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STATE OF THE UNION WITH JOHN KING

The Last Word - Richard Shelby

Aired January 24, 2010 - 12:00   ET

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


(BEGIN VIDEO CLIP)

KING (voice-over): A stunning loss for Democrats puts President Obama's agenda at risk.

OBAMA: We had a little bit of a buzz saw this week.

KING: Can he reconnect with angry Americans? We'll ask the president's top adviser, David Axelrod.

Two influential senators on what happens to health care and other issues in this new political landscape. Republican Orrin Hatch from Utah, and the man responsible for keeping a Democratic majority in the Senate, Robert Menendez of New Jersey. And 50 states in 50 weeks. Our "American Dispatch" looks up close at economic anxiety and the people coast-to-coast whose frustration with the pace of change is again reshaping the political landscape. The Federal Reserve chairman's job is on the line. Can he find 60 votes in the Senate for a second term? I'll ask the top Republican on the Senate Banking Committee. Richard Shelby of Alabama gets "The Last Word." This is the "State of the Union" report for Sunday, January 24th.

(END VIDEO CLIP)

KING: We have a lot of things to talk about this Sunday. A president who for a year insisted on sweeping health care reform is now open to a scaled down version as long as it meets what he calls core goals. A White House that for years opposed creating a powerful congressional panel to fight deficit spending is now asking for just such a commission ASAP.

A Fed chairman who days ago had an easy path to Senate confirmation now faces speed bumps at a minimum on his route to a second term. And a Republican Party that a year ago seemed beyond lost is full of energy and optimism thanks to rising doubts about the Obama agenda, and to voters in the last place you would probably think of looking for signs of a Republican resurgence, Massachusetts.

If you are a cynic who thinks elections don't matter, think again. The economic anxiety and political disaffection that made 2008 such a historical election year are again front and center, big time. The pendulum of change that swept Barack Obama to victory 14 months ago swung back this past week and thumped the president and his party like a two-by-four. We know this, year two of the Obama administration will be different from year one. For a better sense of just how, let's bring in the president's top political adviser, David Axelrod, who joins us from Chicago. David, a lot to talk about in the wake of the big Massachusetts election. But I want to start this morning with some breaking news. There's a new audio tape in which Osama bin Laden claims credit. He says al Qaeda was responsible for that attempted jetliner bombing back on Christmas Day. Does the administration have intelligence that traces this attack back to bin Laden?

AXELROD: Well look, I can't confirm that, nor can we confirm the authenticity of the tape. But assuming that it is him, his message contains the same hollow justifications for the mass slaughter of innocence that we have heard before. And the irony in the same of Islam, he has killed more Muslims than people from any other religion. He is a murderer. And we are going to continue to be on the offense against bin Laden, against al Qaeda, to protect the American people.

KING: Let's bring the debate back home. The president late Saturday endorsed the idea of a very strong congressional commission that would have the power to look at the federal spending, propose new efforts to reduce deficit spending. And this could include tax increases. I want to ask you a question, but first I want to remind the American people of a promise candidate Barack Obama made in the 2008 election. Let's listen.

(BEGIN VIDEO CLIP)

OBAMA: I can make a firm pledge under my plan, no family making less than $250,000 a year will see any form of tax increase. Not your income tax, not your payroll tax, not your capital gains taxes, not any of your taxes.

(END VIDEO CLIP)

KING: David Axelrod, if such a commission comes about and if its recommendations include paying for everybody, including tax increases that would be in violation, in contradiction of that pledge from 2008, would the president go to the American people and say I am sorry I need to go back on that promise because this problem is deeper than we thought?

AXELROD: First, let me say that the president has kept his pledge, John, as you know. Middle class people are getting killed in this economy and are working harder and harder for less. Many have lost their jobs. There is a sense of economic insecurity out there. And so that's why the president cut taxes for the middle class, cut taxes for small businesses last year.

We are going to continue that in the current budget. And I am not going to prejudge what any commission would do. What the president is saying, however, is that in the -- we do have to do everything we can in the short run to stir job creation, to see the economy grow, but in the mid to long term, we have to deal with these deficits.

When President Clinton left office, we had a $237 billion surplus. When Barack Obama took office, he was handed a $1.3 trillion deficit, and a projected $8 trillion deficits for the following decade. So we have to deal with this and it has to be done in a bipartisan way. We can't play games with this and we want to sit down in a constructive way and approach this problem.

KING: Part of what you call the Washington game is after a tough election like you had last week in Massachusetts, is to say what must we have here? Some White Houses in the past have had big shake ups. You have decided in the Obama White House to give a bigger role to David Plouffe, who was your partner in the Obama campaign. He will now take a big role outside of the White House, but keeping a closer eye on public opinion, a closer eye on the governors and Senate and House races across the country. There are some, David, as you know, who are saying what about inside the White House? Shouldn't we have a shake-up there? This is an administration, some say, that has been too deferential to Congress in crafting policy, and some would even say, too close with Wall Street and not close enough with Main Street. Do you need to shake up your inside team?

