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MR. MCLAUGHLIN: Issue One: Housing Bailout? No.

Congress has left town on vacation for a month. The president wants to do the same. But before leaving, he cleared the deck with an extended press conference, 45 minutes.

The most sensitive domestic issue raised, and arguably the most critical, is the volatility of the housing market. Homeowners cannot pay their mortgages, and the owners of that mortgage debt are panicky. Bonds are falling. The stock market rocks and rolls. Borrowing money grows increasingly difficult. Mr. Bush was asked, "Is it time for a government bailout?" PRESIDENT GEORGE W. BUSH: (From videotape.) The word bailout, I'm not exactly sure what you mean. If you mean direct grants to homeowners, the answer would be no; I don't support that. If you mean making sure that financial institutions like the FHA have got flexibility to help these folks refinance their homes, the answer is yes; I support that.

MR. MCLAUGHLIN: Well, what about the two government-sponsored mortgage companies, Freddie Mac and Fannie Mae? Aren't they supposed to assist home buyers, sir?

PRESIDENT BUSH: (From videotape.) First things first when it comes to those two institutions. Congress needs to get them reformed, get them streamlined, get them focused, and then I will consider other options.

MR. MCLAUGHLIN: Question: Should Fannie Mae and Freddie Mac be expected to take up the slack? Pat Buchanan.

MR. BUCHANAN: No, I don't think they should right now, John. There's an awful lot of rotten paper out there. What's happening is you had -- the housing boom is now a housing bust. These mortgages are becoming increasingly worthless. A lot of them have been bound up in securities. They're going down the tubes.

We have something of a financial seizure, a minor stroke, in the financial markets. We don't know how serious it is, whether it's as bad as the Asian problem. Unfortunately, politically for the president, the individuals who are losing their homes are not going to get bailed out. But with the European central bank and the Fed moving, some of the big boys are liable to be saved.

MR. MCLAUGHLIN: Well, the Democrats don't agree with you on Fannie and Freddie -- the loyal opposition.

Influential Democratic members of Congress disagree with the president. They are pro-bailout. Chris Dodd, chairman of the Senate Banking Committee and current presidential aspirant, and Barney Frank, chairman of the House Financial Services Committee, both call for Fannie Mae and Freddie Mac to be given a bigger role in efforts to stabilize the troubled U.S. mortgage market.

Chris Dodd says this: "It may be appropriate, consistent with safe and sound practices, as determined by the regulator, to ease the temporary regulatory cap on Fannie and Freddie's mortgage portfolio." That's not exactly a fire alarm, is it?

Barney Frank says this: "I am in favor of lifting the portfolio limits unless there is a safety and soundness issue. Fannie and Freddie should no longer be penalized for their past accounting mistakes."

Question: What's the ideal position for the Democrats on this issue? Continuing our round robin, Eleanor. MS. CLIFT: Well, I think they want to press the president to try to bail out the middle class and the working people who've gotten burned in this housing collapse. Fannie and Freddie are institutions that were created to provide liquidity. When everything is going along smoothly, they're barely noticed in the marketplace. But this is a time when they can provide a role to stabilize the markets, and psychology is a huge part of this.

Bush won't do it because, one, he has an aversion to anything that the government has created, and two, he thinks these two organizations are parking lots for Democrats. And that's why he's not going to use one of the few tools he has.

MR. MCLAUGHLIN: Don't you think this is perfect for the Democrats? As Napoleon said, never interfere with your enemy when he is in the process of destroying himself.

MR. BLANKLEY: Yeah, look, I think playing politics at this moment may be dangerous for whichever party tries to do that. The bigger problem than the direct number of foreclosures that are occurring in America is whether this process is going to taint the larger financial structures of the planet, the major institutions around the world. And then the average American, the average Frenchman and the average German will have a bigger negative economic effect if we have a contraction based on this.

