'Journal Editorial Report,' May 15, 2010

This is a rush transcript from "The Journal Editorial Report," May 15, 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," incumbents beware. A pair of high-profile primary losses has Washington insiders on edge. Can Senators Arlen Specter and Blanche Lincoln survive the wave come Tuesday?

And the nomination of Elena Kagan, what it means for the Supreme Court and what it says about the Obama agenda.

Plus, Fannie and Freddie have already cost you $145 billion. And the end is nowhere is site, as Democrats vote to keep the bailouts coming.

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

Anyone who needed proof that 2010 would be a tough year for incumbents sure got it this week when veteran West Virginia Congressman Alan Mollohan lost his bid for a 15th term in a primary defeat on Tuesday. His loss came just days after Republican Senator Bob Bennett of Utah was knocked off the November ballot in the convention process.

Just how toxic the environment is for incumbents will be really tested this Tuesday, when Democratic Senators Arlen Specter of Pennsylvania and Blanche Lincoln of Arkansas attempt to fend off strong primary challenges of their own?

Joining the panel, Wall Street Journal columnist and deputy editor, Dan Henninger; editorial board member, Jason Riley; and opinionjournal.com editor, James Taranto.

Dan, we've got an incumbent thrown out, a Democratic incumbent thrown out. Is there a common theme underlying these ousters?

DAN HENNINGER, COLUMNIST & DEPUTY EDITOR: Yes, Paul. I think there's a big common theme and I would sum it up in one word: reform. I don't mean reform in the normal sense of the word, where you say we want to change something. I think the American political system is entering a formal era of reform, similar to the progressive movement. I think the American people have decided that the aggregation of government over a long period —

(CROSSTALK)

HENNINGER: Pardon?

GIGOT: OK, I'll take your point. But isn't that what Obama promised, reform in Washington?

(CROSSTALK)

GIGOT: I thought we were in that era, the new progressive era.

HENNINGER: Oh, he was the beginning of it. I completely agree. Barack Obama overthrew the Democratic establishment. He didn't deliver on what people thought they were getting. I think that's a symptom of what was to about come and they're throwing long-serving congressmen off the train left and right. And I think it's going to continue until the American people get what they want.

JASON RILEY, EDITORIAL BOARD MEMBER: Sure. But I think it's more than just an anti-incumbent fever. I think it's really an anti-Obama fever here. Mollohan, for example, is not only a 14-term congressman. He lost by 12 points to a guy who attacked him mostly on the health care vote. Again, Bennett, out in Utah attacked for TARP. These are — these are — I think —

GIGOT: Financial —

RILEY: — people responding to the Obama agenda, the piling up of debt, the uncontrolled spending. I think that's what is animating them.

JAMES TARANTO, EDITOR, OPINIONJOURNAL.COM: Here's an interesting thing. What do Alan Mollohan and Bob Bennett and Arlen Specter have in common? They're all on the Appropriations Committee. These are the committees that decide how spend — spend our money.

GIGOT: The big spenders. The biggest spenders, right.

TARANTO: And you can add to that list Kay Bailey Hutchinson, the Texas senator, who lost the gubernatorial election; David Obey, who just announced his retirement, faced with a difficult Republican challenger. He's the chairman of the House Appropriations Committee. Byron Dorgan, the senator from North Dakota, who announced his retirement a few months ago. And this is not an exhaustive list. A big part of what's going on is a rebellion against irresponsible spending.

GIGOT: Some of our media friends say the Bennett defeat was an outrage, a sign of fratricide within the Republican Party that's going to hurt the party in November.

Jason, do you agree with that?

RILEY: Well, yes, the conventional wisdom is that the Tea Party has radicalized the Republican Party. But again, I think the Obama administration has radicalized the Republican Party.

(LAUGHTER)

GIGOT: So are Republicans going to hold the seat in November in Utah?

RILEY: In Utah, probably, probably.

GIGOT: Right.

RILEY: Utah is a pretty conservative state.

