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THE MCLAUGHLIN GROUP HOST: JOHN MCLAUGHLIN PANEL: PATRICK BUCHANAN, MSNBC; ELEANOR CLIFT, NEWSWEEK; MONICA CROWLEY, SYNDICATED RADIO COMMENTATOR; MORT ZUCKERMAN, U.S. NEWS & WORLD REPORT TAPED: FRIDAY, MAY 23, 2008 BROADCAST: WEEKEND OF MAY 24-25, 2008

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DR. MCLAUGHLIN: Issue One: Hillary's Derby Win.

SEN. HILLARY CLINTON (D-NY, Democratic presidential candidate): (From videotape.) It's not just Kentucky bluegrass that's music to my ears. It's the sound of your overwhelming vote of confidence, even in the face of some pretty tough odds.

DR. MCLAUGHLIN: Overwhelming is right. Hillary's 35 percent margin landslide in Kentucky this week was a blowout -- Hillary, 65 percent; Barack, 30 percent.

Exit polls tell us where Hillary's vote came from. Rural: Hillary, 77 percent; Barack, 19 percent. Uneducated: Hillary, 70 percent; Barack, 25. Educated: Hillary, 56; Barack, 40. Whites: Hillary, 72; Barack, 23.

Question: What kind of warning bells should be going off for Democrats, Pat Buchanan?

MR. BUCHANAN: Hillary's winning the Scotch-Irish of Appalachia in huge landslides, John, and that group goes all the way from Pennsylvania down to Alabama. What it tells Barack Obama is, who got beat by 41 in West Virginia, 35 here, he may have to write off West Virginia and Kentucky, but he has got to get to work in Pennsylvania and Ohio and these other places to get rid of this exotic image and to reintroduce himself as something of a man of the people or he could lose this particular election.

It tells him a second thing. He is going to face a drive to put Hillary Rodham Clinton, whose huge coalition is as large as his and complements his, to put her on the ticket.

DR. MCLAUGHLIN: Is it all the more important because Kentucky is a swing state?

MR. BUCHANAN: Well, West Virginia is a swing state. Kentucky tends a little more to be red. But Bill Clinton won both of them.

DR. MCLAUGHLIN: Is Kentucky sometimes a blue state?

MR. BUCHANAN: Yeah, Bill Clinton won both of them in the 1990s.

DR. MCLAUGHLIN: So it's a swing state. It's a blue state sometimes and it's a red state sometimes.

MR. BUCHANAN: That would be a swing state.

DR. MCLAUGHLIN: Right. (Laughter.)

Eleanor.

MS. CLIFT: It shows that Barack Obama has work to do to get rid of that exotic image, as Pat demonstrated with a little body language there. But --

DR. MCLAUGHLIN: That was cute.

MS. CLIFT: Yeah, it was cute. But the point is, once there is a one-on-one contest with John McCain and the issues are raised and the voters see the difference, chiefly on the economy, frankly, but on health care and on the war, these voters are going to come home. John Kerry won 86 percent of Democrats in '04, and he was this wind-surfing cheese steak, Swiss cheese or whatever he did, ordering the wrong kind of cheese in Philadelphia. So he didn't have the common-man image. Barack Obama is going to do okay. He's not going to win Appalachia. But we have such a polarized electorate now. And activists in primaries do not cross over to the other party. They may say that now out of anger, but very few did in 2000 and 2004. It's not like the old days when Jimmy Carter won 30 percent of Republicans and Ronald Reagan created a class of Reagan Democrats. I don't think there's that kind of crossing of parties --

DR. MCLAUGHLIN: Well, I think we feel better now, don't we?

Okay, Barack's 18 percent margin Oregon win. Barack's victory was not a blowout, but he did win Oregon overwhelmingly, 59 percent to 41 percent. Exit polls tell us who Barack fared best among. College- educated: Barack, 61 percent; Hillary, 39 percent. Non-religious: Barack, 59; Hillary, 41. Males: Barack, 66; Hillary, 33.

Question: Why did Obama do so much better among Democrats in Oregon than among Democrats in Kentucky? I ask you, Monica.

MS. CROWLEY: Well, because demographically Oregon is much more suited to the kinds of constituencies that Barack Obama is bringing in -- the constituencies you just laid out there. The problem for Barack Obama and I think the problem for the Democratic Party is that he doesn't -- that his reach is a lot more narrow than people thought. And people at the beginning expected that he would be able to reach into all of these parts of the country and pull out victories.

The fact that he has not been able to behead Marie Antoinette once and for all and dispatch her when he's the presumed nominee, and this is the midnight hour of this race, the fact that Hillary Clinton is still creaming him by 41 points in West Virginia, 35 points in Kentucky, states that the Democrats are going to need in November, that tells me that Barack Obama is a lot more vulnerable than even the Democrats want to admit.

DR. MCLAUGHLIN: So the popular vote is very important, is it not?

