This is a rush transcript from "The Journal Editorial Report," March 15, 2008.

PAUL GIGOT, HOST: This week on the "Journal Editorial Report," oil hits a new high as the dollar plunges to a new low. How much trouble is the U.S. economy in and what can be done to fix it?

The rise and fall of New York Governor Eliot Spitzer. How the one time prosecutor and Democratic super star bullied his way to the top and what the press did to enable him.

Is Barack Obama playing the race card? Accusations are flying.

And our panel is here to sort it out. But first, the headlines.

(NEWSBREAK)

GIGOT: Welcome to the "Journal Editorial Report". I'm Paul Gigot.

It was a week of economic highs and lows. Oil prices jumped to new highs as the U.S. dollar plunged to an all-time low against the euro and a 12-year low against the Japanese yen. All of this as the Fed announced plans to bump $200 billion into the struggling credit markets, as well as news late this week of an emergency bail out of Bear Stearns, the 5th largest investment bank.

Joining the panel this week, "Wall Street Journal" columnist and deputy editor Dan Henninger, editorial board member Jason Riley and columnist Mary Anastasia O'Grady.

Mary, let me go to you first. Wall Street, as you know, is in a panic over the seizing up of the credit markets. They can't find a lot of buyers for their securities. What do you think as you look at the larger economy? Where is the larger problem now?

MARY ANASTASIA O'GRADY, COLUMNIST: Right now I don't think it's clear we have a recession. The thing that's keeping us out of recession is that we have pretty good job numbers still. We had about a — last week we had about the same number of jobless claims from the week before. We are down about 9.5 percent from this time last year. Still that's a long way from...

GIGOT: The jobless rate is 4.8 percent, which is historically low.

O'GRADY: Longs people have jobs they have money to spend. The bigger problem I think is the inflation problem. Prices are rising and the Fed I think has lost some level of credibility. It's tried to deal with the problem in the housing Market by creating money. That's not going to solve the problem.

GIGOT: That's the issue, Dan. What you're seeing here is — we talk to people in Wall Street all of the time and what they are saying is the Fed has to ease money and behind the curtain ease more, ease more. They want it to solve the credit Market problem. Is Mary right it is creating a bigger problem?

DAN HENNINGER, COLUMNIST & DEPUTY EDITOR: Literally, it's a bigger problem. As you said, the problem in the larger economy. The larger problem is not the U.S. economy. It's the world economy. When you put more liquidity into the system the dollar declines. it has gone into a steep decline. It is causing instability around the world. As other central banks, quite reasonably, have to decide what they are going to do with their monetary policies. It's making it difficult on countries who's currencies are linked to the dollar.

The Fed, in the name of internal stability, is creating a lot of stability out in the world.

GIGOT: I think, Jason, $4 gasoline in parts of the America. Food prices are rising rapidly, healthcare prices rising. That is the source of a lot of economic anxiety.

JASON RILEY, EDITORIAL BOARD MEMBER: And food and energy isn't part of the core inflation, but the things people have to spend their money on every day.

GIGOT: Core inflation is the magic number they follow.

RILEY: Mary is right. The Fed has a credibility problem. One of the worst things Ben Bernanke can do is say we are not going to ease any more.

GIGOT: You won't make yourself a popular man in Wall Street. You better stay in the bunker. Everybody says you have to do that because a lot of the — a lot of people say the oil prices aren't rising because of the Fed. They're rising because of the big change in global demand for oil.

O'GRADY: Look what happened with the dollar and euro. The dollar used to be more then it was par now it's much less than the euro. If you look at oil, in euro value, it's about 65 Euros for a barrel of oil, which shows that the deterioration or rise in prices in dollars is where the problem is.

GIGOT: Dan, the other big question is the housing markets. How low - everybody wants to know and most homeowners want to know how low are housing prices going to fall? That's of course because the home loans are packaged and sold on Wall Street that affects the securities on Wall Street, too. Do we have any idea how long they are going to go?

HENNINGER: I don't think we know how low they are going to go. But we should let the markets determine that.

The thing we haven't talked about here is the political dimension to this problem. The mortgage foreclosures are an obvious political problem. You have candidates campaigning on it.

