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'The Last Word with Lawrence O'Donnell' for Thursday, August 24, 2011

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Guest Host: Chris Hayes
Guests: Missy Ryan, Steve Clemons, Michael Linden, Dave Weigel, Felix
Salmon, Jeremy Ben-Ami

CHRIS HAYES, GUEST HOST: Libyans are fighting for a new government as some
Republicans are realizing why a government is important.

(BEGIN VIDEOTAPE)

UNIDENTIFIED MALE: There`s more chaos right now than there is
violence.

ANDREA MITCHELL, NBC NEWS: Who is keeping track of Moammar Gadhafi`s
chemical weapons?

HAYES (voice-over): The Libyan rebels placed a price on his head.
But the ousted dictator remains at large.

UNIDENTIFIED FEMALE: Stop looting the palace and stop celebrating.

RICHARD ENGEL, NBC NEWS: Some say stop firing guns and figure out
how to rule the country.

UNIDENTIFIED MALE: A defiant Moammar Gadhafi calling on his
supporters.

UNIDENTIFIED MALE: The radio recording from Gadhafi in which he is
calling on his supporters to take up arms.

MITCHELL: To call for more bloodshed.

UNIDENTIFIED MALE: Moammar Gadhafi at this point is more of a symbol
than anything else.

MITCHELL: Symbols matter.

ENGEL: Screaming over this gunfire and smoke.

UNIDENTIFIED FEMALE: How this ends matters.

ENGEL: It`s unclear how dangerous or how precarious it is inside.

HAYES: With an earthquake and hurricane in the same week, Republican
governors discover a new love for federal.

UNIDENTIFIED MALE: It`s obviously an unusual event.

MITCHELL: Few small aftershocks.

UNIDENTIFIED MALE: Congressman Cantor is here. This is his
district.

REP. ERIC CANTOR (R-VA), MAJORITY LEADER: The governor, his decision
whether or not to seek federal assistance.

UNIDENTIFIED FEMALE: Do it for yourself.

MITCHELL: Tracking hurricane Irene.

UNIDENTIFIED FEMALE: Don`t want for government to come in.

UNIDENTIFIED MALE: The Washington Monument is a big concern right
now.

UNIDENTIFIED MALE: Some cracks found near the top.

UNIDENTIFIED MALE: A sizable crack.

UNIDENTIFIED MALE: National Cathedral up in northwest Washington,
D.C., that also sustained damage.

UNIDENTIFIED MALE: We are preparing for the worst.

HAYES: And right wing 19th century nostalgia pushes Rick Perry to
the top of the Republican polls.

MITCHELL: Steering the party too far to the right.

UNIDENTIFIED MALE: Perry should have an economic message to share.

UNIDENTIFIED FEMALE: Closer ties to the Tea Party network than
certainly Mitt Romney does.

MITT ROMNEY (R), PRESIDENTIAL CANDIDATE: Please, don`t quote me.

MITCHELL: Pining for a white knight to replace the current crop of
candidates.

UNIDENTIFIED MALE: I think it`s a little early to be dissatisfied
with the candidates.

SEN. MARCO RUBIO (R), FLORIDA: I`m not going to be the vice
presidential nominee.

ROMNEY: I`ve tried losing, and I think I like winning better.

(END VIDEOTAPE)

HAYES: Good evening from New York. I`m Chris Hayes, in for Lawrence
O`Donnell.

In Libya, it is the second day in a row of almost there. Tonight,
the jubilant rebel forces hesitate to declare outright victory because
Colonel Moammar Gadhafi`s whereabouts still remain unknown and scattered
fighting continues in the capital.

Britain`s Channel 4 asked Gadhafi`s foreign minister in the conflict
if the conflict is finished. He said, "Yes, this is my feeling. If I am
in charge, I will tell loyalists to lay down their arms."

In rebel base of Benghazi, the head of the Transitional National
Council announced that wealthy Libyan businessmen have declared a $1.7
million bounty for the capture of Gadhafi dead or alive. TNC also offered
amnesty to any member of Gadhafi`s entourage who turns him in.

Over 40 nations now recognize the TNC as the legitimate government of
the Libyan people. Including Arab nations of Egypt, Tunisia, Lebanon,
Jordan, United Arab Emirates, Kuwait, Qatar, Bahrain, Iraq and the
Palestinian Authority.

I think it`s safe to say that at this point, Libya is now the site of
both the most violent and the most remarkable turn of events in the ongoing
Arab Spring.

Just last April, "The Wall Street Journal" read, "Ragtag rebels
struggle in battle." "Rolling Stone" deemed them Libya`s amateur army.

And here is Richard Engel embedded with the rebels just five months
ago.

(BEGIN VIDEO CLIP)

ENGEL: Outgunned, the rebels say they are killed whenever they
approach Gadhafi`s forces.

"We have light weapons, he has tanks," complained one man.

Another rebel showed me he isn`t actually armed at all.

It`s a toy gun. This is amazing. He just handed me his gun. I
didn`t realize it was made of plastic, it`s a toy.

