This is a rush transcript from "The Journal Editorial Report," December 13, 2008. This copy may not be in its final form and may be updated.

PAUL GIGOT, HOST: Up next on "The Journal Editorial Report," politics Chicago style. We'll take a closer look at the culture that bred Illinois Governor Rod Blagojevich and a long list of politicians before him.

Plus, our panel looks at the political fallout from the scandal. Will it taint the incoming administration?

And Obama's Gitmo problem. Five detainees want to plead guilty to death penalty charges. Will the new president be the one to decide their fate?

"The Journal Editorial Report" begins right now!

(BEGIN VIDEO CLIP)

BARACK OBAMA, (D), PRESIDENT-ELECT OF THE UNITED STATES: Here in Illinois — and it's true I think across the country — there is a tradition of public service where people are getting in for the right reasons to serve. But there's also the tradition where people view politics as a business.

(END VIDEO CLIP)

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

That was president elect Barack Obama reacting to the stunning allegations laid out this week by U.S. Attorney Patrick Fitzgerald against his home state Governor Rod Blagojevich.

According to prosecutors, the governor talked opening in recent weeks about sell Obama's U.S. Senate seat, trading government favors for campaign Kass and our personal favorite, punishing the owner of the Chicago Tribune if it didn't fire members of the newspaper's editorial board. If convicted, Mr. Blagojevich would be the second consecutive Illinois governor to be found guilty of a felony and the fourth in 35 years.

John Kass is a columnist for the Chicago Tribune. He joins me now.

John Kass, thank you for being here. Good to have you here.

JOHN KASS, COLUMNIST, CHICAGO TRIBUNE: Thanks for having me back, Paul.

GIGOT: You wrote this week that outsiders who profess to be shocked and appalled by these taped remarks are being naive. Is this really Chicago business as usual for politics?

KASS: Chicago is so corrupt that it appears to me that the national media — I'll except you in this, Paul...

GIGOT: Thank you!

KASS: They wanted to believe in Barack Obama as a reformer. As if he were pristine and coming from some kind of different culture than the one you see laid out before you and the nation sees now. Everything's for sale here. There's one scandal after another, from city hall...

GIGOT: So pay to play.

KASS: Right.

GIGOT: So pay to play, this culture where, if you want a favor, you've got to put up cash, whether it be campaign cash or money in somebody's pocket. That is part, central to the political culture, just routine, business as usual?

KASS: Not only contracts or appointments. I mean, look, our founding fathers understood the nature of mankind, the nature of corruption. They saw the world as it really was. And that's why they wanted a divided and efficient government. But in Chicago, all the talk in Illinois is about working together, right?

GIGOT: Right.

KASS: What really happens is insider — insiders of both the Republican and Democratic parties, work together to run things as they want and make fortunes. I call it the Illinois combine. And this business with Blagojevich and his friend Tony Rezko, who's been convicted in part of this whole larger scheme, doesn't only involve Chicago Democrats who are notoriously corrupt but also prominent Republicans as well. So it's like — it's a combine.

GIGOT: But Barack Obama obviously made his career moving up through that political culture. And yet, seemed to have emerged through the election campaign as remarkably untainted by it. Number one, is that accurate? And, number two, how did he do it?

KASS: Well, I think — I don't know — he hasn't been tainted in this...

GIGOT: Certainly not in this incident.

KASS: Not in this incident. But — except we'll see what happens with the staff. Right, what deals was his staff willing to make? Or were they going to make any deals?

But the larger issue is that I think — there was a desire by the high priests of the Beltway media to sort of see him as — I call it the Mr. Tumnus effect, the gentle one from the "Narnia" books and movies. They wanted to see him as somehow gentle and pristine and separate from the machine. But if you look at it, he made all — every time the machine, the daily machine wanted him to endorse some — either crook or questionable thug or political thug, he did so.

He has people from the Chicago daily machine working with him. Rahm Emanuel is most often identified nationally as a Clinton guy, but actually he's a daily guy. David Axelrod is daily's what I call mouth piece. So he has people in place around him that come directly out of this culture. And he's participated in it, if not as a corrupt person — I'm not saying he's corrupt — but there are different levels of corruption, Paul.

