MR. BROKAW: We're back here in London with Senator Barack Obama, who is wrapping up his trip to the Middle East and to Europe, returning to the United States.

And wherever you are, Senator, as you know, all politics is local. Vice presidential candidates, tantalizing to everyone. Recent poll said that, by a factor of about 60 percent, the American people believe that John McCain should have a vice presidential running mate who is strong on the economy. Think it's fair to say that conventional political wisdom in this country is that you need a vice presidential candidate who has very good national security credentials. Is that your number one criteria?

SEN. OBAMA: You know, I hate to do this to you, Tom, but I made a pledge that the next time you heard me talk about vice president it would be to introduce my vice presidential running mate. So here's what I'll tell you: I'm going to want somebody with integrity; I'm going to want somebody with independence, who's willing to tell me where he thinks or she thinks I'm wrong; and I'm, I'm going to want somebody who shares a vision of the country where we need to go, that we've got to fundamentally change not only our policies, but how our politics works, how business is done in Washington. And I think that there are a number of great candidates out there. I'll be selecting one soon enough, and, and I'm sure NBC will be reporting on it.

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MR. BROKAW: Are you going to break the old rules? The old rules have been you pick a vice presidential candidate because you need electoral strength in some region and you need somebody who is stronger in some policy area than you are.

SEN. OBAMA: I, I think the most important thing from my perspective is somebody who can help me govern. I want somebody who I'm compatible with, who I can work with, who has a shared vision, who certainly complements me in the sense that they provide a knowledge base or an area of, of expertise that can be useful. Because we're going to have a lot of problems and a lot of work to do, and I'm not interested in a vice president who I just send off to go to funerals. I want somebody who's going to be able to roll up their sleeves and really do some work.

MR. BROKAW: Mike Murphy, who you know is a political consultant primarily for Republicans, is now working with NBC as an analyst, said on this broadcast two weeks ago something very interesting. He said, "Republican Party always has trouble when the Democrats put on the ticket a Southern white male Protestant." Reviewing their short history, that's true--Lyndon Johnson with John Kennedy; Lyndon Johnson running by himself; Jimmy Carter, a man from the South; Bill Clinton and Al Gore, two Southerners running.

SEN. OBAMA: Right.

MR. BROKAW: Will that be a factor in your consideration?

SEN. OBAMA: Tom, you can fish as much as you want. You're not going to get it out of me.

MR. BROKAW: Well, let me--you, you had a conversation with a prominent Hillary fundraiser that got reported in the Los Angeles Times, in which she asked you--she's still a fan of, of Hillary, and she said...

SEN. OBAMA: So am I.

MR. BROKAW: And is she on your list?

SEN. OBAMA: I think Hillary Clinton--I've said--this one I can actually answer, because I've said consistently that I think Hillary Clinton would be on anybody's short list. She, she is one of the most effective, intelligent, courageous leaders that we have in the Democratic Party.

MR. BROKAW: And according to the woman that you were talking to, you said that "we just don't know what to do about Bill," or something to that effect.

SEN. OBAMA: Oh, you know, I maybe--I think that a lot of conversations get characterized. I think that not only do I want Hillary Clinton campaigning with me, I want Bill Clinton, one of the smartest men in the history of politics, involved in our campaign. But I'm not going to, I'm not going to spill the beans here. You, you can, you can do what you want...

MR. BROKAW: Bill Clinton as, Bill Clinton as a surrogate for you day in and day out, throughout the campaign?

SEN. OBAMA: I, I would love to have Bill Clinton campaigning for me. I--he was very effective when it came to our primary, you know. He was traveling to little towns in Texas and Ohio, and it was very hard to keep up, given that he was campaigning so hard at the same time as Hillary was campaigning as hard as she was.

MR. BROKAW: We continue to hear that timing, obviously, will be a factor. It's no secret that next week the Olympics begin.

SEN. OBAMA: Right.

MR. BROKAW: And then America's attention will--we hope, at NBC--will be consumed by the Olympics, as it traditionally happens every four years. And then right after that, the Democrats have their convention. Are you going to wait until the convention?

SEN. OBAMA: You know, we will make the announcement when we make the announcement. Let, let me, let me just--and not to dodge, because I've already dodged enough. I think what's going to be on people's minds over the next week is going to be what's been on their minds for the last four weeks, and that is...

MR. BROKAW: The economy.

SEN. OBAMA: ...the state of the economy. And so one of the things that I'll be doing on Monday, I'm going to be pulling together some of my core economic advisers--Paul Volcker, the former Fed chairman; Warren Buffet; Paul Schmidt--Eric Schmidt, the chairman of Google; Bob Rubin; Larry Summers; a host of people--Bob Reich--to come together and examine the policies that we've already put forward--a middle class tax cut, a second round of stimulus, a effort to shore up the housing market in addition to the bill that was already passed through Congress, what we need to do in terms of energy and infrastructure. I think that that is what is driving people all across the country right now is worries and concerns about inability to pay the gas bill, inability to buy food because prices have gone up so high. And the failures of the economy, despite the fact that we grew for seven years, to provide rising levels of income and wages for the American people, I think, indicates the degree to which we've got to fundamentally shift how we approach economic policy.

