'Hardball with Chris Matthews' for Wednesday, August 14th, 2013

HARDBALL
August 14, 2013
Guests: Tim Miller, Bobby Ghosh, Neera Tanden, Tim Miller, Floyd Flake


MICHAEL SMERCONISH, GUEST HOST: Government shutdown. Republicans want to
party like it`s 1995.

Let`s play HARDBALL.

Good evening. I`m Michael Smerconish, in for Chris Matthews.

Leading off tonight: Shutdown fever. As the president aptly noted last
Friday, the Republican Party has devolved into a single-issue party. They
are united only by their hatred of "Obama care" and not much else. As
President Obama put it, it`s their holy grail.

That quest has fueled Tea Party leaders like Ted Cruz to threaten a
government shutdown if the law isn`t defunded, and they`ve hijacked the
party narrative. Government shutdown has become the rallying cry for
conservative across the country, especially in town halls, despite the fact
that scores of sensible Republicans are warning against the strategy. Some
have gone so far as to call it political suicide.

The doubters -- they now include Mitch McConnell, the Senate`s top
Republican, who`s speaking out against the viability of Cruz`s shutdown
strategy. McConnell has largely kept quiet on the issue due the to the
political dangers of taking an unpopular position among Kentucky Republican
primary voters. But at an event yesterday, he spelled it out plainly,
saying, quote, "I`m for stopping `Obama care` but shutting down the
government will not stop `Obama care.`" It`s a bold denunciation.

But here`s the problem for Republicans. Thanks to leaders like Ted Cruz,
the base has been stirred into a frenzy over a kamikaze mission to block a
law they`ve been programmed to hate. No matter how this now plays out,
it`s going to be ugly for the GOP, and it could even get worse for everyone
in the country if the far right continues to ratchet up the pressure to
force a shutdown.

We`re joined by two political strategists, Republican John Brabender and
Democrat Bob Shrum.

Let me begin with you, John. Should we take the threat seriously, or is
this being used simply for fund-raising purposes? Because I have got to
believe for someone like Ted Cruz, every time he talks about defunding the
government, there`s a spike in his donations.

JOHN BRABENDER, REPUBLICAN STRATEGIST: Well, I think you`re 100 percent
right. First of all, there are Republican who clearly just want to burn
everything down to stop it. If that`s what it takes, that`s what it takes.

But I really believe that you have to separate politics from policy in this
case. I do not believe there will be a shutdown. It`s too risky for the
2014 elections. But you`re right, you can send an e-mail fund-raiser. You
can get people to sign petitions. It`s great to get the base engaged, and
it keeps the issue alive. And I think it`s more about that than ultimately
shutting down the government.

SMERCONISH: OK, but what then is the end game? How do these individuals
who`ve been calling for the shutdown then extricate themselves from that at
the right moment?

BRABENDER: Well, there`s a couple potential end games. One is to change
everything in the 2014 and 2016 elections. And a lot of Republicans
believe 2014 will be particularly good. The second thing is, the House
Republicans are also looking at the possibility of doing some type of
compromise relative to when the debt -- raising of the debt ceiling comes
up, that we can then maybe do something about defunding parts of "Obama
care," the most offensive parts. So there are sort of some negotiation
tools (INAUDIBLE)

And the one thing that we Republicans don`t do enough is give an
alternative. We need to start telling the people of America what our
health care alternative is, and we`ve yet to do that.

SMERCONISH: Bob Shrum, there`s no accountability, as we`ve been saying
about other issues, because of hyperpartisan districts. In other words, if
I`m a GOP member of the House and I rail against "Obama care" and I say,
Let`s defund the government, et cetera, et cetera, and maybe public surveys
across the country say that individual is out of step, chances are, they`re
not out of step in their own district.

BOB SHRUM, DEMOCRATIC STRATEGIST: Oh, I think that`s true. And one of the
problems the Republican Party has now is that it rode the Tea Party to
power in the House in 2010, and it`s now stuck with all those people.

I think John is largely right about what sensible Republicans want to do.
I`m not sure he`s right about the ways out. But you have a whole group of
folks who might just take this over the cliff.

If Boehner holds to the rule that he has to have a majority of the majority
before he`ll bring anything to the floor, you might just have a government
shutdown. And sensible people, I mean, in the Republican Party like John
Brabender, Karl Rove, whole set of other people, think this is a train
wreck for the GOP.

SMERCONISH: Well --

SHRUM: I think it would be. I think it would be the one thing that could
really help Democrats in 2014.

SMERCONISH: Well, the conservative Heritage Action -- that`s an offshoot
of Jim DeMint`s Heritage Foundation -- is trying to rally Republicans
around the idea that a government shutdown won`t hurt the Republican Party.
And so the group released a new poll that surveyed likely voters in 10
swing districts, and here are their findings.

They find that only 28 percent would blame the Republican Party for a
shutdown, and the rest would spread the blame to Democrats, to Obama, or to
all parties. And their conclusion is this: A shutdown will not cost
Republicans the House of Representatives.

John Brabender, will that give cover sufficient to cause GOP House members
to say, Hey, let`s really do this?

BRABENDER: You know, I saw similar surveys in the 1990s when we did
basically shut down the government, and then actually, after it happened,
the numbers changed dramatically. I don`t think that`s the case.