One is present yourself as a reformer when historically every time you challenge it you pretend it doesn't exist or avoid it. The larger issue's not Obama because Obama's just a politician.

GIGOT: Right.

KASS: To me the larger issue is the media culture in the country.

GIGOT: Gave him a pass?

KASS: Ignoring — it was like willfully ignoring the nature of Chicago corruption. You and I talked about this months ago during the campaign.

GIGOT: Where do you think that Patrick Fitzgerald is looking next? If you're outside looking at this probe, where do you expect to see this go?

KASS: What I think he'll do is he's calling in Jesse Jackson, Jr. Congressman Jackson Jr., Congressman Jackson, who is candidate number five. Blagojevich said he was assured or he thought that he would get a million dollars from people close to candidate number five to appoint five to the Senate. Jackson has been identified as five. And late last week, the Tribune broke a huge story about a fund-raiser between India businessmen and — in Chicago — and Blagojevich, a fund-raiser that was attended by Jackson's brother, and I think brokered in some respect with help from Reverend Jackson. So it will go there.

GIGOT: All right. That's going to be a very interesting string to follow.

John Kass, thank you for being here.

KASS: Thanks so much for having me, Paul.

GIGOT: When we come back, more on the corruption scandal in Illinois and the political danger for Barack Obama.

(COMMERCIAL BREAK)

(NEWS BREAK)

GIGOT: We're back with more on the Illinois corruption scandal and the potential political fallout. Joining the panel, Wall Street Journal columnist and deputy editor, Dan Henninger; columnist, Bill McGurn; opinionjournal.com columnist, John Fund; and senior editorial page writer, Collin Levy.

Collin, you're a connoisseur of Chicago politics. How well do you think Barack Obama handled this story this week?

COLLIN LEVY, SENIOR EDITORIAL PAGE WRITER: I think he handled it about as well as could be expected. I think the major thing everyone's been noting from this press conference is he handled it like most Chicagoans. Everyone was absolutely outraged and shocked by what's been happening and Barack Obama was saddened. He's no babe in the woods. He came up through the system and he knows exactly how the system works.

GIGOT: John, do you agree with Collin? He did seem to start a little slow in maybe distancing himself from this.

JOHN FUND, OPINIONJOURNAL.COM COLUMNIST: Well, he started out by saying, look, the governor's under active investigation, I really shouldn't comment any further. That clearly was not going to work. In the next couple of days, he rolled out a lot more of an explanation, including saying, well, none of my staff had any contacts with Governor Blagojevich, but then I'm going to investigate that and make sure. So I think — I hope his staff is telling Barack Obama everything that happened because he may be embarrassed in the near future.

GIGOT: That's a shrewd move, though, isn't it, Bill. Distance yourself, saying we'll get all the staff stuff out. Don't give the press anywhere to go.

BILL MCGURN, COLUMNIST: I think he has to. For a president and even a president elect, you have your message that you want to get out. It's very distracting to have a competing message because that's where the press is going to go. So you prepare your statement. You have important things to discuss, economy, foreign affairs. And they keep going back to the one question, ask about Tony Rezko.

GIGOT: The former fundraiser.

MCGURN: It's a terrible, terrible distraction.

DAN HENNINGER, COLUMNIST & DEPUTY EDITOR: Paul, Obama is about five weeks away from this historic inauguration and I think he's in great danger of having this event overwhelmed by this story. Absolutely.

GIGOT: Really? There hasn't been a direct link in a sense of corrupt link with Obama so far.

HENNINGER: At the center is Rod Blagojevich. He's the one facing prison and if he gets pressed by Patrick Fitzgerald, he may start singing. He has talked to everybody who is potentially involved in this pay-to-play scandal going back many years. Blagojevich knows where all the bodies are buried in that culture. And if he starts talking and it starts coming out in the press, there is going to be very difficult for Obama to avoid being pulled into that cesspool.

GIGOT: John Fund, do you see the same kind of jeopardy here?

