This is a rush transcript from "Special Report," December 14, 2018. This copy may not be in its final form and may be updated.

BRETT BAIER, HOST: Changes at the White House. The new White House chief of staff, acting it's being called, is the budget director, Mick Mulvaney. He was rumored to be in the hunt, said he didn't want it after some time, and he got it. The president tweeting today "I'm pleased to announce that Mick Mulvaney, director of Office of Management and Budget, will be named acting White House chief of staff, replacing General John Kelly who has served our country with distinction. Mick has done an outstanding job while in the administration. I look forward to working with him in this new capacity as we continue to make America great again. John will be saying until the end of the year. He is a great patriot and I want to personally thank him for his service."

Mulvaney called it a tremendous honor. Earlier in May, talking to "The Weekly Standard," the late "Weekly Standard" who closed its doors today, said this is not about being chief of staff. "That's not a job you turn down. The president doesn't walk in and ask you if you want to be chief of staff. The president walks in and says you are the next chief of staff, and you say yes. You can't do it for more than 12 to 18 months. Nobody does. The bad news is that as soon as he says you are now the chief of staff it means you are on your way out, just inevitably. I'd take it. I think I'd be pretty good at it, but I don't think it's come to that." Well, now it has.

It's lady's night on the panel. Let's bring in our panel, Mollie Hemingway, senior editor at The Federalist, Susan Page, Washington bureau chief at USA Today, and national security analyst Morgan Ortagus. Susan, Mulvaney seems pretty well positioned for someone like this if you're looking for someone who is plugged in politically and knows kind of where the bodies are buried on Capitol Hill.

SUSAN PAGE, WASHINGTON BUREAU CHIEF, USA TODAY: And also knows how to work with President Trump, because he's done that successfully as budget director, he gave him an additional job over at the Consumer Safety, whatever it is -- Consumer Protection Agency. So that's all good, but it is a killer job. It's a killer job in any administration. It is double so in the Trump administration because of the all the things that come at you. And I think it's interesting that he's designated as acting. Does that tell us that was something he said to Trump -- I don't want to do this for the long term. I will just fill in for a time?

BAIER: Yes. And he kind of has it both ways. He could make his stamp and have the job permanently. And they're saying on background it is White House chief of staff even though it has the acting. And then if things implode or something doesn't work, he says I was just acting. I'm leaving.

MOLLIE HEMINGWAY, SENIOR EDITOR, THE FEDERALIST: Although I think that might happen no matter whether you are called acting or not. But people really liked General Kelly. And I think what they liked about his was that he did bring a lot of stability and order to the White House. And Mick Mulvaney brings that and also a very established record as a conservative, as someone who everyone recognizes has quite a few conservative positions. So I imagine this will make quite a few people happy.

BAIER: He was a member of the Freedom Caucus as a Congressman, Morgan, and pretty much a budget hawk in Congress. Obviously he's dealing with a budget proposal not as hawkish perhaps as he wanted to as a congressional member. But it's interesting that he is coming at a time to White House chief of staff when there is this budget battle and whether we're going to have a partial government shutdown or not.

MORGAN ORTAGUS, NATIONAL SECURITY ANALYST: That's a great point, Bret. I think he's a great pick from an economic perspective if that's the message that the president is going to continue to pound going into 2020.

I will say people on the DOD side and the national security side were not thrilled with the budget cuts that he proposed as OMB director. He did back down off those because the president wanted to continue the military spending that Mattis especially has argued for and proposed. So we will see what happens on the DOD side.

BAIER: Let's take a listen to Mike Cohen today talking about the president directing these payments.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: He is saying very clearly that he never directed you to do anything wrong. Is that true?

MICHAEL COHEN, FORMER TRUMP ATTORNEY: I don't think there is anybody that believes that. First of all, nothing at the Trump Organization was ever done unless it was run through Mr. Trump. He directed me to make the payments. He directed me to become involved in these matters. I gave loyalty to someone who, truthfully, does not deserve loyalty.

(END VIDEO CLIP)

BAIER: He went on to say he doesn't believe that the president is telling the truth about Russia. But we didn't get too many details out of that entire interview.

HEMINGWAY: I think if you have Michael Cohen there to answer any questions you have, you might ask for some specifics. It was all very nebulous. And I think it all is going to depend on what he says specifically. There are a lot of ways that you can make settlements and sign nondisclosure agreements that are in no way a campaign finance violation. It would require a pretty particular set of circumstances to convince anyone that it actually is a legitimate campaign finance violation. For some reason he wasn't asked about that. He wasn't asked about the dossier which had the central piece of it that he was an agent who had gone to Prague and secretly met with Russians. If I had Michael Cohen there to ask him some questions, I might ask whatever happened to that allegation, if it's true, and if it's not, what that means about the dossier in general.

