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updated 12/29/2011 12:08:41 PM ET 2011-12-29T17:08:41

Guests: Howard Fineman, Ari Melber, Brian Shactman, Jeff Zeleny, Erin McPike, Steve Kornacki, Chris Frates, David Margolick

CHRIS MATTHEWS, HOST: The battle for Iowa.

Let`s play HARDBALL.

Good evening. I`m Chris Matthews up in New York. Leading off
tonight: Newt`s new law. What goes out must come back. Newt Gingrich may
be getting a lot of mileage dumping on Mitt Romney`s health plan as a
socialist-inspired government takeover of health care, but it turns out
Newt praised Romney`s plan long before he buried it, in a newsletter five
years ago, in fact. So basically, Newt is saying, Pay no attention to what
I said then, just hear me now. So what does go out does come back, and
what you said can be used against you.

Also, Ron Paul with a fringe on top. You`re hearing more and more
about Ron Paul`s fringe supporters and about what he really thinks about
gays and Israel. Meanwhile, on the under card, while no one was watching,
Rick Santorum has been making a move. Could it be he`s the tortoise racing
in a pack of hares?

Plus, it turns out it`s not just the rich who get richer. So do those
getting elected to Congress. Why has the personal net worth of the body
gone up so much while everyone else`s is going down?

And almost every American has seen this photo. It`s the photo of
Elizabeth Eckford trying to enter Central High School in Little Rock,
Arkansas, in 1957, after it was ordered to desegregate. But what most of
us don`t know is the fascinating story behind that picture and how she and
the white girl screaming at her eventually became friends. We`ll have that
story for you later.

And "Let Me Finish" with why conservative Republican voters in Iowa
can rally -- cannot rally around a champion to face Obama.

We start with Newt Gingrich and the explaining he needs to do. Howard
Fineman`s an MSNBC political analyst and the Huffington Post Media Group
editorial director, and Jeff Zeleny is with "The New York Times." He joins
us from Iowa.

Howard, you first. This problem with Newt Gingrich and his
credibility -- he`s very versatile, he`s a fantastic opportunist, he thinks
on his feet, but he seems to think he`s so much smarter and has a better
memory than everyone else, or else a worse memory.

How does he forget that he sold Mitt Romney`s health care plan in
Massachusetts as a national wonder drug, basically, to the rest of the
country?

HOWARD FINEMAN, HUFFINGTON POST MEDIA GROUP, MSNBC POLITICAL ANALYST:
Well, this is -- this is Newt`s problem, is he tries to be the outsider
attacking Mitt Romney. Newt Gingrich, revolutionary though he may have
been in his early days in Congress, was here for a long time as a member,
was a leader, literally the speaker, and then spent a lot of years on K
Street working the inside game for the medical industry.

And there was a time at which, and maybe it`s still true with many
parts of that industry, that they liked some of what Mitt Romney was
proposing. Lots of the industry very much was able to live with what
Barack Obama proposed. And Newt Gingrich was part of that.

It`s not that his memory is so good, it`s that his -- his memory is
selective. He`s very good at forgetting, very good at trying to play that
attack dog outsider. But it`s not working, especially when "The Wall
Street Journal" is on his tail, unearthing documents like this one.

MATTHEWS: Well, let`s go to what "The Journal" reported today. It
said, "Back in 2006, not 100 years ago, five years ago, Newt Gingrich was
in favor of the Romney health care plan up in Massachusetts. A newsletter
for one of his groups called the Center for Health Transformation put out a
`Newt`s Notes` memo" -- that`s "Newt`s Notes" memo -- "saying, quote, `The
health bill that Governor Romney signed into law this month has tremendous
potential to affect major change in the American health system. We agree
entirely with Governor Romney and Massachusetts legislators that our goal
should be 100 percent insurance coverage for all Americans.`"

That`s Newt`s statement back five years ago. Now his spokesman told
"The Journal" that someone else penned that statement, and get this, that
it wasn`t an endorsement.

Well, Jeff, you know, politicians are good at squirming out of things
like greased pigs, but my question -- is there enough grease to get Newt
away from what he said just five years ago, applauding Romney on health
care, and in a sense, encouraging it for the rest of the country?

JEFF ZELENY, "NEW YORK TIMES": I think things are really adding up
here for Speaker Gingrich, and this is just one more thing on top of, you
know, really a litany of rising questions that some conservatives have
about him.

But I mean, he still has his core supporters in Iowa. He still has
people who say that, You know, I like him because he can debate President
Obama. They keep saying that. I`m not sure if voters realize that there`s
probably only going to be three presidential debates next fall in the
general, and the campaign is certainly -- or almost certainly not to hinge
on debates alone.

But I think that the toll is rising for him. He realizes this. If
you watch the airwaves in Iowa or listen to the radio, he is just being
hammered. But it`s not by Mitt Romney only. It`s by Ron Paul. It`s sort
of from all sides. So I think this is one more thing that he is going to
have a hard time explaining to voters.

We saw this in "The Journal" today. This is going to be an ad
probably before -- you know, in the next 24 hours, perhaps. And this is
what Iowa caucus voters are going to see as their final argument before
they begin making up their minds. So he has a lot of ground to cover here
in trying to explain all this. But I`m not sure how well he`ll do with
that.

MATTHEWS: Well, here`s one way he`s doing it. The super-PAC Winning
Our Future is releasing this ad in support of Gingrich. Let`s watch.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: The Republican establishment wants to pick our
candidate. When a principled conservative took the lead, they outspent
Newt Gingrich 20 to 1, attacking him with falsehoods. Conservatives need
someone who`s fought for us.

Newt balanced the federal budget, reformed welfare, cut taxes, and
created 11 million new jobs. Newt will take on radical judges and fight
against abortion. Don`t let the liberal Republican establishment pick our
candidate. Newt Gingrich. Winning Our Future is responsible for the
content of this message.

