This is a rush transcript of "Special Report With Bret Baier" from March 16, 2009. This copy may not be in its final form and may be updated.


PRESIDENT BARACK OBAMA: In the last six months, AIG has received substantial sums from the U.S. Treasury. And I've asked Secretary Geithner to use that leverage and pursue every single legal avenue to block these bonuses and make the American taxpayers' whole.


BRET BAIER, HOST: The bonuses the president is talking about, AIG, the insurance giant, paying bonuses, $165 million worth.

Apparently when Secretary Geithner, the treasury secretary, found out about them, he called CEO Edward Liddy, who is managing AIG's crisis for no pay, and he was told "These are legal, binding obligations of AIG. There are serious legal as well as business consequences for not paying."

So what about this bonus kerfuffle and all of the outrage here in Washington? Let's bring out our panel: New York Post columnist Kirsten Powers joins us from New York, Roll Call executive editor Mort Kondracke is here in Washington, as is syndicated columnist Charles Krauthammer.

And we're sorry again for the Brady Bunch approach to all of this, but we're in a studio getting a facelift in our regular studio.

Mort, let's start with you.

MORT KONDRACKE, EXECUTIVE EDITOR, ROLL CALL: As Brit said, the danger in all this is that the populist anger — and by the way, it's bipartisan, Mitch McConnell said it was outrageous along with everybody in the Bush administration — that this spread across the country and returning back to Congress is going to make it impossible for the administration to get the next big bailout that it needs, probably a trillion dollars, in order to finance the public/private partnership that it wants to do to buy up these toxic assets.

That's the real danger. And it's going to need that money. So there is going to have to be more limitations on executive pay, and that sort of thing.

In the long run, I think what you could do is you could institute a system of payback. In other words, if and when AIG gets broken up and the pieces get sold off, the first beneficiary of the proceeds would be the government, and the first item on that agenda would be these bonuses, because I don't think the bonuses themselves can be stopped.

BAIER: That is a big question. Tonight, or breaking tonight, Senator Chris Dodd from Connecticut, the Senate Banking Committee Chairman, said they're considering taxing these bonuses.

He said it's an idea very much at the embryonic stage, but they could write something as early as tomorrow to tax 98 percent of the proceeds, the taxable proceeds from the bonuses — Kirsten?

KIRSTEN POWERS, COLUMNIST, NEW YORK POST: Well, I'm of many minds on this, actually.

On the one hand, I feel like people are looking for a villain, and everybody wants to blame the so-called fat cats, when, in fact, there are probably six or seven reasons that the economy is in the situation that it's in that is not directly attributable to executives.

And I think that this is a distraction. It's a very, very tiny amount of money when you really look at the overall money that we're spending.

That said, when they talk about not being able to renegotiate these contracts or these are just set in stone and there is nothing that can be done, it does beg the question as to why when the autoworkers were asked to renegotiate their contract to take benefit and pay cuts when they got government money, and yet AIG, which is basically 80 percent owned by the federal government, is now saying that they can't alter those contracts.

There's something about that that doesn't add up. And I think as a political matter that the Obama administration is going to be in trouble if they can't do something about this, because Obama came out and said these are greedy people, and I'm not going to let that happen. And once you lay that down, you better be able to follow up on it.

BAIER: Charles?

CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: Well, I think the difference with AIG and the auto companies is that AIG has its tentacles and its loan and obligations in so many places, so many other financial institutions, so many countries, that there's really a threat to the world economy.

That's why it's being rescued, not because there is a virtue or goodness among the dealers and the bankers among them. And that doesn't apply to the auto companies.

But look, this is not so much an economic issue as a psychological and a political issue. Economically, if you add up all the bonuses, it's less than 1/10 of one percent of the bailout to AIG alone, so it's lunch money.

Psychologically, it's important because there's outrage in the country, and, as Mort indicated, unless there's an appeasement in the anger in the population who are going to have to support the next bailout, which is going to be a trillion dollars, the money won't be made available, Congress will deny it.

So that's why you get the president heaping opprobrium on these miscreants who made the bad deals and now are getting the bonuses.

I'm all in favor of keeping this heaping opprobrium. I would deny them the bonuses if possible. I would be for an exemplary hanging or two. Have it in Times Square, invite Madame DuFarge. You borrow a guillotine from the French and we could have a party.

If that's what it takes to maintain popular support, let's do it. But it's not going to change anything economically.

