This is a rush transcript of "Special Report With Brit Hume" from July 4, 2007.


BRIT HUME, FOX NEWS ANCHOR: Next on SPECIAL REPORT, the Scooter Libby debate rages on, with Hillary Clinton weighing in and Republicans reminding her of Bill's records on such matters. Osama bin Laden's number two man puts out a videotape to buck up terrorists in Iraq and elsewhere. U.S. officials say it's too vague to even date it. That London bomb plot was scary. How come the U.S. hasn't been hit? We'll try to find out.

On the primary trail, Rudy Giuliani goes cruises into Florida still leading among the declared candidates. And John Edwards' hair entangles him again. Wait until you hear this. All right here, right now.

Welcome to Washington. I'm Brit Hume. Former White House aide Scooter Libby today paid the price literally for his perjury and obstruction of justice conviction in the investigation of the outing of a CIA employee. In the meantime the White House is showing signs of weariness with Democratic criticism of President Bush's decision to commute the prison portion of Libby's sentence. White House correspondent Wendell Goler reports.

(BEGIN VIDEOTAPE)

WENDELL GOLER, FOX NEWS WHITE HOUSE CORRESPONDENT (voice-over): On the day Scooter Libby paid his 250,000 dollar fine for lying to federal prosecutors, the White House squared off against Senator Hillary Clinton over the president's decision to commute the two and a half year jail term of the vice president's former chief of staff.

SCOTT STANZEL, WH DEPUTY PRESS SECRETARY: You think about the previous administration and the 11th hour fire sale pardons, it's really startling that they have the gall to criticize what we believe is a very considered, a very deliberate approach to a very unique case.

GOLER: Deputy press Secretary Scott Stanzel's comments followed an interview Senator Clinton gave to the Associated Press in which she said the Libby decision was, quote, "clearly an effort to protect the White House since Libby was carrying out the implicit or explicit wishes of the vice president or maybe the president as well." And earlier this week in Des Moines, Senator Clinton folded the criticism into a political speech.

SEN. HILLARY CLINTON (D), NEW YORK: And what we saw today was elevating cronyism over the rule of law. And when I am president, we're going to get back to cherishing the constitutio

(END VIDEO CLIP)

GOLER: Aides noted President Bush has issued among the fewest pardons of any president in history and accused the senator of what one called Arkansas chutzpah. Press Secretary Tony Snow said of her husband, the former president, in a "USA Today" op-ed, "this unfettered authority was embodied in a mad rush to push through pardons with dizzying haste." Mr. Clinton issued 141 pardons on his last day in office and a number of them were controversial.

STANZEL: Well, certainly, there's an argument to be made that there was special treatment in those 141 pardons issued on January 20th, 2001. Mark Rich, Susan McDougall, a Clinton brother.

GOLER: Mark Rich fled the country accused of evading 48 million dollars in income taxes. His ex-wife was a major Democratic campaign contributor. Susan McDougall served a year and a half in jail for refusing to testify of Mr. Clinton's knowledge of an illegal loan she obtained. The former president's half-brother Roger served time for a drug charge.

Aides say by Libby's fine and probation in tact, Mr. Bush made the punishment fit the crime. But the judge in the case says the law, quote, "does not appear to contemplate a situation in which the defense may be placed under supervised release without first completing a term of incarceration," raising questions about whether Libby will actually face probation. And his legal defense fund may eventually include enough to cover the fine. Sources say it doesn't now.

(END VIDEOTAPE)

GOLER: And the president this week refused to rule out a full pardon in the future if Libby asks for one, something Libby hasn't done yet because he's still appealing the conviction. Brit?

HUME: Wendell, thank you. A new videotape has surfaced of al Qaeda's number two man Ayman al Zawahiri. The U.S. and its allies in the Middle East are once again the targets of the 95-minute lecture. And as national correspondent Catherine Herridge reports, American analysts say the message appears to be al Qaeda's standard fare.

(BEGIN VIDEOTAPE)

CATHERINE HERRIDGE, FOX NEWS NATIONAL CORRESPONDENT (voice-over): U.S. officials tell Fox they don't believe the tape from bin Laden's number two, Ayman al-Zawahri, contains specific threats. It appears to be standard boiler plate propaganda from the Egyptian doctor who places great emphasis on Iraq as a key battleground in the war against the west.

AYMAN AL ZAWAHIRI, AL QAEDA NUMBER TWO (through translator): The first thing which our beloved brothers in Iraq must realize is the critical nature of unity and that is the gateway to victory.

HERRIDGE: U.S. officials emphasize that there are virtually no references to current events in the tape, no reference to the car bombs in London, nor the attack at the Glasgow Airport. This suggested the tape was made some time ago, but exactly when is not known. U.S. officials say the timing is interesting, coinciding with the Fourth of July, traditionally a slow part of the news cycle. So releasing it now virtually guarantees wide play in the media at a time when bin Laden's network wants to encourage unity among Sunnis in Iraq.

