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updated 12/28/2008 12:37:32 PM ET 2008-12-28T17:37:32

MR. DAVID GREGORY:  Our issues this Sunday:  He helped secure Barack Obama's presidential campaign victory as chief strategist.  Now he prepares to serve as a senior adviser to the president-elect in the White House.  How is the transition shaping up?  The president-elect and some of his aides have already been interviewed by special prosecutors in the Blagojevich scandal.  Have they managed to put it behind them, or are there more unanswered questions?  And how will Obama deal with an economic meltdown now in full swing?  We'll ask our guest, David Axelrod.

Then, Obama's prescriptions for solving the nation's economic problems.  Can American workers afford to wait?  Can American businesses survive in this tough climate?  Plus, a closer look at how history will judge the Bush administration as the president prepares to leave office in just 23 days.  Our roundtable weighs in:  Rich Lowry, editor of the National Review; Todd Purdum, national editor for Vanity Fair; Michelle Singletary, financial columnist for The Washington Post; and Richard Wolffe, senior White House correspondent for Newsweek.

But first, an Israeli air offensive against Hamas in Gaza has entered its second day.  So far some 280 Palestinians have been killed and 600 wounded in the largest Gaza operation since 1967.  This morning Israel is taking steps that could lead to a ground invasion, amassing tanks on the Gaza border and calling up army reservists.  In response, Hamas has promised a new wave of suicide bombing attacks against Israel.  A short while ago, after an emergency Cabinet meeting in Jerusalem, I spoke with Israel's foreign minister, Tzipi Livni, and asked her how long the offensive would last.

MS. TZIPI LIVNI:  Until we can, until we can change realities on the ground. The situation is a situation in which Israeli citizens are targeted from Gaza Strip, a place that we left few years ago in order to create a new horizon for peace.  But we got Hamas in return.

MR. GREGORY:  A lot of people are watching what's playing out, this air assault, and wondering why now?

MS. LIVNI:  Oh, why now?  Because after Israel decided to leave Gaza Strip a few years ago and we got Hamas in return.  About a half a year ago, according to the Egyptian Initiative, we decided to enter a kind of a truce and not to attack Gaza Strip.  Hamas violated, on a daily basis, this truce.  They targeted Israel, and we didn't answer.  But unfortunately, Hamas misunderstood the fact that Israel didn't retaliate, and only last week we had in a day 80 rockets, missiles, mortars on Israeli civilians.  More than that, they used the field of truce in order to rearm themselves.  They smuggled weapon, they built a small army in Gaza Strip, so the situation was unbearable.

MR. GREGORY:  What is Israel's goal right now?  Is it to re-establish the cease-fire, or is it to invade Gaza and remove Hamas from power?

MS. LIVNI:  Our goal is not to reoccupy Gaza Strip.  We left Gaza Strip.  We took off for the south.  We dismantled all the settlements.  But since Gaza Strip has been controlled by the extremists and since Gaza Strip has been controlled by Hamas and since Hamas is using Gaza Strip in order to target us, we need to give an answer to this.

MR. GREGORY:  Foreign Minister, aren't you making the case for pushing Hamas from power?  The cease-fire, according to Israel, simply hasn't worked.  It hasn't stopped the bombing of Sderot and Israel in the southern areas.  So only the replacement of Hamas by Fatah, by more moderate leaders, appears to be the only answer.

MS. LIVNI:  The goal is to give an answer to our citizens, to give them the possibility to live in peace like any other citizen in the world, and Hamas needs to understand it.

MR. GREGORY:  Is it acceptable to Israel for Hamas to remain in power in Gaza?

MS. LIVNI:  It is acceptable only in time, only if and when Hamas accepts the requirements of the international community.  Right now Hamas didn't accept, is not willing to accept the requirements of the international community, is not willing to accept the right of Israel to exist.  It violates any kind of understandings and is using terror against Israeli civilians.  So it cannot be legitimate and acceptable right now.

MR. GREGORY:  Let me ask you--I know you were in Egypt this past week, you met with Hosni Mubarak.  What did you hear...

MS. LIVNI:  Yes.

MR. GREGORY:  ...in the course of those meetings--the foreign minister of Egypt has criticized Hamas--and what is your message to the Arab world this morning?

MS. LIVNI:  You know that Hamas doesn't serve the interests of the Palestinians or the moderate Arab world.  You know that Hamas doesn't represent the national aspiration of the Palestinians.  You know that Hamas represent this kind of ideology of hatred that they want to spread in the region.  You know that Hamas stands on the--in the way of the Palestinians to create their own state.  So put your--in, in a way, put your mouth--put, put your, put your money where, where, where your mouth is.  I mean, say the right things right now.

MR. GREGORY:  The Bush administration has been supportive of the campaign so far in Gaza but has warned Israel about avoiding civilian causalities.  What kinds of consultations have you had with Secretary of State Rice?

MS. LIVNI:  Well, of course, we are in a very close connection.  I am in a very close connection with Secretary Rice, and we had some talks only last night.  The idea--and this is according also to our values--we are targeting Hamas, we are not looking for civilians to kill.  More than that, during this military operation, we are trying to avoid any kind of civil casualty.  Israel called the population of Gaza to leave places in which they know that Hamas has its own headquarters.  Since Hamas is using the civilian population and is acting and targeting Israel from civilian population centers, we called the civilians to leave these places.  We are trying to make all the effort in order to target only terrorists and Hamas headquarters and places.  But unfortunately, in war, like any war, sometimes also civilian pays the price.

MR. GREGORY:  But if the goal is to change realties on the ground, to change the behavior of Hamas, how much international condemnation...

MS. LIVNI:  Yes.

MR. GREGORY:  ...is Israel prepared to accept and at what level of civilian casualties?

