This is a rush transcript from "The Beltway Boys", February 7, 2009, that has been edited for clarity.

FRED BARNES, FOX CO-HOST: Coming up on "The Beltway Boys," President Obama shows massive pushback on the stimulus plan. We'll tell you how he lost control of the message and how he plans to get it back.

MORT KONDRACKE, FOX CO-HOST: The new president is forced to do damage control over the Daschle debacle and tax troubles with other nominees.

BARNES: Obama's being tested overseas, too, with Iran and Russia among others making threatening moves.

KONDRACKE: Michelle Obama has carving out a decidedly hands-on role as first lady.

BARNES: All that's coming up on "The Beltway Boys" right now.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: These Americans are counting on us, all of us in Washington. We have to remember that we're here to work for them. And if we drag our feet and fail to act, this crisis could turn into a catastrophe.

(END VIDEO CLIP)

KONDRACKE: I'm Mort Kondracke.

BARNES: And I'm Fred Barnes. And we're "The Beltway Boys."

KONDRACKE: We are. And the first hot story of the day is sales pitch. Barack Obama's approval ratings are holding steady at 65 percent in spite of Tom Daschle and the other appointments snafus. But support is cratering for his — for a stimulus package. The latest Rasmussen poll shows 43 percent oppose the plan, 37 favor it, a reversal from two weeks ago when 45 percent favored the plan and only a third had doubts.

Now, Obama, instead of being bipartisan about the fashioning of this plan, let Democratic liberals write the plan in the House, write the plan in the Senate, and then he's done a terrible job of defending its contents. The only thing that anybody knows about what's in these bills is what the Republican opposition has been saying about all the pork that's in it. And there is a lot of pork.

But Obama is getting busy to defend now. And he spoke to House Democrats on Thursday — this weekend. He's had a speech Monday. He had a speech at the White House on Friday. And there will probably be an Oval Office address when it gets pushed in. But along the way, he is drifting away from partnership. Watch.

(BEGIN VIDEO CLIP)

OBAMA: In the past few days, I've heard criticisms of this plan that frankly echoes the very same failed theories that helped lead us into this crisis in the first place. I reject these theories and, by the way, so did the American people when they went to the polls in November and voted out the same.

(APPLAUSE).

(END VIDEO CLIP)

BARNES: That's the old, "We won! I can do anything I want."

But, look, Mort, you're right. Losing his post-partisan edge is putting it mildly. Who is the most relentless speaker of bipartisan compromise in Congress but — particularly in the Senate? You know who that is. His name is John McCain. That's why so many conservatives like myself have gotten mad at him so many times.

Listen to what John McCain says about Obama's stimulus bill. "It will not stimulate jobs. It won't stimulate the economy. To pass legislation which is $1.2 trillion, and doesn't achieve the goal, no bill is better than that." No bill. Now, the truth is the Obama has no tax incentives at all that would spur investment and economic growth. Even the spending measures are not going to produce anything quickly at all. It's all Democratic stuff they wanted for years and years.

And spending is really what the bill amounts to. Spending is all it is and Obama is quite happy with this. Watch.

(BEGIN VIDEO CLIP)

OBAMA: Then you got the argument, well, this is not a stimulus bill, this say spending bill. What do you think a stimulus is!

(LAUGHTER)

That's the whole point. No, seriously. That's the point.

(END VIDEO CLIP)

BARNES: I would say Barack Obama is more Keynesian than John Maynard Keynes was.

KONDRACKE: I don't think so. John McCain, it's true, is a bipartisan figure and has always striven for that. But all during his presidential campaign, what was his first answer for dealing with the economy? Cut spending. That does not work in a recession.

BARNES: It did for Reagan.

KONDRACKE: Reagan did not cut spending.

BARNES: Yes, he did.

KONDRACKE: Reagan raised defense spending, big time. That was Keynesian, by the way. Now, Obama is going to say, and it's quite true — if you're not scared about it, I am — 7.6 percent unemployment, 3.6 million jobs lost so far.

You know, not only liberal economists but some conservatives too are scared to death that we are on the edge of a precipice, global depression. We've got to do something big and fast to get us out of it.

I agree there's a lot of junk in the Democratic packages and stuff like that, but it seems to me that what we ought to do is we ought to do both, what the Keynesians say, that is to spend and spend fast and get — you know, get projects out there that create jobs. I would help out the states as well, which the conservatives don't want to do. But I would also lower taxes and try to get a bipartisan bill going.

