This is a rush transcript of "Special Report With Brit Hume" from November 25, 2008. This copy may not be in its final form and may be updated.

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BARACK OBAMA, PRESIDENT-ELECT OF THE UNITED STATES OF AMERICA: In these challenging times when we're facing both rising deficits and a shrinking economy, budget reform is not an option, it's a necessity. We can't sustain a system that bleeds billions of taxpayer dollars on programs that have outlived their usefulness or exist solely because the power of politicians, lobbyists, or interest groups.

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BRIT HUME, HOST: Well, we have heard that before, but not usually from someone who the day earlier was talking about a stimulus spending program amounting to the hundreds of billions of dollars, and some say it could go as high as a trillion.

But, after all, this is Barack Obama, and one presumes if all goes well, he will be able to do anything.

Some thoughts on all this now from Fred Barnes, executive editor of The Weekly Standard, Mort Kondracke, executive editor of Roll Call, and the syndicated columnist Charles Krauthammer, FOX News contributors all.

Well, he named the head of the Congressional Budget Office, a man who seems generally respected by people on both sides, and, as he put it, the man who knows — Peter Orszag knows where the bodies are buried, and I guess Obama hopes the bodies and the billions are buried in the federal budget.

But what about this, Mort? I don't know if this is audacity, but maybe it is.

MORT KONDRACKE, EXECUTIVE EDITOR, ROLL CALL: I think it is a bow to the blue dogs of the world, the fiscal responsibility people —

HUME: In the Democratic Party.

KONDRACKE: The blue dogs are Democrats, but there are fiscal responsibility people all over the country, independents a lot of them. And, basically, the rules that Orszag is supposed to follow are no pork in all these hundreds of billions of dollars in spending —

HUME: How are you going to build infrastructure with no pork?

KONDRACKE: Well, you build needed, necessary projects, and he says he's not going to do it — look, you can be skeptical if you like. That's what the rule is.

Secondly, cut wasteful programs. And he mentioned farm subsidies as an example. That's a juicy one.

HUME: We wish him well doing that.

KONDRACKE: Exactly.

And then spend money to improve the long-term economic future of the economy, including things like health, IT, and energy, clean energy projects, and stuff like that.

And lastly, and the big one is entitlement reform, I guess. Orszag has a plan for when the recession is over that we can get the structural deficit, which is monstrous, under control.

Now, the problem is that during the campaign he talked about Social Security reform. No cuts in benefits for anybody, any senior or any future senior.

That just won't fly. You cannot tax your way into making Social Security solvent.

HUME: It also depends on what you mean by the word "cut." In Washington "cut" means something that doesn't grow, and in Washington anything that doesn't grow as fast as it was previously scheduled to is called a cut. Fred, what do you make of all this?

FRED BARNES, EXECUTIVE EDITOR, THE WEEKLY STANDARD: When I was there hearing that from Barack Obama, I just rolled my eyes.

Remember zero-based budgeting with Jimmy Carter? Remember the Grace Commission under Ronald Reagan? And now this poor Peter guy will have to go through page by page, line by line.

It really is preposterous. On the one hand-and, Brit, I think you pointed out, he is, Barack Obama is proposing one of the great spending binges of all time, and then we're going to attack the structural deficit. Come on. It's silly.

I was glad to hear Mort at least have one note of skepticism at the end on Social Security, because he seemed to be a dreamer on the rest of that stuff.

I could care less what their rules are, what they're looking for. It isn't going to happen.

HUME: Why isn't it going to happen? Is it not going to happen because he doesn't want to do it, or —

BARNES: Because everything you want to cut has a lobby, has a constituency that will fight for it that doesn't think any of the stuff they get is pork.

He cited this $49 million of farm subsidies that went to farmers that made over $2.5 million a year. But that doesn't matter, $49 million. It is the $300 billion farm program that matters. And, of course, Obama voted for it.

CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: Here is the great irony. He campaigns relentlessly as the man who would drive the lobbyists out of the temple. And he repeats it again today — he will cut the programs, and they will not exist because of the power of the politicians no lobbies, no interest groups.

But he is a man who will preside, even without the liberal promise, even a Republican would have presided over the most massive spending probably in American history, which will invite more lobbying than ever seen in American history.

In the past lobbying occurred at the margins-a break in taxes here, a regulation here, a subsidy here. Now lobbying is about life and death. You're really going to be called a bank and rescued, or you are going to die. You are going to get a check from Washington for Detroit, or you're not.

So the stakes are enormously higher. The amount of money is unaccountably higher, with a whole bunch of extra zeros. It will be the greatest lobbying effort and frenzy in the history of the country despite Obama. It is not his fault. It is because he is coming in at a time in which lobbying is at a premium.

The center of power in America used to be divided between politics in Washington and the money in New York. Well, New York is out of money. It's now in Washington holding out its cup. So all the power is in Washington, and it will be an explosion of lobbying.

