This is a rush transcript of "Special Report With Brit Hume" from February 25, 2008. This copy may not be in its final form and may be updated.


SEN. HILLARY CLINTON, PRESIDENTIAL CANDIDATE: Maybe I have just lived a lit tle long, but I have no illusions about how hard this is going to be. You are not going to wave a magic wand and have the special interests disappear.

SEN. BARACK OBAMA, PRESIDENTIAL CANDIDATE: She's right about that, but it doesn't help if you take a million dollars or two million dollars or three million dollars or five million dollars from lobbyists for the special interests. They definitely won't go away then.


BRIT HUME, HOST: Some thoughts on the state of this campaign from Fred Barnes, executive editor of The Weekly Standard, Mara Liasson, national political correspondent of National Public Radio, and Morton M. Kondracke, executive editor of Roll Call — FOX News contributors all.

Well, from a debate on Thursday night in which she talked about how proud she was to be next to Barack Obama, Hillary Clinton by Saturday was saying he should be ashamed of himself for circulating a flier about — I guess about NAFTA — and then you heard a little of that.

So what's going on here, and will it go anywhere for her — Mort?

MORT KONDRACKE, EXECUTIVE EDITOR, ROLL CALL: Well, she is either bipolar, or she has decided that nothing else has worked, so she's going to let it rip. I would say it's probably the latter.

I was told that she was handed these two fliers, one about healthcare — Obama fliers — and the other about NAFTA, and she just blew up on the spot. She didn't consult anybody. This was —

HUME: This was a spontaneous eruption?


HUME: So she is about to go up on the stage and an aide hands it to her, and goes Krakatoa?

KONDRACKE: She had just seen in and went Krakatoa without consultation with her aide.

HUME: So we should never believe this was calculated.

KONDRACKE: Look, I don't know how it works, but she has decided to let it rip. And I guess when she saw this, she decided this is a good time to let it rip.

But I have to say this, one thing — both of these candidates are so demagoguing NAFTA so badly. She said in 2004 —

HUME: Hold it a second — NAFTA is the North American Free Trade Agreement, which was a signal achievement of the Clinton years and one which was reached with a tremendous amount of help from Republicans, indeed more Republicans than Democrats.

KONDRACKE: Just one point — 55 percent of Ohio exports go to Canada or Mexico, compared to 35 percent from the rest of the country. Ohio is profiting from NAFTA. It's not having sucking sounds of all the jobs leaving the state.

MARA LIASSON, NATIONAL CORRESPONDENT, NATIONAL PUBLIC RADIO: NAFTA is very unpopular among Ohio Democrats. That is a fact.

Now, the leaflet that talked about all the nice things she said about NAFTA is not new. They've been doing this for months. The Obama campaign has been dredging up every quote, positive one, that Hillary Clinton ever said about NAFTA and has been pointing it out.

And as far as the other leaflet that she was mad about, which was the leaflet about her healthcare plan, which showed a couple which reminded some people of Harry and Louise, the couple that was used against her 1993 healthcare plan, that has also been circulating for a very long time.

So this might be real outrage, but it certainly isn't brand new.


LIASSON: In the debate, yes.

BARNES: She had complained about these things. Mort, do you really think it was spontaneous? Are you saying that she knew about it beforehand? You know what the truth is —

HUME: Leave Mort alone and answer the question whether this will work for her, the new populist version?

BARNES: I doubt it, because he does have her on NAFTA. There is no way for her to wiggle out.

Look, in the beginning, and I think this is true, she opposed it inside the Clinton administration. She didn't want the president to sign it. But, what, is she going to trash her husband now and say, boy, it was a terrible decision, I told him not to do that?

But she can't do that because she has been going around for the last few years saying it worked. On balance, it was good for the U.S. and good for New York State. So I don't know how she is going to get rid of that.

And then the most pathetic thing was for her to try to blame it on President Bush — the Bush 41, the elder President Bush, because he negotiated it. Of course he negotiated it. There is nothing new about that. But it was left on President Clinton's desk to sign or not to sign. They had a huge debate.

HUME: Also, he had to get it past Congress, and the real negotiations were between Clinton and Congress over this.

BARNES: Yes, but he didn't even have to send it up to Congress if he didn't want to. And there was a huge debate.


LIASSON: It was a signal achievement of Bill Clinton, the new Democrat was. Since then the Democrats have moved to the left, and especially in a place like Ohio, she has to.

HUME: We will talk about McCain in a moment. McCain says if we can't convince the public we have turned it around in Iraq, I lose. He later backed off of that a little bit. A big deal has been made out of that today. Is it a big deal?

BARNES: He's just wrong. He doesn't have to convince them.

Look, the reality on the ground is too strong that Iraq has been turned around. It doesn't make a difference what he says. It is going help him.

HUME: You think it's —

BARNES: I think Iraq is going to help him win in the fall.

KONDRACKE: Of course it is. I mean, as long as the progress keeps getting made, it's going to be hugely embarrassing to the Democrats. What are they going to say — that it is a failure if they reach these reconciliation points in the government?

HUME: And they have already reached several of them.


LIASSON: If Iraq continues to improve, it will help John McCain.

HUME: I suppose the other point is, if the public doesn't believe it, then —

LIASSON: Well, yes, that's a problem.

