This is a rush transcript of "Special Report With Bret Baier" from August 17, 2010. This copy may not be in its final form and may be updated.

BRET BAIER, ANCHOR: This is a Fox News alert. We are live at Chicago. Former gove rnor Rod Blagojevich speaking about the one count of lying to federal agents that a jury came back with.

Let's listen in:

ROD BLAGOJEVICH, FORMER ILLINOIS GOVERNOR: -- Aaron Goldstein and Michael Gillespie, who has a torn hamstring. Mark Martin who is a guy who's very good with the legal books. I want to thank them and thank Jay Wallace for being here, Ken Salters (ph), and all the other young attorneys who worked hard on our behalf.

Let me also express my appreciation to the men and women who served on the jury, thank them for their hard work, for giving up their summer. They did their duty as citizens and they deliberated and they took time. And I want to thank them for their hard work and for their deliberation and for the sacrifice they made as our citizens.

Let me also say to the people of Illinois that from the beginning when this all happened I told them I did not let them down, I didn't break any laws, I didn't do anything wrong. The government, the federal government in this particular prosecutor did everything he could to target me prosecute me, persecute me, put pressure on my family, try to take our home, take me away from my kids, arrest me.

And in the early morning on December the 9th with Patty and me in our bedroom and our little Annie in bed with us, a sitting governor, that very prosecutor said he was stopping a crime spree before it happened. This jury just showed you, notwithstanding the fact that this government and the power and the resources they bring to bear, the jury just shows you that notwithstanding the fact that the government threw everything but the kitchen sink at me, that on every count except for one -- every charge except for one -- they could not prove that I did anything wrong, that I did break any laws, except for one nebulous charge from five years ago, a conversation I had with the FBI where the FBI -- and I agreed to the interview -- refused to allow me to have a court reporter in the room. I want the people of Illinois to know I did not lie to the FBI.

I told the truth from the beginning. This is a persecution. We have police officers who are being gunned down on the street. We have children who can't play in front of their home in the summertime because they might get gunned down. And we have a prosecutor who wasted and wants to spend tens of millions of dollars of taxpayer money to keep persecuting me, persecuting my family, take me away from my little girls as well as take my home away from us.

But I want to thank the men and women of the jury for what they came up with. Most people say you can't fight city hall and most people have said form the very beginning when the federal government and these prosecutors come at you like they did me and threw everything they could at me, 24 charges I said from the beginning are false. And the jury agreed that the government did not prove its case.

And let me also point out, let me also point out, that we didn't even put a defense on and the government couldn't prove the case.

And so Patty and I -- Patty and I will continue the fight, because this fight is bigger than just me and my family. This is a fight for the freedom that we as Americans enjoy, the right to be able to be innocent, the right to be able to do your job and to not be lied about. And so we're going to continue the fight.

And again, I just want to express my gratitude to men and women of the jury and remind the people of Illinois, I didn't let you down. The jury has shown the government couldn't prove that I did anything wrong. We are going to appeal that lying decision and we're hopeful that the law is on our side with regard to that.


BAIER: Former governor Rod Blagojevich talking about a federal jury that just found him guilty on one out of 24 counts. The one count was lying to federal agents, as you look live there. He decided to speak at the microphones. He faced 24 counts in all, including charges he tried to sell or trade President Barack Obama's old Senate seat.

For the single charge of lying to a federal agent he does face five years in prison and up to $250,000 fine. But we're hearing from the government that prosecutors may try him again on the other charges -- the 23 charges that the jury was deadlocked on, essentially declaring a mistrial.

What about all of this? Let's bring in our panel: Jonah Goldberg, at-large editor of National Review Online; Kirsten Powers, columnist from The New York Post, and syndicated columnist Charles Krauthammer.

Well, as promised, Blagojevich at a microphone. Charles?

CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: As we saw, that's why we love the guy. And that was a hell of a speech. I thought he was going to declare his candidacy for the governorship of Illinois and start all over again. Where he talked about it's larger than me, it's about the freedom of the American people. And I loved that part about the kids in the streets who are attacked by gunmen while he's being attacked by a prosecutor.

