This is a rush transcript from "The Journal Editorial Report," August 11, 2007.

PAUL GIGOT, FOX HOST: This week on the "Journal Editorial Report," Dick Cheney, the man liberals love to hate. From his Iraq role to influence on the Bush administration policies, we will look at one of history's most controversial vice presidents.

Credit market woes. How bad is the subprime problem? And how is it affecting the economy, housing market and your ability to get a mortgage? Find out after these headlines.


GIGOT: Welcome to the "Journal Editorial Report." I'm Paul Gigot. Before he became George W. Bush's running mate in the 2000 election, political veteran Dick Cheney called the vice presidency a cruddy job, but my guest this week says during his tenure as second in command, Cheney has transformed the traditionally weak office into a focal point of executive power, not to mention liberal ire.

Stephen Hayes is the author of "Cheney," the untold story of America's most powerful and controversial vice president. He joins me from Washington.

Steve Hayes welcome.

STEPHEN HAYES, AUTHOR, "CHENEY": Good to be with you, Paul.

GIGOT: You spent a couple years on this book. What's the single most surprising fact about Dick Cheney most Americans don't know?

HAYES: I think it is one of these things I didn't know actually when I started the project. And it is that Dick Cheney technically worked for Ted Kennedy, which I think most people find hard to believe. But when Cheney came to Washington in the 1960s, he came as part of a fellowship that required him to spend half of his time in the House and half of his time in the Senate. And after he finished the House part he drew an assignment working for Ted Kennedy. Not only working for Ted Kennedy but doing media relations for Ted Kennedy.

GIGOT: On that point, when I first went to Washington, Dick Cheney was seen as likeable, moderate, reasonable Republican. He wasn't one of the bomb throwers like Newt Gingrich in Congress. Why has his reputation been transformed in the last six years?

HAYES: It is amazing whether you go back and survey sort of the history of political, press coverage of Dick Cheney over the years. He had almost universally favorable coverage in a way that's really odd not only for a Republican, but anybody in Washington.

I think the difference is that he has been, as vice president, incredibly powerful that everyone acknowledges, but also secretive because he believes these are national security issues he is deal with primarily, not things he wants to talk about in the open. Nothing the Washington Press Corps I think dislikes more than somebody who is powerful and secretive at the same time.

GIGOT: Do you think the penchant for secrecy that is real — when you interview Dick Cheney, he is not the most forthcoming man, at least in my experience. Is that penchant for secrecy hurt him?

HAYES: I think it has. One thing that's interesting to me is that it doesn't bother him that people are up in arms about it. He takes a long view. He says I have a job to do. There are things in the national security realm that should not be talked about in public. I am not going to talk about them and engage the press on them.

GIGOT: People he worked with in the past, like Brent Scowcroft, former national security advisor, who say that the Cheney they see now is not the same man they knew 20 or 30 years ago. Is that a fair point? Was 9/11 responsible in part for changing Dick Cheney in a significant way?

HAYES: There is no question it was. I think there is a debate among Cheney's friends and colleagues who have known him for a long time as to how much he has changed. Some say he is the same guy. Other people, like Brent Scowcroft say no, no, this is a different person.

There is no question that 9/11 changed him, not only the way he looked at the nature of the threat, the threats that face the United States, but also changed him personally. I had one top Bush administration official who Cheney worked closely with for several years tell me he really wears the burden heavily. He takes it personally, that he sees it is as his responsibility to prevent the next attack to keep America safe and obviously that's a huge responsibility if you internalize that.

GIGOT: In your book you ask — you point out you once asked Secretary of State Rice what was the single most important influence Cheney had on the administration and she said conceptualizing the way the administration thinks about the war on terrorism and the threat of Islamic terrorism. Can you explain what she meant by that?

HAYES: It was a really interesting response from her. I think what she was trying to say is just in the days after September 11, you had raw reports coming into the senior administration officials one after another, after another. And the other thing that Dr. Rice said was that she had trouble even digesting them and so many did other people.