And the idea of playing politics at this point in trying to gain some little advantage -- everybody should be trying to be fairly cool about this and see whether the central banks can contain the danger.

MR. MCLAUGHLIN: Tony, you know we have a major financial world institution sitting right here on the set. (Laughter.) So what's the answer to this?

MR. ZUCKERMAN: Well, in fact, it doesn't address the problem. The problem is that housing prices are going down at this point because of a huge bubble in housing prices that can no longer be sustained. And 46 percent of all the mortgages in the homes that were sold last year, those homes were sold at less than 5 percent of the equity. There's very little equity. Now the loans are larger than the value of the homes. So that problem is not going to be solved unless you want to just give people money that they don't deserve.

People went in buying these homes. Forty-nine percent of the loans are made by people who have -- they're called Ninja loans. They have no assets, no jobs and no income, and yet they were making these loans. So the valuation of these homes turns out to be false. This is not going to be changed by Freddie and Fannie.

MR. MCLAUGHLIN: Who's buying the debt? Who's buying the debt?

MR. ZUCKERMAN: Right now nobody wants to buy the debt because nobody -- MR. MCLAUGHLIN: Are the Europeans buying it?

MR. ZUCKERMAN: Nobody's buying it -- not the Europeans, not the Americans. And the reason why is because nobody knows what the assets behind the debt is worth, because those values are going down. The debt is so close to the ceiling of these values --

MR. MCLAUGHLIN: When will the housing market recover?

MR. ZUCKERMAN: Nobody knows the answer to that. Nobody knows how bad the problem is.

MR. MCLAUGHLIN: Well, the thought is it won't be until 2010.

MR. ZUCKERMAN: Nobody knows exactly when it will recover. The fact is we've had a huge bubble. And a lot of people were able to buy homes because they got 98, 99 percent financing.

MS. CLIFT: But whose fault is that?

MR. ZUCKERMAN: And that doesn't work in --

MS. CLIFT: Whose fault is that that people --

MR. ZUCKERMAN: Whose fault is it? It's the people who were willing to buy homes with very little equity.

MS. CLIFT: No, it's not the people who were buying the homes. It's the people who were --

MR. MCLAUGHLIN: Do you want the answer to that, what the president said at his press conference?

MS. CLIFT: -- who were giving the mortgages and never questioned, because we're so accustomed to all this easy, cheap money.

MR. MCLAUGHLIN: The president is calling for financial education to the mortgage borrowers. He wants them to be aware of what terms mean in the mortgage. Did you see that in the press conference?

MS. CLIFT: Yeah.

MR. MCLAUGHLIN: What do you think of that idea?

MS. CLIFT: I think the people who are putting out the mortgages should be aware of the terms and not be giving away money to people they know full well can't pay them.

MR. MCLAUGHLIN: We're talking about the borrower --

(Cross talk.)

MR. ZUCKERMAN: The reason why the borrowers were willing to borrow that kind of money is that housing prices were going up and everybody thought this was going to continue forever. It didn't happen.

MR. BLANKLEY: Both the borrowers and the lenders got swept up -- MR. ZUCKERMAN: That's right.

MR. BLANKLEY: -- in the excitement of seemingly ever-rising prices. Now they're both going to get swept down.

MR. MCLAUGHLIN: Are we going to have a recession?

MR. BUCHANAN: There is something else in there, John.

MR. BLANKLEY: I don't know. I hope not.

MR. BUCHANAN: All these mortgages, John, were taken and packaged together and then they were sold as securities, and all this rotten paper is out there. And that's what's sinking some of these institutions. They're finding out what's inside of what they bought.

But I'll tell you, the big boys eventually, John, if big institutions like Long-Term Credit Management and those start going down, the Fed and the White House will intervene. But they're not going to save the little guy.


MS. CLIFT: It's not all rotten paper, though. There's some rotten paper, and a lot of good loans are being brought down. That's where the danger is.

MR. MCLAUGHLIN: Is real estate in for a further 20 percent correction?

