Transcript: National Security Adviser Gen. James Jones and Sen. John McCain, R-Ariz.

Exclusive interview with President Barack Obama's national security adviser.

May 10, 2009 — -- STEPHANOPOULOS: Good morning and welcome to THIS WEEK. Ourexclusive headliners today: General Jim Jones, Senator John McCain.


JONES: We are focused on al Qaeda, but we're also focused onextremism of any form.


STEPHANOPOULOS: In his first Sunday interview, the president'snational security adviser confronts two wars, Dick Cheney's scorn,terrorists in the U.S., and gays in the military.

Then, the GOP's candidate in 2008 weighs in on Obama's start andhis party's future.


MCCAIN: I realize that elections have consequences.


STEPHANOPOULOS: McCain and Jones, only on THIS WEEK.



PRESIDENT BARACK OBAMA: Now is the time to put a new foundationfor growth in place.


STEPHANOPOULOS: ... the recession may be winding down, but willlingering job loss and record deficits stall Obama's agenda? That andthe rest of the week's politics on our roundtable with George Will,Cokie Roberts, Sam Donaldson, and Robert Reich.

And as always, the "Sunday Funnies."


JAY LENO, HOST, "THE TONIGHT SHOW WITH JAY LENO": It was hottoday, wasn't it? I'll tell you, whew, I was sweating like JohnEdwards waiting to watch his wife on Oprah.


(END VIDEO CLIP) ANNOUNCER: From the heart of the nation's capital, THIS WEEKwith ABC News chief Washington correspondent, George Stephanopoulos,live from the Newseum on Pennsylvania Avenue.

STEPHANOPOULOS: Hello again, and happy Mother's Day to all ofthe moms watching. We're going to begin with a Sunday first.

General James Jones, welcome to THIS WEEK, your first appearanceas national security adviser.

JONES: Exactly. Thank you.

STEPHANOPOULOS: You all had a busy week this week. The heads ofAfghanistan and Pakistan came here to the United States to meet withthe president -- to meet with the president's entire team.

And you seemed to be on the same page, yet after the meetings,the president of Afghanistan, Hamid Karzai, said that all air strikes-- all American air strikes in Afghanistan must end. Will the U.S.comply with that demand?

JONES: Well, I think that we're going to take a look at tryingto make sure that we correct those things we can correct, butcertainly to tie the hands of our commanders and say we're not goingto conduct air strikes, it would be imprudent.

That's part of the combined arms package and so we probably wouldnot do that. But we are going to take very seriously the -- andredouble our efforts to make sure that innocent civilians are notkilled.

STEPHANOPOULOS: Does President Karzai understand that you're notgoing to comply with that demand? And what do you expect his reactionto be?

JONES: Well, I think he understands that we have to have thefull complement of our offensive military power when we need it. Wehave to -- we can't fight with one hand tied behind tied behind ourback.

But on the other hand, we have to be careful to make sure that wedon't unnecessarily wound or kill innocent civilians. But the otherside of the coin is that it -- what makes it difficult is the Taliban,of course, not playing by the same rules.

They're using civilians as shields. So we have to take a look atthis, make sure that our commanders understand the -- you know, thesubtleties of the situation, the complexity of it, and do the rightthing.

So it's a difficult problem, but it's not unsolvable.

STEPHANOPOULOS: President Karzai also said while he was herethat he believes Osama bin Laden is alive. Yet President Zardari ofPakistan says he thinks bin Laden is dead.

What is the best U.S. intelligence right now?

JONES: I think the best intelligence is that we gauge ourreaction based on what intelligence we have. And it is inconclusive.Secondly, we wait and see how long it has been before we've seen himactually make a statement, release a video, and make our judgments onthat.

The truth is, I don't think anybody knows for sure.

STEPHANOPOULOS: Well, let me ask you about that, because we sawsome audio tapes from Osama bin Laden in both January and March ofthis year, and it's my understanding that U.S. intelligence thoughtthat those were authentic.

JONES: Mm-hmm.

STEPHANOPOULOS: So what has changed since then to make theintelligence inconclusive?

JONES: Well, as of March, they thought it was authentic, but wedon't have any firm information that says that that has changed oneway or the other. So I think we'll just continue to press on andwe'll see what happens there.

STEPHANOPOULOS: What does your gut tell you?

JONES: I -- my gut -- I would like to know conclusively ifthat's not the case. And I think we have that evidence.

STEPHANOPOULOS: Does it matter any more if he's dead or alive?

JONES: I think it matters symbolically to the movement, forsure. But it's clear that that movement has been resilient inreplacing their leaders as quickly as we are able to capture oreliminate them.

But I think symbolically it would be a very big thing if heweren't.

STEPHANOPOULOS: Let me ask you about Vice President Cheney, hehas been something of a media tour lately. And the big point he ismaking is that the Obama administration actions, repealing some of theBush administration counterterrorism policies, announcing you're goingto close Guantanamo, ending enhanced interrogation techniques are allputting America at risk of another attack.

Now that is a serious charge coming from a former vice president.What's your response?

JONES: Well, I would take issue with some of those allegations.And I think, frankly, in the Bush administration there wasn't completeagreement with the vice president on that score.

