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THE MCLAUGHLIN GROUP HOST: JOHN MCLAUGHLIN PANEL: JAY CARNEY, TIME; CHRYSTIA FREELAND, FINANCIAL TIMES; TONY BLANKLEY, THE WASHINGTON TIMES; MARIA BARTIROMO, CNBC TAPED: FRIDAY, MAY 11, 2007 BROADCAST: WEEKEND OF MAY 12-13, 2007

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MR. MCLAUGHLIN: Issue One: Miserable April.

HENRY PAULSON (Treasury secretary): (From videotape.) I'm focused on keeping our economy strong. We've created almost 8 million jobs since August of 2003; strong labor markets. Inflation seems relatively contained. The consumer is still robust.

MR. MCLAUGHLIN: Despite Treasury Secretary Hank Paulson's sales pitch, not all indicators are rosy. Last month's job creation rate was an anemic 88,000. Optimists who predicted a rebound in the housing market in spring '07 are now saying sometime in '08. April retail sales showed that although high-income Americans are still on a spending spree at Nordstrom's and Saks, middle- and lower- income Americans have cut back sharply at Target and Wal-Mart.

What's crimping these larger sectors of our public? Although oil inventories are at a seasonal high, gas prices now average almost $3 a gallon nationwide, and inflation has driven up the wholesale cost of every food in America, from Coca-Cola to pork ribs and chicken.

That's why economists were particularly alarmed last month to see consumer and household debt hit record highs, despite the downturn in spending. The reason consumers are increasing household debt: People are using credit cards to pay for the basics, food and health care.

Question: Is the economy at a turning point? Jay Carney.

MR. CARNEY: Well, I think any economist you ask might give you a different answer. It's impossible to know. But there are troubling signs. And I think one of the signs that we're seeing is that a lot of these ARM loans that people took out during the housing boom, a lot of these loans that had fixed rates for three, five or seven years have come due. Their rates have gone up.

People are squeezed. They're paying for their houses by -- their mortgages by adding more debt to their credit cards. And they're feeling a pinch between gas prices and their mortgages and health care costs.

So I think -- you know, is there a turning point? Do I think we're heading for a recession? It doesn't feel like it to me, but I think there is certainly a downturn, and growth is not what it could be.

MR. MCLAUGHLIN: Is this a story between Main Street and Wall Street? The Dow keeps hurtling along, but on the Main Street level, medium and poorer-class people are having a hard time of it?

MS. FREELAND: Well, I hate to sound too much like John Edwards, but there is definitely a story about growing income inequality in America. And that translates also into a corporate story, because, as you pointed out, we are seeing that the luxury goods companies are doing really well and the companies that cater to people who aren't quite so rich aren't doing so well.

But I do also think we should be a little bit cautious about calling it a recession right now. The retail figures are worrying and the American consumer has been keeping America and the world going. But there are other things that are driving the economy, including the fact that other parts of the world are really quite vibrant right now.

MR. MCLAUGHLIN: Why is it so hard to assess the direction in which the American economy is moving? MR. BLANKLEY: Well, if you can determine when a market is going to shift, you can become a very rich person very quickly. It's never certain. You have a lot of factors here. Unemployment is at 4.5 percent. That's not just rich people and upper-middle-class people working. That's virtually full employment. That's virtually everybody getting a job.

When you take out energy and agriculture, inflation is comfortable. That's what Bernanke looks to. The world economy is looking pretty good, so we're not going to get into a cycle of the world economy all turning down at the same time. On the other hand, the housing market is taking its time coming back. But you are seeing investment going into house repair stocks.

So I think it's a mixed bag, and I'm not betting either way.

MR. MCLAUGHLIN: Maria, welcome. Do you think that we have a dual economy, and that's the problem? We have multinationals that are fattening themselves off globalism. We have a domestic economy which is facing all kinds of disorder.

MS. BARTIROMO: John, I think things are going very well, frankly. The rest of the world is growing and is incredibly vibrant right now. You said unemployment is 4.5 percent. Come on, that's virtually full employment. Inflation is relatively low. Wages are going up. Yes, there is an income gap that needs to be addressed for sure, but the world is getting richer. This is a positive. That's going to be a positive for American companies at the end of the day.

MR. MCLAUGHLIN: You interviewed -- that bite we used at the beginning of Hank Paulson was from your interview. What was the central point he was making in that interview?

