFF, FOUNDED EDITOR, “HUFFINGTON POST”:  Absolutely.  And if there is anybody out there who‘s still harboring any doubt that the fix is in, that most of this government has become a government of the bankers, by the bankers and for the bankers, this story has got to put an end to that, and it‘s also got to put an end to Tim Geithner. 

I mean, as you said earlier, his fingerprints are all over this crisis from before he even became the secretary of the Treasury.  Don‘t forget, the scathing report that came out in November, a lot of people missed it because we were all focused on health care.  But the scathing report for the special inspector general for TARP came out and said that Geithner had told AIG not to make better deals with the banks and to pay them 100 cents on the dollar of our money, Ed, costing us billions and billions of dollars.

Now we‘ve got these e-mails, which, by the way, we have on “Huffington Post” if you want to go and read them, if you want to make your blood boil.  We now see by these e-mails, that the Fed, when Geithner was there, the New York Fed, was actually having these banks hide—hide—having AIG hide the information from us, the American people. 

Think about that Ed, a government, an administration that came in promising transparency.  One of the key figures there did everything in his power to keep these shading deals in the dark and away from the eyes of the American people, our money. 

SCHULTZ:  Well, it pains me to ask the question tonight, what did the president know and when did he know it?  Did he know about Geithner‘s activities when he was the head of the Fed in New York?  Was he briefed on it?  Did he think that this was just going to go on under the table?

And there‘s no Senate reaction to this yet.  It‘s a breaking story, basically, in the last 24 hours in the news cycle on “Huffington Post.”  The senators are out of town, but I don‘t know how they could ignore this one. 

What do you think?  Do you think President Obama—I mean, that is the question.  Did he know that this was—that this took place before he was in there as treasury secretary? 

SEKOFF:  Ed, look, the timing of this is very tricky.  Don‘t forget that, you know, Geithner was nominated in November, and the report that they had them redact would have come out in December.  And he wasn‘t, you know, confirmed until January.  So it puts a little crazy—a little light on that part of it. 

And the other thing about Obama is, I think it does redound against him, Ed, because this has been going on for a long time.  Even back in March, remember when the whole AIG bonus thing?

SCHULTZ:  Yes.

SEKOFF:  Geithner was the one who wanted to make sure that the bonuses got through.  And so when they asked Obama about it, what did he say back then?  He is doing an outstanding job, and he repeatedly stood by him.  It feels a little bit like, “Doing a heck of a job, Timmy.”

SCHULTZ:  Yes, that‘s right.  And it would, I think, a pretty good idea to bring former Treasury Secretary Mr. Paulson back to Washington in front of a Senate committee and have him raise his right hand and tell us everything he knows about this. 

SEKOFF:  Well, that‘s the thing, Ed.  It shows us that it‘s not right versus left.  We got Geithner, we got Paulson, and it‘s the money (ph) interest that are funding both parties. 

SCHULTZ:  Way to go, Roy.  Good to have you on tonight.  Great work by you folks on “The Huffington Post” on this one. 

SEKOFF:  Thanks, Ed.

SCHULTZ:  Coming up, Sarah “Barracuda” has got to get some—well, she has got to get some new material, because she is just sticking to this death panel thing.  That puts her right in the zone next. 

Stay with us. 

(COMMERCIAL BREAK)

SCHULTZ:  And in “Psycho Talk” tonight, the brains behind the death panel scare campaign, former Alaska governor Sarah Palin.

Politifact.com called death panels the lie of the year for 2009, but Palin has never worried too much about sticking to the facts.  And she didn‘t back down when she went on Hannity‘s radio show yesterday. 

(BEGIN AUDIO CLIP)

SARAH PALIN ®, FMR. ALASKA GOVERNOR:  We‘re not going to back off on our criticism of the problems of the health care bill.  And one aspect of it is the death panel, still.

If we have our health care paid for by the bureaucracy, by government, we are going to be subject to bureaucrats deciding, which panels and commissions deciding, just like they do overseas, who will be worthy of receiving the health care that government is going to provide.  So, that is the death panel that I referred to, and I won‘t back off on criticizing that aspect of the health care bill. 

(END AUDIO CLIP)

SCHULTZ:  Hmm.  Do you think she was reading that? 

Anyway, Hannity displayed his complete lack of intellectual honesty, just let her get away with it. 

