This is a rush transcript from "The Journal Editorial Report," November 10, 2007.

PAUL GIGOT, HOST: This week on the "Journal Editorial Report," crisis in Pakistan. Musharraf's military crackdown leads to a week of violence and unrest. We have a report from the ground.

Big banks in big trouble. Giants like Citigroup face huge subprime losses. Will the market sort it out or will Washington bail them out?

Holy Moses. Pat Robertson throws his support behind Rudy Giuliani. Why did he do it? What does it mean for the Republican field?

Our panel debates after the headlines.


GIGOT: Welcome to the "Journal Editorial Report." I'm Paul Gigot.

Violent protests roiled Pakistan this week in the wake of President Musharraf's military crackdown. He declared a state of emergency last Saturday, suspending the constitution, removing the chief justice of the Supreme Court and imposing tough curbs on the media.

Najam Sethi is the editor of the Friday Times and Daily Times of Pakistan. He joins me now on the phone from Lahore.

Thank you for being with us.


GIGOT: What the latest on the crackdown there? We are told Benazir Bhutto is now under house arrest.

SETHI: Yes, that's right. She tried to lead a protest rally yesterday. They didn't allow her to do that. So she is confined to her home. Nothing terribly serious. There wouldn't have been a big rally anyway. I think the point she was making was she is not a pushover. She wants to negotiate with Musharraf. Is Musharraf will drag his feet then she will show some street power as well.

GIGOT: Is there any sign the crackdowns and arrests are easing up? Are they accelerating?

SETHI: I think we would expect the political parties to jump and try to exploit the situation take over from the lawyers. But that hasn't happened. And the people of this country are in no mood to protest on the streets, though they intensely dislike Musharraf. Musharraf is in command. The violence has been sporadic. The police arrested thousands of people but it tends to release them three or four days keeping only hard core activists behind bars.

GIGOT: Musharraf said he wanted to move up election. Earlier this week they said it would take six or eight months, maybe a year. Now he said he might do it in February. That would only be a month later than the original that will day of January. Why is he doing that?

SETHI: Yes, I think American pressure has worked as has pressure from Benazir Bhutto. She wants to have a working arrangement where the two can put together a government after the elections, in that case, Musharraf has to listen to them. I think the American presence and pressure has been substantial.

GIGOT: Do Pakistanis, broadly across the society, understand the foreign reaction to this crackdown? Do they know Europe and the United States have protested and President Bush has called Musharraf? Is that widely known?

SETHI: Yes, that's widely known. Although the electronic media is off the air, the news channels, the print media is very aggressive and we are very critical of Musharraf. And we are, of course, highlighting all statements emanate interesting western sources, including the U.S. administration. These are all on the front page so everybody can see that the United States and the West is leaning on Musharraf both to hold the elections to keep them free and fair and eventually to take off his uniform and let the army do its job and let politicians get on with life.

GIGOT: Newspapers can publish freely some criticism of the decision?

SETHI: Yes, absolutely. Although Musharraf passed new laws to try to gag us, we are not paying attention to the laws.

GIGOT: All right. Benazir Bhutto's position politically, has it been made more difficult by this crackdown? She was negotiating with Musharraf for some transition for elections she would contest. Is she finding is politically more difficult to be able to continue to negotiate with Musharraf?

SETHI: It is the opposite. Her position is problematic because it looked as though she was doing the American bidding. She was trying to negotiate a sort of unsavory deal with the military dictator. So I think the fact that she is now trying to raise a protest level in the country seems — she is like painting herself as opposition leader rather than someone pushed around by Americans into a deal with the bad guy. So I think this has actually helped her galvanize her supported begs be deny charges leveled against her that she too, like Musharraf, is an American puppet.

GIGOT: All right, Najam Sethi, thanks. Very fluid situation there. Thanks for joining us.

SETHI: Joining the panel this week, "Wall Street Journal" columnist and deputy editor Dan Henninger, foreign affairs columnist Bret Stephens and editorial features editor Rob Pollock.

Continuing our discussion on Pakistan, Bret, what are the options? American options for dealing with a man who had been our ally, General Musharraf.

BRET STEPHENS, FOREIGN AFFAIRS COLUMNIST: One is fundamentally a rhetorical option which is to say General Musharraf needs to take off his uniform, hold elections on a schedule. He needs to respect democracy and civil rights which is what the administration has been doing. But it is not particularly substantive and carries to serious price for General Musharraf.

