Presidential Candidates Debate McCain Obama FULL TEXT TRANSCRIPT

LEHRER: Good evening from the Ford Center for the Performing
Arts at the University of Mississippi in Oxford. I'm Jim Lehrer of
the NewsHour on PBS, and I welcome you to the first of the 2008
presidential debates between the Republican nominee, Senator John
McCain of Arizona, and the Democratic nominee, Senator Barack Obama of
Illinois.

The Commission on Presidential Debates is the sponsor of this
event and the three other presidential and vice presidential debates
coming in October.

Tonight's will primarily be about foreign policy and national
security, which, by definition, includes the global financial crisis.
It will be divided roughly into nine-minute segments.

Direct exchanges between the candidates and moderator follow-ups
are permitted after each candidate has two minutes to answer the lead
question in an order determined by a coin toss.

The specific subjects and questions were chosen by me. They have
not been shared or cleared with anyone.

The audience here in the hall has promised to remain silent, no
cheers, no applause, no noise of any kind, except right now, as we
welcome Senators Obama and McCain.

(APPLAUSE)

Let me begin with something General Eisenhower said in his 1952
presidential campaign. Quote, "We must achieve both security and
solvency. In fact, the foundation of military strength is economic
strength," end quote.

With that in mind, the first lead question.

Gentlemen, at this very moment tonight, where do you stand on the
financial recovery plan?

First response to you, Senator Obama. You have two minutes.

OBAMA: Well, thank you very much, Jim, and thanks to the
commission and the University of Mississippi, Ole Miss, for hosting us
tonight. I can't think of a more important time for us to talk about
the future of the country.

You know, we are at a defining moment in our history. Our nation
is involved in two wars, and we are going through the worst financial
crisis since the Great Depression.

And although we've heard a lot about Wall Street, those of you on
Main Street I think have been struggling for a while, and you
recognize that this could have an impact on all sectors of the
economy.

And you're wondering, how's it going to affect me? How's it
going to affect my job? How's it going to affect my house? How's it
going to affect my retirement savings or my ability to send my
children to college?

So we have to move swiftly, and we have to move wisely. And I've
put forward a series of proposals that make sure that we protect
taxpayers as we engage in this important rescue effort.

Number one, we've got to make sure that we've got oversight over
this whole process; $700 billion, potentially, is a lot of money.

Number two, we've got to make sure that taxpayers, when they are
putting their money at risk, have the possibility of getting that
money back and gains, if the market -- and when the market returns.

Number three, we've got to make sure that none of that money is
going to pad CEO bank accounts or to promote golden parachutes.

And, number four, we've got to make sure that we're helping
homeowners, because the root problem here has to do with the
foreclosures that are taking place all across the country.

Now, we also have to recognize that this is a final verdict on
eight years of failed economic policies promoted by George Bush,
supported by Senator McCain, a theory that basically says that we can
shred regulations and consumer protections and give more and more to
the most, and somehow prosperity will trickle down.

It hasn't worked. And I think that the fundamentals of the
economy have to be measured by whether or not the middle class is
getting a fair shake. That's why I'm running for president, and
that's what I hope we're going to be talking about tonight.

LEHRER: Senator McCain, two minutes.

MCCAIN: Well, thank you, Jim. And thanks to everybody.

And I do have a sad note tonight. Senator Kennedy is in the
hospital. He's a dear and beloved friend to all of us. Our thoughts
and prayers go out to the lion of the Senate.

I also want to thank the University of Mississippi for hosting us
tonight.

And, Jim, I -- I've been not feeling too great about a lot of
things lately. So have a lot of Americans who are facing challenges.
But I'm feeling a little better tonight, and I'll tell you why.

Because as we're here tonight in this debate, we are seeing, for
the first time in a long time, Republicans and Democrats together,
sitting down, trying to work out a solution to this fiscal crisis that
we're in.

And have no doubt about the magnitude of this crisis. And we're
not talking about failure of institutions on Wall Street. We're
talking about failures on Main Street, and people who will lose their
jobs, and their credits, and their homes, if we don't fix the greatest
fiscal crisis, probably in -- certainly in our time, and I've been
around a little while.
But the point is -- the point is, we have finally seen
Republicans and Democrats sitting down and negotiating together and
coming up with a package.

This package has transparency in it. It has to have
accountability and oversight. It has to have options for loans to
failing businesses, rather than the government taking over those
loans. We have to -- it has to have a package with a number of other
essential elements to it.

And, yes, I went back to Washington, and I met with my
Republicans in the House of Representatives. And they weren't part of
the negotiations, and I understand that. And it was the House
Republicans that decided that they would be part of the solution to
this problem.

But I want to emphasize one point to all Americans tonight. This
isn't the beginning of the end of this crisis. This is the end of the
beginning, if we come out with a package that will keep these
institutions stable.

And we've got a lot of work to do. And we've got to create jobs.
And one of the areas, of course, is to eliminate our dependence on
foreign oil.

LEHRER: All right, let's go back to my question. How do you all
stand on the recovery plan? And talk to each other about it. We've
got five minutes. We can negotiate a deal right here.

But, I mean, are you -- do you favor this plan, Senator Obama,
and you, Senator McCain? Do you -- are you in favor of this plan?

OBAMA: We haven't seen the language yet. And I do think that
there's constructive work being done out there. So, for the viewers
who are watching, I am optimistic about the capacity of us to come
together with a plan.

The question, I think, that we have to ask ourselves is, how did
we get into this situation in the first place?

Two years ago, I warned that, because of the subprime lending
mess, because of the lax regulation, that we were potentially going to
have a problem and tried to stop some of the abuses in mortgages that
were taking place at the time.

Last year, I wrote to the secretary of the Treasury to make sure
that he understood the magnitude of this problem and to call on him to
bring all the stakeholders together to try to deal with it.

So -- so the question, I think, that we've got to ask ourselves
is, yes, we've got to solve this problem short term. And we are going
to have to intervene; there's no doubt about that.

But we're also going to have to look at, how is it that we
shredded so many regulations? We did not set up a 21st-century
regulatory framework to deal with these problems. And that in part
has to do with an economic philosophy that says that regulation is
always bad.

LEHRER: Are you going to vote for the plan, Senator McCain?

MCCAIN: I -- I hope so. And I...

LEHRER: As a United States senator...

MCCAIN: Sure.

LEHRER: ... you're going to vote for the plan?


MCCAIN: Sure. But -- but let me -- let me point out, I also
warned about Fannie Mae and Freddie Mac and warned about corporate
greed and excess, and CEO pay, and all that. A lot of us saw this
train wreck coming.

But there's also the issue of responsibility. You've mentioned
President Dwight David Eisenhower. President Eisenhower, on the night
before the Normandy invasion, went into his room, and he wrote out two
letters.

One of them was a letter congratulating the great members of the
military and allies that had conducted and succeeded in the greatest
invasion in history, still to this day, and forever.

And he wrote out another letter, and that was a letter of
resignation from the United States Army for the failure of the
landings at Normandy.

Somehow we've lost that accountability. I've been heavily
criticized because I called for the resignation of the chairman of the
Securities and Exchange Commission. We've got to start also holding
people accountable, and we've got to reward people who succeed.

But somehow in Washington today -- and I'm afraid on Wall Street
-- greed is rewarded, excess is rewarded, and corruption -- or
certainly failure to carry out our responsibility is rewarded.

As president of the United States, people are going to be held
accountable in my administration. And I promise you that that will
happen.

LEHRER: Do you have something directly to say, Senator Obama, to
Senator McCain about what he just said?

OBAMA: Well, I think Senator McCain's absolutely right that we
need more responsibility, but we need it not just when there's a
crisis. I mean, we've had years in which the reigning economic
ideology has been what's good for Wall Street, but not what's good for
Main Street.

And there are folks out there who've been struggling before this
crisis took place. And that's why it's so important, as we solve this
short-term problem, that we look at some of the underlying issues that
have led to wages and incomes for ordinary Americans to go down, the
-- a health care system that is broken, energy policies that are not
working, because, you know, 10 days ago, John said that the
fundamentals of the economy are sound.

LEHRER: Say it directly to him.

OBAMA: I do not think that they are.

LEHRER: Say it directly to him.

OBAMA: Well, the -- John, 10 days ago, you said that the
fundamentals of the economy are sound. And...

MCCAIN: Are you afraid I couldn't hear him?

(LAUGHTER)

LEHRER: I'm just determined to get you all to talk to each
other. I'm going to try.

OBAMA: The -- and I just fundamentally disagree. And unless we
are holding ourselves accountable day in, day out, not just when
there's a crisis for folks who have power and influence and can hire
lobbyists, but for the nurse, the teacher, the police officer, who,
frankly, at the end of each month, they've got a little financial
crisis going on.

They're having to take out extra debt just to make their mortgage
payments. We haven't been paying attention to them. And if you look
at our tax policies, it's a classic example.

LEHRER: So, Senator McCain, do you agree with what Senator Obama
just said? And, if you don't, tell him what you disagree with.

MCCAIN: No, I -- look, we've got to fix the system. We've got
fundamental problems in the system. And Main Street is paying a
penalty for the excesses and greed in Washington, D.C., and in the
Wall Street.

So there's no doubt that we have a long way to go. And,
obviously, stricter interpretation and consolidation of the various
regulatory agencies that weren't doing their job, that has brought on
this crisis.

