'Countdown with Keith Olbermann' for Friday October 10, 2008
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Guest: Michael Carey, Howard Fineman, Jonathan Alter, Lawrence O'Donnell

DAVID SHUSTER, GUEST HOST (voice over): Which of these stories will you be talking about tomorrow?

Anger continues to erupt the McCain-Palin rallies and attacks on

Obama grow louder. Obama boils it down to this -

(BEGIN VIDEO CLIP)

SEN. BARACK OBAMA, (D-IL) PRESIDENTIAL CANDIDATE: Nothing is easier than riling up a crowd by stoking anger and division. The American people aren't looking for someone who can divide this country; they are looking for somebody who will lead this country.

(END VIDEO CLIP)

SHUSTER: After planting the seeds of hate for a week, John McCain witnesses the outcome firsthand. Is Senator McCain's reaction too little too late?

Troopergate unravels.

(BEGIN VIDEO CLIP)

GOV. SARAH PALIN, (R) VICE PRESIDENTIAL CANDIDATE: We have nothing to hide, absolutely nothing to hide.

(END VIDEO CLIP)

SHUSTER: Embarrassing and potentially explosive details exposed. The Alaska Legislative Committee meets deciding on whether to make the report public. Palin's lawyers the probe is unfair because investigators didn't talk to Palin. That would be the same Palin that refused to cooperate or answer questions.

Rolling late night. Rachel talks politics with Jay Leno.

(BEGIN VIDEO CLIP)

JAY LENO, TV TALK SHOW HOST: How about the vice presidential debate, what was your take on that?

RACHEL MADDOW, MSNBC ANCHOR: Sarah Palin is very entertaining.

All right.

(LAUGHTER)

(END VIDEO CLIP)

SHUSTER: While Letterman continues his fixation with Keith's cranium.

(BEGIN VIDEO CLIP)

DAVID LETTERMAN, TV TALK SHOW HOST: And we get that guy with the big head from MSNBC. What's his name? Keith Olbermann, yes. Giant head.

(LAUGHTER)

LETTERMAN: So, he comes over. And he's good. He's very good.

(APPLAUSE)

(END VIDEO CLIP)

SHUSTER: And, will Sarah Palin play herself on an upcoming "Saturday Night Live"? Gossip Report says, "You betcha."

(BEGIN VIDEO CLIP)

PALIN: I was just trying to keep Tina Fey in business.

(END VIDEO CLIP)

SHUSTER: "SNL's" influence on the election business means Tina Fey will run for vice president instead.

(BEGIN VIDEO CLIP)

PALIN: Bring it on.

(END VIDEO CLIP)

SHUSTER: All that and more: Now on Countdown.

(BEGIN AUDIO CLIP)

PALIN: Job security for "SNL."

(END AUDIO CLIP)

SHUSTER (on camera): Good evening, everyone. I'm David Shuster. Keith Olbermann has the night off. This is Friday, October the 10th, 25 days until the 2008 presidential election.

At the end of the week in which the McCain campaign has been trying to paint Senator Obama as a terrorist sympathizer-if not a terrorist himself; at the end of the week in which the calls of violence at McCain-Palin rallies did not stay contained nearly to the McCain-Palin rallies, at last night's Senate debate in Georgia, one woman hollering, quote, "Bomb Obama."

Our fifth story on the Countdown: Breaking news tonight that Senator McCain has been forced to tamp down the fear and anger of his supporters, and try to reassure them that Barack Obama is not someone of whom they have to be scared as president of the United States. The question tonight: Will it be enough?

All week long, the McCain campaign's preferred topic of conversation: attacks on Senator Obama's character, by linking him to domestic terrorist plots that happened when he was eight years old. And while those attacks may not have helped Senator McCain's standing in the presidential race, they have certainly resonated on another level, by stoking fears and calls to violence among his supporters.

Just listen to what some voters in Bethlehem, Pennsylvania had to say on Wednesday when their remarks were captured by the folks at Keystone Progress as supporters were waiting to get into a McCain-Palin rally.

(BEGIN VIDEO CLIP, KEYSTONEPROGRESS.COM)

UNIDENTIFIED MALE: If that guy gets elected, he hangs around with terrorists.

UNIDENTIFIED MALE: Who's the terrorist?

UNIDENTIFIED MALE: Obama.

UNIDENTIFIED MALE: Obama is a terrorist, don't you know that?

Obama is a Muslim. He's a terrorist.

UNIDENTIFIED MALE: Do you believe that Senator Obama is a terrorist?

UNIDENTIFIED MALE: I believe he's for terrorism.

UNIDENTIFIED MALE: Screw Obama. Boo.

UNIDENTIFIED FEMALE: He is a Muslim.

UNIDENTIFIED MALE: Is Senator Obama is an American, too?

UNIDENTIFIED MALE: I don't know what he is.

