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Report: Iran Backed off on Bomb; President Bush Scolds Congress for Having 'Little to Show'; Romney Addresses His Faith; Interview with Fred Thompson

Aired December 3, 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, Iran's nuclear threat downgraded. A newly-declassified report reveals Tehran backed away from building a bomb. Has the president been overstating prospects of World War III?
Plus, members of Congress now back at work with a massive to-do list before the holidays. And President Bush is on their backs to try to find out a way to fix the situation for the troops, fix the controversial tax, and fix a lot more. That's what he says.

With all the finger-pointing, will anything get done?

And Republican Fred Thompson plays up his faith and values while playing down his campaign troubles in a nasty Web video.

My interview with the presidential candidate, that's coming up this hour.

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

But first, a stunning new development about Iran and the threat of nuclear weapons. A declassified report released today shows that Iran is not as far along in its nuclear program as the U.S. earlier had thought.

The information is in the U.S. national intelligence estimate, the opinions of more than a dozen spy agencies. They say Iran stopped its nuclear program back in 2003, probably won't be able to make a weapon until sometime well after 2010, and that's considerably different from what the U.S. had previously thought.

Let's go right to our White House correspondent, Ed henry. He's watching this story for us.

The new NIE, the national intelligence estimate, the summary of which was declassified, says the Iranians, in effect, stopped the weaponized portion of this nuclear program, what, back in 2003?

ED HENRY, CNN WHITE HOUSE CORRESPONDENT: That's right, the fall of 2003, and that's clearly putting this White House on the defensive. I just emerged from a briefing with the national security adviser, Stephen Hadley, facing a lot of tough questions from reporters about the fact that this report is saying that the nuclear weapons program in Iran was halted in the fall of 2003. Nevertheless, we've seen President Bush as recently as October really making this seem like an imminent threat from Iran, much different from what this report is saying. To be sure, Hadley pointing out, as you just noted, the NIE does declare that Iran is still enriching uranium, that they're still a threat, that they could eventually have a nuclear weapons program, but that it's more likely to be in the time frame of 2010 to 2015.

So take a listen how the president put it just in October and now how Stephen Hadley is trying to massage that a bit.

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: If you're interested in avoiding World War III, it seems like you ought to be interested in preventing them from having the knowledge necessary to make a nuclear weapon. And I take the threat of Iran with a nuclear weapon very seriously.

(END VIDEO CLIP)

(BEGIN VIDEO CLIP)

STEPHEN HADLEY, NATIONAL SECURITY ADVISER: It also tells us that the risk of Iran acquiring a nuclear weapon remains a very serious problem. The estimate offers grounds for hope that the problem can be solved diplomatically without the use of force, as the administration has been trying to do. And it suggests we have the right strategy. .

(END VIDEO CLIP)

HENRY: Now, very candidly, though, Stephen Hadley, when pressed by reporters, acknowledged that the president would now not put it quite the way he did in October because of this new assessment from the intelligence community. You have Democrats like Senator Harry Reid already saying this shows that the administration has to focus even more on diplomacy, less on the tough rhetoric.

And one final question that Stephen Hadley has been facing just in the last few minutes is, why is the U.S. intelligence community still so woeful in getting these things so wrong on such key issues as we saw in the run-up to the war in Iraq? Now we're seeing it with Iran's nuclear weapons program.

This report now saying they halted it in the fall of 2003, and yet a major assessment in 2005 by the intelligence community found that they thought that program was still going on. A lot of tough questions -- Wolf.

BLITZER: So, just to be precise, they continue to enrich uranium, but they're allowed to do that for peaceful purposes. What they've now discovered is back in 2003, they stopped the process of what could lead to the non-peaceful purposes, the weaponization of that nuclear enrichment program. They now believe that was stopped back in 2003, although it could be revived down the road. HENRY: Absolutely. And Stephen Hadley did underscore that point, that obviously Iran could restart this at any point. They obviously have some technology, and they're also pointing out, the White House is, the fact that this was a covert program until it was uncovered, so Iran has had these ambitions before -- Wolf.

BLITZER: Ed Henry at the White House.

Thank you.

President Bush is accusing the Democratic-led Congress of having little to show for itself as 2007 comes to a close. He turned up the heat today, even before lawmakers returned for a brief, in-between holiday session, and he plans to give them more grief during a news conference tomorrow morning.

Let's go to our congressional correspondent, Jessica Yellin. She's watching this part of the story for us.

Congress has a full agenda on its plate over the next few days, and the question is this, Jessica: What are they doing?

JESSICA YELLIN, CNN CONGRESSIONAL CORRESPONDENT: Well, Wolf, their plate is very full, they have a lot to get done, and they only have about three weeks to do it.

(BEGIN VIDEOTAPE)

YELLIN (voice over): Congress is back and the fight is on.

BUSH: The end of 2007 is approaching fast, and the new Congress has little to show for it.

SEN. HARRY REID (D-NV), MAJORITY LEADER: President Bush is unreasonable. The Republicans, I think, feel that way also.

SEN. MITCH MCCONNELL (R), MINORITY LEADER: It's time to stop the political show. It's time to focus for once on the fundamentals.

