This is a rush transcript of "Special Report With Bret Baier" from February 15, 2010. This copy may not be in its final form and may be updated.

(BEGIN VIDEO CLIP)

SEN. EVAN BAYH, D-IND.: I love working for the people of Indiana. I love helping our citizens make the most of their lives. But I do not love Congress. I will not, therefore, be a candidate for reelection to the United States Senate this November.

(END VIDEO CLIP)

BRET BAIER, "SPECIAL REPORT": Well, Senator Evan Bayh, Democrat from Indiana, making a surprise announcement that really sent shockwaves here in Washington and all over the political sphere. In fact The Cook Political Report just today after this was announced, the state of Indiana was lean Democrat. Right now because of this, it's lean Republican for 2010.

As you look at the toss up states here for Democrats, Arkansas, Colorado, Illinois, and Nevada, according to Cook, a nonpartisan look at these states that are toss-ups, and for Republicans, Kentucky, Missouri, New Hampshire, and Ohio. But this one was not expected, and it's a shocker.

Let's bring in our panel, Fred Barnes, Executive Editor of The Weekly Standard, Mara Liasson, national political correspondent of National Public Radio, and syndicated columnist Charles Krauthammer. Mara, you are shaking your head here.

MARA LIASSON, NATIONAL POLITICAL CORRESPONDENT, NATIONAL PUBLIC RADIO: I can't get over it. This is truly stunning. This is what we call a political bombshell, because, yes, he would have had to work hard, but he wasn't even in the situation that Byron Dorgan was facing.

BAIER: From North Dakota.

LIASSON: From North Dakota. In other words, he was facing a really tough race that he might have lost. Evan Bayh had so much more money than the other Republicans, even though he was facing Dan Coats possibly, former senator, and Hostetler, who was more of a tea party type candidate.

I think that to decide you're retiring 24 hours before the filing deadline, which, in effect, denies your party the chance to replace you in any kind of a reasonable time period I just think is incredible.

BAIER: We should point that story out, because there is a story there, Fred, developing. There is a little cafe owner in Bloomington, Indiana, Tamyra D'Ippolito, who is running — she says she's running for Senate. She was the only one listed against Bayh, who is a strong candidate.

She is, I guess, about 1,000 signatures away from getting on the ballot. If she does it by noon tomorrow, she then is the Democratic candidate.

LIASSON: Hopefully the Democrats — she won't and the Democrats will have a chance to hold a convention and find somebody who has a little bit more stature with a little bit more chance to run.

But this is a red state. It's a state that, yes, Obama won, but this is a red state. This is state that already, as you said, has been classified as lean Republican. I have been — I keep on thinking the bad news for Democrats has to cease. They have had so much of it, and then it seems like there is plenty more to go.

BAIER: Fred, the Republicans are probably helping Ms. Depledo gather some signatures.

FRED BARNES, EXECUTIVE EDITOR, THE WEEKLY STANDARD: They ought to. I don't think there is a good Democratic candidate in Indiana that will run for the Senate now. Bayh was obviously the best one.

The hard part for this woman in Bloomington is to get 500 signatures in each of the congressional districts. For her it might be hard in places like Gary and folks like there. But she is awfully close. It really is amazing. Republicans ought to help out here.

LIASSON: I'm sure they are.

BARNES: And get all the Republicans out to sign.

BAIER: Let's talk about the decision Bayh made and why he made it. In his announcement he said he was just fed up with Congress. He's obviously fought spending and deficit.

BARNES: He's been talking about now for months and months and months. He's very unhappy with the congressional wing of the Democratic Party. He thinks not only are they not representing the country but they are spending too much, they are taxing too much. They are trying to make government too big.

He's not for that, and he thinks they are on a death march to the polls in November. And it — I guess it finally just bubbled up. And, as Mara says, you know, he has done this with one day to go to the end of filing for registration. That's kind of a crazy move.

And I want to mention somehow, you showed Charlie Cook's toss-up states and so on. The truth is there are six open Republican Senate seats. They are ahead in all of those seats, the Republicans are — Ohio, New Hampshire, Kentucky, Florida, Missouri, and Kansas. They are ahead in all of them.

There are about eight states now, Democratic states that the Republicans are ahead in. I'm counting Indiana, of course. But North Dakota and Delaware are states that Democrats have practically given up on.