(END VIDEO CLIP)

SHUSTER: All day long today, until the very end of the day, the attacks on Obama's character from the McCain campaign continued. In a new television ad, Senator McCain approved the message that tried to shove reformed '60s radical William Ayers and the economic crisis into the same 30 seconds.

(BEGIN VIDEO CLIP, MCCAIN CAMPAIGN AD)

NARRATOR: Obama's blind ambition. When convenient, he worked with terrorist Bill Ayers. When discovered, he lied. Obama: Blind ambition, bad judgment.

Congressional liberals fought for risky subprime loans. Congressional liberals fought against more regulation. Then the housing market collapsed, causing you billions. In crisis, we need leadership, not bad judgment.

SEN. JOHN MCCAIN, (R-AZ) PRESIDENTIAL CANDIDATE: I'm John McCain and I approve this message.

(END VIDEO CLIP)

SHUSTER: Senator Obama called into a Philadelphia radio station to explain, as the "New York Times" already has, exactly who William Ayers is and exactly how he knows him.

(BEGIN AUDIO CLIP)

OBAMA: The gentleman in question, Bill Ayers is a college professor. He teaches education at the University of Illinois. And that's how I met him, was working on a school reform project that was funded by an ambassador and former close friend of Ronald Reagan's. And I'm-was sitting on this board with a whole bunch of conservative businessmen and civic leaders and he was one of the people who was on this board. And he lives in the same neighborhood.

Ultimately, I ended up learning about the fact that he had engaged in this reprehensible act 40 years ago. But, I was eight years old at the time. And I assumed that he had been rehabilitated.

(END AUDIO CLIP)

SHUSTER: At a rally in Ohio, Senator Obama held his opponent responsible for the tone of the campaign.

(BEGIN VIDEO CLIP)

OBAMA: Nothing is easier than riling up a crowd by stoking anger and division. But that's not what we need right now in the United States. The times are too serious. The challenges are too great. The American people aren't looking for someone who can divide the country; they are looking for somebody who will lead this country.

(END VIDEO CLIP)

SHUSTER: This afternoon, Senator McCain's staff attacked the Democratic nominee for insulting those at McCain-Palin rallies who have been threatening Obama. Quoting senior advisor, Nicolle Wallace, "Barack Obama's assault on our supporters is insulting and unsurprising. These are the same people Obama called 'bitter' and attacked for 'clinging to guns' and faith."

Spokesman Brian Rogers picked up the theme with the current economic crisis: "He, Senator Obama, dismisses hardworking middle class Americans as clinging to guns and religion, while at the same time attacking average Americans at McCain rallies who are angry at Washington, Wall Street and the status quo."

Republican Congressman Ray LaHood of Illinois was the first Republican to say today that he does not like what he has been seeing at McCain-Palin rallies, especially that shout of terrorist earlier this week when Governor Palin mentioned Senator Obama by name. Congressman LaHood told WBBM radio in Chicago that the names Obama is being called certainly don't reflect the character of the man.

(BEGIN AUDIO CLIP)

REP. RAY LAHOOD, (R) ILLINOIS: Look it, this doesn't befit the office that she's running for, and frankly, people don't like it.

(END AUDIO CLIP)

SHUSTER: Earlier tonight, at a town hall-style event in Lakeville, Minnesota, Senator McCain had to reap what he has sown, and was forced to call on his supporters to be respectful. McCain set a questioner straight about whether the man's unborn child had anything to fear about possibly growing up in Barack Obama's America.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: My wife and I are expecting our first child, April 2nd, next year. Thank you.

And, frankly, we're scared. We're scared of an Obama presidency.

And I'll tell you why. I don't want to bring a child up in a country where

well, I love this country, we'll bring our child up here no matter what

but I'm concerned about, you know, someone that, you know, cohorts with domestic terrorists such as Ayers and who he will choose for Supreme Court should those openings become available.

So, could you address how would you go about selecting the next Supreme Court justices?

MCCAIN: Thank you.

(APPLAUSE)

MCCAIN: First of all, I'd want to be president of the United States and obviously I do not want Senator Obama to be. But I have to tell you, I have to tell you, he is a decent person and a person you do not have to be scared as president of the United States.

(CROWD BOOING)

MCCAIN: I just-I just-now look, if I didn't think I would be one heck of a lot better president, I wouldn't be running, OK? That's the point. That's the point.

(END VIDEO CLIP)

SHUSTER: Twenty minutes later, Senator McCain took the microphone from a woman in the crowd after she called Senator Obama an Arab.

(BEGIN VIDEO CLIP)

UNIDENTIFIED FEMALE: I got to ask you a question. I do not believe in, I can't trust Obama.

MCCAIN: I got.

UNIDENTIFIED FEMALE: I have read about him and he's not-he's a

he's an Arab. He's not.

MCCAIN: No.

UNIDENTIFIED FEMALE: No?

