This is a rush transcript from "The Journal Editorial Report," February 8, 2009. This copy may not be in its final form and may be updated.

PAUL GIGOT, HOST: Up next on the "Journal Editorial Report," Obama hits turbulence. Will the Daschle withdrawal and his left turn on stimulus take a toll on his image as a reformer?

Plus, Senator Dodd plays peek-a-boo with the press giving a handful of reporters a quick look at papers related to his sweetheart mortgage deals. Why so coy? We'll find out.

And South Carolina police consider charging Michael Phelps for his drug use. Should the Olympic swimmer get a pass?

The "Journal Editorial Report" begins right now.

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

The new administration has hit a run of turbulence as a high-profile cabinet nominee quits over tax problems, and the economic stimulus package faces increasing criticism at home and abroad.

Here with a look at what turned out to be President Obama's first rough week, Wall Street Journal columnist and deputy editor Dan Henninger; editorial board member, Jason Riley; and Washington columnist, Kim Strassel.

Kim, first, the president said he was absolutely behind Tom Daschle, and two days later said he had screwed up after Daschle withdrew. What does this episode tell us about President Obama's management style? And how well did he handle it?

KIM STRASSEL, WASHINGTON COLUMNIST: Well, I think that they thought they were just going to maybe be given a pass on some of these things. The problem that they have at this point is not even necessarily will any one particular nominee be confirmed or not, although that is an issue. It's increasingly becoming an image problem. Remember, this is a guy who campaigned -- he was going to have strong ethics, very strong accountability, an era of responsibility. And they're putting through all these people that are doing one thing even as American people are told they have to do something else.

GIGOT: But it seems to me he's cutting his loses pretty fast on Daschle. This could have lasted a couple weeks. Daschle was his key guy on health care. He didn't want to lose him. So to set him loose this early, maybe it's a smart move.

STRASSEL: I think what they knew that other people didn't know -- although we're starting to find out -- is they have yet other problems in the administration. The most recent one is their nominee to be the secretary of labor, Hilda Solis. Turns out, her husband had a number of tax problems. They only recently got taken care of. This was something they were asked about earlier in the week, any more of this stuff coming out. They didn't really give an answer. We know there is and there may yet be more to come. So they might be trying to get this stuff done and out of the way. As long as it's going on, it was diverting attention from the stuff they want to take care of, which is the stimulus.

GIGOT: All right.

JASON RILEY, EDITORIAL BOARD MEMBER: But in addition to the damage done to Obama's image as a reformer this week, this could also be a setback for health care reform. Daschle brought certain attributes to the issue. He had written a book on this issue. He was a former member of Congress.

(CROSSTALK)

GIGOT: Where a key action will be.

RILEY: Yes. And he had ties with the business community. Finding those three attributes in another nominee isn't impossible, but could be difficult.

DAN HENNINGER, COLUMNIST & DEPUTY EDITOR: I think this explains a lot, why they're getting in trouble with these nominees. Health care is fundamentally -- doing this big health care thing is fundamentally a legislative process. You need a guy that can work that system, as well as being an ambassador to the business community in Washington to sell it to them.

This is an -- Washington is an insiders game. You need insiders to play it. Not new people from the outside, not the change we've been waiting for, but the old guys. And the old guys, who have been there a long time, tend to have problems like Tom Daschle.

GIGOT: Kim, on Dan's point, one of the interesting things, the vote from Daschle came not only from conservatives or Republicans, it came from the left. You saw a lot of people on the left say, look, he's made too much money talking to health care groups. He's too much of an insider, as Dan said. Too close to business, as Jason pointed out, although you need business buy-in if you get healthcare reform. Is this a harbinger of maybe the left giving Obama some problems?

STRASSEL: Yeah. Although remember, too, that Mr. Obama brought this on himself. And he's been talking about these things. He has been talking about how it's a problem of much money people make out there about this supposedly incestuous world of lobbyists and special interest. He set the bar on this. And as a result, the left took him at his word. Now they're saying, this was supposed to be your standards. We're going to hold you to it. It's going to constrain him and what he can do and how he can operate in Washington.

GIGOT: Dan, let's move to the stimulus package, which is going to pass Congress eventually. Nobody doubts that, in some form. But why is it proving so much tougher than almost everybody thought it would?

HENNINGER: I think because, Paul, let's compare it to the problem with the financial system and the credit system, which struck most Americans as a vast mystery because they don't quite understand the terminology and so forth.

The stimulus is about $800 billion or more, $900 billion, of government spending. This is one thing the American people know about. So when it was revealed to them what the details of the stimulus package are, they immediately asked themselves, it just looks like regular government spending.

GIGOT: Is it stimulating anything except for the political system?

