This is a rush transcript from "Hannity & Colmes," September 17, 2008. This copy may not be in its final form and may be updated.

SEAN HANNITY, CO-HOST: She is the politician who has taken America by storm and who has changed the very dynamic of the presidential race.

Governor Sarah Palin has been the target of left-wing smears and conservative adoration as she was introduced as Senator McCain's running mate nearly three weeks ago.

Now, earlier today, we met her in Cleveland, Ohio for a no-topic-off- limit interview that last almost a full hour.

Tonight, in part one, the governor discusses the current crisis on Wall Street, what her role will be in a McCain administration, and what we have to do as a country to secure our energy independence.

And we even got a reaction to the "Saturday Night Live" skit that everyone is talking about. She saw it, too. And her response, well, it may surprise you.

Also, Karl Rove will join us tonight with reaction and a representative of the Obama campaign will also be here to respond.

But we start tonight with Governor Palin herself in a "Hannity & Colmes" exclusive interview:


HANNITY: Governor, thank you for being with us.


HANNITY: All right. You said when you were asked to be Senator McCain's running mate that you didn't hesitate, you didn't blink. Tell us about the call, when that came.

PALIN: Well, I found out about the actual selection just a couple of days before you guys all did. Getting that nod was quite an experience, of course, because I knew that Senator McCain and his team had been doing a heck of a lot of research and vetting of many names.

So, of course, it's the utmost honor is what I felt when he actually said, do you want to help me do this? And I said, absolutely. Let's get in there and let's reform. We'll shake some things up.

Video: Gov. Sarah Palin on accepting McCain's VP offer and reforming the economy

Video: Palin on being a Washington outsider, her record in Alaska and how McCain differs from Obama

Video: Palin on mixing it up in Alaskan politics, her role in a McCain administration and energy independence

HANNITY: What was your family's reaction? Was there time to huddle and have a hockey team meeting?

PALIN: It was a time of asking the girls to vote on it, anyway. And they voted unanimously, yes. Didn't bother asking my son because, you know, he's going to be off doing his thing anyway, so he wouldn't be so impacted by, at least, the campaign period here.

So asked the girls what they thought and they're like, absolutely. Let's do this, mom.

HANNITY: Let's talk about, Governor, obviously, the economy is on the minds of many Americans. We've got Lehman, we've got Merrill, we've got AIG. Senator Barack Obama yesterday was attacking Senator McCain for saying that the "fundamentals of the economy are strong."

Do you believe that the fundamentals of our economy are strong?

PALIN: Well, it was an unfair attack on the verbiage that Senator McCain chose to use because the fundamentals, as he was having to explain afterwards, he means our workforce, he means the ingenuity of the American. And of course, that is strong and that is the foundation of our economy.

So that was an unfair attack there, again, based on verbiage that John McCain used. Certainly it is a mess though, the economy is a mess. And there have been abuses on Wall Street and that adversely affects Main Street.

And it's that commitment that John McCain is articulating today, getting in there, reforming the way that Wall Street has been allowed to work, stopping the abuses and that violation of the public trust that too many CEOs and top management of some of these companies, that abuse there has got to stop.

It is, somebody was saying this morning, a toxic waste there on Wall Street, affecting Main Street. And we've got to cure this.

HANNITY: Through reform?

PALIN: Through reform, absolutely. Look at the oversight that has been lax, I believe, here it's a 1930s type of regulatory regime overseeing some of these corporations. And we've got to get a more coordinated and a much more stringent oversight regime.

Not that government is going to be solely looked to for the answers in all of the problems in Wall Street, but government can play a very, very appropriate role in the oversight as people are trusting these companies with their life savings, with their investments, with their insurance policies and construction bonds and everything else.

When we see the collapse that we're seeing today, you know that something is broke and John McCain has a great plan to get in there and fix it.

HANNITY: Is Senator Obama then using what happened on Wall Street this week? Is he using it for political gain? Is there a danger of a presidential candidate is saying to the world that America's situation of economic crisis is the worst that we've seen in decades — which was words that he was using yesterday — is there a danger in terms of the world hearing that?

PALIN: Well, there is a danger in allowing some obsessive partisanship to get into the issue that we're talking about today. And that's something that John McCain too, his track record, proving that he can work both sides of the aisle, he can surpass the partisanship that must surpassed to deal with an issue like this.

It is that profound and that important an issue that we work together on this and not just let one party try to kind of grab it all or capture it all and pretend like they have all the answers. It's going to take everybody working together on this.

