CQ Transcriptwire

SPEAKERS: CHRIS WALLACE, HOST

STAFF DIRECTOR AND CHIEF ECONOMIST, PRESIDENT’S ECONOMIC RECOVERY ADVISORY BOARD, AUSTAN GOOLSBEE

SEN. RICHARD C. SHELBY, R-ALA.

ERIC SCHMIDT, CEO, GOOGLE FRED MALEK, CHAIRMAN, THAYER CAPITAL PARTNERS

JUAN WILLIAMS, FOX NEWS

MARA LIASSON, FOX NEWS

BRIT HUME, FOX NEWS

BILL KRISTOL, FOX NEWS

[*] WALLACE: I’m Chris Wallace, and this is “FOX News Sunday.”

Uncle Sam wants you driving one of his cars, writing checks at one of his banks, and using his health insurance. Are we saving the economy or headed toward socialism?

For answers, we’ve assembled some big thinkers -- Austan Goolsbee, from the White House Council of Economic Advisors; Richard Shelby, the top Republican on the Senate Banking Committee; Eric Schmidt, CEO of Google; and Fred Malek, chairman of Thayer Capital Partners.

Also, the speech heard ‘round the world.

(BEGIN VIDEO CLIP)

OBAMA: I’ve come here to Cairo to seek a new beginning between the United States and Muslims around the world.

(END VIDEO CLIP)

WALLACE: We’ll ask our Sunday panel if the president can jump- start peace in the Middle East.

And our Power Player of the Week bringing television into the digital age, and the deadline is coming, all right now on “FOX News Sunday.”

And hello again from Fox News in Washington. With General Motors filing for bankruptcy and the federal government taking a 60 percent ownership stake, we want to address at length today how much government intervention is too much.

We brought in top leaders from the public and private sectors -- Republican Senator Richard Shelby, presidential economic adviser Austan Goolsbee, investment banker Fred Malek, and from Mountain View, California, the chairman and CEO of Google, Eric Schmidt.

Before we get to our discussion of government’s role in the private sector, Mr. Goolsbee, I want to ask you about the latest jobs numbers -- 9.4 percent unemployment, 345,000 more layoffs in May.

A couple months ago, the White House projected unemployment was going to top out in September at no more than 8 percent. Are we now headed for double-digit unemployment, more than 10 percent?

GOOLSBEE: I hope not, but you are right. The economy has clearly gotten substantially worse from the initial predictions that were being made not just by the White House but by all of the private sector.

In this report, minus 345,000 is a terrible number, but it’s a substantial improvement from what the job losses have been. That’s the smallest job loss since September of last year. So it’s encouraging, but really bad.

WALLACE: What’s your latest projection on how high unemployment will go and when it will peak?

GOOLSBEE: I try to stay out of the forecasting game. There are official forecasts, and the next update of those forecasts, I believe, are coming out in August. They matter for the -- forecasting what the budget deficit is going to be, obviously.

I don’t think there’s any question it’s going to be a rough patch not just in the immediate term, but for a little bit of time, because you’ve got to turn the economy around, and jobs and job growth tend to come after you turn the economy around, so it’s likely going to be a little higher.

Now, one thing to note is the unemployment rate rose, despite the job loss figure coming well down and being well lower than expectations, and that is because there were a number of people who had dropped out of the labor force because they were discouraged workers.

When you start to see a little bit of possibility that you can get a job, you’re going to see a bunch of people enter the labor force looking for work. The unemployment rate’s going to go up a little more.

WALLACE: All right. Let’s get to our main topic, “Government Motors,” big financial stakes, big bailouts for all the financial companies, a public health plan.

Senator Shelby, you say that the Obama administration is taking us down the road to socialism. Explain.

SHELBY: Well, obviously, so they interviewed last fall in the bank crisis. No one has ever done it on that scale before. Now the automobile crisis -- now, Bush -- you have to go back to the Bush administration. They started it.

Now you’re talking about a massive health care plan while we’re trying to right our economic ship. I believe that there’s no doubt that we’re going down to government intervention everywhere, government ownership, unprecedented in this country.

And it’s the wrong road and it’s a road -- and it’s a slippery slope.

WALLACE: Let me bring in Fred Malek, though.

The president says that he has no interest in running businesses. He’s just trying to save them from collapse and then get out. Let’s watch what he said.

(BEGIN VIDEO CLIP)

OBAMA: I don’t want to run auto companies. I don’t want to run banks. I’ve got two wars I’ve got to run already. I’ve got more than enough to do. So the sooner we can get out of that business, the better off we’re going to be.

(END VIDEO CLIP)

WALLACE: Fred Malek, in the middle of a financial crisis, in the middle of a terrible recession, could the president really let General Motors and Chrysler, AIG and Citibank go under?

MALEK: I think you have two different situations here. Look, at a time of peril like we had in the war on terror, abandoning our principles and torturing is wrong.

At a time of economic peril, abandoning the principles that have made us the greatest economic engine in the history of the world is equally wrong.

And I think what you have here is you have two different situations. I would label the injection of capital into the financial institutions, to stabilizing the financial system -- that’s a war of necessity. You had to do that.

But giving it to General Motors, saving General Motors and then taking them into bankruptcy -- that’s a war of choices, the wrong choice, and I think you’re going to have political involvement in General Motors going forward.

