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updated 2/1/2010 10:53:31 AM ET 2010-02-01T15:53:31

Guests: Julia Boorstin, Rep. Mike Pence, Perry Bacon, Ken Vogel, Anne Kornblut, Michelle

Bernard, Perry Bacon, Joe Sestak

CHRIS MATTHEWS, HOST:  Keep your enemies close.

Let‘s play HARDBALL.

Good evening.  I‘m Chris Matthews in Washington.  Leading off tonight:

Obama visits the elephant house.  President Obama met with House Republicans today in an extraordinary confrontation carried live here on MSNBC.  It was an event the likes of which we have never seen, never seen ever, akin to the prime minister‘s question time over in Great Britain.  The president took the Republicans‘ questions up in Baltimore, and he did it with passion, precision and expertise.  It reminded a lot of people exactly why they voted for the guy in the first place.  We‘ll have the Republican who organized this big, historic event at the top of the show.

Was history made today, a new precedent for maybe, just maybe, breaking the political gridlock in this city.

Also, “Don‘t ask, don‘t tell.”  Will that Clinton-era policy finally be changed?  Joe Sestak of Pennsylvania, who has the unique experience of being a U.S. congressman and former Navy admiral—he‘ll be here to say why he thinks it‘s time “Don‘t ask, don‘t tell” to go.

We start with President Obama and that remarkable meeting with House Republicans up in Baltimore.  Here‘s the president at the beginning of that event today—it truly was an event—talking about the tone of Washington and specifically the big fight over health care.  He began by saying that the main components of the bill are similar to what Howard Baker, Bob Dole and Tom Daschle proposed last year.  Let‘s listen.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES:  Now, you may not agree with Bob Dole and Howard Baker and Tom—certainly, you don‘t agree with Tom Daschle on much—but that‘s not a radical bunch.  But if you were to listen to the debate, and frankly, how some of you went after this bill, you‘d think that this thing was some Bolshevik plot.

(LAUGHTER)

(APPLAUSE)

OBAMA:  I mean, that‘s how you guys presented it.  And so I‘m thinking to myself, Well, how is it that a plan that is pretty centrist...

(LAUGHTER)

OBAMA:  No, look, I mean, I‘m just saying—and I know you guys disagree, but if you look at the facts of this bill, most independent observers would say this is actually what many Republicans—it is similar to what many Republicans proposed to Bill Clinton when he was doing his debate on health care.

So all I‘m saying is, we‘ve got to close the gap a little bit between the rhetoric and the reality.  I‘m not suggesting that we‘re going to agree on everything, whether it‘s on health care or energy or what have you.  But if the way these issues are being presented by the Republicans is that this is some wild-eyed plot to impose huge government in every aspect of our lives, what happens is you guys then don‘t have a lot of room to negotiate with me.

I mean, the fact of the matter is, is that many of you, if you voted with the administration on something, are politically vulnerable in your own base, in your own party.  You‘ve given yourselves very little room to work in a bipartisan fashion because what you‘ve been telling your constituents is, This guy‘s doing all kinds of crazy stuff that‘s going to destroy America.

And I would just say that we have to think about tone.  It‘s not just on your side, by the way.  It‘s on our side, as well.  This is part of what‘s happened in our politics, where we demonize the other side so much, that when it comes to actually getting things done, it becomes tough to do.

(END VIDEO CLIP)

MATTHEWS:  Indiana congressman Mike Pence organized the meeting today and had the first question.  Congressman, thanks for coming on HARDBALL tonight, the night of your big day.  Congratulations.  You (INAUDIBLE) Let‘s just talk technique here.  Is this the beginning, perhaps, of something like they have in Britain?  I know we‘re an independent country and glad to be, but they have an interesting system over there where they make the prime minister in that country, who runs the government, come over and answer the questions in the house.  Do you like that idea?

REP. MIKE PENCE ®, INDIANA:  Chris, I like our system.  But let me say something.  Today I think was...

MATTHEWS:  Would you like to see the president—would you like to see the president—would you like to see the president regularly come to the House members, or to Democrats and Republicans together even...

PENCE:  No.

MATTHEWS:  ... and answer questions?

PENCE:  Yes.  Well, no.  No, not on the House floor.  The prime minister of England goes to the floor of parliament because the prime minister‘s a member of parliament.

MATTHEWS:  Right.

PENCE:  So no, that‘s not appropriate.  But you know, this was a good conversation.  Anyone that looked in today knows that this was a frank and honest and direct conversation between House Republicans and the president of the United States.  It was serious.  It was respectful.

But Republicans made their point, which is, I believe, going to be news to maybe some of your viewers, and that is whether it be on stimulus or on budget or on energy, on health care, Republicans far away from being the party of no, as we‘ve heard from this administration and Democrats in Congress—the Republicans offered substantive alternatives on all of those issues in the last year.  We‘ve presented the president with a summary of those.  He acknowledged that today.  So maybe we can banish this “party of no ideas” business that has so dominated the public debate and get down to really debating the different philosophy of government of both parties in the days ahead.  That‘s what we did today.

MATTHEWS:  Well, what compromise would you say yes to on health care?  What compromise?  On health care, for example.  Tell me the package.  Give me the main details.

PENCE:  Well, look, you know, I was—yes—yes, look, the president today said that part of the bill that he thought was moving through Congress would allow people to purchase health insurance across state lines, you know, as—clearly, the American people have rejected this massive multi-thousand-page government takeover of health care.

