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Perjury Probe of Gonzales; Subpoena for Rove; 'Bush-Cheney Lite' Charge; Obama and Clinton Advisors Butt Heads; Death of Pat Tillman

Aired July 26, 2007 - 16:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


WOLF BLITZER, CNN ANCHOR: Happening now, the breaking news on the stock market's nosedive. We're going to have much more on the plunge and what it means to you.
Also, Democrats getting tough, swinging at two top Bush administration officials. This hour, a new call for a perjury probe of the attorney general, Alberto Gonzales. And a new subpoena for the political adviser, Karl Rove.

Plus, Barack Obama suggests a Hillary Clinton White House might be Bush-Cheney lite. And Senator Clinton calls us up to fire back at Obama. That interview adding more fuel to a red-hot war of words.

And in the Republican presidential race, Mitt Romney may be ready to give a long-awaited speech about his religion. And John McCain's staffers continue to jump ship.

I'm Wolf Blitzer. You're in THE SITUATION ROOM.

Some top Senate Democrats say they're fed up with what they call half-truths and possibly outright lies from the attorney general of the United States. So, they're now calling for a special counsel to launch a perjury investigation of Alberto Gonzales.

The Democrats are raising the stakes in the showdown over the firing of those federal prosecutors and the president's domestic surveillance program. Another dramatic example of that? The Senate Judiciary Committee chairman says he's ready to slap the president's top political guru, Karl Rove, with a subpoena.

Let's begin our coverage with our congressional correspondent, Dana Bash.

Dana, first on Gonzales, the Democrats are taking this to a brand new, a whole new level.

DANA BASH, CNN CONGRESSIONAL CORRESPONDENT: They sure are. You know, Alberto Gonzales has been beaten up here for months by lawmakers from both parties. But today, Democrats said his problem isn't just political. It may be criminal.

(BEGIN VIDEOTAPE)

UNIDENTIFIED MALE: The truth, the whole truth. BASH (voice over): It is a very serious charge. Senate Democrats say the attorney general may have committed a crime by lying to them under oath.

SEN. DIANNE FEINSTEIN (D), CALIFORNIA: Obfuscation, prevarication and untruths from the leader of this huge and critical department.

BASH: Democrats want a special counsel to investigate whether Alberto Gonzales perjured himself or misled Congress during several combative hearings. For example, Gonzales testified that he did not talk to his aides about an inquiry into fired federal prosecutors.

ALBERTO GONZALES, U.S. ATTORNEY GENERAL: I haven't talked to witnesses, because of the fact that I haven't wanted to interfere with this investigation.

BASH: But one of his top aides later said they did discuss it and it made her uncomfortable.

MONICA GOODLING, FMR. JUSTICE DEPT. COUNSELOR: He laid out his general recollection of...

UNIDENTIFIED MALE: Recollection of what, Ms. Goodling?

GOODLING: Of some of the process. And I just thought maybe we shouldn't have that conversation.

BASH: On another controversial issue, warrantless wiretapping, Democrats accused the attorney general of lying about the subject of a 2004 congressional meeting and contradicting himself about whether administration officials had disagreements about the surveillance program.

Gonzales last year...

GONZALES: There's not been any serious disagreement about the program that the president has confirmed.

BASH: Gonzales this week...

GONZALES: Mr. Comey had informed us that he would not approve the continuation of a very important intelligence activity.

SEN. CHARLES SCHUMER (D), NEW YORK: Those are not misleading. Those are deceiving. Those are lying.

(END VIDEOTAPE)

BASH: Republicans call all this pure politics. Even Senator Arlen Specter, who has said he wants the attorney general to go, he says he does not support this perjury investigation, or at least a call for that investigation.

And, Wolf, neither does the Democratic chairman of the Judiciary Committee. Instead, Senator Patrick Leahy sent Gonzales a letter today. He give him a one-week deadline to clear up any misstatements from any of the hearings before his committee -- Wolf.

BLITZER: And the chairman of the Judiciary Committee, Patrick Leahy, also targeting another top White House official. That would be Karl Rove, saying he wants to subpoena Karl Rove in connection with the firing of those prosecutors.

Let's listen to this.

(BEGIN VIDEO CLIP)

SEN. PATRICK LEAHY (D-VT), JUDICIARY CHAIRMAN: We've now reached a point where the accumulated evidence shows the political considerations factored into the unprecedented firing of at least nine United States attorneys last year. Testimony and documents show that the list was compiled based on input from the highest political ranks and the White House, including Mr. Rove and Mr. Jennings. And today, I will subpoena Mr. Rove.

(END VIDEO CLIP)

BLITZER: All right, so Karl Rove being subpoenaed. A lot of other officials have been subpoenaed by the Democratic majority in the House and the Senate.

Why Rove now?

BASH: Well, you know, Wolf, Democrats have said from the beginning that they were building this, just like any investigation. They were building towards their prime target. In this case, it is Karl Rove.

And you just heard the judiciary chairman. He says that he does now have evidence that there were political considerations involved in the firing of these federal prosecutors and that Rove was involved in this. But they also know, Wolf, by sending this subpoena to Karl Rove, they are going to get the same answer they've gotten on every other subpoena they've sent for a top Bush official. They are going to get the answer is no, because they're going to claim over at White House executive privilege.

BLITZER: Dana watching this on the Hill.

Thanks, Dana.