(END VIDEO CLIP)

HAYES: That`s crazy tape.

What a difference revolutionary determination on the ground Western
intelligence agents and 20,000 NATO sorties make.

Today, we had another sign Gadhafi`s control over Libya is nearly
gone. The loyalist troops who for five days held 30 Western journalists
captive let those journalists go today. Red Cross workers transported them
to a rebel-held hotel where they reunited with colleagues.

Joining me now, remarkably, "Reuters" correspondent Missy Ryan, who
was one of the journalists held captive in the Tripoli hotel.

Thank you for joining me, Missy.

Missy, at what point did you realize you were being held captive?

MISSY RYAN, REUTERS CORRESPONDENT (via telephone): Well, thank you
for having me.

It was sort of an odd situation, because to begin with as a reporter
in Gadhafi`s Tripoli, we didn`t have very much freedom even before the sort
of climax of the military campaign over the past few days. We generally
were kept from reporting freely, we were only allowed out on sort of
government-organized trips.

But things really did take a turn for the worst around August 13th,
which is when their coastal highway towards Tunisia, the only way in and
out of Tripoli was cut off, meaning journalists who were there couldn`t
leave. But it didn`t seem like a crisis situation until last Saturday when
rebels entered Tripoli and the heavy fighting began. And at that point,
the government officials who had been sort of watching over us melted away.
The hotel staff disappeared, and suddenly, we were in a big empty hotel in
a government-controlled area with only a number of armed Gadhafi volunteers
who were prohibiting us from leaving.

HAYES: When you say prohibiting you from leaving, what was the state
of rationale of those men and then at what point and how did they come to
the decision to let you go?

RYAN: Well, these men were ardent believers in Colonel Gadhafi and
they, I think, had a real conviction that the rebel`s advance into Tripoli
was going to be upheld. And they told us they were keeping us against our
will for our own safety because if we went out we`d be part of the
crossfire or we would fall victim to an opposition that they really saw as
little more than armed criminal gangs.

At the same time, of course, the Gadhafi government has sought to use
the foreign media present here in Tripoli to counter some of the negative
depictions in the international media, especially by reporters who have
been in rebel-controlled areas, you know, and, for example, on Sunday, I
believe it was, when there were reports that Saif Islam had been arrested,
reports from the TNC. They corralled us into covering a surprise
appearance by Saif, which was their great advantage, to be able to disprove
the TNC account.

HAYES: That`s Saif Gadhafi surprise appearance as one of the
strangest stories to come out of Libya. Missy Ryan from "Reuters" -- thank
you so much for joining me and please stay safe.

RYAN: Thank you.

HAYES: What will be the legacy of the Libyan revolution beyond its
borders? More specifically, what is this mean for the fragile and eroding
nuclear nonproliferation regime?

In between the chapters of Gadhafi`s life in which he has played the
role of villain, there was a brief period in which he was America`s
prodigal sun. U.S., U.N., and E.U. diplomatic pressure led to Libya
dropping its nuclear program in 2003, a victory, you know, much celebrated
by the Bush administration in a development that was awarded with the
dropping of sanctions against Libya and even a visit from one Senator John
McCain who tweeted in August 2009, "Late evening with colonel Gadhafi at
his ranch in Libya, interesting meeting with an interesting man."

All this attention that was lavished on Gadhafi was predicated on
this kid pro quo for dropping his efforts to make Libya a nuclear power.
But Gadhafi himself realized that this alliance of convenience with the
U.S. was by no means steadfast.

Here`s a great piece of tape of him at an Arab League Summit in Syria
in March 2008, 15 months after Saddam Hussein was executed.

(BEGIN VIDEO CLIP)

MOAMMAR GADHAFI, LIBYAN LEADER: Why isn`t there an investigation
into Saddam Hussein`s killing? An entire Arab leadership is killed and
hanged on the gallows -- why? In the future, it is going to be your turn,
too! Indeed.

America fought alongside Saddam against Khomeini. He was their
friend. Cheney was a friend of Saddam Hussein. Rumsfeld, defense
secretary, during the bombing of Iraq, was a close friend of Saddam
Hussein. At the end, they sold him. They hanged him.

Even you, the friends of America, no, I will say, we, we, the friends
of America -- America may approve of our hanging one day.

(END VIDEO CLIP)

HAYES: That Gadhafi has a point.

I want you to put yourselves in the shoes of a depraved death bed and
from the morally neutral perspective, if you look at the structure that has
been set up for the world`s authoritarian regimes, one of the troubling
fallout of this entire episode is that it begins to look a lot like the
very worst thing you can do is ever give up your nuclear weapons.

Joining me now, Washington editor at large for "The Atlantic," and
senior fellow at the New America Foundation, Steve Clemons.

Steve, thanks for joining me tonight.

STEVE CLEMONS, NEW AMERICA FOUNDATION: Great to be with you, Chris.

HAYES: So, you look at where the U.S. has engaged and intervened and
where they haven`t intervened.

