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updated 1/20/2012 12:11:02 PM ET 2012-01-20T17:11:02

Guest: Mark Halperin, John Heilemann, Jonathan Martin, Dana Milbank, Debbie Wasserman Schultz, Ron
Reagan, Jenny Sanford

CHRIS MATTHEWS, HOST: Romney concedes he lost Iowa, and he`s in big
trouble in South Carolina.

Let`s play HARDBALL.

Good evening. I`m Chris Matthews, tonight in Philadelphia. Leading
off tonight: The final 48 hours. What an incredible second to last day
before the South Carolina primary. Let`s run through the news. Rick Perry
dropped out today and endorsed Newt Gingrich. A recount in Iowa showed
that Rick Santorum got more votes than Mitt Romney. Newt`s second ex-wife
told ABC News that he asked for a so-called "open marriage" long after he`d
begun his affair with Callista. Newt unleashed an ad calling Mitt
"desperate" and "dishonest," and Newt is gaining and has even passed Mitt
in several polls in South Carolina. We`ll put it all together at the top
of the show.

Plus, has Mitt`s air of inevitability sudden gotten thin? Rick
Perry`s supporters are likely to go to Newt. Mitt`s years at Bain Capital
may hurt him more in the general election than in a GOP primary. And Mitt
can`t get out of his own way when it comes to talking about taxes and his
own personal wealth. Look at it this way. If Mitt didn`t win Iowa and
doesn`t win South Carolina, he`ll be now not 3 for 0, but 1 and 2.

Also, a new poll shows just how much trouble President Obama may have
with independent voters who aren`t sold on the Republicans, either. That
may explain why the president is up with his first ad of the campaign.

And we mentioned that Newt Gingrich`s second wife said he wanted an
open marriage. Well, Jenny Sanford, the ex-wife of former South Carolina
governor Mark Sanford joins us tonight live. She says she`s lived this
story, and it will count politically.

Finally, "Let Me Finish" with an unpleasant reminder that while Mitt
Romney may be headed for 1 for 3 in the political arena, that Newt Gingrich
is already in the clubhouse with his 1 for 3 in the marital arena.

We start with the dramatic final 48 hours. With me now are the co-
authors of "Game Change." Mark Halperin is "Time" magazine`s editor-at-
large. John Heilemann is national affairs editor for "New York" magazine
and both, of course, are MSNBC political analysts.

Gentlemen, let`s take a look at these new numbers. Newt Gingrich now
has a fighting chance to carry South Carolina. New numbers out today from
our NBC News Marist poll of South Carolina Republicans show Mitt Romney
with a 10-point lead ahead of Gingrich and the rest of the pack. But this
two-day poll taken Monday and Tuesday shows a rise for Gingrich following
his debate performance Monday night. Before the debate on Monday, Romney
lead Gingrich by 15 points, but after the debate on Tuesday, that lead
shrank to just 5 points, a 10-point net gain for Newt in just one day.

In addition to those results, four other polls considered to be
somewhat less reliable actually show Gingrich leading Romney already in
South Carolina.

Gentlemen -- let`s start with Mark. How do you read the situation
that`s beginning to move right now?

MARK HALPERIN, "TIME," MSNBC SENIOR POLITICAL ANALYST: This primary
is up for grabs. I think either Romney or Gingrich could win it. We`ve
always talked about Romney having a ceiling. Just a few weeks ago,
Gingrich was way up in this state. He`s whiplashed back and forth. We`ve
got a lot of moving parts. Remains to be seen. The debate tonight will be
a huge deal.

I think Romney has to figure out what he didn`t know in the last South
Carolina debate, which is the crowd matters in South Carolina. They don`t
sit on their hands. They don`t hold their applause. If Romney has as weak
a debate and Gingrich as strong a debate, given the Perry endorsement, I
think Gingrich has a very, very good chance to win this primary and shake
the race up.

MATTHEWS: Let`s talk about the psychology and the performance values
tonight, John Heilemann. Will -- I`ve had a hard time watching all these
debates, or most of them, to see any candidate put in a consistent streak
of performance, run a streak like in baseball.

Is Newt going to come out and do it again? I mean, this is the first
time if somebody actually does it again, does it well Monday, comes back
and does it well Thursday. Will he be intimidated out of being just as
tough?

JOHN HEILEMANN, "NEW YORK" MAGAZINE, MSNBC POLITICAL ANALYST: Well, I
don`t think he`ll be intimidated, Chris. There`s not a lot that
intimidates Newt Gingrich. I think that the greater risk for him is sort
of overreach. I mean, that debate for him on Myrtle Beach on Monday night
was as big a success as any Republican candidate`s had in any of the
debates so far. Gingrich was perfectly well suited to the mood of the
crowd. He played it like a Stradivarius. And Romney had his -- one of the
worst debates, if not his worst debate.

I think that there`s no question that Gingrich knows that he must, as
Mark said, have a big night again here, so the pressure`s really on him.
And I think as with a lot of athletes, when the pressure`s really on, a lot
of them sometimes, going for the big hit, going for the throwing the long
ball, they sometimes overreach and they sometimes make mistakes because
they -- because they actually try too hard and they feel a little bit --
their adrenaline`s pumping a little bit too high.

Now, that -- you know, that`s obviously totally speculative. The
pressure`s also going to be intensely on Romney because he knows that he
has to do better than he did last time. So both of these guys are really
going to get a chance to show, in the most high-stakes debate we`ve seen so
far, what they`re made of.

MATTHEWS: Well, here`s Rick Perry today really making news, dropping
out of the race today completely, and then endorsing Newt. Let`s watch
this big double-header.