YELLIN: They're brawling over everything, from funding the Iraq war, to Congress's delay in passing an improvement to the tax code. Without it, 21 million Americans, many of them middle class, will have to pay an alternative minimum tax.

BUSH: And if they put off an AMT fix, it could delay the delivery of about $75 billion worth of tax refund checks.

YELLIN: Both parties insist they will fix the AMT this year, but the clock is ticking. Once passed, the IRS still needs time to print new forms.

Even if Congress approves the new law today, new forms wouldn't be ready until the end of January, and according to the Treasury Department, that means 6.7 early tax filers' tax refunds would be late, worth $17 billion. And it could be weeks before Congress even passes the fix. As for the warnings about Iraq funding...

BUSH: Unless Congress acts, the Army will run out of operations and maintenance money in February. Unless Congress acts, the Marine Corps will run out of similar funds in March.

YELLIN: But Democrats say...

REID: The president is not leveling with the American people.

(END VIDEOTAPE)

YELLIN: The Democrats insist on that count, Wolf, that the situation for funding the troops in Iraq is not dire, because they say the president will get the new money when it's needed, but not without changes in his Iraq strategy.

So a lot to get through here on the Hill in the next three weeks -- Wolf.

BLITZER: We'll see what they can do, Jessica. Thank you.

Let's get to the presidential race now and a question of faith, Mitt Romney's faith. The Republican candidate set to give a major speech on Thursday about his Mormon beliefs and how they would or would not affect his presidency.

Our chief national correspondent, John King, is here in THE SITUATION ROOM.

He's been debating for some time whether or not to deliver this speech. He's now decided it's a good idea.

JOHN KING, CNN CHIEF NATIONAL CORRESPONDENT: That's right. And for months, Wolf, he has privately courted Baptist minister, pastors, Evangelicals in South Carolina and in Iowa. Some in the campaign thought that was enough, but Governor Romney himself decided last week, no, to do more to address any criticism, any doubts about his Mormon faith in a big speech this Thursday.

(BEGIN VIDEOTAPE)

KING (voice over): The goal is to address questions about his Mormon faith and to confront doubts that might not show up in the polls.

WHIT AYRES, REPUBLICAN POLLSTER: It's not always clear that people are telling you the truth. They may disguise a negative feeling with something else when it comes to a subject as touchy and sensitive as religion. So you really don't know, but this is probably a better safe than sorry strategy.

KING: Governor Romney's decision to deliver a major speech on his faith drew immediate comparisons to 1960, when John F. Kennedy confronted questions about Vatican influence on any Catholic president. AYRES: Governor Romney can say, just as Jack Kennedy said in 1960, that he will neither request nor accept instruction from leaders of the Mormon Church on issues of public policy.

KING: There are 5.7 million Mormons in the United States. Senate Majority Leader Harry Reid most senior of 15 Mormons in Congress.

Mormons consider themselves Christians. Easter and Christmas are the most important holidays. But the Church of Latter Day Saints is viewed suspiciously by some Christian leaders, in part because of secrecy. Mormon temples are off limits to non-members.

And in part because of beliefs. Church founder Joseph Smith believed the Garden of Eden was in what is now Missouri and that the second coming will be on the American continent. Polygamy was outlawed by the Mormon Church in 1890, though some splinter groups still practice it.

A Pew Research Center study back in August found that half of Americans have little or no awareness of Mormon beliefs and practices.

AYRES: People are a bit suspicious of Mormonism, in part because they don't completely understand it. I think what Governor Romney needs to do is say that he's a member of a large mainline Christian denomination. If he does that, that will provide a measure of reassurance to some people who are suspicious about Mormonism.

(END VIDEOTAPE)

KING: The choice of venue is also interesting, Wolf. The speech will be delivered at the George H. W. Bush presidential library in College Station, Texas. It is not an endorsement from the 41st president of the United States. The Romney campaign says he gave a speech a couple of months ago back there, they were invited back. They thought it was a good location, because if they did it in Iowa or in South Carolina, it would be viewed as even more political, but make no mistake about it, it's a political speech.

BLITZER: And it could have some serious ramifications.

We'll be watching closely. Thanks very much, John, for that.

Let's go to Jack. He's in New York with "The Cafferty File" -- Jack.

JACK CAFFERTY, CNN ANCHOR: It's a bit of a gamble, don't you think, on Romney's part? I mean, this could work against him in terms of highlighting interest in something that people are not sure of or a little wary of, but maybe aren't thinking that consciously about. We'll have to see how it plays out.

This is interesting. Iraq is the third most corrupt country in the world, according to a recent ranking of 180 nations. A troubling piece in "The New York Times" over the weekend points to just how far corruption in Iraq reaches. One Shiite tribal leader told the paper, "Everyone is stealing from the state. It's a very large meal and everyone wants to eat." That's a quote.

For example, unemployed men pay $500 bribes to join the police. Families build houses illegally on government land. And almost everything the government buys or sells, from painkillers for cancer to third grade textbooks, is turning up on the black market.

There's a growing sense in Iraq that even as security has improved, the country has slipped to new depths of lawlessness. Some U.S. officials estimate as much as one third of what they spend on Iraqi contracts and grants winds up missing or stolen.

