Jan. 10, 2010 -- STEPHANOPOULOS: Good morning, and welcome to "This Week."
OBAMA: The road to recovery is never straight.
STEPHANOPOULOS: Another 85,000 jobs gone, more than 15 million Americans unemployed.
(UNKNOWN): The hardest thing is not knowing three months down the road where you're going to be.
STEPHANOPOULOS: When will the jobs come back? What more can the president do? Are we headed for a double-dip recession? Questions this morning for our headliner, the president's chief economist, Christina Romer.
OBAMA: The buck stops with me.
STEPHANOPOULOS: ... Obama takes the blame for the Christmas bomb plot.
(UNKNOWN): How long did it take you to realize the system failed?
STEPHANOPOULOS: Team Cheney and the GOP take him on.
That and the rest of the week's politics on our roundtable with George Will, Liz Cheney, Robert Reich of the American Prospect, Bloomberg's Al Hunt, and Judy Woodruff from the PBS NewsHour.
And, as always, the Sunday funnies.
LENO: I don't think there's any truth to the rumor -- see, it's always been my experience NBC only cancels you when you're in first place, so we're fine.
(END VIDEO CLIP)
ANNOUNCER: From the heart of the nation's capital, "This Week" with ABC News chief Washington correspondent George Stephanopoulos, live from the Newseum on Pennsylvania Avenue.
STEPHANOPOULOS: The White House was hoping that some good news in last Friday's jobs report would help turn the corner on what's been a tough first week of 2010, but it wasn't meant to be. The jobs engine stalled again. We'll get to the political fallout from that downside surprise, the failed Christmas bombing, and the rash of Democratic retirements in just a bit on our powerhouse roundtable.
But we begin with the White House take on why the economy is still losing jobs with the president's top economist, Dr. Christina Romer, chair of the Council on Economic Advisers.
Welcome to "This Week."
ROMER: Great to be with you.
STEPHANOPOULOS: So what went wrong? Most economists were expecting either very small job loss in December or a slight increase.
ROMER: Well, I mean, I think what is true is it was somewhat of a setback. We now know in November we actually added some jobs and, in December, we lost, as you put, 85,000.
You know, I think it is important to put them in context, because they are, I think, still part of this overall trend towards greatly moderating job losses. I mean, I'll give you one statistic. In the first quarter of 2009, when we first came in, we were losing on average 691,000 jobs per month. With these new numbers in the fourth quarter, we were losing 69,000 jobs.
STEPHANOPOULOS: That's true, but we still saw 660,000 people leave the workforce. And we have a real problem now of long-term unemployed. Forty percent of the unemployed have been out of work for more than two years. The long-term consequences of that are devastating, aren't they?
ROMER: Oh, you will get no argument from me. When I was just saying, you know, the job losses are moderating, that's still -- you know, it's still terrible. We're still losing jobs, and we absolutely have to go from losing any jobs at all to -- to adding them at a -- at a robust rate.
And you're right. The consequences for families across the country, especially with these long-term unemployment rates, are devastating. That's why the president -- I can tell you, from the day he took office -- has been saying it's jobs, jobs, jobs.
STEPHANOPOULOS: You know, it was reported that the president gave you a big hug after the November jobs report. What was his reaction on Friday?
ROMER: Well, you know, he -- I mean, he was, of course, subdued. He was disappointed. We all were, right? You know, that's -- that's just simply -- you know, I think it's a tribute to just how much he focused on this, that this is -- you know, the first Friday of every month is this incredibly tense day. We're all desperate to see progress, because we know how important it is to the economy and the people.
STEPHANOPOULOS: How big of a setback is this? Some economists look at these numbers and see a real prospect of a double-dip recession. I think Paul Krugman has put it at about 30 percent. Stephen Roach of Morgan Stanley has put it at 40 percent. What are your odds?
ROMER: I think we -- I think we are on a path of -- you know, of steady progress, that by all accounts, you know, GDP, which grew in the third quarter of last year, is going to grow even more strongly when we get the numbers for the fourth quarter. And I think, you know, if you look at basically every forecast, they are saying steady GDP growth over 2010.
The real question is going to be, is it going to be strong enough to really add a lot of people back into employment? And that is what we are focusing on, and I think that -- you know, that's got to be the top priority.
STEPHANOPOULOS: I talked to Secretary Geithner a few weeks ago, and he said that job growth would begin by spring. Has that timetable been set back?
ROMER: I think that's still a very realistic estimate.
STEPHANOPOULOS: So when -- what -- what kind of job growth are you expecting? And when exactly do you think it'll begin?
ROMER: So, you know, as I've said, with this -- this pattern of moderation that we've seen, I think we are getting close to stability in -- in employment. And then the next step is, obviously, to finally start adding jobs. You know, there's...
STEPHANOPOULOS: But you don't know the magnitude?
ROMER: You don't know the magnitude. I think, you know, we'll get a lot better read as we see what's happening to GDP, because sort of a -- a precursor for job growth, you've got to get economic growth, and we're certainly seeing that. And I think the whole question is going to be how strong it is.
You know, the big variable in all of this is the private sector. The government has been doing a lot to -- to hold up demand. I think the Recovery Act has been incredibly important in that regard. And the -- the whole question is, when does the private sector get its sea legs again?
STEPHANOPOULOS: You don't think they're doing enough?
ROMER: You know, what's been true -- consumers have been nervous, businesses have been nervous. We've been starting to see the confidence numbers come back. And I think, you know, what the president was talking about in December at his jobs summit is, what are the actions we can take now for this stage of the recovery that might help to take those firms that are thinking about hiring to get them to hire faster?
