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'The Rachel Maddow Show' for Tuesday, February 5th, 2013

Read the transcript to the Tuesday show

THE RACHEL MADDOW SHOW
February 5, 2013

Guests: Eliot Spitzer

RACHEL MADDOW, HOST: Thank you very much. We`ve actually got a
follow up on that scoop tonight that I`m really looking forward to, Ed.
Thanks a lot, man.

ED SCHULTZ, "THE ED SHOW" HOST: It`s got a lot of liberals troubled,
no question about it.

MADDOW: And I also think in the business that we are in, I spend a
lot of time defending us from people who say that we`re just like FOX.

SCHULTZ: Yes.

MADDOW: There`s a lot of criticism from the left of this
administration from I think people who see themselves as principled
liberals, and it`s civil. And that`s really different than the dynamic you
see on the right. And I`m real proud of that.

SCHULTZ: No question about it. Thanks.

MADDOW: Thanks a lot, man.

Thanks to you at home as well for joining us this hour.

There`s lots going on right now in the news, including some unexpected
progress on the issue of guns and public safety. They said it couldn`t be
done.

Also today, the unheralded but fairly dramatic resolution of a fight
that Senate Republicans said they would win. But today, they lost.

Also today, crime and punishment news concerning Wall Street, where
the consensus reaction off Wall Street was, really? Those guys aren`t in
jail already?

That`s all ahead tonight.

Plus, charts imitating life. We`ve got the one-time sheriff of Wall
Street, former New York governor, New York attorney general, Eliot Spitzer
here.

We`ve got more, as I said to Ed, more on Michael Isikoff`s big
security scoop.

It`s a very big night. There`s lots ahead this hour.

But we start tonight in the fall of 2008 when President Obama was
first elected. He was elected on November 4th, 2008.

And after the partisan combat of that election faded quickly and the
country absorbed that this was going to be our new president of the United
States, the approval ratings for Barack Obama soared. His approval rates
went to 79 percent.

By Inauguration Day, 2009, nearly 2 million people would turn out on
the National Mall to see him sworn in. It was a heady, heady time whether
or not you had voted for him.

But, of course, that was not true for everybody. Election Day was
November 4th. November 10th, so six days later, not even a week later,
there was one Republican congressman from Georgia who was already
denouncing the president-elect as both a Marxist and a Nazi.

If you think about it, it`s kind of a hard thing to pull off
simultaneously, right? A Marxist and a Nazi?

Look at the time stamp here -- November 10th, 2008. Congressman Paul
Broun of Georgia telling the "Associated Press" already at that point that
he, quote, "fears that President-elect Obama will establish a Gestapo-like
security force to impose a Marxist dictatorship."

Quote, "That`s exactly what Hitler did in Nazi Germany, and it`s
exactly what the Soviet Union did."

Yes, Barack Obama still months away from even being sworn in as
president at that point. But Congressman Paul Broun was already on him for
being both a Nazi and a Soviet communist.

And that kind of set the tone for how Congressman Paul Broun of
Georgia would handle himself over the next four years.

(BEGIN VIDEO CLIP)

REP. PAUL BROUN (R), GEORGIA: I believe this administration wants to
destroy the free enterprise system. There is a word for that, socialism.
He is a Marxist.

Fellow patriots, we have a lot of domestic enemies of the Constitution
and they`re right down the Mall in the Congress of the United States.

And right down Independence Avenue, in the White House of -- that
belongs to us. It`s not about my ability to hunt, which I love to do.
It`s not about the ability for me to protect my family and my property
against criminals, which we have the right to do. But it`s about -- it`s
all about us protecting ourselves from a tyrannical government of the
United States.

(CHEERS)

RADIO HOST: Do you think President Obama is a socialist?

BROUN: I know he is. In fact, you look at his own writings, he said
when he was in college, he leaned to Marxist tendencies and Marxist
professors. He joined Marxist clubs. You look at who he has put in his
administration, they`re avowed socialists.

RADIO HOST: But you think he is an American citizen and a Christian?

BROUN: Well, I`m not going get involved in that I`m talking about --

RADIO HOST: You can`t say he is an American citizen?

BROUN: Well --

RADIO HOST: You can`t say the president is an American citizen?

BROUN: I don`t know.

RADIO HOST: You don`t know. And is he a Christian?

BROUN: I don`t know that.

(END VIDEO CLIP)

MADDOW: Yes, who knows if the president is a Christian? And who
knows if the president is an American citizen? Who knows if the president
is really not the president because he is secretly foreign?

Who knows if maybe the president caused the Deepwater Horizon oil
spill on purpose?

(BEGIN VIDEO CLIP)

BROUN: What we`ve already seen our president, he is utilizing this
crisis of this oil spill to try to promote his energy tax. And I`ve had
numerous people all over the district question whether his poor response to
this oil spill was purposeful so that he could promote his energy tax. I
don`t know.

(END VIDEO CLIP)

MADDOW: I don`t know. Maybe he is just letting that oil spill for
political purposes, because he is a Nazi and a Marxist. Who could know?

