Sens. Bayh and Coburn on "Fox News Sunday"

WALLACE: Tough issues face America this holiday weekend, from a global financial crisis to challenges on nuclear arms and the open sea. We'll tackle it all with two key members of the U.S. Senate, Democrat Evan Bayh and Republican Tom Coburn .

Then, Wall Street and other economic indicators show an uptick. Is the worst behind us? We'll go to the FOX Business Network for answers when we talk with Liz Claman and Jenna Lee.

Plus, former top Bush adviser Karl Rove calls out Vice President Biden.

(BEGIN VIDEO CLIP)

ROVE: He's a serial exaggerator. If I was being unkind, I'd say he's a liar.

(END VIDEO CLIP)

WALLACE: We'll ask our Sunday regulars what's behind this war of words.

And our Power Player of the Week talks Easter and political morality, all right now on "FOX News Sunday."

Hello again and happy Easter from Fox News in Washington. Well, on this holiday weekend, there is some good news on the economy but continuing concerns about rogue nations pursuing nuclear weapons and pirates hijacking ships.

Here to talk about it are two leading senators -- Evan Bayh , Democrat of Indiana, who joins us in studio, and Tom Coburn , Republican of Oklahoma, who's in his home state.

And, Senators, happy Easter and welcome to "FOX News Sunday."

BAYH: Thank you, Chris. Happy Easter to you.

WALLACE: Thank you.

COBURN: Thank you, Chris. Good to be with you.

WALLACE: Senator Coburn, let me start with the economy. President Obama said Friday that he's starting to see glimmers of hope about the economy.

Senator Coburn, do you? And are the Obama policies starting to work?

COBURN: Well, I think nobody knows. The hopeful sign would be that we would be successful in stopping the decline and starting the growth. Nobody knows the answer to those questions.

We still have major problems in front of us. But our hope is -- is that that's accurate.

WALLACE: Senator Bayh, do you see glimmers of hope in the economy? And to what degree can you attribute it to the Obama policies starting to kick in?

BAYH: Chris, there are some signs that perhaps the worst is almost behind us. Retail sales ticked up. Refinancing of mortgages increased.

Most encouragingly, some of the banks, which as you know have been hard-pressed, are starting to report they're making some money. And the real key to getting this behind us is for them to start lending to businesses and individuals once again.

So my bottom line is -- is there any reason to stop, you know, acting aggressively? No. This is going to take longer than we would like. There's no magic answer. But there is some reason for hope.

And you know, to the extent confidence is important, which -- I think it does play an important role -- the Obama policies have helped to buttress that.

WALLACE: Senator Bayh, you were one of only two Democrats to vote against the Obama budget, and you have started to form something called the Moderate Democrats Working Group.

Is Mr. Obama going too far not only on spending but also in government intrusion into the private sector?

BAYH: I've been a fiscal conservative throughout my career, Chris. It's nothing personal to the president.

One year when I was governor, I vetoed the state budget even though it had been passed by members of my own party because I thought it was out of balance and spent too much, and I voted against several of President Bush's budgets because thought the deficit and the debts were too large.

So in the short run, I agree with the president. We do need to stimulate the economy. The government needs to step in. Even conservative economists agree to that.

In the long run, I think the deficits and the debt are too high. We need to get those under control. So that was the reason for my vote there.

The moderate working group is simply a collection of individuals from different parts of the country who care about fiscal responsibility, economic growth, and we would like to make our voices heard, working with the president, as a positive force to get this country heading in a better direction.

He inherited some real problems, as you know, fiscally and economically. We'd like to help him solve those.

WALLACE: Senator Coburn, you go much further. First of all, you have a nickname around Washington, Dr. No, for your opposition to government spending, and I want to put up on the screen something that you wrote recently, Senator.

You said, "I believe President Obama has proposed the most significant shift toward collectivism and away from capitalism in the history of our republic."

Question: Where do you see the president taking this country in terms of government's role?

COBURN: Well, I think he intends to expand it, and there's nothing wrong with having the philosophical debate about which way is best.

The question is -- is are we efficient as a government, are we making any of the hard choices, and are we sacrificing rather than transferring the sacrifice to the next generation?

You know, if you move health care to the -- to the public sector, which -- all the plans that are out there, other than truly making a competitive health care system -- we'll eventually move that to government control.

And I would just posit that we're very inefficient as a government in accomplishing anything. And when we move more things to the control of the government, we're going to spend a whole lot of money.

Second point would be that the problems that we have today -- moving it to government control transfers a cost, a generational cost, to the generations that follow us that is going to be tremendous and unsurvivable. We cannot carry the load.

So we're not making any of the sacrifices for the -- that we should be making today in terms of spending cuts, refining programs, efficiency, eliminating waste (inaudible). There's over $300 billion a year in pure waste and fraud in the federal government.

You haven't seen any action on that anywhere in terms of the Congress or with the president yet.

WALLACE: Senator Bayh?

BAYH: Chris, I think we need to separate the short run from the long run. The Chamber of Commerce, the manufacturers association, many groups that aren't for, you know, socialism in this country called for federal action to stabilize the financial system and supported the president's stimulus plan because of the nature of the crisis that we're in.

So in some ways, to keep, you know, thousands of businesses from failing, millions of people from being thrown out of work, some action in this moment of crisis was called for. That's in the short run.

In the long run, though, we've got to start unwinding some of these things. We don't want the government in the business of owning our banks. We don't want the government intruding any more than it has to in the private sector, so we've got to start reversing some of this once the momentum is in the economy to grow the economy once again, to stabilize situations.

And I do agree with Tom -- when it comes to health care, we don't want socialized medicine, but there is an appropriate role for government to expand coverage, to make it more affordable for people who don't have the means. That actually enables the private sector to meet the challenges that face the country.