MS. CROWLEY: Yes. And I think that that's what she is counting on with her effort to include Florida and Michigan, that she's going to say, "Look, he might have the pledged delegate vote. I'm going to wrap up the popular vote." And then what do you do?

DR. MCLAUGHLIN: Mort.

MR. ZUCKERMAN: Well, in the first place, I just want to tell you how thrilled I am to be on this set when Eleanor called Pat cute. That's something I'm going to remember.

MS. CLIFT: John called him cute.

MR. ZUCKERMAN: Oh, no, I heard you say it, Eleanor. DR. MCLAUGHLIN: She affirmed it.

MR. ZUCKERMAN: She echoed it.

Look, I think there is no question but that Barack Obama has problems with major Democratic constituencies. We see it in every one of these states, and it's just going to continue. How he reaches out to them and connects with them is going to be the challenge of his campaign.

The advantage that he's going to have going forward, besides what Eleanor said, which is right, is I do believe that the economy is going to continue to weaken, and that will make that the number one issue. And John McCain still does not have traction on that issue. Neither, by the way, does Obama, but he's got a much better chance because people tend to blame --

DR. MCLAUGHLIN: Who's "he"?

MR. ZUCKERMAN: Obama, because people blame the incumbent government when the economy is as bad as it is and it's going to be.

DR. MCLAUGHLIN: But Obama's got a problem facing Clinton on this very issue of the economy.

MR. ZUCKERMAN: Yes.

DR. MCLAUGHLIN: Why? Why?

MR. ZUCKERMAN: Well, because she, somehow or other, has managed to connect on the bread-and-butter issues with a degree of specificity --

DR. MCLAUGHLIN: Why? Why?

MR. ZUCKERMAN: Because he seems to be removed from them.

DR. MCLAUGHLIN: No, more than that, Mort. He's a liberal. He's the ultra-liberal. He's the number one liberal in the United States Senate.

MR. ZUCKERMAN: I agree, but he's --

MR. BUCHANAN: John --

(Cross talk.)

MR. BUCHANAN: John --

DR. MCLAUGHLIN: Hold on. Let him finish.

MR. ZUCKERMAN: On economic issues, the Democrats want a liberal; that is to say, somebody who is going to help them through --

DR. MCLAUGHLIN: Who wins the popular election, the liberals in this country or the conservatives, particularly in times like these?

MR. ZUCKERMAN: We are now talking -- she is winning in the Democratic primaries, the voters who are very sensitive to the economy. In every one where the economy is the number one issue, she does overwhelmingly better.

DR. MCLAUGHLIN: If you were a super-delegate deciding this and you had to estimate who's going to get the popular vote, not who's going to get the delegate vote -- he's got the delegate vote -- who's going to get the popular vote? Who's going to get the popular vote? MR. ZUCKERMAN: I think she is going to eke out a popular-vote victory if you include Florida and Michigan.

DR. MCLAUGHLIN: Okay, let's talk about that. Florida, Michigan shut out?

Florida and Michigan have become indispensable to Hillary Clinton's effort to propel her candidacy. Both states jumped ahead on the primary calendar in January, and in so doing violated party rules. As punishment, the DNC, the Democratic National Committee, stripped them of their delegates and left them shut out from the primary process.

This week Mrs. Clinton said that she would encourage those states if they had to bring their fight all the way to the August convention in Denver. DNC members are meeting one week from this Saturday, May 31, to consider the standing of the Florida and Michigan delegates.

But three contests still remain after May 31; namely, Puerto Rico on Sunday, June 1; then Montana and South Dakota one week from this coming Tuesday, June the 3rd.

Question: As noted, it's crunch time for Hillary. Both Florida and Michigan are crucial for her. With them, Hillary wins the popular vote -- 48 percent, Hillary; 47.5 percent, Barack. Will that be persuasive to the super-delegates trying to figure out which candidate to back? I ask you.

MS. CROWLEY: I think it could have some draw on the remaining delegates. It also may be true that the Barack Obama ship has sailed. In other words, he's perceived among the supers to have all of this momentum. They don't want to be perceived as taking the nomination away from an African-American candidate. So the uphill battle for Hillary is still quite significant.

DR. MCLAUGHLIN: Okay, here's what Hillary says about the importance of the popular vote.

SEN. CLINTON: (From videotape.) We believe the popular vote is the truest expression of your will. We believe it today, just as we believed it back in 2000 when, right here in Florida, you learned the hard way what happens when your votes aren't counted and the candidate with fewer votes is declared the winner.

DR. MCLAUGHLIN: Question: Do these words from Hillary mean that she will bring the fight all the way to the August convention in Denver? I ask you, Eleanor Clift.

MS. CLIFT: No, that's not going to be her option. The rules committee will meet, and the expectation is that they will divide the delegates in Michigan and Florida between the two candidates in such a way that they do not affect the outcome. And Hillary Clinton, by pushing it this far, is probably setting off a little backlash in the rules committee, which, after all, drafted the rules that are now in place.