STEPHANOPOULOS: Well, that is the next big question, and there's a big debate among economists -- some -- some, like Mark Zandi, look at the situation and say that unless we have another $125 billion in stimulus right away, we're going to dip back. He says, "If we don't do it and we slide back into recession, that's going to exacerbate the deficit even more." Yet others, like Michael Darda, say, no, let's just have some patience. If we just have a little bit of patience, we'll start to see monthly increases of 200,000 to 300,000 jobs within six months.
What's closer to your view?
ROMER: Oh, I -- I -- I think the -- the sense that we need to do more is -- is overwhelming, that we know there are things that have been working in the Recovery Act that are expiring, like some of the provisions for longer unemployment benefits, some of the state fiscal relief. I think that's going to be critically important to making sure we -- we keep making progress.
But then the president also talked about, there are some smaller, targeted things that we think will -- will genuinely move the dial, things like, you know, tax incentives for small businesses to hire, or the so-called cash for caulkers, right, a kind of program that could jump-start energy retrofits, or the president just announced the -- the tax credits we were making for clean-energy manufacturing. He said we want to do $5 billion more of that. That's the kind of targeted thing, but we think at this stage in the recovery could really leverage some private capital.
STEPHANOPOULOS: All of those -- all those targeted programs, but still the kind of big response that Mark Zandi is talking about, that's necessary now?
ROMER: Well, I -- I think we -- we definitely need a range of options, both the continuing the things that have been working that are expiring and some targeted actions, yes.
STEPHANOPOULOS: More than $100 billion?
ROMER: Well, I think, you know, if you think about -- look at what the House just passed before they left. It was $75 billion of some things like infrastructure and some targeted aid for the states, so some programs like that, and another chunk of money for expanding U.I. We've got the COBRA program that...
STEPHANOPOULOS: Health care for the unemployed.
ROMER: ... helps unemployed people keep their health insurance, and -- and we think that's something that needs to be extended.
STEPHANOPOULOS: Senator Harry Reid, though, the Democratic leader in the Senate said that has to wait until health care is done and the negotiations between the House and Senate have begun this week. The president weighed in with the leaders on behalf of this so-called Cadillac tax, the excise tax on high-priced health insurance plan. That is facing some real resistance in the House. Here's Congressman Joe Sestak.
(BEGIN VIDEO CLIP)
SESTAK: They're not just pulling the Cadillac. They're pulling the Chevrolets. By 2019, because they index it to a wrong inflation rate, we're going to have one-third of all the workers in employer-based plans paying a middle-class tax. No, this has to change.
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STEPHANOPOULOS: He and labor leaders like Gerry McEntee say this is going to be a middle-class tax increase that could hit up to 40 percent of union workers.
ROMER: All right, so the -- the important thing the president has said that he thinks that this excise tax on Cadillac plans is important. He's been convinced by experts across the ideological spectrum that say this is one of those things that genuinely slows the growth rate of costs, and anybody that's worried about the budget deficit knows that we've got to -- to do that.
You know, what the president has said is, you know, he's always open to -- you know, there are design issues here. He's going to be continuing to -- to work with the Congress to say, are there ways to -- to make it work better? But we want to maintain that -- that crucial focus on cost containment.
STEPHANOPOULOS: Even if it's a middle-class tax increase?
ROMER: You know, I think that the numbers that you were hearing, you know, that the levels where this is being set -- I think the current number is something like $23,000 for a plan, a family plan -- that's a very high level and -- and exempts an awful lot...
STEPHANOPOULOS: Well, except union leaders say it's not. They say that at $23,000, it affects 1 in 4 union members. If you raise the threshold to $27,000, it'll be 1 in 14. Are you willing to raise that level?
ROMER: No, you -- you absolutely -- I think you've got to be very careful on the numbers. They're actually, as it's being developed -- they're being, you know, changes made to make sure that, if you've got just older workers and that's why your costs are higher, or things like that, if you're a first-responder, so we've been very receptive to -- to, you know, arguments like that, and, also, the -- you know, sort of the -- the level at which you set.
I think the important thing is the -- you know, the incentives that it provides to genuinely slow the growth rate of costs (ph). If this thing works just right, nobody hits it, right, because -- precisely because it slows the growth rate of costs.
STEPHANOPOULOS: Well, that's because insurance plans might be dropped, as well. But, still, even with this in there, the Senate bill, your own chief actuary of Medicare and Medicaid says that this is going to increase health care costs by $222 billion over the next 10 years.
ROMER: All right, so you need to be very careful. There are lots of estimates out there. I think, you know, the Congressional Budget Office...
STEPHANOPOULOS: But that's your own actuary.
ROMER: The -- the actuary is independent, right, and the Congressional Budget Office is nonpartisan, highly respected organization, as well. They have said that the Senate bill as it came out would genuinely reduce the deficit over the 10-year window and, even more important, said that it would slow the growth rate of costs so that those -- that deficit reduction was going to be growing over time.
So I do think you need to -- to -- to look at the range of estimates. And we, certainly, have looked very hard at the CBO estimates and -- and think they're very reasonable.
STEPHANOPOULOS: We're just about out of time. It is now bonus season again on Wall Street. It's going to begin this week. Banks are poised to pay record bonuses this year. Do you see any sign that the big banks are going to demonstrate the kind of fundamental constraint the president has called for?
ROMER: I sure hope so, because, you know, the American people...
STEPHANOPOULOS: But you're shaking your head, "No."
ROMER: We have had to provide so much support for the financial system -- it was the right thing to do for the American people, because we know that when credit stops, the economy stops. But we've provided extraordinary aid, and the -- and the idea that, as the financial system heals, they just go back to business as usual is -- is simply outrageous.