MR. ZUCKERMAN: Well, I think it's in for a correction. You're talking about residential real estate now.


MR. ZUCKERMAN: And, yes, certainly some parts of that industry and in some markets, like Florida, which has gone down by 20 percent in terms of price, wiping out the equity of thousands, even hundreds of thousands of homes. The same thing is happening in California. There are markets which were so overpriced, and now they're coming back down. There's no way that the government can avoid that. That is a matter of value. It's just like if you bought stock at $100 and the stock was at $70, do you want the government to bail you out?

MR. MCLAUGHLIN: What's this doing with regard to China? China depends upon the purchase of goods from them for their own solvency and growth, correct?

MR. BUCHANAN: Solvency? They've got --

MR. MCLAUGHLIN: So is it playing back over there? MR. ZUCKERMAN: Well, if --

MR. MCLAUGHLIN: Is it going to hit the world's economics?

MR. ZUCKERMAN: The people were able to -- because home values were going up, people were refinancing their homes at lower interest rates and taking out $700 (billion), $800 billion a year, half of which went into consumer spending. So China benefited from that. That's going to go the other way now. So China will not benefit.

MR. MCLAUGHLIN: Are you predicting a recession for the United States?

MR. ZUCKERMAN: I don't know whether it'll be a recession, which is a contraction of the GDP. It's certainly going to go -- the growth rate is going to go down.

MR. MCLAUGHLIN: We've got an election year next year.


MR. MCLAUGHLIN: Who's going to take the rap for the recession, the Republicans or the Democrats? What's the general --

MR. ZUCKERMAN: On the recession? Absolutely, it's going to be --

MR. BUCHANAN: John, take a look at China. Let me tell you something. There are rumors this week that the Chinese got $1.3 trillion now and they want to dump some of these dollar-denominated assets. If they start doing that, this dollar will sink. There'll be a run on the dollar. Interest rates will go up. And the Chinese threatened this indirectly because we're threatening them with --

MR. MCLAUGHLIN: All right, exit question --

MS. CLIFT: China's got the upper hand.

MR. ZUCKERMAN: That makes no sense, John.

MR. BUCHANAN: I know it does, because --

MR. ZUCKERMAN: Mutually assured destruction.

MR. BUCHANAN: Exactly.

MR. ZUCKERMAN: The Chinese don't want that to happen any more than we do.

MR. BUCHANAN: But they're being threatened with tariffs.

MR. ZUCKERMAN: By who? They're not going to get tariffs. MR. MCLAUGHLIN: Exit question: Who gets hurt more by the collapse of the housing market and the looming massive wave of foreclosures, the Democrats or the Republicans? This is a keen insight into the obvious, I think. I'll declare for the Group: Of course, the Republicans.

Issue Two: Nouri and Mahmoud.

Reports out of Iran this week said that Nouri al-Maliki, Iraq's prime minister, told Mahmoud Ahmadinejad, Iran's president, that he, Nouri, appreciated Iran's, quote-unquote, "positive and constructive role."

Asked about this Ahmadinejad role, President Bush, at his press conference, said this.

PRESIDENT BUSH: (From videotape.) Jim, I haven't seen the reports. Now, if the signal is that Iran is constructive, I will have to have a heart to heart with my friend the prime minister, because I don't believe they are constructive. I don't think he, in his heart of hearts, thinks they're constructive either. Now, maybe he's hopeful and trying to get them to be constructive by laying out a positive picture. But you're asking me to speculate.

MR. MCLAUGHLIN: Question: Is this the best that U.S. generals and diplomats can achieve with the surge strategy, namely, driving al- Maliki to the embrace of Iran? Tony Blankley.

MR. BLANKLEY: A couple of months ago I wrote a column suggesting we may want to consider changing the Maliki government because of their at least incompetence in governing. What we have now --

MR. MCLAUGHLIN: Do you take this at its face value, by the way?