So the super-delegates are not sitting there waiting for her to achieve some measurement she has defined for herself. They're just being polite about not coming forward --

MR. BUCHANAN: The super-delegates are not going to take this nomination away from Barack Obama, absent some general explosion.

DR. MCLAUGHLIN: Pat --

MR. BUCHANAN: Hold it. She's going to win the popular vote. She's got a powerful argument to go in there, the Florida argument. "I've got the people. He's got the delegates." But in the end, they're not going to take it from him. But it's a powerful argument to say, "Let us poll together" and answer Eleanor's problem.

MS. CLIFT: She doesn't count the caucus states. She doesn't count the states that --

MR. BUCHANAN: But, look, she's going to win the popular vote.

DR. MCLAUGHLIN: Pat --

MR. BUCHANAN: What?

DR. MCLAUGHLIN: They're not going to send another George McGovern --

MR. BUCHANAN: This isn't --

DR. MCLAUGHLIN: -- that you can win the delegates. That doesn't mean --

MR. BUCHANAN: They are not going to --

DR. MCLAUGHLIN: They're going to think popular vote.

Okay, Puerto Rico --

MR. BUCHANAN: They're not going to take it away from him.

DR. MCLAUGHLIN: -- is one week from this Sunday.

In Puerto Rico, 55 pledged delegates are at stake. One million Puerto Ricans are expected to vote in the Democratic Party one week from this Sunday, June 1. Polls show Hillary leading with 50 percent; Barack, 37 percent; unsure, 13 percent.

If Hillary does win 50 percent of the popular vote, she would gain about 28 delegates, which, in combination with Florida and Michigan's delegates, would give her a theoretical total of 1,929.5 delegates. That compares to Barack's theoretical 2,076.5 delegates -- still not enough for Hillary.

Exit question: Assuming Hillary wins Puerto Rico by 50 percent or better, that will give her a commanding popular vote lead. Since about 200 super-delegates have not yet to be announced, will the total delegate count at the time of the convention be enough to say now that Hillary is positioned to pull the rabbit out of the hat and win the nomination? Give me an estimate on a probability scale of zero to 10.

MS. CROWLEY: Zero meaning no likelihood of Hillary being able to pull this off? Oh, no, I would say about three. I would say it's a three, because, look, she's going to cream him in Puerto Rico. And she's trying to piece together an "I told you so" argument. She has been arguing since Super Tuesday that Barack Obama cannot win -- cannot win the big states, cannot win the swing states, cannot pull in those constituencies that we were talking about.

If she wraps this thing up with a popular-vote lead, she makes her final case to the supers. "Look, you've got to go with me. He cannot win." They nominate him anyway and he loses in November. She's got a very powerful argument to say, "I told you so."

MR. BUCHANAN: Yeah. Right now it's --

DR. MCLAUGHLIN: (Inaudible.

)

MR. ZUCKERMAN: You look particularly at the swing states -- Ohio, for example -- she does much, much better against McCain in Ohio, and he loses Ohio to her by a big margin. That's a key state. No election --

MR. BUCHANAN: Right.

DR. MCLAUGHLIN: What kind of a probability do you give her of getting the nomination?

MR. ZUCKERMAN: I give her about a two-and-a-half. But unfortunately the delegate count is not going to switch that much.

DR. MCLAUGHLIN: What do you think?

MR. BUCHANAN: I give her a two, John. But Mort is right. She can carry Michigan, Pennsylvania, Ohio. She's a fighter in Florida. She can fight in West Virginia and Kentucky and lose it.

MS. CLIFT: I give it a .3. The polls are fluid. The latest polls in Ohio show Obama doing better against McCain. This election will be won on the strength of turnout and on independents. And if she were suddenly granted the nomination, the enthusiasm among African-Americans and young people would be way down. That's what his strength is. That's the coalition of tomorrow. And he can win independents. She can't.

DR. MCLAUGHLIN: Unfortunately, you're all wrong. Hillary comes out with a six. The tide has turned.

Issue Two: Macroeconomy.

DONALD KOHN (Federal Reserve Board vice chairman): (From videotape.) Although the current financial and economic situation remains quite difficult, I believe that the most likely scenario over the next year or so is one in which economic activity firms during the second half of this year and gathers some strength in 2009.

DR. MCLAUGHLIN: Macroeconomic indicators. The Conference Board this week published the Index of Leading Economic Indicators. Collectively, the indicators increased by 0.1 percent, up, a second straight month of increase after declining the previous five months.

Also, stock markets; stock prices were up in April and early May. This week has been a roller coast -- Monday, initial gains; Tuesday and Wednesday, sharp drops; Thursday, recovery.

Unemployment rate, 5 percent, down 0.1 percent from March; jobless claims down 9,000.

Consumer Price Index, the CPI, up 0.2 percent; new housing starts up 8.2 percent; industrial product down 0.7 percent; trade deficit down to $58 billion from $62 billion in February; inflation rate, 3.9 percent, seasonally adjusted; oil, $135 per barrel.