(BEGIN VIDEO CLIP)

GOV. RICK PERRY (R-TX), FMR. PRESIDENTIAL CANDIDATE: I believe Newt
is a conservative visionary who can transform our country. We`ve had our
differences, which campaigns will inevitably have.

And Newt is not perfect. But who among us is? The fact is, there is
forgiveness for those who seek God. And I believe in the power of
redemption, for it is a central tenet of my Christian faith.

I have no question that Newt Gingrich has the heart of a conservative
reformer, the ability to rally and captivate the conservative movement, the
courage to tell those Washington interests to take a hike, if that`s what`s
in the best interest of our country.

(END VIDEO CLIP)

MATTHEWS: Well, Mark, he seemed more convincing there than he`s been
as a candidate for himself, in that endorsement.

HALPERIN: He`s a pretty good endorser. And it`s going to be
interesting to see -- he obviously didn`t have a lot of support here, but
does he turn his money people in Texas, can he turn them over to Gingrich
not just for the campaign but for the super-PAC?

Gingrich is rising. You know, we haven`t mentioned Santorum.
Santorum got that endorsement last weekend from the conservative Christian
leaders. They`ve done nothing to take advantage of that, almost nothing.
Gingrich gets the backing of Sarah Palin, the full endorsement of Rick
Perry. That, I think, is going to be more in the news here and more in the
mix than anything Santorum has done.

And it can galvanize what we`ve always said could happen, which is the
"anybody but Romney," the Romney alternative vote, could easily go now to
Gingrich in a way that could allow him to win this primary. I think Perry
was eloquent, and I think there`s a lot of -- a lot of message there that
the Gingrich people will pick up, if not from Gingrich himself, from other
surrogates.

MATTHEWS: Well, as you say, here`s Newt Gingrich now putting his
money where his mouth is in a campaign ad that goes after Romney with the
help of some of Mitt`s former rivals. Let`s watch.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: Why is Mitt Romney attacking Newt Gingrich? Ask
John McCain.

SEN. JOHN MCCAIN (R-AR), 2008 PRESIDENTIAL CANDIDATE: The best
indicator that I`m doing very well is when you`re attacked by Romney.

UNIDENTIFIED MALE: Mitt Romney has a history of false attacks and
negative campaigning. Ask Mike Huckabee.

MIKE HUCKABEE (R-AR), FMR. GOV., 2008 PRESIDENTIAL CANDIDATE: Mitt
Romney is running a very desperate, and frankly, a dishonest campaign.

UNIDENTIFIED MALE: Mitt Romney will do and say anything to become
president. Anything. Maybe that explains all his flip-flops.

MCCAIN: I don`t know how to respond to some of it because his
position may change tomorrow.

(END VIDEO CLIP)

MATTHEWS: Let me ask you, John, about this whole question of whether
this stops Romney one way or the other. You know, it`s hard to believe
that come Saturday night, when we report this thing coming out of South
Carolina, that a couple votes are going to decide who the nominee is. If
Romney`s in a tight fight come Saturday night, if he barely squeaks down in
South Carolina, will he still be in trouble, even if he technically wins?

HEILEMANN: I don`t think he`ll be in much trouble at all, Chris. And
I think if -- you know, the Iowa thing is a little bit of a setback for
him, the Santorum basically having been determined to have won Iowa. But
if Mitt Romney wins New Hampshire, which he`s already done, and then wins
South Carolina, even if he wins it close, he goes into Florida with
enormous advantages.

There`s almost no one I know in Republican politics who thinks that
Mitt Romney will lose Florida. Even if Gingrich wins South Carolina, it`s
going to be a very steep hill for Gingrich to climb. Romney`s got so much
money, he`s got so much organization in Florida, which is a big state with
a lot of media markets. You can`t do that on the cheap.

I think that Romney is well positioned to win Florida. So in that
case, winning New Hampshire, South Carolina and then Florida, he`s still
then on a glide path to the nomination.

I think if he loses here on Saturday, if Gingrich actually wins here
on Saturday, it not only sets up a fight, a dogfight in Florida, where
Gingrich might be -- might get a lot of money that suddenly floods in and
allows him to take the fight down there south, but also, it instills a lot
of doubt in the Republican establishment.

They look at Romney and say, OK, he`s 1 and 2. And also, in the
course of this last week, he has committed so many unforced errors on the
question of his money, on the question of his taxes, on the question of his
net worth, the Cayman Islands, all that stuff. And people are starting --
I think it`ll make people in the Republican Party start to wonder, Is this
really a guy that we want to have as our standard bearer going forward
who`s going to be this damaged? Can he really take the fight to Barack
Obama in the fall?

MATTHEWS: But Mark, I wonder if that will be the question no matter
how close it is, and even it comes out in Romney`s favor Saturday night
technically by a couple points, because isn`t the Republican Party a Tea
Party party now? Aren`t most Republicans pretty conservative? And don`t
most Republicans see Romney as basically, at heart, a moderate?

HALPERIN: Well, I love John Heilemann, a big fan of his work, but I
disagree with two of the things he just said. I think if Gingrich spins it
correctly, a close second can be enough to give him momentum, particularly
if it forces Santorum out of the race. And I think if he does win here, or
even spins a close second, if Santorum gets out, I think he could win
Florida, in part...

MATTHEWS: OK, let`s talk about...

(CROSSTALK)

MATTHEWS: Go ahead.

HALPERIN: In part because it is a Tea Party now. In part because
there is -- the reason Romney has something of a ceiling is because the
party has shifted in a way where the establishment doesn`t control
absolutely, the Tea Party matters. The Florida contest is going to be a
lot of conservative Republicans voting, and Gingrich is well known there.

And again, just a few weeks ago, Gingrich had an overwhelming lead in
Florida. So there`s a large number of people who, at least at one point in
the not too distant past, were willing to say they were for Newt Gingrich.
I think if he comes out of here with a head of steam, they could be for him
again.