HENNINGER: Why is it stimulating anything? How is it going to stimulate? That hasn't been adequately explained to the public. And that's why the support for it has fallen.

RILEY: And it's not only the American consumers who are worried. Some of our trade partners, Canada, the European Union are worried about some of the provisions in there.

GIGOT: Particularly, the buy-American provision.

RILEY: Right, protectionism.

GIGOT: Which means, that if you're going to spend any money on steel, iron, manufacturing groups, they have to be American-made. That violates our trade agreements.

RILEY: And it could spark a trade war.

GIGOT: Right. OK.

Kim, did President Obama make a mistake by letting Nancy Pelosi and the House liberals write this bill?

STRASSEL: You bet he did. And you've got to give Republicans a little bit of credit here. They came out and they framed this bill very well as wasteful, as pork-driven, as spending. They said, hey, you want to work with us? we want to work with you. The problem is your own party, Nancy Pelosi and Harry Reid in the Senate.

So he had a choice. He could either force his party to make some concessions after the fact or he could get behind the bill. He's chosen to get behind the bill, which he now owns a piece of legislation that is not popular among the American public.

HENNINGER: I'd like to offer just a mini defense for why this bill looks the way it is. Obama asked the House for an $800 billion stimulus bill. and they said what's that, how are we supposed to do that? Where do you get $800 billion in spending?

GIGOT: Well they could come up with it, Dan?

HENNINGER: Yeah, but they just start pulling it off the shelf, out of the budget lines, the regulars same-old stuff, rather than something than something that looks respectable. What would a respectable stimulus bill look like?

GIGOT: Is there any growth in this bill?

HENNINGER: Very little.

GIGOT: Any growth? Where does it come from? It comes from maybe a little infrastructure spending on a few public works, if we can get those shovels in the ground fast enough. And there are a couple of business tax cuts that might make a difference. A lot of the tax cuts are actually redistribution to people that don't pay taxes.

HENNINGER: Yeah.

GIGOT: Isn't that a real risk for Obama in this, that, at the end of the day, you're going to have told the American people, we need this bill for growth. We going to spend $800 bill worth for growth, and you don't get any growth.

HENNINGER: You get a very short-term shot and nothing to sustain it.

GIGOT: That's the real risk.

All right, Dan. A lost opportunity.

When we come back, friend of Angelo, Chris Dodd, lets a select group of reporters take a peek at some of the documents behind his sweetheart mortgage deals with Countrywide Financial. We weren't invited, but we'll have the details.

(COMMERCIAL BREAK)

(FOX NEWS BREAK)

(BEGIN VIDEO CLIP)

SEN. CHRISTOPHER DODD, (D), CONNECTICUT: I've never been a friend of Angelo Mozilo. Am not now, never have been.

(END VIDEO CLIP)

GIGOT: After seven months of stonewalling, Connecticut Senator Chris Dodd this week finally addressed allegations of sweetheart mortgage deals from former Countrywide Financial CEO Angelo Mozilo. Well, sort of. The chairman invited a select group of reporters to his Hartford office for a quick peek -- no photocopying allowed -- at more than a hundred pages of documents related to a pair of mortgages he refinance from Countrywide's so-called Friends of Angelo program.

Hartford Currant Columnist Kevin Rennie is here with the details.

Kevin Rennie, welcome. Great to have you here.

KEVIN RENNIE, COLUMNSIT, HARTFORD CURRANT: Thank you very much.

GIGOT: You've been dogging this story, following it. Did you get invited to the press conference?

RENNIE: I did not.

(LAUGHTER)

And my messages don't get returned or my e-mails acknowledged. So I wasn't very surprised.

GIGOT: Not part of the inner circle. But you've been following the story. What did we really learn this week from the Senator's president conference and documents?

RENNIE: Well, we learned that the Senator's now going to rely on stunts to try to convince the public that he is telling it something when, in fact, I think opinions have hardened in Connecticut that this was, indeed, a sweetheart deal, and he's doing everything he can to keep it a secret.

GIGOT: But he introduced some documents, a consultant's report, saying that in fact the evidence is he didn't get any special treatment. How persuasive was that?

RENNIE: It isn't very persuasive when you read it. In fact, it's very selective in the comparisons that it makes. It also assumes that every borrower, every good deal that was available would be condensed into a deal for each borrower. So only Christopher Dodd and his wife got that kind of deal. They got every advantage. Most borrowers would get one or two advantages, but not all of them. That's the difference.

GIGOT: Portfolio magazine estimated, when this first started, that he and his wife would have saved $70,000 on two mortgages over the life of the loan. When you look at the specific benefits he may have received, were they lower interest rates, points off that he wouldn't have had to pay or what?

