This is a rush transcript from "On the Record," August 22, 2011. This copy may not be in its final form and may be updated.  GRETA VAN SUSTEREN, FOX NEWS HOST: Now, Libya, of course, is very far away from all of us, so why should you be thinking about Libya tonight? And why should you care? Just moments ago, we asked Senator John McCain.  VAN SUSTEREN: Senator, nice to see you, sir.  SEN. JOHN MCCAIN, R-ARIZ.: Nice to see you, Greta.  VAN SUSTEREN: Well, there's certainly a lot of things developing in Libya tonight. But let me ask you this because most Americans, as they look at what's going on and they think Libya is very far away from us. We've already spent about $896 million until the end of July on this war. We're already at two wars.  So what's the most convincing, compelling reason -- I know you're a strong supporter for this military action by NATO. Why Libya? Why are we -- why -- why are we helping them?  MCCAIN: I think we're helping -- I know we are helping them because Qaddafi is a person who is capable of carrying out acts of terror. He has the blood of Americans on his hands as a result of Pan Am 103. He is a person who over time would -- if he were able to succeed, would clearly train terrorists and export terrorism.  And by the way, I think that the TNC -- or the NTC, will govern. And I believe they will govern effectively. But we have a lot of challenges, including reconciliation and no human right abuses. We have to secure the arms depots. We have to make sure that the prisons are liberated because there's hundreds, if not thousands, of political prisoners. And we have to make sure, as much as we can, that we make a transition to this government as quickly as possible.  VAN SUSTEREN: You mentioned Pan Am 103. That's 1988. And you know, we've been waiting a long time for justice in America. And then we had the -- what I thought was one of the grossest insults to the United States, especially to the victims' families of 102, when Scotland released the -- one of the killers. He went home to Libya. He got a hero's welcome, and we just sort of stand there watching and do nothing. So I mean, like, you know, why now get tough when we've let all these things happen?  MCCAIN: Well, there was some funny business that went on with his release, as has been widely rumored. And I think that since he was dying was the reason why he was sent home. Since he's not dying, maybe he ought to be sent back.  But right now, there are arms depots, Greta, that are full of weapons, including possibly these hand-held surface-to-air missiles. So we've got to secure those depots so they don't get in the wrong hands.  We got to make sure that they don't just slaughter prisoners in prison. We've got to try to see that public buildings are not destroyed, as happened in Baghdad, so that the government can continue to function. We need to help them keep government supplying goods and services to the people.  That doesn't mean giving them money. In fact, they have even talked to me about reimbursing the United States for its costs incurred in this conflict. They have $30-some billion tied up, which will be freed up for them. Money is not the problem.  Making this transition is the real challenge. And a lot of things could go wrong, and we've got to do what we can to make it go right. And that means with technical assistance from the Europeans and ourselves.  VAN SUSTEREN: All right, you mentioned the weapons. With great fanfare, our government in about 2004, when Qaddafi apparently gave up his weapons of mass destruction and he was taken off the State Department's sponsor of terrorism list -- I mean, to great fanfare -- I mean, I thought that the United States was almost working sort of side by side as he was dismantling this. At least, that's what the appearance was when he was taken off the state-sponsored terrorism list. Am I wrong?  MCCAIN: I think you're right, especially though it was important for us, it was this nuclear capability which he had been developing. The surface-to-air missiles -- there are supposed to be thousands of them. We don't want to get those in the wrong hands, these hand-held weapons. We -- there are supposedly mustard gas stocks, as well.  And again, we ought to secure these depots just so that these weapons aren't spread out all over that part of the world. So yes, it was a good sign when he dismantled his nuclear capabilities, but it certainly was a long way from total disarmament.  VAN SUSTEREN: So are you saying that but for sort of the turmoil when some of the Libyans, the rebels took to the streets and created turmoil, that we sort of had sort of a heightened interest because of those weapons and how they could be used around the world, even (INAUDIBLE) Is that what spiked your interest in this?  MCCAIN: No, what spiked my interest in it was that the people of Libya rose up. They were on their way to Tripoli. If we declared a no-fly zone, it would have been over then. And I've got to say the United States intervening when Qaddafi was on the outskirts of Benghazi, said that he wanted to kill anyone, he would go house-to-house and kill anyone that opposed him -- that was a prevention of a catastrophe. And these people were fighting for freedom, for democracy and for their God-given rights.  