The same congressman decided during the State of the Union address in
2011 that he would not attend the speech in Congress, but rather he would
troll the speech on Twitter. Quote, "You don`t believe in the
Constitution, Mr. President. You believe in socialism." That`s what he
was tweeting during the State of the Union.

He has declared Nancy Pelosi a domestic enemy against whom he is sworn
to protect the nation. He has said that President Obama is part of a
"socialistic elite" planning to declare martial law. And he has said that
the president may use the excuse of a flu pandemic to declare a martial
law. He said, quote, "We`ve seen that historically."

Guess how this gentleman feels about health reform?

(BEGIN VIDEO CLIP)

BROUN: Folks, this is Obamacare. Let me start this by telling you
what I think of this bill and Obamacare.

(CHEERS)

They only have one agenda, and that is socialism. I call it -- I call
it a steamroll of socialism that is being driven by Nancy Pelosi, Harry
Reid, and fueled by Barack Obama.

(APPLAUSE)

(END VIDEO CLIP)

MADDOW: So very strong feelings about Obamacare. I should also tell
you, though, that Congressman Paul Broun has very strong feelings about
fruits and vegetables. He has very, very strong feelings about fruits and
vegetables.

(BEGIN VIDEO CLIP)

BROUN: The federal, CDC -- they`re going to be calling people and
finding out how many fruits and vegetables you eat today. This is
socialism of the highest order.

(END VIDEO CLIP)

MADDOW: You see, there`s dominions and then the cherubim and the
seraphim. And then you get to the highest order of socialism, which is the
Centers for Disease Control checking on your vegetable intake -- the
highest order.

One more. This came when people started to lose patience with the
fact that the Republican Party puts guys like Paul Broun on the Science
Committee in Congress. Yes, Paul Broun is on the Science Committee. He
oversees federal science policy for us as a nation.

(BEGIN VIDEO CLIP)

BROUN: I`ve come to understand that all that stuff I was taught about
evolution and embryology and Big Bang theory, all that is lies straight
from the pit of hell. And it`s lies to try to keep me and all the folks
who were taught that from understanding that they need a savior.

(END VIDEO CLIP)

MADDOW: That one led to a write-in campaign in this past election
where people in Paul Broun`s Georgia district got thousands of voters to
write in Charles Darwin instead of voting for Paul Broun. It was protest
vote against him while he ran unopposed technically. It was also a plea to
the Republican Party in Washington to at least please not put that pit of
hell guy back on the Science Committee.

Republicans in Washington put him back on the Science Committee
anyway.

The existence of a congressman like Paul Broun says something about
our times, and it says something about his district, and it says something
about the bar to entrance in Congress since apparently it does not exclude
a man who apparently thinks the Soviet Union still exists. That`s him
accusing President Obama of upholding the Soviet constitution. That was
from this past year.

The importance of Congressman Paul Broun today is that Paul Broun is
running to be the next U.S. senator from the great state of Georgia. Paul
Broun`s wife is already reported to have started telling people that back
in Georgia. Paul Broun himself is reported to be telling donors already.
And at a press conference tomorrow afternoon in Atlanta, Paul Broun is
expected to officially get into the U.S. Senate race. Unless of course all
this reporting is lies straight from the pit of hell.

(BEGIN VIDEO CLIP)

BROUN: Al that is lies straight from the pit of hell.

(END VIDEO CLIP)

MADDOW: If it`s not lies straight from the pit of hell, then Paul
Broun is in the running to be the Republican Party`s standard bearer when
they try to hold on to Georgia`s soon to be open Senate seat once Saxby
Chambliss retires.

What could possibly go wrong with Paul Broun as their candidate?

Also today, and further news of how the Republican Party is adjusting
to a second term for President Barack Obama. Senate Republicans in the
state of Virginia decided today that voting should be made much harder in
that state.

In the state of Arkansas today, Republicans in the House there voted
that their state should ban abortion at 20 weeks. This comes just days
after Republicans in the Senate there voted that their state should ban
abortion not at 20 weeks, but at six weeks.

In Iowa today, a new round of polling shows that Iowa Republicans
first choice for their open seat does remain Congressman Steve King.
Congressman Steve King, seen here in this footage, demonstrating on the
floor of the House how he thinks that immigrants should be electrocuted
just like livestock.

The announcement from Karl Rove`s money machine a few days ago that
they would try to stop candidates like Steve King and Paul Broun from
continuing to cost the Republican Party seats in the U.S. Senate. The
reaction to that announcement on the right was immediately and uniformly
and vociferously hostile.

How dare Karl Rove and his money guys try to do any such thing? And
so, yes, Paul Broun and Steve King may be the prototypical examples of the
kind of off the kook end candidates that Karl Rove and the big money guys
do not want in Republican politics, because those are the kind of guys who
lose Senate seats that are otherwise winnable.

But Karl Rove and his money guys kind of stand alone in that
assessment. The rest of the party wants that. They want those guys. And
they want it not naively. They know what they are getting.

Steve King and Paul Broun have been around for a long time. When the
party stands up and says these are the guys they want, they know who
they`re talking about. They know who these guys are. And it is what they
choose.