MS. LIVNI:  You know, this is--the one who need to be condemned by the international community is Hamas.  This is a designated terrorist organization, is, is not willing even to give an answer to the international courts to recognize the right of Israel to exist.  He uses terror.  Israel is a state that implements its right to defend itself and its citizens.  So I expect the international community to work accordingly since the moment in which Hamas sees that the international community condemn--condemns Israel and not Hamas, these are--this is the moment in which they become stronger and holding and trying to avoid any kind of changes until the international community forces Israel to stop.  So I expect the international community, including the entire Arab world, to send a clear message to Hamas, "It's your fault.  It's your responsibility.  You're the one who is being condemned.  You are not going to get legitimacy from the international community this way or the other.  The responsibility for the life of civilians in Gaza Strip is in your hands." And then we have some chance, chances to see a change in their, in not only their position, but in their behavior.

MR. GREGORY:  Foreign Minister Tzipi Livni, thank you very much for your time.

Ms. LIVNI:  Thank you.

MR. GREGORY:  And turning back home, we are now joined from Chicago by senior adviser to President-elect Obama, David Axelrod.  Welcome back to MEET THE PRESS.

MR. DAVID AXELROD:  Thanks, David.  Good to be here.

MR. GREGORY:  What is the president-elect's position on this offensive against Gaza by Israel?

MR. AXELROD:  Well, obviously, it's a very serious situation.  He spent some time on the phone with Secretary Rice yesterday, and he is monitoring the situation.  But we've said repeatedly through this transition period that we--there's only one president at a time, and President Bush speaks for the United States of America until January 20th, and we're going to honor that moving forward.

MR. GREGORY:  But in the course of the campaign, the now president-elect visited Sderot...

MR. AXELROD:  He did.

MR. GREGORY:  ...in fact, in southern Israel, and he said that Israel had a right to defend itself against rocket attacks from Hamas.

MR. AXELROD:  Indeed, he did.

MR. GREGORY:  Does he believe it's appropriate for Israel, if it takes his decision, to push Hamas from power?

MR. AXELROD:  He did, as you said, visit Sderot in July, and he said then that he thought that when bombs are raining, raining down on your citizens, it is--it's obviously unacceptable and there is an urge to act.  And so--but again, I don't want to go beyond that because we only have one government and one president at a time.  And he's going to continue to consult with Secretary Rice and the president and the administration on this and monitor these events.  And he'll be prepared to take over on the 20th and, and, and discharge his responsibilities then.

MR. GREGORY:  OK.  Let's move on to the ongoing saga of Governor Rod Blagojevich in Illinois and questions about the vacancy left and created by the president-elect in that Senate seat.  This week the Obama team released a report that was compiled by incoming White House counsel Greg Craig to detail what contacts the Obama team had with Governor Blagojevich or his aides.  And this was the conclusion to the report as compiled and, and put together by Greg Craig.  "The accounts of Obama transition staff contain no indication of inappropriate discussions with the governor or anyone from his office about a `deal' or a quid pro quo arrangement in which he would receive a personal benefit in return for any specific appointment to fill the Senate vacancy."

Now, back on December 17th, the president-elect seemed a bit frustrated, in fact, that he wasn't able to do more to shed light on this situation.  This is what he said then.

(Videotape)

President-elect BARACK OBAMA:  It's a little bit frustrating.  There's been a lot of speculation in the press that I would love to correct immediately.  We are abiding by the request of the U.S. attorneys office, but it's not going to be that long.  By next week you guys will have the answers to all your questions.

(End videotape)

MR. GREGORY:  And yet, there are still lingering questions.  There are no notes provided.  There are no transcripts of the interviews that Mr. Craig did with aides to the president-elect.  This is just a four-page narrative that was released two days before Christmas.  Is this consistent with the promise of, of a--an historic level of transparency by the Obama team?

MR. AXELROD:  Well, David, the--first of all, the reason it was released two days before Christmas was because we were abiding by a request from the U.S. attorneys office, and we released it when they told us we, we could release it.  They also reviewed it.  But it reflects the full record of, of contacts between members of the transition around the president-elect and, and, and Governor Blagojevich's office.  And it reflects everything that the president-elect has said about it.  There's really nothing more to it.  There were conversations, there was no discussion of a quid pro quo. President-elect sent a, a list of names over there of, of many people in our state who he felt would be good representatives of the state, and that was the extent of it.

MR. GREGORY:  Will the president-elect produce those notes and transcripts with staff interviews, as well as, perhaps, hold a press conference to answer any question associated with this?

MR. AXELROD:  Well, obviously, he's going to be holding press conferences, and you guys are free to ask whatever you want to ask.  This is a--there, there's nothing more, really, to release.  The, the story is reflected in that, in that narrative, and I think that events moving forward will, will support that.

MR. GREGORY:  So no to the idea of, of releasing notes or transcripts from the investigation internally?

MR. AXELROD:  David, you've got, you've got the full narrative of, of what happened.  It's, it's a complete account of all those contacts.

MR. GREGORY:  Let's move into some of the substance.  In the criminal complaint filed by the U.S. attorney, the following is written:  "On November 11th, 2008, Rod Blagojevich talked with John Harris," that was his chief of staff, "about the Senate seat," again, the one being vacated by the president-elect.  "Blagojevich said he knows that the president-elect wants Senate Candidate 1," we find out later that that's Valerie Jarrett, senior adviser to the president-elect, "for the Senate seat but `they're not willing to give me anything except appreciation.  Bleep them.'" The USA Today editorialized that exchange this way:  "Obama's report says none of his aides was offered any illegal pay-to-play deal, so there would not have been anything to report to authorities.  That might well be true, but it doesn't quite explain how Blagojevich knew that all the Obama people intended to give him was `appreciation.' Doesn't that suggest the governor or his aides at least hinted at" wanted "something more?" Do you have an answer to that?

MR. AXELROD:  No.  The--I don't think that the governor's people hinted that they wanted something.  There, there was no discussion of quid pro quos. There was no--and by the way, I mean, my contact with the president-elect never suggested that he was pushing one particular candidate over another. Valerie Jarrett, who was identified as, as the Senate Candidate 1, is a close friend and adviser to the president-elect.  He wanted her in the White House. I never heard him express an interest in putting her in the Senate.

