updated 2/10/2010 11:00:59 AM ET 2010-02-10T16:00:59

Guests: Kathleen Sebelius, Eric Massa, Mark Zandi, Virg Bernero, Joan Walsh, Errol Louis, Ernest Istook, David Lazarus, Sam Stein

CHRIS MATTHEWS, “HARDBALL HOST”:  The pros, first team.  Join me again tomorrow night at 5:00 and 7:00 Eastern for more “Hardball.”  Right now it is time for “the ed show” with Ed Schultz.

Ed Schultz, “the ed show” HOST:  Good evening, Americans, and welcome to the ed show tonight from New York, hitting my hot button tonight—

President Obama is showing some stuff right now.  Some fight.  Today he spelled out what bipartisanship means.  It‘s not giving in to republican ultimatums or giving up on health care reform. 

Health and Human Services Secretary Kathleen Sebelius has some strong words on all of this.  She‘ll join me in just a moment. 

Republican leaders now claim, they didn‘t fully understand how alleged Christmas Day bomber was being interrogated?  It was apparently unfair of intelligence officials to expect them to think?

Plus, John McCain‘s daughter, Megan.  She slams the innate racism at the Tea Party nation.  And that‘s all coming up on the ed show and great panels tonight. 

But first, the story that‘s got us all fired up tonight is what President Obama is saying.  He invited the republicans to bring their health care ideas to the table at a bipartisan summit.  This is the biggest story.  This is—we‘re at a crossroads now.  What did he get in return?  Well, they gave him an ultimatum.  Scrap your bill or we‘re not going to show up.  And by the way, forget all this talk about reconciliation.  House republican leaders John Boehner and Eric Cantor sent a letter, more like a ransom note, over to the white house with their demands.  Boehner and then Mitch McConnell over at the senate echoed them after a jobs meeting at the white house today. 

(BEGIN VIDEO CLIP)

REP. JOHN BOEHNER, MINORITY LEADER:  It‘s going to be very difficult to have a bipartisan conversation with regard to what 27 health care -- 2,700 page health care bills that the democrat majority in the house and the democrat majority in the senate can‘t pass.  So, why are we going to talk about a bill that can‘t pass?

SEN. MITCH MCCONNELL, MINORITY LEADER:  We‘re going to have the health care meeting on the 25th.  What I‘m telling you is, you know, what I‘m saying is, we need to put that bill on the shelf, the 2,700 page bill, start over with more modest goals. 

(END VIDEO CLIP)

Schultz:  OK, now did you see that?  They both said 2,700 pages.  It‘s just a lift they can‘t do.  There is a snowstorm coming.  There‘s nothing else to do but read the health care bill.  Get it done.  Since when does the minority party tell the president, “it‘s our way or the highway”?  Now, this afternoon the president decided to use his bully pulpit.  He went to the briefing room and took questions from press corps folks where he laid down the rules for bipartisanship. 

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES:  I‘m going to be starting from scratch in the sense that I will be open to any ideas that help promote these goals.  But here‘s the point that I made to John Boehner and Mitch McConnell.  Bipartisanship can‘t be that I agree to all the things that they believe in, or want, and they agree to none of the things I believe in and want. 

(END VIDEO CLIP)

Schultz:  Gosh, we could have had this conversation back in August, we‘d have saved a heck of a lot of time.  Because basically their attitude back then is exactly where it is right now.  The president also pointed out that this is exactly the kind of transparency that the republicans have been crying about and asking for, for months, and a chance to present their ideas to the country. 

(BEGIN VIDEO CLIP)

OBAMA:  This gives an opportunity not just for democrats to say, here‘s what we think we should do, but it also gives republicans a showcase before the entire country to say,  here‘s our plan, here‘s why we think this will work.  Let‘s establish some common facts.  Let‘s establish what the issues  are, what the problems are, and let‘s test out in front of the American people what ideas work. 

(END VIDEO CLIP)

Schultz:  Is he like the most affable guy that you can find to get people to get along?  And if the republicans really believed that they had the answers to health care reform, and if they really believed in their gut, in their heart, in their soul, in their mind and in their principles, that this president is so far off base, they should be screaming for the TV cameras!  The president is calling the republicans‘ bluff.  They don‘t have any solutions and there‘s no magic to this stuff.  Not everybody‘s going to get coverage, and then nobody‘s going to have to pay for it.  We all know that.  But that‘s what republicans have been telling the American people all along.  Actually, for the last eight years. 

So, the president is forcing them to show their hand.  Now here‘s a hand that really I think is so exemplary of what is still happening in America.  In California, the insurance giant blue cross Anthem, they‘re raising their rates on some individual policies by 39 percent.  Now the president talked about this today.  He called it a preview of coming attractions.  I agree.  The president and his party are genuinely trying to solve the health insurance crisis and health care problem in this country. 

The republicans, so far, have done nothing but criticize their efforts.  It‘s—you know, they‘ve done a great job of following the Waterloo game plan.  They have done a—they‘ve got tremendous discipline.  You got to give the republicans credit, they know how to close ranks.  But you know, you‘re either going to be a spectator in the stands or you‘re going to get in the game and get it done for the American people.  And I hope that the democrats have the intestinal fortitude to move forward on this and get it done. 