MCCAIN: No, ma'am. No, ma'am. He's a decent family man, a citizen, that I just happen to have disagreements with on fundamental issues and that's what this campaign is all about. He's not, thank you. Thank you.

(APPLAUSE)

(END VIDEO CLIP)

SHUSTER: A lot to talk about with MSNBC political analyst, Jonathan Alter, also, a senior editor at "Newsweek" magazine.

Jonathan, thanks for coming in.

JONATHAN ALTER, MSNBC POLITICAL ANALYST: Hey, David.

ALTER: Isn't this a campaign's worst nightmare-you launched your brutal strategy, you blamed your opponent for it, and then your supporters pick up on a message in a way that forces you to undercut your strategy?

ALTER: It's even worse than that. I mean, if you heard when McCain was trying to walk this back and say that Obama is a decent man, he was booed by his own supporters. So, he's really gotten himself into a bind here. Basically, what he did was he follow the old playbook from last time and the time before, and he fought the last war, which, as a veteran, he should know is always a bad idea. You know, the last war being trying to destroy your opponent as unpatriotic and rally the conservative base of the Republican Party.

The problem is the country has moved on from this. And so, it's just-in addition to being a kind of an offensive strategy, (INAUDIBLE) like kind of an offensive strategy, it's also an ineffective one. It's not working for him. His negatives keep going up.

Obama's margin, in the polls, keeps going up. And he's got to start talking about the economy, even if he can't catch Obama on that issue because that's what Americans are interested in, not distractions and stupid guilt-by-association games.

SHUSTER: But where does the campaign go now as far their character strategy? I mean, after having spent a week whipping supporters into this issue and getting them focused on it, and now when confronted with the results, Senator McCain is having to defend his opponent. What happens?

ALTER: Well, first of all, it's the only game that his people know how to play. You know, they were trained by Karl Rove, who, in turn, have been trained by the late Lee Atwater. This kind of politics of resentment and character assassination in modern times goes back to Richard Nixon. So, they're trying to revive, you know, the ghost of Richard Nixon in the way they're playing this.

And, do they know how to play any other game? I mean, I think, if they were really smart, if he wants to have kind of one last audience with the American people, he would do what Hubert Humphrey did in 1968 when he broke sharply with President Lyndon Johnson, and with two weeks to go, he almost caught up. He took off immediately in the polls.

And what McCain would have to do is break not just with President Bush, but with this whole Republican Party approach. The Republican Party has been discredited by this financial crisis. The party of Reagan is basically dead. He has kind of one last chance to say, "I will be an independent president," and essentially repudiated a lot of his own party stood for and I think that's his only shot.

SHUSTER: Otherwise, is it fair to say that the McCain campaign is now basically in a freefall? I mean, they avoid the substantive issues, as you point out. They try to turn the election on issues of character and here it is, we're just 25 days away. And now, this has blown up in their face.

ALTER: Well, yes. I mean, they have a problem. They basically have, you know, really only two hopes now. One is that there's some big external crisis overseas that somehow McCain handles better than Obama, which is possible, you can't rule that out. And the other is that there's some sort of motherload of racism just beneath the surface of American politics that, you know, if they tap into, they can win that way.

And that's, you know, is sort of sad comment on where we are but the truth is that we don't really know whether America is ready for an African-American president. And, I think, to assume, three weeks out, because of the polls that this country is ready for that, is premature right now. This is still going to be a closer contest than it looks today.

SHUSTER: If we were to assume that this hadn't happened in the way it happened tonight and the supporters had not been shouting out this shouts (ph) of violence and claiming that Barack Obama is a Muslim when he's not, would this strategy have even worked anyway when you're talking about a week when the Dow has dropped almost 20 percent since McCain and Palin started trying to talk about William Ayers as a terrorist. It just seems like the disconnect is so great between what Americans care about and this character strategy they're playing.

ALTER: Yes, that's absolutely right. And there are a lot of Republican strategists like Mike Murphy, who was one of the people running McCain's campaign in 2000, who believe what you just said, that this is just a disaster for them to try to go down this road.

They've got to start talking about the economy. They began to do it on housing, a little bit, in the debate when John McCain raised that. But then, it turned out that the housing plan put all the onus back on the taxpayers, rather than on the lenders, when the fine print came out the next day.

So, if he's going to start talking about the economy again, he has to do it in a way that connects with what people are feeling out there instead of just going on this kind of weird excursions and earmarks. People are not concerned about earmarks; they are concerned about where the economy is going and he has to get with it if he wants to have any chance.

SHUSTER: Do you get the sense that there are more Republicans out there who are embarrassed by some of the clips that we play than there are Republicans who actually believe that Barack Obama has some sort of terrorist link, and therefore, the threats of violence are somehow appropriate?

