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STATE OF THE UNION WITH JOHN KING

Interview With Barack Obama; Interview With David Axelrod; Interview With Ed Gillespie

Aired January 18, 2009 - 09:00   ET

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


JOHN KING, HOST: Good morning from Washington, D.C. A capital city filled, filled with anticipation, and as you can see by looking around, busy with last-minute preparations. Fast approaching, the moment Barack Obama stands on the west steps of the United States Capitol, places his hand on the Lincoln Bible and swears to serve as the 44th president of the United States, the first African-American to hold that office.
We will see the president-elect shortly this morning, and we'll take you there live when the next commander in chief visits the hallowed ground of Arlington National Cemetery.

I'm John King. Thanks for being with us. Today is the first broadcast of "State of the Union." This Sunday and every Sunday, I'll sit down with Washington's power players, key international and business leaders, the people making the decisions and the policies you talk about and worry about around your kitchen table. Our remarkable reporters and analysts will stop by to add their insight and debate, and we won't stop there. I'll also hit the road just about every week for the work I love and value the most, to visit you, to hear firsthand about the impact of the decisions made here in Washington, and to test whether all the promises that politicians make to help in these troubling economic times are being kept.

We'll also have some help tracking the state of our union with our state-of-the-art CNN technologies, including my friend from the historic 2008 campaign, CNN's remarkable magic wall.

So let's begin. David Axelrod is as influential as it gets when it comes to the new administration, a key architect of Barack Obama's presidential campaign, and now set to serve as a senior adviser in the West Wing.

We'll talk to David in just a moment, but let's start with the man of the moment in what is his last scheduled interview before the inauguration. Barack Obama told me about taking his family to the Lincoln Memorial.

(BEGIN VIDEO CLIP)

OBAMA: We go and look at the Lincoln second inaugural, which is on the other wall, and Sasha looks up and she says, "Well, that's a long speech. Do you have to give one of those?" I said, "Actually, that one is pretty short. Mine may even be a little longer." At which point then Malia turns to me and says, "First African-American president. Better be good." (LAUGHTER)

(END VIDEO CLIP)

KING: The entire interview just ahead. And you won't want to miss the president-elect offering his economic prescription and his new impressions of the outgoing president. But first, the latest on Mr. Obama's preparations for this historic inaugural and his pivotal early hours in office. David Axelrod, thanks for joining us on "State of the Union."

AXELROD: Great to be here, John.

KING: I want to get to the big decisions that the new president will have to make, but, first, you're a friend. You are not just a senior adviser, you're a friend to Barack Obama. You were a key architect of the campaign that brought this moment about, and you've spent a lot of time with him as he goes over the speech and considers what he wants his first words to be to the American people as president.

What does this moment mean to you?

AXELROD: Oh, it's hard to put in words, John. It's been such an extraordinary journey. I mean, we started off together trying to persuade people that he could get elected as senator from Illinois, and it's been a magical journey ever since. And really, I applaud your notion about getting out to talk to the American people, because we drew our strength and inspiration from them.

But you can't help but be here this weekend and not be moved by the magnitude of this. And mostly, I'm thrilled because I really believe in him. I think this country needs an extraordinary president right now, and I think he'll be one.

KING: First actions matter. They set the tone of a new administration, they signal to the country and the world what will come. What do you expect this president's very first act will be?

AXELROD: Well, first of all, let me say I think it's telling that his first acts happened before he was president. He came to town two weeks early to begin working on an economic recovery package, because getting this economy moving again is absolutely paramount. And so he is going to continue to work on that.

And, you know, he's going to follow through on some of his other commitments. He will be meeting with the Joint Chiefs of Staff to -- to begin an orderly and responsible withdrawal from Iraq. He will be doing many of the other things that you heard him commit to during the campaign.

KING: There's some breaking news this morning. Israel yesterday said it would implement a cease-fire in Gaza. Hamas this morning, CNN has now confirmed, has said it will abide by a cease-fire as well. As you know from watching from the outside, these things often are very tentative and very fragile. Will the Obama administration have an envoy on the ground in the Middle East on Tuesday, on day one?

AXELROD: Well, first of all, let me say that all of us are hopeful that a cessation of violence will hold. But the president- elect has said repeatedly that he intends to engage early and aggressively with diplomacy all over the world and using the men and women, the professionals who are in place, who are great, and, where appropriate, special envoys.

KING: That fast, though? AXELROD: Well, I think that the events around the world demand that he act quickly, and I think you'll see him act quickly.

KING: The big priority at home, obviously, is the economy. And the stimulus package is making its way through Congress, $850 billion roughly is the House version. It still of course has to go over to the Senate.

There are some in the House who say this is a starting point, a down payment. The economy is in such dire straits, we are going to need even more money. There are Republicans who say we'd like to work with the new president, but we look at this bill and we see a whole bunch of old Democratic pork barrel spending, a lot of which they don't believe will actually create jobs in America, but will instead go to schools or go to places that might be worthy spending, but not something that will create jobs immediately.

Will President Obama say this is all we can afford, $825, $850 billion, or will we be printing money throughout this administration?

AXELROD: Well, we -- we have been involved in discussions with Congress for the last few weeks. We started with a figure that was somewhat lower than that. Obviously, there are limits to what we can do, but we do have to think boldly right now, that the scope of the emergency we face is so large that economists from the right to the left agree we have to do something big.

But let me just say this on the question of how the money is spent. We were determined and we are determined not to simply spend money to create jobs in the short term -- and we do believe it will create 3.5 to 4 million jobs -- but we're determined to make investments that will strengthen the economy in the long run. Investments in alternative energy, investments in creating the classrooms of the 21st century, so our kids can be competitive, investments in computerizing medical records across this country to reduce health care costs and improve care. These are the kinds of investments that we need to make as a down payment on our future. And it does have economic -- profound economic implications. So we have to think long term and short term here.

KING: In the campaign, candidate Barack Obama promised the most open and transparent administration in American history. Your Treasury secretary nominee has hit a speed bump at a minimum over the disclosure that he failed to pay some $30,000 in taxes. He has paid those taxes, he has paid the interest, but the transition disclosed that to the Senate Finance Committee on December 5th. The American people were not told about this publicly until January 13th. Is that -- can you call that truly open and transparent, when the American people were not told something for more than a month that's pretty critical?

AXELROD: John, it is absolutely appropriate for us to first take this matter to the Finance Committee. It was very clear that that was going to be discussed in open hearings for the American people to watch and formulate their own judgment. So I wouldn't say this is a transparency issue. And as to Tim Geithner, yes, he made a mistake on his taxes. It was related to his service overseas and how certain withholding was treated. Most accountants say this is a fairly common mistake. When it was discovered, he redressed it.

The bigger point is, here is a guy who'd been involved in public service all his life, who was a major architect of the last international financial rescue in the '90s, who has vast experience and great values and a great insight into this process.

So I think when the American people get to know Tim Geithner, it's going to inspire the same kind of confidence that those in the financial and economic community feel.

KING: Let me ask you lastly a question about this inauguration. We are expecting millions here in Washington. There is a great sense of anticipation and celebration. Also some questions about some of the decisions made. More than $5 million in licensing rights paid to the Inaugural Committee. There's a concert this afternoon at the Lincoln Memorial. One network, cable network, has purchased the rights to that. ABC has purchased the rights to other events, other media outlets.

In an open and transparent administration, is that the way to do business, to sell exclusive access to events?

AXELROD: Well, the real issue was how were we going to finance these events. And, you know, we've asked the American people to help support the inaugural, but these are hard times. They have their limits. This was a way to defray some of those costs, and that's the decision we made.

But I'm sure that you and others will be thoroughly covering all of these events. I don't think the American people will be cheated in the least.

KING: All right, David Axelrod, I wish we had more time, but we are tight on time today because we have a big interview with your boss, the president-elect of the United States. We thank you for joining us...

AXELROD: Good luck.

KING: ... on "State of the Union," and you're welcome back anytime.

AXELROD: Thank you.

KING: David, thank you very much. And later, we'll get a very different take from David's counterpart in the outgoing Bush administration, the White Counselor Ed Gillespie. "State of the Union" is just getting started.

We will also talk over Tuesday's celebration with some of our top analysts. Howie Kurtz will take a tough look at how the media covers the new administration with his "Reliable Sources." And CNN's reporters across the city will bring you everything that's happening in these big final hours before the inauguration.

But next, my exclusive interview with President-elect Barack Obama, when "State of the Union" returns.

(COMMERCIAL BREAK)

KING: Welcome back to "State of the Union," live today from high atop the Newseum in beautiful Washington, D.C.

When Barack Obama takes office this Tuesday, job one will be turning around an economy in deep recession. The effects are being felt across the United States, but it's particularly tough in the industrial states like Ohio, where the unemployment rate is among the highest in the country.

On Friday, I joined Barack Obama in Bedford Heights, Ohio, at a plant that manufactures parts for wind turbines, exactly the type of green business the president-elect hopes to boost with a proposed stimulus package that will cost the taxpayers some $800 billion.

When we sat down on the factory floor, we talked at length about his economic policies, but I began by asking about the history at hand.

(BEGIN VIDEOTAPE)

KING: Mr. President-Elect, thanks so much for joining us.

OBAMA: Thanks for having me.

KING: A lot of policy ground I want to cover, but I want to start with the moment. You are on the verge of putting your hand on the Lincoln Bible and taking the oath of office on the steps of the United States Capitol, built on the back of slaves. And you will walk down Pennsylvania Avenue and you will move into a historic house, built on the backs of slaves.

OBAMA: Yes.

KING: You're known as no-drama Obama. Some people say, well, he's too detached and he's so cool, you never see his emotions. This has to be incredibly overwhelming.

OBAMA: Well, look, if you think about the journey that this country has made, then it can't help but stir your heart. Obviously, it's an extraordinary personal moment, but you know, you don't have to go back to slavery. You can think about what Washington, D.C. was like 50 years ago or 60 years ago, and the notion that I now will be standing there and sworn in as the 44th president I think is something that hopefully our children take for granted, but our grandparents I think are still stunned by, and it's a remarkable moment.

KING: A remarkable moment, but you're still pretty cool in describing it. In private, do you get more emotional? John Lewis, for example. He was beaten. He was jailed. He walked the walk of the journey he thinks you're helping almost complete. There's more to be done, and he says he might not be able to keep it together at the inauguration.

OBAMA: Well, I'm going to try to keep it together. But I will tell you that during the convention, there was a moment at the end of my convention speech, where I talk about Dr. King and what he accomplished. And the first time we practiced it, I had to stop. I started choking up, because, you know, what you start thinking about is not just your own personal journey, but you think about all the women who walked instead of riding the bus, about Montgomery and Birmingham, and what a moment like this would mean to them.

And what's remarkable is, some of them are still alive. They're still there, and some of them are going to be standing there at the inauguration.

KING: We'll get back to the moment, but I want to go through some policy ground. Let's start with where we are. We're in Ohio.

OBAMA: Right.

KING: This state is struggling. The country is struggling. This factory we're in today is a success story, and it's one of the reasons you're here. But if you go around this neighborhood, many of the factories are bleeding jobs and they're losing, a lot of them are in the auto industry.

We had breakfast this morning with some local people, and if I could boil their economic concerns into one question, it would be, to their new president, they want to know when will the bleeding stop?

OBAMA: Well, we're going to have a tough year, 2009. I don't think that any economist disputes that we're in the worst economic crisis since the Great Depression. The good news is that we're getting a consensus around what needs to be done. We've got to have a bold, aggressive reinvestment and recovery package. It's working its way through Congress. That's going to help create or save 3 to 4 million new jobs.

What we also need is to make sure that those jobs are in industries that can lay the foundation for long-term economic growth. And that's why this factory's so special, because what you're seeing here are traditional manufacturing converted to focus on the wind turbines and wind power of the future. And so, what we want to do is to try to duplicate the success here.

These folks use American steel. They've got American workers, and their goods are being imported to create American energy. And what we want to see if what we can do is to duplicate this, train workers. We're still going to have to focus on stabilizing our financial system, and so I was glad that Congress gave us the authority to use much more wisely the money that's been allocated to stabilize the financial system, deal with home foreclosures in a serious way. And we've got to have tough financial regulations, so that we don't have Wall Street getting the country into the kind of crisis that we're in right now anymore.

KING: You mentioned the solutions -- the stimulus plan, the recovery plan as you call it, the bailout plan, the TARP program as they call it in Washington. You'll get that money. It's hard to find anybody who disputes the urgency, but you find a lot of people worried about the price tag.

OBAMA: And they should be.

KING: One of your key allies in Congress said just yesterday, $850 billion in stimulus may be a first step. They might need more. You know what the bankers are saying on Wall Street, that the financial institutions are still losing money. Many of them holding on to that federal money even, and they say it might not be enough. $700 billion might not be enough. Are you going to have to in your early days draw a line, say we can't keep printing money? This is it.

OBAMA: Here's what we're going to have to do. We've got to distinguish between short term and long term. Short term, the most important thing is to put people back to work. All those folks that you had breakfast with. If they're working, that means they're paying taxes, that means that they're buying goods and services, and the economy, instead of being on a downward spiral, starts back up on an upward spiral.

But what we also have to recognize is that the deficit levels that I'm inheriting -- over $1 trillion coming out of last year -- that that is unsustainable. At a certain point, other countries stop buying our debt. At a certain point, we'd end up having to raise interest rates, and it would end up creating more economic chaos, and potentially inflation.

So what we want to do is to say that instead of just printing more money, let's look at medium term and long term. Let's get a handle on Social Security. Let's get a handle on Medicare. Let's eliminate waste in government where it exists. Let's reform our Pentagon procurement practices. All those things are going to have to be done in concert, and that's going to be tough. It's going to be tough, because the only way to do it is if Democrats and Republicans both are willing to give up a little bit of what they consider to be their favorite programs. And we're going to have to look at all this stuff in a fairly short period of time, because we're not going to have five or 10 or 15 years to kick the can down the road. We've got to get started right now.

KING: Back a few years ago, Ross Perot used to get attention for saying there's this giant sucking sound of U.S. jobs going overseas. Many people now say they hear this constant flushing sound, $700 billion. They don't know where it's going, and they think it's going literally down the toilet.

I want to read you a question. We asked some of our viewers what would they like to ask the president-elect, and John Stevens (ph) of Torriton (ph), Connecticut, to the point you were just making about mortgages and foreclosures. He says.

(BEGIN VIDEO CLIP)

UNKNOWN: I'm unemployed, going through a foreclosure. The bank doesn't want to work with me. They've actually told me on the phone that it's easier for them and more cost-effective for them to take my home than to work out a payment plan with me.

(END VIDEO CLIP)

KING: Are there not specific things, requirements for these banks? If you're going to get billions of dollars in taxpayer money, you have to help these people.

OBAMA: That's my attitude, and that's what we're going to have in our plan.

Look, there's no doubt that we needed to stabilize the banking system. It could have been even more catastrophic. When we saw the stock market start collapsing in September, we could have seen a serious downward spiral.

But there's nothing wrong with us placing some conditions, making sure the money's not going to executive compensation, making sure that you're not seeing big dividend payouts to shareholders, and making sure that money is being lent so that we can get credit flowing again, not just to individual homeowners who are losing their homes, but also small businesses, who are the lifeblood of this economy. If they can't get credit, then they end up having to shutter their doors. And when they shutter their doors, people lose jobs. They then can't pay their mortgage, and you start down the road that we're on.

We want to reverse that path, and that means that the way we use the next $350 billion that Congress voted on -- and that was a very tough vote for a lot of people, so -- and it was tough for me to have to request it. We've got to make sure that it's transparent, that there's oversight, that the American people know exactly how the money's being used, and that dealing with home foreclosure is a central policy in that program.

(END VIDEOTAPE)

KING: President-elect Barack Obama on what he plans to do when he gets to the Oval Office. When we come back, I'll ask the president-elect which campaign promises he may simply not be able to keep. Much more of "State of the Union" just ahead.

(COMMERCIAL BREAK)

KING: Live picture here of 1651 Pennsylvania Avenue. 1651 just across the street from 1600 Pennsylvania Avenue. Barack Obama will move into 1600, the White House, on Tuesday. For now, he's staying at the presidential guest house, that is Blair House in Washington, D.C. We're watching these pictures because Mr. Obama will soon leave Blair House and head across the Potomac River to Arlington National Cemetery, where the Vice President-elect Joe Biden will join him for a wreath laying ceremony. We will bring you that event live, but first, let's return to my exclusive interview with the president-elect. During the heated presidential campaign, Barack Obama offered a long list of promises he hoped to pass if elected. Now, faced with a dismal economic outlook for the next year, and maybe much longer, the president-elect faces some tough decisions. Those hard choices were part of our conversation in Bedford Heights, Ohio.

(BEGIN VIDEOTAPE)

KING: Every new president learns that government -- governing math is sometimes a little more difficult than campaign math, and you've talked about this, that there will be trade-offs and some people are going to have to wait.

I want to talk about a couple of them. You made a big priority during the campaign, you said $50 to $65 billion you would spend on health care reform, and you would get that money from rolling back the Bush tax cuts for people who make over $250,000 a year. Even many who want to roll those tax cuts back say not now, would hurt the economy at a precious time. Does that mean you will let those tax cuts stay in place for a while and say to people who are urgently waiting, health care reform is going to have to wait a little bit?

OBAMA: We have not made a final decision on this. We'll be unveiling our budget in February. The important principle is that folks making more than $250,000 a year can afford to give up those Bush tax cuts so we can give those tax breaks to 95 percent of working families, who desperately need some relief.

We are going to make sure that that's part of our package.

KING: But it might take a little longer.

OBAMA: It might take a little bit longer. Keep in mind, though, that the legislation to get our health care plan in place is going to take a significant amount of time during the course of this year. That is a huge process.

We've got to get all the stakeholders together, the providers, the nurses, the doctors, the hospitals, everybody is going to have to sit around the table, and then we've got to move it through Congress.

So what I -- but here's the good news, that in the economic recovery package that we put together, we have a lot of investment in making the health care system more efficient. Those are things that had to be paid for anyway.

Just a simple thing like converting from a paper system to electronic medical records for every single person can drastically reduce costs, drastically reduce medical error, make not only health care more affordable, but also improve its quality. KING: If you're not busy enough, you now say early on you will have an entitlement summit.

OBAMA: Yes.

KING: President Clinton tried some of this.

OBAMA: Yes.

KING: I know you disagreed with his proposals, but President Bush put a lot of capital into this. It's a frustrating challenge that presidents in the past have faced. You'll have this summit, but what is your timetable for action in Congress?

OBAMA: Well, you know, I think here's the difference. There is something about $1 trillion that gets people's attention. And...

KING: One would hope.

OBAMA: I hope. And I think that across the political spectrum, people are looking at what we have to do now to get this economy back on track, and they're saying to themselves, we know we can't sustain this, and that means we've got to make some tough decisions. And I'm going to be using a significant amount of political capital.

OBAMA: What I want to do is lay out the situation for the American people. And this is going to be a general principle of governing. No spin, play it straight, describe to the American people the state that we're in. And then provide them and Congress a sense of direction. Here's how I think we can solve this problem. Now I'm not going to get my way 100 percent of the time. I expect that people will have good ideas. And if they've got better ideas in terms of how to deal with Medicare or Social Security than I do, I will gladly accept them. I just want things to work. But what I know will not work is us seeing our debt levels double again like they did under George W. Bush. We can't do it and it's a burden on future generations that I'm not willing to accept. KING: You went to every corner of this country promising to restore trust and confidence in government and particularly and especially in Washington. OBAMA: Yes. KING: Do you think that promise is in any way at risk because of the controversy over your pick to be treasury secretary, who failed to pay more than $30,000 in taxes? You have said it's an honest mistake, people make them. The New York Times, for example, has an editorial today saying, not the right guy for the job at this time of economic peril. They say this controversy has tainted his ability to command respect and instill confidence. OBAMA: Well, you know, The New York Times editorial page has a lot of opinions, as does The Wall Street Journal editorial page, and some of them are better than others. This wasn't a good one. Tim Geithner... KING: He's going to be the head of the IRS, the man who... OBAMA: I understand. KING: ... implements and administers the tax code. OBAMA: But keep in mind, nobody disputes that this guy is the best-equipped guy for the job. That he has got the best qualifications imaginable. That he has dealt with financial crises consistently and steadily. And so the notion that somebody who has made what is a common mistake because they worked for an international organization, they paid this money back, paid penalties, and the notion that somehow that is disqualifying makes absolutely no sense. And, you know, the -- I think that one of the things that we need to change about Washington is this notion that if you can play gotcha and you find, over the course of an exemplary record, one mistake that somebody makes that somehow that's disqualifying. If that were true, then I could be president, and you probably couldn't be a correspondent. So what I want is somebody who has terrific qualifications for the job, who has core integrity. I'm not looking for somebody who has never made a mistake in their life. And I don't think the American people are either. KING: You will have the power at the end of that parade to, at the stroke of a pen, lift the federal ban on embryonic stem cell research. There may be the votes to do it in Congress now, but you don't have to wait, you could do it in your first few minutes in office, will you? OBAMA: Well, you know, if we can do something legislative, then I usually prefer a legislative process because those are the people's representatives.