AXELROD: Well, first of all, let me say you're right, that is part of the Washington game. Washington loves to throw out a body. There is nothing that gets Washington more excited than the prospect of somebody losing their job. The fact is that we've got a wonderful group in the White House, they are working really hard. And David is value added, we love him and he has been off writing a book for a year. We are happy to have his talents back with us on a more regular basis.

KING: David Plouffe, who you just mentioned, will take this bigger role, wrote an op/ed essay in the "Washington Post" today where he talks about what Democrats need to do in this midterm election year to get things done. He said you need to make the tough choices, that you need to do the things you promised to do in the last campaign. One of the terms he uses, he says, no bedwetting. The Democrats need to be bold enough to make tough decisions. No bedwetting, he says. As you have seen in the past 48 to 72 hours, a number of Democrats have come out against the confirmation of Ben Bernanke. He's the Federal Research chairman. He came over from the Bush administration, but President Obama thinks he's done a good job and wants to give him another term. All of these jitters, all of this sudden opposition from Democrats -- David Axelrod, is that bedwetting?

AXELROD: Well, I think there is obvious concern about what we just talked about. There is a great deal of concern about public consternation relative to the financial sector. Consternation, by the way, that we share, but understand that Chairman Bernanke offered very strong and steady leadership during this crisis without which we also may have slipped into the abyss and we are still in a fragile state here though the economy is growing. And we need his leadership. And the president is very confident that the chairman will be confirmed.

KING: What is his message to Democrats who are saying in the wake of Massachusetts, in the wake of this rising economic anxiety, I can't do it?

AXELROD: Well first of all, he has not had that many of those conversations. The readings he is getting from his conversations are that Chairman Bernanke will be confirmed. But he would say to them what I have said to you, which is that he has been a very steady hand in this crisis. He has taken initiatives that have been very important in terms of stabilizing the economy. And we need his continued leadership.

KING: Much more to talk about with the president's top adviser, David Axelrod, including the upcoming "State of the Union" address. And when we come back, we'll put some of the questions from people we have met in our travels the past year to Mr. Axelrod. Stay with us.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

OBAMA: The truth is, is this job is a little confining, and -- and that is frustrating. I can't just go to the barbershop or sit in a diner.

(END VIDEO CLIP)

KING: We're back with senior presidential adviser David Axelrod.

You heard the president right there. That was his town hall on Friday. David, when you came to Washington, we talked a lot about this. You're not a Washington guy. You were elected to come yourself, and you said you had to find a way to keep the president from getting held hostage in the bubble.

I want to bring you just a question now. I want to show something to you and bring you a question from our travel, because the president voicing frustration at a time when his standing on the economy -- we'll show you some poll numbers here -- has dropped considerably.

One of the people we met in our 50 state travels this past year was in his home state of Illinois. We met Maribeth and John Feagin a few months back when they were both laid off, a husband and wife, on the same day from the Caterpillar plant in Peoria. We asked Maribeth if she had a question, and this is it.

(BEGIN VIDEO CLIP)

FEAGIN: They said, too, that, you know, they were going to have jobs created and things were going to get better. And you're still looking at your unemployment rate, and it really hasn't changed much. And it's like, you know, when is it going -- when is it going to come around for the rest of us?

(END VIDEO CLIP)

KING: "When is it going to come around for the rest of us?" is her question. And I should note, her husband, David, volunteered to go back into the Army so that he can feed his family. He's about to be deployed overseas. What do and the president say to a family like that who say, "Where are the jobs?"

AXELROD: Well, look, I hear this when I get out of town, and I -- I -- I hear this all the time, and it's completely understandable.

Look, John, a year ago, I said to the president, a year from now, your numbers are going to be much different than they are right now because of the economic forecast that we were hearing. And we knew that, even as the economy started growing, it would take time for the jobs to follow. That's the nature -- nature of the economy.

But understand that, in this recession that began at the beginning of 2007, we've lost 7 million jobs. Now, the Recovery Act the president passed has created more than -- or saved more than 2 million jobs. But against 7 million, you know, that -- that is -- it is cold comfort to those who still are looking.

And so we have a big problem. And we -- believe me, the president is working on that day and night. And you'll hear in the State of the Union his -- some of his ideas about additional steps that we can take to help create and stir hiring around the country.

KING: As you know, Massachusetts is my home state. It has a reputation of being a very blue state. This is Massachusetts on the map in 2008, when the president swept it handily, winning statewide, every county turned in blue. I'm showing voters now what happened this -- viewers now what happened this past week. Scott Brown, the Republican candidate, won all these counties in red, in part because of sweeping support among independent voters.

I want to show you the president's standing among independents dropped dramatically this year. And we saw this not only, David, in Massachusetts, but it also played out last year in the gubernatorial elections in New Jersey and in Virginia, the Republican candidates doing much better among independents.