(END VIDEO CLIP)

MATTHEWS: You know, Howard, there`s a lot of over-the-top language
there, the language of desperation, I would say, objectively. When you
start talking about a liberal Republican establishment -- what`s that? You
start talking about radical judges. You know, it`s always this over-the-
top, almost violent language that`s being used in this ad, which sounds a
lot like Newt.

FINEMAN: Well, and Jeff -- I think Jeff would agree with me, though,
that that`s the kind of language that sometimes -- not the heat of it, but
the intent of it is the kind of language that can appeal to Iowa caucus
goers. You know, they take the caucuses very seriously. They respond to
the message that somebody`s trying to control it, somebody from the
outside, so forth.

It`s the best and only card Newt has to play right now because,
really, he`s not competing with Mitt Romney for votes. He`s not competing
with Ron Paul for votes, for the most part. He`s competing in the non-
Mitt, non-Dr. Paul primary, essentially, among all the other conservatives.
So that`s an appeal -- the best appeal, arguably, he can make to those
voters who are still undecided.

MATTHEWS: Well, let`s take a look at the trend lines of the Iowa
polling of the top three Republicans since November 1st. First, Mitt
Romney in the purple. And when you add the yellow line for Ron Paul, you
can see his recent rise. But the most dramatic thing here is when you see
Gingrich`s green line and his precipitous drop over the past several days.
He just keeps dropping.

Jeff, you`re out there in the field. Do you sense that, that he`s had
a drop for a while now?

ZELENY: I do sense that. And when you see an ad like this -- I mean,
it certainly is a good response, or at least some response, but it`s about
two-and-a-half weeks too late. I mean, he`s been being hit out here and
across the country without any backup. And you know, Gingrich has been
responding, you know, by complaining about these negative attacks. Well,
you sort of have to fight the war on the same battleground here, and that`s
on television. So now he`s only finally doing this.

But if you talk to voters, I mean, they have liked Newt Gingrich`s
debate performances. They`ve liked a lot of what he`s said. But there`s
been so much more information out there on him now than there was just two
weeks ago, it`s incredible. So I think that, you know, what he doesn`t
have here is a ground organization to sort of support him and to get his
back up.

If he is to do well in the Iowa caucuses, it`s going to throw out all
of the things that Howard and I and some other people and you, Chris, know
so well of how these caucuses have usually worked through organization. If
he does well, it`s just going to be this organic thing coming out.

MATTHEWS: Right.

ZELENY: And that`s pretty hard to believe, that that`s going to
happen.

MATTHEWS: Well, one way you get rid of the past is to smother it with
the present, to trump it with the present. We all know that. People do
have an advantage. If they can get on the television set in live
performances, that`s what people tend to judge more than old tapes.

Howard, can he get that live bug up next to him and show himself
between now and next Tuesday in a way that will dramatize him, rather than
his past?

FINEMAN: No, it`s awfully hard, as Jeff said. And one of the reasons
is, if you put up an ad accusing other people of falsehoods, you need to
explain. You need to have the time and the money and the space to explain
what those falsehoods are. You have to nail your critics. You have to
nail your foes to the wall with their lies. That`s the way you have to
play the game.

You can`t just sort of throw up your hands and appeal to the ref,
which is sort of what Newt`s doing here...

MATTHEWS: Yes.

FINEMAN: ... with all the time -- that`s all the time and money he
has.

MATTHEWS: Let`s take a look right now at this whole problem out
there. Jeff, I have a theory about this. I`m going to bring it up at the
end of the show. I want to try it on you and Howard. You first. It seems
to me that the voters of Iowa, the Republicans out there, really want three
things out there. They want someone who is very good on small government,
and Ron Paul meets the bill there in spades. Then they want somebody who
has the religious zeal against things like abortion rights and gay and
same-sex and that kind of thing -- modernity, basically.

Then they want a real hawk, someone who`s really going to turn the
tables from this globalism of Obama and turn it back to the old chauvinism
of W. And do they have anybody that meets the bill in all three cases and
also could win?

ZELENY: No, they have no one who meets the bill in all three cases,
which is why you hear -- I was out with Senator Rick Santorum earlier, and
he was really driving the case hard against Ron Paul, urging Iowa
Republicans to take seriously his foreign policy plans. So you have sort
of all these sort of cross-currents going on, all these people sort of
firing different arrows at each other.

And the person who may come out the strongest in that is Mitt Romney.
You hear a lot of Republicans -- a lot of Republicans who say, You know
what? I guess that it is almost time to make our pick here. He may not be
the top in either of the three categories, but adding up all the qualities
together, you know, he looks better than a lot of people. So I hear a lot
of Republicans who two weeks ago were not for Romney, now they say, you
know, OK.

MATTHEWS: Well, you know, way back 50 years ago...

FINEMAN: Chris...

MATTHEWS: ... Howard, the strategy of Jack Kennedy was to convince
West Virginia they could pick a president. Can you appeal to Iowans this
time and say, Here`s your chance? Now, here`s a Romney strategy, putting
this out, talking to "New York" magazine`s John Heilemann. This is an
amazing quote. I think it`s a problem for them already. Quote, "The
dynamics couldn`t be better for us. I don`t see any scenario where we`re
not the nominee."

FINEMAN: Yes. It`s a mistake.

MATTHEWS: I mean, that`s a horrendously over-the-top...

FINEMAN: Mistake.

MATTHEWS: ... claim at this point. Your thoughts?

FINEMAN: Big, big mistake. It may not cost them. Who knows? The
problem that the others have here is that, to put it simply, there`s no
Ronald Reagan. Ronald Reagan...