The truth of the matter is that the Obama administrationinherited a situation at Guantanamo that was intolerable. There areonly two people had been - who had entered a plea, they both had beenreleased with time served. Hundreds of people went through Guantanamoand were released. Many of those are back on the battlefield rightnow waging war against us again.

The Obama administration has put a stop to that temporarily asyou know. We do have some decision points coming up. The presidentis absolutely committed to making sure that we recognize the rule oflaw principle, we don't make America less safe and that we continue totry to find the right balance in what could be a multi-layer approach.

STEPHANOPOULOS: I want to get to more on Guantanamo in a secondbut let me just press this one more time. The vice president, formervice president says the Obama administration is putting America atrisk of another attack.

JONES: Oh, I don't believe that.

STEPHANOPOULOS: That's clear enough. Let me ask you more aboutGuantanamo, then. Because the Congress has sent several more strongmessages to the administration about Guantanamo this week. Thechairman of the House Appropriations Committee, David Obey, did notinclude the money for closing Guantanamo in his war spending bill andRepublican leaders in the Congress have mounted a campaign againstbringing any of the detainees from Guantanamo into the United States.Here's Senator Kit Bond.


SEN. CHRISTOPHER S. BOND, R-MO.: Whether these terrorists arecoming to prison in Kansas or a halfway house in Missouri or any otherstate, I can tell you this. Americans don't want these terrorists intheir neighborhoods.


STEPHANOPOULOS: In fact, the Republican leadership hasintroduced legislation called the Keep Terrorists Out of America Actwhich would require approval from both the governor and the statelegislature of a state before any detainees can be brought in. Whatdoes the administration think of that legislation?

JONES: Well, the first think I would say about that is there hasbeen no decision taken. This is an issue that we are - the presidentis studying but absent the final determination this is allspeculation.

STEPHANOPOULOS: But you have determined - you don't know exactlyhow but because we're asking other countries to take detainees, thatwe're probably going to have to take some as well. Secretary Gatessaid that to the Congress this week.

JONES: We're going to have to figure that out and thosediscussions are currently under way so it would be premature tocomment on what the president might or might not do at this particularpoint.

STEPHANOPOULOS: But how about the legislation? They are sayingbefore anyone comes back, a governor and a state legislature mustapprove. Do you have any problems with that?

JONES: Well, we'll take that under advisement. These are nearterm subject that are currently being discussed and that is going tohave to be one of the decision points and one of the discussions thatwe'll have on this issue but it hasn't been determined yet.

STEPHANOPOULOS: This - I'm just a little confused on thatbecause Secretary Gates did say a couple of things when he testifiedthis week. He did say that some would have to be brought into theUnited States. He said there's this problem of 50 to 100 detaineeswho can't be tried and can't be released and we're going to have tofind a way. In fact, the Pentagon is looking into building a prison.

You're saying now you've already made the threshold decision thatsome detainees are going to have to come to the United States.

JONES: Well, if you're going to ask other to take some, you'regoing to have to figure out how you're going to have to do that andthat's where we are right now. No decision has been taken as toexactly how to do that.

STEPHANOPOULOS: Because this has become so thorny - thepresident wants to close Guantanamo by the January deadline. Are youopen to extending that deadline? This has turned out to be quite adifficult decision to implement.

JONES: Well, the - again, the very discussions on these issuesand how to do this are currently on the table at the White House. Weare coming up on the 20 May deadline for a decision so there will besome announcements made in the near future but no decision has beentaken yet.

STEPHANOPOULOS: But the president has not ruled out bringingback military commissions try them, either, correct?

JONES: I think the - all options are on the table. Thepresident has said that at some point there may be a multi-layeredapproach that has to be developed in order to solve this problem butit's clear that we want to maintain our values, we want to protect thejudicial process and this president is not going to do anything that'sgoing to make American safe - less safe by bringing people into thecountry that is going to put ourselves at risk. That is simply notgoing to happen.

STEPHANOPOULOS: Let me bring up the issue of gays in themilitary. The president has said he wants to reform that policy,allow gays to serve openly in the military and actually a remarkableletter from the president was released this week to Lieutenant SandyTsao, who was a serviceperson who was discharged from the militarybecause she's a lesbian and there is this handwritten note I want toshow our viewers right now from the president to Sandy in which hesays, "Thanks for your wonderful and thoughtful letter.

STEPHANOPOULOS: It is because of outstanding Americans like youthat I committed to changing our current policy. Although it willtake some time to complete, partly because it needs congressionalaction, I intend to fulfill my commitment, Barack Obama."

Now, this is in the Congress right now. Will take legislation tocompletely overturn but some of the president's supporters likeCongressman Rush Holt of New Jersey say that what the president can doright now is issue an executive order to review the policy and orderthe military to stop investigation and prosecutions while that reviewis going on, while the Congress is considering this legislation. Willthe president issue such an order?

JONES: Well, that is, of course, up to the president. And thisissue is something that has been brought up during the campaign. Wehave had preliminary discussions with the leadership of the Pentagon,Secretary Gates, the chairman of the Joint Chiefs, this is, as youknow, George, better than most, this is an issue that is not going tobe a light switch but more of a rheostat in terms of discussing it andbuilding - having the discussions that have to be had with themilitary in order to make sure the good order and discipline of themilitary ...

