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KURTZ: The lipstick loving media finally got serious this week as a series of financial earthquakes practically swallowed the presidential campaign. With the demise of Wall Street institutions and the sale or bankruptcy of huge corporations and the massive federal bailouts, John McCain and Barack Obama couldn't talk about anything else. And journalists were forced to put aside the petty stuff and navigate the complex terrain of financial reporting. But the debate still seemed to come down, as it so often does, to dueling sound bites that could be sliced and diced.

(BEGIN VIDEO CLIP)

SEN. JOHN MCCAIN (R-AZ), PRESIDENTIAL CANDIDATE: The fundamentals of our economy are strong.

SEN. BARACK OBAMA (D-IL), PRESIDENTIAL CANDIDATE: What economy are you talking about?

MCCAIN: The chairman of the SEC serves at the appointment of the president and, in my view, has betrayed the public trust. If I were president today, I would fire him.

OBAMA: You can fire the whole trickle-down, on-your-own, look- the-other-way crowd in Washington who has led us down this disastrous path.

(END VIDEO CLIP)

KURTZ: But as companies, jobs and a chunk of people's life savings disappeared, the journalists and pundits were fixated on this question: which candidate would be helped?

(BEGIN VIDEO CLIP)

BRIT HUME, FOX NEWS ANCHOR: John McCain and Sarah Palin, alike, who's echoing him, are -- seem to be born again or born anew or something regulators. Almost as much so as Barack Obama promises to be. What's going on?

DAVID GERGEN, CNN POLITICAL ANALYST: Overall, I think you have to say that Barack Obama has gained from this more than John McCain has.

CHARLIE GIBSON, ABC NEWS ANCHOR: Both presidential candidates said they would fix things but neither had much to say about how.

(END VIDEO CLIP)

KURTZ: Joining us now to talk about the coverage of the financial crisis on the campaign, in Princeton, New Jersey, Paul Krugman, columnist for "The New York Times" and professor of economics and international affairs at Princeton University; in Seattle, Michael Medved, who hosts "The Michael Medved Show" on the Salem Radio Network; and here in Washington, Karen Tumulty, national political reporter for "TIME" magazine. Paul Krugman, I was glad to see that you, as a professional economist, matched my analysis when you wrote in one of your columns, "Yikes." In ordinary times, it seems to me the media would be debating, "Isn't this a betrayal of the Bush administration's free- market principals? Obama/McCain, why are they going along with it?" I almost have a sense that journalists are intimidated by the magnitude of this crisis. What do you think?

PAUL KRUGMAN, COLUMNIST, "THE NEW YORK TIMES": Well, sure. I mean, it's -- and actually, there is a risk here. I mean, some people are already talking -- calling this Paulson plan for the bailout the authorization for the use of financial force, you know, parallels with the Iraq war resolution. Because there is the sense, "Oh, my, God. We've got to do something." And not -- not at least not in the initial reaction, not a lot of critical scrutiny about whether it makes sense. But, no. This is huge. This is -- 1930s parallels are in everybody's minds. The question is whether we've actually got a plan here.

KURTZ: Right. Michael Medved, another possibility, it seems to me, is journalists are hard-wired to cover conflict between Democrats and Republicans, and that has very much been muted as both parties seem inclined to go along with the administration bailout plan.

MICHAEL MEDVED, HOST, SALEM RADIO NETWORK'S "THE MICHAEL MEDVED SHOW": Yes, that's exactly right. And it seems to me that the candidate who will get advantage here, since that, of course, is what the media are obsessed with right now, is the one who will point out the fact that, at least at the moment, there seems to be unanimity between McCain and Obama and Secretary Paulson and President Bush, in terms of trying to work together. When you hear people like Chuck Schumer, who has been very partisan and very anti-administration, coming forward and saying, "Look, we've all got to work together at a tie of crisis," that, it seems to me, is a mood that is unique and distinctive and worthwhile and worth covering.

