JOURNAL EDITORIAL REPORT

'The Journal Editorial Report,' September 13, 2008

This is a rush transcript from "The Journal Editorial Report," September 13, 2008. This copy may not be in its final form and may be updated.

PAUL GIGOT, FOX HOST: Coming up next on the "Journal Editorial Report," the battle over Sarah Palin as John McCain's VP pick dominates the debate for the second straight week. We'll look at the Obama campaign strategy for taking her on. Is it smart politics?

From earmarks to energy policy, we'll dissect Palin's record as governor of Alaska.

Bail out nation. Who's to blame for the Fannie and Freddie debacle?

Are Detroit automakers next in line for a government handout?

The "Journal Editorial Report" begins right now.

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

First up, the battle over Sarah Palin. For the second straight week, John McCain's VP pick dominated the political debate with Democratic presidential candidate rock Obama on the attack over her record and on defense over some poorly chosen words in a speech. This, as the McCain campaign kept Palin largely under wraps before her debut interview on "ABC News."

Here with a look at whether either campaigns Palin strategy is working is "Wall Street Journal" columnist and deputy editor Dan Henninger, columnist marry Anastasia O'Grady, opinionjournal.com columnist John Fund and Washington columnist Kim Strassel.

Kim, first to you. How effective do you think this Obama strategy is a going after Sarah Palin as opposed to going after John McCain?

KIM STRASSEL, WASHINGTON COLUMNIST: Not effective at all. It is never good news when the top of a ticket feels the need to tear down and compare themselves to the second person on another ticket.

The other problem with this too is the things Barack Obama is choosing to slam Sarah Palin for are things that just keep in the news stuff that he would rather not have to talk about, his own experience in comparison to hers, and, for instance, earmarks in which he doesn't necessarily have a good record. This isn't helping him.

GIGOT: But wait a minute, Dan, doesn't Obama have to take her down a pet. She is energizing — all the polls show it. She's energizing Republicans the same way a lot of Democrats were energized by Obama. When McCain went after Obama and took some of the luster off him personally, calling him a celebrity and so on, that seemed to work. Why can't they do that to Palin and why shouldn't they?

DAN HENNINGER, COLUMNIT AND DEPUTY EDITOR: I have talked anecdotally to the Democratic faithful. And they want her taken down. There's no question about it. The big problem here is Sarah Palin is an authentic political phenomenon. This is like a force of nature. It is going to be very hard to stop in the traditional way.

I put it this way. If you're going to come up with things she has done wrong on a scale of 1-10, they need a nine or a 10. They have to blow her out. Everything else merely re-energizes the Republicans. and we have been watching it happen right before our eyes day after day. They make the Republicans stronger.

GIGOT: Anything, John, that they can use to make it happen? Where is the nine or 10 that Dan is talking about? Is there one?

JOHN FUND, OPINIONJOURNAL.COM: In Alaska they're hoping for troopergate which is perhaps the bungled attempt by some members of her staff to get a state trooper that had been married to her sister, who misbehaved, fired. I think it is rather murky and the state trooper is an unsympathetic figure. There are people out there working for 527 groups, labor unions and others trying to unearth her background and resume. That's fair game by the way. She is largely a...

GIGOT: It's part of her record. You have to look at that.

FUND: Absolutely. Absolutely. But I think that the Democrats should have waited. When the first presidential debate happens on September 26th, the focus will go back to McCain and Obama for a while. Then we will move into a more issues-oriented campaign. I think they panicked when they saw Palin and they saw white women moving away in the polls.

GIGOT: Mary, it is clear, that point that John makes about white women. There is the risk of a backlash among women if you seem to be attacking Palin. The McCain campaign is running an ad that's playing right to that.

MARY ANASTASIA O'GRADY, COLUMNIST: Yes, I think the Democrats have a big problem because Sarah Palin is a concept a lot like Obama was a concept, and Sarah Palin is the anti-Obama. So he's egalitarian, collectivism, dependency on government, apologies for American power. And she is self-reliant, individualism, competitiveness, and really no apologies, in fact, proud of American exceptionalism. There is real hungry in the country or that. Also being an outsider — people are disgusted with Washington. They see this as someone who is like the people in the real world. And that's a concept they are not going to be able to easily refute.

GIGOT: She personalizes for McCain in a way even McCain can't do to change argument. So he's pivoted this from a campaign about experience versus change to what kind of change do you want.

