This is a rush transcript from "The Journal Editorial Report," August 21, 2010. This copy may not be in its final form and may be updated.

PAUL GIGOT, FOX HOST: This week on the "Journal Editorial Report," the mosque of misunderstanding. Did the president needlessly elevate a destructive controversy? And does America have a moderate Muslim problem?

Plus, the Blago trial ends with a whimper, the latest in a string of white-collar crime crack ups for the Justice Department. Is there something wrong at the U.S. attorney's office?

And Obama steps out, stumping in some key states and polishing his fall campaign rhetoric. But will his blame-Bush strategy work?

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

Two high-profile Democrats broke with President Obama this week over his support for a proposed Islamic community center just blocks from Ground Zero. Senator Majority Leader Harry Reid and former Democratic National Committee Chairman Howard Dean came out in favor of moving it to another location.

Meanwhile, the man behind mosque, Imam Faisel Abdul Rauf, left this week for a three-nation Middle East tour on behalf of the U.S. State Department. Rauf will travel to Bahrain, Qatar, and United Arab Emirates, where he's expected to discuss Muslim life in America and religious tolerance. It's his fourth such trip for the government. He made a similar tour in 2007 on behalf of the Bush administration.

Joining the panel this week, Wall Street Journal columnist and deputy editor Bret Stephens; assistant editorial page editor, James Freeman; and Washington columnist, Kim Strassel.

Bret, one of the undercurrents of this debate is the issue of moderate Muslims, who we need as allies. We have them at allies in Iraq, Afghanistan and elsewhere. How do you think they'll react to the debate over whether this mosque should be at Ground Zero?

BRET STEPHENS, COLUMNIST AND DEPUTY EDITOR: I don't think it's particularly relevant how they're looking at this particular mosque controversy. I think what's really relevant is the question of Muslims in America and what this mosque is supposed to represent. What this mosque is really trying to do or at least what this imam purports to do is a kind of outreach to wider the American community, presenting a kind of a new face of — or a different face of Islam.

If that is actually the imam's goal, he's obviously not succeeding at the task. He's been approached by Governor Paterson of New York and others to try to move the mosque to a different location, one that's less sensitive. And so far, he's refused. So if he wants to prove his moderate bone fides, I think useful step he can do is to bend in the direction —

GIGOT: So you're saying —

STEPHENS: — of people like Howard Dean and Senator — Senate Majority Leader —

GIGOT: You're saying he's the provocateur here, that he's provoking this, that he's trying to make a political statement instead of a religious statement?

STEPHENS: That's precisely it. If he wanted to make simply a religious statement, you could put up the mosque anywhere in this country, not two blocks from Ground Zero. You wouldn't have to build $100 million facility on 13 stories with facilities that go vastly beyond the functions of a simple site of religious worship.

GIGOT: James?

JAMES FREEMAN, ASSISTANT EDITORIAL PAGE EDITOR: I think this is the great thing about America. You don't have to prove to anyone that you have moderate views. I think, while critics of the mosque or the community center, depending how you want to describe it, have the free speech right to criticize this, I think it's the wrong thing to do.

And I think people are conflating the issues here. We don't need to demand that all Muslims have a 21st century midtown Manhattan view of the world. All we — all we demand is that they don't fly planes — planes into buildings. So that population is very small and that's very small here. It's very small even in the Middle East. That radical group is not a large population. And the reason you know that is the Taliban groups like this, they come to power at the point of a gun. They wear out their welcome. They break eggs to make an omelet, except there's no omelet. The radicals are a small group and that's who we ought to be focusing on.

As you said, I think looking at allies overseas, this is a little late in the day to say that — to suggest maybe the larger Islamic community is a problem.

GIGOT: Aren't you risking alienating the larger Islamic community, which wants to assimilate in the United States, which — by saying, look, you try to build the mosque and we don't want it.

STEPHENS: I think — frankly, I don't think the Muslim community in the United States, sees it in quite in those terms, at least from the anecdotal evidence of Muslims — Muslims who —

GIGOT: I'm sure there are multiple views. It's certainly not monolithic.

STEPHENS: Sure. It's absolutely not monolithic and a lot of Muslims in America realize this is, in large measure, a piece of political theater with aims that aren't necessarily in sync with the interests of their community. There are mosques throughout America. The question is, why a mosque this close to Ground Zero when it's going to become such a salient political topic.

And just very quickly, to what James is saying, there is a risk of conflating two issues here. One is the right of the imam to build the mosque. He has the right.

GIGOT: Nobody disagrees with that, except people on the fringe.

STEPHENS: Nobody disagrees with it. The question, why has he chosen this location and does it advance the interests that he claims to seek? And that's where — that's where the real debate needs to take place. If this is about interfaith understanding, he's not achieving what he aims to achieve.