And if Qaddafi had remained in power, there's no doubt that his efforts to foster terrorism throughout the world, particularly against the United States, would have been increased dramatically. So it became a national security issue.  What this is all about is the Arab spring, and Bashar Assad is next. And even places like China and Russia and other places, they are very uneasy. This is about people aspiring for freedom. And that's what the Libyan people have just achieved.  VAN SUSTEREN: Well, why -- how is that different than in June of 2009 in Iran, when there was the beginning to be the uprising? I mean, then we -- you know, we had a different -- we had no response. You know, I mean, should we have had a different response then, or I mean, your thoughts on that.  MCCAIN: Oh, I think the greatest mistake certainly in the early period of the Obama presidency was when people were chanting in the streets, the demonstrators, in English, Obama, Obama, are you with us or are you with them? And he came out and said he didn't want to jeopardize his chances to negotiate with the Islamic republic of Iran. We abandoned them, and the Iranians cracked down.  And by us not encouraging them, as, hopefully, we are encouraging the people of Syria, we really let them down and it was a huge mistake.  VAN SUSTEREN: In the last day or so, you were on CBS. And let me quote a word for you in describing Governor Palin. We always do this hair-splitting, trying to figure out what's going on. You described her as a, quote, "very formidable" challenger if she jumps into the race. First of all, what does "very formidable" mean? And do you have any inside information?  MCCAIN: I have no inside information. I think she would make a very viable candidate. I continue to appreciate her and her hard work and consider her always a good friend. And I think she would make a very big impact on the presidential campaign. She has a very strong following.  VAN SUSTEREN: I know that in 2007 at this time, things did not look like, you know, that you were going to get the nomination, which you ultimately did. Are things -- I mean, does there come a time when it becomes almost too late to get in? Obviously, the filing deadlines. But can candidates get in right now and be viable?  MCCAIN: Greta, let me remind you at this time in 2007, I was given up for dead. Everybody -- they weren't even mentioning my name as a candidate.  I think that it shows there's a lot of things that are going to happen between now and when we select our nominee. I think it's very clear that Romney is in a strong position and that Governor Perry has added a lot to the race. I congratulate Tim Pawlenty on running a fine race. I think Sarah will have an impact. I think Rudy Giuliani still may come into the race and I think have an impact. So I think there's a lot of things that are going to happen between now and then before we select our nominee. But I respect all of them. And certainly, I'm not ready to endorse at this time.  Could I add one point to you very quickly? ...  MCCAIN: ... back on Libya? Very quickly. Sorry to interrupt. But there's out there on a blog an allegation that somehow, the National Transition Council would favor imposition of Sharia Law. On March 11th, they have issued a manifesto, and I quote just from one sentence of it. "The state will guarantee the rights and empowerment of women in all legal, political, economic and cultural spheres."  I have detected no effort or motivation amongst the National Transition Council, many of whom I know well, to impose Sharia Law.  VAN SUSTEREN: And would you not agree, though, I mean, there's always uncertainy in situations like that, much like we have in Egypt, the uncertainty with who's going to -- you know, who's going to take control there and even who they are once they do take control.  MCCAIN: I believe that there is great uncertainty, Greta, particularly in a country that's never really known democracy. And so that's why I think it's incumbent upon us and the Europeans, not through money, but getting technocrats in there to provide goods and services from the government. Show them how an election works. They say it's going to be a two-year period, and I agree with that.  But we can provide them of enormous assistance. And of course, there are extremist elements there, as there are in every country. And we've got to do what we can to help them make that transition. I think that they are eager to do that without turning to radical Islam.  VAN SUSTEREN: Do you think President Obama has the same sort of commitment to helping them out that, for instance, you would like to see?  MCCAIN: I believe so. I think the president understands what's at stake here and that it's not only for the good of the Libyan people, but it's not in America's national security interests to see that country turn radical. And again, I've seen no indication that that's the case, but there's going to be two steps forward and one step back.
Sen. John McCain sounds off on the latest developments in Libya and the race for the White House.