MR. GREGORY:  And yet there was a conversation that Rahm Emanuel, the incoming chief of staff, had with both Governor Blagojevich and his chief of staff during which there was a conversation about whether there would be anything beyond appreciation from the president-elect, and Rahm Emanuel apparently said no, nothing more than that, just, just appreciation.  So there was no feeling among Obama's inner circle here that there was some hint, some suggestion that they wanted more?

MR. AXELROD:  No, there was not.  There was not.  And this, of course, was the subject of interviews with the, the U.S. attorney.  There was never any suggestion at, that I heard discussed, of any interest in a quid pro quo.  No one could have imagined the scenario that unfolded after that.

MR. GREGORY:  Did you or anybody working for the president-elect speak to the U.S. attorney or other investigators about contacts with the governor's office prior to the criminal charges being brought?  In other words, did anything come to light in your dealings with the governor's office that made you report to authorities?

MR. AXELROD:  Well, I personally had no contacts with the governor's office. But no, absolutely not.  There was no reason to believe that there was any--anything unusual or untoward going on that would require a contact with the U.S. attorneys office.

MR. GREGORY:  We know that the president-elect also sat down for an interview with the U.S. attorney.  What was the nature of that interview?

MR. AXELROD:  Well, he--they just--they wanted to know anything that he knew about it.  As he--as was described in the report that was released, he had no contact with the governor or the governor's staff.  He had some conversations with his own staff.  Those were all reflected in that, in that report.  And they just wanted to, to, to probe and see if there's anything more he could add.

MR. GREGORY:  Bottom line, does the president-elect believe that the governor of Illinois was attempting to sell his Senate seat, in effect, to the highest bidder?

MR. AXELROD:  Well, David, I'm not going to answer that question.  I mean, obviously we're all reading the same accounts, and this is the subject of a criminal investigation.  So we'll see how that all--how, how that all turns out.  But it wouldn't be appropriate for me to answer that question.

MR. GREGORY:  Let me turn to issue one for this new administration, and that, of course, is the economy.  Lawrence Summers, who is the incoming director of national--the National Economic Council penned an op-ed piece for The Washington Post today in which he promises big things from this administration.  Let's put it on the screen for our viewers.  "In this crisis, doing too little," he writes, "poses a greater threat than doing too much. Any sound economic strategy in the current context must be directed at both creating the jobs that Americans need and doing the work that our economy requires.  Any plan geared toward only one of these objectives would be dangerously deficient.  Failure to create enough jobs in the short term would put the prospect of recovery at risk.  Failure to start undertaking necessary long-term investments would endanger the foundation of our recovery and, ultimately, our children's prosperity."

Rahm Emanuel, who we talked about just a moment ago, said that you don't want to waste a serious crisis.  By that he meant there were short, short-term problems you can address, but also long-term problems that were ignored for too long that you can also tackle.  What does the president-elect hope and intend to do in the first few weeks to try to restore confidence?

MR. AXELROD:  Well, I think it's, it's absolutely essential that we move not just to restore confidence--and that's, that's important--but to do substantive things that will get this economy moving again.  The other thing that Larry Summers said in that piece was that, untended, that we could be looking at double-digit unemployment by the end of next year, and that's something nobody wants to see.  So we have to act--every economist from left to right agrees that we have to do something big in terms of job creation, but we want to do it in a way that will leave a lasting footprint.  So we're talking about investing in alternative energy projects that will help us achieve energy independence.  We're talking about rebuilding the nation's classrooms to bring them into the 21st century, and labs and libraries so our kids can compete.  Health:  In the area of health, IT, so that we can computerize medical records, which will cut costs, reduce errors and improve, and improve care.  And of course, infrastructure...

MR. GREGORY:  Yeah.

MR. AXELROD:  ...rebuilding our crumbling bridges and roads and waterways. These are things that will put people to work, but also that will strengthen our economy in the long run, and that's where we're focusing our attention.

MR. GREGORY:  As the economy quickly deteriorates and continues to move in the wrong direction almost on a daily basis, has the president-elect changed his view about taxes?  And by that I mean has he made a decision to put off any tax increases or even a middle-class tax cut, as he talked about for the, for the short term?

MR. AXELROD:  No.  Look, we feel it's important that, that middle-class people get some relief now.  He's promised a middle-class tax cut.  This package will include a, a portion of that tax cut that will become part of the permanent tax cut he'll have in his, his upcoming budget.  It's, it's, it's vital people are, are--need money in their pockets to, to spend.  That'll help get our economy going again.

MR. GREGORY:  But will you hold off on any tax increases?

MR. AXELROD:  Well, look, the question is on the Bush tax cuts for the very wealthiest Americans, and it's something that we plainly can't afford moving forward.  And whether it, it, it expires or whether we repeal it a little bit early we'll determine later, but it's going to go.  It has to go.

MR. GREGORY:  All right, but that is an increase.  You're saying you won't--you would just let it expire, you wouldn't try to repeal it early?

MR. AXELROD:  I'm saying we'll make that decision moving forward here.

MR. GREGORY:  All right, but you're not--because the commitment was to, to lower those taxes to definitely--excuse me, I mean to raise those taxes on people by letting those tax cuts expire.  You're saying you'll hold on and see.  You won't make a decision yet.

MR. AXELROD:  Yes, I'm saying that.  But I'm also--I also want to stress that what the president-elect proposed during the campaign amounted to a net tax cut.  In other words, when you add up the tax cuts and the change--the expiration or the repeal of, of the tax cut for the wealthy, it'll amount to a net tax cut for the American people.  It'll just restore some balance, David, which we badly need.

