MS. IFILL: Stanley McChrystal is out. David Petraeus is in. What was the ousted general thinking? And what happens now? We tackle those questions tonight on “Washington Week.”

PRES. BARACK OBAMA: I welcome debate among my team, but I won’t tolerate division.

ADM. MIKE MULLEN: We do not have the right nor should we ever assume the prerogative to cast doubt upon the ability or mock the motives of our civilian leaders, elected or appointed.

SEN. LINDSEY GRAHAM (R-SC): I’ve been a military officer most of my adult life and there’s lines you can’t cross. Those lines were crossed.

MS. IFILL: There he goes.

SEN. BILL NELSON (D-FL): I think Petraeus is a brilliant choice. I think he is the guy who clearly is schooled in counterinsurgency.

MS. IFILL: Here he comes. As the war in Afghanistan rages, the president gets a commander-in-chief moment. And just as he leaves for an international economic meeting in Canada today, Congress reaches agreement on Wall Street reform.

REP. BARNEY FRANK (D-MA): With the votes of the House and Senate I declare the bill passed and the conference committee is now adjourned.

MS. IFILL: And not a moment too soon, as polls show the president’s approval slipping and Republicans get good news in South Carolina.

NIKKI HALEY, GOP Candidate for South Carolina Governor: This is the movement about the idea of government being open and accountable to the people.

MS. IFILL: Setting the stage for critical midterm elections. Covering the week: Martha Raddatz of ABC News, Michael Duffy of “Time” Magazine, Eamon Javers of CNBC, and James Barnes of “National Journal.”

ANNOUNCER: Award-winning reporting and analysis, covering history as it happens, live from our nation’s capital, this is “Washington Week” with Gwen Ifill produced in association with “National Journal.”

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ANNOUNCER: Once again, live from Washington, moderator Gwen Ifill.

MS. IFILL: Good evening. After eight weeks of trying to control an uncontrollable environmental disaster, the president was forced to turn his attention to a public and military relations fiasco this week that turned out to be far easier to solve, at least for now. All it took was firing a four-star general. The “Rolling Stone” profile in which McChrystal mocked the president, the vice president, and various ambassadors and civilian leaders hit Washington like a bombshell. The general had no defenders.

PRES. OBAMA: War is bigger than any one man or woman, whether a private, a general, or a president. And as difficult as it is to lose General McChrystal, I believe that it is the right decision for our national security.

SEN. GRAHAM (R-SC): The statements of the general not only were outside the norm, they really did put in question military subordination to civilian control. How you think “Rolling Stone” is a good group to have follow you around for a month is a judgment question.

MS. IFILL: But thanks to general David Petraeus’ swift appointment, what started out as a story that could have exposed a fractured Afghanistan policy and showcased an indecisive president turned instead into the president’s moment. But what does it say about the war, Martha?

MS. RADDATZ: Well, I think we got a real window into the war this week and I think a lot of people haven’t been paying attention so there haven’t been a lot of questions asked. I was surprised yesterday how much I learned from a briefing with Robert Gates and Admiral Mike Mullen, the chairman of the Joint Chiefs of Staff, and how much they talked about what was going on there. And basically they said we are in an enormously difficult phase in the war. It’s more difficult, taking longer than they thought. They have two thirds of the surge troops and the surge troops are about 30,000 extra troops, so there’s 20,000 in, still 10,000 to go. But there’s clearly a feeling that they’re making a little bit of progress but not a lot.

June has been the deadliest month of the war so far. So it really gave us a window into that. Obviously the Stan McChrystal situation was really, truly seismic in so many ways. Throughout the military, throughout the country, throughout Afghanistan, the NATO partners seeing that, and as you pointed out, Gwen – I hadn’t really thought of that – he really didn’t have any defenders this week. There was nobody saying or really picking it apart in a lot of ways. They’ve looked at him.

People tried to yesterday, saying, hey, it was just his – most of that was by his aides. But what happened in that situation is he is the leader. That’s a hand-picked team he had. And there is something called command climate. And that means you set the tone for how those below you act. And if he was allowing them to talk like that, if he was allowing that sort of atmosphere, that says a lot about him.

MS. IFILL: I thought on reading that article actually that just the whole atmosphere -- the atmospherics looked so bad sitting in a four-star suite in a place in Paris and chatting back and forth in kind of a frat boy way, which we know many things about this president – or we don’t know many things about this president. What we do know is he’s not a frat boy. How did this moment affect the White House?

