updated 1/11/2010 10:50:56 AM ET 2010-01-11T15:50:56

Guest Host: Lawrence O‘Donnell

Guests: Chris Hayes, Eric Burns, Clarence Page, David Corn, Lee Cowan,

Chris Kofinis

(BEGIN VIDEOTAPE)

           

LAWRENCE O‘DONNELL, GUEST HOST (voice-over):  Which of these stories will you be talking about tomorrow?

One day after President Obama calls for unity in the fight against al Qaeda, Rudy Giuliani goes on national television, and not just puts party ahead of country—Rudy Giuliani flat out lies.

(BEGIN VIDEO CLIP)

RUDY GIULIANI, FMR. NEW YORK CITY MAYOR:  We had no domestic attacks under Bush.  We‘ve had one under Obama.

(END VIDEO CLIP)

O‘DONNELL:  Tonight, the terror double-standard from the Republican Party and the reckless disregard for the truth from the news media.  Why are lying politicians getting away with it?

Michael Steele under fire.  Republican leaders say they had no idea Steele was releasing a book.  To his critics, Steele says.

(BEGIN VIDEO CLIP)

MICHAEL STEELE, RNC CHAIRMAN:  If you don‘t want me in the job, fire me.  But until then, shut up.

(END VIDEO CLIP)

O‘DONNELL:  What if Republicans take him up on it?  In the age of the tea party, who would lead the GOP?

Under water on your home?  Bankers are refusing to help you?  Even though your tax dollars helped them get out of their crisis.  Tonight, how crazy is it to walk away from your bad loan and leave the banks with the mess?  And could it actually help fix the system?

And the family that acts together.

(BEGIN VIDEO CLIP)

UNIDENTIFIED BOY:  Dad, Falcon‘s in there?

RICHARD HEENE, DAD:  Where?

UNIDENTIFIED BOY:  In that ship.

HEENE:  He was just here!

UNIDENTIFIED BOY:  No, he‘s in there.

(END VIDEO CLIP)

O‘DONNELL:  New tapes supplied by—you guessed it—the Heenes.

And behind the scenes at debate prep for Sarah Palin.

(BEGIN VIDEO CLIP)

SARAH PALIN ®, FORMER ALASKA GOVERNOR:  Nice to meet you.  Hey, can I call you Joe?

(END VIDEO CLIP)

O‘DONNELL:  New details about why that moment even took place and how the debate was close to being a political disaster.

All that and the coolest gadgets at the Consumer Electronics Show—now on COUNTDOWN.

(BEGIN VIDEO CLIP)

TINA FEY AS SARAH PALIN:  I practiced a couple of zingers where I call you “Joe.”

UNIDENTIFIED MALE:  OK, great.

(LAUGHTER)

(END VIDEO CLIP)

(END VIDEOTAPE)

O‘DONNELL:  Good evening from New York.  I‘m Lawrence O‘Donnell, in for Keith Olbermann.

The party that refused to let anyone forget about 9/11 when they thought it helped politically has now forgotten about 9/11, hoping it helps them politically.  The latest lying exploiter of 9/11 is the man who will never let anyone forget he was New York‘s mayor on 9/11, who could not say anything during his presidential campaign without using the formula: noun, verb, 9/11.

Less than two months after former Bush press secretary, Dana Perino, declared that America, quote, “did not have a terrorist attack on our country during President Bush‘s term,” former New York mayor, Rudy Giuliani, appeared on ABC and criticizing President Obama for not saying war on terror, said this is why America has been attacked under President Obama, but was not under President Bush.

(BEGIN VIDEO CLIP)

GIULIANI:  If he recognizes we‘re at war with terror, a lot of things follow from that.  They‘re enemy combatants.  They‘re not just mere domestic criminals.  Then we don‘t close Guantanamo.

What he should be doing is following the right things that Bush did.  One was of the right things he did was treat it as a war on terror.  We had no domestic attacks under Bush.  We‘ve had one under Obama.

Number two, he should correct the things that Bush didn‘t do right.  Sending people to Yemen was wrong.  Not connecting—not getting this whole intelligence thing was Bush‘s responsibility and Obama.

(CROSSTALK)

GEORGE STEPHANOPOULOS, ABC NEWS:  So, bottom line, right now, the president has stepped up.  He‘s taken responsibility.  He‘s calling it a war.  Are you satisfied now with his response?

GIULIANI:  Now, I want to see what he does.

(END VIDEO CLIP)

O‘DONNELL:  Online, George Stephanopoulos now writes, quote, “All of you who have pointed out that I should have pressed him on that misstatement in the moment are right.  My mistake, my responsibility.”

A Giuliani spokesman tells ABC he was, quote, “clearly talking about post-9/11 with regards to Islamic terrorist attacks on our soil.”

ABC reporting that Giuliani‘s reference to an attack under President Obama was not a reference to Umar Farouk Abdulmutallab who was arraigned today in Detroit and pleaded guilty on all six charges, but a reference to Major Nidal Hasan, who killed 13 people at Fort Hood two months ago.