MR. GREGORY:  Let me turn, in our remaining moments, to the issue of politics.  I don't have to tell you that the president-elect has been criticized by some of his supporters for naming Rick Warren to give the invocation at the inauguration, the evangelical figure, preacher, pastor in California who is opposed to gay rights and supported Prop 8 in California, which overturned gay rights in California.  Frank Rich in The New York Times wrote this that was critical of the president-elect this morning.  "Obama may not only overestimate his ability to bridge some of our fundamental differences but also underestimate how persistent some of those differences are.  ...  When Obama defends Warren's words by calling them an example of the `wide range of viewpoints' in a `diverse and noisy and opinionated' America, he is being too cute by half.  He knows full well that a `viewpoint' defaming any minority group by linking it to sexual crimes like pedophilia is unacceptable." Let me just point out that Rick Warren did liken gay marriage to a brother and sister marrying or to an older guy marrying a daughter.  Do you think that the president-elect has risked offending the very people who put him into office?

MR. AXELROD:  Well, look, Rick Warren and the president-elect have had a dialogue for some, some time, David.  They've had a dialogue about things on which they agree, such as fighting poverty and reducing the terrible plight of--the terrible disease that, that crosses Africa.  And they've, and they've had a dialogue about things on which they disagree, such as civil rights for gays and lesbians and a woman's right to choose.  But the important point here is that you have a conservative evangelical pastor who's coming to participate in the inauguration of a progressive president, and this is a healthy thing and a good thing for our country.  We have to be--we have to find ways to work together on the things on which we do agree, even when we profoundly disagree on other things.  And that's how we are going to build bridges of understanding and move this country forward.  And that's what Barack Obama promised as a candidate.  That's what he's going to deliver as president.

MR. GREGORY:  But is--isn't the question for all those progressives, all of those new registrants to the Democratic Party, when you promised a progressive presidency with a progressive candidate, and then you get this.  Pat Robertson, the televangelist who said in praise of Obama this week, "I am remarkably pleased with Obama.  ...  He's picked a middle-of-the-road Cabinet." Again, do you think Obama supporters would think that that's the kind of praise they want to hear?

MR. AXELROD:  David, we've got to get beyond this sort of politics where we're each on the jagged edge of a great divide, shaking our fists at each other.  We do have a great Cabinet.  We're proud of that Cabinet.  It's diverse.  It represents great talent and experience from inside Washington and outside Washington.  It's going to move this country forward.  And if that pleases people, whether they're from the right or the left, that's fine.  But the, the bottom line is watch what we do, watch the policies that we implement.  We're going to move this country forward.

MR. GREGORY:  Has Barack Obama become a moderate now that he's become president?

MR. AXELROD:  I think Barack Obama--one of the great virtues of Barack Obama is consistency.  He is exactly who he's always been.  He's always worked across ideological lines, partisan lines to try and achieve progressive goals, and that's what he's going to do as president.

MR. GREGORY:  Finally, let's talk about your role in the White House.  The last major political figure in a campaign to have a big portfolio in the White House was, of course, Karl Rove.  You've described your role this way.  "I'm a kibitzer with a broad portfolio." Here's my question:  Will you begin working on Barack Obama's re-election from day one?

MR. AXELROD:  No, I'm working on--my, my job, David, is, is different from Mr. Rove's job was.  I see my job simply as helping disseminate the message of Barack Obama, working with the communications team to make sure that we're true to the, to, to the ideals and the values and the programs that he wants to advance in this country.  And that, that's the extent of my involvement. We've got plenty of good talented, political people who, who are not coming into the administration.  And when the time comes, we'll run the campaign. But our, our, our view is that we've got tremendous challenges in this country right now, and what we should be thinking about is how we're going to address those and not the next election.  And if we do that well, the next election will take care of itself.

MR. GREGORY:  Are you saying you're not interested in political realignment in this country that would help to achieve those goals that you hope to achieve?

MR. AXELROD:  David, I'm interested in--and we as an administration are interested in solving these profound problems that are facing the American people right now.  And, you know, there's an old saying that good, good government is good politics.  I think that's more true today then ever.  The American people are not looking for more politics, they're looking for solutions, and that's what we want to provide.

MR. GREGORY:  David Axelrod in Chicago this morning.  Happy new year and thank you for coming on.

MR. AXELROD:  Happy new year to you.  Thank you.

MR. GREGORY:  Coming next, how will the Obama administration solve our economic problems?  And how will history judge the Bush administration?  Our roundtable weighs in.  Rich Lowry, Todd Purdum, Michelle Singletary and Richard Wolffe, all here only on MEET THE PRESS.

(Announcements)

MR. GREGORY:  Our MEET THE PRESS roundtable weighs in on the economy and President Bush's legacy after this brief station break.

(Announcements)

MR. GREGORY:  We're back with our roundtable this morning, joined by Richard Wolffe of Newsweek, Todd Purdum of Vanity Fair, Michelle Singletary of The Washington Post, and Rich Lowry of the National Review.

Welcome to all of you.  The new year is going to be a hard year when it comes to the economy.  Look at some of the headlines that we pulled just from the last couple of days:  "States Cut Medicaid Coverage Further," "Like Many States, Ohio Reaches for a Lifeline" from the federal government, "Downturn Ends New York's Boom in Construction," "Retail Sales Plummet" after the holidays.

This is what Jeff Immelt said--he's the CEO, of course, of General Electric, the parent company of NBC--at a speech in November:  "The economic crisis doesn't represent a cycle; it represents a `reset.' It's an emotional, social, economic reset.  ...  People who understand that will prosper.  Those who don't will be left behind."

Michelle, what do you think that means?

MS. MICHELLE SINGLETARY:  I think that--I love that he said "reset," because--I am actually glad that we had this recession because we were on a path that we couldn't get off, and we did need that reset.  We need, we needed people to step back and stop taking on so much debt and really go back to the basics.  The basics are the basics because they always work no matter what the economy is.  Live below your means, don't take on so much debt and save.

MR. GREGORY:  And that's not just advice for individuals, but for businesses.