John, now you reported last week on this program that the Democrats airdropped 30 investigators, lawyers into Alaska to look at the record. The Obama campaign denied that. Do you stand by that story?

FUND: Well, I didn't say the Obama campaign did this. I didn't say the Democrat National Committee did it. There are Democrats and liberals up in Alaska going through her record. And it is not hard to bump into them. I think they're doing due diligence here. Sarah Palin is an unknown phenomenon. She does deserve scrutiny. I think she got some of that from Charlie Gibson. And I think she managed to clear the bar. She was a little tentative and nervous but Gibson was giving her gotcha questions, which I think made her a little more sympathetic to the audience.

GIGOT: Kim, what did you think about Sarah Palin's interview performance?

STRASSEL: I think she came off well. Does everyone in America know the Bush doctrine? Maybe not, but she talked pretty comprehensively about most of the stuff she was asked. It'll be worthwhile looking through the whole transcript of that thing as well rather than what was edited and put on TV. That might give us more of an indication about just how fully she answered a lot of these questions.

GIGOT: What about, Dan, quickly, the McCain strategy of keeping her under wraps? You know, it raises the stakes for any individual like this if you don't give a lot of them.

HENNINGER: She gave that acceptance speech 10 days ago.

GIGOT: Is hard to believe it was only 10 days.

HENNINGER: In that 10 days, McCain and Palin only got stronger. It has succeeded in the sense that the Palin effect was allowed to run. Now, I believe they do have to let her go out and talk about subjects, talk about issues and become more engaged in the campaign. Up until now, I think they did the right thing.

GIGOT: All right, thanks.

When we come back, from earmarks to energy policy, we'll take an in- depth look at Sarah Palin's record as governor of Alaska.

(COMMERCIAL BREAK)

(FOX NEWS BREAK)

(BEGIN VIDEO CLIP)

SEN. BARACK OBAMA, (D), PRESIDENTIAL CANDIDATE: When you have been taking all these earmarks when it is convenient, and suddenly you are the champion anti-earmark person, that's not change. Come on. I mean, words mean something. You can't just make stuff up.

(END VIDEO CLIP)

GIGOT: All right, Kim, you heard Barack Obama. You can't just make this stuff up. You reported the story on earmarks. What really happened with Sarah Palin and earmarks?

STRASSEL: Let's be clear about her record. Sarah Palin initially supported the idea of building a bridge to nowhere, although she was ambivalent about federal funding. Then when the time came, when push came to shove, she actually did direct that federal money to other more urgent projects in Alaska. As a mayor, she did have a lobbyist to push for earmarks. As a governor, she did submit earmark requests.

But on the other hand, this is also a woman who in Alaska, in her own realm has definitely made a statement on earmarks. She has vetoed about 10 percent of the last year's budget, getting rid of hundreds of wasteful projects. And in Alaska, that is no easy thing to do. Basically, her more recent philosophy has been very anti-earmark

GIGOT: OK, so on the bridge to nowhere — Palin and the McCain have not made this up. She really did oppose it in the end, right?

STRASSEL: That is absolutely right.

GIGOT: Dan, let me ask you a question about this earmark issue. McCain is saying I want to get rid of all of them, but there are 11,000 of them in 2007, I think. The Republicans were worst. They had 14,000 at their peak. Is it realistic to get rid of these things? Some presidents have used them to trade for real big reform votes on issues like entitlements or larger issues.

HENNINGER: That is the argument. I think the Alaska analogy is interesting here. Alaska is a special situation because the state really does sort of fund the entire localities and communities. A lot of the money flows out of the capital.

But Sarah Palin has something called a line item veto authority, which we have editorialized on behalf of for years. And if you look at the actual veto list, there are 19 pages and it is line after line after line of veto. She did not veto all of the earmarks in the budget. She vetoed about 10 percent of them. She did not veto any for the poorest parts of Alaska. So she was able to use discretion. Even some Democrats said the legislature was in a feeding frenzy and they needed to do this. So the executive was able to discipline the legislature. At the federal level, is very difficult for the president to do that. Generally, you have to veto an entire appropriations bill.

GIGOT: So it's maybe not realistic at the federal level?

HENNINGER: I don't think it's realistic now, until the president gets more discretionary discrete authority over the budget.

