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CNN LARRY KING LIVE

Interview with AIG's CEO; Inside the Obama Transition Team; Who Will Lead the GOP?

Aired November 11, 2008 - 21:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


LARRY KING, HOST: Tonight, exclusive -- you bailed them out with billions of your hard-earned money and they keep spending.
JOSH BERNSTEIN, ABC 15 CORRESPONDENT: Mr. Roth, Mr. Tambaro, Josh Bernstein from ABC 15.

Do you mind if we ask you a few questions about the conference?

UNIDENTIFIED MALE: We actually do.

(END VIDEO CLIP)

KING: What is AIG doing?

And is the company trying to cover it up?

The CEO gives us his first interview since calls for his resignation today.

Plus, the Barack Obama transition team takes aim in an afternoon briefing. Lobbyists look out -- pledging that this will be the most open changeover in history.

And then the future of the Republican Party, in doubt and disarray.

Is the GOP ready to designate Sarah Palin its next best hope?

It's all next on LARRY KING LIVE.

Good evening.

Ed Liddy was appointed chief executive of AIG on September 18th, the day the government bailout was announced. Since then, the government has loaned AIG $123 billion and has an almost 80 percent stake in the company.

But several high dollar executive retreats since the bailout have infuriated some members of Congress and the public. The latest was a meeting held last week in Phoenix.

And joining us now in New York is Ed Liddy, the chairman and CEO of AIG American International.

Did you realize, Ed, that this meeting would create a public uproar? EDWARD LIDDY, CHAIRMAN, CEO, AIG: You know, we thought that there was a good chance that it would be received poorly. It certainly was. But, Larry, I'd really like just the opportunity to explain what it was.

It was not an executive retreat. It was 150 independent financial planners. They're not AIG employees. They could sell any products they want -- any of our competitors. The purpose of this is to do education and training so they would understand our products, how to sell them and who they should sell them to.

If mortgage brokers had done more of this with subprime mortgages, we may not have been in the mess that we're in.

So this is an educational seminar for the tens of thousands of independent brokers and financial planners that AIG works through. This was 150 people. It wasn't AIG executives. It wasn't AIG employees.

KING: What did it cost AIG?

LIDDY: It cost us $23,000. The bulk of this -- 90 percent of this was paid for by the participants who were there and our partners at this conference.

KING: And all this is very explainable. I've spoken at many conferences just like that.

But why, logically, put yourself in a position of even having it questioned by even holding it at the kind of resort you held it at?

LIDDY: Yes, Larry, it's a good question. You mentioned, in the seven weeks I've been here, we've gone through -- we canceled about over 160 conferences or events. But when you have the organization the size of AIG, you really have to train the people who are selling the product. What we want to do is make sure they understand the product, all of its features and they know what to sell to whom. We don't want a variable annuity sold to an 85-year-old widow.

So there's a certain amount of training and education that simply has to take place, particularly in an organization this size. That's exactly what this was. We have attempted to explain this to all of the news media and journalists. Most of them got it, looked at the fact pattern and said oh, I understand it exactly for what it was. One news agency did not.

KING: And someone said there were no signs in the hotel at all that AIG was involved.

LIDDY: You know, we've tried to do two things, Larry. First, we are really cutting corners. We're doing the same thing the American taxpayer is doing. We are tightening our belts. We didn't use any signage. Second, we didn't want the participants there to be absolutely persuaded that they were doing something wrong. They weren't. So we had no signage whatsoever.

It wasn't an attempt to be secretive. We just simply thought it was the right thing to do.

KING: Terry Bradshaw was supposed to speak and that was canceled, because of the fee?

LIDDY: No, actually the fee was being paid by one of our partners. He was canceled because it's another sign of belt tightening. It was simply something that we didn't think was appropriate, we didn't need, we didn't want the money spent on that, so we tightened the belt and cut that out.

KING: Are all corporate junkets on the part of AIG being shut down?

LIDDY: Well, this was not a corporate junket. As I mentioned...

KING: I know. I mean I'm talking about others.

LIDDY: Yes. As I mentioned, over 160 conferences of any kind and events -- we are tightening our belt. We appreciate what the taxpayer and federal government has done for us. We intend to repay every single borrowed -- every single penny that we've borrowed or that we owe them. And to do that, we just have to be a new AIG. We have to be much more expense conscious. That's what we're doing.

KING: Now, there are previous -- will you admit that some of the previous meetings were questionable, a conference at a resort in Southern California with $7,000 in greens fees, an event for over 800 people at the Air and Space Museum at Dulles Airport?

LIDDY: You know, the one in California, Larry, it happened, I think, five or six days after we took the original federal bailout. We looked at canceling that one. It would have cost more to cancel it than it did to hold it.