BARNES: Mort, if there were a President Kondracke that advocated this, you would get the 80 percent-plus vote in the Senate and House than Obama initially said he wanted. But the truth is he won't compromise. Democrats won't compromise — I won't say serious way, but even any trivial way they won't compromise. It's as simple as that. The bill's big but it's not fast. It's going to increase inflation and interest rates over time.

A guy like McCain, who really — I know what he said in the campaign — but he really is available for compromise, always. Not much was offered to him at all, in fact, nothing. We're left with no bill — which I favor, and McCain favored — or this monstrosity of a bill.

And here's why no bill may be the best thing in particular rather than that. There's already a lot of stimulus in place. We have had gasoline prices that dropped like crazy, helping the poor and the middle class. Rich people don't get much more for that. Gas for their limos maybe doesn't cost as much. We've seen the Federal Reserve pumping all this money into banks, another $150 billion to go out. As we know, because there's a problem, there will be billions more after that. Look what the Federal Reserve is doing, it's buying up tens of billions of these mortgage securities. They're increasing the money supply. They're buying treasury bonds. There's a lot of stimulus out there. If you added some tax cuts, plus some spending to ease the pain of the recession, I think it would be great shape.

KONDRACKE: All that's being done and the economy is still cratering.

Coming up, what's up with President Obama's nominees not paying their taxes? And the president has major headaches overseas too. We'll tell you how these guys aren't exactly rolling out the welcome mat.

(COMMERCIAL BREAK)

(FOX NEWS BREAK)

BARNES: Welcome back to "The Beltway Boys." Hot story number two, testing Obama. I'm not talking about the college boards here, Mort. We all remember what Joe Biden said during the campaign, that once President Obama came in, because he's inexperienced, he would be quickly tested by America's adversaries. Guess what, he's being tested by some.

Here a list of just some of the countries that are making trouble for President Obama.

First, Iran. President Obama reaches out. Iran responds by launching a satellite showing off its missile technology. It barred the U.S. badminton team from competing in a tournament there.

KONDRACKE: Obama is offering to talk to the Iranians, so what is the first step in the process, Iran tries to veto, ahead of time, the person who has not been announced but is supposed to be the chief negotiator, Dennis Ross, because he was involved in the Middle East peace process, and is allegedly pro-Israeli. You know what the Obama administration should do, name Dennis Ross tomorrow.

BARNES: What would happen if they backed away from Ross?

KONDRACKE: Then it would be a cave-in.

BARNES: It would be a cave-in.

Second, Russia, took over the U.S. air base in Kyrgyzstan that we've been using to supply our growing military presence in Afghanistan.

KONDRACKE: The Russians are saying, if you want to supply Afghanistan, all you have to do is stop expanding NATO and give up missile defense in Eastern Europe. In other words, collapse. What Obama's trying to do is find alternative routes into Afghanistan.

BARNES: He will. It will be a little harder. Kyrgyzstan doesn't want to do this, but when the big, bad boy comes and tells them they have to, they have to do it.

Third, India. India, now on of our best allies actually in South Asia. New Delhi warned President Obama this week that he is "barking up the wrong tree" if he tries to broker Pakistan and India over the disputed territory of Kashmir.

KONDRACKE: The chief negotiator for that region, Richard Holbrooke, was supposed to be the envoy for India, Pakistan and Afghanistan. And the Indians got in there and whacked themselves out of the picture. It's now Afghanistan and Pakistan. But Holbrooke is going to India regardless and he's going to talk about Afghanistan. but I bet he talks about other stuff, too. Richard Holbrooke with not be restrained.

BARNES: One of the great achievement going back, first, to the Clinton administration, but especially the Bush administration, were America's new ties to India during the Cold War. Remember the Indians were unallied or they backed to Soviets and so on. Now, they're a strategic ally. All I can say, Obama and Holbrooke better not screw it up.

The European Union and Canada registered their, "displeasure, with the buy-Americans provision in the stimulus plan, that Mort liked so much, and could sparked a trade war.

KONDRACKE: You know that I do not like the buy-American. And the Europeans and Canadians have it exactly right, and Obama knows this. The last thing he should do in the middle of a deep recession, is close off world trade. He's saying that will be pulled from the stimulus bill. And the next thing he should do is call leaders all around the world and get them to stop closing their markets, which they've been doing.

