This is a rush transcript from "The Journal Editorial Report," July 5, 2008.

PAUL GIGOT, HOST: Up next on the "Journal Editorial Report," Barack Obama's right turn from terrorist surveillance to faith-based initiative. Why he is starting to sound a lot like George Bush?

As oil prices continue to drop, law makers look to shore up housing prices. But will their latest plan do more harm than good?

The anthrax investigation seven years later. With the government agreeing to pay the main suspect millions, is that deadly attack a cold case? Find out after these headlines.

(FOX NEWS BREAK)

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

From his change of heart to his announcement this week that he intends to expand faith-based initiatives, Democratic presidential candidate, Barack Obama, sounds more like George W. Bush these days than some on the left would like.

Here to tell us what is behind the move to the middle is Wall Street Journal columnist and deputy editor Dan Henninger and columnists Mary Anastasia O'Grady and Bret Stephens.

Dan, I have heard about candidates, most of them run to the middle after the win the nomination. Obama seems to be sprinting at least on some issues. Tell us about the issue of foreign intelligence observation that he was earlier dead set against giving power to the president, particularly immunity to the telecom companies. Now he's switched.

DAN HENNINGER, COLUMNIST & DEPUTY EDITOR: Now he's switched and said he is in favor of the compromise worked out in Congress, and the left wing that supported him in the primaries is going ballistic because they really did not want that.

I think probably one is going on here is that the Obama camp understands they're going into the general election. Registered Democrats are pretty much locked in as are registered Republicans. There is going to be a big battle for the center. The center is intrigued with both of these candidates who are going to make an appeal to them. This is one area where John McCain can compete for votes. I think McCain is moving towards the center to push some of McCain's supporters...

GIGOT: You mean Obama is moving to the center.

HENNINGER: Yes, sorry. Obama is moving to the center.

GIGOT: I thought this was supposed to be an example of how Dick Cheney and George Bush were shredding the Constitution so they could spy on you, me, all of us in our personal lives. Apparently, not.

BRED STEPHENS, COLUMNIST: Apparently, the prospect that he might become president and be responsible for national security as a wonderful way of focusing the mind.

One thing on the politics here, I think voters will have to figure out pretty quickly exactly whom Obama was lying too. Was he lying to his Democratic base on trade when he promised to oppose NAFTA on the cultural tone? Now he is coming out in favor of the death penalty for child rapists, or is he lying to the center of the country asking his left to shut up for four months so he can get elected and then implement the kind of agenda he had been promising all along in his past life as a senator?

GIGOT: Mary, will the left wing of the Democrat party take this lying down?

MARY ANASTASIA O'GRADY, COLUMNIST: More than jumping to the center, I think he's jumping back and forth. On trade, first he said he was against NAFTA. But his economic adviser said he was actually, just doing that for rhetorical reasons. He even said that. Last week when John McCain was in Columbia, he went to Ohio and said I'm going to renegotiate NAFTA.

So he is not really taken a position. Same thing on the economy. He said I am a pro-market, pro-growth guy. And he said he will raise taxes on the rich and bring about nationalized health care and do lots of other things that we don't associate with the center-right. So I don't think he actually...

GIGOT: Mary makes a good point about where and how he is moving and he is not moving right on economic issues, so far, certainly not on health care. Where he is doing it is on the cultural issues and national security, the place where former Democratic presidential candidates, who have lost, were vulnerable. Think of John Kerry, Michael Dukakis. I think he is moving on some things and not others.

HENNINGER: Yes, but it is creating problems for him. It will create problems if he wins the presidency, because he owes a lot to the Democratic left. They raised a lot of money for him. If he becomes president, I think they will bring a lot of pressure o on him not to govern from the center. And it is going to create a lot of tension inside his administration, in a way that Bill Clinton never had to deal with.

GIGOT: I have to tell you though, Dan, he's going to we'll worry about this on January 21. If this helps me win, I will do what I have to.

HENNINGER: It will be a difficult presidency.

GIGOT: If you are a voter and you're trying to sit and decide, all right, Barack Obama, I don't know a lot about him, but what do I think about his character? Is he an authentic man of the left, or more like Bill Clinton who will do what you got to do?

O'GRADY: I don't think he can't get away with this. His appeal to the Christian right by saying he's doing the lord's work in politics...

GIGOT: And willing to make faith-based contributions — government grants to faith-based institutions just like President Bush.

O'GRADY: Read what he says. It really is an expansion of big government. And that I don't think has ever sold with a base.

