This is a rush transcript of "Special Report With Bret Baier" from February 20, 2009. This copy may not be in its final form and may be updated.


ROBERT GIBBS, WHITE HOUSE PRESS SECRETARY: I'm not on Wall Street, but I think it is very safe to assume that what is being priced into the day-to-day fluctuations of the market is not just what happens or is announced at the White House or on the road by the White House.


BRET BAIER, HOST: Robert Gibbs, the White House Press Secretary, answering a question about how Wall Street is reacting to the Obama economic plans. Wall Street closed today -- the DOW closed today at 7,365, continuing to go down.

Now some analytical observations from Fred Barnes, executive editor of The Weekly Standard, Mort Kondracke, executive editor of Roll Call, and syndicated columnist Charles Krauthammer -- FOX News contributors all.

Fred, you heard Robert Gibbs there saying it's not fair to say that the market judges the administration. What do you say to that?

FRED BARNES, EXECUTIVE EDITOR, THE WEEKLY STANDARD: I say he's totally wrong. Of course the market judges the administration on economic policy, particularly in a time where we're in -- we have such a terrible economy. Boy, he's not from Wall Street, that's for sure.

Financial markets are a bet on the future in America, and right now financial markets are betting that the future is grim. When markets dropped 800 points since Obama became president, and 2,200 since he won the election, that is a vote of no confidence on his economic policies.

When he signed the stimulus, the market went down 300 points or something. When Tim Geithner as Treasury Secretary tried to announce some plan on further bailing out the banks, it went down 400 points, or 300 points, and so on. It is really collapsing.

Nobody believes, at least on Wall Street, or anywhere else so far as I know, believes that the stimulus will stimulate. Nobody believes that they have reached a solution on what to do with the banks. Wall Street and everybody else is confused about that.

And, look, the simple thing is Obama inherited a terrible situation, a terrible economy, and he's made it worse.

MORT KONDRACKE, EXECUTIVE EDITOR, ROLL CALL: This is really laughable. I never heard Fred Barnes say as the market was toppling from 14,000 down to 7,000 during George W. Bush's watch, oh, my god, this is a vote of no confidence in George Bush.

That's what Obama inherited. He has been trying to turn it around. He has been in office one month. He has put in place efforts to deal with a global confidence crisis. That's not just an American confidence crisis.

None of it has taken effect yet. The stimulus package, none of the money is out there yet, none of the auto bailout, something that was started under George Bush, that hasn't worked. So this is all a work in progress.

Now, for sure, the markets are still in a state of decline, but give him a chance.

CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: The markets are responding remarkably, exquisitely, sensitively to political events, much more in than in the past.

And the reason is for the last year we have had huge intervention of the government in the markets and the banks, in autos. So it is not just a reaction to economic news, but to what's happening in Washington.

As a result of that, we saw, for example, last year, that tremendous swing when the House rejected the first TARP, a drop of 700 points happening overnight.

What's happening here is that you've got a negative reaction to the team. When you had Geithner rolling out the plan for TARP two, it deeply disappointed the markets because the promise had been it would be specific.

So, a, it introduced uncertainty, but, b, you had the impression of a new team that would take over, very smart people, a lot of experience, and you got a sense that they weren't sure what to do after a month or two or three of deliberation.

And that's what I think is spooking the markets. We may be in such unknown territory historically and economically, that no one knows. And the idea of nobody knowing at the helm, I think, is what is scaring the markets and dropping the market.

BAIER: And, Mort, is President Obama scaring the markets with some of his rhetoric that he has used in recent weeks? Even former President Bill Clinton said he wished President Obama used more optimistic terms when talking about the economy. Has that affected confidence?

KONDRACKE: I definitely think that he should start saying, as he did during the campaign, America has licked worse problems than this, and we can do it. I do think that he is talking down the market.

But one other point -- George Bush did zero about the housing crisis that is the ground that's falling out from under this. At least Obama has put something into effect that's tried to deal with mortgage prices.

BARNES: Mort, while Bush was still president, they passed a $300 billion housing bailout bill. Maybe you don't remember that. Obviously you don't remember that.

Look, the market is clearly saying we have no confidence in Obama's economic recovery policies. Maybe it will turn out they're wrong, but again, Mort, financial markets work this way. They don't bet on just what is happening now. There a calculation about what the future is.

And their calculation on Wall Street--maybe they're wrong. I don't think they are, but their calculation is that Obama's policies won't work.

BAIER: Last word, Charles.

KRAUTHAMMER: Obama has been talking the market down in a way that is extremely negative and pessimistic. He needs a bit of hope and change.

FDR had a jaunty smile and a cigarette in his mouth. I think Obama should think about having a few puffs and relaxing and calming us all down.