WALLACE: Well, let's talk about that specific area. And we should point out to our viewers that -- Senator Coburn, you're not only a senator. They'll be much more impressed to find out that you're a family doctor who's delivered thousands of babies.

Is there a compromise out there that can cut costs, that can expand coverage, without turning health care into a government program?

COBURN: Absolutely. We'll be introducing a bill that will actually lower the percentage that we spend on GDP -- or GDP on health care, and we do it. We don't need more money in health care. What we have is a very inefficient system, and we haven't allowed market forces to allocate resources.

We also haven't emphasized prevention. Three-quarters of the money that we spend in this money are on five chronic diseases that are preventable.

If we really want to improve access -- and I think everybody should have access -- and control costs, then we need to emphasize prevention, and we need to have real market forces. And we don't have that today. And that's one of the reason that everybody wants to see us change it.

But the ultimate plan, a public plan, ultimately results in a Medicare program for everybody. And that is exactly the opposite way.

One other point I'd make -- we spend twice as much on health care as any other nation in the world with the exception of Switzerland, and we -- and we have great physicians, great care, great hospitals and great research, but we can't afford to continue to spend 17 percent of our GDP. And the Obama plan moves it to 19 percent.

So we don't need more money. What we need is true markets that will allocate this resource and create a way for everyone to have access.

WALLACE: I want to bring Senator Bayh in.

And I want to ask you -- because there really does seem to be momentum, bipartisan momentum, and even from the industry, from health care providers, from insurance companies, to do something this year about health care reform.

But the one big concern a lot of the private sector has is the president, in his program, has as a -- supposedly as a provider of last resort a government program, and the concern is they'll be able to do it so much more cheaply, or at least in terms of the cost, that everybody will end up in the government program.

BAYH: Well, it's a debate we need to have, Chris. And I'm agnostic on that as we sit here this morning. I think in the Medicare Part D -- to use plain English, the drug program for senior citizens...

WALLACE: The prescription drug benefit.

BAYH: ... there was a provision that some people were concerned about that allowed the government to step in and offer that coverage in areas of the country where private -- you know, the private sector did not step forward and offer the coverage.

So it has not had the kind of adverse impacts that some had been concerned about. We need to have a debate about that.

My own preference would be -- and you may have found common ground here this morning on Easter, which is appropriate -- deal with the inefficiencies, figure out a way to make the private marketplace accomplish our public good, only have the government role as a backstop, as a last resort, if the private sector has just failed to meet the challenge.

WALLACE: Let's move on to a subject that I did not expect to be discussing today, gentlemen, and that is pirates.

Senator Coburn, how should the U.S. respond not just to the hostage standoff involving that one poor unfortunate American captain, but also to the larger problem of criminals taking advantage of the chaos in Somalia to threaten one of the world's major shipping lanes?

COBURN: Well, I think you're seeing the military move a lot more resources to that area. And I think we're going to have to be much more aggressive as we channel that.

But we can't do it by ourselves. We're going to have to have the rest of the world commit resources so that we can patrol and control that.

The other thing is -- is that you have to -- you have to have a tough approach, which means you have to be strong. We're not going to give in to blackmail, and we're not going to allow them to continue to do what they're doing.

So that's going to require tremendous increase in resources. But it can't be just us. It has to be everybody, because everybody's affected by it, but -- which leads to the situation -- is there's chaos in Somalia. And how do we solve that?

We made an attempt and withdrew. We just had the Ethiopians that also withdrew. So it's another one of the difficult situations in the world where we can't, by ourselves, control it. We need to work with others.

WALLACE: Senator Bayh...

COBURN: And that's one area where I compliment -- I would compliment the president -- is I think his outreach in terms of foreign policy has been tremendously positive.

WALLACE: Senator Bayh, you are both -- you and Senator Coburn -- on the Senate Intelligence Committee. Do you know of any links between these pirates and Islamic terrorists, any sign at all that they're using the multi-million-dollar ransoms they're getting to finance Islamic extremists?

BAYH: Well, Chris, there are published reports that there have been some loose ties between -- well, al-Shabab -- that's a different group. The pirates? No, not the pirates. Al-Shabab, which controls some part of the country -- there is some loose ties there -- no evidence that they're planning attacks on the U.S. But the pirates, no.

And I kind of -- I agree with what Tom was saying. I think a tough approach is in order here. What was it -- Thomas Jefferson, dealing with the Barbary pirates of his day, said millions for defense, not one dime for tribute. And I think that's a pretty good philosophy to follow.

WALLACE: So what does that mean in a practical sense in this standoff?

BAYH: Well, once we've resolved the situation with the captain -- we don't want to imperil his life -- we've got to make them pay a price for this kind of activity that is larger than the ransoms they're extracting so they'll discontinue it.

In the long run, though, Chris, this shows when you have a failed state -- there's no government in Somalia capable of controlling that coast -- that leads to all sorts of problems, whether it's the Taliban in Afghanistan or these pirates in Somalia.

So we've got to try and foster some forces of control and governance there, because ultimately we can't run these countries for them.

WALLACE: But you're certainly not talking about going back into Somalia, are you?

BAYH: No, no. I'm talking about helping responsible elements -- and they're hard to find -- within Somalia, eventually have a government there that's capable of controlling its own territory so we don't have to.

In the time -- in the meantime, we may have to take some punitive action against these people after the captain is released to send a pretty clear signal you take an American vessel hostage, you're going to have some real problems.

WALLACE: Senator Coburn, let me turn to another foreign policy subject. You point out that President Obama has been reaching out to other countries. He certainly has reached out to Russia and China to try to help pressure Iran and North Korea to stop their nuclear programs, but so far that doesn't seem to be working.

Senator Coburn, what do we do now? And how much more time do we have before these countries, especially Iran, acquires a nuclear weapon that we'll be unable to take out?

COBURN: Well, I think there is some movement at the United Nations -- I think I heard this morning or late last night that it will come before the Security Council Monday -- that will toughen the sanctions on North Korea.