Cheney, on the other hand, could take the reports, however raw, however many came through, and he understood almost immediately the significance of them and whether they should be taken seriously or discarded. And he also could put them in a broad framework, sort of what does this mean in the big picture to the United States and in this war that's going to be coming and he did. He was one of the early people in the administration who recognized that this was going to be a war and it was going to be a long one.

GIGOT: Where has his biggest influence been on domestic policy? Taxes? We know he played a role in energy. Where is he figured on domestic issues that Americans might not know?

HAYES: Yes, I would say on taxes. Particularly in the 2003 tax cut he played a major role negotiating a deal that was struck between moderates in the Senate, the moderate Republicans in the Senate, and conservatives in the House. And it is actually a great story where Cheney gets together with Bill Thomas, then chairman of the Ways and Means Committee, and they are old friends they came into Congress together and they sort of worked a deal. Thomas told me it was like a dog and pony show. He would go out and make a tough argument. The Senate would then come back and make sort of a more moderate argument. And Cheney being the conservative he is would always agree with Thomas. Thomas played it as like a set up from the beginning.

GIGOT: In the second term, particularly the last couple years, some people have said Cheney as has lost influence. That Secretary Rice is now the dominant influence with President Bush on foreign policy. Do you see that declining influence?

HAYES: Yes, I don't know that that's an unfair judge. If you look at the policies the president's take, there are policies hard to imagine Dick Cheney being enthusiastic about. For instance...

GIGOT: Such as?

HAYES: Negotiating with Iran, about what Iran is doing in Iraq. I mean you have a situation where essentially the U.S. military is making a case that Iran is funding training and equipping insurgents in Iraq who are killing American soldiers. I think the State Department and Dr. Rice wants to sit down with Iran and basically say hey we can't do this. Dick Cheney thinks that it is folly I think to negotiate with people who are killing your soldiers.

GIGOT: Stephens Hayes, thanks. Fascinating new book, "Cheney." Thanks for being here.

HAYES: Thanks, Paul.

GIGOT: More on the Cheney legacy when we come back.

Plus, trouble in the credit market sends stocks on a wide ride. Find out what the subprime scandal means for the economy and your mortgage when the "Journal Editorial Report" continues.


GIGOT: We are back with more of our In-depth look at Vice President Dick Cheney. Joining the panel this week, "Wall Street Journal" columnist and editorial page deputy editor Dan Henninger, opinionjouranl.com editor James Taranto, editorial board member Jason Riley and, in Washington, editorial board member, Steve Moore.

James, you and I interviewed the vice president in 2006 — early 2006. What was the single most important impression you took away?

JAMES TARANTO, WSJ EDITORIAL BOARD MEMBER: I will give you two. One was, as you said in the previous segment, he was not exactly garrulous. He was not forthcoming in ways I wished he had been. I hoped we would get — this was right after "the New York Times" revealed this NSA foreign wiretap program, which "the New York Times" started called a domestic wiretap program. I hoped we would get concrete details as no why this program was necessary and we didn't walk away with that.

The other impress is, this is a man who has really thought a lot about issues of executive power. He was chief of staff to President Ford in the mid-70's right after Watergate and he saw the costs of a weakened presidency. He was the ranking Republican on the committee that investigated the Iran-contra problem in the '80s. And he wrote a dissenting report complaining about the encroachment on the executive branch. He has never had any ambitions of being president himself, he's thought a lot about the power of the presidency.

GIGOT: Dan, I don't think you can underestimate the degree to which Cheney feels strongly about congressional encroachment on the executive. And experience in the Ford administration where it was a weak presidency after Watergate, amid Vietnam where Congress drove the United States out of Vietnam and stopped support for the Vietnamese government and saw it fall. And he saw the War Powers Act, the change in the Budget Act. That has been a defining influence for Cheney.

