This is a rush transcript of "Special Report With Brit Hume" from September 17, 2008. This copy may not be in its final form and may be updated.

(BEGIN VIDEO CLIP)

SEN. BARACK OBAMA, (D) PRESIDENTIAL CANDIDATE: Reform our tax system and to give a thousand dollar tax break to the middle class instead of showering more on oil companies and corporations that outsource our jobs.

In the "anything goes" culture on Wall Street, with real regulation that protects your investment and pensions.

Fast track a plan for energy made in America that will free us from our dependence on Mideast oil in ten years and put millions of Americans to work.

SEN. JOHN MCCAIN, (R) PRESIDENTIAL CANDIDATE: Under my reforms, the American people will be protected by comprehensive regulations that will apply the rules and enforce them to the fullest.

There will be constant access to the books in the accounts of our banks and other financial institutions.

By law, it will reduce the debt and risk that any bank can take on.

(END VIDEO CLIP)

BRIT HUME, HOST: Well, there you get a little sampling of what these two candidates are talking about — Obama talking about what he would do on the way of re-regulating or regulating finance, and McCain as well. And Obama talked, of course, about some other things he wants to do.

Some thoughts on all this now from Fred Barnes, Executive Editor of The Weekly Standard, Mort Kondracke, Executive Editor of Roll Call, and syndicated columnist and FOX News contributor Charles Krauthammer.

All right, gentlemen, John McCain and Sarah Palin alike, who is echoing him, seem to be born again or born anew, or something — regulators, almost as much so as Barack Obama promises to be.

What's going on here, Fred?

FRED BARNES, EXECUTIVE EDITOR, THE WEEKLY STANDARD: Well, I guess they think this is the way to win an election, but I think they're wrong.

McCain is ranting at times. And he and Sarah Palin seem to think that the problem on Wall Street was dishonesty or some kind of abuse —

HUME: Corruption — corruption on Wall Street.

BARNES: Look, the problem was these Wall Street firms became overleveraged — in other words they borrowed too much money compared to the reserves they held, and they took risks they shouldn't have, and it backfired. That is not a problem of corruption or abuse or of dishonesty.

And my fear is, as I said last night, and it is even a worse fear now, and I also have this fear about Obama, is that not only will these regulations require what both of them talk about, require banks and other financial institutions to increase their reserves, but they will interfere with the kind of investments that these firms make.

We don't want Washington, government, to decide how financial institutions invest and what they invest in. That will slow the economy for sure!

HUME: In addition, of course, you have, in the case of Obama, conditions of the regulation he wants to impose, much as McCain does as well, Obama wants to raise taxes.

MORT KONDRACKE, EXECUTIVE EDITOR, ROLL CALL: Well, he wants to raise taxes and he wants to do a lot of investing, and he wants to give education, healthcare, and all the rest, and infrastructure.

HUME: That is also sometimes known as spending.

KONDRACKE: It is also known as spending, but it also known as investment sometimes when it produces results afterward.

And he wants to have a new stimulus package right away to give money and redistribute wealth.

HUME: So what do you make of all that?

KONDRACKE: What I make of it overall is that he is a conventional liberal, and McCain was a conventional supply sider who thought that cutting taxes was basically all you have to do.

I think the whole situation has changed because of what The Wall Street Journal calls "The Panic of '08." And they're both into regulation of the markets.

But neither one of them has addressed or even apparently thought about this new idea, which even The Wall Street Journal editorial page and Paul Volcker is advocating, and that is a resolution trust corporation, which is really big intervention into the economy, where the RTC, as it did with the savings and loans, would buy up bad paper and then try to eventually resell it in order to put a floor under mortgage values and restore confidence in the markets.

What's happening now is that you have a total crisis of confidence that, so far, there's no lending going on, or very little lending, and it's going to affect the economy as a whole. And something has got to be done about it.

CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: The argument about regulation is over. There is going to be increased regulation, and it isn't only a result of the panic, it makes sense.

If you going to nationalize, as we did overnight last night the largest insurer in America, you're going to want to regulate it. You don't want to be left with all the debts without having had a say in whether those debts which you will be stuck with, how they are accumulated and to what extent.

We are now backing the Fannie Mae. That's going to have to be regulated.

The only question is how much and will it overshoot. And the reason you get Obama and McCain speaking only in generalities is that nobody has any idea what's going to be after the earthquake, how much rubble there will be and what will be left.

There is talk tonight that Morgan Stanley is looking to make a merger with Wachovia. We could end up with no investment banks existing at the end of this week.

HUME: You mean no independent-none that are commercial banks.

KRAUTHAMMER: None of the five — right, swallowed up in commercial banks.

So we could have a whole institutional structure in finance that will be entirely new and is unknown on Wednesday and we could see on Monday.