STEPHANOPOULOS: So what if they do? What is the president going to do?
ROMER: What we're going to do is redouble our efforts on financial regulatory reform, because that has in it sensible things like say on pay, so at least the shareholders are minding the store, sensible things like saying, for heaven's sakes, compensation should be focused on -- on long term, so that you don't have rewards for short-term risk-taking. And we just simply have to put in place rules of the road so that this system doesn't bring the economy to the edge of collapse like it did a year or so ago.
STEPHANOPOULOS: Dr. Romer, thanks very much.
ROMER: Great to be with you.
STEPHANOPOULOS: We're going to go straight to the roundtable. So as our panelists take their seats, a reminder that President Obama is not the first president to start his second year with tough times on the jobs front. Here's Sam Donaldson from 1982.
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DONALDSON: President Reagan, on his way out of the White House for a weekend at Camp David, voiced sympathy for the unemployed, but also continued determination not to deviate from his economic game plan.
REAGAN: I think it's tragic. It's been coming on for a long time. I'm hoping -- and that's why we have our program in place, and I think it's the only way to get us back to where we can provide the jobs for the people.
DONALDSON: When will it start picking up?
REAGAN: Well, I -- I think that all of us expect there's going to be a few months of low period (ph). We can't help that. But I think that, as we get down toward the spring and going into the summer, we're going to see the economy begin to come back.
(END VIDEO CLIP)
STEPHANOPOULOS: As Yogi Berra would say, it's deja vu all over again. Let's talk about it here on the roundtable. I am joined, as always, by George Will, Liz Cheney of keepamericasafe.com. You're the chair of that organization. Bob Reich of U Cal, Berkeley, and the American Prospect, Bloomberg's Al Hunt, and Judy Woodruff from the PBS NewsHour.
Welcome to all of you, and let's pick up just on this economic discussion, George. What must President Obama do now to actually match Reagan's fate? The economy didn't come back in his -- for the -- in time for the midterms, but it came roaring back by the end of his first term.
WILL: Well, do what Reagan did, which is deregulate the economy and cut taxes, but that's not on the agenda. I think a phrase we're going to hear more of is Japan's lost decade, because we may be in for something without precedent, which is a severe, rampant recession not followed by a rapid acceleration and a rapid bounce.
The economy has been growing for six months. We've had two stimulus packages, and now the House has passed $154 billion jobs program.
STEPHANOPOULOS: Endorsed by Dr. Romer pretty much there.
WILL: Yes. And yet still the unemployment rate, plus the underemployment rate, those too discouraged to seek jobs or those in jobs that don't employ them full time, is 17.3 percent. Households are still deleveraging, yet household debt is still substantially above what it was a decade ago. Twenty-three percent of American homeowners with mortgages are underwater, that is, their mortgage is valued more than the -- the remaining value of their house. It doesn't look good.
STEPHANOPOULOS: Lost decade, Bob?
REICH: I don't think a lost decade, but George is undoubtedly right. The data looked terrible. And, remember, the economy right now is on steroids. I mean, you've got a huge stimulus right now. The Fed is still buying up mortgage-backed securities; interest rates are still very low. The question is, what happens when all of this ends? Nobody knows. There's not enough demand out there, because consumers aren't going to be...
STEPHANOPOULOS: Well, we just heard Dr. Romer say it can't end.
REICH: Oh, well, they -- you see the consumers can't borrow as they could before. Houses are going to be worth -- in fact, are worth 30 percent less than they were before. We are going into an economic territory that we just don't know anything about. We've never been here before. And that's the big issue. Not only does it scare everybody in this town about 2010, but it's also scary for the economy overall.
STEPHANOPOULOS: So, Al, what does the president do? And can he get Congress to go along with what he wants them to do?
HUNT: Well, I think he can pretty much get Congress to go along with minimal steps, which is what he's really talking about. I think a lot of this, George, is psychological. There are fundamental questions, as George enumerated earlier, but there's -- a lot of it -- a lot of it is psychological.
Businesses are hiring temporary workers, because they're not confident that this is going to be sustained. Consumers had a good Christmas season, but then they have been pulling back. They're not confident it's going to be sustained. Banks aren't lending.
Now, if that psychology can be broken, perhaps you can have something approaching the recoveries of the past. But if not, we're either going to have a very sluggish recovery or we're going to have a double-dip recession.
And what's -- what I find so interesting is, some of the smartest people really fundamentally disagree on this. You cited Mark Zandi earlier. Mark Zandi will tell you on election day this year, the jobless rate will be 10.7 percent, a disaster for Democrats. There's a guy named Dean Maki of Barclays Capital who's just as good as Mark Zandi who says it's going to be 9.1 percent.
HUNT: That's a profound difference.
STEPHANOPOULOS: Where do you come down?
CHENEY: Well, today's an important anniversary. It was actually a year ago today that the president announced the stimulus, because he said that we needed to put this in place in order to prevent -- prevent unemployment from nearing double digits. So here we are, a year later, with unemployment, you know, over double digits, over 10 percent, having gone deeper into debt, and -- and I think that the uncertainty in the economy isn't because people are worried the stimulus won't continue.
I think the uncertainty is because people are watching things like the debate over the health care bill here, which has gone on and on and on, the actions by the administration, which I think are actually creating a drag on this recovery. And when you add to the uncertainty in the debate, what's actually in both of the bills, which I know we're going to get to in a minute here, but the new taxes, the new regulations, the new penalties, I think that Ms. Romer had it right, Dr. Romer had it right when she said that the variable here is the private sector.
But the key is for the government to get out of the way so that the private sector can actually begin to...