And I think that on embryonic stem cell research, the fact that you have a bipartisan support around that issue, the fact that you have Republicans like Orrin Hatch who are fierce opponents of abortion and yet recognize that there is a moral and ethical mechanism to insure that people with Parkinson's disease and Alzheimer's can actually find potentially some hope out there, you know, I think that sends a powerful message. So we're still examining what things we'll do through executive order. But I like the idea of the American people's representatives expressing their views on an issue like this. KING: You spent two years traveling the country saying President Bush was incompetent when it came to domestic leadership, had a debacle of a war in Iraq, and had hurt our image around the world. You've gotten to know him a little bit better during what by all accounts is an incredibly smooth and professional transition. Anything about him you want to take back or any new judgments about him? OBAMA: You know, I think if you would look at my -- if you look at my statements throughout the campaign, I always thought he was a good guy. I mean, I think personally he is a good man who loves his family and loves his country. And I think he made the best decisions that he could at times under some very difficult circumstances. That does not detract from my assessment that over the last several years we have made a series of bad choices and we are now going to be inheriting the consequences of a lot of those bad choices. That does not mean that I think he's not a good person. And his White House staff has done an extraordinary job in working with us for a smooth transition. And that's part of what, I think, America is about. That we can have disagreements politically but still treat each other civilly, and I think he has embodied that during this process. (END VIDEOTAPE)

KING: And indeed, by all accounts, this has been an amazingly cordial and efficient transition period. In the final part of the interview, we turn from policy to the personal.

How has the Obama family handled the move to Washington? And have they decided, you'll want to know this, on that first puppy yet?

If you've missed any of our exclusive interview with Barack Obama, you'll get another chance at noon Eastern time. "STATE OF THE UNION," the first and last words in Sunday talk, live from the Newseum here in Washington, D.C., we'll be right back.

(COMMERCIAL BREAK)

KING: You're looking at the beautiful National Mall in Washington, D.C. President-elect Barack Obama has an entire team of experts to help him with the official transition to power. It's a different matter, of course, in his personal transition. That was the subject of the third and the most personal part of our exclusive conversation.

(BEGIN VIDEOTAPE)

KING: Let's spend a few minutes, as we close, on your personal transition. OBAMA: Yes. KING: Another one of our questions from viewers was about the big choice you have to make for the family. This is Jill Pearson (ph) from Marietta, Georgia:

(BEGIN VIDEO CLIP)

UNIDENTIFIED FEMALE: Have you decided on your first puppy?

(END VIDEO CLIP) OBAMA: Well, yes, we have narrowed it down. I made the statement that says we're thinking about either a Labradoodle or a Portuguese Water Dog. Malia is allergic, so we have to have a hypoallergenic dog. We'd also like a shelter dog, though. So, you know, how we're going to manage all of this will be closely watched, I know, in the weeks and months to come. KING: I have spent some time since the election with a young boy named Melvin Thomas (ph). He's 14 years old, lives just outside of Baltimore, African-American.

KING: He says, if I visited him a year and a half ago and said, "Who's your hero?" he would have said, without blinking, "Michael Jordan." If I asked him today, he says, "Barack Obama."

OBAMA: Well...

KING: And he says, "Barack Obama's going to change the country." He thinks you're going to create more jobs. And he thinks you're going to "help stop people from hating black people."

What's the burden you feel there, and the responsibility, to kids like Melvin Thomas?

OBAMA: Well, you know, first of all, I hope that part of what my election communicates to Melvin is he can shoot for the stars. He can go as far as his work ethic and his -- his imagination takes him.

And what I also hope is that not only me but all of us take responsibility for the millions of Melvins out there. There are so many young people with so much talent.

KING: What, specifically, do you need to do? OBAMA: Well, I think that part of what we have to do is make sure that our school system works. Part of it is all of us, as parents, taking responsibility. Because government can't do it all.

And what Melvin's going to benefit from, hopefully, is some good policies from my White House, but I also hope he's going to benefit from parents who instill in him a thirst for learning, that he has a community that is supportive of the idea that there's nothing wrong with black boys, or any American child, hitting the books before they worry about whether they're popular or whether they're worrying about their sports.

You know, I think that the idea that each and every one of us has responsibilities to the next generation is one of the things that I want to communicate, both on inauguration day and throughout my presidency.

KING: We're short on time, so a couple more quick ones. You took your family to the Lincoln Memorial.

OBAMA: Yes.

KING: What did you talk about, walking around and looking at the president and reading those walls?

OBAMA: Now, this is a good story. I love the Lincoln Memorial at night. It always inspires me.

So I take Michelle and the girls. We're looking at the Gettysburg Address. And Michelle's describing what Lincoln's words mean.

The fact that these soldiers died on this battlefield means that any words that Lincoln could have said, or any of us could have said, would ring hollow. They've already consecrated this ground, and what we have to do is to honor them by working for -- for more -- more justice, more equality here in America, at which point Malia turns to me, and she says, "Yes, how are we doing on that?"

(LAUGHTER)

Mr. President-elect?

KING: Accountability in the house -- that's a good thing.

OBAMA: Absolutely. And then we go and look at the -- Lincoln's second inaugural, which is on the other wall. And Sasha looks up, and she says, "Boy, that's a long speech. Do you have to give one of those?"

I said, "Actually, that one's pretty short. Mine may even be a little longer."

At which point, then Malia turns to me and says, "First African- American president. Better be good."

(LAUGHTER)

KING: You were tired during the campaign, and it's a pretty exhausting process. At one point, you got a little confused about how many years you've been married.

(LAUGHTER)

I know you're busy right now, so I just wanted to help you out. You know what this weekend is, right?

OBAMA: This is her birthday, Michelle's birthday. And we are going to make sure that we -- we actually had a little birthday party last night. And...

KING: Ahead of the curve this time. That's smart.

OBAMA: You know, listen, if you're going to miss it, better miss it early than miss it late.

KING: Well, actually, one last question. And it's, in part, silly. But it's not always silly. You like these. I was just with you before this, and you have a couple of them. And there are a lot of people who say, because this will end up in the presidential library, because you don't have privacy any more, your life's about to change.

Tuesday noon, you have to give this up.

OBAMA: Yes.

KING: You going to do it?

OBAMA: I think we're going to be able to beat this back.

KING: Beat this back?

OBAMA: I think we're going to be able to hang onto one of these. Now...

KING: Do you want mine?

(LAUGHTER)

OBAMA: My -- my working assumption, and this is not new, is that anything I write on an e-mail could end up being on CNN. So I make sure to -- to think before I press "send."

But what this has been -- what this does is -- and it's just one tool among a number of tools that I'm trying to use, to break out of the bubble, to make sure that people can still reach me, that if I'm doing something stupid, somebody in Chicago can send me an e-mail and say, "What are you doing?" You know? Or "you seem detached" or "you're not listening to what is going on here in the neighborhood."

I want to be able to have voices, other than the people who are immediately working for me, be able to reach out and -- and send me a message about what's happening in America.

KING: Do you think you fully comprehend how much your life's about to change?

OBAMA: Oh, I've gotten a pretty good sense over the last few...

(LAUGHTER)

... last few days, and truthfully, over the last two years. It's -- it's a process of consistently ratcheting up. And you've got to pick up your game correspondingly. And so far, so good.

KING: Mr. President-elect, we thank you for your time.

OBAMA: Sure.

KING: I wish you the best.

OBAMA: Thank you so much.

KING: I hope to see you again when we drop the "elect" part.

OBAMA: There you go. Appreciate it.

KING: Thank you very much.

OBAMA: Thank you.

KING: In our next hour, one more question for Barack Obama. How should the media cover his young daughters? CNN's Howard Kurtz will tackle that question and a whole lot more on the "Reliable Sources" portion of our new Sunday program.

But, right after the break, I'll be joined by two friends, who are members of the best political team on television, for a preview of the new administration, James Carville and Bill Bennett.

You're watching "State of the Union," live from the Newseum in Washington, D.C.

(COMMERCIAL BREAK)

KING: This is "State of the Union," live from Washington, the view there -- and it is majestic -- from the Washington monument toward the United States Capitol.

The National Mall, there, will be filled with the estimated more than a million, perhaps 3 million or 4 million coming here to Washington to witness the historic inauguration of Barack Obama.

And with that inauguration begins the pressure, the new administration already working with Congress on legislation to pull this country out of a deepening recession. This week they had their first victory, but it's only one step in a very, very long journey.

Joining us now to discuss the pressure and the moment, two CNN contributors, James Carville, a veteran of the Clinton administration and a Democratic strategist.

KING: Bill Bennett is here, a veteran of the Reagan administration and host of a popular radio program.

James, let me start with the moment for you. The Democrats are coming back to power in Washington, Barack Obama will be the first African-American president, the moment means to you?

JAMES CARVILLE, CNN CONTRIBUTOR: It's hard to imagine, and I don't think any of us are going to know, have any idea how we're going to feel Tuesday. I mean, the whole country, and I mean, particularly African-Americans.

But, I mean, I hope the country, it just has great hope and promise, and is this going to be a remarkable thing. And it's very difficult to anticipate how you're going to feel at the time that he takes oath of office, but it's going to be quite extraordinary. And I just kind of want to savor the moment myself.

KING: And as Barack Obama makes history and savors his moment, Bill, there is also a lot of pressure, though, to use the moment, not just to celebrate it, to kick a barrier, but to begin a new administration.

BILL BENNETT, CNN CONTRIBUTOR: Yes. And I think that starts Wednesday, and we will start on Wednesday, you know, doing the tough scrutiny. But Tuesday is a day of celebration, and that's right, it will be a day of exuberance.

But I think also in some ways a day of relief. You know, we got here, we really did get here, free at last, free at last, 146 years ago the Emancipation Proclamation, that other memorial back there. And now a black man is elected president of the United States.

I think you're going to hear the whole country cheering. And I'm very heartened. And I plan to be a tough critic when called for. But I'm very heartened by the approval ratings which suggests an awful lot of Republicans are saying this is a good thing, this is a great moment for America.

KING: You mention the approval ratings, 78 percent approve of the president-elect, 17 percent disapprove in our new poll. James, that's a great blessing and a gift, but there is a flip side to that, isn't there?

CARVILLE: There is. And I mean, we heard about, you know, 91 percent approval ratings and things like that, and David Axelrod knows exactly, Rahm Emanuel, Barack Obama, everybody knows this.

And come Wednesday, by the end of a week it's going to feel like he has been in office for four years, because you can tell, they are coming with a major announcement about these banks, I mean, really major, you can just feel it when you read the news.

All kinds of things are going to be happening. They're going to really kind of hit the ground running. And it just -- watch how fast all of this -- all of this happens. But I think people like these high approval ratings but I think that the history of these things is not all that great and you shouldn't take too much from them.

BENNETT: And the deep divides on the issues, John and James, look at the bailout. This is not a popular thing, yet Barack Obama, like George Bush, wants to bail out the banks. The banks are not very popular at the moment.

Andrew Jackson moment, one thinks of that Inaugural, you know? The situation in Iraq which he's facing. I believe that our side is going to criticize him, but I'll bet you in the first few weeks we will be defending him on some issues against criticism from the left.

KING: When is the delivery point? Because, you know, the economic anxiety, crisis in the country that undermined McCain, undermined the last days of the Bush presidency, Tuesday noon this is Barack Obama's economy. And as Bill said, people don't like this bailout.

They're worried about the price tag of the stimulus, they understand the need for it but they're a little antsy about this is more of my money, more government money.

CARVILLE: Yes, I think the new president is going to have to explain to people I think this is more than a bailout, I think the large segments of our banking system are essentially nonexistent right now.

And I think that he's going have to explain why. Because people do see this, and they see this money go to offshore tax havens and things like that, there's going to be a lot of changes there.

Secondly, people say, oh, he has time, he has a year, he has a couple of years to do this. When this country hits 9 percent unemployment, it does not -- they're not going to last very long without people getting really mad.

BENNETT: Yes.

KING: What's the difference? You remember Ronald Reagan, now that's back a ways. Since then, you know, George W. Bush came to power, the first term, with 49 percent of the vote, a contested election, the Supreme Court had to settle it.

Bill Clinton before that came to power, 43 percent of the vote because Ross Perot was involved back in 1992. Barack Obama has 53 percent, he has an Electoral College mandate. But how much more power does that give him compared to our most recent president?

BENNETT: Well, I think we've just covered it in some ways. I think a lot of this has to do with the man, with the message he had with making history. When you get into policy, you might find it breaking down -- the numbers breaking down a little differently. We will see.

He's going to have a grace period because everybody loves him, or 80 percent of the American people love him, and this is historical and this is the guy we wanted. But the issues he's facing are very, very tough.

And the divides on these issues, let's just take Iraq, I know it's not in the headlines now, but will be. If he says he's going to -- as he seem to be saying, he's going to abide by the forces -- the Status of Forces Agreement, he's going to get hammered by the left.

I mean, some of that is starting already. So a lot of grace for the man, a lot of approval of the man. When it gets to policies, I think it's going to be something.

KING: We're about to run out of time here. Is his biggest challenge from the left or right?

CARVILLE: I think his biggest challenge is we know what his strategy is, "no drama Obama." He remains calm, cool, he remains cool. That has been consistent with him the whole time. And I think they really are pushing a lot of this working with these Republicans, I think that's part of their strategy. Yes, there are going to be a lot of splits coming, but...

KING: We need to leave this conversation for now. We'll bring you both back many times in the weeks and months ahead. Thank you both for being here at our first day here.

I want to show you a live picture now, the president-elect and the vice president elect on their way to Arlington Cemetery. We're going to go live to a wreath-laying ceremony out here at this hallowed ground as soon as they arrive.

And in just a moment, Howie Kurtz will join me to look at -- you see right there the president-elect of the United States and the vice president-elect of the United States coming out at Arlington National Cemetery. We're going to stay with this and watch this event as it unfolds. Very important symbolism today, the next commander-in-chief at the Tomb of the Unknowns.

(MUSIC PLAYING, "TAPS")

KING: Not a word spoken, but a powerful, symbolic moment, at one of the most special and solemn places in and around our nation's capital, the Tomb of the Unknowns at Arlington National Cemetery. You saw the president-elect, Barack Obama, the vice president-elect, Joe Biden there. I'm still joined here by Bill Bennett and James Carville.

You know, Bill, sometimes you don't have to speak a word to send a powerful message.

BENNETT: That's exactly right. There will be a lot of words the next couple of days, but his showing respect at that the institution for all of those who have given their lives in the service of the country is another part of the ritual by means of which he enters into this position, into this job, and we are reminded he is the president of all the people. KING: We see the commander-in-chief there just about every Veterans Day.

CARVILLE: Right. Well, I mean, I thought it was touching. And you're right, in fact, there wasn't a word. And it's one of my favorite things to do in Washington, any time you visit, you go to the Changing of the Guard, they do that at the Tomb of the Unknowns.

BENNETT: Exactly right.

CARVILLE: It's a spectacular, moving thing to watch, I'm just, you know, reminded of that.

BENNETT: The worst day, the worst weather, the worst storms, those guys are not missing a beat. I was out there once in high school in one of those nights.

KING: Gentlemen, again, thanks again for coming in. We'll have you back many, many times.

And as we continue, I want to remind of a promise I've made on this first day and we'll make many times, we will get outside of Washington, outside of the Beltway, for your stories and your insights.

The man of the moment, of course, is Barack Obama. But this is not a solo journey. In small town South Carolina, Edith Childs walking the walk before Barack Obama was born.

(BEGIN VIDEOTAPE)

KING (voice-over): Greenwood, South Carolina, a monument to heroes, but also a reminder of the dark days of hatred and segregation.

(on camera): That's you right there.

(voice-over): Edith Childs has lived here all of her 60 years, knows the divide as well as anyone.

OBAMA: I want to know one thing, Edith...

KING: And as much as she celebrates the success of her new friend, knows just as well that making history doesn't erase history. She was 6 or 7 when a noise in the night stirred her to peek out the window.

EDITH CHILDS, COMMUNITY ACTIVIST: And there was actually people on a horse with white clothes and all.

CHILDS: There was no question who they were, they were the Ku Klux Klan. That was the worst time, because I was so scared.

KING: On walks to school, taunting was common.

CHILDS: You could walk past cars and even children would say, you know, "Mom, those are Niggers."

KING: And once in the classroom, more reminders of separate but hardly equal.

CHILDS: We got those things that were left over from the white school. Our books were always secondhand books that came to us. Many times they weren't even worth using, really, but we didn't have a choice.

KING: Edith Childs grew both precocious and defiant. At the five and dime, she waited for when no one was looking.

CHILDS: The white water fountain was nice cool water, and our water was just hot water. I would always get me some cold water. Always.

KING: Always a divide.

(on camera): And if you were black and you wanted to go to this theater, where would you be?

UNIDENTIFIED MALE: You would be up here in the balcony section. There was a separate colored entrance from the front of the building.

KING (voice-over): Matt Edwards (ph) runs the town museum. Segregation is a threat in the photographs. This, a late 1950s all- white snapshot outside a local mill.

I haven't seen one yet that has any African-American folks in it. I know these folks worked at the plants and at the mills, but they weren't in the shift photos that came out.

Nursing school was the first time Edith Childs shared a classroom with whites. She's on the county council now and says things are better.

She first met Barack Obama when he visited in 2007. In the back of the room, she began to repeat an old civil rights chant.

CHILDS: Fired up. Ready to go. Fired up. Ready to go.

OBAMA: Fired up.

KING: Obama adopted the cheer. And even though he lost conservative South Carolina, Childs and Greenwood became part of his improbable journey, and he a part of theirs.

CHILDS: The day after the election, it was so quiet in Greenwood until it was unreal. I just could not believe it was that quiet. I mean, the kind of quiet that you're saying, "What is going on?" You know. But you know why the quiet is.

KING: A shocked we quiet, Edith says, because, while things are better in Greenwood, they are far from perfect. The monument to confederate soldiers still stands. And even today, in 2009, the stars and stripes flies over two American Legion halls in Greenwood. Locals know this one as the white post. This one for blacks.

CHILDS: There we go again, John. There are still those that are not going to change no matter what.

KING: But Edith Childs is betting more minds and hearts will change now. She is off to Washington to watch her friend make history, knowing it won't change Greenwood's past, but maybe its future.

CHILDS: I never thought that I would be able to see this day, so I just need to be there. Don't want to be nowhere near the front. I just want to be there. It means everything to me, because I want to be treated as a person. Not because I'm Edith Childs and black, but because I'm a person.

(END VIDEOTAPE)

KING: A truly remarkable woman. It was such a treat to visit her and visit her community. And she will be here over the next few days, and we will keep in touch with Edith Childs and perhaps bring you some of her reflects on history made next week.

And as we continue now on STATE OF THE UNION, we're doing Sunday talk in a new way. We'll be live for four hours, from 9:00 a.m. to 1:00 p.m. Eastern, and we'll be able to bring you what the powerful are saying, get some reaction from their opposites in power, and still travel the country. That's the critical thing, travel the country to talk to ordinary and extraordinary Americans that other shows often forget.

And every week I'll be joined at this time by "Washington Post" media critic Howard Kurtz. He's been the host of "RELIABLE SOURCES" for many years here on Sunday at CNN. And we're not going to tamper with a good thing, not in the least.