Let's get some White House reaction now to this one-two punch by Senate Democrats. We'll go to our White House correspondent, Suzanne Malveaux.

First the reaction over at the White House to the call for a perjury probe of the attorney general, Alberto Gonzales.

SUZANNE MALVEAUX, CNN WHITE HOUSE CORRESPONDENT: Well, Wolf, you're absolutely right, it's a one-two punch. The Bush administration definitely striking back today. And really, the president is embracing a very familiar strategy. That is, to back Alberto Gonzales. He's backing his man, essentially putting out his spokesman to take on the heat. We heard from Tony Snow today saying, "It's a very complex issue, but the attorney general was speaking consistently. The president supports him. I think at some point this is going to be something where members are going to have to go behind closed doors and have a fuller discussion of the issues, but I can't go any further than that."

Wolf, they feel they've been down this path before, that they can weather this storm. But one thing that Dana said, about to back up here, is White House officials are taking comfort from the fact that Arlen Specter, the ranking Republican of the Judiciary Committee, did not come out and support this kind of perjury investigation. They believe that if the Republicans can back them on that, then they can hold their ground here and that perhaps the Democrats are overplaying their hand.

BLITZER: What's the reaction at the White House, Suzanne, to the subpoena issued for Karl Rove?

MALVEAUX: Well, there's certainly two things going on here.

One, they feel they are on solid legal ground, executive privilege. That they are trying to protect the president's ability to speak with his advisers freely, confidential conversations here. So they are going to stick with their executive privilege argument.

At the same time, they're trying to paint Congress as being unreasonable here, political here. We heard from spokesman Tony Fratto, saying, "Every day this Congress gets a little more out of control. A new call for a special prosecutor, a new investigation launched, a new subpoena issued, an unprecedented contempt vote, and an old score somehow settled. All of this while appropriation bills go unpassed and FISA modernization, energy and other important issues go unaddressed."

They are trying to paint Congress as a do-nothing Congress and put the focus and the criticism back on them -- Wolf.

BLITZER: Suzanne at the White House.

Thank you.

There's a late, but dramatic piece of evidence against the attorney general, Alberto Gonzales. The FBI director, Robert Mueller, testified before Congress today about a 2004 confrontation between Gonzales and the then attorney general, John Ashcroft. At the time, Gonzales was the White House counsel.

Gonzales told the Senate last Tuesday he had visited Ashcroft in the hospital to discuss intelligence activities but not the administration's warrantless wiretap program. Under pressing questions by lawmakers, Mueller told the House Judiciary Committee today that the conversation was, in fact, about the domestic surveillance program.

(BEGIN VIDEO CLIP)

REP. SHEILA JACKSON LEE (D), JUDICIARY COMMITTEE: Would I be comfortable in saying that those were the items that were part of the discussion?

ROBERT MUELLER, FBI DIRECTOR: It was -- the discussion was on a national -- an NSA program that has been much discussed.

(END VIDEO CLIP)

BLITZER: We're going to have a lot more on this critical new development here in THE SITUATION ROOM.

And I'm also going to be getting reaction to all of this from the White House press secretary, Tony Snow. He's standing by. He'll join us live in THE SITUATION ROOM as well.

Let's check in with Jack Cafferty right now. He's got "The Cafferty File".

The subpoenas, Jack, they're flying all over the place right now. It sort of reminds me what the Republican majority used to do to the Clinton White House. You remember those days?

JACK CAFFERTY, CNN ANCHOR: Yes, but those days are gone and these days are all over us.

We have the director of the FBI suggesting that the attorney general of the United States lied to Congress about discussions that took place in John Ashcroft's hospital room. Am I -- am I getting the essence of that story?

BLITZER: Yes, you are.

CAFFERTY: Yes. That's just great.

Congressmen -- this is about something perhaps not as earthshaking as that, but congressmen are complaining about an ethics bill -- they do that, you know -- that the House of Representatives passed earlier this week. If the bill becomes law, it would bar a candidate's spouse from being paid by the campaign or political action committee. It would also apply to companies where the spouse is an officer or director.

The bill doesn't bar other family members from getting paid by the campaign. But the candidate would have to disclose that information.

It sounds reasonable. So, what's the problem?

"The Politico" reports some members of Congress say their spouses could lose their jobs. Their family incomes could drop, and the whole pattern of their family lives could change.

I may have to reach for a Kleenex, because I'm starting to tear up here. Supporters of the bill say employing a spouse can create a conflict of interest and tempt lawmakers to overpay them for doing very little. It could also suggest to contributors that some of their donations go right to the candidate's family.

A recent report by a liberal watchdog group called Citizens for Responsibility and Ethics in Washington -- there's a title -- found in the last six years, about five dozen House members spent $5.1 million in campaign funds to pay their relatives, or relatives' companies, or relatives' employers.

So here's our question this hour: Should political campaigns be prohibited from hiring the candidate's spouse?

E-mail us at caffertyfile@cnn.com or go to cnn.com/caffertyfile -- Wolf.

BLITZER: You know, a lot of children are on the payroll, too. And then cousins, distant uncles and aunts. It becomes a big-time family affair sometimes.

CAFFERTY: Goldfish, parakeets. I mean, everybody gets a check.

BLITZER: Stand by, Jack. Thank you very much.