We have -- despite tons of provocations, we are definitely not going
to get into a shooting war with North Korea. No matter what Kim Jong-Il
does, North Korea has a bomb.

We are not going into a shooting war with Pakistan. Pakistan has a
bomb.

We did intervene in Iraq. We did support NATO intervention in Libya.
Is the sort of perverse lesson here never give up your nuclear weapons?

CLEMONS: Of course, it is. Nuclear weapons change the way global
gravity works. Moammar Gadhafi gave up his nuclear weapons as part of his
own strategy to create a different kind of security for himself, which
would embed himself and his family and his future with the West and try to
behave a bit more.

But now with the invasion, it sent a signal. In fact, on the day
that President Obama authorized intervention and we had our first NATO
strike there, North Korea came out and basically told him he was a sucker,
essentially, for having given up his nuclear weapons. And now, the other
problem, Chris, is that the bar for nations getting in the nuclear weapons
track, technology has become a lot more available. And so, I suspect
you`re going to have a greater possibility of this kind of nexus of
paranoid leaders wanting the ultimate protection.

HAYES: We have a nonproliferation regime. It centers around the
nonproliferation treaty which is sign I think by President John F. Kennedy,
if I`m not mistaken. How robust is the nonproliferation regime right now.
It was something that the Bush administration talked about and seemed to go
about preventing the decline of in the most counterproductive way possible.
But how do we deal with the current situation to make sure we do not have
proliferation?

CLEMONS: Well, I think the global nonproliferation comments eroded
quite a bit during the Bush administration. When President Obama came in,
and last year he chaired a U.N. Security Council hearing. That hearing was
about trying to create new safeguards that would prevent the proliferation
of nuclear weapons and WMDs. We also had just before that a nuclear
posture review in the United States that was designed to reduce the nuclear
weapons footprint in the U.S. arsenal, Joe Biden was working very hard on
this.

So, there was a several-packaged plan to try to restore the
sensibility around the world that nonproliferation was what really mattered
and this was something that we were going to invest in.

So, while I understand very much the humanitarian dimensions of our
intervention, trying to protect so many lives in Benghazi, when you look at
the full ledger, both the positive and then the cost of invading Libya, to
some degree the Obama administration has undone what they tried to do last
year, which was to send signals to everyone that nuclear weapons were a bad
course.

HAYES: Final question I want to ask you is just how surprised are
you by the outcome we`ve seen, just -- and obviously, this is not over.
But in terms of the actual military victory the rebels seem to have
achieved, how surprising an outcome was that to you?

CLEMONS: I think it was fairly surprising -- I mean, I think it was
surprising. And I think that`s disconcerting is that NATO thinks that it
was the turning point. I think it was the Berber tribes getting a unified
military command and closing off the western flank.

I think what was really interesting, and I give President Obama lot
of credit, he didn`t let this become a slippery slope to the United States
owning the entire outcome. He left this a Libyan story where Libyans were
able to take control and either, you know, suffer through a long stalemate
or finally bring this to a close.

We certainly played a role. And I think it`s very important for
those powers that were assisting Libya to maintain some humility right now.

So, I`m impressed we helped give the rebels a tilting point, better
odds than they would have otherwise had. But over these six months for
forces that had very little training, very little armament in place and a
lot of uncertainty, I think this has been a dramatic -- you know, it`s
transfixed the country. It`s like seeing Mubarak fall again but now, we`re
in another country.

So, it`s been amazing to watch.

HAYES: Washington editor at large for "The Atlantic," senior fellow
at New America Foundation and the holder of titles that my teleprompter
will fit, Steve Clemons, joining me, thanks a lot.

CLEMONS: Thanks, Chris.

HAYES: Coming up, how to prepare for a hurricane if you`re a
Republican governor who wants Washington off your back. Number one, ask
Washington for money. The perils of the GOP politics of emergencies is
next.

And Governor Rick Perry wants to get rid of an amendment that is the
foundation of our modern state. Repealing the 20th century Perry-style,
coming up.

(COMMERCIAL BREAK)

HAYES: "New York Times" Media Decoder blog may have had the most
amazing sentence describing Glenn Beck`s rally in Jerusalem. Quote, "This
is the throne of the Lord, Mr. Beck intoned theatrically to a haunting
background track that mixed the sound of rams horns, a Jewish funeral
prayer and some Islamic incantation." We`ll try to top that coming up.

And Republican governors along the East Coast don`t want the federal
government around until a hurricane is on their doorstep. Libertarians in
the foxhole up next.

(COMMERCIAL BREAK)

HAYES: It`s not every week that the East Coast of the United States
faces a 5.8 magnitude earthquake and a hurricane with the potential to
reach category four strength before it even gets to our shores. And it`s
not every week that Tea Party darlings, including Republican chief
executives and congressional leaders along the Eastern Seaboard, come
clamoring for those sweet, sweet federal dollars that they say they loathe
so deeply.