GIGOT: What about Kentucky, Dan. You've got this race where the son of Ron Paul, who ran for president in 2008, Rand Paul, an ophthalmologist, a serious candidate, is running ahead of Trey Grayson, who was establishment candidate as secretary of state. Democrats will probably say that we're elated that Rand Paul is going to win. A big favorite of the Tea Partiers, they think we can beat him.

HENNINGER: I think it reflects what they're talking about. Yes, his opponent, Grayson, is the candidate of the Republican establishment. And people are so upset and so angry that they're willing to throw over a member of the establishment like that and elect a fellow like Rand Paul.

Let me give you just one other figure that shows the depth of the anxiety. A Wall Street Journal poll was just released this week, said that Republicans will be ahead. The thing that jumped out at me was the data on suburban women. Four years ago, they supported Democrats over Republicans by 24 points.

GIGOT: Right.

HENNINGER: Today, Republicans are marginally ahead, a 26 point swing among suburban women. This, to me, reflects deep anxiety, and I would not predict that voting for anti-establishment figures is going to hurt the Republican Party.

GIGOT: Alright, we have a big race coming up in Pennsylvania. Arlen Specter the incumbent, a Democrat-turned-Republican, a back Democrat, has a challenge from Joe Sestak.

Let's see an ad that was run on Joe Sestak's behalf.

(BEGIN VIDEO CLIP)

ANNOUNCER: President Obama and newspaper across Pennsylvania agree Arlen Specter is the real deal.

Specter, Bush.

GEORGE W. BUSH, FORMER PRESIDENT OF THE UNITED STATES: I'm here to say as plainly as I can, Arlen Specter is the right man for the United States Senate.

PRESIDENT BARACK OBAMA: I want to say a few things about Arlen Specter. He came to fight for the working men and women of Pennsylvania.

BUSH: I can count on this man. See, that's important. He's a firm ally when it matters most.

OBAMA: Arlen Specter casts the deciding vote in favor of Recovery Act that helped pull us back from the brink.

BUSH: I'm proud to tell you, I think he's earned another term as United States senator.

OBAMA: He's going to fight for you, regardless of what the politics are.

SEN. ARLEN SPECTER, D-PENN.: I'm Arlen Specter and I approved this message.

SPECTER: I'm Arlen Specter and I approve this message.

(END VIDEO CLIP)

(LAUGHTER)

GIGOT: Tremendously effective ad. It was run on YouTube not by the Sestak campaign. But does this shows perhaps there are limits to political opportunists?

(LAUGHTER)

TARANTO: Well, Specter was questioned on another talk show the other day about his past presidential votes. And to bolster his Democratic credentials, he said he'd voted for Adelaide Stevenson twice in 1952 and 1956.

(LAUGHTER)

So we've got Stevenson —

GIGOT: Were either of you guys alive when that was —

(LAUGHTER)

TARANTO: I was not.

Stevenson, George W. Bush, Obama, this guy knows how to pick a winner, doesn't he?

(LAUGHTER)

GIGOT: What if Sestak wins? What does that say about the state of our politics?

RILEY: It says a lot about the power of YouTube, I would say.

(LAUGHTER)

But it's nice to see someone who has been so opportunistic for so long finally get their comeuppance. But Pennsylvania is a very interesting state. It had been trending Democrat for some time now, but the Murtha seat is up, for example.

GIGOT: And that's a very important seat because, if Republicans can pick that up — Jack Murtha, who died in office.

RILEY: Yes.

GIGOT: Democratic Congressman, trying to be succeeded —

RILEY: Thirty-six years.

GIGOT: Trying to be succeeded by his former — by his staffer.

RILEY: Right.

GIGOT: And a Republican — up against a Republican businessman. If Republicans win that seat, which Democrats have about a 60,000 voter edge, that will be a very big signal that maybe we are seeing a wave coming here this year.

RILEY: Yes. Yes.

GIGOT: Alright, when we come back, the president's pick. What Elena Kagan would bring to the Supreme Court and what her selection says about the Obama agenda?

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

OBAMA: Elena is respected and admired not just for her intellect and record of achievement, but also for her temperament, her openness to a broad array of viewpoints. Her habit, to borrow a phrase from Justice Stevens, of understanding before disagreeing, her fair-mindedness and skill as a consensus builder.