MR. BLANKLEY: It's ambiguous. Here's the situation, quickly. When we decided to start doing business with the Sunnis, arming them and turning them into allies against al Qaeda, we've been extraordinarily successful. But this has been seen as a threat to elements of the Shi'ite population in governing, who see us arming their potential adversaries in a larger civil war.

Now, the question is, is Maliki playing into the Iran hand to sort of -- as a backup? Or does he really want to be in their camp? And that's why I think we need to find the Shi'a leaders who will work with the Sunnis so we can have a government there that works.

MR. MCLAUGHLIN: Let's get the picture straight. Ahmadinejad is Shi'a, and most of the Iranians are Shi'a. Al-Maliki is Shi'a, and most of the Iraqis are Shi'a. That's the, what, ethnic background?

MS. CLIFT: Right. There's a natural affinity. But, you know, he's too --

MR. BLANKLEY: It's a sectarian one.

MS. CLIFT: Yeah, but these two countries were actually at war for 15 years until the U.S. invasion. We have driven Iraq into Iranian hands. But the president looks at everything, "You're with us or against us." Iran is much more complicated. They have a lot of different power centers. And the fact that these two leaders are holding hands, which is a cultural thing in the Middle East --

MR. MCLAUGHLIN: One is in pain, Eleanor.

MS. CLIFT: Well, let him be in pain. There's also an argument within the administration about whether to take the military option in Iran. And so it's important to take the positive signs -- MR. MCLAUGHLIN: What's the bad news on Iran?

MR. ZUCKERMAN: The bad news is if the Shi'ite community of Iraq, which has been unwilling to do the important things on the revenue- sharing from petroleum and on --

MR. MCLAUGHLIN: Right. No benchmarks.

MR. ZUCKERMAN: -- and on the reintroduction of the Ba'athists into the government -- if they basically align themselves, openly or -- in this case, a little bit openly -- with the Shi'ites of Iran, we are absolutely at our wit's end. We are at a dead end in Iraq.

MR. BUCHANAN: That's coming, Mort.

MS. CLIFT: We're already --

MR. BUCHANAN: Look, it is coming. The Shi'a Iraq and Shi'a Iran are going to get together one day, not too long from now. The Americans are going to leave and Iran is going to be there, and the Shi'a in Iraq are going to have no other friend, major friend or ally, in the region. But in Tehran, this guy has got an anchor to windward.



MR. MCLAUGHLIN: Hold on. Okay, picture perfect.

The Iranian news service describes it as warm. So, Mr. President, do Iraq and the U.S. see eye to eye on Iran? What kind of message does this image send to U.S. allies in the Middle East and to Americans?

PRESIDENT BUSH: (From videotape.) Well, look, generally the way these things work is you try to be cordial to the person you're with, and so you don't want the picture to be kind of, you know, duking it out. "Okay, put up your dukes." That's an old boxing expression.

MR. MCLAUGHLIN: So there you are. The president is saying they were just being polite, diplomatically polite. What do you think of that?

MR. BLANKLEY: No, I don't know whether that's true or not. Look, the Shi'a in Iraq and the Shi'a in Iran are not friendly to each other. Al-Sistani and some of his --

MR. MCLAUGHLIN: They're intermarriage, Tony.

MR. BLANKLEY: No, no. Just listen for a moment. They have historic animosities against each other. There's a possibility that al-Maliki is simply playing his Iran card against Petraeus and the United States. We'll have to see whether he's playing the card -- MR. MCLAUGHLIN: Why would he --

MR. BLANKLEY: -- or whether he's really going to get in bed with --

MR. MCLAUGHLIN: Why would he be playing that card? What's he trying to achieve by playing that card against Petraeus?

MR. BLANKLEY: Because he doesn't like our strategy of arming the Sunnis.

