Obama's Drama: The Problem With New President's Cabinet Picks

President Obama said he 'screwed up' over the nomination of Tom Daschle in his Cabinet. (FNC)

This is a rush transcript from "On the Record ," February 3, 2009. This copy may not be in its final form and may be updated.

GRETA VAN SUSTEREN, FOX NEWS HOST: Tonight: This must blow your mind. Former Senate majority leader Tom Daschle is out, yet secretary of the Treasury Tim Geithner is in. What's with that? How did Treasury secretary Timothy Geithner get by with his tax problems? Who's vetting these people? And are there more problems to come?

Moments ago, President Obama talked to Chris Wallace, the host of "FOX News Sunday." Was Tom Daschle forced to take himself out of the consideration for the post?

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: ... Made the decision that he was going to be too much of a distraction to carry out what he's so passionate about, which is health care reform. What I did tell him was that I take responsibility for this mistake. I mean, I think that Tom took responsibility for the mistake on his taxes. I think it was an honest mistake. And I made the assessment, I made the judgment that he was the best person to achieve health care reform and to bring people together.

But you know, what became clear to me is, is that we can't send a message to the American people that we got two sets of rules, one for prominent people and one for ordinary people. And you know, so I consider this a mistake on my part and one that I intend to fix and correct and make sure that we're not screwing up again.

(END VIDEO CLIP)

VAN SUSTEREN: Moments, ago, former speaker of the House Newt Gingrich went "On the Record."

(BEGIN VIDEOTAPE)

VAN SUSTEREN: Mr. Speaker, nice to see you, sir.

NEWT GINGRICH (R), FORMER SPEAKER OF THE HOUSE: Good to be back.

VAN SUSTEREN: Now, the president of the United States says that former senator -- Senate majority leader Tom Daschle essentially made the decision himself to withdraw. Do you believe that?

GINGRICH: Yes, I do. I think -- actually, I thought this morning that Daschle would probably win, that he had enough personal friends, the Senate's enough of a club, and I think he concluded that he couldn't serve the president very well if he had this problem hanging over him. And I think he did the right thing, and I think that he almost certainly did it by himself.

VAN SUSTEREN: Why do you think -- I realize you were in the House and not in that club. I will make that distinction very carefully, although you have your own clubby stuff in the House...

GINGRICH: Well (INAUDIBLE) look, I served with Daschle in the House.

VAN SUSTEREN: All right. But I mean, like, to most Americans, that sort of clubby nature is not an attractive quality today. I mean, it looks like, you know, all these senators coming out and backslapping him, saying, you know, essentially, you know, that -- you know, he's a good guy, you know, he made a mistake.

GINGRICH: Well, look, I -- first of all, I agree with that. I think -- I think that it's not one of the better good qualities of Senate if being in the club means we overlook wrongdoing or we overlook things that ought to be matters of principle, not just matters of being in the club.

But I do think it's an objective fact that the Senate club does exist, that Daschle was clearly a part of it and that he almost certainly could have gotten the votes, although I think the New York Times editorial probably hurt him some. But I think he concluded that this would get a long and drawn-out and messy and that, in the end, it would weaken his ability to be effective as secretary of Health and Human Services.

You know, I think -- I mean, Daschle's has had a very successful private life since he was defeated for reelection, and he has done very well financially. And I think that he has written a book on health reform, and I suspect he'll stay active in some form. And you know, who knows what his future will be? But I'd be very surprised if he didn't make that decision by himself.

VAN SUSTEREN: Now, you talk about the New York Times, the New York Times editorial which said that he should withdraw is what you're making reference to. I'm surprised that members of the Senate weren't scandalized for the simple reason -- not because of the mistake -- I accept mistakes. The tax code is enormously complicated, but that he got wind of it, that there was a problem last summer, and it's an easy fix and the fix didn't occur until six months later, after he'd been nominated and he was being vetted. That's the problem. And that's the thing that I wouldn't want my club member to be doing.

GINGRICH: But to be fair, I mean, look at Geithner.

VAN SUSTEREN: Oh, we'll move on to him! I'm ready to move on to him, too!

GINGRICH: No, no. I'm just...

VAN SUSTEREN: Oh, no! I'm moving on to him! He's next!

GINGRICH: I'm just saying Geithner got through, and he's not a member of the club.

VAN SUSTEREN: I still think he -- I think he still should be under the microscope.

GINGRICH: Well, I think -- I think that the sort of Geithner-Daschle-Charlie Rangel sequence -- and I think -- and I think, Frankly, Daschle was hurt by Geithner having come first because the country had now been sensitized to tax problems.