Iraq's top anti-corruption official -- Iraq's top anti-corruption official -- said this fall, $18 billion in Iraqi government money has been lost to corruption since 2004. This guy subsequently resigned and fled the country after 31 of his agency's employees were killed.

Meanwhile, we keep pouring more and more money into Iraq. Just today, President Bush insisting Congress pass his latest war request for $50 billion additional dollars. His total Iraq-related requests so far this year, $200 billion, and since the war started, something in the neighborhood of $700 billion or $800 billion. I mean, it's a lot of money.

So the question is this: If Iraq is the third most corrupt country in all the world, why does the U.S. continue to pour hundreds of billions of dollars into it?

E-mail your thoughts to caffertyfile@cnn.com or go to cnn.com/caffertyfile.

I mean, these guys make the daily machines in Tammany Hall look like kindergarten students -- Wolf.

BLITZER: All right. Well, you'll tell us later what number one and number two are as well. I'm curious -- the most corrupt countries in the world.

But hold that thought, Jack. We'll talk about it later. Thanks very much.

Mitt Romney isn't the only Republican talking about his faith.

(BEGIN VIDEO CLIP)

FRED THOMPSON (R), PRESIDENTIAL CANDIDATE: I'm OK with the lord and the lord's OK with me, as far as I can tell, so that's all that's important to me.

(END VIDEO CLIP)

BLITZER: Fred Thompson on religion, abortion, and whether his party is pandering on the issue of immigration. My one-on-one interview with the GOP presidential hopeful, that's coming up next. Also, we're going to tell you why people are dancing in the streets of Venezuela, and what it means for the nation's anti-American leader, Hugo Chavez.

And it's exactly one month before the first presidential contest, and Iowa could get things off to a shocking start. We'll look at some surprising turns in both the Republican and Democrat raises.

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

(COMMERCIAL BREAK)

BLITZER: A month before the first presidential contest, some of the Republican candidates are working overtime right now to try to win over conservative voters. Mike Huckabee's sudden rise in some of the early voting states is putting extra pressure on candidates who are desperately seeking the support of the religious right.

(BEGIN VIDEOTAPE)

BLITZER: And joining us now, the Republican presidential candidate Fred Thompson, a former Republican senator from Tennessee.

Senator, thanks for coming in.

THOMPSON: Thank you, Wolf.

BLITZER: Mitt Romney is going to be delivering what his campaign says will be a big speech on faith this week, talking about his Mormon faith. "USA Today" had this paragraph today, talking about you and your faith, and I'll read to you what they say.

"His campaign has gained little traction since he entered the race, in part because he lacks a religious niche. Thompson has said he rarely attends church, doesn't want to talk about faith in his campaign and opposes a federal amendment against same-sex marriage. Predictably, Christian conservatives have not been amused or enthused."

You want to react to that little paragraph?

THOMPSON: Well, in the first place, I've just received the endorsement of the National Right to Life folks, and of course there is quite a bit of overlap there among those people. They know my record better than anybody else.

BLITZER: On the issue of abortion?

THOMPSON: In terms -- yes, on the issue of abortion.

With regard to the little -- I've been running consistently second in the nationwide polls, I've been running pretty consistently first in South Carolina, so our campaign is where he need to be.

I think a lot of people expected me to blow everybody around when I got into the race, and I knew better than that, and of course that hasn't happened.

BLITZER: We're going to talk -- we'll talk about the horse race shortly.

THOMPSON: Well, you know, but it was all premised on that, and so I need to address that. As far as faith is concerned, I've not made any secret as to where I am.

I am a Christian, I have been since I was a teenager. I attend church with my mother when I'm in Tennessee. I don't attend here on a regular basis since I've been living in McLean, Virginia, and that's the long and the short of it.

I have no apologies to make about my religion or my relationship to Jesus Christ or God. Those who know me, I'm OK with -- and I'm OK with the lord and the lord's OK with me as far as I can tell. So that's all that's important to me and the rest will have to work around that.

BLITZER: Is it a good idea for Romney to deliver a speech this week about his Mormon faith?

THOMPSON: I have no idea. I have no idea about that. You know, he's going to have to do what all of us have to do, and that is address it for himself. It's not for me to pass judgment on him or his religion.

BLITZER: There was an editorial in "The Wall Street Journal" today entitled "Immigration Phonies." And it criticized not only you, but some of the other Republican presidential candidates, but specifically you.

It said this: "As a senator from Tennessee, Mr. Thompson voted for making more visas available for foreign agricultural workers. He also favored expanding the H-1B visa program for high-skilled immigrants to meet labor-market demand. Regarding the illegal aliens already here, Mr. Thompson in the past has leaned toward a comprehensive approach."

Have you flip-flopped on the issue of comprehensive immigration reform?

THOMPSON: No. First of all, they're talking about two different things.

I have never opposed legal immigration. I've always said our legal immigration plan -- or program needs to be improved. Then they ease over into illegal immigration and say that, what, I tend to do something? They're just wrong. I've never...

BLITZER: No, it said when you were in the Senate you supported a pathway to citizenship for illegal immigrants.

THOMPSON: No. That's just factually incorrect.

