July 27, 2008 -- Sen John McCain just back from a swing state tour sat down with ABC's George Stephanopoulos in Cottonwood, Arizona to discuss the economy, gay adoption and McCain's apparent embrace of a timetable for withdrawal from Iraq.

GEORGE STEPHANOPOULOS, ABC NEWS: Senator Obama was in London this morning, and he was responding to your comments from yesterday when you said that 16 months might be a pretty good timetable in Iraq.

He said, "We're pleased to see that there's been some convergence around proposals we've been making for a year-and-a-half."

SEN JOHN MCCAIN: That's really good. Look, it's not a timetable, as I said. I was asked, how does that sound? Anything sounds good to me, but...

STEPHANOPOULOS: But you never used the word before.

MCCAIN: ... you know, the point is...

STEPHANOPOULOS: You made a point of never using...

MCCAIN: ... I never...

STEPHANOPOULOS: ... the word before.

MCCAIN: Look, I have always said, and I said then, it's the conditions on the ground. If Senator Obama had had his way, we'd have been out last March, and we'd been out in defeat and chaos, and probably had to come back again because of Iranian influence.

It's conditions on the ground -- the way that the chairman of the Joint Chiefs of Staff said, the way that General Petraeus has said -- conditions on the ground, so that the Iraqi government can have control, can have the sufficient security, so that we don't have to come back. Senator Obama said that if his date didn't work, we may have to come back.

We're not coming home in victory. We're coming home in victory.

STEPHANOPOULOS: But it does seem...

MCCAIN: But it is a -- it is not a date. I want to make it very clear to you, it is not a date. It's conditions on the ground.

STEPHANOPOULOS: So, you shouldn't have used the word timetable.

MCCAIN: Pardon me?

STEPHANOPOULOS: You shouldn't have used the word timetable.

MCCAIN: I didn't use the word timetable. That I did -- if I did...

STEPHANOPOULOS: Well, it's a pretty good timetable.

MCCAIN: Oh, well, look. Anything is a good timetable that is dictated by conditions on the ground. Anything is good.

But the timetable is dictated, not by a artificial date, but by the conditions on the ground, the conditions of security.

And by the way, our ambassador to Iraq basically said we have succeeded. We have succeeded in this strategy.

Now, look. Senator Obama doesn't understand. He doesn't understand what's at stake here. And he chose to take a political path that would have helped him get the nomination of his party.

I took a path that I knew was unpopular, because I knew we had to win in Iraq. And we are winning in Iraq.

And if we'd done what Senator Obama wanted done, it would have been chaos, genocide, increased Iranian influence, perhaps al Qaeda establishing a base again.

Now we have a stable ally in the region, and it is not based on any date.

STEPHANOPOULOS: But it does seem like...

MCCAIN: I like six months, three months, two months. I like yesterday. I like yesterday, OK? That seems really good to me. But the fact is, the conditions on the ground...

STEPHANOPOULOS: But what's the difference between...

MCCAIN: ... have not dictated it.

STEPHANOPOULOS: ... your positions now? He says, OK, here's the timetable I want. That's the mission.

MCCAIN: Yes.

STEPHANOPOULOS: If the commanders come and tell me the conditions have changed dramatically, if Iraq's going to be unstable, I'll take that into account.

You also say, timetable sounds great, but it's on the conditions on the ground.

MCCAIN: Senator Obama said that he would come out no matter what. He said that he would be out -- according to his original plan, it would have been last March. He says that the surge has not worked. He said it couldn't work.

There's a fundamental difference between myself and Senator Obama. And now that it's the general election coming up, I can see why he and his people are trying to blur that distinction.

When the decision had to be made whether to adopt the strategy of the surge, he said it wouldn't work, it would increase sectarian violence. He said all those things that made it acceptable to the left of his party.

STEPHANOPOULOS: But there was a fundamental difference about the original decision to go to war. He said it would inflame the Muslim world, it would become a recruitment tool for al Qaeda.

You said, and you wrote, that it would lessen antipathy in the Muslim world, and that we'd be greeted as liberators.

Wasn't Senator Obama right about that?