Look, I think this is embarrassment to Patrick Fitzgerald, the guy who prosecuted him. It's a huge embarrassment because he said it was a crime spree. You get one count of lying to the FBI, which is, relatively speaking, a minor count over the others. The bribery charges, selling the office, extortion, all of that -- all gone, or at least hung jury. He says they will prosecute again perhaps. But this is really a mouse out of a molehill.

And Blagojevich comes out of it, I think not vindicated. Everybody understands that he is the guy who walked the line, who walked the edge a lot. But I suspect people will conclude that given the state of politics in the state, he was not that far over the line.

BAIER: Kirsten?

KIRSTEN POWERS, COLUMNIST, NEW YORK POST: Yes, well, I think it proves being a foul-mouth goofball isn't illegal, because that's essentially what he is.

He schemed a lot. He had a lot of grandiose ideas and plans of all these things that the Obama administration would do for him, but he was actually incapable of bringing them to fruition.

I think this was a huge waste of taxpayer money. The fact that they're talking about a retrial is even more waste of money and they should just drop it and move on.

He's a very unsavory character, but it's clear from the beginning this is just criminalizing politics.

BAIER: Jonah, what about the politics here? You had the White House chief of staff Rahm Emanuel being talked about in this trial in which he did reach out -- we're told by testimony -- to advocate for Valerie Jarrett, senior adviser in the White House to get the Senate seat, even though the White House Counsel put out a report saying the White House did not in the transition reach out at all.

The politics there for the White House and a Democratic Senate candidate in Illinois, Alexi Giannoulias, who probably wants the case to go away as well, because he's tied to the characters as well.

JONAH GOLDBERG, NATIONAL REVIEW: I agree with Charles and Kirsten, but with one caveat that we need to wait to hear from jurors a little bit. If it was a deadlock of 11 for conviction and one weird holdout, that says one thing. If it was some other more of a mess it says another.

But regardless, it is a huge black eye for Fitzgerald. And it's almost the worst of all possible worlds for the Obama administration because, I was talking to a lawyer about this recently. If you are the judge, you are probably annoyed with the prosecution. And you're going to say, OK, if you want to retry, let's retry right away, which means you will go into September, October, November with Blago dominating the news.

The prosecution is saying no, wait, they really did this bad stuff. The administration's name is dragged back through this again, and Blago becoming more of a sort of "Jersey Shore" meets "Entertainment Tonight" political figure.

I think it is the worst possible scenario and I'm sure the guys in the White House would love this to now just go away.

BAIER: Last word, Charles.

KRAUTHAMMER: I don't think it will. I think the prosecutors are going to have to try to vindicate to themselves. I think they will be determined. But I think it is hard for the Democrats to swallow, to have it all out there as an election approaches. It reminds them of the sleazy state of politics under a Democratic governor. It could be the same with the other party, but he was the guy in power and all this happened under him.

I think it's a huge loss for the prosecution.

BAIER: The mosque controversy in New York is testing party unity and sparking speculation about possible compromise. The panel tackles that big topic next.

During the break, check out the show section of the homepage at FOXnews.com/specialreport for the latest on this issue.



HOUSE MAJORITY WHIP JAMES CLYBURN, D-S.C.: Community standards ought to be left up to the community. So the decisions on permitting for any building, be it a mosque or a church or whatever may be a place of worship, or be it a grocery store or liquor store, those things are left up to community standards, and I think in this instance, that is what the president has made clear.

GOV. CHRIS CHRISTIE, R-N.J.: What disturbs me about the president's remarks is that he is now using it as a political football as well. But beyond that, Josh, I'm not getting into it, because then I would be guilty of the same thing that I think some Republicans are guilty of and now the president is now guilty of, of playing politics with this issue. I'm simply not going to do it.


BAIER: Well, some politicians got into it. Some didn't.

New York Governor David Paterson, as you look at the site here, offered alternative site for the mosque. He claimed he was set to meet with the project's backers later this week to discuss all of this. When Fox News tried to reach out to the owners of the property, they said no. We are moving forward at that particular site.

