This is a partial transcript from "The Beltway Boys", September 1, 2007, that has been edited for clarity.

FRED BARNES, CO-HOST: Coming up on "The Beltway Boys", the GOP moves quickly to deal with the Larry Craig scandal. We'll do a damage assessment.

MORT KONDRACKE, CO-HOST: Hillary Clinton has an ethical headache. Her campaign accepted cash from a fugitive businessman.

BARNES: Fred Thompson formally announces his campaign next week, we'll assess his chances.

KONDRACKE: And Republican Senator John Warner announces his retirement, hurting the GOP chances of taking back the Senate.

BARNES: "The Beltway Boys" are next, right after the headlines.

(NEWSBREAK)

BARNES: I'm Fred Barnes.

KONDRACKE: And I'm Mort Kondracke. We're "The Beltway Boys".

BARNES: The hot story is cleaning house. That's for Republicans doing it, starting with Larry Craig, the Senator from Idaho.

You know, in another time when corruption wasn't such a big problem for Republicans and it was a devastating issue for them in the 2006 election, at another time, they might have given Larry Craig some slack, but not this time. And that's why the Senator from Idaho, they figured, almost from the moment that the story was disclosed, his arrest and pleading guilty to a charge of this lewd conduct in a men's room in the Minneapolis airport, when the story appeared in Roll Call, almost from that moment, Republicans were incredibly united. That he had to go. Not declare his retirement next year when he's up for reelection, but that he had to go. The White House wanted him to go. His colleagues in the Senate wanted him to go. The campaign committee wanted him to go. Idaho Republicans wanted him to go. Talk radio wanted him to go. And he was told, and I'll mention the Idaho statesman, his hometown newspaper with which he's had a rocky relationship, but they endorsed him in 2002.

Here's what they said: "Senator Craig will no longer be a spokesman for his causes, from immigration reform to seeking federal dollars for Idaho projects. He will always be seen — even if o one is so course as to say it — as that Senator involved in that weird arrest at an airport restroom renowned as a pickup spot for anonymous sex."

BARNES: So there was no alternative. And even his pals in the Republican leaders, they wouldn't step forward and declare what a treasure he was for Idaho. And here was the Republican notion about him, and that is every day he's in office, it hurts Republican chances of recovery in 2008. I think they were right about that.

KONDRACKE: It says a lot about Republican skittishness with homosexuality, in addition to the fact it was a pathetic attempt at an arrest for a pickup in a men's room. And he pleaded guilty to a lesser offense, but nonetheless in the same instance. So the cards were all stacked against him and he had to go. Here's an excerpt from the confrontation between the policeman who arrested him and Craig at this airport. Watch.

(BEGIN VIDEO CLIP)

SEN. LARRY CRAIG, (R), IDAHO: I am not gay. I don't do these kinds of things.

DAVID KARSNIA, ARRESTING OFFICER: It doesn't matter. I don't care your sexual preference. I don't care about sexual preference.

CRAIG: I know you don't. You have to enforce the law. But you shouldn't be out to entrap people, either.

KARSNIA: This isn't entrapment?

(END VIDEO CLIP)

KONDRACKE: Yes. Republicans acted swiftly in this case. This sort of cleans up their Mark Foley scandal of 2006. But what about financial corruption, you know? That's what got them into trouble big time in the 2006 election, and here you have Senator Ted Stevens, a powerful former chairman of the Senate Appropriations Committee, his house in Alaska was raided in connection with a corruption investigation. If he were a House member, a Democrat or a Republican, he would be forced to step down from his perch now as the ranking Republican on the Senate Commerce Committee, but he's still there. What are they goes to do — what are they going to do about him?

BARNES: He's a problem for Republicans. He's the champion of earmarks. There are a lot of them that are questionable. And here's the explanation, why Republicans say they haven't done anything in the Senate about him, unlike Larry Craig. He hasn't been charged with a crime and he hasn't admitted to a crime. So it's a different case.

I agree it's a problem. And Republicans of the House have taken — and you were referring to this, they've taken a tougher stand. I mean, lost a few Senate seats, but the House, it was as disaster for them because of the Mark Foley scandal. And he was fiddling over a computer and e-mail with House pages. And they don't want a repeat with this corruption issue. And there were eight or 10 Republicans with a problem in 2006, and they don't want this again in 2008.

So here's what Republicans in the House adopted. And I forgot the language that John Boehner uses, if there's a clear indication that you have serious trouble and an indication — if you've been raided, there is a get-out list. And the ones who are on that list are Republican Congressman John Doolittle of California and Rick Renzi of Arizona. Renzi has already been forced to announce he won't run for election. And Republicans are working on John Doolittle right now. I suspect he is probably going to announce that too.

And then they have a watch list. Guys who are under investigation and — you know, it's the earmarks problem again, where they've earmarked money that seems to benefit people who are belied to them, and campaign contributors to Gary Miller from California and Don Young of Alaska. I mean, look, the Republicans — I think you have to get John Boehner a lot of credit. And Roy Blunt, as well. They decided that we're not going to tolerate any more of this corruption. They're doing it because it was a killer issue for them. But it's the right thing to do.