Tell me what you think, folks.  Telephone survey tonight, the number to dial is 1-877-ed-msnbc.  My question tonight is, do you think republicans have the guts to debate health care with President Obama on national television?  Press “1” for yes, and press “2” for no and I‘ll bring you the results later on in the show.  And it is about guts. 

Do you have the guts to put on the line what you need to put on the line for the American people? I see this administration getting aggressive and I really love what our first guest has done in the last 48 hours.  Joining me now is Health and Human Services Secretary Kathleen Sebelius.  Madam Secretary, it‘s great to have you with us tonight. 

Kathleen Sebelius, Health and Human Services Secretary:  Thanks, Ed.  Good to be with you.

Schultz:  You have written a letter to Anthem in California asking them to justify a 39 percent increase, a rate increase on some of their policies.  This cuts right to the chase.  If the republicans have some ideas or solutions that can help consumers out, we should all be ears on this.  What kind of response, if any, have you had so far, and what‘s the mission here?

SEBELIUS:  Well, we certainly haven‘t gotten a complete answer from Anthem, but, you know, here‘s the situation, Ed.  You‘ve got 800,000 folks in California who are in the individual market trying to buy insurance on their own.  And they‘ve just gotten a notification from this giant company, a company, by the way, whose parent declared record profits last quarter of $2.7 billion. 

Schultz:  That‘s the real point.

SEBELIUS:  So, they‘re making a little money.  Making a little money along the way.  That their rates are going to go up 39 percent on average, which will price a whole lot of people out of the market.  They basically have been dumped out of the insurance market by an insurance company, and I want to know why.  I want to know what their loss ratio is, how much of that money they‘re spending on, paying medical claims and how much they‘re paying on paying the two top ceos at Wellpoint who both make just under $10 million apiece.  How much of these dollars goes to advertising and promotion and CEO salary, and how much is going for health claims and why in the world are we pricing these people out of the market?

Schultz:  The gouging continues.  That‘s the point.  And I‘m proud of the fact that you did this.  It needs to be done.  Because they‘re not the only insurance company that‘s going to be doing this.  The key here is that this whole soap opera of health care coverage in this country, while the Congress sits and tries to get the republicans to do something, the situation‘s getting worse for Americans. 

SEBELIUS:  You bet. 

Schultz:  The situation‘s getting worse.  And here‘s the comment from Mr. Cantor in the letter.  He says, “The only way dems can win bipartisan cooperation is to fully embrace the goP health care plan and nothing more.”  How do you deal with these people?  Is it time to just draw a line in the sand and go for it?

SEBELIUS:  Well, I think the president was very clear today.  We have a plan that both the house and the senate have passed.  We have a proposal that lowers costs for Americans and for the government that provides insurance coverage and an affordable rate to millions of Americans who don‘t have any.  Goes after the kinds of insurance abuses that we‘re seeing right now, not only in California but across the country, and finally lowers our deficit, gets us on a spending path.  So, those are the four principles.  The president said brings forth your plan. 

Schultz:  Yes.

SEBELIUS:  But you know, both the house and senate bill, Ed, have provisions in it which would allow the Department of Health and Human Services to do the kind of  oversight on Wellpoint/Anthem that we would like to do right now.  Right now, we don‘t have any authority to do that. 

Schultz:  Yes.

SEBELIUS:  We can ask questions.  I hope they‘ll answer us, but we can shine a bright light but both the house and the senate, democratic bills, have said you better step up, insurance companies.  We want you to have new customers.  We‘re going to do this in the private market but we‘re going to watch very, very carefully, what it is that you‘re charging, what you‘re paying for, and not let you pick and choose any longer, not let you lock people out of the market. 

Schultz:  The latest numbers that are out, “The Washington Post,” ABC News poll shows that you have the country behind you.  Sixty three percent of the American people are saying that Congress should keep trying to pass health care reform.  Well, do you think the republicans are fakers or takers at this point?

SEBELIUS:  Well, I‘m hopeful that they‘ll come to the table, not just with a scattershot approach, but with a proposal.  What is your proposal that meets those four objectives that the president‘s laid out?

Schultz:  OK.

SEBELIUS:  We‘ve been working on it for a year.  It is time to come to the table and get it in the game.  

Schultz:  It is.  Madam Secretary, great to have you with us, tonight. 

Thanks so much. 

SEBELIUS:  It‘s nice to talk to you.  Thanks.

Schultz:  I appreciate you going after the folks that are gouging the American people.  Because, that‘s what they‘re doing.  It continues on.  

SEBELIUS:  Well.  OK.  

Schultz:  For more, let me turn to New York Congressman EricMassa who is a tell it like it, is kind of guy who once again is looking at his hand trying to get it right on the ed show.  I know the numbers are very confusing, congressman.  

REP. ERIC MASSA (D), NEW YORK:  I was just taking some notes.  

Schultz:  You know, I‘m glad you‘ve got a sense of humor about all of this because we get so uptight about what the republicans are doing,which is nothing, for the American people.  What‘s the best way forward here, Eric?  What do you think? 

MASSA:  Well, I think it is very clear.  I‘m one of those guys caught in the middle because I really don‘t like a lot of the things in the senate bill with no public option whatsoever.  Taxation on benefits.

Schultz:  Exactly.