MATTHEWS: Right.

FINEMAN: ... Chris, was able to do -- to square the circle or unite
those three forces that you talked about. He could be the small government
guy. He could be the guy who questioned modernity, as you put it. He was
the hawk. He used anti-communism, he used his own history, he used his own
personality, his own organization to bundle all those things together. All
those pieces have fallen apart, and there`s one candidate or more for each.

MATTHEWS: Yes.

FINEMAN: In that situation, Mitt Romney can drive right through,
perhaps, because he`s a little bit -- he`s not any of them. He doesn`t
unite them all, but he isn`t trapped or destroyed by any one of them. He`s
picking his way right through the middle. And that may be, in an odd way,
Iowa`s gift to him by Tuesday night.

MATTHEWS: Yes. Come in second in every category.

FINEMAN: Right.

MATTHEWS: Anyway, thank you, Howard Fineman. Thank you, Jeff Zeleny.
It`s great having you both on the show.

Coming up, what Ron Paul really thinks about two subjects. We`re
going to pick out two because they`re the most glaring -- gays, gay rights,
gay people, and Israel and Israelis, as well, what he thinks about the
state of Israel. It`s pretty strong stuff, beyond what most people think
in an extreme way, I`d argue.

You`re watching HARDBALL, only on MSNBC.

(COMMERCIAL BREAK)

MATTHEWS: Well, here it is. For the first time since this summer,
more Americans in the latest Gallup tracking poll approve of the job that
President Obama is doing than disapprove. According to the poll, the
numbers are 47 percent approve, 47 percent disapprove. Well, the upward
trend is good news for President Obama. And while it`s too soon to draw a
conclusion, it seems like the standoff with House Republicans over the
payroll tax cut may have helped the president.

We`ll be right back.

(COMMERCIAL BREAK)

MATTHEWS: Welcome back to HARDBALL. Rick Santorum, the Republican
candidate who didn`t have his 15 minutes of fame like most of the GOP field
has had before flaming out, might be having his moment right now. In the
way Santorum cleverly frames the race, he`s in a contest with Perry and
Bachmann for what he calls the conservative vote. Could Santorum be the
sleeper in this race?

Plus, a former Ron Paul staffer says, if you believe him, that Paul
believes Israel shouldn`t exist and that the United States had no business
getting involved fighting Hitler in World War II. Well, needless to say,
the Paul campaign says he`s a disgruntled former staffer who was fired.

Erin McPike is covering the GOP 2012 race for RealClearPolitics and
Steve Kornacki is political columnist at Salon. Thank you both, Erin, and
thank you, Steve.

Let`s go to this interesting case of Rick Santorum. I`ve always
believed that when you`re in a crunch, Erin, and you don`t know what you`re
doing, you go back to basics. If you`re a religious conservative, don`t
get your fingers dirty in this campaign. Don`t hold your nose. Vote for
somebody whose values you completely buy into, and you`ll always be proud
of your vote, even if you don`t pick a president.

Is that what`s working for Santorum, if anything is?

ERIN MCPIKE, REALCLEARPOLITICS.COM: Well, he thinks that it is,
right, but his poll numbers haven`t budged all that much. He`s starting to
be tied with Bachmann and Perry, but his two ads, the only two ads he has
out in Iowa, are about him and social values and his record on social
issues. And that`s all he`s talking about.

But what is his economic message? This is an economic election...

MATTHEWS: Yes.

MCPIKE: ... and that`s not what he`s talking about. So it`s going to
be really hard for him to win Iowa when everyone else is talking about the
economy.

MATTHEWS: Well, in his most recent ad, as you say, Rick Santorum
makes sure Iowa voters know he`s the choice for Christian evangelicals.
Let`s watch.

(VIDEO CLIP)

MATTHEWS: Well, besides being a great family man, and that he is,
Rick Santorum is also a politician, believe it or not. And he breaks down
the Iowa race in a way that makes him look pretty good. He says there`s
three separate contests going on, and he says there`s just one primary that
he`s interested in winning, which is conveniently the one he can win.
Let`s listen.

(BEGIN VIDEO CLIP)

RICK SANTORUM (R-PA), FMR. SEN., PRESIDENTIAL CANDIDATE: There`s
really three primaries going on here. There`s the libertarian primary,
which Ron Paul is going to win. And then you`ve got the moderate primary,
which Gingrich and Romney are scrumming for. And then you`ve got three
folks who are running as strong conservatives. And you know, I think if we
win that primary, we`re in very good shape as the non-Newt/Romney.

(END VIDEO CLIP)

MATTHEWS: Well, the three people running as strong conservatives that
he`s talking about are himself, Rick Perry and Michele Bachmann.
RealClearPolitics lays out the state of play in this conservative primary
Santorum wants to win. Since December 1st, after his dismal debate
performance that already dropped him out of the lead, Rick Perry in the
blue line has been on a steady climb. See it, from 6 percent up to 12
percent, doubling.

Michele Bachmann`s trend line, however, which is black, has been
fairly flat throughout December, landing at 8.7 percent today. And Rick
Santorum there in the orange line, who`s been to all 99 Iowa counties so
far, has also been rising steadily. He started at 4. He`s modestly up to
about or almost 8.

Let me go to Steve Kornacki on this, from Salon. It seems to me that
he does have a shot at winning this very narrowly defined intramural match
with the other two cultural conservatives, Perry and Bachmann.

STEVE KORNACKI, SALON.COM: He has a chance of winning it, but the
question is, does he win it in a way that makes him a player beyond Iowa?

MATTHEWS: Well, can he get in third place, in other words?