STEPHANOPOULOS: And I understand that and this is a complicatedissue.

JONES: So it's a complicated issue. It will be teed up (ph)appropriately and it will be discussed in the way the president doesthings, which is be very deliberative, very thoughtful, seeking outall sides on the issue and trying to ...

STEPHANOPOULOS: But if the president is against the policy, whynot suspend prosecutions and investigations while that reviewcontinues?

JONES: Well, maybe that's an option that eventually we'll get tobut we're not there now.

STEPHANOPOULOS: A lot of your former colleagues in the military,a thousand flag and general officers including 50 four stars havewritten a letter to the president opposing any change in the policy,saying that their past experience as military leaders make themconcerned about it. They think it's going to have effect on morale,discipline, unit cohesion, what do you say to your former colleagues?

JONES: Well, I think - as I said, this is illustrated by thefact that this is a very sensitive issue and it has to be discussedover time and it has - all sides have to be heard. But I think mostof us who have served in the military believe that the standards ofconduct is what determines the good order and discipline. So as longas conduct by all members of the military is not detrimental to thegood order and discipline, then you have cohesion in the ranks.

But there is ...

STEPHANOPOULOS: But that gets to the heart of the problem. Imean, if you're saying any kind of homosexual act is conduct ...

JONES: I'm saying that it applies - it has to be a uniformpolicy for all members of the military in order to function as amilitary has to function. We will have long discussions about this.It will be thoughtful. It will be deliberative. The president I knowwill reach out to fully understand both sides or all sides of theissue before he makes a decision.

STEPHANOPOULOS: But it will be overturned.

JONES: I don't know. We'll have to - the president has saidthat he is in favor of that. We'll just wait - we'll have to wait andsee - as a result of the deliberations and as a result of the - in themonths and weeks ahead. We have a lot on our plate right now. It hasto be teed up at the right time so - to do this the right way.

STEPHANOPOULOS: Let me ask you one final question. PrimeMinister Netanyahu of Israel is coming to the United States next week.He will be here next Monday and the Israeli newspaper "Haaretz"reported on a telegram, reporting on a meeting between you and aEuropean foreign minister.

Let me show you what that said. It said that, "according to thistelegram you told the foreign minister, 'The new administration willconvince Israel to compromise on the Palestinian question. We willnot push Israel under the wheels of a bus put we will be more forcefultoward Israel than we have been under Bush.' Jones is quoted in thetelegram as saying that the U.S., E.U. and moderate Arab states mustredefine a satisfactory end game solution."

Does that mean you're going to press Prime Minister Netanyahu tofull accept a two-state solution?

JONES: I think it means that this administration is going toengage fully. That is to say, using all aspects of the interagencyprocess to make sure that the security of Israel is not compromised,that the issue of Palestinian sovereignty also has its place at thetable. There are many expectations around the world, in the ArabWorld and in the European community that we are at a moment where wecan make progress with regard to the Middle East. It's going to takeAmerican leadership and American involvement and I think the signal isgoing to be that all levels of our government we're going to doeverything we can to encourage this longstanding problem to graduallycome to - show clear progress that we're intent on ...

STEPHANOPOULOS: Is there any way to make progress if Israeldoesn't say they're clearly for a two state solution.

JONES: I think obviously Israel has said it's for a two statesolution, at least...

STEPHANOPOULOS: The prime minister hasn't said that yet.

JONES: That was the position of the former government. And weunderstand Israel's preoccupation with Iran as an existential threat.We agree with that.

And by the same token, there are a lot of things that you can doto diminish that existential threat by working hard towards achievinga two-state solution. This is a very strategic issue. It's extremelyimportant. And we're looking forward to having a good, constructivedialogue with our Israeli friends when they visit Washington in thenext seven or eight days.

STEPHANOPOULOS: General Jones, thank you very much for your timethis morning.

JONES: It's my pleasure to be with you, thanks.

STEPHANOPOULOS: And let me bring in Senator John McCain.

Welcome again.

MCCAIN: Thank you, George.

STEPHANOPOULOS: You just heard General Jones, let's pick upright there. Does President Obama have to say quite clearly to PrimeMinister Netanyahu, we've got to begin with the two-state solution?

MCCAIN: Well, I think that it has been previous policy inprevious Israeli governments. We respect the results of a democraticprocess. And the fact is that I think that we have to push the entirepeace process forward.

But I'm not sure the timing is right, right now, with a newgovernment in Israel for us to dictate to them their policy. But Iapplaud the Obama administration's renewed efforts to try and movethis process forward.

STEPHANOPOULOS: Let me also ask you about Guantanamo. You sawthat the general and I talked about that. And you and President Obamashare the same goal where you both say that Guantanamo should beclosed. You and the president share the same goal on the enhancedinterrogation techniques.

Yet, especially on Guantanamo right now, it appears that therehas been rising opposition to the Congress -- to this, what appears tobe a necessity, that some of these detainees are going to have to cometo the United States.

So how do you work with President Obama to meet the goal that youboth have set? MCCAIN: Well, I don't know how you walk it back to the initialannouncement. To announce you're going to close Guantanamo within ayear, and not have a comprehensive package for how you address theseissues that understandably have arisen.

I mean, what do you do -- what kind of process do you put thepeople through that remain? How do you ensure that they don't returnto the battlefield, as about 10 percent of them have, including somevery high-ranking people?

