This is a rush transcript of "Special Report With Brit Hume" from September 19, 2008. This copy may not be in its final form and may be updated.


GEORGE BUSH, PRESIDENT OF THE UNITED STATES OF AMERICA: We must address th e root cause behind much of the instability in our markets, mortgage assets that have lost value during the housing decline and are now restricting the flow of credit.

America's economy is facing unprecedented challenges, and we are responding with unprecedented action.


BRET BAIER, GUEST HOST: President Bush today saying we must act now in the Rose Garden. He also said this is a pivotal moment for America's economy.

Introducing a sweeping plan to try to shore up confidence in the financial markets, a plan that could involve— that will involve — buying up distressed mortgages at deep discounts from banks.

How much it costs—no real price tag yet. It could be hundreds of billions of dollars.

Treasury Secretary Henry Paulson today saying the federal government must implement a program to remove these "illiquid assets" that are weighing down our financial institutions and threatening our economy.

The administration is working with Congress tonight and through the weekend on this. It's massive.

Some analytical observations from Fred Barnes, Executive Editor of The Weekly Standard, Mort Kondracke, Executive Editor of Roll Call, and Charles Krauthammer, FOX News contributors all.

Charles, it's hard to get your mind around how big a deal this is. The president is saying today that there are plans to pay all of this back. But there is a lot of taxpayer money on the line, a lot.

CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: And enormous new structures. It took FDR a decade to put in place all the institutions of the New Deal. Paulson and Bernanke did it in ten hours. I mean, in one night, they created a whole new world. Even God took six. It's absolutely astonishing.

What Paulson understood is that the approach he had taken, this ad hoc approach, was not working. The reason is that you had—he had three solutions: shotgun weddings—the Bear Stearns bit—the liquidation of Lehman, and nationalization of AIG, for example. And nobody knew what would happen to a firm in trouble, which of three would apply.

So as I said last night, he was introducing uncertainty in a situation which was already incredibly uncertain and panicked. If you were going to lend money overnight, you didn't know if the borrower was going to be a Lehman or a Bear Stearns.

And what he did was he decided you got to go to the root problem underlying all the instability of the institutions, and that is the mortgages. So he takes on the mortgages, he takes it off the balance sheet of all these institutions, and they get relatively healthy overnight.

And then you get strength in those institutions, confidence with trust, and lending. And that's why I think it will likely work.

BAIER: And, Mort, there are a lot of different parts to this potential plan. We should say the Federal Reserve and Treasury Department working with congressional leaders starting tonight through the weekend.

MORT KONDRAKE, EXECUTIVE EDITOR, ROLL CALL: Yes. And the danger, of course, always is that Congress will not just do this but want to add on all kinds of addenda—a stimulus package, aid for states and local governments, infrastructure programs, all that kind of stuff.

And what they've got to do—I gather [Sen.] Chris Dodd actually said this will not become a Christmas tree today, the Chairman of the Senate Banking Committee-

BAIER: Meaning they won't hang things on it.

KONDRAKE: Yes, hang all kinds of things on it, which will complicate things.

So one would hope that they would do the minimum. You can be sure that there will be add-ons because [Sen. Majority Leader] Harry Reid said we've got to not only help out Wall Street, but have to help out Main Street. The question is how much are they going to help out Main Street?

But, fundamentally, I think, everybody is so scared and realizes that something has to be done, that— I mean even money market accounts. People were pulling money out of money market accounts, which are the safest thing going next to Treasury Bills, and piling them into Treasury Bills, and you were going to have a run on mutual funds, the safest mutual funds there were.

So this was real panic time, and they had to put a pan under it.

BAIER: And, Fred, the markets worldwide saw this as a good sign today. The Dow was up 369 across the board and around the world.

FRED BARNES, EXECUTIVE EDITOR, THE WEEKLY STANDARD: Around the world, I love it. Even in Russia! I think the market was up 20 percent.

Look, when I keep hearing this is going to cost a trillion dollars, and so on, it may not cost anything. Remember, when they are setting up a "bad bank," so called, that will get all these, at a deep discount all these mortgage-backed securities.

But they do involve some—the paper may be bad, but there are below them houses, an awful lot of houses, which will be more valuable at some point further down the line. And so actually the federal government may come out ahead. But I mean, they are putting a lot of money out there now, no question about that.

What I am tired of hearing is people saying that this is an economic crisis. This is not an economic crisis. This is a crisis in financial markets, and what Henry Paulson and Ben Bernanke have done is to come in and do all this in one fell swoop so the crisis in financial markets will not cause a crisis on Main Street and the economy.