One thing the Brown campaign believes worked for them is sharp criticism of their Democratic opponent, and she supported the president's approach to terrorism, trying the suspect of the Christmas Day bombing in the federal court system. I want you to listen to Scott Brown saying that's a bad idea.

(BEGIN VIDEO CLIP)

SENATOR-ELECT SCOTT BROWN (R), MASSACHUSETTS: To think that we would give people who want to kill us constitutional rights and lawyer them up at our expense instead of treating them as enemy combatants to get as much information as we can under legal means, it just makes no sense to me. And it shows me that you don't quite understand the law when it comes to enemy combatants versus terrorists versus United States citizens.

(END VIDEO CLIP)

KING: And, David, as you comment on that, I want you to also listen to a dramatic moment at a congressional hearing this past week, when Senator John McCain asked three people who worked for you on the front lines of the war on terrorism whether they had been consulted in a decision to take the Christmas Day bombing suspect and put him in the federal system. (BEGIN VIDEO CLIP)

MCCAIN: I understand, Admiral Blair, that in response to Senator Collins, you were not consulted as to what venue the Christmas bomber would be tried in. Is that correct?

BLAIR: That's correct. Yes, sir.

MCCAIN: How about you, Mr. Leiter?

LEITER: No, I wasn't.

MCCAIN: Secretary Napolitano?

NAPOLITANO: No.

(END VIDEO CLIP)

KING: Is that the way this is supposed to be done, that if somebody is arrested, that the Justice Department or whoever can just go simply ahead with this prosecution or taking them into the federal system and questioning them without consulting the intelligence community, the Department of Homeland Security, essentially, the people whose job it is to protect the American people?

AXELROD: First of all, let me say, there were consultations on a whole range of matters between all the relevant agencies...

KING: Why'd they say there were not?

AXELROD: ... before that decision. Well, Admiral Blair corrected his testimony later in a -- in a public statement. And let's be clear, John. What happened with that bomber or attempted bombing in Detroit was, this man was interrogated for some time by the FBI, who have our top interrogators. These are the people who got the key information from Khalid Sheikh Mohammed and so on. This notion that he was lawyered up and didn't give us information, he gave us very useful information.

And let me turn to the larger point. Understand that hundreds of terrorists since 9/11 have been prosecuted in civilian or Article 3 courts. The Bush administration moved to -- to try two as enemy combatants and then moved them back into -- into civilian courts, because it is easier and there are less obstacles to getting a conviction and putting them away.

And that's why the 20th bomber, Moussaoui, was tried in a civilian court. The shoe bomber, Richard Reid, was tried in a civilian court. And understand that many of the people who are criticizing this now were celebrating this then. Rudy Giuliani called the Moussaoui conviction a "triumph of American justice."

So you have to ask yourself why Senator Brown and others were not making that point all those years during the Bush administration. Dick Cheney defended that practice during the Bush administration, because it's the most efficient way to get the job done. So all I can assume is that there is politics at play here. Well, this president is not going to play politics on terrorism. He is going to do what is most effective in going after the terrorists, in catching them, interdicting them, and making sure that they will never threaten anybody again.

KING: Let me ask you, in closing, and I'm going to show the cover of TIME magazine to our viewers as I do, "Now What?" it says, showing the president sitting at his desk in the Oval Office. You mentioned he has a big speech, the State of the Union, this week.

President Reagan found himself in a very similar position back at the beginning of his term. The economy was in a ditch, the American people turned on him a bit in his first year of office. He famously, in the midterm elections of 1982, traveled the country saying stay the course, stay the course. His party suffered a bit in that midterm election year, but President Reagan of course went on to win 49 states when he ran for re-election.

Will the president look the American people in the eye this Wednesday night and say, stay the course, or will he say, I get the message, I'll change course?

AXELROD: Look, the president has always gotten the message, and the message is, we need to grow this economy in a way that allows hard-working people who are meeting their responsibilities to get ahead instead of falling behind. We need to create jobs with that possibility.

And we need to push back on the politics of Washington that is so consumed by special interests and withering partisanship that we don't solve the problems and can't solve problems right in front of us. And that's what people elected him to do. And that's what he is going to do.

He knew, John, that this was going to be hard. When you walk in the door and you are handed the worse economy since the Great Depression, the biggest deficits ever, and a financial crisis, you know off the bat -- and a dysfunctional system in Washington, you know off the bat you are going to have a hard time.

He is not daunted by that. He knew what he was in for. And he is going to go at it. He is going to stick to it, because there is too much at stake to be daunted by these obstacles.

KING: David Axelrod joining us this morning from Chicago. David, we thank you, in any event. And we thank you especially because I know it's a rare trip home to see your family. We appreciate your time on this Sunday morning.

AXELROD: Thanks, John. Good to be with you.

KING: Thank you.

When we come back, in earthquake-ravaged Haiti, preventing the spread of disease is one of many urgent challenges.

