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OLBERMANN: Exxon-Mobil made $1,486 per second in profits in the second quarter and John McCain is pushing for more oil drilling and more tax breaks for Exxon-Mobil. Gas, big oil, Obama, McCain and Paul Krugman. And the Sy Hersh report -- sitting around Dick Cheney`s office, daydreaming of dressing up American Navy SEALS as Iranians, shooting at them, claiming Iran was trying to start a war and then attacking Iran.

(Comercial Break)

OLBERMANN: With the price of a gallon of gas up $2.50 since George Bush was sworn in, why would anyone trust a Republican to do the right thing on prices at the pump, drilling or the profit that Exxon-Mobil just declared for the second quarter, $11,680,000,000? Economists and columnist, Paul Krugman, next. Later: The sound byte of the month as Britney Spears` panties and the sexual orientation of Lindsay Lohan are discussed on a morning newscast, not by a gossip reporter but by the police chief of Los Angeles. Live, local, and late-breaking: you are watching COUNTDOWN on MSNBC.

OLBERMANN: Eight years ago, the average price of a gallon of gas was $1.47 and now it`s $3.95. Eight years ago, Exxon-Mobil`s second quarter earnings were $4,015,000,000. Today, that company announced second quarter earnings that are the highest in U.S. corporate history, a record breaking $11,680,000,000. Our fourth story on the COUNTDOWN: Amazing what happens when two former oilmen are in charge of the country. How in the heck did we not see that coming? Exxon`s earnings as record-breaking as they were, were not as high as Wall Street projected, so the company shares dropped today. The classic case of "what have you done for me lately." Nevertheless, this year promises to be even more lucrative for the oil industry than last year when companies made over $155 billion. Such record oil profits giving Senator Obama an opportunity to point out that his opponent`s policies on oil are not geared towards helping the consumer, that according to the administration`s own Energy Department -- increasing offshore drilling will not lower gas prices now and will not produce any oil for at least 10 years, and even then, would not affect more than a few cents on a gallon of gas. But a gas tax holiday would only save consumers half a tank of gas through the whole summer, and that the only people helped by such policies are the ones already making money hand over fist.

(BEGIN VIDEO CLIP)

OBAMA: Senator McCain proposed a corporate tax plan that -- listen to this -- would give $4 billion each year to the oil companies, including $1.2 billion to -- guess who? Exxon-Mobil. Last month, Senator McCain raised more than $1 million from, guess who? Oil and gas executives and employees most of whom -- most of these campaign contributions came after he went to Houston to meet with a bunch of oil executives and announced that he was in favor of offshore drilling.

(END VIDEO CLIP)

OLBERMANN: We`re joined now by "New York Times" op-ed columnist and professor of economic and international affairs at Princeton University, Paul Krugman. Thanks for your time tonight, sir.

PAUL KRUGMAN, NEW YORK TIMES: Good evening.

OLBERMANN: We always fight the logical fallacy here but this cause- and-effect apply directly in this case, gas prices are more than doubled during the Bush presidency, oil profits have more than doubled during the Bush presidency.

KRUGMAN: Well, the gas prices and oil profits are going together. I mean, basically, you`ve got an oil company that owns some oil and the price goes up the way it has, they`re going to make a lot of money. Now, whether, you know, Bush is responsible for high oil prices, I don`t think you can make that case. But we should remember that he promised, he said back in 2000, that he had -- he knew what to do. He would deal and talk to OPEC into opening the spigots and, you know, they haven`t managed to do that, so, this is a failed energy policy, for sure.

OLBERMANN: And speaking of failed energy policies -- offshore drilling as a solution, even the Bush administration`s own figures, experts, departments, are showing how meaningless this is, why is McCain still pushing it and why does it seem to be resonating with a lot of people?

KRUGMAN: Well, he is still pushing it because it`s resonating. And I have to say, this is a little bit, you know, this is as clear cut, this is as cut and dry you can get. The Energy Information Administration last year in its energy report specifically addressed this and they said basically -- no new oil, zero, zip until 2017 and insignificant effect on the price ever. So, you know, this is not, this you got from the horse`s mouth, if you like. But, you know, the people, it sounds good. We`re going to drill, we`re going to, you know, get some more stuff and American oil and I have to say -- this is kind of disillusioning because, in the past, you know, when Bush has come out with crazy stuff, I partially blamed the news media for just not reporting on this. In this case, actually, the press has been pretty good in saying this is nonsense, but it`s still working. And half of the American people, according to the latest polls think that allowing this offshore drilling will, you know, cut oil prices next year when, in fact, it`s going to take 10 years for it to do anything at all.

OLBERMANN: When you see a country like Brazil, which 30 years ago said enough to this and launched these serious, intense, alternative energy programs, and now, some huge percentage of their cars run on, essentially modified sugarcane. Is the reason we don`t do that here and have not committed to that here the fact that Exxon just declared an $11 billion second quarter profit and Wall Street was still disappointed? I mean, what is the incentive for these companies to spend to develop alternatives?