I do think, however, that we want "Obama care" to be front and center.
It`s a great issue to run on in 2014. I think this is a good political
ploy, but I don`t think it`s a good policy ploy.

SMERCONISH: Well, Republicans who weren`t around for the last government
shutdown might want to listen to Newt Gingrich. He saw firsthand the
backlash when Republicans shut down the government in 1995 and tried to
take down President Bill Clinton. We know how that ended. Clinton won the
battle for public opinion. Gingrich ultimately lost his speakership.

Gingrich addressed a crowd of Republicans in Boston today, and here was his
warning to them about "Obama care."

(BEGIN VIDEO CLIP)

NEWT GINGRICH (R), FMR. HOUSE SPEAKER, FMR. PRESIDENTIAL CANDIDATE: I will
bet you, for most of you, if you go home in the next two weeks while your
members of Congress are at home and you look them in the eye and say, What
is your positive replacement for "Obama care," they will have zero answer
because we are caught up right now in a culture -- and you see it every
single day -- where as long as we`re negative and as long as we`re vicious
and as long as we can tear down our opponent, we don`t have to learn
anything. And so we don`t.

(END VIDEO CLIP)

SMERCONISH: Bob, I think he hit the nail on the head. I mean, they`re
against, against, but not necessarily for. Great for the base, red meat
for the troops. Use your own analogy. But it`s not going to help win
independents.

SHRUM: Well, look, this is a red letter day for me. I`m going to agree
with Newt Gingrich. I just agreed with John Brabender.

SMERCONISH: John Brabender, right!

SHRUM: Look, Brabender said it, that the Republican Party has to put
positive alternatives out there. Their problem in terms of health care,
for example, is you can`t come up with a health care plan that guarantees
coverage even if you have preexisting conditions without an individual
mandate. It won`t work because people will just wait until they get sick
and then go buy insurance.

There`s a whole Republican task force now trying to come up with this
alternative. And I understand why Republicans are desperate and frustrated
about this. If "Obama care" goes into effect, if people find out there are
no death panels, there`s no rationing, tens of millions of Americans will
get health care, and by the time we get to the 2016 election, they will
have had it for two-and-a-half years. It`ll be tough for Republicans to
oppose it then.

And if it goes into effect and it works, by 2020, you`ll have Republicans
saying, Listen, I promise you, "Obama care" is safe in our hands.

SMERCONISH: John Brabender, how do you put forth a plan that doesn`t
cherry pick from the more popular aspects of "Obama care"?

BRABENDER: Well, first of all, let me agree with Bob, while we`re having
this harmony here.

SMERCONISH: This is getting crazy!

(LAUGHTER)

BRABENDER: And that is, I do think that the Democrat goal on this is to
get people addicted to big government because once they are --

SHRUM: Oh, I didn`t say that, John.

BRABENDER: -- maybe it`s harder to take them off of that.

(LAUGHTER)

BRABENDER: Well, I`m paraphrasing for you, Bob.

SHRUM: I`d call that a distortion.

BRABENDER: Yes. We`re in that business. No, I`m just kidding.

But the truth of the matter is, we do have to cherry pick. People have to
have a comfort level on things like portability that we support that
universally, that there are parts of this bill that we want to keep and
that we`re not just going to blow the thing up.

But the other thing you got to remember is the Republican Party is not this
homogeneous group anymore. It`s broken into three groups, the
establishment, the core conservatives and then the libertarians. And the
problem is, we can`t get all three of them to agree on anything right now.

SMERCONISH: I think the intangible remains to be seen how the president is
going to campaign for "Obama care" come the fall. We saw in the last
couple of days, I think he was his most articulate when defending that
plan.

Bob Shrum, what do you expect for him when he comes back from Martha`s
Vineyard?

SHRUM: Well, I think he`s going to try to work this out so that we don`t
have a shutdown and we don`t crash the full faith and credit of the United
States by playing games, political games with the debt limit.

But I think your larger point is absolutely correct. He`s going to go out
and he`s going to talk about "Obama care." I know the White House believes
it`s an asset. I know John believes it`s a liability. Well, we`re going
to find out because we`re going to hash this out in the next few months,
into the next year, into 2016.

And I think -- I don`t call it dependence on big government. I think when
people finally have health care as a matter of right and not a privilege,
when you aren`t in a situation where you could die or you can`t get an
illness treated because you don`t have the money, I think that`s going to
become very popular, and I think Obama is going to win that fight.

SMERCONISH: Gentlemen, it`s pretty clear that President Obama thinks that
a Republican government shutdown would be bad politics for the GOP. Here`s
what he said last Friday.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: I think the really
interesting question is why it is that my friends in the other party have
made the idea of preventing these people from getting health care their
holy grail, their number one priority. The idea that you would shut down
the government unless you prevent 30 million people from getting health
care is a bad idea.

(END VIDEO CLIP)

SMERCONISH: John Brabender, it was a great sound bite, I think, an
effective sound bite. Interestingly, you don`t often hear it from members
of his own party. And what I`m saying is that Democratic leaders in the
House, as well as in the Senate, have not picked up the mantle to be
supportive, at least from my perspective.

BRABENDER: No. They`re scared of it politically. We all know that`s why
the Democrats actually have delayed this longer, because they`re scared of
how it could, you know, affect the 2014 elections. We can`t even get them
to agree yet -- some do -- that people are going to see rates go up, that
it`s going to hurt jobs. And frankly, the only thing I think the president
is bringing back from Martha`s Vineyard is a lower handicap than he went
with.