MS. BARTIROMO: Well, he was making the point that the global economy is doing well. And while there are issues -- the housing market has slowed; the automotive industry remains weak; the retail sector is weak -- that the global economy is doing well. He looked around the world. He talked about Japan, Brazil, Vietnam, Southeast Asia, Europe. For the first time you're even seeing Germany break out of a funk.

MR. MCLAUGHLIN: He was complaining about there not being enough foreign investment in the United States. Was that the theme that was throughout that interview?

MS. BARTIROMO: Absolutely. He's launching a new campaign to try to get international companies to reinvest in the United States. It peaked at about $360 billion in the year 2000. Last year direct foreign investment was at $160 billion. So things have definitely tailed off after September 11th, and he's trying to reignite that.

MR. MCLAUGHLIN: Are you following that story? MR. CARNEY: And it's surprising, given the price of the dollar being so low, that there wouldn't be more foreign investment.

You know, I think it's not the job -- the income inequality is not just a problem. It's at historic, mind-blowing highs.

I mean, you're talking about hedge fund winners who pull in enough money in a year to pay 80,000 teachers in a year.

And I think while this -- because the economy overall, globally and nationally, is not tanking, you won't see rebellion in the streets. But I think it does politically help candidates like John Edwards and Democrats in general who are addressing economic anxieties at levels that the Republican candidates are not.

MR. MCLAUGHLIN: Paulson is a globalist. He believes in globalism. And he fears a backlash against globalism, which I think a lot of us on this panel sense. Is that right?

MS. FREELAND: Absolutely.

MR. MCLAUGHLIN: The Democratic backlash against globalism --

MS. FREELAND: It's not just Democratic.

MR. MCLAUGHLIN: -- because of the outsourcing of jobs. So he wants to prevent the outsourcing, keep it to a minimum. Therefore he wants foreign investment here to stabilize globalism.

MS. BARTIROMO: John, the problem is protectionism, okay. Dubai Ports was not allowed to acquire the ports in this country. CNOOC out of China was not allowed to acquire Unocal. There's protectionism seeping through countries; not just America, but all around the world. It's a negative.

MR. BLANKLEY: But on that --

MR. MCLAUGHLIN: Hold on.

MS. FREELAND: And it's not about preventing outsourcing. I think this is one of the great myths in the economic debate. You can't stop outsourcing. And if you do, you make your economy slow down. It's a question of really participating fully in the world economy. And that's why this idea of saying, "Fine, our companies will invest outside the United States, but let's open up to let other companies invest here."

MR. BLANKLEY: I mean, you know, France -- MS. FREELAND: And I do think --

MR. BLANKLEY: I'm sorry. Go ahead.

MS. FREELAND: No, I was just going to say, it's not just about 9/11. It's the fact that international companies really do feel that there is a hostility towards them in America. It's hard to enter the country.

MR. BLANKLEY: By way of example, the French economy has been slumping for years because they've been protecting themselves from international trade. That's what the French election was substantially about was recognizing you've got to be competitive in the world. If you try to be a castle unto yourself, you get poorer. That's what's happening.

MS. BARTIROMO: Dannon Yogurt was a national treasure. They didn't want it to be acquired. Italy doesn't want its banks to be acquired.

MR. MCLAUGHLIN: The housing bubble is burst?

MS. BARTIROMO: There's probably more to come.

MR. MCLAUGHLIN: Do you think there's another bubble that's going to burst, the credit bubble? The liquidity out there is enormous.

MS. BARTIROMO: It's enormous. It certainly is the best of times in terms of accommodating deals that have happened.

MR. MCLAUGHLIN: If that bubble bursts, will that be a ruin?

MS. BARTIROMO: It will be a disruption for the markets, for sure.

MR. BLANKLEY: Look, one of the good pieces of news is the deal that the White House and the Democrats in Congress, leadership, have had on trade. We've been having this fight for years about Democrats demanding to have labor controls for the other treaty countries.

And you've now got with Charlie Rangel, Democratic chairman of the Ways & Means Committee, he's got to deal with President Bush to be able to pass, on a bipartisan basis, Peru and other trade deals. This is a very good sign that we're stepping at least a half-step back from the protectionist instinct.

MR. MCLAUGHLIN: Did Paulson excoriate the Congress subtly by condemning Sarbanes-Oxley?