Then you have Nevada, where Harry Reid is behind, Colorado, where the Republican candidate is ahead in double digits against Michael Bennett, who is an appointed candidate. Arkansas, where...

BAIER: Do you think Republicans could take back the Senate?

BARNES: Look, they are now eight states where they are ahead, eight pickups where they are ahead. That would get them to 49. That puts them awfully close.

What this means is that capturing the Senate is a realistic possibility. It's less than 50/50, but it's a realistic possibility for Republicans in 2010.

BAIER: Charles, back to Bayh. He called President Obama, apparently, to tell him this morning, did not call Senate Majority Leader Harry Reid to make that announcement. And clearly he had a couple shots at his announcement today at the Democratic-run Congress.

CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: Look, this is the canary in the coal mine. What a difference a year makes. Last year we were told that the Republican moderate was extinct. They had been driven out of the northeast and the Republican Party had become a rump party of reactionary southerners.

Well, a month as we had a Republican senator elected in the "People's Republic of Massachusetts," and now a secure, popular, moderate Democrat in Indiana who had a very good chance of returning, he decides he is not going to run.

The moderate Democrat is now in danger. They are going to lose a lot of Blue Dogs in the House. Blanche Lincoln is going to lose in Arkansas. And what Bayh was looking at was an election he might have won but would have been really tough.

I think what is really interesting in his statement today is he said "I'm an executive at heart." He has been a governor. There is only one executive position left, and that's the president.

And I think his calculation is a smart one. He is only 54. He would be 60 in 2016. If he runs again, he stands a chance of losing. His dad lost, had been a very strong senator having three strong Democratic candidates, Republican candidates in the past and lost in the wave elections of 1980 against Reagan, in the Reagan year, against Quayle. And he sees it possibly happening to him.

Look, he is a guy who has never lost an election in his life. If he wants to run for the presidency, and he has thought about it a lot in the past, I think it's smart if he does it outside the Senate where he would spend the next six years in a tussle against his own liberal leaders, his own liberal president, having to oppose his party and having to swallow a lot of votes, which he would regret. This way he can be independent, outside. He makes some money. He raises money, he becomes like Nixon or Reagan on the out years when they prepared a run for the presidency. I think if he wants to be president, this is a very smart move for him.

BARNES: If he wants to be president, Charles, he better switch parties. Look, this Democratic Party is so much more liberal now than it was in 1992 when Bill Clinton, a certifiable moderate, was the nominee. As a moderate, and as you say, they are being made extinct among Democrats at least in Congress, a moderate cannot win the Democratic presidential nomination.

LIASSON: As of today.

BAIER: There is a lot of time.

KRAUTHAMMER: After Obama, after the four years of Obama perhaps —

(CROSSTALK)

BAIER: Let's talk quickly about Indiana and is this really a Republican pickup in the making. Former Senator Dan Coats is leading contender and being talked about. Congressman John Hostetler is in the running.

LIASSON: I think John Hostetler could beat Dan Coats in a primary. If we look at all the other Republican primaries, if you have the tea party energy behind you, you're not — first of all, Dan Coats is a formidable figure, former senator, but lobbyists for banks, hasn't lived in the state for a long time. He's got a lot of things to overcome.

But I do think it's a potential pickup in the making. I think the Democratic Party is going to go through a lot of soul-searching over the next two years, six years. We don't know what's going to happen to President Obama after 2010. If he is faced with a Republican Congress, things might start looking up for him.

BAIER: Fred really thinks Tamyra D'Ippolito looks strong at this hour.

LIASSON: She looks like she could be the nominee, I don't know about strong.

BARNES: In a Republican state in a Republican year, the chances of electing a Republican senator are very good.

BAIER: Joe Biden and Dick Cheney exchanged un-pleasantries on the Sunday talk shows. We will review that in three minutes.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

DICK CHENEY, FORMER U.S. VICE PRESIDENT: It's the mindset that concerns me, John. I think it's very important to go back and keep in mind the distinction between handling these events as criminal acts, which is the way we did before 9/11, and then looking at 9/11 and saying this is not a criminal act, not when you destroy 16 acres of Manhattan, kill 3,000 Americans, blow a big hole in the Pentagon. That's an act of war.