MATTHEWS: Let`s take a look at this new development we haven`t talked
about yet. It brings up questions about -- for Gingrich tonight in the
debate and in the days ahead, an incredible interview with ABC News.
Gingrich`s second wife, Marianne, reveals that Newt told her, according to
her, that their marriage had -- before -- she said this before -- let`s her
speak for herself. Here`s Marianne Gingrich, the second wife, ex-wife of
Newt Gingrich.

(BEGIN VIDEO CLIP)

MARIANNE GINGRICH, EX-WIFE OF NEWT GINGRICH: You want me all to
yourself. Callista doesn`t care what I do.

BRIAN ROSS, ABC NEWS: What was he saying, do you think?

MARIANNE GINGRICH: He was asking to have an open marriage. And I
refused.

ROSS: He wanted an open marriage?

MARIANNE GINGRICH: Yes, that I accept the fact that he has somebody
else in his life.

ROSS: And you said?

MARIANNE GINGRICH: No. No. That is not a marriage.

(END VIDEO CLIP)

MATTHEWS: Well, Webster`s dictionary defines an open marriage as,
quote, "a marriage in which the partners agree to let each other have
sexual partners outside their marriage."

John, I just want to remind everybody of that old term that a lot of
people have forgotten, "open marriage," I guess from the `60s or whatever,
whenever that was talked about.

Here`s Newt Gingrich, according to his ex-wife, asking for such an
arrangement among -- among his wife and his whatever, mistress, Callista,
at the time. This is something -- is this going to matter to voters?
Should it, John Heilemann?

HEILEMANN: Well, there`s -- I mean, I suppose -- the cheap kind of
jokey thing to say would be that all -- that all of Newt Gingrich`s
marriages have been de facto open marriages in some way. But I think some
people will make that joke.

I think in terms of South Carolina voters, Newt Gingrich has been in a
battle with Rick Santorum for evangelical voters in South Carolina. What
the -- what some of the polling has showed is that Santorum, on the basis
of his very strong and very stable, very conventional family life, has
tended to appeal better to evangelical women, while Gingrich has had a
weakness with evangelical women. And Gingrich has done better among
evangelical men.

I -- I -- I think the question is, given that a lot of Gingrich`s
marital problems have already been factored in, there`s some number of
voters who are just not going to vote for him for that reason -- does this
new revelation or new accusation on the part of Marianne Gingrich -- does
that move any votes? Are there any people who were already were -- who
were considering voting for Gingrich who this will be the final straw?

I don`t know the answer to that question. It certainly doesn`t help
him with evangelical voters, doesn`t help him with evangelical women. But
is there -- does it really change that many minds? I`m a little dubious
about that.

MATTHEWS: I wouldn`t be surprised if a lot of voters, rightly or
wrongly, simply blame the media for this, for digging up the story. They
won`t blame anybody but the people who ask the questions. We`ll see. It`s
a strange world we live in.

Anyway, thank you, Mark Halperin, the best in the business, you guys,
and John Heilemann.

Coming up, a funny thing happened on the way to the coronation, if you
will. Mitt Romney`s having his worst week perhaps in his life, and this
nomination fight may not be ending anytime soon after this. That`s ahead.

You`re watching HARDBALL, only on MSNBC.

(COMMERCIAL BREAK)

MATTHEWS: Next Tuesday, President Obama, of course, delivers the
State of the Union address before a joint session of Congress. On
Wednesday, he kicks off a three-day tour that has all the hallmarks of his
first campaign swing of the year. Take a look at where the president`s
heading. He`ll start off in Cedar Rapids, Iowa, before going on to
Phoenix, Las Vegas, Denver and then Detroit, five states, four of which he
won in 2008. The only one he didn`t win the last time around is Arizona, a
state Democrats now hope is winnable.

We`ll be right back.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

RICK SANTORUM (R-PA), FMR. SEN., PRESIDENTIAL CANDIDATE: There have
been two primaries held now. We`ve won one and...

(CHEERS AND APPLAUSE)

SANTORUM: ... with a big win today in Iowa that`s finally been
certified. We feel very, very good about what this win will mean. It says
that we can win elections. We can organize. We can put together an effort
to pull our -- pull the resources together to be able to be successful at
being the person that can defeat Mitt Romney because guess what? We
defeated Mitt Romney in Iowa!

(CHEERS AND APPLAUSE)

(END VIDEO CLIP)

MATTHEWS: Welcome back to HARDBALL. Today the Iowa Republican Party
gave the Iowa caucuses to Rick Santorum, squashing Mitt Romney`s hopes
going 3 for 3 with a win in South Carolina this weekend.

Well, the party certified that Santorum finished ahead there by just
34 votes. But because votes from eight precincts are actually missing --
missing! -- NBC News will not declare an actual winner as it is impossible
to know the actual numerical results. Nevertheless, Romney called Santorum
today to congratulate him on his belated Iowa numbers.

How would these results in Iowa have changed Romney`s momentum and
Santorum`s if we`d gotten this information before? And how will the new
results change the race now?

Jonathan Martin is senior political reporter for Politico, and Dana
Milbank is political columnist for "The Washington Post."

Jonathan, let`s start with this whole thing the nomination momentum
that looked like it was going to be 3 for 3, overwhelming. This guy`s --
you know, as the Republicans like to say whose turn it is, it`s Romney`s
turn. He`s going to win. That`s the way it is. Now all this unsettling
news today, this, that Iowa went for Santorum, this, that Rick Perry`s out
of the race and that he`s endorsing and that Sarah Palin`s even endorsing
Newt Gingrich. How`s this change everything?