MR. DUFFY: McChrystal gave President Obama a very simple choice, to assert his authority as commander-in-chief or show weakness. And the White House clearly saw that opportunity and took it. Let’s just look a little bit at the way they stage managed it.

There’re lots of ways to fire a four-star general. You can simply accept his resignation. You could have the defense secretary fire him. Instead they put him on a plane for 14 hours. They brought him back. They had a meeting at the White House, a come-to-papa moment. They held the city in suspense for several hours, in which it was very difficult to tell exactly what was going to happen, although that morning in the White House was beginning to say, the cost of keeping him was just too high. And then they fired him. That was a way to buy decisiveness and they bought some this week because they know over the last couple of weeks, for the reasons you mentioned at the top – the oil spill, the economy – the country has seen a president who wasn’t able to affect very much at all.

His poll numbers are dropping, as you know. And his poll numbers for decisiveness and leadership, which used to be in the high 50s, low 60s, are now in the low 40s. So they went out this week and not so much – they didn’t have a choice. It wasn’t, I think, an easy decision for them. They’ve lost an Afghanistan general once before. They didn’t want to lose another one, not now. But they had an opportunity to buy some decisiveness and they did.

MS. IFILL: You made a good point about the atmospherics also of what happened here in Washington because there are other ways. And people did respect General McChrystal. And the president didn’t actually overtly criticize him in that statement.

MS. RADDATZ: Well, he certainly overtly criticized the action in that article. That was an untenable situation –

MS. IFILL: But not his handling of the war.

MS. RADDATZ: – but not his handling of the war. And this wasn’t about his handling of the war. This was about his handling of his staff, of being a leader, of presenting himself. And you talked a little bit about the frat boy atmosphere.

Stanley McChrystal comes from a Special Operations background. That is a very sort of secretive and it is a boys’ club. It really is. There aren’t women allowed in the Special Operations forces. So I think you do get sort with that small group of people, you forget, you lose what they call in the military situational awareness and you bring a “Rolling Stone” reporter and there you go.

MS. IFILL: But they were incredibly aware at the White House.

MR. DUFFY: And they also felt they had not just an opportunity, but in addition to making this decisive move, President Obama then turned over a hole card, his announcement by choosing McChrystal’s boss –

MS. RADDATZ: – a brilliant save.

MR. DUFFY: – General David Petraeus, because not only was he someone who everyone knows and everyone respects and who has all the smoothness coming as a general that McChrystal lacks, having never really been schooled in the public diplomacy part of being a general, but was a brilliant way to neutralize the critics, who were just waiting -- just waiting to pounce, even though they knew – particularly on the right – even though they knew that McChrystal had to go, they were going to jump on him because he was ending this –

MS. RADDATZ: Can I just make one real quick point about – someone said to me, “Well, maybe McChrystal just wasn’t politic enough.” But that’s part of being a general and a leader and you’re running a war. You have to understand Washington. You have to understand Congress. You have to speak for the whole world, but particularly understand this city. Dave Petraeus understands this city.

MR. JAVERS: This Petraeus pick has been sort of widely viewed as incredibly astute move by the president. But it was so surprising to many people in Washington. He sort of came out a left field, even though he’s maybe one of the only generals most Americans can name. I’m just wondering if there was any other general in the United States Army that Barack Obama could have picked for this position and had a political and inside-the-beltway victory here?

MS. RADDATZ: I think there’re certainly a lot of capable senior officers, four-stars, but Dave Petraeus is head of Central Command. He already commands that area. So I think if you say oh, well what about the bench? Does this show you have a weak bench? I don’t think it does. When you say it was such a surprise, it was apparently Barack Obama’s idea because I think a lot of other people thought, oh, no, no, no, we’re not going to send poor Dave Petraeus. He keeps getting sent. He’s done his time. He keeps getting sent everywhere. And people talk about it’s actually demotion because he doesn’t have the whole area. It really isn’t.

MS. IFILL: I think he wouldn’t think of it –

MS. RADDATZ: I certainly – yes, and I think Robert Gates, the same thing, he was sort of thinking who else can we bring in because Dave Petraeus is already in the hierarchy. But believe me he’ll be running the show over there.

MR. BARNES: Mike, you said the White House was looking for a commander-in-chief moment. What does this incident say about the president’s relationship with the military? What’s it been like and what’s it likely to be like going forward after this?

MR. DUFFY: For me the part of the announcement, I think, that was the most telling in that regard was – and I think we all remarked on this, which was that when he in relieving or firing McChrystal, he also spent a lot of time in the statement actually praising. He was graceful and gracious, both in Iraq and in Afghanistan and on the Joint Staff, and even when he was a covert operator. And I think that was just a little window into two things.