HANNITY: Who is responsible for these failing institutions, in your view?

PALIN: I think the corruption on Wall Street — that is to blame. And that violation of the public trust. And that contract that should be inherent in corporations who are spending, investing other people's money — the abuse of that is what has got to stop.

And it's a matter, too, of some of these CEOs and top management people and shareholders too not holding that management accountable, being addicted to, we call it, OPM — O-P-M, "other people's money."

Spending that, investing that, not using the prudence that we expect of them. But here again, government has got to play an appropriate role in the stringent oversight, making sure that those abuses stop.

HANNITY: Well, you know, both you and Senator McCain supported the bailout of Fannie Mae and Freddie Mac. You both opposed the bailout of government intervention as it relates to Lehman or Merrill. But now we read this morning that AIG is going to get some type of government bailout.

Was that the right call?

PALIN: Well, you know, first, Fannie and Freddie, different because quasi-government agencies there where government had to step in because of the adverse impacts all across our nation, especially with homeowners. It's just too impacting, we had to step in there.

I do not like the idea though of taxpayers being used to bailout these corporations. Today it was AIG, important call there, though, because of the construction bonds and the insurance carrier duties of AIG. But first and foremost, taxpayers cannot be looked to as the bailout, as the solution to the problems on Wall Street.

HANNITY: How connected is it, though, to Washington?

You have 354 lawmakers got money from Fannie and Freddie — 354. If you look at the years from 1989 to 2008, the second top recipient was Senator Barack Obama.

Should there be an investigation in terms of the relationship between the political donations and then, of course, the bankruptcy that ensued and the impact on the economy?

PALIN: I think that's significant, but even more significant is the role that the lobbyists play in an issue like this also. And in that cronyism — it's symptomatic of the greater problem that we see right now in Washington and that is just that acceptance of the status quo, the politics as usual, the cronyism that has been allowed to be accepted and then it leads us to a position like we are today with so much collapse on Wall Street.

That's the reform that we've got to get in there and make sure that this happens. We've got to put government and these regulatory agencies back on the side of the people.

It's what John McCain and I — we have very consistent track records showing that we're capable and we're willing to do this. Ruffling feathers along the way, but it's what we're expected to do and what we're promising to do.


ALAN COLMES, CO-HOST: And coming up, more of Sean's interview of Sarah Palin and then Tina Fey's Palin impersonation as viral sensation. Real question is, what does the Alaska governor think of that skit?

We'll find out coming up.


COLMES: We now continue with Sean's exclusive interview with Governor Sarah Palin.


HANNITY: You've talked about — Senator McCain has talked about — you want to eliminate earmarks, that you want to reduce government spending, that you want to keep taxes low, you want to reform government. You've used to the term reform a lot — Senator McCain has used the term reform a lot. Many people have gone to Washington and they've made these promises, especially when it comes to cutting spending and it doesn't happen.

How do you make this happen? Look how partisan it is in Washington right now. How do you get that accomplished?

PALIN: Yes it is gridlock and that's ridiculous. That's why we don't have an energy policy. That's why there hasn't been the reform of the abuse of the earmark process. And real reform is tough and you do ruffle feathers along the way. But John McCain has that streak of independence in him that I think is very, very important in America today in our leadership.

I have that within me also. And that's why John McCain tapped me to be a team of mavericks, of independents coming in there without the allegiances to that cronyism, to that good ole' boy system.

I'm certainly a Washington outsider and I'm proud of that because I think that that is what we need also. As a team member in this — on this new team promising the reform. Reform that actually happens is tough and you can't just talk about it and you can't just talk about your years of experience in a system — a bureaucratic system. You have to show examples and what I have done is have been able to show examples as a mayor cutting taxes every year that I was in office, as a governor now, suspending our fuel tax recently, getting our handle on the state's budget in Alaska, growing the surplus so that we can return that surplus right back to the people of Alaska —

HANNITY: Let's go in to that. The people of Alaska get — for example, there's no income tax, there's no sales tax in Alaska.

PALIN: There are in individual communities.

HANNITY: But no state sales tax.

PALIN: Correct.

HANNITY: The average citizen — if I was a resident of Alaska, you would write me a check every year for $2,069?

PALIN: Well, depending on how the stock market is doing. Over the last five years — an average.

HANNITY: And then you also gave recently an extra check for $1,200?

PALIN: I did. Because the price of a barrel of oil is so high right now that state coffers are growing, but the family's checkbook is being decimated because of the high cost of energy.