Of course, not counting the underwear bomber let‘s Giuliani discount the shoe bomber, whose attack did occur under President Bush, although not as Mr. Giuliani idiotically claimed recently before 9/11.  And limiting it to Islamic attacks lets Mr. Giuliani discount the anthrax mailings that killed five people and Jim David Adkisson, the Sean Hannity and Bill O‘Reilly fan who shot two people dead because they attended a liberal church.  And limiting it to attacks on our soil also lets Mr. Giuliani discount Sergeant Hasan Akbar who killed two soldiers and wounded 14 in a grenade attack in the Kuwait two days before the invasion in Iraq a direct precedent for the Fort Hood case that Giuliani now pretends is unprecedented.

Even limiting to Islamic attacks on our soil, Mr. Giuliani, who now makes a living on the blood of 9/11, by pretending to be an expert on terrorism is apparently unaware or just lying about the following: the Mohammad Atta fan who used his SUV to wound nine people in 2006 at the University of North Carolina-Chapel Hill to avenge Muslims while George W.  Bush was president.

The man who called himself a terrorist after killing one person and injuring 13 more in 2006 with his SUV in San Francisco while George W. Bush was president.

The Muslim shooter in 2006 who killed one and wounded five others in Seattle over his hatred for Israel while George W. Bush was president.

The 2002 terrorist attack on the El Al counter at Los Angeles International Airport that killed two and wounded four while George W. Bush was president.

D.C. sniper John Allen Muhammad convicted of terrorism in the deaths of 10 people while George W. Bush was president.

And we must assume Mr. Giuliani does not count the 2008 attack on the U.S. embassy in Yemen—technically, our soil—because the 18-year-old American woman had not yet come inside when she was killed.  And yes, George W. Bush was still president and in-charge of protecting our embassies in 2008.

Time now to bring in Chris Hayes, Washington editor of “The Nation” magazine.

Good evening, Chris.

CHRIS HAYES, THE NATION:  Good evening, Lawrence.

O‘DONNELL:  Chris, this is an Orwellian test of our collective intelligence that Giuliani wants to give us.  It is the equivalent of insisting that no American military base was attack during Franklin Roosevelt‘s presidency.

I mean, is Rudy Giuliani right?  Is his best bet right?  Are Americans, or at least 51 percent of voting Americans, really as stupid as he thinks they are?

HAYES:  Well, no.  I mean, the short answer is no, right?  And he‘s going to be ridiculed.  This spokesperson had to walk it back.  I think this is going to be seen largely as a gaffe.

And, in fact, it‘s an occasion to sort of recite the fact that all these small—relatively small incidents of, whether you want to call them terrorism or domestic attacks, whatever, did happen during George W. Bush‘s term.

I think the broader point, though, is that, you know, even if—even if people aren‘t going to buy the fact that 9/11 didn‘t happen or things after didn‘t happen, there is this creation mythology that the right-wing has really done a very good job of kind of sowing into the consciousness of Americans which is that everything was sort of sailing along, we were just sort of complacent nation and maybe it was Clinton, maybe it was Bush, who knows, 9/11 changed everything, and then after that, we haven‘t been attacked.  And that was because the president went on offense.

And you see, as soon as this attack happened, that narrative just reiterated over and over and over and I‘ve actually been depressed by how persistent it seems.

O‘DONNELL:  Now, President Bush famously claimed that no one could have predicted 9/11.  Condoleezza Rice claimed that.  Rudy Giuliani claimed that, the expert on terrorism, Rudy Giuliani.

HAYES:  Right.

O‘DONNELL:  . who, by the way, as we know, has been criticized by families of 9/11 victim, especially Fire Department families, who insist in as much fact to back this up, that he made them less safe by his command decisions before 9/11 and during the day of 9/11.

HAYES:  Yes.

O‘DONNELL:  That these people want to pretend that 9/11 was not predictable when in fact we did have intelligence that was predicting this kind of assault.  Not exactly the precise time and place.  That intelligence was attempted to be pushed up the ladder to President Bush and never got there.  This is lost in the mythology—and it seems to me, this is part of the effort is to make sure.

HAYES:  Yes.

O‘DONNELL:  . that gets lost in the mythology that liars, like Giuliani, are advancing, isn‘t it?

HAYES:  That‘s exactly right.  The intelligence failures that happened, around 9/11 (ph), and let‘s just for a second—I also think it‘s really important.

One of the things that so insidious is we‘ve created this concept, this category, in American public discourse called terrorism or terror, and you can put a bunch of things into that.  So everything from a guy with an SUV on a campus and 19 hijackers who killed and murdered 3,000 people and essentially bring the nation to a halt are all in the same category.  But there‘s a huge difference between these things, right?  So, that was the single biggest failure, right?

Another attack like 9/11 really is an awful, awful cataclysmic thing to consider and things have to be done bureaucratically and governmentally to make sure that never happens again.  But we‘re a long way from that when we are talking about, you know, the underwear bomber.

And so, one of things that Rudy Giuliani is accomplishing, I think, in some ways by bringing this forward is that you run all this stuff together and you end up with this sense that—oh, terrorism is just sort of this ever-present thing out there.  But no, there are different scales that this is happening on and different things we can do to prevent different kinds of attacks.