What should have taken place, in my view, was the announcement ofthe closing and an announcement of exactly how we're going to putthese people on trial. The Military Commissions Act that SenatorGraham and I originally proposed is clearly what they are returningto.

How you -- where you're going to put the people that are enemycombatants that you don't have enough information to convict them, butit's clear that they can't come back...


STEPHANOPOULOS: That key group, the 5,200, are probably going tohave to come and be detained here in the United States, correct?

MCCAIN: I don't know what they're going to do. Because...

STEPHANOPOULOS: Would you be opposed to that?

MCCAIN: I would certainly be -- would -- well, I don't know if Iwould be "opposed" to it, because I would probably want to judge themon a case-by-case basis. I understand the local objection. Andsenators and congressmen objection to saying, here are some peoplethat we're just going to dump onto the community.

But we could have avoided all of this if there had been anannouncement of the closure of Guantanamo and the process forresolving the cases of people who are detained there, whether yourelease them, whether you ask other countries to take them, what theprocess for trial is, what the process of those that you justdiscussed who are "enemy combatants" but you can't convict.

That is a terrible mistake. Announce the closure, but don'taddress the underlying problems that a lot of us have been wrestlingwith for years.

STEPHANOPOULOS: So -- but how do you fix it now?

MCCAIN: I would say, I'm not going to close Guantanamo until Ihave a comprehensive approach to every aspect of this problem of thedetainees. I have put them on trial, who tries them, what are therules of evidence? What is the case of interrogation techniques thatwere used? At which time that that evidence would be admissible.

There's a whole series of subsequent issues.

STEPHANOPOULOS: So you're no longer for closing -- you're nolonger for closing.

MCCAIN: I'm for closing Guantanamo, and I said I was for closingit. But I'm for a comprehensive solution of all of the issuessurrounding Guantanamo, which now obviously are facing seriousroadblocks in Congress, because the announcement was made withoutaddressing the underlying problems associated.

STEPHANOPOULOS: So relax the deadline, no January deadline?

MCCAIN: I would relax -- I said I wanted to close Guantanamo,but I also said I wanted to address all of the issues. So I never seta deadline. But so, no, I wouldn't set a specific date until I hadresolved all of the issues surrounding the detainee question,including a military commission that would be appointed and authorizedto address some of these cases.

STEPHANOPOULOS: How about this issue of "don't ask, don't tell"?

STEPHANOPOULOS: It's now been bedeviling the military for 15, 16years right now. Growing support to reform the policy. More than 100members of Congress say it should be reformed. Former chairman of thejoint chiefs, General Shalikashvili, have said it should be reformed.Where are you on that today and how would you reform the policy if atall?

MCCAIN: Again, I've said for months, I will be glad to have athorough review of the policy by the Joint Chiefs of Staff and theirrecommendations. You might recall it was General Powell who weighedin back early on in the Clinton administration that said we need tohave this policy and it's been successful. We now have the best-trained, best-equipped, most professional military in the history ofthis country in my view.

So I would rely on a study by the Joint Chiefs of Staff as howthe impact of changing this policy would have on our ability to carryout our military missions and then I would make judgments from there.

But in all due respect, right now the military is functioningextremely well in very difficult conditions. We have to have anassessment on recruitment, on retention and all the other aspects ofthe impact on our military if we change the policy.

In my view, and I know that a lot of people don't agree withthat, the policy has been working and I think it's been working well.

STEPHANOPOULOS: But let me ask you about your party. Notworking ...

MCCAIN: Not working.

STEPHANOPOULOS: Not working as well. You've got this "TimeMagazine" cover this week saying, "Endangered Species, theRepublicans". Is your party an endangered species?

MCCAIN: I probably would not go that length. We all work incycles for many years. We have seen parties down and parties up.That's a great thing about American politics. But having said that,do we have to do a better job of getting our message out? Do we haveto do a better job recruiting candidates? Do we have to do a betterjob of outreach? Outreach to many Americans that don't feel that theycan be part of our party? Absolutely. Absolutely.

And this conversation that Eric Cantor, which some havecriticized and others have begun, I think it's a great thing. Why nothave a conversation with the American people. Find out what theywant.

STEPHANOPOULOS: Vice President Cheney has been part of thatconversation as well and he's been saying that the party should notmoderate. Here's what he said this week.


DICK CHENEY, FORMER VICE PRESIDENT: I think it would be amistake for us to moderate. The idea that we ought to moderatebasically means we ought to fundamentally change our philosophy. AndI for one am not prepared to do that and I think most of us aren't.


MCCAIN: I think we're kind of in a word game here. I don't wantto moderate, either. I think our policies, the principles of ourparty are as viable today as they have in the past. In all duerespect, the previous administration, by letting spending getcompletely out of control, by betraying some of those principles ofour party, cost us a couple of elections.

And maybe I didn't do a good enough job communicating with theAmerican people. But we have to improve our outreach and ourcommunication and that doesn't mean betrayal of principles. I thinkmaybe it means that adjusting to the 21st century in communications,in values, in goals, in all the things the American people want.

STEPHANOPOULOS: But some of your closest associates say it'smore than a communications problem.

MCCAIN: It is.