And, once again, that was all independent financial counselors. It's the way we do business.

You know, some simple math. The one in Phoenix cost us $23,000. The group of 150 people that were there sold over $200 million of our product year to date in 2008. You simply have to find a way to stay in front of those people and make sure that they're selling our products the right way.

KING: All right. You've been in less than two months, yet Representative Elijah Cummins called for your resignation.

Do you have any plans?

How do you react to that?

LIDDY: Well, I talked to the representative today. I think he's much calmer now that he has some of the facts. And I've shared exactly what the situation was.

I think I'm making good progress within AIG. We can resolve the distress that AIG is under. We can absolutely pay back the loan. We can do -- we can pay an enormous amount of interest every month and every quarter and every year to the American taxpayer. We can be successful in this endeavor. And I think I can lead us to that success.

KING: Have you personally spoken to attorney general of New York, Andrew Cuomo, who has threatened suits against you?

LIDDY: I have. I've spent time with the attorney general. Again, he understands what's appropriate for a business to do and what's inappropriate. All the things that don't make any difference, all the things that we should not be doing in this situation, we've cut out.

The event you mentioned and the one in California, you have to -- you have to sell your business. You have to educate the people who sell your business. Both of those were intended to do that.

KING: Ed, what do you say to the public watching who, after all, they are all taxpayers?

They're help bailing out the company.

Why was it necessary for them to do this and will they be paid back?

LIDDY: Yes, it's a really good question and I'd like to spend a few minutes on it.

AIG is a very large company. We're the largest insurance company in the U.S. and one of the largest in the world. We do business in 130 countries.

As such, we touch most of the major financial institutions one way or another around the globe.

I think it was the feeling of the policy makers -- and I agree with it -- that if AIG had failed, right on the heels of the Lehman Brothers' failure, it would have been catastrophic for AIG, but also for the financial system in the U.S. and worldwide.

You know, I understand that taxpayers are nervous. They look at a bailout and wonder well, I'm not getting bailed out, why should the company?

If we could just talk about the bailout for a minute. I think we will, in fact, repay the taxpayer every penny that we owe them. But we're also paying the taxpayer very fairly for the help that we're getting.

So on the preferred stock that we got from the Treasury Department, we're going to pay 10 percent per year on that -- $4 billion a year interest payments from AIG to the taxpayer.

If we borrowed all of the $60 billion, the interest rate on that, we pay about $3.5 billion or $3.6 billion a year on that. So, sometimes when you use the word bailout it makes it sound like somebody is just giving you the money. But that's not true in this case. We are paying handsomely to the Federal Reserve and to the U.S. Treasury for the money that we're receiving.

We need it. We intend to pay every single penny, plus interest, back to the taxpayer.

KING: Ed, I thank you for joining us.

Would you join us again sometime soon?

I'd like to delve into this a lot more.

LIDDY: I'll join you again, Larry. And I'm going to do it when we are successful.

KING: OK. That's a co-promise.

LIDDY: Thank you.

KING: Ed Liddy, chairman and CEO of AIG, American International Group.

We'll be right back.

(COMMERCIAL BREAK)

KING: Now let's talk about the transition.

In Washington, D.C. is Kiki McLean. Kiki is the Democratic strategist and former senior adviser to Hillary Clinton.

Also in Washington, Michael Gerson, who worked on the Bush 2000 transition, a senior fellow with the Council On Foreign Relations.

In Chicago, our own Candy Crowley, CNN's senior political correspondent.

And back in Washington, Chris Cillizza. He is the White House correspondent for "The Washington Post." He writes The Fix column for "The Post" as -- for thepost.com.

There was an off-camera briefing today with John Podesta, who heads the transition team. I know, Chris, you were there.

What came out it?

CHRIS CILLIZZA, CORRESPONDENT, "THE WASHINGTON POST": You know, Larry, not all that much. The big news, I guess, the headline out of it was that Barack Obama is instituting many of the lobbying reforms, essentially that no lobbyist can raise money or contribute to this transition effort, that people who lobby can't be employed for a year afterward if they do work on the transition. So a series of lobbying measures, again, designed, as John Podesta said today, to end that revolving door.

Remember, this anti-lobbying sentiment was at the core of Barack Obama's campaign, the idea that Washington needs to be changed, that the back and forth -- the revolving door of people who serve in Congress or serve a member of Congress or serve a member of Congress then go lobby is fundamentally corrupting the institution.

So not terribly surprising.

KING: All right.

CILLIZZA: But if there was a headline, that was it.

KING: Kiki, what do you make of those who are -- some who are complaining about the appointment of Rahm Emanuel, saying that if Obama was asking for change, Rahm, a veteran in Congress, doesn't represent it?

