This is a rush transcript from "The Beltway Boys", June 21, 2008, that has been edited for clarity.

FRED BARNES, FOX CO-HOST: On "The Beltway Boys," Barack Obama is enjoying a bump in the polls and glowing media coverage, but what do voters really know about him? We'll take a closer look.

MORT KONDRACKE, FOX CO-HOST: John McCain tries to put Obama on the defensive on off-shore drilling and the War on Terror.

BARNES: Michelle Obama tries to soften some of her perceived rough edges. We'll tell you how it's going over.

KONDRACKE: Top Democrats accused of getting special treatment from a top mortgage lender.

BARNES: That's all coming up on "The Beltway Boys," but first the headlines.

(FOX NEWS BREAK)

BARNES: I'm Fred Barnes.

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

BARNES: Tonight's hot top story, Mort, all about Obama.

As you know, it's a very unusual campaign in that the focus is really on one candidate, Barack Obama. Everybody in the country knows John McCain, and has for years. But Obama's the dashing new guy.

I think the question that will be asked all year is is Obama who he says he is. If he is, I think he wins. If he's not, it might be a different result.

For Obama this week, the focus was on him once again. There were some good signs and bad signs, some pros and some cons. Let's start with a look at some of Obama's political pros. First of all, he got a bump in the poll, impressively. He's ahead in our latest FOX poll, 45-41. He's ahead in three key swing states, Florida, Ohio and Pennsylvania. Those are the key states period, I think. The latest electoral map by Karl Rove shows Obama leading McCain by 70 electoral votes. This latest map shows Ohio has shifted from a tossup state to Obama and Florida from McCain to a tossup. The new polls in Oregon, Washington and all of Pennsylvania show Obama expanding his lead in blue states.

KONDRACKE: Yeah. Well, the road maps show that he's picked up 30 states — 30 electoral votes in the past two weeks. The trend is all going in his direction. And according to the Real Clear Politics averages of state polls, Obama is now ahead or within the margin of error in 11 states that George Bush carried in 2004 with a total of 110 electoral votes. If he wins those, boy, he's going to score a smashing victory.

BARNES: It looks like Obama's summer, maybe McCain's fall. Right now it's Obama summer.

Second, Obama pro. The media is still mostly in full swing though. A piece in "the New York Times" about what a great manager of people he is. They've treated him like the greatest manager since Casey Stangle (ph). Just the usual stuff to getting that praise.

And, thirdly, Obama's making strides and healing the party after the heated primary fight with Hillary Clinton. She is going to appear this coming week twice with Obama, once when she's going to appear before her donors, obviously trying to get them to give money to Obama. And then at a rally, a public rally where she'll be there. Not Bill but she'll be there with Obama.

KONDRACKE: If he was trying to cozy up to the McCain activity Hillary in-group, he did not succeed with the appointment of Patti Solis Doyle, Hillary's Clinton's fired campaign manager, to be in charge of the vice presidential campaign. They all regard it as a poke in the eye. It could have been a mistake but they interpret it as a nasty blow to them.

BARNES: Mort, it had to be a mistake. There's no incentive for Obama now to try to anger the Clinton people. Quite the opposite. He needs to bring them into the poll. He wants party unity. It might have been a mistake. It had to be a mistake.

KONDRACKE: Well, it's a clear message she's not getting the vice president.

(CROSSTALK)

KONDRACKE: OK. And let's take a look at Obama's political negatives.

First he's getting slammed by the Republicans for his flip on public financing. And that's — that's a valid rap. I mean, he promised over and over and over again that he would take public financing if his Republican opponent did. If McCain did and McCain of course is going to do it. This is an out and out flip. And therefore, you know, if this is an example of change we can believe in, that's not the kind I believe in.

BARNES: Mort, remember "The Audacity of Hope," this is a different kind of audacity. You know who he blamed essentially for his not following through on public financing, John McCain! McCain forced him into it. And then he pretends as if his private financing, get money from private owners is actually public financing and the public financing system is broken. Something he never mentioned before by the way.