But Republicans stand ready to address the issue of the rising cost of health insurance with some incremental targeted reforms.  And the fact the president today referenced allowing Americans to purchase health insurance across state lines—look, we‘re ready to talk about it.

But you‘ve got to understand, Chris, what happened today I think was truly remarkable and welcome.  And that is we had the president of the United States, who is also the leader of the Democratic Party in America today, acknowledge that Republicans have substantive, positive alternatives...

MATTHEWS:  Right.

PENCE:  ... on all the major issues...

MATTHEWS:  OK...

PENCE:  ... of the day.  And this was the beginning of the first real exchange of ideas because, you know, the Pelosi Democrats in Congress have totally shut us out of the process for the last 12 months!

MATTHEWS:  Let‘s take a look at what—well, here‘s more from the president today, and you respond to this, Congressman.  Thank you, Congressman Pence.  Here‘s the president.

(BEGIN VIDEO CLIP)

OBAMA:  I am absolutely committed to working with you on these issues, but it can‘t just be political assertions that aren‘t substantiated when it comes to the actual details of policy because, otherwise, we‘re going to be selling the American people a bill of goods.  I mean, the easiest thing for me to do on the health care debate would have been to tell people that what you‘re going to get is guaranteed health insurance, lower your costs, all the insurance reforms.  We‘re going to lower the cost of Medicare and Medicaid, and it won‘t cost anybody anything.  That‘s great politics.  It‘s just not true.

(END VIDEO CLIP)

MATTHEWS:  Was the president right, there‘s no free lunch in health care?

PENCE:  Well, look, of course, there are all kinds of choices to be made in the development of public policy.  But I think I remember that moment.  I was a few feet away from the president at the time.  I think he was talking to Congressman Tom Price.  He alluded to our solutions, our “Better Solutions” handbook that we handed him today.  It‘s available at GOP.gov if you want to look through it.  And I think he thought that our proposals were just the summary references on the page of the “Better Solutions” book.  And Tom Price of Georgia and myself went on to say, No, we have substantive, detailed bills that were filed in the Congress, that were summarily excluded from consideration by your party on Capitol Hill.

And the president, from where I‘m sitting, acknowledged that.  He said he‘d made the hard choices.  Well, we made the hard choices, too.  You can look them up in our legislation.

And you know, I got to tell you, you know, all we‘ve met with is a reflexive no from the party in power in Congress and this administration.  And you know, I give the president his due today.  He came.  He listened.  Republicans put out our positive alternatives on all these issues that have been offered over the last year.

And you know, let the games begin.  We‘ll start the debate on serious policy, but we‘ve got to be at the table.  We‘ve got to have people understanding just as they put out detailed plans, we‘ve put out detailed plans.  No more of this “Party of no ideas” business, Chris.  I think we put that to the lie today.

MATTHEWS:  Well, you seem angry in your body language, Congressman.  You‘re suggesting that you‘re mad at the guy.  I want to ask you this.  Do you think it would be good for...

PENCE:  No, I‘m cold.  I‘m freezing out here.

MATTHEWS:  Oh, I‘m sorry.  It looks like (INAUDIBLE)  I‘m sorry.  Let me ask you the question.  If—I have a hunch that at this point in the political battle, as you get closer to November, it‘s not in your party‘s interests for the president to achieve a modicum of success on the health care front, that it wouldn‘t be in your interest to have some kind of compromise even in the center, which would do, you know, preexisting conditions, something on portability, something on interstate competition for insurance companies.  Even if it was the agreed-upon set of accomplishments, your party really wouldn‘t like to see the president win this one.

PENCE:  Look, I‘d like to see the American people win this one.  And I want to tell you, Republicans are not opposed to health care reform that will lower the cost of health insurance, Chris.  We‘ve been fighting for that.  It‘s a serious issue facing the country.  We just fundamentally disagreed with the massive, big government approach that was moved in through the House and the Senate and we rejected it.  I think the American people rejected it.

But you know, you like Jack Kemp.  The late Jack Kemp was a good friend of mine.  He used to quote Lincoln in saying we serve our party best when we serve our country first.  And I assure you, if this administration and Democrats in Congress come to us with some responsible, incremental proposals that are truly focused on lowering the cost of health insurance or dealing with preexisting conditions in a fiscally responsible way, like doing medical malpractice reform...

MATTHEWS:  Yes.

PENCE:  ... you know, we‘ll go fight the elections out on another issue.  We want to help the American people.

MATTHEWS:  OK.

PENCE:  We want to work together on a principled...

MATTHEWS:  So that sounds like a smart proposal.

PENCE:  ... basis.  But it all begins with what happened today.

MATTHEWS:  I think today‘s good.

PENCE:  Say again?

MATTHEWS:  Let me just ask you this.  In other words, you throw in preexisting conditions, throw in malpractice, throw in interstate competition, do something on portability, you see there is enough to put together a comprehensive—or not a comprehensive, a core reform bill which would help reduce the costs?  You think it‘s possible?

PENCE:  Yes.  Take a look at the Republican alternative bill.  Go to GOP.gov.  We did exactly that...

MATTHEWS:  OK.

PENCE:  ... with the savings in medical malpractice insurance.  We beefed up the funds for preexisting conditions.  And we allowed Americans to purchase health insurance across state lines.

I really—you know, politics are politics, Chris, and it never happens better than on HARDBALL.  I concede that point.  And you and I may not agree on everything, but we got to do something to lower cost of health insurance in this country, but we don‘t need to do it by growing the size of government.