MS. BARTIROMO: You know, he didn't. I don't think he blames it on Sarbanes-Oxley entirely. He's blaming it on this idea that the litigation varmint is out of control, that people view America as having high compliance costs -- that certainly has to do with Sarbanes-Oxley -- but also the inability to get a visa. I mean, it's a lot of stuff going on that is giving people the perception that America is closed. And that's what he wants to change.

MR. MCLAUGHLIN: Did he indicate to you at any time which one of the presidential candidates, presumably Republican he favors, but Democrats perhaps that he likes the economic philosophy of?

MS. BARTIROMO: He did not.

MR. MCLAUGHLIN: He did not.

Exit question: Earlier this year, Alan Greenspan -- I think you broke this story -- Alan Greenspan made waves when he predicted that we were in a recession -- in for a recession in late 2007 or early 2008. Was he right? And, if so, by which date? You got me?

MR. CARNEY: John, I would not judge those words. I wouldn't presume to know more than Alan Greenspan and I wouldn't presume that he knows, with any kind of precision, when the next recession is going to come. We have been in a long period of growth. We have had an extended bull market. At some point there's going to be a correction. Will it be just unsettling for the markets, as recent corrections have been, and not catastrophic? I hope so. But we just don't know.

MR. MCLAUGHLIN: What do you think?

MS. FREELAND: Well, Warren Buffett has a great line, which is that the cemetery for seers has a special section, a very large one, reserved for people who make macroeconomic predictions. So I think that's absolutely correct.

Having said that, I think that you pointed, John, to what is really the single biggest and hardest-to-grapple-with issue, which is this liquidity. And on the one hand, the huge liquidity sloshing around there is part of this unprecedented global prosperity. It's part of the sophistication of financial markets. It's even part of the technological change.

But the question we have to ask ourselves is, can money remain so cheap for so long? And are there deals somewhere at a corporate level, in terms of household debt, that at some point will go wrong?

MR. MCLAUGHLIN: I think the biggest problem is the duality.

MR. BLANKLEY: Well, look --

MR. MCLAUGHLIN: If you legislate for multinationals, you're doing one thing. If you're legislating for the domestic sector, you're doing another thing. MR. BLANKLEY: I don't think that addresses the state of the economy. But I agree with Jay. Who am I to outguess Alan Greenspan? But I must say, the booming stock market is the leading indicator of the economy, which suggests that we're not imminently facing a recession.

MR. MCLAUGHLIN: Yeah, kind of avoid those lapses into humility, will you?

MR. BLANKLEY: Once every year.

MR. MCLAUGHLIN: Maria.

MS. BARTIROMO: Yeah, I mean, look, I'm not making a prediction about recession or not, but, I mean, my gut tells me no. Things are going well. Balance sheets have been so strong, strongest they've been. If you look at over a 10-year period, post-Enron, WorldCom, and the scandals that we got through, companies were not taking many risks. They were risk-averse. They've cleaned up the balance sheets. And now they're rich, frankly.

MR. MCLAUGHLIN: Well, that's corporate level.

MS. BARTIROMO: Corporate level. And that does lift many boats.

MR. MCLAUGHLIN: Well, I don't know about that. I mean, you find this oddity where people are not spending and they're living by credit cards, and they're hurting.

MS. BARTIROMO: Well, the price of oil is certainly an issue, and the housing slowdown has been an issue for people.

MR. MCLAUGHLIN: Inflation? He doesn't seem overly concerned about inflation, does he?

MS. BARTIROMO: Inflation came out this week, and it was flat when you strip out energy and food.

MR. MCLAUGHLIN: I think Alan is right. I think it's going to be late '07 for our touchdown with recession.

Issue Two: Bush Gives Ground.

President Bush this week agreed to negotiate war funding legislation for Iraq that would set targets for progress in Iraq.

PRESIDENT GEORGE W. BUSH: (From videotape.) One message I have heard from people from both parties is that the idea of benchmarks makes sense. And I agree. It makes sense to have benchmarks as a part of our discussion on how to go forward. And so I've empowered Josh Bolten to find common ground on benchmarks. And he will continue to have dialogue with both Republicans and Democrats. MR. MCLAUGHLIN: For their part, Democratic leaders have agreed to drop earlier demands for a timetable for ending U.S. military involvement in Iraq within nine months. But there's more. The House passed a bill Thursday night that would provide partial funding for Iraq but suspend most of the money until President Bush gives them an update on progress in Iraq in two months -- July.