Coming up, Hillary Clinton versus the Pentagon. The Defense secretary writes a letter directly to the presidential candidate saying what he will and will not do regarding Iraq. Our John King just spoke to Senator Clinton. He's standing by with details on that.

Also, Senator Clinton says she's been called a lot of things in her life, but never Bush-Cheney lite. That, after Barack Obama suggested it. I'll speak with representatives of both Democratic presidential camps.

And there are new developments right now regarding the man who sparked an international health scare. Andrew Speaker is out of the hospital, and doctors putting out some surprising details about his current condition.

Stay with us. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: There's no letting up in the war of words under way between Hillary Clinton and Barack Obama that began on our debate stage Monday night. Today, Obama is accusing Clinton of embracing a Bush-Cheney lite brand of diplomacy, and now Clinton is firing right back.

Let's bring in our chief national correspondent, John King.

Tell us a little bit more about what's going on. But you spent time with Senator Clinton today.

JOHN KING, CNN CHIEF NATIONAL CORRESPONDENT: I did. And this is in the middle of this remarkable back-and-forth between the two top candidates in the Democratic race for president.

Senator Obama started the latest round this morning. He's campaigning up in New Hampshire, and he pinned what Democrats would consider a most unfriendly label on the Democratic front-runner.

(BEGIN VIDEO CLIP)

SEN. BARACK OBAMA (D-IL), PRESIDENTIAL CANDIDATE: I don't want a continuation of Bush/Cheney. I don't want Bush-Cheney lite. I want a fundamental change.

It's time to turn the page on how we do business and say to the world, we are ready to lead. We are ready to lead by deed and example.

(END VIDEO CLIP)

KING: Now, it's safe to assume being compared to the current president and vice president didn't go down too well with Mrs. Clinton. In an interview with CNN, she suggested her rival was abandoning his promise of smear-free campaigning.

(BEGIN VIDEO CLIP)

SEN. HILLARY RODHAM CLINTON (D-NY), PRESIDENTIAL CANDIDATE: This is getting kind of silly. You know, I've been called a lot of things in my life, but I've never been called George Bush or Dick Cheney, certainly. You know, you have to ask, whatever has happened to the politics of hope?

(END VIDEO CLIP)

KING: Amid all this sniping, both senators holding firm on the question that started the dustup back Monday night, Senator Obama's statement that he would be quickly to meet as president with the leaders of rogue nations that President Bush has refused to deal with. Leaders like the president of Iran and Venezuela and Cuba. Mrs. Clinton says it's irresponsible to make such a promise up front without first doing some delicate diplomacy.

(BEGIN VIDEO CLIP)

OBAMA: If we want fundamental change, then we can't be afraid to talk to our enemies. We can't be afraid. I'm not afraid of losing the P.R. war to a dictators. I'm happy to look them in the eye and say what needs to be said. I'm happy to tell them what I think.

I'm not going to avoid them. I'm not going to be -- hide behind a bunch of rhetoric.

(END VIDEO CLIP)

(BEGIN VIDEO CLIP)

CLINTON: I have been saying consistently for a number of years now, we have to end the Bush era of ignoring problems, ignoring enemies and adversaries. And I have been absolutely clear that we've got to return to robust and effective diplomacy. But I don't want to see the power and prestige of the United States president put at risk by rushing in to meetings with the likes of Chavez and Castro and Ahmadinejad.

(END VIDEO CLIP)

KING: Senator Clinton conceding in that interview, Wolf, that it's getting a little bit more personal a little earlier than she anticipated. She says, though, we're in an intense phase of the Democratic primaries. Her campaign thinking Obama is nervous because he hasn't been able to move the poll numbers by being the candidate of hope, as he likes to put it, by not attacking his rivals.

The Obama says, no way. They think Mrs. Clinton represents the past and that voters will embrace his new approach.

BLITZER: Because from his camp, you get the word, well, he raised a lot more money and a lot -- a significant -- significantly more money than she did, and he's narrowing the gap in some of the national polls.

KING: He is. And they understand, the Obama camp, they cannot back down on this point, because the fundamental question here is not just what he said in the debate. It is the question of, is he experienced enough to be president?

If they blink and give into Senator Clinton on this one, they believe in the Obama campaign it will open the door to even more attacks on that. They know on this one, the first big fight between the two at the top, they can't back down.

BLITZER: All right, John. Thanks very much.

John King reporting.

And later we're going to be speaking with surrogates from both camps, the Clinton camp, the Obama camp. They're both coming in to THE SITUATION ROOM. We'll continue this conversation on what's going on, this feud between the Democratic front-runners.

Meanwhile, Senator Clinton is also involved in another feud, this one with the Pentagon. The defense secretary, Robert Gates, has now written a letter directly to the presidential candidate saying what he will and will not do regarding Iraq.

Let's go to our senior political analyst, Bill Schneider, who's joining us.

Bill, CNN was the first to obtain Secretary Gates' response to Senator Clinton and her reaction to it. Tell our viewers what we're learning.

WILLIAM SCHNEIDER, CNN SR. POLITICAL ANALYST: Well, what we're learning is the Bush administration wants this controversy over, for good reason. (BEGIN VIDEOTAPE)

SCHNEIDER (voice over): In May, Hillary Clinton wrote Defense Secretary Robert Gates a letter requesting information about the Pentagon's contingency plans for the withdrawal of U.S. troops from Iraq. Under Secretary Eric Edelman dismissed her request, saying, "Premature and public discussion of the withdrawal of U.S. forces from Iraq reinforces enemy propaganda that the United States will abandon its allies in Iraq, much as we are perceived to have done in Vietnam, Lebanon and Somalia."