KORNACKI: Well, yes. I mean, there`s third place where, you know, he
beats them out with 13 percent of the vote and Romney wins the state with
27. And I don`t think that`s really worthwhile. You know, but then
there`s the question of if you can add together Bachmann, Perry, Santorum
and a little bit of Newt, because Newt is getting some of the conservative
vote, too -- you put those all together, you`re at the 35 percent that Mike
Huckabee managed to get in 2008.

MATTHEWS: Sure.

KORNACKI: That`s when turnout -- 62 percent of the Iowa electorate in
2008 were evangelical Christians. And they were crazy about Mike Huckabee.
The problem evangelical Christians have had in Iowa this time is they
haven`t found that one candidate.

MATTHEWS: Well, isn`t that what Santorum is hoping to do, grand the
lion`s share of the Huckabee vote from last time?

KORNACKI: Sure. But look at the competition he`s got. Michele
Bachmann with the homeschooling, with her Christian credentials.

MATTHEWS: Is she a homeschooler too?

KORNACKI: Rick Perry with all of the money.

MATTHEWS: Are they all homeschoolers out there?

KORNACKI: I think two of the three of them are.

MATTHEWS: This is a very -- Erin, this is -- I have been following
Republican politics for a long time, and I have never seen that you have
got a party so culturally conservative, you have got a fight going on over
who`s the true homeschooler. I mean, this is getting back to basics here.

MCPIKE: Well, that`s what Mike Huckabee did in 2008, right? And that
worked for him.

Michele Bachmann has been pushing that message for a long time, and it
worked for her over the summer, but then suddenly her support dissipated.

MATTHEWS: Yes.

MCPIKE: So Rick Perry`s not really talking to the homeschoolers,
though, but he`s talking about his values and going to church and his own,
his own faith, and how he came to God in his 20s. So they`re all going for
the religious aspect here of it.

(CROSSTALK)

MATTHEWS: Let`s take a look at this other interesting case. It got
all the news today. Ron Paul may win this whole thing, I don`t know. It`s
really up in the air. If Ron Paul wins, it will be because people ignore
some of the stuff about him.

Now, this stuff is coming out from his former staffer who`s been
described by his loyal staffers as disgruntled, as being fired. They do
all the things to take the truth out of the guy, right?

Now, the question is, he says things like Ron Paul doesn`t just have
problems with Israeli foreign policy or the right-wing government in place
over there now. He, according to the former staffer, doesn`t believe in
the state of Israel, believes the Arabs should get that land. That`s
pretty strong stuff, even for libertarians.

Your thought on that, Steve?

KORNACKI: Yes. No, I mean, this represents fundamentally what Ron
Paul`s problem is in the Republican Party. This is a hawkish party,
especially with regard to the Middle East, especially with regards to
Israel and Iran.

MATTHEWS: It`s evangelical.

KORNACKI: And the parallel I keep thinking about with Ron Paul is Pat
Buchanan, because the last guy on the Republican side that really kind of
broke through in the presidential primaries and had the non-interventionist
Middle East foreign policy was Buchanan.

MATTHEWS: Yes.

KORNACKI: And I interviewed Buchanan last week about the parallel,
and he said he sees it. He says he sees happening with Ron Paul what
happened to him in 19...

MATTHEWS: He, Pat, has never come out to remove the state of Israel
from the map.

KORNACKI: No, but he was -- of all the Republicans, I can`t think of
one who was more hostile than Pat Buchanan to Israel on the national stage.

And what Buchanan said was, look, in `96, I nearly won Iowa, I won New
Hampshire, and the party more than anything else because of non-
interventionism was terrified and they went to war with me in South
Carolina.

MATTHEWS: My thinking is, if Ron Paul wins, Erin, the message on the
national media afterwards will be, small government conservatism wins a
round in Iowa, even though it may not matter nationwide. The people out
there are so much against government, they`re willing to go with a guy as
libertarian as Barry Goldwater ever hoped to be.

MCPIKE: Well, right, but it`s Ron Paul`s legions of supporters that
we`re talking about right now. You don`t really often meet undecided
voters in Iowa who are considering Ron Paul.

MATTHEWS: I see.

MCPIKE: So it`s a really -- you know, so, what -- we don`t know how
he`s going to do in New Hampshire yet or South Carolina. He`s really been
focusing here. So I don`t know that we can take that away...

(CROSSTALK)

MATTHEWS: Describe them, Erin. What kind of people do you see when
you meet who are Ron Paul -- are they young college libertarians, like we
were, Ayn Rand supporters, people that really believe in individualism?

MCPIKE: They are. You meet a lot of college kids who are always
coming out to his events, time and time again.

But I will tell you this, Chris. We get the nastiest hate mail from
Ron Paul supporters than I have ever gotten before for anything that you
could possibly write. They`re very dedicated. They will always comment.
And if there`s something that they think that you`re doing wrong in your
coverage of Ron Paul, they will let you know.

MATTHEWS: But the other side of it is, let me go back to my
formulation. You both can bash it down. It`s equal opportunity here.

I think when you`re in a turmoil of a lot of tainted candidates.
Romney`s a bit of a big government guy, let`s face it. He was national
health care writ large in Massachusetts. Certainly Newt has been all over
the map with big government formulations and climate change. So you look
for something clean.

You go in that voting booth and vote for somebody you truly believe in
like Ron Paul, an absolute libertarian, or Rick Santorum, an absolute
Christian conservative, and you can walk out and say, don`t blame me.

KORNACKI: Yes.

MATTHEWS: Is there some of that out there or am I just imagining it?

KORNACKI: No, and we have seen that before on the Republican side.
In the Iowa caucuses, the most famous story was Pat Robertson in 1988
beating a sitting vice president, George Bush Sr., because that
conservative Christian base couldn`t stomach the old Yankee Republican
Bush, and they would sooner vote for Pat Robertson, whose like national
approval rating was like 10 percent.

