Interview with Dana Bash on CNN's "The Situation Room"

BASH: First, I just wonder if you can clear up a little bit of confusion about whether or not you're going to offer any new PACs (ph) or economic proposals this week?

Your friend, Lindsey Graham, said yesterday that he thought it would be a good idea to have some new reduction in taxes on investments. Some of your aides are saying no, no, no, that's not going to happen.

Are you going to offer anything new in terms of economic proposals this week?

MCCAIN: I'll let you know tomorrow.

BASH: Is that a yes?

MCCAIN: I'll let you know tomorrow.

BASH: Well, your opponent, Barack Obama, did offer something new today. I'm sure you've heard about it.

MCCAIN: Um-hmm.

BASH: He said that he said that there should be a 90-day foreclosure moratorium for homeowners who act in good faith and, also, a $3,000 tax break for businesses that create jobs. What do you think about it?

MCCAIN: Well, obviously, the second part has been a proposal of mine. And I mean, we all want to create jobs and create incentives for doing so.

On the first one, he wants to give a 90-day moratorium. I don't -- that's fine. But what I want to do is have some of this $750 billion -- about $300 billion of it -- go and buy out these bad mortgage -- and, of course, the parameters are for people it's a primary residence, a certain income level and all that -- and give them a new mortgage. Give them had a new mortgage so that they can afford it and they can stay in their homes.

And I might add, during the Depression, there was homeowners -- it was a -- it was a bureaucracy that was set up that the Homeowners Loan Corporation. And they provided these new mortgages. And after a number of years, actually the government got paid back. And that is a suggestion that Senator Hillary Clinton made not that long ago. I agree with her.

BASH: And I want to ask you, actually, about that particular proposal. I'm sure you've heard -- we've heard some angst, even ire, from some of your fellow conservatives about that, saying, wait a minute, why does Senator McCain -- somebody who follows the conservative credo -- want to use government money to help borrowers and lenders who you yourself said in the spring should not be helped if they're irresponsible?

MCCAIN: Well, first of all, I want to help responsible people. Second of all, who are we helping now? Who are we giving the money to now? The same people who were the co-conspirators in this crisis, the greatest crisis of our time?

That's who we're giving the money to now. And, again, I want people to be able to stay in their homes.

This crisis -- this conflagration was ignited by the housing crisis. And it was Fannie and Freddie and Wall Street and corruption and a certain cronyism in Washington, D.C. that caused it. And so until we get housing prices -- home prices to stop their decline and start back up again, we're not going to really be able to make a lot of progress.

So, in all due respect of the critics, who are we giving the money to now?

The same people who bear a great deal of responsibility for this crisis, when, in fact, there were homeowners who owned their home who now find a plummeting value and their very American dream is being jeopardized.

BASH: Let me ask you about the economy. You said yesterday that because of the economic crisis, that has contributed to your fall in the polls.

But if you believe -- and I obviously know you do -- that you have the right policies, the right ideas, why should had a bad economy being be a negative thing politically for you?

MCCAIN: Well, I think it's a negative for all of us who are in elected office and -- but I have a positive plan. We'll bring the economy back. I'm campaigning all over this country and I see people reacting very positively to my proposals.

BASH: Why has Barack Obama -- he's in elected office -- his poll numbers seem to have gone up and confidence in him with regard to the economy seems to have gone up, while you have had the opposite?

MCCAIN: Well, you know, what seems to be is what seems to be in others. We're doing just fine. I'm happy where we are. We're, as I said in my statement, we've got them just where we want them. We're going to be just fine.

I have been written off, Dana, on so many occasions by political pundits that it's hard for me to count. And I think it's more lives than a cat. But the point is, we're doing fine. I'm happy with where we are. We're fighting the good fight. That's what it's all about. That's what I love.

BASH: Let me ask you about Jeremiah Wright. You have made it very clear in your advertisements and even on the stump that you believe associations with regard Barack Obama are fair game. And you've been specifically talking, though, about William Ayers.

MCCAIN: Um-hmm.

BASH: Many Republicans -- I'm sure you've heard this -- have said to me and to others, why is William Ayers fair game and Jeremiah Wright, who has a much more closer established relationship with Barack Obama, in your view, is off the table?

MCCAIN: Well, because William Ayers was an unrepentant terrorist. I mean he's a person who, on 9/11, said that he wanted to set off more bombs. I mean this is a very big question I think that people have to ask.

And clearly, Senator Barack Obama said he was "a guy in the neighborhood."

BASH: Why not Wright? Why not Wright?

MCCAIN: Because Mr. Ayers is an unrepentant terrorist. And that's -- that's a unique individual in American history -- a person who still wants to destroy America. He and his wife -- they both want to still destroy America. That's an unusual breed of cat.