Clinton was outraged.

CLINTON: I asked the Pentagon a simple question: "Have you prepared for withdrawing our troops?" In response, I got a letter accusing me of being unpatriotic, that I shouldn't be asking questions.

SCHNEIDER: On Thursday, Gates sent Clinton a conciliatory response. "We do not claim, suggest or otherwise believe that congressional oversight emboldens our enemies, nor do we question anyone's motives in this regard." Gates also advised the senator, "There are multiple audiences for what we say and need to be careful not to undermine the morale of our troops or encourage our enemies."

Gates wrote that planning for the drawdown of U.S. forces at the right time was appropriate and essential and offered to keep congressional oversight committees informed of those plans.

Clinton's office said the senator disappointed that Gates did not repudiate Edelman's attack, but welcomed his acknowledgement that congressional oversight is essential.

Did a confrontation with the Pentagon enhance Clinton's standing with Democrats? You bet. As her rival acknowledged, before getting his own criticism in.

OBAMA: I think it's terrific that she's asking for plans from the Pentagon. And I think the Pentagon response was ridiculous. But, what I also know is that the time for us to ask how we were going to get out of Iraq was before we went in.

(END VIDEOTAPE)

SCHNEIDER: Gates expressed regret that "this important discussion went astray," adding, "I also regret any misunderstanding of intention."

Now, Senator Clinton expressed disappointment, but no regrets -- Wolf.

BLITZER: She is a member of the Senate Armed Services Committee as well.

Thanks, Bill, for that.

Bill Schneider, doing some good reporting for us.

What's driving the stock market down? We're going to have a live report from Wall Street on the closing numbers and whether the Dow is likely to bounce back.

And Democrats versus Republicans and the race for the White House. A crushing result in a new poll. We'll tell you what's going on. Donna Brazile and Terry Jeffrey, they're standing by for our "Strategy Session".

(COMMERCIAL BREAK)

BLITZER: The markets are now closed. Many people are still talking about U.S. stocks plummeting today.

(STOCK MARKET REPORT)

BLITZER: Democrats Hillary Clinton and Barack Obama are taking the gloves way off. Representatives of both camps standing by to join us live here in THE SITUATION ROOM to pick up where the presidential candidates' feud left off.

And later, the White House press secretary, Tony Snow, confronted with questions about possible perjury by the attorney general. My interview with Tony Snow. He's standing by live as well.

Stay with us. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: Happening now: It would be a stinging punishment. It concerns the controversial death of Army Ranger and football star Pat Tillman.

Sources tell CNN a top military official criticized for providing misleading information about Tillman's death could receive a very rare rebuke. We will have more on this story coming up.

The governor of Virginia says Michael Vick is accused of participating in -- quote -- "in what will make your blood boil cold." That's what he says. Vick is in Virginia today facing accusations that he entertained himself by watching dogs fight to the death. And we have just learned he's pleading not guilty.

And a Barry Bonds curveball aimed at Bob Costas. After Costas interviewed a man who links Bonds to steroid use, Bonds calls the veteran sportscaster -- and, once again, I'm quoting -- "a midget, a midget man, who knows absolutely jack about baseball."

I'm Wolf Blitzer. You're in THE SITUATION ROOM.

Two Democratic presidential candidates continue to spar in a verbal slugfest -- more now on one of our top stories. Senators Hillary Clinton and Barack Obama are blasting each other with words like irresponsible and naive. Part of it concerns the issue of dealing with the world's dictators. Joining us now, two guests. Howard Wolfson is the communications director for the Clinton campaign. From Chicago, David Axelrod. He's chief strategist for the Obama campaign.

Guys, thanks very much for coming in.

And let me remind you and all of our viewers the source of this latest exchange between both of your camps, these comments made at the CNN/YouTube debate Monday night, when they were asked whether they would meet with a whole bunch of dictators during the first year of their presidency.

(BEGIN VIDEO CLIP)

SEN. BARACK OBAMA (D-IL), PRESIDENTIAL CANDIDATE: I would. And the reason is this, that the notion that somehow not talking to countries is punishment to them -- which has been the guiding diplomatic principle of this administration -- is ridiculous.

(APPLAUSE)

SEN. HILLARY RODHAM CLINTON (D-NY), PRESIDENTIAL CANDIDATE: Well, I will not promise to meet with the leaders of these countries during my first year. I will promise a very vigorous diplomatic effort, because I think it is not that you promise a meeting at that high a level before you know what the intentions are.

(END VIDEO CLIP)

BLITZER: And those numbers, the squiggly lines that you saw in the middle, were undecided Democrats deciding whether they liked or didn't like the respective answers. And, in New Hampshire, they sort of liked what Senator Obama said, didn't like what Senator Clinton said.

First question to you, Howard.

Any regrets on your campaign's part on how this exchange has developed?

HOWARD WOLFSON, CLINTON CAMPAIGN COMMUNICATIONS DIRECTOR: Absolutely not.

You know, Wolf, today, Senator Obama referred to Senator Clinton as Bush-lite. Six months ago, he entered the race promising to elevate our politics. And I just want to know and Senator Clinton asked today, what happened to the politics of hope, David? Is Senator Clinton really like George Bush?