I have never -- if people want to go back to their country and get in line the way so many thousands of others have done around embassies around the world in order to come here and be good citizens, the way so many have, then I'm fine with that. I think that's a wonderful thing. We're all products of that in one way or another.

But I have never supported anything like amnesty or grandfathering anybody in front of these other people, or anything like that because...

BLITZER: On this issue you disagree then with John McCain, who's been a champion in the Senate on the issue of comprehensive immigration reform?

THOMPSON: Well, it depends on what you mean by comprehensive immigration reform. The bill that Senator McCain supported and President Bush put forth I'm dead set against. I mean, I think it's an amnesty bill, and I've always been against that.

BLITZER: And when you were in the Senate, did you disagree at that time as well?

THOMPSON: No, I did not. I don't know what they're referring to.

I had several votes there. And I wanted to strengthen our legal immigration system. I think that we need to make it easier on everybody who plays by the rules to get in. You know, we've got a tremendous backlog right now of people trying to get in and play by the rules.

BLITZER: Is there too much pandering going on, on this issue, based on your experience?

THOMPSON: Why should this issue by any different from any other issue?

BLITZER: So that's a lot of pandering going on, that's the nature of politics? Is that what you're saying?

THOMPSON: Well, some of us have been in the same place all of our political career on this issue and others, and that's one of the strengths that I think that I have. I got in politics in 1994, the first time I ever ran for office, and I took positions on most of the current issues that we're talking about today, and I've been consistent. The same kind of commonsense conservative approach to all of these things.

Most of the other guys have had to alter their positions when they decided to run for president. I have not. And this is part of it.

BLITZER: And you made that point in that ad, the video ad that we saw in the CNN/YouTube debate in which instead of talking about the good things you've done, you really decided to go negative and go after Huckabee and Romney specifically.

What was your thinking on that line? THOMPSON: Well, it's shocking someone from the news media would call those negative ads. But...

BLITZER: Well, they were critical.

THOMPSON: They were their own voice. I put up them speaking their words, you know. Only in the day and age we live in would that be considered to be a negative ad because they're having to answer for things that they've said in times past. So many of these folks have just been one way their entire career until they decided to run for president.

BLITZER: All right. Spell out...

THOMPSON: And I'm just saying...

(CROSSTALK)

BLITZER: ... specifics. What's your biggest problem with Romney?

THOMPSON: It's hard to know where to start. It's a target-rich environment as far as the issues are concerned.

Mitt's taken a different position on things like whether or not we ought to follow the Reagan path. He said in times past that he was not a Reaganite. In fact, he was an Independent during the Reagan revolution. He supported the immigration bill that we were just talking about earlier in his career when it first came out, said that people who were separating themselves from Bush were making a terrible mistake.

On just about all of the major issues, you know, he's taken a different position. He was very -- he was very consistent and vociferously for abortion rights up until he decided to run. He said that Roe versus Wade was something that we should go along with and live with.

BLITZER: So you've got a problem...

THOMPSON: And now he's against Roe versus Wade. So, you know, it depends on the issue.

(END VIDEOTAPE)

BLITZER: We're going to have a lot more of this interview with Fred Thompson coming up here in THE SITUATION ROOM in the next hour. We'll talk about Mike Huckabee and some complaints that he has about Mike Huckabee.

We'll also talk about Iran, what he would do if he were president and Iran were building a nuclear bomb. Also the whole issue of torture, does he agree or disagree with his old friend John McCain?

A lot more of my interview coming up with Fred Thompson. Also, a major development in a case that sparked international outrage. It involves the British schoolteacher who had been jailed for letting her students name a teddy bear "Muhammad" and her immediate future.

We're going to have details of what's coming up.

And a winter storm wallops large parts of the country. It's hampering travel and being blamed for deaths. We're going to tell you where.

Stick around. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

(NEWSBREAK)

BLITZER: Coming up, one presidential candidate's stunning reversal of political fortune. That would be Mike Huckabee. He's seeing a newfound surge in his popularity in Iowa, takes on even more attention-getting turns.

Also, political reversals. One Democratic candidate takes an even nastier road to winning. Another taking a more positive approach.

We'll tell you what's going on.

Stick around. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: To our viewers, you're in THE SITUATION ROOM.

Happening now: A Republican who helps other Republicans offers some advice to a Democrat. You may be surprised to whom Karl Rove is offering his words of help. But, by doing that, might Rove secretly be trying to help some Republican candidates? There are conspiracy theories all over the place.

He's back, but could he be toxic? Now that Don Imus is back on the air, might presidential candidates face a backlash if they go on his show?

And how safe are you when you fly? There's something happening at the nation's airports that could put us all at an increased risk of disaster.

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

It's getting down to the wire. It's exactly one month before the first major presidential contest. All the candidates are scrambling for support before the Iowa caucuses.

On the Republican side, it appears it's working especially well for Mike Huckabee. His popularity in Iowa has surged recently, and now he tops a fresh poll from "The Des Moines Register." It shows Huckabee with 29 percent, compared to Mitt Romney's 24 percent, 13 percent for Rudy Giuliani.

Who actually wins and loses at Iowa's caucuses will largely turn on one thing. And that would be turnout.