SMERCONISH: You know, to the point that was made by Bob Shrum, you can`t
cherry pick those elements unless you can fund them. And that was the
whole purpose of the way in which this deal was structured, meaning the
ACA.

BRABENDER: What`s the question? I mean --

SMERCONISH: Well, the question is how can the Republicans put forward a
plan that cherry picks, by way of example, and says, You`re not going to be
excluded for pre-existing conditions, unless there`s a funding source to do
that, and the funding source is to say, Well, everybody`s got to have
health insurance?

BRABENDER: Except that the funding source also, which this president uses
more than anybody, is the efficiencies of the systems. This president
seems to think that there`s more efficiency is (ph) there, but there is
certainly some that if you build into that, that people should be able to
get more for their dollars, not where they just have to pay two and three
times what they`re paying today.

SMERCONISH: Bob Shrum, get the final word in, and then we`ve got to break.

SHRUM: Well, by the way, rates are falling in most of the states where the
rates have come out, number one. Number two, the reason you need the
individual mandate is because, as I said and John didn`t reply to this,
otherwise people wait until they`re sick, then they go buy health
insurance. That system won`t work. It would actually bankrupt insurance
companies.

SMERCONISH: Thank you, John Brabender. Thank you, Bob Shrum.

SHRUM: You`re welcome.

SMERCONISH: We appreciate you both.

BRABENDER: Thank you.

SMERCONISH: Coming up: Bloodbath in Egypt. Hundreds are dead and far more
wounded on a terribly violent day throughout the country. As one analyst
said today about the Arab spring, the experiment failed and the lab
exploded.

Also, Hillary, Hillary, Hillary. You might have thought that the Virginia
governor`s race was all about who would govern Virginia, but you`d be
wrong. It turns out the Virginia GOP says it`s using the race to test
drive anti-Hillary attacks for 2014.

Plus, you may have heard the embarrassing story that San Diego mayor Bob
Filner has been banned from the city`s Hooter`s restaurants because he`s
been disrespectful to women. But what may surprise you is who`s behind the
move.

And "Let Me Finish" tonight with why bigger isn`t always better.

This is HARDBALL, the place for politics.

(COMMERCIAL BREAK)

SMERCONISH: The former U.S. congressman Jesse Jackson, Jr., was sentenced
today to two-and-a-half years in prison for illegally spending $750,000 in
campaign funds on himself and his family. Jackson said that today, he,
quote, "manned up and tried to accept responsibility."

His father, Civil Rights leader the Reverend Jesse Jackson, had this to
say.

(BEGIN VIDEO CLIP)

REV. JESSE JACKSON, RAINBOW/PUSH COALITION: This has been a very painful
journey for our family. And I`ve had to raise many questions to myself
about, did I confuse success with sickness? Jesse`s been driven to succeed
--

(END VIDEO CLIP)

SMERCONISH: Jackson`s wife, Sandy, was also sentenced to a year in prison
for filing false tax returns. The judge in the case allowed the Jacksons
to stagger their sentences, so he`ll serve first. This way, one of them
can be home to take care of their children.

We`ll be right back.

(COMMERCIAL BREAK)

SMERCONISH: Welcome back to HARDBALL.

Cairo descends into what NBC reports characterize as a chaotic bloodbath as
security forces moved in to take down protest camps that had been erected
by supporters of ousted president Mohamed Morsy. Hundreds of people have
been killed nationwide. Thousands more are injured.

NBC`s chief foreign correspondent, Richard Engel, was in the midst of the
chaos this morning.

(BEGIN VIDEOTAPE)

RICHARD ENGEL, NBC CORRESPONDENT: Security forces here are clearly using
live ammunition! They are firing into the side streets. There are
frontline positions between protesters, security forces, all over Cairo.
And this one looks like it is about to get very ugly!

(END VIDEOTAPE)

SMERCONISH: Egypt has declared a month-long state of emergency. The U.S.
embassy in Cairo has closed. And earlier today, Vice President Muhammad
ElBaradei, a pro-reform leader in the interim government, resigned to
protest the violence.

Joining me now from Cairo, NBC News foreign correspondent Ayman Mohyeldin.
Ayman, what`s the very latest from Cairo?

AYMAN MOHYELDIN, NBC CORRESPONDENT: Well, a government-imposed curfew has
gone into effect this evening effectively prohibiting anyone from going out
into the streets. They have warned anyone caught out on the streets after
this curfew has gone into effect will be imprisoned.

Now, this in addition to emergency law that was declared a few hours ago
effectively putting the country under emergency law, and that would
probably limit civil process or due process for civilians that are arrested
over the course of the next several days. This is expected to last for a
month.

Meanwhile, the Ministry of Interior says 43 people, members of its security
forces, were killed. The Ministry of Health says the number of those
killed that are civilians stands at 240 or more. And you can expect that
number to rise in the coming hours as more and more bodies are recovered
from some of these flashpoints where clashes happened between members of
the police forces and supporters of the ousted president.

The Muslim Brotherhood is describing today`s event as a massacre. They`ve
put the number of those killed in today`s clashes well above 300. So it is
going to be a very critical 24-hour period to see what happens with the
interim government, and more importantly, what happens with the security
forces as they try to restore law and order in various parts of the
country.