STANZEL: They see Iraq as a central front in the war on terror. They would see precipitous withdrawal by the United States as a victory for them.

HERRIDGE: In his standard white robe, turban and glasses, Zawahiri outlined al Qaeda's strategy. He says the short term goal is to attack, quote, the crusaders and Jews, a reference to the U.S., its western allies and Israel. The long-term strategy, Zawahri says, is to take down corrupt Muslim regimes. He includes the Saudi royal family and the Egyptian government of Hosni Mubarak. The State Department says Zawahri's rhetoric underscores the broad scope of the struggle against radical Islam.

SCOTT MCCORMACK, STATE DEPT SPOKESMAN: He is a representative of an organizations that seeks to not only undermine our way of life, but attack friends and allies in the region. And what it does is point out to me the fact that there is a common struggle here.

HERRIDGE: U.S. officials say Zawahri, as well as Abu Yahya al Libi, have emerged as the primary voices for al Qaeda. Al Libi is charismatic, has long-standing ties to al Qaeda leadership and the Taliban in Afghanistan. Between the two, tapes surface with regularity. As one analyst put it, this is central to al Qaeda's strategy, to make the message global and to recruit new adherents.

PJ CROWLEY, TERRORISM EXPERT: They're placing great emphasis on the battle of ideas and when you look at the perpetrators of the British attacks or the attempted British attacks, it seems to be an indication that, to some extent, the al Qaeda strategy is working.

(END VIDEOTAPE)

HERRIDGE: While there are messages on the Internet suggesting a tape from Osama bin Laden may be imminent, U.S. officials say there is no way to confirm the claims. It's been a year since his last message. U.S. officials say al Qaeda may be waiting for a major strike before it releases a new tape from it's leader to create maximum impact for it's propaganda campaign. Brit?

HUME: Catherine, thank you. After last week's car bomb incidents in London and Glasgow, security was increased at some U.S. airports. But the overall threat level has not been raised in this country and homeland security officials say there is no imminent threat of terrorist attacks here. So why have there been no strikes on U.S. soil since 9-11 and why are Europe and the Middle East apparently more vulnerable? Chief Washington correspondent Jim Angle looks for answers.

(BEGIN VIDEOTAPE)

JIM ANGLE, FOX NEWS CHIEF WASHINGTON CORRESPONDENT (voice-over): In the almost six years since 9-11, radical Islamic terrorists have struck all over the world, including several times in western Europe. In Spain in 2004, terrorists set off 10 bombs on commuter trains, killing more than 200 in the deadliest attack ever in western Europe. And in Great Britain, dozens were killed in two attacks on public transportation in July of 2005, some of several planned attacks there. But the U.S. is al Qaeda's number one target. So why haven't we been hit against since 9-11? Why have we escaped what the Europeans have not?

WALID PHARES, "WAR OF IDEAS" AUTHOR: The Europeans are 21 countries with 21 national security legal systems and it's much more difficult to counter the jihadists than having one nation with one home land security from sea to shining sea.

ANGLE: And once a radical Islamist up to no good gets into one nation of the European Union, he has easy access to all the other E.U. nations

NEIL LIVINGSTONE, TERRORISM ANALYST: The security there is only as good as the weakest link. The country that has the most lax immigration policies, once you're in Europe, you're in Europe.

ANGLE: The U.S., on the other hand, has incited in recent years on getting personal information in advance on people about to fly from Europe to the U.S. In spite of resistance from some Europeans, a new agreement was reached just last week to keep sharing such information.

LIVINGSTONE: Plane manifests and who's on planes and who's traveling in and out of the country?

ANGLE: That along with eves dropping on terrorists, tracking their money and infiltrating their cells has helped the U.S., according to former CIA director George Tenet's book, to disrupt 20 major terrorism plots aimed at the U.S. Here at home, law enforcement has been quite successful at penetrating groups planning attacks.

STEVE EMERSON, TERRORISM ANALYST: The FBI has a much better ratio of agents to actual terrorists than those in Britain or in other countries.

LIVINGSTONE: French, British, Belgian, Italian security agencies talk to each other, but they do not cooperate.

ANGLE: In Great Britain and France, many Muslims live in what amount to ghettos, where Muslim anger thrives and radicals can freely preach rejection.

UNIDENTIFIED MALE: Every system, every law, every rule that is taken from others than the Koran and the Sunna is invalid, null and void.

ANGLE: But in the U.S., the social system is more open and welcoming.

LIVINGSTONE: It's hard for me to imagine that we would have first generation, second generation native borns Americans that would be easily pulled into a jihadist organization.