DAN HENNINGER, WSJ EDITORIAL PAGE DEPUTY EDITOR & COLUMNIST: Yes, but I think it goes beyond that, Paul. It is not only Congressional encroachment on the executive but encroachments by other institutions. Two that come to mind for me is the executive, the administrative bureaucracy and the second is the media.

I think 9/11 was the pivotal event. Steve describe it had. Cheney felt very strongly something had to be done quickly. Now, the Commission on 9/11 made clear that the bureaucracies were not functioning well before September 11. I think Dick Cheney, in enacting policies about surveillance and retention and interrogation, decided if he was going to run them through the bureaucracies they would never get to a resolution.

Secondly, he was deeply afraid of leaks, that if this got out into the public the media would create a situation that would suppress their ability to execute these policies, so he simply pushed them through.

GIGOT: You can't stop leaks in Washington. Maybe trying to stop them you create more problems for yourself.

HENNINGER: I think, if I just follow up. One aspect of this they have not managed well, he says he doesn't care. And you do get leaks and there is a public perception and they just have not figured how to handle the inevitable public fall out of bad publicity about policies.

JASON RILEY, WSJ OPINIONJOURNAL.COM EDITOR: And the leak issue speaks to what happened with Lewis Libby and whether that has affect...

GIGOT: His former chief of staff.

RILEY: His former chief of staff. — and whether that's affected Cheney's influence. He has been more of a senior advisor than traditional vice president. The "Washington Post" did a series recent where they asked Dan Quayle about meeting Cheney and talking about the role of the VP. And he said, you know, Mr. Cheney, this will be a lot of steak dinners and funerals. And Cheney gave him a crooked smile and said I have a different job description in mind. And we see that.

What happened particularly in the second term is Cheney lost some of his allies in the White House. Rumsfeld is gone. Wolfowitz is gone. Bolton is gone. So the question is, as an advisor to the president, is he still able to push the things he wants with the same...

GIGOT: Is he?

RILEY: If you look at what happened with North Korea, with Iran in terms of negotiating tactics, you would have to say, no, he lost influence. You would have to say Rice and the State Development gained influence and gained the president's ear on some of these issues. One out standing one is still Guantanamo. We don't know if he will win that. I think he want to keep it open. Other people want to shut it down. We have to see what happens.

GIGOT: Steve Moore, how influential has the vice president been on domestic policy issues?

STEVE MOORE, WSJ EDITORIAL BOARD MEMBER: Well, this gets to the point you asked Steve Hayes accept about why is it the left hates Dick Cheney so much. And I would point to two events. One is let's not forget he is the guy who just skewered John Edwards in the debate, the vice presidential debate, and the left has never forgiven him for that.

The other is the other issue is that Dick Cheney has been the real driving force behind the tax cuts in 2003 — that liberals just hate those tax cuts but they have had a positive effect on the economy.

GIGOT: James, do you think the vice president has been a net asset for George W. Bush or not, as vice president of the United States? I mean that in two ways, a governing sense. How has he helped the president govern well or not? Then political sense, has he helped him electorally?

TARANTO: By all accounts, he has been the most active, engaged vice president perhaps in history. I think, in that sense, certainly he has been a plus.

Politically, you could argue either way. He is less popular even than President Bush is now. You could argue that that's a net minus and argue he takes heat off President Bush. I think he plays an important role in this liberal demonology because liberals going back to 1999, 2000 have tried to portray Bush as a buffoon. Well it is hard to maybe your fool out to be Hitler whether you make him out to be Bozo the Clown. So Cheney, a man with drier personality is the evil figure.

GIGOT: Just one quick thing, James. Some Republicans argue that because he is not running for reelection — and this is the first vice president with a second-term president who's not running for election in his own right, not re-election, but running in his own right for president — that he maybe has not had the White House as attuned to public opinion in the second term as a most presidents are and it harmed the president?

