This is a rush transcript from "The Journal Editorial Report," January 24, 2009. This copy may not be in its final form and may be updated.

PAUL GIGOT, HOST: Up next on the "Journal Editorial Report," President Obama making good on some campaign promises, signing an order to close Gitmo and putting an end to aggressive interrogation tactics. But can he appease the left and keep America safe?

TARP, part II: How will the second half of the bailout money be used?

And Congressman Barney Frank pulled some strings to get millions for a home state bank.

Treasury's Tim Geithner, should his $34,000 tax mistake disqualify him?

The "Journal Editorial Report" begins right now.

(BEGIN VIDEO CLIP)

PRESIDENT OBAMA: This is me following through on not just a commitment I made during the campaign, but I think a -- an understanding that dates back to our founding fathers, that we are willing to observe core standards of conduct, not just when it's easy but also when it's hard.

(END VIDEO CLIP)

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

That was President Barack Obama making good on some campaign promises in his first week, signing a series of executive orders closing the Guantanamo Bay detention center, shutting down CIA secret prisons and banning aggressive interrogation tactics. The measures will go a long way to appeasing the left but will they keep America safe?

Joining the panel, Wall Street Journal columnist and deputy editor, Dan Henninger, editorial board member, Jason Riley; and Washington columnist, Kim Strassel.

Dan, the left and the media are hailing this as a big break from the Bush administration policies. How big a break is it really and what are the consequences for security?

DAN HENNINGER, COLUMNIST & DEPUTY EDITOR: To quote the title of a famous '30s movie, "In Name Only." Nominally, they've committed themselves to doing these things. But as president Obama said, as far as Guantanamo goes, he will set up a process to close Guantanamo. And in terms of the interrogations, they're going to look at whether certain kinds of, quote, unquote, "aggressive interrogations may be in fact be appropriate."

You know, we had Homeland Security Chief Michael Chertoff in to see us a while ago and he said the difference between being on the outside and criticizing, even good faith criticism, and being in that job and bearing the responsibility and knowing what you're responsible for, is the difference between night and day. It is a lot harder than they think it is.

GIGOT: Isn't the president saying that a lot of these guys at Guantanamo are really dangerous, something like...

JASON RILEY, EDITORIAL BOARD MEMBER: That's exactly what he said, yes. He's fulfilling a campaign promise, as he said in the segment, and he wants to appease some to the left who wanted him to do this. Now he also has the responsibility of keeping the country safe. When you close Guantanamo, you have a couple issues to deal with. You have dangerous people there, some of them which -- some of whom want to return to the battlefield.

GIGOT: What about 60? The Pentagon said something like 60 have already done that.

RILEY: One that we released in '07 has shown up leading al-Qaeda in Yemen. We don't want that to happen. Those -- some, Obama says, he wants to try in U.S. courts. Is this possible given the rules of evidence in our criminal justice system? He's created some problems as well.

GIGOT: And nobody wants those Guantanamo detainees to show up in Kansas or a neighborhood near you or a prison near you, which could potentially become a target for...

HENNINGER: That's why they were at Guantanamo. We wanted them offshore, not inside the United States, where even the prisons themselves can be targets for prison breaks.

GIGOT: All right, Jason, let me ask you about interrogations. How much of a change is Obama making there, applying the Army field manual technique, very limited for interrogation, now to all detainees.

RILEY: It's got a couple issues there. Again, it's easy on the campaign trail to announce these policies. But once you're put in charge of the responsibility and the safety of Americans, it's another matter. If you announce to the world, including the terrorists, that we're going to use this Army field manual, on the one hand, you're telling the terrorists how to prepare to resist interrogation tactics.

GIGOT: We know from their materials they train for the Army field manual.

RILEY: Obama wants it both ways. He wants to set up a system where, if we need to use more forcible interrogation tactics, we'll be able to.

RILEY: There's going to be a special task force set up as part of his executive order, including the attorney general, the defense secretary, and the director of National Intelligence to see if some of the current aggressive techniques that the CIA uses -- and they've only used it on about 100 detainees according Mike Hayden, the current director. If those are, in fact, allowable. So there is this tension. He wants a Jack Bower exception, if we really need it.

HENNINGER: And part of the problem is that if they go too far, if they make it, say, legally -- if they make the FBI agents and CIA agents legally vulnerable, what they will do is go on strike. They will stop acting. And then if you're going to have an administration which does not want to use the military, is going to rely much more heavily on intelligence, you want the CIA and FBI to be aggressive.

GIGOT: You create potentially a risk of adverse culture.