(END VIDEOTAPE)

ANGLE: One of the most serious attempts against the U.S., which was foiled just last August, involved terrorists boarding planes in Great Britain headed for the United States. So terrorists are still trying to attack the U.S., they just haven't been able to pull it off. Brit?

HUME: Jim, thank you. Long-time New Mexico Republican Senator Pete Domenici sent the White House an unwelcome signal today that he's ready to change course in Iraq sooner rather than later. Domenici said he now supports a bipartisan Senate bill that sets a goal for drawing down U.S. combat forces by next March. Domenici says the situation is getting worse, not better, in Iraq and he doesn't want to wait until the report in September from the top U.S. commander there to begin revising U.S. policy.

(BEGIN VIDEO CLIP)

SEN PETE DOMENICI (R), NEW MEXICO: We need a new strategy for Iraq that forces the Iraqi government to do more or else. I'm not calling for an immediate withdrawal from Iraq or reduction in funding for our troops, but I am calling for a new strategy that will move our troops out of combat operations and on a path to continuing home.

(END VIDEO CLIP)

HUME: Meanwhile, Domenici's neighbor from nearby Arizona, Republican presidential candidate John McCain, marked Independence Day in Iraq. McCain attended a ceremony for 161 members of the U.S. military who became naturalized American citizens. McCain backs the war in Iraq and acknowledges that not everyone agrees with him. But he said the entire nation owes its military a debt that can never be fully paid.

(BEGIN VIDEO CLIP)

SEN JOHN MCCAIN (R), ARIZONA: You are the best Americans and our best efforts to honor our debts to you will fall far short of what you have given and what you deserve. What you have done for us we can never do for you. But we're mindful of that distinction and humbled by it.

(END VIDEO CLIP)

HUME: Five hundred eighty eight troops were enlisted during those ceremonies at Camp Victory in Baghdad. Later in our program, is Democratic presidential candidate John Edwards' hair cut overwhelming his message? First though, could the simmering standoff at a Pakistani mosque be about to boil over? Stay tuned.

(COMMERCIAL BREAK)

HUME: The standoff continues in a mosque in Islamabad, Pakistan, where radical students have been holed up since a violent clash with government forces Tuesday. But there is reason to believe the Pakistani security is losing patience, and could end the situation soon. Correspondent James Rosen reports.

(BEGIN VIDEOTAPE)

JAMES ROSEN, FOX NEWS CORRESPONDENT (voice-over): Any doubts Pakistani security forces are playing for keeps in their siege of the Red Mosque were dispelled for this would be escapee in the harshest and most direct way possible. At least 10 people have been killed, possibly as many as 19, with some 150 injured in three days of fighting at Islamabad's Lal Mosjid (ph), or Red Mosque.

There Taliban style Islamists have ratcheted up their government actions since January. From his offices overlooking the mosque, President Pervez Musharraf, two days ago, ordered water and electricity there cut off, in a bid to flush out the occupants.

TARIQ AZIM, PAKISTANI INFORMATION MINISTER: There will be no more dialogue. It has to be an absolutely total surrender, unconditional total surrender.

BRIG GEN IQBAL CHEEMA, INTERIOR MINISTER SPOKESMAN: There are girls and women inside. There are children inside. So we have to take all these things into — it's not just the state of storming into the building.

ROSEN: Late Wednesday, the radical cleric who leads the mosque's militant student movement, Maulana Abdul Aziz, was captured while trying to escape in a woman's burka and high heels. Aziz was still wearing the burka when, prior to facing charges, he appeared on state-run television and called for the estimated 1,000 people still holed up in the compound to surrender.

MAULANA ABDUL AZIZ, CAPTURED RED MOSQUE CLERIC (through translator): There was a lot of loss of life. This is why I decided to come out of the mosque. I discussed this with my brother and we decided that we should leave this place quietly.

ROSEN: But Aziz's radical brother has refused to surrender and denied reports that women and children are being used as human shields. Defections have been running high, however, with an estimated 1,200 people surrendering on Wednesday. At the State Department, the siege was cast as a local matter, not even all the unique to Pakistan or to the embattled President Musharraf.

MCCORMACK: He is as much under threat from violent extremism as we or any of Pakistan's neighbors might be.

ROSEN: Pakistan's ambassador to the United States told Fox News his government wants to avoid collateral damage and the label of woman killers.

MAHMUD ALI DURRANI, PAKISTANI AMBASSADOR TO UN: If the shoves come to a push and finally there will be a situation where we will have to physically go and evict them.

ROSEN (on camera): And how long do you think that will take?

DURRANI: That is not even an estimate. That would be a guesstimate. I would say another 26 hours, 48 hours max.