KURTZ: Karen, Treasury Secretary Henry Paulson is all over the Sunday shows this morning, is on the cover of "Newsweek," if we could put that up, under the headline, "King Henry." Now, you've been talking to senior administration officials on and off the record. Are they pushing the coverage almost in an apocalyptic direction, because that serves their purpose?

KAREN TUMULTY, NATIONAL POLITICAL REPORTER, "TIME" MAGAZINE: No, I think it's the opposite. I think that, in the interviews that we've had, certainly, there really -- they understand that they are out there with no regulatory framework in an area that most people in this country don't understand. So, what I think they're really trying to do is get their own story out for their rationale, because they are doing some extraordinary things that go way beyond the balance of the kind of power the treasury secretary and the Fed chairman have ever exercised before.

KURTZ: None of us has ever seen anything like this. Paul Krugman, are the journalists holding the candidates accountable? For example, I've seen only a handful of outlets emphasizing that John McCain has a long history for pushing for banking and insurance deregulation before this week, when now he's talking about cracking down on greed and corruption on Wall Street.

KRUGMAN: Yes. I mean, this is the most sheep-in-wolf's-clothing thing we've ever seen. And I don't think he's being held to account. I mean, this is -- he's a Reagan baby politically. He's basically -- his whole political career has been part of this free-market, liberalized, deregulate. Phil Gramm is almost certainly still his real chief economic adviser, and Gramm is the kind of deregulation. There's been a bit of a fuss, something I actually was alerted to, put up, and then people got. There's a McCain article -- allegedly written by him, of course by staff -- in which he's saying, "Well, let's deregulate health care the way we did with banking, and that will lead to great results." So no, this is -- he's really flailing. He's pretending to be somebody who he is not at all.

KURTZ: At the same time, Michael Medved, journalists love to demand details of candidates, and Barack Obama has made no proposal. He says he's still looking at the situation, whereas McCain, whether you agree or not, has come up with a plan for a government trust corporation, similar to the one that cleaned up the S&L mess of the '80s.

MEDVED: Well, that's true. And also the "Washington Post," which is no fan of the Republican Party generally, did an editorial where they went back and they looked at McCain's actual record. And as a matter of fact, he does have a record of having spoken out about these matters going back at least four, five years, and then before then, in terms of calling for more responsible approaches by the regulatory authorities. He has been critical of the regulatory authorities, whereas there's no record on the part of Obama at all. Look, the truth is, this has caught all candidates -- all candidates -- flat-footed, just as it seems to have caught many people, except I must say, I'd give some credit here to Professor Krugman, who has been ahead of the curve on this.

TUMULTY: One thing I might disagree about. Obama does, in fact, have a record of speaking out on this. In fact, he gave a very big speech -- I believe it was last March -- on Wall Street talking about, you know, what kind of crises we're living and, you know, giving at least a broad structure of how he would deal with it.

KURTZ: But Karen -- go ahead.

KRUGMAN: Obama has been a clear, you know, we need firmer regulation. McCain is still trying to make this, this is caused by government. This is caused by Fannie Mae and Freddie Mac, which is, you know, basically not right, and he's still -- he's still trying to have it both ways.

KURTZ: But politically, I should point out both candidates trying to tar each other. For example, Obama is running ads blaming McCain's former Washington lobbyist, his campaign, and Phil Gramm and Carly Fiorina. And McCain is running ads saying Obama had an association with both Franklin Raines and Jim Johnson, who was his VP vetter for a while. Both of them, of course, were chief executives of Fannie Mae. Paul Krugman, I want to read from a column that you wrote recently. It kind of plays right into what we're debating right now. You said, "Why do the McCain people think they can get away with this stuff?" This stuff being deception. "Well, they're probably counting on the common practice in the news media of being 'balanced' at all costs. If a politician says that black is white, the news report doesn't say that he's wrong, it reports that 'some Democrats say' that he's wrong. Or a grotesque line from one side is paired with a trivial misstatement from the other, conveying the impression that both sides are equally dirty." If that's the case, why do you think that is? Why aren't journalists more willing to say one side or another? KRUGMAN: It's much safer. No. You try and make a statement of fact, particularly in what's supposed to be a news report, and people will jump on you. Especially they'll jump on you if you say that someone, a Republican lied, although it happens on the other side, too. Whereas, if you -- if you phrase it, you know -- you're perfectly safe if you say one side says this and the other side says that. Nobody goes after you, and it's tremendous. I see a fair bit of it first-hand, even though I'm writing opinion pieces. But it's a tremendous -- this goes back. This is not new, right? This goes back to the 2000 campaign where I actually think I wrote in one article that if George W. Bush said that -- said that the world was flat, the headline would read "Views Differ on Shape of Planet." This -- and it's actually crippling in this kind of thing where there are real substantive differences between the candidates and there are real issues at stake.