KONDRACKE: Boehner has been against earmarks his whole career long, to his credit. But Congress on both parts are addicted to earmarks. And it's a warning that Republican problems while they were in power ought to be a warning to Democrats that their time will come, too.

Coming up, Hillary Clinton distances herself from a fugitive businessman who gave her campaign donation. And Fred Thompson joins the race next week. What took him so long? Coming up.

(COMMERCIAL BREAK)

KONDRACKE: Welcome back. Let's check out the "Ups and Downs" for the week. Up, Fred Thompson. After months of sitting on the political sidelines, he is finally ready to announce his run for president.

The question is whether Thompson can put the bloom back on the rose. He had a clever strategy, to act like a candidate without being a candidate and avoid some of the scrutiny and duck out on debates. And he'll continue to duck out on the FOX News debate and announce afterwards. And it's worked to the extent he got to be number two in the race. For the Republican nomination. And he's still number two. He's still number two. However, he was up to 8 points behind Rudolph Giuliani, now slipped back to 12 points behind Rudolph Giuliani. Can he bring it all back to life? He can. There's time, certainly. The question is, is it there? And that will determine everything.

BARNES: He's going to be someone where there will be high scrutiny and expectations when he announces after the FOX News debate in New Hampshire, and he's avoiding that debate as he did other debates. And he has to have something to say. He's talked about him being the new Ronald Reagan. Reagan was a tremendous presence, a former actor, and a great president, but he was a conviction politician with a lot to say. I saw Fred Thompson last week, and he didn't have much to say. He was vague, and said, if we spend too much money, our grandchildren will have to pay for it. He wanted to be president of all Americans. There's a name for those things, they're cliche and they're not particularly new. He's got a chance. He has to have a strong agenda that appeals to a lot of people, speak about it strongly, and I doubt that will happen.

Down, Hillary Clinton. Her campaign hit a bump when it emerged one of her leading fund-raisers, businessman Norman Hsu, was convicted and was on the lamb for 15 years. He was arrested on Friday.

Here Clinton attempting to distant herself from Hsu.

(BEGIN VIDEO CLIP)

SEN. HILLARY CLINTON, (D), PRESIDENTIAL CANDIDATE: When you have as many contributors as I'm fortunate to have, we do the best we can base on the information available to us to make appropriate vetting decisions, and this was a surprise to everybody.

(END VIDEO CLIP)

BARNES: It made a great story. What's the matter with California law enforcement? They let him run around in plain view for so long. This for Hillary is not a scandal, but it is an embarrassment and one that will pass. We're still in the pre-season. So I don't think this will have any appreciable effect at all.

KONDRACKE: She continues to be the juggernaut candidate. And she's done a 16 point lead in some polls, 12 to 20 in the primary states, except for in Iowa, only 2 points ahead. If somebody can beat her in Iowa, Edwards or Obama, they'll make a real race out of it right now, she's ahead.

Down, Senate Republicans. Their fight to retake the Senate got tougher when John Warner announced his retirement on Friday.

BARNES: Some conservatives in Virginia were alienated by him when he voted, and that included me, when he voted against the confirmation of Robert Bork, on the Supreme Court...

KONDRACKE: Not many though.

BARNES: ... in 1987. And you know what? He was amazingly successful in politicians in elections without my support. He's extremely popular, would have won reelection easily. What he leaves behind is a situation where Democrats could win the seat.

If Mark Warner, the former governor, a Democrat runs. He's still enormously popular in the state. And Republicans will fight out between Davis and Gilmore, the former governor. That's a conservative and a moderate. It will be a brutal campaign. And I think Republicans would have a hard time retaining the seat if Warner does run.

KONDRACKE: If Mark Warner doesn't run, then the Republicans have a much better chance. The situation is Democrats, including Independents, are 51, and Republicans are 49. The question is can the Democrats win enough Republican seats to get to a 60 vote, no filibuster? They need 9 seats. They can't. They could get six. There are six vulnerable seats, including now the Virginia seat, and so they could make substantial progress. But 16, they're not going to get to.

BARNES: And Democrats have a vulnerable seat in Louisiana. There aren't many Democrat seats.

KONDRACKE: That's the only one I can count.

BARNES: Two years later, the Katrina blame game goes on.

And Alberto Gonzales finally sees the writing on the wall. We'll tell you what drove him to quit and who's likely to replace him.

(COMMERCIAL BREAK)

BARNES: Welcome back. We're continuing our look at this week's ups and downs. Down, Alberto Gonzales. The attorney general stepping down on Monday as the Justice Department announces its opening an investigation into testimony to Congress. I don't think he lied. But anyway.

KONDRACKE: His departure was inevitable. You could not withstand the kind of pressure he was under personally, every single day people coming out and calling for your resignation. The worst problem was...

BARNES: No, no, no.