Howie, welcome to STATE OF THE UNION.

HOWARD KURTZ, HOST, "RELIABLE SOURCES": Thank you very much, John. Welcome to Sunday mornings. Having weekends off is kind of overrated.

KING: Weekends off is overrated. We're up early, and we're happy to be -- we have great guests to bring into the discussion.

But first, I want to start with you. I guess my question is, how long do you think this will last? And by that, I mean I want to show people some headlines from around the country.

This is Barack Obama's hometown newspaper, "The Chicago Tribune." A little breezy up here on the roof of the Newseum, but ":Bound for Glory." "With the White House as the last stop, Obama rides the rails into history." Special graphics, "Two days to the White House." Special sections. Pretty extraordinary newspaper there.

But it's not just at home in Chicago. "The Miami Herald" -- oops, here we go again, "A New Journey." We'll get this right. "A New Journey" here.

Howie, very good.

You see the special coverage. This, still some local coverage, but "The Inauguration of Barack Obama."

"The Boston Sunday Globe" -- hello, everybody back home. "The Boston Sunday Globe" says, "On a Fast Track to History." Again, the remarkable pictures of Barack Obama.

And one last moment we'll show you here, "The Philadelphia Inquirer," where the train ride began on to history. "Throngs Brave the Cold to Greet Obama's Train."

How long is this about a celebration and about the moment, and when that maybe the front pages turn to, well, he stumbled on this one, the challenges on that one?

KURTZ: On the one hand, John, this is an extraordinary moment for the country because of the historic trailblazing nature of Barack Obama being sworn in. But I do have to wonder, he's got great coverage, many would say, during the campaign, great coverage during the transition, blowout saturation coverage during these events right now.

I do think that expectations have been jacked up pretty high and that we, the media, have played a role in that. And obviously he's got to face reality. I guess it's this Wednesday.

KING: Well, many people, especially on the right, have criticized our business, saying we've been too easy on Barack Obama, too soft on Barack Obama, too much caught up in the significant history. No one disputes that, but maybe not taking enough time to deal with his answers to the specific challenge.

I want you to introduce your guests here this morning, because they know a lot about the subjects ahead.

KURTZ: We're going to start with -- we have two women who have stood at the presidential podium and answered tough questions from those of us in the press corps. Dee Dee Myers, was the White House press secretary under President Bill Clinton. And sitting to her right, Dana Perino, who's wrapping up her time as President Bush's White House secretary. I guess there's two more days to go.

Let me start with you, Dana.

As we were just talking with John, Obama has gotten a pretty good ride from the media. I don't think anybody would dispute that. When Robert Gibbs, the incoming press secretary, takes that podium this week for the daily briefing, it's not going to be a love-fest, is it?

PERINO: Well, I don't know. I, for one, am willing to ride this wave, you know, through Wednesday. I think it is such an exciting time for America. You can feel the excitement in the city as you -- even as you drive down the street, and people are so looking forward to this historic moment, and we'll all get a chance to see it. You'll get a front row at the seat of history.

KURTZ: But then comes Wednesday, Thursday and Friday.

PERINO: But Wednesday, sure, I think there's going to be a moment when they realize that they -- they should pat each other on the back, they should give each other high-fives, they should give each other a lot of hugs, because Wednesday will be different. No press briefing is easy.

KURTZ: Dee Dee Myers, Bill Clinton got pretty positive coverage during the fall campaign in 1982. I remember I covered it. From the first day you got up there, after all the hoopla of the inauguration, you got hammered pretty hard.

DEE DEE MYERS, FMR. WHITE HOUSE PRESS SECRETARY: Well, we didn't have much of a honeymoon back in 1993. Some of that was self- inflicted, shall I say? I don't think we had -- the Clinton transition wasn't quite as smooth as the Obama transition has been, and there were some mistakes right out of the box. And the press likes nothing more than the narrative which is, you're down, and you fight your way to the top, and then you fall. And so that story got covered pretty hard.

KURTZ: You're suggesting that journalists like to sort of claw at those who seem to be doing well?

MYERS: I would suggest exactly that.

KING: What is the lesson of that? I'd like each of your perspective, because you said some of them were self-inflicted. The new administration, back in 1993, did some things like talking publicly about gays in the military.

MYERS: Right.

KING: Which, a worthy subject for discussion, an important policy debate for the Pentagon and for the White House, but not right out of the box. The Bush administration has had obviously the troubled economy, but the souring of the public opinion about the Iraq war.

Offer some advice and just some insights on what it's like when the tide turns and you're dealing with that challenge.

PERINO: Well, I think the most important thing is to remember that it's so much -- it's very important for -- at least from the press secretary's point of view -- to be more prepared and have more information and more facts at our disposal than the reporters in the briefing room so that you can actually provide information and you're just not being beat up like a pinata.

MYERS: And you also have to understand that little stories can become very big stories. You have to be constantly vigilant about putting out a piece of information that might grow into a bigger story. And the other lesson that all press secretaries learn before they get to the White House, I think, is the more information you can put out to completely answer the press' questions, if that's possible, the better. The shorter the cycle of questions and answers, the -- you know, the more quickly you can pass through a scandal. And I think that that was a lesson we learned a little too slowly in the Clinton years sometimes.

KURTZ: In a moment, I want to play some sound from the outgoing president, but first, I want to ask both of you this question. What are the limits of spin? Now, look, when you're up there, part of your job is to present the administration in the most favorable light. But Scott McClellan, for example, said that he felt he lost credibility when he was sent out there with information that tended not to be accurate.

Do you feel like your credibility is at risk when you have to insist that things are going well on the war, on the economy, on whatever the issue is, when the American public can look and see that things are not going so well?

PERINO: Well, I disagree with Scott on that, because I feel like I have worked extremely hard to understands the issues and understand how to argue on the merits. Of course I get information or a couple of points from the national security adviser, or from the president, or from the chief of staff, and then I internalize it, and then I use it to argue to try to make our case. And I think that that's the best way to try to win an argument.

MYERS: I agree with that, but I think that a lot of times it helps to acknowledge reality.

PERINO: Sure.

MYERS: And if you start by saying, yes, things are tough, we just had an unemployment report that showed a million people lost their jobs, here what happens we're going to do to address that, for example, it's a lot better than saying, no, no, the American people feel good where we are in the economy. That's just not credible.

PERINO: No, absolutely.

MYERS: And I think one thing that people don't realize about press secretaries is how much of an independent actor you really are. It's not like people tell you what to go out there and say. You talk to as many people as you can, including the president, on a regular basis, and then you have to figure out -- you know, not everything everybody tells you is something you want to go out to the podium and repeat. And you have to figure out what you can say and what's credible, and what's going to be credible three weeks from now or three months from now.

PERINO: And I would say that not only should a press secretary -- and I think I've tried to do this, is to accept that, yes, of course things aren't going well. But I also think that it's helpful when the reporters in the room actually will concede a point as well. (CROSSTALK)

PERINO: Because they're the most defensive people I've ever met.

KURTZ: Journalists?

PERINO: Yes.

KING: No.

KURTZ: Have you ever heard that?

KING: Never. This is breaking news.

KURTZ: Why don't you get us to break, John, and we'll continuation this conversation on the other side.

KING: All right. We'll be back in just a moment with more of "RELIABLE SOURCES" -- we'll be back with more of "STATE OF THE UNION" in just a minute.

(COMMERCIAL BREAK)

KURTZ: We're back up here on the roof of the Newseum on a somewhat chilly morning in Washington, D.C.

John King, co-host of...

KING: No. It's balmy.

KURTZ: Well, you have that anchorman constitution -- you don't need a coat, you don't need gloves.

KING: Boston blood.

KURTZ: All right.

KING: It's a good day.

KURTZ: And we've got two press secretaries that we're going to come back to in just a moment.

I want to play a sound bite from President Bush, his last press conference on Monday, taking a somewhat lighter tone with the assembled journalists than we're used to seeing.

Let's watch.

(BEGIN VIDEO CLIP)

PRESIDENT GEORGE W. BUSH: I'm a Type A personality, you know? I just can't envision myself, you know, with a big straw hat and a Hawaiian shirt sitting on some beach, particularly since I quit drinking.

(END VIDEO CLIP) KURTZ: Dana Perino, that's a George Bush we didn't see very much in the last eight years.

PERINO: Well, you know, we've been through some very serious times. I'll tell you that he is one of the funniest people I have ever known. He's extremely witty, he's always making us laugh.

And the other thing I think that is so sweet, I've been fortunate to see some moments where he's with his wife and his daughters, that he loves very much, and he keeps them laughing, too. And for those of us who enjoy time with our families, we know how important that is.

KURTZ: But on the public stage, John King, maybe he was a wartime president, 9/1 1 and all of that, President Bush was not only often very serious, but sometimes testy or edgy with the journalists of which you used to be one covering the White House. KING: He could be combative both before he was president -- but I remember way back when he was defending his father a lot, when his father was vice president and running for president. And he's a forceful advocate for what he believes in. He has been that way going back 20 years, and he is that way today.

But I think you make a very interesting point.

And I'd like your thoughts, ladies, on the challenge, because you want a president to show more of his personal side, because so much of the presidency is about a personal bond with the American people, not just about the policies. And how do you struggle behind the scenes when a wartime president who thinks this is too serious, we can't do this, and you say, "But, sir, we need you need to make a better connection," how do you do that?

PERINO: It's tough and there's a balance there that you have to address. But when you have troops in harm's way, and especially during the darkest days of Iraq, before the surge, there was really not a lot of room for humor out on the public stage.

That doesn't mean that the president was always down. In fact, that was not the truth. He was actually always driven, and driving to get a better policy result.

I hope that people will get to take a second look at the president, because he is one of the most funny people that I know. And he takes -- I think he gets it from his dad.

KURTZ: I can remember times, Dee Dee Myers, when Bill Clinton seemed a little testy because he didn't like reporters' questions.

MYERS: Right.

KURTZ: And he let it show.

MYERS: Right. And I think that's something that all presidents struggle with.

I mean, nobody likes the volume of coverage and often negative questioning or skeptical coverage that a president's faced with every day. So I think every president faces that and feels that kind of resentment toward the press. But it's really important to go out there and to strike an optimistic tonight.

I think Obama, so far, has done a very good job of letting sometimes the harsh questions roll off his back. We saw some of that during the transition. For example, when the 15th question about, would Hillary Clinton be a loyal secretary of state came up, and sort of said, hey, guys, I know this is part of the game...

KURTZ: Sometimes humor or a light touch can go a long way.

MYERS: Exactly.

KURTZ: Now, Dana Perino, on Friday, you held your last briefing with the White House press corps. And you were asked some interesting questions. One of them was about the question we debate here on "RELIABLE SOURCES," and that is media bias.

Take a look.

(BEGIN VIDEO CLIP)

PERINO: In this room, and the reporters who show up every morning and are here late at night and work the weekends, that the people that are covering the president out of here and the presidency strive so hard to be fair. On a scale of 1 to 10, I give you a 9 in terms of fairness.

(END VIDEO CLIP)

KURTZ: A 9? I don't think George Bush or Dick Cheney would give the press corps a nine.

PERINO: I do. I think that's a misconception.

I think President Bush has had such a great, professional relationship with the media. He respects them. I've heard him say that in a democracy, while it's important to have a free -- have a strong national defense, it's even more important to have a strong, free press.

KURTZ: Well, hold on. Hold on. Hold on.

PERINO: But the other thing I said, Howie, was, if there wasn't liberal bias in the media, I wouldn't always be asked about whether there was liberal bias in the media.

KURTZ: But Dick Cheney is still ticked off -- and he mentioned this in a recent interview -- that "The New York Times" got a Pulitzer Prize for the story disclosing domestic eavesdropping by the administration. I don't get the impression that these guys love the media.

PERINO: I'm not suggesting that they do, but they have a professional relationship with them. KURTZ: And they think the media are fair?

PERINO: And they respect the job that they do. No, I said that I think that the reporters who are in that briefing room are fair and the people who broke that story were not. And when it comes to classified information, I think that people in America need to take a strong look and decide whether or not is that something we really need to know or is it something that helps the enemy?

KURTZ: I remember in 1993, when Bill Clinton was grumbling about what he called the knee-jerk liberal press not being fair to him, a Democrat.

(LAUGHTER) MYERS: Well, you know, Bill Clinton often got it from both sides -- he wasn't liberal enough and he was too liberal. And I think -- but I think that the press' bias is less toward liberal/conservative than it is toward conflict and scandal. And so any time there's a possible scandal or sometime goes wrong, that's a story.

KURTZ: Let me just jump in and ask Dana Perino, when Robert Gibbs takes over, there's a tradition that the outgoing press secretary gives something to the new spokesman. What are you going to give Robert Gibbs?

PERINO: Well, he and I had a chance to have lunch the other day, and I presented to him the ceremonial flak jacket with all the notes -- which Dee Dee has one in there as well. They're fabulous to read through.

I told him when he catches his breath, spend some time reading through it. And then I sent he and his wife some flowers, and I actually got some from him. But we pass like ships in the night, so we were thinking along the same lines.

KING: Economic stimulus and the transfer of power.

KURTZ: A graceful transition.

All right. Dana Perino, Dee Dee Myers, thanks for coming on the roof with us here this morning.

We'll see you in a little bit, John King.

Coming up, more RELIABLE SOURCES from here on Pennsylvania Avenue.

Tuesday will undoubtedly be the biggest event this city has seen in a long time. But are journalists getting just a little swept away in covering it?

(COMMERCIAL BREAK)

KURTZ: All the big-shot anchors are heading to town. ABC bought the rights to broadcast the first inaugural ball. The newspaper is churning out special editions. And, well, we're up here on the roof of the Newseum on this rather cold morning, 48 hours before Barack Obama takes the oath of office just up the street here on Pennsylvania Avenue.

It is, of course, a nice coming together for the country, but I have to ask, are the media going totally overboard here? Are they getting swept away by Obamamania?

(BEGIN VIDEO CLIP)

MAGGIE RODRIGUEZ, CBS: Americans are lining up to witness this historic event.

CHRIS MATTHEWS, MSNBC: Here in Washington, signs everywhere signaling this historic change. We're going to take a look. Look at it. It's going to happen.

KIRAN CHETRY, CNN: How is Washington getting ready to handle the record amount of people that are planning to come for the inauguration?

DAVID SHUSTER, MSNBC: Federal and city officials prepare for the biggest crowd in Washington, D.C., history.

JEANNE MESERVE, CNN (voice-over): Port-a-Potties, side by side, row upon row on the National Mall.

(END VIDEO CLIP)

KURTZ: And joining us now, Stephanie Miller, host of the nationally syndicated "Stephanie Miller Show"; Jessica Yellin, CNN's national political correspondent; and Stephen Hayes, senior write for "The Weekly Standard" and a CNN political contributor.

Stephanie Miller, you've come all the way from warm and sunny L.A. to sit up here, shiver with the rest of us, and announce your status as an Obama groupie. So I bet you don't think the inauguration coverage has been too positive.

STEPHANIE MILLER, HOST, "STEPHANIE MILLER SHOW" You know, I had picked out my Obama thong, and now I decided against it. And let me just say in advance, this is not going to be a good hair day for me at all. But I could not be more excited.

You know, I don't think you can overstate this. It really is one time in our history, Howard. So I don't think it's overstated, the history of it.

KURTZ: But, Steve Hayes, is it one time in our history when it also happens to involve a Democratic president? In other words, I've been through a lot of inaugurations. Have you ever seen anything like the media hype and hoopla for this particular inauguration?

STEPHEN HAYES, CNN POLITICAL CONTRIBUTOR: Absolutely not. Nothing even close.

And I think to be fair to our colleagues, I think it has a lot more to do with the historical nature of what we're actually all witnessing than it does of an ideological bias. The ideological bias exists, but I think this -- what we're seeing day in and day out has much more to do with Barack Obama and the history.

MILLER: And the fact that he'll be 1,000 times better than the Bush administration. There's a little bit of bias.

KURTZ: See?

Just before I came on the air, I saw the cover of the new "New Yorker" magazine for this week. It's got a very striking image -- if we can put it up on the screen -- that I think kind of symbolizes the media. There we are, Barack Obama with a little different hairstyle.

So, Jessica Yellin, the media were accused -- yes...

MILLER: I hadn't seen that yet. That's something.

KURTZ: The media were accused of being soft on Obama throughout the campaign, as you know. Isn't there a risk right now, despite the historic nature, that we look like we are celebrating his inauguration?

JESSICA YELLIN, CNN NATIONAL POLITICAL CORRESPONDENT: I think it is possible, because we're all thinking people, to separate the excitement that America as a nation feels that we can cover, that we've been able to elect the first black president. And then the media has to also, at the same time, take a critical distance and analyze his policies.

And there is a danger that, with his poll rating as high as they are, with so much momentum in the nation to be optimistic right now through a crisis moment, that we could get too swept away. I think after Tuesday, you have to take a really critical look at the media and the behavior immediately, starting day one.

KURTZ: After Tuesday, the binge will be over.

YELLIN: Yes.

KURTZ: Stephanie, your guy went to George Will's House the other night, and he had dinner with Bill Kristol, Steve's editor, and Charles Krauthammer and David Brooks and Paul Gigot and Peggy Noonan.

Did you feel a little bit like he was consorting with the enemy? These are people who criticized him for the last two years.

MILLER: I would have had a little trouble keeping my food down, Howard, but that's just me.

I think that, you know, what I've been startled is that he really is walking the talk, or however you say. Like, I'm going, this was not just campaign rhetoric, he really is reaching out to both sides.

KURTZ: And the next day he sat down with some liberal commentators, Rachel Maddow and E.J. Dionne and Eugene Robinson. Your invitation was lost?

MILLER: I apparently lost it in the mail. It must be my hair. I wish I had borrowed that George Washington wig for this morning.

(LAUGHTER)

KURTZ: Steve, what does Obama gain by breaking bread with conservative pundits who, at least in political and ideological terms, are not his biggest fans?

HAYES: It's harder to beat people up if you know them. I mean, really, it's harder to attack people if you've had a discussion with them.

You sat across the table, you've heard him out on his policies, he's heard you out on your policies. It's just much harder to be sort of nasty and angry. Now, I think it will buy him some time. I don't think it will buy him, you know, four or eight years of goodwill.

KURTZ: Now, Obama came to "The Washington Post" newsroom the other day. I was there. He met with the editorial board, and then he kind of worked through. He walked around the perimeter of the newsroom and a lot of people lined up to shake his hand. There was some gawking, there was some steering. There was no cheering. Nobody was clapping, or I didn't see drooling. But it was widely reported as, oh, there's "The Washington Post," they're in the tank for Obama.

I just wonder whether you think, Jessica, that these perceptions, which are a hangover from the campaign, are a problem that we're going to have to address through nothing other than tough-minded coverage.

YELLIN: I do. One of the jokes I heard after "The Washington Post" visit was Obama's been looking for a place of worship, he found it.

(LAUGHTER)

YELLIN: That's not fair, given the coverage of The Post, which is very hard-hitting. But I do think that the media's going to have to work hard to be critical of a guy that they like personally overwhelmingly. The media does have -- he's a guy that's hard to dislike in person, I think, and that's a challenge. That's why he does well...

KURTZ: But he has not cultivated particularly warm, close personal relationships with most journalists.

YELLIN: Correct, but America also knows this guy has a media celebrity quality. Look at "The New York Times" today. They have photos not of anyone of famous in the Obama world, but of Obama's staffers, some random people -- celebrities they're making the entire Obama staff. And so we all know there's this fascination with him. People have to figure out in the media how to allow the media to cover him with the fascination and keep this critical distance. MILLER: But I think he raises a good point, that when you meet somebody, it is harder. That's why I can't ever come to CNN. Now I met Dana Perino, now I like her.

KURTZ: See. Better to sit in your radio studio and take your potshots.

MILLER: Exactly. I can't go out.

KURTZ: And speaking of potshots, you have had a great time bashing Bush and Cheney and his cheerleaders like Sean Hannity.

MILLER: It's so easy.

KURTZ: I mean, you know, your whole radio show's built around that. Now it's all flipped. Now are you going to be in a position of have to defend whatever the president does?