GIGOT: Fair point, he's not.

FREEMAN: But so what? Why is this the test of what — whether — whether he's a moderate or not a moderate?

GIGOT: It's not a test of his right to do it. It's a test of prudence of doing it.

FREEMAN: So we're going to say that there's a mosque-free zone extending from Ground Zero for non-moderates that we decide do not have sympathetic views to America and its role in the world or views similar to most Manhattanites and most Americans. I mean, you see the insanity of this — granted the people — it's a public campaign. It's not a — someone trying to outlaw the mosque there. But I think it's the same problem that our — imposing our definition of moderation on the Muslim community is going to make us a lot of enemies around the world that we don't need to be enemies, and that are probably going to be our friends otherwise in common cause against the radicals.

GIGOT: Bret, we've got about 30 seconds.

STEPHENS: OK. Briefly, 1993, you can look it up in The Washington Times, there's a mosque in northern Virginia. Neighbors want to close it down. They don't like — they don't like this mosque. It becomes a story that the Muslims are claiming bigotry. This is what later became the — called the 9/11 mosque, where two of the 9/11 hijackers worshipped, so did Major Hasan and the imam al-Awlaki, the imam now in Yemen.

GIGOT: All right, fiery debate, gentlemen. Thank you.

When we come back, it's Blago 23, Fitzgerald one. The former Illinois governor is found guilty on just one of the 24 felony counts against them. Yet, another embarrassment for prosecutor, Patrick Fitzgerald. Is there something rotten in the Justice Department?

(COMMERCIAL BREAK)

GIGOT: He was charged with everything, from shaking down a Chicago children's hospital to attempting to sell the U.S. Senate seat once held by President Obama, but this week, former Governor Rod Blagojevich was convicted on just one of the 24 felony counts against him. The fiasco marked another defeat for U.S. attorney Patrick Fitzgerald, who also prosecuted conservative newspaper tycoon Conrad Black. Black was convicted in 2007 using the so-called Honest Services Fraud Law. The Supreme Court junked much of that law earlier this year, leading to Mr. Black's release from prison. The jury had earlier dismissed nine of the 13 charges Mr. Fitzgerald filed.

Kim Strassel, let's start with you. How in the world did the Justice Department manage to lose 23 of 24 counts?

KIM STRASSEL, EDITORIAL BOARD MEMBER: They didn't make a compelling case. And there was one juror who was a hold out on a number of these. And the one that they did get was a very minor charge, suggesting that Mr. Blago had not been honest with FBI officials on some statement he made.

The problem, Paul, is I think it goes back to the beginning of this decade, Enron and WorldCom. You've had all kind of prosecutors, and not just in DOJ, but also at attorney general, state attorney generals who have decided they were going to respond to a public call, go after white collar crime and government fraud, et cetera. And the problem is that a lot of things that upset Americans when they hear about this is not necessarily illegal.

But what you've seen with these prosecutors under pressure, they go out and they either — they try to sort of accuse and condemn their victims in the press and get them to cut a deal with them beforehand, or often they go charging into court with a whole raft of charges that they can't, in the end, make stick. We've seen this time and again.

GIGOT: Kim makes a very interesting point about the broader culture of prosecution in this country. But let's deal with this case in particular. Why could he not prove intent? Some of the jurors seemed to think, well, Blago was full of bluster and said I want this, I get this for — in the end, there wasn't a lot of evidence proving that he actually got anything in return.

STEPHENS: Yes, and what he was charging him with was being guilty of committing Chicago politics in many of these cases. And it's not surprising that a Chicago jury wasn't fully persuaded of his guilt.

The really scary thing about this whole prosecution is that it begins with Patrick Fitzgerald coming out one morning at the end of 2008 and saying, Abraham Lincoln would be turning in his grave.

GIGOT: This was the morning he arrested Blagojevich.

STEPHENS: Exactly. So you come out with these incredibly fulsome statements, which quickly led, by the way, to Blagojevich's impeachment as governor. And so you basically destroyed the guy's —

GIGOT: Sent him out of the job.

STEPHENS: Sent him out of the job, destroyed his reputation. I have no love for Rod Blagojevich. I doubt many voters do.

GIGOT: He isn't Abraham Lincoln, in case there's any doubt.

(LAUGHTER)

STEPHENS: But this is the method. And it's precisely the same method, as Kim points out, that was pioneered by people like Eliot Spitzer. You destroy their reputations, you kick them out of their jobs, and, oh, by the way, you failed to obtain meaningful convictions.

GIGOT: Any defense of Fitzgerald, James, that you would like to offer?

FREEMAN: I would like to say, it's a little premature to say he's botched this, when they're back in court next week, figuring out when the retrial of the remaining counts happens.

As Kim pointed out, there was one hold out. A lot of the votes were 11 to one and the charges related to trying to sell the Senate seat.