So the idea of instituting a plan of how to deal with this is absurd. You have got to wait and see how the market shakes it out.

But regulation, heavy regulation is going to be an element of it — transparency, a, and, secondly, increasing capital reserves. A lot of these were heavily overleveraged. Nobody minded as long as your house and mine was —

HUME: Going up.

KRAUTHAMMER: — tripling in value every couple of years. Nobody complained, and now all of a sudden everybody is to blame.

HUME: One reason the economy has been troubled, of course, is also the energy sector. We will discuss what Congress is trying to do to address that, next.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

REP. KATHY CASTOR, (D) FLORIDA: I congratulate Speaker Nancy Pelosi for her leadership in crafting this compromise future oriented bill. And I thank my colleagues and the American people for their commitment to a new energy people for America.

REP. MICHAEL ROGERS, (R) MICHIGAN: What this bill does is it says "no" to more than it says "yes." You want to hurt somebody so bad, oil companies, Alaskans, middle-class families, you are in such a hurry to do that, you have created a bill that hurts them more.

(END VIDEO CLIP)

HUME: This is a bill that passed the House of Representatives that allows, it says, drilling in some offshore areas and therefore responds to the public's desire to have drilling to complement whatever other energy efforts are being made.

Republicans, who have been screaming for a vote to permit drilling, say this bill doesn't go nearly far enough, not least because all the drilling would be at least outside 50 miles, an inside 50 miles is where all the fuel is.

Anyway, we're back with our panel to discuss this. This thing doesn't look like it will pass the Senate because it allows too much drilling, I guess.

But what about the politics of this? Have the Democrats succeeded, in the House at least, with this bill in taking this issue away from the Republicans and giving Democratic lawmakers something to hang their hat on the issue of drilling?

BARNES: It would help if they were going to actually pass a bill, and they're not going to. But they will have something to say, "Well look-

HUME: "We passed it through the house."

BARNES: "We passed it through the house." And it goes farther than that crazy proposal of the "gang of ten," now the "gang of 20" in the Senate which would only allow some drilling off four states.

This allows drilling in the offshore areas everywhere, except it's 50 miles out, and so many of the most valuable areas that would be the most productive are inside 50 miles. They're not on the beach. And so the idea would be to have them out of sight but yet a lot closer than 50 miles.

But it doesn't make any difference because none of this stuff is going to pass.

In answer to your question, though, have Democrats helped themselves a little bit politically? Probably so.

KONDRACKE: Gallup had a poll last week asking people whether they're satisfied with the way the federal government is handling their problems, and 79 percent say dissatisfied, 51 percent say very dissatisfied.

And this is why. You know, the country understands that we got to have and all of the above energy policy. Finally the Republicans bludgeon Nancy Pelosi into producing a bill that includes some offshore drilling.

And what do the Democrats do but pass a bill that basically is designed to fail, and fundamentally because the Senate will never pass it, and the reason for that is that the states where there is going to be offshore drilling have no incentive to allow it.

I mean, they have — it can only happen if they say "yes," agree to it, and they don't get any revenue sharing.

So it's not going to happen. And so this big problem, another big problem of America, is not going to be solved by this congress.

KRAUTHAMMER: Surprise, in an election year.

Look, it is entirely political. The part on drilling is a sham, a fraud, and a deception. If I had a thesaurus I would continue on this. It is unbelievable.

As you indicated, a, it is restricted to outside of 50 miles. And, incidentally, it is the stuff inside that actually will produce quickly, within a year or two some of those well, and it would give lie to the Democratic argument that all of the stuff offshore is a decade or two away. Some of it is near and would be available quickly.

And, secondly, also as you indicated, the states get nothing out of this. You want to give them incentive. It denies any royalties. There will be trillions in royalties that will all end up in the federal treasury.

So it is designed, a, to fail in the Senate, and, secondly, to fail as a way to achieve the drilling. So it is a perfect deception at every level.

However, I think it might work, unless Republicans —

HUME: You mean politically?

KRAUTHAMMER: — can explain in 30 seconds why it is a sham, it will work. A Democrat will stand up and say I supported drilling, it passed in the House, and it was killed because the extremist who wanted to destroy the environment opposed it. It might work.

HUME: Well, it's actually being opposed in the Senate by the people who claim they want to protect the environment.

KRAUTHAMMER: All of it is so contradictory and absurd. It has nothing on nuclear.

And it is kill drilling bill. It is meant to ensure that we are not going to have any within a decade or two at a time when we are in a crisis, and it's available, it would create American jobs, and it would give us a lot of energy independence and help our balance of payments.

It has all the arguments in favor of it, and Democrats are killing it.

KONDRACKE: In the generic congressional ballot, it used to be that the Democrats had a 15-point lead on who you would vote for. It is down to three, you know. They are not trusted.

HUME: That's it for the panel.

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