Talk isn't going to do it. It has -- there has to be consequences. And there's ways for us to make it very painful for Iran. They only produce about 30 percent of their consumable gasoline, and yet some of our allies continue to supply them with refined distillates.

There ought to be a price for what they're doing and their continued progress -- I'm talking about Iran -- in terms of trying to develop enriched uranium.

And doing what we've done in North Korea has not been highly successful since we've seen three launches in the last three years of long-range missiles. So there has to be significant sanctions on North Korea, and that can be stiffened as well.

WALLACE: But of course, the problem is aren't -- and I know you're planning to introduce some new legislation on sanctions. Aren't we kind of sanctioned out, the United States?

BAYH: Well, we haven't -- the sanctions have not had much teeth. We've done some things in the financial arena to cut off their access to the global banking sector.

But as Tom pointed out, Chris, their real vulnerability is the import of refined petroleum products. And Senator Kyl and I, Republican from Arizona, are going to be introducing legislation to really crack down on companies doing business with Iran, to increase the cost of that business, to drive up the price of violating these sanctions on the part of the Iranians, and perhaps to cause some domestic concerns within Iran.

So I'm a little skeptical about whether that will work in the long run, but we've got to try it, and we've got to mean business, and that's where the president's diplomacy helps, because ultimately we need the cooperation of Russia, China and Europe to make it -- to make it work.

WALLACE: Now, you're talking about sanctions on energy companies that sell petroleum, refined...

BAYH: Into Iran, and...

WALLACE: Are those American companies or are those...

BAYH: ... and on insurance companies that insure the tankers -- I mean, across -- there are things we can do, Chris, to substantially increase the cost to Iran.

WALLACE: Are those...

BAYH: We need to do that, and we need to do that now, because the clock is ticking.

WALLACE: Are those American energy companies, or are we talking about foreign companies? And are we going to get in trouble with our allies if we do that?

BAYH: Well, they're primarily foreign. Some of them do business in the United States. And we've got to make them choose. Do you want to be on good terms with the United States? Do you want to do business in America or do you want to continue to enable this kind of irresponsible behavior on the part of Iran?

We've got to crack down now, because if we allow things to just continue the way they're going, we'll wake up one morning and they will have a nuclear weapons capability. And at that point, Chris, as you point out, with regard to North Korea, your scope for acting is a lot more constrained.

WALLACE: Senator Bayh, Senator Coburn, we're going to have to leave it there. I want to thank you both for sharing a part of your Sunday with us.

BAYH: Good to be with you.

WALLACE: Thank you, gentlemen. Happy Easter.

COBURN: (inaudible)

WALLACE: Up next, five weeks of positive numbers on Wall Street have many wondering is the worst behind us. We'll hear from two colleagues from the FOX Business Network. Back in a moment.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

OBAMA: What you're starting to see is glimmers of hope across the economy.

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WALLACE: That was President Obama noting some good news, and here are numbers to back up that cautious optimism.

The Dow Jones ended the week up more than 23 percent from its low in early March. New claims for unemployment benefits dropped by 20,000. And the number of people considering a new home purchase jumped last month after hitting an all-time low in February.

So where are we in the recession? For answers, we turn to our colleagues from the FOX Business Network, Liz Claman and Jenna Lee.

So, Liz, how much weight do we give -- how much weight do you give to these glimmers of hope?

CLAMAN: Well, he didn't exactly oversell it, which is a good thing, Chris, because if he did, I think that that would be a little disingenuous.

When you talk about these glimmers of hope -- you hear this term a lot -- green shoots poking themselves up through the ugly mud that we've been mired in over the past couple of months -- but clearly, I think that you can give just slightly a bit more credence to this, but you've got to remember that we still have major problems.

We've got a constrained consumer. We've got massive amounts of really, really toxic bad loans on balance sheets of banks. And there are other problems still yet to come. So right now, that's what it is, just a glimmer or a green shoot.

WALLACE: Jenna, let me follow up. I mean, your sense of what these numbers tell us about where we are in this recession and how soon we may begin to see a recovery.

LEE: Well, sure, Chris. Economists that were surveyed by the Wall Street Journal actually predict the end of a recession to come by September of this year. And that's better than when the same survey was done just a couple months ago, so we are seeing more optimism about when the recession will end.

But to Liz's point about a constrained consumer, we still have trouble in the job market. We still have trouble in the housing market. And just for an example, we don't expect to see any type of recovery in the job market until the first or second half of next year.

So you still have a lot of consumers feeling nervous and feeling anxiety. That affects consumer spending, and we know consumer spending really kind of propels economic activity by about 70 percent. All of that economic activity -- two-thirds of it, actually, is tied back to consumer spending.

The consumer is still very important and still under pressure.

WALLACE: Let's turn to the markets, Liz. As we mentioned, the Dow Jones is up almost a quarter in the last five weeks, and let's put up some numbers. The market closed at 6,547 on March 9th. This week it closed at 8,083.

Liz, what's the prevailing wisdom, to use a phrase that may be an oxymoron, on Wall Street? Is there concern that this is a bear rally, a rally in what is still a bear market, or do people feel that there really may be a turnaround in the -- on Wall Street?

CLAMAN: Well, I think that if you feel that there's a real turnaround on Wall Street, you are sorely misguided, Chris. If you look back to the Depression, we know that while we saw the crash of 1929, it wasn't until 1932 or '33 that we actually bottomed out in the market.

So people have to be careful that they're not tricked by this. We got so much good will and good feeling when Wells Fargo came out this week and said that they had made money and that they were feeling a lot better about the situation.

I mean, I'm not buying it, Chris. I'm sorry. I do believe that we still have about $4.7 trillion in really big problems as far as loans are concerned, and these aren't even the actual toxic loans that we've been talking about with the government.