KRUGMAN: Oh, no, they don`t - I mean, if you want to, you know, the reason to hate Exxon is not that it makes so much money, per se, it`s the fact that it has not done anything to address the energy problem and it`s actually spent heavily on, you know, financing climate skeptics, on basically blocking intelligent policy, on muddying the waters of our debate. Now, whether we could have, you know, to be fair, we don`t have a lot of sugarcane, so we couldn`t really have done it as easily as the Brazilians did. But we could, you know, if Jimmy Carter had actually managed it sell us on energy conservation 30 years ago, we would be in a lot better shape than we are right now.

OLBERMANN: Back to the price of gas and the profits and this presidential campaign -- if you look at the swing state polls, particularly in the 50/50 figure that you mentioned about, people believe that more drilling will affect, it will lower prices next year, and McCain has gotten a bounce from that belief -- it would seem Obama is not winning one of the battles that might be easiest for him to win. Why not and what should he be doing that he is not doing?

KRUGMAN: Well, you know, I think he`s falling into the kind of mistake that I would tend to make which is saying, "You know, this is silly, this is ridiculous. Nobody is going to believe that and that`s not good enough." And I think he`s got -- look, when I read Obama`s response to the McCain ad about, you know, prices at the pump, Obama`s response was, you know, "This is the same oil politics," which is true, but, you know, he was being dismissive. Obama was being dismissive when he ought to be outraged. He`s got to do some scene, "This is (INAUDIBLE). This guy is insulting your intelligence, he`s really doing bad stuff, and you shouldn`t be taken in by this," not sort of, "Oh, well, you know." I think that Obama is being a little bit too much of a professor, if I can say that.

OLBERMANN: Well, specify it, walk people through it. Paul Krugman of the "New York Times," always in education, thank you, sir.

KRUGMAN: Thank you.

OLBERMANN: OK, time for the religious citing of the day. An angel inside this window you say has nothing to do with the reflection of the lights across the street. And the craziest sound byte of the month, maybe the year, as L.A.`s police commissioner today discusses whether Britney Spears is wearing pants and what Lindsay Lohan`s sexual orientation is. Live on the local news. But first, the headlines breaking in the administration`s 50 running scandals -- Bushed. Number three: He was so bad we had to kill him twice-gate. As the Web site LegitGov.org points out, in January 2006, the Pakistani military claimed and the American media happily reported that in an air raid there, the U.S. had killed the Midhat Mursi, also known as the al Qaeda bomb maker and the man who recruited Richard Reid, the shoe bomber -- Abu Khabab al- Masri from Peshawar, Pakistan comes the news today that during an air raid by drones in south Waziristan, the U.S. has killed Midhat Mursi, also known as the al Qaeda bomb maker and the man who recruited Richard Reid, the shoe bomber, Abu Khabab al-Masri. Now, maybe we had to kill him twice because he used two different names. Number two, Halliburton-gate. This is the ever-escalating story of the Halliburton subsidiary, KBR electrocuting our troops in Iraq. The House Oversight Committee is conducting hearings, the Pentagon`s inspector general sent a memo to that committee, claiming that there is, quote, "no credible evidence that KBR or the Defense Department knew in advance about the electrocution risks in the soldiers` showers." That`s a lie. As committee chair, Henry Waxman pointed out, he produced a work order from July 8th, 2007, in which Sergeant Justin Hummer, stationed at the Legion Security Forces building in Baghdad reported, "Pipes have voltage, shock in shower." Sergeant Hummer survived, the man who next occupied that very same room, Staff Ryan Maseth, was electrocuted while showering on January 2nd of this year. And, number one: Katrina-gate -- or perhaps more accurately, Katrina- revisionist history-gate. The secretary of energy, Samuel Bodman, interviewed on "fixed noise" answered a question that could have been fresh off White House talking points, about whether technology has improved dramatically enough that offshore oil drilling now poses no risk to the environment. Bodman answered yes. "When we had Katrina and Rita, the two worst hurricanes in at least recent memory in `05, some three years ago, there`s not one case where we had a situation with oil or gas being spilled in the environment." Sadly, Mr. Bodman is not telling the truth. The United States government`s Minerals Management Service published offshore damage assessment in May 2006, Rita and Katrina destroyed 113 oil platforms. Rita and Katrina damaged 457 oil pipelines. Rita and Katrina caused 124 offshore oil spills. Rita and Katrina led to total spillage amounting to 743,700 gallons of oil. Rita and Katrina proved that offshore oil drilling risks damage to the environment. And Energy Secretary Samuel Bodman proved that he is a cheap liar.

Originally broadcast, 7.31.08