It’s going to decrease the competitiveness rather than increase it, and I think it’s going to hurt the American people.

WALLACE: Eric Schmidt, I want to put something up on the screen that you said just last week. Let’s take a look. “The last thing you want is the government in your boardroom telling you what to do.”

But let’s take a look at what has happened with General Motors. The government is telling General Motors not to import small cars from China but to make them here. We had the spectacle this week of senators bringing in the heads of General Motors and Chrysler and haranguing them not to close dealerships.

For all the talk about not micromanaging, isn’t that exactly what the government is doing?

SCHMIDT: Well, it depends on what they actually do. At the moment it’s all just posturing. It seems to me that what choice did we have except try to save General Motors, given the roughly million jobs that were related at a time of incredible pain and job loss. So think about it. The choice was bankruptcy, the supply chain goes away, the loss of the American automobile industry, or a Band- aid. It needs to be a Band-aid, and it needs to be something which we get out of.

Private capital is the -- is the source of jobs in our country. And I can’t imagine that we want to own these companies very long.

WALLACE: But, Mr. Schmidt, it isn’t just a question of making speeches. I mean, you had Barney Frank , the head of the Financial Services Committee, call General Motors this week and save a G.M. warehouse in his district in Massachusetts.

As part of the deal, the -- General Motors agreed, and the government pushed them, that they’re not going to continue to make some small cars in China. They’re going to make them here to protect jobs for the UAW. So this is, forgive me, industrial policy.

SCHMIDT: Well, again, in the first place, these are highly regulated industries, as we know, and so this is just another example of the kind of regulation people are doing.

At the end of the day, this will hurt their competitiveness and they’re going to have to stop it. They’re going to have to run as a private company. They’re going to have to shed the dealers, unfortunately, and all these painful steps that they should have done 10 years ago, which is what got them into this situation in the first place.

WALLACE: Mr. Goolsbee, I’d like you to follow up and join this conversation, but I also want you to talk about the clash between policy and profits.

The government wants General Motors to make small cars, fuel- efficient cars, while all the indications are that, according to the market, the cars that they make the most profit on are SUVs and pickup trucks.

So which takes precedence, profits for the taxpayer shareholders or environmental policy?

GOOLSBEE: Look, the president made totally clear in his remarks -- and he specifically said, “We are not going to be in the business of telling General Motors or anybody else what kind of cars to make, where they should open their plants or anything of the sort.”

The president made clear we want to get out of this as quickly as possible. We are only in this situation because somebody else kicked the can down the road, and that’s really an understatement.

They shook up the can. They opened the can and handed to us in our laps -- Senator Shelby knows that to be true. When George Bush put money into General Motors, almost explicitly with the purpose -- how many dollars do they need to stay alive until January 20th, 2009, there was no commitment to restructuring, to making these viable enterprises of any kind. They made none of the serious sacrifices. And Republicans in the Senate attached a list of conditions. They opposed George Bush’s intervention because they said the unions had not made the following sacrifices.

In the Obama plan, it asks more and received more from the unions and from the other stakeholders than the people that objected to the bailout last November asked for. So we have finally put them on that path.

WALLACE: Let me bring Senator Shelby into this.

SHELBY: First of all, I advocated last fall that General Motors’ and Chrysler’s best bet would go to Chapter 11 then. It would have saved a lot of money -- not a political restructuring, like what’s happened, where the bondholders have been sacrificed. The unions have carried the day.

You’ve got a combination now, the unions and government, government ownership in General Motors -- the majority -- and the -- and the unions. I don’t see a good model to make money for these companies to survive down the road.

WALLACE: Fred Malek, you’re in the business world. Do you see micromanaging going on here by not only the White House but also by 535 senators and Congressmen?

MALEK: Well, I think -- I think by the White House, certainly. I agree with Senator Shelby. Look, we’ve had -- for decades we’ve had a bankruptcy system in this country that has worked well and has fueled the free enterprise system in a positive way. It is impervious to politics because it’s run by the federal courts.

Now what have you done? You’ve taken it out of the judicial and you’ve turned it over to the executive, and I think you’ve injected politics into it.

Senator Shelby is right. There was no sense in putting billions of dollars in and then declaring Chapter 11 afterwards. They should have gone in -- let them go into bankruptcy and let the courts work it through.

What this amounts to is a bailout for the unions at the expense of secured creditors, and it’s broken contracts with secured creditors. It’s treated the unions more favorably. And I think -- let’s watch.

Let’s listen carefully to what Austan said. I respect his judgment. But let’s watch what they do and not what they say. And what they do is going to be...

WALLACE: Let me -- let me -- let me just ask, Mr. Goolsbee, if at some point either the Bush administration back in the fall or you guys when you took over had just said, “Go into Chapter 11, we’re not going to take an ownership stake, we’re not going to give you $50 billion,” what would have happened? GOOLSBEE: At that time or now? They’re going into bankruptcy. With Chrysler, they’re going through bankruptcy.

WALLACE: I understand, but...

GOOLSBEE: The issue is...

WALLACE: ... if you’d done that before you gave them 50 billion...

GOOLSBEE: ... if you had tried to put them in bankruptcy -- look, Senator Shelby may be correct. I don’t know why the Bush administration simply handed them money and shoved the problem on to the next guy.