(END VIDEO CLIP)

GIGOT: That was President Obama this week touting his pick for the Supreme Court, Solicitor General Elena Kagan, as an independent thinker and consensus builder.

We're back with Dan Henninger and James Taranto, and Wall Street Journal editorial board member, Dorothy Rabinowitz, joins the panel.

So, Dorothy, was Elena Kagan a good choice, will make a good justice?

DOROTHY RABINOWITZ, EDITORIAL BOARD MEMBER: First part, yes, I think a good choice, despite — and you can say quickly and get it out of the way — that this business about barring the military from the campus would, if it were the rest of us, I would resign —

GIGOT: From the Harvard campus where she was dean.

RABINOWITZ: Yes, from the Harvard campus, I would resign before doing that. Having said that —

GIGOT: This was because of having gays in the military, Don't Ask, Don't Tell.

RABINOWITZ: Gays in the military. However, she — no one who knows her thinks she's anti-military and, at all times, Harvard did provide access to the military via another means, veterans.

That said, anybody who watched her during the five years she was dean of the Harvard Law School knew she was immensely open and avid in her protection of free speech and dissent, and this in a campus that had been living in darkness prior to her arrival as dean, under Dean Clark. Political correctness ran amok, speech codes. Under Elena Kagan, instantly, there was an end to any effort to do harassment — a speech code.

GIGOT: OK.

But do we know, James, that her — anything about her judicial philosophy? Do you think it will be any different than Justice Stevens, the justice she's replacing?

TARANTO: She did say that she thought the court ruled the right way in the flag-burning case in 1989 in which Stevens was in the dissent. Flag burning is protected by the First Amendment, she argued. That's the only difference I can think of.

GIGOT: So on every other issue, you think she would be a down-the-line liberal vote?

TARANTO: I suspect that on these contentious issues she would be a predictable liberal. And what do you expect from President Obama? That's what we're going to get.

HENNINGER: And a factual example, in her long article on administrative law, which has been cited hundreds of times, she gets into the line-item veto case in which the Supreme Court overturned the 1960 — 1996 line-item veto law with dissent from Breyer and Scalia. They favored the line-item deal. Kagan said, in this article, that their dissent demolished the majority's opinion. Who wrote the majority opinion? Justice Stevens.

GIGOT: OK.

HENNINGER: Seemingly suggested she might favor executive authority to execute a line-item veto, so a little bit of unpredictability there I would say.

GIGOT: Dorothy, pick an issue. Do you think there's any issue, any other issue where she would disagree with the four liberals on the court right now?

RABINOWITZ: I think that in the independence and free speech, I think that she is not a down-the-line — First Amendment. She argued, of course, the solicitor general against the Animal Cruelty Video Act. That being said, the important thing is we are now living in a country, and have been for some time, where political correctness is choking us off at every turn, including the protection of the nation. To have someone as ambitious as Elena Kagan and as dedicated to free speech on the Supreme Court argues very much for her presence.

And let me say this for all the attacks on her ambition, I think somebody as immensely ambitious as Elena Kagan is not going to sit there to be a political leftist hack. She'll be ruling for the ages to distinguish herself.

GIGOT: But then she came out, according to Arlen Specter, in their private meeting, that she opposed the Supreme Court decision on Citizens United this year, which was a landmark Supreme Court free-speech decision. She said she would have voted with the four liberals in this case, restricting corporate and union free speech in election campaigns. That, to me, is a significant sign that she's not going to disagree with the left.

(CROSSTALK)

TARANTO: And it's an absolute scandal that liberals are against free speech, against political free speech, the core of our free speech protection for corporations and unions. But it's not a scandal that implicates Kagan any more than any other liberal. We were not going to get a sixth vote for Citizens United out of President Obama's pick.

GIGOT: OK, so she's running as something of a stealth candidate. But if she's declared what she thinks to some of the senators about what she thinks about Citizens United, how can she — can she then say, look, I'm not going to talk about Row v. Wade and these other precedents. I'm not going to talk about these other issues of legal philosophy? Can she get away with that in the hearing?