BARNES: If Barack Obama knows that, how many the Democrats who wrote the bill, and the bill in the Senate, how come they didn't know that? I know that, you know that, Barack Obama knows it. Don't they know that?

KONDRACKE: They're not free traders.

BARNES: Isn't it a violation of the World Trade Organization rules that we're a member of? Wouldn't it lead to retaliation by these countries all over the world? Some of these big businesses, like Caterpillar in Peoria, Illinois, which bid for all these contracts around the world, they're not for this kind of protectionism.

KONDRACKE: Exactly.

BARNES: Did we hammer home the point.

KONDRACKE: Yeah.

BARNES: And lastly, North Korea. There's concern it might begin testing long-range ballistic missiles possibly over Japan.

KONDRACKE: No matter what Obama does, no matter what Bush did, you can be sure the North Koreans are going to act up. That's the only way they get attention. The problem would be if they actually did something aggressive. So far, they haven't done it.

BARNES: Isn't there a lesson here that our new president, Barack Obama, should be learning.

KONDRACKE: Yeah, don't cave in.

BARNES: Yeah, that's one. But there's another lesson, and that is sweet talk and agreeing to negotiate with people and talk with the bad guys doesn't necessarily lead anywhere.

KONDRACKE: But I think it changes America's image in the world to try — you try to talk to these people. And when you fail, if you fail, then you say, we tried. And you got the moral high ground.

BARNES: Look, let's be tough. These are bad guys in the world. What we've got to do is combat them and prevent them.

KONDRACKE: Talk, talk and use leverage.

(CROSSTALK)

BARNES: ... the moral high ground.

Coming up, does first lady Michelle Obama want a policy role in her husband's administration? And what about the personnel drama in the Obama White House? We'll do a damage assessment, next.

(COMMERCIAL BREAK)

KONDRACKE: Welcome back to "The Beltway Boys." It's time for the "Ups and Downs."

Down, Tom Daschle. The former Senate leader withdrew his name from consideration as Health and Human Services secretary after embarrassing tax issues came to light. And he's not the only one. It seems Obama's Cabinet nominees have a purity problem.

But Obama says the buck stops with him. Watch.

(BEGIN VIDEO CLIP)

OBAMA: Every approach that we're taking here, going to be perfect? No. Have we set a very high bar, higher than any president who has ever been in this office, and are we generally meeting that very high standard? I think the answer is absolutely yes.

(END VIDEO CLIP)

BARNES: That was encouraging. Mort, I would like to associate myself with the comments by the gentleman from Wyoming, Richard Cheney, the former vice president. Here's what he said, "You have Daschle with his tax problem. You have Treasury Secretary Tim Geithner with his tax problems. You have Charlie Rangel, who is chairman of the Ways and Means Committee. He doesn't understand the tax code. Chris Dodd, who got alleged special terms on a mortgage. I would start to worry about it if I were a Democrat. There's nothing more dangerous, politically, than hypocrisy. At some point, here, we're going to get critical mass."

I think it's pretty close to critical mass when you add in things like Hilda Solis, the nominee for labor secretary, husband had to pay off a bunch of tax liens.

Jay Leno says Obama has a formula. If he slowly just nominates every American citizen to some job in his administration, they'll pay off the back taxes and get rid of the deficit. By the way, the late night comics are all over that one.

But, look, in picking Daschle, here's the problem for President Obama. He is — Daschle is the epitome, the symbol of everything he campaigned about, about the pictures and people doing well in Washington and so on. I think our friend Charles Krauthammer is right, the magical mystery tour that Obama was on, a new way of doing business in Washington, it's over.

KONDRACKE: Look, nobody ever said that Dick Cheney was post partisan. It would have been good manners on his part to keep his mouth for at least a month and give Obama a chance.

I must say, there's a lot of excess glee going on among Republicans about the travails of Barack Obama. I'm not denying Democrats weren't all over George Bush in the beginning and right at the beginning of the administration and they never gave him a chance. But one would hope that, in this moment of crisis, that there would be some cooperation.

But, in any event — the public, according to a recent Gallup poll, shows that only 21 percent think that stability has improved since Obama has taken office and 23 percent actually think it's gotten worse.

Look, Obama has set, I think, an astronomically high standard. He went on a jihad against lobbyists and so on.

BARNES: He hasn't hired a lot.