Question: Based on these numbers, can we say that the recession has not yet arrived, and if it does come, it will be short and shallow, or will it be deep and long? I ask you, Mort.

MR. ZUCKERMAN: Well, I think it will be long, and it may be shallow and long rather than deep and long. I do think this economy is not going to recover for at least a year and a half. I've been pessimistic about the economy, as you know, for a long time. The big part of what's going to happen in the real economy is not over yet, and it's going to bounce back and hit the financial world.

The most important thing here that will be an indication we're coming out of the recession is when home prices begin to rise, when there is a market that is stabilized in home prices. We're nowhere near that. That is the biggest single asset on the balance sheet of the American consumer. And if they see the equity that they once thought they had in their homes dropping dramatically, they will cut back on consumer spending, and this recession, or whatever you want to call it, decline, will last for 18 months at least.

DR. MCLAUGHLIN: There is word on the street, particularly in New York, that you're especially worried about inflation. Is that true?

MR. ZUCKERMAN: Well, of course I'm worried about inflation, but it's a secondary concern. The most important thing is to get this country out of a recession and out of the possibility that we may have a long-term and deep recession. So you take a chance by flooding the country with money, by having low interest rates, by having huge deficits, which we are experiencing. There will be another time to deal with inflation. At this point you have another priority in terms of what the economic --

DR. MCLAUGHLIN: Should Bernanke raise the interest rates now?

MR. ZUCKERMAN: Absolutely not. It would be a disaster for this country. We came this close to a systemic crisis in the financial world just a matter of two months ago. It would be a disaster for this country to do that. DR. MCLAUGHLIN: You don't see a correlation between high inflation and low interest rates?

MR. ZUCKERMAN: It all depends how long it continues and what the general circumstances are in which you have low interest rates. Right now we have an economy that's operating at sub-par, and we have to make sure it doesn't continue to decline, and in particular to decline for a long time.

DR. MCLAUGHLIN: Pat, what do you think?

MR. BUCHANAN: I think Mort's basically right. I think it's going to be a flat line, almost zero to 1 percent growth for the next, I would say, six quarters.

MS. CLIFT: The Democrats just won two seats in the Deep South, Mississippi and Louisiana. The Democrat and the Republican in both those races were pro-gun and pro-life. The issue that made the difference was the economy.

MS. CROWLEY: It is -- look, I think I'm the only optimist on the economy on this panel. I'm not Mary Sunshine about it, but I'm not Debbie Downer about it either. Over the last couple of months we've heard a lot of doomsday scenarios. They have not materialized. We've had serious problems. But when you look at those numbers, you see the housing market starting to ease, the credit crunch starting to lessen as well. A lot of indicators are ticking up, not significantly enough to make a huge difference, but at least they're moving in the right direction.

DR. MCLAUGHLIN: Yeah, I think you're Mary Sunshine.

MS. CLIFT: Right. (Laughs.)

DR. MCLAUGHLIN: Issue Three: Beloved Ted.

SEN. ROBERT BYRD (D-WV): (From videotape.) My thoughts and my humble prayers are with Senator Kennedy, my dear friend Ted.

DR. MCLAUGHLIN: The news of Senator Ted Kennedy's cancerous brain tumor this week stunned the nation. The lion of the Senate on Saturday suffered what first appeared to be a stroke. It turned out to be a double seizure caused by a cancerous brain tumor.

Edward is the last of the brothers of President John F. Kennedy, who was assassinated, as was his brother, Attorney General Robert Kennedy. A third brother, Air Force Lieutenant Joseph P. Kennedy Jr., died during World War II. Teddy has served as senator from Massachusetts for almost half a century, 46 years.

Question: Will this country be the same without a Kennedy on the national scene if Senator Kennedy decides to retire? Pat Buchanan. MR. BUCHANAN: It's really the passing of an era, John. I came into journalism, wrote an editorial in 1962; one of the first editorials was against Teddy Kennedy's election. He's been with us for 46 years. He's gone from the fighting liberal to the Senate liberal whom everybody loves. This will be an end of an era when he stands down.

DR. MCLAUGHLIN: Eleanor, will Robert run? Will Joe run? Will --

MS. CLIFT: Well, if he does step down from his seat, he does have children and nieces and nephews. But, look, he's a master legislator. And I heard Trent Lott, a Republican, say on Fox News that Ted Kennedy was the finest legislator in the Senate -- the finest senator since World War II. That's pretty high praise coming from the opposition. And that is his gift. He has really -- he has friends across the aisle. And around the country, the name Kennedy is still so controversial, but in Washington he is really beloved.

DR. MCLAUGHLIN: The remarkable thing about him, the way he was able to balance his rooted liberal convictions and at the same time work deals. It involved an incredible amount of --

MS. CROWLEY: That's true.

DR. MCLAUGHLIN: -- adjusting to the other side and working through.

MS. CROWLEY: No, that's true. And he's very well-known for that. And, I mean, starting with the Adamses in this country, we've seen a lot of family dynasties come and go. And the truth is that the Kennedys do have the next generation. They're represented well in Congress as well.