ROSEN (voice-over): Pakistani army units are deployed in force and appear ready to strike. Their decisive action could either end or further inflame this crisis. In Washington, James Rosen, Fox News.

(END VIDEOTAPE)

HUME: Russia today formally rejected Britain's request to extradite the main suspect in the poisoning death of former Russian spy Alexander Litvinenko. Andrei Lugovoi met with Litvinenko and another man in London hours before Litvinenko became ill last fall. The Russians had been saying all along they would not extradite the former state security agent. Litvinenko died after being exposed to radioactive material. Lugovoi has denied any role in the killing, pointing a finger at British intelligence instead.

Lebanese troops have resumed shelling suspected hide outs of Palestinian militants in a refugee camp in northern Lebanon. Gun battles have been going on and off for some 40 days. The United Nations relief agency official says more than 30,000 people have been displaced from their homes, mostly Palestinians, but some Lebanese as well. The agency is distributing checks of about 1,350 dollars each to families have who have lost their homes.

Later on SPECIAL REPORT, public housing for alcoholics, where the rule is BYOBY, bring your own bottle. And after a break, Rudy Giuliani sends out a confident vibe in Daytona Beach, Florida. That report when we come back.

(COMMERCIAL BREAK)

HUME: Republican presidential candidate Rudy Giuliani was nothing if not confident during a campaign stop in Florida today. The former New York mayor is the front runner among GOP rivals who have formally entered the race. And chief political correspondent Carl Cameron reports, Giuliani is making some big promises about how he'll do against whoever the Democrats put up against him next fall.

(BEGIN VIDEOTAPE)

CARL CAMERON, FOX NEWS CHIEF POLITICAL CORRESPONDENT (voice-over): Having won the Republican fund raising race with 15 million dollars last quarter, Rudy Giuliani in Florida today played the inevitability card, suggesting only he can prevent a Democratic presidency.

RUDY GIULIANI (R), PRESIDENTIAL CANDIDATE: I'm the Republican candidate that has the best chance of defeating Hillary Clinton, Barack Obama or John Edwards.

CAMERON: He toured a high-tech plastics plant in Daytona with wife Judy. On a day his campaign manager went way out on a political limb, declaring that when Giuliani is the Republican nominee, he'll win blue states in which Democrats in recent years have dominated; quote, I guarantee in the general election, Mayor Giuliani carries states like New Jersey, carries Pennsylvania, carries Connecticut. New York will be very, very close, very, very competitive depending on the opponent," unquote.

That may be particularly true if it's Hillary Clinton, the U.S. senator from New York. Both she and Illinois Senator Barack Obama have raised far more than the rest of the GOP field, a sign Democrats say that 2008 is shaping up as their year. Giuliani believes Republicans have to get off political defense.

Though his socially liberal voice may hurt him with conservative GOP primary voters, when the Giulianis sat down with Fox News, he argued that it makes him the best and only candidate to beat Democrats in the generation election.

GIULIANI: I think I have the advantage against a Democrat in the general election because I do so well in the big states. We win some of them. We're tied in some of them. We're a little behind in others. But I'm competitive in just about every state.

CAMERON: His campaign manager said, quote, "we're the only candidate who can fundamentally alter the electoral map in favor of Republicans." The latest Quinippiac poll in New Jersey, a state the mayor's aides have now promised they will win, shows that Giuliani is in a virtual tie, 47 to 44, with Clinton, who has been gaining. Giuliani told AIP Plastics employees that he's not running against Republicans, offering this instead.

GIULIANI: Whether it's Barack Obama or Hillary Clinton or John Edwards, maybe no mistake about it. They're very clear about it. They're going to raise your taxes.

(END VIDEOTAPE)

CAMERON: Giuliani, of course, says he will keep taxes low. He also argues that Republican primary voters should focus on his national security and economic security conservatism. As for his socially liberal views that so many say are out of step with his party, look ahead to the general election, he argues, they'll become assets. Brit?

HUME: Carl, thank you. Former Missouri Democratic Congressman and House Leader Dick Gephart has endorsed Hillary Clinton for president. Gephart himself, of course, twice ran for president. Today he called Clinton, quote, the champion working families deserve in White House. And he said she has the right strength and experience for to the job.

For anyone in the publicly eye the most important thing about someone's image may be that it should not get in the way of the mission, whatever that is. So the question tonight is has Democratic presidential candidate John Edwards' concern about his appearance and the price he has paid for it begun to overwhelm his message. Congressional correspondent Major Garrett says he understands the problem.

(BEGIN VIDEOTAPE)

MAJOR GARRETT, FOX NEWS CONGRESSIONAL CORRESPONDENT: The topic, John Edwards hair do. Now, the most dishonest, snarky, now it all way of doing a piece like this is to suggest that we in TV don't care about our hair. Trust me, we do. I myself have had many good hair days and a couple of bad ones. And when they're bad ones, well, they simply must be explained.

