This is a rush transcript of "Special Report With Brit Hume" from November 19, 2008. This copy may not be in its final form and may be updated.

(BEGIN VIDEO CLIP)

REP. GARY ACKERMAN, (D) NEW YORK: It seems to be the second-largest bait and switch scheme that history has ever seen.

REP. MAXINE WATERS, (D) CALIFORNIA: The fact that you, Mr. Paulson, took it upon yourself to absolutely ignore the authority and the direction that this Congress had given you just amazes me.

HENRY PAULSON, TREASURY SECRETARY: When the facts change and the circumstances change, we change the strategy. We did not implement a flawed strategy. We implemented a strategy that worked.

(END VIDEO CLIP)

BRIT HUME, HOST: And what that strategy was, was not to buy up great masses of troubled assets from banks around the country and other institutions, but to buy into the banks themselves, thereby helping, Paulson says, to recapitalize them and allow them to continue lending.

Some thoughts on this whole controversy now from Mort Kondracke, executive editor of Roll Call, Mara Liasson, National Political Correspondent of National Public Radio, and Michael Barone, senior writer of U.S. News And World Report, FOX News contributors all three.

Michael, your thoughts on this, the change of strategy and the reaction it got in congress. What are the forces at work here?

MICHAEL BARONE, SENIOR WRITER, U.S. NEWS AND WORLD REPORT: I do not blame Congress Ackerman and Congressman Waters for getting a little upset, because Secretary Paulson says in his testimony, as I read it, that in fact as Congress was voting on this package, which passed the House and the Senate on October 1 and the House on October 3, he had already decided not to go after the target assets, to go after the toxic assets and buy them up, that that would take too long, and that he was going to execute, which I think he has the authority to do under this, injections of capital into banks and other financial institutions.

And the congressmen can say, "Gee, you were less than frank with us. You told us that you had ruled out some other possibilities, including Republican Eric Cantor called for, for extending insurance on toxic assets." That is allowed under the bill but it was not pursued by Paulson.

Paulson sort of sticks it to Congress a little bit, though, in his testimony. He makes the point that in the two weeks the congress was considering the bailout package, from September 19 to October 3, stock market value what down nine percent, or about $2 trillion.

So he is in fact saying, I guess, I did not want to roil those waters and bring in this separate program that I was pretty much convinced I was going to do until you voted.

HUME: But he got the authority to do what he did, right?

BARONE: He got the authority to do what he did, but they might say under false pretenses.

MARA LIASSON, NATIONAL POLITICAL CORRESPONDENT, NATIONAL PUBLIC RADIO: They're angry at him for a couple of different reason. One, not so much that he ended up winning is, because people are not arguing about that. They are saying that you switched and didn't tell us.

HUME: Wait a minute, Mara, that's not quite right, I think. I watched a lot of that hearing today, and it seemed to me that they're angry with him because what they see is that banks are being saved here but that consumers and homeowners are not.

LIASSON: That is what they want. But it is not that he switched from the toxic assets program to injecting capital directly. What they're angry about is that he is not doing enough to help homeowners.

And that is, of course, where Sheila Bair, the head of the FDIC is there great heroine because she wants to do that. And they are also angry that he switched and did not tell them while this was happening.

But the fact that he ended up injecting capital instead of buying toxic assets, I do not think there is a lot of argument about that.

Look, I think that part of Paulson's job is to go up to go up to the hill regularly and-

HUME: And get battered

LIASSON: Get battered.

HUME: He says, though, Mort, that this has been effective, what he's done. Is that right?

MORT KONDRACKE, EXECUTIVE EDITOR, ROLL CALL: As Bernanke said that credit is beginning to loosen —

HUME: The Fed chairman, Ben Bernanke, who also testified today.

KONDRACKE: But the situation is nowhere near normal. And some of the members of the committee, Barney Frank among others said, "Wait a minute. You are allowing them to buy up other banks. You are not making them lend."

Now, I don't know that anybody is sure exactly what to do in these circumstances, but the idea was to free up markets and have them land. And if they are buying up other banks with the money that the federal government is giving them, that does not seem to be in keeping with the program.

HUME: The question I have, though, is when Paulson asserts that a corner has been turned and the situation has stabilized, true or false?

KONDRACKE: Not enough.

(CROSSTALK)

BARONE: The testimony is about — he is basically saying, "Look, on September 18, Bernanke and I believed that credit had just stopped. Blood had stopped circulating in the veins of the financial body. And if you think things are in bad shape now, they would have been much worse."

Now, that is a judgment that is a counterfactual. We cannot go back to September 18 and not do the rescue package and see what is going to happen. We can't be sure that things were that bad.

But, you know, Ben Bernanke — I have been looking at his book, "Essays on the Great Depression," he probably knows more about deflation and the Depression of the 1930s than anybody else on the planet.

KONDRACKE: But he supported Sheila Bair in the idea that home mortgages, that market should be bolstered. And Martin Feldstein-

HUME: Martin Feldstein is who, Mort?

KONDRACKE: — is a conservative economist from Harvard University, who said that if something isn't done, there are 12 million mortgages that are underwater, that is that people of more than the house is worth, and she said that there could be 4 million to 5 million defaults in the next couple of years.