BAIER: We've asked for that interview, and if we get it you can come on in.

(LAUGHTER)

BAIER: Susan, he wasn't asked if Donald Trump had made payments like this in the past which would have established some kind of something ahead of just the payments ahead of the campaign?

PAGE: You know who I bet asked all the questions. I bet investigators asked Michael Cohen all these questions. And what you heard in that interview even without specifics are three key points are very troubling for President Trump. One, Michael Cohen says he directed these payments. Number two, he knew they were illegal. Number three, it was for purposes of effecting the campaign.

HEMINGWAY: And you just have to trust Michael Cohen and then you're fine.

PAGE: You don't have to trust him. There are credibility problems with Michael Cohen, but he does lay out the three things you need to have to be true for this to really be a troubling thing.

BAIER: And the question we don't really know is whether there's backups, tapes, other documentation, other interviews, what Mueller has.

ORTAGUS: Right. And it's important to remember that he is going to jail for financial crimes, really, for tax fraud, for bank fraud. And if you look at what the southern district said about his credibility, it's very different than what the Mueller team has said and alleged. And I think that's it's important to note here that what he has pled to is not litigated in court as it relates to the campaign finance violations. These are things that he pled to. And really, if anything ever affects President Trump it will have to go before the Congress and Republican Senate who I don't think -- we did this during the '90s and it did not end well for them.

BAIER: Meantime, the Special Counsel in a rare disclosure pushing back on the characterization that somehow the interview of Michael Flynn, the former national security adviser, was handled poorly. In this memo says "Nothing about this way the interview was arranged or conducted caused the defendant to make false statements to the FBI on January 24th. The defendant chose to make false statements about his communications with the Russian ambassador weeks before the FBI interview. When he lied about the topic to the media, the incoming vice president and other members of the Presidential Transition Team. When faced with the FBI's questions on January 24th during the interview that was voluntary and cordial, the defendant repeated the same false statements. The court should reject the defendant's attempt to minimize the seriousness of those false statements to the FBI. While the circumstances of the interview do not present mitigating considerations assuming the defendant continues to accept responsibility for his actions, his cooperation and military service continue to justify a sentence at the low end of the guideline range."

Mollie, here's what I don't understand, and I never understood -- Michael Flynn as general, as the head of the Defense Intelligence Agency, knew that the Russian ambassadors phone calls were taped and listened to and transcribed. He knew that. So when he's talking to them, of course he knows that someone is listening somewhere. Why would he lie about what he told the Russian ambassador?

HEMINGWAY: There is so much that's interesting in these filings that we got today. Yes, the Special Counsel is pushing back hard and saying there was nothing mitigating in these interview circumstances that should make you be too lenient on Mike Flynn. But everything that they provided sort of tells another story.

They mentioned, for instance, that Andrew McCabe talked to him the day of that interview and Flynn said to McCabe, I'm sure you know what I said. In other words, I'm sure you're listening in on this phone call. And so the allegation that he lied about this is kind of a little bit difficult to swallow when in addition we learned today that the agents who interviewed him did not think that he lied. So we have a plea that he agreed that he lied, and everyone seems to agree, but there is nothing to support this game.

And what's also interesting is that the judge specifically requested all 302s, all of those documents that the FBI has to file after they interview someone. They didn't provide one of an interview of Flynn. Instead they provided one seven months later of an interview of Peter Strzok just before he got removed from the special counsel. It's a really word circumstance. And Emmet Sullivan is a judge who tends not to like such shenanigans, particularly with 302s, so we might get more on this story.

BAIER: Susan, he was, though, fired from the administration for lying.

PAGE: Right. And he said he lied. He has previously acknowledged lying.

BAIER: So maybe there is other pressure that's put on Flynn and this is what he does?

PAGE: I don't know. Another argument he made today was that they didn't warm him that he had to tell the truth. But I'm telling you, if two FBI agents showed up to talk to me, I think my assumption would be you better tell them.

HEMINGWAY: Except that's what came out with the other thing that they filed, which is McCabe specifically said to him, no worry. Don't worry about it. We don't want to involve lawyers or anything. We'll just have a friendly chat. The other they did is the day before they leaked to the "Washington Post" that they had completely cleared Flynn just to make sure he was very comfortable and didn't think there was any entrapment here. I think these are all interesting things.

BAIER: Yes, but listen, he is the ahead of a defense intelligence agency. He knows sitting down with federal agents that you've got to tell the truth.

ORTAGUS: I think Mollie is making a great point as it relates to how the FBI handled this. Saying all that, he still lied to the vice president of the United States, he admitted lying to the vice president. And that's the problem, and that's the principle reason why the president stated that he fired him. So we should probably look into what the FBI did, totally agree with Mollie. But lying to the vice president is a non-starter.

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