ALTER: I think it's probably divide-I don't think anybody thinks the threats of violence are appropriate and I don't think John McCain or his people are happy about, you know, some of what's happening at their events. But I think it's, among Republicans, it's more of a tactical calculation of whether trying to destroy Obama at this point with the Ayers business or whatever else is really effective or not. I think there are a lot of Republicans who are concluding that it's just not. It's stupid.

SHUSTER: Jonathan Alter, senior editor for "Newsweek" magazine, also, an MSNBC contributor-Jonathan, thanks for coming in. We appreciate it.

ALTER: Thanks, David.

SHUSTER: Coming up: We'll have more on the breaking news from McCain's town hall in Minnesota now that McCain has been forced to defend Obama's character, thereby contradicting the GOP message. Where can the McCain campaign go from here? Lawrence O'Donnell will join us.

And more breaking news: The investigation of troopergate in Alaska, a bipartisan group of Alaska legislature vote unanimously tonight to make the report on Governor Palin's actions public.

Much more on both of these breaking stories-ahead on Countdown.

(COMMERCIAL BREAK)

SHUSTER: Breaking news on the campaign trail: John McCain painted into a corner by his own supporters and his own harsh tactics, forced tonight to defend Obama. What does the McCain campaign possibly do now for the last three weeks of this campaign?

That's next, this is Countdown.

(COMMERCIAL BREAK)

SHUSTER: After telling his supporters for more than a year-especially in recent weeks-that he is a maverick, Senator John McCain proved it today in front of his own supporters, and they booed him for it.

Our number four story tonight: Where does John McCain go now and as I think I may have mentioned, he's now so mavericky he's mavericking away from his supporters and getting booed for it. McCain is face-to-face with results and trying to talk his supporters and getting booed for his troubles.

As we just reported, after whipping up supporters with Obama's, quote, "terrorist associations," McCain is now face-to-face with the result and is having to talk his own supporters down from the conclusion to which he has led them.

(BEGIN VIDEO CLIP)

UNIDENTIFIED FEMALE: I got to ask you a question. I do not believe in, I can't trust Obama.

MCCAIN: I got.

UNIDENTIFIED FEMALE: I have read about him and he's not-he's a

he's an Arab. He's not.

MCCAIN: No.

UNIDENTIFIED FEMALE: No?

MCCAIN: No, ma'am. No, ma'am. He's a decent family man, a citizen, that I just happen to have disagreements with on fundamental issues and that's what this campaign is all about. He's not, thank you. Thank you.

(APPLAUSE)

(END VIDEO CLIP)

SHUSTER: And when McCain went even further today envisioning a President Obama, in fact, a President Obama of whom Americans should not be afraid of, they turned on him.

(BEGIN VIDE CLIP)

MCCAIN: First of all, I'd want to be president of the United States and obviously I do not want Senator Obama to be. But I have to tell you, I have to tell you, he is a decent person and a person you do not have to be scared as president of the United States.

(CROWD BOOING)

MCCAIN: I just-I just -

(END VIDEO CLIP)

SHUSTER: Joining us now is MSNBC political analyst, Lawrence O'Donnell, also, a contributor at HuffingtonPost.com.

And thanks for your time tonight, Lawrence.

The campaign admitted they lose when they talk about the economy. Now, McCain himself is giving up a big part of his one remaining strategy to bash Obama as a mysterious and scary outsider. What exactly will the McCain campaign's presidential argument consist of as of tomorrow morning?

LAWRENCE O'DONNELL, MSNBC POLITICAL ANALYST: Well, David, let's stipulate at the outset of the segment, this is the most difficult job I've been given on this show. Predicting what the McCain campaign will do next.

Look-he has outstanding promise to a previous rally audience that he will bring up Bill Ayers and Jeremiah Wright and character issues at the next debate next week. That's an outstanding promise that he made on videotape a couple of days ago. Now, he finds himself in this position, having, it seems, created this monster that he can no longer control.

I said earlier in the week on MSNBC that I expected John McCain to be the first person in his campaign to lose patience with the character attack strategy being the sole approach going the rest of the way. You can see him doing that as he's standing there. He did not expect to be ending his campaign in front of audiences where he had to explain, as we just saw him do, that his opponent, the Democratic nominee is actually a citizen of the United States and not an Arab.

This is not where John McCain wants to be. But, he has painted himself into a corner here. It's going to be very difficult for him to get out the promise to continue on this line of attack.

SHUSTER: Well, and it seems he's already lost independents with sort of militant fear mongering. Now, what the McCain alienate the right-wing talkers and the treason/traitor-shouters, and the rest that make up the Republican base who don't want to be told to knock it off?

O'DONNELL: Exactly. Let's remember, the right-wing talk radio never liked John McCain. Not one of those radio hosts was with him in the primaries. Some of them were specifically with Romney and others were Giuliani worshippers. But, you know, the kind of leader of the Bill Ayers campaign, the strategy, Sean Hannity, is not going to be happy if John McCain closes down this avenue for the campaign. This is what they believe fervently is the way to win.