MASSA:  I‘d like to see those things change.  But here‘s the point, the president has stood up and said, all right,let‘s have a conversation about this.  And the first thing that comes back is ultimatums and, “no, no, no.”  And this is what we‘ve been living with, with every single legislative issue from, you name it, to a, b, c, for a year.  And those of us who are moderates in the middle, those of us who were trying to find consensus, find that we‘re talking to the granite walls.  And this is the problem.  

And I think that if we shine the light of lack of cooperation and lack of true participation in the process, let them filibuster.  I will buy the neon sign, the big hand that points at the senate chamber while tens of thousands of Americans lose their health insurance in California and around the country.  If they want the situation to get so bad that people will rise up and protest, maybe it‘s time that we show them who was really causing the problem.  

Schultz:  Congressman, do you think that this is the defining moment right now that we‘re close to grabbing the stick and drawing that line in the sand? 

MASSA:  I never like in negotiations to put lines in the sand.  Because as soon as you do that, Ed, you find yourself—i like to actually have some cooperation.  I think the president is right on the money talking about dialogue.  I think he‘s right on the money   about give me your key ideas and let‘s see how we can incorporate it.  Hopefully, next week in the house we‘re going to repeal the anti-trust laws that insurance companies and health industries hide behind to practice monopolies. 

By the way, that‘s something that came to us from a great Republican President, Teddy Roosevelt, when he broke up the trusts.  This is one of the ultimate trusts.  We hope to get that done next week.  That‘s one of those key ideas.  I hope they join us.  

SCHULTZ:  I hope they do, too, but it doesn‘t look like they are, from some of the comments they‘re putting out there.  The key here is there is no hitting the re-set button.  You got to move forward on this.  And I think the president in his very classy, affable way is showing the country what these folks are all about.  They are about obstruction.  They are obstructionists.  They want to see him fail.  They‘re still really following the playbook of Waterloo.  

Now, do you think that now that this is so clear what the president‘s trying to do to draw him into a dialogue on national television, and if they say, no, which they are going to say no to this, is this going to bring some cohesiveness maybe with some centrist democrats and some Liberal Democrats in the house who have been a little tough as of late?  What do you think? 

MASSA:  Well, I‘m one of those guys.  And so, if we can see movement

why is it, for instance, that this idea about medicaid—or medicare at 55 is horrible?  You know, 65 and older, it‘s the greatest American program and every retired person wants it.   But if you‘re 64 somehow it is a drift into communism.  It makes no sense.  

SCHULTZ:  It doesn‘t.  

MASSA:  It‘s the same person separated by a day. 

SCHULTZ:  Yes.

MASSA:  And so, I believe in those kind of common sense options.  

SCHULTZ:  Ninety four percent of the people in this country have medicare think it‘s fantastic.   

MASSA:  They love it.  

SCHULTZ:  Congressman Massa, great to have you with us. 

MASSA:  Thank you.

SCHULTZ:  Always, great to visit with you.  Thank you.

MASSA:  I want to check my notes one last time.  

SCHULTZ:  You forget to use your notes, I noticed that.  Congressman Massa from New York with us tonight on the ed show.  Thanks so much.  

Coming up, as John McCain lurches to the right, his daughter is calling the Tea   partiers out on their bs.  I‘m siding with Megan McCain on this one.  

And my favorite “fox and Friend,” thinks she knows the real reason why Sarah Palin‘s scribbled crib cheat notes on her hand.  That lands them both in the “Psycho Zone.”  

Plus folks, this guy should be the next face of the Democratic Party.  I‘ll tell you who he is and just exactly why he should be in that position.  You‘re watching the ed show on msnbc.                                            

(COMMERCIAL BREAK)

SCHULTZ:  Coming up, President Obama met with republicans to talk about the economy today and nailed them with the truth.  Math isn‘t partisan. 

Top Economist Mark Zandi will tell it like it is, next on the ed show. 

Stay with us.  

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

OBAMA:  When the politics is put aside, the reality of our fiscal challenge is not subject to interpretation. Math is not partisan.  And we can‘t afford grandstanding at the expense of actually getting something done.  

(END VIDEO CLIP)

SCHULTZ:  Welcome back to the ed show.  That was the president, this   afternoon making a surprise appearance at the white house press briefing room.  He had just met with congressional leaders from both sides of the aisle to discuss the economy.   The president is pushing hard to get this on instructionist political maneuvers out of the   way and get a jobs bill through the Congress.  

Joining me now is the Chief Economist of Moodyseconomy.com, Mark Zandi. 

Mr. Zandi, good to have you on tonight.  

Now, creating a job, I suppose we‘ll going to have a big partisan battle over that.   In your opinion, where the economy is right now after we‘ve done this stimulus package, not all the money has been doled out, what is the best route at this point that we should take to get job creation going in this country? 

MARK ZANDI, Chief Economist “Moodyseconomy.com”:  Well, a few things, I think we need to pass more unemployment insurance for those folks who   lose their job in 2010.  I think that‘s key to maintaing demand.  I think state governments need more help because if they don‘t get it, they‘ll be cutting jobs later this year and into next.  And one of the best ideas I think is a jobs tax credit particularly if it hits the   economy some time in the spring and summer.  I think, that could turn the light switch  on and get some hiring going here.  

