This is a rush transcript of "Special Report With Bret Baier" from April 19, 2010. This copy may not be in its final form and may be updated.


PRESIDENT OBAMA: If we don't change what led to the crisis, we will doom ourselves to repeat it. That's the truth. Opposing reform will leave taxpayers on the hook if a crisis like this ever happens again.

SEN. CHRIS DODD, D-CT., SENATE BANKING COMMITTEE CHAIRMAN: Our bill ends too big to fail. Bailouts end forever.

SEN. SUSAN COLLINS, R-ME.: I don't think you do it by creating a moral hazard, by putting a big fat fund out there in the first place that tells financial institutions don't worry, you can engage in risky practices, high-risk products, there is going to be a fund, there it is, $50 billion all ready to bail you out.


BRET BAIER, "SPECIAL REPORT" HOST: Republican Susan Collins there talking about a pre- liquidation fund that is in the Senate bill as it's being debated right now that would essentially pay for a big company's collapse. That is what she is talking about with that fund.

But the financial regulatory reform debate back and forth is heating up. The president is heading to Wall Street on Thursday to pitch this.

Let's bring in the panel, Bill Kristol, editor of The Weekly Standard, Mara Liasson, national political correspondent of National Public Radio, and syndicated columnist Charles Krauthammer.

Mara, the president heads to Wall Street to pitch it. There has been a lot of back and forth, Republicans saying the bill does not do everything it needs to do. What about the policy and the politics?

MARA LIASSON, NATIONAL POLITICAL CORRESPONDENT, NATIONAL PUBLIC RADIO: Well, I think on the policy, they're a lot closer than it sounds. Even Mitch McConnell has said that, said it isn't like health care where only the opposition was bipartisan.

I think the bailout fund that Susan Collins talked about and Mitch McConnell talked about will go away. The White House doesn't want it and the Republicans don't want it. I think as soon as that is gone, then you will see what the remaining differences are, and they're not that many.

I don't think Republicans are drawing a line in the sand here and seeing it very important to stop this piece of legislation. They're not saying that. They say they want a fix and they want to have negotiations over it.

BAIER: It was heading down that road.

LIASSON: Yes, and it's been heading down that road at different times, first with Shelby, then with Corker, then with Shelby again. It's like every so often there are negotiations and I think there will be. There are still talks. Shelby is involved with them. I think that in the end, there will be a bill and there will be some Republican votes.

BAIER: Charles?

CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: I think what is so interesting about the bill that is now proposed is that it is Congress once again voluntarily emasculating itself.

The bailout as proposed in the bill would allow the executive branch on its own, without appropriation from Congress, any approval from Congress, to seize, essentially seize a firm it designates again unilaterally as systematically risky, take it over, have the treasury back all of the bad loans, and then have the Fed print the money to pay them off.

Now, when we did the Chrysler bailout, or the bailout of TARP, which we had in 2008, we had to get the Congress along. This is an interesting and I think a disturbing trend where so much arbitrary power is not only in Washington, but not only in the executive, there is no checks, no balance.

That means you get a few powerful people in Washington, secretary of the treasury, head of the FDIC. You walk into a large institution and say we might designate you systematically risky. We want you to do "x," "y" and "z." I can assure you they will do "x," "y" and "z."

And that's what happens in Putin's Russia when he takes over oil. That's not the way it should be. Congress ought to stay engaged, and that it's willingly giving up its prerogative is remarkable.

BAIER: Bill, what about this question — is the American public more skeptical of Wall Street banks or the federal government now?

BILL KRISTOL, EDITOR, THE WEEKLY STANDARD: They are skeptical of both, and they think, I think, and I think that one can curb Wall Street banks without giving unlimited authority to the executive branch of the federal government.

Brad Sherman, a Democratic congressman from California on the House Financial Services committee, said this afternoon the Dodd bill, the Senate bill that we are discussing, has permanent unlimited executive bailout authority, a Democratic congressman saying the truth.

