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Governors on "Fox News Sunday"

Fox News Sunday

CHRIS WALLACE, HOST: I'm Chris Wallace and this is "Fox News Sunday."

While the candidates criss-cross the country, we'll discuss the battles between and within the parties as well as possible vice presidential nominations with four key governors: Republicans Tim Pawlenty from Minnesota and Mark Sanford from South Carolina, and Democrats Tim Kaine of Virginia and Jon Corzine of New York.

Then the New York Times goes after John McCain. How solid was their story and did it do McCain more good than harm? We'll ask our Sunday regulars -- Brit Hume, Mara Liasson, Bill Kristol and Juan Williams.

And our Power Player of the Week, the hired gun running the McCain campaign, for no pay, all right now on "Fox News Sunday."

And hello again from Fox News in Washington. While the presidential candidates are campaigning for the next Super Tuesday, most of the nation's governors are here in D.C. discussing the problems facing their states.

Joining us now to talk about those issues and the presidential race are four leading governors -- Tim Pawlenty, Republican from Minnesota; Mark Sanford, Republican from South Carolina; Tim Kaine, Democrat from Virginia; and Jon Corzine, Democrat from New Jersey.

Governors, welcome to "Fox News Sunday." Good to have you here. Let's start with a look at your states and how they may vote in November.

Governor Pawlenty, Minnesota has the longest streak in the nation of going for a Democrat. The last Republican to win in Minnesota was Richard Nixon back in 1972, but in 2004 Kerry beat Bush by only 51-48. So, question: What are the chances that Minnesota finally goes Republican this year?

PAWLENTY: Well, in the land of Humphrey, Mondale, Wellstone, McCarthy, what you're seeing is a drift toward a competitive political state.

And it's certainly not conservative yet, but it's been moving in that direction, so instead of being blue, I'd say it's a purple state and it's going to be a competitive state come November.

WALLACE: Governor Sanford, South Carolina -- and let's do a little history with you -- has only gone for one Democrat since 1964. That was Jimmy Carter back in '76. Would Barack Obama, with his appeal to the African American community, have any chance in your state?

SANFORD: Despite record turnouts -- and he's done a fabulous job of getting people energized in our state -- the answer is still no. If you look at the numbers, whether in the presidential races or, frankly, the midterm races, the Republican numbers are just overwhelming.

WALLACE: Governor Kaine, the Republicans have carried Virginia every election since 1964. And for all the talk about it becoming a purple state, Bush won by 9 points last time.

How much of a chance, if he were the nominee, would Obama have in November?

KAINE: Chris, I think Barack would have a great chance of winning. And what we saw in our primary on February 12th was he got more votes in an open primary than all of the Republican candidates combined.

One-third of his voters were first-time voters, and it was truly a mammoth turnout in his favor. And that suggests that just as the Democrat, Mark Warner, won the governorship in '01, I won in '05, Jim Webb won the Senate race in '06, we're going to see Virginia's votes in play for the first time in 44 years.

WALLACE: Governor Corzine, New Jersey tilted Republican during the '80s but has swung back to the Democrats since then. Does John McCain have a chance in New Jersey in November?

CORZINE: Well, he plays to a centrist element in our state which is pretty consistent whether you're a Republican or Democrat.

On the other hand, we had 1.1 million voters in the primary this year, which is the largest turnout in the Democratic primary since 1928. There's a lot of enthusiasm about both candidates in our state, and I think Democrats are going to do very, very well in New Jersey in the fall.

WALLACE: All right. Let's focus for a moment -- Republican governors, we'll get back to you in a second -- on the Democratic race.

Governor Kaine, you support Barack Obama.

KAINE: Yes.

WALLACE: If Hillary Clinton fails to win both Ohio and Texas on March 4th, should she drop out for the good of the party?

KAINE: I'm not going to presume to tell the Clinton campaign what they should do, but I think you've asked a precise question. I think it's very challenging for her if she does not win both states.

She's the leader in both states in the polling now, but what we see in the Obama campaign is really strong momentum in both Ohio and Texas. And if she's not able to win both, I think it makes it mathematically very difficult for her because of the way the Democrats use the proportional system for allocating delegates.

So again, I wouldn't presume to give advice to that campaign. They'll make their own decision. But I think it's a must win, that they must win both, and probably need to win convincingly to have the momentum to go forward.

WALLACE: If you're not giving advice, at some point for the good of the party, would the trailing candidate, whoever it is, need to get out to allow the Democrats to do what the Republicans are doing right now, which is to unite?

KAINE: I think that would be smart for either candidate. At some point it will be clear to both sides -- when, again, you just look at the basic rules of math about how the delegates are counted and how many you need, at some point it will be clear what the outcome will be.

And I would expect in that circumstance that whoever is the trailing candidate would drop at that point.

WALLACE: Senator Corzine, you support Senator...

CORZINE: Senator.

WALLACE: I mean, sorry, I did say that -- yes, old habits die hard.

CORZINE: Right.

WALLACE: Governor Corzine, you support Hillary Clinton, but she has lost 11 straight contests. At some point, does she, for the good of the party, have to consider dropping out?

CORZINE: Chris, those of us who are supporters of Senator Clinton believe and feel pretty positive about what's going to happen in Ohio and Texas. Our read is that she's doing well. She turns that momentum around if she does well there.

If she doesn't, I think she'll have to review where she stands, and that's what the former president talked about this week.

I do think it is important that we get on to coalescing around a candidate, but I think it ought to be the one that will serve the nation best, the one that actually has the talent and the ability to make sure that we lead the country in the proper direction.

I think that's Hillary Clinton, but if the voters speak differently in Ohio and Texas, then I think it's -- I think the time to move on probably is at hand.