MR. BROKAW: Let me ask you a question about housing. A lot of attention this past week to federal aid for Fannie Mae and Freddie Mac, the two government quasi-agencies that got themselves in real trouble. Banks have gotten in trouble. There's now a housing bill out there to take care of people whose homes are being foreclosed.

SEN. OBAMA: Right.

MR. BROKAW: This is not as cold-blooded as it sounds, but I hear a lot of people around this country saying, "Look, I did the right thing."

SEN. OBAMA: Right.

MR. BROKAW: "I, I got a prudent mortgage," or I hear a lender saying, you know, "I wouldn't have gotten involved in one of those things." Why should they bail out people, many of whom were simply speculating? Or the lenders who were taking the fees and doing loans that they knew that would not be being paid back and walking away? Why should the hard-working taxpayer in this kind of an economy have to bail those people out?

SEN. OBAMA: They shouldn't, which is why a couple of points that I've made. Any assistance to Fannie Mae or Freddie Mac should not be focused on the investors and the shareholders. It should not be focused on management. It should be focused on making sure that we've got liquidity in the housing market. And there are ways of making sure that we are not giving a windfall to investors who were enjoying the upside all these years of Fannie Mae and Freddie Mac, extremely profitable partly because there was this implied federal guarantee. Well, if they enjoyed all that upside, they should enjoy some downside as well.

MR. BROKAW: Why not just reconstitute them as pure government agencies and take them out of the private sector?

SEN. OBAMA: Well, I--you know, I think that part of what we have to recognize is they've got $5 trillion worth of, worth of mortgages out there, and we've got to make some decisions in terms of whether or not we want to take that--those liabilities onto the federal balance sheet. So there are, there are a host of complicated issues here. It is true that there may be some folks who didn't make the best decision that will still benefit from the home foreclosure plans that have been put forward. But keep in mind that many of these folks were not so much speculators as they were probably in over their heads. They tried to get more house than they could afford because they were told by these mortgage brokers that they could afford it. We are better off helping them stay in their home if you can fix the mortgage and let them pay it off over time than have them foreclose, in which not only do they lose their home, not only do the lenders lose a lot, but that community suddenly sees its property values going down. And what we need is a floor in the housing market, a, a stop to the decline in housing values, as well as some certainty on the part of lenders in terms of what houses are worth so that we can start restoring confidence in the housing market, but also confidence in the financial markets where credit has been contracting. And that's affecting a lot of terrific businesses and good sound developments and entrepreneurial opportunities because they just can't get good credit.

MR. BROKAW: As painful as it is, is the idea of $4 gasoline a good thing in a way because it's forced the country to confront finally the idea that we do have an energy crisis, and it's forcing Detroit to retool its line of automobiles, make them more energy efficient.

SEN. OBAMA: Right.

MR. BROKAW: People are driving less now. In some states, there's an indication that maybe even traffic deaths are down.

SEN. OBAMA: Yeah. Well, I do not think that high gas prices are a good thing for American families. I mean, I've, I've met teachers who have quit their jobs because the school where they were teaching was just too far. It was consuming too much of their income. I've met people who lost their job and couldn't go on a job search because they couldn't fill up the gas tank. Ordinary families are under extraordinary stress as a consequence of these high gas prices, so we need to do what we can to bring those prices down, but...

MR. BROKAW: But there's no easy answer for that on a short term.

SEN. OBAMA: ...but there, but there, but there isn't, and, and that's what I was about to say. The, the fact of the matter is that we should have, over the last 20 years, been planning for this day. I have been an advocate for raising fuel efficiency standards for years, something that John McCain has opposed. Had we taken those steps, we would not be in the same situation that we're in right now, the fact that all the big three U.S. automakers are getting hammered. Had we worked with them to adjust and retool to adapt to this market, we would not be losing as many jobs as we're losing right now. That's, that's all hindsight. Going forward, what we have to do is we do have to continue to push to make cars much more fuel efficient, and I think that the direction of hybrid plug-ins, where we can get a hundred miles per gallon of gas because we've developed battery technology and created a new electricity grid, that can make a huge difference. Industrial use of oil, we can change that. That's why I want to put $150 billion, $15 billion a year, into all these new technologies, research and development. We have to have the same approach that John Kennedy said, "We're going to the moon in 10 years." We should be saying, "In 10 years time, we're going to be cutting our oil consumption drastically." That will bring down, by the way, the price of oil for when we do need to use it.

CONTINUED

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