This is a rush transcript from "Special Report," December 22, 2010. This copy may not be in its final form and may be updated.


PRESIDENT OBAMA: If there’s any lesson to draw from the past few weeks, it's that we are not doomed to endless gridlock. We’ve shown in the wake of the November elections that we have the capacity to not only make progress but to make progress together.

And I’m not naive. I know there will be tough fight months ahead. But my hope heading into the New Year is that we continue to heed the message of the American people and hold to a spirit of common purpose in 2011 and beyond. 


BRET BAIER, HOST OF “SPECIAL REPORT”: President Obama today in the news conference doing a bit of a victory lap because look at the list of lame duck session of Congress accomplishments, ratification of the START Treaty, repeal of ‘Don't Ask, Don't Tell,’ the tax rate compromise, 9/11 responders health bill, a food safety bill, 19 judicial nominees confirmed, many of them on the sidelines for about six months and a continuing resolution that takes and funds the government into March. What about all of this and this news conference today? Let's bring in an expanded panel tonight, Steve Hayes, senior writer for the Weekly Standard, A.B. Stoddard, associate editor of The Hill, Juan Williams, Fox News contributor and syndicated columnist Charles Krauthammer. Steve, your take of the president and his victory lap?

STEVE HAYES, SENIOR WRITER, THE WEEKLY STANDARD: I am not sure he needed to do a press conference. I don’t think he made much news. He said what he said before. I don't think it really got him much to do in the press conference. As a matter of strategy I don't know if that really brought him much.

Clearly it was a good month. I would argue that the things that he accomplished and the spectacular policies that he passed with the exception of the tax compromise aren’t really that big of a deal. When we look back on the Obama presidency, not many people will remember the specific policies that he passed.

But in terms of slowing that the momentum that the Republicans gained politically coming out of the November 2nd elections I think it helps him politically.

BAIER: A.B., we talked about how quick the transformation for this president, this administration to reach to the middle.

A.B. STODDARD, ASSOCIATE EDITOR, THE HILL: And the Gallup poll shows him nine points up among liberal and moderate Republicans, still very low support, but nine points up in two weeks. It’s a long time till the presidential election and that's what he is working for.

A little loss of liberal support, but I think he held the press conference today actually to talk to the liberal left about the things he wishes he could have done and the disappointments that he had.

BAIER: He called the DREAM Act his biggest disappointment.

OBAMA: And on the tax issue I am still with those who oppose tax relief for the super rich. I thought it was also very interesting because we heard the narrative for the 2012 campaign today. It was about how our goal should be a thriving middle class and he said we'll talk about this in the years to come, and it set narrative and how you cut unnecessary government spending and invest in jobs and make the economy thrive. That was interesting thing to hear.

But politically it doesn't matter whether its food safety or arms control agreements, the fact that he built momentum up with a big list of accomplishments and doesn't have to talk about health care and stimulus one and has a list of recent accomplishments. That’s all that matters for him. Will it last? Probably not but the best three weeks he's had I think in 20 months.

BAIER: Juan, does it change the dynamics going into the new Congress on January 5th?

JUAN WILLIAMS, FOX NEWS CONTRIBUTOR: Yes, and I think that's why this was important. It’s important for him given the shellacking as he described it happened in November to make it clear that he does have a list of accomplishments.  And it’s historic in terms of the number of accomplishments that took place; not only in terms of the two year period but in terms of the lame duck session. I think people were pessimistic about what could get done given that Republicans were gaining power and be more Republicans in the Senate and control the House come January.

But I thought that what you saw here was the president laying the groundwork for going forward and in specific we are going to have to have discussions of energy and climate control. He wants, but I don’t see it happening something on immigration.

But really specifically saying we'll have major arguments on budget issues. I think as we go in January that’s where the fight is. It’s going to be a big showdown between President Obama and Republicans and how you have cuts, how the budget is maneuvered, given the size of the deficit

BAIER: Charles?

CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: The news conference was not about information it was about basking. He had an unbelievable December.  I mean he really came back in a way that was stunning. I don't think it is a reversal of his descent. I think it was a restoration of a guy that had been shellacked in November.

And look it’s true in the eye of history no one will remember the START treaty, but the eye of history is not what governs now. It’s how he restored himself as a player in Washington. He's relevant and the number one actor.