MATTHEWS: Yes, same deal.

KORNACKI: Buchanan nearly won it in `96. Buchanan won New Hampshire.
I think at the end of the day, the party sort of elites take control of the
process and they get their guy through. But that doesn`t mean these early
states...

(CROSSTALK)

MATTHEWS: So it could clearly be an anti-establishment response out
there to all...

(CROSSTALK)

KORNACKI: Particularly in a state like Iowa, I would think.

MATTHEWS: Your view, Erin? Could the anti-establishment candidates
like Santorum and Ron Paul be the stars on election night -- or caucus
night?

MCPIKE: Maybe so, but here`s the other thing. Neither Ron Paul nor
Rick Santorum really, truly want to be president.

I have talked to both of these guys, and they both have said -- Rick
Santorum told me a year-and-a-half ago he was only going to run because he
wanted to move the field to the right. And I asked Ron Paul a couple weeks
ago if he actually wanted to be president, and he kind of just said, sure.
These guys are both message candidates.

(CROSSTALK)

MATTHEWS: Erin, this is news. I have not heard this before,
admissions by candidates that they don`t want to win.

(CROSSTALK)

MATTHEWS: I`m serious.

MCPIKE: Not in so many words, but that`s what they`re saying.
They`re wanting to move the field to the right, and also Ron Paul has the
message that you know very clearly.

And he just -- when I asked him, he just said, sure. And I asked him,
well, why do you want to be president? And he just said, well, the answer
should be obvious. It`s a silly question. And he said that a couple of
times, but, Chris, you remember, in 1979, Ted Kennedy couldn`t answer.

(CROSSTALK)

MATTHEWS: What`s your hunch tell you about it? This could be news-
making. Do you think Ron Paul based on those kind of flippant answers, of
almost like fatalistic answers, that he may be planning for a third party
if he doesn`t come out of this thing on top, which he probably won`t?

MCPIKE: Yes, he very well may. He almost owes it to his supporters
who have been there for him for so long to have that message go through,
through a general election. He very well might.

MATTHEWS: What do you think of that, Steve?

KORNACKI: Well, I think the thing with Ron Paul is he himself is
leaving politics at the end of this year, so you would say maybe he has
nothing to lose.

MATTHEWS: He`s not running in a primary for the House again.

KORNACKI: But if he cares about his son`s political future in the
Republican Party, the senator from Kentucky, he`s got to be very careful if
he`s the guy who costs them the White House in 2012.

MATTHEWS: Hostage to fate.

(LAUGHTER)

KORNACKI: It`s a tough call.

MATTHEWS: Anyway, thank you.

Erin, it`s great having you on. Please come back soon.

Thank you, Steve, as always, Steve Kornacki.

Up next: Newt defends his campaign by invoking the Japanese attack on
Pearl Harbor. This guy thinks big. He also thinks big victim, him.

You`re watching HARDBALL, only on MSNBC. You can`t beat Newt.

(COMMERCIAL BREAK)

MATTHEWS: Back to HARDBALL. Now for the "Sideshow."

First up: photo crasher? The president and first lady spent some of
Christmas Day hanging with military families at a Marine Corps base in
Hawaii with, of course, the cameras all over them. Well, things went
slightly awry in this picture as the president took on the role of baby
handler. Let`s see what got the young admirer`s attention.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: Someone`s got to make
noise over there.

(LAUGHTER)

OBAMA: He saw that big nose. And he`s like, man, I want some of that
nose. I want some of that nose.

(END VIDEO CLIP)

(LAUGHTER)

MATTHEWS: Handled it like a pro. The boy`s mom later said she was
mortified during the incident.

Well, next up, cause for alarm? The Gingrich campaign was embarrassed
-- and rightly so -- for failing to qualify for the primary ballot in
Virginia. That`s Newt`s home state. It`s where he actually lives. So
just how did team Gingrich react?

Well, here`s how. Newt`s campaign manager or director put out this on
the campaign`s Facebook -- quote -- "Newt and I agreed that the analogy is
December 1941. We have experienced an unexpected setback, but we will
regroup and refocus with increased determination, commitment, and positive
action. Throughout the next months, there will be ups and down, there will
be successes and failures, there will be easy victories and difficult days,
be in the end, we will stand victorious."

So it`s Pearl Harbor. And the Japanese here are who? I get it.
Newt`s a victim of an infamous attack on his campaign. Well, today, Mitt
Romney said that Newt`s failure in Virginia is less Pearl Harbor than it is
-- quote -- "Lucille Ball at the chocolate factory."

Well, you do remember that episode, as I do, where Lucy is totally
unable to keep up with that darn conveyor belt.

(BEGIN VIDEO CLIP)

(LAUGHTER)

LUCILLE BALL, ACTRESS: I think we`re fighting a losing game.

(LAUGHTER)

(END VIDEO CLIP)

MATTHEWS: Boy, I didn`t know Mitt had it in him. Things started out
OK for Lucy, but went south pretty quickly.

And that brings us to tonight`s "Big Number."

We`re now in the final stretch of the days leading to the Iowa caucus,
so is it time to go negative? Well, take Mitt Romney. His campaign has
spent $402,000 on campaign ads in Iowa, but one of them -- not one of them
slanting negative.

But then there`s Restore Our Future, a pro-Romney super PAC that has
dropped $7150,000 on ads in Iowa, many of them negative -- well, a lot of
them, 100 percent of them. Newt Gingrich hasn`t dropped any funds on
negative ads himself, but he also hasn`t come close to the support Romney`s
getting from super PACs.

So, the Romney camp takes the cake tonight in this one, leaving 100
percent of the negative ads to his super PAC. That`s tonight`s "Big
Number."

As the gangster Mickey Cohen once said, if you have a dog, you don`t
have to bark.