O‘DONNELL:  Now, there are some retired Republican office-holders who are willing to grant that, in fact, President Obama has not done anything wrong in this, that the processes aren‘t different from one administration to the other in the way that they‘re addressing these issues.  Isn‘t the news media at some point, reasonable here in booking liars like Giuliani over other Republicans who are willing to actually call it as they see it?

HAYES:  Yes.  I mean, it‘s unbelievable how any Republican who wants to get up and demagogue is automatically everywhere on television the next day.  I mean, you saw Peter King and Pete Hoekstra.  I mean, why should anyone listen to these people?  I don‘t know, expect for the fact that they were going to criticize the president and so they were on giving their spiel.

O‘DONNELL:  Chris Hayes, Washington editor of “The Nation” magazine—thanks for your time tonight.

HAYES:  Thank you.

O‘DONNELL:  Let‘s turn now to Eric Burns, president of Media Matters for America, which as you can imagine, has been all over this one today.

Good evening, Eric.

ERIC BURNS, MEDIAMATTERS.ORG:  Good evening, Lawrence.

O‘DONNELL:  Now, we know that George Stephanopoulos knows that four teams of hijackers commandeered U.S. airliners on September 11th.  He knows what happened.  What is it that happened to a smart guy like George in a middle of an interview like that where Giuliani can just slip that by?  Does it mean that Republicans like Giuliani are so accustomed to getting away with that move in these interviews like this that the media, in a sense, has internalized this notion that there were no domestic attacks during President Bush‘s presidency?

BURNS:  I think there‘s no question that conservatives are used to getting away with this because we don‘t have a culture of accountability in our media.  And, you know, what happened today is a great example of accountability working the way it should.  Our job at Media Matters is to hold journalists accountable.

When we documented this morning, other folks picked it up, PolitiFact picked it up.  And b by this afternoon, Mr. Stephanopoulos, to his credit, had accepted responsibility for not calling out Mr. Giuliani on his factually erroneous statement.  And something we need to see more of in the media.

But, unfortunately, Lawrence, the media is lazy, you know?  And it‘s something we just see every day, but it‘s bad for the county, it‘s bad for America, it‘s bad for our political discourse.  Media‘s got to do a better job.  They can‘t be carrying right-wing talking points, especially when they‘re wrong.

O‘DONNELL:  And there‘s a certain liturgy to these kinds of television interviews, which means that, you know, I get to ask the question and you get to give your answer for a certain amount of time, no matter how ridiculous that answer is.  Now, that‘s something that I don‘t abide on television.  When someone tries a lie like that in interviews, I just jump right on it and I‘m prepared to let the interview stop right there and fight over that lie.

But in these kinds of interviews, the media is, you must let the subject of the interview get through the four or five minutes, covering all the points that you plan to cover before going into the interview.  Isn‘t that conceptually what‘s wrong with that kind of television?

BURNS:  Well, I think—I think most journalists—and, you know, I congratulate on being the exception, most journalists today.

O‘DONNELL:  Well, I don‘t want to say—I don‘t want to say I‘m the exception or the only exception.

BURNS:  Of course.

O‘DONNELL:  Let me just say, plenty of people hate it when I do that.  When I get in there and interrupt and stay on something with a particular guest, a lot of viewers hate it.  So, there‘s a certain amount of audience expectation that‘s being served here, isn‘t there?

BURNS:  Well, absolutely.  I mean, look, news is more than ever about ratings.  But journalists don‘t have a responsibility to be nice to their guests.  They got a responsibility to get to the truth and to sort out the facts from the lies so that the American people can know what‘s going on in their country.

And that‘s what we‘re seeing is not happening, you know, every day in the media.  It‘s not happening with print.  It‘s not happening not on cable, especially on cable—certainly not happening on FOX News.

You know, you had the clip of Dana Perino up earlier saying the same thing that Rudy Giuliani did on November on Sean Hannity‘s show.  There was no correction.  In fact, this is the kind of stuff we see on FOX every day.

Just in the last two weeks alone, eight different contributors on FOX News have accused the president of the United States of being weak on these issues.  And that‘s in 14 days.

So, this is—this is a kind of issue that conservatives are going to use for their political advantage and this is largely—this is about politics for them.  It‘s not about national security.  And it‘s disgraceful.

But the journalists in this country and the media have a responsibility to dig down and really get to the truth to Americans can really understand what‘s true and what‘s not.  And that‘s the only way we‘re going to have any sort of reasonable political discussion in this country.

O‘DONNELL:  Now, why can‘t the media act according to its own precedent?  For example, the precedent the media set for its own coverage of the shoe bomber getting on a plane during the Bush presidency, failing to have his shoe blow up the plane.  Virtually identical to failing to have your underpants blow up the plane.  The media treated this without outrage against the Bush presidency, without asking for who should be fired for allowing this to happen.  Democrats did not all rush to the microphone to condemn the system for allowing this to have gotten—allowing this guy to have gotten on a plane.  It was generally accepted as an example of the system working.