First there's nothing quite like a breeze in springtime in Washington. (voice-over): When your hair spawns comparisons to Alfalfa in the Our Gang series or Mike Score (ph), lead vocalist from the 1980s band Flock of Seagulls, well, you lose any hope at all of connecting with your audience. The same is true for John Edwards or any other national politician. While his staff is snippy about the hair cut issue, Edwards tries to say a cut above the fray, as he did today the Cleveland.

JOHN EDWARDS (D), PRESIDENTIAL CANDIDATE: Nobody should work full- time in the United States of America and still live in poverty.

GARRETT: There is a new twirl to the Edwards hair story. It turns out the the Los Angeles stylist, who works out of this salon, once charged Edwards 1,250 dollars for a hair cut, three times the 400 dollar price tag that got Edwards into deep due earlier this year and led to this shot at Edwards from New Mexico Governor Bill Richardson at April's Democratic presidential debate in South Carolina.

GOV BILL RICHARDSON (D), NEW MEXICO: I think the American people want candor. They don't want blow dried candidates with perfection.

GARRETT: One image expert said the problem isn't the cost of Edwards hair cuts. It's how they affect his ability to project power.

ERIC DIEZENHALL, MANAGEMENT CONSULTANT: I think the notion of a male presidential candidate overly concerned with self-beautification is something that is disquieting to people.

GARRETT: And this Youtube video of Edwards preparing for a TV interview mocks his masculinity with near lethal precision, adding heft to the conservative epithet for Edwards, Breck (ph) girl.

And that brings us back to those high-dollar hair cuts and whether they constitute extravagant barbarism. Edwards' stylist, Joseph Tourinuava (ph), said most of the price covered the cost of his travel and lost work days. But he also told today's "Washington Post" this about the Edwardian hair cut: "I try to make the man handsome, strong, more mature."

For shear irony, that Edwards seems to believe he needs all three might be the sharpest cut of all. In Washington, Major Garrett, Fox News.

(END VIDEOTAPE)

HUME: We have to take a break to pay some bills and update the other headlines. When we come back, It's probably a good idea not to get on the wrong side of New York State Governor Elliott Spitzer. And we will tell you one reason why. That story is coming up next on the Grapevine.

(COMMERCIAL BREAK)

HARRIS FAULKNER, FOX NEWS CORRESPONDENT: From America's newsroom, I'm Harris Faulkner. A NATO soldier reported killed in a roadside bombing in eastern Afghanistan, two others were wounded. The Alliance did not immediately announce their nationalities. And in southern Afghanistan, 10 police officers were killed after a suicide bomber attacked a room they were eating.

The American west roasting in record high temperatures, the heat in some places in parts of California and Nevada expected to top 114 degrees. Forecasters say temperatures in Oregon, Washington, and Idaho also reaching triple digits. California Governor Arnold Schwarzenegger ordering cooling centers to be opened.

Pope Benedict the 16th expected to authorize wider use of the traditional Latin mass. That's according to the Associated Press. The Pope has been trying to reconcile with followers of an excommunicated bishop. They wanted freer use of the old mass. But more liberal clergy members are concerned it would roll back a key reform of the Second Vatican Council, namely the new mass that is celebrated in a congregation's native country.

The service sector of the economy defying expectations by rising in June by more than the month it did the month before. Analysts were expecting last month's numbers to come in below those from May. June was also the service sector's best single month in more than a year.

On Wall Street, stocks mixed following the July 4 holiday. The DOW down 11, NASDAQ up 11, the S&P up a fraction. "The Fox Report" with Laurie Dew in for Shepard Smith is at the top of the hour.

HUME: And now the most scintillating two minutes in television, the latest from the Political Grapevine.

*Click here for the Political Grapevine

HUME: Seattle officials say other big cities are watching to see how an experimental housing project works out in the Emerald City. It's a building full of single room only housing for alcoholics, and it is inhabited to allow them to keep drinking while they live there. Correspondent Dan Springer explains.

(BEGIN VIDEO CLIP)

DAN SPRINGER, FOX NEWS CORRESPONDENT: A long time alcoholic in Seattle shows off his latest purchase, just before heading into his taxpayer funded apartment to drink until he passes out.

DAVID ADAMSON, RESIDENT: It is perfect. I mean, this place was a god send.

SPRINGER: The $11 million, 75 unit building has been home to the city's most expensive public drunks for a year and a half. The idea was allowing the booze is the only way to get them off the street and out of harm's way, fewer trips to the hospital, de-tox centers, and jails. Health care officials say it's working.