GIGOT: What about, Mary, this issue of windfall profits tax in Alaska? Some of the Democrats are saying that Palin imposed a tax on the oil companies and oil revenues, oil profits, which isn't an unlike what Obama is proposing.

O'GRADY: You have to remember that in Alaska the structure of the way they raise revenues is they have oil that belongs to the state. It is not privately owned. And when that oil comes up out of the ground, they collect royalties and taxes on it. That's how they raise most of their revenues.

What happened was, when she came in as governor, she found out the deal that had struck with the oil companies previously, the previous governor, was a corrupt deal. She said, OK, we're going to do this over, we're going to do it right. And it is true she raised that tax from 22 to 25 percent.

But I think what people are more interested in is the way she thinks about spending. She — Dan mentioned these vetoes. What was interesting to me was that she said, in making the vetoes, she said these are not the state's responsibility. I think somebody — a lot of people want to hear that from a politician.

GIGOT: Let me get Steve Moore in here, Mr. Anti-tax, because a windfall profits tax is a windfall profits tax is a windfall profit tax. What's the difference between what Palin did and what Obama wants to do?

STEVE MOORE, SENIOR ECONOMICS WRITER: Thank you so much, Paul, for allowing me to be the Sarah Palin attack dog. I can see all of my hate mail already.

Look, I think she is the fifth Beatle. I love the woman. But her record on spending and taxes, I am not so sure it is inconsistent at best. If you look at what happened when she was mayor, she raised taxes for a sports facility. I am not so comforted by this idea of what she did on the oil tax. It does look to me, Paul, very much like a windfall profit tax. And I suspect that if she were a liberal Democrat, conservatives would be attacking her for that.

GIGOT: Mary, would we?

O'GRADY: You know, the thing is you are dealing with a structure that already exists. She is just working within that framework. You are expecting a little too much to think that she is going to undo, you know, the state-owned oil revenue process in Alaska.

GIGOT: OK, thanks, Mary.

Still ahead, bail out nation. First there was Fannie and Freddie. Is the Detroit auto industry next? Find out after the break.

(COMMERCIAL BREAK)

GIGOT: Taxpayers on the hook for as much as $200 billion for the unprecedented government rescue this week of mortgage giants Fannie Mae and Freddie Mac. And it almost certainly won't end there. Detroit's struggling automakers are lobbying for $50 billion in government-backed loans. And there are whispers on Wall Street of increased federal aid to rescue the ailing investment bank, Lehman Brothers.

Mary, this quasi-nationalization of Fannie and Freddie, did treasury Secretary Hank Paulson have any alternative but to act here?

O'GRADY: He had alternatives. He had to act, but he didn't have to act the way he did. And that is really a crime. I mean, this will be a long time unwinding and it'll cost taxpayers a lot. And it does not hold responsible, for what went wrong, the people who should be held responsible.

GIGOT: That should be mainly the Congress I think. But you're talking about the conservatorship, which conserves the company and gives dissolution of about 80 percent to the shareholders, but doesn't wipe out the shareholders. Is your case, they should better have gone into receivership?

O'GRADY: That's right. The whole thing should have been restructured. there should've been a bankruptcy. And the shareholders should not exist any longer. And as it turns out, we have $200 billion of taxpayer capital that could help save some of the money of those shareholders.

GIGOT: Steve, $5.4 trillion — that's a big number — in Fannie and Freddie debt and liabilities that the Chinese and all kinds of debtors hold. That's what was at risk here, that if people started to dump those bonds and had a run on Fannie and Freddie debt. Do you agree with Mary that this had to be done?

MOORE: Well, you know, if you look at all that debt, a lot of people don't realize that the biggest holders of that debt, as you said, Paul, are the Chinese government and I think the Russian government is second. So who are we bailing out here?

The other point about this that we have to think about — what really scares me, we have been writing about the systemic risk of Fannie Mae and Freddie Mac for many, many years. My fear is as soon as the housing market turns around, whenever that might be, one or two or three years from now, Fannie Mae and Freddie Mac will go back on their merry way, and we will re- create these housing behemoths that we're now trying to restructure. I am not confident, Paul, that we will see these things restructured at all.

GIGOT: Congress is already saying — Barney Frank is saying, no way, come on.

HENNINGER: Yes, and that's exactly right. One has to wonder, now that these two institutions are in the news, how many average people out there think they are actually public institutions, as to whether they were, private institutions with an implicit federal guarantee.