WALLACE: Let me ask you both one more question before we get to the Republicans. Superdelegates, party big wigs, elected officials -- I assume the both of you are superdelegates. CORZINE: Are you one of those guys?

WALLACE: Should they use their own judgment, or should they follow the popular will and vote for whoever at the end of the process is ahead in pledged delegates and popular vote?

KAINE: My sense, Chris, really, is kind of practically they will end up following the popular will. I've never been that worried about the superdelegate issue because I felt like there would be a momentum to this campaign, that the momentum by early March will be pretty clear.

My sense has been in talking to uncommitted superdelegates that they are going to follow that momentum. And so at the end of the day, you know, there's been a lot of speculation -- could this be a brokered convention with superdelegates? -- but you know, again, on the Obama side, we're seeing a very strong momentum in these last 11 contests beginning on Super Tuesday.

We continue to believe that there's likely to be good momentum into early March. And I think the superdelegates will follow the will of the electorate.

WALLACE: Governor Corzine?

CORZINE: On that issue, I agree with Tim. The fact is we'll see how March 4th comes out. I'm a lot more upbeat about Senator Clinton's chances in that period.

We have big state in Pennsylvania still to vote, still to sort out two very important elements or states in our system, and that is Florida and Michigan -- how that ends up being decided, how those votes are taken into consideration.

So I think this race is still on. And I feel superdelegates will end up trailing along with the conclusions that I think the voters express.

WALLACE: All right.

Let's turn now to the Republicans, because both of you have been mentioned as possible running mates for John McCain.

Governor Pawlenty, a column in the Wall Street Journal just yesterday -- and I suspect that you read it -- said this about you, "If the Arizona senator wants to unite conservative Republicans behind him, there are better choices."

The writer said that you're too liberal on spending, on government mandates and the environment. How do you respond?

PAWLENTY: Well, I think that was written by one of our local talk radio show hosts in Minnesota who's had some differences with me on things like being friendly toward the environment.

But I think if you look at my record overall, it's been a fiscally conservative record and a socially conservative record. This particular writer, I think, has taken issue with a few things.

But more importantly and beyond all of that, I support Senator McCain not because I need some other job or want some other job, because I believe he's going to be a fantastic president for this country.

He's a main of great courage, patriotism, valor. He's going to unite the Republican conservative base. But he can also appeal to independents and conservative Democrats. He's going to give us our best shot to win.

WALLACE: Would you be interested in running with him if he asked you? And do you think you could add something to a ticket both politically in terms of policy and also in terms of perhaps putting the upper Mississippi Valley into play?

PAWLENTY: You know, I have a day job, and I support him because I think he'd be a great president, not because I want to be vice president.

And he'll have a lot of great choices when it comes to that down the road to pick a vice presidential candidate. And I wish him well in that regard, but I'm trying to do my job and being focused on being governor of the state.

WALLACE: Now, you're considerably tougher than McCain on illegal immigration. You have signed an executive order that would allow state officers to go after some illegal immigrants. You also want to ban sanctuary cities.

Would that be a problem running with John McCain, who has taken a more comprehensive approach?

PAWLENTY: Senator McCain has said that he has heard the message and he wants to secure the borders first, and so that's where we're going to have a focus on immigration. He and I agree on that, and there are many other aspects of the immigration issue that we agree on as well.

However, you know, there are some differences between the bill that he had proposed earlier and what he envisions as a future immigration plan for the future. He said the bill that he proposed earlier probably won't get to his desk, probably won't get through Congress, so he's focused on securing the border.

I agree with him on that and I support him on that, but I don't support sanctuary cities. I don't think it's a good idea to have law enforcement, local or state or federal, be prohibited from asking people about their immigration status if the circumstances warrant.

I suspect a majority of Americans would agree with that as well.

WALLACE: Governor Sanford, no one ever said you were too liberal, but some have complained about your style.

Back in 2004 when you were in a spending battle with your state legislature -- and yes, we have the pictures; let's put them up -- you brought two live pigs into the house that you called "Pork" and "Barrel."

The Republican speaker of the house called it insulting and childish, and you still have fairly testy relations with your own legislature.

SANFORD: Well, what's forgotten in that story was -- you know, everybody remembers sort of the headline with the pigs at the end, but...

WALLACE: People don't forget the pigs.

SANFORD: Yes. Well, what was forgotten was the policy part, which is we were in a year-long debate on an unconstitutional $155 million deficit.

And we tried every cerebral, intellectual, thoughtful approach under the book, and it hadn't worked. And so we found ourselves $16 million short, and the question was were we going to commit that $16 million literally to pork or -- pork is always viewed in the eyes of the beholder, but to things in different people's districts, or were we going to close off that deficit and, as a consequence, set precedent for the next 50 years or 100 years on the sanctity of our balanced budget requirement in South Carolina.

And so ultimately that was our last resort, and what is forgotten is that it worked. Two weeks later the senate found the money, closed off the $16 million and closed off that unconstitutional deficit.

WALLACE: Would you be interested in running with John McCain?

SANFORD: I go right back to what Tim was saying just a moment ago. I mean, any of us have awfully busy day jobs, and add to that we've got four young boys back at the house.

So you know, you worry about these kinds of lightning strikes if they come your way, but you don't worry about them until then. I mean, you focus on the job at hand. And as I say, a number of us have small kids around the house as well. And the two of those things keep us awfully busy.

WALLACE: Governor Kaine, on the Democratic side, you've been mentioned as a possible running mate for either Obama, who -- you're one of his main supporters, or for Clinton, because you might be able to put red states into play. What do you think about that?