But I have a fundamental belief in the goodness and strength of
the American worker. And the American worker is the most productive,
the most innovative. America is still the greatest producer, exporter
and importer.

But we've got to get through these times, but I have a
fundamental belief in the United States of America. And I still
believe, under the right leadership, our best days are ahead of us.

LEHRER: All right, let's go to the next lead question, which is
essentially following up on this same subject.

And you get two minutes to begin with, Senator McCain. And using
your word "fundamental," are there fundamental differences between
your approach and Senator Obama's approach to what you would do as
president to lead this country out of the financial crisis?

MCCAIN: Well, the first thing we have to do is get spending
under control in Washington. It's completely out of control. It's
gone -- we have now presided over the largest increase in the size of
government since the Great Society.

We Republicans came to power to change government, and government
changed us. And the -- the worst symptom on this disease is what my
friend, Tom Coburn, calls earmarking as a gateway drug, because it's a
gateway. It's a gateway to out-of-control spending and corruption.

And we have former members of Congress now residing in federal
prison because of the evils of this earmarking and pork-barrel
spending.

You know, we spent $3 million to study the DNA of bears in
Montana. I don't know if that was a criminal issue or a paternal
issue, but the fact is that it was $3 million of our taxpayers' money.
And it has got to be brought under control.

As president of the United States, I want to assure you, I've got
a pen. This one's kind of old. I've got a pen, and I'm going to veto
every single spending bill that comes across my desk. I will make
them famous. You will know their names.

Now, Senator Obama, you wanted to know one of the differences.
He has asked for $932 million of earmark pork-barrel spending, nearly
a million dollars for every day that he's been in the United States
Senate.

I suggest that people go up on the Web site of Citizens Against
Government Waste, and they'll look at those projects.

That kind of thing is not the way to rein in runaway spending in
Washington, D.C. That's one of the fundamental differences that
Senator Obama and I have.

LEHRER: Senator Obama, two minutes.

OBAMA: Well, Senator McCain is absolutely right that the
earmarks process has been abused, which is why I suspended any
requests for my home state, whether it was for senior centers or what
have you, until we cleaned it up.

And he's also right that oftentimes lobbyists and special
interests are the ones that are introducing these kinds of requests,
although that wasn't the case with me.

But let's be clear: Earmarks account for $18 billion in last
year's budget. Senator McCain is proposing -- and this is a
fundamental difference between us -- $300 billion in tax cuts to some
of the wealthiest corporations and individuals in the country, $300
billion.

Now, $18 billion is important; $300 billion is really important.
And in his tax plan, you would have CEOs of Fortune 500 companies
getting an average of $700,000 in reduced taxes, while leaving 100
million Americans out.

So my attitude is, we've got to grow the economy from the bottom
up. What I've called for is a tax cut for 95 percent of working
families, 95 percent.

And that means that the ordinary American out there who's
collecting a paycheck every day, they've got a little extra money to
be able to buy a computer for their kid, to fill up on this gas that
is killing them.

And over time, that, I think, is going to be a better recipe for
economic growth than the -- the policies of President Bush that John
McCain wants to -- wants to follow.

LEHRER: Senator McCain?

MCCAIN: Well, again, I don't mean to go back and forth, but
he...

(CROSSTALK)

LEHRER: No, that's fine.

MCCAIN: Senator Obama suspended those requests for pork-barrel
projects after he was running for president of the United States. He
didn't happen to see that light during the first three years as a
member of the United States Senate, $932 million in requests.

Maybe to Senator Obama it's not a lot of money. But the point is
that -- you see, I hear this all the time. "It's only $18 billion."
Do you know that it's tripled in the last five years? Do you know
that it's gone completely out of control to the point where it
corrupts people? It corrupts people.

That's why we have, as I said, people under federal indictment
and charges. It's a system that's got to be cleaned up.

I have fought against it my career. I have fought against it. I
was called the sheriff, by the -- one of the senior members of the
Appropriations Committee. I didn't win Miss Congeniality in the
United States Senate.

Now, Senator Obama didn't mention that, along with his tax cuts,
he is also proposing some $800 billion in new spending on new
programs.

Now, that's a fundamental difference between myself and Senator
Obama. I want to cut spending. I want to keep taxes low. The worst
thing we could do in this economic climate is to raise people's taxes.

OBAMA: I -- I don't know where John is getting his figures.
Let's just be clear.
What I do is I close corporate loopholes, stop providing tax cuts
to corporations that are shipping jobs overseas so that we're giving
tax breaks to companies that are investing here in the United States.
I make sure that we have a health care system that allows for everyone
to have basic coverage.

I think those are pretty important priorities. And I pay for
every dime of it.

But let's go back to the original point. John, nobody is denying
that $18 billion is important. And, absolutely, we need earmark
reform. And when I'm president, I will go line by line to make sure
that we are not spending money unwisely.

But the fact is that eliminating earmarks alone is not a recipe
for how we're going to get the middle class back on track.


OBAMA: And when you look at your tax policies that are directed
primarily at those who are doing well, and you are neglecting people
who are really struggling right now, I think that is a continuation of
the last eight years, and we can't afford another four.

LEHRER: Respond directly to him about that, to Senator Obama
about that, about the -- he's made it twice now, about your tax --
your policies about tax cuts.

MCCAIN: Well -- well, let me give you an example of what Senator
Obama finds objectionable, the business tax.

Right now, the United States of American business pays the
second-highest business taxes in the world, 35 percent. Ireland pays
11 percent.

Now, if you're a business person, and you can locate any place in
the world, then, obviously, if you go to the country where it's 11
percent tax versus 35 percent, you're going to be able to create jobs,
increase your business, make more investment, et cetera.

I want to cut that business tax. I want to cut it so that
businesses will remain in -- in the United States of America and
create jobs.

But, again, I want to return. It's a lot more than $18 billion
in pork-barrel spending. I can tell you, it's rife. It's throughout.

The United States Senate will take up a continuing resolution
tomorrow or the next day, sometime next week, with 2,000 -- 2,000 --
look at them, my friends. Look at them. You'll be appalled.

And Senator Obama is a recent convert, after requesting $932
million worth of pork-barrel spending projects.

So the point is, I want people to have tax cuts. I want every
family to have a $5,000 refundable tax credit so they can go out and
purchase their own health care. I want to double the dividend from
$3,500 to $7,000 for every dependent child in America.

I know that the worst thing we could possibly do is to raise
taxes on anybody, and a lot of people might be interested in Senator
Obama's definition of "rich."

LEHRER: Senator Obama, you have a question for Senator McCain on
that?
OBAMA: Well, let me just make a couple of points.

LEHRER: All right.

OBAMA: My definition -- here's what I can tell the American
people: 95 percent of you will get a tax cut. And if you make less
than $250,000, less than a quarter-million dollars a year, then you
will not see one dime's worth of tax increase.

Now, John mentioned the fact that business taxes on paper are
high in this country, and he's absolutely right. Here's the problem:
There are so many loopholes that have been written into the tax code,
oftentimes with support of Senator McCain, that we actually see our
businesses pay effectively one of the lowest tax rates in the world.

And what that means, then, is that there are people out there who
are working every day, who are not getting a tax cut, and you want to
give them more.

It's not like you want to close the loopholes. You just want to
add an additional tax cut over the loopholes. And that's a problem.

Just one last point I want to make, since Senator McCain talked
about providing a $5,000 health credit. Now, what he doesn't tell you
is that he intends to, for the first time in history, tax health
benefits.

So you may end up getting a $5,000 tax credit. Here's the only
problem: Your employer now has to pay taxes on the health care that
you're getting from your employer. And if you end up losing your
health care from your employer, you've got to go out on the open
market and try to buy it.

It is not a good deal for the American people. But it's an
example of this notion that the market can always solve everything and
that the less regulation we have, the better off we're going to be.

MCCAIN: Well, you know, let me just...

LEHRER: We've got to go to another lead question.

MCCAIN: I know we have to, but this is a classic example of
walking the walk and talking the talk.

We had an energy bill before the United States Senate. It was
festooned with Christmas tree ornaments. It had all kinds of breaks
for the oil companies, I mean, billions of dollars worth. I voted
against it; Senator Obama voted for it.

OBAMA: John, you want to give oil companies another $4 billion.

MCCAIN: You've got to look at our record. You've got to look at
our records. That's the important thing.

Who fought against wasteful and earmark spending? Who has been
the person who has tried to keep spending under control?
Who's the person who has believed that the best thing for America
is -- is to have a tax system that is fundamentally fair? And I've
fought to simplify it, and I have proposals to simplify it.

Let's give every American a choice: two tax brackets, generous
dividends, and, two -- and let Americans choose whether they want the
-- the existing tax code or they want a new tax code.

And so, again, look at the record, particularly the energy bill.
But, again, Senator Obama has shifted on a number of occasions. He
has voted in the United States Senate to increase taxes on people who
make as low as $42,000 a year.

OBAMA: That's not true, John. That's not true.

MCCAIN: And that's just a fact. Again, you can look it up.

OBAMA: Look, it's just not true. And if we want to talk about
oil company profits, under your tax plan, John -- this is undeniable
-- oil companies would get an additional $4 billion in tax breaks.

Now, look, we all would love to lower taxes on everybody. But
here's the problem: If we are giving them to oil companies, then that
means that there are those who are not going to be getting them.
And...

MCCAIN: With all due respect, you already gave them to the oil
companies.