KONDRACKE: He actually, clearly, did not meet that standard and he is gone large by because of his taxes. Obama did say I screwed up. Normally speaking, when a leader takes responsibility for a mistake, that endears them to the public. JFK did it after the Bay of Pigs and Janet Reno did it after the Branch Davidian thing. And it usually helped them, helped their popularity. I don't see that happening with Obama.

BARNES: It was utterly meaningless when he said that. Look, that's not going to help him. He's the guy who picked these people. You know why there's glee out there to the extent there is, it's because anybody who's been around Washington who could tie his shoes knew that Obama had a lot of hot air about new politics and changing how business works in politics. And Obama campaigned on it. Mort, you knew, I knew he couldn't deliver on that, please.

Look, one thing he did right, Judd Gregg, the Senator from New Hampshire, making his commerce secretary. I was surprised Judd took it, but maybe he can help Obama on entitlement reform. Gregg knows a lot about that.

KONDRACKE: He does.

BARNES: Up, First Lady Michelle Obama. It's early, but it's clear she's adopting the Hillary Clinton model in her role as first lady, embarking on a listening tour of all the federal agencies.

Here's Mrs. Obama this week at the Department of Housing and Urban Development.

(BEGIN VIDEO CLIP)

MICHELLE OBAMA, FIRST LADY OF THE UNITED STATES: The Department of Housing and Urban Development is going to play a critical role in implementing elements of the Economic Recovery and Reinvestment Plan that will help our communities. This investment will allow us to put people to work, weatherizing at least two million low-income homes. It will also save working families on average $350 per year in heating costs.

(END VIDEO CLIP)

KONDRACKE: You know, I don't think she's fitting the Hillary Clinton model. It's more like late Laura Bush. What Michelle Obama is basically doing is cheerleading her husband's program and thanking everybody who works in the various departments. And she's going to tackle children's issues. That's going to be her specialty. She's not going to sit in on senior staff meetings and run the White House council's office the away Hillary did. Or throw laughs (ph) for that matter.

BARNES: Mort, there is nothing more tedious than taking a listening tour of the departments of government.

(CROSSTALK)

KONDRACKE: You know, thank the bureaucrats all the time.

BARNES: I have nothing against her having a policy role in the administration. Just be transparent about it and let people know that's what she's doing. Unlike the Reagan administration, where Nancy Reagan played a big role and denied it.

KONDRACKE: Down, Wall Street fat cats. President Obama is reining in the pay, of executives of companies who get taxpayer money. He's putting a $500,000 cap on annual compensation for senior executives, limiting so- called golden parachutes for departing big wigs and he's requiring corporate boards to limit such luxuries as corporate jets and lavish parties.

Our pal, Dave Smidt (ph), the editor of International Economy magazine, one of the wisest people around on what's going on in the national economy, says that — or fears actually that this is cover for what Tim Geithner and — is up to as to the banks. That they're going to pour more money into these banks without adequate safeguards, without the guarantees that they're going to lend money. Without guarantees that — that the public, if they get out of this mess, will share in the profit generated by the risk the taxpayers are taking.

BARNES: Well, they recognize how unpopular the bailout of the banks is. It's necessary but it's unpopular. They do need to have transparency in this as well.

KONDRACKE: OK. Don't move a muscle. "The Buzz" is up next.

(COMMERCIAL BREAK)

BARNES: Mort, here's your big chance. What's "The Buzz"?

KONDRACKE: Two big foul-ups on the Iraq front. One, retired General Anthony Zinni was offered the job of U.S. ambassador to Iraq and then had to read in The Washington Post that somebody else, Christopher Hill, got the job.

Secondly, the Iraqi had this enormously successful democratic election. And what does Barack Obama say? That it was good for U.S. soldiers and their families. It was good for them, but it was also the Iraqi people. And it was a vindication of George Bush. He could be been generous.

BARNES: But he was begrudging them instead. I was glad to see Barack Obama is continuing George Bush's faith initiative, run by this 26-year-old guy from his campaign, Joshua Dubos (ph). They're going to be working more in the neighborhoods than in the past. My fear is it will be less faith- based and just another social program funded by the federal government. I hope not, but that's my fear.

That's all for "The Beltway Boys." Join us next week when the boys will be back in town!

Watch "The Beltway Boys" Saturday at 6 p.m. ET and Sunday at 1 and 6 a.m. ET

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