KAINE: Well, I mean, these guys are giving me a good guide. Look, it's nice to be on a list. My mom likes it if I'm on a list. But I do have a very important job at hand, which is governing Virginia, and I want to do everything I can to help Barack win Virginia, and I think I can do that as governor.

You know, what we showed in the primary on February 12th -- he won men voters overwhelmingly, women voters. He nearly won the white vote, won urban, rural, won the Latino vote. There's an awful lot I can do in Virginia to help him be successful, and that's where I really want to focus.

WALLACE: Let me ask you all -- and we have just a brief time before we go to a commercial. I want to ask you all to react to the fact that Ralph Nader has announced that he is going to run again for president.

Governor Pawlenty, let's go down the line here. I guess the conventional wisdom would be that that would help the Republicans and hurt the Democrats as it did back in 2000. Your reaction to Nader getting in?

PAWLENTY: Well, it's a free country. If people want to run for office, they should be able to do that. And you know, I don't think any one party has a monopoly on who should be able to run or why they should be able to run.

WALLACE: Governor Sanford?

SANFORD: I suspect that Ralph suspects that it helps him more than anybody else. I don't think it affects the race materially.

WALLACE: Either side.

SANFORD: Right.

WALLACE: Governor Kaine, let me ask you, because, you know, it certainly wasn't a difference in 2004. It was in 2000 for Al Gore.

KAINE: Right. Well, I think it's kind of declining interest to the American public what Ralph says he's going to do. I mean, he's the Harold Stassen, you know, the great perennial candidate.

I mean, when you get into running for your third or fourth time, I don't think people will pay that much attention to it, and I wouldn't see it having any effect on the race.

WALLACE: Governor Corzine?

CORZINE: I agree with that 100 percent. I think the more interesting question is whether Michael Bloomberg gets in.

WALLACE: And?

CORZINE: Well, I think that would have major impact on the outcome of the race, and I think it's unpredictable which side would hurt the most on that.

But that's a question that's much more relevant, I think, to the end game of who the next president of the U.S. is.

WALLACE: All right. We need to take a break here.

But when we come back, we'll talk about some of the key issues facing all of these governors' states that may also decide the presidential election. Back in a moment.

(COMMERCIAL BREAK)

WALLACE: And we're back now with Governors Tim Pawlenty from Minnesota, Mark Sanford from South Carolina, Tim Kaine from Virginia, and Jon Corzine from New Jersey.

Gentlemen, you're all in town for the winter meeting of the National Governors Association.

Governor Pawlenty, you're the chairman of that august group. I want to talk about what may be the biggest issue right now, and that's the economy and the effect it is having in your states and states across the country -- huge deficits.

Governor, how bad is the situation at the state level, and what would you like the federal government to do about it?

PAWLENTY: Chris, the National Governors Association estimates that 19 states currently are in deficit. They estimate that number will be around 40 a year from now.

So the economy's weakness is now being reflected in the revenues coming in to the states. It affects different states differently. It depends on what part of the country you're in.

If you're an energy producing state or a state that has a big defense contracting industry, those states are tending to do a little better than other states.

Mostly we have to solve these problems at the state level. We have balanced budget requirements at the state. The federal government has its own financial problems, obviously.

But we have an important financial relationship with the federal government on Medicaid and a variety of other programs. And so as they try to retool and refinance some of those programs, we need to do it in a way that gives the state at least flexibility, if not more money.

We'll be looking to partner with them as they're going to be making some budget cuts or budget restraints as well.

WALLACE: Governor Kaine, let me pick up on that. I understand that some of you are thinking about pressing Congress and the president for a second stimulus package to help with some of the state shortfalls. KAINE: That's some of the discussion that we're having. I think, you know, from our standpoint, stimulus that would focus upon infrastructure would be both great for jobs but also would really speak to a need that we're seeing around the country, transportation infrastructure and others.

So those are some of the points that we'll be talking about here over the next couple of days.

WALLACE: Governor Sanford, let's pivot to the debate over taxes and spending that certainly will be one of the dominant issues in the November election.

The Democrats say roll back the Bush tax cuts for the wealthy and instead focus and target on helping the middle class. What's wrong with that idea?

SANFORD: Well, I think a lot of folks -- and there's a lot of economic data to support this -- don't believe that you can tax your way to prosperity.

And so I think that come this fall, there's going to be a tremendous debate between where Senator McCain will be and whoever the Democratic nominee might be on where we go next as a country.

And I think it goes straight to -- you know, Thomas Friedman visited yesterday with the nation's governors...

WALLACE: The New York Times columnist.

SANFORD: ... and talked about competitiveness. And I think that if you really look at an agenda of competitiveness, one of its absolute foundations has to be being competitive with the rest of the world with regard to tax and spending policy.

WALLACE: Governor Corzine, if this does become -- and you know the Republicans are going to try to make it a debate about who's going to raise your taxes and who's going to keep them low. Democrats generally lose that debate, at least politically.

CORZINE: The middle class in this country is under enormous pressure, under health care, education costs, energy costs, and now their jobs are at risk.

And I think that there is a sense that we have made certain sectors of our society better served by the tax system than others, and now we're talking about cutting Medicaid through regulation rules, a whole series of things that are going to put even more pressure.

And so I think politically there is a real opportunity to say that we're not -- we're not looking after the needs of the middle class, and I think that's the argument Democrats are going to have to make. I hear it in New Jersey all the time.

WALLACE: Let me pick up on that. Governor Pawlenty, you came up with the phrase "Sam's Club Republicans," as opposed to country club Republicans, and the idea is that the Republicans have to be seen as trying to find some way to reach out and to help working families.

But if you've got Obama or Clinton, whoever the nominee is, going out in the fall and talking about vastly expanding health insurance and other social programs, how do you compete in terms of reaching out to the working men and women of America?

