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

SYNOPSIS:

COMEDIAN ("SATURDAY NIGHT LIVE"): You're currently facing federal charges for attempting to sell to the highest bidder the Illinois Senate seat left vacant by the election of Senator Obama. Why do you feel entitled to a government bailout?

COMEDIAN ("SATURDAY NIGHT LIVE"): First of all, Senator, because it was a federal prosecutor who spiked my deal to sell the Senate seat in the first place. And, second, because if don't get this bailout, I swear to god I will appoint some psycho (bleep ) who will tear this (bleep ) apart. Believe me, I will do it and you will not be happy.

GEORGE STEPHANOPOULOS (ABC NEWS): The late night comics had a field day with Governor Rod Blagojevich and a lot to talk about this week in politics. I'm joined by our roundtable, George Will, Gerry Seib of "The Wall Street Journal," Paul Krugman of "The New York Times," Gwen Ifill of PBS. And, George, what Senator McCain said aside about this could happen anywhere, there does seem to be something about Illinois. Five out of their last eight governors indicted. 1,000 public officials convicted of corruption since 1971.

GEORGE WILL (ABC NEWS): Those are the convicted ones. Let me tell you a couple Chicago stories. There was a time when Fred "Peanuts" Rotti, the son of Bruno "The Bomber" Rotti was running for I believe alderman and an aide suggested and he just smiled that his campaign slogan should be "vote for Rotti and no one gets hurt." Harold Washington, when he ran for mayor, made a campaign stop at the jail where he had served 40 days for forgetting to file certain tax forms he was required to. When he became mayor, he announced that he'd abolished patronage and then he said to me with a great smile, but we draw a line between patronage and reasonable discretion, which brings me to my Blagojevich story. Three years ago I went to see the governor in his office. He was at daggers drawn with his father-in-law, the alderman over some unpleasantness about a landfill in Joliet and the general sale of public offices. We talk about corruption for about an hour. He walks me to the door, puts his arm on my shoulder and says, you need anything while you're in Chicago? Want some Bulls tickets? He's incorrigible.

GEORGE STEPHANOPOULOS (ABC NEWS): But meanwhile, he doesn't have many friends left, Paul Krugman. The noose is really tightening. Any way he can survive this?

PAUL KRUGMAN ("THE NEW YORK TIMES"): I can't see. I think it would be in the interest of everybody possible to see him draw - you know, no one has a stake in seeing him other than, you know, putting some concrete over his shoes and dropped over the side. Who would want to save him now?

GEORGE STEPHANOPOULOS (ABC NEWS): Gwen, he becomes President-Elect Obama's character witness in these tapes, you know, when he's railing against the idea that he's not gonna get a for this Senate seat from the president-elect or anyone on his team. Of course, the special prosecutor said exactly the same thing. Yet, the Obama team has faced this criticism this week for not revealing all the contacts. I know you interviewed up at Harvard this week, David Axelrod, one of his key advisers, had something to say about that.

GWEN IFILL (MODERATOR): Yeah, David Axelrod said, we had nothing to do with this but we're back into this parsing situation about what "we" means. Does we mean staff members? Does we mean people who are friends of the Obamas who appointed themselves as emissaries as is alleged by Jesse Jackson Jr's involvement? What is we? What is involvement? And it comes back down to the Chicago story that George Will just told which is exactly what was wrong? Was it just him boasting about being able to do this or was it actually money being changed - exchanging hands? Who was really - what laws were really broken? And that's what Patrick Fitzgerald has - it looks unseemly but what he has to prove is that money changed hands.

GEORGE STEPHANOPOULOS (ABC NEWS): And that could be very difficult. And, Gerry Seib, one of the reasons the prosecutor jumped out last week was to prevent the Senate seat from actually being appointed, but he may have gone out before he actually has a real case.

GERRY SEIB ("THE WALL STREET JOURNAL"): Yeah, by jumping out he may have undermined his legal case. The political case was very strong. The public case was, you know, beyond question really but the legal case is a different thing. The other problem, I think, that the Obama team has is I suspect Patrick Fitzgerald does not want them talking about details of contacts, much as they might like to and much as it would be beneficial to them to explain everything and get it off the boards, I suspect they're under some constraint.

GEORGE STEPHANOPOULOS (ABC NEWS): You know, that is really the only explanation because I mean these are not stupid people. They know the first rule of damage control to get...