So I think that you can't be tricked or falsely pulled into something like this because of that consumer. It all comes back to the consumer, who, in the past, Chris, was able to pull money out of his or her home equity lines of credit, or of course the credit cards. That's all gone. That type of credit isn't being extended right now, plus real wages aren't rising at this point.

So you've got a very constrained consumer who isn't spending. That's going to affect companies who sell products to that consumer. Their earnings won't do so well. There will be some downward surprises. And the market will continue to fall.

It's going to take a while. I mean, far be it for me to question 100 economists that the Wall Street Journal talks to, but it's going to be at least another year before we're out of this, at least for the time being.

WALLACE: Jenna, your sense on Wall Street -- are the smart money guys looking for buying opportunities at this point, or are they still sitting on the sidelines?

LEE: From investors that I'm speaking to, Chris, they're definitely looking for opportunities. There's still a very nimble investor that is looking to play this market, not the same type of buy and hold strategies.

That's when you would invest in a stock and you decide that you're going to keep it for a long time. A lot of investors are playing this market and trying to ride the wave here.

But to Liz's point, I'm hearing more and more about this idea of a double bottom or the fact that we could kind of emerge or shake off this recession only to find ourselves right back in it in a year's time or two years' time. So there still is a lot of pessimism from the side of investors.

And again, when we see the -- for example, the Dow up more than 20 percent, as you were showing, you know, we still have to keep in mind that the Dow Jones industrial's still down more than 30 percent over the last year.

So while we've been able to shake off a little bit of this recession, at least when it comes to stocks, it's anyone's best guess until when we're actually going to be totally and completely out of it.

WALLACE: Liz, let's talk about the one part of the economic picture that is just unadulterated bad news, and that's unemployment, which is now already at 8.5 percent and still climbing. Best guess -- are we headed for double-digit unemployment? Are we headed for plus- 10 percent?

CLAMAN: Chris, we're already there. Hate to spoil everybody's Easter parade, but if you take into account part-time workers, not to mention those so-called discouraged workers who have given up looking for jobs, unemployment is actually at about 15.6 percent. That's the worst it's been since 1994.

I'm not -- I'm not a pessimist. I'm just a realist. And I think that that's very important to keep the American public informed about that. Double-digit unemployment rate -- that clean rate of 8.5 percent -- it will happen. It will go to that point. And of course, as we all know, unemployment is always the last thing to turn around, because companies take that long to decide, "OK, I'm ready to turn around and start adding to my payrolls once again. I finally have the confidence." They don't right now. And those are the guys in the trenches facing a very serious and very tough business condition out there.

Jenna makes that point about that consumer who is also among the unemployed in many regards. And if you're not unemployed, you certainly have that fear of losing your job out there. I know a lot of people who are watching your show right now might have that concern, Chris.

And that also affects people's spending habits. It tends to feed upon itself. We will get out of this. And as you've seen the Obama administration taking some major steps that start to actually show some indications -- for example, mortgage applications are moving higher. More people are applying for mortgages. Small business loans are up for the past month.

But again, are we covering up the real problem? Are we allowing that sort of natural decay and renewal process that we see on the forest floor, for example, to take place in the business world? No. We're pumping sick, sick businesses like AIG -- filled with Botox to make them look better, but the fact is it's still an ugly picture for some of these companies.

WALLACE: Jenna, of course the Obama administration is saying that its policies are responsible for at least these glimmers of hope.

And I want to offer an analysis that came from Forbes.com this week. It came from two economists, Brian Westbury and Robert Stein, and here's what they wrote. "The stock market and the economy are being lifted on a sea of liquidity, giving us a V-shaped recovery. Very soon the recession will officially end. This is not a dead-cat bounce and it's not government spending. It's easy money, plain and simple."

Jenna, are they right? Is the Fed the driving force here, not the White House?

LEE: I think it's really tough to know, Chris. I know this analogy is over used, but the idea of a patient going into an emergency room, and all you're focused on, if that person is our economy, is trying to get that person out of the E.R. and start to stabilize again.

The Fed, the Treasury, the president all have put together these different plans, whether it's focused on stimulus for the consumer or the Federal Reserve to kind of loosen up the credit markets.

At this point, it's going to be very tough to know, once we stabilize the economy, what has actually worked. We do know a lot of these plans -- as was mentioned, we are seeing mortgage applications up, refinancing applications up, but these are just applications. We don't know if they've actually been approved. And that's going to be key -- is that while we see these glimmers of hope, is there actually follow-through? A V-shaped recovery is more of an optimistic look at things. That would be a swift downturn and a really speedy upturn.

It's going to take a couple months to whether or not we actually -- actually have facts for this. Again, there's so many different opinions. But it's going to be tough to know, as we're treating this economy, what actually works, what is actually the tipping point to snapping it out of a recession.

WALLACE: Liz, of course, all of this started not with the recession but with the financial crisis. You mentioned a moment ago the fact that Wells Fargo reported record profits for the first quarter last week, which is one of the reasons that the stock market went up at the end of the week.

Where are the banks now? Are they solvent? Are they going to need billions more in bailouts?

CLAMAN: Well, there is a conventional wisdom and sort of a skepticism on behalf of some people on Wall Street to say, "Absolutely, they will need more money." Then you hear Lloyd Blankfein of Goldman Sachs come out and say that we're solid, we're stable, Wells Fargo saying the same thing.

There's nothing I would like more than to believe that. But again, I go back to what's still on the balance sheets. You've got, again, about $3.2 trillion in things like corporate and leveraged loans and everything else that hasn't been taken into account, not to mention -- this gets a little wonky, but you know, you have a lot of investment banks who lent a lot to private equity.

These are the guys who are out there trying to buy distressed businesses and then turn them around and sell them. Well, it got so heady and exciting in 2004, '05, '06, that these banks -- they wanted to just lend to the private equity guys, so they didn't have backstops put in, those so-called safety nets and making sure these private equity guys had some collateral. So they were just lending. All of that is now coming to roost.