MILLER: Well, you know, we had a good time making fun of Senate Democrats over their role in the Roland Burris thing. I think when they're idiots, we need to say they're idiots, no matter what side they're on. But, you know, what happens is, you just go on defense now. You know, I did it during the Clinton years when I was on the air. You know, as you know, we have a feature called "Right Wing World," where we play sound clips from the right wing people and then mock them mercilessly, because they'll be saying...

KURTZ: So should we start "Left Wing World?"

MILLER: ... the same ridiculous things about him that they said during the campaign.

KURTZ: Now, Steve, what about "The Weekly Standard?" I mean, in your case, you had a lot of access to Vice President Cheney. You wrote a book about him, he came to your book party. Now are you going to feel out in the cold, to some degree?

HAYES: Well, I'm pitching the same book project to Joe Biden right now. I'm confident that he'll give me a lot of access, sit down with him.

(LAUGHTER)

HAYES: Yes. I mean, I think there's a concern there. I mean, you know, you want to have access, you want to talk to people.

I think the difference will be the number of people that I'm able to call quickly and say, "Tell me what's actually going on." It will be obviously a lot less, probably, in the Obama administration. I'm hopeful, though.

MILLER: Call me. I'll hook you up.

YELLIN: I also think there's so much news right now that it will be easy for the media to be critical quickly. I mean, with the stimulus, with the TARP, with so much going on, there's going to be a lot to dig into.

KURTZ: And I will hold you to that. But first, I need to get a break.

If you missed any of John King's exclusive interview with President-elect Barack Obama, stick around. We'll be bringing parts of that to you again in the noon Eastern hour.

When we come back, the long good-bye. President Bush spends his last week in office trying to meet and charm the press. But did that thaw what had been a very chilly relationship?

(COMMERCIAL BREAK)

KURTZ: You're looking at some of the cable networks camped out here in downtown Washington, D.C., for the big inaugural on Tuesday. There's MSNBC's headquarters. There's the Newseum.

We're up on the top right-hand part of your screen, on the roof of that interesting, new Newseum about the media. There's a shot from the Newseum looking at the Canadian Embassy, I guess. There's the Canadian flag.

Just a spectacular view up here, even though it is a bit nippy.

Welcome back to RELIABLE SOURCES. We're talking about the saturation coverage of this period between now and Tuesday. I want to put up some newspaper covers, if we have that, just to give you a sense of what's been making news, which is -- the answer is just about anything with the name "Obama" in it.

Have we got those pictures?

We'll see if they -- OK. I guess we don't have it.

But the point I was going to make is, Jessica Yellin, you have the New York tabloids doing front-page stories on Obama's official portrait and Obama's new limousine and "Parade" magazine does a story on Obama's letters to his daughters. It just seems -- we were talking earlier about he's not just the president-elect, he's a worldwide celebrity, and he's been covered that way.

YELLIN: He has. He sells.

I mean, in this economy, the media's going with what gets ratings and what sells magazines and newspapers. You see all these commemorative editions. It's because he's moving product. And so that will probably last until his poll ratings take a dip.

MILLER: Just Obama tchotchkes can rescue the economy alone.

KURTZ: I have seen a few of them on sale here in town. All right.

YELLIN: Do you really have an Obama thong?

MILLER: I have an Obama thong.

HAYES: Isn't this vindication for John McCain though and his celebrity ad? I mean, think about this. Look at what we're doing every day now. This is what John McCain was talking about.

KURTZ: Well, John McCain can't complain, because Obama's throwing a dinner in McCain's honor tomorrow night, just before the actual inauguration.

MILLER: I'm going.

KURTZ: You're going?

MILLER: I'll report back to you.

KING: All right. Bipartisan Stephanie Miller. All right.

President Bush, as I mentioned earlier, held his last news conference this past week, and he some unusually positive things to say about the press.

Let's roll it.

(BEGIN VIDEO CLIP) BUSH: I have respected you. Sometimes didn't like the stories that you wrote or reported on. Sometimes you misunderestimated me.

Oh, the burdens. Why did the financial collapse have to happen on my watch? Just pathetic, isn't it, self-pity?

(END VIDEO CLIP)

KURTZ: Steve Hayes, this was an unusual performance by George Bush, and obviously he's been trying to go out on a high note, a gracious note. And yet, the media have not exactly been giving him a warm sendoff.

HAYES: No, they haven't. I mean, I think it's understandable what he says. You don't want to beat up or take shots at the people who are essentially writing this first draft of history, as we often talk about. So it makes sense that he would go out without taking shots at them.

I think we might hear a little bit different story when he finally sits down and write his memoirs, and is a little bit more critical about individual stories or coverage of the early parts of the Iraq War, things like that.

KURTZ: But Stephanie, aren't some of your friends in the so- called liberal media kind of kicking him on the way out the door? I mean, he's gone Tuesday, and yet it does seem like everybody's kind of rehashing all of the mistakes that he made, which is appropriate, but I wonder if there's too much of it.

MILLER: It is the end of an era, as they say. And I can't hear that "misunderestimated" joke enough, can you? Oh, I've got to wipe my eyes.

You know, I think it is honestly hard to misunderestimate what a disaster this presidency has been. So I think, you know, a lot of the criticism is -- when you hear this spin, it really makes you dizzy. Are you kidding me?

KURTZ: In other words, what bothers you is the fact...

MILLER: This war in Iraq -- he's left the economy...

KURTZ: What bothers you is the fact that he is someone selectively trying to put the best face, as any outgoing president would, on his record as he heads back to Texas?

MILLER: Yes. The Bush legacy project, a huge success. It's hard to spin this. It really is.

KURTZ: I wonder, Jessica Yellin, whether George W. Bush will always be a polarizing figure in the media climate. For example, when he had his farewell speech, that 13-minute address on Thursday night, I was flipping around and I see Bill O'Reilly saying, you know, he came off as very sincere, and if there was an approval rating for him as a person, as opposed to a president, it would be 60 percent. Then I see Chris Matthews saying, no, he's like a rich kid driving his father's car, and because of him, 100,000 Iraqis are dead.

And I just have the sense that this is going to go on forever.

YELLIN: Well, I guess we'll have to see. I think part of that may have to do with his electoral strategy.

I mean, he really did divide into red and blue intentionally to win, and that sort of is borne out through the eight years. At the same time, even Bill Clinton wasn't the most popular guy as he was leaving after Mark Rich and some of the sort of hangover everybody was feeling at that point. So after eight years, everybody's had enough. And we'll see what happens as history is written.

KURTZ: Some of these events that Barack Obama has been doing, meeting with Bush and the three ex-presidents, as I mentioned, inviting McCain for dinner, meeting with George Will and Bill Kristol and David Brooks, is this buying him a lot of coverage as being -- as he often talked about -- somehow post-partisan, or is it really just symbolism and we in the media like symbolism?

HAYES: Well, probably a little bit of both. I think it's gotten him a lot of coverage. We're talking about it. People have been talking about it for the whole week.

I was interesting. I interviewed Mitch McConnell this week, and I asked him -- because he's doing the same thing with politicians on Capitol Hill. And I asked him about this, and he said, "Look, we appreciate the attention. I've enjoyed talking to Barack Obama. We sincerely want to work with him. But charm only goes so far. At the end of the day, if he wants Republican support for things, he's going to have to adopt Republican policies." KURTZ: Stephanie, I've got half a minute.

I mean, George Bush talked about changing the tone when he comes to office. Obama really seems determined to reach out to Republicans and conservatives. Of course, we'll see what happens when he takes office. But I have the sense that, you know, we still live in a very partisan political media culture.

MILLER: Well, but, Howard, as you said earlier, the steps he's even taken so far, he's been more of uniter than George Bush has been in eight years. He's done more of the compassionate conservatism or whatever, all those catch phrases we heard of and never saw any evidence of, than George Bush did in eight years.

So I'm hopeful. I'm a hope monger.

KURTZ: Well, we'll see. I have to remind everybody that he hasn't taken office yet, although that's coming very soon.

Stephen Hayes, Stephanie Miller, Jessica Yellin, thanks very much for joining us.

Up next on RELIABLE SOURCES, black and white at the White House. With the nation's first African-American president ready to take office, he'll be greeted by a press corps containing few members of color. Two African-American correspondents join our discussion. That's next.

(COMMERCIAL BREAK)

KURTZ: When President Obama holds his first news conference, he will look out at a sea of faces and see that most of them are white. A few news organizations are adding black correspondents to Washington's most visible beat, but by and large, there is a striking lack of African-American journalists at 1600 Pennsylvania.

Is this a problem for the news business, especially when it comes to covering the nation's first black president.

Joining us now, April Ryan, White House Correspondent for American Urban Networks, and Dan Lothian, CNN's newest White House correspondent.

April Ryan, explain why this is a problem. Do black correspondents and white correspondents do their jobs differently?

APRIL RYAN, WHITE HOUSE CORRESPONDENT, AMERICAN URBAN NETWORKS: No, no the at all. Basically, the issue is accountability.

Each correspondent there is there to question the president, holds him accountable on statements that he's made or statements that he's looking to make for the future, or issues that are going on. And we all cover the White House in the same way, but we all bring different nuances to it.

You know, I am African-American. My history, my heritage, I am that person. And sometimes that may play into a story, particularly, for instance, Bill Clinton and race.

KURTZ: Give me an example where you either asked different kinds of questions or reported a story differently than your white colleagues at White House.

RYAN: Well, unfortunately, my seat is in the fourth row of the White House, and by the time...

KURTZ: You're not getting called on?

RYAN: Well, I get called on, but by the time my mainstream press colleagues are called upon, the questions, the main questions, are asked. And you know, for instance, Hurricane Katrina, you know, President Bush had not been asked that during the press conference. He made a comment about it. And I specifically listened to the questions, and those are some issues that don't come out, issues like Hurricane Katrina, issues about Africa, you know. I'm one of the only ones who is asking about Africa, for instance, Mugabe, the issues in Zimbabwe.

KURTZ: We're hearing some music that might, I suppose, be some kind of warm-up for Tuesday's inauguration right here on Pennsylvania Avenue.

Dan Lothian, why did you want to cover the White House? And do you bring a different perspective than, say, Ed Henry?

DAN LOTHIAN, CNN WHITE HOUSE CORRESPONDENT: Well, first of all, I was asked to cover the White House. So...

KURTZ: But did they have to twist your arm?

LOTHIAN: Well, they didn't have to twist my arm, but certainly, this was -- it was a historic moment to be here and cover this White House. And obviously it's an important job. And I don't think anyone would want to turn this job down.

But I agree, as well, I mean, it's important for African- Americans and others, Hispanics, Asians, to be in these key positions from the standpoint of it's good business. I mean, you need to reflect your audience, and those people need to be in key positions. When people are sitting at home watching television, if it's an African-American, they'd like to see an African-American at the White House, covering the White House.

KING: If everybody in the White House press corps were men, which was the case decades ago...

LOTHIAN: Right. Right.

KURTZ: ... I'm sure people at home would sit there and say, where are the women? So is it a similar question of diversity here when it comes to race?

LOTHIAN: I do think is it an issue of diversity. On the one hand, you know, people want to see people covering these beats, covering other stories as well, who look like them.

On the other hand, I don't think we need to have a White House press corps now that is majority black. That would be like saying that when you were covering a white president, it should be, you know, majority white, which it was, but that wasn't the rule.

KURTZ: Right. Right. Right.

LOTHIAN: I don't think you have to have that. But I do think you need to have a press corps that mirrors the audience that you're reaching.

KURTZ: Everyone seems to agree, April Ryan, that there were more minorities covering President Clinton than covering President Bush. Why did this happen? And do the executives at news organizations bear part of the responsibility?

RYAN: Yes, the news executives bear a lot of the responsibility. One, when these news organizations think about who they're going to place there, they want to make sure they're placing the right person there, someone who will have access. Access is key.

And Bill Clinton was someone who was termed as the "first black president." So, i.e., you had eight or nine African-American White House correspondents at that time. And then there was a stark contrast when George Herbert Walker Bush, the 43rd president, came in -- into the White House. The numbers dwindled.

And you know, he even said when he first came in, I understand why black America didn't vote for me, because, one, I'm a Republican, I'm from Texas, and my father, and so on and so on. But at the same time...

KURTZ: But that doesn't let the news business off the hook.

RYAN: That's what I'm saying.

KURTZ: Yes.

RYAN: Maybe the news organizations picked up on his same philosophy, understanding that maybe, you know, this president wasn't necessarily one who enveloped the African-American community.

KURTZ: You know, the cable news networks do a pretty good job here. I mean, you're joining Suzanne Malveaux at the White House, for example, on this network. You look at the broadcast networks, ABC, CBS, NBC, and I thought back maybe 10 years, and they basically seem to be -- usually there's two correspondents -- all white teams. And somebody said to me, well, that's because they're being groomed to be anchor of "The Today Show" or something like that.

LOTHIAN: And they probably are.

KURTZ: Yes. But it does -- it does create an imbalance. And let's face it, television is what most people see. I mean, the newspapers might or might not have greater diversity, but the people you see at those press conferences, the stars, are the TV guys and women.

LOTHIAN: Well, you know, I think the problem really goes back to the beginning. There aren't a lot of African-Americans in the pipeline.

And you look back to local television, even -- when I got into this business, some of the early jobs that I got, I was getting the job that an African-American had just vacated. And so there were a lot of these local stations that essentially had the black position.

KURTZ: So it was kind of a slot?

LOTHIAN: There was a slot. And so, when you have this slot and you're only filling this slot, you're not going to get a lot of diversity in your newsroom.

And I'm not complaining about it, because it did allow a lot of us to get into the business. But you didn't have a large sort of vacancy so that different kinds of minority groups could get into the system.

That's how you make it to the White House, that's how you make it to the network. You have to get in at the local level and work your way up. If they're not coming in in the farm league, they're not going to make it to the professionals.

KURTZ: We'll continue this in a second. I hear some introductions in the background. I think that's just a dry run for Tuesday's inaugural.

More RELIABLE SOURCES from Pennsylvania Avenue in a moment.

(COMMERCIAL BREAK)

KING: We're talking with two White House correspondents about the inauguration of the nation's first African-American president.

And April Ryan, I've asked this question to Byron Pitts and a number of other black journalists. Do you feel great pride in Obama winning the election? And are there suspicions, unfair or otherwise, that somehow you're going to be easier on him?

RYAN: Well, yes, I feel great pride. He's the first African- American to become president of the United States.

KURTZ: Something many of us thought would be impossible in our lifetimes.

RYAN: Right. And I'm five generations removed from the last known slave in my family.

And to actually work at the White House, to question a United States president, is awe-inspiring just alone. And then to be able to sit in front of the president -- but, yes, you know, history has its place -- a pause for history -- but at the same time, he's like any other president. I have to hold him accountable for his questions or for his statements.

For instance, he's talking about jobs, creating jobs. One thing that is really blaring to me, how are you talking about creates jobs at the same time you're talking about going line by line through the budget and possibly cutting programs?

KURTZ: Cutting "wasteful spending."

RYAN: Yes.

KURTZ: Dan Lothian, what about the racial pride factor and the perception -- I'm just saying it's a perception -- that maybe he gets a little more of a break?

LOTHIAN: Well, there might be that perception there, and there certainly is pride. And there will be pride on my part. But I hope that as I cover the president, that it will be -- he will be covered as the president of the United States, someone who is the president and happens to be black. That's how he ran his campaign.

KURTZ: He did not run a racially explicit campaign. LOTHIAN: He did not. It was Barack Obama running for president, happens to be black. And I hope, that people will look at me as Dan Lothian, the White House correspondent who happens to be black. There will be times that I might ask a question that comes from my background what my perspective that I bring to it, but I hope on a regular basis it will be about that question of the day.

KURTZ: Well, we'll be paying close attention on this program.

Dan Lothian, April Ryan, thanks very much for joining us here at the Newseum.

RYAN: Thanks, Howard.

KURTZ: Coming up, the countdown to inauguration continues. Donna Brazile, David Gergen, Alex Castellanos, all will be here to offer their take on the days ahead.

I'm going to go warm up, but you can see RELIABLE SOURCES every Sunday at our usual time, 10:00 a.m. Eastern, for a full hour of media analysis. It's part of the "STATE OF THE UNION" with John King.

John comes back in a moment, right after a quick break.

(COMMERCIAL BREAK)

KING: Welcome back to the third hour of STATE OF THE UNION.

Yes, we're going to here, not out here outdoors all the time. Most days, back in a nice, warm studio. But we'll be on the air for a full four hours every Sunday morning from now on, beginning at 9:00 a.m. Eastern, bringing you both the first and last word in Sunday talk. And we hope you'll make us your home on Sunday morning.

Joining me now, three political experts who know this town better than just about anyone else, three of our great contributors here on CNN making up the best political team on television, Democratic strategist Donna Brazile; Republican consultant Alex Castellanos; and CNN Senior Political Analyst and adviser to four presidents, David Gergen.

Thanks all for joining me.

And it is a glorious sight. You hear the band. The band is practicing on the west steps of the United States Capitol, the west front. And it is a reminder of the moment that is 48 hours away, plus one, 49 hours away, I guess.

Let's start with there, the moment.

DONNA BRAZILE, DEMOCRATIC STRATEGIST: Well, John, I will be sitting there on the Capitol grounds. I want -- I would like to bear witness to this moment in history.

KING: You won't let me have that ticket?

BRAZILE: No, John. No. I have one ticket and I'm going to use it.

When I got up this morning, John -- I'm a resident of Capitol Hill -- I teared up again. I teared up because I read in the paper that Obama's grandmother will be coming all the way from Kenya. And I thought about just how important it is.

I mean, his grandmother will be able to witness history. So this is truly a remarkable day. We all have great pride, and it's just a moment that we will all celebrate and remember.

KING: Alex, you're a conservative, a Republican, you help candidates sharpen, tighten, their message. For this president-elect at this moment, a Democrat, but how important are the words he first speaks from those steps?

ALEX CASTELLANOS, REPUBLICAN STRATEGIST: Well, this is -- you know, these are the seeds of the next four or eight years for the Obama administration. And I think what he wants to do here is do a little something different than he's been doing in the past few weeks, when he's been lowering expectations, when he's been talking down the economy.

This is the time to lift the nation's eyes up over the horizon to the future, where we can go, what we can be if we all pull together. This is the time to remind the country that this is the land of endless promise and limitless frontiers.

This is an inspirational moment. This is not the policy day. This is the day to tell us what America could be.

KING: And as America watches the moment, David, what is your sense of the incoming, the comprehension of the moment around the country? DAVID GERGEN, CNN SR. POLITICAL ANALYST: One sense is excitement building now with 49 hours left and counting. And throngs are starting to come to Washington. It's a very different crowd than what we ordinarily see at inaugurations.

Our past inaugurations have been mostly white and a few blacks speckled in. There are a lot more African-Americans coming now, there are Indian-Americans, there are people of all different backgrounds coming here.

GERGEN: And I think it gives a sense, this is going to be a very diverse inauguration. But to go back and echo Alex, it does seem to me that for most Americans right now, we're in a valley and he has to remind us that we're in a valley but keep his eye on the mountaintops and remind us where we can go and as just as King talked in his "I Have a Dream" speech, from mountaintop to mountaintop. It's a lot about what the speech needs to be.

KING: If I can carry a tune, I'd ask us all to jump in. "America the Beautiful" playing in the background. It's beautiful and it's a great setting and it reminds you of the magic of this moment every four years. But especially because we will make history. It puts a special burden on the president, the new president, doesn't it?

BRAZILE: There's no question. When he stands before the American people, reads from Article II, Section I of the United States Constitution, he will recite those 35 words that I'm sure David knows, it's been recited by every president, just watching that moment, bearing witness to a son of Africa, an African-American, looking beyond just a crowd but across the world, to see Barack Obama recite those words.

John, I go back to 1968, when Martin Luther King was organizing the sanitation workers in Memphis and the signs that they wore on their chest was "I am a man." And here it is, 41 years later, a black man. He doesn't have to proclaim his manhood, his dignity, his humanity. He has to take the oath of office as the next president of the United States.