Chris Dodd, we showed a clip, he is saying it ends too big to fail. It doesn't. That is just not the case, I'm afraid.

And it has the bailout authority. That's what the $50 billion is for. And, as Charles said, even if $50 billion is taken out, there is a discretionary bailout authority for FDIC and treasury, totally at the discretion of the executive branch. They don't have to come to Congress to get money as they did in October of 2008.

So it's a power grab by the federal government against Wall Street. There are ways to regulate Wall Street and do it without giving unlimited discretionary bailout authority to federal government. That's why Republicans have gotten more traction than people expected in opposing this bill.

BAIER: Do you think politically — originally there was a letter of all 41 Senate Republicans saying they wouldn't allow the bill to go floor, they would filibuster it unless they go back to the negotiating table. With the president doing this full court press and the pressure building, can politically Republicans hold the line there?

KRISTOL: Yes. We talked to Susan Collins, a moderate Republican, tries to work with the Democrats. And I think she is a little shocked at what is in this bill. This is not just regulating, having a trading floor or exchange for derivatives. It is not just handling this, but this is federal executive branch, unlimited authority over huge non- bank institutions.

This isn't for banks that have depositors' money, you realize. They already have a resolution authority. This is for Goldman Sachs, AIG. If you like Fannie and Freddie you will love the bill.

BAIER: And those are two words that are not in the bill, Mara, "Fannie" and "Freddie."

LIASSON: Right, Fannie and Freddie are left out of the bill.

KRISTOL: It treats more institutions like Fannie and Freddie. AIG, Goldman Sachs, anything that's systematically too big, the federal government has the unlimited authority to go in and rescue.

LIASSON: You know what is missing in the debate I think other than the Republican critique of the bailout fund, it's exactly what they think would be better.

From the left wing and the Democratic Party you hear a critique. They are saying if you're too big to fail, you should be too big to exist and banks should be broken up. They have a set of ways they would strengthen the bill, higher capital requirements, whatever that is. But what is it exactly that Republicans want to do instead of this bill?

KRISTOL: The Republicans are for higher capital requirements as are in the bill. They are — there are sensible elements in this bill, but not the unlimited authority for the federal government to take over non- bank institutions.

KRAUTHAMMER: Let me add one — there is a huge irony pointed out by Larry Lindsay, the former head of the Council of Economic Advisers in the Bush administration, and he also did an analysis of treasury and the fed unilaterally, and that is that the big institutions and the banks like this, because if you know if you lend money to the large institutions, in the end the Treasury and the Fed will come in and guarantee all the loans.

That means you will preferentially lend to these institutions and it will end up like Fannie and Freddie and they can borrow at lower rates and have a competitive advantage.

So ironically, it strengthens the Fed and it also favors the big, big institutions and it hurts the smaller ones. Either there are other positions were overrided, but this is definitely I think, assistant relative to the other firms the same way it did for Freddie and Fannie. They have an implicit guarantee.

BAIER: It is supposed to come out this week. Does it go through?

LIASSON: I think in the end it goes through.

BAIER: Bill?

LIASSON: I think the opposition is building.

KRAUTHAMMER: It passes. Everybody hates Wall Street. Anything that is against Wall Street will pass.

BAIER: When we come back, Defense Secretary Robert Gates' memo about the U.S. readiness for a nuclear Iran.



ROBERT GIBBS, WHITE HOUSE PRESS SECRETARY: There are hundreds of memos being written right now throughout this government and throughout the Pentagon as part of the normal policy planning process.

SEN. JOHN MCCAIN, R-ARIZ.: I didn't need a secret memo from Mr. Gates to ascertain that. We do not have a coherent policy. I think that's pretty obvious. We keep threatening sanctions.

ADM. MIKE MULLEN, CHAIRMAN, JOINT CHIEFS OF STAFF: It does represent however a very, very tough problem. I think Iran having a nuclear weapon would be incredibly destabilizing. I think attacking them would also create the same kind of outcome.