JONATHAN MARTIN, POLITICO.COM: Chris, to go from the specter of
Romney being 3 and 0 and locking this race up on Saturday to Romney
potentially being 1 and 2 after Saturday night is quite a jolt. And I
think this may be one of the most consequential days that we`ve had yet on
the campaign trail.

The Santorum news from Iowa was just one more piece of bad news, I
think, for Romney in a difficult last couple of days. I think the bigger
news here is the surge of Newt Gingrich here in South Carolina, moving into
if not a tie, something close to a tie with Romney here before Saturday`s
debate. If Gingrich has a -- I`m sorry, Saturday`s primary.

If Newt has a solid debate tonight and can answer these questions
about his former wife, I think he`s going to be in strong shape on
Saturday. And that could really make Florida a heck of a race down there
on January 31st, Chris.

MATTHEWS: You know -- you know, Dana, I think -- you and I know about
mood, and Jonathan does, too, the mood of the voters. We`ve been talking
about it on this show and other shows on MS for years now, the angry mood
of the voters, the sort of "Screw you" attitude that a lot of voters have
towards not just Obama but the government, this anger, this sense of
contempt for politicians.

Newt, despite the fact he`s an old-time politician from years ago, seems to
evoke that mood better than anybody right now. Is that why they`re -- you
saw it in the debate the other night. We will probably see it tonight,
that angry -- he almost looks like a voter.

DANA MILBANK, NATIONAL POLITICAL REPORTER, "THE WASHINGTON POST": And
more than that, it`s angry and it`s anti-Washington, which is the most
extraordinary irony.

MATTHEWS: Yes.

MILBANK: Here you have, Rick Perry getting out of the race, the guy
who wanted to destroy Washington. And he goes out and endorses the most
Washington guy inside the race.

I continue to believe that I have more faith in Republican voters than
this. And I think they ultimately will not give President Obama the gift
of running against Newt Gingrich. But you have to acknowledge that he`s
played this absolutely brilliantly so far.

MATTHEWS: But Romney doesn`t seem to have that anger about life and
about Democrats and about Obama, does he?

MILBANK: And why should he? Because he`s had this privileged
existence. Every day, you hear some other piece about Mitt Romney. He`s
like morphing into Gordon Gekko.

(CROSSTALK)

MATTHEWS: Jonathan, your feelings about this. I`m getting mood --
mood seems to be important to voters right now.

MARTIN: The Newt Gingrich that South Carolinians saw on that debate
stage, Chris, Monday night that brought them to their feet at one point
with his denunciation of Juan Williams, is -- I think you`re exactly right.

That`s the reason why Newt has his third moment here, really. It`s
remarkable. He`s sort of on his third life in this campaign and his second
life politically overall. Look, he`s captured the anger of a lot of
Republicans in this state towards President Obama, but towards Washington,
I think, overall.

And that`s why if you look at the Tea Party, Newt is doing much better
than what Romney is doing. And, further, if you look at income, by income,
Newt is doing better among those folks who are middle-income or working-
class than Mitt does among the rich. Newt has really tapped into this sort
of middle-class populist fury at Washington and at President Obama.

MATTHEWS: Well, outside his Washington -- actually his Charleston,
South Carolina, headquarters today, Romney took on a man in a crowd who
challenged him, challenged Romney about being part of that elite 1 percent.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: What will you do to support the 99 percent, seeing
as you are part of the 1 percent?

MITT ROMNEY (R), PRESIDENTIAL CANDIDATE: Let me tell you something.
America is a great nation because we`re a united nation. And those who try
and divide the nation, as you`re trying to do here and as our president is
doing, are hurting this country seriously.

The right course for America is not to divide America and try to
divide us between one and another. It`s to come together as a nation. If
you have got a better model, if you think China is better or Russia is
better or Cuba is better or North Korea is better, I`m glad to hear all
about it.

(CROSSTALK)

ROMNEY: America is right, and you`re wrong.

(END VIDEO CLIP)

MATTHEWS: So, if you don`t like his tax policy, you`re for Russia`s
tax policy.

(LAUGHTER)

MATTHEWS: Anyway, according to the nonpartisan Tax Policy Center,
Mitt Romney`s tax plan will help the rich more than the poor.

People will incomes $20,000 annually will have their taxes increased
60 percent. Although the base is low, it`s going up 60. The middle class
get an average tax cut of 2.2 percent. But those with annual incomes over
a million a year will see an average tax cut of 15 percent. The Romney tax
plan would also explode the federal budget deficit, adding $600 billion to
the deficit in just one year.

Put another way, in last summer`s debt ceiling agreement, Democrats
and Republicans agreed to cut the deficit by $1.2 trillion over 10 years.
Romney`s plan would add that amount to the deficit in just two years.

Jonathan, this angry screamer or whoever that he actually had to argue
back with today has a point that Romney wants to make an unfair tax system
more unfair, you could certainly argue.

MARTIN: Hey, I think if Romney is the nominee, that`s going to be the
centerpiece of Democrat attacks against him, that, personally, he exudes
what Dana just said was this sort of Gordon Gekko persona and that his
policies dovetail with his persona.

But I think it`s interesting, Chris, that Romney is trying to have a
moment. If you watch that confrontation with that voter, you can almost
see Romney trying to have his Reagan Mr. Green moment there.

MATTHEWS: Yes.

MARTIN: He`s trying to show toughness. He`s trying to show
conservative voters that he too is angry and that he too is going to tell
it like it is. The problem is he just doesn`t do it as naturally as Newt
does it.

MATTHEWS: Yes, let me go over to Dana on this, because that great
moment for Ronald Reagan was when he said he wanted all the candidates to
speak, not just him and Bush.

That was a somewhat populist move. This isn`t a populist move by
Romney. It`s, we`re rich, we`re going to get richer.