The other one is to seriously reconsider and perhaps cut off, in some way, the $150 million of aid the Pakistan military receives per month from the United States. And that might seriously force General Musharraf to recalculate the — how he can proceed with the civil society.

GIGOT: But the mere rhetoric, as you put it, the rhetorical option seems to have some effect given the fact that we know President Bush made a known call to Musharraf this week and afterwards Musharraf said we will have elections in February. Now, obviously that's just one statement. Maybe he will reconsider that. But does that rhetoric make a difference when it comes from the president of the United States and secretary of state.

DAN HENNINGER, COLUMNIST AND DEPUTY EDITOR: I think it does for sure. And it is interesting that people have been leaning on George Bush to do exactly this. What it is showing is — remember Bush is the man who created Bush doctrine. Shorthand version is democracy. I think the idea here is not that democracy in Pakistan would be attractive ideal but that it would be a more effective alternative to a dictatorship trying to impose itself on a complex society. The idea there should be a democratic election in Pakistan is intended to make Pakistan a more effective ally in the war on terror, not simply to do something nice for the Pakistani people.

STEPHENS: The other thing that's at stake here is American credibility, which is to say that we have been pushing this idea of democracy as important for the Middle East. You have a class of literally thousands of lawyers who have now been either detained in their homes or in prison fighting precisely for this and it is a moment, really a testing moment where the Bush administration either stands up and says we are standing alongside these lawyers, we are standing alongside these democracy activists and civil rights activists, or they will have a kind of wink and fudge policy in which they offer them a kind of rhetorical support but say ultimately Pakistan has no Democratic future. General Musharraf is our man.

ROB POLLOCK, EDITORIAL FEATURES EDITOR: One of the remarkable things here is precisely the situation with the judiciary. Musharraf thought he could get the judges to go along with him. Almost none have signed on to this so-called provisional order. It is amazing.

GIGOT: What would happen in we cut off ties to Pakistan? For example, in the military, do we know how they would react? We know they have some sympathizers with the Taliban, the former Afghanistan regime. We know there's some sympathizers in the military with the Islamist fundamentalists. Do we know if America pulled out, whether or not it would move in our direction of the Democratic opposition or would it move in a more radical Isalmists direction?

STEPHENS: There are ways and ways to pull out. One is to condition our aid on a monthly basis with a schedule for General Musharraf to meet in terms of releasing lawyers who are prominent defenders of...

GIGOT: You can't say to a chief of state like Musharraf, look, you have got to meet this timetable of 30 days, 60 days, 90 days. Can you? Can you really do that? You have to say move in that direction, but can you dictate that kind of schedule?

STEPHENS: What is to prevent it? What is to highlight naming the people who are now in jail and who ought to be seen as champions of a democracy movement? We do that in Burma. We do that around the world and should in Pakistan.

POLLOCK: That's more or less what Bush did. Musharraf we will have elections later. President Bush said, no you will have them soon. Now Musharraf said we will have them in February.

HENNINGER: It is a tricky situation. You don't want to simply pull the plug on Musharraf and create the possibility of another shah of Iran situation where ultimately the radicals take over the country. That would be a catastrophe.

GIGOT: The situation we want to avoid is what happened in the 1990's when the United States, in the wake of their nuclear tests, just pulled out and said we will sanction you and not have anything to do with you. What we lost was contacts with a generation of Pakistan generals and military officers, in an institution in Pakistan which is, as you know, one of the most significant in that country.

STEPHENS: But the military support for Musharraf is partly conditioned on their view that Musharraf is the guy that can go to the White House and make deals with the U.S. and who can assure them this kind of flow of aid. If that's in jeopardy, if the officer core in Pakistan thinks maybe Musharraf is not our guy, they might reconsider their loyalty to him.

GIGOT: Rob and Bret, thanks to both of you.

Still ahead, some of America's big banks are in trouble over subprime mortgage losses. They got themselves into this mess. Will the government have to get them out? Our panel debates, after the break.


GIGOT: Some big banks are in big trouble. Citigroup, America's largest bank, announced the resignation of CEO Charles Prince this week and warned that it might be forced to write off $11 billion in losses related to the subprime mortgage mess. This came days after departure of Merrill Lynch CEO Stan O'Neal, who was pushed out after the company reported its first quarterly loss in six years and its biggest in its 93-year history.

We are back with Dan Henninger. And joining the panel, columnist Mary Anastasia O'Grady and senior economic writers Steve Moore.

Mary, does this mean with these departures that accountability is coming to Wall Street?