HENNINGER: Absolutely.

GIGOT: OK, Kim, let me ask you about another drama unfolding in Washington and that's the tension between Obama administration and Democrats on Capitol Hill and many on the left and in the media about a so-called truth commission for Bush policies, and potential prosecution of Bush officials for their anti-terror policies. How serious are Democrats and Congress about going after this?

KIM STRASSEL, WASHINGTON COLUMNIST: Oh, they are very serious. You had John Conyers, who heads the House Judiciary Committee introduce legislation to create this truth commission. You have a lot of pressure from him and Senators and other House Democrats for the incoming Justice Department to create a special prosecutor to look into what they consider to be Bush crimes, war crimes in conducting interrogations and other issues.

(CROSSTALK)

GIGOT: What are some of these issues? What do they want to investigate specifically?

STRASSEL: Well, they want to look into what -- this is why you are hearing a lot of questions right now, of Obama's nominees, about whether or not, for instance, they consider water boarding to be torture. You've had different varying answers from his administration officials as they're coming in. But they want to be able to say those enhanced interrogation techniques were torture and are punishable under law. They want to suggest that this was a grand conspiracy, developed from the top, the highest ranks of the Bush administration officials. They want to go over certain lawyers who were in the Justice Department and in White House and office of the legal counsel. This is a very big game plan for that. He's going to have to decide if he's going to go along with it.

GIGOT: Jason, does President Obama want to spend his political capital on that?

RILEY: I don't think he does. And we knew he would face this. We knew he had this liberal Congress he would have to rein in. This is going to be a test of whether he wants to do that. This is a perfect example of -- a sort of criminalizing political differences. Obama says he doesn't want to do that.

GIGOT: He wants to look forward, not backward. He said that.

RILEY: That's what his attorney general nominee, Eric Holder, also said during his hearings.

HENNINGER: The biggest thing is contained in the title of Conyer's 500-page report. It's called "Reining in the Imperial Presidency." The imperial presidency is something the Democratic left has been trying to do since the 1960s. And the substitute is an imperial Congress. 535 commanders in chief. It doesn't work.

GIGOT: We'll watch and see how that drama plays out.

When we come back, the politics of the financial bailout. Did Congressman Barney Frank pull some strings to get millions in TARP money for a home state bank? And how will the new administration spend the next $350 billion?

(COMMERCIAL BREAK)

(FOX NEWS BREAK)

GIGOT: The new administration is beginning the task of allocating the second half of the money from the $700 billion Troubled Asset Relief Program, even as questions are raised about how the first $350 billion was used.

The Wall Street Journal reported this week that the head of the House Financial Services Committee, Democratic Congressman Barney Frank, intervened on behalf of a home state bank to get millions in bailout money. The bank was under scrutiny by regulators for allegations of poor lending practices and executive pay abuses, but nonetheless received $12 million in TARP funds last month after Frank interceded.

Now the Massachusetts congressmen wants restrictions placed on how the remaining money is used.

Last week the House approved a bill he sponsored which would devote $40 billion to help with mortgage disclosures and curb executive compensation. The Frank bill would also allow TARP funds to be used for an auto bailout.

We're back with Dan Henninger, Jason Riley and Kim Strassel. Also joining us is Wall Street Journal columnist Mary Anastasia O'Grady.

Mary, is this the way the TARP money was supposed to be used?

MARY ANASTASIA O'GRADY, COLUMNIST: There were a lot of versions of TARP, as you'll recall. I don't think this was one of them.

(LAUGHTER)

O'GRADY: I think basically banks were -- insolvent banks were supposed to be closed down. We're not supposed to just keep pushing money into banks that can't survive. And when you look at what happened with Barney Frank, it wasn't the only case. Apparently, a lot of politicians are involving themselves in decisions that are made about how the money is being allocated. And it really looks like it was very arbitrary and very political.

GIGOT: There's no sense this bank was actually solvent. This bank just happened to be in his own district and needed help?

RILEY: Which is why it deserves...

O'GRADY: But there's a lot of discretion apparently about whether a bank is deserving of -- all of that discretion is coming from the political...

HENNINGER: Let's point out that the same thing was done by the congressional delegation from Ohio, which went in like gang busters when National City Bank didn't get money, and the delegation from Alabama. All of these banks -- if you say on a scale of one to ten, one being a dead bank, ten being a strong bank, and everything in between, all of these are judgment calls by Treasury and the regulators. You're going to get into an argument between the banks and the regulators, and the banks are going to their Congress and congressional delegations and say plead our case.