MILBANK: Right. The man has sort of, unfortunately for him, become
this sort of walking cliche.

The problem is, on the personal side, now we hear, OK, he has all this
money invested in the Cayman Islands and he comes up with this Clintonian
explanation is, I had the money there, but I didn`t inhale. I wasn`t using
it as a tax haven.

The problem is, he has all these things on the one side, the
extraordinary wealth, the 15 percent tax rate, the refusal to release his
own returns, coupled with the policy that would make people like him a
whole lot wealthier. He`s basically written the Democratic ads for
President Obama.

If he survives these primaries, as I think is still likely, he`s
almost mortally wounded from the things that have happened over the last...

(CROSSTALK)

MATTHEWS: Yes. Well, don`t count on anything, but we can count on
one thing. He wants to discuss tax policy -- you should know this, Dana --
in a quiet room.

(LAUGHTER)

MATTHEWS: Anyway, thank you, Jonathan Martin. Thank you, Dana
Milbank.

He`s got all this money. Let`s talk about it in a quiet room.

Up next: Bill Clinton is doing what he does best. He`s tweaking the
Republican front-runners, saying that Newt Gingrich and Mitt Romney have
more in common than you might think. He`s having fun. That`s ahead in the
"Sideshow."

You`re watching it, HARDBALL, only on MSNBC.

(COMMERCIAL BREAK)

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

First up: Clinton weighs in. In an interview with "Esquire"
magazine, Bill Clinton let loose on the battle between Newt Gingrich and
Mitt Romney. According to Clinton, the two have more in common that you
might think -- quote -- "With someone like Newt Gingrich," the president
said, "it`s a different kettle of fish, because as a private citizen, he
was for certain important health care reforms and believed in climate
change and believed there had to be a strong reaction to it. And now he`s
just like Romney. Neither one of them can say what they believe to be true
and get nominated. Romney is still trying to figure out what he did as
governor of Massachusetts and still appeal to this driving vituperative
energy out there."

Well, as I have said before, the Republicans are about to outsource
their presidential nomination to a candidate, perhaps Mitt Romney, who
pretends to speak their language.

Speaking of former presidents, Jimmy Carter and his wife, Rosalynn,
participated in a joint interview that aired last night. According to the
couple, their 65-year marriage has been mostly free of rough patches. But
there was one project that caused some turmoil. Let`s listen.

(BEGIN VIDEO CLIP)

JIMMY CARTER, FORMER PRESIDENT OF THE UNITED STATES: We tried to
write a book together.

ROSALYNN CARTER, FORMER FIRST LADY: That was...

(CROSSTALK)

J. CARTER: I would give her my chapter. She looked on it as a rough
draft.

When she would give me the chapter that she wrote, it would be like
God had given her this text on Mount Sinai and she had brought it down and
presented it to me in stone.

(LAUGHTER)

J. CARTER: And if I changed one word, it was generally painful for
her.

It`s the worst problem we have had since we have been married.

QUESTION: And you have never written a book again together?

J. CARTER: Never. Never will.

QUESTION: And never will.

(LAUGHTER)

(END VIDEO CLIP)

MATTHEWS: Well, somehow, I doubt that all those 65 years of decisions
were unanimous.

Anyway, up next, President Obama is up with his first ad of the 2012
campaign. And right away, he`s on defense. That`s head.

And tonight I will be joining Michael Smerconish in Collingswood, New
Jersey, up here Philly to talk about my new book on President John F.
Kennedy. We`re expecting a huge crowd, about 1,000 people, to hear about
our beloved American hero.

You`re watching HARDBALL, only on MSNBC.

(COMMERCIAL BREAK)

BRIAN SULLIVAN, CNBC CORRESPONDENT: I`m Brian Sullivan with your CNBC
"Market Wrap."

Another strong day for the markets, not a huge gain, but the Dow up
again, third day in a row, up 45, the S&P up 6, the Nasdaq 18 points
higher. There is a lot of economic data to run through, so I will boogie
down right now. On the jobs front, applications for first-time claims fell
by 50,000 to a near four-year low of 352,000. Inflation subdued. Consumer
prices were flat for a second straight month in December.

Today`s data did show that homes actually were a little bit of darker
picture. Housing starts dropped more than 4 percent last month. As far as
earnings, Google after the bell reported earnings falling well short of
expectations. That stock taking a big hit after hours. Microsoft also out
with its results after the bell, profits higher than some estimates thanks
to gains in business server and online services units. Shares are higher,
at least right now.

Intel also reporting an upside surprise this afternoon, eight cents
better than analysts were expecting, revenue also higher.

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

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: Tourism is the number-
one service that we export, number one. And that means jobs. More money
spent by more tourists more means businesses can hire more workers. It`s a
pretty simple formula.

(END VIDEO CLIP)

MATTHEWS: Welcome back to HARDBALL.

That was President Obama speaking this afternoon actually about
boosting tourism in the U.S. to create jobs. He was at Disney World, home
of the Magic Kingdom. It turned out he may need the goodwill, because, by
all indications, the 2012 race is shaping to be one of the most negative
ever.

This week, Obama came out swinging of course against his critics.
Today, his campaign debuted its first ads of the season, defending his
record on energy and ethics. He certainly has his work cut out for him. A
new CBS/"New York Times" poll shows independent voters are mostly unhappy
with the job he`s doing.

In five days, the president will give his last State of the Union
address before the election. What does he need to say? And what kind of a
campaign is he setting up?

U.S. Congresswoman Debbie Wasserman Schultz of Florida is the chair of
the Democratic National Committee.

Thank you for joining us.

REP. DEBBIE WASSERMAN SCHULTZ (D), FLORIDA: Thank you, Chris.