VAN SUSTEREN: I don't think so. I think maybe the Senate has, but not the country.

GINGRICH: Well, the Senate may not have been, but I think the country clearly has been sensitized. And of course, you had the president's new appointee also withdrew today, which I frankly didn't fully understand the job anyway. So it's going to be interesting to see...

VAN SUSTEREN: That's the woman who was in charge of...

GINGRICH: Wasn't it chief productivity officer or something like that?

VAN SUSTEREN: Right, to make sure we're efficient. I would like to point out, though, the woman withdrew and didn't put up a fuss. She did the honorable thing without creating a scandal. I might sort of put in a plug for her...

GINGRICH: Well, I mean, in her case, I think she had not paid Social Security tax for a year-and-a-half on somebody who was an illegal alien, having...

(CROSSTALK)

VAN SUSTEREN: I mean, if we take the money, though, it wasn't $130,000.

GINGRICH: No. That's true.

VAN SUSTEREN: It was, like, $947...

GINGRICH: But it was the sort of politically compounded thing that you just knew...

VAN SUSTEREN: Yes.

GINGRICH: ... Was going to blow up. And of course, all of this is now going to, I think, bring pressure to bear on the House...

VAN SUSTEREN: But here's the problem...

GINGRICH: ... To deal with Charlie Rangel.

VAN SUSTEREN: Here's -- well, he's got a problem, too. But here's the problem, is that the president ran on a campaign, essentially, of change -- We're going to clean up Washington, cronyism, or anything -- and so the American people are sitting back tonight thinking, Well, why was Daschle appointed? What -- you know, that smacks of cronyism, and the president defended him, until today he withdrew his name.

GINGRICH: Why is Geithner currently secretary of the Treasury? I mean, here's the guy in charge of running the IRS, who failed to pay his own taxes, and he's going to be advocating a tax increase on the rest of us?

VAN SUSTEREN: Well, the other thing, too, that's sort of disturbing is that he -- legally, he could do this, but he didn't pay two years because when he finally got caught, because they were protected by the statute of limitations, which he had his legal right to do. But I'm not sure that the guy who's going to head the Treasury Department, which oversees the Internal Revenue Service -- if that's a good signal to the American people.

GINGRICH: Well, and you know, the president, I suspect, is learning in these first couple weeks that it is dramatically harder to govern than it is to campaign and that he probably ought to be a little careful about setting standards that they can't keep. You know, the -- We're not going to have any lobbyists in this administration, except, of course, the undersecretary of defense and the chief of staff of the Treasury.

VAN SUSTEREN: Yes, but you're telling us this is on-the-job training program. That's -- I mean...

(CROSSTALK)

GINGRICH: ... It always is. I mean, I...

VAN SUSTEREN: Well, except that he's got people working for him who have been around Washington forever. He's got Rahm Emanuel, who's been around at least since the Clinton administration. I mean, it's not like -- and if he hadn't run on the fact -- We're not going to have lobbyists, we're not going to have this -- that's the problem.

GINGRICH: Yes, I think we were in a cycle where, to some extent, both Senator McCain and then-Senator Obama were sort of seeing who could outbid who in setting pure, pristine standards, which are not sustainable. They're not the real world. They're not -- they're not how you're going to get talented people.

VAN SUSTEREN: Were they being dishonest with us?

GINGRICH: I think they were being naive and I think that they were forgetting that after the words come the deeds.

VAN SUSTEREN: But that makes us feel had, as citizens.

GINGRICH: Oh, I think -- I think that there's a certain disappointment level. I think the Gallup poll today on the stimulus package, where I think only 13 percent or 14 percent of the country it would help them personally. You know, you see an erosion beginning to set in that is a fairly significant drop-off from the mood right after the inaugural. I think the president's still personally very popular, but I do think there's a sense of, Up here are the words and down here's the performance, and that could get to be dangerous if it continues.

VAN SUSTEREN: Well, that could be catastrophic, it seems to me, because, I mean, he was -- it was so exciting, this whole concept of change, whether you bought it or didn't, at least it was exciting. We have the first African-American president, all that sort of excitement. And now it seems like it's business as usual, and you sort of go from -- you know, when you've been so high, it's been so in this euphoria, and now, kerplunk, you find out that -- that it's -- it's the guys, the gold ol' guys who get it, the good ol' boys.

GINGRICH: Well, remember, in modern times, the highest approval rating on inaugural day was Jimmy Carter.

VAN SUSTEREN: And he fell.

GINGRICH: I mean, people had more belief in him, more faith in him than anybody else.

VAN SUSTEREN: Well, he didn't do too well at the end.