What happened to the media‘s memory of its own coverage?

BURNS:  Well, I think the—yes, the media‘s obviously interested in a good story and they‘re interested in controversy and feeding into this kind of misinformation that we‘re seeing coming from the right-wing.  You know, it creates a good story on television.  Let‘s be honest, you know?  But it‘s irresponsible and it‘s dangerous for America, because you‘re exactly right.

Karl—you know, Karl Rove got up this weekend and was criticizing Obama for not making a statement three days after this latest attempt on Christmas.  As you noted, Bush waited six days after the shoe bomber and the world didn‘t end and nobody suggested that he was being irresponsible.

This is exactly the kind of thing that conservatives get away with it and until journalists stand up and say, “We‘re not going to take this anymore,” and until progressives and Democrats in Congress stand up and say, “We‘re not going to take this anymore,” and call for accountability, you know, it‘s going to continue.  And it‘s unfortunate.

O‘DONNELL:  Eric Burns of Media Matters—thanks for your perspective tonight.

BURNS:  Thank you, Lawrence.

O‘DONNELL:  Coming up: Michael Steele surprises his party leaders with a book they didn‘t even know was coming.  Will those same leaders surprise Steele with a pink slip?  And could that be just the opening the tea partiers are waiting for?

And later, Sarah Palin herself agreed she was on the verge of disaster before her big debate with Joe Biden.  New details about that and why she planned to use Mr. Biden‘s first name in the debate—ahead on COUNTDOWN.

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O‘DONNELL:  Coming up: Michael Steele blindsides Republicans with his GOP playbook to defeat the Obama agenda.  Will Republicans in turn sack their own quarterback?  And if so, will the tea party take control of the fractured party?

That—and could big banks who won‘t help troubled homeowners get a taste of their own medicine soon?  Ahead on COUNTDOWN.

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O‘DONNELL:  If Michael Steele were to abruptly leave his chairmanship of the Republican National Committee, it would certainly raise a problematic question for the GOP: who would replace him?

There are no recognizable names on the party‘s bench ready to replace Steele.  The man he beat for the job in the sixth round of voting is an obscure South Carolina party operative named Katon Dawson, who, of course, has an all-white country club on his resume.  And country club Republicans are no longer popular on the party even if their clubs are racists now that the tea party-wing dominates the debate.

Despite the very thin ice Michael Steele knows he has been on since the day he assumed the chairmanship, he has now dared the powers that be in his party to fire him or shut up.  And there are tweets flying around today that he canceled an interview to go on an emergency meeting.  During one of his many book tour interviews, Chairman Steele strongly responded when asked about criticism from within his own party.

(BEGIN VIDEO CLIP)

STEELE:  I‘m telling them and looking them in the eye and saying, I‘ve had enough of it.  If you don‘t want me in the job, fire me.  But until then, shut up.  Get with the program or get out of the way.

(END VIDEO CLIP)

O‘DONNELL:  Today, some Republicans in Congress are saying that they certainly didn‘t know about Steele‘s book until it hit the shelves.  The aide of a senior House Republican telling “The Washington Post,” quote, “The book came out and everybody went, ‘Whoa, what happened?‘  No one in the House or Senate leadership knew he had a book contract.”

Another top congressional aide, quote, “He‘s freelancing.”

And there is a question as to whether that breaks party rules.  Also today, Steele canceled a noon appearance on ABC News political webcast “Top Line” with Rick Klein.  According to Klein‘s tweets, Steele blamed the cancellation on an emergency meeting.  But later, sources told Klein that there was no meeting than those sources changed the story again saying Steele had a meeting but it wasn‘t an emergency.

Let‘s bring in Pulitzer Prize-winning syndicated columnist and senior member of the “Chicago Tribune‘s” editorial board, Clarence Page.

Good evening, Clarence.

CLARENCE PAGE, CHICAGO TRIBUNE:  Good evening, Lawrence.

O‘DONNELL:  Clarence, I‘m glad you didn‘t have any emergency meetings at the last minute to keep you from doing this segment with us tonight.

PAGE:  That‘s right.

O‘DONNELL:  You know Michael Steele.  You like Michael Steele.  Explain to me what gets into him to go off-script the way he does and challenged his own party on the issue of whether he should continue in this post.

PAGE:  Well, I have to admit, Lawrence, I‘m surprised that this type of a fractious relationship has gone on this long.  I thought that he would have been, by now, falling in line with the tradition of party chairman—and some day, chairwoman, of being a good attack dog out there to go after the opposing party and a good fundraiser back at home.

He has not been that much of an attack dog against Democrats.  It‘s been kind of boiled or played (ph) bromides and the fundraising has been awful.  He spent an excessive amount of money on the off-year elections this past fall and only got those two gubernatorial victories.  No big House gains.

And he has been losing donations.  There‘s been a net loss as people, good Republican donors, have been going to other groups like the Republican Governors Association.

Meanwhile, Michael Steele‘s got a new book out that he‘s selling and he‘s charging for speeches up at $20,000.  That‘s really rubbed a lot of party people the wrong way because as the party has been losing donations, he‘s been making money out there off of his name and while serving as chairman.  So, it‘s a rather odd situation.

