Watch this broadcast on Video: Part 1, Green Room (not transcribed)

SYNOPSIS:

GRAPHICS: THIS WEEK WITH GEORGE STEPHANOPOULOS

CHELSEA CLINTON (DAUGHTER OF SENATOR HILLARY CLINTON): His question is, do I think my mother will be a better president than my father? Well, again, I don't take anything for granted but hopefully, with Pennsylvania's help she will be our next president and, yes, I do think she'll be the better president.

REPORTER (FEMALE): Is that the official position of her mother? You, her mother, if so, what do you think she means by that?

SENATOR HILLARY CLINTON (2008 DEMOCRATIC PRESIDENTIAL CANDIDATE): I have to talk to her before I answer that question.

GEORGE STEPHANOPOULOS (ABC NEWS): I would love to be in on that Clinton family debate. We will not go there this morning on the roundtable. But I am joined, as always, by George Will, Robert Reich of "The American Prospect" and Berkeley, Donna Brazile, and Paul Krugman of "The New York Times" and Princeton, our dueling economists here. And let's start with this debate on the economy. The candidates engaged this mortgage meltdown this week. Take a look.

SENATOR HILLARY CLINTON (2008 DEMOCRATIC PRESIDENTIAL CANDIDATE): The Federal Housing Administration should also stand ready to be a temporary buyer to purchase, restructure and resell underwater mortgages.

SENATOR JOHN MCCAIN (2008 REPUBLICAN PRESIDENTIAL CANDIDATE): It's not the duty of government to bail out and reward those who act irresponsibly.

SENATOR BARACK OBAMA (2008 DEMOCRATIC PRESIDENTIAL CANDIDATE): The Dodd-Frank package is not a bailout for lenders or investors who gambled recklessly. They will take their losses.

GEORGE STEPHANOPOULOS (ABC NEWS): George, I would guess you think John McCain has the better of the argument there?

GEORGE WILL (ABC NEWS): Yes, he does. There are 55 million mortgages in this country, and 94% of which are being handled just fine. Not effortlessly. Families are scraping and sacrificing to get by.

GEORGE STEPHANOPOULOS (ABC NEWS): He made that point.

GEORGE WILL (ABC NEWS): Quite. And they will not be amused, that 94%, if the other 6% get what will be by some other means a bailout. Now Mrs Clinton's answer in the command control model of Democrats is price controls. That is to control the price of money by freezing for five years the mortgage interest rates. The Republicans have put themselves in a bind because people now say look, if you have Wall Street socialism whereby you save Bear Stearns or at least save JPMorgan to buy Bear Stearns and you were thereby socializing the losses, and keeping the profits private, why not help everybody? Soon we'll hear from everyone in the country who has a student loan who says it's a burden, help me.

ROBERT REICH ("THE AMERICAN PROSPECT"): Well, you know, McCain's response the kind of let them eat cake response - and George your response a little bit too - won't wash. And I don't think it will wash because there are public effects, you know, with regard to Bear Stearns. There was the problem of contagion, a run on the bank. With regard to mortgages that are under water, people who are abandoning their homes, or people who are going to lose their homes, there are social consequences for neighborhoods. This is not something that is just your run of the mill economic or financial crisis. And I think therefore, it is very important, and appropriate for the government to do something. I mean, John McCain makes Herbert Hoover look like an activist.

GEORGE WILL (ABC NEWS): He was.

PAUL KRUGMAN ("THE NEW YORK TIMES"): Yeah, when I listened to McCain give that speech, I immediately thought of Herbert Hoover's treasury secretary. Liquid farmers, liquidate workers, liquidate real estates, purge the rottenness from system. You can't do this. This is a major financial crisis. You've got to do something and that does include helping, you know, homeowners who were sucked in. You know it would be a little different if Alan Greenspan hadn't said you should all take out adjustable rate mortgages. It would be a little different if the administration hadn't said housing prices are going up, if they hadn't said there is no bubble. So this is a situation where a lot of people have been - it's a natural disaster in effect, it's like Katrina. And to say, oh, let people suffer, it's like saying, well let those people who made the mistake of staying in New Orleans suffer.