KURTZ: In the same vein, Michael Medved, a number of liberal columnists used to say nice things about John McCain who are now writing pieces about "Oh, we used to admire him, but..." For example, "TIME's" Joe Klein writing that "Almost every politician stretches the truth, but McCain is a running a uniquely dishonest campaign." What do you make of these assessments?

MEDVED: Well, it does seem to me that that kind of assessment, particularly in view of what the Obama campaign has done in the last week, is terribly unfair and does indicate some media bias on the part of Joe Klein, whose bias is well known. I mean, look...

KURTZ: He's a liberal columnist. Let's be clear on that.

MEDVED: Yes, exactly. That's the point. And the -- what the Obama campaign did this week, running Spanish-language ads, trying to associate McCain with Rush Limbaugh and taking a Rush Limbaugh quote from 1992. And Rush Limbaugh has never supported McCain, has been one of his most outspoken critics. Now, I work in the world of talk radio, and Rush hates McCain. And to put the two of them on screen together is so vastly irresponsible. It would be -- there's almost no analogy that you could draw. And, yet, it seems to me that the Obama campaign, maybe perhaps because these were Spanish language ads...

KURTZ: Right.

MEDVED: ... has sort of skated past without the suitable and appropriate criticism...

KURTZ: All right. Well... MEDVED: ... the kind of criticism McCain got for running those ads about sex education.

KURTZ: OK. Let's...

KRUGMAN: McCain is running ads with Franklin Raines next to Obama, and here it turns out he wasn't an adviser. I mean, this is a -- this is a direct association. It's a direct claim, which is simply false.

KURTZ: Well, he certainly wasn't much of an advisor. And some news outlets, Michael Medved, did point out the problem with the Rush Limbaugh comparison in that ad. But Karen, let me ask you about journalistic fact-checking and whether it matters. I mean, I and a number of reporters have gone around and around and around with Sarah Palin over the Bridge to Nowhere, pointing out, factually, that she did originally support it. And yet she keeps saying it. Take a look.

(BEGIN VIDEO CLIP)

GOV. SARAH PALIN (R-AK), VICE-PRESIDENTIAL NOMINEE: Thanks, but no thanks for that Bridge to Nowhere. Thanks, but no thanks for that Bridge to Nowhere. Thanks, but no thanks. Thanks, but no thanks. Thanks, but no thanks for that Bridge to Nowhere up in Alaska.

(END VIDEO CLIP)

KURTZ: It seems like we can't influence what they say.

TUMULTY: It is pretty remarkable because, you know -- and I think that has also become one of the hallmarks of this campaign. In fact, you know, I believe John McCain has gone so far as to suggest that the fact checkers themselves are biased. So, you know, I think this is -- it's polarizing. People are getting in their corners, and they're not listening to each other.

KRUGMAN: Karen, have you noticed, it really has turned into "The Daily Show"? I mean, years ago, Rob Corddry was saying, "Well, you know, the facts have a well-known liberal bias." There we are.

KURTZ: Well, since you brought up comedy, Paul Krugman, let me play a skit from "Saturday Night Live" last night, and we'll explain why it's controversial. This is John McCain, or actually Darrell Hammond, recording some ads in the campaign. Let's watch. (BEGIN VIDEO CLIP)

BILL HADER, CAST MEMBER, NBC'S "SATURDAY NIGHT LIVE": Obama supports tax cuts for pedophiles.