ED DWYER-O'CONNER, HARBORVIEW MEDICAL CENTER: They're no longer coming in just because they were intoxicated on the street. They're no longer coming in because they don't have a place to stay or sleep.

JIM SAMSON, RESIDENT: It slowed me down, and it takes me from sleeping underneath the bridge to being here. And I like it here because people really do care.

SPRINGER: But despite having a full-time nurse, visiting psychologists, a doctor, and a teem of social workers, nine residents have drunk themselves to death. And fire department medics have made some 320 trips, an average of more than four per week. Andrew Miles is one of only three in recovery.

ANDREW MILES, RESIDENT: Most of the people that are here are going to let their drink kill them. That's their choice.

SPRINGER: Officials, however, express more optimism, citing a survey of residents which indicates overall alcohol consumption is down about 30 percent. National studies have shown only 5 percent of homeless alcoholics ever beat the addiction.

BILL HOBBS, DOWNTOWN EMERGENCY SERVICE CENTER: We are kind of modifying the way we're approaching drugs and alcohol, and getting a little bit more assertive in offering treatment alternatives to people.

SPRINGER: Most neighboring business owners have accepted the alcoholic residents. But some say their loitering and panhandling drives customers away. Ultimately this taxpayer funded experiment will be judged by whether the cost of operating the alcoholic apartment is indeed less than the status quo. A progress report is due out in a couple of months, and big cities across America will be watching. Seattle, Dan Springer, FOX News.

(END VIDEO CLIP)

HUME: In economic news, rates on 30-year mortgages have dropped a bit to an average of 6.3 percent after hitting an 11-month high in mid June. That's good news for home buyers. Some other mortgage rates also declined this week. 15-year fixed rate mortgages fell to 6.3 percent, and five-year adjustable rate mortgages, or ARMs, as they are called, dropped to 6.29 percent.

The notorious Big Dig in Boston cost too much in the eyes of many, and took too long. But Bostonians and others are enjoying one of the happiest by products of that project. It's a public park where there used to be a garbage dump right out in the middle of Boston harbor. Correspondent Molly Line explains.

(BEGIN VIDEO CLIP)

MOLLY LINE, FOX NEWS CORRESPONDENT: It's been a long and sometimes bumpy road for the big dig, a project that took the elevated highways snaking through Boston and moved them underground. The project started in the 1980's. It's been fraught with problems and cost overruns. Among the most perplexing engineering questions, what to do with all the dirt from the tunnels. And therein lies a positive story about the big dig, Spectacle Island. Just a short ferry ride from downtown Boston, and you're literally surrounded by nature, built with a little help from man.

In the early 1900's this island was used as a trash dump. The garbage was 150 feet deep, when Boston used dirt from the big dig, 3.5 million cubic yards of dirt, to create what it is today—pristine parkland.

ALAN RILLA, CARETAKER: It might just be one of the best example of urban reclamation that, certainly, that I have ever seen.

LINE: Alan Rilla is the caretaker of Spectacle Island. And along with his trusty companion, Max, maintains these 167 acres.

RILLA: It was a win-win situation for the city and the state and the federal government, because the city was under an order to cap the landfill and the big dig, the government, they needed a place to put the dirt. So they got together on it and this island is the result.

LINE: Opened just last year, boats come and go at the marina, and the island's beaches and trails have become an instant hit with tourists.

UNIDENTIFIED FEMALE: It's wonderful. It's great. The views are absolutely marvelous, and there's a nice little breeze today, which makes it nice.

LINE: The big dig rolled in billions over budget. But this emerald jewel in the middle of Boston harbor might just be the best fringe benefit of all of years of construction and traffic tie-ups, a place that is truly an escape from the city. On Spectacle Island, Molly Line, Fox News.

(END VIDEO CLIP)

HUME: Next on "Special Report," is John Edwards hairstyle, or at least taste for hairstyles, drawing attention away from his stand on poverty? FOX all-stars on the hit ironies of style vs. substance on the campaign trail.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

UNIDENTIFIED FEMALE: I feel pretty, oh so pretty. I feel pretty and witty and bright, and I could be—

(END VIDEO CLIP)

HUME: Now that's a piece of old video that's been up on youtube for a long time. But it was making that rounds on the cable channels today, and why was that? It was because it was new news, if that's what it was, about John Edwards and his taste in hairstyles, or at least hairstylists. It turns out that the person who delivered the $400 haircut also charged $1,250 for one particular haircut, which required him to take a couple of days and do some travel, and that was all added into the expense.

So the question arose whether John Edwards has been entirely forthcoming about these $400 haircuts, which he maintained was something that was arranged by the staff and he didn't know anything about it. Now it turns out they cost more, and he may have known more, or at least how it seems.