And so look -- and the fact is that Senator Obama was not truthful in telling the American people about his relationship.

Very, frankly, Dana, I don't give a damn about an old unrepentant terrorist. But what I do care is telling the truth to the American people. Senator Obama didn't tell the truth to the American people when he signed a piece of paper, back when he was a dark horse, that said he would take public financing if I did. That's his signature on a piece of paper.

He wasn't telling the American people the truth when he told them that he would "sit down with John McCain." He looked right in the camera during his debates with Senator Clinton -- he would sit down and negotiate with John McCain before he made a decision on public financing.

BASH: Now, whether or not, since I know you've heard this during your rallies, since you have been talking about Ayers -- and your running mate has, also -- we've heard people in the crowd screaming things like "Terrorist!," "Traitor!," when you talked about Senator Obama -- and worse.

MCCAIN: I've heard the same thing.

BASH: When you hear that do you (INAUDIBLE).

MCCAIN: I've heard the same thing at...

(CROSSTALK)

MCCAIN: I've heard the same thing, unfortunately, at Senator Obama's rallies being said about me. There's always a fridge element that's in politics in America. The overwhelming majority of the people that come to my rallies are good and decent and patriotic Americans. And if they're worried about this country's future, that's correct.

But to somehow -- to somehow intimate that of the thousands of people -- 17,000 people were just with us in Virginia. And to somehow intimate that the overwhelming majority of those people, with rare exception, are somehow not good Americans or are motivated by anything but the most patriotic motives, is insulting. And I won't accept that insult.

I will tell you right now, I'm proud of my supporters. I'm proud of the people that come. I'm proud of those veterans who have served their country that come to my rallies and fire me up. I love them.

And for anybody to intimate that the overwhelming -- 99 99/100 percent is anything but patriotic and good Americans, is, frankly, unacceptable and I won't -- and I won't stand for it.

BASH: Two more questions on this topic, if you will.

MCCAIN: Sure.

BASH: The chairman of the party of the state you were just talking about, that you were just in today, Virginia, he said that he believes that there is a connection between Osama bin Laden and Barack Obama because he said they both have friends who bombed the Pentagon. When you hear something like that...

MCCAIN: Well, and that's had a GOP leader. And I have repudiated every time there's a statement about Senator Obama made that I felt was inappropriate and unfair. You have people in political campaigns, on the outermost fringe on both ends of the spectrum. Now, a respected member of Congress, John Lewis, who I admire and have written about how much I admire, somehow linked me and Governor Palin to racism, to segregationism, to some of the worst aspects ever to appear in American politics. And Senator Obama refuses or has not yet repudiated those comments.

That's not from some quote party official. That's from one of the most respected people in America. It's unfair. It's unfair and it's outrageous.

BASH: And because I do want to ask this one last question.

MCCAIN: Yes, sure.

BASH: Since you brought up John Lewis and I think there's an important...

MCCAIN: Sure.

BASH: I was told by one of your aides that when you saw that statement from John Lewis, your campaign kind of stopped and you stopped and you talked to your aides and you said this is -- this is a big deal and we need to figure out how to respond to that. And, of course, you ended up coming out with your own statement in your name. And in that statement, you said that you were concerned that Lewis and people like him were trying to "shut down debate."

What did you mean by that? What do you think that they're trying to do with regard to...

MCCAIN: The accusation that Congressman Lewis made is so far out of bounds and so disturbing to me -- so of course it topped me in my tracks. I never believed that John Lewis, who is an American hero, who I admire, would every make a comment of that nature. He even referred to the bombing of a church in Birmingham.

That's unacceptable. It's totally unacceptable. And, of course, I'm not going to accept it and I'm going to reject it.

BASH: When you say shut down debate so you think it's -- do you think that they're using race -- let's get -- let's have some straight talk, as (INAUDIBLE)...

MCCAIN: I say...

BASH: (INAUDIBLE).

MCCAIN: No, when anybody says anything like that, that is so behind the pale, that it stuns me. Because that's not what America and this debate should be all about. And so I will reject vigorously and I will reject that kind of language. And again, I'm so disappointed in Congressman John Lewis, who I have admired and respected. This isn't just some obscure party official. And that's what's so totally unacceptable about it.

BASH: Senator, thank you very much.

MCCAIN: Thank you.

BASH: Just three weeks left, are you feeling well?

MCCAIN: Thanks for having me on. It's a real pleasure. It's always good to be with you.

BASH: We appreciate it. Thanks for your time, sir.

MCCAIN: Thanks, Dana.

BASH: Thank you.