STEPHANOPOULOS: I do want to get to health care in just a moment. But, first, Judy, there's also a lot of anger out there, and you saw Dr. Romer there when she was talking about the banks and the bonuses, boy, her head said it all. I think out in the country, there's going to be even more vocal outrage when they see these bonuses this week. Is there any way for the administration to harness that? Or is there actually -- are they actually facing blowback now because they seem to be solicitous with the banks?
WOODRUFF: If they have a way to harness it, George, they haven't demonstrated what that is yet. I mean, they -- they were taken aback by these unemployment numbers that we saw last Friday. There's a reason the administration is putting Christina Romer out there. She's one of the best spokespersons they have on the economy. Even she was struggling to -- to put a happy face on any of this.
I happened to talk to -- to drop a name -- Paul Volcker over the weekend...
STEPHANOPOULOS: Former Fed chair.
WOODRUFF: Former Fed chair, he's head of the President's Economy Recovery Board, who says he sees a very real chance of a relapse. He says, look, there are good signs out there. He said businesses, actually, very few of them comparatively, considering the depth of this recession, have gone under, have actually gone out of business. But still, they are reluctant to hire, and it's this vicious cycle we keep hearing about.
Unemployment goes down. Therefore, demand is down. Businesses -- business is down. How do you come out of that? I don't think the administration has an answer.
REICH: George, there is extraordinary anger out there, and I think we are going to see more of it, because the gap between Wall Street and big business on the one hand and Main Street on the other has never been larger, in my -- in my experience.
I mean, not only is inequality out of control, but also people's sense of who's winning and who's losing in this economy -- big businesses are doing quite well. They continue to do well. Why? Because they're cutting their payrolls, and also they're going global. But, actually, back here at home, people are really in trouble. And how you manage that anger, particularly when you've already bailed out Wall Street, is going to be a very -- very big political challenge.
WILL: But, Bob, back here at home, there's excess capacity throughout the economy, excess capacity on offices, malls, hotels, cargo ships, five million empty apartments right now. Franklin Roosevelt said when he was frustrated by the persistence of the depression that capital had gone on strike, which it had done, for the reasons Liz is talking about, uncertainty. People don't know what energy costs are going to be. They don't know what the EPA is going to do about carbon emissions, carbon dioxide. Health care costs are uncertain. Now there's talk about a value-added tax. And interest rates, one thing we know for sure, because they're zero...
WILL: ... change for the adverse.
REICH: But, you know, there's always going to be uncertainty. In fact, this kind of economy generates uncertainty even as -- even if nothing else was done. The most important thing government can do is stimulate the economy. And right now, you have Republicans who are sounding like Herbert Hoover, who are saying, "Don't do anything. Just allow the economy to do what it's going to do on its own." The economy's not going to do anything on its own.
CHENEY: But -- but the most important thing government can do is provide the incentives that the private sector needs to actually create these jobs. And what you're seeing is a private sector that is unwilling, for very good reasons, to step up and -- and -- and add new employees because of the costs that are likely to be involved...
STEPHANOPOULOS: And they are worried about health care. Let's get to that right now. The House and Senate negotiations began this week. And the president lost a big ally in health care. California Governor Arnold Schwarzenegger had been supportive of health care reform, not this week in his State of the State.
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SCHWARZENEGGER: California's congressional delegation should either vote against this bill -- it is a disaster for California -- or get in there and fight for the same sweetheart deal that Senator Nelson of Nebraska got for the Cornhusker State, because he...
... because that senator got for the cornhusker state the corn, and we got the husk.
(END VIDEO CLIP)
STEPHANOPOULOS: Al, Senator Nelson now says he wants everyone, every state to get that exemption, and I know that most Democrats still believe this is a foregone conclusion, this is going to pass. But are they overly optimistic? Is this bill in any -- any real danger?
HUNT: Well, if the Republicans should pull an upset in Massachusetts in about...
STEPHANOPOULOS: The Senate...
HUNT: ... race for Ted Kennedy's seat, it's dead. I think that's -- that's unlikely. So, George, overly optimistic? I don't know. I think it's more likely they'll get it, because I think, whatever the problems of this bill -- and I'm talking only in political terms now -- not doing it would be worse than Clinton in 1993-1994, because they -- they've taken difficult votes, they've gone to the mountaintop, and then to say, "We failed," would be a disaster for them.
So I think it's likely they'll get it. And then the key question, again, in a political context will be how they frame it, and -- because right now, the Republicans are winning that debate.
STEPHANOPOULOS: But, Judy, this tax issue the president is going to have to solve.
WOODRUFF: Well, exactly. But -- but I was just going to say, quoting somebody in the White House, a tragedy of Greek proportions if Ted Kennedy's successor is the one -- is the one who was responsible for the death of health care. I think that they -- I do think that they're going to get it. I mean, everybody you talk to, even Republicans, are saying they think it's going to happen.
What they are licking their chops over is that they think, as soon as it passes, they're going to be able to argue it's terrible, that this tax issue, the Cadillac tax, or -- which is the more likely of the two to -- to come out of Congress is going to be so unpopular, but we're -- already, George, the White House is preparing to try to sell this as something that -- that is more positive than what the American people have heard, that people up -- children up to age 26 are going to be covered, children pre-existing conditions no longer an issue, and so on. They're saying there's a lot positive in here that people haven't heard about.
REICH: But, you know, the health care, even if passed, is not going to be effectuated for another three...
REICH: ... and the spin machines, because the public is not going to be able to actually feel any health care reform for three or four years, the spin machines on both sides are going to be in active, active effect immediately upon passage. So I don't think it's going to help the Democrats; I don't think it's going to hurt the Democrats. I think the jobs issue is issue number one.