So, if you were a Republican Party stalwart, if you were part of the
Republican Party and you loved the Republican Party and you wanted what was
best for the Republican Party, what would you do at a time like this? What
would you say? How would you try to fix this problem?

Well, today in Washington, the House Majority Leader Eric Cantor
tried something, and he does this from time to time, as he tries to be
taken seriously as a leader of his party, or at least as a potential leader
of his party. In 2010, Eric Cantor launched his Young Guns thing. Young
Guns, presumably to try to supplant the old guns in the party.

He then launched something called Cut and Grow so you at home could
set the Republican Party`s agenda instead of the old guys in the party who
are setting the party`s agenda.

In 2009, he launched something called the National Council for a New
America to tap outside the Beltway ideas for the Republican Party`s agenda.
Sadly, the pizza parlor that he chose for that launch event for his big
outside the Beltway initiative was a pizza parlor that literally was inside
the Beltway.

You see, the Beltway is not just a metaphor for things around
Washington. The Beltway is a freeway around the D.C. area that defines
that area. And Mr. Cantor`s outside the beltway pizza parlor excitement
was actually well inside that freeway loop.

And that actually was the only event that that Eric Cantor Republican
Party relaunch ever had.

So, Eric Cantor does not have the world`s greatest track record with
relaunching his party, right, with choosing a new Republican Party image
that everybody should go along with because he has suggested it. He keeps
doing it, but nobody ever seems to follow his lead.

Still, though, he is trying. And today, in his latest effort, he
called for his party to accept the concept of the DREAM Act at least in
terms of immigration reform.

But while he was doing that, literally at the same time, his own party
members in his own House were holding their own hearing on immigration
reform, denouncing reform as amnesty and denouncing any path to legal
citizenship, like for example the DREAM Act, as something that was way too
extreme.

So who wins this fight ultimately? Eric Cantor and Karl Rove and all
the Beltway sages saying the Republican Party really has to get its act
together, or the lies from the pit of hell guys? The "electric fence, no
amnesty, we`ll just make it harder to vote, ban abortion, doubly, triply
ban abortion, home state" Republicans who are not shifting position one
iota and see no reason to. Who wins this fight?

And given that it makes up half of the major party apparatus in our
American democracy, what do we do in the meantime while this fight is
happening?

Joining us is E.J. Dionne, "Washington Post" columnist and author of
"Our Divided Political Heart", which is now out in paperback.

E.J., it`s great to have you here. Thanks for being here.

E.J. DIONNE, WASHINGTON POST: Good to be with you.

MADDOW: So, this is the fourth time in the past couple of years that
Eric Cantor has attempted to rebrand the Republican Party. When he has
previously tried to do that, it has not stuck. How do you think he is
doing now?

DIONNE: Well, first of all, when Karl Rove is on the progressive side
of the argument, you know how far to the right the Republican Party has
gone. I think there is a giveaway in the word "rebranding" because
rebranding doesn`t talk about changing the product. The same stuff is
still inside the can. It`s about a new label with a nice friendly type
face, nicer colors. But what is inside the can is the same.

But I think there is very hopeful news. That`s my job on this show,
to be hopeful, in what Eric Cantor did today. One of the most important
things in politics is to control the terms of the political debate.

And if you read Eric Cantor`s speech, the terms of that speech were
progressive terms. The question he was asking was, what can government do
to help make people`s lives better? That`s not the old Republican
question. The old Republican question was, how can we create a smaller
government? How can we cut taxes on those job creators, the rich people?

And we`ve been here before. The Democrats kind of did this in the
Reagan era when they all tried to look like members of Chambers of Commerce
or corporate boards. So that when Eric Cantor has to go out there and say,
message we care, you know something is changing in American politics.

MADDOW: Well, how did Karl Rove and -- actually, George W. Bush
specifically on the issue of immigration, how did these guys get on the
left side of the argument? I mean, has there been a backlash against them
on the right that has driven the party further right in a way that has
demonized them, and now, they need to be seen as the old liberal
establishment, or has something else been going on?

DIONNE: Well, I think you begin to see the backlash against Bush
right in the middle of his term. Remember, he tried, as did a lot of
Democrats and John McCain to get immigration reform through in 2007. And
that`s when the backlash grew.

And then when the Bush administration was deemed a failure, which many
of us believed broadly that it was, a lot of conservatives said that`s
true. And instead of trying to moderate the party then, they said the
problem was this compassionate conservative guy was too liberal. So they
pulled the party way over to the right.

The problem they have now is the Tea Party folks are the folks who
kind of got them there in 2010. And it`s as if the Republicans are saying,
well, we needed your votes to drive this car to the country club, but we
really don`t want to let you inside the country club.

So, they`re courting a kind of class warfare in the Republican Party
over the next couple of years.

MADDOW: E.J., one of the things I think you have written about more
eloquently than anybody else is the idea of -- you`ve written ambitiously I
should say about the idea of civility, that we can have reasonable
disagreements about even very profound differences in governing philosophy
in ways that don`t threaten violence, in ways that are about honoring the
basic democratic agreement that we have as Americans.