MCCAIN: I don't believe so. We were greeted as liberators. We mishandled the war for nearly four years. We mishandled it in a way that was so harmful that I stood up against it. I said it wouldn't work. I said we had to have a new strategy, and I was criticized for being disloyal -- disloyal to Republicans.

STEPHANOPOULOS: You also said many times that the strategy was the right strategy.

MCCAIN: I said that Saddam Hussein caused a -- imposed a threat to the United States of America and our security. And the Oil for Food scandal, the $12 billion he was skimming, the fact that he had said that he had in operation and he wanted to have weapons of mass destruction, the fact that this society that he ruled in such a brutal fashion was really awful. And he did pose a long-term threat to the security of the United States of America.

But that's a job for the historians.

When the crucial time came as to whether we were going to leave Iraq and lose, or stay and do the very unpopular thing of 30,000 additional troops -- asking young Americans to make the sacrifice -- he was wrong, I was right. That was the crucial point...

STEPHANOPOULOS: And you don't...

MCCAIN: ... in the strategy.

STEPHANOPOULOS: ... accept that he was right and you were wrong...

MCCAIN: Of course not.

STEPHANOPOULOS: ... on the original decision.

MCCAIN: Of course not. Of course not.

STEPHANOPOULOS: You've also taken some heat this week with your comments saying that Senator Obama would rather lose...

MCCAIN: Yes.

STEPHANOPOULOS: ... a war than win a political campaign.

MCCAIN: Yes.

STEPHANOPOULOS: I can't believe you believe that.

MCCAIN: Well, I'm not questioning his patriotism. I'm questioning his actions. I'm questioning his lack, total lack, of understanding. His...

STEPHANOPOULOS: But that is questioning his total...

MCCAIN: I...

STEPHANOPOULOS: When you say someone would rather lose a war, a candidate, that's questioning his honor, his decency, his character.

MCCAIN: All I'm saying is -- and I will repeat -- he does not understand. I'm not questioning his patriotism. I am saying that he made the decision, which was political, in order to help him get the nomination of his party.

STEPHANOPOULOS: So, putting lives at risk for a political campaign -- you believe he's doing that.

MCCAIN: I believe that, when he said that we had to leave Iraq, and we had to be out by last March, and we had to have a date certain, that was in contravention to -- and still is -- the chairman of the Joint Chiefs of Staff, General David Petraeus.

When he never asked to sit down for a briefing with General Petraeus, our commander on the ground, when he waited 900 days to go back again, where young American lives are on the line, I think that's a fundamental lack of understanding. And I think the American people will make the appropriate choice.

STEPHANOPOULOS: But you're questioning his motives.

MCCAIN: I say that it was very clear that a decision had to made. And I made it when it wasn't popular. He made a decision which was popular with his base. And that is a fundamental difference.

And he does not understand, and did not understand and still doesn't understand, that the surge was the vital strategy in us not having to lose a war.

Chaos, genocide, increased influence of Iranians in the region. The consequences of failure would have been severe.

STEPHANOPOULOS: But...

MCCAIN: Now, the benefits are enormous of a stable ally in the region, of a country that is a friend of ours, a brake on Iranian influence -- certainly a brake on al Qaeda and other jihadist organizations.

So, he made the decision that that was the best way to go to get the nomination of his party.

STEPHANOPOULOS: There's also been a flap about Senator Obama's decision in Germany not to visit the troops at Landstuhl. He now says that, based on what he was hearing from the Pentagon, there was no way that wouldn't be seen as a political trip, which is why he decided not to go.

Do you accept that explanation?

MCCAIN: Well, I know this, that those troops would have loved to have seen him. And I know of no Pentagon regulation that would have prevented him from going there -- without the media and the press and all of the associated people -- nothing that I know of would have kept him from visiting those wounded troops. And they are gravely wounded, many of them.

STEPHANOPOULOS: He's done it many times in the past.

MCCAIN: In Landstuhl, Germany, when I went through, I visited -- I visited the hospital. But the important thing is that, if I had been told by the Pentagon that I couldn't visit those troops, and I was there and wanted to be there, I guarantee you, there would have been a seismic event.

And so, I believe he had the opportunity to go without the media. And I'll let the facts speak for themselves.

STEPHANOPOULOS: So, this is...