RENNIE: A lower interest rate. Even the report really inadvertently shows that. No reduction in fees. And in addition, he got the float down, which is, from the time he locked in his mortgage to the time he had the mortgage closing, the interest rate was reduced for free.

GIGOT: Fascinating.

RENNIE: The deal he originally made, the deal he originally made with the bank, was sweetened quite a bit between that time and the time that he actually did the loan.

GIGOT: Now, in terms of the Senator's intent, he said he never really knew he was a VIP. But Robert Feinberg, a former Countrywide official, who handled this program, has said that, in fact, the Senator did know that he was a VIP. And that was with the whole point of the program. Why else have a VIP program, if the VIPs didn't know what they were. I heard that there was some writing on some of the documents that FOA, for Friends of Angelo, and VIP, on a couple of those documents.

RENNIE: Yes. Yes.

GIGOT: How significant is that?

RENNIE: Well, Dodd says that he didn't -- these are documents that he had never seen before. What I think would be significant -- and they didn't release this -- would be the communications between Dodd or Dodd's wife and Robert Feinberg. But those were not included. In fact, I think it's important to note that a chunk of the documents that he let reporters see for a few minutes were already on the land records in Washington and Connecticut. So a lot of this was not new. It's just that many of the reporters had not gone and seen those standard mortgage documents. Every bank records on land records. But it makes the pile look thicker. And Chris Dodd is now into symbolism on this whole mess that he has created and made worse and worse and worse with each invention of facts that he has thrown out there.

GIGOT: You made an interesting point earlier. You said opinions have hardened in Connecticut. Explain that. Is the press corps even more skeptical after this episode? I think one reason Dodd came forward was the Hartford Currant wrote a tough editorial saying, let's come clean, Senator.

RENNIE: Yes.

GIGOT: Is the press corps going to keep after him?

RENNIE: I think the press corps is catching up with the public. I found when I was really the only one writing about this, the second half of last year, that really people were paying attention to it and they were quite fascinated with it, because it's something everyone can understand.

GIGOT: Everybody that gets a mortgage, yeah.

RENNIE: Sure, right. But very few people get the kind of deal the Dodds did, particularly two of them. And they -- and so the press now I think is catching up in understanding that this is a story in which Connecticut a senior United States Senator, who has been in Washington 35 years, is starting to look desperate. And at each turn, he tells us -- he has a concoction that turns out not to be true. And, for instance, the whole issue of when he was going to release documents went on for months. And so he is making up things as he goes along.

GIGOT: Kevin Rennie, we're going to be counting on you to keep following this story.

Thank you very much for being here.

Still ahead, some sponsors are standing by the gold medallist Michael Phelps after a picture surfaced of the swimmer smoking pot. Should Phelps get a pass? There's a debate ahead.

(COMMERCIAL BREAK)

GIGOT: A South Carolina sheriff says she's considering bringing criminal charging against Olympic swimmer Michael Phelps after a picture of the gold medallist smoking pot surfaced in a British tabloid. The photo was taken in November at a house party while Phelps was visiting the University of South Carolina. Late this week, Kellogg's announced it was dumping Phelps as a sponsor. And he's been banned from competition for three months.

We're back with Dan Henninger. Also joining us, columnist, Bret Stephens, and editorial page features editor, Rob Pollock.

Rob, Michael Phelps, Olympic medallist, icon, Frosted Flakes promoter, what should happen to him?

ROB POLLOCK, EDITORIAL PAGE FEATURES EDITOR: Paul, I don't think anything should happen to Michael Phelps because I don't think marijuana use should be a crime. On the other hand, we should recognize that...

GIGOT: But it is.

POLLOCK: It is. According to the FBI, nearly 800,000 Americans were arrested for marijuana possession in 2007.

GIGOT: Merely, for possession? Wow.

POLLOCK: For possession, nearly 800,000. It's hard to have a double standard. Fat chance, Michael is going to be a drug policy reformer. His interest, his mom's interest is keeping those endorsements coming.

(CROSSTALK)

GIGOT: Lose those endorsements, that's going to be -- well, some of them. That's at least one kind of sanction.

BRET STEPHENS, COLUMNIST: And part is whether his celebrity should be an extenuating circumstance or aggravating circumstance. And maybe it should be an aggravating circumstance, the latter, because he is famous. and to have a double standard for someone who is, whether he loses one endorsement or not, raking it in, seems to be unfair to largely poor people, who get arrested for these kinds of crimes.

GIGOT: On that point, Bill Bennett, the former drug czar, used to argue that it's precisely going after these celebrities in drug cases that would send a message to the country that the drug users were just as responsible for creating the demand that the drug pushers satisfy.