OBAMA: No, but, John, the fact of the matter is, is that I was
opposed to those tax breaks, tried to strip them out. We've got an
emergency bill on the Senate floor right now that contains some good
stuff, some stuff you want, including drilling off-shore, but you're
opposed to it because it would strip away those tax breaks that have
gone to oil companies.

LEHRER: All right. All right, speaking of things that both of
you want, another lead question, and it has to do with the rescue --
the financial rescue thing that we started -- started asking about.

And what -- and the first answer is to you, Senator Obama. As
president, as a result of whatever financial rescue plan comes about
and the billion, $700 billion, whatever it is it's going to cost, what
are you going to have to give up, in terms of the priorities that you
would bring as president of the United States, as a result of having
to pay for the financial rescue plan?

OBAMA: Well, there are a range of things that are probably going
to have to be delayed. We don't yet know what our tax revenues are
going to be. The economy is slowing down, so it's hard to anticipate
right now what the budget is going to look like next year.

But there's no doubt that we're not going to be able to do
everything that I think needs to be done. There are some things that
I think have to be done.
We have to have energy independence, so I've put forward a plan
to make sure that, in 10 years' time, we have freed ourselves from
dependence on Middle Eastern oil by increasing production at home, but
most importantly by starting to invest in alternative energy, solar,
wind, biodiesel, making sure that we're developing the fuel-efficient
cars of the future right here in the United States, in Ohio and
Michigan, instead of Japan and South Korea.

We have to fix our health care system, which is putting an
enormous burden on families. Just -- a report just came out that the
average deductible went up 30 percent on American families.

They are getting crushed, and many of them are going bankrupt as
a consequence of health care. I'm meeting folks all over the country.
We have to do that now, because it will actually make our businesses
and our families better off.

The third thing we have to do is we've got to make sure that
we're competing in education. We've got to invest in science and
technology. China had a space launch and a space walk. We've got to
make sure that our children are keeping pace in math and in science.

And one of the things I think we have to do is make sure that
college is affordable for every young person in America.

And I also think that we're going to have to rebuild our
infrastructure, which is falling behind, our roads, our bridges, but
also broadband lines that reach into rural communities.

Also, making sure that we have a new electricity grid to get the
alternative energy to population centers that are using them.

So there are some -- some things that we've got to do
structurally to make sure that we can compete in this global economy.
We can't shortchange those things. We've got to eliminate programs
that don't work, and we've got to make sure that the programs that we
do have are more efficient and cost less.

LEHRER: Are you -- what priorities would you adjust, as
president, Senator McCain, because of the -- because of the financial
bailout cost?

MCCAIN: Look, we, no matter what, we've got to cut spending. We
have -- as I said, we've let government get completely out of control.

Senator Obama has the most liberal voting record in the United
States Senate. It's hard to reach across the aisle from that far to
the left.

The point -- the point is -- the point is, we need to examine
every agency of government.

First of all, by the way, I'd eliminate ethanol subsidies. I
oppose ethanol subsidies.

I think that we have to return -- particularly in defense
spending, which is the largest part of our appropriations -- we have
to do away with cost-plus contracts. We now have defense systems that
the costs are completely out of control.

We tried to build a little ship called the Littoral Combat Ship
that was supposed to cost $140 million, ended up costing $400 million,
and we still haven't done it.

So we need to have fixed-cost contracts. We need very badly to
understand that defense spending is very important and vital,
particularly in the new challenges we face in the world, but we have
to get a lot of the cost overruns under control.

I know how to do that.


MCCAIN: I saved the taxpayers $6.8 billion by fighting a
contract that was negotiated between Boeing and DOD that was
completely wrong. And we fixed it and we killed it and the people
ended up in federal prison so I know how to do this because I've been
involved these issues for many, many years. But I think that we have
to examine every agency of government and find out those that are
doing their job and keep them and find out those that aren't and
eliminate them and we'll have to scrub every agency of government.

LEHRER: But if I hear the two of you correctly neither one of
you is suggesting any major changes in what you want to do as
president as a result of the financial bailout? Is that what you're
saying?

OBAMA: No. As I said before, Jim, there are going to be things
that end up having to be ...

LEHRER: Like what?

OBAMA: ... deferred and delayed. Well, look, I want to make
sure that we are investing in energy in order to free ourselves from
the dependence on foreign oil. That is a big project. That is a
multi-year project.

LEHRER: Not willing to give that up?

OBAMA: Not willing to give up the need to do it but there may be
individual components that we can't do. But John is right we have to
make cuts. We right now give $15 billion every year as subsidies to
private insurers under the Medicare system. Doesn't work any better
through the private insurers. They just skim off $15 billion. That
was a give away and part of the reason is because lobbyists are able
to shape how Medicare works.

They did it on the Medicaid prescription drug bill and we have to
change the culture. Tom -- or John mentioned me being wildly liberal.
Mostly that's just me opposing George Bush's wrong headed policies
since I've been in Congress but I think it is that it is also
important to recognize I work with Tom Coburn, the most conservative,
one of the most conservative Republicans who John already mentioned to
set up what we call a Google for government saying we'll list every
dollar of federal spending to make sure that the taxpayer can take a
look and see who, in fact, is promoting some of these spending
projects that John's been railing about.

LEHRER: What I'm trying to get at this is this. Excuse me if I
may, senator. Trying to get at that you all -- one of you is going to
be the president of the United States come January. At the -- in the
middle of a huge financial crisis that is yet to be resolved. And
what I'm trying to get at is how this is going to affect you not in
very specific -- small ways but in major ways and the approach to take
as to the presidency.

MCCAIN: How about a spending freeze on everything but defense,
veteran affairs and entitlement programs.

LEHRER: Spending freeze?

MCCAIN: I think we ought to seriously consider with the
exceptions the caring of veterans national defense and several other
vital issues.

LEHRER: Would you go for that?

OBAMA: The problem with a spending freeze is you're using a
hatchet where you need a scalpel. There are some programs that are
very important that are under funded. I went to increase early
childhood education and the notion that we should freeze that when
there may be, for example, this Medicare subsidy doesn't make sense.

Let me tell you another place to look for some savings. We are
currently spending $10 billion a month in Iraq when they have a $79
billion surplus. It seems to me that if we're going to be strong at
home as well as strong abroad, that we have to look at bringing that
war to a close.

MCCAIN: Look, we are sending $700 billion a year overseas to
countries that don't like us very much. Some of that money ends up in
the hands of terrorist organizations. We have to have wind, tide,
solar, natural gas, flex fuel cars and all that but we also have to
have offshore drilling and we also have to have nuclear power.

Senator Obama opposes both storing and reprocessing of spent
nuclear fuel. You can't get there from here and the fact is that we
can create 700,000 jobs by building constructing 45 new nuclear power
plants by the year 2030. Nuclear power is not only important as far
as eliminating our dependence on foreign oil but it's also
responsibility as far as climate change is concerned and the issue I
have been involved in for many, many years and I'm proud of the work
of the work that I've done there along with President Clinton.

LEHRER: Before we go to another lead question. Let me figure
out a way to ask the same question in a slightly different way here.
Are you -- are you willing to acknowledge both of you that this
financial crisis is going to affect the way you rule the country as
president of the United States beyond the kinds of things that you
have already -- I mean, is it a major move? Is it going to have a
major affect?

OBAMA: There's no doubt it will affect our budgets. There is no
doubt about it. Not only -- Even if we get all $700 billion back,
let's assume the markets recover, we' holding assets long enough that
eventually taxpayers get it back and that happened during the Great
Depression when Roosevelt purchased a whole bunch of homes, over time,
home values went back up and in fact government made a profit. If
we're lucky and do it right, that could potentially happen but in the
short term there's an outlay and we may not see that money for a
while.

And because of the economy's slowing down, I think we can also
expect less tax revenue so there's no doubt that as president I'm go
doing have to make some tough decision.

The only point I want to make is this, that in order to make the
tough decisions we have to know what our values are and who we're
fighting for and our priorities and if we are spending $300 billion on
tax cuts for people who don't need them and weren't even asking for
them, and we are leaving out health care which is crushing on people
all across the country, then I think we have made a bad decision and I
want to make sure we're not shortchanging our long term priorities.

MCCAIN: Well, I want to make sure we're not handing the health
care system over to the federal government which is basically what
would ultimately happen with Senator Obama's health care plan. I want
the families to make decisions between themselves and their doctors.
Not the federal government. Look. We have to obviously cut spending.
I have fought to cut spending. Senator Obama has $800 billion in new
spending programs. I would suggest he start by canceling some of
those new spending program that he has.

We can't I think adjust spending around to take care of the very
much needed programs, including taking care of our veterans but I also
want to say again a healthy economy with low taxes would not raising
anyone's taxes is probably the best recipe for eventually having our
economy recover.

And spending restraint has got to be a vital part of that. And
the reason, one of the major reasons why we're in the difficulties we
are in today is because spending got out of control. We owe China
$500 billion. And spending, I know, can be brought under control
because I have fought against excessive spending my entire career.
And I got plans to reduce and eliminate unnecessary and wasteful
spending and if there's anybody here who thinks there aren't agencies
of government where spending can be cut and their budgets slashed they
have not spent a lot of time in Washington.

OBAMA: I just want to make this point, Jim. John, it's been
your president who you said you agreed with 90 percent of the time who
presided over this increase in spending. This orgy of spending and
enormous deficits you voted for almost all of his budgets. So to
stand here and after eight years and say that you're going to lead on
controlling spending and, you know, balancing our tax cuts so that
they help middle class families when over the last eight years that
hasn't happened I think just is, you know, kind of hard to swallow.