MATTHEWS:  I just want to see more people insured.  That‘s all.  And I also want to have more people carrying the burden, healthy people helping unhealthy people, because in the end, that‘s how it‘s going to work.

Here‘s the president answering your question today about tax cuts. 

Let‘s listen.

(BEGIN VIDEO CLIP)

PENCE:  Here‘s what I‘m going to do, Mike.  What I‘m going to do is take a look at what you guys are proposing.  And the reason I say this—you know, before you say OK, I think this is important to note.  You know, what you may consider across-the-board tax cuts could be, for example, greater tax cuts for people who are making a billion dollars.  I may not agree to a tax cut for Warren Buffett.  You may be calling for an across-the-board tax cut for the banking industry right now.  I may not agree to that.

(END VIDEO CLIP)

MATTHEWS:  Your response to that, Mr. Pence?

PENCE:  Well, I thought the president answered it pretty candidly.  He said he would be willing to consider across-the-board tax cuts as long as they weren‘t across the board.

You know, again, the president came out today with this business hiring tax credit that was last tried by Jimmy Carter and failed.  And I just said to him, you know, Can‘t we get away from these boutique, targeted tax credits and stimulus plans and just get working families, small businesses and family farms the kind of tax relief that John F. Kennedy gave them across the board, Ronald Reagan gave them across the board?  The president said no.  But let the debate begin.  I think the American people are with us on that one.

MATTHEWS:  Well, maybe they are.  And people like tax cuts.  By the way, I‘m with you on this meeting today.  Congratulations.  I think you did something for the country today and for your party, as well, probably.

PENCE:  Thank you.

MATTHEWS:  Anyway, Congressman Mike Pence of Indiana, one of the leaders of the party.

Much more on President Obama‘s contentious meeting today with House Republicans coming up.

You‘re watching HARDBALL, only on MSNBC.

(BEGIN VIDEO CLIP)

OBAMA:  When you say I ought to be willing to accept Republican ideas on health care, let‘s be clear.  I have.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

OBAMA:  You know what they say.  Keep your friends close, but visit the Republican caucus every few months.

(LAUGHTER)

(END VIDEO CLIP)

MATTHEWS:  There‘s a line from “The Godfather.”  Back to HARDBALL.  President Obama met House Republicans in Baltimore today.  It was a spirited, contentious and sometimes tense 90 minutes that made for great political theater, if you like that sort of thing.

We‘re joined by “The Washington Post‘s” Perry Bacon and “The Politico‘s” Ken Vogel.  Gentlemen, thank you for joining us.  I‘ve got to get your take as journalists on this event.  History-making, Perry?  Many think so.

PERRY BACON, “WASHINGTON POST”:  Yes, very unusual to have such a back-and-forth, sort of like watching—I know Mike Pence said this earlier—sort of like watching parliament almost, the debate between—you know, very strong questions, you know, very assertively to the president, who very much defended himself and called out Republicans in a very aggressive way, and all this—you know, a very candid debate on national television, where people could see it and see for themselves if they agree with one side or the other.

MATTHEWS:  Well, we‘re going to have a lot of talk about that tonight in our special later tonight.  But let‘s go right now to Ken.  The same question to you.  Did they make history?  And who looked good—who looked best, if we have to get competitive, which we will?

KEN VOGEL, POLITICO.COM:  I think Obama looked best.  He kind of stood up there and took their best shots, a lot of questions that weren‘t really questions, that were kind of loaded questions, a lot of talking points.  And he almost looked like the sort of schoolmaster up there with a bunch of unruly students.

Of course, one thing that I think worked to his advantage is the camera didn‘t pan to the questioners.  The camera remained on him...

MATTHEWS:  Ah!

VOGEL:  ... behind this sort of stark background, and he just kind of calmly, for the most part, dissected these questions, disagreeing with some of the premises behind them, and came across looking like he had a great command of the issues and effectively leveling his allegation, which the White House has leveled many times over the course of this first year, that Republicans are obstructionists.

Of course, that‘s what Republicans are trying to avoid.  That‘s what they were trying to come—the message that they were trying to leave viewers with here.

MATTHEWS:  Well, this reminds me of Richard Nixon and John Kennedy. 

Nixon was excellent at this kind of thing. 

Let‘s take look now at the president telling Republicans to stop making everything about politics.  Let‘s listen to the president. 

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES:  But the question I think we‘re going to have to ask ourselves is, as we move forward, are we going to be examining each of these issues based on what‘s good for the country, what the evidence tells us, or are we going to be trying to position ourselves so that come November, we‘re able to say, “The other party, it‘s their fault”? 

(END VIDEO CLIP)

MATTHEWS:  Well, isn‘t that what it‘s about, Perry, trying to establish yourself on the high ground? 

PERRY BACON, “THE WASHINGTON POST”:  I think that‘s exactly right, Chris. 

The president spent a lot of time trying to say, Republicans are sending me ideas, and I‘m taking them.  Look at the bills.  I‘m incorporating your ideas.  And, still, you‘re opposing them. 

The Republicans, I thought, did an artful job of making the case, they are not the party of no.  If you look at some of the pictures from the event, one of the pictures is John Boehner handing Obama that list of their ideas. 

Every Republican speaker got up and said, we have ideas, we have ideas, we have ideas.  I think they did succeed in getting that message through, which is something they wanted to get through. 