O‘DONNELL:  Now, in an interview with Laura Ingraham today, he said that he wrote his book before he became chairman of the party.  Of course, the problem with that is that the book does include accounts of things that happened after he became chairman, including the disastrous escapade in New York‘s 23rd special election -- 23rd congressional district.

PAGE:  Right.

O‘DONNELL:  And Arlen Specter‘s party switch, little things like that. 

So, Michael Steele.

PAGE:  Yes, including his being chairman.  He mentions that several times in the book, too.

O‘DONNELL:  So, he‘s obviously sensitive enough about this book deal to lie about when he wrote the book.  Does that mean that even he thinks this book is the thing that could bring him down—this is the straw or the log that will break this camel‘s back?

PAGE:  I‘m not sure if he thinks this is the straw that‘s going to do it.  Frankly, I gather that he‘s been quite assertive in his role as party pundit as opposed to party chairman because he sees that his party is in disarray right now.  Republican Party does not have strong charismatic, television-ready leaders in the House or the Senate.

He—as far as party establishment goes—is the biggest name and face right now.  The other big names and faces, like Sarah Palin or Mike Huckabee, these folks are not in the party establishment right now.  They‘re just members of the party and kind of waiting in the wings to run in 2012.

So, I think, you know, you raised that question earlier, who would you replace him with?  I think that‘s why Michael Steele‘s been up front in saying, “Hey, you don‘t like what I‘m doing, fire me, otherwise get with the program.”  This is a rather kind—odd kind of language for a leader to use, unless he feels pretty secure in his post, I think.

O‘DONNELL:  Clarence, I‘m just getting this e-mail from “The Huffington Post”—Sam Stein got a piece where he‘s quoting Republicans comparing the chairman of the party to Larry Craig in terms of how much of an embarrassment he is.  I‘ve never seen anything like that go on with the party chairman before.  You‘re going to keep watching him for us.

Clarence Page, Pulitzer Prize-winning columnist with the “Chicago Tribune,” thank you very much for joining us tonight.

PAGE:  Thank you, Lawrence.

O‘DONNELL:  What if underwater homeowners walked away from their bad mortgages the same way that big banks walk away from their troubled assets?

And, from underwater to up in the air—new never-before-seen tape from balloon boy‘s backyard as the hoax of the year was unfolding.

(COMMERCIAL BREAK)

O‘DONNELL:  When those banks that were too big to fail fell flat on their faces, they got up, dusted themselves off with a 700 billion dollar check from the government.  American home owners, on the other hand, are in a similar sized hole; 745 billion dollars in the hole because of bad mortgage deals with those banks.  And they are out of luck. 

In Sunday‘s “New York Times,” magazine writer Roger Lowenstein proposes a solution for at least some of those bad mortgage holders: stick it to the bank by strategically defaulting on your loan.  To quote the article‘s headline, “Walk Away From the Mortgage.” 

There it is, exclamation point and all.  Lowenstein describes what he calls a new phenomenon, the strategic default: a homeowner who is still able to make payments on a home that has negative equity defaults on the loan, thereby transferring the loss to the bank.  No renegotiating terms of the loan, just walk away. 

A strategic default is obviously frowned upon by the mortgage bankers, even though they do it all the time.  Former Treasury Secretary Hank Paulson tried to shame people away from the option in the early stage of the mortgage crisis.  For the homeowner, there is a significant downside.  Not only are you helping to wreck property values of your neighbors, but defaulting on a home loan would also devastate your credit and hinder any plans you have of getting another mortgage in the future. 

David Corn is the Washington bureau chief of “Mother Jones Magazine” and columnist for PoliticsDaily.com.  Welcome, David. 

DAVID CORN, “MOTHER JONES”:  Good to be with you. 

O‘DONNELL:  David, I‘m a little shocked.  “The New York Times” magazine putting an article out there saying simply walk away from your mortgage.  I‘m uncomfortable saying it myself.  I want everyone to understand, I am not advocating it.  I would not suggest it.  What am I missing here?  I have friends, David, who bought houses for 400,000 dollars that are now worth 200,000 dollars.  They‘re wondering if they should walk away.  They‘re working.  They can still afford their payments.  But they‘re never going to get that 200,000 dollars back, they think. 

I tell them they got to keep making those payments.  What am I missing here? 

CORN:  Let‘s remember that there still is a big mortgage crisis here.  Twenty six percent of houses are still underwater.  I spoke to a big time financier this afternoon who thinks by the end of next year or in 2011, almost one out of two homes could be underwater. 

What are people to do in that situation?  Obviously, what “The New York Times” story is advocating is not for everybody.  But there are some people who are paying—it would take people sometimes 60, 70, 80 years to get back the worth of their home.  If that‘s the case, you have to ask yourself, what‘s the best thing for me to do, for me and my family? 

Banks, corporations, they walk away from bad debts all the time.  Companies declare bankruptcies.  Often smaller businesses get the short end of the stick, and they don‘t get paid back, and the people who run these company still get to keep their personal assets, their homes in the Hamptons, or wherever they may be, their second homes, their pools, their fancy cars. 