So I think that there is some real trouble still on the horizon for banks. But we haven't seen a bank failure since Lehman Brothers. But again, is that a false sense -- is that too much Federal Reserve money and stimulus money and TARP money going in to lift up a very sick -- to keep Jenna's analogy of a patient in there -- to keep that sick patient alive?

WALLACE: Finally, Jenna, we've got about a minute left. The president and Treasury Secretary Geithner are talking about these public-private investment funds, partnering up with hedge funds and private equity companies, to buy the toxic assets.

Do the banks still need that help? And are they going to be able to agree with the investment funds on a price to get these toxic assets off their books? LEE: You've hit on the great unknown -- is the pricing of all of this. It's just like if you go into a store and you see something on the sale rack. You have to ask yourself a question as a consumer whether or not it's actually worth that sale price or maybe it's worth less than that.

That type of thought that a consumer goes through every single day is similar to the type of bargaining you're going to see between the government and some of these private institutions. The price and whether or not the private institutions are willing to sell at that price those toxic assets, and whether or not there's a buyer -- that's a great unknown.

We still have to establish that pricing before we even know if this program is going to work.

WALLACE: Jenna, Liz, we're going to have to leave it there. We want to thank you both for your analysis, and we'll bring you both back soon.

CLAMAN: Happy holidays, Chris. Thank you.

LEE: Happy Easter.

WALLACE: Thank you. Same to you.

And you can catch more of Liz, Jenna and their colleagues by tuning in to FOX Business Network. Go to foxbusiness.com and check their channel finder to see where to find the business network in your area.

Well, coming up, our Sunday regulars discuss danger on the high seas -- the latest developments -- when we come right back.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

JOHN REINHART: When I spoke to the crew, they won't consider it done when they board a plane and come home. They won't consider it done until the captain's back, nor will we.

(END VIDEO CLIP)

WALLACE: That was John Reinhart, head of the company that owns that U.S. cargo ship that was hijacked by pirates.

And it's time for our Sunday regulars -- Brit Hume, Fox News senior political analyst, and contributors Mara Liasson of National Public Radio, Bill Kristol of The Weekly Standard, and Juan Williams, also from National Public Radio.

So, Brit -- and I never thought I would say this -- do we now need a foreign policy on pirates?

HUME: It seems we do. And it's an example of the -- what you might call the power of the weak. I mean, this is -- in military terms, these pirates and their little vessels are mosquitoes, and yet they seem to be attacking the big ships with relative ease and, so far, near impunity.

And the idea, the picture, of a lifeboat floating adrift in those waters there off Somalia and an American captive aboard, with U.S. warships all around -- how exactly close we don't know -- diving into the water to try to get away, and their easily being able to reel him back while the big warships stood by, apparently impotent or unwilling to act -- maybe it was impossible for them to do so -- illustrates how dicey and thorny this problem is, and what an image it presents to the world of this great military power unable, at least so far, to cope with this problem.

WALLACE: Of course, all the other military powers have had the same problem, except, I guess, the French, and you could argue as to whether that was such a successful...

LIASSON: Well, they lost -- they didn't get the hostages back alive, which is what the goal is.

WALLACE: They got -- one hostage was killed. The others they got.

LIASSON: They got -- one hostage was killed, got they got three back. But still, that's not -- that wasn't their goal.

Look, this is organized crime on the -- on the high seas. And I think it is a kind of corollary to the -- to what happened in Somalia on land. We've got a failed state. And now they've got this problem. I think it is organized crime. It's not terrorism.

And I guess what you're going to need is the sea-based equivalent of the counterinsurgency tactics that we're developing for Iraq and Afghanistan. I mean, you -- you know, the image that Brit talked about, this huge destroyer and this tiny lifeboat -- well, that's not going to work.

This is asymmetrical warfare of a certain type, and you're going to have to have another way of dealing with it. And that's what the Navy's going to have to develop.

WALLACE: Bill, it turns out -- and you know, we've all become sort of experts on Somali pirates this week. It turns out to be a lot bigger problem than a lot of us thought.

They apparently currently have hijacked about a dozen vessels. They are currently holding more than 200 hostages. They bring them back to the Somali mainland while they negotiate for ransom. And they are disrupting one of the major sea lanes in the world.

What do we do about it? And when I say we, I don't just mean the U.S. but, you know, the civilized world.

KRISTOL: It will mostly be the U.S. We destroy their bases on land. That's what we did 200 years ago, and that's what we do today.

There's no great mystery about how to deal with this. The question is are we willing to do it, and that means using air power and perhaps ground power to prevent them having safe harbors on land.

Otherwise, we are in the position, as Brit described, of patrolling this huge sea and then having this hostage taken, and then having the very difficult task of trying to liberate a hostage, obviously.

They -- the way they work is they take these ships -- these boats and these hostages back to land where they have safe harbors. It's just like Afghanistan after 9/11. You've got to destroy their safe harbors.

WALLACE: But what do you do with the 200 hostages that are there from various, you know, shipping companies all over the world?

WILLIAMS: Well, you know, that's what reminds everybody of "Black Hawk Down." I heard you reference that earlier in the show.

Everybody says you know, if we go in there and we think we're going to just run over them, then you get these guys who are guerrillas, I mean, basically running around in sandals, but nonetheless, they know the territory. They know the hideouts. They've got weapons stashes. And they can inflict real damage.

Nonetheless, I think Bill is right. I think you've got to take strong action. Now, the problem is that already the shipping industry has been paying ransom to these people. They paid already $30 million, apparently, in the last year, and they've paid hundreds of millions over the last few years. So there -- it's a thriving business.

And so for people who have no employment, who are in a dysfunctional state, especially for young men, this is sort of a glamorous, you know, opportunity to go out there and play pirate.