GINGRICH: No, and I think -- and I think it was the same problem, that he would set a standard he couldn't meet, and people would realize it. And then gradually, over the period of three-and-a-half years, he just got ground down by reality. Now, we hope that President Obama, who I think is a much more rapid learner than President Carter was -- hopefully, President Obama's going to learn from some of this and is going to modify his own behavior because you don't want a president of the United States to be consistently out of sync with reality.

VAN SUSTEREN: Do you think Geithner should step down?

GINGRICH: I do. I think that having the head of the Internal Revenue Service and the head of the Treasury, a person who flagrantly did not pay their taxes, who rejected the instructions of their accountant, who told him he could not take summer camp as a business expense -- remember, there's a whole second story there, that he took his children's summer camp as a business expense after being told he couldn't do it.

VAN SUSTEREN: You know, I just recently read a book by -- and had Coach Dungy from the Indianapolis Colts here, and in reading his books, one of the things that he wrote is that he didn't understand why we had to have rules about certain things. And as I listen to you talk about Geithner, I think, Why do we need a rule about that? Don't people just get it? You know, I mean, like, why -- why do we even need rules that, you know, that you're not the right guy -- right -- not the right guy to be in charge of the IRS if your defense is, I didn't understand it, or if your other defense is, I did it, I'm sorry?

GINGRICH: Yes, and...

(CROSSTALK)

GINGRICH: Candidly, it's untrue. I mean, the International Monetary Fund that he worked for gave him information every quarter. He signed a document saying they had given him the information ever quarter. It was a standard procedure. He was obligated to pay taxes on it. At the same time, his accountant apparently gave him a ruling that he could not take his children's summer camp as a basically deduction.

Now, again, every -- look, the tax code is so complicated, anybody can make an honest mistake. But to make a mistake four years in a row, and when you're audited, to not go back and pay the money you should have paid I think is a very bad sign. And I don't see how Geithner ever has any moral authority as secretary of the Treasury, given his background.

VAN SUSTEREN: Why did he get the job? Because at least -- I mean, I understand that, you know, Senator Daschle goes way back in this town and he endorsed then-Senator Obama in 2007, 20 months before the election. But why was Geithner thought to be such a perfect candidate for the Treasury?

GINGRICH: Well, you know, it's actually funny, in a way, because Senator Obama, now President Obama, ran on, "Change you can believe in."

VAN SUSTEREN: But they all run on slogans. We all got...

GINGRICH: No, no. No, no.

(CROSSTALK)

GINGRICH: But he made -- I mean, he made a serious, deep commitment about change. Geithner is the same gang. I mean, Geithner was in the room with Bernanke, the chairman of the Fed, and Paulson, the Bush secretary of the Treasury. They -- all the effort last fall Geithner was in the middle of. But I think that Geithner is the front for the New York banks. And I think the New York banks are desperate to survive and they need somebody who will pay off all their problems with taxpayer money, and Geithner's the guy they're counting on to pay them off.

VAN SUSTEREN: OK, I understand the banks, but why would now President Obama want him, in light of the fact that he brings so much baggage? Because he can talk to the banks?

GINGRICH: But start with Bob Rubin. I mean, Bob Rubin was widely considered one of the two smartest guys in the '90s on finance. The other being Alan Greenspan. Both have now had their reputations shattered.

VAN SUSTEREN: Through CitiGroup.

GINGRICH: He was the head of CitiGroup, who didn't quite notice the billions of dollars in bad debt.

VAN SUSTEREN: But also wanted to buy a $50 million not even American jet but a French jet, which didn't go over with Americans that are looking for jobs.

GINGRICH: And so I'm just saying when you look at all this -- you're a brand-new Democratic president. You look around. Who should you go to advice for? Well, almost everybody would have said six months ago Bob Rubin's on the short list. You go to Larry Summers, who is a brilliant economist, briefly president of Harvard, was secretary of the Treasury...

VAN SUSTEREN: Wait a second. Wait. Let's talk about Larry Summers. Larry Summers is the one who made that horrible comment about women and science (INAUDIBLE) He's not quite as brilliant as you may think! That was pretty stupid.

GINGRICH: Well, I didn't say he had common sense, but...

VAN SUSTEREN: No, no. But it was stupid.

GINGRICH: ... He was brilliant.

VAN SUSTEREN: No, no. That was stupid!

GINGRICH: He was the youngest tenured faculty...

VAN SUSTEREN: I don't care what he was!

GINGRICH: ... In the history of Harvard.

VAN SUSTEREN: I mean, I don't care! So he can take an exam. He's good on the SATs.

GINGRICH: Well, I don't...

VAN SUSTEREN: That was profoundly stupid!