I mean, are any of the Democrats running comparable to George Bush?

BLITZER: I believe the exact quote was Bush/Cheney-lite.

David, what do you say? DAVID AXELROD, CHIEF OBAMA CAMPAIGN STRATEGIST: I say to Howard that the politics of hope is ending a foreign policy that has been predicated on the notion that somehow we make advances as a country by not engaging our adversaries.

That's what this is all about. This is not about little tactical squabbles. This is about a fundamental principle. Are we going to engage our enemies and have a dialogue and try and push forward the cause of peace and make us our country stronger and more secure, or are we not?

And that's really what this is about.

WOLFSON: Wolf, Wolf...

(CROSSTALK)

AXELROD: We say ending the Bush/Cheney -- ending the Bush/Cheney policy of nonengagement is part of the politics of hope, part of the politics of change. And, if you don't subscribe to it...

(CROSSTALK)

BLITZER: Hold on. One at a time.

Go ahead, David. Finish your thought.

AXELROD: No, and that's what this is fundamentally about. That's what Senator Obama stands for, ending that disastrous foreign policy, and turning the page on -- on the disastrous failure that we have seen.

BLITZER: He's not backing away. I didn't hear him backing away from the Bush/Cheney-lite comment, Howard.

WOLFSON: Well, I think that's unfortunate. It certainly doesn't represent the politics of hope. I don't what kind of politics it represents, but I don't think it's what Democratic primary voters are looking for.

And I don't think anyone is going to find it particularly credible that Hillary Clinton, who has spent the entirety of the Bush/Cheney presidency fighting George Bush's disastrous policies, is somehow similar to George Bush.

But, you know, David is avoiding the question that was asked by the questioner at the debate. The question wasn't whether or not we want to turn the page on George Bush's diplomatic cowboy style. Of course, Senator Clinton and Senator Obama agree on that.

The question was very specifically asked, would you commit to meet with the dictators of these countries, without conditions, in the first year of the presidency? Senator Clinton said, no, we have to engage in diplomacy. But we don't pre-commit. We don't give away our leverage. We don't give the -- these dictators a public relations coup. Senator Obama said, yes.

There's a difference there.

BLITZER: All right.

WOLFSON: It's not about whether we change the Bush diplomacy. But it's about whether or not we conduct smart diplomacy that's good for our nation.

BLITZER: David?

AXELROD: I think you better go back and look at the transcript, Howard. It didn't say, will you commit? It said, would be willing?

And the fact is, any president of the United States should be willing to sit down with any foreign leader if it might advance the causes of the United States -- the cause of the United States of America. And that is what the point is here.

WOLFSON: David, I'm confused about Senator Obama's position.

(CROSSTALK)

WOLFSON: Is really willing? Will he consider? Is he going to do it?

(CROSSTALK)

BLITZER: Howard, hold on.

(CROSSTALK)

BLITZER: Let him finish.

AXELROD: Wolf, are we going to continue down this road, the Bush/Cheney policy, the evil axis policy of nonengagement, or are we going to vigorously engage leaders in this world to push our security interests forward, to push the cause of conflict resolution...

(CROSSTALK)

AXELROD: That's what this is all about.

BLITZER: Let me try to move this forward.

WOLFSON: Yes, let's move it forward, Wolf, because I don't understand what Senator Obama's position is.

It seems like he now has two positions. When -- after -- directly after the debate, David come out -- David Axelrod came out and said, no, Senator Obama wasn't saying we would actually have summitry. We were talking about a conversation with world leaders.

Senator Obama seems to be saying, no, I'm actually talking about sitting down with them. Now David Axelrod is back, saying, no, that's not what we mean.

AXELROD: No, I'm not saying that. I'm saying...

(CROSSTALK)

WOLFSON: Is Senator Obama committing to meet with these people or not?

(CROSSTALK)

BLITZER: All right.

AXELROD: The -- the question -- you have misstated the question that was asked. What Senator Obama said is, he is not afraid to...

WOLFSON: I'm asking Senator Obama's position.

AXELROD: ... sit down with -- well, no, no, Howard...

(CROSSTALK)

BLITZER: Hold on. David, finish your thought. Go ahead.

(CROSSTALK)

AXELROD: Howard, Howard, Howard, Howard, Senator Obama has said that he's willing to sit down with any foreign leader.

Now, they may not like what he has to hear, but he believes that we don't resolve our conflicts, we don't push the ball forward, in terms of resolution of our differences, by not having a dialogue.

BLITZER: Here -- here's the...

AXELROD: And that is, I think, the way the -- that's what the -- most of the American people feel.

Now, you can engage in sort of tactical political maneuvering around that, but that's the fundamental principle...

(CROSSTALK)

BLITZER: Hold on, Howard.

(CROSSTALK)

AXELROD: This is about a fundamental change in our foreign policy.

WOLFSON: You're right.

(CROSSTALK)

WOLFSON: And, with all due respect, if you want to talk about tactical political maneuvering, it's about one Democrat comparing another Democrat to George Bush. That's the worst kind of tactical political maneuvering.

AXELROD: No, he was comparing a policy...

(CROSSTALK)

WOLFSON: From a senator who promised us the politics of hope, very disappointing.

(CROSSTALK)

AXELROD: When -- when you say that you will not meet with foreign leaders...

WOLFSON: Well, that's not what she said either.