But it seems to me the commercial industries have some responsibilities. One last thought -- you've got to go against the unions and the maritime tradition of not putting guns on these ships so they can protect themselves.

WALLACE: I was going to say -- I mean, rather than getting into a land war in Somalia, doesn't it make more sense either, one, to have convoys to protect the ships so they don't take...

HUME: Like the marshals on the airplanes...

WALLACE: Right.

HUME: ... as a preventive measure. I mean, this is not like they're being boarded by a large warship. They're being boarded by some guys in what amounts to a -- to a dinghy with an outboard motor on the back of it.

It wouldn't take very many armed men, it would seem to me, from the deck of a ship to repel an attack like that.

WALLACE: But then isn't there something like the Law of the Seas Treaty, which creates problems...

HUME: And wouldn't you know it?

WALLACE: Well, right. Wouldn't you know it? But that would create problems? If these cargo ships have armed men, then it creates problems for them...

LIASSON: I don't know anything about the Law of the Sea Treaty, but something is going to have to be done, either convoys... WALLACE: That's a terrible confession.

LIASSON: Yes, terrible confession. But something's going to have to be done, either convoys or maybe some kind of armed escorts, people who are allowed to have weapons, if not the ships' crews themselves.

You know, this is -- we're going to have to come up with some kind of methods of dealing with this. And we've adjusted in these asymmetrical wars on land. There's no reason why we can't do it on the seas.

KRISTOL: Well, we had -- you know, if I could just use the 9/11 analogy again, the way we stopped -- the way we acted after 9/11, which was to destroy their land bases -- it's fine to have air marshals. It's fine to arm these merchant ships. The British did that in the early 19th century and it did some good.

But what really worked both in the case of Thomas Jefferson with the Barbary pirates and with the British later in the 19th century was going ashore and either by land or by air -- we have very good precision-guided munitions -- either from the air or from the sea with cruise missiles -- destroying their safe harbors on land.

LIASSON: But it's still a failed state.

KRISTOL: We need to do that. Fine, so let it be a failed state, but not a place that hosts a bunch of -- that is -- it has now an elaborate infrastructure to host these pirates. It is not unlike, in a sense, Afghanistan with training camps, a financial infrastructure. They bring them back. They have a safe harbor. You can't let them have safe harbors.

WILLIAMS: Well, I think President Obama has handled this well so far. Now, I've heard criticism. People say, "Why isn't he being more aggressive? Why isn't he out in front of this?" I don't think you want President Obama to be out in front. I don't -- I think it just increases the value of the hostages at that point.

And secondly, it looks to me, if you look at what Nicolas Sarkozy did, the French president -- he authorized the attack on the ships which led to the one death of one of the hostages. But nonetheless, I think the world literally has something at stake here.

It's driving up the cost of products because you have to go around South Africa instead of going through that Gulf of Aden. So it seems to me the world, not just the United States, has an interest in stopping this piracy.

WALLACE: To what degree, Brit, is this a test -- and maybe, in a sense, the first test -- of Obama's foreign policy and national security policy?

HUME: Yes, is this the -- is this the test that Joe Biden warned when he was running against Obama would come, or maybe after? Well, actually, I guess that was after his nomination he said that. Well, I think it is.

Now, look, it may be that this will all be negotiated out because the pirates are out there. They don't have any -- you know, they don't have any fuel, apparently. They don't have -- I don't know how long their supplies can last. They must -- they must be getting close to the edge, and surrender is a possibility, and it may all work out.

If, however, surrender -- there's some kind of compromise, something of value is made available, they get safe passage out of this, or whatever, for the release of that captain, that will be seen by the world. It will be seen by people who want to do us harm.

How does this administration respond to that kind of thing? And you know, if we were in the end ruthless about this and they pay a frightful price, it seems to me that would be a -- that would be an important way to pass this test.

If it all ends up in a big pile of mush, and these guys get away, and we do save the captain, and God knows we all hope that happens, that seems to me (inaudible)

WILLIAMS: Well, you can't do the Jimmy Carter-Iranian hostage thing. That would be a mess. But from what...

HUME: No, it would be a mess, unless it succeeded.

WILLIAMS: If it succeeded -- Jimmy Carter's didn't succeed.

HUME: Exactly.

WILLIAMS: Oh, OK.

HUME: But it wouldn't automatically be a mess. That mission simply failed.

WILLIAMS: As did "Black Hawk Down," ultimately. So that's why I'm saying he's got to take strong action, but it can't be action that's done without thought to repercussions. And I think that's why so far what we've seen is...

HUME: Yeah, patience.

WILLIAMS: ... thoughtful, deliberate action.

But I come back to why aren't the commercial people who are paying these ransoms being held responsible? It's crazy. Why are they paying millions to these pirates? They're allowing this to continue.

WALLACE: Apparently, because they find that the cost of doing business is worth it.

WILLIAMS: Well, but it's not -- I mean, then it creates problems for people who are -- like the French who were on a sailboat or for American business interests. And then all of a sudden we're in a military situation, and the business people act like, "Oh, it's the Obama administration's problem or Sarkozy's problem. It's their issue."

WALLACE: Well, we have now exhausted our discussion about pirate policy. And I trust that by next week you will have boned up on the Law of the Sea.

LIASSON: The Law of the Sea Treaty.

WALLACE: That is your assignment for next week, Mara.

END

WALLACE: When we come back, the sniping between the Bush and Obama camps turns ugly. You won't want to miss this.

(COMMERCIAL BREAK)

WALLACE: On this day in 1961, Soviet cosmonaut Yuri Gagarin became the first man in space orbiting the Earth. In 1981, the U.S. space shuttle Columbia blasted off, becoming the first reusable manned spacecraft.

Stay tuned for more from our panel and our Power Player of the Week.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

BIDEN: He said to me -- he said, "Well, Joe," he said, "I'm a leader." And I said, "Mr. President, turn around and look behind you. No one's following."