STEPHANOPOULOS: In the short term, it's going to be who tells the better story over the next nine months.
WILL: I'm not yet sure it's going to pass, George, because the argument between the House and the Senate is not about peripheral matters. It's about how you finance the thing. The Senate says Cadillac tax on the higher value insurance programs; the House says none of that, we want a surtax on the wealthy, which is the Senate won't take, and it passed the House by five votes.
STEPHANOPOULOS: And there are 190 House members against the Cadillac tax.
WILL: And then throw in the abortion argument, and then you throw in dear Governor Schwarzenegger, who has 53 members of the California congressional delegation, 34 of them are Democrats, plus two Democratic senators, every one of them voted for the bill that he says is a disaster for California.
STEPHANOPOULOS: Is it a good thing for Republicans if this goes down?
CHENEY: I think it's a good thing for the country if this goes down. I think that, you know, the fact that the New York Times itself this morning has come out expressing concern about this issue that Governor Schwarzenegger has raised about the Medicare rolls that these states are going to have to add people to under this bill tells you this is a real concern.
And what I would like to see is President Obama take some questions. And I think the journalists here on the roundtable would agree with me on this. President Obama is not answering questions. He's not speaking out about -- he's not answering questions about the terrorist attack. He's not answering questions about health care. This is a major massive restructuring of the economy. It's been done with none of the transparency he promised, and we now know that both the House bill and the Senate bill will add to the cost of health care.
REICH: The stakes are so high here for the -- for the Democrats that putting quite aside the merits -- and I think it's a good bill overall -- that Nancy Pelosi, Harry Reid, Rahm Emanuel are at this moment greasing the skids. I mean, there are going to be difficult issues, like the tax -- the excise tax, issues having to do with Medicaid and so forth, but they're going to be finalized. The package is going to go through quickly. It's going to be there by the State of the Union.
STEPHANOPOULOS: Let's take a break here. We're going to be back with more roundtable in just a minute. And later, the Sunday funnies.
(BEGIN VIDEO CLIP)
O'BRIEN: Britain did pass information on to U.S. authorities about the attempted underwear bomber, but the U.S. disregarded it. Yeah, in part, that's because the British intelligence referred to him as a "bloke with boomsy-woomsy in his knickers."
(END VIDEO CLIP)
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QUESTION: In view of the fact we're taking a propaganda lambasting around the world, why is it not useful, sir, for us to explore with you the real facts behind this or our motivations?
KENNEDY: There's an old saying that victory has 100 fathers and defeat is an orphan. I have said that as much as I feel can be usefully said by me in regard to the events of the past few days, further statements, detailed discussions, are not to conceal responsibility, because I'm the responsible officer of the government.
(END VIDEO CLIP)
STEPHANOPOULOS: "I am the responsible officer of this government." President Kennedy, after his early intelligence failure, the Bay of Pigs, President Obama echoing that a bit this week when he said, "The buck stops here."
Let's talk about the political fallout on our roundtable. I'm joined again by George Will, Liz Cheney, Bob Reich, Al Hunt, Judy Woodruff.
And -- and, George, did the president, with the press conference, releasing this declassified report on Thursday, put this behind him?
WILL: I don't think it's behind him yet, but I think he began to dig out of the hole he dug for himself with his first statement, which was that this was an isolated extremist, which seems to cast this problem of terrorism as a problem of neurotic individuals, rather than conspiratorial groups arming, training and directing, as Al Qaida in the Arabian Peninsula did with this man.
STEPHANOPOULOS: That was the big problem here, Al Hunt. There were streams of intelligence from the National Security Agency for months saying a Nigerian was likely -- was likely on a plot and -- and his father goes into the CIA station, the embassy in London, and the dots are never connected.
HUNT: Yes, the -- there was clearly a breakdown, and I think they've acknowledged that now and, hopefully, corrected it. It's tougher than it looks, though. There are 550,000 people on the watch list. There are 4,000 on the no-fly list. There ought to be more on the no-fly list, including this man. But how you get there is -- is tougher.
You have an intercept, and some guy is talking about, you know, the U.S. is the great Satan, we ought to do something about that. You know, there are an awful lot of people around the world who say things like that. There are -- you look at some -- some guy goes to jihadist Web sites. There are lots that do that. So how do you make that connection? They botched this one up, no question.
STEPHANOPOULOS: I -- I don't disagree with that at all. Obviously, this is -- this is incredibly difficult. Yet you had both the CIA and -- and -- and the State Department knowing about this gentleman. This was coming, Judy, at a time when the White House had ordered two strikes on Yemen in December.
WOODRUFF: That's right. That's right. But what's fascinating is that there was this big restructuring of intelligence after 9/11 and the 9/11 Commission. They came in. They reorganized it, 16 different agencies reporting to the director of national intelligence. There is concern now, though, George, that that organization may be duplicating what the CIA is doing. It's not an operating agency. It's -- it's a collection agency. And so there is -- there's now a serious look at, how do we get every agency to do what it was designed to do?
STEPHANOPOULOS: Liz, your group, Keep America Safe, has been very tough on the president, putting out an ad. I want to show our viewers a little bit of this ad that you all are running in the wake of this, hitting the president for a tardy response to all this. You show him playing golf, 24 hours later, the president coming out and finally saying something another day after that, 46 hours later...
(BEGIN VIDEO CLIP)
OBAMA: But what already is apparent is that there was a mix of human and systemic failures that contributed to this potential catastrophic breach of security.
(END VIDEO CLIP)
STEPHANOPOULOS: Arguing that the responses were much better under President Bush, yet as many Democrats (inaudible) pointed out, President Bush waited, I think, six days before doing much about Richard Reid, the shoe bomber.