So what to do about that? And Feldstein basically says that there ought to be a new way of giving those people a break.

HUME: So you disagree with Mara who says that nobody is disputing that he did the right thing by injecting the money? You are saying that people are saying that.

KONDRACKE: I think that he is limiting what he is doing to the strict financial markets. He is not helping homeowners and he is not going after the auto companies.

HUME: Do you think he should?

KONDRACKE: I think that there should be a structured method, yes, where the federal government-

HUME: Out of this money?

KONDRACKE: Either this money or some other money. Probably not this money, but there ought to be money, and they ought to be working on it right now before GM goes under.

HUME: What about the idea the White House has proposed of repurposing the money, the $25 billion or thereabouts, that was provided to the automakers for the purpose of retooling their vehicles to please the environmental lobby.

KONDRACKE: That sounds OK to me too.

HUME: The Democrats hate it.

BARONE: One of the problems is that that legislation is contingent on them jumping through various environment hoops and procedural things, and they found out that doing business with the government is not a speedy operation. They have to take a lot of time, and so forth.

HUME: Joe Lieberman dodged a political bullet today. We'll discuss that and what it means after the break.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

SEN. JOE LIEBERMAN, (I-CT) SENATE HOMELAND SECURITY COMMITTEE CHAIRMAN: We had a very open and constructive discussion about my status in the caucus after which my colleagues voted to support a resolution which I believe was fair and forward-leaning.

HARRY REID, (D-NV) SENATE MAJORITY LEADER: It is all over with. Joe Lieberman is a Democrat. He is part of this caucus.

(END VIDEO CLIP)

HUME: Well, you would think, might you, that Joe Lieberman after his apostasy in support of McCain, his speech at the Republican Convention, his criticisms of Barack Obama, that he might not be so welcome back in this now enlarged Democratic Party in the U.S. Senate.

But, lo and behold, there he is, head up and banners flying, still chairman of his committee. He got spanked a little bit because he was relieved of some tiny subcommittee that I have never heard of, frankly, and maybe neither he did. But in any case, he is back.

This in the same week in which Barack Obama sat down with John McCain himself, and they had kind words. So what is the meaning of these events, Mort?

KONDRACKE: This is a day of comedy and bipartisanship and good feeling, and all of that. And this is what the country wants. This is what the country thinks they voted for. Either the McCain people or the Obama people promised that the parties were going to work together and get stuff done.

So this is a good beginning. Let's see if it continues.

But Joe Lieberman only had 13 votes against him in this caucus. That is a pretty good resolution. They keep and in the Democratic column.

HUME: It was 42-13 to keep him in his present standing as an Independent/Democrat, and chairman of the committee, of the homeland security committee.

KONDRACKE: Right. If he had been deprived of his Homeland Security post, would he have defected to the Republicans? Nobody knows, but I doubt it.

He made the case in the caucus that he has been a Democrat for all his life. And Christopher Dodd, his other senator from Connecticut, reminded everybody that he had been to Mississippi to work on civil rights back in the 1950's, and so on. He is a Democrat.

LIASSON: I think this shows that Barack Obama wants as many votes as he can get. He has a lot of big things he wants to pass.

Some things he can muscle through with Democratic votes. He can do things in reconciliation process. But sometimes he is going to need 60.

HUME: So you keep Lieberman in the fold. That is one. What about the Obama-McCain meeting?

LIASSON: I think that McCain has proved in all his years in the Senate that he likes to be in whatever bipartisan scrum there is working on a compromise and working across the aisle.

And I think on many issues, not all of them, but on many issues, and you know the list in the past, stem cells, torture, filibuster's, he is willing to cross the aisle.

HUME: So?

LIASSON: Lieberman, also. Lieberman is still going to vote independently. Sometimes he will vote for cloture, and other times he won't.

But I think Obama is saying that revenge is just a dumb legislative strategy.

BARONE: And I think the filibuster votes are important. Obviously a Lieberman coming out of that meeting and in that frame of mind is going to be more likely to vote for it.

HUME: To shut down republican filibusters for Obama priorities.

BARONE: And if they kicked him off his committee, then he can say now, "Well, I do not really know if I want to shut down debate."

And the Democrats not have 57 clear seats in the Senate. They are ahead at number 58 in Alaska. We will see if the 2000-vote lead for Democrat Mark Begich holds up. And you have the runoff in Georgia on December 2.

They want to get as close to 60 and they get. So there is an institutional reason.

And there is second institutional reason in the Senate, Brit, which is that his colleagues like the idea of seniority and do not like the idea of somebody being kicked off, because the next one could be them.

Back after the 1986 election Jesse Helms wanted to claim his seniority over Dick Lugar in the foreign relations committee, which he had given up, and Helms-and Lowell Weicker, the maverick, left-wing Republican, pointedly supported Jesse Helms whose views on issues were totally different from his.

The reason being, as he stated, if they take away the Jesse Helms' seat despite seniority, they are going to take away mine, too. And I think some of those votes on the secret ballot, which, of course, they do not want to have for union representation, but in the Senate, they were cast on that basis.

HUME: That is it for the panel.

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