BAIER: A lot of questions about Defense Secretary Robert Gates and his memo stemming from a "New York Times" article on Saturday that read in part this — "Defense Secretary Robert Gates has warned in a secret three page memorandum to top White House officials that the United States does not have an effective long-range policy for dealing with Iran's steady progress toward nuclear capability," according to government officials familiar with the document.

Gates released a statement today in which he said this was not meant to be a wake-up call. It was a private give-and-take between the national security advisers on the way forward.

What about this? We're back with the panel. Bill?

KRISTOL: I love the Press Secretary Robert Gibbs' response, that a three-page memo from the secretary of defense to the national security adviser saying we have no coherent policy and successful policy on the most important national security threat facing the country, and his response is, hey, there are hundreds of memos written in the government. Many in the Defense Department are writing memos on whether we should procure 852 or 865 humvees, and this is just the same.

And this shows the leak wounded the administration because it told the truth. It's perfectly evident that the first wave of their Iran policy is floundering.

And for Admiral Mullen to say, well, you know, it's tough either way to get the nuclear weapons after destabilizing and if Iran gets attacked, that is destabilizing. There is a big difference. In one case it would be destabilizing if there was an attack on Iran nuclear weapons, but Iran wouldn't have nuclear weapons at least for quite a while, for some moment.

In the other case Iran would have nuclear weapons and it would be destabilizing. I'd prefer an unstable Middle East without an Iranian nuclear weapon than unstable Middle East with Iranian nuclear weapon.

BAIER: Mara, the White House seemed to push back hard on this story.

LIASSON: Well, look, this is one of the most interesting aspects of the story, the part we don't know, which is who leaked the memo? To leak a memo from the secretary of defense is really a big deal.

And this was apparently written in January. OK, it's been a couple months since then. What happened since January? Plan a, to engage Iran has been finished, didn't work. Now we're at plan b, trying to get tough sanctions on Iran. So far, not really coming up with any.

Plan c is to be revealed, and I think it sounds like what the memo is saying, get on with plan c. We better figure out what it is because we're not necessarily going to get the tough sanctions we wanted. Gates has said he would prefer to get whatever sanctions we could out of the U.N. and move on to unilateral, not multi-lateral sanctions.

BAIER: In the meantime, Charles, in Iran, in Tehran, President Mahmoud Ahmadinejad has been very bold thumbing his nose at the U.S. They was another parade there of showing off their military might and all of their weaponry over the weekend.

And he continues to make these statements that he is not in any mood to negotiate or to work with the United Nations, or anybody else.

KRAUTHAMMER: I think it really is a sign of his fanaticism and the fanaticism of the regime. They're not content with rejecting an Obama overture. They insist on humiliating him and showing contempt. And they've done it over and over for now a year and three months without suffering any consequences.

In fact, on the contrary, the more he rebuffs, rejects, and humiliates the president, the more he opens his hand and continues to offer other carrots. And now he is looking for sanctions which are rather weak.

But I'm interested in the memo and how Gates is denying that it was a wake-up call. His denial said instead, no, the memo presented a number of questions that contribute to timely decision-making process.

Well, if you are contributing to a timely process, it implies that the process right now is not. Time is running. You are essentially treading water and achieving nothing. So what do you need? You need a wake-up call.

In fact, this is a man who brilliantly disguised the fact that he was making a wake-up call because unless there is a third contingency, and he is the secretary of defense, and he is talking about military options, which the chairman of the Joint Chiefs also spoke about, that it would have a significant effect if it were used on Iran's program.

Unless you have that, all the negotiations are entirely unserious. Either you deploy, you brandish it as a bluff or an attempt at pressure, or you actually think of using it. But to take it off the table gratuitously as Obama has makes absolutely no sense.

BAIER: Bill, the clock is ticking here.

KRISTOL: Nuclear program, the weapons program.

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