ROBERT REICH ("THE AMERICAN PROSPECT"): I mean even the administration, George Bush is saying the Federal Reserve Board was right and the administration is coming up with its own version of a bailout for owners. Well, a modest version.

DONNA BRAZILE (ABC NEWS): Paul is right. People are feeling under water. It's not just a crisis on Wall Street, it's a crisis on Main Street. They're concerned that the credit market will no longer lend to average Americans. How do you rebuild consumer confidence when they can't go to the bank and get a loan to, you know, buy a car or get a new washer and dryer.

GEORGE STEPHANOPOULOS (ABC NEWS): George is chomping at the bit here.

GEORGE WILL (ABC NEWS): Well, yeah, it's hard to know where to begin here. A natural disaster, the government of the United States, bipartisan move pressured lenders into lending to marginal borrowers as a public policy. You say this is a run on banks. A run on a bank in effect with Bear Stearns. Between 1988 and 1992 905 banks in this country failed. No one remembers, because it didn't matter. I remember in the 1970s, late '70s, I called a friend in New York in the financial circles and said what should I think about the Chrysler bailout. He said, the danger is it'll work and we will then whereby whet our appetite for this. That friend in financial circles was Alan Greenspan.

PAUL KRUGMAN ("THE NEW YORK TIMES"): I want to say, this is - I don't blame you, but there's a truly reprehensible thing, where these - you know, Angelo Mozilo and Countrywide went out and did this essentially predatory lending to people giving them complex mortgages they didn't understand. The most complex mortgages to the least sophisticated buyers and now they're saying oh, we were forced into doing it because it was affirmative action. This is a really terrible, terrible thing.

GEORGE WILL (ABC NEWS): What is mysterious about the phrase "variable rate."

ROBERT REICH ("THE AMERICAN PROSPECT"): When people look at - there was predatory lending. I think the fact of the matter is - the fact of the matter is, there is a huge, and - a real estate bubble to the extent of several trillion dollars that is bursting before our very eyes and the question from a practical standpoint is how much of the loss, and this is going to be a loss of several trillion dollars, how much of the loss is going to be borne by homeowners, how much by investors and what is the public's responsibility and taxpayer's responsibility to ease the adjustment.

GEORGE STEPHANOPOULOS (ABC NEWS): But everyone should take a hit, right?

ROBERT REICH ("THE AMERICAN PROSPECT"): Everybody is going to take a hit, George, and everybody should take a hit.

GEORGE STEPHANOPOULOS (ABC NEWS): Paul, you also got into the debate between the Democrats on this issue, in your column, this week you say that Senator Clinton has been surprisingly bold and progressive yet Obama, though liberal, tends to be cautious and relatively orthodox.

PAUL KRUGMAN ("THE NEW YORK TIMES"): Yes. So if you look - even that little clip that we just saw with the - now Frank-Dodd, which is what Obama was referring to, is a program of incentives to get lenders to restructure mortgages which they hope will work.

GEORGE STEPHANOPOULOS (ABC NEWS): And the guarantee with government money though.

PAUL KRUGMAN ("THE NEW YORK TIMES"): Yeah. With - but the incentive is the guarantee. But it's sort of relying still on this action. Now Hillary Clinton is for that, but also for basically a modern version of the Homeowners Loan Corporation that existed during the depression which is, if this stuff doesn't work, we will actually come in and do it directly as well. So it is a more aggressive strategy. And it's kind of similar to the healthcare debate. The candidates are moving in the same direction but Hillary Clinton is moving further. It's a more aggressive policy.