STEPHANOPOULOS: Your former campaign manager Steve Schmidt cameout and said unless the party has a more live and let live philosophyon issues like gay rights and gay marriage, your own daughter hastaken the same position, you're not going to be able to attractespecially the young generation.

MCCAIN: I think we have to be an inclusive party. That does notmean betrayal of fundamental principles. One of the fundamentalprinciples of the Republican Party is to as much as possible, to letpeople lead their own lives without government interference in theirlives. To go as far as their hopes and dreams and aspirations willtake them.

We have to understand that there may be a candidate that can winin one part of our country like the South, may not be able to getelected in Pennsylvania. And local needs and local issues areimportant but fundamental principles can be articulated. I believeAmerica is a right of center nation. I believe the Republican partyis a right of center party. We have to get in synch with the Americanpeople ...

STEPHANOPOULOS: Does that mean more toleration of those whobelieve that women should have the right to an abortion? Of those whobelieve that gays and lesbians should have full civil rights? MCCAIN: It means that we can have people in our party who do nothave the same views on specific issues as long as we share commonprinciples.

Now, I don't agree with my daughter on specific issues. I stilllove my daughter and I respect her views and I think there is a placefor her in the Republican Party. I do. I think we've got to broadenour - enlarge our tent and at the same time stick to our fundamentalprinciples which are right of center. And I don't - it's not thathard, I don't think, except that we've got to do a better of job ofsaying, for example, Hispanic voters in my state and in the Southwestare pro-life, small business, low taxes, patriotic, et cetera.

We should be able to get a lot more Hispanic participation in theRepublican Party.

STEPHANOPOULOS: Well, Senator, thank you very much. We'll seeif it happens in the future.

You mentioned your daughter. Let me also wish a happy Mother'sDay to your mom, Roberta, 97, still going strong. I read she's goingback to Europe again in the fall?

MCCAIN: Thanks. She is. And she is incredibly active. It'sgreat to be with you, George.

STEPHANOPOULOS: Good to see you, Senator.

MCCAIN: Thank you.

STEPHANOPOULOS: The roundtable is next with George Will, CokieRoberts, Sam Donaldson, and Robert Reich.

And late, the "Sunday Funnies."


STEPHANOPOULOS: We will be right back with the roundtable andthe "Sunday Funnies."



OBAMA: In the next hundred days, I will learn to go off theprompter, and Joe Biden will learn to stay on the prompter.


OBAMA: In the next 100 days, our bipartisan outreach will be sosuccessful that even John Boehner will consider becoming a Democrat.After all, we have a lot in common. He is a person of color.


OBAMA: Although not a color that appears in the natural world.


OBAMA: The next 100 days, we will house train our dog Bo.Because the last thing Tim Geithner needs is someone else treating himlike a fire hydrant.



STEPHANOPOULOS: President Obama cracking himself up last nightat the White House Correspondents Dinner. We're going to talk aboutthat in a little bit. But let me bring in the roundtable right now.I've got George Will, as always, Robert Reich from the AmericanProspect and Berkeley, Sam Donaldson, and Cokie Roberts.

And we will get to the jokes later, everybody rate the presidentas joke-teller in chief. But let's begin with the economy. Thepresident was in a much more somber mood on Friday when we got theseunemployment numbers. A little bit better than expected, but stillpretty tough news. More than 500,000 jobs lost.

Here was the president.


OBAMA: Although we have a long way to go before we can put thisrecession behind us, the gears of our economic engine do appear toslowly -- to be slowly turning once again. Consumer spending and home sales are stabilizing, constructionspending is up for the first time in six months.


STEPHANOPOULOS: Maybe the slip there, George, is revealing.There has been a lot of good signs lately in the economy, but no oneknows how soon we're really going to be able to turn out of this.

WILL: On the one hand, it's difficult to stop the Americanpeople from creating wealth, we're an industrious people with acontinental market.

On the other hand, the president submitted a budget this weekthat has $1.2 trillion of new debt. Now that's borrowing that has tocome from somewhere. And a lot of it's going to come from domesticcapital because we can't count on our allies to continue buying ourdebt as they have in the past.

And the question is whether this will crowd out private capitalinvestment, crowding -- no doubt lead to inflation, and nip therecovery, such as it is, in the bud.

STEPHANOPOULOS: What's the answer?

REICH: Well, the answer right now is that we don't have to worryabout that because we have so much underutilized capacity. One out of10 Americans who are either unemployed or just give up -- have givenup looking for work that we do need to spend.

The government is the spender of last resort. Now eventually twoyears from now, three years from now, we are going to have to worryabout possible inflation and the Fed is probably going to have to pullin its horns.

But right now is not a time the government ought to worry aboutthose kinds of things.

DONALDSON: Some people say good news on the unemployment frontbecause the number was a little lower than the last four or fivemonths. And it reminds me of somebody during the Great Depressionwhere we had 25 percent of our people were out of work. And someonesaid, yes, but it has leveled off, you know? I don't...

STEPHANOPOULOS: I know, can you imagine, five years ago, someonesaid we lost 500,000 jobs this month, good news.


DONALDSON: I don't know much about it except I buy the idea thatuntil the banks are stabilized, until they can lend again, until thepotential $600 billion of toxic mortgages can be dealt with, we're notgoing to be able to get back to a full measure of spending, lending,and buying.