On Monday, New Jersey Governor Chris Christie wrote to President
Obama asking for a major disaster declaration for his state after heavy
rain and flooding earlier this month. Christie wrote in part, "It is
evident that the disaster is such severity and magnitude that effective
response is beyond the capabilities of the state and the affected local
governments and that federal assistance is necessary."

Today in Mineral, Virginia, House Majority Leader Eric Cantor
returned to his home district to survey the earthquake destruction, and
guess what he didn`t rule out.

(BEGIN VIDEO CLIP)

CANTOR: The federal government does have a role in situations like
this. When there`s a disaster, there`s an appropriate federal role, and
we`ll find the moneys.

(END VIDEO CLIP)

HAYES: We will find the moneys.

And while Texas Governor Rick Perry vows to keep Washington out of
the lives of the voters if elected president, he didn`t miss a chance to
slam the administration back in May after being turned down in his request
for a major federal disaster declaration after wildfires ravaged the state.

(BEGIN VIDEO CLIP)

GOV. RICK PERRY (R-TX), PRESIDENTIAL CANDIDATE: Nine thousand
separate fires in the state of Texas. The federal government`s only helped
us with 25 of them. That`s inappropriate.

(END VIDEO CLIP)

HAYES: Perry failed to mention he only asked for federal money 25
times prior and in each of those cases, FEMA said yes.

And now, South Carolina Governor Nikki Haley faces her own test. She
tried today to keep the Tea Party tone intact with this warning to
residents facing the wrath of hurricane Irene.

(BEGIN VIDEO CLIP)

GOV. NIKKI HALEY (R), SOUTH CAROLINA: When an event like this
happens, don`t wait for government to come and take care of the situation,
do for yourself to make sure that you`re doing all the responsible things
we need to do to keep our families safe.

(END VIDEO CLIP)

HAYES: Joining me now, Michael Linden, director for tax and budget
policy at the Center for American Progress, progressive think tank.

Michael, thanks for coming on.

MICHAEL LINDEN, CENTER FOR AMERICAN PROGRESS: Thanks for having me.

HAYES: All right, I`m going to put you in a totally unfair position,
which is I`m going to make you defend the premise for my segment.

So, to play devil`s advocate, you know, at some level, you could say,
look, they are governors of states, the money is already appropriated for
this federal money pot, and these disasters are disruptive events that come
from outside. They`re not budgeted for. And good for them for getting
their share of the money.

What is wrong with that?

LINDEN: Nothing is wrong with that. What`s wrong with it is the
previous rhetoric about how, you know, the government`s not the solution,
it`s the problem in every case and every situation. There`s nothing wrong
with the governor asking the federal government for help in a natural
disaster.

In fact, if they didn`t ask for the government`s help, that would be
a dereliction of duty. Federal government has enormous resources that it
can bring to bear when appropriate and governors should take advantage of
that, but these are the same governors who are going out there saying, you
know, the government`s the problem, you know, we don`t want the government
in our lives and our backyards.

But, of course, they do want the government when it suits them.

HAYES: And this isn`t -- I mean, we should be clear here, this sort
of hypocrisy or mismatch between ideology, rhetoric, and their actual
record, it`s not unique to this instance, right?

LINDEN: No. I mean, this is a long and less than proud tradition of
conservatives going back to -- I mean, the Recovery Act, right? Members of
Congress denouncing the Recovery Act left and right, but only too happy to
accept the money that came with it, and, of course, the jobs that came with
it.

HAYES: You know, one of the things I think that`s interesting about
a disaster is it makes us actually read the fine print of that category,
that nebulous category of nondefense discretionary funding. You actually
had a tweet early after the earthquake. I don`t even think the ground had
stopped shaking yet.

LINDEN: Yes, it was mid-earthquake.

HAYES: It was mid-earthquake about the U.S. Geological Survey,
right?

LINDEN: Right, USGS, which is in that nebulous category you
mentioned, was cut by $25 million. Now, that`s not a huge sum out of its
budget, but what else got cut this year -- FEMA got cut. It`s the Federal
Emergency Management Agency. And then the National Oceanic Atmospheric
Administration, that`s the agency that tracks hurricanes. That got cut.

I mean, all these things are in that category, and it sounds easy to
cut. But when you look at what`s in there, it`s actually stuff that people
like and want and need.

HAYES: Yes. Just, I mean, the thing that`s so frustrating is that
actually the stuff that even by the most sort of ideologically zealous
definition of the role of government stays in there, right? I mean,
there`s no more obvious public good than monitoring seismic activity. That
is not something that the America is going to supply.

LINDEN: Or highway safety or, you know, airport security, whatever
we may think of it, having some of it is important -- drug safety, food
inspections, all of that is the very definition of a public good. It`s the
very definition of a service that the private market is not going to
provide.

HAYES: Michael Linden, director for tax and budget policy, who gets
points for knowing the NOAA acronym by heart. He`s from the Center of
American Progress -- thanks for joining me tonight.

LINDEN: Thank you.