MATTHEWS:  Well, you know, Ken Vogel, in the old days, Gene McCarthy, one of my heroes, used to say that an issues candidate is simply a guy or woman who keeps saying the word issues.  You keep saying it over and over again, and people think you‘re interested in the issues. 

I‘m speaking to the issues.  This campaign‘s about the issues.  You never have to say what they are.  Is that what the—is that a game that Republicans played today, saying, we got ideas, knowing that they were right-wing or far-right or whatever ideas the president could never buy as a center-left political leader? 

Your thoughts? 

VOGEL:  Well, yes, I mean, this is the dynamic that we are going to see play itself out until November.  You know, the Republicans have no political incentive to cooperate and help the Democrats and help President Obama pass any of their initiatives. 

However, the White House also has an interest in making them look like they‘re obstructing the Democratic agenda. 

MATTHEWS:  Well, who‘s right?  Your thought, Ken, who is right? 

VOGEL:  Well, I mean, certainly...

MATTHEWS:  Is there room—if you were a reasonable Republican, and you came up to the president, or Rahm Emanuel, and you sat down and say, look, I know you guys want a bill, I can deliver 20 percent of the Republican Caucus if you throw in tort reform, malpractice reform, caps on damage suits, I‘m going to give you something you have never had before, and you can add it onto your stuff, and I will vote with you, because it‘s so important to my manufacturers and my businesspeople, are there any—are there 20 percent of the caucus that would do that and allow this to pass and get past the filibuster? 

VOGEL:  I don‘t think so.  They have had really great discipline.  That‘s one thing you can say for the Republicans, even as they were sort of seen searching for some identity and soul and issues.  They always—they continued to have that party discipline, where they voted in block against, you know, any number of—from the health care vote in the Senate...

MATTHEWS:  Yes. 

VOGEL:  ... to a number of assorted stimulus votes.  They voted in block. 

This is not like LBJ, where he‘s leading the Senate Democrats to support Eisenhower‘s plans, because Eisenhower is so popular, it‘s going to help the Democrats.

MATTHEWS:  Yes. 

VOGEL:  There is no incentive for Republicans to help Obama.  And there is, however, an incentive to make it look like they have ideas. 

That‘s why I think we are going to see—and John Boehner has sort of signaled that we will see something akin to the 1994 Contract With America, where they will say...

MATTHEWS:  Oh, here it comes. 

VOGEL:  ... these are our ideas.

MATTHEWS:  That‘s a real—that‘s an election document.  But that‘s an election, not a legislative document. 

Let‘s take a look at the president here on the tone in Washington. 

Let‘s hear it. 

And, then, Perry, you respond to this. 

(BEGIN VIDEO CLIP)

OBAMA:  We‘ve got to be careful about what we say about each other sometimes because it boxes us in, in ways that makes it difficult for us to work together because our constituents start believing us.  They don‘t know sometimes this is just politics, what you guys, you know, or folks on my side do sometimes.  So just a tone of civility, instead of slash-and-burn, would be helpful. 

(END VIDEO CLIP)

MATTHEWS:  Your thoughts, Perry, on that question?  Is this going to count to anybody but the public outside Washington? 

BACON:  I—if you remember the exchange, the president, a few minutes later, talked about the fact that Republicans have so demonized him on the conservative part of life, among conservatives, that a lot of conservatives who support him would in fact be primary-challenged if they did support an Obama health care plan and went into an agreement with him. 

So, I think that well may have already been poisoned, which Obama already conceded himself.  If you remember the last part of the event today, he started praising Paul Ryan, this congressman from Wisconsin, saying, Paul Ryan has lots of good ideas. 

He said after that, no, no, no, I don‘t really mean it, because I don‘t want to get (INAUDIBLE) running into the primary.  I think Obama, among conservatives, is like, has—has enough of a political problem where I‘m not sure anyone can sort of meet him at the middle among sort of Senate candidates and House candidates among Republicans. 

MATTHEWS:  Yes. 

Isn‘t Paul Ryan the congressman who is pro-life, I think, but he‘s trying to find a common ground between the pro-choice and the pro-life people?  Isn‘t he that one, Perry? 

BACON:  I believe that‘s Tim Ryan, I think.

MATTHEWS:  Tim Ryan, you‘re right.  You‘re dead right.  That‘s exactly right.  That was Tim.

BACON:  Paul Ryan is a fairly—Tim Ryan of Ohio, who is a Democrat, I think, yes.  Yes.  Yes. 

MATTHEWS:  OK.  So, it‘s a different Ryan. 

BACON:  Paul Ryan is a—yes, exactly.

MATTHEWS:  Let me ask you about—let me ask about the headline tomorrow, Perry, as you craft it for tomorrow‘s “Washington Post.”  What is it? 

(LAUGHTER)

MATTHEWS:  What‘s the headline?  Unique meeting, or what? 

BACON:  Yes, it was mainly that—the story we wrote today was mainly about such a feisty—you know, Obama defends himself in front of perhaps his harshest critics, because these guys have become his harshest critics.  The House Republicans vote against everything he does, and they speak very negatively of him. 

So, it was Obama defending himself in the toughest crowd possible. 

MATTHEWS:  Yes. 

OK.  Same question to you, Ken.  We‘re going to be repeating huge chunks of this throughout the evening here on HARDBALL and also on MSNBC throughout the night.  So, your thoughts, Ken, about the historic nature of this and what the headline‘s going to be in Politico when I read it next. 