Up next, how come the members of Congress are getting richer and
richer, while everyone else is not?

You`re watching HARDBALL, only on MSNBC.

(COMMERCIAL BREAK)

BRIAN SHACTMAN, CNBC CORRESPONDENT: I`m Brian Shactman with your CNBC
"Market Wrap."

The Dow Jones industrials down two points at the close. The S&P
closed up marginally, and the Nasdaq picked up six points. A particularly
tough day for Sears, which took a major stock hit amid abysmal holiday
sales and news that it plans to close up to 120 Sears and Kmart stores.

But the big picture looking up for retailers. The consumer confidence
index jumping to an eight-month high, indicating shoppers are feeling
better about spending, the bump much better than expected. The Federal
Reserve says banks are finally loosening the purse strings, increasing
lending in particular to small businesses.

Some bad news, though, for anyone trying to sell a house. New numbers
show single-family home prices plunging more than expected in October,
raising doubts that the housing market will rebound any time soon.

Now, people not spending much to buy, but they are to rent. One
Morgan Stanley analyst dubbing 2012 will be the year of the landlord, as
would-be sellers find better returns renting instead.

That`s it from CNBC, first in business worldwide -- now back to
HARDBALL.

MATTHEWS: Welcome back to HARDBALL.

There`s at least one segment of the population that doesn`t seem to be
suffering in rough economic times, members of Congress. In the past two-
and-a-half decades, the median net worth of a member of the House of
Representatives more than doubled, according to analysis by "The Washington
Post."

That means wealthier people are being elected. That`s an incredible
figure, by the way, given the fact that for the average American family
that have seen their net worth actually decrease.

Well, nearly half of all members of Congress are millionaires right
now, technically, at least. Just between 2004 and 2010, the average net
worth of members of Congress rose 15 percent. Well, according to "The New
York Times," the gap between members of Congress and the rest of the
population is growing, but what`s behind it? That`s the big question. And
what does it mean in terms of how our leaders represent us?

Ari Melber is an MSNBC contributor and a correspondent for "The
Nation" magazine. Chris Frates is a correspondent for "The National
Journal."

Chris, thank you, and, Ari, thank you.

I think it`s important to talk about. These aren`t guys and women
making money on the job. It`s not selling influence, apparently. What
we`re talking about is the development we have all seen. Wealthy people,
because they have capital and the ability to not have to show up for work
for years at a time, and incredible leverage with other rich people,
because rich people know rich people, that they can run for office with
impunity and they can take chances on losing. They can come back like Mark
Dayton, people like that, after year, until they finally win.

ARI MELBER, MSNBC CONTRIBUTOR: Yes, I think that`s exactly right,
Chris.

Politics is about what you have, what you need, and who you know, just
like you said. And so what we see with the explosion of the price of
campaigns is that you either have to have a lot going in, you can be a
self-funder, or you need a lot, which means that the people who may not be
billionaires, they may not be Mike Bloomberg, the people who have high net
worth and know a lot of people, their social graph is rich and it`s a lot
easier to raise this money, because, I`m sorry, we have talked a lot about
the grassroots, small donor revolution, but that doesn`t help you...

MATTHEWS: Well, it used to be guys like George McGovern, who was
teaching at the University of South Carolina, or Gale McGee out at Wyoming,
another professor -- the days when a professor, a good political science or
history professor, who didn`t even have a law degree, could actually become
a senator are over.

MELBER: I think that`s right.

And I think what you see is it`s basically you have to know a ton of
rich people at the start, which means it`s not just about getting a name or
going on TV or any of the things we think about as politicking. It`s
actually just having a very wealthy social graph.

MATTHEWS: Well, Chris, jump on these numbers. I will show them to
you first.

Look at these numbers "The Washington Post" reported today. Between
1984 and 2009, the median net worth for a member of Congress more than
doubled. Those numbers did not include, of course, home equity. For the
average American family in that same period, their net worth actually
declined.

So, we have a growing difference between the kinds of people who we`re
electing and the people who are doing the electing.

Your thoughts on the implications, Chris?

CHRIS FRATES, NATIONAL JOURNAL: Well, I think Ari`s certainly right
here, Chris, that there is this idea that you need more money and more
connections to run for office because of the price of the office. And
certainly, that could be a backlash for many members of Congress, you know,
the Occupy Wall Street guys, who are protesting the 1 percenters may not
understand that most of Congress is part of that group of 1 percenters.

But I also am reminded of a debate that I saw back in 2004 between
Ken Salazar and Pete Coors. You know, Pete Coors of Coors Beer.

MATTHEWS: Sure.

FRATES: Ken Salazar, now the interior secretary, it was the 2004
Senate race in Colorado. And it was a debate between these two guys. And
Salazar is trying to make this point that, you know, Pete Coors is not one
of us. He`s not a farmer from the San Louis Valley like he was, who
didn`t, you know, have lights in his house until 1979.

He says, you know, who here is rich? And hardly anybody in the
audience raises their hands. Pete Coors turns to the audience and says,
who here would like to be rich? And almost everybody raised their hands.

So I think when you look at the population, you look at the voters,
they`re not always going to be folks who are going to hold it against a
candidate because they are rich, because they are aspiring also to be rich.

You know, I put out the question, what does this mean for our
democracy to the folks on Twitter who follow me. And one person,
CJBarrett76 (ph) said, the Founding Fathers who were rich guys who put it
on the line to sign the Declaration of Independence. So, it`s not so much
whether or not they have worth, it`s whether they have integrity.

(CROSSTALK)

MATTHEWS: No, they had property requirement. But, by the way, if
you want to go back then, they had property requirements for voting in
those days. So they did have the wrong value system by today`s standards.