MATTHEWS: Congresswoman, I`m looking at these ads the president is
putting on the air. And I hate to sake it for his sake. They are
defensive. He`s defending himself against the huge spending by the Koch
brothers out there blasting him on Solyndra, that subsidy to that energy
company.

Is this going to be a defensive campaign?

WASSERMAN SCHULTZ: Well, on the contrary, Chris, I think what
President Obama is doing and what the campaign is doing is making it very
clear that there`s a dramatic contrast in the way President Obama has
handled his presidency.

In terms of ethics, he has made sure that we have the most stringent
ethics policy in the administration that there really ever has been. He
has established clearly that when it comes to money in politics, that we
want to make sure that the grassroots activists have an opportunity to
influence and participate in campaigns, as opposed to special interests and
lobbyists and federal PACs, which President Obama does not accept funding
from, contributions from.

And then when it comes to this economy and the kind of economy that we
want to have, we want one that`s going to promote green jobs. We want to
make sure that we tout President Obama`s record on promoting green jobs and
transitioning our economy when it comes to energy from one that`s dependent
on foreign oil as the primary source of our energy needs to alternative
energy sources that don`t rely on fossil fuels, which we know are finite.

President Obama has a remarkable record as president. And we`re
touting it.

MATTHEWS: Let`s take a look at the ad that touts it. Here`s the
president`s own ad defending and actually advertising his policies.

(BEGIN VIDEO CLIP, AD)

NARRATOR: Secretive oil billionaires attacking President Obama with
ads fact-checkers say are not tethered to the facts, while independent
watchdogs call this president`s record on ethics unprecedented.

In America`s clean energy 2.7 million jobs and expanding rapidly. For
the first time in 13 years, our dependence on foreign oil is below 50
percent. President Obama kept his promise to toughen ethics rules and
strengthen America`s energy economy.

(END VIDEO CLIP)

MATTHEWS: Congresswoman and Madam Chairman, this is a tough challenge
for your party and for your points of view on energy and ethics. Here, you
have the president putting $1.3 million into an ad campaign -- and that was
an example of it -- up against a $6 million campaign run by the Koch
brothers blasting him on this issue.

WASSERMAN SCHULTZ: Well, while the Republicans are engaged in their
circular firing squad and embracing extremism, and running as far as to the
right as humanly possible, President Obama and our team are in the process
of standing up the most dynamic, robust grassroots presidential campaign in
history.

And we`re also at the same time not going to take lying down false
accusations, mischaracterizations and distortions of the president`s
record. And as a Floridian, Chris, I can tell you, particularly as the
Florida primary on the Republican side approaches, I know that Florida`s
pristine environments that is so dependent on that $65 billion tourism
industry that President Obama helped boost today with his we can`t wait
announcement on tourism, that it can`t rely on the dependence that we have
on fossil fuels, on drilling for ever more oil.

We saw what happened with the BP oil spill off the coast of Florida,
devastating the Panhandle`s tourist-based economy. We can`t allow that to
happen again. And that`s what the entire Republican field would have us
do.

MATTHEWS: Well, here`s "Newsweek" columnist Andrew Sullivan writing a
strong defense of the Obama administration this week. He points to a
number of triumphs in the president`s first term.

Let`s take a look -- quote -- "A depression averted. The auto
industry bailout was successful, the Iraq war ended, bin Laden is dead, and
a pair of liberal appointments to the Supreme Court."

And the question I have to ask is: why doesn`t the White House use
these successes more? You know, you got Andrew Sullivan out there, an
erstwhile or sometime conservative. You know, you probably saw the big
cover piece in "Newsweek" this week. Boy, what a great case he made for
the historic efforts and successes of this president.

Is your party or is the president doing as good a job selling his
record as this independent voice did?

WASSERMAN SCHULTZ: You know, there`s always room for improvement. I
think we need to continue to make sure that people understand that there is
a dramatic contrast between the two directions that we could go after
November 6th. The direction that President Obama is taking us, including
the Affordable Care Act, which made sure that millions of Americans are
going to be able to remain on their parent`s insurance, 2.5 million young
people now are insured who weren`t before. Thanks for the Affordable Care
Act.

Seniors in my state and across the country have that donut hole, the
prescription drug wage gap in Medicare, closed and beginning to close so
that they can make sure that they don`t have to choose between medicine and
meals.

There are countless examples that we`ll be talking about --

MATTHEWS: OK.

SCHULTZ: -- as opposed to the direction the Republicans would take
us, which is to keep the wind at the backs of the people who are already
doing quite well.

MATTHEWS: Thank you so much, as always, U.S. Congresswoman Debbie
Wasserman Schultz, who`s chair of the Democratic National Committee.

WASSERMAN SCHULTZ: Thank you.

MATTHEWS: Let`s go to Ron Reagan, political commentator and author
of a great book, "My Father at 100."

Ron, it`s great to have you on.

RON REAGAN, POLITICAL COMMENTATOR: Nice to be here.

MATTHEWS: Again, I go back to the question -- it seems like the
independent voice out there, Andrew Sullivan, has done a "Rock`em Sock`em"
job of pointing out the historic advances of this president in a way that
even the White House lacks, if you will, haven`t been able to do.

REAGAN: Yes. It`s true. And they need to do a better job of that.
And as you ran down that list, I was struck that there were things for
people on the left and there were things for people, like getting bin
Laden, for people on the right. So, it`s a pretty broad list of
accomplishments there.

But back to that $6 million that the Koch brothers are about to drop
on Obama`s head, by accusing him of being a gangster style politician
who`s, you know, running a pay-to-play government. And let`s just forget
for the moment the irony of the Koch brothers being angry at somebody for
subsidizing energy, you know?

(LAUGHTER)

MATTHEWS: Yes.

REAGAN: The government has been subsidizing them for a long time.

