Updated

This is a rush transcript from "On the Record ," March 18, 2008. This copy may not be in its final form and may be updated.

GRETA VAN SUSTEREN, HOST: Tonight: The controversy continues. Senator Obama spoke, but it is not over. Senator Obama's pastor, Reverend Wright's, hateful anti-American sermons have started a firestorm. These are some of the comments that have heated up TVs and computers across the world, the words at the center of this scandal.

Video: Watch Part 1 | Part 2

(BEGIN VIDEO CLIP)

REV. JEREMIAH WRIGHT, JR., TRINITY UNITED CHURCH OF CHRIST: Hillary ain't never had her people defined as non-persons! Hillary ain't had to work twice as hard just to get accepted by the rich white folks who own everything, or to get a passing grade when you know you are smarter than that C student sitting in the White House. Oh, I am so glad that I got a God who knows what it is to be a poor black man...

(END VIDEO CLIP)

VAN SUSTEREN: Senator Obama has attended Wright's church for 20 years, and yesterday, Senator Obama confronted this controversy head on.

(BEGIN VIDEO CLIP)

SEN. BARACK OBAMA, PRESIDENTIAL CANDIDATE: But the remarks that have caused this recent firestorm weren't simply controversial. They weren't simply a religious leader's effort to speak out against perceived injustice. Instead, they expressed a profoundly distorted view of this country, a view that sees white racism as endemic and that elevates what is wrong with America above all that we know is right with America.

(END VIDEO CLIP)

VAN SUSTEREN: Well, what was the response? Much of the media gave Senator Obama rave reviews. A New York Times editorial praised him. But the issue is still not put to rest in many people's minds. And tonight, you will hear from a friend of Reverend Wright, a friend who has known him 25 years. You will hear from him later in this news show.

But first: Is the controversy causing permanent damage to Senator Obama's presidential hopes? Has Senator Obama done all he can to tackle this explosive political problem? Joining us live is former deputy chief of staff to President Bush, famed political consultant and FOX News political analyst Karl Rove. Nice to see you, Karl.

KARL ROVE, FORMER WHITE HOUSE SENIOR ADVISER, FOX POLITICAL ANALYST: Greta, thanks for having me on.

VAN SUSTEREN: Karl, all right, tell me, how damaging is this controversy to Senator Obama, or isn't it?

ROVE: Well, first of all, let's just say what he did right. It was a well-executed speech, brilliantly staged. They moved quickly to deal with this issue. They didn't leave it out there for a long time. It was soaring rhetoric. It's gotten good notices from the mainstream media.

But I think, upon reflection, it's going to be found to be troubling and unsatisfactory and perhaps even cynical. And at the end of the day, the issue has not gone away. The issue remains. Why did Senator Barack Obama for 20 years tolerate a relationship with a pastor who had such vicious and paranoid views of our country? I mean, he believed that AIDS was created by the government as a tool of genocide, that Jesus Christ was a poor black man oppressed by white men, just like all blacks were today.

I mean, these — you know, he called on people to God damn America and said that it was even in the Bible. I mean, these are pretty outlandish views. And the question remains, why did Senator Obama for 20 years associate with such an individual?

VAN SUSTEREN: Is the problem for Senator Obama not so much the actual statements of the Reverend Wright, but rather that he did not come forward with it sooner? Because clearly, at the time that he said he was going to run for president more than a year ago, he had invited him to do the prayer and then disinvited him. And it seemed — I suppose it seems unusual now because they were so close.

ROVE: Yes. Well, ABC News tonight pointed out that the speech contradicted all the spin and all the statements from the campaign before this incident broke, that Senator Obama was somehow unaware of these controversial statements and these very controversial views.

I was, frankly — I watched the speech, and you can't help but be moved by some of the sentiments in the speech, particularly at the beginning. It had a wonderful construct, talking about our Constitution and the troubled and flawed portion of the Constitution dealing with slavery.

But on reflection, look, the views that Reverend Wright talked about are reprehensible not because they are racially motivated but because they are so divisive and negative about our country. And in the speech, which I've read and reread, Senator Obama attempts to make those views a question of race. It's almost like he condemns them on one hand but refuses to disavow Reverend Wright on the other, saying he could no more disavow him than the black community, and then basically, asks us to accept that these views need to be understood, not accepted, but need to understood because they are legitimate expressions of black anger about discrimination. I just think most Americans — I think virtually all Americans would disagree with that.

VAN SUSTEREN: What — how's it going to haunt him, if it is going to haunt him, the fact that when Don Imus, the radio talk show host, made those despicable racial slurs against the women's basketball team at Rutgers, he said that Don Imus should be fired. He was actually the first...