HOUSE SPEAKER NANCY PELOSI (D-CA): (From videotape.) The president has brought us to this point by vetoing the first Iraq Accountability Act and refusing to pay for this war responsibly. He has grown accustomed to a free hand on Iraq that he had before January 4th. Those days are over.

MR. MCLAUGHLIN: The bill passed, 221-205, in defiance of President Bush, who, earlier the same afternoon, threatened a fresh veto.

PRESIDENT BUSH: (From videotape.) And so I'll veto the bill if it's this haphazard, piecemeal funding.

MR. MCLAUGHLIN: Question: On the issue of Iraq, is the House of Representatives ahead of the people, with the people, or behind the people? Maria Bartiromo.

MS. BARTIROMO: I think it's with the people. I think that the House wants the troops to pull out, come home, but it doesn't want to appear that it wants to cut off funding for the troops. I think people want the troops to come home.

MR. BLANKLEY: Actually, if you believe that the polling means anything, Congress is behind. The public is even more anxious to get out than the Democratic leadership in Congress is. I don't believe that polling, and I think the more experienced Democrats realize the public can be fickle, so that's why they're being cautious. But the public has been ahead of the Congress, even the Democrats, if you just look at all the major polling on that.

MR. CARNEY: The House is certainly behind -- or, rather, ahead of the Senate. The Senate Democrats are not going to go along with the bill that passed the House in that formulation.

MR. MCLAUGHLIN: Unless the Parliament in Iraq takes a vacation in July and August, and then the Senate will be forced to --

MR. CARNEY: That could be a game-changer. That would be a real poke in the eye.

MR. MCLAUGHLIN: That would force them into going along with the House.

MR. CARNEY: It would be a real poke in the eye and I think would incense a lot of people and would translate pretty directly to the kitchen table in America that this is not necessarily a war worth fighting. MS. FREELAND: And we also have to realize that everyone right now, all of these players, are playing their own very specific political game. So we have, going into the presidential election, each of the candidates struggling to define themselves. That is shaping things. And people in the House are really worried about their own fate at the polls.

MR. MCLAUGHLIN: Okay. Cheney unchained.

Almost in tandem with the president, but unexpectedly, Vice President Cheney went to Iraq this week. He told the Maliki government to get serious about unity and about reform.

VICE PRESIDENT DICK CHENEY: (From videotape.) I did make it clear that we believe it's very important to move on the issues before us in a timely fashion. They do believe we are making progress, but we've got a long way to go.

MR. MCLAUGHLIN: As the Sunnis and Shi'as go about killing each other, the Iraqi Parliament has yet to agree on these benchmarks: One, how to share revenues from Iraq's huge oil reserves between Shi'as and Sunnis; two, how to re-enlist former Ba'ath Party members into government, thereby reconciling Shi'as and Sunnis; three, how to dismantle violent private militias; four, how to amend Iraq's constitution to equalize the rights of Shi'as and Sunnis. These are all major hurdles, and top Iraqi officials are not optimistic about clearing them, including Cheney's opposite number, the vice president of Iraq.

TARIQ AL HASHIMI (vice president of Iraq): (From videotape.) I just can't see any light on the horizon, time being.

MR. MCLAUGHLIN: To make matters worse, if not unconscionable, Iraq's Parliament has scheduled a two-month July-August vacation.

Question: Is Cheney trying to thwart a political nightmare for the White House? Tony Blankley.

MR. BLANKLEY: Well, yes. He's been trying to do that for several years now. I think he's got a real challenge. The current Parliament may not have the will, and even the desire for many elements of it, to reach an accord. Both the Shi'as and the Sunnis and the Kurds have their own view of the future. And so far -- I mean, I think we need to start thinking about if the Parliament -- if this government can't do the job, do we need to somehow come up with another group of Iraqis who might be able to?

MR. MCLAUGHLIN: We're losing about 100 soldiers dying every month. Do the Iraqis really think that we are going to continue doing that while they are out on summer vacation? What do you think? Isn't that the nightmare that Cheney's trying to avoid? MS. FREELAND: It's very politically undeft of the Iraqi Parliament to have talked about that. But what I think is really interesting about the Cheney trip is the whole segment you've done on it. I mean, I think what we're seeing is the administration trying to shift the focus onto Iraq and saying, "This is not our responsibility. It's not a question of 'We broke it; we'd better fix it.' It's a question of these Iraqis. And if they can get it together, great. But if they can't, sorry, it's not our fault."