MS. SINGLETARY:  Well, I mean, you know, we, we, we bought into this.  I say we drank the Kool-Aid that "Let's use other people's money." Well, the problem is we ran out of other people's money.  And so, you know, look at the companies that went down.  Why did they go down?  It's not because they didn't have a good business premise, it's because they had too much debt and not enough cash.  They had all these high-rolling times, but they weren't setting aside all this money that they were earning.

MR. GREGORY:  Well, what happens to the psychology of the country, as David Axelrod suggested, if we get into double-digit unemployment?

MS. SINGLETARY:  Well, you know, in some communities, we are already in double-digit employment.

MR. GREGORY:  Right.

MS. SINGLETARY:  You look at the African-American community, Hispanic community, we are already there.  And, and, and it's going to be bad.  It's going to be bad.  But, you know, there's hope.  This, too, shall pass.  And if people do the right thing, take the message that you can't keep on the same path that you were before, we will be OK.

MR. GREGORY:  Rich Lowry, the role of government has been vastly expanded in a Republican administration.  Has the public's view of what the government should and can be doing to fix the economy changed?  And will it change under this new president?

MR. RICH LOWRY:  Well, at least, at least temporarily, David.  And the way I look at this, and this is a uncomfortable observation for someone who sits where I do on the political spectrum, but big paradigm shifts in terms of how we view our politics and our economy, they usually happen before the figure who's associated with them in history.  So, arguably, in the '20s and the '30s there was a bigger break between Coolidge and Hoover, who's a real activist president, than it was between Hoover and FDR.  You look at the late '70s, Congress passed tax cuts, Carter deregulated before Ronald Reagan came into office, who's associated with those sort of changes.  And now we have a conservative Republican president who supported this massive financial bailout, and then has used it to bail out the auto companies before the liberal activist president has even taken office.  So that's a sign to me that this might be a big, historic shift.

MR. GREGORY:  One of the questions, Richard Wolffe, is what specifically does the new president believe should be done about housing?  A lot of people in the economy feel that until you do something about housing prices or to ease the correction in housing, that psychology won't change, people won't spend money if they feel like their number one asset is declining in value.  But there's a debate, I understand, within the Obama team about what specifically they can and should do to ease that correction for the homeowner.  Where do you think he'll fall down on that?

MR. RICHARD WOLFFE:  Well, there is a debate here and, and partly because they've spent so much money not changing anything--or at least the current administration has.  If the focus is on psychology, I think they are on a very long and difficult path.  We're halfway through this recession by many conservative estimates.  It will be a long time before the psychology turns around.  It's about confidence in the marketplace, for sure.  But also growth. What they're really focusing on is growth in the broader economy.  Until that really moves on, nobody's going to be spending money.  Companies are not going to be investing capital.  So the question is, not just specifically about the housing market.  Of course there are troubled institutions, troubled pieces of paper.  So much money has been thrown at that.

MR. GREGORY:  Right.

MR. WOLFFE:  Moving that forward is going to take a much bigger group of policies.

MR. GREGORY:  Is he going to get a blank check from both Democrats and Republicans in Congress to do what he feels he needs to do?

MR. TODD PURDUM:  I don't know that he'll get a blank check, but I think he'll probably have pretty broad support.  And partly because no one should be invested, no one will be invested in his failure.  Every member of Congress has to deal with his or her district.  And look what happened with the initial refusal to support the bailout.  That was because of pressure coming from their districts.  So I don't think anybody wants to, to dig us deeper here. And if, if the Obama Administration comes forward with some, you know, reasonably creative ideas for going forward, I think the Congress will go along.

MR. GREGORY:  I want to talk about what we learned from this bubble.  Because everybody's talking about that for new regulation and lessons learned from what we experienced in this housing crash--no.  This is what--Henry Blodget, in Atlantic magazine wrote the cover story, on why Wall Street always blows it.  He was a Merrill Lynch analyst during the, the Internet bubble.  He writes, "Why did Bear Stearns, Lehman Brothers, Fannie Mae, Freddie Mac, AIG and the rest of an ever-growing Wall Street hall of shame take so much risk that they ended up blowing their firms to kingdom come?  Because in a bull market, when you borrow and bet $30 for every $1 you have in capital, as many firms did, you can do mind-bogglingly well.  And when your competitors are betting the same $30 for every $1, and your shareholder start demanding that you do better, and your bonus is tied to how much money your firm makes--not over the long term, but this year--the downside to refusing to ride the bull market comes into sharp relief."

Michelle, it's not so easy to put the brakes on when everybody's making money.

MS. SINGLETARY:  It's not.  But you have to.  You have to.  The companies and individuals did the same thing.  You know, Proverbs says that the borrower is slave to the lender.  And if we just internalized that message, we would all be much better right now.  And, and it, it's a shame that we had to get to this point, but we have got--I mean, you talked about the psychological change.  We have got to do this.  We have got--we--you know, you and I talked about this.  You know, we have this whole Ponzi scheme of shifting money around, and no one is saving, no one's doing the things that they're supposed to do.  It is critical that we address the housing issue.  Some people will lose their home, and they should lose their home.  But if you're in your home right now and the value is going down, and you have no intention on selling or refinancing, what do you care what it's worth?  It's where you live.  It's not a bank.  It's not an ATM.  So stop worrying about that.  If you got savings, and you have a decent job and you've got health care, go ahead and spend. It's OK.

MR. GREGORY:  Well, you actually write about something that Congress should take up in a recent column.  You say, in terms of passing the buck, "There's some good that could be had," you write, "from the current crisis in corporate America.  When someone is pleading for a handout, you can get something in exchange for rescuing them.  It would be idiotic if Congress didn't take advantage of this crisis"--(Gregory coughs) excuse me--"and find a way to better control the way executives are compensated.  If we now have an economy in which we cannot allow certain industries or companies to fail, then we need better governance over executive compensation."