KIKI MCLEAN, DEMOCRATIC STRATEGIST: Well, I think they don't know Rahm, because Rahm's got a terrific record of being an advocate for change and making real change happen.

You know, there is a reason there were really warm statements from some on the right and the center, as well as on the left for him. And that's because he's worked on important issues throughout his career, whether it was talking about how to deal with community policing, whether it was dealing with welfare reform.

He's not afraid to show leadership on sticky issues. He will be loyal to this president, represent his interests well.

And I have to tell you, people who have really worked closely with Rahm, you hear the -- you hear the dramatic stories. But what you don't really hear about is that absolutely driven commitment to making a difference.

KING: Yes.

MCLEAN: And that's why I think that Rahm took so seriously the president's request that he come back to public service in this way, as the chief of staff.

KING: Michael, you worked on the Bush 2000 transition. That was after a very tough, rough -- the campaign that lasted an extra month.

What was the tough -- what's the toughest part about a transition?

MICHAEL GERSON, SENIOR FELLOW, COUNCIL ON FOREIGN RELATIONS: Well, I worked on that inaugural speech, too. I mean we faced a very divided country, you know, by class and by political affiliation. And the president had to engage in some healing at the beginning. That was the themes of unity that he talked about.

And he focused very early on tax cuts, on education reform, things coming out of his agenda. And if you look at what happened in the first, say, hundred days, the president's approval ratings went up. He went to about 57 percent approval. And it was a pretty effective transition.

KING: Yes -- Candy Crowley, you're in Chicago.

Any talk -- any hints about any early cabinet appointments?

CANDY CROWLEY, CNN SENIOR POLITICAL CORRESPONDENT: Well, I think it depends on what your definition of early is. Usually these things come in December.

KING: Like tomorrow.

(LAUGHTER)

CROWLEY: Not tomorrow, no. And not this week. I can pretty much tell you that.

But they do intend, at this point, we're told, to have some announcements of cabinet nominees by the end of this month. And we've also been told -- and we can put these two together -- that it is very important to Barack Obama that he have a Treasury secretary out there as a sort of a calming, you know, OK, here's the guy he's going to have it in charge. They think that would have a calming effect, sort of a signal to voters that he is doing what he promised he would do.

I suspect we would also see a secretary of State or secretary of Defense, maybe both, simply because there are two ongoing wars.

KING: And we'll be right back with this outstanding panel in 60 seconds.

(COMMERCIAL BREAK)

KING: Aboard the Intrepid today, on this Veterans Day, in the harbor in New York, our own Heidi Collins interviewed President Bush.

Watch a little.

(BEGIN VIDEO CLIP)

GEORGE BUSH, PRESIDENT OF THE UNITED STATES: We had a good conversation. I was very pleased.

And I remember the conversation I had with my predecessor, Bill Clinton. As a matter of fact, I called him yesterday and, you know, I said, Bill, I'm getting ready to meet with the new president and I remember how gracious you were to me and I hope I can be as gracious to President-Elect Obama as you were to me.

(END VIDEO CLIP)

KING: Chris, these exchanges after bitter races are kind of extraordinary, aren't they?

CILLIZZA: You know, Larry, two quick things. One is I do think it is amazing and it's a testament to the strength of our democracy, to be honest with you, that we can go through what is essentially a full two year campaign in which Barack Obama ran against George Bush as much as he ran against John McCain, and yet the two men can sit and according to -- and, again, this comes from that briefing today -- according to John Podesta, have a collegial conversation. Some debate, Larry, over whether they disagreed on the right way to help out the auto industry. Both sides downplaying any controversy there.

Again, I think both sides have a vested interest in making this go as smoothly as possible for the reason that Candy mentioned, which is people are feeling very much that economic crisis. They do not want there to be any sense that there isn't a smooth transition in leadership.

So I think it matters more than it might in past years.

KING: And we'll take another quick break and we'll be right back with more of the panel.

Don't go away.

(COMMERCIAL BREAK)

KING: We're back.

Candy Crowley, I hate the fact that you're standing in the rain. That makes me feel bad.

CROWLEY: I have a tent.

KING: I have -- I feel bad.

How much of this transition team effort is focused on personnel and how much on policy?

CROWLEY: Well, it's both, really. But the policy has been in place for some time. He has, all along, been talking to his foreign policy team and his economic team, even as he campaigned, because that's when they were structuring his campaign policy and that sort of thing. And they expect it to carry over.

But there is also, obviously, a lot of personnel, a lot of places to fill. And that's what the transition team is doing.