GERRY SEIB ("THE WALL STREET JOURNAL"): Get it all out.

GEORGE STEPHANOPOULOS (ABC NEWS): ... something out. And, of course, if there's nothing inappropriate with talking to the governor about who is going to replace your boss? So it's got to be something like that. And in the meantime, George, there really is nothing that the Obama team can do until Blagojevich makes his decision and what he's going to face tomorrow is a vote in the state legislature for a special election. And this move by the attorney general of Illinois basically to declare him incompetent to serve. That's supposed to be for mental or physical incapacitation.

GEORGE WILL (ABC NEWS): Well, when in doubt, ask the judges in the courts to rescue you from a hard political decision. That's become normal in American politics. I do believe they face a problem because Fitzgerald went out so early and in the way he did, if - I'm not a lawyer, but I play one on television, and I can see as a defense lawyer saying, look, my client is a vulgar, coarse blowhard but it's not a crime in America, lord knows, to be a vulgar, coarse blowhard.

GWEN IFILL (MODERATOR): But keep in mind that the strongest part so far of this case is not the part we've been paying attention to which is the involvement of the Obama campaign was. The strongest part of this case are other things that he's alleged to have been involved in which they had been investigating for three years...

GEORGE STEPHANOPOULOS (ABC NEWS): Well that's what is so mystifying about this. This man knew for the last three years he was under investigation. He is joking about being wiretapped and sure enough he was being wiretapped. But Gerry, you wrote this week about how this may be part of an emerging ethics problem for Democrats. You saw William Jefferson got defeated back in Louisiana but more to the point, Democrats are now going to have to face a decision on how to deal with Charlie Rangel, the chairman of the Ways and Means Committee, and he's been facing some investigations for his real estate dealings.

GERRY SEIB ("THE WALL STREET JOURNAL"): Yeah, and I think that may be the one that is more troublesome for President-Elect Obama when he becomes President Obama. You know, the governor of Illinois will be back home in yesterday's news. Dealing with the Ways and Means Committee is a huge part of his agenda and that's today and that's in his front yard. I think the key for Democrats is to get that investigation dealt with one way or the other fairly quickly. I think the House Ethics Committee is going to do that. I think it may take till the end of January but they need to have a disposition of the Rangel question fairly quickly. The good news for the Democrats frankly is that William Jefferson in Louisiana lost his re-election bid. He's gone and he's not going to be around to be a continuing problem but there is a broader issue they're going to have to think about.

GEORGE STEPHANOPOULOS (ABC NEWS): Let's move now to the economy. The other big issue of the week and, Paul Krugman, let me bring you in and get you to respond to Senator McCain's defense of not rescuing the auto companies. He's saying basically until the way they do business is changed, we shouldn't be stepping in.

PAUL KRUGMAN ("THE NEW YORK TIMES"): The problem is time. The problem is, yeah, we ought to have - I think a lot of people are talking about structuring something where we're calling it a structured bankruptcy. Maybe it won't be called that but a reform. Get the current management out. Abrogate a lot of the contracts. Probably a lot of the benefits to retirees will one way or another either be shuffled off to taxpayers, all the stuff to keep those companies going but with, you know, a lot of give-backs. But it can't be done overnight and the problem these companies are on the verge of disappearing overnight. This was - everything he said was an argument for why you should give them a short-term bridge loan, but nothing more than that so we can do the right thing but you can't expect them to come up with a plan before Christmas that's going to do everything he's saying. They should have done it years ago but they didn't. That's where we are now. Are we prepared to let probably a million plus jobs disappear in the middle of the worst recession since the 1930s?

GEORGE STEPHANOPOULOS (ABC NEWS): So even if it's bad policy the times demand it.

PAUL KRUGMAN ("THE NEW YORK TIMES"): It's a question of giving you a little bit of time to work out the good policy. It's - you know, these are not normal times.

GEORGE WILL (ABC NEWS): Paul refers to the companies and all three are in the same boat in a sense, but this is all about General Motors. Ford is not asking for money now. It only wants access to a line of credit in case there is what it calls a major industry event, which means that the bankruptcy of the - well, General Motors is bankrupt, but that is that General Motors not being able to pay its bills to the 3,000 parts suppliers in this country, two of which the three companies today owe $13 billion, which is $1 billion short of the $14 billion they're asking for.