This is not just happening in Cairo, it is happening across the country in
several cities. And more importantly, supporters of the ousted president
are not deterred by the emergency or the curfew. In fact, they are
insisting on continuing their marches and protests well throughout the
course of the next several days.

SMERCONISH: Ayman, what sort of challenges are posed for journalists? I
ask because I know there`s been some violence toward journalists. And we
showed some pretty harrowing footage of our own Richard Engel caught in a
difficult position. Does it make it difficult for you to get accurate
information?

MOHYELDIN: It is. It is extremely difficult both for us to get
information from government sources and also from the opposition. Now,
keep in mind we`re talking about the death toll on one hand, very
conflicting numbers. People are using the media. People are -- state
media, as well. People have been using international journalists to try
and get their message across. So it is extremely unreliable.

And on top of all of that misinformation that is coming up from both sides,
you have a very volatile security situation, as we saw with our own NBC
crew earlier in the day.

There`s also been reports of at least two journalists that have been
killed, a cameraman with Sky News and an Egyptian journalist, print
reporter, a female print reporter who was working for a newspaper out of
the United Arab Emirates. Both of them were killed today, as well. Their
circumstances still unclear as to who was firing and in what direction.

But there`s no doubt there is live ammunition being used by both sides, and
that is making it extremely volatile, extremely dangerous for the
journalists and other workers who are out there trying to document what is
happening, including those from civil society here in Egypt.

SMERCONISH: Thank you, Ayman Mohyeldin. Stay safe.

Earlier today, a White House spokesman condemned the use of violence
against protesters.

And, this afternoon, Secretary of State John Kerry expressed concern about
the violence in Egypt.

(BEGIN VIDEO CLIP)

JOHN KERRY, U.S. SECRETARY OF STATE: The world is closely watching Egypt.
It is deeply concerned about the events that we have witnessed today. The
United States remains at the ready to work with all of the parties and with
our partners and with others around the world in order to help achieve a
peaceful, democratic way forward.

(END VIDEO CLIP)

SMERCONISH: Joining me now is Bobby Ghosh, international editor for "TIME"
magazine, who interviewed then Egyptian President Morsi for a November
cover story with the cover line "The Most Important Man in the Middle
East."

Bobby, you heard Ayman reference the ripple effects in Egypt beyond Cairo.
What I was wondering and wanted to ask you is, what`s the potential for
ripple effects beyond Egypt?

BOBBY GHOSH, DEPUTY INTERNATIONAL EDITOR, "TIME": Well, I think the
potential is quite small. It`s quite contained.

There are other Arab state -- other spring countries, like Tunisia, like
Libya, like Yemen, where you have a similar clash between the old
establishment, the old liberal establishment and the new Islamist political
-- the rising political force. But we`re not seeing the clash there reach
the proportions that we have seen in Egypt.

There`s always concern about Israel`s safety, particularly in this country.
But Israel has demonstrated over and over again that it is perfectly
capable of looking out for its own interests. There`s a lot of -- there`s
some terrorist activity that`s taking place in the Sinai Peninsula, and
that`s something to be watched very closely.

But I don`t see this as having significant ripple effects across the
region.

SMERCONISH: As I watch the footage of the violence, I ask myself, are we,
the United States, on the side of democracy?

GHOSH: I don`t think we`re on anybody`s side here.

I think we`re equally disdained by all sides, which is a terrible position
for the United States to be, considering how much time, energy, political
capital, and real money we have spent in that country.

But that`s where we find ourselves. I mean, you heard Secretary of State
John Kerry today. A couple of days ago, the same and John Kerry was saying
that the Egyptian military -- basically, that the coup was the military`s
way of restoring democracy to Egypt, which is, frankly, preposterous.

(CROSSTALK)

SMERCONISH: But, of course, he didn`t use that C-word.

GHOSH: He did not and he refuses to do so.

And these images that come out showing clearly that it smells like a coup,
it --

(CROSSTALK)

SMERCONISH: Right.

GHOSH: -- like a coup, it looks like a coup, but for some reason we
can`t say it, that -- that hurts America`s credibility even more.

SMERCONISH: Well, isn`t it fair to say that this is that which we are
funding? And it raises the question whether we should continue to do so.

GHOSH: Well, it`s certainly -- the latter is certainly true, though. We
should be asking questions why we keep putting good money after bad.

Whether we are funding this is a slightly different question -- $1.5
billion might seem like a lot of money, but it really isn`t in modern day
in the Middle East. The Saudis, the Kuwaitis, the United Arab Emirates,
they`re giving the Egyptians far, far more money than we are.

What we`re sending them is a small token, and we really should be asking
ourselves whether we should -- we are still doing that.

SMERCONISH: I think the name Mohamed ElBaradei is known to Americans.

GHOSH: Yes.

SMERCONISH: Of what significance was his resignation today?

GHOSH: It`s of some significance, but not a huge one.

He sort of compromised his credibility as a neutral party or as an honest
broker when he blessed the coup and participated in the interim military-
run government. But, of course, his leaving that government today -- he
resigned -- does affect the credibility of that government to some degree.