LEHRER: Quick response to Senator Obama.

MCCAIN: It's well-known that I have not been elected Miss
Congeniality in the United States Senate nor with the administration.
I have opposed the president on spending, on climate change, on
torture of prisoner, on - on Guantanamo Bay. On a -- on the way that
the Iraq War was conducted. I have a long record and the American
people know me very well and that is independent and a maverick of the
Senate and I'm happy to say that I've got a partner that's a good
maverick along with me now.

LEHRER: All right. Let's go another subject. Lead question,
two minutes to you, senator McCain. Much has been said about the
lessons of Vietnam. What do you see as the lessons of Iraq?

MCCAIN: I think the lessons of Iraq are very clear that you
cannot have a failed strategy that will then cause you to nearly lose
a conflict. Our initial military success, we went in to Baghdad and
everybody celebrated. And then the war was very badly mishandled. I
went to Iraq in 2003 and came back and said, we've got to change this
strategy. This strategy requires additional troops, it requires a
fundamental change in strategy and I fought for it. And finally, we
came up with a great general and a strategy that has succeeded.

This strategy has succeeded. And we are winning in Iraq. And we
will come home with victory and with honor. And that withdrawal is
the result of every counterinsurgency that succeeds.


MCCAIN: And I want to tell you that now that we will succeed and
our troops will come home, and not in defeat, that we will see a
stable ally in the region and a fledgling democracy.

The consequences of defeat would have been increased Iranian
influence. It would have been increase in sectarian violence. It
would have been a wider war, which the United States of America might
have had to come back.

So there was a lot at stake there. And thanks to this great
general, David Petraeus, and the troops who serve under him, they have
succeeded. And we are winning in Iraq, and we will come home. And we
will come home as we have when we have won other wars and not in
defeat.

LEHRER: Two minutes, how you see the lessons of Iraq, Senator
Obama.

OBAMA: Well, this is an area where Senator McCain and I have a
fundamental difference because I think the first question is whether
we should have gone into the war in the first place.

Now six years ago, I stood up and opposed this war at a time when
it was politically risky to do so because I said that not only did we
not know how much it was going to cost, what our exit strategy might
be, how it would affect our relationships around the world, and
whether our intelligence was sound, but also because we hadn't
finished the job in Afghanistan.

We hadn't caught bin Laden. We hadn't put al Qaeda to rest, and
as a consequence, I thought that it was going to be a distraction.
Now Senator McCain and President Bush had a very different judgment.

And I wish I had been wrong for the sake of the country and they
had been right, but that's not the case. We've spent over $600
billion so far, soon to be $1 trillion. We have lost over 4,000
lives. We have seen 30,000 wounded, and most importantly, from a
strategic national security perspective, al Qaeda is resurgent,
stronger now than at any time since 2001.

We took our eye off the ball. And not to mention that we are
still spending $10 billion a month, when they have a $79 billion
surplus, at a time when we are in great distress here at home, and we
just talked about the fact that our budget is way overstretched and we
are borrowing money from overseas to try to finance just some of the
basic functions of our government.
So I think the lesson to be drawn is that we should never
hesitate to use military force, and I will not, as president, in
order to keep the American people safe. But we have to use our
military wisely. And we did not use our military wisely in Iraq.

LEHRER: Do you agree with that, the lesson of Iraq?

MCCAIN: The next president of the United States is not going to
have to address the issue as to whether we went into Iraq or not. The
next president of the United States is going to have to decide how we
leave, when we leave, and what we leave behind. That's the decision
of the next president of the United States.

Senator Obama said the surge could not work, said it would
increase sectarian violence, said it was doomed to failure. Recently
on a television program, he said it exceed our wildest expectations.

But yet, after conceding that, he still says that he would oppose
the surge if he had to decide that again today. Incredibly,
incredibly Senator Obama didn't go to Iraq for 900 days and never
asked for a meeting with General Petraeus.

LEHRER: Well, let's go at some of these things...

MCCAIN: Senator Obama is the chairperson of a committee that
oversights NATO that's in Afghanistan. To this day, he has never had
a hearing.

LEHRER: What about that point?

MCCAIN: I mean, it's remarkable.

LEHRER: All right. What about that point?

OBAMA: Which point? He raised a whole bunch of them.

LEHRER: I know, OK, let's go to the latter point and we'll back
up. The point about your not having been...

OBAMA: Look, I'm very proud of my vice presidential selection,
Joe Biden, who is the chairman of the Senate Foreign Relations
Committee, and as he explains, and as John well knows, the issues of
Afghanistan, the issues of Iraq, critical issues like that, don't go
through my subcommittee because they're done as a committee as a
whole.

But that's Senate inside baseball. But let's get back to the
core issue here. Senator McCain is absolutely right that the violence
has been reduced as a consequence of the extraordinary sacrifice of
our troops and our military families.

They have done a brilliant job, and General Petraeus has done a
brilliant job. But understand, that was a tactic designed to contain
the damage of the previous four years of mismanagement of this war.

And so John likes -- John, you like to pretend like the war
started in 2007. You talk about the surge. The war started in 2003,
and at the time when the war started, you said it was going to be
quick and easy. You said we knew where the weapons of mass
destruction were. You were wrong.

You said that we were going to be greeted as liberators. You
were wrong. You said that there was no history of violence between
Shia and Sunni. And you were wrong. And so my question is...

(CROSSTALK)

LEHRER: Senator Obama...

OBAMA: ... of judgment, of whether or not -- of whether or not
-- if the question is who is best-equipped as the next president to
make good decisions about how we use our military, how we make sure
that we are prepared and ready for the next conflict, then I think we
can take a look at our judgment.

LEHRER: I have got a lot on the plate here...

MCCAIN: I'm afraid Senator Obama doesn't understand the
difference between a tactic and a strategy. But the important -- I'd
like to tell you, two Fourths of July ago I was in Baghdad. General
Petraeus invited Senator Lindsey Graham and me to attend a ceremony
where 688 brave young Americans, whose enlistment had expired, were
reenlisting to stay and fight for Iraqi freedom and American freedom.

I was honored to be there. I was honored to speak to those
troops. And you know, afterwards, we spent a lot of time with them.
And you know what they said to us? They said, let us win. They said,
let us win. We don't want our kids coming back here.

And this strategy, and this general, they are winning. Senator
Obama refuses to acknowledge that we are winning in Iraq.

OBAMA: That's not true.

MCCAIN: They just passed an electoral...

OBAMA: That's not true.

MCCAIN: An election law just in the last few days. There is
social, economic progress, and a strategy, a strategy of going into an
area, clearing and holding, and the people of the country then become
allied with you. They inform on the bad guys. And peace comes to the
country, and prosperity.

That's what's happening in Iraq, and it wasn't a tactic.

LEHRER: Let me see...

OBAMA: Jim, Jim, this is a big...

MCCAIN: It was a stratagem. And that same strategy will be
employed in Afghanistan by this great general. And Senator Obama, who
after promising not to vote to cut off funds for the troops, did the
incredible thing of voting to cut off the funds for the troops in Iraq
and Afghanistan.

OBAMA: Jim, there are a whole bunch of things we have got to
answer. First of all, let's talk about this troop funding issue
because John always brings this up. Senator McCain cut -- Senator
McCain opposed funding for troops in legislation that had a timetable,
because he didn't believe in a timetable.

I opposed funding a mission that had no timetable, and was open-
ended, giving a blank check to George Bush. We had a difference on
the timetable. We didn't have a difference on whether or not we were
going to be funding troops.

We had a legitimate difference, and I absolutely understand the
difference between tactics and strategy. And the strategic question
that the president has to ask is not whether or not we are employing a
particular approach in the country once we have made the decision to
be there.

The question is, was this wise? We have seen Afghanistan worsen,
deteriorate. We need more troops there. We need more resources
there. Senator McCain, in the rush to go into Iraq, said, you know
what? We've been successful in Afghanistan. There is nobody who can
pose a threat to us there.

This is a time when bin Laden was still out, and now they've
reconstituted themselves. Secretary of Defense Robert Gates himself
acknowledges the war on terrorism started in Afghanistan and it needs
to end there.

But we can't do it if we are not willing to give Iraq back its
country. Now, what I've said is we should end this war responsibly.
We should do it in phases. But in 16 months we should be able to
reduce our combat troops, put -- provide some relief to military
families and our troops and bolster our efforts in Afghanistan so that
we can capture and kill bin Laden and crush al Qaeda.

And right now, the commanders in Afghanistan, as well as Admiral
Mullen, have acknowledged that we don't have enough troops to deal
with Afghanistan because we still have more troops in Iraq than we did
before the surge.

MCCAIN: Admiral Mullen suggests that Senator Obama's plan is
dangerous for America.

OBAMA: That's not the case.

MCCAIN: That's what ...

OBAMA: What he said was a precipitous...

MCCAIN: That's what Admiral Mullen said.

OBAMA: ... withdrawal would be dangerous. He did not say that.
That's not true.

MCCAIN: And also General Petraeus said the same thing. Osama
bin Laden and General Petraeus have one thing in common that I know
of, they both said that Iraq is the central battleground.

Now General Petraeus has praised the successes, but he said those
successes are fragile and if we set a specific date for withdrawal --
and by the way, Senator Obama's original plan, they would have been
out last spring before the surge ever had a chance to succeed.