BAIER: Last word here, Mort.

KONDRACKE: I was going to recommend boiling in oil in Times Square, but look, because these are the people who invented these crazy credit default swaps that are leading to the whole disaster.

But I have an idea that corporate America, when all of this is over, should adopt the policy that we have over at "Roll Call," and that's call profit sharing. If you make a profit, you get a share. If you don't, you don't share.

BAIER: All right, panel, stay with us. While the administration is trying to fix the economy, it also has to deal with Pakistan and Afghanistan.


VICE PRESIDENT JOE BIDEN: We know there is no purely military solution to Afghanistan or Pakistan.


BAIER: We'll get a status report from the panel after the break.


BIDEN: Our goal is not to stay in Afghanistan. It's to be able to leave, and to leave behind Afghan forces that can provide for the security and safety of the people of Afghanistan, and the need to ensure security and legitimacy in this year's presidential elections.


BAIER: Vice President Biden in Brussels last week looking for more help from NATO allies in Afghanistan as that situation develops. We understand the president and Secretary Gates are going to come forward with more plans in addition to the troop build-up we have seen already.

We're back with our panel. Charles, the situation in Afghanistan, and also Pakistan, frankly, because that's big news this week?

KRAUTHAMMER: Right. And they're link because the reports are that the new strategy that will be announced shortly involves emphasizing enlisting Pakistan in the fight against extremism.

That is not exactly a new idea, and also it is an idea that may have come and gone. It worked in 2001 when Pakistan supported us in the war against — in Afghanistan, and that was decisive. But that was a strong military government that did not have the insurgency inside Pakistan that you have now.

And the weakness we saw just this week in the Pakistani presidency where he caved in to the demands of extra-parliamentary demonstrations led by the opposition leader Nawaz Sharif, who was no friend of the United States and no supporter of the war on terror, is very ominous.

It looks to me as if Pakistan is not going to be a significant ally in the war of Afghanistan because of its weakness. And the war in Afghanistan is going to have to be won or lost in Afghanistan using roughly the same strategy we used in Iraq — the surge and protection of the population.

BAIER: Kirsten?

POWERS: Yes, I think on Afghanistan that's right, but I think that there is a feeling, also, that it's been somewhat neglected and that there needs to be maybe a refocus on security, that a lot of Afghanis feel that there hasn't really been a focus on the security, that we`ve been going around the country hunting down the Taliban, and that they have been left feeling very unsafe and very unprotected.

And that's something that I think Obama wants to focus on. I think the hope is with these additional troops that we can move closer to that.

That said, I think most people realize we're probably going to end up having to send more troops than already what Obama has said.

BAIER: And politically, is there a will for that, a political will on the left?

POWERS: That's a great question. And when you look at stuff like this, sometimes I think why did he want to be president? It's a real problem. And I think on the left he is not going to have — he barely has support for this. I doubt he is going to have support for more troops.

But, look, it's a real problem, and it's something that has to be dealt with.

And then there's the issue of governance, and we're going to have to send some people over there. There are draft plans at the State Department to see how they can help people over there where the Taliban has come in and filled up that vacuum.

So Obama seems committed to this, and it's an uphill battle.

BAIER: Sounds familiar — Mort?

KONDRACKE: You have people on the left, mainly, and some in the media are saying that this will be a quagmire again, all the Vietnam analogies. This is Obama's Vietnam. It's the graveyard of empires, and just trying to discourage the whole effort.

Look, Pakistan is the prize here. Right now, Pakistan is the haven for Taliban forces operating in Afghanistan. But if Afghanistan falls to the Taliban, it will become the base camp for the assault on Pakistan, where they have nuclear weapons. That's the great danger, that Pakistan will fall.

So we've got to do both. We've got to try to bolster the struggle against the extremists in both places.

BAIER: That's one we will watch. And, of course, this week we'll have all the details.

Content and Programming Copyright 2009 FOX News Network, LLC. ALL RIGHTS RESERVED. Transcription Copyright 2009 CQ Transcriptions, LLC, which takes sole responsibility for the accuracy of the transcription. ALL RIGHTS RESERVED. No license is granted to the user of this material except for the user's personal or internal use and, in such case, only one copy may be printed, nor shall user use any material for commercial purposes or in any fashion that may infringe upon FOX News Network, LLC'S and CQ Transcriptions, LLC's copyrights or other proprietary rights or interests in the material. This is not a legal transcript for purposes of litigation.