ROBERT REICH ("THE AMERICAN PROSPECT"): Well, I guess that lays to rest the question of who's the more liberal, Obama or Clinton. I mean, Hillary Clinton is reaching back to a New Deal policy, and I think it was appropriate for the New Deal, but it could be argued, Paul, just like with healthcare, that as a practical matter it's not going to get off the ground. That Dodd-Frank, in which incentives are provided for any investor who comes up and says, look, I'm going to buy these pieces of paper and we don't know what they're worth. I'm going to buy them at a discount. I'm going to restructure them, give them back to homeowners in a way they can repay those loans, that makes of more practical...

PAUL KRUGMAN ("THE NEW YORK TIMES"): Maybe they're both for that. But she's willing to step past. There's been a consistent pattern through this that they're both - they both, I guess will say they're progressive, not liberal but they're both liberal. But Hillary has been more in that direction.

GEORGE STEPHANOPOULOS (ABC NEWS): Donna, the voters so far are still giving Clinton the edge on economics.

DONNA BRAZILE (ABC NEWS): There's no question. Look, I don't think it's about liberalism or progressivism, they're being leaders. They're showing that they want to get the country out of this financial turmoil, something that John McCain clearly did not do when he gave his speech this week. He appears to tell people, without healthcare, don't get sick. And now if you have a bad mortgage, just, you know, get over it.

GEORGE STEPHANOPOULOS (ABC NEWS): George, you said last week, that, you know, McCain had to start to step more on the kind of - to learn how to talk about the economy. Do you think he made advances this week on that?

GEORGE WILL (ABC NEWS): I do. I think this is a center right country, and his proposal was a center right proposal. Mr Obama correctly said McCain is offering us an you're on your own society, to which McCain should say, yeah, pretty much. We're believe we are the party of responsibility and individualism. And that would distance him, by the way, from the Bush administration, under which now the Fed is becoming, not only the lender of last resort but the dealmaker of first resort and all kinds of sort of corporate welfare. Can I propose Will's law? We can all agree on this. Three liberals and Will. Will's law is that no company such as JPMorgan now or Bear Stearns getting substantial subvention from the federal government shall be allowed to pay any of its executives more than that a GS-15. That's $124,000. That would stop the run to Washington.

ROBERT REICH ("THE AMERICAN PROSPECT"): Boy that sounds pretty good to me. Let me say one other thing. I think the Will's law ought to be expanded to include oil companies should not get extra money from the government. Pharmaceuticals companies should not have their research and development subsidized by the government. We should have no corporate welfare at all in this country.

GEORGE WILL (ABC NEWS): I'm for it.

DONNA BRAZILE (ABC NEWS): Sign me up.

ROBERT REICH ("THE AMERICAN PROSPECT"): Good. Well let's go forward. I think we have a great deal of agreement.

GEORGE STEPHANOPOULOS (ABC NEWS): All of this agreement. You're ought to all be on the credentials committee at the Democratic National Convention

DONNA BRAZILE (ABC NEWS): It might be...

GEORGE STEPHANOPOULOS (ABC NEWS): Let me turn to that. And, Donna, we did see a slightly new phase in the campaign this week. Both Senator Dodd and Senator Leahy calling on Super Delegates to end this the race. I'm not sure the Obama campaign really welcomed those calls. But beyond that, we saw Senator Clinton's response today, forget about it, we are going to the convention on the credentials committee. That's how this is gonna end.

DONNA BRAZILE (ABC NEWS): Well I think we have an exit strategy in the Democratic Party to end the primary season on June 10th and sometime before I think the...

GEORGE STEPHANOPOULOS (ABC NEWS): Why June 10th?

DONNA BRAZILE (ABC NEWS): Well that's the end of the primary season based on the rules. And after all, this is about the rules.

GEORGE STEPHANOPOULOS (ABC NEWS): So there's a little give there. The last contest is June 3rd. But you're saying...

DONNA BRAZILE (ABC NEWS): After Puerto Rico, but the official date to hold a primary caucus is June 10th. So sometime before July 4th, I am clear that the Super Delegates will break - one, the uncommitted will break one way or another. If you're committed you can also change your mind, and this thing will end. This notion of bringing this fight on to the convention is not a wise idea. And I think whoever is coming up with this new strategy is not looking at math again. Howard Dean has already appointed 25 members. The states will send three persons, three people to the convention on the credentials committee. Obama has won more states. So somebody's...