Rich, is that really where Congress should be spending its time?

MR. LOWRY:  Well, look, the problem is--and I think Michelle's on to something here--when you're a company and you take government money, you've sort of lost the moral claim to control yourself.  And that's why Detroit is going to end up producing green cars, basically mandated by Congress.  That's why the banks are going to face, I think, really serious pressure, kind of mandated lending regulation.  And if things continue to go south, it wouldn't surprise me if we begin to see really serious proposals to nationalize the banks.

MR. GREGORY:  Is that something that would, that would fly in Congress?

MR. WOLFFE:  Well, they're not, they're not going to use that language, but, de facto, that's what's really already taking place.  The question is, you know, you can focus on these individual industries, you can look at the housing market.  But there is a fundamental question that undermines the philosophy that we have looked at for the last 20 years about unfettered free markets, whether it's safe to put money into the stock market.  Are the banks going to be there?  Are the regulators doing their job?  Are the credit agents performing their tasks?  To rebuild all of that is not just a monumental task, it has a huge impact on the politics, because conservatives have put their confidence in an ideology that is as broken now as the big government philosophy was in the early '90s.  The era of big business, in many ways, is over.  Politics in Congress across the country's going to have to deal with that, just as homeowners are going to have to deal with their own personal budgets.

MR. GREGORY:  Rich, is that fair, do you think?

MR. LOWRY:  Well, this--we're, we're definitely probably seeing an end to a 25-year era that ran right through Reagan, through Clinton, and through Bush that depended on free markets, free trade and deregulation.  Now, how far we're going to go in the other direction is one of the big questions.  And I would counsel against going too far in the other direction.  But there is, as I was saying earlier, a big possibility of a paradigm shift here.

MR. GREGORY:  Let's talk about the political dimension to all of this.  This week Newt Gingrich, former speaker of the House, of course, said the Republicans are in a tough spot when it comes to criticizing the new president.  This what he said:  "I think the country is so tired right now of a style of Republican attack politics that has become a caricature of itself, they instinctively go, `I'm tired of that.' It's ineffective against Barack Obama right now.  The country is faced with serious problems and is about to have a brand new president.  You'd have to be irrational not to want the new president to succeed."

MR. PURDUM:  I think, as usual, Speaker Gingrich puts his finger on something pretty essential.  I mean, he's about the smartest guy in Washington in many ways.  And, you know, he has his problems, but he's always been out there being able to see when the wind is changing, and this is one of those times, I think.  President-elect Obama has this metronomic kind of regularity.  He never gets too excited when things are going well, he never gets too upset when things are going badly.  And I think in some ways the public, over time, over the length of his campaign responded to that, and that's effectively what answered a lot of doubts about experience and other qualifications.  So I think, you know, the, the sort of Rovian style of "demonize your opponents, say they're bad," that, that has passed a little bit from the scene for the moment, I think.

MR. GREGORY:  But, Michelle, how much patience does the public really have? He's got a big honeymoon here, the President-elect does, but people are going to expect him to turn over those cards to bring recovery pretty quickly.

MS. SINGLETARY:  I think they will, absolutely.  You know, you, you quoted Larry Summers editorial and at the very end, if you read to the end, he said what we can't do is go back to saying, "Consumers, spend, spend, spend to get us out of this."

MR. GREGORY:  Mm-hmm.

MS. SINGLETARY:  And so I think that Barack Obama has to get in there and has to do some hard work right away, because that's right, we're not going to wait.  Because if you lost your job, if you don't have health care, if you can't feed your kids and you're out on the street, and you've been kicked to the curb, you're not going to wait for the president to, to, to do whatever. You've got to have something happen right now and soon.  And, you know, I think he needs to get in there and, and make some hard decisions and, you know, you know, get in there.  And, and we've ignored HUD for a long time. You know, we've got to get in there and, and--I tell people HUD--we ought to be fearful of HUD as we are of the IRS.

MR. GREGORY:  The Department of Housing and Urban Development.

MS. SINGLETARY:  That's right.  You know, look at that they did.  I mean, it's crazy how they weren't really policing the way they should have, and they don't have enough policing power.  So those kinds of things is what he's going to have to get in there and do, I think.

MR. LOWRY:  It's, it's really an extraordinary moment, because Michelle talked about how debt got us into this problem and the solution that's being offered is more, more debt, government debt, debt.  If you look at the Federal Reserve, you know, there's a water main break here in suburban Washington.  I think everyone saw on, on cable news millions of gallons of water flowing down the street.  That's what the Federal Reserve has done.

MR. GREGORY:  Right.

MR. LOWRY:  Just opened the spigots in terms of liquidity, and now--that's what we're doing in monetary policy.  And now Barack Obama is going to do a version of it with fiscal policy.  You know, the defense budget is about $500 billion.  We're going double that amount roughly in a couple of weeks.  Total discretionary spending by the federal government is about $1 trillion.  We're almost going to double that in a couple of weeks.  And I think this is where the Republican opposition is going to come in.  They're going to tamp the brakes...

MR. GREGORY:  Mm-hmm.

MR. LOWRY:  ...and say, "Look, there's no way you can spend that much money responsibly."

MR. GREGORY:  But wasn't it--weren't--wasn't it conservatives who said that deficits don't matter?

MR. LOWRY:  Exactly.  You're going to hear that--I was talking to a top Republican aide just over the weekend, and I heard the D word more than I ever have like in eight years.

MR. GREGORY:  Suddenly they're back, they matter.

MR. LOWRY:  Exactly.

MR. GREGORY:  Let's talk about something else that, that a couple of you have written about this week, and that is the legacy of the Bush administration.

Todd Purdum in Vanity Fair, a big spread, an oral history of the Bush administration.  If this is a first draft of a history of this administration, what does it show?