And I'm -- I'm -- understand why Senator Obama was surprised and
said that the surge succeeded beyond his wildest expectations.


MCCAIN: It didn't exceed beyond mine, because I know that that's
a strategy that has worked and can succeed. But if we snatch defeat
from the jaws of victory and adopt Senator Obama's plan, then we will
have a wider war and it will make things more complicated throughout
the region, including in Afghanistan.

LEHRER: Afghanistan, lead -- a new -- a new lead question. Now,
having resolved Iraq, we'll move to Afghanistan.

(LAUGHTER)

And it goes to you, Senator Obama, and it's a -- it picks up on a
point that's already been made. Do you think more troops -- more U.S.
troops should be sent to Afghanistan, how many, and when?

OBAMA: Yes, I think we need more troops. I've been saying that
for over a year now.

And I think that we have to do it as quickly as possible, because
it's been acknowledged by the commanders on the ground the situation
is getting worse, not better.

We had the highest fatalities among U.S. troops this past year
than at any time since 2002. And we are seeing a major offensive
taking place -- Al Qaida and Taliban crossing the border and attacking
our troops in a brazen fashion. They are feeling emboldened.

And we cannot separate Afghanistan from Iraq, because what our
commanders have said is we don't have the troops right now to deal
with Afghanistan.

So I would send two to three additional brigades to Afghanistan.
Now, keep in mind that we have four times the number of troops in
Iraq, where nobody had anything to do with 9/11 before we went in,
where, in fact, there was no Al Qaida before we went in, but we have
four times more troops there than we do in Afghanistan.

And that is a strategic mistake, because every intelligence
agency will acknowledge that Al Qaida is the greatest threat against
the United States and that Secretary of Defense Gates acknowledged the
central front -- that the place where we have to deal with these folks
is going to be in Afghanistan and in Pakistan.

So here's what we have to do comprehensively, though. It's not
just more troops.
We have to press the Afghan government to make certain that they
are actually working for their people. And I've said this to
President Karzai.

Number two, we've got to deal with a growing poppy trade that has
exploded over the last several years.

Number three, we've got to deal with Pakistan, because Al Qaida
and the Taliban have safe havens in Pakistan, across the border in the
northwest regions, and although, you know, under George Bush, with the
support of Senator McCain, we've been giving them $10 billion over the
last seven years, they have not done what needs to be done to get rid
of those safe havens.

And until we do, Americans here at home are not going to be safe.

LEHRER: Afghanistan, Senator McCain?

MCCAIN: First of all, I won't repeat the mistake that I regret
enormously, and that is, after we were able to help the Afghan freedom
fighters and drive the Russians out of Afghanistan, we basically
washed our hands of the region.

And the result over time was the Taliban, Al Qaida, and a lot of
the difficulties we are facing today. So we can't ignore those
lessons of history.

Now, on this issue of aiding Pakistan, if you're going to aim a
gun at somebody, George Shultz, our great secretary of state, told me
once, you'd better be prepared to pull the trigger.

I'm not prepared at this time to cut off aid to Pakistan. So I'm
not prepared to threaten it, as Senator Obama apparently wants to do,
as he has said that he would announce military strikes into Pakistan.

We've got to get the support of the people of -- of Pakistan. He
said that he would launch military strikes into Pakistan.

Now, you don't do that. You don't say that out loud. If you
have to do things, you have to do things, and you work with the
Pakistani government.

Now, the new president of Pakistan, Kardari (sic), has got his
hands full. And this area on the border has not been governed since
the days of Alexander the Great.

I've been to Waziristan. I can see how tough that terrain is.
It's ruled by a handful of tribes.

And, yes, Senator Obama calls for more troops, but what he
doesn't understand, it's got to be a new strategy, the same strategy
that he condemned in Iraq. It's going to have to be employed in
Afghanistan.

And we're going to have to help the Pakistanis go into these
areas and obtain the allegiance of the people. And it's going to be
tough. They've intermarried with Al Qaida and the Taliban. And it's
going to be tough. But we have to get the cooperation of the people
in those areas.

And the Pakistanis are going to have to understand that that
bombing in the Marriott Hotel in Islamabad was a signal from the
terrorists that they don't want that government to cooperate with us
in combating the Taliban and jihadist elements.

So we've got a lot of work to do in Afghanistan. But I'm
confident, now that General Petraeus is in the new position of
command, that we will employ a strategy which not only means
additional troops -- and, by the way, there have been 20,000
additional troops, from 32,000 to 53,000, and there needs to be more.

So it's not just the addition of troops that matters. It's a
strategy that will succeed. And Pakistan is a very important element
in this. And I know how to work with him. And I guarantee you I
would not publicly state that I'm going to attack them.

OBAMA: Nobody talked about attacking Pakistan. Here's what I
said.

And if John wants to disagree with this, he can let me know,
that, if the United States has Al Qaida, bin Laden, top-level
lieutenants in our sights, and Pakistan is unable or unwilling to act,
then we should take them out.

Now, I think that's the right strategy; I think that's the right
policy.

And, John, I -- you're absolutely right that presidents have to
be prudent in what they say. But, you know, coming from you, who, you
know, in the past has threatened extinction for North Korea and, you
know, sung songs about bombing Iran, I don't know, you know, how
credible that is. I think this is the right strategy.

Now, Senator McCain is also right that it's difficult. This is
not an easy situation. You've got cross-border attacks against U.S.
troops.

And we've got a choice. We could allow our troops to just be on
the defensive and absorb those blows again and again and again, if
Pakistan is unwilling to cooperate, or we have to start making some
decisions.

And the problem, John, with the strategy that's been pursued was
that, for 10 years, we coddled Musharraf, we alienated the Pakistani
population, because we were anti-democratic. We had a 20th-century
mindset that basically said, "Well, you know, he may be a dictator,
but he's our dictator."

And as a consequence, we lost legitimacy in Pakistan. We spent
$10 billion. And in the meantime, they weren't going after Al Qaida,
and they are more powerful now than at any time since we began the war
in Afghanistan.

That's going to change when I'm president of the United States.

MCCAIN: I -- I don't think that Senator Obama understands that
there was a failed state in Pakistan when Musharraf came to power.
Everybody who was around then, and had been there, and knew about it
knew that it was a failed state.

But let me tell you, you know, this business about bombing Iran
and all that, let me tell you my record.

Back in 1983, when I was a brand-new United States congressman,
the one -- the person I admired the most and still admire the most,
Ronald Reagan, wanted to send Marines into Lebanon.

And I saw that, and I saw the situation, and I stood up, and I
voted against that, because I was afraid that they couldn't make peace
in a place where 300 or 400 or several hundred Marines would make a
difference. Tragically, I was right: Nearly 300 Marines lost their
lives in the bombing of the barracks.

And then we had Somalia -- then we had the first Gulf War. I
supported -- I supported that.

I supported us going into Bosnia, when a number of my own party
and colleagues was against that operation in Bosnia. That was the
right thing to do, to stop genocide and to preserve what was necessary
inside of Europe.

I supported what we did in Kosovo. I supported it because ethnic
cleansing and genocide was taking place there.

And I have a record -- and Somalia, I opposed that we should turn
-- turn the force in Somalia from a peacekeeping force into a
peacemaking force, which they were not capable of.

So I have a record. I have a record of being involved in these
national security issues, which involve the highest responsibility and
the toughest decisions that any president can make, and that is to
send our young men and women into harm's way.

And I'll tell you, I had a town hall meeting in Wolfeboro, New
Hampshire, and a woman stood up and she said, "Senator McCain, I want
you to do me the honor of wearing a bracelet with my son's name on
it."

He was 22 years old and he was killed in combat outside of
Baghdad, Matthew Stanley, before Christmas last year. This was last
August, a year ago. And I said, "I will -- I will wear his bracelet
with honor."

And this was August, a year ago. And then she said, "But,
Senator McCain, I want you to do everything -- promise me one thing,
that you'll do everything in your power to make sure that my son's
death was not in vain."

That means that that mission succeeds, just like those young
people who re-enlisted in Baghdad, just like the mother I met at the
airport the other day whose son was killed. And they all say to me
that we don't want defeat.


MCCAIN: A war that I was in, where we had an Army, that it
wasn't through any fault of their own, but they were defeated. And I
know how hard it is for that -- for an Army and a military to recover
from that. And it did and we will win this one and we won't come home
in defeat and dishonor and probably have to go back if we fail.

OBAMA: Jim, let me just make a point. I've got a bracelet, too,
from Sergeant - from the mother of Sergeant Ryan David Jopeck (ph),
given to me ingrain bin green bay. She asked me, can you please make
sure another mother is not going through what I'm going through.

No U.S. soldier ever dies in vain because they're carrying out
the missions of their commander in chief. And we honor all the
service that they've provided. Our troops have performed brilliantly.
The question is for the next president, are we making good judgments
about how to keep America safe precisely because sending our military
into battle is such an enormous step.

And the point that I originally made is that we took our eye off
Afghanistan, we took our eye off the folks who perpetrated 9/11, they
are still sending out videotapes and Senator McCain, nobody is talking
about defeat in Iraq, but I have to say we are having enormous
problems in Afghanistan because of that decision.

And it is not true you have consistently been concerned about
what happened in Afghanistan. At one point, while you were focused on
Iraq, you said well, we can "muddle through" Afghanistan. You don't
muddle through the central front on terror and you don't muddle
through going after bin Laden. You don't muddle through stamping out
the Taliban.