KONDRACKE: The worst problem was his department was dissolving underneath him. People were leaving and key posts were left unfilled. Nobody wanted to join that department. Now it has a chance to resuscitate itself. I suspect that part of the reason for the president's support for him and urging him to stay on was designed to deflect attention to him and not let him get to other people. But the other people, principally Karl Rove, decided to leave on their own. So there was nobody else to protect, so Gonzales can go.

BARNES: So you're labeling the president an attention deflector?

(CROSSTALK)

BARNES: He was clearly was not the right guy for the job, but he was abused by the Senators who were training in this completely phony U.S. Attorney firing scandal, which wasn't a scandal at all. It was a bogus issue, and the press goes along with it. He's a completely honorable guy and it was time for him to go.

KONDRACKE: Down, Ray Nagin and Kathleen Blanco. Two years later, New Orleans is still a mess, but all the blame seems to be on the Bush administration. Here's a sample.

(BEGIN VIDEO CLIP)

JOHN EDWARDS, (D), PRESIDENTIAL CANDIDATE: This is a complete failure of presidential leadership by any possible measure.

CLINTON: The United States government, your government, has to take primary responsibility for coming in and fixing what broke.

BARACK OBAMA, (D), PRESIDENTIAL CANDIDATE: Two years later, our federal government still has been too slow, too bureaucratic and too incompetent in helping the city recover.

(END VIDEO CLIP)

BARNES: I think it's a failure of Democratic presidential candidate leadership. The federal government is fulfilling their responsibility, to repair the levees that broke and will spent $7 to $8 billion on that. It will be finished in 2011. And they have some obligation to provide the housing grants so people can rebuild their homes or repair them and so on. But look, to send more money in there — and that's all they ask for, send us more money — they don't have their act together. You still have a completely corrupt police department and law enforcement system and criminal justice system, and dysfunctional political community and an absence of strong leaders and so on. It's a recipe for wasting money if you just send it in there. If they reform some of the things, if they offer some incentives for new business to come in, that's a different story.

KONDRACKE: I haven't seen any polls on this, but I suspect an overwhelming portion of the American public blames the Bush administration for the failure of New Orleans being rebuilt. That's partly a press problem, but it's also a Bush problem. And it's a constant Bush problem. They do not know how to rewrite the story so that people understand the truth as they see it. And it's chronic and goes on over and over and over again.

BARNES: But let's be clear, it's not true.

KONDRACKE: I think it's largely not true. There's a failure on the part of all governments. It is primarily a state responsibility, I agree.

BARNES: Down, radical Shiite cleric Muqtada al-Sadr. His influence clearly diminished. He orders his militia to stop attacking U.S. and Iraqi troops.

KONDRACKE: This is a good sign and is joined by the good sign that we're reducing the Sunni insurgency in the provinces around Baghdad. That's two steps in the right direction. But there's a long way to go. And when the Petraeus report comes out this month, actually, there's still going to be, yeah, what about Maliki? That is a problem that hasn't been solved.

BARNES: I'm no fan of Maliki, but he has done one thing. He has turned against Sadr.

KONDRACKE: Sadr turned against him.

BARNES: Okay. I think Maliki turned first. But neither one of us knows for sure, and he has allowed American troops to go into Sadr City and take out some of the militias. And Sadr, who has withdrawn the members of parliament, they've gone back. But our friend Charles Krauthammer has written several times, and again this week, that the Bush administration missed the chance to take out Sadr when he was fighting American troops on the job back in 2004. It was clear he was going to be a problem, a continuing problem, and they let him go. And I'm not sure whose fault that is. You said it was the Pentagon and Donald Rumsfeld. And that may be the case, whatever. It was a mistake, that's for sure.

KONDRACKE: That's for sure.

BARNES: Hang on to your seats, "The Buzz" is up next.

(COMMERCIAL BREAK)

KONDRACKE: Here's "The Buzz," Fred. Our dear friend Tony Snow has announced he's resigning as White House press secretary. And we wish him enormous good fortune in the future. His departure raises a serious problem for the White House. Tony Snow is the best communicator there has ever been at the White House. There are other good communicators off-line. Pete Wayner (ph) and Karl Rove have been good at it. But the problem for this administration, pointed out by Tom Friedman, "The New York Times" columnist, who said, al Qaeda butchers 500 people in Iraq, and who gets blamed for all the atrocities in that country? We do. It's a communication problem. It's a problem that Chief Bolten, the chief of staff, and Ed Gillespie, the new counselor, and Dana Perino, the new press secretary, will have to improve while there's time left for the administration.

BARNES: And it's a media problem. The media ought to be able to cover it in the right way. I'm sorry to see Tony go. I'm sorry to see Karl Rove go. He's one of the great political minds of his generation. Bush has good replacement possibilities for Gonzales, Larry Silverman, Larry Thompson and Ted Olson, all good.

KONDRACKE: OK, that's all the time for "The Beltway Boys" this week. Join us next week when the boys will be back in town.

Watch "The Beltway Boys" Saturday at 6 p.m. ET and Sunday at 1 and 6 a.m. ET

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