SCHULTZ:  What should the Obama administration be pushing the stimulus package money out to most of the states are running terrible deficits right now.  And within—by the end of the year, they‘re going to have to do budgets all over again.  If they can‘t stabilize their state‘s economy, there are going to be massive layoffs again.  Or am I wrong on that? 

ZANDI:  No.  You‘re absolutely right.  I mean, the states did get a lot of help in the first stimulus package, the package that was passed a year ago.  That‘s been key to keeping payrolls where they are.  But their budgets situation is still weakening.  Revenues are still falling.  They don‘t get more help particularly from medicaid, the Ethnic (ph) program.  They  will be in the situation of having to significantly cut payrolls and of course, that would be particularly bad timing.  

SCHULTZ:  This is Larry Summers on cnbc earlier today, Economic Advisor,  talking about the road we‘re taking.  

(BEGIN VIDEO CLIP)

LARRY SUMMERS, director of President Obama‘s National Economic Council:  If you look a year ago, we were on the brink of depression.   We‘ve got a long way to go, but the first thing we had to do was  avert the collapse, and the recovery act has been successful in doing that.  

(END VIDEO CLIP)

SCHULTZ:  Do you agree with that, Mr. Zandi? 

ZANDI:  Yes, absolutely.  I think the stimulus package that was passed a year ago has been vital.  In fact, I don‘t think it is any accident that the recession ended at just the same time that the stimulus was provided its maximum economic benefit last summer and fall.  So, the stimulus has been key to starting an economic recovery, yes.   

SCHULTZ:  OK.  So, what would be the wrong thing to do right now in your   opinion?  There‘s a lot of talk, a lot of experts saying, OK, we got to do this, we got to do that.  I believe that we have got to loosen up the credit markets, get this money to community banks, under some new government guidelines.  Get this money out to small businesses.  The president talked about that today.  The credit is still very tight in some sectors of the economy.  What should we not do? 

ZANDI:  Well, the worst thing to do would be to pull back on the stimulus and not to help unemployed workers who lose their jobs this year and not to help a state   governments.  So, it is very important that a policymakers remain very aggressive to make absolutely sure that this recovery evolves into an expansion.  You know, as long as businesses aren‘t hiring, the coast isn‘t clear.  It‘s not a certainty that this recovery is going to go on and become an expansion.  We have to make sure that happens.  

SCHULTZ:  And not to get hung up in the verbiage of all of this, but a jobs bill is a stimulus package.  

ZANDI:  No, it is.  Yes.   

SCHULTZ:  Isn‘t it? 

ZANDI:  It is.  It is a stimulus package.  I mean, I don‘t know how stimulus became a dirty word.  It‘s been key to keeping this economy together as well as it‘s been kept together and I think it is absolutely necessary to make sure that we get on the right track for sure.  

SCHULTZ:  Is there a chance by the end of this year that we could get   unemployment down to eight percent, in your opinion? 

ZANDI:  No, there‘s no chance.  I mean, I think what we‘re looking here to do is to make sure that unemployment doesn‘t rise well into the double digits and that we get the economy back on track, so that by 2011 and 2012 we‘re creating enough jobs to meaningfully bring down unemployment.  I think, under the best of circumstances we‘re still looking at very high unemployment no matter what policymakers do.  

SCHULTZ:  Mr.  Zandi, great to have you with us tonight.  Thanks so much.

ZANDI:  Thank you.

SCHULTZ:  And it is in 2010 all about the economy which of course is   connected to health care.  You know, I‘ve said it so many times.   

ZANDI:  Thank you.  Take care.  

SCHULTZ:  You bet.  

SCHULTZ:  Coming up.  Talking about delusional, Sarah Palin gets caught red-handed, and fox News cooks up the master—and I mean the master of all excuses for her!  I got a doozy coming in “Psycho Talk.”  You‘ll love this one.  Look at her look at that.  

(COMMERCIAL BREAK)

SCHULTZ:  And in “Psycho Talk” tonight, “fox and Friends” brain wizard Gretchen Carlson.  She‘s making up excuses for Sarah Palin.  We in the mainstream media have been, you know, we‘ve been having some fun with this because she‘s stupid.   But today the tea-tinted light bulb in Gretchen‘s head came on and she suggested that it was actually all a brilliant plan to take another shot at President Obama.  

(BEGIN VIDEO CLIP)

Gretchen Carlson:  American television journalist:  I think she did it on purpose.  

You do? 

PALIN:  I think she did it on purpose.  Yes.  Because I think it is an

exact   opposite of reading off the teleprompter, reading off complete

script written for you   with every word in a sentence.  And here she‘s

just taking crib notes on her hand.  It makes it look at if she can just talk off the cuff.  

(END VIDEO CLIP)

(LAUGHTER)

SCHULTZ:  Come on, Gretchen!  You know what makes you look like you‘re good at talking off the cuff?  Actually talking off the cuff.  You know, by going into a room full of people who don‘t agree with you and answering their impromptu questions, using only the information stored in your brain?  You know, like when President Obama   went and spoke to the house republicans.  Looking at your hand while you‘re answering pre-screened questions doesn‘t make you look like you‘re really good at winging it.  Nice try, Gretchen.  But saying that Palin‘s crib notes were all just a plot to show up the President of the United States.  That‘s “Psycho Talk.” 