They wanted to both – the administration is very careful about extending its hand to the military, which it knows culturally has always been a little fonder of Republicans than of Democrats by reflex and instinct, but by also by bringing McChrystal back in this rather dramatic fashion, the 14-hour plane ride. He was also sending a signal, we’re not going to tolerate this. They were re-establishing civilian chain of command. So on one hand, I think it shows you their relationship with the military is we’re not – we don’t want alienate you. We want to make sure you understand that we appreciate this.

MS. RADDATZ: But given even what they said, Robert Gibbs the very first day – they put him in an untenable situation. I think that’s when the tea leaves –

MR. DUFFY: There was a lot of – both sides did that.

MS. IFILL: The other thing that the president did in his remarks was he defended pretty vigorously Afghanistan policy as it is now and that’s a policy that General McChrystal had been pretty much tasked with carrying out, including this idea of the rules of engagement. Which is – you were on the program a couple weeks ago, Martha, and talked about when you were flying – what kind of plane was that?

MS. RADDATZ: It was an F-15.

MS. IFILL: An F-15.

MS. RADDATZ: I wasn’t actually flying it, I was being flown.

MS. IFILL: Being flown. But you talked about the ways in which they pulled their punches in terms of launching attacks because they didn’t want to endanger civilians. That is the fruit of General McChrystal’s policies.

MS. RADDATZ: Absolutely. And that’s been a controversial policy, believe it or not, because – and that’s a good example – because when we were in that jet the French were coming under fire and they were calling for a 500-pound bomb. And they were under small arms fire. And the pilot was saying we can’t drop a 500-pound bomb. There’s a school nearby. We could hurt people. We can’t do that. And they did a strafing run firing guns instead, so they wouldn’t hurt people.

Now, there are some soldiers and Marines out in the field who feel like their hands are tied, like “wait, we have to wait, go through this whole thing before we can fire back. And we think some people are getting killed.” I think Dave Petraeus will go over there. He has clearly the power to change that if he so chooses. I have no idea whether he’ll do that, but it’s pretty controversial.

Now, on the other hand, part of the strategy of counterinsurgency is you don’t want to kill innocent people or then you fail. You know this very well, Michael.

MS. IFILL: The other controversial part of this is the deadline, which is – the pro-war Republicans, for a better way of putting it, are saying, you know what? We’re not going to be getting out of there in July of 2011. And the anti-war Democrats are saying we should be getting out of there right now. You’re not get back and off of that.

MR. DUFFY: The timetable is becoming a huge political football. One of the reasons it’s a football is that White House kind of winked at everybody when they announced this last December, saying essentially we’re going to begin to pull out. They didn’t really emphasize the word “begin.”

MS. IFILL: But now they’re starting to?

MR. DUFFY: Just this week – the president appeared yesterday, I guess, and said, “we never said we’re going to shut the door and turn out the lights and leave.” Well, they left that impression to a great many people and in the intervening months, they did a really good job of leaking that message over and over because they knew the military is not in such a big hurry and would like more time, even like more troops.

MS. RADDATZ: Even though it could be just one person they draw down.

MR. DUFFY: Exactly.

MS. RADDATZ: It was Stan McChrystal. There you go.

MR. DUFFY: And you’re right. The two flanks on our political parties are really opposed to the timetable.

MS. IFILL: Well, it was a heck of a week. It was so much going on and it went on right into the wee hours of the morning today when the House and the Senate came to agreement on – remember this – the Wall Street reform bill. You can be forgiven for thinking that perhaps in the two years since the financial industry meltdown this had already happened. What took so long, Eamon?

MR. JAVERS: Well, partly everything in Washington takes a long time and partly because Wall Street really fought this thing tooth and nail all the way through the entire process. The president proposed this stuff a year ago. And he took credit this morning saying, well, they adopted 90 percent of the things that I suggested a year ago.

MS. IFILL: Is that true?

MR. JAVERS: It is largely true, yes. He pretty much got what he wanted. And the interesting thing here is that we had the health care debate that ate up the summer and the fall and really sucked all the oxygen out of Washington. So I think all the things really combined to make this a very tough bill to put together even though the politics of it were so much better for the president and for the people putting the bill together than they were on health care.

In this case a lot be people wanted to do this bill. Republicans were – many Republicans were looking for a reason to vote for this bill in a way that – that dynamic just didn’t exist in the health care debate.