DR. MCLAUGHLIN: On behalf of the group, our warmest good wishes to Senator Kennedy and our continuing prayers for a speedy and complete recovery.

Issue Four: Middle East Momentum?

PRESIDENT GEORGE W. BUSH: (From videotape.) No nation should ever be forced to negotiate with killers pledged to its destruction.

DR. MCLAUGHLIN: It's been a line repeated time and again by President George Bush: No negotiating with terrorists. Standing before Israel's Knesset 10 days ago, Bush pressed the point hard.

PRESIDENT BUSH: (From videotape.) We've heard this foolish delusion before. As Nazi tanks crossed into Poland in 1939, an American senator declared, "Lord, if I could only have talked to Hitler, all this might have been avoided." We have an obligation to call this what it is -- the false comfort of appeasement, which has been repeatedly discredited by history.

DR. MCLAUGHLIN: Bush's words were greeted with a resounding ovation. But one week after his speech, there was a dramatic admission. Israel and Syria, archenemies for 60 years, simultaneously announced that they have been negotiating with each other. Yet the U.S. calls Syria a state sponsor of terrorism, a nation that welcomes and supplies anti-American terror groups.

The backdrop: One, Syrian-Israeli talks. Senior Israelis have been holding peace talks with Syrian equals for more than a year, using back channels. Two, Turkey is hosting. The back-channel talks are mediated through a third country, Turkey. Even as Israel negotiates with Syria, it's also dealing indirectly at the same time with Hamas' bloody terrorist wing that is launching rockets from Gaza into Israel. GERSHON BASKIN (Israel/Palestine Center for Research and Information): (From videotape.) The reality on the ground is that Israel is negotiating with Hamas.

DR. MCLAUGHLIN: Gershon Baskin is the director of an Israeli think tank and involved in the back-channel Israeli-Hamas negotiations. And there's more. Israel is also quietly negotiating with Hezbollah, the same Hezbollah that killed three Israeli soldiers and seized two in July 2006, sparking Israel's pounding of southern Lebanon by air and ground forces.

MR. BASKIN: (From videotape.) In reality, the situation is always much more complex.

DR. MCLAUGHLIN: Indeed, Syrian President Bashar al-Assad, in fact, approves of his country's negotiations with Israel and hopes for direct face-to-face talks. Assad also hopes that a new American president will sponsor the talks and convene them face to face. Quote: "Maybe with the incoming administration in the United States," says Assad, "we can talk about direct negotiation," unquote.

Question: Do the cynics in Israel believe that Prime Minister Olmert has let these negotiations become known -- that is, with Syria -- in order to divert attention from his own political payoff probes? Mort.

MR. ZUCKERMAN: Well, there certainly are some people who feel that way. But the fact is that Israeli prime ministers have been trying to negotiate directly or indirectly with Syria for many, many years. Rabin did it. Peres did it. Barak did it. And now Olmert's doing it.

DR. MCLAUGHLIN: And Rabinovich did it right here in Washington.

MR. ZUCKERMAN: Yes. But he was the representative. He was the ambassador.

DR. MCLAUGHLIN: Right. And he came very close.

MR. ZUCKERMAN: And he's the great expert on Syria, and he's very skeptical of the prospects that this sort of dialogue -- it's not really negotiation -- is happening in Turkey. And Erdowan, the prime minister of Turkey, is sort of handling it. And they're not --

DR. MCLAUGHLIN: Why is he skeptical?

MR. ZUCKERMAN: Because he says both sides are too weak to accomplish anything. The Israeli people are now so skeptical of Syria, and Syria and Bashar Assad is also very weak. Neither of them, they think, can deliver on this thing. So this is the problem. I do think they're going to reach an agreement, by the way, on that. Whether or not they can get the Parliament, for example, to adopt it in Israel is a very, very difficult question, because the majority of Israelis are fearful of opening up another front from the Golan Heights and having missiles raining down again or bombs raining down on Israel.

It's going to be a very difficult -- the whole standard of Israeli politics in terms of these negotiations is to negotiate one at a time. That's why they never got involved with Syria. They were always trying to do the deal with the Palestinians.

DR. MCLAUGHLIN: Are they reversing that now, Syria first and --

MR. ZUCKERMAN: No.

DR. MCLAUGHLIN: -- Palestinians second?

MR. ZUCKERMAN: No, no. No, no, no, no. Tzipi Livni is meeting with Abu Ala -- on the Palestinian question --

DR. MCLAUGHLIN: She is the foreign minister.

MR. ZUCKERMAN: -- and Ehud Olmert is meeting with Abu Mazen, the leader of Fatah. The reason, by the way, they're very reluctant and Bush is reluctant to have the Israelis meet with Hamas is that it undermines Abu Mazen. And Abu Mazen is the only person Israel has a chance of reaching a deal with on the Palestinian-Israeli question.

MS. CLIFT: Look, the Israelis have serious enemies in that part of the world. And the lesson here for American politicians is that you fight when you must and that you talk when you can and you must. And it's alive in the McCain policy.