HUME: It seems to me that what he is saying is sort of self- evident.

KONDRACKE: He is going to have to cite the evidence again and again and again.

BARNES: Normally you would depend on the wonderful mainstream press to report the news, what's going on over there. There is a powerful reality over there. It's new and it has been partially reported. I think by November it will be inescapable.

HUME: When we come back with out panel, Howard Dean asks for a special investigation of John McCain. What does that mean for the Arizona's Senator's campaign? We'll tell you next.



HOWARD DEAN, CHAIRMAN, DEMOCRATIC NATIONAL COMMITTEE: We want John McCain to obey the law with his own name on it. We're tired of seeing him say one thing then deciding that the law doesn't apply to him after the fact.

SEN. JOHN MCCAIN, PRESIDENTIAL CANDIDATE: What we're doing is exactly what Howard Dean did in previous elections.


HUME: So what is this all about? This is a fight over John McCain and his stated intention at one point in the course of this campaign to receive federal matching funds — that is to say, to have federal money supplied to his campaign to finance it.

Now, you can do that. But if you do, you must agree to certain spending limits.

Well, McCain indicated an intention to accept this federal money. He hadn't gotten any yet, and he is close to the limit already on what the spending limits would be if he were to get that money. And indeed, if he proceeded on this course, he would be unable to spend much of anything between now and when the general election begins under the law in the fall.

He has now said, no, no, we're not going to take the money. We haven't gotten any; we're not going to take it. He is being accused now of violating the law with his name on it by Howard Dean. What about it — Fred?

BARNES: He's not going to take any taxpayer money, and he's going to raise money and spend his own regardless of this case.

Howard Dean is, of course, a total hypocrite. He was the one who said he would take the taxpayer financing, and then changed his mind later, so he doesn't have any ethical standing in this thing at all.

The truth is McCain could have gotten — would be in a position where he would be stuck if he had done one of either of two things — if he had actually taken some of the taxpayer money, which he hadn't, mainly because —

HUME: It hadn't come yet.

BARNES: It hadn't come. Well, the whole federal election commission is tied up. They don't have enough commissioners, and that's another story.

Or the second thing is if he had said "I'm going to get this money to a bank; lend me something on the basis that I'm going to get this money." But he didn't say that either.

It is kind of funny, actually — he told the bank, look, I'm not going to take the money, but if I do lousy in New Hampshire, then I may take the taxpayer money, and I will come back to you, and that will be my collateral. But the terms of that were never met, so it didn't happen. So I think he is going to wiggle out of this.

Now there are some people who oppose campaign refinance reform of the John McCain variety think there is some poetic justice in McCain getting al tangled up in this.

LIASSON: Yes, but I think he is going to continue to spend money. I'm certainly not an expert on campaign finance, but it seems like if it wasn't collateral for the loan, and he never took the money, then he didn't enter into the public financing system for the primaries.

And that's what this is about. As soon as he is nominated, he will enter into the general public financing system. What the Democrats are hoping is that he won't have time to start —

HUME: I know, but, the word from McCain is that if he were found to be in that system, he would be basically unable to spend any more, raise or spend any more money, between now and September. That's what happened to Bob Dole. Bob Dole got stuck in that.

KONDRACKE: In order of him to be deprived of this money, the FEC would have to rule that — which they cannot do, because there are four vacancies on the six-member commission, and this is not going to get broken. So McCain is free to spend the money.

Now, some day, there may be a full SEC back in power, but it is always split three and three — three Republicans and three Democrats — and they will probably deadlock. It takes four to pass any kind of a resolution, so my guess is that McCain will be able to spend what he wants to spend.

Then you have this added controversy where Obama promised back in March that if McCain would agree to it, of if the Republican nominee would agree to it, that he would accept public financing —

HUME: You mean Obama?

KONDRACKE: Obama — for the general election.

HUME: And?

KONDRACKE: And he is suggesting that that was an option and not a pledge, based on — McCain immediately accepting it at that time, and McCain wants to hold him to it.

BARNES: All this is an argument I think, and Mort would disagree, an argument for total deregulation of campaign financing. Just deregulate the whole thing.


HUME: In other words, every time someone makes a contribution, the public can find out exactly how much money was given, who gave it, and who these people are.


HUME: Not just a name, but the company they work for, and whatever.

BARNES: This would put election lawyers out of business, but I could live with that.

KONDRACKE: The argument for some public financing would be that a challenger who is not well-known — this doesn't apply to Barack Obama, obviously, because he did fine without it — but the challenger who is not well-known needs some seed money, and you would get some matching money to get started. That would be a good idea.

BARNES: You could still do that; you could still deregulate the system and you could still have that. I'm not in favor of any public financing, but you could still do it.

HUME: A last quick round on this — what effect of the Nader candidacy? Ralph Nader running again, aged 74.


LIASSON: Miniscule to zero.

BARNES: If I were a Democrat, I would worry. This could be a very close race, and he won't have to get that many votes to decide, and that could be the balance of power in some states.

HUME: It is interesting that Barack Obama, who is the likely nominee, doesn't seem to be far left enough for Ralph. He is an old friend of mine — I like Ralph, but this is kind of telling, isn't it?


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