DARRELL HAMMOND, CAST MEMBER, NBC'S "SATURDAY NIGHT LIVE": Does he?

KRISTIN WIIG, CAST MEMBER, NBC'S "SATURDAY NIGHT LIVE": Well, there's no way to identify all pedophiles. Percentages are if you cut taxes, it's going to benefit at least a couple of them.

HAMMOND: I'm John McCain. I approve this message.

(END VIDEO CLIP)

KURTZ: Michael Medved, Politico is reporting that Al Franklin, the Democratic nominee for Senate in Minnesota, had a hand in talking to his old pals at "SNL" about that skit. Does that bother you?

MEDVED: Yes, of course. I mean, he is an active candidate and an extremely shrill one. And by the way, there's an ad being used against Al Franken in which I'm featured, where it shows Al Franken basically getting up and throwing a chair and going crazy during an interview that he had with me.

KURTZ: You're famous.

MEDVED: Well, I don't know. Infamous, if you're used in a Norm Coleman political ad. But that's great for me. Because the point about all of this is that, at some point or another, if you're part of the "Saturday Night Live" crew, and now you're running for the United States Senate, it kind of takes away what "Saturday Night Live" has always said, is that we're going to play this up the middle. And I think to a great extent they have up until now.

KURTZ: Well, I think the skit itself is certainly fair comment, but the idea that Franken was involved does give me some pause. Let me get a break here. And when we come back, you didn't think we were going to forget about Sarah Palin, did you? The governor sits down with a very friendly Sean Hannity. And with her husband rejecting a subpoena, why isn't there more coverage of Palin's refusal to cooperate in the so-called Trooper-gate investigation?

KURTZ: When Charlie Gibson sat down with Sarah Palin, it was a much-anticipated showdown between journalist and VP candidate. When Sean Hannity sat down with the Alaska governor this week, it was a very different atmosphere. Take a look.

(BEGIN VIDEO CLIP)

SEAN HANNITY, CO-HOST, FOX NEWS CHANNEL'S "HANNITY & COLMES": Has Senator Obama been using what happened on Wall Street this week, is using it for political gain?

GOV. SARAH PALIN (R-AK), VICE-PRESIDENTIAL NOMINEE: Well, there's a danger in allowing some obsessive partisanship to get into the issue that we're talking about today.

HANNITY: Why does everyone benefit if the rich pays less or if everybody pays less in taxes? How did you take on your own party specifically? And do you think you'd be able to do that as well in Washington? Do you see media bias in this campaign?

(END VIDEO CLIP)

KURTZ: Paul Krugman, obviously, Hannity is going to do a friendly interview, but shouldn't he have asked a couple of tough questions, just to show he's not in the tank here?

KRUGMAN: Who's he going to fool? He is in the tank. So what are you going to do? I mean, this has -- this has been a problem. We do have -- can I say this? FOX News is an arm of the conservative coalition, pretending to be a media organization.

KURTZ: Well, on the other hand, Michael Medved, we played on the program last week Keith Olbermann doing an extremely friendly interview with Barack Obama. So are we now in a media world where partisans are kind of coddling their own candidates, particularly on networks like FOX and MSNBC?

MEDVED: Absolutely, and I think it's healthy, frankly. I mean, everybody knows where Sean Hannity is coming from. Sean does a daily talk show, as I do, and he does three hours a day of his opinion. So you know where he's coming from. I think people increasingly know where Chris Matthews and Keith Olbermann are coming from on MSNBC. And what that creates is a wonderful opportunity for you guys on CNN to be the network that tries to play it up the middle.

KURTZ: Why do you say it's healthy?

MEDVED: Because it seems to me everybody has biases. Professor Krugman acknowledges his bias, as I acknowledge mine. And I think that it would have been a better interview if Charlie Gibson, with some of his questioning, had acknowledged that he was coming from a deliberately adversarial place in some of the questioning. It's normal in the media for people to have values and biases and outlooks. Why not acknowledge them? KURTZ: All right. Well, I would just add that being adversarial or tough doesn't necessarily mean that you are biased. And I don't think anybody should accuse Charlie Gibson of that. Karen Tumulty, we talked about -- before the break Sarah Palin no longer cooperating with this Alaska prosecutor's investigation into the so-called Trooper-gate scandal. This is her firing of her state public service commissioner, who -- some say the allegation is she basically wanted him to fire the trooper who was her former brother- in-law divorcing her sister. Now her husband, Todd, is ignoring a subpoena. Why isn't this a bigger story?