But in the circumstance that the president faced, the -- if the alternative is immediate liquidation of these companies in the midst of the worst recession since 1929, it does seem that that is something we ought to take into account.

In Chapter 11, where you’re trying to do restructuring -- that is precisely the form that this restructuring is taking. I completely disagree. If you look at the facts, this is not a circumstance where they’ve handed everything to the union. All the stakeholders have made sacrifices.

The unions and workers have made major cuts. They -- they’re facing tremendous additional layoffs. They had wages cut, benefits cut. They had restructuring of their pension and health obligations, and they made more sacrifices than, as a comparison, in the steel industry, where there was no government involvement.

WALLACE: Let me -- let me bring -- let me bring in Eric Schmidt out in California.

Mr. Schmidt, as a businessman, when you see the bankruptcy deal that the government worked out where the union ended up with, I believe, 17 percent of the company, and the bondholders, who had $30 billion in debt, end up with much less, as a private investor what message would that send you?

SCHMIDT: Well, the question here is whether they’re going to be able to raise money in the capital markets in the future, and I don’t really know.

I worry about any one group having too much influence over this outcome -- politicians, the unions, the employees, what have you. This needs to be a competitive global business.

My concern about General Motors was that the costs needed to be pared a long time ago, and they were paying the penalty now. Both the Bush administration and now the Obama administration -- actions were late relative to what should have been done by the private sector.

It was a failure of the private sector that got into this. We need to get back to getting people who want to run a business and make money. The sooner we do that, the better.

WALLACE: Senator Shelby, let’s turn to another aspect of that, and that is financial bailouts. You don’t like them. You voted against TARP. But I want to put up some numbers that are very current.

The Dow Jones closed on Friday at 8,763. That’s up 34 percent from the low in March. And the Obama administration is expected to announce this week that some of the major banks may be able to repay up to $50 billion of that TARP money.

So when you used to say not so long ago, “Let’s let some of these big banks fail,” were you wrong?

SHELBY: No, I was not wrong. I think some of the banks could have failed, not without pain. Failure is always painful.

But you take Citicorp -- Citicorp’s been a sick institution a long time. This is about the third time they’ve been in trouble. They keep downsizing. They’re going to have to downsize more. They’re under fire right now.

Would the world have come to an end if they closed one of these banks or two? No, it wouldn’t. We would have been better off...

WALLACE: Even Citicorp, with all of its...

SHELBY: Absolutely. We would have...

WALLACE: ... its connections all over the world?

SHELBY: I bet you we would have saved money of the taxpayers big time and sent a message to management that nobody’s too big to fail.

Dr. Volcker’s told us in the Banking Committee, testifying, a lot of institutions, financial institutions -- probably too big to exist.

WALLACE: Do you -- do you agree with that, Fred Malek?

MALEK: No, I don’t. I think that you’d have a domino effect. Look, the Lehman -- the Lehman bankruptcy started a kind of a domino effect. We had AIG. We had Fannie. We had Freddie.

I think if we let Citicorp fail, and all due respect to Senator Shelby, who I greatly respect, I think you could have had a domino effect that could have eroded confidence in the United States financial system, and you could be facing even a greater crisis today.

So that -- as I said earlier, that was something that you had to do. It’s not like these other things that you don’t have to do.

WALLACE: Mr. Goolsbee, the latest news is that the administration is about to name a pay czar to ensure that companies that receive federal bailouts meet what are going to be new executive pay guidelines. In fact, there’s even talk that the administration wants to set up a -- new rules, new regulations, for the entire industry that would ban pay plans that are seen as rewarding risky behavior. True?

GOOLSBEE: Look, the -- everyone knows that we’ve got into a situation in the run-up to this financial crisis where -- and Senator Shelby, to his credit, identified it early. There were a number of leaders that identified it, and Senator -- then-Senator Obama was out front -- that too much of the mentality was, “I want to get my pay even if that means doing something that’s going to undermine the company, doing something that’s going to undermine the financial system.”

And we want to get away from that mentality, that pay should be tied to long-term performance and that pay should be based on...

WALLACE: But why should government be telling -- I mean, because you’re saying...

GOOLSBEE: In this case, the government...

WALLACE: If I may, you’re saying...

GOOLSBEE: ... is laying out...

WALLACE: ... you’re saying -- Mr. Goolsbee, you’re saying not only a company that’s accepting federal money, but even one that isn’t -- that the government is going to set pay guidelines and you’re going to have a pay czar ruling on what’s an appropriate pay structure or not?

GOOLSBEE: Well, I think you may be mixing a few things. One, it’s totally clear that if the government is saving your bacon and giving you money that they have some input on whether you’re wasting the money or what you’re doing with the operation. I don’t think anybody disputes that.

The purpose is to set up clear rules ahead of time so that we don’t get into situations where people say you’re changing rules after the fact.

On broader pay issues, the president has always been in favor of things like “say on pay” legislation so shareholders could have a say on the pay that the executives at their companies are behaving in, and there are a series of principles, best practices, that I think it’s perfectly appropriate to put forward.

WALLACE: Okay. I know we could talk about that at great length, but we’ve got one other big subject to talk about, and it’s going to be the big subject this coming week and for weeks to come in Washington. That’s health care reform.