KING: We'll get a firsthand report from Dr. Sanjay Gupta, next.

(COMMERCIAL BREAK)

KING: Joining me now for the latest on the recovery efforts in Haiti is our chief medical correspondent, Dr. Sanjay Gupta.

Sanjay, thanks for joining us this morning. Twelve days now since the quake. One of the big concerns, as you try to treat people in the recovery effort, is a wave of -- sort of a second wave of disease. Tell us what you are seeing on the ground.

GUPTA: Well, there's always this discussion about second wave of disease after a lot of natural disasters. I've heard people even estimate that the second wave could be larger than the first wave.

And I have to tell you that typically that doesn't happen. It does not happen after the tsunami, did not happen after the earthquake in Pakistan, did not happen after Hurricane Katrina. And we're not seeing evidence of it here either, John.

And the concern is that people living in close quarters, in a tent city, what would otherwise be an infection that would just be to an isolated population, could it spread more quickly? It's a legitimate concern, but it doesn't seem to be happening here.

A couple of reasons -- one is that they are getting water even in some of these tent cities behind me. Incidentally, John, I don't know if you can hear all the noise, but some good news, in a way, back behind me here. It's a festival going on. People are gathering in this plaza, playing music.

It's the first time I have seen something like that since I've been down here. But in tent cities around that area, the concern that people living in clusters could potentially be a source of that disease, we haven't seen it yet -- John.

KING: I want to get up, you can't see it, obviously, but (inaudible) walk over to the magic wall, because I want to play now for our viewers something that shows the situation on the ground there that I know you have been tracking closely. And that is efforts to get more hospitals up and running and to distribute more food.

And I'll just play this out on the map here. If we could play it out and -- move down here and play it out and get the video. But you will see this fill in on the thing. The Fs -- the orange Fs are food distribution sites around Port-au-Prince. And the red crosses are operational hospitals. You also see some non-operational hospitals in gray as this plays out.

Give us your best, Sanjay -- your best sense, Sanjay. Last week there was all of this talk about all of these supplies were sitting on the tarmac, but the food, the water, and especially the medicine were not getting to those who need it. Has that improved?

GUPTA: Yes, that has improved. And let me break it down in three ways, like this, because I have been thinking about this a lot. I can't see your map here, but I do know that food and distribution centers have improved around the city of Port-au-Prince, specifically. There are around 30 four days ago. There are more than 300 now, people just -- places distributing food and water.

When it comes to supplies, you know, we investigated this quite a bit, a lot of these supplies that we have been talking about, antibiotics, pain medications, medical supplies -- we can tell they're in the city of Port-au-Prince, but many of them were, sort of, stuck at the airport for some time. The distribution of those types of supplies outside the airport was just simply taking too long, and very frustrating for a lot of the doctors and first aid clinics and nurses that are running them.

With regard to personnel, this may surprise you a bit, John, but I am hearing this over and over again, that, in fact, that many of the hospitals in Port-au-Prince, there may in fact be too many doctors, specifically sub-specialty doctors now. People are really hearing the call for need and coming down in large numbers.

Personnel-wise, they seem to be manned up. Where they need to go is probably outside of Port-au-Prince, areas that have not been -- really gotten enough relief yet and they can create these mobile units to do that, but, sort of, a little bit of a surprising turn here when it comes to supply of personnel specifically.

KING: As you assess on the ground the needs of the Haitian people, what is your biggest concern? If they came to you and said, what is the one thing we need to make better tomorrow than it is today, what would it be?

GUPTA: Well, let me say this, that I think typically what happens here is there is a venting of compassion that occurs around the time of a natural disaster. People really care.

I'm seeing it on the streets. I'm hearing it. But what I think really needs to be reminded, John, is that, a month from now, two months from now, three months from now, the need is going to be as great, probably, in many of these places. So if you're watching and you want to help and you're frustrated that you can't get down here, come in a month. People are still going to need a tremendous amount of help, John.

KING: Part of our remarkable team on the ground in Haiti, Doc, we thank you for your time today. And it is nice to see those people celebrating a bit behind you. So much hardship for them in the past 12 days and so much struggle ahead for them. It's good to see people taking a little bit of a break to have a bit of festival.

Dr. Gupta, you stay well and keep up the good work. Thank you much.

And up next, we dissect the Massachusetts message and its impact on health care and other big debates right here in Washington. When we come back, the Democrat in charge of protecting his party's Senate majority and a Republican whose voice is critical to any talk of producing a new bipartisan health plan. (COMMERCIAL BREAK)

KING: Joining us now, here in Washington, two top senators, Robert Menendez, Democrat of New Jersey -- he's also the chairman of the Democratic Senatorial Campaign Committee -- and Republican Orrin Hatch of Utah, a leading Republican on the committees that deal with intelligence and health care.

Gentlemen, a lot to talk about this morning. I want to get to the political climate in the wake of the big election in Massachusetts, but some specifics that you will face as senators in the days ahead.