MS. IFILL: What is this bill?

MR. JAVERS: Well, the central piece of the bill is what they call resolution authority, which is the ability to wind down a big firm. So what they’re saying is if we get into another one of these financial meltdowns, we have another Bear Stearns, another Lehman Brothers, the tools that government didn’t have at that time were the ability to go in, take that big firm over, and wind it down in a slow and orderly way and shut off the lights without causing a panic. Now, they’ll have that authority. They’ll have some budget to do that. And they say that will be the biggest thing in here that’ll help prevent another financial crisis.

There’s a lot of other stuff though in there. There was a 2,000-page bill.

MR. DUFFY: In some ways, what the Congress did in that respect is they built themselves a fire escape from a burning building. The question I think most Americans have is, is Congress – I’m sorry – is the government going to do a better job than it in did in the 1990s and the early part of this decade to regulate these companies which were trading without any oversight, using massive leverage. Are those practices going to change once this is signed?

MR. JAVERS: Yes, that’s the huge open question here, right? Because basically the Fed missed the crisis. The SEC missed the crisis. The White House missed the crisis. Congress missed – everybody in Washington missed this thing. So now we’re giving Washington a lot more authority to go out and regulate. As you say, the question is are the human beings who are going to do this in the future going to be better than the human beings we had in place in the past?

We’re also creating another huge consumer protection bureau. This is a bureau that’s designed entirely to sort of protect you from the fine print in your financial dealings with credit card companies and the rest. They carved the auto companies out. Those guys got an exception. So that’s a totally open question. We don’t know. I think if the past is prologue, the answer is probably no. Regulators tend to get captured by the industries that they regulate.

MS. RADDATZ: Let’s go to Wall Street? Can they live with this? They’re obviously not thrilled about a lot of it, but can they live with it?

MR. JAVERS: Well, it’s funny. I’ve been talking to a lot of the Wall Street lobbyists today and they’re all zombies because they were up all night last night. They finished this thing at 4:40 in the morning Friday morning, after an all-night negotiating session. But Wall Street basically can live with this. This is going to depress profits in the short term. It’s going to create some drag on the system. There’s going to be sort of less sort of gleeful exuberance on Wall Street for a little while, but I think they’re going to figure a way around a lot of these rules first of all. And I think secondly, they’re already coming to terms with the fact that this is much better for them than some of the things that could have happened early on with the huge voter rage that we saw over AIG, Goldman Sachs, the bailouts. All that is now little bit in the dim past, and so the bill that ends up passing is not nearly as harsh. They didn’t break up the big banks, for example, which was one proposal early on.

I think when the dust settles, maybe by Monday morning after they go home tonight and have a cocktail, they’ll say, all right, we can live with this.

MR. BARNES: Eamon, a lot of Republicans are still saying they can’t live with this and they’re upset, but there are a handful who appear to be on board. One of the more interesting ones, Scott Brown, the newest member of the United States Senate. When he got elected in Massachusetts with a lot of Republican support and enthusiasm, he was going to be the 41st senator, meaning the guy who can help you uphold the filibuster and could help block things. But he seems to have been playing with the Democrats on this one and he might be the 60th vote to let them get past a filibuster.

MR. JAVERS: Yes, he might be the 61st Democrat. I’m not sure. Scott Brown is a fascinating character in all of this because he’s turned out to be so much different than what we expected. And the crucial role that he played in this debate was that he said he wanted the so-called Volcker Rule – that’s the rule that prevented the big banks from engaging in hedge funds, private equity funds, things that Congress has said are too risky. What Scott Brown wanted was a carve out because certain banks in Massachusetts like to do that kind of thing. And they gave it to him. They had to. They didn’t have any choice. So they gave him a 3 percent carve out on the Volcker Rule entirely designed to get Scott Brown’s vote on this.

And Barney Frank came out today and said – he’s the chairman of the House Financial Services Committee -- and said, well, look we had to give away certain things because you have to get 60 votes in the United States Senate. And Scott –

MS. IFILL: You call them – I like how you call them “carve outs.” Some people call them “loopholes.”

MR. JAVERS: That’s right.

MS. IFILL: But that’s politics, which allows us to turn the corner quite neatly. A few weeks ago we sat here amazed that South Carolina Democrats had managed to nominate a Senate candidate who had never even bothered to campaign. This week the Palmetto State’s Republican voters nominated Nikki Haley, an Indian-American and a woman, to be its gubernatorial nominee, and Tim Scott, who could be the first African-American Republican to serve in Congress since J.C. Watts left in 2003.