CNN's Dana Bash is in Des Moines. She's joining us right now. She's taking a closer look at the Republican contest, where it stands.

Hi, Dana.

DANA BASH, CNN CONGRESSIONAL CORRESPONDENT: Hi, Wolf.

Well, uncertainty is really what you hear most here. As you just said, there is a new leader in the Republican race. And, at this point, although there is some grumbling about tactics used by some perhaps outside groups, the real focus now is on organizing to get ready for the state's arcane caucus systems.

(BEGIN VIDEOTAPE)

BASH (voice-over): One month out and a campaign's organization, actually get voters to the caucuses, matters more and more.

KRISTEN FUZER, THOMPSON CAMPAIGN ORGANIZER: Actually showing your support on caucus night is what we need out of our supporters here in Iowa.

BASH: Caucus training at Fred Thompson's Iowa headquarters, an urgent explainer of a complicated process. Volunteers learn how to influence undecided friends.

NANCY TUCKER, REPUBLICAN ACTIVIST: I will get a list of the Republican Party in our area, and -- and just see if I can't get some more Fred supporters to come to caucus night, because I realize now that it's a -- it's a numbers game.

BASH: Especially if you're far behind, like Fred Thompson. But Iowa voters make up their minds late. And caucus veterans insist, the GOP race is still wide open.

UNIDENTIFIED MALE: Some candidates are going to plummet, and some are going to shoot through the roof. And they might rise and fall between now and then.

BASH: Right now, this is the man on the rise.

MIKE HUCKABEE (R), PRESIDENTIAL CANDIDATE: Thank you very much for giving me the chance...

BASH: Mike Huckabee, here for his 46th day of campaign events, shoring up his new lead in the polls, thanks to crucial support from Iowa evangelicals. Mitt Romney spent all weekend lobbying those same social conservatives and taking tough questions.

UNIDENTIFIED MALE: Describe your converting, your journey from the pro-life -- excuse me -- the pro-choice position to the pro-life position, but specifically on abortion.

MITT ROMNEY (R), PRESIDENTIAL CANDIDATE: Thank you. Happy to.

BASH: At nearly every stop here now, Romney takes a whack at Huckabee for his record on immigration and taxes.

ROMNEY: His spending went from $6.7 billion to $16 billion. So, we have a very different perspective on spending and taxes and immigration.

BASH: Romney's longtime Iowa lead is now gone, with the caucuses and Christmas around the corner.

ROMNEY: Look, all I want is Iowa, New Hampshire, Wyoming, Nevada...

(LAUGHTER)

ROMNEY: ... South Carolina, Michigan, Florida, and then a few more.

(END VIDEOTAPE)

BASH: Now, there is another sure sign that caucus day is just around the corner. And that is dirty tricks.

Supporters for Fred Thompson and Mitt Romney, they report that they got automated calls, so-called push polls, yesterday and last night giving negative information about the candidates they said they liked, then instructed them to go to trusthuckabee.com, which I think we can show you on the wall here.

It's a Web site. And, on there, people can sign up to help -- to help organize for Mike Huckabee on Election Day. Now, Huckabee told CNN today that he wants those calls to stop immediately, and he said -- quote -- "That's not the kind of politics we want to be a part of" -- Wolf.

BLITZER: All right, Dana, thank you -- Dana Bash on the campaign trail for us.

Let's go the Democratic side right now. Who's leading in Iowa of course depends on who you ask.

Our senior political correspondent, Candy Crowley, is also in Des Moines -- Candy.

(BEGIN VIDEOTAPE)

CANDY CROWLEY, CNN SENIOR POLITICAL CORRESPONDENT (voice-over): Wolf, new poll numbers out here in Iowa suggesting a real race among Democrats -- that cautionary note, of course, that Iowa caucuses are not necessarily definitive, but they do always help form the race to come.

JOHN EDWARDS (D), PRESIDENTIAL CANDIDATE: You can feel the caucuses coming, because it's getting cold.

(LAUGHTER)

EDWARDS: You know where we are.

CROWLEY: One month out from the caucuses, Iowa is seeing the beginning of winter and the suggestion of a changing political dynamic.

SEN. BARACK OBAMA (D-IL), PRESIDENTIAL CANDIDATE: It's amazing how you go from being DOA to become a genius in about three weeks.

(LAUGHTER)

OBAMA: But, right now, we're doing pretty good in Iowa.

CROWLEY: He was never dead on arrival in Iowa. And, while front-runner overstates the case for what is essentially a three-way tie -- Obama, Clinton, Edwards -- Obama is atop the state polls now. It gives him mojo in this final month.

SEN. HILLARY RODHAM CLINTON (D-NY), PRESIDENTIAL CANDIDATE: I'm on my way to Mason City, and then to Sioux City, and then to Council Bluffs, and then out and around.

CROWLEY (on camera): Do you have on long underwear?

(LAUGHTER)

CROWLEY (voice-over): And threatens her aura of invincibility.

(on camera): Listen, let me just ask you one question.

CLINTON: Well, I have got to run.

(CROSSTALK)

CLINTON: I have got to run, dear. See you later.