Coming up, hit the deck.  Rightie Warmonger Pete Hoekstra just shot back at Obama‘s counterterrorism chief about reading the underwear bomber his rights.  

My next guest is trying to hit pit (ph) out of the governor‘s mansion.  Pull it off in Michigan.  And more trouble for Toyota.  A worldwide recall has the auto giant on the skids.  In my “Playbook,” I‘ll tell you how Detroit should put the pedal to the metal.  

Plus, John McCain is in the primary fight of his life with a Tea Party favorite.   His daughter may be able to save him from following in Sarah Palin‘s footsteps.       

(COMMERCIAL BREAK)

SCHULTZ:  Welcome back to THE ED SHOW here on MSNBC and thanks for watching tonight.  From America‘s mayor to America‘s governor, I‘m all about it.  Virg Bernero, the mayor of Lansing, Michigan, is now running for governor in the state of Michigan to succeed Democratic Governor Jennifer Granholm, who is term limited.  The primary for the Democratic nomination will be held in August, and the mayor of Lansing, Michigan joins us. 

I have to tell you, every time we have this gentleman on the air, I get just tons of e-mails saying “that‘s the guy we need!”  “Why don‘t all Democrats talk like that guy?”  Virg, I want to point out first in this interview that you didn‘t raise a dime for this in 2009.  This is a genuine call—it is a real passion, and a real belief that you think something needs to be done in Michigan.  I congratulate you for that.  You haven‘t gamed anybody on this.  This is Virg Bernero, in his heart, in his soul, saying, damn it, we got to get it done in this country, and we got to do it in Michigan.  What brought you to this conclusion? 

VIRG BERNERO, MAYOR OF LANSING, MICHIGAN:  You‘re right on, Ed. 

People are hurting.  I want to state up front, I‘ve got some notes. 

They‘re right here. 

But I don‘t know the notes to tell me people are hurting, they‘re in pain in Michigan.  This is the epicenter of the economic storm.  We‘re fighting for real survival.  This is Michigan‘s 11th hour.  As you know, I went to bat for the auto industry and for manufacturing.  I was pleased to answer the call any time somebody called, whether it was Fox. 

I hate to mention another network, but they tried to beat me up, but I want on there to defend working people and to say what was in my heart and what was in my gut, which is the unions have done a wonderful thing.  They created the middle class in this country.  They created a standard of living for me and my father, my father—allowed my mother and father to raise five kids.  I gladly stand up for working people and I intend to continue to do that. 

We‘re lucky in Lansing, Michigan, in my city, to have two GM plants that are up and running and adding shifts.  But I know a lot of plants that went down.  And a lot of cities around Michigan and around the country are hurting because of the downsizing that‘s taking place. 

People are hurting out there.  We need jobs.  The American dream is at stake.  We talked about this many times.  The American dream is what‘s at stake for many families.  This new normal that they‘re trying to sell, that Wall Street is trying to sell, that our children and grandchildren should just learn to—they call it transition, that we‘re in a period of transition.  You know what?  The transition isn‘t very—really treating very kindly many of our families.  They‘re hurting.  Working families are hurting. 

Wall Street calls it a transition.  It is a downward spiral for a lot of families who are trying to keep their homes, keep their kids in college, or keep food on the table.  And they need a government that works for them.  That‘s what I‘m going to be fighting for. 

SCHULTZ:  All right, mayor, you‘ve got an uphill battle if you believe the numbers, the way the Democrats are viewed right now in the state of Michigan.  Maybe I‘m wrong on this, but Governor Granholm, her approval rating right now is at 68 percent disapprove, 32 percent approve of what she‘s doing.  Is this going to be a party association?  What would you do differently? 

BERNERO:  Well, look, I‘m a proud Democrat.  And I‘ll run as a Democrat, as I have.  But we‘ve got to—obviously, we‘ve got to reach out to everybody.  We have to be a government that works for everybody.  But I‘m not going to give up my core values. 

You know, I think sometimes we shrink.  I think sometimes there‘s this move to the middle, the centrists.  Look, we should include everybody.  We got to serve everybody.  But I‘m not going to give up my values.  I‘m not going to—we‘re not just going to cut our way out of this.  I‘ve made cuts in the city of Lansing.  We‘ve had to.  But you got to stand for something.  You know, education—if you want economic development, you got to—you got to invest in education.  We‘re not going to just cut our way to the bottom, so that we‘re one of the lower states in education. 

It is not all about taxes.  Yes, do we need tax reform?  We do.  But we need a balanced approach.  We‘re going to invest in our people.  We‘re going to invest in infrastructure, not just capital infrastructure. 

SCHULTZ:  What would do you in Detroit, Virg?  Fifteen point seven percent unemployment in the old Motor City.  This is really some gut-wrenching stuff right now. 

BERNERO:  Absolutely. 

SCHULTZ:  What would you do? 

BERNERO:  In fact, “The Detroit Free Press” says it is 30 or 40 percent in Detroit.  Look, we need to completely rewrite the rule book.  We‘re playing with a set of rules that really is at least ten years old.  Ed, you know what‘s at fault.  It is the global economy.  People are hurting from the global economy.  We have to—we really need a Marshal Plan for places like Detroit.  And we‘re going to need cooperation from the federal government. 