And my question here isn`t about, is there something wrong with rich
people getting elected, it`s what happens when they do? And what happens
when they get into office?

Back to you, Ari. It seems to me you have a problem there. I mean,
it does help to have people that are familiar with what it means to work on
an assembly line, what means to be a teacher, what it means to be anybody
that`s sort of regular and not just capitalists.

It used to be capitalists would support campaigns, now they say, why
not me run?

MELBER: Right, exactly. Well, Chris, you hit on the head. It`s
like anyone who`s been on the Hill knows that if someone has a personal
experience, they bring that to bear, right?

Someone has a position on gay rights, and it turns out, oh, you know
what, their kids` gay, right? They have a position about cancer research
and then there`s cancer in their family, an that affects them, right? And
that`s OK, because we draw on our personal experiences in life and
politicians are still human.

The problem is, though, if all of them are just working in that
millionaire circle and none of them know anyone on food stamps, where do
they draw from?

MATTHEWS: I know. I`m with you.

Chris, the problem is, do you remember Al Gore -- not to knock on Al
Gore, he`s been through enough. But when he ran for president back in
2004, he had to think of four or five people to describe their experiences
in life, because he didn`t have one.

I mean, remember he went to the convention to give that big speech
listing these four or five -- of course, they were all mixed, some
Hispanic, some African-American, some of this -- but it was like, I really
don`t know American life, so let me give you some examples. What is this?
It`s like -- I don`t know what it is, but it`s not representative of
democracy, is it?

FRATES: Well, certainly, this idea that candidates don`t relate,
it`s the supermarket checkout moment. And I think that is a problem for
candidates. But, you know, you throw it back to the big city machines. I
mean, did they really relate? I mean, was that better for democracy?

And when you look at the top 25 richest members of Congress, you
know, these aren`t necessarily your big power brokers. Certainly, Pelosi,
some of those folks were there.

(CROSSTALK)

MATTHEWS: Claiborne Pell, the elite Claiborne Pell borrowed some
galoshes from a young guy and brought it back to him and said, where`d you
get these from? He said, I got them from Thomas Kean. And he said, would
you thank Tom for me? He had no recognition of the human experience.

Anyway, thank you, Ari Melber.

And, Chris, you disagree, which is always good on this show.

Up next, we`ve all seen this photo. An African-American trying to
enter her high school in Little Rock, Arkansas, the one she`s supposed to
go to in 1957, after it was ordered to desegregate. Tonight, we`ll hear
the fascinating story behind that picture, those people, the white one and
the black one.

This is HARDBALL, only on MSNBC.

(COMMERCIAL BREAK)

MATTHEWS: Well, serious Democratic efforts to hold on to their
majority in the Senate next November, Democratic Senator Ben Nelson of
Nebraska announced today he`s quitting. He`s leaving at the end of his
term. That means Republicans expected to pick up control of the Cornhusker
State seat -- although popular former Senator Bob Kerrey has been talking
about possibly running again.

Well, Senate Republicans only need to pick up four seats right now to
get control of the Senate, and two of them look pretty easy to do right
now.

We`ll be right back.

(COMMERCIAL BREAK)

MATTHEWS: We`re back.

When Elizabeth Eckford was 15 years old, she showed up for the first
day of school in Little Rock, Arkansas, and quickly entered the history
books. She was African-American, one of nine black teenagers who were
attempting to desegregate the all-white Central High School back in 1957.

The governor ordered the state`s National Guard troops not to let
that happen.

What made Elizabeth`s story even more compelling was this iconic
photo that came to symbolize one of the darkest periods in American
history. In the photo, Elizabeth is followed and heckled by a crowd of
white people. Most dramatically by another teenager of the same age, a 15-
year-old Central High School student named Hazel Bryan.

There`s a lot going on in that photo. Very little of which is
obvious from the simple picture right there.

Journalist David Margolick spent years chronicling the lives of those
two young women in that photo. From that, led him to that moment and how
they got there, what came afterwards. The results will surprise you. He`s
written a big book here about the women called "Elizabeth and Hazel: Two
Women of Little Rock."

Well, this is great journalism. You went back and looked at these
two 15-year-old girls, one black and one white. One angry as hell, and
one, I guess, scared, right?

DAVID MARGOLICK, AUTHOR, "ELIZABETH AND HAZEL": Right. One
frightened for her life. One thinking she was about to be lynched.

MATTHEWS: And what doesn`t show -- let`s keep the picture up, if you
will, I want you to give us the inside narration.

Let`s start with the African-American girl, one of the desegregators,
trying to go to a school that she has a right to go to, but the military
has to protect her right to do it.

MACGOLICK: Well, in fact, what doesn`t show is that at the moment
this picture was taken, she`d already been turned away from the school
three times. She thought the military was there to protect her, and each
time she`d gone up to the line of soldiers, expecting to be allowed
through. And each time they rebuffed her and crossed their bayonets and
pushed her back into the street.

MATTHEWS: Governor Faubus had ordered them to do that?

MARGOLICK: Governor Faubus had ordered them to do that, and so, this
was a complete surprise to her. What also doesn`t show is the great fear
on her, the great fear that she`s feeling. I mean, she`s wearing these
sunglasses. She looks very stoic. She looks very brave.

But, of course, behind those sunglasses, her eyes portray great fear
and disappointment, and she`s just scared for her life at this point
really.

MATTHEWS: Because Jim Crow was enforced by lynching and all the
other kinds of things.

MARGOLICK: That`s right. It wasn`t that far back, there was a
lynching in Little Rock 30 years earlier.

MATTHEWS: Let`s talk about the white woman here, the white girl at
the time. What was her development after that period? What happened to
her? Did she continue to resist?

MARGOLICK: Well, what`s interesting about her is that, first of all,
she wasn`t a rabid segregationist. I mean, she was 15 years old. Her
political views were quite unformed.