I think that is something we have to take seriously. And when
I'm president, I will.

LEHRER: New ...

MCCAIN: You might think that with that kind of concern that
Senator Obama would have gone to Afghanistan, particularly given his
responsibilities as a subcommittee chairman. By the way, when I'm
subcommittee chairman, we take up the issues under my subcommittee.
But the important thing is -- the important thing is I visited
Afghanistan and I traveled to Waziristan and I traveled to these
places and I know what our security requirements are. I know what our
needs are. So the point is that we will prevail in Afghanistan, but
we need the new strategy and we need it to succeed.
But the important thing is, if we suffer defeat in Iraq, which
General Petraeus predicts we will, if we adopted Senator Obama's set
date for withdrawal, then that will have a calamitous effect in
Afghanistan and American national security interests in the region.
Senator Obama doesn't seem to understand there is a connected between
the two.

LEHRER: I have some good news and bad news for the two of you.
You all are even on time, which is remarkable, considering we've been
going at it ...

OBAMA: A testimony to you, Jim.

LEHRER: I don't know about that. But the bad news is all my
little five minute things have run over, so, anyhow, we'll adjust as
we get there. But the amount of time is even.

New lead question. And it goes two minutes to you, Senator
McCain, what is your reading on the threat to Iran right now to the
security of the United States?

MCCAIN: My reading of the threat from Iran is that if Iran
acquires nuclear weapons, it is an existential threat to the State of
Israel and to other countries in the region because the other
countries in the region will feel compelling requirement to acquire
nuclear weapons as well.

Now we cannot a second Holocaust. Let's just make that very
clear. What I have proposed for a long time, and I've had
conversation with foreign leaders about forming a league of
democracies, let's be clear and let's have some straight talk. The
Russians are preventing significant action in the United Nations
Security Council.

I have proposed a league of democracies, a group of people - a
group of countries that share common interests, common values, common
ideals, they also control a lot of the world's economic power. We
could impose significant meaningful, painful sanctions on the Iranians
that I think could have a beneficial effect.

The Iranians have a lousy government, so therefore their economy
is lousy, even though they have significant oil revenues. So I am
convinced that together, we can, with the French, with the British,
with the Germans and other countries, democracies around the world, we
can affect Iranian behavior.

But have no doubt, but have no doubt that the Iranians continue
on the path to the acquisition of a nuclear weapon as we speak
tonight. And it is a threat not only in this region but around the
world.

What I'd also like to point out the Iranians are putting the most
lethal IEDs into Iraq which are killing young Americans, there are
special groups in Iran coming into Iraq and are being trained in Iran.
There is the Republican Guard in Iran, which Senator Kyl had an
amendment in order to declare them a sponsor of terror. Senator Obama
said that would be provocative.

So this is a serious threat. This is a serious threat to
security in the world, and I believe we can act and we can act with
our friends and allies and reduce that threat as quickly as possible,
but have no doubt about the ultimate result of them acquiring nuclear
weapons.

LEHRER: Two minutes on Iran, Senator Obama.

OBAMA: Well, let me just correct something very quickly. I
believe the Republican Guard of Iran is a terrorist organization.
I've consistently said so. What Senator McCain refers to is a measure
in the Senate that would try to broaden the mandate inside of Iraq.
To deal with Iran.

And ironically, the single thing that has strengthened Iran over
the last several years has been the war in Iraq. Iraq was Iran's
mortal enemy. That was cleared away. And what we've seen over the
last several years is Iran's influence grow. They have funded
Hezbollah, they have funded Hamas, they have gone from zero
centrifuges to 4,000 centrifuges to develop a nuclear weapon.

So obviously, our policy over the last eight years has not
worked. Senator McCain is absolutely right, we cannot tolerate a
nuclear Iran. It would be a game changer. Not only would it threaten
Israel, a country that is our stalwart ally, but it would also create
an environment in which you could set off an arms race in this Middle
East.

Now here's what we need to do. We do need tougher sanctions. I
do not agree with Senator McCain that we're going to be able to
execute the kind of sanctions we need without some cooperation with
some countries like Russia and China that are, I think Senator McCain
would agree, not democracies, but have extensive trade with Iran but
potentially have an interest in making sure Iran doesn't have a
nuclear weapon.

But we are also going to have to, I believe, engage in tough
direct diplomacy with Iran and this is a major difference I have with
Senator McCain, this notion by not talking to people we are punishing
them has not worked. It has not worked in Iran, it has not worked in
North Korea. In each instance, our efforts of isolation have actually
accelerated their efforts to get nuclear weapons. That will change
when I'm president of the United States.

LEHRER: Senator, what about talking?

MCCAIN: Senator Obama twice said in debates he would sit down
with Ahmadinejad, Chavez and Raul Castro without precondition.
Without precondition. Here is Ahmadinenene (ph), Ahmadinejad, who is,
Ahmadinejad, who is now in New York, talking about the extermination
of the State of Israel, of wiping Israel off the map, and we're going
to sit down, without precondition, across the table, to legitimize and
give a propaganda platform to a person that is espousing the
extermination of the state of Israel, and therefore then giving them
more credence in the world arena and therefore saying, they've
probably been doing the right thing, because you will sit down across
the table from them and that will legitimize their illegal behavior.

The point is that throughout history, whether it be Ronald
Reagan, who wouldn't sit down with Brezhnev, Andropov or Chernenko
until Gorbachev was ready with glasnost and perestroika.

Or whether it be Nixon's trip to China, which was preceded by
Henry Kissinger, many times before he went. Look, I'll sit down with
anybody, but there's got to be pre-conditions. Those pre-conditions
would apply that we wouldn't legitimize with a face to face meeting, a
person like Ahmadinejad. Now, Senator Obama said, without
preconditions.

OBAMA: So let's talk about this. First of all, Ahmadinejad is
not the most powerful person in Iran. So he may not be the right
person to talk to. But I reserve the right, as president of the
United States to meet with anybody at a time and place of my choosing
if I think it's going to keep America safe.

And I'm glad that Senator McCain brought up the history, the
bipartisan history of us engaging in direct diplomacy.


OBAMA: Senator McCain mentioned Henry Kissinger, who's one of
his advisers, who, along with five recent secretaries of state, just
said that we should meet with Iran -- guess what -- without
precondition. This is one of your own advisers.

Now, understand what this means "without preconditions." It
doesn't mean that you invite them over for tea one day. What it means
is that we don't do what we've been doing, which is to say, "Until you
agree to do exactly what we say, we won't have direct contacts with
you."

There's a difference between preconditions and preparation. Of
course we've got to do preparations, starting with low-level
diplomatic talks, and it may not work, because Iran is a rogue regime.

But I will point out that I was called naive when I suggested
that we need to look at exploring contacts with Iran. And you know
what? President Bush recently sent a senior ambassador, Bill Burns,
to participate in talks with the Europeans around the issue of nuclear
weapons.

Again, it may not work, but if it doesn't work, then we have
strengthened our ability to form alliances to impose the tough
sanctions that Senator McCain just mentioned.

And when we haven't done it, as in North Korea -- let me just
take one more example -- in North Korea, we cut off talks. They're a
member of the axis of evil. We can't deal with them.

And you know what happened? They went -- they quadrupled their
nuclear capacity. They tested a nuke. They tested missiles. They
pulled out of the nonproliferation agreement. And they sent nuclear
secrets, potentially, to countries like Syria.

When we re-engaged -- because, again, the Bush administration
reversed course on this -- then we have at least made some progress,
although right now, because of the problems in North Korea, we are
seeing it on shaky ground.

And -- and I just -- so I just have to make this general point
that the Bush administration, some of Senator McCain's own advisers
all think this is important, and Senator McCain appears resistant.

He even said the other day that he would not meet potentially
with the prime minister of Spain, because he -- you know, he wasn't
sure whether they were aligned with us. I mean, Spain? Spain is a
NATO ally.

MCCAIN: Of course.

OBAMA: If we can't meet with our friends, I don't know how we're
going to lead the world in terms of dealing with critical issues like
terrorism.

MCCAIN: I'm not going to set the White House visitors schedule
before I'm president of the United States. I don't even have a seal
yet.

Look, Dr. Kissinger did not say that he would approve of face-to-
face meetings between the president of the United States and the
president -- and Ahmadinejad. He did not say that.

OBAMA: Of course not.

MCCAIN: He said that there could be secretary-level and lower
level meetings. I've always encouraged them. The Iranians have met
with Ambassador Crocker in Baghdad.

What Senator Obama doesn't seem to understand that if without
precondition you sit down across the table from someone who has called
Israel a "stinking corpse," and wants to destroy that country and wipe
it off the map, you legitimize those comments.

This is dangerous. It isn't just naive; it's dangerous. And so
we just have a fundamental difference of opinion.

As far as North Korea is concerned, our secretary of state,
Madeleine Albright, went to North Korea. By the way, North Korea,
most repressive and brutal regime probably on Earth. The average
South Korean is three inches taller than the average North Korean, a
huge gulag.

We don't know what the status of the dear leader's health is
today, but we know this, that the North Koreans have broken every
agreement that they've entered into.

And we ought to go back to a little bit of Ronald Reagan's
"trust, but verify," and certainly not sit down across the table from
-- without precondition, as Senator Obama said he did twice, I mean,
it's just dangerous.