But here`s my question to the Koch brothers. If this is true of
President Obama, if he`s running a pay-to-play government, why are you
spending all this money on ads? Why don`t you just pay him? Because
apparently he`d do whatever you ask him to do? But I guess it doesn`t
quite work that way.

MATTHEWS: It doesn`t work. And the concern I have, and this is as a
citizen, as well as somebody who cares about these policies, if you can
just drop millions and millions and millions of dollars in an anonymous ad,
basically like, you know -- and destroy somebody on one particular thing
that he may be completely innocent on, but you`ve picked it out, and
there`s no limit to how many you can saturate the country with these ads.

REAGAN: That`s right. We are in the post --

MATTHEWS: And you`re going to put the name of Mitt Romney on the ad.

REAGAN: That`s right. We`re in the post-Citizens United era here.
Millions and millions of dollars are going to be dumped on Obama and other
people as we`ve seen.

Obama has to respond to this. And I think he has to do it
proactively and not just be responding to negative ads.

MATTHEWS: How do you respond to people shooting at you from every
direction? That`s my concern, and like, you know, you defend yourself on
one front, and they hit another front. How much money can the president
raise is the question I got. Can he raise enough, do you believe, to
offset, to play defense?

REAGAN: Well, he raised an awful lot last time, didn`t he? I think
he`s doing pretty well in the money race. But he`s got to start running
his own ads. He`s got to start countering this stuff. Middle of the
country, that`s all people are going to see, are these Koch brothers` ads.

MATTHEWS: It`s a bitter war going on right now.

REAGAN: It`s going to get very, very ugly -- very ugly.

MATTHEWS: Thank you so much, as always, Ron Reagan.

REAGAN: Thanks.

MATTHEWS: Coming up, two days before South Carolina and the primary
Saturday, Jenny Sanford, the former first lady of that state is coming here
next. She has thoughts about how the interview went with Newt Gingrich`s
second wife and how it`s going to play politically in South Carolina.

This is HARDBALL, only on MSNBC.

(COMMERCIAL BREAK)

MATTHEWS: We`ve talked throughout this campaign about the two sides
of the Republican Party, what I like to call the eastern conference versus
the western conference. And with Perry`s exit today, there are four
candidates left.

So, here`s how the race boils down. Rick Santorum and Ron Paul are
both running out of the western conference. They`re the outsiders. Perry,
Bachmann and Herman Cain are all out. And out of the more
establishment/eastern conference, it`s Mitt Romney and Newt Gingrich are
the last man standing. Romney and Gingrich, Santorum and Paul, the final
four is set.

And we`ll be right back.

(COMMERCIAL BREAK)

MATTHEWS: We`re back. Two days to go before the South Carolina
primary. Today, Newt Gingrich`s second wife Marianne broke her 13-year
silence about their marriage revealing that Newt Gingrich asked her for
what she called an open marriage arrangement so that e could see other
women.

Joining me right now is someone who has lived through a similar
situation you might say and who has firsthand knowledge about South
Carolina politics. Jenny Sanford, the former first lady of the state, who
actually managed her former husband`s campaigns. She was also the author
of the book "Staying True."

Mrs. Sanford, thanks for joining us tonight.

And I guess I have to use you tonight as a political pundit, if you
will. How do you see that race going down there on Saturday?

JENNY SANFORD, AUTHOR, "STAYING TRUE": You know, I think it`s going
to come down to the wire, Chris. I think it`s kind of a crazy race
actually. There`s a lot of undecided people I talked to, and a lot of
accusations. You know, big changes even today in the race as we go down to
the wire.

So, I think it`s going to be -- I think it`s going to be a
fascinating race. I think Romney still has a solid footing here, if you
will. But Santorum is nipping at his heels. And Gingrich is definitely
nipping at his heels, especially with Perry`s endorsement.

MATTHEWS: Well, let`s take a look at something the other day. We
all know about it, you knew this is coming. Here`s Marianne Gingrich
talking to ABC about what happened with them, with her and her then-
husband. Let`s look at the tape and then I`ll get your response.

(BEGIN VIDEO CLIP)

MARIANNE GINGRICH, NEWT GINGRICH`S EX-WIFE: you want me all to
yourself. Callista doesn`t care what I do.

BRIAN ROSS, ABC NEWS: What was he saying, do you think?

GINGRICH: He was asking to have an open marriage and I refused.

ROSS: He wanted an open marriage?

GINGRICH: Yes, that I accept the fact that he has somebody else in
his life.

ROSS: And you said?

GINGRICH: No. No. That is not a marriage.

(END VIDEO CLIP)

MATTHEWS: What an unusual interview in any network. ABC did it. Do
you think it`s going to have an impact on the voters between now -- it`s
coming in so late. Do you think it`s going to have an impact on Saturday`s
voting?

SANFORD: You know, I think it will have an impact for some people.
I don`t know how much of an impact because people, for the most part,
already knew that Gingrich, you know, was on his third wife. But I think
that actually seeing one of his wives speaking about him in an unflattering
manner, it has got have an impact in some respect. It does call into
question his character certainly on the personal side.

And, you know, as a voter, I encourage people to look at both sides,
the personal side. And if you`re going to overcome somebody`s moral
failings or infidelities, you have to also look at where they stand
ideologically and how much does their rhetoric match their reality. In my
mind, Gingrich falls short on both fronts. So, he wouldn`t get my vote.

MATTHEWS: Who is left for you?

SANFORD: Well, I think there`s four people in the race. That leaves
three more. I`m still looking at down to the wire.

MATTHEWS: You haven`t decided?

SANFORD: I am going to watch the debate tonight very carefully. I`m
on my way there in a minute with my youngest son Blake and my second son
Landon, and I`m going to watch the race very carefully.