HAYES: Coming up, why the new front runner in the GOP primary called
the 16th Amendment, a milestone on the road to serfdom. And Glenn Beck
takes on Jerusalem and asks it to hear the words of his mouth. No,
seriously, that`s what he said. We got it on tape, listen.

(BEGIN VIDEO CLIP)

GLENN BECK: Hear the words of my mouth.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

HAYES: Still ahead in this hour, the extreme ideas of the now
Republican front runner Rick Perry, why the governor thinks America lost
its way in 1913. That`s next.

And later, why did the New York attorney general get booted off a
national committee that was investigating foreclosure abuses by major
banks. That`s coming up.

(COMMERCIAL BREAK)

HAYES: In the Spotlight tonight, the new Republican presidential
front runner. Less than two weeks after jumping into the race, Texas
Governor Rick Perry has stolen Congresswoman Michele Bachmann`s momentum
and leapt ahead of former front runner Mitt Romney. A new Gallup poll
shows Perry at 29 percent, Romney at 17 percent, Ron Paul at 13 percent,
and Bachmann fourth at 10 percent.

Paul is the highest polling and least covered candidate in the race,
probably due to a host of extreme, out of the mainstream and impracticable
ideas. Unlike this guy, who merely wants to repeal the 16th Amendment.

In case you`re rusty on your amendments, the glorious 16th is the
amendment that created the federal income tax. It was ratified in 1913.
And it`s not hyperbole to say it`s the cornerstone of the modern American
state. The first 123 years government spending as a percentage of GDP
bounced around two to three percent.

After the 16th Amendment passed, spending clocked in usually somewhere
between 10 and 40 percent, depending on how many wars we were in.
Repealing the 16th Amendment has been one of those anti-government far
right wing ideas, like eliminating the Federal Reserve and denouncing
President Abraham Lincoln as an authoritarian anti-Christ, and has rattled
around the margins for decades.

And now it`s gone mainstream, because Republican front runner Rick
Perry wrote about it in his book titled "Fed Up." Fun fact about "Fed Up,"
Rachel Maddow carrying the book in her backpack today. Perry`s
communications director acknowledges that it might be too much fringe too
soon for mainstream America, saying the book is, quote, "a look back, not a
path forward," and was written, quote, "as a review and critique of 50
years of federal excesses, not in any way as a 2012 campaign blueprint or
manifesto."

Joining me now is Dave Weigel, a political reporter for Slate.com.
Dave, how are you doing tonight?

DAVE WEIGEL, SLATE.COM: I`m doing well. Thanks for having me.

HAYES: If Fluoride in the water as a communist plot is one end of
sort of extreme views, and gold standard at the Fed is in the kind of like
acceptable area of sort of hard right views, where is repealing the 16th
Amendment?

WEIGEL: Repealing the 16th Amendment fits really snugly into that
framework. Conservatives have talked for a long time about something they
view as the Constitution in exile. Perry, in this book, which to me
validates this idea that he wasn`t thinking about running for president
until recently -- Perry in this book says what a lot of conservative radio
hosts believe, what Clarence Thomas believes, that basically the
progressives hoodwinked a lot of Americans in 1913. The New Deal did even
worse, and that to really get Americans liberated the way the founders
wanted us to be liberated, we need to repeal all of it.

So it was actually kind of honest, I thought, in the book to say that
we need to do this. I`m less surprised the campaign has been backing away
from it.

HAYES: Yes, the honesty has sort of taken a turn. We have, in
response to questions about whether Governor Perry still holds the views he
expressed in the book, campaign released a statement: "the 16th Amendment
instituting a federal income tax started at one percent has exploded into
onerous, complex and confusing tax rates and rules for American workers
over the last century."

It goes on to say "we can`t undo more than 70 years of progressive
taxation and worsening debt obligations overnight."

So what do you make of this sort of beginning to back away from the
Constitution in exile view articulated in the book?

WEIGEL: Well, I think maybe one reason they are backing away from it
is that the conclusion to reach, if we get rid of the income tax, is that
we need to institute a national sales tax or something, the conclusion if
Social Security has been sapping the precious livelihood of Americans for
70 years and it is a Ponzi scheme -- the conclusion from that is that we
need to get rid of it.

And those are both unpopular. I actually think saying that you want
to demolish the IRS is actually kind of old hat for Republicans. That`s --
saying you want to get rid of the 16th Amendment -- any time you talk about
repealing an amendment, some people`s crazy buzzers go off. But not
Republican voters.

It`s just that look, this is a guy who is now leading in the polls
nationally and is tied with Barack Obama. They can`t let the election be
fought over the things he thinks. They have to let it be fought over
Barack Obama`s record.

So Democrats generally can defend themselves pretty well if they are
allowed to talk about the legacy of the New Deal. But Perry is doing
something -- Republicans have been doing something by challenging the
foundations of that. They have been doing it for quite a long time. This
is more mainstream than it would have been even when Ronald Reagan was
saying things like this.

HAYES: Final question here; the Gallup poll -- obviously we`re God
how many -- knows how many months out we are from the election. And this
is a snapshot. Obviously the guy got a lot of press. But I actually was
pretty surprised by how massive the bump has been. Were you?