TARANTO: Yes, I think that's right. The last two-time vice president not to seek the presidency was Cactus Jack Garner in 1940. I think that's why President Bush has done the right thing and stuck in Iraq rather than try to arrange a pullout to help his designated successors. That's a good thing.

GIGOT: Up next, credit market woes. How bad is the subprime problem and will it affect your ability to get a mortgage? Find out after the break.



GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: I think any time anybody's homes are threatened is something we ought to be concerned about. I do believe that we are adjusting from a plethora of capital or liquidity that came rushing into our system. Markets tend to correct. The fundamental question is will they correct in such a way as to not derail good strong economic growth we are seeing.


GIGOT: President Bush responding this week to continuing concerns over the mortgage markets and long-term effect of the subprime lending collapse on the economy.

We are back with Dan Henninger, Jason Riley and Steve Moore. Also joining the panel is "Wall Street Journal" editorial board member Brian Carney.

Steve, the president and the optimists — and the president is one of them — think the economy can ride out these credit market jitters. Are the optimists right?

MOORE: I think they are. Look, the key word here now with the market melt down that we saw this week is really containment. How do you maybe sure, Paul, that the problems we have seen in the housing market don't containment other sectors of the economy that remain very strong, like the high tax sector and retail and so on? So the real key here is to make sure Congress does not overreact, start doing things like bailing out banks, intervening in the markets in ways that would make the crisis much worse.

GIGOT: Brian, containment, key point. How does the government do that or can it?

BRIAN CARNEY, WSJ EDITORIAL BOARD MEMBER: I don't think the government can do that. What we are seeing is a situation where people don't know where the bodies are buried and know some people will feel a lot of pain.

Most of these mortgages are good. It is important to remember that. Most of these mortgages won't go into foreclosure. Most of these people won't lose their houses. Some people will. Some of the mortgages and some mortgage-backed securities that they are bundled into and sold on the secondary market will go bad, but most of them won't. The problem is nobody knows which one will and which one won't. And that's put people into panic mode.

RILEY: But, Brian, you have two of the largest homeowners in the country, Washington Mutual and Country-wide...

CARNEY: All brokers.

RILEY: ... come out and say we can't securitize loans because we can't find buyers. That will affect a lot of homeowners.

CARNEY: That will affect people's ability to get credit in the next, I don't know, year, maybe 18 month. And that is definitely going to affect the ability of people to buy homes or to refinance if they have to. And this brings us back to Paul's question. Almost anything Congress could do, increasing underwriting standards, cracking down on what they consider predatory lending, is going to make access to credit harder to get, which will make the problem worse. The best thing that Congress can do is ride this thing out, which is what Bush recommended.

GIGOT: One of the characteristics of this latest finance problem, Dan, is that it is international. You see is popping up in Paris and Germany. Why do Europeans have American subprime mortgages in their portfolio?

HENNINGER: I guess they are smarter than we are in some cases.

GIGOT: They are? Not their losses.

HENNINGER: Right. But I think Brian is right. What is being worked out here is an extremely new economy, complex problem. The participants in the market don't know yet exactly what's going on beyond subprime. You know if I can use a silly analogy, it's like when your commuter goes down you call in a ten nation the guy sits for a day trying to figure it out. I think that's what the markets are trying to do now is decide how deep this is. It is the worst possible time for either Congress, much less the fed, to jump it and artificially jerk around a system that is trying to right itself.

RILEY: As Steve alluded to earlier, they can maybe things worse by creating a moral hazard here, whether it's directly bailing out banks or give into pressure by the banks to ease.

GIGOT: Steve...

MOORE: What seems to worry a lot of homeowners right now is what will happen to the value of their house. The advice I give to people is don't panic. Look, we have seen a 10 to 15 year run up in housing prices almost unparalleled in American history where housing prices doubled. We are now seeing, in some markets, housing values decline by maybe 10, in some cases 15 percent, but when you look at that over the long term it still looks like housing is still a pretty good buy. And don't forget the two things that drive housing values are affordability and interest rates. Incomes are rising so people can afford housing. And interest rates still remain pretty low.