MR. BUCHANAN: Bush is irrelevant, and the Israelis are doing what they have to do, which is talk to the Syrians.

MS. CROWLEY: Well, I think this is a big mistake for Israel. The timing could not be worse, because Israel is in a weakened state after they fought to a draw with Hezbollah in 2006. They should not be negotiating now.

DR. MCLAUGHLIN: Predictions. Pat.

MR. BUCHANAN: Hillary will force Obama to spurn her at the convention.

DR. MCLAUGHLIN: Eleanor.

MS. CLIFT: Karl Rove's claim of executive privilege will not hold up in court if the Democrats have the spine to challenge it.

DR. MCLAUGHLIN: Monica. MS. CROWLEY: Israeli Prime Minister Ehud Olmert will be gone within three months, and the new Israeli prime minister would be Ehud Barak.

DR. MCLAUGHLIN: Mort. Is that true, by the way?

MR. ZUCKERMAN: No, I don't think it will --

DR. MCLAUGHLIN: Okay.

MR. ZUCKERMAN: -- not the first one.

DR. MCLAUGHLIN: You just got back.

MR. ZUCKERMAN: Yes. One thing I will say is that the Iranians are going to stimulate all kinds of trouble in Iraq in October and September in order to undercut the value of the surge and hurt John McCain.

DR. MCLAUGHLIN: Another wave of home foreclosures during the third and fourth quarters this year, July through December -- discouraging.

Blessed Memorial Day. Next week the candidates and the Supreme Court. Bye-bye.



END.

ng to switch that much.

DR. MCLAUGHLIN: What do you think?

MR. BUCHANAN: I give her a two, John. But Mort is right. She can carry Michigan, Pennsylvania, Ohio. She's a fighter in Florida. She can fight in West Virginia and Kentucky and lose it.

MS. CLIFT: I give it a .3. The polls are fluid. The latest polls in Ohio show Obama doing better against McCain. This election will be won on the strength of turnout and on independents. And if she were suddenly granted the nomination, the enthusiasm among African-Americans and young people would be way down. That's what his strength is. That's the coalition of tomorrow. And he can win independents. She can't.

DR. MCLAUGHLIN: Unfortunately, you're all wrong. Hillary comes out with a six. The tide has turned.

Issue Two: Macroeconomy.

DONALD KOHN (Federal Reserve Board vice chairman): (From videotape.) Although the current financial and economic situation remains quite difficult, I believe that the most likely scenario over the next year or so is one in which economic activity firms during the second half of this year and gathers some strength in 2009.

DR. MCLAUGHLIN: Macroeconomic indicators. The Conference Board this week published the Index of Leading Economic Indicators. Collectively, the indicators increased by 0.1 percent, up, a second straight month of increase after declining the previous five months.

Also, stock markets; stock prices were up in April and early May. This week has been a roller coast -- Monday, initial gains; Tuesday and Wednesday, sharp drops; Thursday, recovery.

Unemployment rate, 5 percent, down 0.1 percent from March; jobless claims down 9,000.

Consumer Price Index, the CPI, up 0.2 percent; new housing starts up 8.2 percent; industrial product down 0.7 percent; trade deficit down to $58 billion from $62 billion in February; inflation rate, 3.9 percent, seasonally adjusted; oil, $135 per barrel.

Question: Based on these numbers, can we say that the recession has not yet arrived, and if it does come, it will be short and shallow, or will it be deep and long? I ask you, Mort.

MR. ZUCKERMAN: Well, I think it will be long, and it may be shallow and long rather than deep and long. I do think this economy is not going to recover for at least a year and a half. I've been pessimistic about the economy, as you know, for a long time. The big part of what's going to happen in the real economy is not over yet, and it's going to bounce back and hit the financial world.

The most important thing here that will be an indication we're coming out of the recession is when home prices begin to rise, when there is a market that is stabilized in home prices. We're nowhere near that. That is the biggest single asset on the balance sheet of the American consumer. And if they see the equity that they once thought they had in their homes dropping dramatically, they will cut back on consumer spending, and this recession, or whatever you want to call it, decline, will last for 18 months at least.

DR. MCLAUGHLIN: There is word on the street, particularly in New York, that you're especially worried about inflation. Is that true?

MR. ZUCKERMAN: Well, of course I'm worried about inflation, but it's a secondary concern. The most important thing is to get this country out of a recession and out of the possibility that we may have a long-term and deep recession. So you take a chance by flooding the country with money, by having low interest rates, by having huge deficits, which we are experiencing. There will be another time to deal with inflation. At this point you have another priority in terms of what the economic --

DR. MCLAUGHLIN: Should Bernanke raise the interest rates now?

MR. ZUCKERMAN: Absolutely not. It would be a disaster for this country. We came this close to a systemic crisis in the financial world just a matter of two months ago. It would be a disaster for this country to do that. DR. MCLAUGHLIN: You don't see a correlation between high inflation and low interest rates?