WEIGEL: I was not that surprised, because we`ve seen this kind of
sine wave in the Republican field. Every couple of months, somebody rises,
somebody passes Mitt Romney, and somebody falls. Perry`s taking a bigger
chunk out of Mitt Romney support and has become a credible front runner in
a way that Romney never did.

But I`m not surprised because the Republicans have been looking for
somebody who has a record they can run on, and frankly has, you know, a
main line Christian faith. It`s not fun to talk about, but that`s a reason
Mitt Romney was not the victor in Iowa three years ago, if we`re being
honest. He hits all the buttons.

And none of this that we`ve been talking about for the last five
minutes has disqualified him with Republicans. I mean, we went through
this with Ronald Reagan. There were ideas Democrats thought were poisonous
that Ronald Reagan believed in. He was a critic of Medicare before
Medicare passed. He got past that.

Republicans have been very successful in taking ideas that most
Americans, if they think about them, are not used to, and packaging them in
a way that`s exciting. Perry`s gotten even further because Republicans
have shifted our conversation pretty far down this road towards rethinking
whether the New Deal worked, rethinking whether we need a welfare state.

He`s taking advantage of that. I think that`s why he`s more credible
winner in the primary, more credible winner in November than Michele
Bachmann was.

HAYES: Rick Perry taking it to Woodrow Wilson. I`m still waiting for
the launch of the Fred Thompson 2.0 candidacy coming up soon. Dave Weigel,
political reporter for Slate.com, thank you so much.

WEIGEL: Thank you.

HAYES: Earlier today, the New York attorney general was kicked off
the committee that is leading the foreclosure settlement negotiations with
major banks. That`s right, the attorney general from the state where the
financial crisis started is no longer on that committee. That`s coming up.

And earlier today, as part of his four-day Restoring Courage event in
Jerusalem, Glenn Beck delivered a keynote speech he himself called a "game
changer." That`s coming up.

(COMMERCIAL BREAK)

HAYES: All right, I want to read you a quote that will symbolize
everything that`s wrong with how we`ve handled the banks up to, during, and
in the aftermath of the financial crisis. But before I read you that
quote, a little bit of context so you can understand just how outrageous it
is.

Now, during the housing bubble, banks started churning out lots of bad
loans that they would then package into securities and sell to investors.
When everything blew up, the banks wanted to foreclosure on people who
couldn`t make the payments on their crazy, adjustable rate mortgages.

But a problem, low and behold. During the drunk and heady days of the
bubble, banks hadn`t been real careful about documenting the loans. So
when say Bank X wanted to foreclosure on Mrs. Johnson, who was six months
behind on her mortgage, Bank X found that the documentation proving it
owned the loan wasn`t anywhere to be found. May not have ever existed.

So the banks, it appears, devised a way to get around their
documentation problem: robo signing. The banks allegedly hired a bunch of
people and paid them to blindly sign affidavits all day long, testifying
that even though we don`t have Mrs. Johnson`s mortgage, I swear to you we
actually do own that loan.

So robo signings of affidavits became a way for banks to move forward
with foreclosures even without the required proof. Home owners and
investors who would ultimately be on the hook cried foul when this was
blown up in the press. And every single state attorney general, every
single one, Republican and Democrat, opened an investigation into
foreclosure practices, including robo signing.

Over the past 11 months, those attorneys general -- I love saying
attorneys general plural -- the Justice Department and HUD have been
working to negotiate a settlement with the banks that basically would make
the banks pay out some money to home owners, say our bad, and wipe their
hands of the whole mess.

And they are this close right now, as I speak, to getting away with
it. The terms would be a 20 billion dollar payment split between five big
banks, a sum roughly equal to the average second quarter profit this year,
in exchange for total immunity from prosecution.

Let me say that again, total immunity from prosecution. Not a bad
deal, considering no one knows the extent of this alleged systemic fraud in
the industry, and if a settlement is reached, we will probably never know.

For that reason, three attorneys general have said, heck no. We
learned today that in response one of those attorney general who said no,
Eric Schneiderman, New York attorney general, has been booted off the
committee negotiating the settlement.

OK, now we get to that quote that I promised you way back at the top
of the block. In explaining why Schneiderman was a problem, Katherine
Wylde, a member of the New York Fed, who -- get this -- represents the
public -- literally, that is her title, represents the public -- told
Schneiderman in a conversation, and I quote, "it is of concern to the
industry that instead of trying to facilitate resolving these issues, you
seem to be throwing a wrench into it. Wall Street is our Main Street.
Love them or hate them, they are important. And we have to make sure we
are doing everything we can to support them, unless they are doing
something indefensible," end quote.

Joining me now is Felix Salmon, the financial blogger for "Thomson
Reuters." Felix, thanks for joining me.

FELIX SALMON, "THOMSON REUTERS": Always a pleasure.

HAYES: OK. What did you think of that quote?