What about the mosque controversy and politics of it all? We're back with the panel. Jonah?

GOLDBERG: Well, I think the most amazing -- first of all, let's state up front that this is all the product of stupidity and lack of foresight by a number of politicians, chief of which is Michael Bloomberg. Good politicians are supposed to see problems coming down the road. This could have been dealt with six months ago when nobody ever heard of this thing, it never would have become a national issue.

Then you have Barack Obama over the weekend who all of sudden essentially takes the same position as National Review and Charles Krauthammer, which is that they have a right to build a mosque there, but they probably shouldn't because it would be inappropriate.

BAIER: He wasn't going to weigh in on the wisdom of making that decision --

GOLDBERG: But the only reason he said he wasn't going to weigh in on the wisdom is because he was correctly interpreted as being seen as endorsing it.

And so what he did is created this room for the opponents of the mosque to basically say well, yes, I'm a little stronger on it than President Obama. I am about where Harry Reid is. And he nationalized this issue and it's caused everybody to dig in on this and it's inescapable now.

And we're coming up on the anniversary of 9/11, going into the elections when it's stepping on every message the White House wants to bring, except for maybe Blago. And it's an astounding blunder that could have been avoided with a few phone calls by Michael Bloomberg six months ago.

BAIER: Kirsten?

POWERS: Well, I think that there is a difference between National Review and Charles taking a position frankly than politician taking a position.

And with all due respect to Congressman Clyburn, there is no such thing of separation of grocery stores and state. There is something called separation of church and state and the whole purpose of it is to keep the government from meddling in people's practice of their religion. And it was championed by evangelicals, who had been persecuted by the government.

So while they're not using any official means to stop them from building it, they are really tiptoeing up to the line of interference and intimidation. And I don't think they should be getting involved in it. There's nothing wrong with pundits, columnists, anyone else talking about it. But I think it's completely inappropriate and they should just back off from this.

The other thing I'll say is that Sam Stein at The Huffington Post is reporting about the imam, and it turns out in 2003 the FBI was actually working with him to try to -- in a conference they had on how to deal with Muslims and Arab-Americans. I mean, this guy was far from some radical. The Bush administration obviously didn't have a problem with him.

So I think it's not Barack Obama's fault. I think it has been made a national issue, frankly, by Sarah Palin and Newt Gingrich. And he took the bait and he shouldn't have taken the bait. But he didn't make it national issue.

KRAUTHAMMER: Look, I disagree completely that it's inappropriate for a politician to offer an opinion on this. Nobody is proposing a law that will prevent building of the mosque. No one is saying that Congress is going to act on this tomorrow.

A politician is a person elected who represents his constituents and has every right to speak out on an issue to which he sees rights and wrongs and which he doesn't want to legislate.

And you can say, as I think they ought to say, yes, of course, they have the right to construct house of worship anywhere, but we believe that it is unwise, insensitive -- in fact, I would say a provocation -- to build a mosque on a site that was point of impact of the airplane that Mohammad Atta piloted in the World Trade Center.

That is, I think a reflection of the politician who in turn he reflects his constituency. There's nothing inappropriate about that. A politician ought to speak out and that would be appropriate way to speak out. We're not going to pass a law, but we can offer an opinion and we could encourage a mosque to accept the governor's offer and look elsewhere.

BAIER: Ten seconds, I want to get this in. The Greek Orthodox archdiocese of America is accusing New York of stalling on their reconstruction. It's the only church that was destroyed on September 11, a four-story, a tiny four-story building destroyed near the World Trade Center towers. Apparently they can't get approval to rebuild and they are speaking out, saying why is there such concern for moving the mosque forward when we can't get our church rebuilt?

What about that religious freedom?

KRAUTHAMMER: Look, it's a good point. And I would add, why are we still looking at an empty hole at 9/11 at Ground Zero? It is -- right now, it's grave and a tomb and that's why it's a grave desecration to build provocative structure nearby.