The other problem is in the financial markets, Wall Street, which Bernanke is trying to deal with. The two are interrelated. You can't bail out Wall Street if you are not going to bail out people who's mortgages are being foreclosed.

Both of those fixes create tremendous problems in the economy. I think the best answer to this is to simply let the markets clear this extremely complex problem.

GIGOT: Easy for us to say. We are not running for office.

RILEY: Dan is right. We are never going to know where the bottom is unless the government let's the market do this. That's what has to happen. This correction has to be allowed to take place. It's not going to take place if Bernanke is out there urging lenders to reduce the principle or if the government is taking on more loans. It's not going to happen.

GIGOT: Look, I think as economists, I would agree with you. This is an election year. It's unreasonable to expect politicians to let prices fall?

O'GRADY: One of the problems is there are people paying for these mistakes. That's a larger part of the population than the people who are losing the houses. They are not faulting problems by cutting fed funds very aggressively. We are at 3 percent and now the expectation we are going to go another 50 basis points.

GIGOT: That's the benchmark Federal Reserve interest rate.

O'GRADY: Have they solved a problem with that? No. Have they created problems with the rest of the people responsible with their mortgages? No.

GIGOT: None of you have reassured me.

(LAUGHTER)

When we come back, the rise and fall of Eliot Spitzer. How the one- time prosecutor bullied his way to the top and the role the press corps's played in his antics.

(COMMERCIAL BREAK)

GIGOT: It was a meteoric ride and a spectacular fall for Governor Eliot Spitzer who resigned after being tied to a prostitution ring. But how the state's former attorney general bullied his way to the top of New York politics is a cautionary tale in and of itself and one in which the press corps played a key role.

We are back with our Dan Henninger and Mary O'Grady. Also joining the panel is Columnist John Fund.

Dan, the narrative here on some — part of some people who liked Eliot Spitzer what he did was that he was a great man who did great things as a prosecutor and just got tripped up here on this personal foibles. Do you buy that?

HENNINGER: I don't buy it at all. I think Eliot Spitzer was a man who was simply unhinged from normal norms of personal and professional behavior. It wasn't just this incident. If you roll the tape back to his years as attorney general and prosecutor, he wasn't a normal prosecutor. He wasn't even a normally aggressive prosecutor. He was over the top. He was guilty of prosecutorial abuse in many instances.

Then he becomes governor and one of the first things he does is sic the state police on the head of the Senate, Joseph Bruno. This was a professionally suicidal thing to do. Why did he think he could get away with that?

Now this, a personally destructive thing. He was a fellow who didn't fell he had to answer to the normal modes of behavior the rest of us do.

GIGOT: Mary, what about the issue of entrapment? It was raised by Alan Dershowitz, a lawyer from Harvard, also a friend of Eliot Spitzer's. He said the federal government has no business pursuing prostitution cases against public officials. It doesn't charge so-called Johns typically who participate in this. Why should they do it to Eliot Spitzer? What do you think of that argument?

O'GRADY: Spitzer was an attorney general who pursued precisely this line of thinking that prostitution should be prosecuted to the fullest extent of the law.

GIGOT: He tried to make political hey with it.

O'GRADY: He did. So I think he is perfectly capable of addressing himself on this. The other thing to keep in mind here is this is being viewed by the press as something that people are taking joy in seeing the fall of Eliot Spitzer. I think it's more like a sense of vindication on the part of his victims, who are the people on the receiving end of the kinds of methods he used when he was attorney general — slandering, threatening, going beyond his authority to try to force people into — to come under his thumb. All of that was for political gain. People feel vindicated from this.

GIGOT: John, is it a sense of vindication? I don't sense a lot of joy particularly for the Spitzer family. His wife was so stricken. It was very painful to watch.

You said, wrote in a column this week Spitzer's campaign's against businesses, prosecutorial campaigns were pitched for liberal ears. How so?

JOHN FUND, COLUMNIST: Look at the media. Won't surprise you some journalists are social activists in disguise.

GIGOT: No?

FUND: They love to go on crusades. Spitzer was perfect for them. His view of the constitution was perfectly pitched to liberals. He called it a dead piece of paper. We can take it and make the world what we want of it.