What struck me going through Paul Broun`s record today -- and I ended
up swimming around in it for way too long and now I feel like I need to
take a shower -- is that he and Steve King, these are guys who really
consistently sell an almost militia-esque apocalyptic line. You know, the
president as Hitler, the coming authoritarian dictatorship, and mixing up
fascism and Marxism and all of these different things.

Is that timeless, or does that become less politically potent or less
politically valuable to them over time? Is that going to go out of fashion
while Barack Obama is still president?

DIONNE: I think it doesn`t work in the long run in our country. I
mean, Joe McCarthy had a really good run, and then he was brought down
partly by the Republican Party, by Dwight Eisenhower. And when you look at
the results of the 2012 election, they were throwing all this stuff at
Obama for four years and it didn`t work.

And if you listen to the tone of Eric Cantor today, there was none of
that. And that suggests to me that at least some of these guys know that
that stuff makes them kooky to a lot of people who might agree with them on
some issues, but just aren`t going to go there and arming the country to
overthrow the dictatorship in Washington as they put it. Most Americans do
not think we live under a dictatorship, and they`re right.

MADDOW: E.J. Dionne of "The Washington Post" and Brookings -- setting
the bar low there. But I think hopefully we can agree on that. Thank you
for being here, E.J. It`s great to see you.

DIONNE: Thank you. Take care.

MADDOW: Thanks.

All right. Lots more to come, including a follow-up on Michael
Isikoff`s scoop from last night`s show. That story has gotten much bigger
since then. And we will have the latest.

We`ve also got Eliot Spitzer, the former New York governor and
attorney general, live here with us tonight.

Please stay with us.

(COMMERCIAL BREAK)

MADDOW: Last night on this show, NBC national investigative
correspondent Michael Isikoff broke a story about the Obama administration
and its counterterrorism policies. He broke the story ahead of this
Thursday`s confirmation hearings for the president`s new choice for CIA
director, John Brennan.

Mr. Brennan was, of course, once the deputy executive director of the
CIA during the Bush years.

He is now President Obama`s counterterrorism advisor at the White
House. But if he is to run the CIA for President Obama, John Brennan is
first going to have to face questions on Thursday about some of what
Michael Isikoff turned up here on this program last night. A Justice
Department white paper elaborating the administration`s reasoning for why
it thinks it is legal to kill American citizens on the president`s say so,
or actually, on the say so of an informed high level official of the U.S.
government. So maybe that`s the president, but maybe that`s somebody else.

Michael Isikoff`s scoop ended up at "The New York Times" today and
"The Washington Post" and "The Hill" and "Slate" and "Salon" and "A.P."
just to name a few. It was everywhere.

And then at a press conference today, the attorney general was asked
about it.

(BEGIN VIDEO CLIP)

REPORTER: Last night, NBC reported a white paper that was prepared by
the Justice Department undated, unsigned about the legal -- the legal
pinnacles for targeting Americans overseas. Could you please give us what
the precise definition is and how that would be carried out?

ERIC HOLDER, ATTORNEY GENERAL: Well, there have been a series of
speeches that I gave, Jeh Johnson gave, John Brennan gave, where we tried
to lay out for the American people the considerations that go into the
operations. We say that we only take these kinds of actions when there`s
an imminent threat.

REPORTER: Mr. Attorney General, you brought up the phrase "imminent
threat." Is that the same as an ongoing threat or is there a difference
between those two?

HOLDER: Well, I mean, you know, so many of these things are fact-
based. I can`t necessarily get into the weeds and kind of parse these
things. You can`t, I think, examine these terms without having a reference
to the facts.

(END VIDEO CLIP)

MADDOW: The facts. These things are based on facts. Facts that I
cannot -- facts that I cannot tell you, so I cannot reference them because
I cannot tell you them, but they are facts.

Watch.

(BEGIN VIDEO CLIP)

REPORTER: Why not release the memos? I mean, you were a driving
force behind releasing the Bush administration`s torture memos. Why aren`t
you a force for this?

HOLDER: Well, I mean, we`ll have to look at this and see how -- what
it is we want to do with these memos. But you have to understand that we
are talking about things that are -- that go into really kind of how we
conduct our offensive operations.

(END VIDEO CLIP)

MADDOW: Right. Exactly. They go into how you conduct your offensive
operations. That`s the thing we want to know about.

(BEGIN VIDEO CLIP)

REPORTER: This memo -- the memo doesn`t seem to be classified. The
writer is marked "confidential", but not "classified". Why not release
that to the general public? You said you can only discuss that in a
classified setting. But the memo you`re discussing the difference between
those two. We`re taking what sounds like an ongoing threat and saying it`s
an imminent threat.

HOLDER: Yes. I mean, that`s something we would have to look into,
you know, what`s exactly what is in the white paper. We`d have to look
into that.

REPORTER: You`re not aware of what is in the white paper?

HOLDER: We`ll have to look into that.

(END VIDEO CLIP)

MADDOW: We have to look into that. You know, your agency wrote it.

Also, NBC put the whole thing online. Seriously, check it out. Super
easy.

We`ve linked it at "Maddow Blog". You can just look at it there.
It`s 16 pages long, shorter than most articles in "The New Yorker".