The political class, and this was both Republicans and Democrats, allowed this to happen like this, allowed this to happen like this, allowed them to do this for so many years because they believe housing and homeownership, even at low interest rates, is a public good. It is a good thing to do. And now that these institutions are in trouble, they also would argue, as Barney Frank would argue, it is appropriate for taxpayers to sustain and support this public good.

MOORE: But Dan — Dan...

O'GRADY: There is another reason too why the politicians were interested in it and that's because the companies were lobbying them and they were big campaign donors. so they were scratching each other's back.

(CROSSTALK)

MOORE: Sorry.

GIGOT: Go head, Steve.

MOORE: I was going to say, when Dan said they view housing as a public good, you are right about that, Dan. But now they view the airlines as a public good, the auto companies as a public good, the steel companies. I mean, this bail out kind of euphoria on Capitol Hill I think is really angering the American taxpayer.

HENNINGER: And all of it is justification for putting taxpayer money behind these problems.

GIGOT: But the original sin here with Fannie and Freddie was private profit combined with public risk, socialized risk. In other words, they got to take excessive risks because they knew they were playing with House money, your money, not their own money. Because if they made mistakes, they'd get bailed out.

O'GRADY: Let's not pretend this is purely ideological. The politicians saw this as a good way to maintain their positions in Washington because they got so much campaign financing from these organizations.

HENNINGER: What I'm saying here is there is a political choice. The Democrats don't think what you are saying, Paul, is a bad thing. They think it is appropriate. I think voters have to decide whether more of this sort of thing, for the airlines or the auto industry, is the right thing to do.

GIGOT: I think the other thing we should do is give the Bush administration some credit here, much maligned. But Fannie and Freddie, they were trying to reform those institutions for years and Congress stopped them, members of both parties, but particularly the Democrats.

OK, 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.

Item one, a hit to New York's Metropolitan Museum of Art — Dan?

HENNINGER: Yes, Paul, I think everyone watching this program knows what we mean by the phrase "the culture wars." It generally, in terms of museums, has meant the erosion of standards, anything goes, shock for shock.

The board of trustees for the Metropolitan Museum of Art had to pick a successor to its very successful director, Philippe de Montebello, and they announced that this past week. It's a fellow named Thomas Campbell, a curator at the Met whose specialty happens to be Renaissance tapestries. There is every expectation that Mr. Campbell will maintain the Mets excellent reputation for quality, high standards and defend its reputation.

So I think a big hit to the board of directors of the Met for giving us a victory in the culture wars.

GIGOT: All right, Dan, thanks.

Next, a miss to a jury in Britain for ruling that eco terrorism is not a crime — Mary?

O'GRADY: Yes, six Greenpeace activists caused $75,000 worth of property damage to a power station in Kent, England. There is no doubt about that. But the jury let them off the hook under the Criminal Damage Act of 1971, which says that if you do something like that, but you are doing it to prevent a greater harm, then you are not guilty. And their greater harm that they were preventing was global warming. So this is not the first time that this has been used in environmentalism. And I am betting it won't be the last time.

GIGOT: So the end justifies the means in British law. That's scary.

Finally, a hit to our neighbors to the north — John?

FUND: Paul, Canada called an early election last week. Their campaign is going to be thirty-six days long. They are going to vote and mid October. It'll all be over before we vote. And I have to tell you, they may be onto something here.

I think there are advantages to the American system over a parliamentary system. But I have to tell you, this campaign here has gone on here for two years. I cover this for a living and I am exhausted and some others are too.

I think we should look at Canada perhaps as a model for how you can have civilized discussion and a fast and quick campaign and also a full comprehensive look at the issues because, right now, we have a political- industrial complex in this country that I think wants full-time campaigns so they can have a full-time living.

GIGOT: John Harper and that government has been real heroes on Afghanistan, sending...

FUND: It's a pro America government.

GIGOT: And supporting deployments for NATO and Afghanistan where a lot of Europeans are not.

Is he going to win?

FUND: I think he could get a majority. And a majority would mean that he could intimate fully his domestic vision, which includes gas tax cuts and spending cuts.

GIGOT: All right, John, thanks.

And remember, if you have your own "Hit or Miss," please send it to us at jer@FOXnews.com or log onto opinionjournal.com.

That's it for this week's edition of the "Journal Editorial Report."

Thanks to my panel and especially to all of you for watching.

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

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