CHENEY: Well, I think that you've got to go back here and look at the way this president has dealt with terror since he's been in office. And the point of that ad was this notion that you cannot win a war if you're treating it as sort of an inconvenient sidelight.
The Obama administration counterterrorism officials, including John Brennan, were briefed by the Bush administration counterterrorism officials during the transition on Yemen and the threat from Yemen. In June of this year, we were attacked at Little Rock, at the recruiting station, by a terrorist who had just come back from Yemen. In September of this year, John Brennan traveled to Saudi Arabia, where he received a personal briefing from Mohammad bin Naif, the head of Saudi intelligence, who himself was the target of an assassination attempt using precisely the same weapon that the Christmas Day bomber used.
You know, you can go down this list on and on. In November, we were attacked...
STEPHANOPOULOS: ... had a record number of drone attacks and this year has personally ordered a record number.
CHENEY: In November, we were -- that's right. But in November, we were attacked at Fort Hood by someone with connections to Yemen, and (OFF-MIKE) attack. And even after that, after the president's press conference, when you had John Brennan and Homeland Security Chief Janet Napolitano brief, they both said they were surprised that Al Qaida in Yemen was operational. And Napolitano went on to say she was surprised that individuals would attack us.
So there is clearly a problem here. I disagree with George. I don't think that the events, the briefings that were provided this week have begun to give Americans any comfort that there is a real understanding of the threat the nation faces and what it's going to take to be able to defeat that threat.
STEPHANOPOULOS: President can do more?
REICH: George, I -- I think neither the Bush administration nor, so far, the Obama administration really has geared up our entire defense and homeland security system to take account of what is not a single Al Qaida. I mean, it is an Al Qaida that is a hydra-headed monster. It's appearing in many, many different places. The only thing that it is centralized is the strategic direction and maybe some training.
It's very, very difficult to -- to get at all of this. I mean, Yemen -- who really thought about Yemen? Why Yemen is on the...
CHENEY: ... thought about Yemen...
REICH: Well, but -- but -- but, Liz, the point is that -- I mean, Yemen is running out of oil. It's running out of water. I mean, I'm -- I'm reminded of what small countries used to do during the Cold War. If they wanted attention and aid, they would -- they would say, "Well, there's a communist insurrection here."
Yemen has, you know, an Al Qaida branch. And Yemen is not fighting that Al Qaida branch all that hard because it's a way of getting a lot of international aid and attention to Yemen.
WOODRUFF: And, George -- and -- and what I think is stark is that we're now talking about Yemen. The U.S. is spending, I think, $63 million in Yemen this year, compared to $2.6 billion -- $2,600,000,000 -- in Afghanistan, $1.4-something billion in Pakistan, where we have been told is the -- you know, is the headquarters, the heart -- the beating heart of Al Qaida. So, clearly, there's going to have to be some...
HUNT: Well, let me -- can I just say this, George? I think this story -- look, it was scary. It was awful. But this -- this guy was an amateur. This guy was a neophyte that -- whose name I can't pronounce who tried to do the Christmas Day bombing.
STEPHANOPOULOS: A well-backed amateur, though.
STEPHANOPOULOS: A well-backed amateur.
HUNT: Well, I'm not even sure of that. I think a far scarier story was what happened to that CIA outpost in Afghanistan. I think that's a much more important story, because what that shows -- they were able to use a double agent to -- to blow up and kill six or seven CIA agents. And what -- I think Al Qaida has been weakened. Someone said it earlier. We had killed an awful lot of those people over the last couple years. But I think it still shows their cunning, their relative sophistication.
And what I worry about is for all the focus now on airline security and making airplanes safer that the next effort is not going to be an airplane effort. It's going to be bioterrorism.
STEPHANOPOULOS: Well, but that -- that -- that is...
STEPHANOPOULOS: ... concern. And what is especially scary about this attack in Afghanistan is you saw cooperation among the Taliban in Pakistan, the Taliban in Afghanistan, and Al Qaida in the Middle East.
HUNT: But just quickly, going to President Kennedy's saying, you know, victory has 1,000 fathers, there's all kinds of groups trying to claim credit for this.
CHENEY: But can I add something on this? Because I think what Al's saying is important. And what it tells you, in addition to constant presidential stewardship of this issue to make sure that the systems don't erode, we've got to have intelligence. And the way that you get intelligence about the networks in Yemen is by being able to capture senior leaders and interrogate them.
And when this president earlier this year or last year released the information about how we successfully interrogated Al Qaida leaders and when he stopped that program, he -- he has taken a tool out of our toolkit in order -- in terms of how we can get the information that we need to fight this war.
STEPHANOPOULOS: But let me play devil's advocate, George Will, for a minute, and just picking up on the point that Al Hunt is making. There are a couple of big, big threats out there, a biological attack, a nuclear attack by terrorism, but as Nate Silver, the pollster, points out, the chance of -- of an airline passenger being killed in a terrorist attack is 1 in 25 million and that there's about 1 in 500,000 chance each year of being struck by lightning. Are we focusing our resources in the wrong place?
WILL: Probably. And that may be part of what Al Qaida -- if we want to attribute to them more foresight than perhaps they deserve -- this may be what they're trying to do. We are clearly squandering an enormous amount of resources on what is at airports essentially security theater. It's there to keep people flying, because it keeps the country moving, but I don't know anyone who has considerable confidence in this.
One of the headlines from all this is, "Government is inefficient." No kidding.
STEPHANOPOULOS: News flash.
REICH: Al Qaida has also gained a lot of standing by showing how much disarray there is in our national security system, in our intelligence system.