RILEY: That's the point. And Barney Frank does deserve some recognition here because he was one of the chief critics of Treasury Secretary Hank Paulson's dispensing of the TARP funds. So on the one hand, he's criticizing Paulson -- not without some justification, I might add. But on the other hand, he's earmarking funds for a bank in his home district. And I think this is a clue how the second half of this TARP money might get spent. It's going to go to lobbyists or to people who can hire lobbyists to get to people like Barney Frank.

GIGOT: Kim Strassel, politically, why would Hank Paulson and the Bush administration go along with something like this for Barney Frank? I should say Treasury said they followed all the typical standard guidelines in allocating money to this bank. Nonetheless, they did go along. Why?

STRASSEL: Look, these guys are very powerful and they hold the purse strings. You know, we've got a lot of competing interests. Here's the big risk, by the way, too, for the Obama administration which is now in that same situation, is that they are being demanded by Congress to allocate this money to a whole bunch of special interest projects, the second tranche of TARP money. But they've only got a limited amount, which they need to be using to shore up the financial system. If it all gets divvied up for Detroit or for local hometown banks or up to a hundred billion dollars to stem mortgage foreclosures, they're going to have to go back and ask for a TARP 3 or TARP 4. There's discussion in Washington about how this latest $350 billion still might not be enough. They might have to use more.

GIGOT: I have to say I think -- the asset values continue to fall, both in mortgage financial products and underlying home values. You can't just magically declare a stop to that. That means more bank losses and more TARPs.

O'GRADY: The big problem is there's no clear rules for the game. You saw the banks stocks get hit hard last week and the reason was because people started to become afraid on whether the government would nationalize some or all of the banks. I think that problem of government intervention and unclear rules is also delaying the recapitalization of good banks because nobody knows...

(CROSSTALK)

STRASSEL: Also, a lack of leadership, too. We've had a lot of talk about the people Obama's bringing into his administration and how talented they are. What we have not had is a plan, someone saying here's what we're going to do next. Until they get that, the uncertainty is going to continue to create...-

(CROSSTALK)

GIGOT: Go ahead, Kim.

STRASSEL: No, the ups and downs in the stock markets and fear out there about lending.

GIGOT: I think you have to take this thing and take the TARP and create some kind of resolution agency, get it out of the Treasury, get somebody of stature put in charge who can say no.

HENNINGER: Exactly. TARP stands for Troubled Asset Relief, not troubled bank relief, OK? There's an important distinction there. And the Resolution Trust Corporation worked out the troubled real estate assets held by savings and loans. These banks' assets are the problem, not the banks themselves. We're not identifying the asset problem, which I think would be the point of a megabank, to buy in bad assets.

GIGOT: That happened in the 1980s, that process you described.

When we come back, he says he made a $34,000 mistake. Should Tim Geithner get the green light for Treasury? There's a debate ahead.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

SEN. JOHN KYL, R-ARIZ.: I'm sorry to take extra time here, but would you answer my question rather than dancing around it, please!

(END VIDEO CLIP)

GIGOT: President Obama's Treasury pick, Tim Geithner, was in the hot seat at his confirmation hearing over his failure to pay $34,000 in taxes between 2001 and 2004.

After an IRS audit, Mr. Geithner paid for back taxes for the last two years, but didn't cough up the money for the first two until such a hearing seemed likely.

The Senate Finance Committee voted 18-5 to approve Geithner on Thursday. A full senate vote is expected Monday.

Senior editorial page writer, Collin Levy, joins the panel from Washington.

Collin, you followed the hearing. Most Senators seemed willing to give Geithner a pass. How about you?

COLLIN LEVY, SENIOR EDITORIAL PAGE WRITER: You know, I have to go with most Senators on this one. I think this is not a disqualifying offense. I think in some ways we can really look at this as a blessing that our treasury secretary, if he is confirmed, will be in a situation where he's gotten entangled in the tax code and, like most Americans, he doesn't want to pay anymore taxes than he absolutely has to under law, which is what he did.

GIGOT: Do you believe his story he said it was, well, it didn't even occur to him after he paid his taxes in 2003 and '04 not to then turn around and pay the taxes in 2001 and '02 even though those had not been audited?

LEVY: No. Quite frankly, I think that was not a particularly plausible description of what happened there. I think John Kyl was right to go after him on that. It's the most critical point, whether or not he is trustworthy in the way he portrayed what happened. I think it would have been more reasonable for him to say, look, the statute of limitations ran out and that's what they said I owed and what's what I paid.

GIGOT: So a little candor would have gone a long way to help?