PAWLENTY: Well, and we'll see who the Democratic candidate is, but one of the questions I'll have for -- and I think the country will have for Senator Obama if he's the candidate is when he says, "Yes, we can," we also have to ask the rest of the question, which is, "Do what?"

And when you go down the list of things that he's proposing, I think it's going to be quite expensive. And so when you go to American families, middle class families, and you say, "When you're struggling to pay fuel costs or gasoline costs, and you're struggling to pay your health care costs, and you're struggling to pay more for groceries, do you really want the federal government to rack up a big bill and visit tax increases upon you," and I think the answer for most Americans, including middle income and moderate income Americans, is going to be, "No, we don't."

WALLACE: Governor Kaine, as the Obama surrogate on this panel, answer Governor Pawlenty.

KAINE: Sure, I'd be glad to. I mean, I think the issue is not how we're going to spend money, but where we're going to spend it. And what Senator Obama has said is, "Look, we made a fundamental error when we took our eye off the ball in the war on terror and Al Qaida and went to Iraq and the expense of that is a crusher."

And you combine that with waging that war while cutting taxes -- no wonder the federal government is in such a deep challenge in terms of its revenues.

What Senator Obama would do as president is redirect an awful lot of that expenditure, which he does not believe is wise, to winning the war in Afghanistan and then engaging again in the domestic priorities that working men and women care about.

And so that is where he's going to find the funds for health care reform, and for middle class tax relief, and for the supplement that he would give to those who are sending their kids to college.

We're just spending the money in the wrong place.

WALLACE: Governor Sanford, does the math add up? If you pull back from Iraq, that you now get money that you can have a windfall for social programs, domestic spending?

SANFORD: Yes, I'd say, with all due respect to my friend Tim from Virginia, in this instance -- I mean, you know, the New York Times is hardly the bedrock of the conservative movement, but you can look at -- whether reporting from them or a whole host of different outlets -- what you're really looking at is about a $300 billion tab in proposed new spending over the next four years, some of which could be offset by differentiating funds with regard to war on terror, but absolutely not all of it.

And that seems to be a consistent refrain across a number of different reports. So from my end, from what I've seen, the math does not add up. And it goes right back to what we were talking about just a moment ago.

We have got to go back to looking at do Americans want a second mortgage. They're already struggling to pay the mortgage on the house. Do you want to add yet another mortgage in paying for Washington new programs?

WALLACE: Let's let Governor Corzine...

CORZINE: Neither Senator Clinton nor Senator Obama are talking about raising taxes on the middle class. And in fact, if anything, they're talking about actually reducing those burdens.

And they are, clearly, both of them, suggesting that we need to do things about higher education, we need to do things about health care, we need to do something about the economy to get it going so that people can be earning incomes that they can then actually have the ability to pay taxes on.

The reality is that we have to cut back on the spending on our war and redirect it to our domestic economy.

WALLACE: All right. Just one last area I want to get into with all of you, which is -- and I know another thing that you're all interested in and the governors are going to make a big push on this week here in Washington -- clean energy.

Governor Pawlenty, you've imposed some of the most aggressive renewable energy mandates in the country. Minnesota's biggest utility -- I think I've got this right -- must get 30 percent of its power from renewable energy sources by the year 2020. Is that a conservative solution?

PAWLENTY: Well, in fact, when we put that requirement in law that we're going to get 25 percent of our energy by the year 2025, our major utility in Minnesota, Excel Electric, came forward and said, "You know what? We'll do 30 percent by 2020."

They raised their hand and cooperated with the -- trying to meet that benchmark and are excited about moving to more wind, more solar, more forms of renewable energy.

And so they're our partner in this discussion, and they're actually now a leader in the movement toward renewable energy in Minnesota.

And we're seeing more and more business leaders, private sector leaders -- yesterday we had Jeff Immelt, the CEO of General Electric, come forward and say, "We can do this. Give us a goal. Give us a benchmark. We'll meet it and we'll manage to it and lead toward it."

So the private sector now is responding in very positive ways toward those kinds of approaches in Minnesota and other parts of the country.

WALLACE: Governor Sanford, you call yourself a conservative conservationist. I've been practicing that all day to get that out right. Do you support government mandates like that, government forced mandates for clean energy?

SANFORD: Well, that's part of a longer debate. We had a very heated governors-only lunch yesterday.

WALLACE: I guess the answer means no, then?

SANFORD: Well, no, it means it's worth a whole lot more conversation in coming up with something that works.

WALLACE: Governor Kaine, you've just issued a plan to cut greenhouse gases in the state of Virginia by 30 percent. How much can states accomplish in the absence of more action by the federal government?

KAINE: This is something that we're really talking a lot about here at the NGA. There are things that we can do and there are things that we should do both because we want to be smart in our own states, but we're also, many of us, acting to try to inspire the federal government to act as well, because the climate change issues -- they don't know the dotted line boundaries between states or even between countries.

And unless there's a national policy on this, we can't accomplish what we need to do for the environment. So states like Virginia, all the states represented here, we're pushing in our own ways trying to do things that we think will serve our citizens, but I think all of us hope that our efforts lead into significant action at the federal level.

WALLACE: Governor Corzine, we've got just a few seconds left -- your final thoughts on this subject.

CORZINE: Well, we have to work more than just in our states. Certainly, at national level, the northeast governors are putting together a cap and trade program. We have targeted mandates to reduce greenhouse gases in New Jersey.

But states surrounding us -- if we work together, we can actually make a real in-road on it. This is a bipartisan consensus that we need to move forward on this area. I think we need mandates.