MR. CARNEY: Right.

"We did what we can, and we're getting out."

MS. FREELAND: "We got rid of the tyrant, and your fault if you can't create a thriving democracy."

MR. CARNEY: Which is a heck of a long way from "death throes" and, you know, where Cheney was a year or two ago. You know, last week there was a period where U.S. personnel, civilian personnel, were told only to leave their homes and offices in the green zone with flak jackets and helmets -- in the green zone.

MR. BLANKLEY: Look, I've got to say, I think this is a complete misread of President Bush's intentions. I don't think Bush is looking for an opportunity to pass the buck to the Iraqis. I think he is committed to trying to make it work one way or the other, and he's going to do that until January 20th, 2009.

MS. BARTIROMO: Yeah, but I think he does need some kind of a subtle sort of back-pedaling and some kind of a shift of power so that they can start taking control.

MR. BLANKLEY: Well, he may well need it, but I don't think he's looking for an exit if he can't find one. He's not just looking for a politically convenient exit. If he can't find one, he's going to stick.

MR. MCLAUGHLIN: Issue --

MS. FREELAND: So he's going to stay until it's a democracy and everything is working --

MR. BLANKLEY: He's going to stay until January 20th, 2009.

MR. MCLAUGHLIN: Issue Three: Panic Slaughter.

U.S. Army Brigade Commander in Afghanistan Colonel John Nicholson issued an apology this week so extended and so remorseful as to be unprecedented in American military history.

COL. JOHN NICHOLSON: (From videotape.) So I stand before you today deeply, deeply ashamed and terribly sorry that Americans have killed and wounded innocent Afghan people. We are filled with grief and sadness at the death of any Afghan, but the death and wounding of innocent Afghans at the hand of Americans is a stain on our honor and on the memory of the many Americans who have died defending Afghanistan and the Afghan people. This was a terrible, terrible mistake, and my nation grieves with you for your loss and suffering. We humbly and respectfully ask for your forgiveness.

MR. MCLAUGHLIN: Colonel Nicholson is apologizing for a very bloody March day in Afghanistan. A Marine Special Operations convoy was hit by a suicide bomber in a van packed with explosives. Immediately after they were attacked, the elite unit fired on nearby noncombatants and all along the 10-mile route back to their base.

The Marines took the lives of 19 civilians and wounded 50. It was the deadliest civilian killing in the country from a single U.S. action since the start of the war. Each of the families of the killed Afghan civilians was given $2,000 by the U.S. government.

Do you think that this kind of ethics violation was a result of extended and multiple deployments and stress and strain owing to a war that seems to have no end?

MR. CARNEY: John, honestly, I don't know. I think that there's a lot of stress on our soldiers, but I think that terrible things happen in war. The problem is that both these wars are now becoming such a burden on the public that this is terrible news.

MR. MCLAUGHLIN: We're running out of time. A quick answer?

MS. FREELAND: It's also particularly hard to fight a war when you're fighting against the local people.

MR. BLANKLEY: No, I mean, compared to any other wars, where these sort of things happen, I don't see this as any different. I don't think it's any more stress than our troops during World War II or the Civil War.

MR. MCLAUGHLIN: Maria?

MS. BARTIROMO: I think it's very stressful, and I think the American people are increasingly frustrated. And I think that it's a tragedy.

MS. FREELAND: But just to come back to Tony very quickly, if you come in as liberators, it is particularly bad to kill innocent civilians. That's what makes it different.

MR. BLANKLEY: Well, yeah, but we killed a lot of civilians in France.

MR. MCLAUGHLIN: Issue Four: Reagan Unscripted. In five bound diaries, Ronald Reagan, in his own hand, recorded his daily thoughts and feelings during the eight years of his presidency. The diaries, with their maroon leather covers and embossed presidential seals, are the first daily presidential diaries released in American history.

Here's an example. "Monday, March 2nd, 1981. Addressed the National Association of Local Governments and Congress at noon. Some 3,000 in the same room as the prayer breakfast was held. Was a little uptight after hearing reports of unhappiness with our economic program. They could not have been nicer and were very obviously in support of the program. Dick Wirthlin briefed us on a poll he'd taken re the program. Ninety-five percent support on budget cuts; almost as many the tax cuts. Then briefed for tomorrow's Walter Cronkite interview. Home for dinner."