So we‘re going to do everything we can.  The governor has talked about incubation centers and business incubators, and that‘s very important to give people help, help people who are entrepreneurial.  You were just talking about the credit markets.  Even if someone has a great product, they can‘t get financing right now because the banks at the top were helped and that never trickled down. 

SCHULTZ:  As the governor, you would be able to put the heat on them to loosen up those credit markets, and help those community banks out. 

BERNERO:  Absolutely.  We need to start to worry as much about our cities and we do Citibank.  Believe you me, you‘re going to have a governor who goes to Washington when we need to.  We‘ll do everything possible to put our house in order.  We will do that in Michigan.  When we need to go to Washington, we will. 

SCHULTZ:  Virg, you are the man.  I appreciate you stepping up and going after it.  You‘re a man of conviction.  I admire you. 

BERNERO:  Thank you so much.  I hope you‘ll visit VoteVirg.com.  We‘ll probably put this segment up and maybe folks can help us out in that way. 

SCHULTZ:  I am supporting you, buddy.  You got—any time.  Virg Bernero, the mayor of Lansing, Michigan, going to run for governor on the Democratic ticket in Michigan.  Going to go through the primary later this year. 

I think Virg Bernero is the exactly kind of candidate Democrats need to get in 2010.  He said, hey, I‘m not going to give up my principles.  He talked straight.  He understand kitchen table issues.  He‘s focused on results.  Democrats need to remember that they, the Democrats, not the Republicans, are the party of the people, the people that championed Medicare and Social Security, that can‘t just get scared because there‘s some phony Tea Party populism talk out there.  It is still about the core values of moving this country forward with small business. 

Joining me now is Joan Walsh, editor in chief of Salon.com.  A refreshing candidate.  Do the Democrats have any more?  Is he redefining the mold, do you think, Joan? 

JOAN WALSH, SALON.COM:  I hope so.  What I like about him—I love his values and I love his fight.  I think you‘re right.  The Democrats seem to be forgetting that they are the party of working people and that their platform is all about making material changes in people‘s lives, increasing what‘s in your paycheck, improving the schools, improving the health care system. 

And they—many of them talk a good game.  We know they do.  But they are not getting it done.  And they are blaming Republicans for tying them in knots.  I love hearing that fight.  And I‘ve enjoyed hearing more fight out of President Obama. 

I loved seeing Secretary Sebelius on the show and loved her stepping up and slapping Anthem, and really pointing to what‘s going to continue to go on if we don‘t have health care reform.  It‘s about time.  We‘re seeing a little bit more fight from our Democrats and I think they are being—in some ways, they‘re being helped by the Republicans, because it is just so clear that they have no interest in participating in bipartisan solutions. 

You know what‘s interesting?  I was looking, Mark Zandi was actually one of John McCain‘s advisors.  He‘s not some flaming lefty.  He‘s not even Paul Krugman.  There are areas for bipartisan cooperation on growing the economy.  There really are, theoretically.  But we don‘t have GOP legislators who want to be a part of that.  I think fight is the answer. 

SCHULTZ:  Fight is the answer.  I see the president starting to step out.  He walked into the press room today and made this comment about bipartisanship.  Your response.  Here it is. 

(BEGIN VIDEO CLIP)

OBAMA:  Bipartisanship cannot mean simply that Democrats give up everything that they believe in, find the handful of things that Republicans have been advocating for, and we do those things, and then we have bipartisanship.  That‘s—you know, that‘s not how it works in any other realm of life. 

(END VIDEO CLIP)

SCHULTZ:  Joan Walsh, are we seeing a shift in strategy by the White House? 

WALSH:  I hope so.  It does seem like it, the last couple weeks.  The president‘s absolutely right.  There are a lot of Republicans ideas in the health care reform bill.  You and I don‘t like it because of that.  That bill is already a  compromise.  They accepted hundreds of Republican amendments in the committee—at the committee level.  They never got Republican votes, but they accepted amendments.  They took single payer off the table right away.  There is no public option, as it is.  So that is a compromise. 

You and I, we‘ve had some hard times about, but we‘ll probably get behind it as it is, hope for reform later.  That‘s compromise.  Throwing it out, scrapping it, starting from scratch, and only taking Republican ideas, that is not compromise.  That‘s what we‘d have done, I guess, if they‘d have won the presidency, the House and the Senate.  But the idea that‘s what they‘re supposed to do is completely ridiculous, and it is great to see the president fighting. 

SCHULTZ:  Joan Walsh, great to have you with us.  Thanks so much. 

Republican leaders are pushing back on claims that they knew how the alleged Christmas day bomber was being interrogated.  Obama‘s top counter-terrorism Chief John Brennan says all four knew that since the FBI was questioning the suspect, it meant that he had to have been Mirandized.  But ranking Intelligence Committee member Pete Hoekstra, he says something else.  He says, no.  His quote was, “I don‘t think Brennan is lying.  I think what he is saying is that he just gave us some info, and based on that kind of info, we should have figured out something else.  That‘s an unfair characterization.”

Cut me some slack.  Will you?  I guess is it too much to expect that the ranking Republican on the Intelligence Committee to know basic protocol for gathering intelligence? 