GIGOT: You were never sold on the faith-based initiative.

(LAUGHTER)

STEPHENS: No, but I think the voters have to make a calculation of the extent to which political fickleness or opportunism is a quality they want to see in leaders. About a month ago he gave a speech to the pro- Israel lobby, AIPAC, and one of things he said was Jerusalem must remain undivided. People understand what that means. It must remain sovereign Israeli territory.

The next day, he said that's not what I meant. It has to be a function of negotiation. That's worrisome when you talk about a guy who will be commander in chief. You have to wonder how serious he is in terms of the withdrawal from Iraq. Or is going to change his tune?

GIGOT: Let's take the issue of Iraq. We don't have a lot of time, but it is a big issue. He has said we will withdraw right away as rapidly as possible. No doubt about it.

Now his supporters say that's no longer tenable given progress on the search. Does he have to change his position on Iraq?

STEPHENS: I think he would be wise to do so because I don't think the issue politically speaking has the saliency it did a year ago, and that's to do with the decision President Bush made to support the surge.

GIGOT: He will pay no political price. In fact, he does we'll make our commitment there conditional on continued progress. We don't want to have any set timetable. Let's see how it develops, that sort of thing.

STEPHENS: That's precisely right. He will be able to find the language to maintain a long-term commitment to Iraq and support a deal between the Iraqis and Americans

GIGOT: All right, thanks, Bret.

Still ahead, Congress' plan to boost the sinking housing market. Why their latest scheme may wind up doing more harm than good.

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GIGOT: Fresh from their July 4th recess, the senate plans to vote next week on a housing bailout bill. The $300-billion rescue package would allow an estimated 400,000 homeowners who borrowed more than they could repay to refinance fixed-rate loans backed by you, the taxpayer. And there are some goodies for the mortgage companies as well.

Here with all the details, some of them ugly, is assistant editorial page editor, James Freeman.

Mary, let me start with you on housing prices. They're continuing to fall in many parts of the country, though maybe less rapidly than they have been. What's the forecast? They going to keep falling?

O'GRADY: In places where they really run into problems, whether they keep falling or not, they're not going to recover for a very long time. It could take years to sort out the supply. In lots of other places in the U.S. they have stabilized. In fact, the markets are pretty sound.

I think what's really important is the markets find the bottom. That means they have to clear as soon as possible. We have to get people who are underwater and not going to be able to save their homes out of that market. And there are lots of homes — people who are not homeowners, who waited on the side lines because they refused to be speculators, and this should be an opportunity for them to become homeowners.

GIGOT: It seems like the Federal Reserve has been trying to inflate us out, pop up home price values, which tend to go up when you have inflation, and to help Wall Street. Doesn't seem to be working, especially given the degree to which commodity prices, oil and food have popped up and hurt consumers. What about what Congress is now trying to do with this bailout bill. Describe what they're doing.

JAMES FREEMAN, EDITORIAL PAGE EDITOR: You talked about goodies for lenders. The nice things for banks and the bad things for taxpayers is if the banks get to choose which loans to dump into this taxpayer funded...

GIGOT: The biggest losers!

FREEMAN: Exactly. The absolutely biggest losers and that mortgage portfolios are going into this thing. What's attracting even more attention lately is a new essentially mortgage tax at the wholesale level that is in both the House and the Senate versions. And it's basically funding, not going to individual homeowners, but what some are calling slush funds.

GIGOT: Let's deal with the individual mortgages first. If a lender and borrower agree, and they both agree to put their loan into the federal housing administration, they have to take a haircut, right, 10 percent, 15 percent, something like that?

FREEMAN: That's right.

GIGOT: So they are not getting 100 percent of the loan back. So they are taking some. Why is that a bad thing?

FREEMAN: It's a bad thing because if markets have stabilized now, and we've seen the high water mark of the resets that was everyone was fearing — if markets are stable, it's probably not needed. If markets continue to decline, we're back to the same problem because as these borrowers go underwater, they're going to start walking on these mortgages. And taxpayers are left with the tab.

GIGOT: Who are the companies who are going to benefit here? Are you talking about Countrywide Finance, which is now part of Bank of America? Are you talking about the big mortgage servicers, the big banks?

FREEMAN: Absolutely. Bank of America has more mortgage-backed securities on its books than any other bank. Countrywide, you're looking at $25 million in loans originated by Countrywide getting bailed out by taxpayers.