The president wants a public health option. Despite his opposition during the campaign, he now says that he’s willing to consider mandates on individuals to get health insurance, on employers to pay for health insurance, as long as there’s a hardship waiver. Senator Shelby, what’s wrong with that?

SHELBY: Two things. One, we don’t know how much it’s going to cost and who’s going to pay for it. Secondly, it will be the first steps in the -- destroying the best health care system the world has ever known.

WALLACE: Why is that?

SHELBY: Because government -- when the government’s involved more and more in the details, and you start the one pay deal, and you’ve got the government competing with private enterprise, with all the incentives government has and the power, they will destroy the marketplace for health care, and it will be a mistake, and the American people better be careful in what they want.

WALLACE: I want to ask you two aspects of this, Mr. Goolsbee. First of all, the question of whether the public health insurance plan drives out all the private health insurers, and also the question about how you pay for it.

During the campaign, candidate Obama attacked John McCain for the idea of taxing health care benefits. Let’s watch.

(BEGIN VIDEO CLIP)

NARRATOR: McCain would make you pay income tax on your health insurance benefits, taxing health benefits for the first time ever.

(END VIDEO CLIP)

WALLACE: But now the president tells Democratic senators he’s willing to consider the idea of either taxing people who make a certain amount of money or taxing health care plans that are of a certain value. Isn’t that a complete 180-degree policy flip?

GOOLSBEE: Well, let me say two things about that. Number one, that -- what the health care exclusion, as they call it -- that was not in the president’s plan.

Now, the president has committed that he’s going to work with Congress, and -- so they have put forward a whole series of ideas that he’s willing to look at to do an achievable health care cost reduction and health care expansion for people who are uninsured.

But that’s not the president’s plan, so I think it’s a little unfair to attribute to the president things that he did not put forward.

And the second is in...

WALLACE: But he’s willing to accept it.

GOOLSBEE: He’s willing to look at all sorts of ideas. That is not in his plan. It is not the president’s plan that he put forward. The second is in the campaign, the McCain proposal, as you describe in that ad, moved from are the companies going to be paying taxes on the insurance to then shifting to let’s have the individuals pay tax on their health insurance. And the president -- I don’t think it’s a secret that the president has been and will remain highly concerned about how ordinary Americans are able to foot the bills on their -- foot their tax bills.

That’s why they put in a tax cut for 95 percent of workers in the recovery package. So he’s clearly going to be mindful about that in health care.

WALLACE: Fred Malek, your thoughts about the benefits versus the dangers of a public health insurance component as one of the choices, and also what seems to be if not a flop, in the sense that he’s offering it, he’s willing to consider this idea of taxing benefits.

MALEK: Well, I think -- I think there are two major problems beyond that, Chris, that I’d like to just address fairly briefly. One is the timing and two is the cost.

We should be focusing like a laser on this economic recovery in creating jobs. This health care bill does not do that. We should not be focusing on that. Plus, the health care bill, by their own estimates, adds over a trillion dollars of costs over the next 10 years.

At a time when we are mounting deficits and mounting debt that’s greater than the total debt accumulated in the history of our country, this could only lead to inflation. It’s going to have a bad ending. And we should put this off for a couple of years until the economy gets stabilized.

WALLACE: I want to get to debt as our last subject.

But, Mr. Schmidt, I just want to bring you into this debate about health care, because the president is talking about trying to get a health care plan on his desk to sign by October. We’re talking about 18 percent of the economy.

There are some proposals floating around. The president has given us nothing more than principles. Is it realistic to do that kind of massive undertaking on such a short timetable?

SCHMIDT: Well, I hope so. And the reason is that businesses have a lot of trouble with the cost of health care, and health care costs will continue to rise. And if we delay for a couple of years, as has been discussed, the problem is the cost structure just gets worse.

The only way to really address this is to address the combination of coverage and cost. So anything that the Congress and the president does has to do that. And from my perspective, the sooner the better.

You won’t fundamentally solve the problems in business until you solve the problem of spiraling health care costs, which is driving everybody crazy.

WALLACE: Finally, let’s talk about the deficit and the economy.

As you mentioned, Mr. Malek, Fed Chairman Bernanke raised the concern this week that long-term deficits could choke off any kind of economic recovery and be very damaging to the economy.

Senator Shelby, how serious a problem are these trillion dollar deficits as far as the eye can see?

SHELBY: Very, very serious, the most serious that we’ve ever seen in America. And I’m glad to see the Fed chairman, after printing so much money, talk about deficits and so forth.

But I can tell you if we get to a $20 trillion debt, this country -- and we’re headed down that road -- our ability to pay and service that debt is going to be questioned all over the world.

Just like some of the rating agencies have already begun to question the British for the first time, they will surely question ours, because we’re the largest debtor in the world and growing by leaps and bounds.

WALLACE: Mr. Goolsbee, the national debt was 41 percent of the economy last year. Under the Obama budget plans, it would rise up to 82 percent -- the national debt -- 82 percent of the total economy in 2019. That’s not sustainable.

GOOLSBEE: I will say two things about that. Number one, we know that in the short run, in the midst of the deepest recession since 1929, you don’t try to tighten the belt at that moment.

We’re talking about the longer run. In the longer run, the two major things that have happened in the forecasting of the budget are, number one, the economy’s deterioration means that they’re forecasting substantially lower revenues.