MARY ANASTASIA O'GRADY, COLUMNIST: Well, you know, these guys are charged with controlling risks. That's their big job. To the extent they failed at that they have to be shown the door. But I think there is something else here that we are still waiting for accountability on, and that's the Fed kept interest rates super low for a long time and that gave a lot of incentive to financial wizards on Wall Street to is that right creating very aggressive products. Now the prices of the products look like they are not holding up.

GIGOT: The Federal Reserve — that's Washington as opposed to the private sector. Accountability in Washington is always different than it is in the private markets where when you record a big loss can you in fact be shown the door, Dan?

HENNINGER: Yes. Just this once again raises the get of the cult of the CEO, the CEO especially of a company like Citi or Merrill. These are huge organizations, far-flung, thousands and thousands of employees. And the question was to what extent did Prince and O'Neal understand what was going down there at the level of the managers who are actually in the, you know, boiler room, working these highly complex high-risk operations.

GIGOT: For which they got big fees. The bank got big fees for marketing the structured investment products, these collateralized debt obligations and these things. While the going was good, they managed to put that on their bottom line.

HENNINGER: But their share price was under pressure. It was a don't ask, don't tell situation. As long as you are producing profits, it was good for the company.

GIGOT: Steve Moore, let me ask you about the issue of the CEO's leaving. Even though they are leaving and there is sort of accountability there. But in some cases they are leaving with pretty big paychecks. Some people say Stan O'Neal might go out with $160 million. And we don't know what Chuck Prince is, but he won't be going to the poor house. Is this really accountability?

STEVE MOORE, SENIOR ECONOMICS WRITER: I don't think it is. As a shareholder myself, as someone who looks at people struggling on Main Street, when they see these $100 million, $200 million golden parachute severance packages, people get very angry.

The other big issue right now, Paul, is this doctrine we call, in Washington, too big to fail. Is Washington going to rush in and bail out Citigroup and some of these large banks?

GIGOT: We should say, Steve, it is not failing yet. No sign that Citibank right now is failing. We are talking about if they have to record even bigger losses down the road.

MOORE: Right. Very good point. And their problem, of course, is that they hold tens of billions of dollars of these mortgage-backed securities. As we know, because of the housing crisis, those loans are in great jeopardy. The point I would like to make is it will look bad, in my opinion, if Washington rushed in and said we think Citigroup is too big to fail, we're going to bail them out, but we won't bail out the small home homeowner losing their home. It creates a real friction. I think Washington should let the free market run its course.

GIGOT: The danger, Mary, when a big bank like Citibank or any huge financial institution is, if it would get into trouble, the market would perceive that you have the broader of systemic risks and fall out.

O'GRADY: That's true. That's what they will certainly focus on. They are clamoring right now for the Fed to reflate, so that these assets will go back up in value and they will have an easier time financing them in the commercial paper market. I think that gets back to the accountability question. They still don't want to eat those losses. They are still hoping the Fed will somehow come in and provide liquidity like in the old days when, as you say, Stan O'Neal was turning in good performance for Merrill Lynch.

HENNINGER: An interesting way to look at this is to compare a big publicly-held corporation, like these two, to the new private firms where the board of directors are more hands on. They look over the shoulder of their CEO every week in a way that hasn't happened so much in public companies anymore.

GIGOT: We're sorry, we have to go.

Still ahead, holy Moses. Pat Robertson endorses Rudy Giuliani? Our panel explores what is behind this unlikely duo after the break.


GIGOT: An unlikely duo to say the least. Christian Coalition founder and broadcaster Pat Robertson endorsed Rudy Giuliani this week, giving what the pro-choice presidential candidate hopes is a boost to his conservative credentials.

Steve Moore, I know you believe in miracles, but did even you see this coming?

MOORE: Wow. No, I really didn't. I am shocked on this. Rudy Giuliani in the past is a guy kind of thumbed his nose at the religious right. This is a huge development, I think, in this race because what it basically signifies is Rudy is increasing this kind of air of inevitability and he's also split the religious right leadership now. There is no consensus candidate to oppose Rudy Giuliani. Some like Huckabee. Some like Romney. Some like Brownback, who is out of the race. I think this is a big new development for Rudy.

GIGOT: It means no single candidate is going to be able to coalesce that support the way George W. Bush was able to do in 2000, Dan?

HENNINGER: Yes. We had this threat of an insurgency by Pat Dobson and some of the others...

GIGOT: Jim Dobson.