HENNINGER: I think she can get a way it. She's written a famous article on these confirmation hearings. And I think —

GIGOT: Saying they should be more forthcoming.

HENNINGER: Yes. You know, her articles are apparently extremely analytical. They describe one side and the other side completely. And I think she'll, herself, be very skillful at having a conversation with these justices in a way that will be interesting to listen to and in a way that will kind of make it hard for them to try to pull her out.

That said, one of the most interesting things about Elena Kagan was that, when she was in the Clinton White House as deputy counsel, apparently she was one of the most hyper-political individuals inside that White House. And the old saw, that justices follow the election returns, I think Elena Kagan will watch politics when she's making her decisions.

GIGOT: Briefly, James, what about the issue the president kept stressing, consensus builder. It sounds like he thinks of her as somebody that goes to the court and maybe pulls Justice Kennedy over into a new liberal, center left majority. Do you think that's possible?

TARANTO: I think that Justice Kennedy keeps his own counsel. And if President Obama was to suggest that Justice Kennedy is that easy influenced, it may end up working against him.

(LAUGHTER)

GIGOT: Alright, thank you.

When we come back, $145 billion and counting. That's how much government mortgage giants Fannie Mae and Freddie Mac have cost taxpayers so far in the biggest bailout of them all. The Senate had a chance to reform these losers this week. Guess how they voted?

(COMMERCIAL BREAK)

GIGOT: $145 billion, that's how much government-owned mortgage giants Fannie Mae and Freddie Mac have cost you so far. And there's no end in sight to this unlimited taxpayer bailout.

This week, the Senate had a chance to stop the madness, by the way, with an amendment to the Financial Regulatory Reform bill offered by Senator John McCain. The amendment would eventually transform Fannie and Freddie into private companies with no government subsidies or shut them down completely. It was voted down 56-43, with Senate Banking Chairman Chris Dodd leading the all-Democratic opposition.

Assistant editorial page editor, James Freeman, is here with the gory details.

James, so I thought —

JAMES FREEMAN, ASSITANT EDITORIAL PAGE EDITOR: It's ugly.

GIGOT: I thought bailouts were unpopular.

FREEMAN: You would think.

GIGOT: Why did Democrats not take this opportunity to stop one?

FREEMAN: Because I think they've recognized, what they have here is the permanent stimulus plan. And unlike the one that —

GIGOT: How so? Explain that.

FREEMAN: Well, $787 billion in the stimulus? Imagine if they had just erased the $787 billion and written whatever you wanted to spend.

(LAUGHTER)

And that's really where we are with Fannie and Freddie. This is a vehicle to redistribute wealth by the housing system.

GIGOT: But everybody thinks that — when I think of Fannie and Freddie losses, these were losses from the boom that turned to bust, the housing loans, the so-called liar loans that they purchased. And now those are moving through as losses to these giants. That's happening. But you're saying there's something else here?

FREEMAN: Well, I think what Democrats in Washington are hoping —

GIGOT: They're being used for —

FREEMAN: — people will think that this is — these are the problems of '08, the sins of the past that we're still paying for.

GIGOT: But they're not?

FREEMAN: No, no. They're not run as businesses. They're being run to lose money.

(CROSSTALK)

GIGOT: How so? These are being used — just so people understand. These are now being used, the money, as mortgage mitigation.

FREEMAN: Foreclosure mitigation.

GIGOT: Foreclosure mitigation.

FREEMAN: We're spending more and more of your money to fix mortgages, to basically — when people decide —

(CROSSTALK)

FREEMAN: Even if they haven't defaulted, if they think it's too much and they borrowing too much, we're lowering their principal and their rates. We're basically finding a way to keep them in houses, even if they shouldn't be there, because they can't afford them.

GIGOT: What kind of magnitudes are we talking about?

FREEMAN: It's huge. If you just look at Fannie Mae, they just reported their $111.5 billion dollar loss, their 11th consecutive quarterly loss. First three months of this year, $7.6 billion in —

GIGOT: Of the losses.

FREEMAN: — in impairments due to — just due to the Obama Mortgage Modification Program, a similar story to Freddie Mac. So the losses and the problem are getting bigger. And it's very important that people understand this is not like AIG or any of the other companies, the big banks. We loan them money and nurse them back to health and now they're paying it back.