ROVE: Right.

VAN SUSTEREN: ... I think, senator to come out and say that. And it was like there was no margin.

ROVE: Right.

VAN SUSTEREN: Didn't matter that Don Imus had this ranch for sick children or anything else. And so now, how does that — how do you juxtapose that to this situation?

ROVE: Well, it's interesting you make that point because he does say here that we should not take these statements by Reverend Wright by themselves, we should look at the whole individual before we make a judgment about him. But you're right, it makes him look like another ordinary politician, inconsistent and perhaps even hypocritical. And that's the problem for Senator Obama.

This whole thing has tarnished the image that he had attempted to build, first as a uniter, as somebody who'd bring everybody together. How can you claim to be somebody who can unite America if you're so tone deaf as to for 20 years be associated with an individual filled with such hatred for our country and for his fellow citizens?

And second of all, how can you claim to be something new and different when it turns out that you have misled people about the nature of your association with him? And how can you claim to be something new and different when it turns out you applied one standard to one individual and different standard to another?

This is deeply troubling, and particularly because we now live in a culture of the visual. These statements by Reverend Wright, which were, interestingly enough, given away or sold by the church on DVDs to people — you know, they're on YouTube. They'll be viewed and talked about continually between now and the election. And they're going to cause deep concerns about people because, again, it gets down to — these are bad. These are bad, paranoid and vicious things about our country. Why did you tolerate them for 20 years?

I think, frankly, Greta, if he had come out and said some of the things that he said about our country in this speech but said, Look, I recognize — I realize now how deeply troubling these comments by Reverend Wright were. I wish I'd spoken out at the time. I wish I had not tolerated them. I took part of our relationship, the relationship of faith, and allowed me — that allowed me to — that blinded me to how divisive these comments were. I made a mistake. I won't make that again. I think Americans would be applauding him.

Nobody expects our candidates for president to be perfect, but here he basically said, I now condemn them after I didn't acknowledge them before. But you need to really understand them in their context, and everybody in America, black and white, has reason to be angry, and we all ought to be angry at the same people. He talks about it towards the end of his speech, where he talks abut we need to be — you know, white and black together ought to be angry about, you know, corporate malefactors and people who've engaged in accounting abuse and people who are moving jobs overseas, which is basically to excuse almost anything that anybody would want to say, as long as we all have the same enemy.

VAN SUSTEREN: You know, Karl, I don't think any of us thinks that any of us is a hypocrite. We always try to think that we're not hypocrites, but I suppose there's hypocrisy in each of us. But what makes it different is if you're running for office and if the viewers see this as somehow hypocritical. And let me take — I always think of it as sort of the worst case scenario, as a lawyer, if I were representing him or running his campaign. If the voters think he's a hypocrite on the Imus thing versus the reverend, which is the easiest sampling to do, is that fatal, or is there something strategically he can do to get around that?

ROVE: Well, look, these contradictions are harmful to him. There's another one in the speech itself — several, in fact. He equates the comments of Geraldine Ferraro with those of Reverend Wright. Now, Geraldine Ferraro was wrong to suggest that his presence in the race was a result of Affirmative Action, but I got to tell you, I find that, as reprehensible as it is, to be far less troubling than the suggestion that our government created AIDS in order to — as a tool of genocide. The moral equivalence that he drew between them was troubling.

It's even worse when it goes on to equate all these things that Reverend Wright says to what his grandmother said. Look, the private comments of an elderly grandparent are not equivalent to the public rantings and ravings over a 20- year — over several decades by a pastor of a very large church which are then disseminated into print and provided on diskette to anybody who wants to see it. I just thought throwing his grandmother under the bus like he did was — you know, showed an unattractive ambition that he should have kept contained.

VAN SUSTEREN: So can rise above this? I mean, what's the strategy, from someone...

ROVE: Well, look...

VAN SUSTEREN: ... who's been inside a campaign? What do you do with this one?

ROVE: Well, look, he did have a strategic judgment, and it's going to work with many people, and that — particularly with the press. And that is, he said, You got to deal with this as an issue of race, and you can't understand this separate and apart from the history of discrimination in our country.

Now, I don't think that's what this was about. This was about Reverend Wright's obnoxious and repugnant views. It wasn't about the result of decades or centuries of discrimination and slavery. It wasn't. But he put it in a racial context, and by doing so, he made it very difficult for people, if you accept that argument, to talk about this.

Americans don't like to talk about race. They'd like to get beyond race. They would like a post-racial society, black and white, yellow, brown, colorblind. But what Senator Obama did was deliberately say, We can't have this conversation about Reverend Wright except in and of a discussion about race. And as a result, the left-central media, the mainstream media, the left-center of American media applauded it, and a lot of people feel uncomfortable talking about it. But it will remain. It will remain a question for a lot of voters. Why did you associate with somebody who said such ugly things about America and made such outlandish, paranoid statements about our country?