MCCAIN: It certainly wasn't the Pentagon...

STEPHANOPOULOS: ... (inaudible) campaign (ph).

MCCAIN: That's certainly what the Pentagon spokesman said. There was nothing to prevent him from going, if he went without the press and the media and his campaign people.

But we'll see what happens.

STEPHANOPOULOS: Fair game?

MCCAIN: Well, I think people make a judgment by what we do and what we don't do. He certainly found time to do other things.

STEPHANOPOULOS: Let's talk about the economy.

President Bush in -- and adding some unvarnished talk recently about the economy when he didn't think the cameras were on. I think he said, "Wall Street got drunk, and now we're going through the hangover."

I know you don't want to use language like that, but is his basic take right? Is Wall Street the villain here? And what would you do about it?

MCCAIN: I think that Wall Street is the villain in the things that happened in the subprime lending crisis and other areas where investigations and possible prosecution is going on.

But I also think that Congress is at fault. We didn't restrain spending. Spending got completely out of control. We were ...

STEPHANOPOULOS: But what does that have to do with the mortgage crisis...

MCCAIN: It increases...

STEPHANOPOULOS: ... or with the housing crisis?

MCCAIN: It increases the deficit. We didn't address the energy crisis, which has been building for 30 years. We're now sending $700 billion of Americans' money overseas to countries that don't like us very much.

So, I think there's a lot of blame to go around here. But I also would blame a gridlocked Congress, which is gridlocked as we speak, when we should be doing offshore drilling.

STEPHANOPOULOS: The gridlock...

MCCAIN: We should be moving forward with nuclear power.

STEPHANOPOULOS: The gridlock broke today on the housing bill. It passed, I think, 72 to 13 in the Senate.

I know you couldn't be there. Would you have voted for that bill?

MCCAIN: Yes. But I also see, again, the influence of special interests. They place the responsibilities for trying to help solve some of these problems of people remaining in their homes -- and it is real and significant -- in the hands of the lenders.

I would have liked to have seen the homeowner, the primary residents, go down and get the 30-year FHA guaranteed loan at the new value of their home, and put it in the hands of the borrower, the homeowner. But I'll support...

STEPHANOPOULOS: Then why vote for the bill?

MCCAIN: Because it's better than nothing. It's better than -- it may give relief to several hundred thousand homeowners. Or if it gives relief to one, it's a -- but I think it can provide some relief.

STEPHANOPOULOS: Several of your colleagues look at this bill and say it could put the taxpayers on the hook for up to $25 billion for Fannie Mae.

They look at the government stepping in to help Bear Stearns and they say, this is socialized capitalism. You know, what we have is that the private companies get to make all the profits. When they get in trouble, the government steps in.

Is that right?

MCCAIN: No, it's not right. But we reached such a situation that, if these institutions failed, the impact on millions of innocent Americans could be very severe.

In the case of Fannie and Freddie, we should stop their lobbying activities. We should eliminate the pay and bonuses that these people rake in...

STEPHANOPOULOS: George Will has an idea on that.

MCCAIN: ... the most...

STEPHANOPOULOS: He says that when some places like Freddie Mae (ph) or Fannie Mae or Bear Stearns get the government guarantee, that the executives that work there should get a government salary.

MCCAIN: Sure. That's exactly right. And we could go out and ask people -- the smartest people in America, maybe somebody like Jack Welch or John Chambers or Meg Whitman, people like that -- and say, come and take over and do it for $1 a year. They'd be willing to do that.

But the other thing is, the shareholders should not be the first ones to be paid. There should be new preferred stock issued. And those people would be, and the government, paid off first, since the government is on the hook.

STEPHANOPOULOS: And should the government get some stock, so that if Fannie Mae does recover, the taxpayers should benefit?

MCCAIN: Absolutely. Absolutely, they should, in my view. And we've got to send the signal that, over time, that these kinds of institutions have not helped the American homeowner. They've basically helped enrich a lot of people that otherwise shouldn't have been.

STEPHANOPOULOS: A majority of Americans think you're going to come in. They look at your tax plans and say you're going to be just like President Bush on the economy.

What would you do right now -- spending aside -- that would be different from what President Bush is doing?