I think this race has been very long on rhetoric and sensation and
short on substance. And we have some good candidates running. I think all
of them could beat Obama easily. I think the debate in our country is
mostly surrounding the fiscal issues. And I`m looking forward to hearing
what they have to say tonight.

MATTHEWS: Why do you think people like Newt Gingrich bring up issues
like food stamps in these discussions? I haven`t heard that phrase in
years. And all of a sudden, it`s all over the place with Newt talking
about President Obama being the best food stamp president in the history
and how people are going to -- let`s take a look at this tape from a Newt
Gingrich event yesterday. And I want to get your thoughts on whether race
is a factor the way Gingrich is talking in South Carolina.

Let`s take a listen.

(BEGIN VIDEO CLIP)

UNIDENTIFIED FEMALE: I would like to thank you, Mr. Speaker, for put
Mr. Juan Williams in his place the other night.

(APPLAUSE)

UNIDENTIFIED FEMALE: His supposed question was totally ludicrous and
we support you.

NEWT GINGRICH (R), PRESIDENTIAL CANDIDATE: Thank you very much.

(END VIDEO CLIP)

MATTHEWS: Why do you think, Mrs. Sanford, to the voters of South
Carolina, at least those there, were cheering this comment by this woman,
this regular woman, that Juan Williams of FOX News should be put in his
place?

SANFORD: You know, I think that politicians can be known to pander
to certain audiences or segments on certain issues. But so can pundits.
And I think that the press likes to make issues sometimes about things
where there are no issues.

I mean, I for one live on the coast. My congressman is an African-
American named Tim Scott, a Republican of whom I`m very proud. And my
governor is an Indian-American woman named Nikki Haley of whom I`m also
very proud.

So those -- for both people that were elected by the electorate here
in South Carolina. So the notion that we have a racial electorate here in
South Carolina is absurd and nonsense and frankly just, you know, stirred
up by people in the press.

And I think that that`s -- you know, I think that people in general
are sick of politics as usual and part of that is they are sick of the
press stirring thing ups with an angle.

MATTHEWS: I don`t think --

SANFORD: I mean, I think that woman is right. People should be
cheering.

MATTHEWS: But I don`t know -- who in the press do you know has ever
brought up the issue of food stamps, ever brought up the issue of how -- as
Rick Perry said the other night, the debate on Monday, that South Carolina
is at war with the federal government as is Texas, bringing up these old
states` rights issues. The press doesn`t bring them up, the candidates do

SANFORD: Oh, I think the press brings up all sorts of things. I
mean, I think that this race in particular is one, as I said, that`s long
on rhetoric and short on substance. Long on the sensational, if you will.

So, you know, we have 24/7 news these days, where we have just a
proliferation of channels. Each one is seeking to find things that they
can sensationalize. So, I mean, if you look hard enough at all these
candidates, you can find all sorts of things to sensationalize.

MATTHEWS: OK. Let me ask you about Newt Gingrich, last word. Do
you think there`s any way in which his behavior in his marriage will be
reflected in his policies or his behavior if he`s elected as president?

SANFORD: I think anybody`s behavior in their personal life does have
to impact what they do in their professional life, because I think it comes
down to the simple question of character. And I think character matters.
It matters in your family. It matters in your business. It matters in
everything you do each day of your life.

So, you know, does that mean that we can`t overcome failings on one
side? Absolutely not. I think the American people are actually fairly
forgiving. But there has to be -- there has to be some notion, I think --
if there are serious failings on one side, there has to be some notion that
there`s a very, very strong stance on the other side for me to overcome
that.

MATTHEWS: Mrs. Sanford, please come back on this show when you want
to. Give us a word. We`d like to hear from you. Strong voice out of
South Carolina, Jenny Sanford, the former first lady of the Palmetto State
-- thanks for coming on tonight.

SANFORD: Yes.

MATTHEWS: When we return, "Let Me Finish," with Newt and Mitt.
Gingrich is one for three in his marriage department, or the marriage
department. And Romney may be headed for one for three in the political
arena.

You`re watching HARDBALL, only on MSNBC.

(COMMERCIAL BREAK)

MATTHEWS: "Let Me Finish" tonight with this:

A couple of things are happening in South Carolina. Both could be
headlines the chickens have come home to roost.

One is the house of cards on which Mitt Romney has built his
inevitability. The big lead he had in South Carolina and now, it was built
on the big victory he had in New Hampshire, which was itself built on the
foundation of his having won that victory in the Iowa caucuses the week
before.

Had he lost those caucuses, does anyone really think he`d have gotten
that big boost up in New Hampshire? Does anyone think he would have had
that big lead in South Carolina he once had? So, it turns out he didn`t
win in Iowa. Looks like Santorum got the most votes in a count that was so
messed up that there are whole precincts that never got reported, that are,
we`re told, lost permanently.

Well, suppose the chaos -- this chaos had been the headline the next
morning in Iowa instead of that headline being that Mitt Romney turned out
to be the winner. Again, do you think Mitt would have come rooting tooting
into New Hampshire?

So, here we are, the Thursday before the Saturday they vote in South
Carolina, the state that likes to pick the nominee, do you really think
they are ready to rally around Mitt?

But wait, those other chickens have come home to roost. Those ones
for Newt Gingrich. It turns while Mitt may end up one for three in the
political arena, we`re now getting a reminder that Newt is already into the
clubhouse with his marital score, which also happens to be one for thre.
And now, Mrs. Gingrich number two has a word or two to share.

Well, we`ll let her speak for herself. Newt to speak for himself.
Mitt to come up with John Sununu or Jim Talent or Susan Molinari to speak
for him.

And then, the voters of South Carolina will get to speak.

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

"POLITICS NATION" with Al Sharpton starts right now.

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