HENNINGER: I see his point. But does that mean one tracks people down wherever they might be? Phelps, after all, was in a house party. It has raised the privacy issue.

Folks, I have here in my hand a cell phone. This is a weapon. With it, I can take videos. I can take pictures. I can record this conversation. I can instantly text what's going on. This is a new world that raises a host of issues about privacy, legal issues, social issues, even moral issues.

Certainly, a guy like Michael Phelps, one of the most famous men in the world, should understand he has no privacy anymore.

GIGOT: When you're in your early twenties, how do you understand? I know you're in the glare of the spotlight, when he's competing and doing celebrity events, but there's got to be a period where you feel at least I'm at home, I'm relaxed or in a private home and I'm not subject to that kind of scrutiny. Or is that -- is there just simply no privacy at all for somebody that achieves that kind of celebrity?

HENNINGER: I think that's the simple answer. There's no privacy -- there's hardly privacy for anyone anymore, cities are full of surveillance programs. We like surveillance cameras because they protect us. It's a new world that we live in. If you're going to be a celebrity at that level, you have to be aware of it.

GIGOT: Even if you're a third or fourth or fifth rate celebrity, you can find some of your friends -- I mean, Jon Favreau, for example, who is the -- he's not a third-rate celebrity. He's a prominent person. He is a speechwriter for Barack Obama. Remember, one of his buddies at a party found him mugging for the camera with a Hillary Clinton poster. He foolishly put it on the web and he had to apologize.

STEPHENS: Yeah, that's true. That's unfortunate. And this is a problem we have in society. But we're getting away from the basic fact that Michael Phelps committed a crime. He knew it was a crime. And there should be some punishment. It doesn't have to be a harsh punishment. Community service would do him well. I'm certain he's going to recover from the episode. I'm sure he's going to make a lot of money, and I hope he wins more gold medals.

GIGOT: But this a -- do you really want a case where some prosecutor, who may be grandstanding, may be ambitious, can look at a photograph that was taken on a camera at a private event months earlier and say ah, ha! Because it appeared in a British tabloid, therefore I can come after the fact and nail him for...

POLLOCK: Look, Bret, I think the best thing that could happen for drug policy reformers in this country is for that sheriff to make a martyr out of Michael Phelps. Obviously, touching pot did not ruin this guy's life. It did not ruin Barack Obama's life. Why highlight this? If that's what you want, if you want pot legalized, go after Phelps.

GIGOT: Should prosecutors everywhere, if somebody pops up with a digital camera of marijuana use like that, should he be able to prosecute this guy?

STEPHENS: That's a very good question.

HENNINGER: The problem with marijuana use, whether it's legalized, that's the world of adults. Michael Phelps is marketed as a model to younger people. and every parent in the country virtually hopes -- I would guess his parents as well -- that they not get involved with these drugs. So Phelps cannot have it both ways.

GIGOT: I sense this panel has a lot of the same ambivalence that the American public has about this.

Thank you all.

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.

Rob, first to you.

POLLOCK: Yeah, Paul, a miss to actress Ashley Judd. What I find interesting is that even after the election, the left in this country can't leave Sarah Palin alone. They seem bent on destroying her years out from the next election.

The latest salvo in this war was a commercial taped by actress Ashley Judd accusing Palin of savagery for supporting a policy in Alaska that sanctions the killing of wolves to protect other forms of wildlife. It's important to remember that this is a policy that predates Palin. Judd clearly knows nothing about what she's talking about and she looks like just another out of touch Hollywood liberal.

GIGOT: All right, thanks.

Bret?

STEPHENS: Well, it turns out that Leon Panetta, who's President Obama's nominee to be CIA director, last year made $700,000 in speaking and consulting fees from well-connected firms, like the Carlyle Group, as well as troubled banks like Merrill Lynch and Wachovia.

On the one hand, I don't want to begrudge Mr. Panetta his very handsome speaking fees. But I would suggest that if President Obama is going to have a policy of capping the pay that CEOs at troubled companies are getting, that should also go for the people, well connected D.C. insiders they're hiring as their speakers.

GIGOT: Price controls on speech. OK.

Jason, to you.

RILEY: This is a miss for our Black History Month, which I think is a celebration that has really outlived its usefulness. It got its start back in the 1920s as Black History Week by a historian named Carter G. Woodson. This is when accomplishments of many blacks were downplayed or dismissed outright. The election of Barack Obama shows pretty definitely that black history is American history. The idea that we need to segregate out the accomplishments of black people to celebrate one month out of the year is a little ridiculous these days.

GIGOT: All right, Jason, thanks very much. Very interesting.

Remember, if you have your own "Hit or Miss," please send it to us at jer@foxnews.com. We will read one at the end of every show.

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

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

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