I'll start with you, Senator Menendez. The president wants Ben Bernanke to get a second term as the chairman of the Federal Reserve. Will you vote yes?

MENENDEZ: Look, I've had concerns, as I expressed in the Banking Committee, with Chairman Bernanke, about consumer protection, of being ahead of the curve on the economy, and particularly on mortgage foreclosures. I think he's learned from those lessons.

I give him credit for making some significant moves to, along with President Obama, from stopping us from going into a deep depression. So, yes, I will support Chairman Bernanke, and I believe that his confirmation will be assured.

KING: Are you on the same page?

HATCH: Yes, in all honesty, there are some things I don't agree with that have been done, but I think he basically has -- has all of the ability to do it. I'd be terrified of having him replaced by this administration. You never know what you're going to get.

This man knows what he's doing. Yes, can he improve? You bet your life. But I'm going to vote for him.

KING: Another tough vote you'll have this week is on raising the debt ceiling. And as part of that, there is an amendment that would create a new statutory powerful commission, like the Congress does when it's debating whether to close military bases.

A panel would look at the deficit. It would say, what do we have to do; what program might we have to cut; what taxes might we have to raise? And then you would get to vote up or down on the commission's findings. Will you support, Senator Hatch, creating that commission, even though -- many Republicans are worried about this -- in the end, it is likely to have, in that package it recommends, some tax increases?

HATCH: Well, I suspect that the main thing that will come out of any kind of commission like that will be tax increases. I don't see -- I don't see the stomach in the administration or friends on the other side to do any cutting, to do any paring down of government.

KING: But it's a bipartisan commission, and there are Republicans on it as well to recommend those cuts.

HATCH: Well, I have a rough time supporting it, to be honest with you, because I think it would just wind up being another excuse, rather than facing the tough problems that we all should be facing right now, that the president should be facing. And he ought to be putting pressure on the Congress to face these problems, and we ought to do something about it, rather than push it off again to another commission that never seems to work anyway.

KING: Do you think -- you support the president now that he has gone behind this commission?

MENENDEZ: Well, John, I'm looking at the one that he proposed by executive order, which would basically do the same thing, have the same competition...

KING: It's not buy-in, though?

MENENDEZ: ... but would allow some amendment to be offered to it because, you know, up or down votes on what a group of people decided is, in some degree, a -- you know, giving up the responsibility that you had to the people who elected you.

So I do think what the president is right on is trying to work on this, you know, debt reduction. He inherited, you know, a $1.3 trillion deficit. You know, President Bush inherited a $236 billion surplus. It went from that, from a surplus to a $1.3 trillion deficit that President Obama inherited.

So he understands that in fact we need to deal with this. The commission may be the way. I'd like a commission that gives me some flexibility to make adjustments.

KING: So you'll vote no?

MENENDEZ: I haven't made that final conclusion. I'm looking at, in fact, which of the two might be the best way to ensure that we reduce the deficit.

KING: Let's move on to health care. Senator Menendez, this was the president's signature initiative. He wanted in the speech to Congress last year to sign it in 2009. He wanted this to be a big Democratic victory. That didn't happen. The election in Massachusetts obviously takes away one of your votes. You don't have 60 votes in the Democratic caucus anymore. The question is will Democrats try to work out a compromise between the existing Senate in the House bill, or will they say Massachusetts sent us a message, forget that, let's go back to the drawing board and start over. What is your position and the position you believe all those Democratic candidates out there you are trying to help in this election should take? Figure it out or start from scratch?

MENENDEZ: Well first of all, we tried working with our Republican colleagues. As a matter of fact, three of the months that went by was working with a bipartisan group of Democrats and Republicans to try to come to health care reform that could be agreed upon in a bipartisan fashion. And so three of those months were lost in that effort. At the end of the day, they did not want to achieve such a goal. So I believe that we need to move forward. Clearly if you are a family without health insurance and you get ill, you are on the face of bankruptcy. If you are a family with insurance, you see skyrocketing premiums.

KING: Based on the existing bills or start over and say Senator Hatch, you were Ted Kennedy's friend, let's come in with a blank piece of paper and do something that we can all agree on?

HATCH: Well, you know, when we hear about slow down and start over, it really means don't do anything. Republicans have come to the conclusion that the president's failure not only in health care but across the board is their way to political victory.

KING: Your leader this morning said start from scratch. Could you give Senator Menendez and the president of the United States, given your experience on this issue, including with your friend, the late Senator Kennedy, that if you will come in with a blank piece of paper, I will promise to try to get a bill by the end of this year?

HATCH: I've offered that from the beginning.

KING: This year?

HATCH: I have offered that from the beginning. The fact of the matter is, they did a health committee bill.

KING: That's what happened before.

HATCH: Everything they did was lacking...

KING: In this political environment, would your party stand with you if you said, let's go back and let's do preexisting conditions. Let's do some other things. Maybe we can get them to give us tort reform and let's take out of stuff that we don't agree on and try to get something done. Would you do it this year?