MR. ZUCKERMAN: It all depends how long it continues and what the general circumstances are in which you have low interest rates. Right now we have an economy that's operating at sub-par, and we have to make sure it doesn't continue to decline, and in particular to decline for a long time.

DR. MCLAUGHLIN: Pat, what do you think?

MR. BUCHANAN: I think Mort's basically right. I think it's going to be a flat line, almost zero to 1 percent growth for the next, I would say, six quarters.

MS. CLIFT: The Democrats just won two seats in the Deep South, Mississippi and Louisiana. The Democrat and the Republican in both those races were pro-gun and pro-life. The issue that made the difference was the economy.

MS. CROWLEY: It is -- look, I think I'm the only optimist on the economy on this panel. I'm not Mary Sunshine about it, but I'm not Debbie Downer about it either. Over the last couple of months we've heard a lot of doomsday scenarios. They have not materialized. We've had serious problems. But when you look at those numbers, you see the housing market starting to ease, the credit crunch starting to lessen as well. A lot of indicators are ticking up, not significantly enough to make a huge difference, but at least they're moving in the right direction.

DR. MCLAUGHLIN: Yeah, I think you're Mary Sunshine.

MS. CLIFT: Right. (Laughs.)

DR. MCLAUGHLIN: Issue Three: Beloved Ted.

SEN. ROBERT BYRD (D-WV): (From videotape.) My thoughts and my humble prayers are with Senator Kennedy, my dear friend Ted.

DR. MCLAUGHLIN: The news of Senator Ted Kennedy's cancerous brain tumor this week stunned the nation. The lion of the Senate on Saturday suffered what first appeared to be a stroke. It turned out to be a double seizure caused by a cancerous brain tumor.

Edward is the last of the brothers of President John F. Kennedy, who was assassinated, as was his brother, Attorney General Robert Kennedy. A third brother, Air Force Lieutenant Joseph P. Kennedy Jr., died during World War II. Teddy has served as senator from Massachusetts for almost half a century, 46 years.

Question: Will this country be the same without a Kennedy on the national scene if Senator Kennedy decides to retire? Pat Buchanan. MR. BUCHANAN: It's really the passing of an era, John. I came into journalism, wrote an editorial in 1962; one of the first editorials was against Teddy Kennedy's election. He's been with us for 46 years. He's gone from the fighting liberal to the Senate liberal whom everybody loves. This will be an end of an era when he stands down.

DR. MCLAUGHLIN: Eleanor, will Robert run? Will Joe run? Will --

MS. CLIFT: Well, if he does step down from his seat, he does have children and nieces and nephews. But, look, he's a master legislator. And I heard Trent Lott, a Republican, say on Fox News that Ted Kennedy was the finest legislator in the Senate -- the finest senator since World War II. That's pretty high praise coming from the opposition. And that is his gift. He has really -- he has friends across the aisle. And around the country, the name Kennedy is still so controversial, but in Washington he is really beloved.

DR. MCLAUGHLIN: The remarkable thing about him, the way he was able to balance his rooted liberal convictions and at the same time work deals. It involved an incredible amount of --

MS. CROWLEY: That's true.

DR. MCLAUGHLIN: -- adjusting to the other side and working through.

MS. CROWLEY: No, that's true. And he's very well-known for that. And, I mean, starting with the Adamses in this country, we've seen a lot of family dynasties come and go. And the truth is that the Kennedys do have the next generation. They're represented well in Congress as well.

DR. MCLAUGHLIN: On behalf of the group, our warmest good wishes to Senator Kennedy and our continuing prayers for a speedy and complete recovery.

Issue Four: Middle East Momentum?

PRESIDENT GEORGE W. BUSH: (From videotape.) No nation should ever be forced to negotiate with killers pledged to its destruction.

DR. MCLAUGHLIN: It's been a line repeated time and again by President George Bush: No negotiating with terrorists. Standing before Israel's Knesset 10 days ago, Bush pressed the point hard.

PRESIDENT BUSH: (From videotape.) We've heard this foolish delusion before. As Nazi tanks crossed into Poland in 1939, an American senator declared, "Lord, if I could only have talked to Hitler, all this might have been avoided." We have an obligation to call this what it is -- the false comfort of appeasement, which has been repeatedly discredited by history.

DR. MCLAUGHLIN: Bush's words were greeted with a resounding ovation. But one week after his speech, there was a dramatic admission. Israel and Syria, archenemies for 60 years, simultaneously announced that they have been negotiating with each other. Yet the U.S. calls Syria a state sponsor of terrorism, a nation that welcomes and supplies anti-American terror groups.

The backdrop: One, Syrian-Israeli talks. Senior Israelis have been holding peace talks with Syrian equals for more than a year, using back channels. Two, Turkey is hosting. The back-channel talks are mediated through a third country, Turkey. Even as Israel negotiates with Syria, it's also dealing indirectly at the same time with Hamas' bloody terrorist wing that is launching rockets from Gaza into Israel. GERSHON BASKIN (Israel/Palestine Center for Research and Information): (From videotape.) The reality on the ground is that Israel is negotiating with Hamas.