Now, a bipartisan group of 11 senators has written to President Obama
asking him to release about what is still secret about why the president
and the administration think it is legal to kill Americans this way.
Quote, "It is vitally important for Congress and the American public to
have a full understanding of how the executive branch interprets the limits
and boundaries of this authority so that Congress and the public can decide
whether this authority has been properly defined and whether the
president`s power to deliberately kill American citizens is subject to
appropriate limitations and safeguards."

Honestly, in the real world, particularly in the real political world,
there is some compunction, but very little compunction about the president
using extreme counterterrorism measures -- the president using lethal force
against bad guys. In the case against the American whose killing seems to
have inspired a lot of the secret legal reasoning, the case against Anwar
al Awlaki does not exactly tug at the heart strings, right, U.S. citizen or
not.

As a senior recruiter for al Qaeda, he was associated both with the
mass shooting attack at Ft. Hood in 2009 in Texas and with the attempted
Christmas Day airliner attack, the underwear bomber, right? Later that
same year.

If we accept that the U.S. is at war with al Qaeda, then it is not a
stretch to believe that the U.S. would target a prominent al Qaeda figure
like Anwar al Awlaki in that war.

With some exceptions, the broad political and moral and legal issue
here is not an issue with U.S. forces killing bad guys. The issue here is
who is a bad guy and how do you figure it out? If this is the means by
which we`re going to decide not that you`re going to be arrested and tried,
but the means by which we will decide whether the president can order you
dead, then on what basis is the president making that decision? How do
they determine who is a bad guy?

Or as Oregon Senator Ron Wyden put it in a question, a written
question to the president`s CIA nominee John Brennan, how much evidence
does the president need to determine that a particular American can be
lawfully killed? Following naturally on from that, and this is the one
that keeps me up at night, does the president have to provide individual
Americans with the opportunity to surrender before killing them? Does this
obligation change if the president`s determination that a particular
American is a valid target has not been publicly announced or publicly
reported?

Think about that, right? If you`re an American citizen and the
president is going to kill you, do you have the right to give yourself up
instead so you don`t get killed? And how do you know you should do that if
the president`s decision that he is going to kill you is a secret decision
that nobody ever tells you?

And are we right also in only imaging this kind of thing happening in
places like Yemen or Pakistan? Quoting again from Senator Wyden here, "Are
there any geographic limitations on the intelligence community`s authority
to use lethal force against Americans? Do any intelligence agencies have
the authority to carry out lethal operations inside the United States?"

Good question. Good questions. And now the question is whether the
administration is going to make John Brennan field those questions alone
before the Senate on Thursday at his confirmation hearing? Are they going
to disclose anything else to provide answers to these questions before
their nominee is forced to try to handle them alone on Thursday when his
nomination is on the line?

Tick-tock. The hearing is Thursday. We`ll see.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: Our economy right now
is headed in the right direction, and it will stay that way as long as
there aren`t any more self-inflicted wounds coming out of Washington.

(END VIDEO CLIP)

MADDOW: OK. Chart imitates life. The president today made an appeal
to Congress to delay the latest self-inflicted crisis that D.C. has
arranged for itself. The president insists that there is no reason to go
through with that automatic set of cuts so deep they could easily throw us
into another recession. He says there is a reasonable way forward to talk
about taxes and the budget and the overall future of government spending
without forcing ourselves into another round of harried negotiations.

The Republicans, of course, want another round of harried
negotiations. Speaker John Boehner, second place vice presidential
finisher Paul Ryan, they say they do not want out of this latest self-
imposed crisis in Washington. They want to use the threat of that crisis.
They want to use the threat of this sequester thing, the threat of a self-
imposed recessionary force to force the president into spending cuts he
otherwise would not make.

"The Wall Street Journal" reported earlier this month on why they feel
that way. Quote, "The driving passion for Mr. Boehner in these fiscal
debates is his conviction that trillion deficits are sapping the country of
its energy and prosperity."

Trillion deficits, his driving passion. Everybody loves John
Boehner`s passion.

But this is supposedly what he feels so passionate about. This is a
chart of the country`s budget deficit levels every year. Red bars are
president bush`s deficits from 2008 and 2009. Blue bars are President
Obama`s deficits. Those really big bars are when the whole world economy
crashed, including ours.

Remember that? You notice how the deficit gets smaller when the bars
are blue over time? See how they`re getting shorter as you go to the
right?

Today, the Congressional Budget Office released their deficit
projection for 2013. So for this upcoming year, the nonpartisan CBO, their
projection and according to them, under President Obama, the deficit is
slated to continue to shrink, as it has been under President Obama.

But the supposedly gigantic growth of those deficits is why
congressional Republicans are committed to us lurching from self-imposed
crisis to self-imposed crisis instead of us working this stuff out like
adults.

The accusation that President Obama has grown the deficit giantly
since he has been in office is a very politically potent accusation. And
when Republicans say it, the Beltway media tends to write it down as if it
was true.

It is not true. It has not been true for a very long time, and
there`s really no excuse anymore for not knowing that.