Barack Obama is less involved in the sort of lesser nominees or the -- you know, there's a lot -- like over 1,100 presidential appointees, I think. And so his focus is not there. His focus is much more on the cabinet and on how you hit the ground moving -- how does he, if there's not a stimulus package, do that as quickly as possible?

So there's talks back and forth, as well, with Capitol Hill.

So there are lots of things going on. I wouldn't say that, you know, one is -- they do more than the other. It's pretty much everything all at once.

KING: Michael, the president told me -- the president-elect told me that there would be Republicans in his administration.

Do you expect two or three on the cabinet? GERSON: Yes. It's not unprecedented. Bill Clinton had a Republican defense secretary and John Kennedy had a Republican Treasury secretary.

You know, I think that would be reassuring. And a lot of the emphasis has been on Gates -- on Secretary of Defense Gates...

KING: Yes.

GERSON: ...and whether he would be kept or not. I think it would be a tremendous reward for excellence, as well as an outreach to Republicans. And Gates, you know, shares many of Obama's views on engaging Iran, on Afghanistan policy. I think it would be a very smart choice and a sign of continuity at a -- you know, at a time of great foment in the world.

KING: Kiki, we know that Barack Obama is a great fan of Lincoln and has read almost everything written about him. And we know that Lincoln appointed a cabinet with almost -- more than half who were his enemies.

MCLEAN: Well...

KING: Do you think Obama might stretch that far?

MCLEAN: Well, I don't know that it has to be enemies, but I think he definitely invites vigorous debate and wants different viewpoints. And he's talked about that before. And, of course, that's what Lincoln was famous for and it's been written about by famous historians.

But I also think that he's also already stepped out and shown his leadership in this transition, not only by the formation of the ethics rules, which Chris talked about earlier, but also in the signals he's sent.

Number one, recognizing there's only one president of the United States at one time. And he's demonstrated that respect.

But, number two, also demonstrating what he wants first. And what he wants first is to get this economy back on track. And he made it very clear in his public statements this week if Congress doesn't deal with the stimulus package when they come back later this month, it will be the first thing he does.

So he has not been very much in the gray zone with what he's signaling. He's shown a lot of leadership on that front already.

But I do think that he believes that there's a lot of talent in this country -- some that we know about and some we don't. And he intends to tap that talent.

KING: Chris, do you think he comes in moderately or with guns blazing?

CILLIZZA: Larry, I think that is the most fascinating question. I can tell you, as someone who is going to be covering the White House, that's the one I'm trying to figure out.

I do think there is an argument for Barack Obama to come in and try and push something big early. He had 364 or 365 electoral votes. He won 52.6 percent of the popular vote. He's going to bring in six, at least, new Democratic senators; 24 new Democratic House members. He's going to have big margins in both of those places.

So there is an argument to be made that he has -- and I'm using this phrase guardedly given President Bush's use of it -- political capital to spend. Remember, President Bush, after winning re-election in 2004, tried to reform the Social Security system unsuccessfully.

I think Barack Obama needs to find a middle ground. You don't want to do something quixotic that can't get through Congress, but you want to take on something big, show the country that you're not a small idea as president, you're a big idea as president.

KING: Candy, there's the G20 summit this weekend. Obama is not attending.

Should he?

CROWLEY: Well, I think that fits with what Chris just said, or Kiki just said, which is he's said a couple of times there's only one president at a time, and that is President Bush.

It doesn't mean that they won't be closely monitoring this or that an Obama representative wouldn't be there in some way, shape or form. But he just didn't think the world stage, at this point, needed two presidents of the United States. And he has made it very clear that, particularly overseas at this point, what needs to be said to the international community is George Bush is still the president.

KING: Michael, as a Republican, are there parts of you excited about this?

GERSON: Oh, absolutely. I mean, a new administration is always a new beginning. And this is extraordinary. I mean, you know -- and the racial aspect feeds into this. I mean I worked at the White House. It was built, in part, by slave labor.

KING: Yes.

GERSON: It was -- you know, he'll take the inaugural address on the West front of the Capitol, a few yards from where there were slave trading tents in the 19th century.

This is a fantastic, extraordinary, great moment in American history, no matter what your political views. That's the reality. I think all Americans should feel that.

KING: We have 30 seconds.

Kiki, would Hillary take a post outside the Senate?

Would she leave the Senate? MCLEAN: I think she's focused on being the senator from New York. But I also know that she's very dedicated to making sure that our new president has all the support he needs in a variety of roles. And I think she's going to be helpful wherever she serves from.

KING: Thank you all very much.

What's going on in the Republican Party?

Can the GOP get its act back?

Can it get it together?

Where did it go?

That's next.

(COMMERCIAL BREAK)

KING: The next topic is the future of the Republican Party.