MCCAIN: Well, I would give every family in America double their exemption for -- on the child tax and children's tax, a dependent tax break, from $3,500 to $7,000.

I would declare that we will scrub every agency of government and eliminate those that are not necessary.

I will veto every single pork barrel bill that comes across my desk, and make them famous.

I will promise that we will not only keep tax cuts low, but we will have some additional incentives for American investment and growth of jobs.

I will embark on an immediate, an immediate effort to eliminate our dependence on foreign oil -- nuclear power, offshore drilling, wind, tide, solar -- and stop this drain of $700 billion a year from the American economy. This administration -- for 30 years, Congress and the administrations have not done anything on this energy crisis. Now, it's hurting low-income Americans the most.

There are many steps that can be taken absolutely, including the gas tax holiday. Everybody -- everybody...

STEPHANOPOULOS: Not a single economist in the country said it'd work.

MCCAIN: Yes. And there's no economist in the country that knows very well the low-income American who drives the furthest, in the oldest automobile, that sometimes can't even afford to go to work.

STEPHANOPOULOS: But they all say that that's...

MCCAIN: And they haven't met...

STEPHANOPOULOS: ... not who's (ph) going to get the benefit. The oil companies, the gas companies are going to absorb...

MCCAIN: You know, they..

STEPHANOPOULOS: ... any reduction.

MCCAIN: ... they say that. But one, it didn't happen before, and two, we wouldn't let it happen. We wouldn't let it -- Americans wouldn't let them absorb that.

STEPHANOPOULOS: How would you prevent that?

MCCAIN: We would make them shamed into it. We, of course, know how to -- American public opinion. And we would penalize them, if necessary. But they wouldn't. They would pass it on.

STEPHANOPOULOS: Let me ask you about...

MCCAIN: But let me just finally say, Americans need trust and confidence in their government.

The most important thing I would do, the most important of all, is what I have done all the years I've been in the Congress. I'd reach across the aisle to the Democrats, and I'd say, "Let's go work together."

MCCAIN: I've worked with -- it's not a fact that I would do something new. I've worked with Joe Lieberman, Ted Kennedy, Russ Feingold, Byron Dorgan -- you go down the list -- Carl Levin, Fritz Hollings.

Look down the list of the bipartisan legislation and action that I've done together. I could do that much, much more effectively as president of the United States.

STEPHANOPOULOS: Social Security. You're a longtime supporter of the private accounts, as President Bush called for them.

MCCAIN: I am a supporter of sitting down together and putting everything on the table and coming up with an answer. So, there is nothing I would take off the table. There was nothing I would demand.

I think that's the way that Ronald Reagan and Tip O'Neill did it. And that's what we have to do again.

STEPHANOPOULOS: In the past you said there was essentially -- and you told the "Wall Street Journal"...

MCCAIN: No, I have said and will say, I will say that everything has to be on the table, if we're going to reach a bipartisan agreement. I've been in bipartisan negotiations before. I know how you reach a conclusion. We all have to sit down together with everything on the table.

STEPHANOPOULOS: So, that means payroll tax increases are on the table, as well?

MCCAIN: There is nothing that's off the table. I have my positions, and I'll articulate them. But nothing's off the table.

I don't want tax increases. Of course I'd like to have young Americans have some of their money put into an account with their name on it. But that doesn't mean that anything is off the table...

STEPHANOPOULOS: With (ph) their payroll taxes diverted into accounts.

MCCAIN: I say that everything is on the table that has to be on the table, the way Tip O'Neill and Ronald Reagan did.

STEPHANOPOULOS: Let me ask you about your position to exclude Russia from the G-8. How are you going to get that done? Every other G-8 nation is against it.

MCCAIN: Well, you have to take positions whether other nations agree or not, because you have to do what's best for America...

STEPHANOPOULOS: You've got some visitors here.

MCCAIN: ... and the world. That's Sam.

Look at Russia's actions in the last week or so. He'll get out of here.

STEPHANOPOULOS: He'll get out. It'll be fine.

MCCAIN: In the last week or so, look at Russia's actions. They cut back on their oil supplies to the Czechs, because the Czechs made an agreement with us. They have now thrown out the -- or forced out -- BP out of Russia. And by the way, I -- a lot of us thought that might happen.