BAIER: Buckle up, we'll hammer away at some of the other headlines of the week when we come back, including Hillary Clinton on North Korea.


HILLARY CLINTON, U.S. SECRETARY OF STATE: This is still an open effort on our part to get the North Koreans back to the six-party talks.


BAIER: The Friday lightning round is next.



CLINTON: Do I believe that the North Koreans, if they could engage in producing highly enriched uranium, would attempt to do so? I mean, that seems to be their nuclear ambition. I don't have any doubt that they would try whatever they possibly could.

Have they? I don't know that, and nobody else does, either.


BAIER: Secretary of State Hillary Clinton in Seoul talking to our own James Rosen about North Korea.

It's the lightning round. We'll start there-Charles?

KRAUTHAMMER: A slight change in nuance. The Bush administration had operated on the assumption that there was a highly enriched uranium program. The administration today is saying it is unknown.

In the end, this is a story that never changes. They will not give up nukes. You can have eight-party, 80-party talks, and nothing is going to change. It is a matter of containing them, and you hope that the leadership dies.

KONDRACKE: She said that North Korea may be re-listed as a terrorist state if they don't begin opening up their nuclear program.

She also warned them not to test this long-range missile that they're going to test, although there was no "or else."

I don't think we will bomb them if they test it, I don't think we should.

BARNES: Yes, but her solution right now is to get the negotiations back on track.

The North Koreans will never give up nuclear weapons through negotiations. They may agree to a treaty, and they have agreed to many of them before, agreements to do this, and then they violate it whenever they want it to.

They want nuclear weapons. You can't negotiate them out of it.

BAIER: Second topic, Roland Burris, the Illinois senator. Now the current Illinois Governor, Pat Quinn, is calling for him to step down-Fred?

BARNES: And the White House of course says he better think about it over the weekend. If he doesn't come up with a better story than the one he's given, or explanation that he's given for his conduct, then the suggestion is he ought to resign.

BAIER: Does he go?

BARNES: I think he should resign. I think he will go. Yes, he will be forced out.

KONDRACKE: The big news that Pat Quinn, the governor, says that there will be a special election if Burris goes, which is great for the Republicans. If they select Mark Kirk as the nominee, he could win. That's a Republican congressman from north of Chicago.

KRAUTHAMMER: I confess, I feel sorry for this guy. I know it betrays a bit of softness on my part.

It's a tragedy. It's not a Greek tragedy, because nobody here is noble. It's a bit of sleaze. The guy lived all his life to be a senator. He's here.

But he's gone. He's dead. He obviously did stuff under oath that is unacceptable, and he can't survive under these circumstances.

BAIER: How long does it take?

KRAUTHAMMER: He will try to hang on. A few months, I think.

KONDRACKE: I think so, too. I think he will pull a Larry Craig.

BARNES: He will be gone soon, days.


Oscars, this weekend. Here we go down the line -- best picture?

BARNES: I like "Slumdog Millionaire" about Bombay, or Mumbai, better than any movie I have seen in years. So I think it will win the best picture nomination.

KONDRACKE: Absolutely. "Slumdog Millionnaire" is a great movie.

KRAUTHAMMER: "Slumdog" is going to win. India is an ally. Let's honor them.

BAIER: Unanimous.

Best actor?

KRAUTHAMMER: Sean Penn. A politically correct movie. He will win. Slam dunk.

KONDRACKE: I saw Frank Langella in "Frost/Nixon," and he did a fabulous job. He was Nixon. I'm rooting for him.

BARNES: I'm with Mort on Frank Langella.

BAIER: Really?

BARNES: He's a great actor, period.

BAIER: OK, here we go -- best actress?

BARNES: Angelina Jolie. I like her. She was good on Iraq, supported the surge. She is bound to win an Oscar.

KONDRACKE: Kate Winslet, I think, is going to win it. And the good news that she's going to win it for "The Reader" and not this terrible, anti-middle class suburban movie "Revolutionary Road," which was directed by the same guy who directed "American Beauty," which did win best picture in 1999.

KRAUTHAMMER: Mort's right. She is going to win it for her performance in "The Reader," an incredibly strong performance in a movie that is morally disturbing and troubling. I hope it doesn't win the best picture, because it shouldn't.

BAIER: Heath Ledger?

KONDRACKE: Heath Ledger, he is definitely going to win. He's dead, and it was a fantastic role that he played at The Joker.

BARNES: Indeed, it was.

BAIER: One last out of the box -- the story next week that we're going to cover the most?

BARNES: It will be Obama's speech to Congress.

KONDRACKE: Sure, absolutely.

KRAUTHAMMER: Yes, his big debut.

BAIER: And you can see that right here on FOX News Channel. Tuesday night we'll have live coverage.

The lightning round -- always fun, gentlemen.

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