This is a rush transcript of "Special Report With Bret Baier" from January 12, 2010. This copy may not be in its final form and may be updated.


U.S. SENATE CANDIDATE MARTHA COAKLEY, D-MASS.: We will set the ground work for the revolutionary way in which we provide for coverage for those who can't get coverage now, preexisting injuries, and make sure that we keep costs down and people can keep the healthcare they have.

U.S. SENATE CANDIDATE SCOTT BROWN, R-MASS.: I'm looking forward to having the opportunity to be the 41st vote and make sure that we get that plan back to drawing board.

DAVID GERGEN, DEBATE MODERATOR: Are you willing under those circumstances to say I'm going to be the person, I'm going to sit in Teddy Kennedy's seat and I'm going to be the person who's going to block it for another 15 years?

BROWN: With all due respect, it's not the Kennedy seat or the Democrats' seat. It's the people's seat.


BRET BAIER, ANCHOR: Republican Scott Brown and Democrat Martha Coakley going at in a debate in Massachusetts for the open Senate seat there last night. Here is the latest poll. Right before the show started, Rasmussen reports has a poll out that has Coakley up by two points. You can see how much it moved just in one week.

Now the Democratic leaning Public Policy Poll, this has Scott Brown actually up one point. This was a poll out earlier this week. And before that The Boston Globe put out a poll having Martha up 15 points. There is where we stand with all of the polls that we know of.

What about the race? Let's bring in our panel: Steve Hayes, senior writer for The Weekly Standard; A.B. Stoddard, associate editor of The Hill, and syndicated columnist Charles Krauthammer. Charles?

CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: If you are for Coakley you have to be encouraged by one thing. The panic that the Democrats are in now I think will help them. And the fact that the race is now nationalized and highlighted might help them.

If you are looking for an upside on this from her point of view, the Democrat in the race, it's that Scott Brown may be peaking or surfacing too early. He's the classic insurgent. Remember, he is three to one in registration Democratic. But in this election cycle in this year, the intensity among the Republicans is at least three to one.

So what you want is a race that is quiet, off-off year election in which your seething Republican constituency comes out in a cold day. It's no longer a race in the boondocks. This is a national race. You have John Kerry writing a fundraising letter on the Democrat. You've got Kennedy's widow speaking out on behalf of the Democrat.

President Clinton will be parachuted in. You have high level operatives from Washington shipped up there. So there is going to be a national media push. If anything there might be a slight increase in intensity in the otherwise lethargic Democrats who might show up on Election Day.

BAIER: A.B., the fact that we're even talking about that race is pretty astonishing when you look at Massachusetts.

A.B. STODDARD, ASSOCIATE EDITOR, THE HILL: Really, this would be such a cataclysmic loss for the Democrats if Scott Brown were to pick up this seat.

I don't disagree with Charles, but I wonder if the Democrats have been shocked out of their complacency yet. I wonder with seven days left if the precinct leaders and all the interest groups and everyone can get in emergency mode and kick into high gear, because in a special election in a very deep blue state where they run everything, Scott Brown is one of 21 Republicans in the entire legislature.

And if Democrats stay home the day after a long weekend and the find something else to do and they don't feel will in this cold, every Republican, as Charles said, will get in that car.

And I don't — I think at this point she feels the urgency. She's in Washington tonight scrounging for dollars seven days out, having Bill Clinton come, running negative ads. She is clearly feeling the heat. But I don't know if the entire party apparatus in Massachusetts has gotten into preparation mode enough to save this.

BAIER: Let's talk about that. You just said she's in Washington. And she is here for this event. It's a fundraising event at a restaurant here in Washington, D.C., hosted by the Massachusetts delegation. There you see the invitation.

On that, of the 22 names on the host committee, meaning, they raised $10,000 for or more Martha Coakley, 17, according to The Washington Examiner, are federally registered lobbyists, 15 of them are healthcare clients, Amgen, Cigna, United Health, Pfizer, Merck, Humana.

Steve Hayes, a candidate seven days before an election comes to Washington to raise money with healthcare lobbyists when healthcare reform is a big issue in this race? It's kind of interesting.

STEVE HAYES, SENIOR WRITER, THE WEEKLY STANDARD: It's not only interesting for that reason. It's also interesting because healthcare was Ted Kennedy's signature issue.

And Scott Brown is running and running proudly on the fact he would be the 41st vote. In fact, he can't say that enough, which is really amazing when you think he's making that claim and making the argument in a state that Barack Obama won by 26 points, of which the entire delegation is Democratic, 90 percent almost, 90 percent of the people in the Massachusetts state house are Democrats.

And he's running and running again and again and again on this fact he would be the 41st vote. I think he's going to continue to do that through this last week.

And the other issue that he's raised and I thought raised very well in the debate last night is on giving constitutional rights to detainees. He's raised that and he has made ads about this. He asked her about her, pressed her on it last night. She just could not come up with an answer.

And I think that argument is one that targets another group, not the one that Charles was talking about so much, but the group of moderates and independents in Massachusetts, of which there are I think more than people recognize, even though the state is three to one in Democratic registration, more moderates and independents that could be swayed by that kind of an argument, and private polling shows that it's very effective.

BAIER: Quickly, Charles, there were a lot of back and forths obviously in the debate last night. One moment caught some people's eye when Martha Coakley said that all of the terrorists had left Afghanistan. "They're not there anymore. They're in Yemen. They're in Pakistan. Let's focus our efforts on where Al Qaeda is."