We have an outstanding panel.

In Washington is Representative Chris Shays, the Connecticut Congressman who just lost his re-election bid after a long time in the U.S. House.

Amy Holmes is there, too, CNN political contributor, self- described Independent conservative.

Here with us in L.A. is Michael Reagan, conservative talk show radio talk show host.

And in Atlanta is Neal Boortz, radio talk show host who is self- described as a Libertarian.

Congressman Shays, the first question is obvious -- how tough was that defeat and do you feel just drawn into the onslaught?

REP. CHRIS SHAYS (R), CONNECTICUT: Why am I the only one not smiling tonight? You know, I thought I was at the top of my game, in the sense that my staff was doing a great job. I thought my record was good. Great communication with my constituents. I could not convince one, practically, African-American to vote for me.

Then my district was hit by the financial crisis. This district was hit harder than any in the country. So I think we can overplay the problem of the Republican party. I mean, we had a president who was not popular and not popular for a long time. And didn't have practically one good week in the last six years.

KING: Does he have a good point, Amy?

AMY HOLMES, CNN POLITICAL CONTRIBUTOR: I think he does. And, Congressman, if I lived in your district in Connecticut, I would have voted for you. I'm sorry about that outcome. I think the Congressman is absolutely right about the president's low, low approval numbers. And I think we can over think this. Let's look at 2004 and 2008 exit polling in self-described liberals versus self-described conservatives. Conservatives still far outnumber liberals. It's the same number.

As you saw in the Democratic primary, none of the candidates were willing to say they were liberal. They come up with terms like progressive, anything to escape that label. I think what we saw among conservatives or in the conservative sphere in this election was we didn't have a candidate who could clearly articulate that principal, that philosophy, and apply it to the economic crisis that we're facing right now.

KING: Michael, what happened?

MICHAEL REAGAN, RADIO TALK SHOW HOST: Well, 30 percent of the conservatives either voted for Barack Obama or stayed home, because of the candidate at the top of the ticket. Amy's right. There was a candidate at the top of the ticket who could not articulate a conservative position.

It's interesting, 31 percent of the voters out there, Larry, believe that Barack Obama was conservative. He was the tax cutter. Only 11 percent of the voters believed that John McCain was a tax cutter. So what you see here is the Republican party lost its way, lost its leadership, and needs to get back to the basics of, you know, smaller government, lower taxes, strong defense. They have to sell that message back to America.

KING: Neil, what happened?

NEIL BOORTZ, RADIO TALK SHOW HOST: Well, the Republicans just totally abandoned the principles they were put into power under in 1994, I mean, absolutely. They were going to get rid of the Department of Education. They doubled it, increased its size. Same for government, doubled government spending.

Yes, the president had a low approval rating, but it was still quite a bit higher than the approval rating that Congress had going into this election. So I don't think we can blame a Congressional loss on a presidential approval rating, when the Congressional approval rating -- you would have loved to have had the president's approval rating going into this election.

KING: But Neil, isn't that the total Congress, but most individual Congressmen get re-elected.

BOORTZ: This is a problem. There are 435, I think, Congressmen, and you ask a voter out there, and 434 of them are rascals and need to be sent home, except theirs and theirs is -- I'm sorry, Congressman Shays, but theirs is doing a good job. We have a chance to change the entire complexion of government in this country every two years in a Congressional election, and we never take advantage of that.

HOLMES: Can I ask something, Larry?

KING: Go ahead, Amy.

HOLMES: Sure. The day after the presidential election I would draw people's attention to the fact that Harry Reid said Barack Obama's election was not a mandate for ideology. It was not a mandate for party. So I think that Republicans need to look at that and say the American people didn't vote to lurch left. It was the moderates who decided that Barack Obama was a more confident, hopeful leader.

KING: Congressman Shays, the Karl Rove blueprint was stress security and patriotism. Didn't work. Why?

SHAYS: There are a whole host of reasons why. You know, we had a party that thought they could gain and maintain control by impeaching Bill Clinton. We got off the ideas that we got excited about in '94. The party of ideas began to be the party to impeach Bill Clinton and hold on to power. And we began to be a party that said, if we raise more money than our opponents, that's how we're going to win.

Ideas were pushed aside. What happened with Terry Schiavo? I mean, this was a conservative idea. Let's take Terry Schiavo out of the Florida court and bring her up into the federal court. I mean, totally contrary to what I was taught Republicans believe in. But that's what the social conservatives wanted to do.

I mean, with all due respect, we started losing our power well before today. And, you know, to blame John McCain I think is absolutely an absurdity. He was ahead in the polls before the economy took a nose dive.

KING: Let me get a break and we'll come right back. What should the Republicans do next? That's next.