Sarah, if you ever want to be politically relevant again, you are going to have to come up with some new material.  And stop pushing all these debunked righty talking points.  Sticking with the 2009 lie of the year is “Psycho Talk.”    

Coming up, President Obama stood up and fully addressed the terror threat we face.  I‘m sure that‘s got the Cheneys champing at the bit tonight. 

Congressman Peter DeFazio of Homeland Security Committee will join me in just a moment. 

Plus, I will tell you why the White House budget director‘s love life is such a hot topic these days. 

And Stephen A. Smith is in the house tonight to talk about what‘s happening in the NBA with this gun situation. 

You‘re watching THE ED SHOW on MSNBC.  Stay with us. 

(COMMERCIAL BREAK)

SCHULTZ:  Welcome back to THE ED SHOW.  Today, President Obama took ultimate responsibility for the security failures that almost resulted in a Detroit-bound plane getting blown up on Christmas day.  He promised a full investigation and improvements. 

But the president was very frank about the threat we face.  He says there‘s no silver bullet to keep Americans safe.  He also said our country won‘t succumb to the siege mentality when it comes to security. 

Let me bring in NBC terrorism analyst Evan Kohlmann.  How did the president do today, Evan?  Do we know a lot more now than we did before? 

EVAN KOHLMANN, NBC NEWS TERRORISM ANALYST:  Well, look, I have a tremendous amount of respect for him, in the sense that he has taken responsibility for this.  He said there were failures.  They were critical failures.  He hasn‘t hesitated from criticizing the intelligence community. 

My problem with this is that he still is shying away from firing anyone, because he says that there were human errors.  If there are human errors, somebody needs to pay a price.  If you work for a Fortune 500 company and you cause errors that nearly cause catastrophic damage to that company, you would be fired immediately.  And that needs to be the same mentality in our intelligence communities, which is if you do not perform up to task, if you allow serious mistake to be made that jeopardize the lives of hundreds of Americans, it is not business as usual.  You better find a new job.  That needs to be the message that President Obama is sending out. 

SCHULTZ:  This is being reported now by NBC News, a senior State Department official says the simple misspelling of the terrorist name, this guy‘s name, was the reason no one realized the would-be bomber had a visa to enter the United States.  A misspelling of his name by one letter. 

KOHLMANN:  Ridiculous. 

SCHULTZ:  The official explains that one letter was dropped when an employee checked his name back on November 20th.  So, quote, “no one knew he had a visa.”  Your thoughts on that? 

KOHLMANN:  Ridiculous.  Ridiculous.  I own 1,000 dollar software package.  It costs 1,000 dollars.  And this is able to tell the difference between misspellings, can pick up misspelled names.  Look, it‘s to great feat of imagination to realize that Arabic names can be transliterated and spelled in different ways. 

If you can‘t pick up on a single letter misspelling, that is a catastrophic problem.  That is a problem for which somebody should be fired.  Somebody was not doing their job.  The technology is easily and readily and cheaply available to avoid that kind of a problem. 

SCHULTZ:  You think—

KOHLMANN:  There needs to be—

SCHULTZ:  You think Mr. Brennan should be fired?  He made an admission at a briefing afterwards, at the White House, in the press room. He said that he let the president down? 

KOHLMANN:  I think he is falling on his sword.  And I think Obama is falling on his sword.  And I respect them for doing that.  But I don‘t think they are the ones who did this.  I think the people who are responsible for this, number one, are in the ex-Bush administration.  And they are, unfortunately, beyond touch now. 

But the other issues is that there are people within intelligence agencies that knew that these problems existed and did not bring them to anyone‘s attention.  And you have got to ask yourself, why did they not bring this to anyone‘s attention?  What are they doing with their time?  There are millions of dollars of US tax payer money being spent on US national security, and we are not seeing anything from that.  These are questions that need to be asked. 

SCHULTZ:  Good to have you with us tonight.  Appreciate your time. 

Thank you. 

KOHLMANN:  Thank you. 

SCHULTZ:  Just in case the Cheneys or Senator Waterloo are watching the show tonight, I want to play this soundbite from the president today. 

(BEGIN VIDEO CLIP)

OBAMA:  We are at war.  We are at war against al Qaeda, a far-reaching network of violence and hatred that attacked us on 9/11, that killed nearly 3,000 innocent people, and that is plotting to strike us again.  And we will do whatever it takes to defeat them. 