KONDRACKE: And he's still in favor of it.

BARNES: So many flip-flops in there you can't count them all.

KONDRACKE: Right.

Secondly, Obama is clearly foot dragging on McCain's debate challenge. McCain wanted ten free-wheeling town hall kinds of debates. Obama is only for one between now and the conventions and that can be held July 4th, I'm sure in the evening when everybody in the country's watching fireworks.

BARNES: Remember, "We need to debate McCain at least on foreign policy, national security stuff, anytime, anywhere?" I guess not.

KONDRACKE: Well, another comment — I think this is the really important one, a big one and politically important as well — is the perception that Obama is soft on terrorism and national security issues. Our latest FOX poll shows that a majority trusts McCain over Obama on the issue of Iraq and terrorism. And when asked if there were another terrorist attack, who would you be more comfortable with as president, 50 percent said McCain and 33% said Obama. And among independent voters it's 50-19 for McCain.

Here's Obama on ABC earlier this week showing, talking about how he would treat terrorism suspects and then McCain's response. Watch.

(BEGIN VIDEO CLIP)

SEN. BARACK OBAMA, (D), PRESIDENTIAL CANDIDATE: In previous terrorist's attacks, for example, the first attack against the World Trade Center, we were able to arrest those responsible, put them on trial. They are currently in U.S. prisons, incapacitated.

SEN. JOHN MCCAIN, (R), PRESIDENTIAL CANDIDATE: He doesn't have an understanding of the nature of the threat. And I'll look forward to that debate.

(END VIDEO CLIP)

KONDRACKE: The idea that you're going to treat terror suspects as criminal suspects means that are soldiers in Afghanistan, instead of fighting to save their lives or capture territory, will have to go around after the battle picking up shell casings to prove in court that whoever they managed to capture were guilty of a criminal offense. That is just nuts.

BARNES: You remember what happened at that trial back in the '90s, Obama says was the right way to go in dealing with terrorists. One of the things that happened was the fact that American intelligence was tapping into the cell phones of Osama bin Laden and the other leaders there, alerting them to the fact they couldn't use their cell phones and they stopped. Can you imagine amazing intelligence which might have been discovered then in the 1990s had that not happened.

One thing that could have been discovered is the fact that 9/11 was planned. Who knows? But it was something terrible that happened at that trial that Obama seems to like too much.

Now let's get to this. This week these revelations good and bad and so on about Obama, the things that happened, is he better off? Was he hurt by any of this seriously, switching on public financing? I doubt it. I don't think that's an issue that grips the public. They don't care one way or another. The trust issue if McCain can follow up on, maybe there's something there.

KONDRACKE: Terrorism, too. But so far you have to say Obama is prospering based on all the polls. I think the problem is McCain is not breaking through. He's got to make the point that Obama's flipping, flopping and this week on terrorism or else he's going to lose this election.

BARNES: Indeed.

Coming up, McCain tries to out-flank Obama on offshore drilling. And Michelle Obama tried to more beyond her "proud of America for the first time" remark, next.

(COMMERCIAL BREAK)

KONDRACKE: Welcome back to "The Beltway Boys." Let's check out the "Ups and Downs" for the week.

Up, John McCain. He called for lifting the federal ban on off-shore oil and natural gas exploration. Here is McCain and Barack Obama's response. Watch.

(BEGIN VIDEO CLIP)

MCCAIN: As a matter of fairness to the American people, a matter of duty for our government, we must deal with the here and now and assure affordable fuel for America by increasing domestic production.

OBAMA: This is yet another reversal by John McCain in terms of his earlier positions. And I think we can set up an interesting debate between John McCain 2000 and John McCain 2008.

(END VIDEO CLIP)

BARNES: They could. But I think Obama would lose. This is a big step for McCain but only a halfway step. He still says that the Arctic National Wildlife Reserve in Alaska is pristine. But there's also oil there that you can drill with a small drilling footprint. He's against that.