And importantly, number two, the Obama budget removed all of the budget and accounting gimmicks and put forward -- here is the actual fiscal state that we face.

Now, compared to the actual policies that George Bush had in place, what they call the current policy baseline, Obama is cutting the deficit more than $2 trillion over the 10 years compared with what he was inheriting.

The only sense in which his budget is expanding the deficit is compared to the accounting gimmicks and things that nobody actually believed were going to take place, like the expiring of the tax cuts.

WALLACE: We’ve got less than a minute left.

Fred Malek, I’m going to give you the final word. Do you believe that?

MALEK: I don’t. Look, this budget -- this spending over the next four years counts on borrowing 46 cents out of every dollar the government spends. We got into trouble in this country as a nation by over leveraging in the private sector and amongst individuals.

So you’re telling me the answer is to leverage the entire country by borrowing 46 cents on the dollar, 25 percent of which, as Senator Shelby points out, comes from China?

WALLACE: We’re going to have to leave it there. Fred Malek, Austan Goolsbee, Senator Shelby, Eric Schmidt out in California, we want to thank you all so much for joining us today and participating in what I think we all agree is an important debate. Thank you, gentlemen.

Up next, the president reaches out to the Muslim world, but where do we go from here? Our Sunday group offers its thoughts when we come right back.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

OBAMA: I am convinced that in order to move forward, we must say openly to each other the things we hold in our hearts and that too often are said only behind closed doors.

(END VIDEO CLIP)

WALLACE: That was President Obama in Cairo this week making a speech that was received with keen interest and some controversy in the Middle East.

And it’s time now for our Sunday group, Fox News contributors Bill Kristol of The Weekly Standard, Mara Liasson of National Public Radio, syndicated columnist Charles Krauthammer, and Juan Williams, also from National Public Radio.

So, Bill Kristol, we in the media, I think it’s fair to say, always hype these speeches from every president, make it sound like it’s going to dramatically alter the situation on the ground. Now that President Obama has come and gone, has he changed anything in the Middle East?

KRISTOL: I don’t think so. And I don’t think he’s helped the situation, because I think he went to the Middle East. What is the biggest problem in the Middle East, the biggest threat to peace, the biggest threat to kill millions of people, the biggest threat to trigger a really disastrous nuclear arms race? It’s Iran’s nuclear program.

He said almost nothing about it. He has three paragraphs. And basically, if you read it carefully, he, I think, pretty much concedes that Iran’s going to get nuclear weapons. He’s worried about a Middle East arms race. He thinks he’ll take care of that by having close relations with the Arab states, I suppose, and extending deterrents to them.

He does not say that the Iranian nuclear program is unacceptable, which he himself had said as a candidate. He’s given up on that. And I think that’s the true news of the speech. All the rest is wishful thinking, and nice talk, and P.R. that may or may not work.

The real news of the speech is he’s giving up on the attempt to stop Iran from getting nuclear weapons.

WALLACE: I want to focus on this, because I completely agree with you that in terms of policy it was the most important part of the speech.

The president said that no nation should choose which nation has nuclear weapons, and he said that Iran has a right to a peaceful nuclear program.

Mara, isn’t that a substantial scaling back of the U.S. position towards Iran?

LIASSON: I do. I think it is -- it does suggest that we’re talking about containment rather than deterrence, I guess. We -- we’re not -- we think that they’re too far along down the path to making weapons to stop them from doing it, but maybe we can stop them from using them or weaponizing them.

And I think that this was a speech that was aimed to change diplomacy in the Middle East. I think the president thinks that if he can get the Arab nations -- and I think of all the audiences this speech was aimed at, and it was aimed at many, the Arab leaders were probably the first and foremost.

If he can get them to work with Israel -- right now, the Palestinians are not in the position to do much of anything or deliver much of anything -- maybe he can get a kind of stable Middle East that can contain Iran, if necessary.

WALLACE: I’m a little surprised from this point of view, though, Charles. I don’t think there’s any question -- I think you’d agree with me -- that the Israelis feel that the Arabs are terribly frightened -- the other Arab nations are terribly frightened of Iran and the development of a nuclear weapon. President didn’t seem to tap into that at all.

KRAUTHAMMER: Well, I -- he gave such a pass on Iran that I think it might actually have scared the Arab states, for whom this is really a major issue.

But -- and I think Bill is right, and he basically gave what was the weakest statement ever given by a president on the Iranian nuclear issue. He said nothing about enrichment. He didn’t even mention uranium enrichment. And he made it sound as if the entire dispute is over the interpretation of the nuclear proliferation treaty.

But the other news was on Israel. He made the news -- I think he made what was one of the strongest statements on this area ever made. But he began with a very odd and, I think, disturbing analogy where he was -- he’s trying to say that our rights and wrongs are on both sides and they’re -- they balance each other.

On the one hand, the Israelis -- the Jews have the Holocaust. On the other, the Palestinians had dislocation at the time of Israel’s establishment. Well, first of all, comparing genocide and dislocation is morally indecent.

But secondly, the history is wrong. And it’s very important because it isn’t just history. It has implications. The reason the Palestinians were dislocated at the time of Israel’s existence was not because of Israel’s birth. It was because of the fact that added to birth, Israel was invaded by five Arab states -- Egypt, Syria, Lebanon, Iraq and trans-Jordan -- in order to extinguish it and expel its people.