HENNINGER: The only thing this bill lacks that it needs is an inspector general for corruption. You know this is going to turn into a political cesspool. This is real estate, property. It always attracts investors. There are going to be so many bottom-feeders out there buying up the distressed property and reselling it into the market. And you've got these subsidies to do that to the nonprofits favored by the Democrats.

GIGOT: The so-called affordable housing fund, which was essentially a tax on two big government-sponsored companies, Fannie Mae and Freddie Mac, to the tune of, what, about $500 million a year. That's a rough estimate, depending how much money the companies make. That's a new fund Congress gets to dole out to their buddies.

FREEMAN: Right. And as Dan says, it's going to be years before we figure out how many of these dollars actually put roofs over people's heads. It's going to state governments, to nonprofits groups. It's even going to for-profit groups.

GIGOT: OK, mystery, why are Republicans going along with this since a lot of it will end up funding groups aligned with the Democrats?

O'GRADY: Answer, election year. That's it. I mean there's a great spin in the media that this is somehow saving American homeowners. People who own homes who are not in trouble think this is the way to keep prices up in their neighborhood so their prices in their homes don't go down. and the politicians think that's a good idea and sweep everything else under the rug.

GIGOT: So somebody in the next Congress can worry, or two Congress' can worry.

FREEMAN: Well, a cautionary tale for politicians that think this is great politics, Chris Dodd, who got the sweetheart loan from Countrywide, is the author of this, he's seen his approval ratings in Connecticut looking worse lately. I'm not sure this is the political winner many people think.

All right, James, thanks.

Still ahead, it was the worst biological attack in U.S. history. But with the FBI's one-time suspect seemingly in the clear, has the anthrax case gone cold?

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GIGOT: It has been seven years since the anthrax attacks that killed five people in the U.S. and sickened over a dozen more. Since then, the FBI spent hundreds of thousands of agent hours on the case, interviewed more than 9000 people and issued some 6,000 grand jury subpoenas. The result? Last week, in a virtual confession that the case is cold, the Justice Department agreed to pay $5.8 million to scientist Steven Hatfield, who in 2002 was publicly declared a person of interest in the investigation but then Attorney General John Ashcroft.

We are back with Dan Henninger and Bret Stephens. And also joining us editorial page writer Joe Rago.

Joe, how should we read this $5.8 million settlement with Hatfield?

JOE RAGO, EDITORIAL PAGE WRITER: I think it is the FBI's way of saying whoops, our fault. Throughout this entire case, they were focused on a lone-wolf theory that the anthrax attacks had to have become from a domestic source connected with a U.S. military or a bio-defense lab. This settlement, is their way of saying, you know, we probably screwed up here.

GIGOT: Why did Hatfield become such a target? They really went after him. They've drained a pond in Washington at the price of a quarter million dollars.

RAGO: Yes, they raided his apartment in hazmat suits, content surveillance.

GIGOT: they had anthrax-smelling dogs. Interviewed probably everyone the guy has ever met. Why did they think he was the suspect?

RAGO: They thought the anthrax used in the attack was nearly a weapons grade biological weapon. A unabomber in a shack could not have cooked this up without access to very high-level equipment and material. They concluded if — that this attack had to have come from a domestic source.

GIGOT: This meant that they excluded the other potential theories of the case, if you will, such as whether it came from the foreign source.

STEPHENS: That's an important piece of this case. There was, from the beginning, and ideological interest in saying there is no way these bio-weapons could've come from abroad. This theory was pushed hard by a columnist in the "New York Times," Nicholas Kristof. He said in a column in 2002, the theory of the emerging — the image of the killer many of the experts see is precisely the opposite of the arbitrator whom we initially imagined. Our first impulse is to look for foreigners. In fact, the killer is probably tied to the bio-weapon.

GIGOT: I think you're right about that. Why should we be worried if it was a foreign source? Wouldn't that make it worse almost, because it would mean some real enemy is going after us, not some crazy Ted Kaczynski?

STEPHENS: That's the point. There was an interest in saying we should not be looking at Iraq or Iran or al Qaeda. We later learned that Khalid Shaikh Muhammad had been in charge of a bio-weapons...

GIGOT: The planner of 9/11.

STEPHENS: The planner of 9/11.

GIGOT: He's admitted in his testimony at Guantanamo that he was in charge of that bio-weapons program.

STEPHENS: We don't know how far those programs went. This is not to say there might not be some other American long-wolf who is responsible for it, but there seemed to be of real interest on a kind of ideological — on ideological grounds to say, no, this couldn't have come from abroad.