GEORGE STEPHANOPOULOS (ABC NEWS): Far more.

DONNA BRAZILE (ABC NEWS): Far more. So do the math. This is not healthy. It's not what the Democrats would like.

GEORGE STEPHANOPOULOS (ABC NEWS): But this is an important point. Let me just press this. You're saying that the credentials committee, unless there's some dramatic change, some dramatic Obama collapse that Senator Clinton can't win at the credentials committee.

DONNA BRAZILE (ABC NEWS): 48 states comply with the rules. Why would they, all of a sudden, change the rules? Clearly, Florida and Michigan will be dealt with. We can do that as a rules amendment, a charter amendment. The credentials committee could take it up to give them, you know, some floor credentials. But we should not tear the party apart just to prove a point.

GEORGE STEPHANOPOULOS (ABC NEWS): But George, you have some sympathy for Senator Clinton on this.

GEORGE WILL (ABC NEWS): Well I do. There's a four letter "F" word that's driving your party crazy. It's fair. I used to forbid my children to use it, for fear they'd become liberals. They are trying to make this so exquisitely fair you can't come to a conclusion. If you had a few winner take all primaries, if you had diversity - big word in the Democratic Party - and allowed diverse rules then in the states, then you'd have a nominee. But it'd probably be Mrs Clinton. But for now what is the rush? Mrs Clinton - three weeks ago we didn't know Reverend Wright from a hill of beans. There may be other surprises like that.

ROBERT REICH ("THE AMERICAN PROSPECT"): George, I will sort of agree with you. I don't think there is a rush right now at this particular moment. I think thought that the party elders or the party leaders - now there may be a little bit of a contradiction of terms, Democratic Party leaders. But to the extent that there are...

GEORGE STEPHANOPOULOS (ABC NEWS): There is no real center of gravity in the Democratic Party.

ROBERT REICH ("THE AMERICAN PROSPECT"): No. There isn't. But I think people like Al Gore, and John Edwards, and Howard Dean need to step in not to stop the election, not to stop the primaries but make sure that we tone down the rhetoric, because that is what is really helping McCain and hurting Democrats right now.

PAUL KRUGMAN ("THE NEW YORK TIMES"): I talked to a fair number of people on both sides. Not political, but actually, you know, real people out there. And I think it's terribly important - look, clearly Obama has the ability to just shut this thing down. To shut out Florida and Michigan, get enough of the Super Delegates but the trouble with that, is it would very much hurt him in the general election, because there are a lot of grass roots Hillary supporters. A lot of them feel that she was treated very unfairly, grotesquely unfairly by the media. And if this is done by running out the clock, by not giving a chance for people who support her to be heard, then some of them will walk.

DONNA BRAZILE (ABC NEWS): I know, but you know the problem? The problem is simple. Senator Clinton was supposed to win this. She was supposed to have finished up the contest on February 5th. They had no post Super Tuesday strategy. They ran out of money. She came back from behind. She won four - I mean, she won Texas, she won Ohio, but there's no reason to demonize and disgrace the Democratic Party to prolong this race longer than June 11th.

PAUL KRUGMAN ("THE NEW YORK TIMES"): You're talking about insider speak. I'm talking about what the large number of people, many of them women, but not all, just feel...

DONNA BRAZILE (ABC NEWS): I'm a woman.

PAUL KRUGMAN ("THE NEW YORK TIMES"): ...who just feel this hasn't been done fairly. And if Obama gets the nomination fair and square, there's your word, then they will come around. But if it's done, if it has even the slightest echo of Florida 2000...

GEORGE STEPHANOPOULOS (ABC NEWS): But on either side with that...