For more, let‘s bring in our panel on this.  Errol Lewis is a columnist for the “New York Daily News” and the host of the morning show on WWRL here in New York City, and Ernest Istook is a former Republican congressman and a distinguished fellow at the Heritage Foundation. 

Errol, the Democrats, how should they handle this criticism right now about Mirandising terror suspects, criminals, whatever you want to call them?  As the way this whole thing came down, it looks like a lot of Monday morning quarterbacking going on. 

ERROL LOUIS, “NEW YORK DAILY NEWS”:  Well, it sure does.  But I think the key is to go back to the principles.  This is the same as in the health care debate.  What is the principle?  We believe in the rule of law.  We support the use of the Constitution.  We are not afraid to put our justice system out in front of the world, and try these criminals and bring them to justice. 

And this notion that telling somebody that they have some rights—in other words, introducing them into the system, complete with their rights and responsibilities and setting them on the path toward the system that‘s worked for centuries—the idea that this is some sign of weakness is the first problem.  The notion that people would walk away from our own Constitution, our own legal principles, to me it almost smacks of treason in a case like this. 

We have tried—and in the southern district in New York, they have a 100 percent conviction record of trying very serious terrorists.  And I don‘t know why people think that that‘s somehow a problem.  But there it is.  And Democrats need to stand up and push back against it. 

SCHULTZ:  There—I don‘t think they really are as much as they should be.  You make a great point there, Errol.  Ernest, why don‘t the Republicans say, you know what?  Our intelligence people are just doing a great job because this Christmas day alleged bomber is serving up all kinds of information.  We got new leads.  Instead, all we hear is the Republicans saying, well, they‘re secretive, and they read him his rights, and that‘s not how you treat terrorists.  Why can‘t the leadership in the Republicans, especially Mr. Hoekstra, say something positive about our intelligence people? 

ERNEST ISTOOK, FORMER CONGRESSMAN:  Part of the problem, Ed, we‘ve lost a month after they Mirandized him, gave him the rights, and then it took a month to get him talking again.  Remember, this is a reversal of course from the Obama administration.  After the bombing, he said, I don‘t want to play the blame game.  The problem is we dropped the ball.  We didn‘t connect the dots.  My security team didn‘t do it right. 

Now they‘re trying to say it is all the Republicans‘ fault, because, in a brief courtesy call that night, Christmas night, they didn‘t object in that particular call.  Even though of course they were objecting promptly and immediately thereafter. 

SCHULTZ:  You‘re telling our audience tonight, Ernest, that there is an attempted attack on the United States, and it‘s a courtesy call from the security people to the head of the intel people on the committees in Congress? 

ISTOOK:  That‘s exactly what it was.  That‘s the way those things work.  They‘re required to give some communication to the people.  These are courtesy calls.  They were not in-depth calls.  Talk to the participants in it.  It was not an in-depth call.  It was just a superficial covering.  To try to say that because these Republican members didn‘t jump in and stop them, when of course it was already water under the bridge—they‘d already given him the Miranda warning—

SCHULTZ:  What about the convictions?

LOUIS:  What a shame and what a scandalous shame it is to suggest that the first thing lawmakers should do is try and make sure that the law is not adhered to. 

ISTOOK:  The first thing they should do is protect people from other plots. 

LOUIS:  That guy was in custody.  The guy was giving up information.  The guy was completely secure.  He was giving up information.  Why not start him—

ISTOOK:  He gave it for 50 minutes, then he shut up for a month. 

LOUIS:  Is the idea we should have tortured him a little bit?  Would that have been preferable?  Is that what you want members of Congress to argue for? 

ISTOOK:  We shall not have used protocols that urged him to remain silent.  We should have done everything possible that was legal to pull information out of him.  We didn‘t know if there were other coordinated attacks that were under way at the time.  Remember 9/11?  Those were coordinated airline attacks. 

LOUIS:  Every day, all across the nation, horribly guilty people are informed of their rights and advised to remain silent.  It doesn‘t stop people from being convicted.

(CROSS TALK)

SCHULTZ:  We‘ll do it again, fellows.  Thanks so much.

Coming up, Toyota is in damage control mode with another recall.  This time the Prius is in trouble.  US auto makers should be going for the jugular, I think.  That‘s next in the playbook.  Stay with us.

(COMMERCIAL BREAK)

SCHULTZ:  In my playbook tonight, Toyota has sidelined almost 500,000 more cars worldwide.  This time, they‘re recalling certain Priuses and other hybrids because of a brake problem.  The National Highway Traffic Safety Administration is investigating the situation.  But it turns out that the agency was warned back in 2008 about accelerator problems in other Toyota models, and they did nothing.  They said they failed to investigate because of, quote, “limited resources.”

Toyota has since recalled about eight million vehicles because of accelerator problems.  For more, let me bring in David Lazarus, business columnist for the “LA Times.”

Mr. Lazarus, how have they managed this?  I know have you a column coming out on this.  The dos, the donts, what have they done well and not done well? 

DAVID LAZARUS, “THE LA TIMES”:  The list of things they‘ve not done well is voluminous.  What they have done well—I guess you could give them milk and cookies for stepping up to the game finally, but I‘ve spoken with a lot of crisis managers about specifically Toyota, but generally how you handle these things.  Toyota has fumbled the ball straight down the line. 