(COMMERCIAL BREAK)

MADDOW: In March 2007, some of the fine folks at Morgan Stanley were
brainstorming via e-mail about what they wanted to call a new product they
were working on. It was an investment package essentially that they would
eventually go on to sell to a Chinese bank.

Here are some of the potential product names that were suggested in
this brainstorming session by a particular Morgan Stanley vice president.
Fludderfish 2007, or Mike Tyson`s punchout 2007, or he also suggested
nuclear holocaust 2007. Now, you don`t think that will sell it?

OK. What about subprime meltdown 2007? Or perhaps best of all, the
right to the point suggestion of poop bag 2011. Only the Morgan Stanley
guy did not suggest the word poop before bag, but suggested the other four-
letter word that means the same thing but starts with the letter S.

The reason the Morgan Stanley folks are even jokingly suggesting
giving their products such derogatory names, is because they knew it was a
poop bag. They knew it was worthless. But they would go on to sell it for
a price that would indicate that it`s not worthless.

This kind of scam is at the center of why our financial system
collapsed. Wall Street was selling things for prices that did not reflect
the value of those things at all.

But here is the thing. That was not supposed to be allowed to happen.
You`re not supposed to be able to sell financial products for way, way,
way, way, way, way more than they`re actually worth. Somebody is supposed
to be in charge of making sure that the value of investments is at least
reasonably related to the price that is put on them.

In fact, not just someone, there is a whole industry. There is a
whole part of the financial sector whose job it is to do that. They rate
financial products. They give them ratings to help guide consumers as to
what they are worth. They issue ratings. They are the ratings agencies.

And they are central to the reason Wall Street cratered. The American
economy didn`t crater like it had been hit by an asteroid because people
were investing in companies that didn`t pan out. It wasn`t that kind of a
collapse. It wasn`t that there was a war somewhere and suddenly nobody
could get any oil or something. That was not why we had a financial
collapse.

We had a financial collapse because of fakery. We had a financial
collapse because people were buying and selling things at prices that were
totally, totally fake. And the people who were selling them knew it. It
was a con game that everybody was in on.

And when everybody finally had to acknowledge that the actual value of
these things that they had been trading at these inflated prices was not
the value they had been trading them at, everybody finely had to admit what
the real value was of these things they had been buying and selling.
Everything collapsed.

So even if you don`t understand the overall dynamics of the housing
market and all the different ways things are traded and how people in Lower
Manhattan make money off of it, this is the one thing all of us can grasp
about what went wrong when our economy was destroyed in a way that we have
still not recovered from. That`s one thing about the meltdown that
everybody gets, right?

Which makes this headline today both a wow moment and a duh moment.
U.S. sues S&P over pre-crisis mortgage rating. The government alleging
that Standard & Poor`s rating agency knowingly inflated its ratings on
risky mortgage investments, giving high marks to mortgage-backed securities
because it wanted to earn more business from the banks that issued these
poop bag investments.

Oh, poop bag isn`t in the quote. Sorry. I added that.

So that`s a duh, right? These guys clearly should be busted. These
were the guys who are in charge of the ratings. These were the guys who
were supposed to be labeling the poop bag financial -- systems of the
financials as such and they simply did not do it, because they figured out
a way to make money out of not doing it.

And eventually that system of selling worthless junk for tons of money
stopped working and the economy fell apart. So duh! Yes, these guys
should be in the dock, big-time.

But also not just duh, but wow! Look at the date here. It`s today?
These guys aren`t in jail or something already? Nobody has sued them
before now? We still have not handled that problem?

Should we be encouraged by the fact that they seem to be trouble now
or should we be very, very worried that it took this long?

Joining us is former New York governor and New York attorney general,
Eliot Spitzer. He earned the nickname the "sheriff of Wall Street" while
he was in office.

Governor, it`s great to have you here.

ELIOT SPITZER (D), FORMER NEW YORK GOVERNOR: Thank you for inviting
me back.

MADDOW: I have a layman`s understanding of the meltdown. You have a
much more advanced understanding.

Did I explain any of that wrong? And what is the significance of the
ratings agency getting in trouble now?

SPITZER: You got it exactly right.

Let me be very clear about something. The rating agencies and
everybody on Wall Street will say over and over again, we were wrong, but
being wrong isn`t a crime.

They`re right. Being wrong isn`t a crime. Lying is the crime.

MADDOW: Yes.

SPITZER: What happened here, and you got it exactly right in your
introduction, the investment banks, the rating agencies, all of the links
in the chain that marketed this junk, all the debt that saddled and then
destroyed our economy was marketed by people who knew they were selling us
poop, to use the polite word you just used.

MADDOW: And they thought it was hilarious. That`s why they were
joking the terms.

SPITZER: Give them credit for the good sense of humor. You read
these e-mails. They made up new lyric to the song, you know, "Burning Down
the House", about CDOs and credit default swaps and a whole bit. They`re
clever, but malicious and dangerous.

Listen to this one excerpt from page 46 of the complaint today. They
said they could have released a revised better version of the rating system
if we didn`t have to massage the subprime and all day numbers to preserve
market share.

What does that mean? They wanted market share and profits over
integrity. It`s the same story we saw for over a decade on Wall Street
where integrity was thrown overboard to preserve profits. They lied.