It was a result of that war which caused dislocation of Israelis as well who were expelled out of Jerusalem. As a result of the war is the Arab refugee issue. And the reason it isn’t only ancient history is because it shows that the Israelis had accepted a two-state solution 60 years ago and the Arabs had not, and it was repeated only six months ago. No one talks about this.

When Ehud Olmert offered the Mahmoud Abbas, the leader of the Palestinians, their own state on the West Bank and was refused again -- the issue has -- the reason the Palestinian -- stateless is not Israel’s rejection. It’s the Palestinian rejection over and over again of a state that would ultimately accept the Jewish state as well.

WALLACE: Juan, looking forward, obviously, there are centuries of enmity between the Israelis and the Palestinians, and each side has their history that they -- that they argue.

Did you see anything in what the president was offering -- he basically said to Hamas renounce violence, accept Israel’s right to exist. He said to Israel two-state solution and stop the settlements. Do you see anything there that is the basis for progress in the peace process?

WILLIAMS: Well, George Mitchell, the president’s Middle East envoy, is to go now to the Middle East, to follow up, to put some concrete steps in place to support what the president’s trying to do in the speech.

And I think the emphasis here, to pick up on what was said earlier, is that the Arab states would begin to act in concert, that they would end Israel’s isolation, that they would begin to suggest that they acknowledge Israel’s right to exist -- tourism, trade and the like.

In exchange, that Israel then would be under some pressure to begin to pull back on the settlements and to abandon this fiction that, “Oh, the settlements are just natural, you know, there’s growth, there’s babies,” or whatever, “coming in,” and acknowledge the settlements are growing at a rapid rate, far more quickly than the rest of Israel, and that this is really an act of incitement in much of the Arab world and leads to the kind of extremism that we’re saying that the Arab world has to contain as part of its responsibility if they expect Israel to be a true and forthright negotiating partner.

They can’t expect Israel to negotiate in the face of such violence.

WALLACE: Speaking of negotiation, Bill, who does Israeli negotiate with? I mean, you’ve got chaos on the Palestinian side.

You’ve got Fatah in control of the -- to some degree in control of the West Bank. You’ve got Hamas, which does -- still does not recognize Israel’s right to exist and continues to fire missiles from Gaza. Who would Benjamin Netanyahu sit down with if he wanted to?

KRISTOL: I think what the Obama administration thinks is they can get the Arab leaders to the table, they can get Mubarak and the Saudis to the table, and in effect impose a peace agreement both on Israel and on the Palestinians.

I don’t think it would be a very stable agreement. It wouldn’t be perhaps even enforced at the time, but a notional agreement that would give the sense that there was a peace process moving and, I suppose, if you want to give the Obama administration credit for thinking this through, allow for a kind of more united front in the Middle East, a more -- a calmer Middle East, less opportunities for the Iranians to incite, to recruit terrorists, and less opportunities for Hezbollah and fewer opportunities for Hamas.

I suppose that’s their theory. I mean, it is a heck of a way, in my view, to -- I mean -- well, there are so many -- I think it’s extremely improbable that it will work, and a lot of it, it seems to me, is just an evasion of the fundamental choice, which is Iran.

You know, we were talking about at the beginning -- it just -- when you read those three paragraphs, they’re really startling. I mean, there are three U.N. security resolutions which the Bush administration went to a huge amount of trouble to try to get the Europeans signed on. The Russians and Chinese signed on. He doesn’t mention them.

Iran is in violation with its enrichment program of U.N. -- this isn’t American Bush, you know, imperialism. This is the U.N. Security Council, and he doesn’t mention that fact. He really -- he is really conceding an Iranian nuclear weapon and then the question becomes does Israel accept that.

WILLIAMS: I don’t think...

KRISTOL: And you know, it’s all fair and nice to talk about this peace process, but he has increased the chances of an Israeli strike on Iran...

WALLACE: All right. We’ve got 30 seconds left...

KRISTOL: ... and sooner -- and sooner rather than later.

WALLACE: ... and I’m ceding it to Ms. Liasson.

LIASSON: Look, the Obama White House has decided that the key to unlock the Iranian problem is to solve the Israeli-Palestinian problem. There’s a debate about that, but they have decided that, that they’re going to try that.

And the key to doing that is to put more pressure on Israel to do something about the settlements.

KRAUTHAMMER: But the premise -- but the premise is false.

LIASSON: And the question that I have is what is he going to do in the next coming weeks or months to show that he really meant it about settlements.

WALLACE: All right. We’ve got to -- no, we’ve got to -- we’ve got to stop here. Hold that thought. That’s why we invented Panel Plus.

KRAUTHAMMER: Stifle it, you mean.

WALLACE: Well, that, too. But at least you agreed. Juan usually just goes right past the stop sign.

We have to take a break here. But coming up, Judge -- this is going to be an interesting commercial break, guys -- Judge Sotomayor meets with senators. General Motors files for bankruptcy. Our panel breaks it all down when we come right back.

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OBAMA: I’m sure she would have restated it.

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SENATOR JOHN CORNYN: When the president and the press secretary of the president says that she misspoke, that does not seem to be the case.

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WALLACE: The back and forth this week over whether Judge Sonia Sotomayor’s wise Latina woman remark was a slip of the tongue or an insight into her view of the world.