But I think you will see that the military is -- the Egyptian military is
very good at this. They`re very good at finding typically older men
wearing Western suits, putting them in front of cameras, and saying, this
is the new guy, this is the civilian. We`re -- we`re just soldiers doing
our job in the battle.

SMERCONISH: Quick final question, if I might.

Your "TIME" cover story identified Morsi as the most important man in the
Middle East. If you were writing that cover story today, who would be that
individual?

GHOSH: Well, the Middle East is now a much more fractured place. He was
the most important man because he represented an experiment, an experiment
in post-Arab spring democracy.

It wasn`t about Morsi so much as what he represented. That experiment has
failed. And so he is -- he is clearly now out of the picture. We haven`t
seen him in weeks and weeks. General Sisi is clearly the most important
man in Egypt at the moment.

SMERCONISH: Thank you, Bobby Ghosh. Privilege to have you.

(CROSSTALK)

SMERCONISH: And a reminder: You can follow me on Twitter, so long as you
can spell Smerconish.

This is HARDBALL, the place for politics.

(COMMERCIAL BREAK)

SMERCONISH: Back to HARDBALL. Time for the "Sideshow."

You may have heard that besieged San Diego Mayor Bob Filner has been banned
from Hooters. The restaurant chain has posted a no-service sign outside
four locations in the San Diego area. But did you know where that sign
came from? Radio and TV personality Glenn Beck. It`s a PDF downloadable
straight from Beck`s Web site.

Hooters has stated, however, that their decision to use the sign wasn`t
political.

Next up, it`s better late than never. President Obama is set to honor the
Miami Dolphins at the White House next week for their Super Bowl victories
back in the `72 and `73 season. He`s rectifying an historic snub that took
place decades ago under then President Nixon, who was reportedly too
embroiled in the Watergate scandal to extend the traditional invite to the
winning team.

Well, as it turns out, Nixon was also rooting for the other side, the
Washington Redskins, who lost to the Dolphins in Super Bowl VII. The rest
of the Beltway crowd either supported the Redskins or they waffled on the
issue, something politicians are prone to do.

Just take a look at this coverage from the day before that big game in
January of 1973. There wasn`t a single Dolphins fan.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: Among those 75 million spectators will be one president
of the United States and many members of Congress and other Washington
figures. We asked them to talk about the Super Bowl and here`s what they
said.

QUESTION: Who`s going to win the big game, Senator?

UNIDENTIFIED MALE: It`s a tossup.

UNIDENTIFIED MALE: I`m a Redskin fan.

UNIDENTIFIED MALE: Well, the Redskins.

QUESTION: What`s your prediction, Senator?

UNIDENTIFIED MALE: On what?

UNIDENTIFIED MALE: Going to be a great game, great game.

UNIDENTIFIED MALE: I don`t like to jinx the Redskins, but I think the
Redskins are going to win.

UNIDENTIFIED MALE: Well, I`m for the over the hill gang.

UNIDENTIFIED MALE: The Redskins are going to win the big game. I have got
it figured out.

UNIDENTIFIED MALE: The better team will win.

QUESTION: Which is going to be the better team?

UNIDENTIFIED MALE: The one who gets the most points.

UNIDENTIFIED MALE: The Redskins, of course.

UNIDENTIFIED MALE: The Redskins.

QUESTION: Why?

UNIDENTIFIED MALE: Because they have more crash-worthy equipment.

UNIDENTIFIED MALE: The Redskins. Washington had the good judgment to vote
for the right candidate on November 7.

QUESTION: Who are you really for?

UNIDENTIFIED MALE: The Vikings.

(LAUGHTER)

(END VIDEO CLIP)

SMERCONISH: Some familiar faces there.

I guess it took 40 years for the 17-0 Dolphins, the only NFL team with a
perfect season, to find at least one friend in Washington.

And, finally, can Michelle Obama add hip-hop star to her resume? Well,
sort of. The first lady`s Let`s Move campaign is set to release a hip-hop
album called "Songs for a Healthier America," which is aimed at schoolkids
from across the country. It features song titles like "You Are What You
Eat" and "Veggie Love."

And while Michelle Obama doesn`t sing herself, she does appear in some of
the music videos, including this one just released today.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: Right now, what we want to do is, we want to get
everybody together all over the world, as we get this thing starred
something like this. Come on.

MICHELLE OBAMA, FIRST LADY: It`s hard to believe that almost exactly one
year ago, we launched a nationwide campaign called Let`s Move to help solve
the problem of childhood obesity in this country.

Back when we first decided to take on the issue of childhood obesity, a lot
of people wondered, could we actually make a difference?

(MUSIC)

(END VIDEO CLIP)

SMERCONISH: Up next: Turns out the Virginia governor`s race is all about
Hillary Clinton.

You`re watching HARDBALL, the place for politics.

(COMMERCIAL BREAK)

AMANDA DRURY, CNBC CORRESPONDENT: I`m Amanda Drury with your CNBC "Market
Wrap."

Well, stocks slumping overall on that now familiar Fed uncertainty, amongst
other reasons. Well, the Dow Jones industrials sliding 113 points, the S&P
500 falling by eight, and the Nasdaq giving up 15.

Apple, though, one of the few standouts today after mega-investor Carl
Icahn took a large stake in the company. Macy`s, however, came up short on
quarterly earnings and also weak guidance. And after the bell, network
giant Cisco announced it is laying off 4,000 employees. Cisco stock is
taking a beating in after-hours trade.