And so, McCain, who has worked hard to get the right-wing talk show world on his side and has got them on his side, now does risk their wrath in the final weeks of this campaign. It's a terrible place to be. His number is 41 in the latest "Newsweek" Poll, 52-41. That's a gap that we haven't seen at this stage in an election in a long time.

Forty is about as low as you can go in that poll, David, if you have the word Republican beside your name or a word Democrat, by the way. It's hard to poll below that number. The one way he might be able to do it is by alienating the right-wing base, the right-wing radio talk show people by going in the direction of now saying that Barack Obama is, in fact, a decent human being.

SHUSTER: And then the problem with that is Barack Obama because Barack Obama has been pushing this notion that John McCain is erratic and if McCain tries to play today's event, it's him going mavericky on his own supporters, as you suggest, does he not risk that he's playing into Obama's portrait of him who was that vacillating, erratic, and et cetera?

O'DONNELL: There's a way to play this game so you that you end up with no good choices. We are watching a campaign that has maneuvered itself into exactly that position. There is no good choice here. It's McCain going back on his promise to continue this attack or it's McCain continuing an attack, which so far in polling, indicates is a very bad idea.

He's in Minnesota today, where in the Senate campaign there's been a lot of negative ads going back and forth between Norman Coleman and Al Franken. Norm Coleman's ads against Al Franken had been entirely character-based ads. Norman Coleman had said today, "I'm going to stop doing that." Norman Coleman has decided and he's in a state where that is going to lose the campaign for him, if he keeps that up. That's the state where John McCain had this turn occur today.

He maybe getting messages from other Senate campaigns saying this isn't working for us, we've got to go in another direction. But, for McCain, there's no good choice.

SHUSTER: Lawrence O'Donnell of HuffingtonPost.com. Lawrence, we're going to ask you to stand by, if you will. We'd like to get your take on the breaking news regarding Sarah Palin and those breaking developments. The report is in and it says, "Governor Palin abused her power." We will have the details ahead.

(COMMERCIAL BREAK)

SHUSTER: Breaking news out of Alaska where that report involving Sarah Palin has now been released. A legislative committee investigating the governor has said she unlawfully abused her authority in firing the state's Public Safety commissioner.

This was an investigation that began in July when Walter Monegan, who was in-charge of Public Safety, was essentially terminated by Governor Palin. And then he reported that the reason he felt he had been fired was because he had not dismissed Palin's brother-in-law who had been involved in a very nasty custody dispute with Palin's sister over the last two years.

That prompted an investigation which Sarah Palin said that she welcomed and that she would cooperate with. And then when she was named John McCain's running mate, she decided she would not cooperate. The McCain campaign tried to squash subpoenas to many members of her staff.

But again, this report out tonight says that, in fact, there were more than 19 different phone calls from Governor Palin, her husband Todd, her gubernatorial staff, as part of the effort to pressure Public Safety Commissioner, Walter Monegan to fire Palin's brother-in-law.

There is one glimmer of possible good news in this for Sarah Palin and that is the investigative report concludes that a family grudge wasn't the sole reason for firing Monegan, but says it was a contributing factor and the fact the report now says that it was a contributing factor to Palin's decision to fire Walter Monegan. That undercuts what Sarah Palin has been saying for the last several months. Joining us now, from Anchorage, Alaska, Michael Carey, the columnist for the "Anchorage Daily News". Michael, welcome. Bring us to up to day on what you have been able to determine after thumbing through this report that's just been released.

MICHAEL CAREY, "ANCHORAGE DAILY NEWS" SHUSTER: Well, the report has been released. Thank you for having me. I spent all day waiting for it to come out like the rest of the reports and haven't seen it. So essentially the broad outline is news to me. The important thing, I think, readers or viewers should understand right away is the committees that release this are bipartisan committees. This is not like Washington where one party or the other is in control. The legislators who released this are bipartisan. The senate president is a Republican; the chairman of the judiciary is a Democrat.

SHUSTER: So in other words you have a bipartisan commission that is signing off on a report that says essentially that Sarah Palin broke state law?

CAREY: I don't know if - yes, I gather that's correct. The important thing to realize is it's not surprising they could come to this conclusion because of the amount of time, effort and intensity over a period of years that Palin's invested in somehow getting Trooper Wooten fired. It's important to remember, he's a member of the classified personnel. He's a union member; he's not an employee who can just be fired at will. It's very unusual by any standard.

SHUSTER: And again, I should clarify this was a legislative investigation so even their conclusion that she broke state law does not mean any sort of immediate criminal charges, but doesn't this open the door...

CAREY: Now there...

SHUSTER:... doesn't this open the door to there possibly being either a prosecutor taking a look at this or the very least, doesn't this gives great fuel to Walter Monegan if he wants to now file a law suit against Governor Palin?