MADDOW: And the idea that there were people on Wall Street, that the
ratings agencies would play the role of cop, of keeping everybody is honest
is how they deflected any idea that there should be government regulation.

SPITZER: This was the old line self-regulation. We have a mechanism
in place to make sure we will not defraud you the public and the
marketplace.

Of course, self-regulation is one of the great oxymorons of all time.
But just so it`s clear, the rating agencies are insurance that is paid for
by the investment banks. So, the investment banks can pretend that what
they`re marketing is good.

They`re paying the rating agencies a small fee. So the rating
agencies will put the stamp of approval on the debt. The rating agencies
which wanted to get that fee which in aggregate was a lot of money, S&P is
a big company, sold the credibility of the market for that profit.

MADDOW: Right.

SPITZER: And that`s what this very thorough, very good complaint lays
bare. Fraud upon fraud upon fraud.

MADDOW: It is -- hearing you say that it`s a thorough and a good
complaint is encouraging. I feel like as somebody who is not very well-
versed in this subject, somebody who has never been an expert on this and
just covered it as news, I feel like this is the one thing that I got very
early on was wrong with the system. Why did it take so long?

SPITZER: Look, it shouldn`t have taken so long. On the day they
announced this case, I don`t want to -- I`ve been pretty harsh on Eric
Holder and the Justice Department for not doing much more. On the day they
finally make a case, I feel a little conflicted. I don`t want to come down
on them again.

They finally did something right. It`s a good job. It should have
been years ago. But let`s be clear -- this is indicative of something
that`s been going on for way too long, and until we get over the
presumption.

You said something that is revealing. You said, look, I didn`t really
understand it. You got it enough. You understood -- first of all, we all
know you`re Rachel Maddow. You got it all together. But put that aside.

You understood the essence of this. They were lying. That`s all you
need to know. They were lying about the quality of what they were
marketing to the public.

And, at the end of the day, we the taxpayers had to pick up the tab.

MADDOW: And is that -- is lying the thing that you need to prove in
order to get a conviction here? He says it`s unfounded and they`re going
to win the case.

SPITZER: Yes, Floyd Abrams who`s the lawyer for S&P was on TV today
saying it was a First Amendment right. We were saying what we believe.

No, they didn`t believe it. Show them that they knew what they were
saying was not the case is what makes it a fraud as opposed to simply being
wrong.

Being wrong isn`t a crime. We`re all wrong all the time. Lying
intentionally in the marketplace is what transforms this into an actionable
offense.

MADDOW: I knew you would help me understand this better.

Eliot Spitzer, former governor of New York, former attorney general of
New York -- thank you, sir.

SPITZER: My pleasure.

MADDOW: Always great to have you. Will you come back again soon?

SPITZER: Of course.

MADDOW: Excellent.

All right. Coming up, Senate Republicans, John McCain specifically,
lose a round big time. But they`re refusing to admit it. I`m here to tell
them that they lost and I will explain. That`s coming up.

(COMMERCIAL BREAK)

MADDOW: We have some real breaking news to report at this hour. A
tsunami alert has just been issued in the South Pacific after a magnitude
8.0 earthquake struck just northeast of Australia, in the Solomon Islands.
This has since been a series of powerful aftershock that have hit the area.

There is no damage we know to be associated with this quake itself.
But now, much of this region is either under a tsunami warn organize a
tsunami watch.

According to the U.S. Tsunami Warning Center, sea levels tonight
indicate that a tsunami was, in fact, generated by this very large
earthquake. They advise that the impact of that tsunami could be
destructive near the earthquake epicenter, which you again see marked on
your map here northeast of Australia in the Solomon Islands. They also say
the tsunami could impact, quote, "more distant coasts."

Now, again, this information is still coming in. But again, an 8.0
magnitude earthquake has struck in the South Pacific tonight. It has
triggered a tsunami watch for among other place, Samoa, New Zealand,
Australia, Indonesia, and the U.S. territory of Guam.

The closest U.S. state in the area, of course, is Hawaii. At this
point no tsunami watch or tsunami warning has been issued for Hawaii, but
officials in the state have been warned that if tsunami waves reach Hawaii,
it would likely happen around 10:00 p.m. local time in Hawaii, which would
be about 3:00 a.m. Eastern Time on the mainland.

That`s the latest that we`ve got right now. We`ll bring you more
information as it becomes available.

Stay with us here. We`ll be right back.

(COMMERCIAL BREAK)

MADDOW: It is not technically over, but yes, it is over, in the
Senate, there is one threshold of obstructionist, oppositional, political
nihilism that has never been crossed -- one senatorial precedent that has
never been violent. The thing that never happened in the modern-day Senate
is that no senator has ever filibustered a president`s choice to fill the
position in his cabinet -- at least not in the modern era, since the advent
of the 60-vote threshold to override a filibuster.

So the last 40 years, no matter how unpopular the president`s choice
for his cabinet, no senator in that time has used the filibuster to deny
the cabinet level nominee an up-or-down vote. Not everybody gets through
once they`re nominated, but nobody gets blocked by just a minority of
senators.