AXELROD: ... that you will hold out as a reward -- you will hold out as a reward, and set of a series of preconditions, if you have a chance to move the ball forward, that is the policy of George Bush. It is a disastrous policy.

(CROSSTALK)

WOLFSON: So, now -- I'm sorry. Now -- now you are saying you will met with them.

BLITZER: Stand by one minute.

(CROSSTALK)

BLITZER: David, David, I want to give you a chance. Do you want to take back or leave on the table the reference to Bush/Cheney-lite and that Hillary Clinton's policy, in effect, could turn out to be that?

AXELROD: When you say that you will not sit down with foreign leaders who are hostile to us, when you will set a series of preconditions, when you -- that is exactly the policy that we have seen for the last six years.

And even George Bush has changed his mind. Now we are in dialogue with the Iranians, the Syrians, and the North Koreans, although five nuclear weapons...

(CROSSTALK)

BLITZER: Hold on.

(CROSSTALK)

BLITZER: Hold on, guys.

(CROSSTALK)

BLITZER: I'm taking that, David, as a no, you don't want to revise the -- the Senator Obama statement? AXELROD: Unless the -- unless the senator -- and Senator Clinton's revising her policy. We need to push the diplomacy vigorously in this world. We need to sit down with our adversaries, as well as our allies.

(CROSSTALK)

WOLFSON: And we -- we agree with that. It's just a question of whether or not we commit to doing it.

(CROSSTALK)

AXELROD: That's the change -- that's the change -- that's the change we need.

BLITZER: Here's the point that Senator Obama and his -- Howard, here's the point that Senator Obama and his team have made against Senator Clinton.

She accuses him of perhaps being naive in willing to sit down with Kim Jong Il or Castro or Ahmadinejad or any of these guys. He says she was naive when she voted to support a resolution authorizing the president to go to war.

WOLFSON: Well, Wolf, I will address that.

But I'm more interested in the fact that, first, we were compared to George Bush. Now David just said we're worse than George Bush, if I understood him correctly.

AXELROD: No, you didn't understand me correctly, Howard.

(CROSSTALK)

WOLFSON: OK.

(CROSSTALK)

AXELROD: I'm not even comparing personality.

WOLFSON: No?

AXELROD: What I am saying is that, if you embrace a policy of nonengagement with our adversaries...

(CROSSTALK)

AXELROD: ... if you're afraid to sit down with them, if you -- if you think, somehow, that you are punishing them by not talking to them, you are embracing the politics of George Bush and Dick Cheney.

WOLFSON: Hillary Clinton has...

(CROSSTALK)

AXELROD: That's the point I'm making. And let me make it very clear, so you understand it.

(CROSSTALK)

WOLFSON: Well, then let me say precisely what Senator Clinton's position is, because Senator Obama's position isn't clear to me, listening to you articulate it.

Senator Clinton believes in vigorous diplomacy with our allies and with our enemies. She believes that we need to talk to folks. She does not believe that we ought to be committing, a year-and-a-half before somebody enters the White House, that you would sit down with the five dictators in one-on-one summitry without any preconditions, which is what Senator Obama apparently has agreed to, although I'm still not exactly clear what his position is.

(CROSSTALK)

AXELROD: Well, the -- first of all, the question was, would you be willing to meet with these leaders? And he said, yes, I would be willing to meet with these leaders.

And his further point was that, if we continue to embrace this policy -- we should -- we should embrace the policy of Ronald Reagan...

BLITZER: All right.

AXELROD: ... who spoke to the Soviets during the -- during the Cold War, of JFK...

WOLFSON: Yes.

AXELROD: ... who had a dialogue with...

(CROSSTALK)

BLITZER: All right, guys.

AXELROD: That's what a strong, confident country does.

WOLFSON: Just a history lesson.

BLITZER: We are out of time.

WOLFSON: Ronald Reagan met with Gorbachev in year six of his presidency. He didn't commit to meet with the five dictators in year one.

BLITZER: All right, guys, stand by. Thank you very much.

I want to leave both of you with this latest "Hotline" poll number, Democratic primary voters' choice for the nominee. It's getting close out there, nationwide, 39 percent in this poll for Senator Clinton, 30 percent for Senator Obama, 11 percent for Edwards.

This is a race. And I think the nature of the race was underscored by the two of you today.

Guys, thanks very much for coming in.

WOLFSON: Thank you.

AXELROD: Thank you.

BLITZER: And Republican Mitt Romney may have some explaining to do. The presidential candidate may be closer to addressing his Mormon faith in a very public way. We're going to tell you what he's planning on doing, what we're learning right now.

And the CNN/YouTube debate left some Democratic presidential hopefuls wanting more. We will tell you what is going on, on that front that as well.

Stay with us. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: Your taxes, religion, staffers jumping ship, a big endorsement, it's all happening today out on the campaign trail.

Let's go to Mary Snow. She's following all the action -- Mary.

MARY SNOW, CNN CORRESPONDENT: Well, Wolf, seven of the presidential hopefuls are in two crucial states today.

(BEGIN VIDEOTAPE)

MITT ROMNEY (R), PRESIDENTIAL CANDIDATE: The people who have been appointed to the court by the president are superb. Roberts and Alito are terrific. I also think that the philosophy of Scalia and Thomas are exactly what the court needs.

SNOW (voice-over): Mitt Romney talking like a conservative in Iowa, but, as often happens, the subject of his faith comes up.