MS. CLIFT: Well, first of all, the U.S. --

MR. BUCHANAN: John, he won't --

MS. CLIFT: -- and Iraq do not have identical interests, and we cannot snap our fingers and change the government in Iraq.

MR. BLANKLEY: Oh, I think we can.

MS. CLIFT: Well, I don't think so, any more than we've accomplished all the other things we set out to do there.

MR. BLANKLEY: We did it in Vietnam.

MS. CLIFT: Yeah, that's a great history there.


MS. CLIFT: And Maliki has got the -- Maliki has to live in that neighborhood long after we leave, if we ever leave.

MR. BUCHANAN: Look, there obviously -- Tony is right; there's obviously bad blood, bad history and all the rest of it. But it's almost like --

MR. MCLAUGHLIN: Between whom?

MR. BUCHANAN: Between the Shi'a in Iraq and the Shi'a in Iran. But in the long run, they have got to get together, because the Shi'a are outnumbered in that region and all the Sunnis are the enemies of the Shi'a in Iraq. And this guy has got to have -- (inaudible) -- just like Mexico ultimately has got to be friendly to the United States.

MR. MCLAUGHLIN: Are you talking about the inheritance from the eight-year war between Iran and Iraq? Is that why you say the Shi'as in Iran don't get along with the Shi'as in Iraq?

MR. BUCHANAN: You've got that, and you've also got Persian versus Arab in there and a lot of things. MR. BLANKLEY: It goes way back before that.

MR. BUCHANAN: But they do have interests together.

MR. MCLAUGHLIN: I was in Tehran. I didn't see much of that.

MR. ZUCKERMAN: One thing you have to say. This did not help the Bush administration garner support here in the United States. This is a very bad set of pictures for the --

MR. BUCHANAN: The political situation is very bad. I would not be surprised --

MR. MCLAUGHLIN: Exit question --

MR. BUCHANAN: -- to see the government go down, frankly.

MR. MCLAUGHLIN: What's that?

MR. BUCHANAN: I would not be surprised -- the Maliki government has been abandoned by its entire -- all the Sunni members of the cabinet --

MR. ZUCKERMAN: Have left.

MR. BUCHANAN: -- are gone.

MR. BLANKLEY: Six. Six members --


MR. BUCHANAN: There are 17.

MR. MCLAUGHLIN: Seventeen?

MR. ZUCKERMAN: Now, yes.

MR. MCLAUGHLIN: Exit question: Does this Iraq-Iran encounter signal the start of a full-fledged rapprochement between al-Maliki and Ahmadinejad? Pat Buchanan.

MR. BUCHANAN: I think yes. I think he wants a rapprochement with Ahmadinejad. He does not want to antagonize the United States. But I do believe the Iraqi government is in crisis. And I think, in the American government, they're probably thinking of a replacement.

MR. MCLAUGHLIN: Okay, quickly, please, Eleanor.

MS. CLIFT: Each country is acting in their own self-interest, and it's not necessarily in the U.S. self-interest.

MR. BLANKLEY: I think we're capable of not letting him stay in governance if he, in fact, is trying a rapprochement.

MR. ZUCKERMAN: I think Iran has wanted a Shi'ite ally in Iraq for decades, and they may now begin to have one. And that is a big danger for the United States position in Iraq. MR. MCLAUGHLIN: So you see a rapprochement.

MR. ZUCKERMAN: Over time, yes, without question.

MR. MCLAUGHLIN: I agree. I think it is definitely an entente of magnitude, Pat. You remember what Henry used to say about the entente?


MR. MCLAUGHLIN: It's opposite to the detente. (Laughter.)

Issue Three: New Frontier.

YEVGENY VOLK (Heritage Foundation): (From videotape.) I believe Russia becomes more and more aggressive and arrogant in its international relations. It reflects the sentiment of the present elite.

MR. MCLAUGHLIN: Russia's tri-colored national flag now waves on an Arctic sea bed, two-and-a-half miles underwater beneath the North Pole. Vladimir Putin has staked a claim to a vast swath of Arctic territory -- rich, unbelievably rich, in oil and natural gas.