HENNINGER: ... Jim Dobson — I'm sorry — who were going to run a third party candidate. Look, you have all these misgivings on the left about Hillary Clinton. It is in the press. We hear it all the time. At crunch time. the Democrats are going to vote for Hillary. I think Pat Robertson is trying to send the same message to Republicans, hey gang, at crunch time, we better be behind a Republican candidate or the other side wins.

GIGOT: Does this say something about electability, that Robertson is saying that it is important that we, the Republicans, get behind somebody who can win. And Giuliani is somebody who can beat the Democrat.

O'GRADY: Certainly. And, you know, the potential for splitting that ticket would be very dangerous. So the fact that now, you know, you have somebody who is so popular among New Yorkers who feel that he saved their city, now being backed by someone on the religious right is critically important for the Republican ticket.

GIGOT: Steve?

MOORE: Let's not forget, by the way, if you look at the last big election Republicans had in 2000, who brought down John McCain when he had the big campaign going? It was exactly Pat Robertson who said John McCain is not acceptable. So this relieves a kind of land mine down the line for Rudy Giuliani as he rolls on.

GIGOT: What does it say or where does it leave the other Republicans, Steve, when it comes to consolidating or winning support from the Christian right? I saw John McCain this week — did get the support of Sam Brownback who was a former candidate, the Senator from Kansas. That will probably help in Iowa, will it not?

MOORE: It will. I think the big blow is to Mitt Romney. Romney needed to consolidate the religious right vote behind him and basically say, look, I am the one who is acceptable to you on issues like gay rights and right to life and so on. And he has not been able to do that, whether it is the Mormon issue, I don't know.

GIGOT: All right, Steve, thanks very much.

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 worse of the week.

Item one, a hit to Garden State voters who went to the polls on Tuesday — Dan?

HENNINGER: New Jersey voters voted down a $450 million bond issue to support stem-cell research, even though Governor Jon Corzine spent $150,000 of his own money to support it. How could it come to past that something as hallowed as stem-cell research would lose? Here is why. New Jersey has the third highest tax burden in the United States. Their property taxes are astronomical. And their budget facing a $3 billion deficit. Now there is one other measure on the ballot that passed. That was to remove the word "insane people" and "idiots" from the state constitution. But 40 percent of voters wanted to keep it in, I think, believing that all of the idiots in New Jersey are in the state legislature.

GIGOT: Too bad we couldn't get Corzine to spend even more of his fortunate on that. That would have helped the local economy.

Next, visiting French President Nicolas Sarkozy warns the U.S. of an economic war if the dollar continues its slide — Mary?

O'GRADY: Yes, the hit this week for me is Nicholas Sarkozy's talk before the joint session of Congress, in which he warned Congress that if the dollar keeps weakening against the Euro, Europeans won't sit still for it. The dollar has lost 65 percent of its value since 2001 against the Euro. And this isn't just difficult for American tourists going to Paris. It is also difficult for European businesses that are trying to sell into the U.S. market.

And as we know, in the past, competitive devaluations are one way that countries try to boost exports in the false idea that they think that's how they will get rich.

GIGOT: You end up with a possible trade war.

O'GRADY: Yes. And this is what Sarkozy is warning about. I think it was really important that he break the news to the U.S. Congress.

GIGOT: Thanks, Mary.

Finally with oil nearing $100 a barrel — can you believe that? — can more drilling in the U.S. be far off — Steve?

MOORE: You wonder when this will happen. When the price of oil was $40, they said not yet. $50, not yet. We are now at nearly $100 a barrel of oil. Congress has an energy bill but it has nothing, Paul, for U.S. domestic production. All it does actually is increase taxes on American companies that produce domestically. This is an outrage. It is one reason we have $100 a barrel oil and one of the reasons why home heating prices and gas prices are going through the roof. Thanks a lot, Congress, for your insane energy policy.

GIGOT: Steve, how high is oil going?

MOORE: I never thought $100 a barrel, I would see in my lifetime. But we will see, in the long term, as Julian Simon taught me, that price will come down, but no thanks to Congress.

GIGOT: Thanks, Steve.

That's it for this week's edition of the "Journal Editorial Report." I'm Paul Gigot. Thanks to all of you for watching. We hope to see you right here next week.

Content and Programming Copyright 2007 FOX News Network, Inc. ALL RIGHTS RESERVED. Transcription Copyright 2007 Voxant, Inc. (www.voxant.com), 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, Inc.'s and Voxant Inc.'s copyrights or other proprietary rights or interests in the material. This is not a legal transcript for purposes of litigation.