GIGOT: But there were 24 charges, and a lot of them, there were a lot more dissent than just one juror. This wasn't just one jury nullification. There were a lot of doubts the —

(CROSSTALK)

GIGOT: — jurors had about many of the counts.

FREEMAN: I'm saying reserve judgment a few months, given that — if this had gone the other way and convicted on several counts related to trying to sell the seat, you'd probably say it was a victory.

GIGOT: Here is one of the problems I have with —

FREEMAN: But I like that it's —

GIGOT: But here is one of the problems I have with this kind of prosecution. There's a kitchen-sink quality to these crimes.

FREEMAN: Yes.

GIGOT: We'll charge him with 24 offenses and, you know, the jury might dismiss 12, but we'll get him on some others, just hoping that the jury will be almost too embarrassed not to convict him of something.

FREEMAN: But, I think that's why this is a good day for American justice is we get a decision. Now, there will be a retrial, but when you go to court, when you don't settle, you get a decision. Too many of these — you mentioned the Spitzer cases, a lot of the white-collars, securities fraud. Often, it's heavy handed government prosecution, heavy use of the media forcing a settlement. And then, as Americans, as a citizen, you never really know what the right answer was.

GIGOT: Kim, what is —

STEPHENS: The right answer would be that Patrick Fitzgerald loses his job because this isn't the first time.

GIGOT: Kim, what is it about the culture of the Justice Department? How has that changed since Enron and other cases earlier this decade?

STRASSEL: Again, I think it has to do with the pressure that many of these people feel to go after white collar crime. And again, what necessarily outrages Americans isn't necessarily a crime.

And just to go back to — to James' point though, about how it's great that we get a decision. The problem is, we have now found in retrospect, that these decisions are often wrong and that people are spending time in jail when they shouldn't have. And the Conrad Black case is an excellent one. For years, the Justice Department has used this incredibly broad statute, the Honest Services Statute, to sort of take in anybody that they were worried — felt they had offended the public. And guys go to jail.

And now we have the Supreme Court saying, actually that was not the right thing to do and this is too broad and you have to be more careful in bringing the charges.

GIGOT: Prosecutors who make the mistakes never seem to suffer any discipline.

When we come back, President Obama steps out, stumping this week in some battleground states, and giving us a preview of his theme for the fall campaign. But just how far can the blame Bush strategy take him?

(COMMERCIAL BREAK)

GIGOT: President Obama headed to Martha's Vineyard this week for a 10-day vacation with his family, but not before stumping for Democrats in several key states. The president used stops in Wisconsin, California, Washington State, Ohio and Florida to put the finishing touches on his rhetoric for this fall's campaign. The theme, so far, blame-Bush and link Republicans to the policies of the last administration.

(BEGIN VIDEO CLIP)

PRESIDENT BARACK OBAMA: Their whole campaign strategy is that all of you have come down with a case of amnesia.

(LAUGHTER)

They are banking on the fact that you'll forget what their agenda did to this country over eight years.

(END VIDEO CLIP)

GIGOT: So, Kim, is this the strategy they've settled on?

(LAUGHTER)

STRASSEL: Well, I mean, I think Republicans are banking on the fact to some degree that people will believe that Obama now owns this economy and this country, and that that will be one of the things that they keep in mind when they go to the polls.

Democrats are going to do the blame-Bush thing because they need to change the subject, all right? They've got nothing out there that they can actually go out and happily and proudly campaign on. The economy looks terrible. People don't like a lot of the legislation they've passed. So they're going to go and try to make everybody be fearful about what Republicans might have to offer.

The problem is that there's no evidence that this is going to work. A lot of voters out there are sitting there and saying, OK, am I better off now than I was two years ago? No, I'm not. And they're looking at this majority and holding them responsible.

GIGOT: Yes, James, the poll shows that the voters, most of the voters still hold President Bush more responsible for the state of the economy than they do President Obama. So the president can see those polls too, probably this is about the best argument they have.

FREEMAN: Yes, but not liking Bush is not a reason to go out and vote for Democrats. What the president is trying to do is motivate people to vote for Democrats. And they don't like President Obama on the economy either, especially on the economy.

GIGOT: But he's trying to mobilize the Democratic base, which has been sullen, upset, doesn't like his flip-flop on the mosque, for example, doesn't like a lot of other things, doesn't like the fact that there was no public option in health care. He needs to mobilize them. And if you point to that in favorite enemy George Bush, maybe he can get them out to vote.

FREEMAN: What he's mainly good at right now for the Democrats is mobilizing donors. If he didn't have the ability to —

(CROSSTALK)

FREEMAN: — raise a lot of money, they would have almost no interest in having him visit. If you take away his support, which is very high in liberal urban areas of the country — he's extremely unpopular in the swing districts, the swing states where they might need a president to drive the get-out-to-vote effort.