SALMON: She`s a board member of the New York Fed. The New York Fed
is actually owned by the banks. It`s actually not surprising that the New
York Fed might think that way. What`s surprising is that the 50 attorneys
general across the country seem to be caught into this sort of New York Fed
brain mill.

Where did they get this idea?

HAYES: That`s the thing about the settlement, right? And I hope
people are tracking this, because it is a complicated story. But it is
really a remarkable one, because you have this revelation of tremendous bad
practices, which seem to be plaguing the entire industry. The state
attorneys general get serious and the banks get scared.

Right, that`s what happens. They come to the negotiating table. And
it looks like there`s going to be some real hell to pay. Now it seems
they`re wriggling out. How does that happen?

SALMON: We have what I like to think as -- non stoppable force and
an immovable object, right. You have the banks, who would love to put this
whole thing behind them. And they are -- as you say, they would love to
just write a 20 billion dollar check and say, I have complete immunity from
prosecution; none of this will ever bug me again.

If you look at the stock market right now, some of the banks like --
Bank of America is trading at less than one third of its asset value,
because no one on Wall Street believes anything it`s saying and everyone is
worried about how much this could blow up in its face. It has a two
trillion dollar balance sheet.

So this is -- the market is incredibly worried about this. It would
be so easy for the banks to write that check, make it all go away. But
they need to make everything to go away. So that`s not just the robo-
signing. It`s also things like the securitizations. That`s where they
sliced and diced the bonds, and put them -- capital markets fraud and that
kind of stuff.

And what Eric Schneiderman wants is he wants to investigate these
securitizations. He`s investigating them right now. He doesn`t know what
he`s going to find. He doesn`t know what criminal activity he might turn
up. so the last thing he wants is a bunch of attorneys general saying,
well, no matter what you turn up, you can`t prosecute it.

HAYES: Right. Schneiderman, I mean, a remarkable story, right? The
plot point, aside from today, when Schneiderman gets booted off this
committee, is a story in yesterday`s Times, I think, saying the White House
is pressuring Schneiderman to back down.

SALMON: Yet that came out the same day as another story in the "Wall
Street Journal" saying that the federal government and Justice actually
didn`t want to give immunity for securitization. There`s a lot of
murkiness here. And I think honestly the main take away from all of this
is probably nothing is going to happen. Because it`s at the end of these
negotiations, when people suddenly realize how far apart they are, that
they fall apart.

HAYES: If nothing happens -- to me this looks like too big to fail
redux for this reason: exactly the degree of uncertainty we`re talking
about. The thing that happened with robo signing was the symptom of the
disease. The disease is that all the securitization that happened on the
front end, a lot of it was not legitimate legally.

And lord knows how much of those -- how much of that securities are
essentially legally invalid. If that is revealed, that`s a real big
problem for Wall Street. And it seems to me like no one is going to have
the courage to force that moment.

SALMON: Well, it`s -- the other thing you have to remember is
although it`s a problem for Wall Street, it`s also a huge possible benefit
for the investors. The banks are --

HAYES: -- on the hook.

SALMON: The people who bought this nuclear waste are suddenly going
oh, my God, I could make billions and billions of dollars which I thought
that I had lost, because I can put the banks back on the hook for selling
these stuff which they should never have sold me.

HAYES: Right. Just so people are clear, I`m holding this security
you, Felix Salmon sold to me. It`s now worth 20 cents on the dollar. But
I learned that this is actually fraudulently created. And I can say take
that back and give me my dollar.

SALMON: The real irony here is who is one of the biggest investors in
these potentially fraudulent securities? The New York Fed. They are suing
the banks.

HAYES: Right, right. Felix Salmon from "Reuters," a fantastic blog
you should all be reading.

SALMON: Thank you very much.

HAYES: Appreciate it.

Coming up, Glenn Beck in Jerusalem, where he thinks -- no, he believed
his visit was prophesied, next.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

GLENN BECK, RADIO TALK SHOW HOST: In the affairs of mankind, God is
not a stranger to the children of Abraham. Oh, Israel, hear the words of
my mouth.

(END VIDEO CLIP)

HAYES: Oh, LAST WORD viewers, hear the words of my mouth. We`re
thinking of naming my new show on the weekends "Hear The Words of My
Mouth." Ex-Fox News host and the king of conspiracy theory radio Glenn
Beck was in Israel today, all part of a four-day event to, in his words,
Restore Courage.

During today`s production meeting, we had a blessed conversation
asking, is Glenn Beck now just a side show. Cast asunder from his Fox News
perch, he`s sort of fallen by the wayside.

There`s something about this rally we decided we had to talk about,
partly because, to be honest, there`s tape.

(BEGIN VIDEO CLIP)

BECK: Somebody this week said that we were going to bring chaos and
mayhem. And I thought it`s the Middle East. How would you know?

(END VIDEO CLIP)

HAYES: That was the beginning of Beck`s speech today, the speech that
this four day event has been leading to, and one that, in Beck`s mind,
people all over the world have been waiting for. Take this passage in
which he quotes from the Old Testament Book of Isaiah.

