This is a rush transcript of "Special Report With Brit Hume" from August 21, 2008. This copy may not be in its final form and may be updated.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: How many houses do you and Mrs. McCain have?

SEN. JOHN MCCAIN, (R-AZ) PRESIDENTIAL CANDIDATE: I think—I'll have my staff get to you. ((Inaudible))

I'll have them get to you.

SEN. BARACK OBAMA, (D) PRESIDENTIAL CANDIDATE: Think about that. I guess if you think that being rich means you have to make $5 million, and if you don't know how many houses you have, then it's not surprising that you might think the economy was fundamentally strong.

(END VIDEO CLIP)

BRET BAIER, HOST: Well there you see Barack Obama pouncing on a statement, an answer to a reporter's question that Senator John McCain gave—asked how many houses that he and Cindy McCain actually have.

The McCain campaign had to a paper release that said this—"Does a guy who made more than $4 million last year and just got back from vacation on a private beach in Hawaii and bought his own million dollar mansion with the help of a convicted felon really want to get into a debate about houses?

Does a guy who worries about the price of arugula and think regular people cling to guns and religion in the face of economic hardship really want to have a debate about who's in touch with regular Americans?"

So we're talking about houses today as the race tightens.

Some analytical observations from Fred Barnes, Executive Editor of The Weekly Standard, Mara Liasson, National Political Correspondent of National Public Radio, and syndicated columnist Charles Krauthammer, FOX News contributors all.

Mara, how big of a gaffe was this one?

MARA LIASSON, NATIONAL POLITICAL CORRESPONDENT, NATIONAL PUBLIC RADIO: Well, I think it certainly was a gaffe of some kind. I mean, there is always some truth to this. It turns out he and Cindy personally don't own all of them. A trust owns some of them.

But, you know what? We are fully engaged in the debate on who is in touch with regular Americans. The first round went to McCain because Obama was on the hot seat with those comments about arugula and bitter people clinging to guns and religion.

And it's now McCain thinks you can't be rich unless you make $5 million or more, doesn't know how many houses he has. At one point he said the economy is doing fine.

This is what substitutes for a real serious debate about issues. It is about who is an elitist or who wears a flag pin. And this is going to go on. This, for better or for worse, this is the debate we're having and we're going to have.

BAIER: And the Obama campaign quickly came out with an ad going after this statement, Charles, even saying that McCain lost track of how many houses he has.

LIASSON: Code word-too old and confused.

BAIER: Charles, what about this?

CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: Cardinal rule of politics—you can have as many houses as you want, but you have to remember how many.

This really is a gaffe. The right answer was, fewer than John Kerry. But, you know, that's easy to say after the fact when you think about it.

Look, it's going to enter legend. I can see next week in Denver, every Democrat who gets up is going to have a line on this. It will be "Hello, I'm senator so and so. I have three kids two dogs, and, at last count, one house, but my staff is checking exactly how many." That's going to be a staple.

It's like the legend that we saw in 1992 of George Bush, the father, not knowing about a scanner in a market. He had never seen one, apparently—at least that's how the story evolved. And it became a symbol of his being out of touch.

I think McCain had to do what he did with this huge and furious attack, and you drag out Tony Rezko if you can, the guy who was convicted and with Obama had a sweetheart deal on his one houses, his mansion in Chicago.

But it stings, and I'm not sure other than it being—the Democrats may overshoot on this, but this is a gaffe of relatively large proportions.

BAIER: I've heard the back story is that—the campaign is saying that John McCain didn't answer this question well because he didn't want to get into the legal back and forth about what Cindy McCain and her family owned. She is the head of the trust. She is the heiress to a beer distributor-

FRED BARNES, EXECUTIVE EDITOR, THE WEEKLY STANDARD: And that's why he has all these houses. He married a rich woman.

BAIER: That was his hesitancy here. The nuance will get lost in the next couple of days.

BARNES: Here's why I think Charles is wrong. I think this is a relatively small gaffe on the part of McCain to the extent it is a gaffe at all.

This is an issue, obviously, regardless of what McCain said, the Obama people could bring up anyway, because they looked into how many houses he might have.

And Charles mentioned John Kerry, the way this issue was used against John Kerry. It worked against John Kerry because he was, you know, educated, upper class type guy who wind surfed, and it worked against him with all the houses he had because he married a rich woman because it reinforced an image that people believe. This does not.

Now, I'm not saying this is a good issue for McCain. It's not. He maybe shouldn't have responded at all. This is one you want to go away. I wouldn't want to get in an argument. Rezko or not, it's not going to get into an argument with Obama over houses. But in this campaign, this is a relatively small issue.

And the other thing is Obama is in a bind. I mean, we saw it today. He was a popular candidate because he transcended politics, it was the new politics. But if he's out there every day hammering McCain over how many houses he has, then it is just the old politics, and he is just another candidate.

LIASSON: Wait a second—McCain was also supposed to be a different kind of guy. And I think both of these candidates' images are open to redefinition or definition in the first place, including John McCain, who, until this campaign started, was one of the best defined brands in American politics, but no longer.

I think the Obama campaign has made some headway in painting him too old, confused, out of touch, elitist.

BARNES: What his image was was a maverick, and not some guy-his image wasn't as a rich guy-

LIASSON: Certainly not a rich elitist.