He needs to switch his position on global warming or he doesn't like the oil companies and their executives. He needs to stop talking about that because it weakens his message on an issue in which I think he has advantage over Obama.

Obama's very vulnerable on this, particularly in going along with a windfall profits tax on the oil companies that's been tried before. We know the result. It means less domestic production, more reliance on oil from the Middle East.

KONDRACKE: I think Republicans have got to make the case on taxes. The oil companies are still very unpopular in the country.

But on the issue of drilling off-shore, 57 percent of the people believe it's a good idea and it is a good idea. And ANWR, it's 50-50, but they could make the point.

One of the — I thought one of the most interesting things about McCain's appearance in Missouri where he called for this was the appearance along with him of retired general, Jim Jones, former commandant of the Marine Corps and NATO commander, who has been talked about as a potential vice president for both the Obama and the McCain ticket. The day after he appeared with McCain, he also came out with the statement he works for the Chamber of Commerce in charge of the energy program. He said off-shore drilling was a good idea, which is diametrically opposite the Obama position. I think if Jim Jones is going to be anything, he might be Obama's defense secretary, not his vice president.

BARNES: Mort, I'm with you on that one.

Up, Michelle Obama. She made progress this week in softening her image with voters, particularly women voters with appearance on "The View." She talked about the fist bump, why she doesn't wear panty hose, her husband's affinity for back and oh, yeah, her infamous proud of America remark. Watch.

(BEGIN VIDEO CLIP)

MICHELLE OBAMA, WIFE OF BARACK OBAMA: Of course I'm proud of my country. Nowhere but in America could my story be possible. I mean, I'm a girl who grew up — a girl that grew up on the south side of Chicago. My father was a working class guy, worked a shift all his life. And because of his hard work, he sent not just me but my brother to Princeton.

(END VIDEO CLIP)

KONDRACKE: Look, she is very elegant and very smart, clearly. I thought it was a great touch on that show when she made the tribute to Laura Bush for explaining away her remark that she had never been so proud or never been proud of America until Barack Obama started.

But people who know Michelle Obama say that she is tough. And she is edgy and that she does harbor racial resentments based on her past. It was evidently she who kept the family in Jeremiah Wright's church.

BARNES: I think she wised up. She's smart. And we're not going to hear any more about neighbors who can't get along with each other and how things are getting so miserable in America and so on. I think she's going to be optimistic and she'll sound a lot less like her and a lot more like Barack Obama, her husband.

But, Mort, I wanted to tell you, in case you probably didn't know, why she doesn't wear panty hose? She is too tall. It doesn't work right. You needed to know that, Mort.

KONDRACKE: Coming up, get this. There actually was progress on Capitol Hill this week. We'll bring you that shocking news. And Top Democrats are getting accused of sweetheart loans. We'll have that fallout, next.

(COMMERCIAL BREAK)

BARNES: Welcome back to "The Beltway Boys." We're continuing with our "Ups and Downs."

Down, Democrat Senators Chris Dodd and Kent Conrad. The chairman of the Banking and Budget Committees accused of getting sweetheart deals from mortgage giant Countrywide. Dodd says even though he was a member of Countrywide's VIP Program, he didn't think he was getting preferential treatment. Watch.

(BEGIN VIDEO CLIP)

SENATOR CHRIS DODD, (D), CONNECTICUT: And had anyone ever suggested to me somehow I was going to get some preferential treatment because I was in the United States senate, that would have ended the relationship immediately.

(END VIDEO CLIP)

BARNES: Well, I don't know. Kind of hard to believe.

KONDRACKE: I guess they didn't swear him into the VIP Program?

BARNES: Kind of hard to believe. Kent Conrad, the senator from North Dakota, said he never talked to Angelo Mozilo, who was the head of Countrywide. Well, it turned out that once he got in contact with Mozilo, he got this preferential loan for $1 million beach house and was in the VIP Program, known as friends of Angelo.