It hasn't yet, and I don't think it will because they have acted so boldly.

KONDRAKE: You know, one bum wrap I think that is going around here is "where was Bush?" I think Bush handled this rather well by not being out in front and putting Hank Paulson out in front.

If Bush had been out in front negotiating with the Democrats—the Democrats in Congress hate Bush. They would have politicized this. Hank Paulson had a lot of trust and confidence. Furthermore, he was the head of Goldman Sachs and knows what he is doing.

And so I think, you know, Bush handled it rather well.

BAIER: Speaking of the politics, where do the presidential candidates come down on this plan? We'll find out and talk about it when the panel returns.



SEN. JOHN MCCAIN, (R-ARIZ.) PRESIDENTIAL CANDIDATE: Two years ago, I called for the reform of this corruption at Fannie Mae and Freddie Mac, and Congress did nothing. The administration did nothing. Senator Obama did nothing, and he actually profited from this system of abuse and scandal.



SEN. BARACK OBAMA, (D-ILL.) PRESIDENTIAL CANDIDATE: This morning, Senator McCain gave a speech in which his big solution to this worldwide economic crisis was to blame me for it. This is the guy who spent nearly three decades in Washington.


BAIER: Senators McCain and Obama today, a little of the flavor back and forth on this massive rescue plan day that it was announced by the president.

What about this and the politics of it all? Mort, who's winning this battle?

KONDRAKE: I mean, there were the good boys and the bad boys today. And what we saw today was the bad boys, where they were batting each other around.

And as for the Fannie Mae stuff, they're both right and they're both wrong. McCain did advocate reform and better control of Fannie Mae. But he also, his campaign manager, Rick Davis, was the leader of the lobby that was fighting what McCain at that time was promoting.

And it's true that Obama has a lot of advisors who used to be involved with Fannie Mae. So they are both right and both wrong.

Anyway, they also had some constructive things to recommend. Obama said that it's not enough, again, to bail out Wall Street, but he's for it.

He's for this happening, and he says that it should not be loaded up with a lot of other stuff, although he's not even going to insist on his own economic stimulus package be part of the package that gets passed to do this.

And McCain yesterday was in favor of the reconstruction of trust corporations, or whatever this thing is going to be called with a different name, and he's got a positive agenda, too.

So the net of it is, I think, that turmoil in the financial markets and a scare in the economy probably helps the Democrat, but I don't think it's going to be an overwhelming benefit.

BAIER: Charles?

KRAUTHAMMER: What we have, as Mort indicated, was more schoolyard spitballs, which was rather entertaining, and recommendations which are entirely irrelevant.

What's going to happen is going to happen within a week or ten days, and it will become law. It's going to be in place by Election Day and certainly by Inauguration Day. All of this new "New Deal" is going to be established, and whatever McCain or Obama recommends today is absolutely irrelevant.

Secondly, it's robbing—all of their recommendations of what they would do in office, I think, is being drained away. We are going to spend the next two, three, five years working off this problem, and it's going to eat up every available dollar in the Treasury.

There will not be a dollar for a new healthcare system or for a green revolution in energy or for the kind of tax cuts McCain is advocating.

I think it sort of neutralizes and makes irrelevant all of their economic recommendations.

BAIER: And McCain is now turning the corner to go again hard on the tax proposal for Obama.

BARNES: Look, that's a separate issue from this.

I disagree with Mort. I don't think we have heard anything constructive from these candidates. They don't know what they're talking about. They don't have a clue about what's going on in the financial markets. They ought to just butt out!

They would be much better just sitting aside and letting Wall Street and Hank Paulson and Ben Bernanke handle this.

I mean, you know, Charles, as you said, Paulson had put together this vast plan in a matter of days. Well, they put together these proposals in a matter of minutes, maybe hours. They're not to be taken seriously. I mean, "irrelevant" is the right word.

Can't there be a time when the candidates just say, "Wait a minute. We're going to let this thing work itself out, and we'll get involved sometime later, if at all."

KONDRAKE: They can't.

BARNES: But sure they could. They could do that.

KONDRAKE: They clearly can't, because if one of them did that, the other one would say "See, he has got nothing to say."

BARNES: So if one acts like a fool, the other has to as well?

KONDRAKE: They have to demonstrate that they have some idea about what is going on , even if they don't.

BARNES: —exactly the opposite.

BAIER: Ten seconds here.

KRAUTHAMMER: What is amazing is all of this upheaval at the height of a presidential race—we haven't had anything like this since the invasion of Hungary a week before the election in '56. It is astonishing, and, I must say, entertaining.

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