What do you think is the impression that emerges of Ronald Reagan from these diaries? Maria.

MS. BARTIROMO: I think the fact that he was writing such detail is -- he was thoughtful. I think it's very positive. I think it makes him appear, like I said, very thoughtful and a good guy.

MR. MCLAUGHLIN: Sensible. Do you think it shows that Reagan's public side was exactly the same as his private side?

MR. BLANKLEY: That's my point. The same thing happened when all of his writings from the '70s and earlier came out, that what you saw was remarkably what you got -- a decent guy with a sense of humor and very human. He talks about his problem with his kids and that sort of thing.

MR. MCLAUGHLIN: Chrystia.

MS. FREELAND: My favorite part was the kids. I loved the line "Insanity is hereditary; you get it from your children."

MR. MCLAUGHLIN: What do you think, Jay?

MR. CARNEY: Well, I think it all goes to burnishing his image, which is, you know, sort of constantly being burnished. And this time he doesn't need the help of Grover Norquist or somebody to put his name on a building, but this is the personal side of Ronald Reagan.

MR. MCLAUGHLIN: Out of time. Happy Mother's Day. Bye-bye.

END.

R. MCLAUGHLIN: Yeah, kind of avoid those lapses into humility, will you?

MR. BLANKLEY: Once every year.

MR. MCLAUGHLIN: Maria.

MS. BARTIROMO: Yeah, I mean, look, I'm not making a prediction about recession or not, but, I mean, my gut tells me no. Things are going well. Balance sheets have been so strong, strongest they've been. If you look at over a 10-year period, post-Enron, WorldCom, and the scandals that we got through, companies were not taking many risks. They were risk-averse. They've cleaned up the balance sheets. And now they're rich, frankly.

MR. MCLAUGHLIN: Well, that's corporate level.

MS. BARTIROMO: Corporate level. And that does lift many boats.

MR. MCLAUGHLIN: Well, I don't know about that. I mean, you find this oddity where people are not spending and they're living by credit cards, and they're hurting.

MS. BARTIROMO: Well, the price of oil is certainly an issue, and the housing slowdown has been an issue for people.

MR. MCLAUGHLIN: Inflation? He doesn't seem overly concerned about inflation, does he?

MS. BARTIROMO: Inflation came out this week, and it was flat when you strip out energy and food.

MR. MCLAUGHLIN: I think Alan is right. I think it's going to be late '07 for our touchdown with recession.

Issue Two: Bush Gives Ground.

President Bush this week agreed to negotiate war funding legislation for Iraq that would set targets for progress in Iraq.

PRESIDENT GEORGE W. BUSH: (From videotape.) One message I have heard from people from both parties is that the idea of benchmarks makes sense. And I agree. It makes sense to have benchmarks as a part of our discussion on how to go forward. And so I've empowered Josh Bolten to find common ground on benchmarks. And he will continue to have dialogue with both Republicans and Democrats. MR. MCLAUGHLIN: For their part, Democratic leaders have agreed to drop earlier demands for a timetable for ending U.S. military involvement in Iraq within nine months. But there's more. The House passed a bill Thursday night that would provide partial funding for Iraq but suspend most of the money until President Bush gives them an update on progress in Iraq in two months -- July.

HOUSE SPEAKER NANCY PELOSI (D-CA): (From videotape.) The president has brought us to this point by vetoing the first Iraq Accountability Act and refusing to pay for this war responsibly. He has grown accustomed to a free hand on Iraq that he had before January 4th. Those days are over.

MR. MCLAUGHLIN: The bill passed, 221-205, in defiance of President Bush, who, earlier the same afternoon, threatened a fresh veto.

PRESIDENT BUSH: (From videotape.) And so I'll veto the bill if it's this haphazard, piecemeal funding.

MR. MCLAUGHLIN: Question: On the issue of Iraq, is the House of Representatives ahead of the people, with the people, or behind the people? Maria Bartiromo.

MS. BARTIROMO: I think it's with the people. I think that the House wants the troops to pull out, come home, but it doesn't want to appear that it wants to cut off funding for the troops. I think people want the troops to come home.

MR. BLANKLEY: Actually, if you believe that the polling means anything, Congress is behind. The public is even more anxious to get out than the Democratic leadership in Congress is. I don't believe that polling, and I think the more experienced Democrats realize the public can be fickle, so that's why they're being cautious. But the public has been ahead of the Congress, even the Democrats, if you just look at all the major polling on that.