These were just the latest examples of the new faces and voices this midterm election year is beginning to showcase. So what’s that all telling us, Jim?

MR. BARNES: I think it’s telling you that if you’re running for office this year it’s not good to be part of the establishment or be seen as part of politics as usual. Nikki Haley, a three-term South Carolina state legislator –

MS. IFILL: Well, this was a runoff.

MR. JAVERS: – this was a runoff but she’s a three-term South Carolina state legislator. Back in March, she’s running fourth in the polls in basically a four-person race for the Republican nomination for governor. She gets endorsed by Sarah Palin in May. This gives her a lot of energy. Then there are allegations by some Republican operatives that she’s engaged in extramarital affairs. And it seems like what happened, she’s sort of surged to the lead with the endorsement of Palin. And it seems what happened a lot of the voters there said, you know, this is just the same old negative campaigning. This is politics as usual. They rallied – they actually rallied around here. And she so she won the first round of the primary a couple weeks ago. She wins the runoff against Gresham Barrett, who is a four-term incumbent member of the House. Before that, he had served in the South Carolina State legislature as well.

On the same day, Scott, who’s an African-American, a one-term member of the South Carolina state –

MS. IFILL: Beat Paul Thurmond, the son of Strom Thurmond.

MR. BARNES: – right, the legendary Republican senator who literally built the party in South Carolina. It was an astonishing upset and it wasn’t a – it was a runoff and it wasn’t close. Scott got more than 60 percent of the vote. And for good measure, in another congressional primary that day, Republican incumbent Bob Inglis got defeated by a local prosecutor, Trey Gowdy, who was a favorite of the tea party movement. And I – and if you were in South Carolina, it just wasn’t a good night for political science or Republican members of Congress.

MR. DUFFY: From what you can tell, talking to Republican leaders, are they getting any more comfortable with the tea party voters and vice versa, both in that state and elsewhere?

MR. BARNES: Right. Clearly all these Republican leaders love to get the energy of the tea party movement. And in most cases, it coexists, but what’s kind of interesting in South Carolina – Haley, in her victory speech, she barely – she doesn’t mention Gresham Barrett. Normal protocol is you kind of salute your noble opponent that you’ve just beaten. She doesn’t. The Barrett people notice that. A couple of days afterwards, a guy by the name of Bob Royall, big South Carolina GOP fundraiser – raised money for Bush, raised money for McCain, contributed to Gresham in the runoff – he announces he’s going to support Vincent Sheheen, the Democratic. The State Chamber of Commerce also endorses Sheheen, who’s seen as kind of a moderate centrist Democrat. And so what you have there is that Haley is seen as a really shake-them-up – shake-up-the-establishment kind of a candidate. And so sometimes, even the party establishment says, well, maybe we’ve got choices.

MS. RADDATZ: Jim, what about in the other states? Run us through some of the other states.

MR. BARNES: Right, in Utah, there was a runoff where Mike Lee beat businessman Tim Bridgewater. This was the runoff – these were the two tea party candidates who earlier had defeated the incumbent, Bob Bennett of Utah in state convention. So once again – what would – these were about tea party candidates, so what does that sort of say? Well, Bennett endorsed Bridgewater before the primary, had been leading up in the polls up until then and then Lee wins. And also, though, it’s not strictly a Republican phenomenon.

In North Carolina, Secretary of State Elaine Marshall, she wins a race. She beats Cal Cunningham. He was the favorite of the Democratic Senate Campaign Committee here that they pumped $200,000 in.

So it’s just this anti-Washington, anti-establishment ferment. We see it in a lot of places.

MS. IFILL: Very quickly.

MR. JAVERS: But in these primaries, energy is so important. Would you say right now, knowing what we know, the Republican Party is more powerful or the tea party is –

MS. IFILL: You’ve got to answer that really quickly.

MR. BARNES: The Republican party is benefiting from the tea party and they’ve got – they really have the juice right now.

MS. IFILL: There you go. That was good. Thank you very much. And thanks everybody. The conversation has to end here, but it continues online, where we’ll talk about all the other stories we didn’t get to, including President Obama ill-fated offshore oil drilling moratorium this week. That’s on the “Washington Week” Webcast Extra. Find us at Keep up with daily developments, including Supreme Court nominee Elena Kagan’s Senate confirmation hearings next week on the PBS “NewsHour,” and then we’ll pick up where we left off next week on “Washington Week.” Good night.