DR. MCLAUGHLIN: Gershon Baskin is the director of an Israeli think tank and involved in the back-channel Israeli-Hamas negotiations. And there's more. Israel is also quietly negotiating with Hezbollah, the same Hezbollah that killed three Israeli soldiers and seized two in July 2006, sparking Israel's pounding of southern Lebanon by air and ground forces.

MR. BASKIN: (From videotape.) In reality, the situation is always much more complex.

DR. MCLAUGHLIN: Indeed, Syrian President Bashar al-Assad, in fact, approves of his country's negotiations with Israel and hopes for direct face-to-face talks. Assad also hopes that a new American president will sponsor the talks and convene them face to face. Quote: "Maybe with the incoming administration in the United States," says Assad, "we can talk about direct negotiation," unquote.

Question: Do the cynics in Israel believe that Prime Minister Olmert has let these negotiations become known -- that is, with Syria -- in order to divert attention from his own political payoff probes? Mort.

MR. ZUCKERMAN: Well, there certainly are some people who feel that way. But the fact is that Israeli prime ministers have been trying to negotiate directly or indirectly with Syria for many, many years. Rabin did it. Peres did it. Barak did it. And now Olmert's doing it.

DR. MCLAUGHLIN: And Rabinovich did it right here in Washington.

MR. ZUCKERMAN: Yes. But he was the representative. He was the ambassador.

DR. MCLAUGHLIN: Right. And he came very close.

MR. ZUCKERMAN: And he's the great expert on Syria, and he's very skeptical of the prospects that this sort of dialogue -- it's not really negotiation -- is happening in Turkey. And Erdowan, the prime minister of Turkey, is sort of handling it. And they're not --

DR. MCLAUGHLIN: Why is he skeptical?

MR. ZUCKERMAN: Because he says both sides are too weak to accomplish anything. The Israeli people are now so skeptical of Syria, and Syria and Bashar Assad is also very weak. Neither of them, they think, can deliver on this thing. So this is the problem. I do think they're going to reach an agreement, by the way, on that. Whether or not they can get the Parliament, for example, to adopt it in Israel is a very, very difficult question, because the majority of Israelis are fearful of opening up another front from the Golan Heights and having missiles raining down again or bombs raining down on Israel.

It's going to be a very difficult -- the whole standard of Israeli politics in terms of these negotiations is to negotiate one at a time. That's why they never got involved with Syria. They were always trying to do the deal with the Palestinians.

DR. MCLAUGHLIN: Are they reversing that now, Syria first and --

MR. ZUCKERMAN: No.

DR. MCLAUGHLIN: -- Palestinians second?

MR. ZUCKERMAN: No, no. No, no, no, no. Tzipi Livni is meeting with Abu Ala -- on the Palestinian question --

DR. MCLAUGHLIN: She is the foreign minister.

MR. ZUCKERMAN: -- and Ehud Olmert is meeting with Abu Mazen, the leader of Fatah. The reason, by the way, they're very reluctant and Bush is reluctant to have the Israelis meet with Hamas is that it undermines Abu Mazen. And Abu Mazen is the only person Israel has a chance of reaching a deal with on the Palestinian-Israeli question.

MS. CLIFT: Look, the Israelis have serious enemies in that part of the world. And the lesson here for American politicians is that you fight when you must and that you talk when you can and you must. And it's alive in the McCain policy.

MR. BUCHANAN: Bush is irrelevant, and the Israelis are doing what they have to do, which is talk to the Syrians.

MS. CROWLEY: Well, I think this is a big mistake for Israel. The timing could not be worse, because Israel is in a weakened state after they fought to a draw with Hezbollah in 2006. They should not be negotiating now.

DR. MCLAUGHLIN: Predictions. Pat.

MR. BUCHANAN: Hillary will force Obama to spurn her at the convention.

DR. MCLAUGHLIN: Eleanor.

MS. CLIFT: Karl Rove's claim of executive privilege will not hold up in court if the Democrats have the spine to challenge it.

DR. MCLAUGHLIN: Monica. MS. CROWLEY: Israeli Prime Minister Ehud Olmert will be gone within three months, and the new Israeli prime minister would be Ehud Barak.

DR. MCLAUGHLIN: Mort. Is that true, by the way?

MR. ZUCKERMAN: No, I don't think it will --

DR. MCLAUGHLIN: Okay.

MR. ZUCKERMAN: -- not the first one.

DR. MCLAUGHLIN: You just got back.

MR. ZUCKERMAN: Yes. One thing I will say is that the Iranians are going to stimulate all kinds of trouble in Iraq in October and September in order to undercut the value of the surge and hurt John McCain.

DR. MCLAUGHLIN: Another wave of home foreclosures during the third and fourth quarters this year, July through December -- discouraging.

Blessed Memorial Day. Next week the candidates and the Supreme Court. Bye-bye.



END.