KING: Watching pictures, we're sitting here with the Capitol behind us, we have pictures of the National Mall. I don't know if we have it ready to show but Alex, I want to talk to you about the power of the images. Barack Obama came into town yesterday on a train. This morning, without speaking a word, he sent a very important message, this new president, this first African-American president, also about to be the next commander-in-chief. At a time, there are 140,000 plus U.S. service men and women in Iraq, 30,000 or more in Afghanistan and he says more might be coming. He will be commander in chief and today, he went to the Tomb of the Unknowns, at Arlington National Cemetery, a wreath laying, not a word spoken but a message there as well.

CASTELLANOS: I don't think we've had a president as adroit and as capable of using images and using them well as Barack Obama since Ronald Reagan. He is the message in reaching across the aisle to a Rick Warren to help with the invocation to this morning, sending the message out to commander in chief to the military, reaching left and right.

You know, this is one of the few moments in the administration that you're able to do that because politics is put aside for the day. But not only that, because the grave threat, the economic threat, and the global threat, security threats that we have. So he's a talented communicator. It's the beginning, though. At end of that, he'll have to be backed up by policy. This is almost a threat, in a way, because right now you start with making everybody happy, left and right. At some point, you actually have to make decisions and then you begin to disappoint people. So let's enjoy it while we have it.

KING: We'll talk about some of the decisions a few moments ahead. But let's dwell on this moment for a minute, David. From your perspective, you've been inside the White House at times of joy and policy success and at times of peril. Barack Obama will for better or worse, get to experience all of those moments. But the first moment when he turns to the American people, not as a candidate, not as the president-elect, but as their president, he must, what?

GERGEN: I think the summons to unity, the summons to greatness is what inaugurals are about. It is -- this inaugural is more than almost any other represents the passing of the torch, as John Kennedy said in 1961. And because he's younger, because we've had this long period when Americans have been unhappy, because he represents a new generation, and of course, because he's an African-American, who speaks of hope, there's -- I -- it's hard to remember an inaugural which seems a sharper break from the past. And at a time when Americans wanted a sharp break from the past.

CASTELLANOS: He said something in his campaign that would fit this inaugural to a "T." And that's, we are the change we have been waiting for. He summoned Americans, he said, bottom-up to change this country. Now since then, we've heard government is going to take care of us and solve our problems. But the message I think, America wants to hear is what David was just talking about, that call to greatness. Each of us has a role to play in renewing this country. I think that's the key thing to look for in the inaugural speech.

KING: We'll continue our conversation in just a minute. We'll continue listening to the band as well on the west steps of the Capitol. Much more ahead on STATE OF THE UNION, including the remarkable story of a young boy just south of Baltimore. He'll be watching his new hero very closely come Tuesday.

And if you missed any of my exclusive interview with President- elect Barack Obama, we'll have an encore coming up shortly. One of the many, many perks of a four hour program. Stay with us.

(COMMERCIAL BREAK)

KING: Back now live to STATE OF THE UNION. A glorious city in any event, Washington, D.C., now filling up with visitors here for the historic inauguration of Barack Obama. The National Mall there, a view from the Capitol to the Washington Monument where the crowds will pack in, some people coming down to stake up some real estate, some just coming down for a curious look. Washington is filling up and as we consider and ponder this historic inaugural and what comes next, the Obama administration, once again, I'm joined by Donna Brazile, Alex Castellanos and David Gergen. Before the break, we were talking about the moment. But then comes government and campaigning, when it turns to into government sometimes get messy and there are trap doors awaiting.

David, I just want your first thought on the expectations of this president. Does he have to deliver? When the economic anxiety transfers from George Bush's problem to Barack Obama's problem, how long is the clock before people say where are the jobs?

GERGEN: I know you've been deeply concerned about this, John. I was encouraged to see a "New York Times" poll this morning that said that actually the time horizon seems to have lengthened for many Americans during the transition, they now think within two to four years we'll have more progress on the economy.

Faster on Iraq, but on the economy, they're giving him more of a break. But I have a question about the politics of this because we're going to have such huge crowds here likely. I'm going to ask Alex this, does Donna have a view on this. When Barack Obama comes here and 2 million people arrive, who are part of a rallying around him, does that send a powerful message to the Congress, you better work with me?

Does it increase his political power to have this -- these big, huge crowds here because people look out and say, my goodness, this is the Obama that has come to the Capitol? What does it do?

CASTELLANOS: Oh, I think, certainly, that has been -- you know, he has -- the bottom-up Obama army, Obama 2.0 is certainly a chip that other presidents and leaders have not had.

And it's not just the people here. It's the people who are here who aren't, who are back home on the Internet and are connected to this event in a million ways all over the country. So, yes, it's very powerful.

But you know, there's also a little more counterintuitive way to look at how much time he has and how patient Americans are going to be with him. Americans are generally patient with their leader when things are not going well, not when things improve.

When things improve is when people get restless and say, what took you so long? Churchill was thrown out in England after the war was won, not before. And I think here Americans realize how serious the economic crisis is, how tough this is and, therefore, they're going to be very patient with him.

But as soon as things start getting a little better and we have something to fight about, we'll see the return of partisan bickering.

(LAUGHTER)

KING: This patience is a test for your party, it's not just a new Democratic president, but he has a Democratic Congress in that Capitol. And so (INAUDIBLE) maybe he wants to ask those people to hang around for a few months.

BRAZILE: Well, and it's also a co-equal branch of government. You know, the message that President-elect Obama is sending to his many supporters is, celebrate today but tomorrow we need you to go back out and organize.

He is going to turn the Democratic National Committee into an organizing machine, to break all of these supporters down by congressional districts so that they can engage their congressperson so that they can personally lobby their congressperson.

He's going take "we, the people" to a whole different level to help him during this moment of transition, to get these policy initiatives through the Congress.

KING: As he does that and if he can do that, it will be very important in the big, big, big fights ahead. Now as I say that, I want to talk policy with the help of the speaker of the house of representatives, Nancy Pelosi.

One of the things we're going to do every Sunday morning here on STATE OF THE UNION, is we're going to watch what goes on on the other Sunday talk shows around Washington. We might like to say, so you don't have to.

But the speaker, Nancy Pelosi, was on -- she was on "FOX News Sunday" today and she made a very dramatic, new statement. She says, yes, after they get through the stimulus package, Barack Obama wants to move on entitlement reform, Medicare and Social Security. And she says when those discussions are under way, everything, everything, including benefit cuts will be on the table.

Let's listen.

(BEGIN VIDEO CLIP FROM "FOX NEWS SUNDAY")

REP. NANCY PELOSI, D-CALIF., SPEAKER OF THE HOUSE: We are committed to pay-as-you-go, not heaping mountains of debt on our children. And the investments that we make have to be job creating and bring money into the economy. So of course, the entitlements are an important part of you put everything on the table. The only thing we didn't want to put on the table is eliminating Social Security, Medicare, and Medicaid.

(END VIDEO CLIP)

KING: So keeping Medicare and Social Security intact, but everything on the table. David Gergen, you know, you worked for four presidents, it has always been the third rail to touch these programs. Bill Clinton tried to a degree.

George Bush, there is great debate about what he wanted to do, but he invested enormous capital after winning re-election on this and failed to get anything done. There are trap doors for no matter how popular a president is, some issues can shoot you right back to earth. Is... GERGEN: Absolutely. Well, Barack Obama apparently believes it's a third rail not to touch these programs. But I cannot remember a program -- a president since Franklin Roosevelt who has come in with as audacious an agenda as he has.

Right now he wants to, in his first year, not only pass a stimulus program, but do health care, something that has eluded every president going back to Harry Truman, to have comprehensive health care reform.

He wants to have comprehensive energy reform, something that has eluded every president going back to the -- OPEC in the early 1970s. And now he -- this week he has put Medicare and Social Security on the table, something nobody has been able to do, he wants to do all of that.

KING: And Democrats so demonized George Bush when he tried to deal with Social Security. Will Republicans now say, have at it, Mr. Democratic President, Democratic Congress, you're on your own? Or are they willing to make the tough votes with this new president to cut back benefits in these programs and anger Americans who already are mad at Washington thinking this bailout money is going to big guys on Wall Street and not them?

CASTELLANOS: I think Republicans are looking for an opportunity to cut spending, and we're about a month or two away from Republicans -- I think a Republican revolt, in effect, standing up and saying, look, we can't keep pretending we're more prosperous than we are and have a pretend renewal of the economy and make some pretend jobs.

So I think you're going to see Republicans step up. But, you know, when the speaker says everything is on the table, she actually means it's on her side of the table.

(LAUGHTER)

CASTELLANOS: She doesn't necessarily mean that she's going to put this in the center and start cutting. The good news for Barack Obama is, he is the most powerful president we have seen in this country in a long time.

Bush has handed him a much empowered White House with the bailout money, the empowered Treasury. We have one-party rule in Congress. He has tremendous charisma to reach out to the people. But it can't be done now.

GERGEN: But how -- he has no money. He's broke.

(CROSSTALK)

CASTELLANOS: If he can't -- if he can't tighten the belt now, it will -- on entitlements, it will just take him down.

KING: The power of prestige, we will see how he uses it. We've talked about the moment. We've talked about policy. We're going to take a quick break. And when we come back, the story of a young black teen from just south of Baltimore who is asking a lot of his new hero, Barack Obama.

And don't forget to be part of the world's biggest photo. If you're out there on the Mall tomorrow, take a picture at the exact moment Barack Obama raises his hand to be sworn in as our next president. Send it to themoment@cnn.com. And we'll make it part of an amazing new digital collage.

CNN's groundbreaking coverage continues later today at 2:00 p.m. Eastern. I'll be back with Wolf Blitzer, Anderson Cooper, and the rest of the best political team on television as an incredible concert begins the official celebration of this historic Inauguration. STATE OF THE UNION will be right back.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP) OBAMA: I hope that part of what my election communicates to Melvin is he can shoot for the stars. He can go as far as his work ethic and his imagination takes him. And what I also hope is that not only me, but all of us take responsibility for the millions of Melvins out there. There are so many young people with so much talent.

(END VIDEO CLIP)

KING: That's how President-elect Barack Obama answered the questions raised by a young man we spent some time with just outside of Baltimore this week. As you'll see, Melvin Thomas has a lot of hopes riding on the first black president.

(BEGIN VIDEOTAPE)

KING (voice-over): Melvin Thomas is last off the bus, like most 14-year-olds, in no rush to get to school.

UNIDENTIFIED MALE: Melvin what do you got?

KING: Science is his favorite class, but he prefers the hallway banter, and lunch with his buddies.

(on camera): So what do the kids at school say about Barack Obama about to become president of the United States?

MELVIN THOMAS, HANOVER, MARYLAND: Sometimes they out of random somebody yells out "Obama" out in the hallway.

KING (voice-over): Melvin is relaxed in the game room, much more shy in front of the camera. But this soft-spoken young man has a story of change that could be as important as anything that Barack Obama does in Washington.

(on camera): If I were here a couple of years ago and say you were 10 or 11, 12, and I said, you know, who do you most admire? Who is your role model? Who do you say, you know, I want to be like that?

THOMAS: Michael Jordan.

KING: And if I asked you today, what's your answer? Who do you most admire?

THOMAS: Barack Obama.

KING: Melvin thinks a President Obama will mean more jobs and less of something else.

THOMAS: The hate against black people.

KING: He prefers video games to the news but got a glimpse of Obama early on and got excited.

THOMAS: I thought it was cool that the first African-American president was running.

KING: He playfully teased his mom when she backed Hillary Clinton in the Democratic primaries and later took a break from video games with younger brother Kyle to watch the Obama-McCain debates.

THOMAS: To be honest, I didn't -- I didn't get most of it, but I got some of it.

WOLF BLITZER, CNN ANCHOR: We're going to have to wait until more votes come in, and then we'll be able to make a projection.

KING: Bed by 10 p.m. on election night was frustrating, but rules are rules -- until they are broken.

THOMAS: Well, I had to go to sleep and my mom, she -- when I woke up, she was crying, and I said, Mom, why are you crying? Did somebody pass away? And she said, "No, Barack Obama won."

KING: And what did you feel then?

THOMAS: I -- I felt really happy and I hugged her.

(END VIDEOTAPE)

KING: Melvin Thomas, talking about how happy he was the morning after Election Day. Well, he may be even more happy now. Melvin Thomas, because of his role in the school leadership group, has an invitation to the inauguration to the first African-American president. We're going to keep in touch with Melvin when he's here in Washington, and maybe bring you some of his observations, next week on "State of the Union."

Once again, though, I'm joined by Donna Brazile, Alex Castellanos, and David Gergen. Help me understand. As much as anything that happens here, that's the question I'm fascinated about. You heard Melvin. Michael Jordan was his hero a year and a half ago; now Barack Obama.

What does it mean to young African-Americans, especially in the areas where you travel across the country and you're almost sometimes embarrassed to be an American? What does it mean?

BRAZILE: Well, you know, what Barack Obama did, throughout the campaign, was to inspire new generations to hope, to believe in the greatness of not just this country, but also to look at themselves and say, you know, I can do it; I can become president.

You know, I think about my little nephew. He's nine years old, had a hard time in first grade -- I hate to mention that...

(LAUGHTER)

... but now that he's an honor student -- he's an honor student, in just two years. This is a young guy who went from not really wanting to be part of the school, the curriculum. He had a hard time, post-Katrina, but now he wants to be like Barack Obama.

I have to warn President-elect Obama that he called the other day and wanted to know how old were the girls.

(LAUGHTER)

But Obama has inspired these young guys. He's inspired a whole new generation, black and white.

It goes beyond race, at this point. This is about the American dream, and making sure that it's available to all Americans, not just those who are privileged, but to every single person in this country. And that's what this election was really about.

KING: I want to bring Alex and David into the conversation. But first, just to help us understand the moment just a little bit more, I want to share a part of my interview with the president-elect, the other day, because I asked him about coming to this town.

That's a glorious building, but it was built at a time when there was still a moral stain on this country. Let's listen.

(BEGIN VIDEOTAPE)

KING: You are on the verge of putting your hand on the Lincoln Bible and taking the oath of office on the steps of the United States Capitol, built on the back of slaves.

OBAMA: Yes.

KING; And you'll walk down Pennsylvania Avenue and you will move into a historic house built on the backs of slaves.

OBAMA: Yes. KING: You're known as no-drama Obama.

(LAUGHTER)

Some people say, well, he's too detached and he's so cool; you never see his emotions. This has to be incredibly overwhelming.

OBAMA: Well, look, if you think about the journey that this country has made, then it can't help but stir your heart. Obviously, it's an extraordinary personal moment, but, you know, you don't have to go back to slavery. You can think about what Washington, D.C. was like 50 years ago or 60 years ago. And the notion that I now will be standing there and sworn in as the 44th president, I think, is something that, hopefully, our children take for granted, but our grandparents, I think, are still stunned by it. And it's a remarkable moment.

KING: A remarkable moment, but you're still pretty cool in describing it. In private, do you get more emotional?

John Lewis, for example -- he was beaten; he was jailed. He walked the walk of the journey he thinks you're helping, almost, complete. There's more to be done. And he says he might not be able to keep it together at the inauguration.

(LAUGHTER)

OBAMA: Well, I'm going to try to keep it together. But I will tell you that, during the convention, there's a moment, at the end of my convention speech, where I talk about Dr. King and what he accomplished.

And the first time we practiced it, I had to stop. I started choking up, because, you know, what you start thinking about is not just your own personal journey, but you think about all the women who walked instead of riding the bus, out in Montgomery and Birmingham, and what a moment like this would mean to them.

And what's remarkable is some of them are still alive. They're still there, and some of them are going to be standing there at the inauguration.

(END VIDEOTAPE)

KING: David Gergen, Barack Obama, talking about the journey. Dr. King, in this town, on this mall, spoke about the journey. And we talked a bit about the sullied history of the construction of these glorious buildings, many of them here.

How far has Barack Obama advanced the journey?

GERGEN: Well, it's interesting. You know, Dr. King, in his last speech before he was assassinated, talked -- said he'd been up to the mountain top and he had seen the promised land, and he wasn't at all sure he would ever make it to the promised land, but he'd been up there.

And Barack Obama has spoken eloquently that -- that Martin Luther King was the Moses, but he's part of the Joshua generation, and maybe they can reach the promised land.

Now, I think the test is going to be that, when young Melvin grows up in Baltimore, whether Baltimore -- as you've said this yesterday on the air, when you drive through there or ride through there, sometimes you're embarrassed by what you see, the neighborhoods that you see.

The test is going to be to when Melvin grows up, you know, whether you can ride through Baltimore and say, you know...

KING: And, Alex, we are a nation of immigrants. The Statue of Liberty says so. But we're not always a perfect nation. And Barack Obama talked yesterday about trying to make this a more perfect union.

What is the significance, not just to African-Americans but to all Americans but especially those who are non-white Americans?

CASTELLANOS: Well, it's a -- you know, I have the immigrant's view of America, still. I came to this country, my family, with $11 and a suitcase. And my parents had two kids, didn't speak the language, in 1960.

We thought this freedom thing you guys had, here, was pretty neat.

(LAUGHTER)

And to see -- you know, this has always been the land of renewal and promise, and it has always kept that promise. There have been ups and downs, but it has always kept that promise, certainly, to my family.

And right now, when the country's being tested in so many ways, to see that it calls on all of us, regardless of our last name, regardless of color, to see that it calls on all of us to come to its aid, to do our part, you know, it's an inspiring thing.

It needs us now. I mean, this is the time to ask what we can each do for our country.

KING: We're going to end on that uplifting note this time. I want to thank you all for coming in on our first day. And we'll have you back many, many days ahead.

BRAZILE: Congratulations.

KING: We're going to ruin a lot of Sunday morning, but we'll enjoy them together in the weeks ahead.

Donna Brazile, Alex Castellanos, David Gergen, thank you very much. And when we come back, we'll go outside the Beltway. I'll talk to some everyday folks who have some real concerns about the state of this union and just what the incoming president can do about it. You won't want to miss what they have to say. Stay with us.

(COMMERCIAL BREAK)

KING: Good morning, I'm John King, here on top of the Newseum overlooking the National Mall and the Capitol. Washington looks glorious as final preparations are made for Tuesday's inauguration. Let's take a moment though to catch up on what's going on outside of Washington, D.C.

The headlines this morning, beginning in war-torn Gaza, there's at least a glimmer of hope. Hamas leaders have just agreed to stop attacks on Israel for a week. This coming after yesterday's announcement by Israel that it would declare a unilateral cease-fire. During the 22 days of fighting, more than 1,200 people have been killed. Earlier on our program, incoming White House senior adviser David Axelrod spoke about how Barack Obama intends to quickly deal with the turmoil in the Middle East.

(BEGIN VIDEO CLIP)

DAVID AXELROD, INCOMING WHITE HOUSE SENIOR ADVISER: The president-elect has said repeatedly that he intends to engage early and aggressively with diplomacy all over the world, and using the men and women, the professionals who are in place who are great and wear appropriate special envoys.

KING: That fast though?

AXELROD: Well, I think that the events around the world demand that he act quickly and I think you'll see him act quickly.

(END VIDEO CLIP)

KING: And in New York City, the battered US Airways jet that crashing landed in the Hudson River two days ago has been lifted from the cold waters. As I'm sure you remember, the landing was so skillfully done tat none of the passengers or crew died in the freezing water. You see pictures there this morning of the jetliner this morning.

Now back here to Washington and the inauguration of Barack Obama. Americans across the country are going to be watching on Tuesday and watching very intently, trying to get a gut feeling about this new president. So as we intend to do most weeks on this program, I sat down over coffee to get a sense of the national mood. I did it out in Ohio. This is the "Cleveland Plain Dealer" here and you'll see a copy of this newspaper in what's coming up. We went to the Coffee Cup family restaurant in Bedford, Ohio. I first asked those assembled with us if they thought Barack Obama as the new president could solve the nation's economic crisis.

(BEGIN VIDEO CLIP)

JACKIE SUDD, BEDFORD, OHIO: I think it's a bold expectation. I think it's a tough job for anybody. Hopefully he can change it.

KING: What do you think?