(END VIDEO CLIP)

SCHULTZ:  So I hope that all the chicken hawk critics heard that, President Obama saying, again, we are at war with the terrorists.  For more, let me bring in Oregon Congressman Peter Defazio, a member of the House Homeland Security Committee.  A couple of stories we want to visit with you tonight, congressman.  I appreciate your time.  First of all—

REP. PETER DEFAZIO (D), OREGON:  Thanks, Ed. 

SCHULTZ:  You bet.  I would like to you respond to this NBC report that a senior State Department official says it was a simple misspelling of this alleged terrorist—simple misspelling of his name by one letter that didn‘t alert security officials that he had a visa.  What about that? 

DEFAZIO:  Well, that‘s news to me.  You know, we have got a visa system in the State Department that‘s in the 18th century.  Apparently, when they revoke your visa, they send a letter.  You know, this has got to be brought into the modern 21st century.  We have got to have instantaneous communication regarding people who have visas and you can do—as your analyst said, you have computer programs that can do close matches and say, wait a minute, here is a bunch of close matches, or here is a close match, same country, same age, one different letter.  Maybe this is the same person. 

I mean, it is absurd that we don‘t have those kind of systems and the State Department is out there doing things the way they did, you know, 200 years ago. 

SCHULTZ:  Congressman, the American taxpayers don‘t want to hear that our software package or our method of doing things and checking lists and visa is in the 18th century.  Have you known this all along?  Have security officials known this all along?  You are telling us tonight that we are way behind the curve. 

DEFAZIO:  Well, that‘s the visa—you know, checking visas back against these lists is the problem.  We set up the Terrorist Information Center to overcome the failures of the Bush/Cheney administration. 

Remember, they had all the threads of the attack.  They tracked the terrorists to Malaysia.  They lost them in Bangkok.  They flew into the US under their own names and they lived with listed phone numbers.  And yet the CIA, you know, knew these were really bad guys, but they forgot to tell any of the other agencies. 

Remember Moussaoui.  They captured him.  They had his computer.  The Bush administration didn‘t open the computer.  So we didn‘t unravel that plot.  So we set up this Terrorist Integration Center to take all the bits and strands, bring them into specialists, and have them decode this stuff. 

But, apparently, the visa issue just was left out in State Department limbo, and didn‘t get into that system.  And no one knew this guy had a visa.  That‘s one thread that wasn‘t—wasn‘t integrated. 

SCHULTZ:  Congressman, I want to address this other story that was breaking on “Huffington Post” today.  “Bloomberg” reported as well that when Geithner was running the New York Fed, the regulator told AIG not to disclose how it was unloading its toxic assets.  How does this news hit you after you had said weeks ago on this program that you thought Tim Geithner, the Treasury secretary, should be relieved of his duties, should be fired?  And now, of course, the question is, can he survive this? 

Your thoughts when you hear this story tonight? 

DEFAZIO:  Well, I haven‘t read it yet.  But there have been outrage after outrage after outrage.  The article in the “Wall Street Journal” just before Christmas about how Goldman was selling people what they knew were bad assets, but, at the same time, they were betting against those assets.  And they made a lot of money doing that.  Then Goldman got all of their bad bets paid off, 100 percent by AIG, which is what brought me to, you know, raise the issue of Secretary Geithner‘s competence back then, a couple of months ago on your show. 

And this is—I haven‘t seen these e-mails yet.  But, you know, I guess it‘s the same bottom line I said before.  He was hired because Wall Street was comfortable with him.  I want a Treasury secretary that Wall Street isn‘t comfortable with, because I‘m not comfortable with Wall Street.  And they aren‘t doing any good for the average American people or the economy in this country. 

SCHULTZ:  That the New York Fed—the regulator told AIG not to disclose how it was unloading its toxic assets, because it would be repaid with bail out money.  I mean, this is borderline criminal, is it not? 

DEFAZIO:  I have got to read it, Ed.  I haven‘t read it yet.  I can‘t really—I just heard about it on your show.  Breaking news to me.  Haven‘t read the “Huffington Post” today.  Been kind of busy doing other stuff out here in Oregon.  I‘m as far away as you can be from Washington now and be in the lower 48.  And I‘m happy to be here. 