And we’re back now with Bill, Mara, Charles and Juan.

Well, there was so much controversy over Sotomayor’s remark about a wise Latina woman, who makes better judges, than the president and his press secretary finally had to respond and say basically it was a slip of the tongue.

Now it turns out that she said roughly the same thing seven times starting in 1994.

Charles, how big a deal is this?

KRAUTHAMMER: It’s a big deal because it tells you it was not a slip. It is who she is and who she thinks she is.

And the reason it’s disturbing is because Obama -- the premise of Obama’s candidacy was always that he was the post-racial American. And here he is appointing as his first truly important appointment a person who can only be called pre-racial.

He gave a speech in which he emerged on the world stage and said, “We’re not black America, white America, we’re not Hispanic America, Asian America. We are the United States of America.” And she says as a wise Latina, she has physiological, cultural endowments which make her superior to a white judge.

The real issue here is she’s going to end up on the court, but we can’t have a national debate about this issue. The civil rights movement abolished the idea of a superior race or class or ethnicity in America.

Are we going to have that as our ethos in our laws and in the way of our life, or are we going to have a person like her who believes that some ethnicities are endowed with a superior endowment and superior judgment and superior entitlements as a result of race? WALLACE: Juan?

WILLIAMS: I don’t think that’s what she said at all. She said this repeatedly, and I think it’s arguable that what she said maybe offends some ears.

But the fact is what she’s saying is she brings something different to the table, and she’s saying that she believes that given our history of...

WALLACE: But that isn’t...

WILLIAMS: ... almost exclusively having...

WALLACE: But -- forgive me -- that isn’t what she said.

WILLIAMS: ... white male judges...

WALLACE: She doesn’t say I bring my own background. She says I believe that someone with my background would be a better judge than...

WILLIAMS: No, I think that’s what’s -- that’s what’s...

WALLACE: But that’s what she said.

WILLIAMS: I mean, she is not saying that well, but what she is trying to communicate here is that she’s different and that she is not feeling as if she has to stand in line and just be like other white male judges who went to Yale University’s law school, that she’s different.

And to my mind, this is not something that’s radical or terrible or threatening to the republic. You think about what the other female judges on the Supreme Court have said about even, you know, the idea of the judges reacting to a 13-year-old girl who’s undergone a strip search.

They’re saying women look at things differently than men. Does that mean now that they’re taking pride in saying women are necessarily better than men? No, they’re bringing different attributes to the court.

And I think that you saw this with Justice Alito when he was talking about the immigrant background that he has. He said, “You know what? Of course, I factor that into my thinking.” But this now has become an argument over identity politics.

And I think it plays to the advantage of Republicans who are trying to slow down this nomination and say, “We’re going to have a big debate about quotas.” How’d quotas get involved with this? Talk about distraction and talk about damaging themselves.

I think that this is a sort of political, you know, self- destruction mission for the Republicans. That’s what’s going on here.

WALLACE: But didn’t her ruling, Bill Kristol, in the Ricci case raise the issue of quotas?

KRISTOL: Well, it certainly raised the question of disparate impact and whether one should throw out tests because one racial group does worse...

WALLACE: This was the firefighters case in New Haven.

KRISTOL: ... does worse on these tests. Then they threw out these tests that had been fairly administered. And no one thinks, I think, that New Haven, Connecticut is a bastion of racism and that the mayor of New Haven and the fire chief of New Haven are trying to discriminate against blacks and all that kind of thing.

They give a test that’s been signed off on for years by various equal opportunity types. One racial group does worse and they throw out the test.

And I think the Supreme Court is going to overturn that within the next month, and it will bring -- it will make clear that not only is she in her speeches a believer in a kind of identity politics, but as a judge she is willing to accept identity jurisprudence in the United States.

WALLACE: Mara...

WILLIAMS: Let me just interject here that your account of that is way off, that clearly there’s been a history of discrimination against people of color in getting into the fire department in New Haven, Connecticut.

And that’s why the properly elected officials of the city were trying to put in place a test that would allow more minorities to be promoted and represent a city that’s become more diverse.

WALLACE: Bottom line here, Mara -- after her meetings this week with more than two dozen senators, after wheeling out boxes of material to answer the questionnaire -- her nomination in any trouble?

LIASSON: I think on net, her nomination got more secure after all of that. There’s no tax problems. Some of her harshest critics had scaled back their accusations that she was a reverse racist.

I think the -- the discovery that she’d said these same things with these same words many more times than just once is going to make that a flashpoint of her hearings, but I don’t think it’s enough to derail her.

WALLACE: We’ve got about three minutes left.

Charles, you know, with the quantity and velocity of news these days, it’s easy to forget that it was just last Monday that General Motors, the pillar -- the longtime pillar of the American economy, has filed for bankruptcy, and that the American government, the taxpayers, are taking a 60 percent ownership stake.

How big a deal, and what are the chances that G.M. comes out of this and is a viable company?

KRAUTHAMMER: Very small. This is a classic example of American socialism, which is only Lenin socialism. You only adopt orphans who really don’t have a chance.