The Russians ventured to the pole underwater in mini-submarines. Ten days ago, the Russian scientists became the first persons ever to land on the sea bed of the North Pole. Thanks to global warming, this discovery was possible. Icebergs are melting. Surfaces become exposed.

This region north of the Arctic Circle holds -- get this -- 25 percent -- that's one-fourth -- of the world's undiscovered oil and gas. Five nations are competing to secure the rights to this incredible treasure in the Northwest Passage: The U.S., Canada, Norway, Denmark and Russia.

Canadian Prime Minister Stephen Harper himself this week spent three days on a trek to the Arctic to reassert Canadian sovereignty over the area. Harper's spokesman observes this: "The Russians sent a submarine to drop a small flag at the bottom of the ocean. We're sending our prime minister to reassert Canadian sovereignty."

Unfortunately, the Russians were ahead of the Canadians; that is, if, in fact, Russia is ahead. Its sea bed flag planting seems to be symbolic only, with no claim in law. As for the United States, the boat has left the dock. We have practically no position since we have refused to sign the Law of the Sea treaty.

We're in Iraq. Russia is in the Arctic Circle, sitting on an incalculably rich gold mine, black oil. Are we missing the boat again, totally immersed in Iraq? MR. ZUCKERMAN: Well, I don't know that we're missing the boat. Russia has been trying to find some way to validate their legal position in the North Pole for quite a number of years, and nobody knows whether they had it. It was rejected the first time for inadequate evidence. They took a lot of soil samples.

MR. MCLAUGHLIN: Oh, do you mean in The Hague?

MR. ZUCKERMAN: No, at the U.N., the U.N. commission. It's the U.N. that comes out of the Law of the Sea that is going to make these decisions as to who owns what land.

MR. MCLAUGHLIN: And we are not signatories to the Law of the Sea.

MR. ZUCKERMAN: So we're not involved in that.

MR. MCLAUGHLIN: So we're not even in the running.

MR. ZUCKERMAN: But there are other reasons why we aren't signatories. And this doesn't necessarily mean that Russia is going to end up with it.


MR. ZUCKERMAN: Because they have to prove that this land somehow or other is connected to the --

MR. MCLAUGHLIN: Well, at least they're signatories to the treaty. And Norway's been moving in fast too.

MR. BLANKLEY: And Norway and Canada and Denmark are also signatories.

MR. MCLAUGHLIN: But Denmark is not in the category -- they've got five submarines two-and-a-half miles down.

MR. BUCHANAN: Denmark has a better claim. There's a mountain ridge underwater, and it's more likely to come out of Greenland toward the North Pole, where you have a superior claim than dropping something on the sea floor.

MS. CLIFT: Well, there are a couple of things going on here --

MR. ZUCKERMAN: What they're doing --

MS. CLIFT: -- a couple of things going on here. I think, first of all, Putin is tweaking the U.S., saying, you know, "You may be the superpower," but they still have the muscle memory of being a superpower; but, more importantly, global warming. The ice is -- it's not funny. The ice is melting, and the oil is --

MR. MCLAUGHLIN: Wait a minute. You're in favor of global warming now, Eleanor? MS. CLIFT: No, I'm not. But I'm saying that the ice is melting in this area. It was once a tundra that was inaccessible. Now there's oil under there, and now there's going to be a race among countries to try to get at that oil.

MR. BUCHANAN: They'll make a deal.

MR. MCLAUGHLIN: Who will make a deal? Who?

MR. BUCHANAN: The United States and Canada and the Soviet Union. And I think they'll bring in Norway and Denmark. They're the five that should get together and decide it, not the United Nations.

MR. MCLAUGHLIN: But we have no standing, Pat.

MR. BUCHANAN: The Law of the Sea treaty doesn't bind us because we haven't signed it, thanks to Ronald Reagan, who did the right thing.