That is it from CNBC for now. We are first in business worldwide -- now
it`s back over to HARDBALL.

(BEGIN VIDEO CLIP)

TERRY MCAULIFFE (D), VIRGINIA GUBERNATORIAL CANDIDATE: Hillary Clinton in
the general election can beat John McCain. She beats him in Florida. She
beats him in Ohio. She beats him in Missouri. This is about winning the
election on November 4 and helping the down-ballot races. She has won
those 28 congressional districts that are key to us winning to keep the
House of Representatives.

Nothing is impossible. Tomorrow, something new could happen. Nothing`s
impossible. You are talking to Terry McAuliffe. I don`t believe anything
in life is impossible.

(END VIDEO CLIP)

SMERCONISH: Welcome back to HARDBALL.

You may have thought that the hot governor`s race in Virginia was about
Democrat Terry McAuliffe vs. Republican Ken Cuccinelli. But it turns out
it`s actually about Hillary Clinton. And that`s because Republicans are
using the Virginia race to test-drive attacks against Hillary ahead of her
potential run for president in 2016.

America Rising, a super PAC made up of several embittered former Romney
aides, is the same group that created the Web site StopHillary2016.org.
They told HARDBALL today that -- quote -- "Terry McAuliffe shares most of
his most unappealing attributes, trading on influence, serial exaggeration,
D.C. insider-ism with Hillary Clinton."

This is according to executive director Tim Miller. "He has a long record
of shady insider dealing involving the Clintons, their family and hangers-
on, including the current investigation into the car company he and
Hillary`s brother are executives in. To the extent that Terry is damaged
with voters based on these issues in Virginia, this fall, you can see how
it could hurt Hillary in 2016."

Well, Tim Miller is with that super PAC, America Rising. Neera Tanden
could be considered a Clinton insider. She is president of the Center for
American Progress and has known Hillary for 20 years, working with her in
the White House, the Senate and on her 2008 presidential campaign.

Tim, if I`m Terry McAuliffe, maybe I like linkage that you`re providing,
because look at her numbers. Her numbers not just in Virginia, but all
across the country are incredibly strong. As a matter of fact, in the
state of Virginia alone, Hillary Clinton is leading five prospective
Republican presidential candidates. The only one that comes within a
margin of error is New Jersey Governor Chris Christie, whom Clinton leads
by one point.

According to PPP`s latest poll in Virginia, Clinton beats Jeb Bush in
Virginia by five points and three other potential rivals trail Clinton by
double digits in Virginia. Hillary outperforms the state`s current
governor, Bob McDonnell, by 10 points, and she thoroughly trounces Florida
Senator Marco Rubio and Kentucky Senator Rand Paul by 12 points each.

Respond to that, please.

TIM MILLER, EXECUTIVE DIRECTOR, AMERICA RISING: Well, it`s pretty early
for these polls, Michael.

I Will give you one example About why the Clintons are damaging Terry
McAuliffe in Virginia right now. Terry and Hillary`s brother are currently
under federal investigation for, among other things, trading on Tony
Rodham`s name in order to fast-track visas from China for their boondoggle
of a car company.

Now, this was front-page news on "The New York Times" and "The Washington
Post" this past weekend. And it`s going to be a problem for Terry in
Virginia. And I think it`s also going to raise questions for Hillary as
she begins to campaign for him in September. Why is she letting her
brother lobby this administration at all?

It`s the typical Clinton and McAuliffe trading on their D.C. connections.

SMERCONISH: Tim, do you hold out some hope that if you can make this
somehow a referendum on the former secretary of state and not on the
respective Republican and Democratic candidates for governor, that if
you`re successful, and if you defeat Terry McAuliffe, that the secretary --
the former secretary of state will reconsider her plans for 2016?

MILLER: No, you know, look, I think that the 2013 Virginia governor`s race
is a referendum on Terry McAuliffe and Terry McAuliffe`s record of being a
D.C. huckster who trades on his influence in order to help his friends get
access to people in power, particularly the Clintons.

But I think to the extent that Terry is not successful and turns voters off
because of that track record in Virginia in 2013, when the election is over
in November, we`re going to glean a lot of lessons from that that can be
used in a potential campaign if Hillary decides to run in 2016.

SMERCONISH: Neera, if I were running for office and my opponent wanted to
tie me to someone who had a 61 percent favorability rating across the
country and a 33 percent unfavorability rating -- and that`s according to
ABC and "The Washington Post" -- I think I would be pretty thrilled with
that.

NEERA TANDEN, CENTER FOR AMERICAN PROGRESS: Yes.

No, I think Terry is looking forward to his event with Hillary at the end
of the month. And I would say that Tim Miller and America Rising are part
of an effort that has been going on for years of conservative activists
really milking Republican donors at the behest of their dislike of Hillary
Clinton, because she`s a fighter for what she believes in, and you know,
they`ve been trying to fight her for 20 years, 30 years and failed each and
every time. You know, I look at this and I recognize that this is just
another effort to raise money off of people`s anger, you know, there`s a
small group of people who dislike Hillary and what`s been heartwarming
about the last several years is the strong support Hillary has across this
nation from Republicans, independents and Democrats.