SCHULTZ:  Congressman Defazio, great to have you on tonight.  We want to have you back after you give full analysis to this story, because I do believe it is a blockbuster.  I also think the question begs, did the president know about this?  I think it‘s time to bring back Mr. Paulson, the former Treasury secretary, maybe some other folks in the Bush administration, and ask them a few questions about if there was going to be a bailout.  We don‘t want to tell people how it‘s going to—how their money is going to be spent, and also what they are doing—they knew they were going to be buying toxic assets.  Looks like it is a big money making scheme to me, and some people in the government knew that they were going to be doing it with taxpayer dollars. 

I think that‘s why we have a Congress.

For more on the terror threat, let‘s bring in our panel tonight.  Laura Flanders is the author of “Blue Grit,” and also the host of GritTV.org.  And Susan Molinari is a Republican congresswoman from New York, now a Republican strategist. 

Susan, let me ask you tonight, have we take an step forward today when it comes to fighting terrorism in this country and protecting America?  How do you view how the president handled himself today? 

SUSAN MOLINARI, FMR. CONGRESSWOMAN:  I thought the president handled himself well today.  He called a terrorist a terrorist.  He called a war a war.  He showed leadership. 

I guess time will tell.  I think it is going to take some time for the American public to trust all the people who were standing up there with him to do the right thing, and figure out where these cracks and holes were and get them plugged.  But today I think the president showed himself to make this a top priority of his administration. 

SCHULTZ:  And Susan, I also think that it was pretty politically charged at the end, when the president talked about citizenship and not partisanship.  The vernacular that‘s been used, the jabs that have been thrown out there, the politically charged environment, I think the president came just short of telling some folks to shut up.  How do you see it? 

MOLINARI:  I think he did.  And I think that is a correct admonition.  At the same time, this is the president that a few days ago, on his web address, after giving, I thought, another really good speech, said something like—I want to get the words right—“I‘m getting us out of a war in Iraq that had nothing to do with 9/11.” 

Now that is poking a finger in the eye of a lot of Republicans and people throughout this country who supported the war in Iraq, and the Bush administration. 

SCHULTZ:  But it‘s also factual. 

MOLINARI:  But the job of a president at the time of a national emergency isn‘t to take that step.  So I think that was little partisan and not particularly presidential.  But today‘s a new day.  And I think when we are fighting this war on terror, we all have to stop and assess each other, day by day.  And today I think was a good, strong day for the president. 

SCHULTZ:  Laura Flanders, your thoughts on that comment, citizenship, not partisanship. 

LAURA FLANDERS, GRITTV.ORG:  It‘s a good comment, but we‘re talking about this whole strategy in terms of DC party politics and who is scoring what.  What we have got to look at is policy.  And I think, in part, egged on by people like the Cheneys and others, unfortunately, this administration is egging on military campaigns in both Pakistan and Yemen, that I‘m afraid are just going to breed more terrorists. 

Drone attacks again this week claiming civilian lives.  This is the kind of policy we need to look at, not just the tough talk in the Washington press conferences. 

SCHULTZ:  Is it OK, Laura, for the president to remind the American people that 9/11 didn‘t have anything to do with Iraq? 

FLANDERS:  No, absolutely.  But I think he also should remind us that at the time, we were discouraged from asking why did they want to attack us.  Well, we need to start asking those questions again, whether we like it or not.  Is US policy around this world making people like us better or hate us more?  That‘s the question we have eventually got to come to terms with. 

SCHULTZ:  Susan, we have been showing the videotape here on MSNBC today about a lady in the airport over in Newark.  She is lifting up the rope and I guess her boyfriend or maybe husband gets through the security.  How are we, as taxpayers, supposed to think that we have got great security when that kind of stuff is taking place? 

MOLINARI:  Yeah. 

SCHULTZ:  I mean, we have got to have professionals.  This is the videotape that started the whole scare, and also security check, and inconvenience of thousands of passengers at the Newark airport.  And we should remind our viewers, in case they have forgotten, this airport was where one of the planes on 9/11 originated from and ended up in a field in Pennsylvania. 