And they've got a program right now that has something to do withpublic and private money combining to buy these mortgages. But ithasn't gotten off the ground. And a lot of economists think it won'twork anyway.

ROBERTS: Well, the banks -- there was good news on the banksfront too though this past week. I mean, again, what is good news?But, you know, that they weren't in as bad a shape as was feared.

So I think what the administration has to be careful here is thatthey don't want people to think that it has turned around, because,first of all, it hasn't, but second -- and the unemployment numbersare going to get worse before they get better.

But secondly, they still have a lot of grand plans. And ifpeople think that the economy is writing itself, it's going to be verydifficult for them to carry through on these grand plans.

STEPHANOPOULOS: That's definitely true. But they do believe --and I was talking some people on the economic team this week. Theybelieve there's a chance that the recession will actually end in June.That we'll actually see growth in the third...

ROBERTS: Well, we've heard Bernanke say that he thought therewould be growth...

DONALDSON: End of the year.

ROBERTS: ... in this year.

STEPHANOPOULOS: At the end of the year, but the problem, you getat it with the jobs. And, Bob, check me on the numbers here, in orderto start creating jobs again, bringing down the unemployment rate, youdon't only need growth, you need 4.5 percent growth for a sustainedperiod of time.

REICH: Absolutely. And I think that when we talk about -- oranybody talks about hitting bottom, what we really have to understandis that the bottom is a kind of an undefined concept here. We don'tknow what a recovery is because we can't go back to the old economywhich was based on debt and Wall Street getting out of control. Sowhat is a recovery? What is a kind of the economy of the future?Nobody knows.


STEPHANOPOULOS: ... first of all.

WILL: Well, that's right. And the trouble is the Americanpeople, in their native perversity, have started to save money. It'sthe same exact...


WILL: ... 4 or 5 percent? And since 70 percent of our economicactivity in what we used to call normal times is personal consumption,is that compatible with ... DONALDSON: That is exactly what a recovery is. Some guy said Isaw a quote in the paper I use this test, do I want it, do I need it?And if I don't need it I don't buy it. We have to get to the pointwhere people buy what they want.

REICH: George puts his finger on what is the real dilemma here.And that is what is rational for the family in terms of saving moneyis irrational from the standpoint of the economy as a whole. Thebanks that survive the stress test, for example, are they going to goback to lending like they did before? They can't possibly.

STEPHANOPOULOS: Let me press you on that for a second. Becausea lot of economists like Paul Krugman on this program, like you, likeJoe Stiglitz, Nouriel Roubini, thought there was no way that thisapproach that the administration was taking was the right course. Youbelieved that we should go in more radical, temporarily take over thebanks. Can you now say, though, that the Geithner approach, the moretempered approach was right?

REICH: Well, what we can say on the basis of very preliminaryevidence is that the stress tests have fulfilled the goal that theyset to fulfill, which was to reassure potential investors in a bank.

(UNKNOWN): Public relations.

REICH: No. It's confidence. It's to make sure and reassurepotential bank investors that there are not worse problems hidingthere.

ROBERTS: But there are ...

DONALDSON: ... not stressful enough.

REICH: It's a distinction. It's not the same thing as ...

ROBERTS: But there are worse problems, is Fannie and Freddie,which are in terrible shape and going to need even more ...

STEPHANOPOULOS: $19 billion, right?

ROBERTS: More and more government infusion. At the same timeyou're saying, oh, well, gee Bank of America only needs $34 billion...

DONALDSON: And the stock went up $1.26.

ROBERTS: Then you still have these now have been taken over bythe government needing government infusion.

STEPHANOPOULOS: That's all true. Right now there's about $110billion in the TARP, in the rescue fund. Some banks are maybe goingto be giving money back, JPMorgan is going to be giving money back,Goldman Sachs is going to be giving money back.

That number is actually going to go up before it goes down.Maybe some of it has to go to Fannie Mae and Freddie Mac, maybe someto GM. But you're going to have probably a pot of money of about $100billion, there, George Will, that may be available for either morebailouts or more government investment or spending.

ROBERTS: Just what you want, George.

WILL: Well, next on the list are municipalities, which is to saypublic employees' unions which have put municipalities - actuallymunicipalities put themselves in trouble with improvident contractswith their public employees. And now we're going to bail them out.The common theme of all of this is save the unions. This phony, makebelieve Chrysler bankruptcy is really a way of helping the UAW.

STEPHANOPOULOS: How has it been a make believe bankruptcy?

WILL: Because they have altered bankruptcy law and prearrangedto give the UAW privileged status over what bankruptcy law would'vegiven to normal creditors.

DONALDSON: (Inaudible) public relations stress test. I don'tthink this stress test was firm enough ...

ROBERTS: Stressful enough.

DONALDSON: But the other part of public relations, we're goingto save $17 billion, one half of one percent of the $3.4 trillionbudget. But the very things that the president outlined as savings,people up there on Capitol Hill will not allow. That's not --Meanwhile, he wants to do reform of the health care system. I've seenestimates ranging from several hundred billion to even $1 trillion ifwe get it all done that we have to pay for. Because it's not in thisbudget. There's no place card in this budget. You have to come upwith new money if you're going to do it.