VOGEL:  Obama-GOP—actually, Obama/GOP conference trade barbs.  It was interesting that the House Republicans refer to themselves as a conference.  Obama referred to them as a caucus. 

He also, whether purposefully or not, got the first name wrong of—the first name wrong of his final questioner, Jeb Hensarling, Republican from Texas.  He called him Jim several times, even after Hensarling corrected him. 

So, there was definitely an undercurrent of contentiousness, even as both sides sort of went into this with—billing it as a way to sort of produce a productive dialogue. 

(LAUGHTER)

VOGEL:  I don‘t think that we‘re going to see much change... 

(CROSSTALK)

(LAUGHTER)  

MATTHEWS:  That‘s an old Irish trick, by the way.  My grandfather used to do it.  And Tip O‘Neill used to do it.  Get the other guy‘s name wrong.  It drives them crazy, especially when they know you‘re doing it. 

Anyway, Perry Bacon, sir, of “The Washington Post,” Ken Vogel of Politico. 

We‘re going to have much more on the president‘s meeting today with House Republicans and how both sides—well, how they did. 

It is possible both sides can win one of these things.  But everybody around here seems to think the president made history today.

Up next, newly elected Massachusetts Senator Scott Brown takes his charm offensive to “The Jay Leno Show.”  I guess he‘s going to do “Barbara Walters,” too.  Check out the “Sideshow” next.

You‘re watching HARDBALL, only on MSNBC.  

(COMMERCIAL BREAK)

MATTHEWS:  Back to HARDBALL.  Now for the “Sideshow.” 

Last night, Scott Brown went national, showing up on “Jay Leno.” 

(BEGIN VIDEO CLIP, “THE JAY LENO SHOW”)

JAY LENO, HOST, “THE JAY LENO SHOW”:  When was the last time you talked to the president, and could you beat him one on one with basketball?  You‘re about the same age.  And he‘s pretty fit, too. 

SCOTT BROWN ®, MASSACHUSETTS SENATOR-ELECT:  Oh, well, he—he looks like he‘s in great shape.  It would certainly be a tough game.  But the only time I spoke to him was election night, and I did challenge him to pick his best and I will take my daughter Ayla, who plays for Boston College, and we would challenge him on a little two-on-two. 

I think we would have the upper hand, don‘t you think?

LENO:  Really?  Really?  All right.  You heard it. 

(CHEERING AND APPLAUSE) 

LENO:  So, that is a—that is a challenge going out tonight? 

BROWN:  Yes. 

(END VIDEO CLIP)

MATTHEWS:  Well, it doesn‘t hurt to try. 

As for me, I‘m impressed with Brown‘s P.R.  We have got to see if he‘s got the stuff.  He‘s got the truck.  Let‘s see if he has got the cargo. 

On to a different brown, Michael Brown, remember him, Bush‘s disastrous FEMA director, the guy who took the dunce cap for the government‘s creaky response to Hurricane Katrina?  Well, catch this.  Brownie has a new gig as host of a Denver radio station‘s public affairs show.  He‘s there to give the insider‘s view of the political process.  God help them in Denver. 

You‘re doing a heck of a job, Brownie.

Next, you say—well, you say talk of a John Edwards love tape is too wild to be true.  Well, consider this.  Rielle Hunter, John Edwards‘ mistress, has just been granted a restraining order by the courts to suppress what the court filing calls—quoting here—“a personal video recording that depicted matters of a very private and personal nature.” 

Something should have thought—somebody, by the way, should have thought of restraint a little before all this. 

Anyway, coming up: the hot debate over don‘t ask, don‘t tell.  President Obama vows to get rid of it this year.  Well, he vows to start to get rid of it this year.  We will talk to retired Navy Admiral Joe Sestak, the Pennsylvania congressman who is taking on Arlen Specter in the primary. 

You‘re watching HARDBALL, only on MSNBC.  

(COMMERCIAL BREAK)

JULIA BOORSTIN, CNBC CORRESPONDENT:  I‘m Julia Boorstin with your CNBC “Market Wrap.”

Stocks closing out January with a loss, as a rebounding dollar offset off a trio of encouraging economic reports, the Dow Jones industrials down 53 points, the S&P 500 sliding 10 points, and the Nasdaq taking the biggest hit, falling 31 points. 

Stocks started the day on the upside, after reports showing growth in the GDP, Midwest manufacturing, and an uptick in consumer confidence.  The dollar hitting its highest levels since August on those reports, but that led to the declines in energy shares and commodities. 

And techs weighing heavily on the markets today, after a slew of earnings reports trending towards higher profits, but weaker outlooks.  Microsoft was the biggest decliner on the Dow, falling more than 3 percent, Intel, Apple and IBM also finishing in the red. 

But there were a few bright spots, Home Depot the biggest gainer on the Dow, up 2.5 percent, and Wal-Mart adding 1.5 percent on a ratings upgrade by Goldman Sachs. 

That‘s it from CNBC, first in business worldwide—now back to

HARDBALL. 

(BEGIN VIDEO CLIP)

OBAMA:  this year, I will work with Congress and our military to finally repeal the law that denies gay Americans the right to serve the country they love because of who they are.  

(CHEERING AND APPLAUSE)

(END VIDEO CLIP)

MATTHEWS:  Welcome back to HARDBALL. 

That was President Obama declaring in his State of the Union address that he will get Congress to repeal the military‘s don‘t ask, don‘t tell policy. 

Democratic Congressman Joe Sestak of Pennsylvania, a retired Navy admiral, also says it‘s time for the policy to go. 