DELL SUDD, BEDFORD, OHIO: Well, I think we have a lot of tough issues here. This is a part of our local economy is tied to the auto industry in many, many ways. We've got a lot of tough issues, John, that relate to the auto industry in general, not only manufacturing but the sales side. And as Jackie said, I think they're scared about having their jobs and keeping their homes and their families together.

KING: Did you trust George Bush when he says I'm going to give all of this money out?

UNIDENTIFIED MALE: No.

Do you trust Barack Obama? It's the same pot of money.

UNIDENTIFIED MALE: No. I don't trust either one of them with that kind of money, to be honest with you. I don't see the necessity for it. I figured they saw this coming from a long way off and they should it stopped it then. Now is not the time I don't believe to try to change. I'm in construction, I've never seen it this bad in 50 years. I've been living here for 50 years and never seen it like this.

KING: What can they do to be different?

UNIDENTIFIED MALE: Well, you can change agenda. Use the money, use it right, change the policy, don't just give it away.

KING: Define use it right for me. I mean, do you have any idea where any of this money is going? I mean, it's your money.

UNIDENTIFIED MALE: If all of your big corporations are closing up that means they're doing something wrong. Why would you give them money to keep doing the same thing? Change the policies. Show us where the money will go.

KING: Show of hands, is there anyone here in this group who did not support Barack Obama for president?

Two did not, three did not. And yet if I said, your hopes for Barack Obama right now, if I just said the name, Barack Obama right now what would you associate that with?

J. SUDD: He's going to be our new president so we need to support him now. He won the election, so he's our president. And I'll support him. We need to stick together as a country, that's our president. KING: For you who didn't vote for him, what he can he do specifically for the three months or six months down the line for you to say, maybe next time I'll think about this?

D. SUDD: Actually I think he's already started in some of his actions in re-preparing for office. It's been very clear he's been very open-minded. He said publicly, look, if somebody's got a better idea than what I've got on my agenda, I'm open to it, I just want to do what's best here. And he's made a very favorite impression on me.

KING: Do you feel the same way?

LANCE MARTINSON, OHIO RESIDENT: I do. I just hope it's not politics as usual because this country can't stand politics as usual anymore. We need somebody like Grover Cleveland or somebody that will come in and just clean up the corruption that's between big money and the government and special interest groups. And until that happens, they hold the power and it's a shame because they're taking the nation down with them. And the everyday American is going to suffer.

(END VIDEOTAPE) KING: Our thanks to the great people at the Coffee Cup for good conversation and a great breakfast. Up next, I'll show you some vintage video of a rising star in the Illinois State Senate. Give you one guess who it is.

Later, my exclusive interview with the president-elect. You'll see the whole thing coming up right here on this inaugural edition of STATE OF THE UNION.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

OBAMA: I do think that there's an underlying anxiety in part because of their concerns about America's role in the world and the aftermath of the war and, in part, because they're concerned about domestic policy and how this war's going to impact the economy.

(END VIDEO CLIP)

KING: That was a younger, clearly ambitious, Illinois State Senator Barack Obama, his first interview on CNN back in 2003, just after the U.S. invasion of Iraq. In his most recent interview, almost certainly the last before he becomes president, Mr. Obama told me it's clear his priorities haven't changed.

(BEGIN VIDEOTAPE)

OBAMA: I think that across the political spectrum, people are looking at what we have to do now to get this economy back on track and they are saying to themselves, we know we can't sustain this. That means we've got to make some tough decisions.

OBAMA: And I'm going to be using a significant amount of political capital.

(END VIDEOTAPE)

KING: If you're looking closely there, you see the gray hair, that most recent interviewed compared to that one six years ago. Let's bring in for the best political team on television, Soledad O'Brien, and our seniors moment here in the first program, our senior White House correspondent Ed Henry, our senior congressional correspondent Dana Bash, and our senior political correspondent Candy Crowley.

Let's just start, and, Candy, I want to start with you, because you came down on the train. Great imagery from the outside. Take us inside.

CANDY CROWLEY, CNN SENIOR POLITICAL CORRESPONDENT: Inside, I think it was a little less about imagery than it was about Obama talking to what he has been calling the real Americans, those 40 or so people that he brought along with him.

This was about keeping the mojo going, if you will, keeping people out there who voted for him, still with him because, as he warned in speech after speech along that train rail, is, look, we're going to make mistakes, it's going to be tough, so I'm going to need you.

And I think that's why probably all of us still get those e-mail blasts from Barack Obama. I'm still getting text messages from Barack Obama, from obviously he's not saying: "Dear Candy, love Barack."

(LAUGHTER)

CROWLEY: So you know, we're still getting those because they need this group to stay together, first, to talk to Congress, but then to just buy him some time.

KING: Well, you make an interesting point. On that point, let me -- again, every Sunday morning we're going look around at the other shows on television so you don't have to, and we'll bring you some of the highlights and we'll talk about it because we have the best reporters right here.

Let's listen, you mentioned the challenges ahead in keeping that coalition together. Let's listen for a minute to Larry Summers, incoming senior economic adviser, speaking on CBS about the challenges and trying to revive the economy.

(BEGIN VIDEO CLIP)

LARRY SUMMERS, WHITE HOUSE SENIOR ECONOMIC ADVISER: Our overall focus is going to be on increasing spending. On that there's going to be a substantial tax cut for the American people. No one with an income of under $250,000 is going to see their taxes go up, working families are all going to get $1,000.

(END VIDEO CLIP)

KING: Dana Bash, a great focus on the moment and the celebration, but even before he has become president, all of these proposals, including all of that spending Larry Summers is talking about being debated where you work, up on Capitol Hill, carte blanche for the new president or some road bumps.

DANA BASH, CNN SENIOR CONGRESSIONAL CORRESPONDENT: No, not all. And that's why Larry Summers has basically moved into Congress. I mean, he was there every day last week talking to Republicans, talking to Democrats in the House and the Senate.

No, it is definitely not a done deal, particularly on this issue of the stimulus, especially with the goal that Barack Obama has, and that is to pull in Republican votes. Already you're seeing the Republican leadership in the House saying, uh-uh-uh, we don't -- you know, we don't think this is the right way to do it, it's too much spending, it's too much debt.

And so that is going to be still their big challenge if they want to accomplish their goal not just of jump-starting the economy, but doing it in a bipartisan way. KING: And, Ed, how do they do that? A new administration comes in, you're always headstrong with power, it's his own party, too, and he won 53 percent of the vote, so do they have the attitude, as many Republicans would tell you when they were in the majority, and George W. Bush moved in, you know, in those days it was, you know, George Bush and Karl Rove said jump, and the Republicans in Congress -- many would now say, said, how high?

ED HENRY, CNN SENIOR WHITE HOUSE CORRESPONDENT: Barack Obama is dramatically trying to turn the page. When he went in for lunch with Senate Democrats, and Dana knows this, I'm told that he went behind closed doors and someone called him "Mr. President-elect," and he corrected him and said, until next week I'm still Barack.

And he tried to show, look, I'm not a different guy. I'm the guy who was just in the Senate lunch as a United States senator. But frankly, he's not anymore, he is different and he's changing fast. He doesn't have to just worry about the economy, he has got to worry about Iraq as well.

We've been learning, as David Axelrod told you this morning, that Wednesday right away he's going to bring the national security team in and tell the military commanders we need to change the mission in Iraq and, you know, pull out the combat troops within 16 months.

He's trying to fulfill that campaign promise. But on the other hand, that's just a meeting, that's not actually pulling troops out. In six months, if his defense secretary, Robert Gates, who is a Bush defense secretary, says, uh-uh, that's not a smart idea, what's he going to do? That's when the rubber is going to meet the road.

KING: So help us understand, help us Washington insiders understand. You know, Candy made a very important point of how they try to keep this coalition together. In the early days of the Bush administration -- or throughout the Bush administration, policy debates would happen and we would say, what do Christian conservatives think? Are they still with this president?

What do people think in the suburbs? Suburbs sway American politics. You did groundbreaking work last year on black America.

SOLEDAD O'BRIEN, CNN CORRESPONDENT: I think that the conversation is the same and he's going to do and he's going to have to do what Martin Luther King did, connect the story of particular individual groups to the success of America as a whole. It cannot be an individual struggle, a race to the finish line for one group. It has to be the team effort.

And Martin Luther King did that very, very well, sort of saying unless there's success and opportunity for African-Americans, you limit what happens here in America. And America is a nation of promise. To fulfill that promise, you have to take everybody across the finish line.

I think Barack Obama, who has echoed Martin Luther King a lot obviously in his speech, is going to follow through with that. So to his constituents who may feel, am I getting mine, and how do we hold this together, it's going to be, we have got to come across as a team or no one will win at all.

KING: And, Candy, you spent so much time with him during the campaign year, the transitions are ceremonial, but do you think they have -- do you get the sense they get the difference between campaigning and governing because the math is different, what you promise in a campaign you can't always deliver as government?

And you're also not a small-knit team. They were a very disciplined campaign organization. Now they've got to run a pretty unruly town.

CROWLEY: Now that they have to make sure that the undersecretary at the Commerce Department doesn't leak something, which is a little harder to control. Look, they've been in governing since almost the day after election.

The economic team has been in place over there. They've been with Paulson. So they already have moved into governance. But, you know, lest we make this sort of a couple "Kumbaya" moment for Barack Obama, call me Barack, also said, by the way, I'm going to veto the bill if you send it to me. So it is not as though he can't play and doesn't understand. But he also understands the art of the practical and he knew that during the campaign and he knows it now. And he argued the art of the practical. If you send it to me I'll veto it and then you can't override it and I'll get what I want and we'll have had this big messy fight for nothing. End of story.

KING: Kumbaya in lower case.

(LAUGHTER)

KING: We'll continue this conversation with our great team in just a moment. Everyone stand by. We'll continue to preview Tuesday's historical Inauguration of President-elect Barack Obama.

And speaking of Obama, I guess I have to say this again, don't forget my exclusive interview with the president-elect is coming up. You won't want to miss what he has to say about his predecessor, President George W. Bush. Stay with us.

(COMMERCIAL BREAK)

KING: Good morning, again. I'm John King, joined here on the roof of the Newseum, and it is a beautiful sight overlooking the National Mall by four of the best political team on television: Soledad O'Brien, Ed Henry, Dana Bash, and Candy Crowley.

First impressions matter. And Barack Obama will take the oath. It will be a great celebration. But then he becomes president and many presidents have come in with great enthusiasm and then had a misstep.

I want to listen to Robert Gibbs, the incoming White House press secretary. He was on another news show this morning. And outside he talked about what Barack Obama might do in his early hours.

Let's listen.

(BEGIN VIDEO CLIP)

ROBERT GIBBS, INCOMING WHITE HOUSE PRESS SECRETARY: We've talked about banning torture and closing Guantanamo, the process by which that will happen.

GIBBS: I think those are probably the big things that could happen as early as the first week.

(END VIDEO CLIP)

KING: They're big things, Ed Henry. They were huge items during the campaign. And they're things Barack Obama wants to do right away. Any concern that he gets through this long list of things Democrats have waited eight years to do? George W. Bush was in the White House, you do something, it was gays in the military back in Bill Clinton's administration, that throws you off track.

HENRY: It could. And that's why one thing I'm hearing from senior aides is they're not going to do a lot of executive orders on the first day. They have given some thought to that. They are realizing the need to let the inaugural speech breathe a little bit. They need to let the history step in. Why step on those pictures and those dramatic moments?

But Wednesday, Thursday, Friday, we're going to see a flurry of activity. I think, sure, some of this stuff is going to kick up controversy. There is going to be an executive order, we're told, closing Guantanamo. But again, it's not going to close it immediately. It's going to take a long time to go through that legal process.

So some people on the left are not going to be satisfied with some of those moves. Another one we're told he is going to do is an executive probably on CAFE standards, making vehicles more fuel efficient. That could be controversial because environmentalists will love it.

But on the other hand, the car industry is already struggling. And you start forcing that down their throat, that could make that situation worse. So, you're right. You start making moves that the left really wants to do. And then you start angering other people. This is all of a sudden when you have to govern.

KING: And so let's do a little geography. The White House is that way from where we're sitting on Pennsylvania Avenue. Dana, in this building behind us, it's been interesting to watch some Democrats going so far as to say, well, we're going to work with Barack Obama. But let's be clear. We don't work for Barack Obama. Anything that will happen up there that could take Barack Obama off track?

BASH: Well, sure. I mean, look, you hear the House Speaker Nancy Pelosi, talking about a couple of things that she is being very vocal about wanting to do. Barack Obama himself has said, hold on. For example, the Bush tax cuts. She is clearly very publicly upset about the fact that Barack Obama said let's just wait. We're not going to roll back the tax cuts for the most wealthy. Let's just give it a couple years. She's saying no, we campaigned on. We have to do that and we have to do that now.

Another interesting thing is that Obama has been talking about not looking back and just looking forward. Just this morning Pelosi said, you know what? I think it's our responsibility to look into and investigate some of the things that the Bush administration from their perspective has done wrong. So those are just two examples of things that could throw Barack Obama off by some of the Democrats.

KING: So Candy, from your experience, is the bigger challenge managing the Democratic family or trying to deal with the Republicans?

CROWLEY: Oh, it's always your own party if they're in the majority. It's always your own party you have the problem with. But, look, Barack Obama has the sway right now. I mean, he's a guy with the power. They understand that on Capitol Hill. And he'll give them around the edges. But he's largely going to get what he wants at this point. You have to move quickly. I think he maybe has a little more time than most. By the end of this year, if they're going to sink a trillion plus in this economy, he owns it by December.

So, you know, he has to work with them. But he hasn't got time for some of this. And I think in that first six months he just holds a lot of sway up there and you'll see them moving to him more than him moving to them.

KING: And when you listen to this long list, the auto industry, CAFE standards, Gitmo, taxes, executive orders, it's Washington talk. There are important issues, but --

O'BRIEN: You don't hear cleaning up schools. You don't hear investing in infrastructure, all those things that people would say, especially if you're looking at people in the inner city, would say those are all really important and we definitely have to get to those.

But don't forget about us. And that's a real concern. You know, again, there is all this good will on all these fronts. But at some point, you start losing your credibility, you start losing ground. I think they're going to have to come up with a pretty quickly a signal, a sign that they're reaching out and going to address those issues that are of particular importance to people who are impoverished in inner cities who feel like they're not being served.

KING: Soledad O'Brien, Ed Henry, Dana Bash, Candy Crowley, thank you very much. I think if I could sum up that conversation, it was enjoy the moment, Mr. President-elect. The inbox is pretty deep. We'll see you all again in the days ahead.

Much more ahead from here in the nation's capital. We'll take you to the Lincoln Memorial, where thousands of people will gather this afternoon for a massive inaugural concert. You'll hear from president-elect himself as we sat down for his last planned interview before taking the oath of office. Much more ahead right here on the inaugural edition of STATE OF THE UNION.

(COMMERCIAL BREAK)

KING: We're back at STATE OF THE UNION. I want to go to straight now to Kate Bolduan. She's down on the National Mall talking to people already arriving for this historic inauguration. Hey, Kate.

KATE BOLDUAN, CNN CORRESPONDENT: Hey there, John. Well, we are on the National Mall. This is where the focus will be come Tuesday. Let's give you a little perspective of what you could be dealing with if you're coming down here.

We're looking at the Capitol. That is where Barack Obama will be sworn in. You see the jumbotrons there. The sound equipment that is still going up. That may be the only way many people who will be coming will be able to catch a glimpse of the historic swearing in.

Let me show you why. You see this entire area, it looks like a busy tourist day here on the National Mall. You can expect and bet it's going to be much busier come Tuesday. See, that's the Washington Monument. That is a mile and a half from the Capitol, the west front where Barack Obama will be on Tuesday. Beyond that, two miles away from the Capitol is the Lincoln Memorial. This entire National Mall for the first time will be open to accommodate the potential of a record-breaking crowd. You can see people are already here. You can expect it will only get busier the next 48 hours, John.

KING: Kate, enjoy that space down there while you can. As Kate noted, the Lincoln Memorial, two miles plus away from the United States Capitol, at the far end of the National Mall. That's where we find our White House correspondent Suzanne Malveaux. She is there in advance of 2:30 this afternoon, the first official inaugural event, the big concert. Suzanne, give us a preview.

SUZANNE MALVEAUX, CNN WHITE HOUSE CORRESPONDENT: Hey, John. It's called "We Are One." The first kickoff concert, people are just beginning to gather and fill up space behind me. Denzel Washington at the podium there, practicing some of these readings. It's really going to be a chance for Barack Obama to address the crowd as well as Joe Biden. Their families will be here.

And essentially you're going to have top performers. You have Bono, Garth Brooks, Sheryl Crow, Beyonce, Mary Jay Blige, the Boss, just to name a few. They are all going to be performing not their greatest hits but rather things that really tap into the theme about we are one, tap into the theme about American values.

We're also going to see some famous folks who are going to read historical passages by Lincoln and Martin Luther King. Martin Luther King III will be here. Queen Latifah, Denzel Washington, all of them reading these passages.

It's a sense, a chance to be the kind of philosophical, to think about the links between Barack Obama and Abraham Lincoln and the inspiration that he draws upon Lincoln and what he wants to say to the crowd. Obviously, a lot of folks going to be out here this afternoon, John.

KING: Suzanne Malveaux at a historic sight, the Lincoln Memorial. We'll keep checking throughout the day. We'd like to pause right now for just a moment and welcome our viewers from around the world.

KING: Hello, I'm John King. And we're here, live, at the Newseum in beautiful Washington, D.C., overlooking the U.S. Capitol, where, in just two days, Barack Obama will be sworn in as the 44th president of the United States.

"State of the Union" is a new program here on CNN. We'll be on the area every Sunday for four full hours, here in the United States, bringing you the top newsmakers from here in Washington, D.C., and going on the road. I'll talk to citizens from every state in this great union.

That's all going to begin in earnest, more, next week. Today, we're also focusing, of course, on the inauguration of America's first African-American president.

On Friday, I sat down with the president-elect in Bedford Heights, Ohio in, the industrial Midwest. And I asked him what this historic event will mean on the ultimate personal level.

(BEGIN VIDEOTAPE)

KING: Mr. President-elect, thanks so much for joining us.

OBAMA: Thanks for having me.

KING: A lot of policy ground I want to cover, but I want to start with the moment. You are on the verge of putting your hand on the Lincoln Bible and taking the oath of office on the steps of the United States Capitol, built on the back of slaves.

OBAMA: Yes.

KING: And you'll walk down Pennsylvania Avenue and you will move into a historic house built on the backs of slaves.

OBAMA: Yes.

KING: You're known as no-drama Obama.

(LAUGHTER)

Some people say, well, he's too detached and he's so cool; you never see his emotions. This has to be incredibly overwhelming.

OBAMA: Well, look, if you think about the journey that this country has made, then it can't help but stir your heart. Obviously, it's an extraordinary personal moment, but, you know, you don't have to go back to slavery.

You can think about what Washington, D.C. was like 50 years ago or 60 years ago. And the notion that I now will be standing there and sworn in as the 44th president, I think, is something that, hopefully, our children take for granted. But our grandparents, I think, are still stunned by it. And it's a remarkable moment.

KING: A remarkable moment, but you're still pretty cool in describing it. In private, do you get more emotional?

John Lewis, for example -- he was beaten; he was jailed. He walked the walk of the journey he thinks you're helping, almost, complete. There's more to be done. And he says he might not be able to keep it together at the inauguration.

(LAUGHTER)

OBAMA: Well, I'm going to try to keep it together. But I will tell you that, during the convention, there's a moment, at the end of my convention speech, where I talk about Dr. King and what he accomplished.

And the first time we practiced it, I had to stop. I started choking up, because, you know, what you start thinking about is not just your own personal journey, but you think about all the women who walked instead of riding the bus, out in Montgomery and Birmingham, and what a moment like this would mean to them.

And what's remarkable is some of them are still alive. They're still there, and some of them are going to be standing there at the inauguration.

KING: We'll get back to the moment, but want to go through some policy ground. Let's start with where we are. We're in Ohio.

OBAMA: Right.

KING: This state is struggling. The country is struggling. This factory we're in today is a success story and it's one of the reasons you're here.

But if you go around this neighborhood, many of the factories are bleeding jobs and they're losing -- a lot of them are in the auto industry.