HANNITY: I have to move to Alaska. New York taxes are killing me.

PALIN: Well, what we're doing up there is returning a share of resource development dollars back to the people who own the resources. And our constitution up there mandates that as you develop resources it's to be for the maximum benefit of the people, not the corporations, not the government, but the people of Alaska.

HANNITY: Senator Obama on the campaign trail — and Senator Biden as well — they often criticize John McCain, that, well his plan is — he's going to continue the policies of tax cuts for the wealthy. For those that maybe buy into that class warfare agreement or think, why shouldn't the rich pay more? My question to you is the converse: why does everyone benefit if the rich pay less or if everybody pays less in taxes? Why is that good for the economy?

PALIN: That's a great question and everybody does benefit when government takes less from the people, no matter what their income bracket is because our businesses then and our families are able to keep more of what they're earning, reinvest in what they have as priorities. That's how jobs are created. And that's how we're going to grow our economy.

But, let me talk really quickly about our opponent's position on taxes. Barack Obama has had 94 opportunities to be on the side of the American taxpayer and 94 times he has chosen to be on the opposite. He could have either voted for tax cuts or at least not for tax increases. And 94 times he has chosen, I believe, the wrong position on those.

HANNITY: And that's going to be a key issue in this campaign.

Things have gotten pretty heated on the campaign trail and especially in the last two days. There were two weeks where I think you were the focus of the attack. Now it seems that the focus of the attack is Senator McCain.

Do you think these attacks, ratcheting up these attacks by Barack Obama — I don't know if you had a chance to see the speech yesterday — and by Senator Biden, do you think these attacks will be effective?

PALIN: I think the American people are getting down to the facts. And they're looking at voting records and they're looking at allegiances and they're looking at what a vision is that each candidate holds and is sharing with the American people. And there are such stark contrasts between Barack Obama and Senator John McCain. And I'm happy to talk about those contrasts, because this is what it's all about.

People are interested in what the issues are that are affecting their daily lives, Americans are. They want to know if government is going to be put back on the side of the people and that it will be their will implemented in their government.

The people of America realize that, inherently, all political power is inherent in the people. And government is to be implemented, policies are, on behalf of the people and the will that they desire that their government engage in.

You can't underestimate the wisdom of the people of America. They're seeing through the rhetoric, and they're seeing through a lot of the political cheap shots, also. And they're getting down to the facts and the voting records that are going to show that stark contrast.


HANNITY: And coming up, Governor Palin tells us what exactly her role will be as vice president in a McCain administration.


HANNITY: And we now continue our interview with Governor Palin.


HANNITY: Explain when you were governor and, as governor of Alaska, how you took on your own party.


HANNITY: There's this — you know, you still have a very high approval rating, but there are people that still weren't happy about it. How did you take on your own party, specifically? And do you think you'd be able to do that, as well, in Washington?

PALIN: Well, I just recognized that there — as John McCain talked about on the campaign trail, also — it doesn't matter which party it is that is just kind of creating the good-old-boy network and the cronyism and allowing obsessive partisanship to get in the way of just doing what's right for the people who are to be served. And I just recognized that it's not just the other party. Sometimes it's our own party that just starts taking advantage of the people.

And I felt compelled to do something about it, decided to run for office, got in there and with that mandate that I believe the people had just given me, via their vote, they expected the changes to take place, that reform. And we're living up to that. And as we do, we are ruffling feathers.

HANNITY: Have Republicans in Washington lost their way in recent years?

PALIN: I believe that Republicans in Washington have got to understand that the people of America are not fully satisfied with all the — all the dealings within the party. Same applies though for the other party, also.

Americans are just getting sick and tired of politics as usual, that embracing of the status quo, going with the flow and just assuming that the people of America are not noticing that we have opportunities for good change. We have opportunity for a healthier, safer, more prosperous and energy-independent nation at this time. People are getting tired of a process that's not allowing that process — that progress to be ushered in.

HANNITY: Governor, have you spoken with Senator McCain about your specific role in the McCain administration?

PALIN: Sure have. I'm very excited about the role that I will play as his partner. And I will focus on energy independence and reform overall of Washington and tax cuts for Americans and reigning in spending. The...

HANNITY: These are specific roles that you already talked about?

PALIN: Yes, absolutely. Absolutely.

HANNITY: That you will — you will take on as vice president?

PALIN: Right. So I'd like to talk about each one of them. And I wish we had hours to talk about this also.