WALLACE: Gentlemen, thank you all. Thanks so much for, during your brief time here in Washington, coming in and sharing your thoughts with us. We very much appreciate it. Up next, the Democratic race for president. How does Hillary Clinton pull out wins in Ohio and Texas? And if she doesn't, is her campaign over? We'll talk with our Sunday regulars when we come right back.

(COMMERCIAL BREAK)


(BEGIN VIDEO CLIP)

H. CLINTON: Shame on you, Barack Obama. It is time you ran a campaign consistent with your messages in public. That's what I expect from you. Meet me in Ohio. Let's have a debate about your tactics and your behavior in this campaign.

(END VIDEO CLIP)

WALLACE: Well, so much for any thought that Hillary Clinton was getting ready to gracefully drop out of the Democratic race. That was her angry response in Ohio yesterday to two flyers the Obama campaign is distributing on her support for NAFTA and mandated health insurance.

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

It was just a few days ago at a debate in Texas that Hillary Clinton said she was honored to have run in this campaign with Barack Obama. Some people thought that she might be preparing for the end of the campaign.

But, Brit, she apparently doesn't feel so honored anymore.

HUME: Well, I liked that. That was scrappy and combative and compelling and sounded nothing like the woman in the debate.

The question is if they have a debate in Ohio, such as she calls for, would she do the same thing she did out there on the stump and really take him on or not.

The risk for her is that when she does that in front of a room full of Democrats, she gets booed, which is what happened in Texas when she began to criticize him on that alleged plagiarism of ideas or sentences from Deval Patrick, one of his supporters.

So I mean, I think she's in a terrible dilemma. I mean, you kind of think that maybe if she could recast herself as a true fighting underdog, behind, against the odds, making a big comeback and being combative the way she was there that people, that it might catch people's imagination and she might get a little boost out of that. She closes well, you know. Late deciders tend to break for her. So she's got a chance here. The question is will she carry that over into the way she keeps campaigning and will she carry it over to these debates, which are very widely watched.

WALLACE: Well, Mara, answer that question, but also answer why, if she's going to take that strategy, she didn't use it a couple of days ago when -- you know, she needs all the breaks she can get in these final days before March 4th.

LIASSON: Right. To just leave it for the very last debate which they're going to have in Cleveland on Tuesday is putting a lot of weight on that one debate. Look. I agree with you, that's a good question.

It is very hard to deliver those attacks when you are sitting right next to your opponent in a debate. It's hard. And she does get booed in debates -- when she tried that one little zinger about plagiarism, she got booed.

And that is, I think, a pretty weak attack for him, especially since her closing remarks, which were so emotional and effective, actually quoted almost word for word John Edwards and Bill Clinton.

But, look. I think that she has two lines of attack which she previewed there -- his mailings about her on NAFTA and on health care. I think on NAFTA, he has a much stronger argument.

I have a feeling that in Ohio especially, the fact that she has been a supporter of NAFTA in the past -- whether or not she ever used the word "boon" to describe it, she has been a supporter of NAFTA. And there are many, many quotes, positive things that she's had to say about it.

On health care, I think for him to say that she was going to force everyone to have health care whether or not they could afford it is a little bit misleading, since she plans to give everyone subsidies just like she does.

But she said, "Meet me in Ohio. We're going to have a debate about your tactics." She certainly promised what she was going to do on Tuesday. We'll she if she actually does it.

KRISTOL: Look, she needs to take him down, but the way to take him down is not to have a debate on his tactics. That's the huge mistake here. Shame on you, you're running a campaign inconsistent with your message, you're a little misleading in some leaflet you're distributing, some flyer on health care -- that's ludicrous at this point.

He's riding a wave of euphoria. She needs to puncture it. The way you puncture euphoria is reality or, to be a little more blunt, fear. And I recommend to Senator Clinton the politics of fear, which I can do as a member of the -- no, she needs to -- but it's fair enough. She needs to say not, "Ooh, this campaign tactic's a little out of line." She needs to say, "Let's wait a second here. Is this man ready to run against the Republicans for president of the United States in a time of war? And is he ready to be president? He wants to negotiate on January 21st with Ahmadinejad. Here's what Ahmadinejad has said about blowing up Israel. He's never run a serious race. He's not ready for the job."

She needs to take on his qualifications to be president and his qualifications to beat the Republican nominee, not complain about little campaign tactics.

LIASSON: So you're saying take him on from the right.

KRISTOL: No.

LIASSON: That's the problem.

HUME: That's the problem, Bill.

LIASSON: That is the problem for her.

KRISTOL: Well, she can't be so scared that someone will say, "You're taking him on from the right or sounding like a Republican," that she doesn't take him on.

I don't think it's really from the right. It's more from the question of he has been in the United States Senate three years. He has said some silly things during the debates that she differs with him on, but then she doesn't really press the advantage.

And I think she really just needs to say, "Wait a second, Democrats, let's have a little buyer's remorse here. That was exciting. It's an attractive, shiny package. Are you sure you want him as your candidate? And are you sure you're ready to have him as your president?"

WILLIAMS: Well, that gets back to what Brit was saying about the fact in the last few days, typically, voters swing toward her.

But the thing is how do you do that? Now, I disagree with you. I think that if she says that about him, what you'll see is he'll come back and say, "Well, Bill Clinton didn't have any much more experience with foreign policy than I did when he ran, and he was an agent of change."

I think it comes down for him to having to say to the voters, "Listen, I really am not trying to insult or dismiss the Clintons, I just think that, you know, I'm focused on tomorrow," just the kind of rhetoric he's saying with such success.

For her, I think it comes back to this. She has got to show some fight, but she can't do it in a way that lacks grace. And I thought she was very gracious in the debate in Austin.