You had breakfast this morning with some local people. And if I could boil their economic concerns into one question, it would be, to their new president -- they want to know when will the bleeding stop?

OBAMA: Well, we're going to have a tough year, 2009. I don't think that any economist disputes that we're in the worst economic crisis since the Great Depression.

The good news is that we're getting a consensus around what needs to be done. We've got to have a bold, aggressive reinvestment and recovery package. It's working its way through Congress. That's going to help create or save 3 million to 4 million new jobs.

What we also need is to make sure that those jobs are in industries that can lay the foundation for long-term economic growth. And that's why this factory's so special, because you're seeing here are traditional manufacturing converted to focus on the wind turbines and wind power of the future.

And so what we want to do is to try to duplicate the success here. These folks use American steel. They've got American workers and their goods are being imported to create American energy. And what we want to see if we can do is to duplicate this, train workers.

We're still going to have to focus on stabilizing our financial system, and so I was glad that Congress gave us the authority to use much more wisely the money that's been allocated to stabilize the financial system, deal with home foreclosures in a serious way. And we've got to tough financial regulations so that we don't have Wall Street getting the country into the kind of crisis that we're in right now any more.

KING: You mentioned a solution, the stimulus plan, the "recovery plan," as you call it, the bailout plan, the TARP program, as they call it in Washington. You'll get that money. It's hard to find anybody who disputes the urgency. But you find a lot of people worried about the price tag.

OBAMA: And they should be.

KING: One of your key allies in Congress said just yesterday, $850 billion in stimulus may be a first step. They might need more.

You know what the bankers are saying on Wall Street, that the financial institutions are still losing money, many of them holding onto that federal money, even.

And they say, it might not be enough; $700 billion might not be enough.

OBAMA: Right.

KING: Are you going to have to, in your early days, draw a line, say we can't keep printing money; this is it?

OBAMA: Here's what we're going to have to do. We've got to distinguish between short term and long term. Short term, the most important thing is to put people back to work

All those folks who we had breakfast with -- if they're working, that means they're paying taxes. That means that they're buying goods and services. And the economy, instead of being on a downward spiral, starts back up on an upward spiral.

But what we also have to recognize is that the deficit levels that I'm inheriting, over $1 trillion coming out of last year, that that is unsustainable. At a certain point, other countries stop buying our debt. At a certain point, we'd end up having to raise interest rates, and it would end up creating more economic chaos and, potentially, inflation. So what we need to do is to say that, instead of just printing more money, let's look at medium term and long term; let's get a handle on Social Security; let's get a handle on Medicare; let's eliminate waste in government where it exists; let's reform our Pentagon procurement practices.

All those things are going to have to be done in concert, and that's going to be tough. It's going to be tough because the only way to do it is if Democrats and Republicans both are willing to give up a little bit of what they consider to be their favorite programs.

And we're going to have to look at all this stuff in a fairly short period of time because we're not going to have five or 10 or 15 years to kick the can down the road. We've got to get started right now.

KING: Back a few years ago, Ross Perot used to get attention for saying there was this giant sucking sound of U.S. jobs going overseas.

OBAMA: Right.

KING: Many people now say they hear this constant flushing sound, $700 billion. They don't know where it's going, and they think it's going literally down the toilet.

I want to read you a question. We asked some of our viewers what would they like to ask the president-elect. And John Stevens (ph) of Torrington, Connecticut, to the point you were just making about mortgages and foreclosures.

(BEGIN VIDEO CLIP)

(UNKNOWN): I'm unemployed, going to a foreclosure. The bank doesn't want to work with me. They've actually told me, on the phone that it's easier for them and more cost effective for them to take my home than to work out a payment plan with me.

(END VIDEO CLIP)

KING: Are there not specific things -- requirements for these banks, that if you're going to get billions of dollars in taxpayer money, you have to help these people?

OBAMA: That's my attitude, and that's what we're going to have in our plan.

Look, there's no doubt that we needed to stabilize the banking system. It could have been even more catastrophic, when we saw the stock market start collapsing in September. We could have seen a serious downward spiral.

But there is nothing wrong with us placing some conditions, making sure the money is not going to executive compensation; making sure that you're not seeing big dividend payoffs to shareholders; and making sure that money is being lent so that we can get credit flowing again, not just to individual homeowners who are losing their homes but also small businesses who are the life blood of this economy.

If they can't get credit, then they end up having to shutter their doors. And when they shutter their doors, people lose jobs. They then can't pay their mortgage, and you start down the road that we're on.

We want to reverse that path, and that means that the way we use the next $350 billion that Congress voted on -- and that was a very tough vote for a lot of people, so the -- and it was tough for me to have to request it.

We've got to make sure that it's transparent, that there's oversight, that the American people know exactly how the money's being used, and that dealing with home foreclosure is a central policy in that program.

KING: Up next, there's a hot-button issue Barack Obama could change, with the stroke of a pen, just minutes or hours after he assumes the presidency. We'll ask him what might be on his desk on day one.

And the question on everyone's mind: Has the Obama family decided on a first puppy?

(LAUGHTER)

More of my exclusive interview. And, later, a conversation with the incoming White House adviser, David Axelrod and a live response from his counterpart, the outgoing White House adviser Ed Gillespie.

Stay with "State of the Union," live from the Newseum, here in Washington, D.C.

(COMMERCIAL BREAK)

KING: This is STATE OF THE UNION, live from the roof of the Newseum with a breathtaking view of the Capitol on the National Mall here in Washington, D.C. I'm John King. At the top of Barack Obama's agenda is an economic stimulus package that could cost taxpayers hundreds of millions of dollars. Some say could reach a trillion dollars. But with the economy in free fall, President Obama will face some very, very tough choices. When I sat down with the president- elect in Ohio for his last scheduled interview before being inaugurated, I asked him which campaign promises might simply have to wait.

(BEGIN VIDEOTAPE)

KING: Every new president learns that governing math is sometimes a little more difficult than campaign math and you talked about this. There will be trade-offs, that some people are going to have to wait. I want to talk about a couple of them. You made a big priority during the campaign. You said $50 to $65 billion, you would spend, on health care reform and you could get that money from rolling back the Bush tax cuts for people who make over $250,000 a year. Even many who know want to roll those tax cuts back say not now, would hurt the economy at a precious time. Does that mean you will let those tax cuts stay in place for a while and say to people who are urgently waiting, health care reform is going to have a little bit.

OBAMA: We have not made a final decision on this. We'll be unveiling our budget in February. The important principle is that folks making more than $250,000 a year can afford to give up those Bush tax cuts so we can give those tax breaks to 95 percent of working families who desperately need some relief.

We are going to make sure that that's part of our package.

KING: But it might take a little long...

(CROSSTALK)

OBAMA: It might take a little bit longer. Keep in mind, though, that the legislation to get our health care plan in place is going to take a significant amount of time during the course of this year. That is a huge process.

We've got to get all of the stakeholders together, the providers, the nurses, the doctors, the hospitals, everybody is going to have to sit around the table and then we've got to move it through Congress.

So what I -- but here's the good news, that in the economic recovery package that we put together, we have a lot of investment in making the health care system more efficient. Those are things that had to be paid for anyway.

Just a simple thing like converting from a paper system to electronic medical records for every single person can drastically reduce costs, drastically reduce medical error, make not only health care more affordable, but also improve its quality.

KING: If you're not busy enough, you now say early on you will have an entitlement summit.

OBAMA: Yes.

KING: President Clinton tried some of this.

OBAMA: Yes.

KING: I know you disagreed with his proposals, but President Bush put a lot of capital into this. It's a frustrating challenge that presidents in the past have faced. You'll have this summit, but what is your timetable for action in Congress?

OBAMA: Well, you know, I think here's the difference. There is something about a trillion dollars that gets people's attention. And...

KING: One would hope.

OBAMA: I hope.

(LAUGHTER)

OBAMA: And I think that across the political spectrum people are looking at what we have to do now to get this economy back on track. And they're saying to themselves, we know we can't sustain this, and that means we've got to make some tough decisions. And I'm going to be using a significant amount of political capital.

What I want to do is lay out the situation for the American people. And this is going to be a general principle of governing. No spin, play it straight, describe to the American people the state that we're in. And then provide them and Congress a sense of direction.

Here's how I think we can solve this problem. Now I'm not going to get my way 100 percent of the time. I expect that people will have good ideas. And if they've got better ideas in terms of how to deal with Medicare or Social Security than I do, I will gladly accept them. I just want things to work.

But what I know will not work is us seeing our debt levels double again like they did under George W. Bush. We can't do it and it's a burden on future generations that I'm not willing to accept. KING: You went to every corner of this country promising to restore trust and confidence in government and particularly and especially in Washington.

OBAMA: Yes.

KING: Do you think that promise is in any way at risk because of the controversy over your pick to be treasury secretary who failed to pay more than $30,000 in taxes? You have said it's an honest mistake, people make them.

"The New York Times," for example, has an editorial today saying, not the right guy for the job at this time of economic peril. They say this controversy has tainted his ability to command respect and instill confidence.

OBAMA: Well, you know, "The New York Times" editorial page has a lot of opinions, as does "The Wall Street Journal" editorial page, and some of them are better than others. This wasn't a good one.

Tim Geithner...

KING: He's going to be the head of the IRS, the man who...

OBAMA: I understand.

(CROSSTALK)

KING: ... and administers the tax code.

OBAMA: But keep in mind, nobody disputes that this guy is the best equipped guy for the job. That he has got the best qualifications imaginable. That he has dealt with financial crises consistently and steadily.

And so the notion that somebody who has made what is a common mistake because they worked for an international organization, they paid this money back, paid penalties, and the notion that somehow that is disqualifying makes absolutely no sense.

And, you know, the -- I think that one of the things that we need to change about Washington is this notion that if you can play gotcha and you find, over the course of an exemplary record, one mistake that somebody makes that somehow that's disqualifying.

If that were true, then I couldn't be president, and you probably couldn't be a correspondent. So what I want is somebody who has terrific qualifications for the job, who has core integrity. I'm not looking for somebody who has never made a mistake in their life. And I don't think the American people are either.

KING: You will have the power at the end of that parade to, at the stroke of a pen, lift the federal ban on embryonic stem cell research. There may be the votes to do it in Congress now, but you don't have to wait, you could do it in your first few minutes in office, will you? OBAMA: Well, if we can do something legislative then I usually prefer a legislative process because those are the people's representatives. And I think that on embryonic stem cell research, the fact that you have a bipartisan support around that issue, the fact that you have Republicans like Orrin Hatch who are fierce opponents of abortion and yet recognize that there is a moral and ethical mechanism to insure that people with Parkinson's disease and Alzheimer's can actually find potentially some hope out there, you know, I think that sends a powerful message.

So we're still examining what things we'll do through executive order. But I like the idea of the American people's representatives expressing their views on an issue like this.

KING: You spent two years traveling the country saying President Bush was incompetent when it came to domestic leadership, had a debacle of a war in Iraq, and had hurt our image around the world. KING: You've gotten to know him a little bit better during what by all accounts is an incredibly smooth and professional transition. Anything about him you want to take back or any new judgments about him? OBAMA: You know, I think if you would look at my -- if you look at my statements throughout the campaign, I always thought he was a good guy. I mean, I think personally he is a good man who loves his family and loves his country. And I think he made the best decisions that he could at times under some very difficult circumstances. That does not detract from my assessment that over the last several years we have made a series of bad choices and we are now going to be inheriting the consequences of a lot of those bad choices. That does not mean that I think he's not a good person. And his White House staff has done an extraordinary job in working with us for a smooth transition. And that's part of what, I think, America is about. That we can have disagreements politically but still treat each other civilly, and I think he has embodied that during this process. (END VIDEOTAPE) KING: When we come back, Barack Obama opens up about his family and takes us inside an emotional trip with his wife and daughters to the Lincoln Memorial.

And there is much more to come. Top Obama aide David Axelrod gives us a look at what's ahead in the first hundred days of the new administration. CNN senior political analyst Gloria Borger joins us to wrap up the emotions and the politics of a very important Sunday.

And finally, White House Counselor Ed Gillespie will have the last word. It will be a signature segment here on STATE OF THE UNION. Stay with us.

(COMMERCIAL BREAK)

KING: You're watching this special Inaugural edition of STATE OF THE UNION, live from the rooftop of the Newseum, right in the middle of it all here in Washington, D.C.

Over the next few days Barack Obama not only a new president, also a father, dealing with the many problems of moving his young family into a new house and a new city.

When I sat down with him in Bedford Heights, Ohio, we talked about how he and his wife Michelle and their two daughters are handling the personal transition.

(BEGIN VIDEOTAPE)

KING: Let's spend a few minutes, as we close, on your personal transition. OBAMA: Yes. KING: Another one of our questions from viewers was about the big choice you have to make for the family. This is Jill Pearson (ph) from Marietta, Georgia.

(BEGIN VIDEO CLIP)

UNIDENTIFIED FEMALE: Have you decided on your first puppy?

(END VIDEO CLIP) OBAMA: Well, yes, we have narrowed it down. I made the statement that says we're thinking about either a Labradoodle or a Portuguese Water Dog. Malia is allergic, so we have to have a hypoallergenic dog.

We'd also like a shelter dog, though. So, you know, how we're going to manage all of this will be closely watched, I know, in the weeks and months to come. KING: I have spent some time since the election with a young boy named Melvin Thomas. He's 14 years old, lives just outside of Baltimore, African-American. If I was visiting with him a year and a half ago and said, who's your hero? He would have said without blinking, Michael Jordan. If I asked him today, he says, Barack Obama. OBAMA: Well... KING: And he says, Barack Obama is going to change the country. He thinks you're going to create more jobs. And he thinks you're going to help stop people from hating black people. What's the burden you feel there and the responsibility to kids like Melvin Thomas? OBAMA: Well, first of all, I hope that -- part of what my election communicates to Melvin is he can shoot for the stars. He can go as far as his worth ethic and his -- his imagination takes him. And what I also hope is that not only me, but all of us take responsibility for the millions of Melvins out there. There are so many young people with so much talent. KING: What, specifically, do you need to do? OBAMA: Well, I think that part of what we have to do is make sure that our school system works. Part of it is all of us as parents taking responsibility, because government can't do it all. And what Melvin is going to benefit from, hopefully, is some good policies from my White House, but I also hope he's going to benefit from parents who instill in him a thirst for learning, that he has a community that is supportive of the idea that there's nothing wrong with black boys, or any American child, hitting the books before they worry about whether they're popular or whether they're worrying about their sports. You know, I think that the idea that each and every one of us has responsibilities to the next generation is one of the things that I want to communicate, both on Inauguration Day and throughout my presidency. KING: We're short on time, so a couple of more quick ones. You took your family to the Lincoln Memorial. OBAMA: Yes. KING: What did you talk about, walking around and looking at the president and reading those walls? OBAMA: Now this is a good story. I love the Lincoln Memorial at night. It always inspires me. So I took Michelle and the girls. We're looking at the Gettysburg Address. And Michelle's describing what Lincoln's words mean.

The fact that these soldiers died on this battlefield means that any words that Lincoln could have said or any of us could have said would ring hollow. They've already consecrated this ground, and what we have to do is to honor them by working for -- for a more just -- more justice, more equality here in America. At which point, Malia turns to me, and she says, yes, how are we doing on that, Mr. President-elect? (LAUGHTER)

KING: Accountability in the house, that's a good thing. OBAMA: Absolutely. And then we go and look at the -- Lincoln's second Inaugural, which is on the other wall. And Sasha looks up, and she says, boy, that's a long speech, do you have to give one of those? I said, actually, that one is pretty short. Mine may even be a little longer. At which point, then Malia turns to me and says, first African-American president, better be good. (LAUGHTER)

KING: You were tired during the campaign, and it's a pretty exhausting process. At one point you got a little confused about how many years you've been married. I know you're busy right now, so I just wanted to help you out. You know what this weekend is, right? OBAMA: This is her birthday, Michelle's birthday. And we are going to make sure that we -- we actually had a little birthday party last night. And... KING: Ahead of the curve this time. That's a smart man. OBAMA: You know, listen, if you're going to miss it, better miss it earlier than miss it late. KING: I'll ask you one last question. And it's, in part, silly. But it's not always silly. You like these. I was just with you before this, and you have a couple of them. And there are a lot of people who say, because this will end up in the presidential library, because you don't have privacy any more, your life is about to change Tuesday noon, you have to give this up. OBAMA: Yes. KING: You going to do it? OBAMA: I think we're going to be able to beat this back. I think...

KING: Beat this back?

OBAMA: I think we're going to be able to hang onto one of these.

Now...

KING: You want mine?

(LAUGHTER)

OBAMA: My working assumption, and this is not new, is that everything I write on an e-mail could end up being on CNN.

OBAMA: So I make sure that -- to think before I press "send."

But what this has been -- what this does is -- and it's just one tool among a number of tools that I'm trying to use, to break out of the bubble. To make sure that people can still reach me. But if I'm doing something stupid, somebody in Chicago can send me an e-mail and say, "What are you doing?" You know? Or "you're too detached" or "you're not listening to what is going on here in the neighborhood."

I want to be able to have voices, other than the people who are immediately working for me, be able to reach out and -- and send me a message about what's happening in America.

KING: Do you think you fully comprehend how much your life's about to change?

OBAMA: Hey, I've gotten a pretty good sense over the last few -- last few days. And truthfully, over the last two years. It's -- it's a process that is consistently ratcheting up. And you've got to pick up your game correspondingly. And so far, so good.

KING: Mr. President-elect, we thank you for your time.

OBAMA: Sure.

KING: I wish you the best.

OBAMA: Thank you so much.

KING: I'll see you again when we drop the "elect" part.

OBAMA: There you go. Appreciate it.

KING: Thank you very much, sir.

(END VIDEOTAPE)

KING: Up next, two very different views from two men who work as closely as can you get with the incoming and the out going president. All looks friendly on the surface of this transition, we'll peel back the curtain to see what is really going on behind the scenes. And don't forget, a lot more live coverage of this historic inauguration all throughout the day starting at 2:00 p.m. Eastern. I'll be back with Wolf Blitzer and the rest of the best political team on television. Stay right here. (COMMERCIAL BREAK)

KING: I'm John King. Welcome back to STATE OF THE UNION. We're coming to you live from the roof of the Newseum here in Washington, D.C. But I think we can show you across town, the South Lawn of the White House. It is still George W. Bush's house for just about 48 more hours. I don't know it we still have that picture, maybe not.

But he will be coming back from Camp David, his last time. We've lost that picture temporarily. President Bush will go returning to the White House for the last time from Camp David, the presidential retreat he loves so much. And we will be bringing you there live as it happens.

After Tuesday when the parade is over, of course, and the enormous crowds of Americans go home, Barack Obama and the new administration will turn to the long list of serious problems confronting this country.

Earlier this morning, I spoke about the president-elect's upcoming agenda with David Axelrod, the incoming senior White House adviser.

(BEGIN VIDEOTAPE)

KING: I want to get to the big decisions that the new president will have to make. But first, you're a friend. You're not just a senior adviser. You're a friend to Barack Obama. You were a key architect of the campaign that brought this moment to bow and you spent a lot of time with him as he goes over the speech and considers what he wants his first words to be to the American people as president. What does this moment mean to you?

AXELROD: Oh, it's hard to put in words, John. It's been such an extraordinary journey. I mean we started off together trying to persuade people that he could get elected the senator from Illinois. But it's been a magical journey ever since. And really, I applaud your notion about getting out to talk to the American people because we drew our strength and inspiration from them.

But you can't help but be here this weekend and not be moved by the magnitude of this and mostly I'm thrilled because I really believe in him. I think this country needs an extraordinary president right now. And I think he'll be one.

KING: First actions matter. They set the tone of a new administration. They signal to the country and world what will come. Israel yesterday said it would implement a cease-fire in Gaza. Hamas this morning, CNN has now confirmed, said it will abide by a cease- fire as well.

As you know, from watching from the outside, these things often are very tentative and very fragile. Will the Obama administration have an envoy on the ground in the Middle East on Tuesday, on day one?