MR. MCLAUGHLIN: Well, if we haven't signed the law -- what's going to determine it except the Law of the Sea?

MR. BUCHANAN: The U.S. Navy.

MR. MCLAUGHLIN: The Russians are saying, "We will live by international law on this issue.


MR. BUCHANAN: You mean, the U.N. is going to give the North Pole to Russia? We have to accept that?

MR. MCLAUGHLIN: Why not? Why not?

MR. BUCHANAN: They don't own it. Where do they get --

MR. MCLAUGHLIN: They have this -- what's the name of that continental shelf? What's the name of it?

MR. ZUCKERMAN: It's called the Lomonosov Shelf, which they --


MR. ZUCKERMAN: The Ridge, which Russia says really extends to the North Pole. And they went --

MR. BUCHANAN: But Denmark says it comes out of them.

MR. ZUCKERMAN: Yes, of course. But Russia is taking samples of the ground in order to try and establish that, in fact, it is --

MR. MCLAUGHLIN: Mort, how big is this story?

MR. ZUCKERMAN: Well, in Russia it's a huge story, by the way.

MR. MCLAUGHLIN: How big is it in the world?

MR. ZUCKERMAN: Well, it's a long-term issue. It's a big story if it turns out that Russia is going to end up controlling this land.

MR. MCLAUGHLIN: Are you persuaded that there's that much oil and gas -- 25 percent of the world's total?

MR. ZUCKERMAN: It's not only that it has to be there, it has to be accessible. It was all ice for a long time.

MS. CLIFT: Right. MR. ZUCKERMAN: Now, with global warming, that some of that ice is beginning to melt, that's what makes it, over a period of 35 years --

MR. BLANKLEY: Global warming is so useful. We can now get to that oil and start burning more of it.

MR. ZUCKERMAN: I'm not going to be here defending global warming, guys. Thank you very much. I appreciate the opportunity, but I'm passing.

MR. MCLAUGHLIN: Three weeks ago, Condoleezza Rice did not even attend the meeting of the ASEAN countries. You know how powerful they are; 28 of them --

MR. ZUCKERMAN: Yes, they are powerful.

MR. MCLAUGHLIN: -- including Japan and China.

MR. BUCHANAN: But the --

MR. MCLAUGHLIN: Now we are so re-immersed in Iraq --

MR. BUCHANAN: The organization is a joke.

MR. MCLAUGHLIN: -- we're missing this.

MR. ZUCKERMAN: There is no question but that our foreign policy is so tilted by Iraq that a lot of other things are being sacrificed for it, without question.

MR. MCLAUGHLIN: Is this deplorable? Is this deplorable?

MR. ZUCKERMAN: It is one of the great problems of it all.

MS. CLIFT: Bring in the United Nations. That's right.

MR. MCLAUGHLIN: Predictions. Pat.

MR. BUCHANAN: Robert Putnam, Harvard social scientist, author of "Bowling Alone," has come out with a report that says diversity, such as we have in Los Angeles, massively increases distrust among people and lack of community activity, not only among groups and between groups, but inside groups; great massive impact on immigration legislation.


MS. CLIFT: Newt Gingrich will mount an agent-of-change campaign modeled after the French president, Nicholas Sarkozy, whether he formally enters the presidential race or not.

MR. MCLAUGHLIN: You know, Sarkozy is up in the Winnipesaukee. MS. CLIFT: I know. (Laughs.) Maybe Newt will go to France. (Laughs.)

MR. BLANKLEY: Maliki will be out of government by the end of the year, and Bhutto will be in as prime minister in Pakistan by the end of the year.

MR. MCLAUGHLIN: You picked half of my prediction.

Go ahead.

MR. ZUCKERMAN: The Federal Reserve Board will cut interest rates at least twice within the next four months.