KRAUTHAMMER: Well, if you interpret her meaning as Al Qaeda terrorists are out, well, it's a slight exaggeration. There are few hundred still in Afghanistan. It's not an outrageously wrong statement. Al Qaeda really used to be this Afghanistan, it's in now Pakistan. But if it applies to all terrorists, obviously, it's wrong.

I would give her the benefit of the doubt here. I think she spoke with an indeterminate antecedent, if you like. I suspect she meant Al Qaeda.

But the larger issue is what Steve is talking about. The idea that the guy who tried to blow up airliner over Detroit is now sitting in jail with a lawyer and he's shutting up with his Miranda rights is a scandal. The overwhelming majority of Americans thinks it is.

And if the race becomes nationalized and she can't defend it, it's really a negative in her campaign.

BAIER: OK. Be sure to vote in your online poll on your favorite topic for Friday's lightning round segment. It’s your choice online. We do it every week. Cast your vote, Foxnews.com/specialreport. There you sit it halfway down on the page on the right.

Choices this week, Proposition 8, the Amish exemption for the healthcare mandate. We're going to have a full scale story on that tomorrow, the Somalia threat, the panelists favorite races in 2008, and Bill Kristol's wild card pick. Remember, this is your choice online.

OK, coming up next, will Iran make a deal on the nuclear program or face new sanctions? We will ask the panel in three minutes.



SECRETARY OF STATE HILLARY CLINTON: Our approach, as you know, has always proceeded on two tracks. We have an engagement track and a pressure track. And, as I said, the results of our efforts to engage Iran directly have not been encouraging.

RAMIN MEHMANPARAST, IRANIAN FOREIGN MINISTER (via translator): If they make such a mistake, we will do the same thing that we have done in the past 31 years. We will count and rely on our own powerful nation. We will rely on your youth and, god willing, we will progress stronger than before.


BAIER: The Iranian foreign minister talking about mistake of sanctions. If the U.S. and the west put sanctions on Iran in any way, they say they'll fight back.

Here is what Hillary Clinton, the secretary of state, said this week about it, "It is clear that there is a relatively small group of decision-makers inside Iran. They are in both political and commercial relationships. And if we can create a sanctions track that targets those who actually make the decisions, we think that is a smarter way to do sanctions. But all of that is yet to be decided upon."

We're back with the panel — Charles?

KRAUTHAMMER: Well, the farce continues. And to hear Hillary speak again about smarter sanctions and smarter ways, smart diplomacy, this is sort of comic arrogance on the part of the administration which has had a disastrous year in terms of Iran and still speaks of how smart it is.

Its idea is that we are going to try to target the leaders instead of the people. The Bush administration attempted that, but it's almost impossible. And it doesn't succeed anyway.

The idea that we can impose unilateral sanctions, because, remember, the Chinese have said today and last week they are not going to join us, and in the absence of the Chinese, you have nothing out of the Security Council.

If you are going to impose unilateral sanctions, others will take our place. I'll give you one example. We prevailed in 2007 on the UAE to stop acting as the middle country in transactions with Iran. And it did. Immediately Hong Kong and Malaysia picked up.

So unless you have universal sanctions, extremely strong, cutting off gasoline, really targeting everything important, nothing is going to happen.

The administration knows all of this, and the lassitude which it's acting — the pressure track is on, the engagement is on, which means nothing. Nothing is going to happen. This administration has accepted the fact of an Iranian bomb and it is prepared to do practically nothing except kabuki.

BAIER: A.B., do you agree with that they accepted the nuclear bomb?

STODDARD: I'm not going to agree with that, actually, Charles. I agree that the administration is attempting this bizarre two-track strategy where they are looking at new set of sanctions that will be more targeted and they hope would succeed better than the three failed prior sanctions while talking up future engagement with Iran after this year of patient engagement just hasn't worked out.

I think we know before the P-5 plus 1 nations meet together at the end of this week in New York, we already know that Iran mocked and defied and flaunted this engagement and is not going to engage in the uranium transfer deal and is running out the clock.

And I think that Charles is right on this point — no matter what we do, if China is resisting and I going to sell them refined gasoline, it is all a moot point anyway.

BAIER: Steve, there is one report out there that Iran has a counteroffer on the table and that there are discussions ongoing. We have heard the song and dance many, many times.

HAYES: Forever. The reality is there is no pressure crack. There never has been a pressure crack. It's a joke. They pretend there is a pressure crack because they want to seem like they're being tough. But when you pass on deadline after deadline after deadline, you don't actually do anything, you cannot look tough.

There is a fascinating article, one of the under-covered story or under-discovered stories of the past two weeks in The Washington Post, that reported that to the extent that they are pursuing sanctions, and we just heard they are going to be targeted, smarter sanctions, to the extent they are even pursuing the sanctions, the goal of the sanctions is to force the regime back in negotiations.

So it's all about engagement, and it's all about making a play to look tough, when I agree with Charles, they've accepted the reality of Iran with a bomb.

BAIER: Quickly, just an update. The State Department at this hour is working on emergency plans for that earthquake down in Haiti. There are still tsunami watches down there. The State Department is working, meeting right now, gathering information quickly.

One congressman calling this the worst possible time for a natural disaster in Haiti, a country still recovering from the devastating storms of just a year ago. We are monitoring the situation very closely and we'll have more in just a matter of minutes.

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