CROWLEY (voice-over): Over the weekend, Clinton went after Obama and his political action committee, Hopefund. Clintonites accused Obama of taking lobbyist money and giving it to Democratic candidates and officials in early primary states, all apparently legal, but Clinton says it goes to character.

He is the front-runner and the target.

OBAMA: I think what people need to focus on is, is that all these accusations that are starting to come out seem to correspond to shifts in political fortune.

UNIDENTIFIED MALE: John Edwards, we love you, buddy.

EDWARDS: You got it. Thank you, man.

CROWLEY: While Obama and Clinton go at it, Edwards, often Clinton's roughest critic, is counterprogramming, going positive.

EDWARDS: Voters are going to be focused on who's ready to be president, who's ready to bring the change this country needs, to fight for that change.

CROWLEY: Still working the living room and diners of Iowa and New Hampshire is the second tier, Richardson, Biden, Dodd, hoping for a miracle or, more realistically, a surprise showing, big enough to propel them into New Hampshire.

CLINTON: It is close. It's tight. It's going to be a race to the finish line.

CROWLEY: After 11 months of campaigning, the beginning is near.

(on camera): Setting up for the final month, the Obama campaign has put up an e-mail address for supporters, so they can warn them of any mailbox or leaflet attacks by the Clinton campaign.

The Clinton campaign, some time ago, also set up a Web site so it could rapidly respond to any attacks from Obama -- Wolf.

(END VIDEOTAPE)

BLITZER: Candy Crowley reporting for us from Iowa -- thanks, Candy.

It's hearing up there.

The battle between the Clinton and Obama campaigns also heating up on the Web.

Let's go to our Internet reporter, Abbi Tatton. She is following this part of the story.

What's the latest out there, Abbi?

ABBI TATTON, CNN INTERNET REPORTER: Wolf, there's been an online back-and-forth between these two campaigns boiling up for a couple of weeks.

Well, it's just entered a new phase. New from the Barack Obama campaign, a Hillary-specific Web site, Hillary Attacks, designed to attack and respond to attacks from the Hillary Clinton campaign. Special attention there today on the site and in this fund-raising e- mail that was sent out by the Obama campaign, a Hillary Clinton release sent over the weekend highlighting something Barack Obama wrote in kindergarten.

Well, this Web site getting attention from the Hillary Clinton campaign. They're responding in kind, online, at their rapid-response Web site that Candy just mentioned, the Fact Hub. Their post there today, Senator Obama attacks, a Clinton campaign spokesman calling the new Obama tactic with this online Web site rather disingenuous.

They list examples of what the Clinton campaign calls a sustained attack on Hillary's character from Barack Obama -- Wolf.

BLITZER: Abbi, thank you -- Abbi watching the situation online.

John McCain scores a pretty big win. The Republican presidential candidate earns one of the most coveted endorsements in New Hampshire. But how much will it help his campaign? Good question.

Also, Hillary Clinton on the attack. She goes after Barack Obama, but is that a strategy for success?

And Republican presidential candidate Ron Paul making a bold prediction -- it involves a massive amount of fund-raising and what he believes will be a potentially race-changing shift.

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

(COMMERCIAL BREAK)

BLITZER: Republican John McCain is camping out this week in his make-or-break battleground state -- that would be New Hampshire -- in an important new endorsement under his belt.

Let's go to our senior political analyst, Bill Schneider. He's watching this story for us.

There's been a lot of turns in New Hampshire. What's going on? Are we seeing any other major surprises in this race?

WILLIAM SCHNEIDER, CNN SENIOR POLITICAL ANALYST: Well, yes, we are, in New Hampshire, where another candidate once given up for dead may come back to life.

(BEGIN VIDEOTAPE)

SCHNEIDER (voice-over): John McCain has to win the New Hampshire primary.

SEN. JOHN MCCAIN (R-AZ), PRESIDENTIAL CANDIDATE: I can win in New Hampshire, as I did in 2000. And I know that I can. And I know that I will.

(APPLAUSE)

SCHNEIDER: Right now, he's running second in one poll, fourth in another.

But what's this? On Sunday, "The New Hampshire Union Leader," which has a lot of influence with conservatives, endorsed McCain, calling him the best conservative in the race. Does "The Union Leader"s endorsement have an impact? Sometimes.

The newspaper has endorsed six Republican candidates in the past 30 years. Twice, the endorsed candidate won. "The Union Leader" endorsed Ronald Reagan over George Bush in 1980. Reagan won. In 1996, "The Union Leader" endorsed Pat Buchanan over Bob Dole. Buchanan won, big upset. Twice, the paper endorsed candidates who lost, but did much better than expected. "The Union Leader" endorsed Reagan over President Gerald Ford in 1976. "The Union Leader" endorsed the Pat Buchanan over the first President Bush in 1992.

Twice, the paper's endorsement had no discernible impact. In 1988, "The Union Leader" endorsed Pete du Pont. He came in fourth. In 2000, "The Union Leader" endorsed Steve Forbes. He came in third.

Since 2000, McCain has gone some distance to ingratiate himself with conservatives. And "The Union Leader" seems to have found some virtue in the McCain it failed to endorse in 2000: "He has the proven ability, unique among the contenders, to work across the political divide," the paper said.