They continue to put enormous pressures on Georgia in many ways. They're putting pressure on Ukraine. They are blocking action in the United Nations Security Council on Iran. And so...

STEPHANOPOULOS: But how is kicking out of the G-8 going to make that better? We need them...

MCCAIN: The G-8...

STEPHANOPOULOS: ... to help secure nuclear weapons. We need them to help contain Iran. To kick them out is going to make it harder, isn't it?

MCCAIN: We need to improve their behavior. We need to make them realize that the G-8 was founded -- basically, countries that are democratic, have our values and our goals and shared principles. And President Putin and...

STEPHANOPOULOS: The former President Putin.

MCCAIN: ... his government -- former President Putin, and now Prime Minister Putin -- has taken his country down a path that I think is very harmful.

STEPHANOPOULOS: Do you still think he's in charge?

MCCAIN: Oh, yes. I am confident -- yes, I believe that he's in charge. And I don't think he would have chosen his successor, if he didn't think he would remain in charge.

STEPHANOPOULOS: Well, let me get back to the original question.

MCCAIN: They've become -- they've become an autocracy.

STEPHANOPOULOS: Because President Medvedev says this proposal isn't even serious. So, I go back.

How are you going to exclude Russia from the G-8, when every other country is against it?

MCCAIN: I will stand up for what I think is the best for the United States of America and the world, the way that Ronald Reagan went to Berlin and said, "Tear down this wall."

And they said, "Oh, he's a cowboy. He's going to make relations worse. He shouldn't say that."

And yet, we wanted the Wall down. We want better Russian behavior internationally. And we have every right to expect it.

And I will do what I can to see that they reverse many of the behavior patterns, which have really been very unhelpful to peace in the world.

STEPHANOPOULOS: What is your position on gay adoption? You told the "New York Times" you were against it, even in cases where the children couldn't find another home. But then your staff backtracked a bit.

What is your position?

MCCAIN: My position is, it's not the reason why I'm running for president of the United States. And I think that two parent families are best for America.

STEPHANOPOULOS: Well, what do you mean by that, it's not the reason you're running for president of the United States?

MCCAIN: Because I think -- well, I think that it's -- it is important for us to emphasize family values. But I think it's very important that we understand that we have other challenges, too.

I'm running for president of the United States, because I want to help with family values. And I think that family values are important, when we have two parent -- families that are of parents that are the traditional family.

STEPHANOPOULOS: But there are several hundred thousand children in the country who don't have a home. And if a gay couple wants to adopt them, what's wrong with that?

MCCAIN: I am for the values that two parent families, the traditional family represents.

STEPHANOPOULOS: So, you're against gay adoption.

MCCAIN: I am for the values and principles that two parent families represent. And I also do point out that many of these decisions are made by the states, as we all know.

And I will do everything I can to encourage adoption, to encourage all of the things that keeps families together, including educational opportunities, including a better economy, job creation.

And I'm running for president, because I want to help families in America. And one of my positions is that I believe that family values and family traditions are preserved.

STEPHANOPOULOS: Opponents of affirmative action are trying to get a referendum on the ballot here that would do away with affirmative action. Do you support that?

MCCAIN: Yes, I do. I do not believe in quotas. But I have not seen the details of some of these proposals. But I've always opposed quotas.

STEPHANOPOULOS: But the one here in Arizona you support.

MCCAIN: I support it, yes.

STEPHANOPOULOS: Finally -- and I'm just going to take a stab at this. I pretty much know the answer.

I've been told that when you're talking about your vice presidential pick, the way you characterize it is, you want to scramble the jets with your pick. What does that mean?

MCCAIN: I've never used that phrase.

STEPHANOPOULOS: Never used that phrase?

MCCAIN: Never.

STEPHANOPOULOS: So, what do you want to do with your pick?

MCCAIN: I want to be the best team that we can provide the United States of America in very difficult times.

STEPHANOPOULOS: Are you getting close on a decision?

MCCAIN: We are still in the process.

STEPHANOPOULOS: Senator McCain, thank you very much.

MCCAIN: Thank you.