ROMNEY: Well, I can't imagine a Mormon would think it would be terrible to appoint a Mormon. So, I -- no, but I am. All right. So, I don't think it's -- I guess -- I guess, when I think about appointing people to a court, I don't ask their religion.

SNOW: The former Massachusetts governor tells the Associated Press he will probably deliver a speech explaining the role his religion plays in his political life. Says Romney, "I haven't made a final decision, but it's probably more likely than not."

John McCain, campaigning in New Hampshire one day after more of his staff called it quits. Advertising consultants are latest to jump ship. Campaign aides play it down, and the senator from Arizona is sticking by his guns when it comes to his support for the war in Iraq.

SEN. JOHN MCCAIN (R-AZ), PRESIDENTIAL CANDIDATE: I have said it once, and I will say it many more times. I would rather lose a campaign than lose a war. SNOW: John Edwards in Iowa, touting his new tax plan.

JOHN EDWARDS (D), PRESIDENTIAL CANDIDATE: It's time for to us restore some fairness to this tax code. It's been driven completely out of whack by the lobbyists in Washington.

SNOW: The former senator from North Carolina says he would increase taxes for wealthy Americans and create tax breaks for the middle class.

A big endorsement today for Barack Obama in New Hampshire, the state with the first primary.

REP. PAUL HODES (D), NEW HAMPSHIRE: I am so proud to stand today with the next president of the United States, Barack Obama.

(CHEERING AND APPLAUSE)

SNOW: Congressman Paul Hodes becomes first of the Granite State's four-member congressional delegation to back a presidential candidate.

(END VIDEOTAPE)

SNOW: Also stumping in New Hampshire today, New Mexico Governor Bill Richardson. And Senators Sam Brownback and Christopher Dodd are on the trail in Iowa, with Dodd unveiling his health care plan -- Wolf.

BLITZER: Mary Snow watching this for us from New York -- Mary, thanks very much.

And we want to go to Carol Costello. There's a story developing right now involving NASA. It's just coming in to THE SITUATION ROOM.

What are we picking up, Carol?

CAROL COSTELLO, CNN CORRESPONDENT: Well, Wolf, this is a -- this is what I know right now.

NASA has uncovered sabotage by a subcontractor who supposedly deliberately cut wires inside of a computer that was to be delivered next month to the International Space Station. Now, that computer was supposed to be on board Endeavor, which takes off on August 7.

Now, they were doing a pre-loading test and testing out all the equipment, and they found this damaged computer. So, it's been taken off Endeavor. And, of course, a repaired one, a fixed one, a new one has been put on board.

Don't know much about the subcontractor. Only know the subcontracting business was not located at the Kennedy Space Station in Florida. We're awaiting more news from NASA on this, but disturbing news.

BLITZER: Very disturbing. COSTELLO: At least they found it before the Endeavor took off.

BLITZER: Yes, that's -- that's very scary stuff.

COSTELLO: Mm-hmm.

BLITZER: All right, Carol, when we get more, our viewers will know more as well.

Thank you.

Democrats have high hopes for a White House victory next year. Is there new evidence to support their dream of winning, and winning big? Donna Brazile and Terry Jeffrey, they're standing by.

And in our "Strategy Session," also, the crowded presidential fields. Is it time for the underdogs to go?

Stay with us. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: In today's "Strategy Session," a fresh poll asks this question: Who would win if a generic Democrat -- that means any Democrat -- ran against any Republican for the White House?

Joining us now, our CNN political analyst the Democratic strategist Donna Brazile, and Terry Jeffrey, the editor at large of "Human Events."

You are going to not like these numbers in the "Hotline" poll. Who would you support, a Democrat vs. a Republican, without any specific names attached? Fifty-one percent of the American public, Terry, said Democrats; 27 percent said Republican.

Does not bode well for whoever the Republican nominee is.

TERRY JEFFREY, EDITOR, "HUMAN EVENTS": But I will tell you, Wolf, I saw many signs of hope in the CNN/YouTube debate the other night. Even I had forgotten how much the Democrats are unrelentingly in favor of big government and higher taxes.

One after another after another, they proposed new government programs and taking more money from the American people.

Look, I admit President Bush is very unpopular, and the Iraq war is very unpopular. Both those things are like an albatross around the neck of the Republican Party. But, when it gets right down to a debate between the Republican vision of government and the Democratic vision of government, especially if Iraq can be diminished as a factor, the Republicans have got a real shot in this election.

BLITZER: All right.

DONNA BRAZILE, CNN POLITICAL ANALYST: You know, look, President Bush is unpopular. And the Republicans in Congress don't have nothing to write home about.

But the 10 presidential candidates on the Republican side really haven't made that much of a noise to get the voting public out there excited about them. So, I think the reason why the polls suggest the Democrats today would lead is because Democrats are offering leadership on the war in Iraq, on domestic issues, and they want a change of direction.

BLITZER: And, certainly, if money talks in politics, the Democrats have raised a lot more money for their respective presidential candidates than the Republicans have.

JEFFREY: There's no doubt. I think that have enough much more intensity so far in this campaign. They are enthusiastic about getting Bush out of the White House and getting a Democrat in there.

Conversely, Republicans aren't very excited about their party right now. One of the Republicans' problem is that they have moved away from their core values. They have moved away from that vision of limited government. And, with the president pushing immigration this year, I think he extra depressed the...