STEPHENS: It's not such a bad campaign strategy. The president may say, look, the heavy Republican gains baked into this electoral cake. The Republicans might take the House. He's already going to have to start looking forward to his reelection. And the easiest thing for him to do is, once the Republicans have co-ownership of the economy, blame them as a do-nothing Congress —

GIGOT: You mean next year. So he's secretly saying "Congress is lost, the House is lost, and therefore, I don't mind." Is he really saying that?

STEPHENS: Look, he's looking at the polls —

GIGOT: That's the secret —

STEPHENS: — that the rest of us are. And those polls show that up to a hundred House seats may be in play.

GIGOT: But if Republicans take the House, then you have the investigations up and running. You have them looking into Obamacare. You have them voting to —

STEPHENS: If I were —

GIGOT: — defund parts of Obamacare.

STEPHENS: If I were Obama, I'd be thrilled, for two reasons. First of all, his Democratic allies in Congress haven't been particularly helpful to him. And second of all, there's nothing better than a Republican foil in the name of John Boehner.

GIGOT: Bret Stephens, only feeding the conspirator fears of Democrats —

(LAUGHTER)

— who think Barack Obama wants us to lose.

Are you buying that at all, Kim Strassel?

(LAUGHTER)

STRASSEL: No, they — like you said, this would be very bad for the presidency if the Republicans take back the House, or worse, the Senate. He's going to go out there and they're going to do their best. But look, this is the only they think that they have to offer at the moment.

And I'll tell you something else. I'm not quite sure, too, that this resonates. We know it didn't work. You know, the former governor of New Jersey campaigned on a — you know, Bush's bad and he caused this, and he's no longer the governor of New Jersey. That didn't work.

One of the problems out there is a lot of voters who are hearing this message. They look at the new crop of candidates on the conservative side, many who are running themselves complaining about the former Republican leadership of Congress.

GIGOT: On that —

STRASSEL: And so they don't necessarily always think they're going back to Bush years.

GIGOT: On that point, let's run a clip of President Obama taking on the Democrats on that point.

(BEGIN VIDEO CLIP)

OBAMA: They have not come up with a single, solitary new idea to address the challenges of the American people.

(APPLAUSE)

They don't have a single idea that's different from George Bush's ideas. Not one.

(END VIDEO CLIP)

GIGOT: Have Republicans learned anything since the Bush years, James?

FREEMAN: Well, I think — I think they have learned and at least politically right now. They're on offense, playing — promoting an extension of the tax cuts. But the big problem with Obama right now is that Democrats have wracked their brains, they don't have issues to run on. They can't run on stimulus, cap-and-trade, health care. Nobody likes that stuff.

So I think, if you look at how can he take the offensive, other than the blame-Bush, blame-Republicans thing, what he needs to do is call for Congress to come back and extend all of the '01 and '03 tax cuts. And I think you'll find a surge for support for the president and his economic policies. And maybe even electoral —

GIGOT: To answer my own question, James, at least a little bit? I think Republicans have one lesson, and that is don't spend the way they did before. That will be a big change.

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

(COMMERCIAL BREAK)

GIGOT: Time now for "Hits and Misses" of the week.

Kim, first to you.

STRASSEL: The last U.S. combat brigade left Iraq this week, so this is a very big, very heart-felt hit for all the men and women who served in Iraq over the last seven and a half years. They left their families, risked their lives, primarily to defend U.S. national security. But in the process, they also gave everyday Iraqis the opportunity to live and build a democracy. And so this is a time when all Americans should be saying, god speed and thank you.

GIGOT: Here, here.

James?

FREEMAN: Paul, this is a big hit to former colleagues at the Security and Exchange Commission who, this week, sued the state of New Jersey for fraud, for lying to bond investors about the level of underfunding in the state's pension plans. The fraud occurred before America's governor, Chris Christie, took over. But it's nice to see the SEC go after government accounting which, as you know, is habitually fraudulent.

GIGOT: I thought you tried to keep that part of your past quiet?

(LAUGHTER)

FREEMAN: Very quiet.

(LAUGHTER)

GIGOT: All right, Bret?

STEPHENS: This is about Prince Charles, so it's obviously a miss. He's calling on the British not to take baths, to take showers instead. I've been a graduate student in Britain. Let me tell him, there are no showers in Britain. Sometimes they're funny little telephone things. They're dual taps.

(LAUGHTER)

So if he can reform the British plumbing system, he'll be on his way to a better thing.

(LAUGHTER)

GIGOT: All right, Bret Stephens taking the fish-in-a-barrel "Hit or Miss" with Prince Charles.

(LAUGHTER)

GIGOT: And 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 to all of you for watching.

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

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