BARNES: A plutocrat.

All I am saying is if there's a lot more along this line that the Obama people can come up with and use against McCain, well, then, I'm sure they will. This, by itself, isn't enough to really be a game changer in any way.

BAIER: Barack Obama continues to be asked about his running mate. Today on the campaign trail he had something to say about it. Take a listen.

(BEGIN VIDEO CLIP)

OBAMA: You are not going to get anything out of me about the vice presidential pick. Nothing!

QUESTION: Have you made up your mind?

OBAMA: Nothing!

I have made the selection, and that's all you're going to get.

(END VIDEO CLIP)

BAIER: OK, he's made the selection.

Charles, is this being dragged out? Everyone is checking their text messages to see if we have a running mate. Is this a mistake strategically?

KRAUTHAMMER: Well, we're checking our text messages. I would say the vast majority of Americans are on the beach reading a book, and they can wait until tomorrow, which is when the news will be announced.

BAIER: Mara, a mistake to drag it out?

LIASSON: I don't think it's a mistake. I think for a while the frenzy actually helped him. I think now it is time to put it to an end, and it will come to an end very shortly.

BARNES: The key thing is if he has really decided, if it is really open and we move toward the convention, and he makes a hasty decision, then he could get in trouble.

LIASSON: He said the guy was going to show up Saturday.

BARNES: We'll see. He hasn't shown up yet.

BAIER: Keep it on FOX, you'll see it here.

That's it for the panel. But, is the U.S. losing in Afghanistan while we're winning in Iraq? We'll talk about that with the panel after the break.

(COMMERCIAL BREAK)

BAIER: This is a FOX News alert. We're just getting word from the McCain campaign that another threatening envelope with a suspicious white substance has shown up at another McCain campaign headquarters, this one in Manchester, New Hampshire.

We are being told that local and federal authorities are on their way to that campaign office. This comes after another envelope with a threatening note and a white substance showed up in the Denver McCain office. Several staffers there were sent to the hospital as a precaution.

We have no word what is in those envelopes yet. We are watching this story as it develops.

But, again, two McCain offices have received threatening notes in envelopes with a suspicious white substance. Keep it here to FOX for the latest.

Turning now to our second panel's topic, Afghanistan and the increasing threat from terrorists along the border between Afghanistan and Pakistan. We saw some increased attacks over the recent weeks.

What about the situation on the ground. As the U.S. says, it's winning in Iraq, and are we losing in Afghanistan? We're back with the panel.

Charles, paint the picture for us. It hasn't been good news out of Kabul.

KRAUTHAMMER: The problem with Afghanistan is not Afghanistan, it's Pakistan.

The reason that we have had a resurgence of activity by the terrorists in Afghanistan is because they have a very secure and growing safe haven in Pakistan as a result of the unrest in Pakistan, as a result of the fact that the president of Pakistan, who was not the best on the war on terror, but was relatively good, has been pushed out.

The government in Pakistan is divided. It is extremely weak, and there are agreements in the tribal areas which allow the terrorists, essentially, free reign. And that's why all of these activities are starting in Pakistan and ending up in Afghanistan.

The temptation is to order a surge into Afghanistan. I think that's a mistake. Unless the Pakistan issue is resolved, the surge will only get a lot of Americans killed.

Unless you can demonstrate that a surge in Afghanistan, unlike in Iraq, which is urban and a surge would work, that a surge in Afghanistan would either defeat the insurgents, or the absence of a surge would lead to the loss and the defeat of the government, I think neither of which this is true, it's hard to argue in favor of a surge without a purpose and a strategy.

LIASSON: Both candidates want one. Both candidates are talking about sending a couple extra brigades to Afghanistan.

Barack Obama wants to take them out of Iraq, which, of course, right now, is the only place you can get them and send them there.

BAIER: And it looks like it is heading that way anyway, according to General Petraeus anyway.

LIASSON: Yes.

Look, I think Afghanistan is a problem. And I agree with Charles, Pakistan is a big problem. And once you go into Afghanistan, you are going to have to do something about those border areas that, so far, are ungovernable.

And we don't know if we have a friend in the Pakistani government anymore. As Charles said, we had kind of one, but he's gone, and there's a lot of turmoil right now.

So, yes, I think it's a big problem, and it's going to be a big problem for the next president even as Iraq gets a little bit more stable.

BAIER: We saw, Fred, ten French troops killed this past week in Afghanistan. NATO is still stepping up its performance on the ground there as part of the mix.

BARNES: NATO has been pretty pathetic, though, where you have governments like the Germans and I think the Dutch-maybe I'm wrong about the Dutch. They send troops there, but they're not allowed to go into combat. That's pretty pathetic.

I agree with Charles. The problem here is the Pakistanis. The bigger problem is where are jihadists, where are the terrorists going now? They have lost or been killed in Iraq, where we are wining or won. I think we basically won.

So they don't want to go there. Al-Qaeda, heavens know they don't want to go there where they will get killed. So they want to go to Afghanistan and Pakistan, and so they built up there.

Look, we're never going to win there. The question is whether you can manage the situation there. And they probably can, but not until we get some help from the Pakistani government.

BAIER: Last word on this panel.

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