Were you surprised, Admiral and Congressman, that this was coming, this decision by the president to push again to get rid of don‘t ask, don‘t tell? 

REP. JOE SESTAK (D), PENNSYLVANIA:  I was pleased that it finally did come. 

I felt—and I had written the president last year—that we should have done something for our ideals, this particular issue, last year.  So, I‘m glad now that he‘s actually asking the Pentagon to even, as I understand, propose how to do it in the budget that‘s coming forth next week. 

MATTHEWS:  Do you think he‘s going to operate ahead of the generals and the admirals, or is he going to wait for them to form a consensus?  Is he going to wait for a deal with them or push them? 

SESTAK:  This is a time where leadership is needed.  There shouldn‘t be waiting for leadership in the Pentagon to act. 

Look, this is an issue about equal rights.  When you go on an aircraft carrier—and you have been there, Chris -- 5,000 sailors, their average age, 19-and-a-half.  This is where these youth, they don‘t care if somebody‘s gay.  They‘re actually ahead of the leadership of the military.

And the leadership, if they want to lead, better get ahead of the troops.  So, this is one where the commander in chief needs to say, make it happen. 

MATTHEWS:  By the way, I was on an aircraft carrier once, and those guys were great. 

Let‘s go to now—let‘s go to this question here of this KSM trial in New York.  And I want to get to Pennsylvania in a minute, but next question, it‘s a hot one.  Should the president, should we, the attorney general and the government, try Khalid Sheikh Mohammed, the mastermind of 9/11, in New York City in a criminal trial? 

SESTAK:  Well, I‘m surprised we‘re not going to be able to. 

Look, I read an article today that said it might take 2,500 police, a lot of checkpoints.  Now, wait a moment here.  I remember working at the White House when President Clinton was there, and I just drove past it the other day.  We‘re able to protect the White House, which we have to protect almost more than anything else, without having checkpoints four miles away. 

I don‘t understand why we can‘t do it.  But if we can‘t do it downtown New York City, we should do it in the Southern District of New York City.  Why?  Military tribunals twice have been told by the Supreme Court, you‘re insufficient. 

There‘s an individual there who murdered.  He should be brought to justice.  And then he should be sentenced to the appropriate punishment, even death, by U.S. citizens for the harm he‘s done to this nation.  Let‘s have justice done. 

MATTHEWS:  OK, third question.  The—the—it‘s something of a standstill, a real roadblock with regard to getting a health bill.  The Senate has got a bill passed.  The House has got a bill passed.  It looks like the Senate can‘t pass a freestanding bill again.  They don‘t have 60 votes to do it.

Do you support some action by the House on the Senate bill, followed by some kind of reconciliation action in both houses?  Is that your solution? 

SESTAK:  No, here‘s my solution: we should take those elements that almost both sides agree on—it would be impossible after they said—the Republicans, they agreed upon preexisting conditions should no longer be denial of health care, that women should not pay 50 percent more than men.  Let‘s take those.  Let‘s get them through.  Because we would really be calling out the other side if they didn‘t agree to those. 

Then, in a very deliberate, very deliberate month or two way, finally the Democratic leadership, finally showing some leadership, go out to the public and say, here‘s what we‘re trying to do.  Republicans, you‘ve got a better option?  And let‘s start discussing this and showing to the public why our bill is good, and why there‘s is not.  Or if they do have something, we can do a principal compromise. 

At the end of the day, with 14,000 Americans losing their health bill, I would vote for 51-49 to get it through.  Let‘s do something first.  Let‘s make sure we explain it to the public. 

MATTHEWS:  OK.  Let‘s take a look at this latest poll out of Pennsylvania.  You‘re in this hot race for the Democratic nomination for the United States Senate.  A new Franklin and Marshall poll for the general election has former Republican Congressman Pat Toomey now beating the incumbent Republican turned Democrat Specter, the senator, 45 to 31. 

How do you explain that huge advantage right now by the conservative Republican, Toomey, over the now incumbent Democrat, Specter. 

SESTAK:  It‘s the same message that I saw in July when I was going to the 67 counties in Pennsylvania, because the Washington establishment told me to sit down and not to run.  What I heard is we‘re tired of the establishment trying to dictate interests for us. 

So what you saw in Massachusetts was writing on the wall that if any leadership of the Democratic establishment had been looking around the corner, trying to listen, they would have been leading and wouldn‘t have been dictating Arlen Specter, who has actually savaged us with the recession as a establishment‘s nominee?  No.  This is a rightfully anti-incumbency crowd, that is saying we want a change in politics, not just policy. 

MATTHEWS:  Let‘s look at the primary fight.  This is among registered voters, also by Franklin & Marshall.  Terry Madon‘s (ph) poll, 30 to 13 against you, for Specter.  How do you make that up?  Apparently, half the voters in Pennsylvania on the Democrats‘ side haven‘t figured out what they want to say, because you only get 30 and 13 accounted for, 43 percent accounted for so far.  Where does that one stand in the undecideds?  Where are they going? 

SESTAK:  That‘s terrific.  As you can see, I‘m through the line in the secondary, already headed towards the goal line.  As Ed Rendell, the governor, said the other evening, at this stage of the game, when I was running against the establishment, Bob Casey—Ed Rendell said I was 27 points down.  So this is where you see those 55 percent—and that‘s why I‘ve done—looking for a different candidate. 