This happens all the time.  It‘s only when the little guy, or little gal, starts talking about this that Hank Paulson and the Mortgage Banking Association says, wait a second, there‘s a moral value at stake here.  You can‘t do this.  This is bad. 

But the deal that you and I and anybody who may own a home makes at the beginning of the deal is we will pay for this property.  If we don‘t pay, make our payments, you can take the property back.  Any business would look at this with a very code eye, and say, is continuing the payments here still in my own—our company‘s economic interest?  And if not, they would back away.  It‘s a pretty simple calculation. 

O‘DONNELL:  David, you know, I‘ve been known to slip through a stop sign once a or twice without coming to a full stop.

CORN:  Hard to believe.

O‘DONNELL:  But if everybody does that, we‘re in serious trouble on the road.  Do you see a tough journalistic call here for the editor of the “New York Times” magazine and “New York Times” company to put an article on there saying, this is one of your options, simply walk away.  Because if that were to happen en masse, wouldn‘t we have just an indescribable crisis out there? 

CORN:  Well, we may have the big crisis that we‘re still working through happen all at once.  Everyone‘s not going to do this.  But if people start to do this, I think the banks would get the message very fast.  Right now, it‘s still hard to renegotiate terms, particularly on principal.  The Obama administration put forward what they call the HAMP plan, to try to encourage some renegotiations.  It hasn‘t been a big success out there.  And the people who service the big mortgages, it‘s in their interest not to put this through.  You can‘t deal, often, with the people who own the mortgages.

So the system is still pretty rigged against homeowners, who were sold bad mortgages that they couldn‘t afford and that they shouldn‘t have been given in the first place.  If that‘s what‘s happening, and people start walking away, I think the banks and service companies will get the message PDQ that they better start changing some terms and work this out, so that they take some of the losses that they, in part, are responsible for. 

O‘DONNELL:  So it might be the only thing, if it were to happen in large enough numbers, to get the banks‘ attention, that could have the banks come in and say to a mortgage holder who‘s 200,000 dollars underwater, OK, we‘re going to cut 100,000, 50,000, 75,000 of that, and leave you 125,000 down.  That‘s the kind of thing you see that could conceivably happen, if the banks starting seeing this developing as a phenomena. 

CORN:  We see the that the political system has not responded quickly or I think vigorously enough to the situation out there.  I mentioned earlier about one out of four homes are underwater.  It‘s going to be maybe one out of two within a year or two.  Americans and American voters are going to be very ticked off about this, and looking to Washington for relief.  If they don‘t get it, they don‘t see it, they‘ll start voting with their feet.  And if they do, maybe the banks and the mortgage companies will start singing a different tune. 

O‘DONNELL:  Well, David Corn and I are much too responsible as journalists to advocate anyone to walk away from their mortgages.  For that kind of advice, you have to turn to the “New York Times.”  David Corn of “Mother Jones” and PoliticsDaily.com, thanks very much for your time tonight.

CORN:  Thanks, Lawrence.

O‘DONNELL:  Coming up, never before seen video of the Balloon Boy hoax as it was happening, as papa Heene tries to change public perception before he becomes an official guest of the state next week. 

And later, the changing perceptions of Sarah Palin; Steve Schmidt explains the, quote, epic debacle that was coming in.  He didn‘t help in the debate prep.  And the real story behind, “hey, can I call you Joe?”

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O‘DONNELL:  Here‘s how you know you‘re really, truly sick of someone:

when it feels like he already had a long-running reality show even when he didn‘t, and when he tries to make a comeback, as if he were a star, when he most definitely never was, and, in a just world, will never be. 

Richard Heene, Balloon Boy‘s dad, now says that the Balloon Boy hoax was not a hoax, even though Mr. Heene has already pleaded guilty to hoax.  Well, technically, felony count of falsely influencing law enforcement authorities.  Our correspondent is Lee Cowan. 

(BEGIN VIDEOTAPE)

(CROSS TALK) 

LEE COWAN, NBC NEWS CORRESPONDENT (voice-over):  It‘s never before seen video of the Heene family building that now ill-fated flying saucer. 

Most of the world saw what happened when the completed balloon broke lose of its tethers.  But the Heenes now want to share more of what they say is home video from that day, specifically showing what happened after they supposedly learned their six-year-old son, Falcon, was floating away, too. 

UNIDENTIFIED MALE:  Dad, falcon‘s in there. 

RICHARD HEENE, FATHER OF BALLOON BOY:  Where? 

UNIDENTIFIED MALE:  In that shape. 

HEENE:  He was just here. 

UNIDENTIFIED MALE:  No, he‘s in there.  I saw him crawl in. 

HEENE:  No, he‘s not.  He was just right here.  Falcon?  Falcon.

UNIDENTIFIED FEMALE:  No way. 

COWAN:  The self-made tapes sound pretty real, and so do the ensuing 911 calls from his wife. 

(INAUDIBLE)

COWAN:  But after investigators questioned the Heenes, they determined it was all a hoax.  The Heenes pleaded guilty.  They each got jail time.  Richard Heene even apologized to a judge. 