PAUL KRUGMAN ("THE NEW YORK TIMES"): But that's exactly the point. We have an industry that's high interdependent. These are not standalone integrated companies. They draw on the same network of suppliers. If any one of them goes down, or particularly if General Motors goes down, all three go down. And so the point is, we need to work this thing out. We can't do it before January 20th. Are you prepared to make the awesome decision to allow the core of the traditional US auto industry to disappear because you weren't prepared to, you know, you wanted everything on your plate all at once or are you prepared to - it will. The suppliers will disappear. The companies will - you know, the plants will disappear. It'll be a shell of its former self. We will have, continue to have an industry, the new auto industry. You know, the opposition to the bailout was led by Senator Corker, the Senator from Nissan, which has two plants in its national headquarters in Tennessee, so we will, you know - it's not the whole industry but it's a very important part of the US industrial structure. Do you want to make that decision by default?

GEORGE STEPHANOPOULOS (ABC NEWS): Paul brings up the point of Senator Corker from Tennessee. It was interesting this week, Gwen, that the White House seems to have basically accepted Paul Krugman's argument and looks like they'll draw on this...

GWEN IFILL (MODERATOR): Wait a second. The White House accepted Paul Krugman...

GEORGE STEPHANOPOULOS (ABC NEWS): Which is in and of itself...

PAUL KRUGMAN ("THE NEW YORK TIMES"): Well, you know, George, I had a talk with them...

GERRY SEIB ("THE WALL STREET JOURNAL"): I think it's in spite of Paul Krugman.

GEORGE STEPHANOPOULOS (ABC NEWS): But what they didn't do, and this was a remarkable moment. Dick Cheney, Vice President Dick Cheney going to the Senate Republican caucus this week and saying, if you don't bail out the auto industry, this party is going to be the party of Herbert Hoover forever.

GWEN IFILL (MODERATOR): If you look back over the week, you realize it was a series of efforts by someone not to be the bad guy. Paul Corker wanted - Bob Corker wanted to be the savior in the Senate and that didn't work. The unions didn't want to be the bad guy, not for their membership by caving in on the concessions or by anybody else for being on the wrong side of saving these jobs. Ford didn't want to be the bad guy. They asked - they then weren't asking for money but they also were operating on some very optimistic assumptions about what they would need and when they would need it. The CEOs didn't want to be the bad guy by resigning. Everybody was trying to say it's that guy's fault, and so now the challenge now looking forward becomes, who gets them out of their hole? Nobody is the bad guy so then what decisions have to be made. And that's why the White House was starting to edge back into it.

GERRY SEIB ("THE WALL STREET JOURNAL"): But I think what may have happened on Wednesday, you referred to Vice President Cheney saying we can't let this happen. When he said that to Republicans, I wonder if he essentially gave them a free throw on that vote. At that point they heard, well if we don't bail them out the White House will.

GEORGE STEPHANOPOULOS (ABC NEWS): The game of chicken was over then.

GERRY SEIB ("THE WALL STREET JOURNAL"): Right. You're free to vote your conscience. We'll save you from the consequences and at that time I think maybe the vote was sealed.

GEORGE WILL (ABC NEWS): Which is where it became not just a question of economics and public policy but the question of the rule of law. They've just opened a new visitor's center in the capitol building, and I think they should sell cotton candy and candied apples and popcorn and turn the thing into a theme park because the Congress of the United States has precious little to do with governance. They debated for almost a month whether or not to save and it was all a charade because at the end of the day, the executive branch, which has been taking power from a supine Congress for eight years now, the executive branch said, well, it's nice to have Congress' opinion, but it just doesn't matter because we're going to do it anyway.

GEORGE STEPHANOPOULOS (ABC NEWS): Well, except it was based on a law that was passed by the Congress.

PAUL KRUGMAN ("THE NEW YORK TIMES"): That blank check. The TARP was a blank check from the beginning and it's turned out that that may have saved the auto industry for another month or two.

GEORGE STEPHANOPOULOS (ABC NEWS): But tight now it looks like the options the White House is considering - just give them a few billion dollars to make it till January. This is President-Elect Obama's problem, or try to do something, pull back some of the money from the banks, make it a far broader fix that includes a Car Czar that essentially imposes bankruptcy without saying so. Which option do you think is the better one for them right now?