What she did was -- and you know, Chris talks about it as if it might have been a valedictory, as if she was saying, "Goodbye, I lose." No.

I think she was appealing to white women and saying, you know, "I'm not going to be catty or mean to this young man, but I want to be very clear that I'm the mature one in this race, I'm the one that understands what's at stake in terms of defeating the Republicans in November, and I'm the one who's able to really beat those Republicans."

And so I think it was an effective message, although the way the press played it, I think, you know, clearly, obscured or confused what she was trying to do.

LIASSON: You know, it also is true that at another point in this race when it looked like she was going to be eliminated, the Democrats said, "Whoa, we don't want her to be eliminated." And that, obviously, was New Hampshire. They might feel that again.

HUME: Which is why I think that the underdog role is one that she must embrace and, indeed, promote and, you know -- because I think that that helps her.

And the other thing is that in the long history of her career, when she is riding high, she's not as attractive to people as she is when she seems wounded, whether by her husband or by political circumstance.

And my sense of that is that, you know, a little -- and a little emotion wouldn't hurt, either, and that gives her a chance. I don't think the odds are good, but I think that she's still in it.

WALLACE: Let me just throw one thing into this, because it speaks to the whole issue of the fact that Senator Clinton's had a hard time settling on a consistent, effective message.

Put up this graphic. Something called the Wisconsin Advertising Project did an interesting analysis of the commercials both Clinton and Obama ran in that state. Obama outspent her, as you can see, 5-1. Nothing she could do about that.

But while she attacked him basically for not debating enough, she never mentioned change. She also never mentioned experience.

Bill, hasn't the Clinton message been awfully garbled?

KRISTOL: Yes, and they need to go up with an ad -- I've been thinking about this since I read that story myself.

In the last week in Ohio and Texas, they should find a working class or middle class Ohioan and a working class or middle class Texan who goes - - put her, probably, on camera saying, "You know what? I went to a Barack Obama speech a few months ago, and it was great and it was really inspiring. But I've done a little research since then. He touted the endorsement of Zbigniew Brzezinski as one of his top foreign policy advisers. Brzezinski was in charge of Jimmy Carter's foreign policy. That was a disaster. He said he'd negotiate with Ahmadinejad. That's ridiculous I've changed my mind. I think Hillary Clinton..."

WALLACE: So you're saying raise doubts, serious doubts about...

KRISTOL: Right. "I think Hillary Clinton is the person --" She needs to go right at him on the fundamental question of whether he's prepared to be president.

HUME: I think that's a method still, though, Bill, that works better from the center or the right than it does from the left. I just don't think that -- you know, I think a lot of Democratic voters hear Obama say, "I'll sit down with Ahmadinejad right away," and they think, "Amen."

LIASSON: Not necessarily working class white voters in Ohio. It's a little bit of am ore pragmatic -- they're not political romantics there. They're pretty hard-nosed.

But look. I think that those statistics about Wisconsin are incredibly telling. I mean, this is a campaign that made a strategic error. It didn't think beyond February 5th. It never had a plan for Wisconsin because it never thought it needed a plan for Wisconsin. It was almost an afterthought.

And then they obviously had no choice but to turn their attention to Texas and Ohio because they were out of dough.

WILLIAMS: Well, the attacks that are working -- you know, I mean, this comes back to what you have been saying. I agree, they would work. I mean, it's like McCain this week saying that these are eloquent but empty calls for change on the part of Barack Obama. But it's coming from the right.

And what she has to do is she has to reassert herself as really controlling this race, that she's the mature, strong vision of the Democratic Party, and that if you are going to give her up, you are potentially then paving the way for John McCain to win.

KRISTOL: There have been two Democratic presidents in the last 40 years, I think, right? Jimmy Carter and Bill Clinton. She needs to say, "Look, I was with Bill Clinton. That was a successful Democratic presidency," successful for liberal policies, incidentally, "Barack Obama is Jimmy Carter -- nice man, wanted to do well, total disaster for the country and for the Democratic Party."

WILLIAMS: But you know what Barack Obama has said, "People who are supporting me are not delusional. They might be, you know, in a way fanatic and taken with me in a frenzy, but they're not delusional." And people are still going to Barack Obama.

WALLACE: Well, this is an indication, this conversation, of all the problems that Hillary Clinton has, because I'm sure she's getting all this advice from her various advisers, and of course, she's paying a lot of money for it in the process. All right.

We need to take a break here. But coming up, the battle between the New York Times and John McCain. How strong is the story about the senator and the lobbyist? And will the article rally conservatives to the McCain camp? Some answers in a moment.

(COMMERCIAL BREAK)

WALLACE: On this day in 1976, Jimmy Carter won the New Hampshire Democratic primary. Carter went on to beat Gerald Ford in the general election that fall and become the 39th president of the United States.

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

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

J. MCCAIN: Obviously, I'm very disappointed in the article and it's not true.

(END VIDEO CLIP)

(BEGIN VIDEO CLIP)

C. MCCAIN: My children and I not only trust my husband but know that he would never do anything to not only disappoint our family but disappoint the people of America.

(END VIDEO CLIP)

WALLACE: That was John and Cindy McCain flatly denying allegations in a New York Times article of improper personal and professional conduct.

WALLACE: And we're back now with Brit, Mara, Bill and Juan. So, the senator and the lobbyist. Clark Hoyt, who is the New York Times' public editor ombudsman joins the critics of the New York Times in today's edition of the paper.

He writes, "If a newspaper is going to suggest an improper sexual affair, whether editors think that is the central point or not, it owes readers more proof than the Times was able to provide."

Brit, is he right?