MR. MCLAUGHLIN: General Pervez Musharraf will survive the current crisis in Pakistan, as Tony has noted in passing. He is an extremely skilled politician.

Don't forget you can iPod the Group. Bye-bye.

(PBS segment.)

MR. MCLAUGHLIN: Issue Four: Best Liner.

This was the single best line from the Democratic debate on Tuesday night.

REP. DENNIS KUCINICH (D-OH): (From videotape.) There was a myth, when I was growing up in Cleveland, that if you dig a hole deep enough, you'll get to China. We're there. And we need to have a president that understands that and is ready to take a whole new direction in trade with China.

MR. MCLAUGHLIN: Did Kucinich strike the right note to play to populist fears about China and its impact on U.S. jobs? Pat Buchanan.

MR. BUCHANAN: He sure did, John. We had a $233 billion trade deficit with China last year. These AFL-CIO guys know it. They're losing their jobs in manufacturing and industry. They've been fighting this for a long time. Kucinich is a purist on it, as none of the Democrats are. And he's a fine little debater. I think he adds a lot to that Democratic debate.

MR. MCLAUGHLIN: What do you think, Mort?

MR. ZUCKERMAN: I think what he said is basically nonsense, to support what Pat just said. (Laughter.)

MR. MCLAUGHLIN: You mean, it was --

We are -- as an economy, we are not any longer a manufacturing economy. We are a knowledge-based economy -- any more than we are an agricultural economy. MR. MCLAUGHLIN: Will we rue that day?

MR. ZUCKERMAN: We have no choice. It's not a question of ruing it. We can't prevent it. You cannot stop it, okay?


MS. CLIFT: This is a labor audience.

MR. ZUCKERMAN: If I may say, we still have a four and a half percent unemployment rate, which effectively we have no unemployment. So our economy is doing very well, when manufacturing has gone down from 50 percent of the jobs --

MS. CLIFT: It's doing very --

MR. ZUCKERMAN: -- to 11 percent of the jobs.

MS. CLIFT: It's doing very well for particular people. This was a labor audience. They've seen their jobs go. Kucinich is the only one who's willing to say, "Let's get rid of NAFTA." Everybody else wants to fix it. He won the town hall meeting.

MR. MCLAUGHLIN: Okay, the second best liner.


) I will say that for 15 years I have stood up against the right-wing machine, and I've come out stronger. So if you want a winner who knows how to take them on, I'm your girl.

MR. MCLAUGHLIN: Question: Laughs aside, when Hillary says, "I'm your girl," is that a trifle too declasse?

MS. CLIFT: I can totally identify with what she said. And, first of all --

MR. MCLAUGHLIN: What do you mean, here on this set?

MS. CLIFT: Standing up against the right-wing noise machine? I'm your girl.

MR. MCLAUGHLIN: Now, wait a minute. I mean, Buchanan is in a class by himself.

MS. CLIFT: In the post-feminist age, "girl" is a fine word to use. Feminists embrace it, no problem at all.

MR. BLANKLEY: I thought it was --

MS. CLIFT: That was a charming line.

MR. BLANKLEY: I thought it was good. It's so unfeminist of her that I think it played wonderfully for everybody.

MR. MCLAUGHLIN: Is she capitalizing on Obama's recent remarks when she says that?

MR. ZUCKERMAN: Well, to an extent. But whatever it is, I do agree; I think that worked very well for her. I don't see this as being anything like declasse.

MR. MCLAUGHLIN: She's saying she can handle the attack.

MR. ZUCKERMAN: That's right. She can handle it. It's exactly right. That's exactly the point she's making.

MR. MCLAUGHLIN: Do you think she's going to win the nomination? MR. ZUCKERMAN: I think, without question, she's going to win the nomination.


MR. ZUCKERMAN: Absolutely.

MR. MCLAUGHLIN: Do you think she's going to win the general election?

MR. ZUCKERMAN: That's a whole different issue. It all depends who runs against her.