Then he went to the media and sat down with them and said here's a great story about a Wall Street malefactor, I am handing it to you on a silver platter, don't ask questions.

Then Spitzer went out, used the media to club these people into submission. He forced them into settlements. His whole goal was never wanted to prove they were guilty or not. The few cases that went to trial ended up he didn't get any convictions.

GIGOT: He also used a New York law called the Martin Act, which doesn't require so-called criminal intent in order to prove guilt. That was a low bar for a lot of these prosecutions. It is made it easier for him to force settlements on people.

The irony is he might be a cropper of the Man Act, which is human trafficking across state lines. Do I think that should be prosecuted? I am not so sure it should be, myself.

HENNINGER: Paul, it raises the Dershowitz question, if he was trafficking with the hookers of Albany, maybe he would have gotten away with it. But it took place in Washington, D.C., Florida, Texas. The financial transactions got the Internal Revenue involved. There was no way the authorities simply gone up there and said, governor, we think you have got a problem here and if you stop it we will let it all go away. It was not possible. Again, this behavior was so grandiose and over the top that it couldn't be ignored.

GIGOT: All right, Dan, last word.

Still ahead, he says he wants to move past the politics of race, but is Barack Obama playing the race card when it suits his purposes? The panel weighs in after the break.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

GERALDINE FERRARO, FORMER VICE PRESIDENTIAL CANDIDATE: It's got to stop. Every time they want to say something and belt Hillary with something, they associate her with remarks and yell racist, racist, racist. Enough already. They are playing the race card a little bit too much.

(END VIDEO CLIP)

GIGOT: That was former vice presidential candidate and Hillary Clinton supporter Geraldine Ferraro responding to go charges of racism from the Barack Obama campaign.

At the center of the controversy is a remark she made to a California newspaper last week. Ferraro said, quote: "If Obama was a white man, he would not be in this position. And if he was a woman, of any color, he would not be in this position. He happens to be very lucky to be who he is. And the country is caught up in the concept."

Ferraro stepped down from the Clinton campaign's Finances Committee as a result of the controversy.

Hillary Clinton also apologized, Jason, for Ferraro's remarks. What do you make of the episode?

RILEY: I think the Obama campaign is trying to have it both ways frankly. They want to claim their politics transcends race yet they want to reserve the right to play the race card when it suits them. It suits them when they want to change the subject. It's been a constant theme of the Clinton campaign to question the commander-in-chief credentials of Barack Obama. Instead of answering them with specifics, he is answering them by playing the race card here and I think it's wrong.

GIGOT: They did have a point when Bill Clinton raised race indirectly after the South Carolina victory, saying it was just like Jesse Jackson. That was an attempt to find that victory in very narrow terms.

RILEY: That was. That certainly was. There are times where it's legitimate. I think he is over playing it. I don't think this is a legitimate case.

I think what ms. Ferraro said was stating the opposite. Obama has clearly benefited from being black through his campaign and national career, especially his national political career. To say that doesn't portray racial animus is wrong.

GIGOT: Another issue came up this week and that is the comments made by Barack Obama's pastor, Jeremiah Wright of the Trinity United Church of Christ. We have a sound bite here of a tape that's circulating about his sermons.

(BEGIN VIDEO CLIP)

REV. JEREMIAH WRIGHT, TRINITY UNITED CHURCH OF CHRIST: Until you are ready to spend as much money trying to find a cure for aids and you are spending trying to find Usama bin Laden, I am going to keep on preaching what I been preaching. Until you are ready to spend as much money on education and training the minds of our children as you are spending on annihilation and training the military to murder, I am going to keep on preaching what I been preaching.

(END VIDEO CLIP)

GIGOT: I should say, Dan, that he is a former preacher, former pastor. He did retire recently, but he was Barack Obama's long time pastor. How big a problem does this present to Barack Obama?

HENNINGER: I think in terms of public relations it is a huge problem. He and his wife have attended this church for quite a while. He has known Pastor Wright for a long time.

We should make it clear Barack Obama himself has never, to any one's knowledge, said anything like what Pastor Wright has been saying. I am going to be a little bit iconoclastic here. I don't know what is quite going on between Barack Obama and this pastor. It's not inconceivable to me — the one person who has said things similar to this is his wife Michele Obama. She was quoted in a recent "New Yorker" article saying something somewhat similar.