The conservative newspaper and the once maverick candidate appear to have met somewhere in the middle.

MCCAIN: I think that, if you believe that, in America, anything is possible, you believe that this endorsement could take place.

(LAUGHTER)

(END VIDEOTAPE)

SCHNEIDER: Will the voters take another look? That seems to be happening in both parties. One month before the month, the leading candidates are having trouble closing the sale -- Wolf.

BLITZER: Still a contest, wide-open contest, especially on the Republican side, and the Democratic side.

SCHNEIDER: Yes.

BLITZER: All right, thanks very much, Bill Schneider, reporting.

(CROSSTALK)

BLITZER: Barack Obama is getting some campaign advice from an unlikely source.

Coming up in "Strategy Session," Karl Rove thinks he knows a thing or two about Hillary Clinton and he's apparently ready to share it with Barack Obama.

And how safe are you when you fly? There's something happening at the nation's airports that could put a lot of us at an increased risk of disaster.

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

(COMMERCIAL BREAK)

BLITZER: No more staying above the fray.

Right now, Hillary Clinton sees a political threat from Barack Obama, and she is confronting it head-on by going on the attack.

Let's get to our "Strategy Session," our two CNN political analysts standing by live. Donna Brazile is a Democratic strategist. J.C. Watts is a former Republican congressman from Oklahoma.

Thirty days or so, one month from today, the Iowa caucuses -- if she doesn't get tough, I guess, now, it's not going to help her down the road. She -- she needs to better in Iowa, because Barack Obama is really doing well there.

DONNA BRAZILE, CNN POLITICAL ANALYST: First of all, she's not losing the race. She's still the national front-runner.

It's -- I don't think the Clinton campaign should hit the -- the panic button too soon and start attacking Barack Obama. She needs to get back to her strengths, explain what she would do...

(CROSSTALK)

BLITZER: But she is taking the gloves off.

BRAZILE: Well...

BLITZER: She's going directly after him.

BRAZILE: ... there's -- there's nothing wrong with body-slapping people, especially since they came after her.

But, look, she has enough surrogates to do the hard, dirty work in politics of making sure that she responds to those attacks. But I think she should stay above the fray and continue to emphasize her strengths.

J.C. WATTS, CNN POLITICAL ANALYST: Well, get back to her strengths. What are her strengths? She has no more record than Barack Obama has, maybe a little more foreign policy.

Six-and-a-half, seven out of Democrats have always said -- in every poll we have seen, they have, said we have -- she's not our choice. So, Barack Obama is -- is gaining some ground. I mean, I think all the consultants and the analysts, you know, getting behind closed doors and said, hey, you need to start slapping this guy around a little bit, because he's the real deal.

BLITZER: Well, you know, and -- and that was generally the thrust of some unsolicited advice that Barack Obama's campaign got from a guy who has done pretty well in this political business in the past, Karl Rove.

He helped Bush get elected in 2000 and reelected in 2004. He wrote a piece, "Memo to Barack Obama, in today's "Financial Times of London." Among other things, Rove writes this: "If she wins the nomination, it will be because her rivals, namely you," referring to Barack Obama, "were weak when you confronted her and could not look her in the eye when you did. She is beatable, but you have to raise your game. Iowa is your great chance for a breakthrough." Basically, Rove is suggesting to Barack Obama, you have got to get tough with her right now.

BRAZILE: Well, first of all, I think the Obama campaign should -- should send it back to Karl Rove and -- and mark it as unread, don't need the advice.

Barack Obama is doing very well right now. He's connecting. He's found his voice. He does not need to take on Karl Rove's brand of politics of division, distorting people's records. That will not play in the primary. It will hurt Obama. He should take the high road and continue to lay out his message.

BLITZER: What did you think of Rove's advice to Barack Obama?

WATTS: Well, a lot of it, it was not new.

I mean, Barack has always played on, turn the page, we want a fresh start, I'm your person, if that's what you're looking for.

And -- and he sees the numbers, just like everyone else sees the numbers. And he sees that about six-and-a-half out of seven Democrats say, she's not our choice. So, I think he's been hitting on those tones for the entire campaign.

So, I don't think there's anything new. So, again, I think she does have something to worry about. If he wins Iowa, it gives him strength, maybe not in New Hampshire, but it gives him strength going into South Carolina, which is going to be a critical state. I think he's going to be positioned very well. And they're saying, we have got to nip this guy in the bud now.

BRAZILE: Obama's strength is that he's the fresh face. He's a fresh face in the country. He must continue to emphasize bringing the country together, finding solutions that Democrats and Republicans can come together on.

To take Karl Rove's memo and to use it against Hillary Clinton will hurt Obama.

(CROSSTALK)

BRAZILE: So, I would say return it to sender marked unread.

(LAUGHTER)

WATTS: I don't think -- I don't -- I think Barack is doing what he has doing -- or the things that he has done to this point is the reason he's ahead in Iowa, and the reason he's going to -- he's making gains in South Carolina.

It's not Karl's memo. It's what Barack has done, saying, I can bring the country together. I will sit down. I will listen to people.