PAUL KRUGMAN ("THE NEW YORK TIMES"): Oh, I think we do need the Car Czar. I know we're making jokes about the czars every place but, you know, what we're doing is normally what you do in a bankruptcy is you, you know, you abrogate all the contracts and a judge oversees. That's Chapter 11. So we're already having a mechanism that imposes a czar but there are special circumstances now. The credit markets are not working properly so the firm can't stay in business under normal Chapter 11. They won't be able to get the operating credit you need to run. People won't buy cars from a car company they think is going to disappear in a few years. So you need additional aid to give it a chance of surviving. So what we're doing really is not - I mean, I understand George's point about an executive power grab, but what we're trying to do is we're trying to simulate a normal bankruptcy proceeding through the back door.

GEORGE STEPHANOPOULOS (ABC NEWS): Without calling it bankruptcy.

PAUL KRUGMAN ("THE NEW YORK TIMES"): That's right and without - because the mechanisms, the legal mechanisms are not working.

GEORGE WILL (ABC NEWS): Detroit's two newspapers this week announced that in the city of Detroit they may stop except for two or three days home deliveries. They're in desperate straits. Maybe we should bail out the newspapers. You think I'm kidding. Some Connecticut legislators are now talking about bailing out two Connecticut newspapers. The rule of law, I still say, this is not a blank check. If they had said to Congress when they asked for the $700 billion, ostensibly to get toxic assets off the bank balance sheet, if they had said this was going to become an all-purpose, unconstrained industrial policy, they wouldn't have gotten the bill.

GEORGE STEPHANOPOULOS (ABC NEWS): Meanwhile, Gerry Seib, another $700 billion may be coming from the Congress. Your paper reported on Saturday that the stimulus rescue package now being considered by the Obama team or at least economists advising them, they're now saying forget about $500 billion. This could approach a trillion dollars over two years. Now I think that that number is just too toxic. But the economists are now saying the number is going much higher than it was before.

GERRY SEIB ("THE WALL STREET JOURNAL"): Well, Paul and I were talking about this earlier. It's amazing how large the definition of "large stimulus package" has gotten over the last month really. It started at 150, then it was 300, 500, now it's 500...

GWEN IFILL (MODERATOR): And how much the argument about deficits has completely been pushed off the table.

PAUL KRUGMAN ("THE NEW YORK TIMES"): But this is not being driven by political change. This is being driven by the economic numbers. I mean there's hardly a morning when I don't fire up my browser and start the day with an expletive because we had just gotten something about new claims for unemployment insurance or payroll or the ISM manufacturing index. The economy is falling very fast.

GEORGE STEPHANOPOULOS (ABC NEWS): About a month ago you thought $600 billion was about right. Is your number now going up?

PAUL KRUGMAN ("THE NEW YORK TIMES"): My number would be going up. My problem now is I think the actual constraint is not going to be political will...

GEORGE STEPHANOPOULOS (ABC NEWS): Politics.

PAUL KRUGMAN ("THE NEW YORK TIMES"): No, the actual constraint is gonna be finding enough stuff to spend on. Try to find that much...

GWEN IFILL (MODERATOR): No, no.

PAUL KRUGMAN ("THE NEW YORK TIMES"): The words here are shovel ready. Now how much is shovel ready? How much can you get going in time to help this year? This coming year?

GWEN IFILL (MODERATOR): The governors came to town to Philadelphia and they met with the president-elect and they say, we have a lot of shovel-ready projects.

PAUL KRUGMAN ("THE NEW YORK TIMES"): Again, what's a lot? I mean, even with their full wish list you have trouble getting up to 100 billion. So now you start doing other stuff, and you start saying - well, but it is not that easy to - believe it or not, even Washington can't spend $600 billion in a year very easily so to push north of that is hard to do.

GEORGE STEPHANOPOULOS (ABC NEWS): Well, first of all, if you move up a lot of tax cuts though that's one way to do it. But also, Gerry Seib, what I think, and I think this something the Obama team is looking at, you basically take his entire domestic agenda for the next four years. He would hope eight years to make down payments across the board.