MOLINARI:  Right.  Right.  And I think it does outrage everybody.  I sit there and I take the train up to New York sometimes and then take the plane back.  And every time, because I only purchase one ticket, I am given secondary screening.  And the fact that we have this Nigerian, purchases a one-way ticket, doesn‘t go through secondary screening.  This kind of incident I think should concern us.  About the lack of consequences that we are dealing with when it comes to national terror—

And I just want to comment on the last point.  Look, the president stopped calling it a war on terror.  He said he was going to close Guantanamo and what happened?  They still tried to attack us and they‘re still trying to attack us today.  So I don‘t know that we can continue to blame the United States for everything that we say and the way that we say it, and say that we are inviting these terrorists to attack us, even when we change what we say. 

FLANDERS:  It is not what we say.  It is what we do.  We still have civilian casualties for US policy in both of the parts of the world that I mentioned.  It is not just the talk.  It is the deaths on the ground. 

MOLINARI:  Who we are that they want to destroy, not what we do or how we say it.  It is who we are that represents a threat to people like that. 

FLANDERS:  The discussion we need to have is is US policy, particularly the use of not very well targeted drones, accelerating the growth of terror around this globe of ours?  And while we are at it, let‘s talk a little bit about some of the investments that are just ballooning right now in the area of security technology, surveillance technology.  We are being sold a bill of goods that we can make ourselves secure at these airport, if we just allow—

SCHULTZ:  Susan, I will give you a quick comment on that. 

FLANDERS:  But in fact, we have really got to look at what is fueling the fury out there. 

MOLINARI:  I think there is always going to be people out there who hate us for who we are and the freedom we enjoy.  And I think we need to do our best to keep those people out of the United States. 

SCHULTZ:  I agree with that.  And it doesn‘t matter who the president is, we are going to have the same set of problems.  We ought to just get on the same team.  I think for the president to say citizenship and not partisanship was apropos.  Appreciate your time tonight, Susan and Laura.  Good to have you on with us. 

Coming up, Stephen A. Smith will explain how a locked and loaded handgun in an NBA locker room is a reflection of a much bigger problem in the African-American community.  That is next in the playbook.  Stay with us.

(COMMERCIAL BREAK)

SCHULTZ:  In my playbook tonight, more trouble for Gilbert Arenas and Jarvis Crittenton.  The two NBC players from the Washington Wizards got into a locker room dispute involving hand guns.  The “Washington Post” reported today that at one point during the confrontation, Crittenton took out his gun, loaded it had and cocked it, all in the Wizards‘ locker room.  Crittenton has denied those allegations. 

Meanwhile, Arenas has admitted to bringing four unloaded guns into the locker room.  He has been suspended from the team indefinitely. 

For more on the story, let me bring in Stephen A. Smith, columnist for the “Philadelphia Enquirer” and nationally syndicated radio talk show host, who has also written on the impact on the black community on this.  What‘s happening here?  Decipher this for us, Stephen A. 

STEPHEN A. SMITH, “PHILADELPHIA ENQUIRER”:  The reality is that the criminal element has taken over, you know, the black culture in some respects, Ed.  There is simply no way to deny that.  Even though you have black lawyers, black doctors, black journalists, highly successful individuals that are in the public eye, that do a lot of good, the reality is that you‘ve got a lot of these athletes, whether it is wearing their pants below their backside, you know, with the tats all over their bodies, just emulating prison stuff that‘s—it‘s almost like the prisoners acting up in the prison yard. 

That‘s why it‘s entirely appropriate that commissioner David Stern took the action that he took, and made sure to highlight the fact that‘s an aberrations when a guy like Gilbert Arenas does what he does.  It is not something that is prevalent, Ed.  I want to make sure that everybody understands that.  The vast majority of athletes do not do this kind of ridiculous idiocy or engage in this level of idiocy.  But the few who do they need to be dealt with and dealt with severely, because that‘s the type of stuff that the youth of black America is emulating on far too many occasions. 

SCHULTZ:  Emulating is the correct word.  Now, why doesn‘t the NBA and commissioner David Stern just make a rule, you can‘t own a firearm.  You can go own a firearm in America.  But if you want to play in the NBA, you can‘t have one.  Why don‘t they do that? 

SMITH:  I saw you—I saw you make that comment yesterday.  And I wholeheartedly agree with you.  They certainly can afford security. 

SCHULTZ:  They are in the image business. 

SMITH:  They are.  They are targets on a lot of occasions.  They can be walking to the streets.  They can be going to be to the grocery store, anywhere.  And a lot of times, Ed, a lot of people do bother them.  That doesn‘t mean you need to own a firearm to protect yourself.  It‘s definitely something that needs to be addressed. 