TUMULTY: Well, I think you're beginning to see more stories being written about this. That they are doing -- the tactic here, I think -- and it's something you've seen time and again with these investigations, whether it's Democrats or Republicans -- is to run out the clock. Essentially, you know, to kick this past election day so that it's not -- it's not part of the -- part of the dialogue. And I think, you know, again, it's -- it's a smart tactic on their part. And I think that, you know, the media is going to challenge it, but I don't think they're going to get very far.

KRUGMAN: OK. Can we just say this is -- you know, now the stonewalling itself becomes a story? I mean, here we have somebody who wants to take Dick Cheney's job, who is stonewalling an investigation before she's even gotten into national office. This is kind of amazing. I mean, what kind of omen is that for the future?

MEDVED: Yes, I think it's important to keep in context what this investigation is about. It's about a messy divorce that her sister had and the allegation that she -- and by the way, she began writing to the director of public safety about this trooper, who had been married to her sister, before she became governor, before she was a candidate for governor.

TUMULTY: But it was also...

KRUGMAN: Nonetheless...

TUMULTY: But it was also instigated by a Republican-led state legislature. So I think that this is -- it is an investigation that is, at its heart, about the use of state resources.

KURTZ: All right.

KRUGMAN: That's right. This is not -- this is about the divorce. It's not about her personal relations, as we know. Maybe this guy is really scum that got fired. That's not the point. The point is, is this an abuse of the power of office?

KURTZ: I've got to get one more issue in here, and maybe -- I'm sorry to cut you off, Michael, but maybe you can talk about this. We talked about the role of cable networks. Here's John McCain being interviewed on MSNBC's "Morning Joe" and kind of sticking it to Mika Brzezinski. Let's watch.

(BEGIN VIDEO CLIP)

MCCAIN: I still say to you, and I know you're a supporter of Senator Obama, if you would urge him -- if you would urge him to come and do town-hall meetings with me, as I've asked him to do time after time.

MIKA BRZEZINSKI, MSNBC: Supporter of Senator Obama.

JOE SCARBOROUGH, MSNBC: He's been listening to me, too much.

BRZEZINSKI: I'm not sure...

SCARBOROUGH: I've got to stop talking on that one. Yes.

BRZEZINSKI: ... I'd characterize myself as that. But that's OK.

(END VIDEO CLIP)

KURTZ: Michael?

MEDVED: I'm sorry. He was claiming that Brzezinski is a supporter of Obama? Isn't he?

KURTZ: That's what he's claiming.

MEDVED: Yes. I mean, in any event it seems to me that this issue of going forward and doing the town-hall meetings is -- is a good issue for McCain.

KURTZ: Yes, but...

MEDVED: It's surprising to me that Obama hasn't done it.

KURTZ: Ten seconds, Karen Tumulty. And McCain now has-- is being pretty aggressive with the press.

TUMULTY: He is and going after, as we saw very directly here, what he believes the motivations are. And again, I think this is a message that is going to play very -- it's going to resound very strongly with the Republican base.

KURTZ: And Mika points out that her brother works for the McCain campaign. All right. Paul Krugman, Michael Medved, Karen Tumulty, thanks for joining us this morning. Coming up in the second half of RELIABLE SOURCES, more on Wall Street's wild ride through the nation's top business journalists examining whether the media were out to lunch while the crisis was building and Washington looked the other way. Plus, from Henry Kissinger to Colin Powell, five former secretaries of state weigh in on the media's performance in the presidential race. Should journalists exercise more restraint when Wall Street seems to be melting down? We'll tackle that in a moment. But first, here's Richard Lui at the CNN center in Atlanta with a check of the hour's top stories.

Originally broadcast, 9.21.08