And what he’s achieved is quite amazing. Start with the number one priority in foreign affairs. ‘Don't Ask, Don't Tell,’ was the number one issue he wanted in the social policy. And stimulus two and masquerading as a tax cut deal. He gave himself a tremendous influx for a sugar high in the two years leading up to the election. That’s a lot to achieve for a guy who got shellacking and was on the mat. He got off the mat in a way no one expected and I think he pulled off with cleverness and cunning.

BAIER: One answer raised a few eye brows. Take a listen to this.


UNIDENTIFIED MALE: I have a couple of questions about ‘Don't Ask, Don't Tell.’ First of all, congratulations. Is it intellectually consistent to say that gay and lesbians should be able to fight and die for this country, but they should not able to marry the people they love?

OBAMA: My base line is a strong civil union that provides them the protections and the legal rights that married couples have. And I think that’s the right thing to do. But I recognize that from their perspective it is not enough. And I think this is something we’re going to continue to debate and I personally am going to continue to wrestle with going forward.


BAIER: A.B., he said his position was continuing to evolve, and that’s an interesting thing for a president who said he was for civil unions.  To have an evolving position that perhaps is he opening the door to changing that position? 

STODDARD: President Clinton's position on this issue is what many politicians in the Democratic Party who were opposed to gay marriage are evolving because they are seeing a shift in the country that Charles talked about a lot and we see in polling, looking at the ‘Don’t Ask, Don’t Tell’ repeal.   44 percent approved of gays serving openly in the military at the time the policy was enacted 17 years ago.  Now it is 77 percent of the country approves of homosexuals serving openly.  There is an acceptance of homosexuals that has grown.

We don't know what will happen in the marriage debate but there’s a shift going on and the president is not ready to back gay marriage but he’s trying to indicate that he just might soon. 

BAIER: Certainly that’s not a reach to the middle, is it?

KRAUTHAMMER: I think what he’s doing is he’s just won back the base. Everybody said he alienated the base by accepting the Bush cuts for the upper income folks.  Three days later he won it back with "Don't Ask, Don't Tell." He's looking into the future and thinking that the pressure will be on him as the next step to endorse marriage. And I think what he's doing is positioning himself so that if and when he changes as I think he will, he set the premise today. 

BAIER: Steve, on the economy, the president now says and this is an AP article from today, it says President Obama said the economy will be his singular focus over the next two years.

Here is a story a year ago. "Obama to focus hard on the economy.  He says chief focus is on the economy." Here's a story from two years ago, from 2009, "Obama puts renewed focus on job creation, convenes job summit." 

HAYES: Yes, he says it all the time. In between those times I reread the state of the union from January of this year. He said our most important job is creating jobs and focusing on the economy.

Look by that measure, I think you can argue that yes growth is better; growth has improved from a place of a year ago. At the same time unemployment hasn't improved greatly from that point in time. And if you look at the Recovery Act in particular which was the single most domestic policy economic policy and achievement of the Obama administration over the first two years it didn't do, it didn't succeed. And it didn't succeed not on my term, not on anyway else’s terms, but on their own terms.

BAIER: The president was asked about the car in the ditch and said its back on the road. Juan, there weren’t a lot of hard questions in this news conference.

WILLIAMS: I think Mike Emanuel's question on Guantanamo Bay was the toughest question.

But I was struck when he was speaking for the first time he said we are going to pivot and now the focus on jobs and growth. That made me think in his mind what he was doing previously was rescuing an economy about to go off of the cliff and the analogy to the car in the ditch was something that he picked on.  He says now with are the Republicans driving the car and the car is the economy, he said the American people are driving the car. But he understands he has a co-pilot here and he’s got to do business with the Republicans and that's what the common terms of what we see in the political battles coming for January

BAIER: Maybe in 2011 we can park the car and choose another vehicle.


Charles, last word.

KRAUTHAMMER: I was struck by you talked about no hard questions. I was struck by the question of "Don't Ask, Don't Tell" in which the questioner said "congratulations." People speak about the liberal inclinations (ph) of the press and I thought that was rather revealing.

BAIER: Lon on to our homepage at FOXnew.com/specialreport and tell us what grade do you give President Obama since the midterms. More news from the news conference and also something about intelligence after a quick break.



DIANE SAWYER, ABC NEWS: London, how serious is it? Any implication that it was coming here or any of the things they had seen were coming here?  Director Clapper?