GERRY SEIB ("THE WALL STREET JOURNAL"): Well, this represents a huge opportunity for Barack Obama in a lot of ways. I mean, a lot of things that would have been the subject of a lot of debate now may happen very quickly and with very little debate because of the times, the nature of the times. You know, how big is the stimulus package may depend on what go you call stimulus spending and what's other stuff that gets pushed through in the name of stimulus that would have happened anyway? But I think for Barack Obama there is an opening here to do a lot, to do it quickly and the things that he does will set the tenor for the rest of his administration.

GEORGE STEPHANOPOULOS (ABC NEWS): You know, we have a couple minutes left, and I want to go around the table before we go and I've asked everybody to come to the table with a tip of the week. Something either to watch for in Congress, in politics or just something you think people should know about. And Gwen, let me begin with you.

GWEN IFILL (MODERATOR): Keep the number 10 million in mind. We talk a lot about horrible numbers when Paul Krugman fires up his browser in the morning and starts it off with an expletive. There are a lot of bad numbers out there, but one of the numbers we're not paying as much attention to is the number of people who are not only unemployed but are continuing to seek work who get discouraged. When you start to look at it, the 10 million is a number that we - since between now and the last year it was 3 million less last year. John Maggs in "The National Journal" wrote a story about this. The long-term effort and the long-term flaws in our unemployment benefit process in which basically that President Bush has just done it. President-Elect Obama will probably do it which is sign an extension of unemployment jobless benefits but that's not gonna solve the underlying problem which is that people long term can't find work and need to find other ways. As it happens, Larry Summers, Jason Fuhrman and Peter Orszag, the president's top three economic advisers all have been thinking about this but the unions are against it.

GEORGE STEPHANOPOULOS (ABC NEWS): Maybe they'll write it into the new law.

PAUL KRUGMAN ("THE NEW YORK TIMES"): Okay, I've just came back from Europe. My tip is that Latvia is the new Argentina.

GEORGE STEPHANOPOULOS (ABC NEWS): Latvia?

PAUL KRUGMAN ("THE NEW YORK TIMES"): Latvia is the new Argentina. You look at - we're hardly getting any coverage of this here but there is a burgeoning economic crisis in the European periphery. All these countries on the edge, Latvia, Estonia, Lithuania, Hungary, Ukraine, Spain which were able to borrow lots of money because people said, oh it's the Euro is coming, it's nice and safe. You can borrow this money at low interests rates. And Euros, or even the Swiss francs and the money has dried up and that's the new center. The center of the crisis moved from the US housing market to the European periphery.

GERRY SEIB ("THE WALL STREET JOURNAL"): On Monday and Tuesday of this week the Federal Reserve's open market committee meets, and they are likely to cut the Fed's main interest rate to below 1% which is a pretty significant moment. That hasn't happened in more than 50 years and it just tells you how desperate the Fed is to get this economy moving.

GEORGE STEPHANOPOULOS (ABC NEWS): And they have no tools left after they do that.

GERRY SEIB ("THE WALL STREET JOURNAL"): And that the ammunition is almost all out after they do that.

GEORGE WILL (ABC NEWS): Coming soon to a Cineplex near you is a movie by Clint Eastwood who is 78 years old. Stars in and directs a move called "Grand Turino."

GEORGE WILL (ABC NEWS): It's name after his pride and joy, a 1973 Ford and it's set in Detroit.

GEORGE WILL (ABC NEWS): The only change he made in the script was to move it to Detroit rather than Minnesota which could have something to do with the fact that Detroit offers a huge subsidy to movies made there just as Detroit complains about the south doing for automobile companies.

GEORGE STEPHANOPOULOS (ABC NEWS): You have a movie. I have a book. It's called "Nothing to Fear" by Adam Cohen of "The New York Times" and it's about all the jockeying inside FDR's brain trust in the first hundred days as they came up with their economic plan. Of course, those times are far different but the personalities are fascinating and you do get a sense and feel for what Barack Obama might be facing in the next several months. Thank you all for that. If you guys have a tip, send it along to our website at ABCNews.com. The roundtable is going to continue in the green room. Of course, you'll see they still have a lot more to debate. And you can join that later on ABCNews.com too.

GRAPHICS: NEXT SUNDAY JOE BIDEN

GEORGE STEPHANOPOULOS (ABC NEWS): And next Sunday, another exclusive, the first Sunday interview with Vice President-Elect Joe Biden. Coming up here, "The Sunday Funnies."

COMMERCIAL BREAK

Originally broadcast, 12.14.08