STEPHANOPOULOS: Let's -- let's switch topics back to the politics of this week, as well. We saw two key Senate retirements this week, Senator Chris Dodd of Connecticut, Byron Dorgan, North Dakota.
(BEGIN VIDEO CLIP)
DODD: I'm very aware of my present political standing here at home in Connecticut. But it's equally clear that any certain prediction about an election victory or defeat nearly a year from now would be absurd.
DORGAN: I wanted to do some other things in life and -- outside of public service. And I made that decision. I feel good about it, but, again, it's no reflection on my party. It's no reflection on our government.
(END VIDEO CLIP)
STEPHANOPOULOS: Al Hunt, to his Senate Democratic colleagues, Byron Dorgan was the surprise there. Chris Dodd's retirement actually taken as good news by a lot of Democrats because the attorney general, Richard Blumenthal, in Connecticut will -- will step in, and he's ahead right now.
But -- but -- but how serious is this problem the Democrats are facing? You talked about that -- that Massachusetts race. Is this 1994 all over again?
HUNT: Well, George, first of all, I want to give Chris Dodd great credit for not only an elegant speech, but also saying that I'm not leaving because I want to spend more time with my family, which is what most politicians do. And I think as journalists, every time a politician says that, we ought to track the next couple years...
STEPHANOPOULOS: ... actually, in this case, it might be true...
HUNT: Look, I think it's going to -- you couldn't pick a tougher environment than you have right now today. The election is 10 months away, but right now, today, the Democrats stand to lose a couple dozen House seats and probably three or four Senate seats. I don't think the...
STEPHANOPOULOS: But hold on to control?
HUNT: Oh, yeah. I think holding control in the Senate is almost an absolute. There's no way there's going to lose control in the Senate, and they could lose control in the House, but it would have to be a tsunami, it would have to be 1994 over again.
This week's event doesn't really change much. The North Dakota race now has gone to the Republican side, but as you've said, the Connecticut race now looks safely Democratic. And I think the -- you know, the critical question ahead is, how -- are there going to be other retirements, especially in the House? In the Senate, there have actually been six Republican retirements and only two Democratic retirements, but that didn't stop the psychological shock of this week.
WOODRUFF: Which -- and those Republican retirements, of course, haven't gotten as much attention. You could argue, George, that this has been a good week for Democrats, because if Chris Dodd had stood for re-election, that looked really, really tough. Now, as -- as I think Al or you said, Blumenthal is a stronger candidate.
REICH: And even the head of the RNC says that Republicans have no chance of taking over the House or the Senate.
STEPHANOPOULOS: He's getting a little hot water for that. We'll get to that in a second. George, good week for Democrats?
WILL: Not a great week for Democrats, but it's not that bad for them yet. I mean, Al, you're right, Republicans aren't going to control the Senate, but change one vote. Suppose Ted Stevens were still in the Senate instead of being out of the Senate because of a tainted case of prosecutorial abuse. In the last four election cycles, because we now have redistricting, we've reversed the system. It used to be the voters picked their candidates; now the candidates pick their voters. And that's why we have in the last four cycles a 95 percent re-election rate among incumbents, so that's very hard to overcome.
CHENEY: You know, I think that what you're seeing is clear evidence of a couple of things. You know, fundamentally, at the end of the day, setting aside the policy mistakes, once an administration -- once a president starts to hear so many charges that are sticking of hypocrisy and starts to look incompetent -- and you're seeing it across the board.
You've seen it -- we just talked about it in terms of the terror incidents. You've seen it in terms of health care now, the Democrats, they're frustrated that the president himself isn't standing up and saying, "This is what I want to see happen." Instead, he's sort of abdicating a lot of responsibility.
STEPHANOPOULOS: Well, he'll probably do...
CHENEY: And I think -- but -- but I think that what you're seeing is Democrats reading the tea leaves here and realizing it's going to be a tough year for them.
STEPHANOPOULOS: What is the path to -- to warding off a 1994-like November?
REICH: It's all about the economy. I mean, I think the criticisms that are sticking with regard to the president have all to do with the anxiety that a lot of Americans feel right now. If the economy turns around -- or even if the direction of job growth is in the correct direction, we're going to see the president's polls going up, and we're going to see the -- the Democrats...
STEPHANOPOULOS: I think that is the great X factor right there. You can -- is direction going to be enough on jobs?
REICH: Well, the White House is counting on it. History shows that direction counts a great, great deal. You know, the unemployment rate officially is still going to be around 10 percent come next November. But if people feel that things are somehow getting better, if their own personal status and their only -- their own family economy is in less danger, they're going to be fine. They're going to vote...
STEPHANOPOULOS: Sorry. One of the most endangered Senate Democrats is the leader, Harry Reid, and he got into a little bit of hot water over the weekend. This new book, "Game Change," by Mark Halperin and John Heilemann, quotes him in a private conversation, saying that -- let's show it right now. "Reid was wowed by Obama's oratorical gifts and believed that the country was ready to embrace a black presidential candidate, especially one such as Obama, a 'light-skinned African-American' with 'no Negro dialect, unless he wanted to have one,' as Reid said privately."
This has already drawn a lot of criticism. Republican Chairman Michael Steele this morning is saying that Reid ought to resign. The president has accepted Harry Reid's apology.
But Steele himself in some hot water, as well. He's got a book out this week, a lot of Republicans angry about that. And he's saying he's not going to take the criticism anymore.
(BEGIN VIDEO CLIP)
STEELE: I'm telling him, I'm going to look him in the eye and say, I've had enough of it. If you don't want me in the job, fire me. But until then, shut up. Get with the program, or get out of the way.