HUME: Well, not only is he right on that point, that they didn't come anywhere near establishing that there was an improper relationship between the lobbyist and the senator, they also didn't do any -- come anywhere near establishing that the senator had done any improper favors for the lobbyist or the interests that she represented.

Indeed, all they could come up with were a couple of letters urging the Federal Communications Commission to go ahead and make a decision, which the senator explicitly said in both of his communications he didn't - - he wasn't asking them to make it either way. He was just asking them to make it.

And it was a decision that had been pending for an exceptionally long period of time and was long overdue. That's the best they could come up with. That, friends, is flimsy. The story is flimsy. And I think it backfired, and justifiably so, against the New York Times.

LIASSON: You know, they could have written the story that this guy took some rides on this guy's corporate jet and he wrote a letter asking that the problem got resolved. Now, that would have been the point that the New York Times says it's trying to make. It did favors for lobbyists.

HUME: That would have been on -- that should have been on page 36.

LIASSON: That would have been on page 36.

HUME: Yes.

LIASSON: But I agree. Anything that has the hint of a sexual affair is all that people are going to focus on. It was clearly the kind of neutron bomb of the story, and they didn't have the proof. And also, I wonder why -- what did Vicki Iseman do wrong to get her name and picture in the New York Times? I thought that was also a bar that they didn't keep high enough. I mean, here's someone who says she didn't have an affair. She's a private person. And she has her name and picture in the New York Times.

WALLACE: And, we should point out, all of this happened...

LIASSON: Nine years ago.

WALLACE: ... nine years ago.

LIASSON: Yes. Yes.

WALLACE: 1999.

Bill, some of the conservative radio talk show hosts who have been flaying McCain for months now have now joined his side and their common cause here, come to his defense. Sean Hannity said, "This is the most despicable act of liberal bias that I have seen in my life."

Sean gets a little bit excited, but does this help McCain with conservatives? Is he now a made man?

KRISTOL: Well, no, I don't think he's a made man. They still have issues with McCain. And people can, you know, compartmentalize. They can dislike the New York Times for printing this story, and then they can also decide to harass McCain on immigration or whatever issues they differ with him on.

We'll see what happens in the primaries against Huckabee in Texas and Ohio in a week and a bit, whether any actual voters care about this. Assuming nothing more comes out, I very much agree with Brit and Mara. It doesn't hurt McCain.

And in some ways it actually helps him because, you know, they've sort of shot -- the most prominent newspaper in America has put on the front page an allegation about McCain which looks flimsy in terms of the lobbying and favors, to say the least, and in terms of the allegations about the romantic relationship, which is the term they used, let's not forget.

It's really kind of shocking. There's no one claiming that. There is no named person quoted in the New York Times claiming there was such a relationship. Senator McCain denies it. Miss Iseman denies it.

And allegedly a couple of ex-aides...

WALLACE: Who they say are disillusioned.

KRISTOL: ... were convinced that it had happened. How you put her name -- I agree with Mara about this -- in the newspaper, as if she had a relationship with a married man, with a photo of her, you know, in an evening gown, when she denies it, when the senator denies it, and no one -- no one -- is on record saying it happened -- I think that's a real question.

WILLIAMS: Well, I mean, I just -- let me just stand up for the journalist here. I think you have serious journalists who did a serious story, and you have John Weaver, who was a top McCain aide, on the record as saying that he met with her at Union Station to say, "You know what? This is embarrassing for the senator," saying that...

HUME: What's embarrassing?

WILLIAMS: That her presence, her constant, regular...

WALLACE: That isn't what he said.

HUME: That's not what he said.

WILLIAMS: OK. What did he say?

WALLACE: Now, wait. What he said was he heard that she was shooting off her mouth around town saying that she had a lot of clout with McCain's office and that -- and she should knock it off.

He says he wasn't saying to her, "You're spending too much time with Senator McCain. It's raising questions about a romantic relationship."

WILLIAMS: And then the suggestion was that people cautioned Senator McCain about spending too much time with her and the appearance that it might create.

HUME: Nobody on the record has said...

WILLIAMS: OK.

HUME: Yes, but nobody on the record has said they did that.

WILLIAMS: You're not going to get people on the record to say -- but listen.

KRISTOL: Why not?

HUME: Why not?

WILLIAMS: The second part of it is...

HUME: Why not?

KRISTOL: Why not?

WILLIAMS: Because it's sexual and people are -- unless they saw them in the bedroom, you're not going to make the claim.

KRISTOL: No, no, no, but...

WILLIAMS: And you must remember -- hang on. Hang on a second. You've got to remember... KRISTOL: If someone is going to caution Senator McCain, why is it unreasonable to say, eight years later, "If you think this is so important, if you had this conversation with Senator McCain, say it publicly?"

WILLIAMS: No, they don't want to say it publicly. And you've got to remember the context here. There was an implosion in McCain's campaign not long ago, and a lot of these people are, you know, soured on McCain, and they have a little bit of a grudge against McCain, because now he's doing so well.

And those are the people who always talk to reporters. Guess what? That's where reporters go to get sources, people with grudges.

The second thing to say is McCain has postured himself as a great reformer, and you've got to go back to the Keating Five, which is what the Times piece did, and say, "Wait a second. Don't forget that this great reformer is now surrounded by lobbyists, including his own campaign manager, Rick Davis."

WALLACE: Well, that brings me to a question.

Four of the five of us agree it was a lousy story, but is McCain vulnerable at all, Brit, to the larger story or the -- not what the Times reported -- that he does have a relationship with lobbyists, that this guy that portrays himself as Mr. Reformer, Mr. Clean, has flown around on corporate jets, has had relations with and done business with lobbyists, whether it's proper or improper?