FUND: Again, I think it's mostly politically embarrassing because Barack Obama has kept himself above the fray in Chicago for so long. Now I think he's going to be dragged down into the muck. I think Jesse Jackson Jr. is going to be under active investigation. I think a bunch of other people are. This is going to be a continuing series of headlines. It may be Barack Obama's land deal in which he helped purchased his house with Tony Rezko may come to further embarrassing revelations develop there.

GIGOT: We do know Rezko is cooperating with prosecutors. Do you know what he's saying?

FUND: He's laying open the entire book with Chicago. Chicago is a machine town. Everyone is involved with the machine to some extent unless they want to leave politics. So I think Tony Rezko is providing a road map for Patrick Fitzgerald.

GIGOT: We know, Bill, another part of this is the SEIU, the Service International Workers Union, where one of their people met with Obama — not with Obama, with chief of staff of Blagojevich — and said, look, the chief of staff said if you give us Blagojevich a job, with a chance to win one of their affiliates, we may be able to do some things, like appoint the person to the Senate, Valerie Jarrett that Obama wants, and do favors for you. Is that kind of close tie with unions and Chicago politicians — does that surprise you?

MCGURN: I don't think it surprises us but we'll learn the details that will be colorful and there will be a lot of other ones.

Again, the problem for Mr. Obama is his people by definition are going to be involved. Not necessarily bad dealings but when you have a Senate seat open and all these Democrats, there's going to be discussions. That horse trading is natural. It could be very embarrassing. It's not natural to ask for a price for your personal enrichment, but this is — he's just in the gum because of the nature of replacing a Senate seat.

GIGOT: Collin, how do you think the Senate seat is going to play out? Are they going to have to have a special election? And related to that, can Blagojevich survive here? Given all the corrupt Chicago politics, can he somehow hang on?

LEVY: I really don't think there's any way he can hang on. He can't function as governor now. And Illinois voters deserve more than that. Even they know that and they do have a rather jaded view of things. I think one of the reasons this continues to happen is that the machine continues on and the machine is all powerful, and sometimes politicians have to function within that machine. So that's...

GIGOT: What about the Senate seat? Do you think that's going to have to go to a special election or can Blagojevich still appoint somebody here?

LEVY: I think it will be best if it went to a special election. I think now that everything's out in the air, it's time for the voters to have a chance to get at this directly.

GIGOT: Thanks, Collin.

When we come back, Obama's Gitmo problem. Five accused terrorists want to plead guilty to death penalty charges. Will it be up to the new president to decide their fate?

(COMMERCIAL BREAK)

GIGOT: In a move that threw their death penalty trial into chaos and potentially puts Barack Obama in the hot seat, five 9/11 suspects, including the ringleader, Khalid Sheikh Mohammad, told a military judge in Guantanamo Bay, Cuba, this week they want to plead guilty to the charges against them. The five said they decided on November 4, the day Obama was elected, to abandon their defense. The president-elect says he opposes military tribunals and has pledged to close the detention center which holds some 250 prisoners.

Bill, for five, six years the Guantanamo has been said, by Democrats, to be a stain on America, an affront to the Constitution, embarrassing to the world. Now, however, people seem to be having second thoughts. What's going on?

MCGURN: Well, the difference is they're learning what Guantanamo is about. It's not about a place. It's about people that do not fit neatly into our criminal system or our military system. And Senator Obama actually during the campaign made very tame statements. But he talked about bringing people to trial and to justice. That's not the issue. The issue is what do you do with the people that are too dangerous to release but you don't have enough evidence for a trial. That is the real nut of the problem.

GIGOT: And if you close Guantanamo, under current circumstances, then where do you put them? Some of these countries won't take them back. Some of the countries that would take them back would torture or arrest and do nasty things to some of these people. And in some cases they could — these prisoners could be released into the United States.

HENNINGER: I think what the Obama administration, as opposed to simply critics on the outside are going to discover, as Bill is suggesting, this is a very legally complex subject. What is the status of these people legally? You just can't do whatever you want with them. And if you bring them back into the United States, they don't fit so well into the domestic criminal system where you have to prove guilt beyond a reasonable doubt. That won't work in this case. Do you create a hybrid court that's a little bit of a military tribunal?