And that historical precedent is why it was remarkable that when he
was asked today the possibility that the Republicans might filibuster
President Obama`s nominee for the defense secretary, the leader of the
Republicans in the Senate today said that was entirely possible.

(BEGIN VIDEO CLIP)

SEN. MITCH MCCONNELL (R-KY), MINORITY LEADER: It is unclear yet.
Senator Hagel did not do a very good job before the Armed Services
Committee this week. I think the opposition to him is intensifying.
Whether that means he will achieve 60 votes or 51 is not clear yet.

(END VIDEO CLIP)

MADDOW: Sixty votes, meaning we filibuster him. Republicans call
themselves conservatives. But that word, I don`t think it means what you
think it means, overthrowing decades of tradition and precedent is
something. But it is not conservative. Even making noises about
filibustering a cabinet nominee for the first time ever, that is a
remarkable thing.

But even if Republicans do take that leap and filibuster Chuck Hagel,
they will not succeed. We know it because of math. There are 55 senators
in the Democracy Caucus, they support Chuck Hagel. You need 60 to override
a filibuster. So therefore, if you carry the one, the Democrats only need
five Republicans on their side against a filibuster.

And by our count, there are two Republican senators who are on record
supporting Chuck Hagel for defense secretary, and we`ve seen reports for
another six Republican senators who have said that even though they may,
oppose Hagel in the final vote, they will not support a filibuster. And
there`s another two who seem a little squishy on that fact, but so far,
they seem unlikely to filibuster as well.

That means a total of 10 Republican senators who wouldn`t support the
filibuster, and if I have done the math right that is double the number
that the Democrats need to override a filibuster if there is one. It`s
still more than enough, even if you subtract the squishy two.

So, today, it`s not over. The proverbial fat lady is not singing.
The Senate Armed Service Committee vote is not expected until Thursday, the
full Senate vote not expected until after that.

But honestly, barring something unforeseen, we`ll have a new defense
secretary and it will be Chuck Hagel because of math.

(COMMERCIAL BREAK)

MADDOW: The White House is pushing ahead with an ambitious domestic
policy agenda at the start of the president`s second term, just like they
said they would. There were indications today on the front page of "The
New York Times" that election reform maybe one of the areas the president
tries to move something on sooner rather than later in terms of dealing
with the long lines to vote.

White House officials have put Congress on alert that they should
expect to get something done on election reform. President Obama is
expected to give the issue some national spotlight during his big prime-
time election speech, which is exactly a week from tonight.

We also saw the president today taking further action toward
immigration reform. He met this morning with progressives and labor groups
to talk about immigration. And the afternoon, the then met with business
leaders, the CEOs of 12 companies also on the issue of immigration.

Yesterday, of course, the president was in Minneapolis, before a law
enforcement heavy audience talking about gun violence, talking about gun
safety reform. And there has been some movement on the issue of gun safety
reform today, some unexpected movement.

On the Senate side today, Republican senator from Nevada, Dean Heller,
came out and said that strengthening the background check system is a
reasonable thing to do. He called it a, quote, "reasonable step forward."
Yes, that is a baby step, but coming from a Republican senator that is a
step.

Even more surprising news on the House side today. Today, a
bipartisan announcement from four members of the House on gun safety
reform. Democrats Carolyn Maloney and Elijah Cummings, along with
Republicans Pat Meehan and Scott Rigell, unveiling a bipartisan Gun
Trafficking Prevention Act.

When is the last time bipartisan anything came out of the House,
right?

Their Gun Trafficking Prevention Act would do two main things. It
would crack down on straw purchasers, so people who buy guns because they
pass a background check, but then they give that gun, they transfer that
gun to a person who can`t pass a background check, it would make doing
that, a straw purchase, illegal. It might be surprising to hear that`s not
currently illegal, but it turns out in many cases, straw purchasing a gun
is not against the law. So, it would change that.

The bipartisan would make gun trafficking a federal crime. It would
make it punishable by up to 20 years in prison.

Now, that`s it some right? Straw purchases and making it a federal
crime. These are not the world`s most ambitious proposals?

But a bipartisan House bill supporting it? Bipartisan, from the
House. That is a surprising thing on anything. And on guns, it is
amazing.

And it is a first step, not yet an assault weapons ban, and it`s not a
high capacity magazine ban. It is not even a bill mandating universal
background checks, something supported even by Republican senators and by
92 percent of the public. But it is something and it is bipartisan and
that is new.

The calcified Beltway common wisdom that nothing could ever be done
about guns for another day, it goes poof. We will keep you posted.

We do have just a quick update as we go though on the breaking news
that we brought you earlier this hour. We`ve got an update from the
Pacific Tsunami Warning Center. They are just reporting that based on all
available data, they expect no tsunami threat to Hawaii from that
earthquake in the South Pacific.

A tsunami has been generated in the South Pacific tonight from the
earthquake near the Solomon Islands. But officials again at this hour do
not believe that the tsunami generated by that quake will affect the U.S.
state of Hawaii. That`s the latest, but keep it here on MSNBC.

Now, it`s time for "THE LAST WORD WITH LAWRENCE O`DONNELL".

Have a great at night.

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

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