This is a rush transcript from "Hannity," January 4, 2010. This copy may not be in its final form and may be updated.

SEAN HANNITY, HOST: The calendar now says 2010 but the failed Christmas Day terror attacks shows that the Obama administration is stuck in 1999. Now this administration has reverted back to a pre-9/11 mentality. It has redefined terrorists as criminals and terror attacks as man-caused disasters.

Now for more than three days after the incident President Obama remained silent and continued his vacation on the beaches of Hawaii. And if that doesn't tell you where fighting terrorism falls on the commander in chief's list of priorities, well, nothing will.

Let's take a closer look at how this White House responded in recent days.


HANNITY (voice-over): The Christmas day attempted bombing of a Northwest Airlines flight from Nigeria to Amsterdam to Detroit may have been a close call but the failed attempt has left many asking how could the Obama administration have let it come that close?

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Homeland Security Secretary Janet Napolitano tried to convince us that Umar Farouk Abdulmutallab's attempt failed because...


HANNITY: Her laughable explanation had many enraged and now has critics from both sides of the aisle calling for her to step down. Including New Jersey state Senate president, Democrat Richard Cody.

Since absolutely no one bought Napolitano's absurd claim, Obama's top counterterrorism adviser, John Brennan was sent on the Sunday show circuit this weekend to try to reset the administration's message.

JOHN BRENNAN, ASST. TO THE PRESIDENT FOR HOMELAND SECURITY: There was no smoking gun. There was no piece of intelligence that said this guy is a terrorist. He's getting on a plane.

HANNITY: While there may not had been a specific smoking gun there were more than enough clues that this guy spelled trouble. First his father went to the U.S. embassy and CIA officials in Lagos with concerns about his son and his extremist tendencies.

That information was slowly but surely passed along to counterintelligence officials here in the states who did nothing with it. In addition, it was recently revealed that the CIA knew a month before the attempted attack that the crotch bomber had possible ties to Yemen-based extremists and that he had spent time in Yemen, but no one followed up on any of these warning signs.

The U.K.'s top spy agency MI5 knew he had been talking with London Islamic extremists three years ago. Abdulmutallab had even been banned from Britain due to immigration concerns.

Director of National Intelligence Dennis Blair apologized for the lapse in national security in a gross understatement, stating, quote, "It is clear that gaps remain and they must be fixed."

It's time the White House gets re-schooled in the subject of counter terrorism 101, because clearly neither the system nor this administration is working the way it should.


HANNITY: And joining me now with reaction to the return of America's pre- 9/11 mentality is author of the New York Times best-seller, former Clinton adviser, Fox News contributor, his Web site, DickMorris.com, Dick Morris is here.

Happy New Year.

DICK MORRIS, "CATASTROPHE" AUTHOR: Thank you. Good to see you.

HANNITY: Appreciate it. The system worked?

MORRIS: Oh god, no. We had all the evidence in the world that this guy was a terrorist. We practically — I mean when the guy's father who is a distinguished person in Nigeria tells you his son is going to blow up an airplane and is in Yemen now, and they already have him on a list of half a million people.

The only reason that he's not on the list of 4,000 people, that was the no- fly list, is that they restricted the size of the list and they cut it back because of people's privacy concerns.

HANNITY: All right. Let's examine. The number one job of the president is to keep the country safe. It's not to vacation in Hawaii. It's not to pass health care. Here's my question. Examine and analyze his handling from A to Z in this case.

MORRIS: Everybody is missing the key point here. They are saying the CIA should have shared the information, the FBI should have shared it. They should have told TSA. He should have been put on the list and so on. And Obama called it a systemic failure.

That's not what it is. What it is is the result of a political reeducation this administration has taken the intelligence community through that says, don't profile, don't stick your neck out. Don't invade anyone's privacy. And heaven help you if you finger a guy and he doesn't blow something up.

HANNITY: Well, but he also said it was an isolated extremist without having the facts. Look, I think for political.

MORRIS: They need to sell the idea that the Fort Hood guy was just deranged guy who's worried about him being shipped out.

HANNITY: I spent a lot of time on this program focusing on their characterizing a war on terror as a man-caused disaster or an overseas contingency operation. Isn't this reflective of a mindset that is putting every person out there in danger? No?

• Great American Blog: Do you think the administration is living in the past?

MORRIS: Yes. Two mindsets. One is that it's not at war. It's just a crime or a disaster.


MORRIS: And secondly, that you can't profile, you can't take leaps, you can't make guesses. Because if you connect the dots unfairly you are going to be in trouble.

HANNITY: All right, but now, isn't the other big issue here is the fact that they are Mirandizing this guy?