(COMMERCIAL BREAK)

KING: Michael Reagan, the key question for you and the rest of the panel, where do you go now?

REAGAN: Where you go now is go back to the beginning. Say listen, what got us to the mountain top? It was really Reagan politics that got us to the mountain top. You know, small government, lower taxes, strong defense, a consistent message out to Americans. John McCain did not have a consistent message.

KING: Now it's only a message. You don't have the power to do it.

REAGAN: No, but the Republican party needs to find itself and get back to those roots, and take the people who in fact took us down the wrong path and say maybe, you e need to go somewhere else.

KING: Neal, what would you do if you were, say, chairman of the RNC?

BOORTZ: First, it goes without saying I'd push the Fair Tax. If I was chairman of the RNC, I would propose a Tenth Amendment Commission. Put us in power,we're going to appoint a commission of government, business, and citizens to study the Tenth Amendment and come up with recommendations on how to return government to the local level, to weaken the federal government, strengthen the local government. That's what our founding fathers had in mind. That's what we need to go back to.

This whole presidential beauty contest is, quite frankly, just too important. It shouldn't be this big of a deal in this country.

REAGAN: Let me jump in for a minute. One of problems the Republicans have is the Democrat (sic) party, ideology really drives their train. Republicans are always looking for the leader to lead them. And right now there's no leader. They're all over the map. Whether you have Neil in Atlanta or myself or Amy or Chris Shays, there is no real leader in this party.

KING: Amy, what would you do?

HOLMES: If I were RNC chairman, I would be recruiting young, Gen-Y future politician. And I think one of the things the Republican party will have to grapple with is the issue of social conservatism. If you look at the California Prop 8 that passed, which was to say marriage was between a man and a woman in the state of California, that was passed by the African-American vote putting it over the finishing line. Young people voted against it in huge numbers. The Republican party is going to need to figure out to reach out to those young voters, future politician based on economic conservatism, foreign policy, and strong national defense.

I think there's going to have to be a reckoning between the Christian right and -- which I respect as do lots of pro-choice, moderate voters, but also to create a big tent so that we can fit.

KING: Chris Shays, two questions. First, where does your party go, and will you come back and run again?

SHAYS: Well, I may. It's hard to imagine when you just have had a defeat that you thought you were going to win. You know, it kind of says to you I better think this over. My two-year contract was not renewed, Larry.

But, you know what? I'm struck with -- and maybe it's just that I'm still feeling the pain -- there is no Republican Congressman in all of New England, 21 seats, all Democrat. There are only three Republican Congressmen in New York, out of 29. You put them together, 50 Congressmen, only three are Republicans.

You know, we have the white, male vote. That's what we've got. We have lost in a region. People better come back and say, how come we're not representing the region? If you want to go backwards, and that's what I'm hearing people say, and try to grab on to something in the past, we've got young people who want to go forward.

This should be a party that cares about the environment. This should be a party that wants African-Americans to be a part of it and Latinos. And I don't think you're going to do it by going backwards and saying, smaller government as the solution. It could be a part of it, but it shouldn't be all of it.

KING: Good point?

REAGAN: Good point, to a point. But when I say go back to what Ronald Reagan stood for; Ronald Reagan also understood about building the party. The Republican party has made a mistake in the past of building the party from the top down. And Ronald Reagan understood you have build it from the bottom up. That's what we need to do, rebuild the party from the bottom up, so therefore, it doesn't matter if we get the White House. We have every other house. Democrats have done it for years. We have to learn that too.

KING: Sarah Palin tomorrow night. We'll be back in 60 seconds with a look at 2012. It's never too early. Don't go away.

(COMMERCIAL BREAK)

KING: We're going to spend a few moments with Amy Holmes. And she's up and at the board. And we're going to discuss potential Republican possibilities in the year 2012. Some of the governors are in the mix, too. Let's start with Governor Bobby Jindal of Louisiana. How do you rate him.

HOLMES: I rate him very high. Republicans do too. He's young. He's wicked smart. He's a hotshot. He's down there in the south. He is also of Indian descent. This is someone who is popular with Evangelicals and can articulate a conservative economic policy. I see him in the next four years really growing and raising his national profile.

KING: Governor Time Pawlenty of Minnesota.

HOLMES: Yes, well what he has going for him is that he is a Republican governor in a blue state. He also is young. He has that working class background. His dad was a milk truck driver. He is one of five kids. But he's a little bland. That's part of what hurt him in this whole veep stakes this last time around. He is going to need to raise his national profile and really distinguish himself.

KING: He was supposed to be a vice presidential possibility with McCain.