REICH: I think this is the big long-term question. I mean wehave a short-term issue, how do you get the economy back and what doesit mean to get the economy back? But the long-term is, how do you payfor health care? And if the Congress continues to say, no, we're notgoing to limit dividends or deductions for the rich. No, we are notgoing to even limit employer-provided health care for the rich. No,we're not going to do this. Then there's no money.

WILL: Just a moment, now.

STEPHANOPOULOS: Well, here's a blue sky idea. If you've got$100 billion in the bailout fund, why not use that as a down payment?

REICH: Well, try to sell that to Congress. I think that $100billion, or it actually looks like it's going to be $135 billion,that's going to be eaten up, it's going to be eaten up bymunicipalities, it's going to be eaten up by Fannie and Freddie, thereare many places where that's going to go.

ROBERTS: But the truth is when we look at these enormousdeficits with the exception of this aberrant bailout situation. Whenyou look at them, you're talking about health care. It's Medicare,it's Medicaid for the states, and it's health care costs for thebusinesses.

STEPHANOPOULOS: Which is why the president emphasizes costcontrol all the time.

ROBERTS: All the time. And there are in both houses of Congressproposals to have commissions, now sometimes these work and sometimesthey don't, but to really take a look at Medicare, Medicaid, andSocial Security. And being objected to ...

DONALDSON: Speak to Nancy Pelosi and Harry Reid, the twoDemocratic leaders oppose the idea of commissions and the president isnot getting behind because he wants to do health care. He is notgetting behind this idea.

STEPHANOPOULOS: He is not getting behind the commission rightnow but let me press that point. Because the administration believesthe stars are aligning for health care this summer. They thinkeverything is coming together. What I can't figure out and I ask alot of people about it, I still don't see the five, six, sevenRepublican votes minimum needed ...

ROBERTS: One of the things, one of the stars that is aligning isthat the Senate has now invested a great deal of time and effort inthis question. And as you well know, that takes on a life of its own.They don't want to have done this much work on something and then haveit go to waste.

STEPHANOPOULOS: So even if they're opposed, senators like ChuckGrassley and Bob Bennett ...

ROBERTS: And there are ways to get to them. The question ofgetting from here to there ...

DONALDSON: In reconciliation, of course, you just have to haveit.

STEPHANOPOULOS: You just have to get to 50 votes.Realistically, that's going to be very hard to do. The administrationeven though they're allowing says they don't want it to go down tothat.

WILL: The big principle obstacle is the president, because thereis a bill in the Senate, it's the Wyden-Bennett bill, Wyden, liberalDemocrat for Oregon, Bennett, Utah, the reddest state in the union,conservative Republican, they have a proposal that gives the left amandate. Everyone is required to buy health insurance. It gives theright to fact that they will with their tax credits and tax subsidiesand all the rest buy it from private providers. You could get 70votes for that.

STEPHANOPOULOS: But it also includes the John McCain proposal totake away some of the tax deduction for employer provided health care.

REICH: Yes. That's the fight.

WILL: But I think if you got it to the floor without the so-called public option, that is the government competing inherentlyunfairly against these private companies.

REICH: That is -- that is the key to making this work, accordingto many Democrats. To have a public option.

ROBERTS: One of the things that's happening now is that as aresult of even having that on the table, the health insurers aresaying, wait, wait, regulate me, regulate me. Please, regulate me.Stop me before I sin again.

DONALDSON: Let's talk about politics. Can the president who hastemperized (ph) now a lot of his positions, but can he give up on apublic option?

WILL: Sure.

ROBERTS: I think he already has.

STEPHANOPOULOS: I want to move on to something else. I thinkCokie was talking about the insurers. I think this week insurancecompanies and other health care providers who were very much againstthe Clinton health care proposal come around and say they're ready toget to the table right now on this.

ROBERTS: As long as there's not the public option. That's whatthey don't want to have out there.

REICH: Well, the parallels to 1994 are in everybody's mind. Ajobless recovery combined with a question of whether you get healthcare. Remember what happened to Clinton. And also every Republicanin town is dreaming of 1994. Could we do it again? Could we destroyhealth care with a jobless recovery and make the Obama administrationlook bad.

STEPHANOPOULOS: Not if the insurance companies say they want toplay, and if they do ...

WILL: I want to move on to one final number, more than 80percent of Americans are very satisfied with their health care plan.

ROBERTS: They're not satisfied with the cost, however. And thefact that insurers get to make the decision about whether you gettreated or not. And doctors have reached the point where they havereally had it.

STEPHANOPOULOS: That is the debate right there.

REICH: Isn't it amazing? We are now talking about health carewhen we are no longer talking about the economy. We have alreadymoved on to the next ... STEPHANOPOULOS: They go together. Meanwhile, Elizabeth Edwardswas out talking this week about her husband, his campaign, and theaffair that could've doomed it had it been doing better.

She went on Oprah this week to talk about it. I think it had alot of people scratching their heads. But at one point we learnedthat Elizabeth Edwards found out about it two days after John Edwardsannounced he was running for president. Then remember three monthslater there was a recurrence of her cancer. And Oprah asks her, whydidn't you get out then?


OPRAH WINFREY, TALK SHOW HOST: I'm surprised because I thinkthat would have been your -- that was a way out. That was a way out.