VAN SUSTEREN: Karl, if you'll stand by, please. We have much more with you.

And of course, we want to hear from the viewers. We want to know what you think. Log onto Gretawire.com and vote in our poll that we just put up there. Here's tonight's question: Do you think Senator Obama is hiding anything about his pastor problem? First answer, No, second, Yes, or third, Not sure. So log on and we're going to tell you the results at the end of the show.

And of course, we'll have much more with Karl Rove in just a few moments.

And later: One person you have not heard from, Reverend Wright. It was Reverend Wright's words that started the fire. Reverend Wright's friend of 25 years will be right here.

And later: You have to stick around because we have the one, the only Bill O'Reilly here, talking about how the media is treating Senator Obama. You know with Bill O'Reilly, it is never dull.

(COMMERCIAL BREAK)

VAN SUSTEREN: FOX News political analyst Karl Rove is back with us. Karl, I know that you've not been historically in the business of trying to help the Democrats with their problems, but they got a major problem with these delegates in Michigan and Florida. Senator Clinton went up to Michigan today. Some say it was a stunt, some say it was to do — to, you know, try to resolve it. Any thoughts on — any advice for the Democrats on this?

ROVE: Well, first of all, they've got to find a way to do this. You cannot have two battleground states like this, Florida and Michigan, unrepresented at the Democratic national convention. The last time we had a convention with only 48 states represented at it was 1956, before Alaska and Hawaii were admitted to the union. So they got to find a way to resolve it.

You know, interestingly enough, I think the actor who can make — who can resolve this is Barack Obama. If you assume that during the next couple of weeks, as I do, that he's going to maintain his lead in the delegate count, then perhaps what he can do is generously say, Look, let us seat the Florida and Michigan delegations, totaling about 316 delegates.

If she wins them by — if she has the number of delegates in those delegations that she got on election day, then she's only going to close the margin by some, as best as I can figure out, 35 or 40 delegates, at most. If he's ahead by 150 to 170 delegates in June, why not look magnanimous and look like the — you know, look like the person who's bringing the party together and simply say, Seat the delegations and have the margin close up a little bit.

But if they don't, they're taking two battleground states and basically, you know, telling them to get lost for the election, and it's going to hurt them and hurt them deeply in both states.

VAN SUSTEREN: Are Florida and Michigan in the same situation? Because in Florida, everybody was on the ballot, including Senator John Edwards. In Michigan...

ROVE: Right.

VAN SUSTEREN: ... Senator Barack Obama was not on the ballot. Is that a difference that makes any difference?

ROVE: Well, I don't think so, at this point. I mean, you know, let's — let's assume they're not going to be able to get the vote in Michigan done by tomorrow, which is the deadline they say they need to have it done in order to make it happen in June. Then say, OK, Senator Clinton can have the 55 percent of the delegates in Michigan that she won on the ballot, and 45 percent won't be her. And you can bet the 45 percent who are not Clinton delegates will end up being Obama delegates. And in that state, that means that she picks up maybe 20 delegates, 21 or 22 delegates at most on him. Similarly in Florida, she probably gains a similar number.

But somebody's got to find a way to resolve this because if the Democrats show up in Denver with a battle on the floor about this, a credentials question on this, or worst of all, the two states not seated, it's just going to be bad for the Democratic Party and I think bad for their chances in those two important states in the fall.

VAN SUSTEREN: How certain is it that Senator Obama will win this nomination? I guess the flip question is, what are the odds that Senator Clinton can pull this off?

ROVE: Well, from here on out, she has to win roughly, by my calculation, 60 percent of the delegates to be elected and the superdelegates who have yet to make a choice. Now, it's not inconceivable she could do that, but she's gotten 60 percent of the vote in very few states. She got it in Rhode Island, and she got 58 percent of the vote in her home state of New York. So facing places like North Carolina and Oregon, which for different reasons are not going to be particularly favorable to her, it's hard to see her getting 58 (INAUDIBLE) 60 percent of the vote in all those states.

She may — we'll see. If she blows him out in Pennsylvania, then that may give her momentum going into North Carolina and Indiana, which have more delegates up for stake — up for grabs two weeks after Pennsylvania than are up in Pennsylvania itself. But it's a very steep hill for her to climb, a much easier hill for him to climb.

VAN SUSTEREN: Karl, hope you'll come back regularly with us and help us with this. Thank you, Karl.

ROVE: You bet. Thanks, Greta.

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