OBAMA: Look, I mean, Senator McCain keeps on using this example
that suddenly the president would just meet with somebody without
doing any preparation, without having low-level talks. Nobody's been
talking about that, and Senator McCain knows it. This is a
mischaracterization of my position.

When we talk about preconditions -- and Henry Kissinger did say
we should have contacts without preconditions -- the idea is that we
do not expect to solve every problem before we initiate talks.

And, you know, the Bush administration has come to recognize that
it hasn't worked, this notion that we are simply silent when it comes
to our enemies. And the notion that we would sit with Ahmadinejad and
not say anything while he's spewing his nonsense and his vile comments
is ridiculous. Nobody is even talking about that.

MCCAIN: So let me get this right. We sit down with Ahmadinejad,
and he says, "We're going to wipe Israel off the face of the Earth,"
and we say, "No, you're not"? Oh, please.

OBAMA: No, let me tell...

(CROSSTALK)

MCCAIN: By the way, my friend, Dr. Kissinger, who's been my
friend for 35 years, would be interested to hear this conversation and
Senator Obama's depiction of his -- of his positions on the issue.
I've known him for 35 years.

OBAMA: We will take a look.

MCCAIN: And I guarantee you he would not -- he would not say
that presidential top level.

OBAMA: Nobody's talking about that.

MCCAIN: Of course he encourages and other people encourage
contacts, and negotiations, and all other things. We do that all the
time.

LEHRER: We're going to go to a new...

(CROSSTALK)

MCCAIN: And Senator Obama is parsing words when he says
precondition means preparation.

OBAMA: I am not parsing words.

MCCAIN: He's parsing words, my friends.

OBAMA: I'm using the same words that your advisers use.

Please, go ahead.

LEHRER: New lead question.

Russia, goes to you, two minutes, Senator Obama. How do you see
the relationship with Russia? Do you see them as a competitor? Do
you see them as an enemy? Do you see them as a potential partner?

OBAMA: Well, I think that, given what's happened over the last
several weeks and months, our entire Russian approach has to be
evaluated, because a resurgent and very aggressive Russia is a threat
to the peace and stability of the region.

Their actions in Georgia were unacceptable. They were
unwarranted. And at this point, it is absolutely critical for the
next president to make clear that we have to follow through on our
six-party -- or the six-point cease-fire. They have to remove
themselves from South Ossetia and Abkhazia.

It is absolutely important that we have a unified alliance and
that we explain to the Russians that you cannot be a 21st-century
superpower, or power, and act like a 20th-century dictatorship.

And we also have to affirm all the fledgling democracies in that
region, you know, the Estonians, the Lithuanians, the Latvians, the
Poles, the Czechs, that we are, in fact, going to be supportive and in
solidarity with them in their efforts. They are members of NATO.

And to countries like Georgia and the Ukraine, I think we have to
insist that they are free to join NATO if they meet the requirements,
and they should have a membership action plan immediately to start
bringing them in.

Now, we also can't return to a Cold War posture with respect to
Russia. It's important that we recognize there are going to be some
areas of common interest. One is nuclear proliferation.

They have not only 15,000 nuclear warheads, but they've got
enough to make another 40,000, and some of those loose nukes could
fall into the hands of Al Qaida.

This is an area where I've led on in the Senate, working with a
Republican ranking member of the Senate Foreign Relations Committee,
Dick Lugar, to deal with the proliferation of loose nuclear weapons.
That's an area where we're going to have to work with Russia.

But we have to have a president who is clear that you don't deal
with Russia based on staring into his eyes and seeing his soul. You
deal with Russia based on, what are your -- what are the national
security interests of the United States of America?

And we have to recognize that the way they've been behaving
lately demands a sharp response from the international community and
our allies.

LEHRER: Two minutes on Russia, Senator McCain.

MCCAIN: Well, I was interested in Senator Obama's reaction to
the Russian aggression against Georgia. His first statement was,
"Both sides ought to show restraint."

Again, a little bit of naivete there. He doesn't understand that
Russia committed serious aggression against Georgia. And Russia has
now become a nation fueled by petro-dollars that is basically a KGB
apparatchik-run government.

I looked into Mr. Putin's eyes, and I saw three letters, a "K," a
"G," and a "B." And their aggression in Georgia is not acceptable
behavior.

I don't believe we're going to go back to the Cold War. I am
sure that that will not happen. But I do believe that we need to
bolster our friends and allies. And that wasn't just about a problem
between Georgia and Russia. It had everything to do with energy.
There's a pipeline that runs from the Caspian through Georgia
through Turkey. And, of course, we know that the Russians control
other sources of energy into Europe, which they have used from time to
time.

It's not accidental that the presidents of Latvia, Estonia,
Lithuania, Poland, and Ukraine flew to Georgia, flew to Tbilisi, where
I have spent significant amount of time with a great young president,
Misha Saakashvili.


MCCAIN: And they showed solidarity with them, but, also, they
are very concerned about the Russian threats to regain their status of
the old Russian to regain their status of the old Russian empire.

Now, I think the Russians ought to understand that we will
support -- we, the United States -- will support the inclusion of
Georgia and Ukraine in the natural process, inclusion into NATO.

We also ought to make it very clear that the Russians are in
violation of their cease-fire agreement. They have stationed
additional troops in Abkhazia and South Ossetia.

By the way, I went there once, and we went inside and drove in,
and there was a huge poster. And this is -- this is Georgian
territory. And there was a huge poster of Vladimir Putin, and it
said, "Vladimir Putin, our president."

It was very clear, the Russian intentions towards Georgia. They
were just waiting to seize the opportunity.

So, this is a very difficult situation. We want to work with the
Russians. But we also have every right to expect the Russians to
behave in a fashion and keeping with a -- with a -- with a country who
respects international boundaries and the norms of international
behavior.

And watch Ukraine. This whole thing has got a lot to do with
Ukraine, Crimea, the base of the Russian fleet in Sevastopol. And the
breakdown of the political process in Ukraine between Tymoshenko and
Yushchenko is a very serious problem.

So watch Ukraine, and let's make sure that we -- that the
Ukrainians understand that we are their friend and ally.

LEHRER: You see any -- do you have a major difference with what
he just said?

OBAMA: No, actually, I think Senator McCain and I agree for the
most part on these issues. Obviously, I disagree with this notion
that somehow we did not forcefully object to Russians going into
Georgia.

I immediately said that this was illegal and objectionable. And,
absolutely, I wanted a cessation of the violence, because it put an
enormous strain on Georgia, and that's why I was the first to say that
we have to rebuild the Georgian economy and called for a billion
dollars that has now gone in to help them rebuild.

Because part of Russia's intentions here was to weaken the
economy to the point where President Saakashvili was so weakened that
he might be replaced by somebody that Putin favored more.

Two points I think are important to think about when it comes to
Russia.

Number one is we have to have foresight and anticipate some of
these problems. So back in April, I warned the administration that
you had Russian peacekeepers in Georgian territory. That made no
sense whatsoever.

And what we needed to do was replace them with international
peacekeepers and a special envoy to resolve the crisis before it
boiled over.

That wasn't done. But had it been done, it's possible we could
have avoided the issue.

The second point I want to make is -- is the issue of energy.
Russia is in part resurgent and Putin is feeling powerful because of
petro-dollars, as Senator McCain mentioned.

That means that we, as one of the biggest consumers of oil -- 25
percent of the world's oil -- have to have an energy strategy not just
to deal with Russia, but to deal with many of the rogue states we've
talked about, Iran, Venezuela.

And that means, yes, increasing domestic production and off-shore
drilling, but we only have 3 percent of the world's oil supplies and
we use 25 percent of the world's oil. So we can't simply drill our
way out of the problem.

What we're going to have to do is to approach it through
alternative energy, like solar, and wind, and biodiesel, and, yes,
nuclear energy, clean-coal technology. And, you know, I've got a plan
for us to make a significant investment over the next 10 years to do
that.

And I have to say, Senator McCain and I, I think agree on the
importance of energy, but Senator McCain mentioned earlier the
importance of looking at a record.

Over 26 years, Senator McCain voted 23 times against alternative
energy, like solar, and wind, and biodiesel.

And so we -- we -- we've got to walk the walk and not just talk
the talk when it comes to energy independence, because this is
probably going to be just as vital for our economy and the pain that
people are feeling at the pump -- and, you know, winter's coming and
home heating oil -- as it is our national security and the issue of
climate change that's so important.

LEHRER: We've got time for one more lead question segment.
We're way out of...
(CROSSTALK)

LEHRER: Quick response and then...

(CROSSTALK)

MCCAIN: No one from Arizona is against solar. And Senator Obama
says he's for nuclear, but he's against reprocessing and he's against
storing. So...

OBAMA: That's just not true, John. John, I'm sorry, but that's
not true.

MCCAIN: ... it's hard to get there from here. And off-shore
drilling is also something that is very important and it is a bridge.

And we know that, if we drill off-shore and exploit a lot of
these reserves, it will help, at temporarily, relieve our energy
requirements. And it will have, I think, an important effect on the
price of a barrel of oil.

OBAMA: I just have to respond very quickly, just to correct --
just to correct the record.

MCCAIN: So I want to say that, with the Nunn-Lugar thing...

LEHRER: Excuse me, Senator.

OBAMA: John?

MCCAIN: ... I supported Nunn-Lugar back in the early 1990s when
a lot of my colleagues didn't. That was the key legislation at the
time and put us on the road to eliminating this issue of nuclear waste
and the nuclear fuel that has to be taken care of.