Some thoughts on this now from Fred Barnes, Executive Editor for the Weekly Standard, Jeff Birnbaum, columnist for the Washington Post, and the syndicated columnist Charles Krauthammer, Fox News contributors all. Well, Fred, I think it's fair to say that the $400 haircuts were an embarrassment to the campaign. Is this new story that came out today in the "Washington Post" interview with the hairdresser, or the hairstylist, add anything substantive to our knowledge of this story?

FRED BARNES, EXECUTIVE EDITOR, WEEKLY STANDARD: No, but repetition can hurt. And the only thing substantive added is that the haircut costs went up when you added into the travel up to $1,250 which I have to say is pretty darned expensive haircut.

HUME: We also found out the he, personally, had more to do with this than—

BARNES: Well, he had gone out to California and he consulted with this hairdresser, hairstylist, and some stylist about suits, and everything. And I don't know that — there's nothing intrinsically wrong with that. The problem for John Edwards, is that this is one thing, among others, that show that the man does not match the message that he's pursuing in the campaign.

It's really as simple as that. And you may say that's unfair. He's talking about poverty, and yet he's the guy that has the expensive haircuts, and he has the $6 million mansion, and he worked for this zillion dollar hedge fund, and so on.

And you can say that F.D.R., he championed the poor, and he was a rich guy. But that was a different time. We didn't know, for instance, that F.D.R. was in a wheelchair. But now we know all about these candidates now. They're an open book, it's a different environment.

A guy named Jay Cost, who's a blogger, I think his blog is something like horseraceblog.com., wrote something recently very good about Edwards. He said he's pursuing the campaign as if he's still a trial lawyer. A trial lawyer is trying to persuade a jury, and he's trying to persuade, as well, the electorate with his message that he's going to reduce poverty and so on.

But there is an additional thing he has to do that as a trial lawyer he doesn't, and that is sell himself, as well. But he's the guy who can be trusted to really carry his agenda out, and there's the mismatch.

JEFF BIRNBAUM, COLUMNIST, WASHINGTON POST: I agree with what Fred said, but I think there's the emphasis on candidates having a lot of well groomed hair. I think that's misplaced. I don't think that's a god idea. I don't think having a lot of hair is a good indication of anything. Just speaking for myself.

But, I do think that John Edwards does have a problem in that he's going to have to deal with that, which is that people will be talking about his hair and not take him seriously as a presidential candidate, and he needs that.

Even though he's doing very well in the polls in Iowa, his standing nationally is a distant third. His money-raising in the last quarter was lower than the first quarter. And he becomes the butt of late-night talk shows.

And that's a problem. When people are laughing at a presidential candidate, they can't also support him, or they find trouble supporting him. And presidential campaigns are a series of stories that are woven together by voters into a narrative, and his own vanity, in this case, is part of his profile.

HUME: Every politician and everyone in public life, including people like all of us here, have to be concerned, to some extent, about how we look. In Edwards' case, do these episodes suggest a vanity beyond the norm, and speak to a potential possible lack of seriousness in the man.

CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: Well, I think that's exactly the problem for him. The clich, in Washington is that an anecdote is only important to the extent that it reinforces a perception or an image. His perception is that he's a rich, shallow, pretty boy.

And when something like this happens—a $1,200 hair cut can only happen to someone who is rich, and narcissistic, and shallow—it doesn't happen to other people. So it is a definition of his image.

And his problem is, of course, that his signature issue is a serious one, poverty. No other candidate takes on poverty. Everybody else is a champion of the middle class. He is a champion of the poor, which is new. We haven't had that, essentially, since Robert Kennedy. And a serious issue by a guy who unserious.

And lives like a king, acts like a king—as Fred indicated—in a mansion, worked for a hedge fund, and pretends that the reason he did that is so he can understand how capitalism works in order to help the poor. Everybody knows the reason he joined the hedge fund was to make a bundle.

HUME: And he made something like $500,000 for a year's work.

KRAUTHAMMER: And received a bundle from his colleagues as the campaign contributors. So you have got this complete disconnect between his ostensible message and his image, which is, again, reinforced by these incidents.

HUME: Can he recover from this?

BARNES: It's going to be hard. And, look—

HUME: Jeff?

BIRNBAUM: I think he can, yes. I think he can, because he's doing so well in the first caucus state.

KRAUTHAMMER: He can recover, but he's weak, and he ain't going to win.

HUME: When we come back with our panel, does Hillary Clinton risk being overshadowed by her husband now in their joint campaign appearances? We'll be right back with more from the all-stars.

(COMMERCIAL BREAK)

HUME: Well, there they were, on the road again, Hilary and Bill Clinton. And there are all kinds of different views on whether this helps, or hurts, or what. But we are back with our panel, and we will ask them about it. So, he's out. Does he overshadow her? Does he help her? Both? Neither? What? Fred?