(END VIDEO CLIP)

(BEGIN VIDEO CLIP)

ROVE: I hate to say it, but he's a serial exaggerator. If I was being unkind, I'd say he's a liar, but it is a habit he ought to drop.

(END VIDEO CLIP)

WALLACE: Well, that was Vice President Biden and former top Bush advisor Karl Rove disagreeing about whether Biden once took the former president to the woodshed in the Oval Office.

And we're back now with Brit, Mara, Bill and Juan.

Brit, supposedly there were times when President Bush and Senator Biden were in the Oval Office together by themselves. So in fact, it is possible that only the two of them know the truth. But what do you make of this dust-up?

HUME: Well, think of this. Asked when this happened, what was the occasion, the vice president's office has no answer -- no dates, no times, no specifics. So this thing has the ring of a tall tale, of a major exaggeration. And I think it illustrates something. The Obama-Biden administration ought to stop talking about President Bush all the time. The world has moved on.

It seems like Obama's been in office for longer than just the few months he has because he was such a large figure even before he was inaugurated. Much has happened. He is fully now the president. And to a great extent, the issues he confronts are now his issues.

And I don't think it gets him anywhere for much longer to keep talking about the Bush administration, the problems he inherited. He himself -- Obama said that -- said at one point this week that President Bush didn't believe in global warming. Well, that's nonsense. President Bush said repeatedly he was concerned about global warming and believed it was happening. So you know, this -- Biden isn't the only one.

WALLACE: Well, let's talk about Biden, thought, and we'll get to the larger issue in a moment, Mara. I mean, I think it's fair to say -- and I think we'd all agree -- that Joe Biden has built two reputations during his decades in Washington -- one as a serious foreign policy thinker, and two as someone who occasionally puts his foot in his mouth.

But at least to me, I've got to say, since he was chosen as Obama's running mate, the ratio of foot in the mouth to serious thought seems to be moving against him.

LIASSON: Well, lately. He's been remarkably gaffe-free, actually, for a long time. Part of it is he gives very few interviews, and -- but he does -- the problem with this incident is, as Brit said, if his staff could just provide a date or a time, especially if they were in the Oval Office alone, that would give it a lot more credibility.

Because it fits into this pattern, I mean, whether it's talking about having a helicopter, being forced down in Afghanistan or other kind of stories that he's told over the years, it seems like it's a kind of Biden blarney tale. But maybe it's true. We just don't know.

But I do think to the larger point of the criticism of Bush, I think that it is a perfectly legitimate point for the Obama administration to say we inherited a tremendous amount of problems, and the public is inclined to believe that.

They don't blame Obama for the...

HUME: The public knows that.

LIASSON: The public knows that. They don't -- they give him tremendous amounts of patience and forbearance to fix the economic mess.

But I think it's quite different to bring up your predecessor's name, whether you or your staff, constantly to make the point, which is an -- almost an obvious point, that this administration and this president is so different from his predecessor.

WALLACE: Well, let's talk about the blame game, because this week, Bill, Jeb Bush, the president's younger brother, weighed in on the Obama tendency to blame their problems on the former president. Let's watch.

(BEGIN VIDEO CLIP)

JEB BUSH: If I had one humble criticism of President Obama, it would be to stop the -- this notion of somehow framing everything in the context of everything was bad before I got here, and focus on his duties.

(END VIDEO CLIP)

WALLACE: Bill, is it smart politics for the Obama administration to keep blaming the Bush administration for their problems? And how long is it going to work?

KRISTOL: It's probably smart politics, and they'll keep doing it as long as it seems to be working. The Democrats blamed Herbert Hoover for everything for about 20 years, and Republicans blamed Jimmy Carter for everything for quite a while.

And I don't -- you know, one can say as a matter of -- it's not very polite for a sitting president to refer explicitly to his predecessor, especially while abroad. I don't think Reagan did that about Carter. I'm not sure that Franklin Roosevelt did that about Herbert Hoover.

But as a general matter, I believe most intelligent Democrats watching this show are perfectly happy to have Jeb Bush and Karl Rove out there defending the Bush administration and making the choice seem Obama's new policies versus the allegedly failed policies of Bush.

WALLACE: So you think that this is -- this is smart, this is working.

KRISTOL: Yeah, yeah.

WILLIAMS: This is just politics. I mean, that's what you do. You blame your predecessor, and you do it for as long as possible, because it buys you time. And even after 9/11, all the Bush administration people were pointing out, "Hey, what about that Bill Clinton? How come he didn't do a better job of getting, you know, the terrorists when he had the opportunity?"

HUME: There was very little of that.

WILLIAMS: Well, it was around. In fact, I think Bill Clinton got into it with you about just that point, didn't he?

HUME: Yeah, but that's not -- but Chris doesn't represent the Bush administration.

WILLIAMS: No, but I'm saying... WALLACE: I don't remember that exchange.

(LAUGHTER)

WILLIAMS: Yeah. Well, it's Easter Sunday. Brit and I were talking about forgiveness earlier.

But it seems to me to be just politics, and that's what this is about. And the idea that Karl Rove and Jeb Bush are out there -- I think that's why Vice President Biden's office hasn't responded more aggressively. They think, "Look, you know, what? We don't need to respond to this."

If the face of the Republican Party at this point is Karl Rove and Jeb Bush, fine with them. They're delighted, because they don't think that those people have much credibility with the American public.

WALLACE: Speaking of Bush bashing, New York Senator Charles Schumer had an interesting take this week on the decline of what he called the hard right. You're going to want to watch this.

(BEGIN VIDEO CLIP)

SCHUMER: The old Reagan philosophy which, you know, served them well politically from 1980 to about 2004, 2006, is over. Traditional values kind of arguments and strong foreign policy -- all that's over.