GIGOT: Just a second. Why won't it work in those kinds of cases? People can understand the fact they — when evidence was gathered against them, it was on the battlefield, sometimes in actual fire fights.

HENNINGER: Yes, but it's often the means by which you collected the information. It could be classified. The government will not want to reveal the means by which it collected evidence against these people. This is not like a murderer on the streets of New York. You're talking about a vague, difficult situation.

GIGOT: Collin, let me ask you about the five detainees who have now said they want to plead guilty. And I think, I believe the government has asked for the death penalty in most or all those cases. If they're convicted, they would be sentenced almost certainly to death. How would Barack Obama handle that? He said he's in favor for the death penalty in some other crimes. Would he dare say we're not going to pass the death sentence in this case?

LEVY: I don't think there's any way he would dare to do that. You're going to find he is much more amenable to the Bush architecture in these terms now once he's in office.

As we were saying before, you know, the number of detainees that are actually at Guantanamo has been reduced to really bare bones. It used to be 750, now 250. The only ones left are there are because we don't have anywhere to send them for the reasons that you already mentioned. So — and those who say they should come here to the United States are going to have a lot of problems, too. You saw actually Kansas Senator Sam Brownback mentioning that he's not too keen on any ideas to send them to Fort Leavenworth either. So where are they going to go?

GIGOT: How is the left going to react to this, Bill? I mean, if President Obama does...

MCGURN: I think they're going to discover his wisdom when he does the same thing George Bush did. It's going to be wise and wonderful.

The problem is that these people that are terrorists are best thought of as an organized conspiracy of people to commit war crimes, to attack innocent people. And they may not have actually done it yet or may not have known about it yet, but we know if we release them, they will. The last thing that Barack Obama wants is to release these people in the United States. He doesn't want to be that president. He's a smart man and he does not need that. So I think we're going to see a lot more sobriety and wisdom. We're already seeing it.

GIGOT: I think you're going to see him come out with something called national security courts or something like that. And the rules of evidence and the rules of procedure will be very similar to the military tribunals that George Bush has proposed, although they won't be called that, because Obama said he's opposed to tribunals. But they will be in practice very similar. Just a guess.

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

(COMMERCIAL BREAK)

GIGOT: Winners and losers, picks and pans, "Hits and Misses," It's our way of calling attention to the best and the very worst of the week.

Dan, first to you.

HENNINGER: Paul, Greece, the cradle of democracy, has been riddled with riots across the nation for the past five days because of the shooting of one 15-year-old, which could not cause this much mayhem. What's going on in this country, what's happened is, you have an incompetent government for 20 years. The conservatives came in promising change. For the past four years, they too have been corrupt and incompetent. What this is showing is the line between stability and anarchy is very thin. And an incompetent government can erase it.

GIGOT: All right, Bill.

MCGURN: Paul, my miss is to the baseball Hall of Fame for once again passing on Gil Hodges, Brooklyn Dodgers slugger, the manager that led the 1969 Mets to the World Series. One of the things forgotten, in addition to the stats — I think he had better stats than the man approved — is that the Hall of Fame is looking for people that exemplify integrity, sportsmanship, character, and contributions to the team. This is the man who won the Bronze Star in World War II for his action in the Pacific. If the national past time doesn't have room for a national hero, they've got some problems.

GIGOT: All right, Bill.

Collin?

LEVY: Paul, I'm going to give a hit to Washington D.C. Mayor Adrian Fenty, who said he'll agree to sign legislation to keep the bars open until 5 a.m. on the days surrounding Barack Obama's inauguration. I think it was a good thing because Barack Obama's a young person's president, and there are going to be a lot of young people coming in town, that want to party all night. On the night that he was actually elected, the streets were wild with people out and about just roaming the streets.

GIGOT: Collin, stay off the streets yourself.

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

Thanks to my panel and thanks to all of you for watching.

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

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