GINGRICH: I don't think -- I don't think President Obama brought him in to advise him on women's equality.

VAN SUSTEREN: Oh, I think that's -- but wait a second. If you are -- if you're that bad from the get-go, isn't that a red flag, if you think that women don't have the aptitude for science? I mean, that's a good starting point, you know, that maybe this is a red flag. There's the problem.

GINGRICH: You know, I'm not actually normally...

VAN SUSTEREN: We have to get your wife in here!

GINGRICH: I'm not normally a defender of the Obama administration.

VAN SUSTEREN: You've become that tonight!

GINGRICH: But you're -- but you're...

VAN SUSTEREN: You've become that tonight!

GINGRICH: You're on offense so much, I now find myself having to defend...

VAN SUSTEREN: I have low blood sugar!

GINGRICH: ... the Obama administration.

VAN SUSTEREN: I have low -- I haven't had dinner.

(LAUGHTER)

(END VIDEOTAPE)

VAN SUSTEREN: Coming up, more with the former speaker. He thinks there's something dangerous going on right now, and it has to do with your money. Plus, what's the smartest thing President Obama has done so far?

Then former governor Rod Blagojevich goes "On the Record," and he's still making news. If Blagojevich is indicted, does he plan to call President Obama as a witness at his trial? The former governor has a surprising answer to that question and much more.

(COMMERCIAL BREAK)

VAN SUSTEREN: We continue with former Speaker of the House Newt Gingrich.

(BEGIN VIDEOTAPE)

VAN SUSTEREN: All right, let's talk about this stimulus package because we -- I mean, you know, a lot of people say it's not going to work. We desperately need something to work. Is there any hope?

GINGRICH: Oh, sure. Look, I think, ultimately, we'll rebound. I think the faster we get rid of the bad debt, the faster we find out what the banks actually owe, the more transparency and honest there is, the better off we are. I think the faster we...

VAN SUSTEREN: Are these the same banks that were throwing the big Super Bowl parties that you're talking about?

GINGRICH: Yes, but that -- that money is trivial. I mean, the real problem is...

VAN SUSTEREN: It's offensive to the rest of us!

GINGRICH: Of course it is, but the real -- but see, that's the whole danger of trying to mix politics and the free market.

VAN SUSTEREN: Yes, but the thing is, if you're so stupid to do that, from a PR, even thought it might be chump change, why should I think you have any intelligence to make the important decisions, if you make such stupid decisions like that?

GINGRICH: I don't think you should.

VAN SUSTEREN: Oh, good.

GINGRICH: I think -- I've always been opposed to the bail-out because I've always felt that it would keep the same management in charge that got in trouble. And I don't...

VAN SUSTEREN: And I forced you to be a defender tonight.

GINGRICH: Well, I -- but I don't -- I don't think you can have capitalism on the way up and socialism on the way down. I think if you're going to let people do really well on the way up, they have to take the risk of doing really badly on the way down. And I think this whole bank bail-out effort is dangerous, just as I think trying to bail out General Motors is dangerous, because I think it keeps in place people who have failed. And your point's right. Why do you think they're going to succeed next?

VAN SUSTEREN: All right, just so we can end up on a high note for the President Obama administration, what's the smartest thing so far that -- what do you admire most since he's become president?

GINGRICH: I think he has a very impressive national security team. I think the combination of Secretary Clinton at State, Secretary Gates at Defense and General Jones at National Security is so much stronger than I would have guessed, if you'd asked me in mid-summer, that it's very impressive.

VAN SUSTEREN: It's interesting to watch Secretary Clinton going -- probably going to Asia, though everything's unofficial at this point, going there first, especially with sort of the some of the saber rattling between North Korea and South Korea right now.

GINGRICH: Well, I think she's going to turn out to be a very competent, very hard-working and very tough secretary of state.

VAN SUSTEREN: It seems like she's reclaiming some real estate for the State Department, too, and sort of various -- not just national security and diplomacy, but also economic development in the world.

GINGRICH: Yes, but I think some of that stuff, frankly, that Secretary Condi Rice laid the groundwork for. And I think that Secretary Gates has been advocating -- if we're going to be able to have soft power beyond the American military, we have to have an effective State Department. And I'm hoping that Secretary Clinton will build on the process that Secretary Rice began. And I served on the transformation (ph) advisory group at State, trying to think this through, and we really need to strengthen the State Department if we want to be able to do things beyond our military. And frankly, everybody in the military will tell you they want a stronger State Department.

VAN SUSTEREN: And we will all be watching. Mr. Speaker, nice to see you, sir.

GINGRICH: Great to be with you.

(END VIDEOTAPE)

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