(END VIDEO CLIP)

WALLACE: Now, I have to ask Bill Kristol about this, because he was the one who brought this sound bite to our attention. Are traditional values and strong foreign policy over? And I love this in the traditional foreign -- the traditional values.

And do you think Democrats really believe that?

KRISTOL: I don't think it's very smart for a leading Democrat to say that they don't believe in a strong foreign policy, but I look forward to Chuck Schumer defending that proposition, and I don't think President Obama would say, "Well, I'm against a strong foreign policy," or even, "I'm against traditional values."

I think those parts of the Reagan philosophy remain alive and well, and Senator Schumer is giving Republicans an opportunity to say, "Well, look, a leading Democrat himself has said that the Democratic Party appears not to believe in traditional values or a strong foreign policy."

LIASSON: Look, if anything, President Obama has gone out of his way to talk about traditional values. And he casts everything -- every new, kind of progressive policy is wrapped in the rhetoric of conservative traditional values and also strong foreign policy.

I would say that was a rare gaffe by Senator Schumer, who does talk a lot but rarely puts his foot in his mouth, and he did -- he did then, and I'm sure he wants to walk it back.

WILLIAMS: But I think -- I think President Obama delivered a message in Europe that said, "You know what? It's time for America to stop being the world's policeman."

LIASSON: But that's different than not having a strong foreign policy.

WILLIAMS: Well, you can have a -- but our strong foreign policy has been aggressive, interventionist. And here's a statement that says, "Look, wait a second. We will work with other people. Diplomacy has a role."

Of course, that's part of what you could construe as a strong foreign policy, but it's not this belligerent, aggressive foreign policy that people associate with the last eight years.

KRISTOL: You were the guy who was just calling for belligerent, aggressive action against the pirates.

WILLIAMS: They took action against us. We're responding to them. We're going to stop that kind of stupidity.

KRISTOL: I think that was basically true of Reagan and Bush's strong foreign policy.

WALLACE: All right. Let's -- we've got a minute left, and we've got to talk about the important thing, because finally -- and this is the thing that's probably going to interest everybody the most -- there it is.

That's -- the White House has released a picture of the new first puppy. He is a 6-month-old Portuguese water dog who -- that's not his color; he has leis around him -- the Obama girls have named Beau.

There was a top-secret meeting a few days ago where the first family got to meet Beau. He was given to the girls by Senator Ted Kennedy, who has three dogs of the same breed and apparently has been lobbying the Obamas hard.

Brit Hume, do you have a comment to make about Beau?

HUME: Beau is not my type of dog. I like the name, but it doesn't seem to fit that little -- girly little dog.

LIASSON: That dog is going to grow up to be a bigger dog. That's a puppy.

WALLACE: Let me simply say, as the host of this show, there will be no Beau-bashing on this show. We are in the tank to Beau. We can criticize the Obamas, not Beau.

Thank you, panel. See you next week.

And don't forget to check out the latest edition of Panel Plus, where our group keeps arguing on our Web site, foxnews.com/fns, shortly after the show ends.

Up next, our Power Player of the Week.

(COMMERCIAL BREAK)

WALLACE: He's a man of the cloth who is also called on to have sharp political instincts. During what is a deeply meaningful season for him, he's our Power Player of the Week.

(BEGIN VIDEOTAPE)

WUERL: It's very big, because this is the time every year when we basically renew our hope.

WALLACE: Donald Wuerl is the Catholic archbishop of Washington. And he was talking the other day about the celebration of Easter, which he says is as exciting for him today...

(BEGIN VIDEO CLIP)

WUERL: Do this in memory of me.

(END VIDEO CLIP)

WALLACE: ... as when he became a priest 32 years ago.

WUERL: You realize at the end of the week it's been a good week, a glorious week, but it's also been a taxing week.

WALLACE: But even with the good news of Easter, Wuerl knows the hard times many of his parishioners face.

WUERL: If you are recently out of work or if you're concerned that you're not going to be able to meet some of your payments like tuition payments -- people come with a different -- a different need.

WALLACE: He's also launched a campaign over the Internet to try to persuade people to come back to the church.

(BEGIN VIDEO CLIP)

WUERL: You know, sometimes we get so busy, we can get so caught up in life and all the things going on, that we drift away.

(END VIDEO CLIP)

WUERL: And so we want to be able to say to them, "Maybe it is God. Maybe that's the answer. And we'd like to -- we'd like to talk to you about that."

WALLACE: But what sets Wuerl apart is he's the voice of the Catholic Church in the nation's capital.

WUERL: Very often the archbishop of Washington has to comment on public policy, and he does that not out of a sense of politics but out of a sense of guardian of that great religious, moral, spiritual heritage that's rooted in the very founding of our country.

WALLACE: These days, that often means speaking out against the policies of President Obama, such as the decision to lift the ban on federal funding of embryonic stem cell research.

WUERL: We have to decide we're going to destroy the beginnings of human life in the hope that we might do something for ourselves. And it's unnecessary. Adult stem cells are producing those lines.

WALLACE: Or the president's plan to rescind the so-called conscience clause, protecting health care workers who don't want to perform certain procedures.

WUERL: To say to someone, "You must be involved in the death of an unborn child," is so abhorrent that I don't think anyone wants to get into that.

WALLACE: All of which leads Wuerl to agree with other bishops who wish Notre Dame would rescind its invitation for the president to speak at next month's commencement.

WUERL: I don't think when we get into issues of life I think we would be better served to continue that discussion without appearing already to have decided the administration's position is worthy of praise.

WALLACE: But on Easter week, even in Washington, politics takes second place. We asked the archbishop for a holiday message.

WUERL: The perennial joy of Easter is the simple recognition the tomb is empty. Christ is risen. And that's the message and the joy and the satisfaction and the hope of Easter.

(END VIDEOTAPE)

WALLACE: And that's it for today. Enjoy the rest of your Easter. Have a great week, and we'll see you next "FOX News Sunday."