GIGOT: Is that because consequences would be too great because it would be too fearsome if, in fact, this was state-sponsor? Why?

STEPHENS: This happened in 2002 when the issue du jour was weapons of mass destruction in the hands of either foreign terrorists or regimes that might give these kinds of weapons to those terrorists. People who thought against Iraqis coming or Syria would have an interest in saying, no, this could not have happened. This is a Tim McVeigh-kind of character.

HENNINGER: Two years ago, Paul, the Center for Strategic International Studies in Washington did convene a symposium in Washington of most of the United States specialists on our bio-warfare to talk about the subject. And they agreed that the problem is very real.

One of the things that came up was this question: why isn't anyone doing anything about it? One of their conclusions was there is simply no political will. No one wants to go there. The government is unprepared with vaccines. They have had, admittedly, a hard time with nuclear proliferation. This is equally as difficult. There is no prospect of other countries joining us to suppress this problem.

GIGOT: Is it a fact, Joe, the case as cold as it now looks? Are there other leads? We have asked at least three attorney generals when they have come to see us, and the president of the United States, and frankly we got nothing out of them at all. Is that because they have nothing? Or because they're just keeping whatever leaders they have quiet for a change.

FREEMAN: It is hard to say — you can't be an armchair agent. But throughout this entire case, they really honed in on Hatfield. And the settlement pretty much says, you know, we can't go there anymore.

GIGOT: What this means — go ahead.

FREEMAN: Well you know, I was going to say, one of the things Dan was getting into his why isn't this getting more attention now. And I think one thing is that it tends to discredit the role of law enforcement in fighting terror. Seven years later, and as you said, one of the most expensive investigations in law enforcement history, and we still don't have any progress on a suspect here.

GIGOT: That is scary. All right, Joe.

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

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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, enough with struggling homeowners. What about struggling SUV owners — Dan?

HENNINGER: Absolutely, Paul. Amidst the gasoline crisis, if we're going to do a bailout for homeowners, we need a bailout for SUV owners. SUVs are down 24 percent in value in the last year. Some people own more money on their loans than the SUV is worth these days. I've heard that some people are crashing their SUVs to get the insurance payments out of them. This is a terrible situation.

Why are houses holy and SUVs evil? Some people love their SUVs. Probably more than they love their houses. I think what this country needs is the Barney Frank SUV By-Back bill. Do it.

GIGOT: Henninger for nationalizing the automakers.

Next, a hit to Colombia's president, Alvaro Uribe — Mary?

O'GRADY: This is a megahit for President Uribe. You remember from the captured tapes in Ecuador that what the guerrillas and Hugo Chavez decided to do with this high-value hostage, Ingrid Betancourt, was used her as a tool to force Uribe to make concessions and give up territory in Colombia. He had been really isolated both in terms of — in his own country he was under a lot of pressure to do something to get her out. And he was under a lot of international pressure.

In this operation, which they call hacke (ph), which means check, as a check on the chess board, he outsmarted all of them and came out an incredible hero.

GIGOT: Rescued not only Ms. Betancourt, but also three Americans.

O'GRADY: And seven other hostages as well.

GIGOT: All right, thanks.

Finally, a miss to the campaign to put DDT on ice — Bret?

STEPHENS: The New York Times managed to muster a great deal of moral outrage on the news that, every year, somewhere between two and eight pounds of DDT — that's two and eight pounds of DDT — are released in Antarctica and have ended up in the body fat of a certain species of penguin, the Adillia (ph) penguin, not killing the penguin, just in the body fat of the penguin. This, "The Times" tells us, is a reminder of the toxic consequences of pesticide use.

That same DDT could be saving a million lives a year in Africa by eradicating a mosquito-borne malaria. I say yes to the people and no to the penguins.

GIGOT: All right, Bret, thanks.

Time now for your "Hit or Miss" of the week. Andria Driggers, from Orlando, Florida, gives a hit to Alaska. She writes: "Alaska is celebrating its 50th anniversary as the 49th state. 'We are in' was the slogan 50 years ago. Today, Alaskans and visitors are in downtown Anchorage celebrating with live music, a firefighter's competition, foo9d from all over the globe and much more. We needed Alaska and we now have it. Congratulations Alaska!"

Remember, if you have your own "Hit or Miss," send it to us at jer@foxnews.com . We will try to read one at the end of every show.

That's it for this week's edition of the "Journal Editorial Report".

Thanks to my panel and to all of you.

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

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