HATCH: I don't know one Republican who does not want health care reform. I don't know one Republican who would not try to work together with the Democrats. We weren't involved in this process. We weren't even asked. It was an arrogance of power. They had 60 votes. They felt they could put anything through they wanted to. And they found out that they couldn't. Now look, you bet your life, we would have to start over. There are a lot of things we can agree on right off the bat. I have to say big spending issues is where it breaks down. Their answer to everything is let's spend more money and let's get more of the health care in the federal government into a single payer system, socialized medicine, if you will. That's what they want. That's what they have been pushing for. Let's push people into Medicaid. Let's push people into Medicare, when both of those programs are in deep financial insolvency.

KING: I need to get this to Senator Menendez. In the wake of the election, the White House has said they're going to have David Plouffe come back from the outside, the campaign manager they had in 2008. He is going to travel the country. He's going to get more involved in campaigns for governor and Senate. Implicit in all that is that your committee, the Democratic Senatorial Campaign Committee missed the boat in Massachusetts, didn't see this stunning upset coming, and they believe if you listen to them, that they somehow need to almost circumvent what you are doing so it doesn't happen again. Was the failure at your committee and do you need this help or is that meddling?

MENENDEZ: Look, we welcome the White House beefing up their political operation and the political atmosphere. Secondly, we didn't start under my term with 60 votes. We had 60 votes. Clearly we did everything we could in Massachusetts. I think the big takeaway from Massachusetts, however, is that in fact there is enormous economic angst in the country, both people who have lost their jobs, have a family member who lost their jobs. They house is worth less than their mortgage. And that economic angst came out to play in this election. It is something that I expect the president to deal with in the State of the Union speech, and something we will deal with as we deal with the jobs package that talks about helping small business so that they can build on their existing businesses and create jobs, helping to look at some of the infrastructure of the country, so people can get to work right away and have long term job opportunities, helping states and localities to make sure that critical employees are being able to be kept employed, not only for our economy but for the services they provide.

I hope Republicans will join us in meeting the economic challenges instead of just simply saying no. No doesn't create a job and no doesn't give health care to anybody or stop the insurance companies from arbitrarily and capriciously denying people.

KING: We will continue the conversation as to what has turned into an even more interesting midterm election year unfold. Senator Hatch from Utah, Senator Menendez of New Jersey, gentlemen, thanks for coming in.

He's been one of the most vocal critics of the bank bailouts as well as Federal Reserve Chairman Ben Bernanke. The Senate Banking Committee's top Republican Richard Shelby of Alabama gets "The Last Word," next.

(COMMERCIAL BREAK)

KING: Fourteen newsmakers, analysts and reporters were out on the Sunday morning talk shows today, but only one gets "The Last Word." And that honor today goes to the Republican Senator Richard Shelby of Alabama. He joins us from New York this morning. Senator, you have been a vocal critic of Ben Bernanke, the Fed Chairman. As you know, he is up for a big vote in the Senate this week and the White House is trying to round up the votes. Why do you believe he should not get another term?

SHELBY: I believe if you look at his record objectively, you shouldn't vote for him. I voted against him in the committee. I believe that the Federal Reserve is part and parcel of the whole problem that helped create the problem of loose money and too little regulation. Now they want to ride to the rescue with the taxpayers' money. I believe that that's not a good record for the Fed and that led by Ben Bernanke, I intend to vote against him. I don't know what the vote count will be. But there will be a lot of tough votes against him and that is the strong message against the Fed chairman.

KING: Are you concerned at all about the impact on the markets of having this debate? If you listen to former Fed Chairman Alan Greenspan, he says Ben Bernanke is the right man for the job. If you listen to Chris Dodd, I know he's a liberal Democrat, you disagree with him, he says he is worried it will send the worst signal to the markets right now, possibly send them into a tailspin. And Warren Buffett, the investor, said this when asked by CNBC if he thought there was a chance Mr. Bernanke would go down in this Senate vote. And he said, "Well, just tell me a day ahead of time so I can sell some stocks."

SHELBY: Well, whatever happens will happen, but I'll tell you, I don't believe any sell-off would last very long because if he goes down, the president would have to and would come up with somebody that would, I believe, would be stronger. Who would that would be, I don't know, would be well-received. Most sell-offs are short lived and then you have a rally, let's not buy into that. Let's buy into the record of Ben Bernanke, it's not a good one.

KING: There a lot of conservatives out there who might applaud your position, but you just said president could send up somebody who might be better. Let's say he sends up somebody like a Larry Summers. Would they be better than Ben Bernanke?

SHELBY: Well, if that happened, we would have to weigh Larry Summers' record. Larry Summers, former secretary of the Treasury, he's tied real close to Barack Obama right now. We would weigh it, it would go before the committee of banking. But that's problematic at this point. But I think there are a lot of very smart people who can run the Fed better than Ben Bernanke.