ROBERT REICH ("THE AMERICAN PROSPECT"): But, George, Paul is right in the sense everybody must see this as fair. And I think that Hillary's strategy - Hillary Clinton's strategy with regard to talking about a credentials fight is basically to keep things open long enough so that she has a vague possibility - and this is a very tiny possibility of prevailing on a couple...

GEORGE STEPHANOPOULOS (ABC NEWS): Wait and see if something happens to Obama. Because you brought up the issue of Florida 2000. I think that weighs heavy on all Democrats, especially Super Delegates. Here's the fundamental problem for the Clinton campaign. There is just - there's no reasonable possibility that by June 10th she is going to be ahead in the pledge delegates and I believe, and I want to put this question to Donna, I just think that the majority of Super Delegates who are remaining out there simply can't, in their gut, vote to overturn the Super Delegates, given the Florida history.

DONNA BRAZILE (ABC NEWS): That's true. I mean, that's just - that's the gospel truth. On the other hand, I just want to answer, Paul, so that, you know, we go out of this okay. Nobody is telling her to get out. I would like to see her fight.

PAUL KRUGMAN ("THE NEW YORK TIMES"): We just heard a couple people, you know.

DONNA BRAZILE (ABC NEWS): They're speaking but the party itself is not saying, you know, get out. No one has said get out. I have been behind Senator Clinton's efforts to restart her campaign, change her voice, get herself back in groove. But it ends in June. I think this notion to go on to August is a bad idea.

ROBERT REICH ("THE AMERICAN PROSPECT"): And also it needs to be understood that Florida and Michigan, those states themselves had made the decisions with regard to what their fates are going to be with regard to these nomination elections. It's not the Obama people who are pushing this. And it is over. I mean, Florida and Michigan are not going to hold nominating conventions, and as a result, if this is - if this is going to be contested all of the way to the convention in August, it's going to bode very, very badly for the party.

GEORGE STEPHANOPOULOS (ABC NEWS): I guess, George, the counter argument to what I just laid out, is that Senator Clinton not only wins Pennsylvania but wins Pennsylvania big and then May 6th becomes the key date, Indiana and North Carolina vote. If she wins both, then it will create some kind of a chemical chain reaction. People have vast second thoughts about Barack Obama. But if he wins one or both on May 6th, the Super Delegates break.

GEORGE WILL (ABC NEWS): If, if, if. Let's let it play out. Suppose she wins Pennsylvania, thereby having won every large state, except Obama's alumni, and suppose she wins Indiana and North Carolina, then we have a question. I do not claim to understand the party's mind, but if they have Super Delegates, they are either redundant if they're merely to ratify decisions already taken, or they're supposed to be independent to make just this kind of judgment. He's got numbers, she's got momentum. Let them decide.

DONNA BRAZILE (ABC NEWS): And that will be very difficult but many of us are prepared to make that decision in June. I think the notion that we will allow this to go throughout the summer to give the Republicans a leg up is erroneous.

ROBERT REICH ("THE AMERICAN PROSPECT"): But right now, it helps both candidates, George. It's making them both better candidates, it's keeping enthusiasm and excitement up. But there is a point, there is a tipping point at which this becomes very negative. And John McCain is getting a very large free ride out of this. Another month or two and this is going to turn back.

GEORGE STEPHANOPOULOS (ABC NEWS): And George, he's been using it well the last couple of weeks to move, to both unify his party and move over to the center.

GEORGE WILL (ABC NEWS): And introduce himself again. He's a man who's been very much in the public eye for a very long time. However, he now is laying out his themes in an orderly manner because he's getting this free ride. And this biography tour that he's on what, next week, the ad he has out, a very powerful ad, focusing on him in the Hanoi Hilton. This is - he's not making a misstep yet.

GEORGE STEPHANOPOULOS (ABC NEWS): And we will show that ad in the green room where all you guys are gonna go on and continue this debate. You can join in later on ABCNews.com. And you can also get latest political news and analysis there everyday from "The Note." Coming up here, "The Sunday Funnies."

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Originally broadcast, 3.30.08