(END VIDEO CLIP)
STEPHANOPOULOS: Judy, let's talk about Reid first. He didn't need this at all, already at 52 percent unfavorable in Nevada, being defeated, behind both his opponents right now.
WOODRUFF: Ouch. He didn't need this, but, you know, he does have friends in the White House. Somebody very close to the president said to me yesterday, after all this blew up, said, you know, this is the Mormon from Searchlight with an ear of tin and a heart of gold. He's done some very good things for the White House. They know he's carried their water on -- on health care, and they're not -- they're not going to put any distance between themselves and Harry Reid.
STEPHANOPOULOS: There had been some talk which Reid -- sorry -- which Reid tried to squash that he might not even go through with the election in November. You say he's in the race to stay?
HUNT: Oh, I think he's in the race to say. This is what Harry Reid does. What else is he going to do? He's not going to go back to Searchlight. And I think the only hope he has -- because his numbers are terrible -- is that the dysfunctional, corrupt Republican Party in Nevada. I mean, with the senator, with the governor, I mean, they have more people under indictment or under -- and that's the only thing -- it is probably the worst state in the union to make the case against Harry Reid, as unpopular as he is, and that's his only hope.
REICH: This is -- this is the Democrat's great benefit. I mean, every time they're in real, real trouble, the Republican Party comes to their aid.
HUNT: Michael Steele...
REICH: And Michael Steele is a good example. This week was basically designed for the Republicans, with the Democratic resignations. I mean, it looked like Democrats in disarray. And Michael Steele comes in, and talk about disarray. He is going rogue.
CHENEY: But, you know, can I just point out that I think one of the things that makes the American people frustrated is when they see time and time again liberals excusing racism from other liberals. And I think that, you know, clearly, Senator Reid's comments were outrageous. And the notion that they're being excused...
STEPHANOPOULOS: But in a private conversation that he thought was off the record...
CHENEY: I don't think racism is OK, George, whether you're saying it in private or in public. And the excuse of it by liberals, you know, is -- is really inexcusable.
But I do think, frankly, you know, he's given the voters of Nevada yet one more reason to oust him this -- this next time around, and I suspect that's what they'll do.
STEPHANOPOULOS: George, you're shaking your head.
WILL: I don't think there's a scintilla of racism in what Harry Reid said. At long last, Harry Reid has said something that no one can disagree with, and he gets in trouble for it.
CHENEY: George, give me a break. I mean, talking about the color of the president's skin...
WILL: Did he get it wrong?
CHENEY: ... and the candidate's...
WILL: Did he say anything false?
CHENEY: ... it's -- these are clearly racist comments, George.
WILL: Oh, my, no.
HUNT: ... quickly, Liz, I -- I think it was certainly an indelicate comment, but, in fact, during the election, there were stories and there were people commenting on Tiger Woods, Adrian Fenty. I mean, I think it's very unfortunate, but I think there is an element that says that -- that -- that some -- some blacks do better than others because of appearance. I don't think that's right...
HUNT: ... but I don't think...
CHENEY: ... this may be the way that liberal elites speak to each other in private. It is not the way that people that I know speak to each other in private or public...
HUNT: ... no one's ever accused Harry Reid of being a liberal elite.
CHENEY: ... all of us hope that this nation will be one, where we're judged by the content of our character, and that is not what that comment...
REICH: Before we banter around or use terms like "liberal elites" or "racism," let me just say that race is, unfortunately, still a factor in politics and in this country. We may not like it; we may not want it to be. And in the election, people did talk about race. That does not make them a racist.
STEPHANOPOULOS: Why don't -- we only have 15 seconds left. Liz, there's one other revelation in this book. There are many, but one of them is that your father, former Vice President Cheney, when he heard about Sarah Palin being picked, he thought it was a reckless act by John McCain. Is that true?
CHENEY: No, that's not...
STEPHANOPOULOS: It's not true?
CHENEY: It's not accurate. No. I think -- frankly, I haven't read the book, but I've seen some of the excerpts of it. And -- and I have to say that the excerpts about the Democratic candidates, whether it's Bill Clinton's long-running affair or excerpts about...
CHENEY: ... more interesting, frankly, than the excerpts...
STEPHANOPOULOS: ... continue in the green room on abcnews.com. And you can get political updates all week long by signing up for our newsletter, also on abc.com.
STEPHANOPOULOS: Time now for "The Sunday Funnies."
DAVID LETTERMAN: They took the guy to court. And the judge said he was charged with having weapons of mass destruction in his pants. He told the judge, I get no complaints from the ladies.
JON STEWART: Let's turn on the C-SPAN and watch some health care negotiations. All right. It's not on C-SPAN1 there. Let's try again there. Let's see, okay, it's not on C-SPAN2. Let's try C-SPAN Espanol. Let's see if it's on - how about C-SPAN English but with a Spanish accent? NARRATOR: Welcome to the book notes.
JIMMY FALLON: Has everybody here seen "Avatar"? A great movie. Even President Obama took his family to see it at a private screening in Hawaii. After the movie, Obama was like, so that's what it's like when something lives up to its hype.
JIMMY KIMMEL: The underpants bomber is said to be affiliated with a secret branch of al Qaeda headquartered in Yemen. This is the only known photograph of the group. Or the loom as they like to be called.
STEPHANOPOULOS: We'll be right back.
STEPHANOPOULOS: And that's our show for today. It is also my last regular Sunday here at "This Week". Thanks to all of you for watching so faithfully for all these years. And thanks to the outstanding crew and staff here at "This Week" who've made it the special program it will always be. Enjoy your Sunday. I'll see you tomorrow on "GMA" and "World News."