GIGOT: Brian, we were told for years that this financial innovation taking place across the world — it has been extraordinary — but we were told it would diversify risk and makes things safer. Are we seeing maybe it is not happening? It is making the world riskier.

CARNEY: I think diversification and financial innovation, all of that is working exactly as advertised. The risk has been spread out among different parties. And, as I said, the problem is we don't know who is bearing which risks but that doesn't mean it wasn't spread. If we didn't have mortgage securitization, if we didn't have people buying up these mortgages, then we would see a lot of smaller local banks just going under. What we are seeing instead is that the risk is cropping up in unexpected places. That's got people nervous. That doesn't mean the system didn't work.

GIGOT: Are you saying the corpses of hedge funds floating to the surface around the word aren't as big a problem as some local bank failures?

CARNEY: I am saying that risk was put off on people who thought they could afford it. That doesn't mean people didn't make mistakes. It doesn't mean some people won't feel a lot of pain, but that doesn't mean either that the total amount of risk has increased or that the thing hasn't worked. I think it that is worked as advertised.

GIGOT: Thank you, Brian.

We have to take one more break. When we come back, our "Hits and Misses" of the week.


GIGOT: Winners and losers, picks and pans, Hits and Misses," it's our way of calling attention to the best and the worst of the week.

Item one, having trouble make your kids eat their vegetables? Dan Henninger has the solution.

HENNINGER: I think I have some of the solution. Some people think it is a problem. A researcher at Stanford did study and discovered that three to five years old, if they are served food almost of any sort, carrots, broccoli, inside a McDonalds box or wrapper, they gobble it up, where as they don't eat it up if it was in the McDonald box.

The behavior police have gone crazy saying the answer to this is to ban McDonalds advertising to children. What am I missing here? If you wrap carrots in a McDonald's box and your kids will eat it, seems to me you have discovered the Holy Grail for parents. What's the problem? I don't see anything wrong with this.

GIGOT: All right, thanks, Dan.

Next, a miss for the organizers of a Virginia Tech benefit concert — James?

TARANTO: That's right. Virginia Tech next month will hold a concert for the purpose, as Charles Stager, the president, puts it so that we can, quote, "come together to celebrate the spirit and resiliency of our university community as we begin a new academic year."

One of the acts at this concert is a rapper called Nasir Jones that uses the stage name Nas. He has a song called "Shoot 'em Up." I can't recite the lyrics because they are replete with racial slurs and obscenities. To sum it up, he describes in this song a scene very much like what happened at Virginia Tech last April and does it in exuberant tones. And it seems an odd choice to represent the spirit of Virginia Tech.

GIGOT: All right, James.

Finally, it turns out Congress could learn a few things from high school seniors — Steve?

MOORE: Yes, wonderful news, Paul. Over half of high schoolers understand basic economics. Yea. That means they understand low taxes are good for the economy, that trade protectionism is bad and that more regulation is bad for the economy.

Contrast this with Congress where, what are they doing? More trade protections and higher taxes, more regulation. Look at the presidential candidates on the Democrat side where they proposing all of these new taxes.

My proposal here, Paul, is why don't we get high schoolers to come in and do the economics program for Hillary Clinton and John Edwards.

GIGOT: Should Congress be required to take this same test, Steve, a high school test?

MOORE: I guarantee you half of them would not pass this test.

GIGOT: I don't know if those high schoolers can survive four years of college economic instruction, Steve.

That's it for this week's edition of the "Journal Editorial Report." Send your e-mails to jer@foxnews.com and visit us on the web at www.foxnew.com/journal .

Thanks to Dan Henninger, James Taranto, Jason Riley, Brian Carney and Steve Moore.

I'm Paul Gigot. Thank you for watching and we hope to see you right here next week.

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