HEENE:  I‘m very, very sorry.  And I want to apologize to—

O‘DONNELL (on camera):  But Richard Heene now says that was the act, not his son‘s balloon fight.  Despite the guilty plea, he says he‘s innocent, telling CNN‘s Larry King he never lied. 

LARRY KING, CNN ANCHOR:  You believed your son was in the craft.

HEENE:  I knew he was in the craft.

KING:  Well, you didn‘t know it. 

HEENE:  No, no, in my mind.  There was no other place, because I visualized him. 

COWAN:  He says he only took the guilty plea because he was afraid he‘d be unable to find a fair jury.  And there was something more. 

HEENE:  I had to do it to save my family and my wife. 

KING:  How so? 

HEENE:  The threat of deportation was imminent. 

KING:  Deporting who?

HEENE:  My wife.

KING:  To where?

HEENE:  Japan.

UNIDENTIFIED FEMALE:  I watched the interview and, frankly, my first reaction was between laughing and throwing up. 

COWAN:  The Larimer County Sheriff doesn‘t buy it.  Although Heene says his wife‘s poor English meant that she didn‘t understand what the word hoax meant.  Police say she understood it well enough to confess to everything. 

UNIDENTIFIED MALE:  She took a polygraph.  She failed it, was confronted with the fact that she failed it.  She immediately cooperated and gave up all of the facts. 

COWAN:  Although Heene‘s jail sentence starts on Monday, he says he wants to clear his name first.  Misunderstanding is what he says he is guilty of, and nothing more.

For today, Lee Cowan, NBC News, Los Angeles.

(END VIDEOTAPE)

O‘DONNELL:  Up next, the latest and greatest electronic breakthroughs in the consumer show in Las Vegas. 

And when Rachel joins you at the top of the hour, John McCain kicks off his 2010 reelection campaign for the Senate with a new ad campaign in which the old campaign warrior seems to thinks he‘s still running against Barack Obama.

(COMMERCIAL BREAK)

O‘DONNELL:  Are you in love with your top of the line television set?  Are you staring adoringly right now at a six-foot flat screen that cost you less than your laptop?  Well, even the best of today‘s TVs will soon be obsolete, judging by what‘s on display at the world‘s largest electronics trade show taking place now in Las Vegas.  Forget about 1080p, NBC‘s Gina Kim brings you 3D TV. 

(BEGIN VIDEOTAPE)

GINA KIM, NBC NEWS CORRESPONDENT (voice-over):  As doors opened to the world‘s largest consumer electronics show, the TV dominated.  Specifically crystal clear, better than your own eyes HD-TVs and 3D sets that bring “Avatar” like entertainment directly into your living room.  TV makers are racing to bring the best consumer 3D TV to market, and making deals with studios and networks to convert content to fit the format.

As for supplying power to that new TV—

PAUL HOCHMAN, FAST COMPANY MAGAZINE:  The gee whiz story, I think, is wireless electricity.  Not wireless wi-fi, wireless electricity, moving power from one place to another through the air. 

KIM: Chinese TV maker Hire (ph) has teamed up with Witricity in Massachusetts to make the first ever wireless TV. 

ERIC GILER, WITRICITY CEO:  There literally is no wire at all.  So it‘s possible to build a system that allows you to place your television set anywhere you want. 

HOCHMAN:  The home of tomorrow will be wireless for sure.  You‘ll be able to look at things, move your hands and speak to things, and they will respond.  That‘s where we‘re going. 

KIM:  The other big debut this week, the tablet computer powered by Microsoft.  Tech writers say the tablet will revolutionize the way we work and play.  From 6,000 dollar super sensory massage cradles by Inada (ph), to an 89 dollar blue tooth by Blue-Trek (ph) that allows you to dictate your text messages, CES is a glimpse into the kind of technology you can expect in 2010. 

Gina Kim, NBC News, Las Vegas.

(END VIDEOTAPE)

O‘DONNELL:  To the top of the COUNTDOWN and the gift that keeps on giving, the rescue effort to save Sarah Palin from Sarah Palin before her big debate. 

And the mystery is solved.  We now know the story behind Palin‘s, “can I call you Joe” strategy.

(COMMERCIAL BREAK)

O‘DONNELL:  It was the most memorable moment of the 2008 vice president debate, and it happened before the actual debating got started. 

(BEGIN VIDEO CLIP)

SARAH PALIN, FMR. GOVERNOR OF ALASKA:  Can I call you Joe?

JOE BIDEN, VICE PRESIDENT OF THE UNITED STATES:  You can call me Joe.

(END VIDEO CLIP) 

O‘DONNELL:  Turns out, that moment was scripted because Governor Palin couldn‘t keep Senator Biden‘s name straight.  It‘s all chronicled in “Game Change, Obama and the Clintons, McCain and Palin, and the Race of a Lifetime,” written by reporters John Heilemann and Mark Halperin.  The book chronicles the key players during last year‘s historic presidential campaign.  It‘s out Monday.  But a few tidbits have leaked out. 