HANNITY: I have nothing to do.

PALIN: OK. Good. Because another thing that we'll talk about also is the role that I will play that is very near and dear to my heart. And that's helping families with special-needs children and being able to strengthen our National Institute of Health also and find cures for presently incurable diseases.

But, first and foremost, an energy independent nation. We must get there, Sean. It is a matter of national security and of our future prosperity, being able to quit relying on foreign sources of energy to feed our hungry markets when we have the American supplies and we have the American ingenuity and we have the American workers to produce these supplies of energy.

HANNITY: Well, let me ask you, Americans have heard, for example, a lot of information, false information, misinformation or incorrect information on ANWR. Some have said the drilling there is going to hurt the animals, it's going to ruin the environment, it's going to hurt the environment and hurt the landscape. You know, it's clear I've heard you talk passionately about your love for your state of Alaska.


HANNITY: You know, why then why then would you support drilling in Alaska? Why would that be a good thing? Why would you want to do that?

PALIN: I support drilling in Alaska because it's going to be good for our nation and our nation's...

HANNITY: Including ANWR?

PALIN: Absolutely. ANWR is a 2,000 acre plot of land and it's a 20 million acre plot of land. It's about the size of LAX, that platform of land that we would need to explore. But, no secret, John McCain and I agree to disagree on that one. And I'm going to keep working on him with ANWR.

HANNITY: Have you had any discussions about it yet?

PALIN: We have. We have. And . . .

HANNITY: Is he softening?

PALIN: Well, I'm very, very encouraged, as we all understand that John McCain knows, more so than any other leader in our nation today, that for national security reasons we must be an energy independent nation. We must start taking the steps to get there. That's why he has embraced offshore drilling. That's why he has embraced the ideal of the alternative fuels also. And I'll keep working on him with ANWR.

HANNITY: All right. There you go. There will be some spirited discussion, I assume, in the administration.

PALIN: Sure. The nice thing about him, too, is he is not asking me or anybody else to check our opinions at the door. He wants that healthy deliberation and debate within.

HANNITY: And you've talked about that too?

PALIN: Yes, we sure have. Yes. It's been refreshing.

HANNITY: T. Boone Pickens said that we have a $700 billion annual transfer of wealth.


HANNITY: We're importing, what, 70 percent of our oil. Do you view this as a national security issue, an economic security issue?

PALIN: Both.

HANNITY: And what is the impact for Americans down the road if we don't do something to solve our energy dependence?

PALIN: Right. In that $700 billion transfer of wealth, that's when the price of oil was up as high as it was there at the $140 mark. But, of course, that transfer of wealth, still, that imbalance of trade is something that we need to tackle also. Yes, those dollars should be circulating within our own economy. It's a matter of national security. It is a matter of our future prosperity.

Energy is inherently linked to security and prosperity. More and more Americans are recognizing this also. You can see the constituents putting pressure on Congress to come on, Congress, get rid of that gridlock that you are so engaged in now. We sort of have a "do nothing Senate" right now where nobody's wanting to really pick up the ball and run with it and take the steps that we have to take to become more energy independent. And it's going to take a whole a change in leadership in order to really crush that gridlock and get going on this.




TINA FEY, NBC'S "SATURDAY NIGHT LIVE": You know, Hillary and I don't agree on everything.

AMY POEHLER, NBC'S "SATURDAY NIGHT LIVE": Anything. I believe that diplomacy should be the cornerstone of any foreign policy.

FEY: And I can see Russia from my house.


HANNITY: All right. That was "Saturday Night Live" alum Tina Fey, capitalizing on what many see as an uncanny resemblance between her and Governor Palin.

So what did Governor Palin think of Tina Fey's portrayal? Take a look:


HANNITY: One last question that I didn't ask you: Did you watch Tina Fey on "Saturday Night Live"?

PALIN: I watched with the volume all the way down and I thought it was hilarious, she was spot on.

HANNITY: Do you think you could play her one day?

PALIN: Oh absolutely. It was hilarious. Again, I didn't hear a word she said, but the visual was spot on.

HANNITY: Has anyone ever said that before? There's a similarity...

PALIN: They've been saying that for years up in Alaska. In fact, I dressed up as Tina Fey once for Halloween. We've been doing that before Tina Fey's being doing that.


HANNITY: All right. Now...

COLMES: How do you know your interview wasn't with Tina Fey?

HANNITY: That's right.

Click here to read Part 2 of Hannity's interview with Gov. Palin

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