I think he's -- he's real when he says that. BLITZER: Some have suggested -- and give me your quick answer -- that he wrote this memo, Karl Rove, to help Barack Obama, because he feels, or a lot of Republicans feel Barack Obama would be easier to beat from the Republican standpoint than Hillary Clinton.

What do you think?

BRAZILE: Well, look, I know Karl Rove. And I'm sure he was not thinking of a Democratic victory in 2008 when he wrote that memo.

Karl Rove and many Republicans are dismissing Hillary Clinton, because they know that Hillary can win in those swing states and Hillary is a strong candidate.

WATTS: Well, I don't think you dismiss Barack or Senator Clinton -- or Senator Obama. Republicans said Bill Clinton couldn't beat George Herbert Walker Bush in 1992. They didn't think Bill Clinton would be elected in 1996, you know?

BLITZER: They would both be formidable candidates.

WATTS: That's right.

BLITZER: Is that what you're saying?

WATTS: That's right.

BRAZILE: And 30 days is a lot of time in politics.

BLITZER: One month from today, we will be there, see what is happening in Iowa.

BRAZILE: Yes.

BLITZER: Guys, thanks very much.

BRAZILE: Thank you.

BLITZER: New Hampshire will hold the first-in-the-nation presidential primary, but voters from another state will actually be the first to start voting. We're going to tell you who and why.

And some suggest it brings new meaning to the phrase Victoria's Secret. The company is popular for its lingerie. It's now accused of profiting from sweatshop labor.

We will update you on this story and a lot more -- right here in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: On our Political Ticker this Monday: Republican presidential candidate Ron Paul tells me he's just begun to surprise people with his fund-raising abilities. Ron Paul is saying he's on track to raise more than $12 million during this, the final quarter of the year, maybe as much, he says, as $14 million. On CNN's "LATE EDITION" yesterday, Paul said he's already raised more than $10 million since October 1.

And that is impressive.

For all the talk of the early presidential contests in Iowa and New Hampshire, Republicans and Democrats in those states apparently won't be the first to actually vote, "The Los Angeles Times"' Web site noting that Florida voters will be able to start casting absentee ballots for their January 29 primary on Christmas Day. That's a full nine days before the Iowa caucuses.

For those of you thinking more about trees and tinsel on Christmas Day, check this out. The White House has released the first couple's official holiday portrait. It shows President and Mrs. Bush decked out in front of the Christmas tree in the Blue Room over at the White House.

Remember, for the latest political news any time, check out our Political Ticker at CNN.com.

Let's get back to Jack for "The Cafferty File" in New York -- Jack.

JACK CAFFERTY, CNN ANCHOR: Wasn't there some talk about not -- not letting the people in Florida vote anymore after the 2000 election? What happened to that idea?

BLITZER: They changed the idea.

CAFFERTY: They did? They changed -- they're going to let them do it again, huh?

BLITZER: Everybody can vote...

CAFFERTY: All right.

BLITZER: ... except people in the District of Columbia. They have still got a problem here, taxation without representation, if you know what I mean.

CAFFERTY: They don't get to vote?

BLITZER: They vote, but, you know, they don't have members in the House and Senate who can -- who actually can -- can vote, have voting rights.

CAFFERTY: Yes?

BLITZER: Yes.

BLITZER: They can vote for president, though.

CAFFERTY: Well, good.

(LAUGHTER) CAFFERTY: I think.

The question is this: If Iraq -- and it is -- Myanmar, and Somalia, to answer your earlier question, are the top two most corrupt countries out of 180 nations in the world. Iraq is the third most corrupt country in the world.

And, as such, the question is: Why does the U.S. continue to pour hundreds of billions of dollars into it?

Joseph writes from Florida: "Jack, we -- Bush and the lapdog Congress -- pour taxpayer money into the Iraq black hole because it's the fastest way to funnel middle-class money into investor-class bank accounts. The Iraqi corruption is just an inconsequential side effect that is not diminishing the take of our patriotic private contractors. We are just witness to the evil side of capitalism out in the open."

Marilynn in Maryland: "We send more and more money to Iraq so various American companies and individuals can skim more and more. They set quite a good example for the Iraqis."

Michael in Hawaii: "The U.S. continues to pour billions into Iraq because, at this point, there's no easy way out. Whether we should or shouldn't be there doesn't address the fact that we are there. We have destroyed the infrastructure, supported their current government. We're scared of Iran jumping in as we exit. And our monthly billions are simply trying to keep a bad situation from getting worse."

John in Texas: "Well, I will answer that question for $500. For $750, I will say what you want me to say."

(LAUGHTER)

"Well, where do you think they learned all this corruption? Why, from the experts in Congress and the White House. I bet the only reason al-Maliki is complaining about Blackwater is because he didn't get the dollar amount what he wanted for his silence."

Todd in Florida writes: "It is absurd that we keep investing billions of our tax dollars in Iraq. A better question might be this: Why is Ron Paul the only presidential candidate who's promised to end this crime against the American taxpayers?"

And Sharon in Pennsylvania: "Because we're stupid?" -- Wolf.

Whoops.

(LAUGHTER)

BLITZER: Jack, thank you.

CAFFERTY: I almost fell off the chair.

(LAUGHTER)

BLITZER: See you in a few moments, Jack. Be careful over there. TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.voxant.com