HANNITY: It's putting — again every American in danger. What does this guy know? Who are his contacts? Who did he meet? He's lawyered up.


HANNITY: We can't talk to this guy. We ought to be waterboarding this guy.

MORRIS: Absolutely. This is an exact example of something where his insistence on treating everybody as a civil liberties issue gets in the way of the intelligence.

By the way, the information we get after we waterboard him should not be admissible this criminal trial.

HANNITY: But you agree with me. We should waterboard him.

MORRIS: Yes. Should not be admissible —

HANNITY: And by the way, you and I are going to be hammered tomorrow.

MORRIS: No, no, no.

HANNITY: On the blogs because we say this guy should be waterboarded.

MORRIS: But, Mr. Blogs, I don't think the evidence that we get from waterboarding him should be admissible in his criminal trial. The Fifth Amendment still exists. But it should be actionable for intelligence to break up other Al Qaeda plots.

HANNITY: Exactly. Because we don't know what he knows or what other danger exists out there for America. But here's the deal, Dick. If you wrap a bomb in your underwear, and this is an act of terror, with the background that you have, you got to assume that this is an act of war.


HANNITY: But this administration doesn't see that it way.

MORRIS: They would have us Mirandizing Germans we captured on the battlefield in World War II.

HANNITY: Well, that would be the next thing that's —

MORRIS: But you know, the other point here is the reason 9/11 happened is that Bill Clinton treated the '93 bombing of the Trade Center as a crime, not as an act of war. And now Obama is going through the exact same situation.

HANNITY: Well — look, I say this often. The 9/11 Commission report, if we got one thing out of it, they are at war with us, we're not at war with them.

Let me ask what this means politically. Number of Democrats, Scott Rasmussen, has now fallen to a new low, down another six points.

MORRIS: Right.

HANNITY: Congress in the 20s, Reid is in the 30s. Pelosi is in the 20s. Democrats, right track, wrong track. Generic balloting.

MORRIS: Obama is down to 46.

HANNITY: Obama is down. What does this mean? I think we're in one of the most important election cycles ever in our lifetime.

MORRIS: I think that yes, we are. And I think that if we don't take our country back in 2010, it's not going to be there for us to take back. The important point, though, I believe about this, is that the country just got a crash course in how fraudulent the idea of a moderate Democrat is.

That there aren't any. It don't exist.

HANNITY: Thank you.

MORRIS: There are Democrats and there are Republicans. Now I used to be one of them. I used to be a conservative Democrat. I'm not any more because it doesn't exist.

HANNITY: They don't exist.

MORRIS: You're either a Pelosi-Reid-Obama Democrat or you're a Republican.

HANNITY: You got to do a little "Sean, you were right" — and by the way, I applaud your efforts because you really thought there was a chance to pick off either a Ben Nelson or a Blanche Lincoln or one of these so-called conservative Democrats.

I didn't think so because I knew once the arm-twisting began, once the money started to flow, it would be very hard for them to say no.

MORRIS: It represents more than just a — more than an optimism on my part. It represents a fundamental change in our politics. That there is no such thing as an independent Democrat.

HANNITY: That's. —

MORRIS: If you're a Democrat, you're a Democrat, you're a Democrat, and that's all you can be.

HANNITY: Was this — because every American now is going to pay hundreds of millions of dollars, hundreds of millions of dollars, to these states just to buy off, you know, "cash for cloture", as they call it. Is that bribery?


HANNITY: Or even worse, because it's other people's money?

MORRIS: I think it is bribery. But I'm interested in what will come out in the next couple of years. I want to know what the net worth of these folks is going to be. I want to follow it to '11 and '12 and go back and say why from '9 to '10 did you experience a huge up tick in your net worth?

HANNITY: That's a great question. Now I won't you about this. We got Karl Rove going up next. But you know this TSA nominee.


HANNITY: Basically lied himself. He was looking into the backgrounds of people. Did you hear about that?

MORRIS: Yes, it's great for a nominee for a guy who's going to have access to every background check in the world that he was able to go through it to catch his wife's ex-lover.

HANNITY: His wife's boyfriend.


HANNITY: Unbelievable.

MORRIS: That's terrific.

HANNITY: Now we're going to get —

MORRIS: I mean, if the guy were running for head of, you know, the Treasury Department — not Treasury, or you know Labor Department, OK, or Commerce. it's TSA.


MORRIS: He'll have access to everything.

HANNITY: Listen, we have a tax cheat running the IRS, Dick. You might not have heard about it.

MORRIS: But Sean, don't worry about it. Nobody's on that no-fly list.


HANNITY: Dick Morris, appreciate it.

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