CAREY: That could be true, he is an Atwell employee but that that doesn't - he could be removed if she wanted to make changes as she said she did. But he does retain his civil rights, he does have those rights under the constitution and presumably he could exercise them if they were violated here.

SHUSTER: Where does this go, next?

CAREY: I think the clear thing is it's going to be intensely political and it's going to be in the presidential race and all over the United States. The kind of headline you suggested. If I could make one thing clear to the viewers, I think that's really important, and that is this is another example of the trouble the Palins have had of separating their personal life from their political life. The per diem, the living at home, accepting money from the state, the use of their private e-mail accounts for state business. These are all examples of how the Palins, Sarah and Todd, have had a very difficult time separating the personal from the professional.

SHUSTER: And Michel, just to be clear, I mean, the Palin's had a choice, this summer, Sarah Palin could have said, "Yes, you know what, I didn't like that trooper, I didn't like what he did to my sister, so of course, that was a factor in why I tried to get rid of him." But she didn't say that she said, "No, I got rid of him because I wanted to move the department in another direction or because he did some things that weren't under my authority." Even though we found out later they were. She had the choice, off the start, off the bat to say, "Yes, I didn't like the guy. He deserved to be fired." Instead by saying, no, it was all these other reasons, that's where she set herself up for problems, right?

CAREY: That's absolutely correct. Clearly, when she became candidate for vice president, everything changed. The people who were running her campaign entered into this, "trooper gate" and I think they made it a much, much bigger issue than it would have been if she said, as her husband had said, "I was concerned about my family, I wanted to defend and protect my family, if I went too far, I'm sorry, I won't do it again."

SHUSTER: Michael Carey, columnist for the "Anchorage Daily News". Michael thanks for talking with us. And again, finding number one from this report that came out tonight, the legislature reaffirms that each public officer holds office as a public trust and any effort to benefit a personal or financial interest through official action is a violation of that trust. Again, a bipartisan board...

CAREY: Another word for you -

SHUSTER:... Yes, bipartisan group of legislators in Alaska said that Sarah Palin has violated that public trust.

Coming up, the political implications of the Palin report. We'll be joined once again by Lawrence O'Donnell. We'll be right back.

(COMMERCIAL BREAK)

SHUSTER: Welcome back. We're continuing our breaking news coverage of the report that is now out from the Alaska legislature. A bipartisan committee agreeing the report should be released. The investigator finding that Sarah Palin abused the powers of her office. This is a legislative finding, but the report finds that Sarah Palin essentially broke state law. That she had violated state law and that she violated the public trust.

This is all dating back to Walter Monegan, who was the public safety commissioner who had been fired by Sarah Palin this summer. Initially Sarah Palin said that she got rid of him because she wanted to take the state troopers under his direction in a different direction.

Walter Monegan then came out and said, "No, I believe I was fired because I refused to fire Sarah Palin's brother-in-law, a state trooper who is in the midst of a severe custody battle with the Palin family. Monegan alleged that there had been pressure from the Governor Palin herself, from her husband Todd Palin and from members of her staff. The report released tonight indicates at least 19 different phone calls from the governor or her husband or her staff pressuring Monegan to get rid of this state trooper, Palin's brother-in-law.

Again, Sarah Palin said earlier this summer, that she did nothing wrong. The only reason she got rid of Monegan was because she wanted to move the department in a different direction. Tonight, the Alaska Legislator report says Palin essentially misled in her public pronouncements and did, in fact, use this family feud with her brother-in-law as a reason why she fired the public safety commissioner. So again, a bipartisan report out of Alaska questioning the truthfulness and veracity of Alaska Governor Sarah Palin. Let's bring in Lawrence O'Donnell from "Huffington Post". Lawrence, what's your reaction to the report as we have it so far?

LAWRENCE O'DONNELL, COLUMNIST, "HUFFINGTON POST": David, this is a devastating moment for this to occur. We had a Washington Post poll last week that indicated very clearly that Sarah Palin was a drag on the ticket. We have her negatives skyrocketing in the polls. Her negative ratings have been going straight up. The more audiences have seen her outside of her rally, the more her negatives have gone up.

At that point, this report lands. This is not a devastating, wipe out report. This not she is guilty of some horrendous crime. This is a report that says she violated the Executive Branch Ethics act that says you are not supposed to take any actions in which you have a personal or financial interest. She clearly had a personal interest in this trooper situation. And that's what all those phone calls were about, from Todd Palin and others, on this trooper.

This comes at a terrible time for the McCain campaign and Palin's part in it, in which Sarah Palin is trying to be the moral authority. The voice of moral authority in that campaign in her condemnations of Barack Obama's character.

That has always been a problem in her trying to deliver that message because she has not established that authority with a wide audience. This now deprives her of any chance, really, in these final days of the campaign; of trying to establish that kind of authority that allows her to then make those attacks. She's now in a defensive crouch, for the next several days, at least, over this report.