Isn't that something that, for instance, Barack Obama could say, "Hey, you're part of the problem in Washington?"

HUME: That is true. And that could be a vulnerability for the senator. What would be interesting to know is if you took a long look at Senator McCain's record in dealing with lobbyists as chairman of the Commerce Committee, which he was for a long time, and in other ways, and could establish a pattern that he was easily lobbied -- my sense is you wouldn't be able to establish that pattern, that the truth about McCain -- and many of his colleagues will say this -- that he's notoriously difficult to lobby, prickly, distant.

Now, look. You can't be the chairman of a committee like the Commerce Committee and not have dealings with lobbyists. You simply do. But my guess is that those who flew Senator McCain somewhere in a corporate plane, or had him for dinner or whatever probably didn't get much for their money.

WILLIAMS: You know, my sense is that Senator McCain is an honorable guy, from what I know. But let me just tell you. This is a vulnerability for the Republican Party going forward. Jack Abramoff -- even this week you had a Republican congressman indicted.

KRISTOL: Who held the hearings...

WILLIAMS: And finally, let me just say this.

KRISTOL: Oh, come on. Who chaired the hearings on Jack Abramoff?

WILLIAMS: What he said -- hang on. Hang on a second.

KRISTOL: Who chaired the hearings on Jack Abramoff? Just answer the question. Who chaired the hearings?

WILLIAMS: He has now postured himself as the great reformer, a man with clean hands. If he doesn't have clean hands, he'll be a hypocrite.

But going forward, this story is not done. You guys want to throw the story overboard right now. This story is not done. Even yesterday the Washington Post has people saying, "You know what? I met with John McCain and he said he didn't meet with me."

WALLACE: Mr. Kristol gets the final word.

KRISTOL: Andy Davis, who worked in the Clinton White House, supports Hillary Clinton for president, called me at 6:15 this morning from Bucharest. I'd e-mailed some people yesterday to try to find out the facts.

He had lobbied on this case with Miss Iseman and others. He represented a different T.V. station than she did. He is utterly outraged about this. He lobbied McCain. He hoped Senator McCain would go further. He wouldn't.

He didn't satisfy the wishes of the lobbyists, and he's no conservative, and he just thinks this is a total injustice to McCain.

WALLACE: Thank you, panel. See you next Sunday.

Up next, the return of our Power Player of the Week.

(COMMERCIAL BREAK)

WALLACE: Last summer his candidate was all but written off, and he hasn't been paid for months. But now John McCain is on the brink of securing the Republican presidential nomination, which makes this man our Power Player of the Week.

(BEGIN VIDEOTAPE)

DAVIS: We've really had an avalanche of endorsements and offers to help from every quarter of the Republican Party.

WALLACE: Rick Davis is John McCain's campaign manager.

DAVIS: Next week is what long-range planning would be, right?

WALLACE: And his challenge these days is to transition from a bare- bones effort in the primaries to planning for the general election.

DAVIS: We're not doing, you know, options and stocks. We're doing information. WALLACE: He set up McCain headquarters like a trading floor. But instead of dealing in investments, he says the biggest need here is information.

DAVIS: Now we're looking at a 50-state campaign. We need to know what's going on in those states -- where do we think we can battle the Democrats on good ground versus competitive ground? -- and so just the need for so much more information that we had before is really the biggest significant change.

WALLACE: But there are always fires to put out. This week, Davis made the morning show rounds to rebut a story that nine years ago McCain did favors for a female lobbyist.

(BEGIN VIDEO CLIP)

DAVIS: It's pretty clear to me that the New York Times is no friend of John McCain.

(END VIDEO CLIP)

WALLACE: All this pales in comparison to last July when, almost broke and crashing in the polls...

(BEGIN VIDEO CLIP)

J. MCCAIN: You mean in the words of Chairman Mao, it's always darkest before it's totally black?

(END VIDEO CLIP)

WALLACE: ... McCain fired much of his top staff and put Davis in charge. His first job, to chop spending, which meant trading in the Straight Talk Express.

DAVIS: We went from a very expensive bus to a very, very cheap bus, which we still have to this day. It's broken down a number of times, but it's a lot easier to repair a bus than it is to get a new one.

WALLACE: Written off by pundits, McCain went back to carrying his own bag and flying coach. But Davis says the candidate kept up his staff's spirits.

DAVIS: He told me once that the campaign would be fun because we would never have a day that would get anywhere near the worst day of his life.

WALLACE: Davis caught the political bug in the '70s at the University of Alabama. Every four years since, he's worked for a Republican presidential candidate.

But this is no hired gun. Since last July, Davis, who's on leave as a lobbyist, has worked without pay.

DAVIS: I think it shows to the rest of the staff and to our supporters that other people are willing to make sacrifices. We would expect them to do the same.

WALLACE: Davis also ran McCain's run for president back in 2000. When asked why he's so devoted to the senator, he mentions McCain's patriotism but also that he was shaking up Washington long before that was in fashion.

DAVIS: He just doesn't go along. He forces the issue. And John McCain's been the greatest change agent that I've seen in a long time in politics.

WALLACE: After the events of last summer and last fall, are you a little surprised that he's now just about to become the nominee of the Republican Party?

DAVIS: There's a little bit of "pinch me" still left out there, and it's a fairy tale, to some extent. The bottom line is you get into this kind of a game to win, and we're winning, and so that makes you feel great.

(END VIDEOTAPE)

WALLACE: Rick Davis even turned this week's New York Times story to McCain's advantage, sending out an e-mail that brought in the biggest one- day haul of Internet contributions since the campaign started.

And that's it for today. Have a great week, and we'll see you next "Fox News Sunday."

For more visit the FOX News Sunday web page.

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