I‘m going to be honest with you, I spoke to numerous athletes last night.  I‘m here in Los Angeles.  That would include Derek Fisher, the president of the Players Association, Kobe Bryant and others, and they‘re all appalled by the actions of Gilbert Arenas.  This is a guy that made a stupid decision. 

SCHULTZ:  We‘ll see if the league can clean it up.  Steven A. Smith, good to have you with us tonight. 

Coming up, if you thought baby mama drama is just for celebrities, think again, think again.  The White House budget director has become the buzz of the gossip pages.  That‘s next.  You‘re watching THE ED SHOW.  Stay with us.

(COMMERCIAL BREAK)

SCHULTZ:  Welcome back to THE ED SHOW.  President Obama‘s budget director Peter Orszag has a lot on his place today.  MSNBC‘s Norah O‘Donnell has the details. 

(BEGIN VIDEOTAPE)

PETER ORSZAG, WHITE HOUSE BUDGET DIRECTOR:  The package will be deficit neutral. 

NORAH O‘DONNELL, MSNBC ANCHOR (voice-over):  Peter Orszag is the White House budget director, focused on policy. 

ORSZAG:  The budget we are releasing this morning. 

O‘DONNELL:  But now the personal life of the president‘s youngest cabinet member is in the public eye.  The story broke in the “New York Post” Wednesday online, that the 41-year-old Orszag fathered a child out of wedlock, with shipping heiress Claire Malones (ph).  The news forced Orszag and his former girlfriend to put out a joint statement, saying, quote, “we were in a committed relationship until the Spring of 2009.  In November, Claire gave birth to a beautiful baby girl.  Although we are no longer together, we are both thrilled she is happy and healthy.”

This comes just one week after announcement that Orszag was getting engaged to ABC‘s Bianna Golodryga.  She spoke the news on national television. 

UNIDENTIFIED MALE:  Congratulations to both of you. 

(CROSS TALK)  

O‘DONNELL:  A source close to Orszag says Orszag and his pregnant girlfriend broke up before he met his current fiancee eight months ago at the White House correspondent‘s dinner.  Orszag and his ex stress this is a personal and private matter.  Princeton educated, with a stellar resume, Orszag is one of the president‘s top policy gurus. 

UNIDENTIFIED MALE:  Washington is a city of wonks, and he was a very eligible wonk himself.  He had a kind of nerdy, sexy Washington appeal.  Rahm Emanuel said that he made nerdy sexy. 

O‘DONNELL:  Even President Obama has called him a propeller head and used him in his stand up jokes. 

OBAMA:  ABC is planning a series called “Dancing With the Czars.” TLC has got something called “Jon and Kate Plus Peter Orszag.”

O‘DONNELL:  Orszag was divorced in 2005, and has two children already.  As head of the Office of Management and Budget, he is charged with drafting and selling the president‘s budget, which offers a blueprint of Obama‘s top priorities. 

UNIDENTIFIED FEMALE:  Does this have anything too do with his job?  No, I don‘t think so.  It makes you wonder how he manages to get everything done.  But he clearly is good at managing his time.

(END VIDEOTAPE)

SCHULTZ:  Back to our panel tonight, Laura Flanders and Susan Molinari.  I have one question for both of you, quickly.  Do you think this guy is focused on his job?  Susan?

MOLINARI:  I take him at his word that he can—that he wants it to be personal and private, and that he can focus on his job at the same time. 

SCHULTZ:  Laura? 

FLANDERS:  I heard that he broke up with this heiress girlfriend and I thought, well, at least that is one millionaire this administration has actually jilted.  Good news.  You know, the budget‘s going to be up.  The tax cuts are up. 

SCHULTZ:  The bottom line is he has got a lot on his plate, no doubt about t it.  If I‘m running a business, we are losing money.  I might think twice about this guy. 

Tonight, in our telephone survey, I asked you if the midterm election were now, would you vote for the Democrats?  Eighty seven percent of you said yes; 13 percent said no. 

That‘s THE ED SHOW.  I‘m Ed Schultz.  Thanks to our panel for joining us.  “HARDBALL” with Chris Matthews starts right now.  We‘ll see tomorrow night. 

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

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