(LAUGHTER)

AIG, we might actually make out there, at least, you know, not lose a lot of money. These are ongoing losses being generated because they're following a policy to keep people in homes.

GIGOT: How many of these mortgages, once they're redone, end up defaulting again, re-defaulting?

FREEMAN: You can't be optimistic. You look at what Fannie said about the first nine months of last year, of the ones that they modified, only 47 percent, six months later, had either been paid off or were current. Meaning, most the people, within six months, are late on their payments again.

GIGOT: So, Dan, how can you call — if you're the Democratic Party, say, on the one hand, you're reforming the financial system and you have to do it right now? But you leave off the two companies that are the — were the very heart of the scandals, say, we'll get to that later?

HENNINGER: Well, it's so interesting. We're sitting here trying to struggle to figure out how this can be.

(LAUGHTER)

And the way I think you can best understand it is by looking at the Democrats. It's kind of like a lost tribe in "Star Trek."

(LAUGHTER)

And if they voted against this stuff, they'd be cutting off their oxygen supply. Housing is like an alternative economy for the Democrats. You've got construction unions. You've got developers. You've got local housing authority. This is something they control. This is the source of patronage, a source of contribution, and they simply are not going to kill it. They would be killing themselves.

GIGOT: On the other hand, this mortgage, this foreclosure mitigation prevents the housing market from finding a bottom, in some sense, because it means that people are not — they're anticipating the banks are anticipating that maybe some of the houses will be back on the market in six months.

FREEMAN: Exactly. It's not a long-term strategy to have a housing rebound. It's a short-term strategy to avoid the pain. And it could get a lot worse. Even Fannie, which the world's experts on moral hazard —

(LAUGHTER)

— they warn, in their recent quarterly report, you know, this could be — this could be a problem. The more people decide it's socially acceptable not to pay their mortgage —

GIGOT: So just to put a number on it, CBO, Congressional Budget Office, says the losses, in their cautious estimate, $389 billion.

FREEMAN: Cost to the taxpayer over the next decade.

GIGOT: Cost to the taxpayers before it's over. That might be an underestimate.

We have to take one more break.

When we come back, our "Hits and Misses" of the week.

(COMMERCIAL BREAK)

GIGOT: Time now for our "Hits and Misses" of the week — Jason?

RILEY: Wal-mart just announced it's pledging $2 billion in cash and food for the nation's food banks. That's more than a billion pounds of groceries to help people make ends meet at a time when the employment rate is pushing about 10 percent. I think it's nice to see the private sector step up to the plate this way, especially when we have an administration in Washington who seems to think that more government intervention is the answer to everything.

GIGOT: Alright.

And I would just add, they need to spend more than $2 billion to make up for their support for Obamacare.

RILEY: True.

(LAUGHTER)

GIGOT: Alright, James Freeman?

FREEMAN: This is a miss to the football writers who voted Brian Cushing of the Houston Texans to the — gave him the AP defensive rookie of the year award. This was a re-vote after the news came out that he tested positive for performance enhancing drugs. He's serving a four-game suspension at the beginning of the year, but — and this is not a crime against humanity. But you shouldn't be throwing a party and giving him an award. It's appalling and it's the wrong message to send to kids.

GIGOT: Alright, James Taranto?

TARANTO: A miss to President Obama who, last weekend, complained about the 24/7 media environment with iPods and iPads and Xboxes and Playstations in which too much information becomes a distraction. Senator Obama was the young, hip tech-savvy candidate. President Obama reminds me of the grumpy old man from "Saturday Night Live," what are these whippersnappers doing with their newfangled contraptions.

(LAUGHTER)

They say the presidency ages a man, Paul. This proves it.

GIGOT: I must be a grumpy old man, too. I think I agree with the president on this one about all these gadgets.

(LAUGHTER)

TARANTO: You never got 70 percent of the youth vote though, did you, Paul.

(LAUGHTER)

GIGOT: No, never have. Believe me.

(LAUGHTER)

GIGOT: Alright, thank you.

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. We hope to see you all right here next week.

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