SHUSTER: Is there any sort of defense that might stick? She has said, her lawyers have said, "Look because this didn't include her, this investigation didn't include her, you shouldn't believe it." Never mind the fact she didn't want to be interviewed and refused to testify. Also, is there anything they can do as far as saying, look this is somehow politically motivated, never mind that it was a bipartisan committee that agreed to release this report.

O'DONNELL: There's one sentence in this report that is going to be repeated over and over again by the McCain campaign. Which comes after making the point that this was a factor in firing Monegan. The report then says, "in spite of that, in spite of that, Governor Palin's firing of Commissioner Monegan was a proper and lawful exercise of her constitutional and statutory authority to hire and fire executive branch department heads."

The reason they say that is because Sarah Palin had other reasons that are considered legitimate in this report for doing this firing, and then procedurally, the process by which she carried out the firing was procedurally correct. That sentence is what the McCain campaign and the Palin campaign are going to have to hang on to. There aren't too many other sentences in the report that are helpful to them. That's the one you are going to be hearing over and over again.

SHUSTER: And it may be helpful legally because the argument would be, look, once she took the action of firing this guy, what she said about it afterwards essentially was irrelevant. But politically, the fact that her credibility has now been shot down, isn't that the bigger problem?

O'DONNELL: What this report says specifically is that she engaged in what they call in Alaska, a violation of the public trust. Those are the terms of the law, terms of the statute. Violation of the public trust. Trust is the issue that Sarah Palin has been pushing on the campaign trail about Barack Obama. You can't trust him.

Now here's someone who has been formally found in violation of the public trust in her current governing capacity. She's in no position to try to make that argument legitimate or illegitimate at this stage in this campaign on the heels of this report. This is a devastating time in the campaign for this to have occurred.

What's really striking about it is this was something that John McCain knew about before he chose Sarah Palin. This was well known that she was under investigation for exactly this subject before he chose her. He went ahead in that maverick style of his to choose somebody who no one thought made sense on this ticket until the day it was announced. He chose her in the end, we know, instead of Governor Tim Pawlenty of Minnesota. Imagine if we what were doing here tonight was talking about what Governor Pawlenty said on the campaign trail today Imagine how much better a position the McCain campaign would be in with that coverage instead of this.

SHUSTER: Lawrence O'Donnell of "The Huffington Post". We appreciate all your time tonight. Thanks for coming on. We will of course continue with the breaking news out of Alaska. More coverage on the trooper gate report. Countdown returns in a moment.

(COMMERCIAL BREAK)

SHUSTER: There has been no reaction, yet, from John McCain's campaign or from Barack Obama's campaign to the devastating news for Republicans tonight that Governor Sarah Palin, according to a bipartisan committee in the Alaska legislature, violated the powers of her office. Essentially abused the powers of her office when she fired Walter Monegan, the former head of public safety.

He was fired in July and very quickly came forward and said, "I believe I was fired because I refused to fire Sarah Palin's brother-in-law," who was a state trooper involved in a custody dispute with Sarah Palin's sister. Walter Monegan described a series of phone calls from Sarah Palin, her husband, Todd. And also from member's of Sarah Palin's staff, which she said was the reason that he was fired when refused to follow up on the action they wanted him to take.

Initially this summer, Sarah Palin said, "No, that wasn't the reason I fired Walter Monegan, I fired him because I wanted to go in a different direction." And when the Alaska legislature announced an investigation said, "That's fine, bring it on. I'm happy to cooperate." Then she was picked as John McCain's running mate and since then had decided not to cooperate and she has insisted she did absolutely nothing wrong.

Well tonight, again the Alaska legislature reporting that in fact, Sarah Palin abused the authority of her office. That she was misleading Alaska supporters of hers when she said she did nothing wrong. That the issue involving her brother-in-law was not part of the reason why Walter Monegan, the state troopers boss was fired.

Following all of this for the last couple of weeks has been our own Savannah Guthrie from NBC News. She's also following the Palin campaign tonight in Pittsburgh. Savannah, any reaction yet from Governor Palin? Has Governor Palin even been within earshot of anyone to shout anything at her?

SAVANNAH GUTHRIE, NBC NEWS CORRESPONDENT: No, she had a fund-raiser earlier. But that was included before this report came out. These legislatures were actually behind closed doors for several hours this afternoon going over this report page by page to see what could be released and of course they just decided to release it.

We haven't heard yet from them but frankly we've been hearing for several weeks now, what their response is to this investigation as a whole. They think it's not legitimate and politicized. They think the project director for this is a Democrat on judiciary committee has clearly prejudged the case and said it could be damaging to the governor.

They had a pretty preemptive attack here by saying that this whole investigation is illegitimate. They have really been beating that drum for the past few weeks. They think the proper place for this whole issue to be litigated is the state personnel board; it's a separation investigation that is ongoing. I expect we'll hear from the McCain campaign soon and when we do, I expect them to say this committee's report is not a legitimate adjudication of this issue.