What this really is -- it’s the biggest jobs program in American history. It’s not going to save G.M., but it’s going to keep the UAW alive. And you could argue that in the middle of a recession it’s worth doing. It’s a kind of an odd labor-oriented stimulus. you know, it keeps G.M. alive, at least, in the depths of our recession, and perhaps you’ll let it go at the end of our recession, except that it’s not going to be temporary.

It’s going to be a permanent arrangement and it’s going to be us as the payers of taxes who are going to be supporting a dying operation forever.

WILLIAMS: Well, you’ve got to be optimistic. You’ve got to try something. Obviously...

KRAUTHAMMER: I’m not.

WILLIAMS: I know you’re not optimistic, my friend. But you’ve got a 9.4 percent unemployment rate right now. Rate of decline of jobs, though, seems to be declining. Job loss seems to be declining.

And when you look at what the administration, and I might add the Bush administration did the same thing and the Obama administration has picked up on it -- is try to help a major American industry slow down in terms of falling apart so that it doesn’t have such awful consequences for workers, especially in the Midwest.

And that’s a good use of government money, in my opinion, to help the American people. The question is how much are we putting in, and are we putting good money after bad.

And as Charles said and as others have said, there’s -- it’s unlikely that we’re going to rescue this industry. The question is can we help them to some way stay alive. I think most Americans would like to see an American auto industry.

And boy, this week on the hill, the pain over the closing of auto dealerships -- people take that personally.

WALLACE: Well, not only do they take it personally, they’re big campaign contributors.

Your thoughts about G.M.?

KRISTOL: Republicans need to make a big deal of this. They need to oppose “Government Motors.” They need to have a proposal to roll it back. They cannot accept this. They should not accept this. I think it’s a big mistake by the Obama administration.

It is unprecedented to do this kind of thing, to take over a huge company with no reason to do so -- I mean, no prospect that this is necessary -- this isn’t necessary for our national security or for the financial system in the United States to survive.

WALLACE: Thank you, panel. See you next week.

And don’t forget to check out the latest edition of Panel Plus where our group here continues the discussion on our Web site, foxnews.com/fns, shortly after the show ends. It’s going to be interesting today about the Middle East.

Up next, our Power Player of the Week.

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WALLACE: On this day in 1965, the Supreme Court legalized the use of contraception by married couples. The court ruled the Constitution protected the right to privacy, laying the foundation for its later ruling on abortion rights.

Stay tuned for more from our panel and our Power Player of the Week.

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WALLACE: If you watch television, and obviously you do, it’s hard not to notice something important is about to happen this week. So how prepared are we for the big event? Here’s our Power Player of the Week.

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COPPS: Every other industry in the country is going digital. It’s time for broadcasting to go digital.

WALLACE: Michael Copps is acting chairman of the Federal Communications Commission, and he’s talking about the DTV transition.

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ANCHOR: And Fox 5 wants to make sure you’re prepared.

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WALLACE: After years of planning and months of warnings, if you don’t have a digital T.V. or a converter box next Friday, your picture will look like this.

What reaction do you expect on June 12th?

COPPS: I think there will be -- they will feel themselves minorly inconvenienced.

WALLACE: So you expect -- you expect what?

COPPS: Oh, I -- we expect calls, yeah. We expect a lot of calls.

WALLACE: DTV day was supposed to happen months ago. But when the Obama administration came in, they felt too many people weren’t ready.

COPPS: I think there would have been a consumer backlash of enormous proportions, because millions and millions of households were unready.

WALLACE: But as we saw at a meeting of FCC commissioners this week, the new date of June 12th isn’t moving.

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COPPS: Anyone who thinks that there’s a chance of another delay better wake up and smell the converter box, I guess.

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WALLACE: The government decided to go digital back in the ‘90s. The signal is much sharper and so efficient that instead of putting out just one program, a broadcaster on, say, channel 4 can offer 4.1, 4.2, and high definition.

COPPS: You get better picture, many more broadcasts, free over- the-air broadcast channels, more programs than they were getting before. So it’s a -- it’s a better television experience.

WALLACE: There will also be room to create a broadband network for first responders during an emergency. The government has spent more than $2 billion on the transition, most of it for $40 coupons people can get to buy converter boxes to hook up to their old analog T.V.s.

Why should taxpayers have to pony up for two $40 coupons to help people get digital T.V.?

COPPS: T.V. isn’t just about watching your favorite soap opera or reality show. It’s about watching -- watching the news, getting information. It can have public safety ramifications.

WALLACE: And yet, despite all the preparations...

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WALLACE: As we sit here five days before the transition, how many households across America do you estimate are still unprepared for it?

COPPS: Somewhere right around 3 million households are unprepared right now.

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(UNKNOWN): DTV Command Center, may I help you, please?

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WALLACE: The FCC has deployed 200 staffers across the country to hundreds of help centers to target seniors, people with disabilities and families where English is not their first language. Copps says next Friday won’t be the end of this. Even people who are prepared may have problems with the new signal.

COPPS: There’s going to be some bumps in the road before we get it all over and done with. But at the end of the road, this is a transition that had to happen, and it should have happened, and it’s going to be good for the country.

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WALLACE: Again, if you’ve got cable or a satellite dish or a high-def T.V., you don’t have to worry. Otherwise, get that converter box by Friday.

And we’ll be right back with a final word.

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WALLACE: And that’s it for today. Have a great week, and we’ll see you next “FOX News Sunday.”