Namely, Sarah Palin‘s now confirmed scary debate prep.  Palin herself alluded to a steep learning curve in “Going Rogue,” describing her prep with McCain campaign adviser Randy Scheunemann, “during rehearsals, I accidentally called Randy Senator O‘Biden, a slip of the lip combination of Obama and Biden.  We laughed about it.  But we knew if I said it even once during the debate, it would be disastrous.  Then somebody said, you ought to just call him Joe.  So that‘s what we decided I would do.”

McCain campaign manager Steve Schmidt sitting down with “60 Minutes” to discuss the book and the campaign confirms Palin‘s story.  “The solution to the O‘Biden problem, just say, can I call you Joe.” 

Even then, Palin‘s lip couldn‘t stop slipping. 

(BEGIN VIDEO CLIP)

PALIN:  Barack Obama and Senator O‘Biden, you‘ve said no to everything. 

(END VIDEO CLIP)

O‘DONNELL:  But that slip-up was minor considering what could have happened.  Schmidt says another staffer warned of an imminent disaster. 

(BEGIN VIDEO CLIP)

STEVE SCHMIDT, FMR. MCCAIN ADVISER:  He told us that the debate was going to be a debacle of historic proportions.  He told us she was not focused.  She was not engaged.  She was really not participating in the prep. 

(END VIDEO CLIP)

O‘DONNELL:  The other political disaster avoided by the McCain campaign, Joe Lieberman.  Senator McCain was still seriously considering Lieberman as a running mate mere days before the Republican convention.  The push-back was fierce and the McCain team threw their Hail Mary pass to Palin.  And the rest was history. 

Joining me now is Democratic strategist Chris Kofinis.  Good evening, Chris.

CHRIS KOFINIS, DEMOCRATIC STRATEGIST:  Good evening, Lawrence.

O‘DONNELL:  Chris, imagine, if you will, how different a political world we would have today if John McCain had just, for once, stuck to his guns and picked his buddy, Democrat—then Democrat—Joe Lieberman, as his running mate. 

KOFINIS:  Well, it‘s pretty hard to imagine a Palin-free world.  But I‘ll try.  I don‘t think there would have been much of a difference in the 2008 election outcome for a bunch of different reasons.  One, I can‘t think of a single state where Senator Lieberman would have helped John McCain win.  Would he have helped him win North Carolina?  Would he have helped him win Virginia?  Would he have helped him win Illinois?  Florida?  I just can‘t think of one. 

In terms of the other key point, I think there would have been a very serious conservative backlash, the idea of him choosing a former Democrat.  I think that would have been a serious problem.  It would have hurt already what we know now was terrible turnout amongst the Republican party.  Whereas, ironically, I think it would have helped even motivate and energize Democrats even more.  I think you would have had a serious problem.

Lastly, I think as you go back and remember the 2008 election, it was an anti-Republican election.  That—considering that you had a Republican on top of the ticket, I don‘t think Joe Lieberman would have helped one iota. 

O‘DONNELL:  There‘s an interesting—more than one interesting tid-bit in here about the Democratic side.  Hillary Clinton, it turns out, according to this book, forced Barack Obama to ask her twice to be secretary of state.  She turned it down first.  Then he came back to her again, and she said to him, according to this book, that there‘s a big problem.  The problem is her husband, that it would be awkward, which everyone was saying at the time in the media.  But Barack Obama said to her, again, according to the book, “given the economic crisis, given all that I have to deal with, I need your help.” 

That reads to me like Hillary Clinton was forcing him to make it absolutely clear that he really wanted her on the team, that this wasn‘t just an offer so he could say he offered it to her. 

KOFINIS:  Yes, if that exchange is true, I think it was a pretty kind of honest exchange between two former, pretty heated contenders, as we all remember the Democratic primary.  When you kind of step back, it was hard to imagine during that Democratic primary that whomever won, that they would have the other in their cabinet, especially in such a senior position as secretary of state.

If you look in the past year, Secretary Clinton and President Obama, I think, have worked incredibly well together.  So both deserve enormous credit for deciding to—for Secretary Clinton becoming part of the administration, for President Obama asking her, even if it was twice. 

O‘DONNELL:  Chris, just quickly, as we go out, talk about negotiating your way into a cabinet.  There were many reports that suggested that Senator John Edwards was trying to do that, trying to, at certain points, leverage his way into the Obama cabinet.  You worked for the Edwards campaign.  Was there any hint of that that you were aware of? 

KOFINIS:  Well, there was definitely discussions, just from the conversations I heard about potential cabinet positions.  That always happens at the end of a campaign.  You start thinking about what are the next steps.  But in terms of where they went, I really don‘t know. 

O‘DONNELL:  Democratic strategist Chris Kofinis, thank you very much for your time tonight. 

KOFINIS:  Thanks, Lawrence.

O‘DONNELL:  That will have to do it for this Friday edition of COUNTDOWN.  I‘m Lawrence O‘Donnell, in for Keith Olbermann.  Our MSNBC coverage continues now with “THE RACHEL MADDOW SHOW.” 

Good evening, Rachel.  You were great on Letterman last night.

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

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