JOHN BRENNAN, WHITE HOUSE COUNTERTERRORISM ADVISER: The arrest of the 12 by the British this morning. It's something that British informed us about early this morning as it was taking place.

SAWYER: I was a little surprised you didn't know about London Director Clapper.


BRENNAN: You referenced London but you didn't talk about the arrests.


BAIER: Director of National Intelligence James Clapper didn't know about the arrest of 12 suspected terrorists in London. This is the first statement to come out of the DNI, "The question about the specific news development was ambiguous. The DNI's knowledge of threat streams in Europe is profound and multidimensional, and any suggestion otherwise is inaccurate."

And then the president's counterterrorism advisor went to the briefing room today. 


BRENNAN: Should he have been briefed by the staff on those arrests? Yes. And I know there was breathless attention by the media about these arrests and constantly on the news networks. I am glad that Jim Clapper is not sitting in front of the TV 24 hours a day and monitoring what is coming out of the media.

What he is doing is focusing on those intelligence issues the president expects him to focus on and to make sure that we don't have conflicts in different parts of the world. He continues to focus on those and his not being briefed yesterday afternoon is something they acknowledge he should have been briefed on and they have taken steps to correct that now. And if it happens again I'm sure he will up front as far as the take down overseas.


BAIER: One year after the Christmas Day bomber blow up.  Back with the panel. Charles, what about this?

KRAUTHAMMER: Well that was a heroic and aggressive defense of what you cannot defend. The DNI ought to know about stuff and the excuse which is what was offered; that he's so occupied with Korea and with START treaty that he didn't notice there was an arrest in London of a dozen jihadists.

BAIER: We were nonstop all day and we had reports from London.

KRAUTHAMMER: We assume his information is not from television and he ought to be getting it from CIA, et cetera. So I’m surprised. But of course this is a team that gave us Homeland Security Secretary who said after the Christmas - the attempted attack on Christmas Day last year that a bomb that nearly went off and where the bomber was subdued by the passengers was an example of how the system had worked. So there are problems with this team.

BAIER: Juan?

WILLIAMS: The problem here is structural. The problem is you know he's relatively new to the job. His predecessor was ousted for, I don't want to be harsh, but incompetence. The idea was --


BAIER: Just don't hold back.

HAYES: Way to sugarcoat it. 

WILLIAMS: You have a new relationship between the director of intelligence, CIA, FBI, Homeland Security, and national security at the White House. The question, the idea was it was to be funneled to the top and not going to have repetition and redundancies and it was going to be efficient. This has not played out so far.

BAIER: OK, so he didn't get briefed, but then he gets ready for an interview with Diane Sawyer. It’s  all day on TV. Somebody?  The press guy?

STODDARD: Brennan’s comments about the reckless attention to the media as if that’s wrong. That was beyond defense. It’s just really strange. This is astonishing and it’s very embarrassing and obviously never want manage like this to happen. It’s a mistake and oversight.

But this focus on the media, Eric Holder came out the attorney general and made the case we are under real threat and homegrown terrorism and 126 arrests in 24 months and 50 of them are homegrown, are American. And it is amazing all of the sudden they show disdain the coverage in the media.

HAYES: And once again try to minimize it. I mean basically they were just trying to say yes, these arrests in London.  The problem is, one second.

BAIER: Hold on. Imagine Mr. Bush's intelligence director said that in an interview and what the reaction would be. 

HAYES: The structures have been in place for six years and the whole point was DNI. He was the point man. This is the person who is supposed to know all of this in real time. The problem with their explanation of it is that is wasn’t at all minor. You had Brits calling it major. You have The Wall Street Journal was saying it was one of the biggest; most significant counter terrorism busts in recent years.

BAIER: The one in Great Britain.

HAYES: The one in Great Britain. This is a big deal. And to come out and have them to say the question was ambiguous as if that was the problem and add on to that it was not an immediate homegrown nexus, meaning it was not happening here. Really, it is not significant enough that we shouldn't know about a major bust with our greatest and closest ally?

WILLIAMS: The point is he is supposed to coordinate. The better defense would have been it hadn't reached that level, but the fact is, he should have known and the fact that they come out and Brennan had to defend him was political and public relations CYA.

KRAUTHAMMER: It reached a level of arrest in London. You drive in Washington and you have these huge signs that say "Be alert to suspicious activity" and the head of DNI is not aware of suspicious activity in London is a little bit distressing.

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