(BEGIN VIDEO CLIP)

BECK: In synagogues all over the world just last week, they read the
words the Prophet Isaiah, "comfort, oh comfort my people, says your God.
Speak tenderly to Jerusalem and to declare to her, her term of hard service
is over.

Look. Look at us. Look at where we are. Look at what we say. We
declare words of comfort to Israel, in Jerusalem."

(END VIDEO CLIP)

HAYES: Call me crazy, but it almost seems like Beck is saying that
the Prophet Isaiah foretold of Glenn Beck giving a speech in Jerusalem,
even though only 1,700 people showed up to hear him speak today. The
reason that there`s something both important and dangerous here is the
alliance between the Christian right and the most reactionary forces in
Israeli life that create political obstacles to peace in the most
tumultuous region in the world.

This week, there`s Glenn Beck, right there, in the middle of all of
it. Joining me now is Jeremy Ben-Ami, author of the new book "A Voice for
Israel." He`s the founder and president of J-Street D.C.-based pro-Israel
pro-Peace lobbying organization.

Jeremy, what did you make of the Glenn Beck spectacle today?

JEREMY BEN-AMI, AUTHOR, "A VOICE FOR ISRAEL": I think you`re right.
You don`t know whether to laugh or to cry. Because on the one hand, the
tape is too good. You have to run it because you have to laugh at the idea
of this guy pretending to be a modern day messiah, a modern day prophet at
the gates of Jerusalem.

But on the other hand, it is tragic that there are those in Israel
politics, and frankly in American Jewish life and Jewish politics in this
country, who thinks that this is what it means to be a friend of Israel.
And they are ready to embrace him on his terms, as he`s defining a new holy
war that`s going to engulf the Middle East.

HAYES: The reception in Israel has been quite polarized to Beck,
since he`s a polarizing figure. How has it seemed to break down?

BEN-AMI: You do have people on the right and on the left who have
criticized him and said, we should have nothing to do with him. But there
are very, very strong elements among Israeli settlers on the West Bank.
There are people within Prime Ministers Netanyahu`s own party who really
seem determined to cement an alliance with the farthest right of the
Christian Zionist movement in this country.

And Glenn Beck is clearly aligned with them as well as a way of
shoring up support in this country politically for Israel.

HAYES: For a long time, this kind of alliance between the Christian
Right, Christian Zionists and the Israeli settler movement and the right
wing of Israeli politics have seen -- have sort of happened at a time when
the center of Israeli debate has seemed to move to the right, and positions
have gotten more dug in.

We`ve seen Netanyahu saying things that -- and people in his cabinet
saying things that would have been really outside the mainstream ten years
earlier. At the same time, very recently, it does seem like there has been
a real uprising in Israel against the Netanyahu government. There`s
hundreds of thousands of people in street.

Where is Israeli public opinion right now on the issue of the
settlements and on the issue of peace?

BEN-AMI: Well, the settlements have never been popular. And Israelis
have always believed that, at the end of the day, there would be a two-
state solution with the Palestinian people. Their problem is that they
have never thought it actually could happen.

So when Glenn Beck shows up in Jerusalem and says I`m here to save
Israel from the two state solution, that this is a greater threat than
bombs and bullets to Israel, is that we may actually have a two-state
solution, or you have members of Congress here and candidates, frankly,
running for the presidency of the United States on the Republican line who
are saying that they don`t believe a two-state solution is in Israel`s
interest -- they are way out of line with the majority not only of
Israelis, but also of Jewish Americans, who do believe we`ve got to have
peace; we`ve got to have a two-state solution.

HAYES: Final question, and this is slightly off topic, but I want to
get your thoughts on do you think Americans know enough about non-violent
resistance and non-violent political action that has happened in the
Palestinian occupied territories against the occupation?

BEN-AMI: I don`t think so. I think that there`s an image of
Palestinian and Arab and Muslim terrorism. And it is the face of the
resistance movements that are in place that the far right in this country
and in Israel wants to promote. But at the same time, you have a massive
movement on the West Bank now that has non-violently been protesting for
years the exact route of the wall that separates Israel from the West Bank,
and is asking now peacefully for their statehood and for freedom and
independence.

It`s in line with the Arab spring and the Arab awakening. And it`s
unlikely that all of the movement towards independence and freedom that`s
happening in the rest of the Arab world is going to stop at the gates of
Israel.

HAYES: Jeremy Ben-Ami, founder and president of J Street, thank you
for joining me tonight.

BEN-AMI: Thanks, Chris.

HAYES: You can have THE LAST WORD online at our blog,
TheLastWord.MSNBC.com. You can follow my Tweets @ChrisLHayes.

"THE RACHEL MADDOW SHOW" is up next. Good evening. Rachel.

RACHEL MADDOW, MSNBC ANCHOR: "Listen to the words of my mouth?"

HAYES: "Listen to the words of my mouth."

MADDOW: I think just "the words of my mouth, listen" might be a non-
copyright infringing way to do that. And I would endorse that, Chris.

END

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