OBAMA: I -- I just have to correct the record here. I have
never said that I object to nuclear waste. What I've said is that we
have to store it safely.

And, Senator McCain, he says -- he talks about Arizona.

LEHRER: All right.

OBAMA: I've got to make this point, Jim.

LEHRER: OK.

OBAMA: He objects...

MCCAIN: I have voted for alternate fuel all of my time...

OBAMA: He -- he -- he objects...

(CROSSTALK)

LEHRER: One at a time, please.
OBAMA: He objected...

LEHRER: One at a time.

MCCAIN: No one can be opposed to alternate energy.

OBAMA: All right, fair enough. Let's move on. You've got one
more energy -- you've got one more question.

LEHRER: This is the last -- last lead question. You have two
minutes each. And the question is this, beginning with you, Senator
McCain.

What do you think the likelihood is that there would be another
9/11-type attack on the continental United States?

MCCAIN: I think it's much less than it was the day after 9/11.
I think it -- that we have a safer nation, but we are a long way from
safe.

And I want to tell you that one of the things I'm most proud of,
among others, because I have worked across the aisle. I have a long
record on that, on a long series of reforms.

But after 9/11, Senator Joe Lieberman and I decided that we
needed a commission, and that was a commission to investigate 9/11,
and find out what happened, and fix it.

And we were -- we were opposed by the administration, another
area where I differed with this administration. And we were stymied
until the families of 9/11 came, and they descended on Washington, and
we got that legislation passed.

And there were a series of recommendations, as I recall, more
than 40. And I'm happy to say that we've gotten written into law most
of those reforms recommended by that commission. I'm proud of that
work, again, bipartisan, reaching across the aisle, working together,
Democrat and Republican alike.

So we have a long way to go in our intelligence services. We
have to do a better job in human intelligence. And we've got to -- to
make sure that we have people who are trained interrogators so that we
don't ever torture a prisoner ever again.

We have to make sure that our technological and intelligence
capabilities are better. We have to work more closely with our
allies. I know our allies, and I can work much more closely with
them.

But I can tell you that I think America is safer today than it
was on 9/11. But that doesn't mean that we don't have a long way to
go.

And I'd like to remind you, also, as a result of those
recommendations, we've probably had the largest reorganization of
government since we established the Defense Department. And I think
that those men and women in those agencies are doing a great job.

But we still have a long way to go before we can declare America
safe, and that means doing a better job along our borders, as well.

LEHRER: Two minutes, Senator Obama.

OBAMA: Well, first of all, I think that we are safer in some
ways. Obviously, we've poured billions of dollars into airport
security. We have done some work in terms of securing potential
targets, but we still have a long way to go.

We've got to make sure that we're hardening our chemical sites.
We haven't done enough in terms of transit; we haven't done enough in
terms of ports.

And the biggest threat that we face right now is not a nuclear
missile coming over the skies. It's in a suitcase.

This is why the issue of nuclear proliferation is so important.
It is the -- the biggest threat to the United States is a terrorist
getting their hands on nuclear weapons.

And we -- we are spending billions of dollars on missile defense.
And I actually believe that we need missile defense, because of Iran
and North Korea and the potential for them to obtain or to launch
nuclear weapons, but I also believe that, when we are only spending a
few hundred million dollars on nuclear proliferation, then we're
making a mistake.

The other thing that we have to focus on, though, is Al Qaida.
They are now operating in 60 countries. We can't simply be focused on
Iraq. We have to go to the root cause, and that is in Afghanistan and
Pakistan. That's going to be critical. We are going to need more
cooperation with our allies.

And one last point I want to make. It is important for us to
understand that the way we are perceived in the world is going to make
a difference, in terms of our capacity to get cooperation and root out
terrorism.

And one of the things that I intend to do as president is to
restore America's standing in the world. We are less respected now
than we were eight years ago or even four years ago.


OBAMA: And this is the greatest country on Earth. But because
of some of the mistakes that have been made -- and I give Senator
McCain great credit on the torture issue, for having identified that
as something that undermines our long-term security -- because of
those things, we, I think, are going to have a lot of work to do in
the next administration to restore that sense that America is that
shining beacon on a hill.

LEHRER: Do you agree there's much to be done in a new
administration to restore...

(CROSSTALK)

MCCAIN: But in the case of missile defense, Senator Obama said
it had to be, quote, "proven." That wasn't proven when Ronald Reagan
said we would do SDI, which is missile defense. And it was major -- a
major factor in bringing about the end of the Cold War.

We seem to come full circle again. Senator Obama still doesn't
quite understand -- or doesn't get it -- that if we fail in Iraq, it
encourages Al Qaida. They would establish a base in Iraq.

The consequences of defeat, which would result from his plan of
withdrawal and according to date certain, regardless of conditions,
according to our military leaders, according to every expert, would
lead to defeat -- possible defeat, loss of all the fragile sacrifice
that we've made of American blood and treasure, which grieves us all.

All of that would be lost if we followed Senator Obama's plan to
have specific dates with withdrawal, regardless of conditions on the
ground.

And General Petraeus says we have had great success, but it's
very fragile. And we can't do what Senator Obama wants to do.

That is the central issue of our time. And I think Americans
will judge very seriously as to whether that's the right path or the
wrong path and who should be the next president of the United States.

LEHRER: You see the same connections that Senator McCain does?

OBAMA: Oh, there's no doubt. Look, over the last eight years,
this administration, along with Senator McCain, have been solely
focused on Iraq. That has been their priority. That has been where
all our resources have gone.

In the meantime, bin Laden is still out there. He is not
captured. He is not killed. Al Qaida is resurgent.

In the meantime, we've got challenges, for example, with China,
where we are borrowing billions of dollars. They now hold a trillion
dollars' worth of our debt. And they are active in countries like --
in regions like Latin America, and Asia, and Africa. They are -- the
conspicuousness of their presence is only matched by our absence,
because we've been focused on Iraq.

We have weakened our capacity to project power around the world
because we have viewed everything through this single lens, not to
mention, look at our economy. We are now spending $10 billion or more
every month.

And that means we can't provide health care to people who need
it. We can't invest in science and technology, which will determine
whether or not we are going to be competitive in the long term.

There has never been a country on Earth that saw its economy
decline and yet maintained its military superiority. So this is a
national security issue.

We haven't adequately funded veterans' care. I sit on the
Veterans Affairs Committee, and we've got -- I meet veterans all
across the country who are trying to figure out, "How can I get
disability payments? I've got post-traumatic stress disorder, and yet
I can't get treatment."

So we have put all chips in, right there, and nobody is talking
about losing this war. What we are talking about is recognizing that
the next president has to have a broader strategic vision about all
the challenges that we face.

That's been missing over the last eight years. That sense is
something that I want to restore.

MCCAIN: I've been involved, as I mentioned to you before, in
virtually every major national security challenge we've faced in the
last 20-some years. There are some advantages to experience, and
knowledge, and judgment.

And I -- and I honestly don't believe that Senator Obama has the
knowledge or experience and has made the wrong judgments in a number
of areas, including his initial reaction to Russian invasion --
aggression in Georgia, to his -- you know, we've seen this
stubbornness before in this administration to cling to a belief that
somehow the surge has not succeeded and failing to acknowledge that he
was wrong about the surge is -- shows to me that we -- that -- that we
need more flexibility in a president of the United States than that.

As far as our other issues that he brought up are concerned, I
know the veterans. I know them well. And I know that they know that
I'll take care of them. And I've been proud of their support and
their recognition of my service to the veterans.

And I love them. And I'll take care of them. And they know that
I'll take care of them. And that's going to be my job.
But, also, I have the ability, and the knowledge, and the
background to make the right judgments, to keep this country safe and
secure.

Reform, prosperity, and peace, these are major challenges to the
United States of America. I don't think I need any on-the-job
training. I'm ready to go at it right now.

OBAMA: Well, let me just make a closing point. You know, my
father came from Kenya. That's where I get my name.

And in the '60s, he wrote letter after letter to come to college
here in the United States because the notion was that there was no
other country on Earth where you could make it if you tried. The
ideals and the values of the United States inspired the entire world.

I don't think any of us can say that our standing in the world
now, the way children around the world look at the United States, is
the same.

And part of what we need to do, what the next president has to do
-- and this is part of our judgment, this is part of how we're going
to keep America safe -- is to -- to send a message to the world that
we are going to invest in issues like education, we are going to
invest in issues that -- that relate to how ordinary people are able
to live out their dreams.

And that is something that I'm going to be committed to as
president of the United States.

LEHRER: Few seconds. We're almost finished.

MCCAIN: Jim, when I came home from prison, I saw our veterans
being very badly treated, and it made me sad. And I embarked on an
effort to resolve the POW-MIA issue, which we did in a bipartisan
fashion, and then I worked on normalization of relations between our
two countries so that our veterans could come all the way home.

I guarantee you, as president of the United States, I know how to
heal the wounds of war, I know how to deal with our adversaries, and I
know how to deal with our friends.

LEHRER: And that ends this debate tonight.

On October 2nd, next Thursday, also at 9:00 p.m. Eastern time,
the two vice presidential candidates will debate at Washington
University in St. Louis. My PBS colleague, Gwen Ifill, will be the
moderator.

For now, from Oxford, Mississippi, thank you, senators, both.
I'm Jim Lehrer. Thank you, and good night.

(APPLAUSE)

END .ETX Sep 26, 2008 22:57 ET .EOF