MR. PURDUM:  Well, I think the main point is, is what President Bush's pollster and former strategist in the 2004 election said, which is "Missed opportunity." It was amazing--my editor Cullen Murphy and I did this, we conducted probably close to 60 interviews--and from Bush insiders to foreign diplomats, the common theme was tremendous elegiac regret at opportunities that were missed.  That opportunity after 9/11 when the president had, you know, the country in the palm of his hand and foreign newspapers were saying, "We're all Americans," somehow that moment was never exploited to move forward and the Iraq war, of course, became an incredibly divisive issue for the, for the country and for the world.

MR. GREGORY:  If there wasn't that sense of--I mean, there was a sense of national purpose, but if there was not a specific call for national sacrifice, the president essentially said, "Look, we will worry about this, you should go about living your lives."

Richard, what was that space filled by?

MR. WOLFFE:  National service.  You know, I, I, I'm not sure that the call to service was what was missing.  It was a tone in politics that actually Governor Bush, as he ran for office, talked about bringing in, this idea that Barack Obama is now picking up about, ending the partisan squabbling.

MR. GREGORY:  Uh-huh.

MR. WOLFFE:  And, and he actually exacerbated it.  And 9/11 was a moment to reset the clock, to go back to those campaign themes.  And instead Iraq wasn't just divisive politically.  I think people are still today scratching their heads and trying to figure out why it happened.  The rationale changed so many times.  The decision to move from al-Qaeda to Saddam Hussein has never been made clear.  I think we are still waiting for a sufficient explanation of it. And his legacy is, to some extent, going to be defined by that.  But using war and national security for political purposes in those first midterms, in the 2004 election, really, it took us to a new level of partisan squabbling.

MR. GREGORY:  You talk about the tone.

Michelle, what was striking, Ari Fleischer, interviewed in this piece, the first press secretary for President Bush, said this in the Vanity Fair piece: "After the recount, the disputed election, a lot of people said you needed to start to trim your sails:  What are you going to cut back on as a way to show outreach to the other party?  The president rejected that line of thinking." Why, do you think, and was it a mistake?

MS. SINGLETARY:  I think it was.  And, and you know, if I--you talked about his legacy, his economic legacy is selfishness.  You know, you look at what they wanted to do to Social Security.  Imagine if our money was in the markets right now, which is one of the things that he wanted to do.  I think this, this administration failed on so many levels when it came to the economy, including not regulating the banks and letting things happen that shouldn't have happened with the mortgage industry.  And, you know, he should be ashamed of what he, what he has left us.

MR. GREGORY:  Overall that change in tone, missed opportunity there.  There was a real feeling that he would never be accepted.  Karl Rove and others said, "You know what, the country--the left will never accept you.  You've got to put your pedal to the metal here and go for the agenda." And that's what they did.

MR. LOWRY:  Well, I would say a couple things.  One, Bush had a very simple view of how this works.  You run on your agenda, and then you're elected and you try to pass your agenda.  And that seems pretty straightforward and basically admirable to me.  But a couple things happened with the tone.  One, he entered into a Washington where there was this ongoing revenge warfare between the parties, where Republicans were going to get revenge for Iran-Contra with, with Whitewater and the Monica scandal, and then the Democrats were going to get revenge for that.  And you had about a 16-year period where neither side would really accept the legitimacy of the other party's president.  And then also, I think, it, it goes more broadly to Bush's capabilities.  You know, he was much better as a decider than a persuader. You know, he was never good at making the argument, and therefore he didn't, didn't put much effort into making the argument.

MR. GREGORY:  We'll come back to Iraq in just a second, but one--what, what, what's underneath all of this, of course, was the response to 9/11 and the question of, of terrorism.  He gave a speech December 17th at the U.S. Army War College, during which he said this.

(Videotape)

PRES. GEORGE W. BUSH:  Here at home we prevented numerous terrorist attacks. We'll never know how many lives have been saved.  But this is for certain, since 9/11, there's not been another terrorist attack on American soil.

(End videotape)

MR. GREGORY:  Richard Wolffe, that cannot be denied.

MR. WOLFFE:  Sure.  But on American soil is the operative phrase here.  There have been many terrorist attacks on foreign soil that are the direct outgrowth of what we've seen of, of American foreign policy, to be blunt.  And it's true that terrorism is what is responsible for those attacks, not American foreign policy.  But that policy has exacerbated it and has taken the problem elsewhere.  So al-Qaeda has, has grown into a multiheaded beast which is now extremely difficult to control.  Afghanistan is actually in a weaker situation than it was after the Taliban was overthrown.  So, you know, there are--he has a, he has a, a historic record in terms of his response to 9/11, no question. People were looking for leadership, and he filled that vacuum in those very, very troubled moments.  But longer term, America is--has, has fundamental problems now that are really being kicked to this new administration.

MR. PURDUM:  Well, that's another point that people we interviewed made to us is the credibility problem.  Former Senator Bob Graham, who was chairman of the Intelligence Committee and voted against the war, one of the relatively few Democrats to do so, made the point that American credibility around the world is really shot on a lot of important questions now because people say, "If you got Iraq so wrong, how can we trust you on this?" He also pointed out that the threat of al-Qaeda is arguably greater than it was on September 10th, 2001, because of this resurgence.  And other people polled--General Alberto Mora, who was the general counsel of the Navy, said that generals on the ground in Iraq believe that the two worst causes of American casualties there are Guantanamo and Abu Ghraib, because of the spur they gave to recruiting jihadists.

MR. GREGORY:  The detention...

MR. PURDUM:  Exactly.  Exactly.

MR. GREGORY:  The detention facility in Guantanamo for, for people picked up on the battlefield.

Rich Lowry, you write--well, first, the--we'll talk about what you, what you wrote in the National Review about Bush exiting.  But the, the theme of the second inaugural, and indeed, much of what we hear the president talk about in terms of Iraq, has to do with the freedom agenda, bringing freedom so that terrorism cannot flourish.  This is what the president said in part during his second inaugural.