That‘s why I‘ve done in 25 counties, 23 days over 200 events.  I just got back downtown Philly to come and talk to you.  This is why I really am glad that somebody stood up to say to the Washington establishment, there‘s no more kings; there‘s no more king makers; you can‘t dictate to us Pennsylvanians who our nominee will be.  I think you‘re going to see that people are actually voting for someone who will say, throw out the politics as usual, deal making.  And let‘s be in it for the working family.  That‘s what Massachusetts was saying. 

MATTHEWS:  OK.  Good luck.  I like a good fight.  Congressman Joe Sestak, trying to knock off Arlen Specter.

Up next, much more on President Obama‘s meeting today with House Republicans.  This is HARDBALL, only on MSNBC.

(COMMERCIAL BREAK)

MATTHEWS:  That‘s President Obama taking on House Republicans today in Baltimore.  We‘re back now with Michelle Bernard, an MSNBC political analyst, and Anne Kornblut, a reporter for the “Washington Post.”  We were looking at spots, not right then, but throughout the day.  A lot of talk about this big event today. 

You first, Michelle.  Let‘s take a look at it now.  Here‘s more from President Obama.  We‘ve been talking about it all tonight.  He was meeting with Republicans in an unusual setting, up in Baltimore, a Republican retreat.  The president, a Democratic president in this case, went to a Republican hide-away and took them on issue by issue.  Here he is today. 

(BEGIN VIDEO CLIP)

OBAMA:  You‘ve given yourselves very little room to work in a bipartisan fashion, because what you‘ve been telling your constituents is this guy‘s doing all kinds of crazy stuff that‘s going to destroy America.  And I would just say that we have to think about tone. 

It‘s not just on your side, by the way.  It‘s on our side as well.  This is part of what‘s happened in our politics, where we demonize the other side so much that when it comes to actually getting things done, it becomes tough to do. 

(END VIDEO CLIP)

MATTHEWS:  It‘s amazing watching his mind work, because he seems to self-edit, like he‘s saying something that‘s sort of clearly partisan.  Then he feels the need to correct it.  A new reiteration going on.  It‘s not just you. 

MICHELLE BERNARD, MSNBC POLITICAL ANALYST:  It‘s important that he did that.  I love this.  I think this is good government.  I think the American public likes it. 

MATTHEWS:  Are you and Anglo-phile?  Do you like the British questions?

BERNARD:  I do.  I watch it.  I‘m completely entertained by it.  I love it.  I wish he would do it every single week.  I think he made a great point when he went to the Republicans, on their own territory.  I watched Paul Ryan the other day, on another network, and I‘m a big fan of Paul Ryan. 

MATTHEWS:  Republican, Wisconsin. 

BERNARD:  Republican, Wisconsin.  I think he‘s a future leader for the Republican party. 

MATTHEWS:  The president praised him today.

BERNARD:  Exactly.  What I like—as Paul Ryan said, we‘re going to continue to give the president our proposals.  And he‘s never responded before.  Let‘s see if he responds.  The president went to them.  I think he needs to keep doing that.  So many people are cynical and feel that bipartisanship is a waste of time and it will never happen.  

MATTHEWS:  I‘m not cynical about the need for bipartisanship.  I‘m cynical about whether either party is ready for it.  I think the Democrats are in enough trouble right now that they‘d like to go bipartisan.  Are the Republicans triumphalist now to say die?  I think the Republicans do not want to help him save the health care reform, even if he threw in tort reform, interstate competition among insurance companies, everything they want.  Do you think—is there ever any evidence they‘d like a deal? 

ANNE KORNBLUT, “THE WASHINGTON POST”:  Maybe not on health care reform.  But going forward, not just the budget, on regulatory reform, on whether to tax the banks—there are issues that are going to be coming up where they are going to say, look, we‘ve called you out.  We‘re going to—

MATTHEWS:  How about a big fat real jobs bill?  Will there be something big on that?

KORNBLUT:  That‘s the challenge.  I mean, that‘s the gauntlet that the president is throwing down.  What I think is so interesting is we all thought that the State of the Union is going to be the big event of this week. 

BERNARD:  And it‘s this.

KORNBLUT:  This is so like this president.  We saw this with the Nobel speech, which came just a little bit after the Afghanistan—

MATTHEWS:  Campaign expert, is this David Plouffe‘s work? 

KORNBLUT:  You have to wonder.  The sudden announcement—now, he also has been around.  This idea that he‘s suddenly coming back in—but this is certainly his style, to take the strong position and to challenge the Republicans strongly. 

MATTHEWS:  I loved the State of the Union.  I thought it was a grand speech, like Eisenhower or Shimon Peres, someone above the battle saying, OK, on both sides, let‘s get our act together. 

BERNARD:  I liked the State of the Union.  I thought that he struck the right tone.  I actually liked this even better though.  I liked him going to the Republicans saying, I‘m here.  You challenged me.  Let‘s talk about it.  Just because you don‘t get 100 percent of what you want doesn‘t mean that you don‘t have a responsibility to govern.  And I think he‘ll say that to the Democrats, too.  Find common ground. 

MATTHEWS:  The more we learn that it takes 61 percent in the Senate to gain some ground, the more we learn that any 41 percent -- 41 seat holder, like the current Republican party, is co-governing and can stop anything.  Polling scares me because I don‘t think the American people know that the Republican party can kill anything in the Senate now. 