KING: A lot of Americans might be watching right now and saying what in the world does this have to do with the price of milk, the price of oil and my life and maybe my search for a job.

I want to go through some of the proposed bank reforms that the administration has put forward, so that we can put this conversation into the context of the stress, the economic stress on the American people right now.

The administration wants to limit the bank's abilities right now to make these high-risk trades that the president got us into this mess to begin with, stop banks from owning or investing in hedge funds, restricting growth of the largest banks. The president says they shouldn't be allowed to get too big to fail, a term we have all become familiar with in recent years and he also wants to impose a tax on some banks to recover some of that TARP money, TARP money being the bailout money that a lot of Americans are still quite angry about.

What is right and what is wrong, Senator Shelby, in the administration's approach at this moment? SHELBY: Well, let's start with the taxes. I think the taxes are wrong. A lot of the banks who have taken TARP money which I always oppose to bailouts, they have paid it back and they have paid warrants back. A lot of people like AIG, the car companies have taken TARP money, have not paid it back. Let's make the people who got the money, have not paid it back. If you want to tax somebody, I don't want to tax anybody. I think it takes money out of the economy and if you tax banks, overdo it, this economy is never going to recover because they are not going to make loans.

KING: Richard Shelby will be in the audience Wednesday night when the president delivers his State of the Union address and one of the things the president has now done is said that he will support a powerful congressional debt reduction, deficit reduction commission just like you do when you deal with base closings. You appoint some Democrats, appoint some Republicans, you look at the issue and then you make recommendations and the Congress would have to vote yes or no, no amendments.

Are you prepared for a commission like that, even though it is likely not only to recommend spending cuts but perhaps some tax increases to bring down all this red ink?

SHELBY: John, I wouldn't support a commission like that. I believe, basically, it's a cover for more taxes and a few cuts. We've been down this road in other ways before. But if it were just to look at cuts, I would support a commission because a commission could help us that way. But if it's looking for taxes, a way to close the gap on higher taxes which is the Democratic way and some other people's ways, I would say no. KING: Step back and assess the moment. We had a big message from the state of Massachusetts this past week. Many people would say that's the last place in the world you should look for proof of a Republican resurgence. But Scott Brown wins the Senate race up there. He will come down now to a new Washington where you have 41 votes in the Senate, so more leverage to stop the president's agenda.

Many Americans might not know, I first met you back when you were a Democrat. You were a Democratic senator from the state of Alabama and back after the 1994 election, you decided to switch parties and become a Republican. Are we at a moment like that again? Do you see evidence among your Democratic friends, especially more conservative Democrats? Are any of them saying, hey, Dick, how did you do this? Maybe I want to cross over.

SHELBY: I tell them that all the time. I think it was just a question, would you feel comfortable with the Republicans more so than the Democrats and would you fit in? And if you do, we've got a place for you.

But I'll tell you, the American people are always evolving. What happened in Massachusetts, I think they put things in play, issues in play and they sent a message to Washington that we don't like the health care plan as drawn up. We don't like a lot of the big spending and now I think that message has been heard all over the United States, if not the world. KING: So, between now and November, how do Republicans prove to those voters who want change? They don't want obstructionism, they don't want partisanship, they want change, they just didn't like what they were seeing. Should your party right now say Mr. President, let's have a summit and let's write a health care bill and do it this year? Or would you prefer to put that off the table until after the midterm elections?

SHELBY: Oh, I think we've always reached out but we have a menace, that is on the Democratic side. But there are a lot of things we can do incrementally, step by step, to improve our health care situation but not to radicalize it, not to do what they were trying to do with it. The American people are against that.

KING: And as you are sitting in the audience Wednesday night, what is the one thing that the president of the United States could say to Senator Richard Shelby of Alabama, where you would say, you know what? This guy gets the message, let me try to help him.

SHELBY: I hope the president and I hope a lot of my Democratic friends have gotten the message that the American people, they like change, but gradual change, not change they can't handle, change they don't understand and change that's not needed.

KING: So, gradual change. Help me here, incremental is a funny word, you don't hear it in politics. People want to talk about their grand plan. I want to come back to the point. The president will say I am ready to work with Republicans on health care. Will Republicans come to him in an aggressive way with a plan of their own or is the political mood for you just too ripe right now? Do you just want to see how this plays out?

SHELBY: I think we always would look out for substantive, material changes that would help health care. But just to buy into the present plan or something that's a son of that plan, I'd say no to that.

But I think a lot of it would be based on the sincerity of the Democrats coming to the table with us to do something positive. If they do this, we could work something out. If -- short of that, the answer would be no.

KING: Senator Richard Shelby, Republican of Alabama, we appreciate your time this morning.

SHELBY: Thank you, John.

KING: Thank you, Senator. Take care, sir.

And coming up next, 50 states in 50 weeks. Even before that big vote we were just talking about in Massachusetts, our travels offered so many clues of the shifting political tide.