AXELROD: Well first of all, let me say that all of us are hopeful that a cessation of violence will hold. But the president- elect has said repeatedly that he intends to engage early and aggressively with diplomacy all over the world. And using the men and women, the professionals who are in place who are great and wear appropriate special envoys.

KING: That fast though?

AXELROD: Well, I think the events around the world demand that he act quickly. And I think you'll see him act quickly.

KING: The big priority at home obviously is the economy. And the stimulus package is making its way through Congress. $850 billion, roughly is the House version. It still of course has to go over to the Senate.

There are some in the House who say this is a starting point, a down payment. The economy is in such dire straits, we're going need even more money. There are Republicans who say we would like to work with the new president but we look at this bill and we see a whole bunch of old Democratic pork barrel spending, a lot of which they don't believe will actually create jobs in America, but will instead go to schools or go to places that might be worthy spending but not something that will create jobs immediately.

Will President Obama say this is all we can afford, $825, $850 billion or will we be printing money throughout this administration?

AXELROD: Well, we -- we have been involved in discussions with Congress for the last few weeks. We started with a figure that was somewhat lower than that. Obviously, there are limits to what we can do. But we do have to think boldly right now that the scope of the emergency we face is so large that economists from the right to the left agree we have to do something big.

But let me just say this on the question of how the money is spent. We were determined and we are determined not to simply spend money to create jobs in the short term. And we do believe it will create 3.5 to 4 million jobs. But we're determined to make investments that will strengthen the economy in the long run.

KING: In the campaign, candidate Barack Obama promised the most open and transparent administration in American history. Your treasury secretary nominee has hit a speed bump over the disclosure he failed to pay some $30,000 in taxes. He has paid the taxes, he has paid the interest.

But the transition disclosed that to the Senate Finance Committee on December 5th. The American people were not told about this publicly until January 13th. Is that -- could you call that truly open and transparent when the American people were not told something for more than a month that is pretty critical?

AXELROD: John, it is absolutely appropriate for us to first take this matter to the Finance Committee. It was very clear that that was going to be discussed in open hearings for American people to watch and formulate their own judgments. So I wouldn't say this is a transparency issue.

And as to Tim Geithner, yes, he made a mistake on his taxes. It was related to his service overseas and how certain withholding was treated. Most accountants say this is a fairly common mistake. When it was discovered, he redressed it.

AXELROD: The bigger point is, here's a guy who has been involved in public service all of his life who was a major architect of the last international financial rescue in the '90s, who has vast experience and great values and a great insight into this process.

(END VIDEOTAPE)

KING: Up next, we'll give the last word this Sunday to Bush White House counselor Ed Gillespie, his take on what faces Barack Obama and on the legacy of the man he has served, President George W. Bush.

And we're standing by for the arrival of President Bush to the White House aboard Marine One. This will be the final trip home to the White House as president. Next time, he'll be a guest.

Stay with us. Much more STATE OF THE UNION just ahead.

(COMMERCIAL BREAK)

KING: Welcome back to STATE OF THE UNION. I'm John King in Washington. Look at that. That's the National Mall in Washington, D.C. Jumbotrons you see on the edge of the Mall. They're those little black dots. Those are giant televisions.

There is the Washington Monument. A crowd gathering. People coming to this city by the tens of thousands for the Inauguration of Barack Obama, going down to check out the real estate. Still a lot of space. A lot of grass there at the moment. Watch as we go from Monday into Tuesday, it will be hard to find any grass in the camera view there.

You know, this morning -- oh, we also want to take a look, that's the South Lawn of the White House. I've been out there many, many times watching presidents come and go. Family members, staff members of the White House there for good reason. George W. Bush will soon come back from Camp David.

He loves the presidential retreat in the mountains of Maryland. He will return to the White House for the last time. Two more nights in the White House for George W. Bush. We'll take that live as the president comes back in just a short time.

You know, this morning, 37 news makers, analysts and reporters hit the Sunday morning talk show circuit, but only one man gets the last word. That man is with us now. He's Ed Gillespie who for two more days will serve as the White House counselor to President George W. Bush.

Ed, thanks for joining me.

ED GILLESPIE, WHITE HOUSE COUNSELOR: Thank you, John, for letting me be on.

KING: You're more than welcome. And we hope to have you many times back as you now go back to the private sector. But that picture we just saw, presidents come and go. It's almost like the bus stop.

The president gets on Marine One and he goes off. I want you to describe the moment as you spent time in private with George W. Bush over the past few days, most Americans probably forget he has been in that house so often, when his dad was vice president and during his dad's presidency and now eight years as president, where is he right now in terms of his mindset at the moment?

GILLESPIE: He is as ready to go home to Texas and to spend time with his family and to work on his library. He feels that we have accomplished, I think, what he tests the staff with, which was a smooth transition to make sure that his successor, regardless of party, would be able to take the reins of the executive branch without any kind of problems.

And I think we've done a good job in that regard. A smooth handoff. And so I think he feels ready to get home and feels like it has been a good run. And time for it to end and turn it over to the next person and recede from the spotlight.

KING: You say turn it over. He is president -- my math is not always so good, but about 47 more hours if I have the math about right. One of the questions many people ask around town, I remember in the last minutes, not the last hours of the Clinton administration, a very controversial pardon of a financier named Marc Rich.

Many in this town have said will this president issue a big pardon? One of the questions is Scooter Libby, the vice president's former chief of staff. Any paperwork sitting on the president's desk for big ticket item like that, a pardon -- a potentially controversial pardon or are we past that?

GILLESPIE: As you know, John, the president has the authority to issue a pardon up until 11:59 on Tuesday. I'm not going to preclude that option for him. So I think at this point we wait and make any announcement on that probably tomorrow or Tuesday.

KING: All right. We will wait and see on that.

Discuss the moment. The president is leaving office at a time -- you know the political talk in Washington, just look at the approval numbers. And maybe (INAUDIBLE) polls, our polling, 31 percent of an approval rating for George W. Bush. The New York Times poll has him at 22 percent.

I guess CNN polls are in favor at the White House at the moment. I don't mean to joke about it. Though it's tough for a guy who has given so much to politics, when he looks at that number, does it make him mad, make him defiant?

GILLESPIE: He doesn't much look at that number. I, obviously am someone who looks at those numbers, and I'd rather see them higher than lower. It's my nature.

But I also feel, as the president does, that as the -- you know, the bitterness that surrounded unfortunately for whatever reason so much of the vitriol directed at the president, as that dissipates over time, as the facts bear out and as people see the true record, obviously we lived in a time of tough economic situation.

The president has moved boldly to help address that for -- help make it a little easier for a successor who will have a challenge on that front. But, you know, after the attacks of September 11th and through this one, we had 52 months of uninterrupted job creation. That is the longest in the history of the United States.

The fact is we're -- Iraq is on its way to being a stable democracy in the heart of the Middle East. Very important, I think, in the long term. And a lot of other statistics that we've got out there that I think as people look at the data over time, I think he'll get a fair shake.

KING: You mentioned the economy. One of the last acts was this bailout. And $350 billion of it has been spent on George W. Bush's watch. The second installment will come on Barack Obama's. But many Americans, when you travel, they think, where did this money go? Did big banks get it on Wall Street? It is being flushed literally down the toilet? They don't see the impact on Main Street.

(HELICOPTER FLYING OVER)

KING: And we'll tell our viewers we have a helicopter flying overhead here. Not a surprise in Washington on a big security weekend.

(LAUGHTER)

KING: But can you cite specific evidence that the first $350 billion has done anything to begin the turnaround?

GILLESPIE: You can, John. And in fact, if you look at the rates that have narrowed in terms of credit markets, the TED spreads and LIBOR, things, frankly, I didn't know that much about until about six months ago, they were very -- the spreads were high. And that's not good for the credit markets.

The injection that the Treasury has put into the capital markets has helped ease those. Again, this is a difficult time. But the president said the other night, I believe rightly, that had we not acted boldly and had we not put this money into the financial markets, we would have seen a lot worse of a financial strain on the American people today than what we're already witnessing.

KING: Before we go to a quick break, because we want to take the president's arrival back to the White House. And I want your help as that happens, but I'm fascinated during this campaign, you're having covered the president for a while and known him a little bit when he was the governor of Texas and in his dad's days here in Washington, he loves politics and he loves campaigning.

And we know from talking to people that he was not thrilled by how he was treated by his own party. Senator McCain kept him off the road. He didn't campaign much for Republican candidates for the House and the Senate and governor for that matter.

Behind the scenes, that just had to tick him off.

GILLESPIE: Well, you know, he's a -- he was a little bit chomping at the bit, but understood that the nature and the environment and obviously was strongly supportive of Senator McCain, and made clear we would do whatever we could to help him, if that meant laying low, that was fine, too.

GILLESPIE: And so I do think it's important, though, that people do defend the lower taxes, the strong national security and the response to terror that this administration brought about, that has kept us safer.

And I think, over the long term, it's in the party's interest to set the record straight on some of those things. Because, if not, you're just adding weight to your ankle weights as you run up a hill.

KING: We need to sneak in a very quick break. We'll be right back with the White House counselor Ed Gillespie. You're watching "State of the Union."

(COMMERCIAL BREAK)

KING: A live look -- a live look, there, at the south portico of the White House, a majestic building. It has been home to George W. Bush for eight years, that crowd waiting for the president's last return from Camp David.

We are told he has not yet left Camp David. So we likely will not be able to show you his last arrival back on Marine One before the top of the hour. We will keep that tape. It's well worth watching. The president loves the building. He'll live there for two more days.

Our special guest is Ed Gillespie, the White House counsel to George Bush. We're also joined by our senior political analyst Gloria Borger, up here. Luxury box? Nice seats, nice view of the United States Capitol, here.

BORGER: Absolutely.

KING: I asked you, before the break, to peel back the curtain on the campaign. I want to talk a little bit more policy business. But I mentioned the politics of the moment.

We saw both the president of the United States, George W. Bush and his father, the former president of the United States, George H.W. Bush, say they thought that Jeb Bush, his brother, the former governor of Florida, would make a great candidate for an open Senate seat in Florida.

Everyone took that as a cue; boy, Jeb's going to get in. And in the end, he decided not to. Take us behind the curtain.

GILLESPIE: Well, I think, actually, that's one of the ones where there was no curtain.

(LAUGHTER)

I think the president and the former president felt like Jeb would be a great candidate. By the way, as a former RNC chairman, I thought he would have been a great candidate. A lot of people agreed with that.

But, you know, politics is also about people and their families. And people have to make decisions as to where am I and, you know, at a certain point in life. And I don't think it was the right time for Jeb, given what he said, in saying he wasn't going to run.

KING: Come on in.

BORGER: Well, I, sort of, was wondering whether Jeb had actually talked to either his brother or this father before they told -- before they said publicly, oh, he would be a great Senate candidate.

(LAUGHTER)

GILLESPIE: I think he was going through the thought process, and I think they knew that, but that's -- you can agree that he'd be a great candidate but also understand if he chooses not to run.

KING: You mentioned you're a former RNC chairman. Gloria and I have talked about this quite a bit since the election, whither the Republican Party? Obama comes in with a clear majority. He comes in with the good will of American people, even those who didn't vote for him.

And it's a "Who's on first?" moment for the Republican Party. Who is the leader of the Republican Party, former chairman Ed Gillespie?

Who is the leader, right now?

And what is the strategy when it comes to dealing with this new president?

GILLESPIE: Well, I think the foremost leaders will be the leaders in the House and the Senate, Senator Mitch McConnell, the Republican leader there, and John Boehner in the House.

And I think they pursued an appropriate strategy, which is there are areas where we can agree, we will agree and we'll work with the president-elect, soon to be the president. Where there are areas where there are principle disagreements, we'll disagree.

I do think, and I encourage my fellow Republicans and people who share my more conservative philosophy that we not fall prey to trying to retaliate from the kind of viciousness and the kind of bitter attacks, personal attacks against President Bush that we saw from the left in the past eight years.

We can make a stand on principle. And we can oppose on policy without -- you know, engaging in that kind of harsh, personal, nasty rhetoric. It's not good for the process. It's not good for the country.

And, look, I, obviously, was hoping for a different outcome in the election. I'm excited, as an American, that we're going to make history with the first African-American to be elected president.

And if I'm invited back or in a position to comment, I will be careful to make clear that, you know, I want the president to succeed. He will be my president on Tuesday. I am an American; I may disagree with his policies, and I hope that my friends on the right will adopt that tone.

BORGER: But, you know, the president himself, getting back to John's point about the Republican Party, has warned the Republican Party, don't turn inward.

For example, this is a president who opposed his party on immigration reform. This is a president who wants to open the Republican Party. And you saw, in the presidential vote, it seemed to get a lot smaller, fewer minorities, for example.

So what's the message from George W. Bush to fellow Republicans, as he leaves?

GILLESPIE: Well, he has been pretty explicit about that, which is we do have to be -- reach out to people, bring people into the party, be careful about how we talk about certain issues, and make sure that we connect with people on issues they care about, kitchen table issues, health care, jobs, the economy, and on issues like immigration.

I think our handling of that issue did cost us in the election. And we saw the president got 44 percent of the Hispanic vote in 2004. We got, depending on your estimate, 31 percent to 33 percent. That's a pretty big drop. And in places in Florida, Nevada, New Mexico, Colorado, that's pretty damaging.

KING: We have another helicopter overhead, which challenges us from an audio perspective. We have about 30 seconds left.

I want you to give me the moment for the country, the peaceful transition of power, a very smooth transition. The Obama people tip their caps, every day, to President Bush, yourself, and others on the staff.

Presidents leave a little note behind for the next guy coming in. Give us a snapshot of what George W. Bush will tell Barack Obama at this moment.

GILLESPIE: It is customary, and it will be in the top desk drawer. And I understand President-elect Obama will keep the (inaudible) desk. And I don't know what will be on that note.

I know that the president was going to give some thought to that while he was at Camp David this weekend. And, look, they are part of a very exclusive fraternity. And he understands the weight of that job. And I'm sure it will be something that will be helpful to the president-elect. He's rooting for the president-elect to be successful, too.

KING: I want to thank you both for being here. I wish we had more time on this inaugural edition of "State of the Union." But we'll have you back.

It is all the time we have today. Be sure to join me again tonight, though, at 8 p.m. Eastern for another one-hour special edition of "State of the Union."

And I'll be back with Wolf Blitzer, Anderson Cooper, and the rest of the award-winning CNN political team in one hour for more live coverage of the inauguration of Barack Obama. Until then, thanks for watching.

END

GILLESPIE: And so I do think it's important, though, that people do defend the lower taxes, the strong national security and the response to terror that this administration brought about, that has kept us safer.

And I think, over the long term, it's in the party's interest to set the record straight on some of those things. Because, if not, you're just adding weight to your ankle weights as you run up a hill.

KING: We need to sneak in a very quick break. We'll be right back with the White House counselor Ed Gillespie. You're watching "State of the Union."

(COMMERCIAL BREAK)

KING: A live look -- a live look, there, at the south portico of the White House, a majestic building. It has been home to George W. Bush for eight years, that crowd waiting for the president's last return from Camp David.

We are told he has not yet left Camp David. So we likely will not be able to show you his last arrival back on Marine One before the top of the hour. We will keep that tape. It's well worth watching. The president loves the building. He'll live there for two more days.

Our special guest is Ed Gillespie, the White House counsel to George Bush. We're also joined by our senior political analyst Gloria Borger, up here. Luxury box? Nice seats, nice view of the United States Capitol, here.

BORGER: Absolutely.

KING: I asked you, before the break, to peel back the curtain on the campaign. I want to talk a little bit more policy business. But I mentioned the politics of the moment.

We saw both the president of the United States, George W. Bush and his father, the former president of the United States, George H.W. Bush, say they thought that Jeb Bush, his brother, the former governor of Florida, would make a great candidate for an open Senate seat in Florida.

Everyone took that as a cue; boy, Jeb's going to get in. And in the end, he decided not to. Take us behind the curtain.

GILLESPIE: Well, I think, actually, that's one of the ones where there was no curtain.

(LAUGHTER)

I think the president and the former president felt like Jeb would be a great candidate. By the way, as a former RNC chairman, I thought he would have been a great candidate. A lot of people agreed with that.

But, you know, politics is also about people and their families. And people have to make decisions as to where am I and, you know, at a certain point in life. And I don't think it was the right time for Jeb, given what he said, in saying he wasn't going to run.

KING: Come on in.

BORGER: Well, I, sort of, was wondering whether Jeb had actually talked to either his brother or this father before they told -- before they said publicly, oh, he would be a great Senate candidate.

(LAUGHTER)

GILLESPIE: I think he was going through the thought process, and I think they knew that, but that's -- you can agree that he'd be a great candidate but also understand if he chooses not to run.

KING: You mentioned you're a former RNC chairman. Gloria and I have talked about this quite a bit since the election, whither the Republican Party? Obama comes in with a clear majority. He comes in with the good will of American people, even those who didn't vote for him.

And it's a "Who's on first?" moment for the Republican Party. Who is the leader of the Republican Party, former chairman Ed Gillespie?

Who is the leader, right now?

And what is the strategy when it comes to dealing with this new president?

GILLESPIE: Well, I think the foremost leaders will be the leaders in the House and the Senate, Senator Mitch McConnell, the Republican leader there, and John Boehner in the House.

And I think they pursued an appropriate strategy, which is there are areas where we can agree, we will agree and we'll work with the president-elect, soon to be the president. Where there are areas where there are principle disagreements, we'll disagree.

I do think, and I encourage my fellow Republicans and people who share my more conservative philosophy that we not fall prey to trying to retaliate from the kind of viciousness and the kind of bitter attacks, personal attacks against President Bush that we saw from the left in the past eight years.

We can make a stand on principle. And we can oppose on policy without -- you know, engaging in that kind of harsh, personal, nasty rhetoric. It's not good for the process. It's not good for the country.

And, look, I, obviously, was hoping for a different outcome in the election. I'm excited, as an American, that we're going to make history with the first African-American to be elected president.

And if I'm invited back or in a position to comment, I will be careful to make clear that, you know, I want the president to succeed. He will be my president on Tuesday. I am an American; I may disagree with his policies, and I hope that my friends on the right will adopt that tone.

BORGER: But, you know, the president himself, getting back to John's point about the Republican Party, has warned the Republican Party, don't turn inward.

For example, this is a president who opposed his party on immigration reform. This is a president who wants to open the Republican Party. And you saw, in the presidential vote, it seemed to get a lot smaller, fewer minorities, for example.

So what's the message from George W. Bush to fellow Republicans, as he leaves?

GILLESPIE: Well, he has been pretty explicit about that, which is we do have to be -- reach out to people, bring people into the party, be careful about how we talk about certain issues, and make sure that we connect with people on issues they care about, kitchen table issues, health care, jobs, the economy, and on issues like immigration.

I think our handling of that issue did cost us in the election. And we saw the president got 44 percent of the Hispanic vote in 2004. We got, depending on your estimate, 31 percent to 33 percent. That's a pretty big drop. And in places in Florida, Nevada, New Mexico, Colorado, that's pretty damaging.

KING: We have another helicopter overhead, which challenges us from an audio perspective. We have about 30 seconds left.

I want you to give me the moment for the country, the peaceful transition of power, a very smooth transition. The Obama people tip their caps, every day, to President Bush, yourself, and others on the staff. Presidents leave a little note behind for the next guy coming in. Give us a snapshot of what George W. Bush will tell Barack Obama at this moment.

GILLESPIE: It is customary, and it will be in the top desk drawer. And I understand President-elect Obama will keep the (inaudible) desk. And I don't know what will be on that note.

I know that the president was going to give some thought to that while he was at Camp David this weekend. And, look, they are part of a very exclusive fraternity. And he understands the weight of that job. And I'm sure it will be something that will be helpful to the president-elect. He's rooting for the president-elect to be successful, too.

KING: I want to thank you both for being here. I wish we had more time on this inaugural edition of "State of the Union." But we'll have you back.

It is all the time we have today. Be sure to join me again tonight, though, at 8 p.m. Eastern for another one-hour special edition of "State of the Union."

And I'll be back with Wolf Blitzer, Anderson Cooper, and the rest of the award-winning CNN political team in one hour for more live coverage of the inauguration of Barack Obama. Until then, thanks for watching.

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