SMERCONISH: Will you nevertheless pay close attention to what`s going on
in Virginia so as to give some insight no what sticks and what doesn`t
stick in terms of negativity with an eye toward her future?

TANDEN: Look, you know, I think 2013 and 2016 are really almost decades
apart from each other. Terry McAuliffe is running a race. If people are
concerned about hucksterism and insiderism, they pay a lot of attention to
Ken Cuccinelli and the investigations that are going on with actually
donations that he`s had that he should be returning.

And so I think but this race is a race on its own. And I think the lessons
we`re going to learn is that these right wing attacks that have been going
on for decades have will fail because people have their own views of
Hillary. She has been a leader. She people have experience with her as
secretary of state, as a senator.

And, you know, I think these attacks have failed before and they`ll fail
again.

SMERCONISH: You know, Tim Miller, I wonder how much ground there is that`s
up for grabs with regard to the former secretary of state, former first
lady. It seems like opinions both ways are so entrenched when it comes to
the Clintons.

TIM MILLER, AMERICA RISING: Well, let me tell you this, there`s a lot of
ground to make up, because if you remember what happened in 2007, Hillary
might have been really popular at the beginning of the campaign. But once
she becomes a political animal again, her numbers are going to come back
down to earth.

And the Democratic Party voters rejected her in 2008 in large part for the
exact same reasons why voters are going to reject Terry McAuliffe. They
didn`t like the selling of the Lincoln bedroom, they didn`t like people
involved in the D.C. morass where they help people with big money get
access to people in power and give them special deals.

This is the way the Clintons work. McAuliffe has been central to that for
the past two decades. It didn`t work in 2008.

SMERCONISH: I think there`s a sense --

MILLER: And that`s why it`s not going to work in `16.

SMERCONISH: I think there`s a sense this has all been litigated already.
You know, you`ve got an uphill climb in that regard. They`ve heard it
before.

MILLER: They rejected her.

(CROSSTALK)

TANDEN: With all due respect, I don`t think people in the Democratic Party
were listening to conservative activists, right wing groups. They were --
you know, that was a tough race obviously. But what`s really remarkable
where we are now is how much strong support Hillary has, not just amongst
Democrats but she has very strong with black, independents, as well.

SMERCONISH: Thank you, both.

Tim Miller, Neera Tanden, thank you.

MILLER: Thanks, Michael.

SMERCONISH: Up next, is it possible that the nation`s largest city is
making a sharp move to the left?

This is HARDBALL, the place for politics.

(COMMERCIAL BREAK)

SMERCONISH: You`ve no doubt seen the poll that says Republicans want their
leaders to be more conservative than they already are. Well, in South
Carolina, a new primary challenger to Senator Lindsey Graham may well be
giving the party what it wants. State Senator Lee Bright announced his
challenge to Graham.

And he went far beyond the typical call for a more conservative
representation in Washington. He actually called Graham, quote, "a
community organizer for the Muslim Brotherhood." The comment stems from
Graham`s trip to Egypt last week with John McCain. The two senators
attempted to get both sides of that sticky situation to calm things down.

We`ll be right back.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

ANTHONY WEINER (D), NYC MAYORAL CANDIDATE: I`ve apologized for my personal
behavior. The speaker refuses to apologize for overturning the will of the
people, for the slush fund scandal and for things in her professional
record. That`s the difference.

CHRISTINE QUINN (D), NYC MAYORAL CANDIDATE: Let me just say, I think it`s
very clear to all New Yorkers that neither me nor anybody else on this
stage or any New Yorker, quite frankly, should be lectured by Anthony
Weiner about what we need to apologize for tonight or ever.

(END VIDEO CLIP)

SMERCONISH: Hey, we`re back.

Despite that fiery exchange from last night`s Democratic primary debate,
there`s good news from New York. It looks like the 2013 mayoral race will
not come down to a referendum on Anthony Weiner`s private parts. That`s at
least the conclusion you can draw from the latest Quinnipiac poll. Weiner
is now in fourth place safely relegated to the sideshow.

The new front runner is a bit of a surprise to many public -- advocate Bill
de Blasio. De Blasio is pushing the most ambitiously aggressive agenda of
the bunch.

For example, he`s targeting anyone making over $500,000 a year with a tax
hike. He`s also been critical of Mayor Michael Bloomberg`s tenure. That
plays well in the Democratic primary. But how successful will that message
be this fall?

Bloomberg`s defenders and there are many, point out the city has seen crime
rates go down, graduation rates go up and it has weathered the fiscal
crisis better than many other big cities. "New Yorker" magazine`s George
Packer captured the subtext of that the argument, quote, "When I mentioned
de Blasio`s speech to a New Yorker who generally votes Republican he said,
`Yes, and New York will end up like Detroit, tax the rich, give to the
poor, and the mayor`s favored constituents drive away successful industries
like banking, bankrupt the city.`"

Katrina Vanden Heuvel is the editor of "The Nation" magazine, which
endorsed de Blasio. Floyd Flake is a former New York congressman. He
backed Bloomberg four years ago.

Katrina, I am an interloper. As an outsider to New York City, from afar it
looks like you`ve had centrist leadership for the last couple of decades
and it`s served the city well. But the change is coming regardless of who
wins the Democratic primary, presuming they then win the general.