MR. CARNEY: The House is certainly behind -- or, rather, ahead of the Senate. The Senate Democrats are not going to go along with the bill that passed the House in that formulation.

MR. MCLAUGHLIN: Unless the Parliament in Iraq takes a vacation in July and August, and then the Senate will be forced to --

MR. CARNEY: That could be a game-changer. That would be a real poke in the eye.

MR. MCLAUGHLIN: That would force them into going along with the House.

MR. CARNEY: It would be a real poke in the eye and I think would incense a lot of people and would translate pretty directly to the kitchen table in America that this is not necessarily a war worth fighting. MS. FREELAND: And we also have to realize that everyone right now, all of these players, are playing their own very specific political game. So we have, going into the presidential election, each of the candidates struggling to define themselves. That is shaping things. And people in the House are really worried about their own fate at the polls.

MR. MCLAUGHLIN: Okay. Cheney unchained.

Almost in tandem with the president, but unexpectedly, Vice President Cheney went to Iraq this week. He told the Maliki government to get serious about unity and about reform.

VICE PRESIDENT DICK CHENEY: (From videotape.) I did make it clear that we believe it's very important to move on the issues before us in a timely fashion. They do believe we are making progress, but we've got a long way to go.

MR. MCLAUGHLIN: As the Sunnis and Shi'as go about killing each other, the Iraqi Parliament has yet to agree on these benchmarks: One, how to share revenues from Iraq's huge oil reserves between Shi'as and Sunnis; two, how to re-enlist former Ba'ath Party members into government, thereby reconciling Shi'as and Sunnis; three, how to dismantle violent private militias; four, how to amend Iraq's constitution to equalize the rights of Shi'as and Sunnis. These are all major hurdles, and top Iraqi officials are not optimistic about clearing them, including Cheney's opposite number, the vice president of Iraq.

TARIQ AL HASHIMI (vice president of Iraq): (From videotape.) I just can't see any light on the horizon, time being.

MR. MCLAUGHLIN: To make matters worse, if not unconscionable, Iraq's Parliament has scheduled a two-month July-August vacation.

Question: Is Cheney trying to thwart a political nightmare for the White House? Tony Blankley.

MR. BLANKLEY: Well, yes. He's been trying to do that for several years now. I think he's got a real challenge. The current Parliament may not have the will, and even the desire for many elements of it, to reach an accord. Both the Shi'as and the Sunnis and the Kurds have their own view of the future. And so far -- I mean, I think we need to start thinking about if the Parliament -- if this government can't do the job, do we need to somehow come up with another group of Iraqis who might be able to?

MR. MCLAUGHLIN: We're losing about 100 soldiers dying every month. Do the Iraqis really think that we are going to continue doing that while they are out on summer vacation? What do you think? Isn't that the nightmare that Cheney's trying to avoid? MS. FREELAND: It's very politically undeft of the Iraqi Parliament to have talked about that. But what I think is really interesting about the Cheney trip is the whole segment you've done on it. I mean, I think what we're seeing is the administration trying to shift the focus onto Iraq and saying, "This is not our responsibility. It's not a question of 'We broke it; we'd better fix it.' It's a question of these Iraqis. And if they can get it together, great. But if they can't, sorry, it's not our fault."

MR. CARNEY: Right.

"We did what we can, and we're getting out."

MS. FREELAND: "We got rid of the tyrant, and your fault if you can't create a thriving democracy."

MR. CARNEY: Which is a heck of a long way from "death throes" and, you know, where Cheney was a year or two ago. You know, last week there was a period where U.S. personnel, civilian personnel, were told only to leave their homes and offices in the green zone with flak jackets and helmets -- in the green zone.

MR. BLANKLEY: Look, I've got to say, I think this is a complete misread of President Bush's intentions. I don't think Bush is looking for an opportunity to pass the buck to the Iraqis. I think he is committed to trying to make it work one way or the other, and he's going to do that until January 20th, 2009.

MS. BARTIROMO: Yeah, but I think he does need some kind of a subtle sort of back-pedaling and some kind of a shift of power so that they can start taking control.

MR. BLANKLEY: Well, he may well need it, but I don't think he's looking for an exit if he can't find one. He's not just looking for a politically convenient exit. If he can't find one, he's going to stick.