VICE PRESIDENT JOE BIDEN: We have eliminated 12 of their top 20 people. We have taken out 100 of their associates. We have sent them underground. They are, in fact, not able to do anything remotely like they were in the past. They are on the run.

I don't know where Dick Cheney has been. Look, it's one thing, again, to criticize. It's another thing to sort of rewrite history. What is he talking about?

(END VIDEO CLIP)

BAIER: It was quite a Sunday TV faceoff with the current and former vice president going at it over terror policies, mostly, but also the truth. We're back with the panel. Charles, what did you make of it?

KRAUTHAMMER: The question he asked, the vice president asked is what is he talking about? There is no real argument between Biden and Cheney about what you do when you find Al Qaeda in the field. You try to kill them or you capture them.

The issue has always been what do you do when have you captured him? What do you when you have him in custody? And it's very curious that the administration today is arguing, well, we are only doing what the Bush administration had done in similar cases.

First of all, it's rank hypocrisy. After all, the president has gone around the world, Oslo, Cairo, everywhere, where he says how the Bush administration had treated terrorists was a betrayal of our values and America losing its way. And now it's repeating it.

But there is a more important issue. When the Bush administration had, for example, the Richard Reid case, it was new. It was operating in the blind. It was only a few months after 9/11. It didn't have experience in this area. It went by trial and error and made a lot of errors and it made a mistake in the Reid case.

It didn't understand, as in the Moussaoui case later, that if you have a civilian trial it can be turned into a circus.

Here we are almost a decade later, and the Obama administration has the evidence. It has experience. It knows that a fifth of those that were released, the terrorists in Guantanamo who were released, ended up in the war against us again.

The Bush administration might have imagined that if you released them into Saudi Arabia, which is a tough antiterrorist state, it would treat them in a way that you would not have recidivism.

It was a mistake. And for the Obama administration say we want to repeat the mistakes after it has all this empirical, historical evidence is simply unbelievable.

BAIER: One thing Vice President Biden couldn't be pinned down on is whether civilian trials will be what goes forward or whether military commissions are where we are going to end up.

LIASSON: On the day that they announced that they were going to try Khalid Sheikh Mohammed in civilian court I think they also at the very same time said they are also going to try a bunch of other ones in military trials. So they are clearly doing both.

And I think two out of the three — there are only three military trials under the Bush administration. I think two of them were eventually released. So they don't have a great track record for that.

Former Vice President Cheney's beef is with the Bush administration as much as with the current administration, which I think is interesting. One of the most interesting things about yesterday is how much he differed with his own administration.

I think that the one area where he represents the majority of public opinion is that American people prefer military trials to civilian trials, and I think that the Obama administration will end up doing more military trials that be they thought they would.

But the Bush administration's record is of having overwhelming success with civilian trials for terrorists.

BAIER: Fred?

BARNES: One of the reasons they had so few military commissions is, remember, the first law was struck down by the Supreme Court and they had to rewrite it. So they didn't have a chance to really do that many.

You know what is so interesting to me is it was the Obama White House that heard that Cheney was going to be on television, and then they brought out Joe Biden. I mean, there is fear of Dick Cheney's criticisms of the Obama administration on exactly the way they handle and captured terrorists, how they try to get intelligence, and whether it's working or not.

Cheney says it's not working, particularly in the case of the Christmas bomber in Detroit. And I mean they — they're not going to let Robert Gibbs handle this in the White House pressroom, or they are not going to let Secretary Napolitano — they bring out the big gun, Joe Biden.

Now, I don't know where he — I wish he'd specified where he said — thinks that Vice President Cheney was rewriting history. I didn't see any rewriting of history. The only rewriting of history I have seen recently is Biden himself declaring that the end game — the ending of the war in Iraq was a brilliant achievement of the Obama administration.

And, of course, we know Obama and Biden both oppose the surge, and the whole pulling out of American troops was set in the status of forces agreement negotiated by President Bush.

BAIER: Charles, they are getting aggressive, the White House, about trying to counter some of these criticisms. Is it working? Is it changing any of the dynamics and the issues?

KRAUTHAMMER: I think not. I think it's not going to change public opinion. The people are against Mirandizing terrorists. They are against having a circus in New York with the KSM trial, and they believe generally that Guantanamo ought to stay open.

The problem this administration has is the longer it stays on this issue and counterattacks, the longer it keeps it alive. And I think it's a political loser if you are in the Obama administration.

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