KORNBLUT:  Well, I think that‘s one of the reasons that you see Obama engaging him the way he is.  I think you‘re right.  I think he‘s educating people.  And after supporters of Scott Brown‘s chant 41, 41 --

MATTHEWS:  They know it. 

KORNBLUT:  They know it. 

MATTHEWS:  With this, do they know you can‘t blame Democrats for not getting something done if the Republicans had the ability to kill everything, if they vote different? 

BERNARD:  I don‘t think the American public is thinking it in terms of that the Republicans can stop everything in the Senate.  I think the American public is sick of Congress, period, whether you are a Democrat or a Republican.

MATTHEWS:  Who do you blame when nobody gets something done? 

BERNARD:  I blame all of them. 

MATTHEWS:  How do wed—excuse the term—goose them into action?  How do you make them do something?  I think the president was trying to embarrass them into acting in the State of the Union.  You know what I mean? 

BERNARD:  He was. 

MATTHEWS:  He got them to actually applaud twice on health care. 

BERNARD:  I think he was trying to embarrass them into doing something, but I don‘t think that‘s going to work.  I think what he did today, and continuing to do it, and trying to find common ground is going to work. 

MATTHEWS:  Let‘s watch him again.  Here‘s the president on the deficit.  Let‘s listen. 

(BEGIN VIDEO CLIP)

OBAMA:  The fact of the matter is, when we came into office, the deficit was 1.3 trillion -- 1.3.  So when you say that suddenly I‘ve got a monthly budget that is higher than the—or a monthly deficit that is higher than the annual deficit left by the Republicans, that‘s factually just not true.  And you know it‘s not true. 

(END VIDEO CLIP)

MATTHEWS:  We‘ll be back with more of that with their answers.  That was a real debate today, for once, challenging back and forth, tit for tat.  Let‘s come back and talk about what happened today.  Big history today.

(COMMERCIAL BREAK)

MATTHEWS:  I‘m back with Michelle Bernard and Anne Kornblut.  Anne, the president‘s back and forth there is something to watch.  I noticed he‘s very good on the knowledge of numbers.  Don‘t blame me for the deficit.  I inherited a 1.3 trillion dollar deficit.  Don‘t blame me for the unemployment rate.  It went up 700,000 in December 2008, 600,000 -- he went to each month and showed that all the unemployment—two million jobs were lost before he even had a chance to call a policy.

KORNBLUT:  And I went with him yesterday to Tampa, to the town hall meeting, and he got a lot of random questions, but he was able to walk one person through the entire inner mechanisms of the Small Business Administration while he was at this town hall meeting, obviously off the top of his head. 

But that notwithstanding, what I found even more remarkable about the exchange today was the passion question.  You know, it was just three days ago that everyone was saying, he‘s too cool.  Is he going to show that in the State of the Union.  Is he going to be a fighter? 

MATTHEWS:  He doesn‘t like that charge, by the way. 

KORNBLUT:  Obviously not.  But today, you saw the fiestiness today in those back and forth with the Republicans. 

MATTHEWS:  Let‘s take a look.  Respond to this, Michelle.  We want to get a bunch in.  Here he is.  Look at him, athletic fellow.  Here‘s President Obama talking about how much the debate gets boiled down to just talking points.  And he‘s signalling out Republican pollster Frank Luntz.  Luntz loves this attention.  Let‘s listen. 

(BEGIN VIDEO CLIP)

OBAMA:  Unfortunately, that‘s how our politics works right now.  That‘s how a lot of our discussion works.  That‘s how we start off—every time somebody speaks in Congress, the first thing they do is stand up.  All of the talking points—

I see Frank Luntz up here, sitting in the front.  He has already polled it and he said, you know, the way you‘re really going to—I‘ve done a focus group and the way we‘re going to really box in Obama on this one or make Pelosi look bad on that one—

I like Frank.  We‘ve had conversations between Frank and I.  But that‘s how we operate.  It‘s all tactics.  And it‘s not solving problems. 

(END VIDEO CLIP)

MATTHEWS:  The Republicans have somebody called Frank Luntz.  I‘ve known him for years. He‘s a genius at figuring out what words to use to score points.  There‘s the president pointing him out.  That‘s the biggest day of Frank Luntz‘s life.  Right now.

BERNARD:  You know what?  And the Democrats have Celinda Lake (ph). 

This is politics.  Pollsters do what they do.  They figure out messging.  They figure out focus groups.  They figure out strategy.  It‘s up to the political leaders, Democrats and Republicans alike.  But I guarantee you that the president uses pollsters. 

MATTHEWS:  Does he have word people that walk around with matching words, does he? 

(CROSS TALK)

KORNBLUT:  The real headline here is why was the president talking to Frank Luntz?  I want to know what those conversations were about. 

MATTHEWS:  He wanted to expose the fact that the Republicans have a guy, in this case a male, whose job is to come up with nasty words to use. 

KORNBLUT:  He said he had conversations with him.  Does he have Frank Luntz into the White House?  That would be a story. 

MATTHEWS:  That was back when Frank was bipartisan.  Thank you, Michelle Bernard and Anne Kornblut.  Join us again Monday night at 5:00 and 7:00 Eastern for more HARDBALL.  And at 8:00 Eastern, join Keith Olbermann, Rachel Maddow and myself for MSNBC‘s special coverage tonight of the president‘s question time.  What a night it‘s going to be on MSNBC.  His meeting with Republicans, an historic event, we‘re going to cover it for two hours tonight.

Right now it‘s time for “THE ED SHOW” with Ed Schultz.

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

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