KATRINA VANDEN HEUVEL, THE NATION: You`re a wise interloper. After 12
years of Bloomberg, this mayoral election is a referendum on the city that
he has left behind. And there are things to say, good things to say.

But Bill de Blasio`s leading today I would argue for two reasons. He is
the most bold alternative to Bloomberg economic development and on
policing. He has the most compelling and coherent message on inequality
and rebuilding a vanishing middle class in the city.

You may not know, millions of people don`t know, that half of New York
lives in or near poverty -- 1.5 million New Yorkers go to bed every night
in hunger or with hunger insecurity.

I don`t think it`s left to say we`re going to tax the wealthiest to invest
in early education, to have living wage, to have affordable housing, and to
have paid sick days. That is about rebuilding a New York that is healthy
and for all New Yorkers -- not just the few which is what Mayor Bloomberg
has left with this gilded city for the few, as opposed to a New York of
opportunity, for the many, for the old.

SMERCONISH: Congressman, Howard Wolfson, New York`s deputy mayor under
Bloomberg, criticized the vision de Blasio was offering and said this, "He
has a very 1960s, 1970s vision for the city. If you prefer the version of
the city that existed then, he`s your guy." Wolfson said, "He`s focused on
higher taxes, bigger government, more regulation and more mandates on
business."

It brings to my mind "The Out of Towners" with Jack Lemmon, the movie that
I remember seeing and it sticks out in my mind where this businessman from
Ohio ends up sleeping the night in Central Park. New York was a different
place then, not a strong place it seems like it is today.

FLOYD FLAKE (D-NY), FORMER U.S. CONGRESSMAN: Yes, I would agree with you
wholeheartedly because my early years here in New York starting in the `70s
was a time when you could not live in New York comfortably. You would not
feel comfortable because of the crimes in the streets, the drugs in the
streets, all of the things that were defining New York at that time. I
think over time things have evolved to a place where particularly under
this administration, people feel that at least there is an attempt to try
to create a city that is livable where people can have the access to the
benefits that are necessary for them to survive and sustain in the
community.

There are some areas that are weak. But there are more areas that are much
stronger than they have ever been during the time I`ve been here the last
30 years.

VANDEN HEUVEL: I think Howard Wolfson, the mayor`s aide was fear-mongering
and misleading, because the city has alienated -- Mayor Bloomberg`s
administration, through stop and frisk, racial profiling, which by the way
a judge ruled unconstitutional in the way it violated the rights of
minorities in this city. This was just Monday.

Bill de Blasio, for example, is for safe neighborhoods, safe communities,
but not for driving a wedge in those communities through bad policing,
which is you need good community involvement. So, I think it`s misleading.
I think the crime drop is irreversible. I think there are many different
ways to have public security.

You know, there are many other mayors in this city which have stopped the
abuse of stop and frisk policies that Mayor Bloomberg and his commissioner,
Ray Kelly, have enforced. If Mayor Bloomberg was a mayor for all, when he
got Judge Scheindlin`s decision on stop and frisk on Monday, he would have
welcomed federal monitoring of stop and frisk, instead of abusing the court
decision.

SMERCONISH: Congressman, in only 20 seconds it`s unfair more me to do this
-- some would say it`s because of stop and frisk that crime rate has come
down.

FLAKE: I think that has played a role, but I think there are other issues
to look at in terms of crime. I mean, I buried two young girls who were
killed. One sitting on the bus and somebody starts shooting in. There is
still an element in this city that needs to be dealt with.

Now, stop and frisk may not be the solution, but there has to be a solution
for our kids being killed on the streets of New York City.

SMERCONISH: I wish we had more time. Katrina Vanden Heuvel, thank you so
much, and Floyd Flake.

Up next, a case where bigger might not be better.

This is HARDBALL, the place for politics.

(COMMERCIAL BREAK)

SMERCONISH: Let me finish tonight with this:

Having recently approved the mergers of Delta and Northwest, as well as
Continental and United, the Justice Department is creating turbulence for
the proposed merger of American and US Airways. And six attorneys general
from diverse states agree, including those from Texas and Arizona, where
American and US Airways are based.

One illustration of concern can be found at Reagan National Airport, where
the resulting airline would account for nearly 70 percent of all flights,
and control 63 percent of nonstop flights. That level of consolidation has
passengers worrying about rates and routes. The airlines respond by saying
that the merger will actually create more options for customers, but I`m
not holding my breath.

Ironically, it`s because of the prior mergers that the American-US Airways
marriage is problematic and being challenged: This merger would create the
world`s largest airline, and we`d be left with four airlines controlling 80
percent of the U.S. market for air travel.

There`s a bank analogy to be made here. Bigger rarely seems to be better.

When I swap travel stories with friends and colleagues, no one seems to
single out the giants for good service. More likely is that they`ll
reference JetBlue, Virgin, Alaska Airlines, or even Southwest.

Speaking of JetBlue, that airline happens to lease half of its takeoff and
landing slots at Reagan from American Airlines, and would therefore be
vulnerable if the merger proceeds.

This dispute will probably end before you can put your seats and tray
tables in an upright and locked position with a negotiated settlement where
the newly consolidated airline has to make some concessions. And that
seems like the right outcome. The industry would get some needed
stability, and where the American-US Airways entity loses routes and gates,
it will create the competition that would otherwise be in short supply.

That`s HARDBALL for now. Thank you for being with us.


END

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