HUME: OK, there will be an explosion of lobbying. Will it mean that the explosion of spending, which is in the near term to stimulate the economy, will end, and is there any hope in your mind there will be budget reform after that?

KRAUTHAMMER: None.

HUME: Mort?

KONDRACKE: No. Look, it is simply unsustainable over time. Wait a minute. Wait a minute. You will have to double taxes in about 2030 in order to pay for entitlement if we don't get them under control. And we're not going to double taxes.

KRAUTHAMMER: Nixon economist Ben Stein once said if something can't continue, it won't. It was the father of Ben Stein. In Washington, it does.

BARNES: Of course it does.

HUME: Are the government's actions to stabilize Citigroup and these other companies in trouble now working? The panel takes this up after a break.

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HENRY PAULSON, TREASURY SECRETARY: I know it's a hard sale to tell people if you hadn't done this it would be worse. But the fact is it would be much worse if we hadn't done it, and the fact is we now have the tools and the capacity to stabilize the system and work to get credit flowing again, and it will take a while to do that.

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HUME: So Hank Paulson after a month of working with a $700 billion program hustled through congress in about a week, acknowledges that the credit freeze is not over yet, has not thawed yet.

But he says we've stabilized things, and if we hadn't done the things we've done, which some critics have said looked like an erratic package of bailouts for some and not for others and sudden rescues of companies thought not previously to be in trouble, like Citigroup, who seemed to have come across sometime help last week and was rescued over the weekend, some critics have said that isn't working.

So, gentlemen of the panel is, it working? Fred?

BARNES: It's not working very well. The idea was that this would stabilize financial markets. Does anybody think they're stabilized right now? I don't.

Look, they gave $25 billion to Citicorp, when, a few weeks ago, and that was going to make everything fine. Now they need another $20 billion they're getting from Treasury.

And now they're back to doing what they were originally assigned to do under the bailout bill, and that is to separate these toxic securities and toxic mortgages and mortgage-backed securities from companies like Citicorp so they can lend again.

Look, now it is the auto companies, and it is loans for students and autos, and so on. The truth is, I have no idea where it stops. It goes on and on. And now they have obligated the federal government up to $7 trillion that will have to be paid sometime.

The truth is, there's one thing that secretary Paulson is right about. It is a hard sell when the best thing you can say is that it could have been worse.

HUME: I know, but what about that point, that it would have been much worse?

BARNES: I think it could have been worse, too. But that's not a very good argument.

And I think everything he said before indicated that it would get a lot better than it has.

HUME: By now?

BARNES: By now.

HUME: By now?

BARNES: By now, absolutely.

HUME: Mort?

KONDRACKE: Look, clearly it's better to have the banks existing than all collapsing, which they might have done had they not stuck money into them. But the banks are not lending. That's the problem. And how do you get them to lend?

Paul Krugman, the liberal economist, Nobel Prize winner, says we may have to temporarily nationalize the banks and tell them to lend.

HUME: In other words, make some more bad loans?

KONDRACKE: Well, make them lend. They're not lending to consumers. They're not lending to businesses.

Not to be a broken record about this, but I have talked to now three distinguished Republicans — Paul Ryan, a congressman from Wisconsin, Mark Kirk from Illinois, and Doug Holtz-Eakin, who used to be McCain's economic advisor, about this mark to market accounting rule, which compels these banks to write their assets down to zero if there is no market for them.

And it's just crazy. Their securities are not worthless. They are worth something because they're based on mortgages that are paying.

HUME: A combination of mortgages that are and are not, and nobody can value them.

KONDRACKE: Right, so some of them are paying. So you adjust that mark to market rule.

And also you reinstitute the uptick rule on short selling whereby you can't short sell a stock unless it's going up.

HUME: Paulson can't do that. The SEC can and will not and has not.

KONDRACKE: And Chris Cox is not doing it because they says he's just stuck in the mud.

KRAUTHAMMER: I think it's hoping for a magic wand.

We're in a credit bubble, and it has to dry out. That means when the banks receive capital, they ought to hoard a lot of it as a way to bolster their reserves and keep a clean balance sheet. You can't expect them to take a dollar in and put it out on the window. That is how we got into this calamity in the first place.

Paulson has ad hocked this all along. He has been inconsistent. But, in his defense, there is no road map. This has never happened before.

What he and Bernanke have done is to open up all the floodgates, to flood the economy with liquidity — everybody, auto, students, credit cards, banks, everything — as a way to keep us afloat.

If we get out of it alive, he will be called a genius, and that's how we'll know. Nobody knows today how he's doing. We're right in the middle of it.

HUME: My question is, do you think, as Fred does, that he has had enough time to show more progress than he's shown, and he has failed in the that?

KRAUTHAMMER: A crisis that has been building over two decades. You don't resolve it in six months. It's not a failure. If we get out of it in a year, that will be a triumph.

KONDRACKE: He is making it up as he goes along. But the administration writ large, ought to be trying everything, and they're not yet trying everything.

HUME: That is it for the panel.

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