HOLMES: He was. He was talked about a lot, along with some of the other folks that we're talking about, but didn't break through. He didn't have that connection with the American people just yet.

KING: Governor Charlie Crist of Florida. He is a very popular governor.

HOLMES: He is a popular governor. He has John Walsh of "America's Most Wanted" as a very good friend. He is considered a moderate. He's crossed ways with Evangelicals on the Terry Schiavo's case that Congressman Shays was talking about, the congressman's position more than the Evangelicals. But he has said that he would sign an abortion ban.

What's going for him? He delivered Florida for John McCain in the primary, but couldn't deliver it in the general.

KING: And Governor Mark Sanford of South Carolina?

HOLMES: Well, Mark Sanford is young. He's good looking. He's from South Carolina. And he has a flair for the dramatic and the theatric. He is an anti-pork crusader, fiscal conservative reformer. And to demonstrate his point, he brought a live pig into the House state just to show that he's going to cut the fat.

KING: All right. Some leftovers from 2008. Mitt Romney?

HOLMES: Well, you know Mitt Romney, Larry, he was basically the runner-up. He's got tons of money. Governor from Massachusetts. He can, four years from now, campaign as that outsider, that reformer. But I would say he still needs to develop his connection with the American people. I think there is still a little bit of the man tanned blow dried Ken Doll to him.

KING: Mike Huckabee?

HOLMES: Wow, Mike Huckabee. He's now hosted his own TV show on a network that will not be named. And maybe he's going to really like private life and making that money. We all know if you're on TV for long enough, you'll say something that will offend somebody.

KING: We'll have a quick line on Governor Sarah Palin. Of course we're going to discuss it when we get with the panel. But what about Sarah Palin? Quickly.

HOLMES: Quickly, she's got a 64 percent approval rating among Republican voters. She is a huge star. When did you ever talk about a losing VP this much?

KING: Good point. Amy, back to the table. And Sarah Palin will be here tomorrow night. Does she want to be president? We'll talk about that, next.

(COMMERCIAL BREAK)

KING: Let's discuss the aforementioned governor. Chris Shays, what do you make of her future in the party?

SHAYS: Well, she wasn't ready to be president today, but she will potentially be in four years. I have to tell you, in my district she was not well received.

KING: Because of?

SHAYS: You know, a variety of things. I think that I had a lot of women who felt if you have a woman, it should be a-pro choice woman and so they were offended by her politics. And then she didn't do well in one or two of the programs. She did a tremendous job at the convention and then didn't do so well. And I thought did a very good job in the debate.

KING: Michael? REAGAN: You know, Joe Biden made mistakes during the campaign, also. I think she did a great job. Let's face it. She was probably the best thing that happened to the McCain ticket, probably the first time a vice president actually helped the ticket, instead of hurting the ticket.

KING: Didn't it hurt at the end?

REAGAN: No, she didn't hurt at the end. What hurt at the end was John McCain. It always goes to the top of the ticket. That's who hurt at the end. When John McCain came back in one of the debates how he's going to fix the economy by a 30 billion dollar mortgage bailout, that killed him again with the conservatives. She was trying to keep the base together. He kept on blowing the base off.

Does she have a chance four years from now? Listen, it's an open field, everybody could have a chance in four years.

KING: Neil Boortz, what do you make of the young lady from Alaska?

BOORTZ: Sell, she's extremely likable. I think people will warm up to her. 2012 is going to totally depend on how well she does as governor from Alaska, or maybe as a senator of Alaska, after they dump Ted Stevens, a deserved dumping, we might add. But she could well be a star, a real factor in 2012.

KING: Amy, the governor was on "The Today Show" this morning. Here's what she had to say about the leaks and John McCain.

(BEGIN VIDEO CLIP)

MATT LAUER, "THE TODAY SHOW": Have you listened to some of the leaks that have come out since the election, where they're saying that the McCain people leaked, anonymously, were saying we couldn't control her; she was a rogue; she didn't want our consultants around her, and it became tense. Where did that come from?

GOV. SARAH PALIN (R), ALASKA: I honestly don't know because it's not true, Matt. Senator McCain and I have a great relationship. I have nothing but admiration and love for him and for his family. I think that is mutual. In fact, I talked to him just today again. And we have been touching base nearly every day.

LAUER: So it's a warm and friendly relationship to this day?

PALIN: Very warm and friendly and professional and I -- again, I have nothing but honor and admiration and love that I will show for this great American hero.

(END VIDEO CLIP)

KING: Anne, what's your read on the lady?

HOLMES: She was a rogue, charts her own course, doesn't like to be handled. That sounds like John McCain. I think with Sarah Palin, in the white hot heat of this general election, she had some sharp edges and they glinted. And among women, she was polarizing. I will tell you, women are harsh critics of other women. And the congressman is right that by being pro-life, that was a huge turnoff to a lot of female voters.