I think both Conrad and Dodd are very lucky. They're lucky they're not Republicans. If they were Republicans the media would be pounding. So far it's just the "Wall Street Journal" editorial page that's gone after them in a strong way. We all know that if they were Republicans, they'd simply be the Countrywide boys.

KONDRACKE: They're lucky that they're Democrats with the Democratic majority in Congress. If they were Democrats with a Republican majority in Congress, there would be a lot more to do about this, on the floor and so on.

Now, the Senate Ethics Committee is investigating. This is a test for the senate. If there's not a conflict of interest here, I'm blind. These guys are senate — the Senate Banking Committee, which oversees housing, is Dodd. And Conrad is not only chairman of the Budget Committee but also on the Senate Finance Committee, which writes tax laws. This is a conflict of interest. And if the Senate Ethics Committee doesn't at least wrap them on the knuckles, something's wrong.

BARNES: Mort, don't get your hopes up.

KONDRACKE: OK. Up, Congress! Wow! We haven't said that for a while. After months of stalemate between the parties and White House, Congress finally got its act together and passed the Terrorist Surveillance rules and funded the wars in Iraq and Afghanistan with no withdrawal date.

Now, this came just in time because a poll taken before they finally achieved this, a Gallup poll showed that America's confidence in Congress is the lowest level it's ever been, It's lower than any other institution from the military to the presidency to Supreme Court and even HMOs it's below, which is rock bottom. Only 12 percent of the people think they have any confidence in Congress. It's terrible.

Now, what I'm — what stuns me about all this is to think about what would happen if this Congress had operated without George Bush having a veto in the White House or the Senate Republicans having a filibuster possibility. We would not have the surge in Iraq. We would be pulling out. The place would have collapsed. Just imagine what is going to happen if Barack Obama is elected president and the Democrats have 60 votes in the senate, which is possible.

BARNES: Uh-huh.

KONDRACKE: On just alone on the civil liberties issue, if Barack Obama's policies go through and we catch Osama bin Laden, he will have to read him his Miranda Rights before we can do anything to him.

BARNES: And will have to provide a lot of evidence in the battlefield or wherever he was or else he'll file a habeas corpus petition and walk.

Democrats could have passed on these things a long time ago. It's not that they got some great concessions out of Republicans in the White House. They knew all along they were going to have to go along with having no deadline for bringing troops out of Iraq and they'd have to go along with giving immunity to the telecoms who do all the terrorist surveillance. They dragged this out unnecessarily I think.

Up, Bruce Springsteen. There were many emotional moments at Tim Russets memorial service this week at the Kennedy Center, but Springsteen's surprise appearance via satellite from Europe stirred incredible emotion from the crowd and even people watching on television, like myself. Springsteen recalled Russert's big Irish smile and played "Thunder Road" in memory of his long-time friend. Watch and listen.

(COMMERCIAL BREAK)

BARNES: What's "The Buzz," Mort?

KONDRACKE: I was in New Orleans this week. It's three years after Katrina. The Lower 9th Ward is still a waste land. Mayor Ray Nagin is a total no-show. Doesn't even go to city council meetings. Federal money is still slow in arriving but there are good things happening.

Bobby Jindal is making a big difference as governor. The most amazing things are the school system, which proves offering parents school choice and charter school really does work. They have competition for the kids and it raises the whole level.

The other thing amazing is how the private sector and the non-profit sector have stepped up in the wake of the hurricane and done great things to get the town moving again. They need help, obviously. But it does give you faith in what Alexis de Tocqueville talked about and what makes America great is the fact that its private citizens actually step up in times of need.

BARNES: I'm glad you mentioned Bobby Jindal because there's a reason he makes sense as John McCain's running mate this year. The bar has actually been lowered on vice presidential picks. You don't need to have a Joe Lieberman or anything. Obama has very little experience. Actually Bobby Jindal has more than he does. He's plausible.

KONDRACKE: That's all for the belt would I 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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