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KING: I was back home in Massachusetts this week to witness the end of that dramatic special election for what, for 46 years, was the seat of the liberal icon Edward M. Kennedy.

What happened, a big Republican upset, was stunning, based in part on this. The brighter the state, the higher the unemployment rate. But during our travels this past year, the seeds of the big surprise were quite familiar: anxiety over jobs lost, the sense that Washington is out of touch and as partisan as ever, one year into a presidency that was supposed to be a lot different.

Let's zoom into Washington, D.C. to take a closer look at some of the economic factors of the past year, more than 4 million jobs lost since President Obama took the oath of office. Nearly one in five Americans -- this is significant -- are considered significant underemployed, meaning they work part-time but would like to work full-time; $158 billion in stimulus fund spending. The president is hoping that more stimulus money in the months ahead will bring more jobs into the economy.

In our "American Dispatch" this week, a look back at a 50-state journey that brought us face-to-face with that anxiety and frustration that is making our politics so volatile.

(BEGIN VIDEOTAPE)

(UNKNOWN): When you apply for a job now, you have 200 other people standing in the same lines.

(UNKNOWN): Having 46 million people who have no health insurance is an embarrassment.

(UNKNOWN): Go to college, get a degree so you can get a good job. It's just not working out that way.

KING: Fifty states are 50 very different pieces of a jigsaw puzzle.

Have you seen stimulus money fast enough?

(UNKNOWN): There's not a government leader in America, I think, that wouldn't want more money to do more things right now.

(UNKNOWN): You work hard for a number of years, retire, enjoy yourself, relax -- and, unfortunately, no more.

KING (voice over): Some of what we have seen over the last year is simply a reflection of what you see if you visit 50 states.

(UNKNOWN): There's no way I can vote Democrat.

(UNKNOWN): I have a lot of trust in Obama.

(UNKNOWN): He's hiring on people who can't even pay their own taxes.

(UNKNOWN): I've been real disappointed in Republicans so far.

(UNKNOWN): It's not just the government; it's also just the people in general. We all have to be willing to do a little changing.

KING (on camera): As you're learning about how diverse the country is politically, you're also seeing how diverse and breathtaking it is geographically.

(voice over): Western Idaho is, in a word, spectacular.

Hawaii is in the early stages of a dramatic energy evolution.

Clay, West Virginia, is tucked into the remote rolling hills of coal country.

More often than not, what a place looks like tells you a lot about what it is and what it does.

(on camera): The joy, for me, is in having the privilege and the gift of meeting people.

This is Kimberly.

What's turtle in Spanish?

(UNKNOWN): (OFF-MIKE)

KING (voice over): There are a lot of very different families and philosophies and ways of life.

In Washington, when you read a report from the Labor Department, you can look at the numbers and say, wow, that's bad. Or you can be on the factory floor in Peoria when they tell 2,000 more people at Caterpillar, "You're losing your job."

(UNKNOWN): I don't want to be on unemployment. I have never been on unemployment before.

(UNKNOWN): They're not talking about somebody that you can't see. That means me.

(UNKNOWN): Are you going to explain to your kids, it may not be the way it's always been for you.

KING: Economic anxiety is not a theory. It's the way of life for a whole lot of people.

(UNKNOWN): We've had young people come in and say, I'm here; I'm 18 years old; my family can't afford me any more.

(UNKNOWN): I've been cold. I've been hungry. I've been soaked to the skin and tired and sick.

(UNKNOWN): Even though I'm homeless, I'd rather give the last dollar I have to the person who I see needs it more.

KING: It personalized the pain and the anxiety and the worries, and it also personalized the resilience. (UNKNOWN): We ran over an IED in Afghanistan. I broke the top of my femur, and two months later, I'm actually able to walk and do some walking.

KING (on camera): What's your ultimate goal?

(UNKNOWN): Get back out in the fight.

KING (voice over): To see those people and hear their stories makes the numbers mean something.

UNIDENTIFIED MALE: I came here, kind of, lost and I found myself.

UNIDENTIFIED FEMALE: Our daughter dates an architect who now works at the grocery store at the bakery because, you know, he's got to survive.

KING: If you keep in touch with those people over the course of time, it makes you a better reporter because you can understand why somebody who felt so strongly last year feels so differently now, and maybe in five years feels differently again. Because the experience of their life, the experience in their community, at their workplace, at their schools or watching their children grow up had changed that.

You need to go see it, feel it and taste it before you can even begin to understand.

(END VIDEOTAPE)

KING: It's been a gift to do all that travel this past year. We want to thank everyone -- everyone who has opened their homes and welcomed us to their community.

And if you want to learn more, check out CNN.com/stateoftheunion, where you can read and watch reports from each of the 50 states we visited.

We'll be here again next Sunday and every Sunday at 9 a.m. Eastern for the first word and the last word in Sunday talk. Until then, I'm John King in Washington. Please take care.