(Videotape, January 20, 2005)

PRES. BUSH:  There is only one force of history that can break the reign of hatred and resentment and expose the pretensions of tyrants and reward the hopes of the decent and tolerant, and that is the force of human freedom.

We are led by events and common sense to one conclusion:  The survival of liberty in our land increasingly depends on the success of liberty in other lands.

The best hope for peace in our world is the expansion of freedom in all the world.

(End videotape)

MR. GREGORY:  The National Review cover that I mentioned says "Bush Exits," and your particular piece, Rich, is headlined this way:  "`The Freedom Speech' in Retrospect.  It was not the grossly simplistic vision of the second inaugural that saved Iraq."

MR. LOWRY:  Yeah.  Look, all inaugural addresses are aspirational at a certain level, so you have to factor that in.  But I think this was overreaching.  Yes, freedom is a important drive in all of human beings.  But there are lots of other important drives.  You know, for honor, for, you know, your way of life, for your ethnicity, your religion.  All those sort of things were ignored.  And one of Todd's interviewees in this Vanity Fair piece, an intelligence official, was asked, you know, why didn't they have more interest in the aftermath of Iraq?  And he said, "Well, if you believe that freedom is inevitably going to triumph and if you just scratch beneath the surface of everyone, you basically have a Western liberal there, you're not going to be that interested in the aftermath because you think it's going to work out." And unfortunately, I think there's a fair amount of truth to that.

I just want to go back to Richard's point about the no attacks on U.S. soil. U.S. soil is a big caveat.  I mean, that is a key thing.  And in our exit interview with President Bush, you're just struck by the extent to which he was a war president.  I mean, that's what drove him most passionately.  And when you talk to him about it, you feel as though he's just sort of been left behind by the public and by history.  And I think that's because of the very success in preventing another attack on U.S. soil...

MR. WOLFFE:  But you can't...

MR. LOWRY:  ...which allowed, which allowed the public to move on to, to other issues that they found more urgent.

MR. GREGORY:  Mm-hmm.

MR. WOLFFE:  You can't take America's national security across oceans to other continents and then only care about its impact on American soil.  It's grossly irresponsible.

I--just a point about the, the second inaugural, though.  Yes, grossly simplistic, but where's the follow through here?  You say freedom is, is the most important thing, and everyone agrees with that.  But again, America has a unique position on the international stage.  Sustained involvement with fighting tyranny would, say, take you into Egypt where the president was saying he was going to stand with the dissidents and deal with jihadism. Well, you know, the dissidents in Egypt's jails are still there, and they are actually still the sworn enemies of the United States.  So simplistic in conception and execution, and you cannot just say, "Well, here we are in America, we're just doing great.  What about"...

MR. GREGORY:  Let me...

MR. LOWRY:  Well, it's, it's--yeah.

MR. GREGORY:  Go ahead.

MR. LOWRY:  It was impractical on a certain level.  But, look, it's not as though the United States does not care about terror attacks overseas.  And I think perhaps you're exaggerating the extent to which al-Qaeda has been strengthened.  Al-Qaeda just suffered a severe defeat in the Arab heartland in Iraq, and that is a huge benefit to the United States strategically, and President Bush basically was--is responsible for that alone.  His opponents wanted to quit from Iraq and basically hand the country over to terrorists. And Bush, you know, there are two sides to Bush; there's courage and there's stubbornness.  Sometimes, you know, you saw him stubbornly sticking to the wrong course.  The surge in Iraq, which saved the war there and dealt a blow to al-Qaeda, was a hugely courageous act.

MR. GREGORY:  Just have about a minute left.

And, Richard, I just want to touch our top story briefly.  David Axelrod didn't want to talk about what the Obama response would be to this offensive into Gaza by Israel, but what's coming potentially is a long, protracted war, a ground invasion.  Where do you think Obama will stand on these issues?  And how does it complicate whatever diplomatic turn he'd like to make in the Middle East?

MR. WOLFFE:  Well, there's an eerie parallel with what happened with President Bush, because, remember, the Second Intifada started in 2000 just before he took office.  And everyone, every president has this idea of being the peacemaker in the Middle East.  Obama wants to have a more sustained engagement.  Again, one of the things we didn't see through the Bush years. But his capacity to move here is severely curtailed because the Palestinian territory is so deeply divided.  He clearly has some room, the Israelis have some room to try and remake the Gaza Strip, but it's not going to happen by military force.  There needs to be a new political settlement there between Palestinians, otherwise, to use that tired phrase, there's no partner for peace there for Americans or Israelis.

MR. GREGORY:  Todd.

MR. PURDUM:  Well, it's just--I mean, look at the situation there now.  There were elections.  Hamas won the elections.  So, I mean, it's a complicated reality in the world when you start opening the, the can of democracy, and we'll see what happens.

MS. SINGLETARY:  If...

MR. GREGORY:  Yeah.

MS. SINGLETARY:  You know, I listen to this conversation, and I'm sort of thinking, you know, as the, as the regular, you know, mom and, and churchgoer, and I'm thinking, you know, all this--I'm just so disheartened by what Bush did to us, and, and all this focus on fighting a war that we couldn't win.  I mean, all the generals sort of told you that going in.  And you said sometimes stubborn.  He wasn't sometimes stubborn, he was always stubborn.  And, and he did all of this, I think, at the detriment of our country, our economy.  And I think the regular American people are sitting here going, "We're in this war, and you said you couldn't afford health care, and yet all these billions of dollars are over there.  And I have no job, no health care and probably no house."

MR. GREGORY:  And one of the issues, obviously, that the president himself has said that it will take time for some of that vision, particularly in foreign affairs and in Iraq, to be vindicated if it's ever vindicated.  But the reality is a cruel economic reality as he leaves office.

We're going to leave it there, thank you very much.  We'll be right back.

(Announcements)

MR. GREGORY:  That's all for today.  We'll be back next week.  If it's Sunday, it's MEET THE PRESS.  Happy new year, everyone.


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