WINFREY: Considering the fact that you already knew that therehad been an affair.

EDWARDS: I knew that there'd been a night. That's all I knew.


STEPHANOPOULOS: Now, Cokie, Elizabeth Edwards is an enormouslysympathetic and appealing, but I think a lot of people wondering.What is this about?

ROBERTS: I'm very puzzled. I'm an admirer of Elizabeth Edwards.I've felt all along that people had their nerve to criticize her forstaying in the race when she knew that her cancer had recurred, allthat. I think that people get to make their own decisions about thesethings.

This one just puzzles me because of her children. I don'tunderstand how -- how they get through this public exposure withoutbeing hurt.

DONALDSON: It's Elizabeth Edwards' revenge. And some people sayexactly right. She has it coming to be able to do this. But the timeto have done it in some senses was when she was standing up by herhusband, knowing about this, whatever part of it she knew about,saying, you'd make a great president and following him along. Why wasthat? Why did she do that?

Remember George W. Bush had a press secretary, Scott McClellan,who stood in the press room and carried the water right down the lineand then wrote a book denouncing everything that he had done, sayinghe was terrible. There is something smarmy about that.

REICH: Well, I -- you know, I keep asking myself, what is thegreat public tragedy here? And the answer I come up with is the loss-- despite his, you know, personal indiscretions of a man who wasalmost the single voice in the campaigns for the poor, an advocate forthe poor, somebody who really was concerned about it, I'm sorry thathis public persona is over. His public office is over.

WILL: The public -- the tragedy would have been if he had won.I mean, suppose the man had -- and you can reconfigure Iowa in someways since he takes off and anything can happen. Suppose he got theDemocratic nomination...

STEPHANOPOULOS: You know, that wasn't going to happen. I'veactually talked to a lot of former Edwards staffers about this, andit's amazing to me, I mean, they had their doubts. They believed upuntil December that this was not true. By December and January,several people in his circle started to think, you know what, this isprobably true, this may be...

ROBERTS: You mean, the affair.

STEPHANOPOULOS: The affair. It may be true. And they actuallyhad something of a doomsday strategy. Several of them had gottentogether and basically said, if it looks like he is going to win,we're going to sabotage the campaign, we're going to blow it up.

ROBERTS: Oh my goodness.


ROBERTS: And why do that? Why not just get out of the campaignor why not go public in the first place?

STEPHANOPOULOS: The answer they give is that in December andJanuary, he probably wasn't going to win. Why bring everybody throughit? But then if he were, they were saying they're Democrats first andthey would have found the way to get the information out so that hewas not the nominee.

DONALDSON: But if they let it sabotage the campaign, it lookedlike it might be successful, for whatever reason, the politicalreason, it would...


STEPHANOPOULOS: But their point would be that it wasn't going tobe successful.

DONALDSON: Well, then, why not get out early? I agree withCokie, there is some moral imperative here that bothers me.

ROBERTS: And also, it could have had an impact on the eventualnominee. Now I don't buy into this theory. But there is a theorythat if John Edwards had not been in there that it might have been tothe benefit of Hillary Clinton. Now, I -- you know, I think -- Ithink it was Barack Obama's year. But I...

DONALDSON: Yes, but in Iowa, two-thirds of white people votedfor someone other than Barack Obama because they split the vote,Edwards and Clinton.

ROBERTS: I mean, so if you say his staffers were going tosabotage him...

STEPHANOPOULOS: They had suspicions, right.

ROBERTS: ... eventually, they -- I mean, they really should havedone it up front then. But the arrogance of all of this is just sooverwhelming to me. I mean, to get into a presidential campaign whileperforming in such a manner is just, you know, I deserve it, it's allabout me. And it's just, blech.

STEPHANOPOULOS: And did he really think that he could make itall the way through? We're just about out of time here.

Let's take one more look at President Obama last night talkingabout Hillary in his stand-up act.


OBAMA: We had been rivals during the campaign. But these dayswe could not be closer. In fact, the second she got back from Mexico,she pulled me into a hug and gave me a big kiss.


OBAMA: Told me I had better get down there myself.



STEPHANOPOULOS: Now, not all presidents clear the bar in theirfirst outing at the White House Correspondents Dinner. I think Obamaprobably did last night.

WILL: Absolutely. I mean, he has good writers, he has gooddeliver, what more do you need?

DONALDSON: What I liked about it was all of the zingers were --some in the Gridiron tradition, they singed but didn't burn. Theyweren't mean. What I saw of the public prints master -- mistress ofceremony, I can't say the same thing.

I think Rush Limbaugh should be condemned for whatever meaning hehad when he said he wanted the president to fail. And you can jab athim for that, but she apparently crossed the line as far as I'mconcerned.

REICH: You know, one of the great strengths of this president, Idon't think he has a mean bone in his body. I think he is the centerof serenity with regard to the hurricanes that are going around theeconomy and everything else.

And I think he is a genuinely, genuinely nice person, somethingthis town doesn't quite know what to do with.


DONALDSON: He had better develop a toughness. You don't have tocall it meanness.

ROBERTS: But he hasn't been a funny person. And so this was --this was a test to see if he could be...

STEPHANOPOULOS: It has now become part of the job. You guys cancontinue talking about this in the green room.

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