Look, here‘s the bottom line from crisis managers: when you have a problem, step up quickly, tell every one, especially customers, what you know and what you don‘t know, and for goodness sakes, never, ever look like you‘re spinning the story or trying to cover things up. 

What did Toyota do?  Their first reaction, deny, deny, deny, attack the sources of bad news, in this case the “Los Angeles Times,” and then only gradually start allowing for some acknowledgement that maybe there is a problem.  And then finally, finally coming around and saying, all right, we‘re going to recall.  That‘s not good enough. 

SCHULTZ:  Now, did they get a pass from the government because late in 2008, government committees that oversee this kind of stuff decided not to investigate, and this kind of stuff continued with Toyota.  What do you think? 

LAZARUS:  I think this is a clear example of what happens when your regulators do not have the funding and the manpower they need to do their jobs.  Whether it‘s highway safety, whether it‘s financial services, whether it‘s health insurance, whatever it takes, this is a very good example of it.  In fact, it‘s perhaps even worse than that, because State Farm says that they started telling US authorities as far back as 2007 that they were getting reports from their clients about problems with Toyota vehicles.  And apparently the regulators did nothing. 

SCHULTZ:  Mr. Lazarus, good to have you on tonight.  Thanks so much. 

Look forward to that article in the “LA Times.”

A final page in my playbook tonight, we‘re all, of course, looking forward to the 2010 Winter Olympic games in Vancouver.  Check this out.  Our leader, NBC News president Steve Capus, well, he had a turn of carrying the Olympic torch on the way to the Olympic ceremonies.  Capus took over the torch relay in New Westminster, a suburb of Vancouver, and carried it about 300 yards.  Three hundred yards? 

Folks, I know this man.  He‘s a tough competitor.  He could have gone the distance.  Run, Steve, run. 

Be sure to tune in to NBC to watch the opening ceremonies on February 12th.

Coming up, not all of the push-back on Tea Partiers is coming from lefties like me.  Some big-name Republicans are distancing themselves.  That‘s next.  You‘re watching THE ED SHOW on MSNBC.  Stay with us.

(COMMERCIAL BREAK)

SCHULTZ:  Welcome back to THE ED SHOW.  Finally tonight, Sarah Palin could wind up helping the Democrats win twice.  Her appearance at the Tea Party Nation Saturday is putting the spotlight, I think, on the crazy, and even Republicans are starting to balk at all of this.  John McCain‘s daughter Meghan slammed the innate racism on display at the conference. 

(BEGIN VIDEO CLIP)

MEGHAN MCCAIN, DAUGHTER OF SENATOR JOHN MCCAIN:  Congressman Tancredo went on TV.  He was the first opening speaker.  He said that “people who could not even spell the word vote or say it in English put a committed socialist ideologue in the White House, whose name is Barack Hussein Obama.” 

Then he went on to say that people at the convention should have to pass literacy tests to vote, which is the same thing that happened in the ‘50s to prevent African-Americans from voting.  It is innate racism.  It is why young white people are turned off by this movement. 

(END VIDEO CLIP)

SCHULTZ:  And Republican lawmakers who used the Tea Party protests to try to kill health care reform are now finding out that Tea Partiers also don‘t want Medicare or Social Security.  Tea Party leader Marsha Blackburn is co-sponsoring a bill in the House to privatize them, while Michele Bachmann of Minnesota wants to abolish them entirely. 

Joining me now is Sam Stein, political reporter for “The Huffington Post.”  Just a footnote here, Sam.  Michele Bachmann is going to Bismarck, North Dakota, to speak here in the next month.  I would just really like to have her say, you know, I think we ought to get rid of Medicare and Social Security and see how that goes over in a state that‘s aging as much as they are.  What do you make of Meghan McCain jumping into the fray here? 

SAM STEIN, “THE HUFFINGTON POST”:  I‘m not surprised.  I know there is a lot of other Republican lawmakers and officials who would like to say what she‘s saying, but are worried about the repercussions that will happen if they were to speak out about some of the rhetoric at that rally.  What Tom Tancredo said was probably reprehensible.  It was reprehensible.  A lot of what‘s coming out of those rallies is disturbing on many levels. 

The problem that these GOP officials have is that the Tea Party protesters are the most impassioned portion of their base.  To alienate them right now, when the Republican party, by all standards, is on the ascendency, would be problematic for the movement.  They bite their tongues.  They acknowledge these people are crazy in private but don‘t say anything in public. 

SCHULTZ:  They‘re just a collection of single-issue folks.  Aren‘t they? 

STEIN:  Well, they‘re libertarians, but they want to privatize basically large chunks of the federal government.  This is not necessarily that far out of the Republican mainstream.  Representative Paul Ryan introduced a budget plan that was essentially a privatization in Social Security.  Republican leadership has backed off that a little bit.  But this is essentially a Republican agenda. 

SCHULTZ:  Got to run, Sam.  You the man.  Tonight in our telephone survey, I asked do you think the Republicans have the guts to debate health care with President Obama on national TV.  Five percent of you said yes; 95 percent said no.  That‘s THE ED SHOW.  Chris Matthews‘ “HARDBALL” is next.  We‘ll see you tomorrow night.

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

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