SHUSTER: And one thing, I suppose we should keep in mind as a state personnel board, which she is happy to cooperate with in their investigation, the state personnel board involves people that Sarah Palin appointed to the board. The democrats of course could rightfully claim that she's essentially cherry picking her investigators if she wants to go that route.

GUTHRIE: That's true, although the governor appoints the personnel board. I'm not sure that she herself has appointed all members of the personnel board.

It's interesting to look at this report. It's 263 pages and we just received it. But what really jumps out at you is how much contact Todd Palin, the governor's husband had with various state employees. By his own admission I think he spoke to 16 - at least 16 different state employees about this trooper that they were so concerned about. When you look at what the investigator found, he said she knowingly permitted Todd Palin to use the governor's office and the resources of the governor's office in an effort to get the trooper fired. That was the ethical violation that Governor Palin has now been found liable for. It's not so much what she did. There were contacts, no question about it. It's interesting the investigator is really saying, it's really allowing her husband to have all these contacts with state employees. That was the impropriety.

SHUSTER: Savannah Guthrie of NBC News following the Palin campaign. Thanks for that report. We will have more on the politics of this legislative report out of Alaska with Howard Fineman, after this break.

(COMMERCIAL BREAK)

SHUSTER: This has turned into a very ugly night for John McCain and his running mate Sarah Palin. Earlier this evening, a committee of ten republicans and four democrats in the Alaska legislature voted unanimously to release a report that says Governor Sarah Palin abused the powers of her office. It says she violated a state's ethics law that prohibits public officials from using their office for personal gain. And by personal gain, that's a reference to Sarah Palin's former brother-in-law state trooper that had been involved in a nasty custody dispute with Palin's sister over the past year and a half leading up to this past July.

There were a number of suggestions from Governor Palin and her husband and her staff to Walter Monegan that Mike Wooten be fired. Walter Monegan came out after he was dismissed in July and said he believed that was the reason he was fired as public safety commissioner, not that Sarah Palin wanted to take the department in a different direction. Tonight Walter Monegan has been vindicated. A state committee, again ten republicans and four democrats releasing a report unanimously that says that Sarah Palin abused the powers of her office in firing Walter Monegan. Let's go now to Howard Fineman of "Newsweek" who joins us now. Howard, what are the political implications of all of this?

HOWARD FINEMAN, COLUMNIST, NEWSWEEK: Well, it muddies the water for John McCain and Sarah Palin as they were trying to attack Barack Obama as a quote, Chicago Paul. This is something that they don't even necessarily try in Chicago. It seems to me, if you are going to have a personal vendetta against your former brother in law and bring your husband in to be the enforcer. It's not a very pretty picture of the way business is conducted in Alaska.

The McCain-Palin ticket was running-is running as a clean and new alternative to the old politics in Washington and to the politics they say are represented by Barack Obama. That's why this is politically damaging to the Republicans because it makes Sarah Palin look very old politics, nothing new politics about this.

SHUSTER: Howard, doesn't it turn the McCain argument of the week on its head? There was John McCain all week long saying the issue with Barack Obama was not William Ayers, it was whether Barack Obama told the truth about his association with Ayers. Now we have this report where sure, Sarah Palin could have chosen to fire this guy, Walter Monegan, for any reason, but now it's clear this investigation said she lied to the people of Alaska when she said no, the brother-in-law had absolutely nothing to do with why I fired Walter Monegan and you have a report that says, it essentially contradicting her on that. That simply undermines Sarah Palin's credibility.

FINEMAN: Again, that's old politics. It's public officials not telling the full story. If the republicans were going to have any hope, David, of separating themselves from the last eight years of republican rule in Washington, they had to argue they were something new and different and clean. That's why Sarah Palin was chosen, because of her Alaska roots and maverick nature. This is old school, old politics and not fully candid. That's the problem with it politically.

SHUSTER: Where do they go from here, Howard?

FINEMAN: Well, where they go from here on the Republican side is that they denounce that it is a political witch-hunt. They say this was a set up from the democrats and the evil national media and they try to dismiss it. But every minute they have to spend trying to dismiss it takes away from the time and leverage they had, if any, to attack Barack Obama as somebody who is too risky to pick as president so it muddies the water.

What we have here, David, is we've gone here from a situation where Sarah Palin was a sensation in St. Paul to being a controversial figure to now being a liability in the last weeks of this campaign.

SHUSTER: Howard Fineman of "Newsweek". Thanks for joining us, we appreciate it. And that will do it for this busy Friday edition of Countdown. Again, the Alaska legislature has released a report saying that Sarah Palin abused the powers of her office.

I'm David Shuster in for Keith Olbermann. Keith should be back on Monday. Thanks for watching everyone. Our MSNBC coverage continues now with "Rachel Maddow Show" live tonight from Seattle.

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