I wouldn't be surprised if Barack Obama hasn't been going to this church, in large part, because that's where she wants to go to church. She may feel sympathetic to Wright's views.

GIGOT: Some would say it's guilt by association, Jason. It's just not fair.

RILEY: They have more than a sort of pastor-congregate relationship. He called this man a mentor. He says this man has inspired him in very important ways of life.

GIGOT: "The Audacity of Hope," his book, comes from one of his phrases.

RILEY: A friend, a spiritual advisor. It's more than guilt by association here.

By the way, an Obama campaign with a Jeremiah Wright and its backgrounds can hardly be calling on Clinton to fire people like Ferraro.

FUND: We just went through a campaign where Mitt Romney was constantly challenged for his associations with the Mormon Church. He had to give a speech how he would govern as president being a Mormon. Barack Obama is eventually going to have to give a speech separating himself from Wright and Louis Farrakhan, saying this is why I went to the church, this is what I reject from the church and this is what I agree with the church.

RILEY: What I would want to ask Barack Obama and I think others should ask him is why he would associate himself to a church his own mother would not feel comfortable attending.

GIGOT: For the Clinton campaign, it plays into the idea he has not been vetted enough.

FUND: There are surprises for the general election if you nominate him.

GIGOT: OK, thanks, John.

We have to take one more break. When we come back, our "Hits and Misses" of the week, after the break.

(COMMERCIAL BREAK)

GIGOT: Winners and losers, picks and pans, "Hits and Misses," it's our way of calling attention to the best and the worst of the week.

Item one, the Senate, Dan? How can this happen? Votes to keep the pork coming?

HENNINGER: This is the story of Senator Jim DeMint, who could be called the Don Quixote of Washington. Instead of tilting at windmills he was taking on the bridge to nowhere. Senator DeMint proposed a one-year moratorium on earmarks. Came up for a vote. It was voted down 71-29.

Senators McCain, Clinton and Obama voted for it, but nearly all Democrats voted to keep going with the earmarks.

I think we need a proposal. This is hopeless. Let's put up a new monument on the Washington Mall. We have the Washington, Lincoln, Jefferson Memorials. let's erect a bridge that goes simply nowhere.

GIGOT: All right, Dan, thanks.

Next, the popularity of a key U.S. ally reaches new heights — Mary?

O'GRADY: To set this us, let me first remind everybody Nancy Pelosi and Democrats in Congress have been saying Columbia and its president, Alvaro Uribe, cannot have a free trade agreement with the United States because he's such a horrible president and doesn't preside over a democracy.

It is, in fact, a democracy. This week, the Gallop released a poll saying Uribe has an 82 percent approval rating in Columbia. That's something for the Democrats in Congress to think about when they are thinking about whether they are going to approve the free trade agreement.

GIGOT: What is Congress approval rating 24, 23?

O'GRADY: They could learn something.

GIGOT: Almost as bad as the press'.

Ok, finally a hit to Microsoft chairman Bill Gates — Jason?

RILEY: Mr. Gates, for the umpteenth time, appeared before Congress this week and urged them to list the limit on the number of visas available to high-skilled foreigners. This is an extremely important issue. Lack of access to these foreign workers undermines U.S. competitiveness. Mr. Gates is right to urge Congress to lift this cap. It's an arbitrary cap at 65,000 right now. it's met on the first day the visas are available often. Most of these foreigners graduate from U.S. universities. It makes absolutely no sense to ship them off, out of the country, to start businesses elsewhere that we'll have to compete.

GIGOT: Yes. Is Bill Gates tilting at windmills here?

RILEY: Probably. Particularly in an election year protectionism plays well so I don't have high hopes for this. But the right thing to do is for Congress to eliminate this cap. Barring that, they should triple it.

GIGOT: Very quick, up or down, is the Columbia free trade pass or no?

O'GRADY: It will pass.

GIGOT: All right, Mary, I hope you're right.

That's it for this week's edition of the "Journal Editorial Report." Send your emails to jer@foxnews.com and visit us on the web at www.foxnews.com/journal.

Thanks to my panel and all of you for watching.

I'm Paul Gigot. We hope to see you right here next week.

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