BARNES: He does overshadow her. That can't be helped. He is this guy, and he gets out there, and he uncorks all his charisma, and it's hard to resist. And most of these crowds are trying to resist. And then she's there, and she's not exactly the world's most scintillating person. She's got a completely different personality, I feel sorry for her in that regard.

But I have to say—and I was in doubt in Iowa, I just saw them on television—it actually worked pretty well, I thought, just a theatre. It wasn't awkward, as I suspected it might be. Whether he'll help or not, you know, there's one poll number—Hillary has these great poll numbers running for the democratic nomination—but there's one poll number that's persistent that it kills her, and that is this one about 50, 52 percent of Americans say they'll never vote for her. That's the one she's got to work on, and maybe he can help.

BIRNBAUM: I think that it probably does help, but only narrowly. I think that it does raise the prospect of bringing back the "two for the price of one" comment that Bill Clinton, himself, made about his wife when he was running for president.

HUME: It didn't go over very well.

BIRNBAUM: It went over very badly. And this was carefully staged, these presentations in Iowa—

HUME: Aren't all these events now carefully staged?

BIRNBAUM: Yes, but, in particular, he was just to introduce her in about eight minutes, or so, and then she came on for the main speech of 25 minutes or so—

HUME: And he sat there.

BIRNBAUM: And he sat there adoringly, or, as some people said, maybe, bored in listening to her.

HUME: Some reporters that were there said that he looked phenomenally uncomfortable. That they had him sitting down at times, and he was kind of prowling the stage when he wasn't.

BIRNBAUM: And sometimes calling attention to himself, maybe wittingly, and maybe unwittingly, when he's off to the side rather than merely being a prop.

I think that he can benefit her, certainly, by teaching her the ropes, how to loosen up, which has been a problem—not a problem for him, obviously, but for her. He's, sort of, taking her to school. He's there, also, to get support among elected officials for her, so he has to be there anyway. He's a major fundraiser for her.

The danger is that people will remember the pairing and think that she can't be president without him. And that is the danger if this that persists for a long time.

HUME: And is it a factor at all that this whole Scooter Libby sentence commutation arose about the time that Bill, with his record of 141 pardons, including some that were very controversial on the final dau, Bill turns up on the campaign trail?

KRAUTHAMMER: I think it is a coincidence. That is probably a one or two-day story. It does show a certain irony, obviously, in this, and these people are almost impervious, the Clintons, to irony. So it's shameless in that sense. But I think the real problem here is that there's a real change in strategy. He had been kept in the wings behind the scenes until now, raising money. But now he's out there with her.

I think that changes a lot. Until now, when he was hidden, you had an image of her as president in the Oval Office, and him, either padding around all day in a bathrobe, being a nuisance, you know, in the White House. Or, sent overseas as an ambassador of good will to NATO, or somewhere, and kept out of sight and out of mind. That's something people can accept.

But when you have him up there, and you have this image of the two together, exactly, as you said, it means you buy one, you get two. And I don't think Americans like a co-presidency. They didn't like it when Gerald Ford concocted as an idea with Reagan in 1980.

And there was an irony. It sort of smacks of Argentina, and presidents appointing their wives. In fact, the day before this event in Iowa, the president of Argentina announced that wasn't going to run his wife, who is a senator, a formidable person in her own right, is going to run in his stead, and will win, which will open up the presidency for the husband again in 2011—eight years of co-presidency.

Americans don't like that. And if they have an inkling of that happening here, they're going to be quite unhappy.

BARNES: Remember what happened to Hillary's when she was first lady, when she was seen as someone who was practically a co-president during the health care days. They went down. When she was seen later, not involved, and then the wrong woman, up they went.

BIRNBAUM: If change is the issue, then having Bill Clinton around all the time is not good for Hillary Clinton.

HUME: That is it for the panel, but stay tuned for yet another chapter in the sad saga of reporters who participate in their stories. That's next.

(COMMERCIAL BREAK)

HUME: Finally tonight, they just keep on doing it. We keep warning our TV news colleagues to stay out of the stories they cover. But they don't listen, and here we go again.

(BEGIN VIDEO CLIP)

UNIDENTIFIED FEMALE: The future of skateboarding is in Pioneer Courthouse Square as we speak.

UNIDENTIFIED MALE: News Channel 8's Cheryl Stewart is live with them right now. We're seeing the sweet moves that he is working up for the duo action sports tour's upcoming Portland stop. Cheryl?

UNIDENTIFIED FEMALE: Hey, I've been practicing my ollie. You guys want to see, I've been practicing hard. OK.

(END VIDEO CLIP)

BIRNBAUM: Ouch!

HUME: And that's "Special Report" for this time. Please tune us in next time. And in the meantime, more news is on the way. Fair, balanced and unafraid.

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