MR. MCLAUGHLIN: Issue --

MS. FREELAND: So he's going to stay until it's a democracy and everything is working --

MR. BLANKLEY: He's going to stay until January 20th, 2009.

MR. MCLAUGHLIN: Issue Three: Panic Slaughter.

U.S. Army Brigade Commander in Afghanistan Colonel John Nicholson issued an apology this week so extended and so remorseful as to be unprecedented in American military history.

COL. JOHN NICHOLSON: (From videotape.) So I stand before you today deeply, deeply ashamed and terribly sorry that Americans have killed and wounded innocent Afghan people. We are filled with grief and sadness at the death of any Afghan, but the death and wounding of innocent Afghans at the hand of Americans is a stain on our honor and on the memory of the many Americans who have died defending Afghanistan and the Afghan people. This was a terrible, terrible mistake, and my nation grieves with you for your loss and suffering. We humbly and respectfully ask for your forgiveness.

MR. MCLAUGHLIN: Colonel Nicholson is apologizing for a very bloody March day in Afghanistan. A Marine Special Operations convoy was hit by a suicide bomber in a van packed with explosives. Immediately after they were attacked, the elite unit fired on nearby noncombatants and all along the 10-mile route back to their base.

The Marines took the lives of 19 civilians and wounded 50. It was the deadliest civilian killing in the country from a single U.S. action since the start of the war. Each of the families of the killed Afghan civilians was given $2,000 by the U.S. government.

Do you think that this kind of ethics violation was a result of extended and multiple deployments and stress and strain owing to a war that seems to have no end?

MR. CARNEY: John, honestly, I don't know. I think that there's a lot of stress on our soldiers, but I think that terrible things happen in war. The problem is that both these wars are now becoming such a burden on the public that this is terrible news.

MR. MCLAUGHLIN: We're running out of time. A quick answer?

MS. FREELAND: It's also particularly hard to fight a war when you're fighting against the local people.

MR. BLANKLEY: No, I mean, compared to any other wars, where these sort of things happen, I don't see this as any different. I don't think it's any more stress than our troops during World War II or the Civil War.

MR. MCLAUGHLIN: Maria?

MS. BARTIROMO: I think it's very stressful, and I think the American people are increasingly frustrated. And I think that it's a tragedy.

MS. FREELAND: But just to come back to Tony very quickly, if you come in as liberators, it is particularly bad to kill innocent civilians. That's what makes it different.

MR. BLANKLEY: Well, yeah, but we killed a lot of civilians in France.

MR. MCLAUGHLIN: Issue Four: Reagan Unscripted. In five bound diaries, Ronald Reagan, in his own hand, recorded his daily thoughts and feelings during the eight years of his presidency. The diaries, with their maroon leather covers and embossed presidential seals, are the first daily presidential diaries released in American history.

Here's an example. "Monday, March 2nd, 1981. Addressed the National Association of Local Governments and Congress at noon. Some 3,000 in the same room as the prayer breakfast was held. Was a little uptight after hearing reports of unhappiness with our economic program. They could not have been nicer and were very obviously in support of the program. Dick Wirthlin briefed us on a poll he'd taken re the program. Ninety-five percent support on budget cuts; almost as many the tax cuts. Then briefed for tomorrow's Walter Cronkite interview. Home for dinner."

What do you think is the impression that emerges of Ronald Reagan from these diaries? Maria.

MS. BARTIROMO: I think the fact that he was writing such detail is -- he was thoughtful. I think it's very positive. I think it makes him appear, like I said, very thoughtful and a good guy.

MR. MCLAUGHLIN: Sensible. Do you think it shows that Reagan's public side was exactly the same as his private side?

MR. BLANKLEY: That's my point. The same thing happened when all of his writings from the '70s and earlier came out, that what you saw was remarkably what you got -- a decent guy with a sense of humor and very human. He talks about his problem with his kids and that sort of thing.

MR. MCLAUGHLIN: Chrystia.

MS. FREELAND: My favorite part was the kids. I loved the line "Insanity is hereditary; you get it from your children."

MR. MCLAUGHLIN: What do you think, Jay?

MR. CARNEY: Well, I think it all goes to burnishing his image, which is, you know, sort of constantly being burnished. And this time he doesn't need the help of Grover Norquist or somebody to put his name on a building, but this is the personal side of Ronald Reagan.

MR. MCLAUGHLIN: Out of time. Happy Mother's Day. Bye-bye.

END.