She`d gone down there that morning to have a good time and to be with
her friends and to act out. And that`s sort of -- she wasn`t really
terribly political about it. And so, that`s the first sort of paradox
about the picture.

The second is that when you see a picture like that, you think
somebody who looked so hateful is absolutely irredeemable. And, in fact,
her life changed shortly after that. She got married. She had children.

And within three or four -- within five years of the moment that
picture was taken on her own, without any encouragement from anyone, she
called up Elizabeth and apologized.

MATTHEWS: Now, how did you find this out as reporter? I`m
fascinated by your reportage. How did you know this?

MARGOLICK: Well, I went down to Little Rock to do a Bill Clinton
story. And I saw a poster of the two of them together that had been taken
in 1997 seemingly looking like old friends, and I thought how do we get
from the black and white picture, that hateful picture, that picture that
epitomized race hatred in this country to this color picture of these two
grown women reconciled seemingly getting along, and I knew to get from
point A to point B would be a story.

MATTHEWS: What`s the larger question of the South? You know, I`ve
always heard the difference -- I grew up in the North, in a big city,
Philadelphia.

MARGOLICK: Right.

MATTHEWS: Northern and Southern racial prejudices were different.
One is about who was calling the shots. The other was about keeping your
distance from each other.

In the South, what`s it like today? Do these people know each other?
Is there any kind of social integration down there? Is it all --

MARGOLICK: Well, I think it`s very superficial.

MATTHEWS: Is it still boss and worker?

MARGOLICK: Well, I think it`s very superficial. There`s much more.
You walk -- you land at the airport in Little Rock and you look at the
county commissioners, and half of them are black. So, superficially,
things are much better.

But the races are still very much separate. Even at Central High
School, they are very separate.

And that story is in a way epitomized by the relationships of these
two people. After they reconciled, there was a certain schism that
developed and a distrust that developed between the two of them. And after
I met the two of them, within a few months of the time that I met them in
1999, they stopped talking to one another, and they have not talked to one
another for the last 10 years.

MATTHEWS: Yes. It`s fascinating when you write about it. I read
the part, because you`re Jewish and your background, that the white woman
was more skeptical of you because she thought you were on the side of civil
rights, as so many young Jewish people were.

MARGOLICK: Well, it`s an interesting point of naivety about Northern
whites. I just assumed that the white woman would feel more solidarity
with me.

MATTHEWS: Yes.

MARGOLICK: And the black woman, Elizabeth Eckford, would be the one
that I would have to win over, and it was just the opposite. And Hazel --

MATTHEWS: She thought you were a civil rights worker coming South?

MARGOLICK: Well, she thought I was a kindred spirit and knew I was
interested in history and that I wanted to tell the story accurately.

MATTHEWS: Great book. Look, I like this kind of journalism.

MARGOLICK: So do I.

MATTHEWS: Because it`s positive and it helps us understand ourselves
for better or worse and for better.

Thank you, David Margolick. The name of the book is "Elizabeth and
Hazel," about these two women.

When we return, "Let Me Finish" with why conservative Republican
voters in Iowa have a real problem picking a candidate this time, wait
until you catch the fights going on and what they`re standing for. They
can`t agree on this simultaneous equation they are trying to solve.

You`re watching HARDBALL, only on MSNBC.

(COMMERCIAL BREAK)

MATTHEWS: "Let Me Finish" tonight with this:

A week from today, actual Republicans, conservative Republicans,
speak. I`m talking about next Tuesday`s Iowa caucuses. We need to pay
attention because these voices will be the people competing in 2012 to
control any Republican who is chosen to seek the White House. They will be
the forces demanding he meet their concerns. They will be the stakeholders
in any Republican administration should it take office. They will be the
forces fighting over how to run it should that day come.

So, listen to the anti-government simplicity of Ron Paul. People who
vote for him next Tuesday want no government at the federal level -- no
health programs, no action on the environment, no economic help to people
in trouble. They are not just anti-war, anti-foreign adventurism,
something I like about them, they are anti-public action period. Think
about it.

Listen to the religious right. They go for -- that goes for Rick
Santorum next week. Think about the country these people want to live in,
a strict outlawing of abortion, perhaps with prison terms for those who
seek them. Don`t put it past them. A total end to rights for gays, a turn
back to the bad old days of repression.

Don`t kid yourself, these people don`t like modernity period. They
think America was a better place when abortion was illegal and gays were
neither seen nor heard, when they could pretend they didn`t exist.

Listen to the hawkishness that`s being appealed to by these
candidates in Iowa. Newt talks of moving the American embassy in Israel,
stirring up all the trouble one can imagine. Mitt attacks the dead leader
in North Korea again for no other reason to stir up trouble in Northern
Asia. The old days of "W" and "bring it on" bravado want back in the
saddle, the neo-cons are ready to move, to push, to incite, to gig up the
man they put up in the White House just like they did the last time.

You get it all with this bunch, the right wing attitude towards
government, public action of any kind, the right wing approach to social
issues. They can`t wait to start repacking the court to do who knows what.
They can`t wait to wheel out the right wing lingo of war, the spoiling
hair-triggering appetite for launching yet another incursion into the
Muslim or North Asian world.

What is it with these people? What is it? Pay close attention this
week. They are making their pleas now and the candidates are responding in
kind.

Look to Iowa. Watching the candidates feed the right wing factions
as all the keen busyness and strange merriment about it, the feeding time.
It`s Sea World.

And those feeding off what`s being offered in Des Moines and
Davenport and elsewhere will want a lot more if their side gets in.

And that`s HARDBALL for now. Thanks for being with us.

"POLITICS NATION" with Al Sharpton starts right now.


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