But she has four years to prove herself. We saw sassy Sarah, sexy Sarah. Hopefully over the next four years we'll see smart Sarah as governor of Alaska, having to tackle issues like energy, energy independence, the Alaskan oil pipeline. She has an opportunity to speak to think tanks in Washington, for example, the Council on Foreign Relations. There's a lot of ways she can showcase her talent and her intelligence, as well as the soft mothering, cooking, nurturing side of her that she's been doing the rounds lately.

KING: We'll be back with our panel right after this. Don't go away.

(COMMERCIAL BREAK)

KING: Michael Reagan wants to chime in.

REAGAN: To listen to Amy and Chris Shays talk about Sarah Palin and both of them brought up the whole thing of she being pro-life. This woman lived a pro-life life. She sat there and had child with downs Syndrome. She gave birth to the child. She supports her daughter, who is pregnant with a child. To take her on and say somehow we have to go another direction -- Ronald Reagan penned a book in 1983 about being pro life. The only president who to pen a book while president of the United States.

KING: Go ahead, Chris.

SHAYS: We're not being critical that that's her view. I'm trying to explain how people reacted to it. They wanted the stereotype that if you are going to be a woman, you had to fit the stereotype. And she didn't fit the stereotype that a lot of women want to see in a candidate.

REAGAN: There's a lot of women too -- I know a lot of pro-life women who supported Sarah Palin because of the way the media treated her, because she was a woman.

KING: Neil Boortz, do you think the pro-life aspect will help or hurt her while running for public office?

BOORTZ: I think the Republican party and their party ought to stick to governance. They ought to stick to returning a sense of self-reliance into the American people, freedom, economic liberty, and leave matters that are essentially religious to the religious practitioners, and not to the politicians.

SHAYS: Here, here.

KING: Spoken like a true libertarian. By the way, she was also on Fox today, Amy, and here's what she told Greta about 2012.

(BEGIN VIDEO CLIP)

PALIN: God, if there is an open door for me somewhere -- this is what I always pray -- don't let me miss the open door, show me where the open door is. Even if it's cracked a little bit, maybe I'll plow right on through that, and maybe prematurely plow through it, but don't let me miss an open door. If there is an open door in 12 or four years later, and if it's going to be a good for my family, for my state, for my nation, an opportunity for me, then I'll plow through that door.

(END VIDEO CLIP)

KING: Amy, is he hearing from God?

HOLMES: Well, I don't know what Sarah Palin and God talk about. But she did just add a religious dimension and a plowing dimension to something that Republicans -- politicians say all the time, which is I'm going to keep the opportunity open, but she needs to go back to work to Alaska to work for her constituents.

SHAYS: Abraham Lincoln listened to God. He mentions the almighty 13 times in the Second Inaugural Address. I think the criticism of her goes to the extreme. She's a gutsy, courageous woman, who was, as Amy says, a true maverick.

BOORTZ: Well, all of us hear from god, the problem is so many of us just don't listen.

KING: Are you confident about your party, Michael?

REAGAN: Oh, yes, I'm confident about the party, because I think there's a lot of good people out there we have to find who want to put this party back together, get back to its roots and move it forward. So I'm very confident about the party.

KING: Neil?

BOORTZ: No, frankly, I'm not. I was a little bit dismayed with Congressman Shays saying, you know, we have to maybe, what, embrace big government?

SHAYS: No.

BOORTZ: I want the Republican party to focus on individual self- reliance, back to individualism, and nurture the Americans who believe in -- America is great not because of government. It is great because of its people. We need a Republican party that recognizes that.

SHAYS: And the bottom line is this, if your sole objective is to have a smaller government, and you forget about the environment, you forget about our economy, your forget about our problems overseas, that's not going to win it. That's my only point.

BOORTZ: I would submit to you that the problems with our economy right now is government. HOLMES: I would jump in to add that I don't disagree with Neil, but I think that Republicans need to be able to tailor their message to the middle class economic anxiety that families are feeling. College tuition rates going up. We have this 700 billion dollar bailout, which a majority of the people didn't approve. Republicans were scattered and didn't know how to respond to that.

(CROSS TALK)

KING: All right guys, we'll have you all back quite a bit. You've got lots of time. Thank you all very much. Sarah Palin is here tomorrow. And if you would like me to ask a question or have a comment, go to CNN.com/LarryKing, click on blog and let us know.

And finally tonight, a salute to our veterans on this holiday. Thank you to those who have served, to those who are fighting and those who have made the ultimate sacrifice for all of us. We remember you and honor you on this day, your day, every day.