(CROSSTALK)

BLITZER: What did you think, Donna, of that debate we just saw between these two top advisers to the Hillary Clinton campaign and the Barack Obama campaign, because it got very tense there?

BRAZILE: Well, it's a new phase in the campaign. The two heavyweights are finally going at each other to draw lines of distinctions in terms of their leadership and who would offer real change.

I find it refreshing that the two-top tier candidates are moving off this so-called cautious pole, and now they are challenging each other. So, it's a good moment for the Democratic Party.

BLITZER: You think the Republicans are going to do that as well, they're going to -- you're going to see the Giulianis of this world going after the Romneys, the McCains, directly, the way the Obama and the Hillary Clinton camps are doing?

JEFFREY: Absolutely. It has to happen.

In fact, what I think you are going to see, coming this fall, is a titanic clash between Mitt Romney and Fred Thompson, one of whom is going to emerge as the conservative alternative to Rudy Giuliani, I think the candidate who will be most likely the conservative candidate to win the nomination. So, yes, you are going to see fireworks...

(CROSSTALK)

BLITZER: Who is going to win that fight between Mitt Romney and Fred Thompson?

JEFFREY: Well, right now, I think Romney has the upper hand, although he's down in the national polls, Wolf.

If you look at the local polls in Iowa and New Hampshire, Romney has significant leads in both those states. Plus, he's already taken a beating for all the flip-flopping that there's no doubt he did.

Thompson hasn't gone through that gauntlet yet. People really haven't examined his record. He hasn't gotten beat up the way Romney has. And, yet, Romney is a position to get a lot of momentum in those first two states.

(CROSSTALK)

BRAZILE: Look, he hasn't announced, and he's already changing campaign managers and having a lot of shakeup. He's also -- Mr. Thompson is having a hard time raising money. So, I don't think Romney is facing any danger right now from Fred Thompson.

BLITZER: What about this editorial that was in today's "USA Today," suggesting it's time to start whittling down the number of participants in the Democratic and Republican debates? There are nine or 10 or 11. "USA Today" says all the more reason for these public contests to start slimming down.

Is it time to lose some of these candidates?

BRAZILE: I think, shortly after Labor Day, someone should take a look at the next round of debates and see if it's an opportunity to listen to some of the top-tier candidates.

We know that Dennis Kucinich has run before. Mike Gravel has been in public office, Joe Biden, you know, Chris Dodd, Bill Richardson. They haven't really made a name for themselves.

BLITZER: All right, very quickly.

JEFFREY: Don't take them out of the debates. Number one, they make it more interesting. Number two, they are all credible people. The -- the more fringe candidates have a tendency to speak more clearly and more forcefully on issues and substance.

I say let the voters whittle them down...

BLITZER: All right.

JEFFREY: ... when we get to the actual vote.

BLITZER: Guys, thanks very much for coming in.

Should political campaigns be barred from hiring the candidates' spouse? Jack Cafferty with your e-mail.

Also, the White House press secretary, Tony Snow, he is in the line of fire, as Democrats take their complaints about the attorney general and Karl Rove to a new level.

Snow standing by to join us -- right here in THE SITUATION ROOM. And NFL star Michael Vick responding to dogfighting charges in court -- the plea and the protests coming up.

We will be right back.

(COMMERCIAL BREAK)

BLITZER: Let's check back with Jack Cafferty in New York -- Jack.

JACK CAFFERTY, CNN ANCHOR: Wolf, the question this hour: Should political campaigns be prohibited from hiring the candidates' spouse?

T. in Texas: "Yes, they need to pass a law saying a spouse should not work and be paid by the campaign. This is way too close. Let the spouses go out and get a real job with normal pay, just like the rest of us."

Jeff in Wisconsin: "Jack, not only should it be illegal for our elected representatives to hire and pay their spouses and other family members; we ought to eliminate all campaign financing as we know it, and go to public-financed campaigns on public television and radio. That way, some guy who lives on five acres in a mobile home whose mother taught him the difference between right and wrong might actually become our president one day, instead of the choices Americans have now."

There's a letter.

Dan in Los Angeles: "I see nothing wrong with political campaigns hiring family members or spouses, as long as the campaign doesn't take any federal matching funds. After all, nepotism exists everywhere."

L.M. in Arizona: "They should not be paid. It's just the start of corruption. Besides, 80 percent of these people are millionaires. When was the last time a poor man won a public election?"

Dan in Honolulu, Hawaii: "Spouses should be able to work for their other half's campaign. But let them work for minimum wage."

And John in California: "I don't know about the politicians, but I would rather be pecked to death by a chicken than have my wife around me 24 hours a day, seven days a week."

(LAUGHTER)

CAFFERTY: Wolf.

(LAUGHTER)

BLITZER: Thank you, Jack, for that.

And to our viewers, you're in THE SITUATION ROOM.

Happening now: Stocks drop like a stone. Wall Street worries about housing, credits, and investors running for the exits. Democrats take aim at top guns in the Bush administration. They want a perjury investigation for the attorney general, Alberto Gonzales. And they slap the White House political adviser, Karl Rove, with a subpoena.

Also, Fidel Castro is no longer in charge. The other Castro is. And that brother, Raul, is offering a deal to the United States, with one big condition.

I'm Wolf Blitzer. You're in THE SITUATION ROOM.

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