LEVY: A long way.

GIGOT: All right, Mary O'Grady, what do you think? Geithner to Treasury?

(LAUGHTER)

O'GRADY: Well, I am all for confessions, attrition, absolution, even redemption.

GIGOT: Yes, you're Catholic and I am too.

(LAUGHTER)

O'GRADY: But I do think the treasury secretary either was incompetent in dealing with his taxes or he was dishonest. You can choice which is the kinder way to explain his mistake.

But the important thing here -- there are two important things here. One is that the integrity of the person in the treasury secretary's position right now is extremely important. We're talking a lot about reestablishing the trust of the American people.

And, secondly, Tim Geithner does not have a very good record on policy for the last 15 years. Jim Rogers, the investment guru, said that he has made mistakes for the last 15 years. He has done everything wrong that there is to do.

GIGOT: That's a little separate from the tax issue.

O'GRADY: It's separate from the tax question but, you know, we want to give him a pass on taxes because we think he's an expert on policy? That doesn't add up.

GIGOT: Kent Conrad, the Democratic Senator from North Dakota, said in normal times he would have opposed Geithner because of the tax infraction, but these are not normal times. Can you decipher that for me, Dan?

HENNINGER: Not very easily. Not certainly in the context of recent history of this sort of thing.

I think there's a -- if we're going to give Tim Geithner a pass here, then perhaps we've set a precedent. In recent history, a lot of the opposition has fought people on the basis of personality and personnel rather than policy. Got your politics, right? So you have a situation where even in the campaign, Mark Penn, Hillary Clinton says something politically incorrect, he's out. Samantha Powers did it in the Obama campaign, she's out. You had the total obliteration of Cheney chief of staff, Scooter Libby, over not very much. If we're going to get to the point where policy is more important than personalities, I think it will be a positive development.

GIGOT: That would be a positive development.

Kim, can you explain the Kent Conrad formulation?

STRASSEL: Yeah, you know, on the Democratic side this is simple. Barack Obama wants this guy and the Democrats are going to deliver him to him.

On the Republican side, you've got some different things going on. One, I think the Democrats want to show a little deference to the president. Two, some of them actually like the guy. Three, you got fear out there. People are worried, Senators are concerned that if they delay or derail this nomination, tank it, while the Obama team is left kind of leaderless, struggling, you're going to have another market crash, and they're going to get flack for having held up putting together his economic team. So people are eager to get things going and overlooking stuff they might not otherwise.

GIGOT: Collin, do you think there's any chance Geithner will not be confirmed.

STRASSEL: I think he's going to be confirmed for exactly the reasons that Kim says, which is that this is Obama's guy and it's very important in these times that. But, you know, he has the guy next to him that he really believes is going to help us out of this crisis.

GIGOT: Let's have a national Geithner tax amnesty for everybody who has made a mistake and is audited. That's my policy.

(LAUGHTER)

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 worst of the week.

Jason, first to you.

RILEY: This is a mess for George Bush on behalf of Dick Cheney. Cheney gave an interview to the "Weekly Standard" recently where he said that President Bush erred in not pardoning Scott Libby, who was Dick Cheney's chief of staff. Now Libby was prosecuted in a case that involved leaking the name of a CIA operative. But it turned out Libby was not the leaker. Somebody else was. The prosecutors knew that from the beginning. And since Dick Cheney and George Bush have rarely disagreed on anything over the past eight years, it's significant that Cheney would come out and say Bush erred in this.

GIGOT: All right.

Mary?

O'GRADY: This is a miss for the Illinois congressional delegation that wants to assert a buy-America provision in the stimulus package. This would harm U.S. export interests at a time when we need new export markets. I'll give you one example. Caterpillar Tractor told me this week that it had a major initiative to compete in numerous infrastructure projects, particularly in China, and the company said that this would completely undermine that initiative. Bad idea.

GIGOT: Thanks, Mary

Collin, how about you?

LEVY: I'm going to give a hit to Barack Obama and to chief White House counsel, Gregory Craig, for deciding to have the president retake the oath of office after he and Chief Justice John Roberts sort of got the words a bit confused. and they wanted to make sure they were in the right order this time. I think this indicated a real fealty to a strict constructionist reading of the Constitution. And I think that that's something we should celebrate, even if this is the first and last time we see it in the administration.

(LAUGHTER)

GIGOT: All right, thanks, Collin.

Remember, if you have your own "Hit or Miss," please send it to us at jer@FOXnews.com .

That's it for this week's edition of the "Journal Editorial Report." Thanks to my panel and all of you for watching.

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

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