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Interview With Presidential Candidate Rudy Giuliani; Hillary Clinton on the Rebound in New Hampshire?

Aired December 19, 2007 - 18:00   ET

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


RANDI KAYE, CNN CORRESPONDENT: So, it is really such good news, Wolf, that this family was found. Some reports indicate that they huddled together in a drainage pipe of some sort, even wrote help in the snow outside that pipe. But all that really matters right now is whatever they did worked and, somehow, they survived long, cold days in the mountains. And their determination paid off.
Certainly good to see such a frightening few days end like this.

WOLF BLITZER, CNN ANCHOR: It certainly is, Randi. Thanks very much. And thank God for that.

Happening now: Rudy Giuliani backs away from a fight with Mike Huckabee. This hour, my exclusive interview with the Republican presidential candidate. The best political team on television also ready to weigh in on what Giuliani said and didn't say.

Plus, she may not be the comeback kid, but Hillary Clinton is rebounding in New Hampshire. We're going to tell you which issues are driving the race right now.

And Vladimir Putin named "TIME" magazine's man of the year. Does the Russian leader deserve the distinction, for better and for worse?

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

Welcome back.

We're in the important Super Tuesday battleground state of Missouri. The Republican presidential candidate Rudy Giuliani is campaigning here right now, while many of his presidential rivals are zeroing in on Iowa.

I spoke with Mayor Giuliani aboard the CNN Election Express just a short while ago. In our exclusive interview, I asked him about Iowa front-runner Mike Huckabee's controversial charge that the Bush White House simply has a bunker mentality on foreign policy.

Take a listen.

(BEGIN VIDEOTAPE)

BLITZER: Mike Huckabee writes in the current issues of "Foreign Affairs," the magazine: "American foreign policy needs to change its tone and attitude, open up and reach out. The Bush administration's arrogant bunker mentality has been counterproductive at home and abroad."

Do you agree with him on that?

RUDOLPH GIULIANI (R), PRESIDENTIAL CANDIDATE: No, I don't look it at it that way. I think Mike, you know, has a right to express it his way.

BLITZER: Those are strong words.

GIULIANI: Look, we all -- during the campaign, we all write things and say things in certain ways, and then we go back later and say, I wish we had said it somewhat differently. And I give Mike certainly the room to do that. I'm not going to jump all over him for it.

BLITZER: Let me rephrase the question. What would you do differently in terms of foreign policy, national security...

GIULIANI: That's a better question.

BLITZER: ... than President Bush is doing right now?

GIULIANI: I think that's a better question rather than my necessarily...

BLITZER: What would you change?

GIULIANI: I would put the emphasis on stability in Iraq and trying to get there. I think...

BLITZER: They're not doing that?

GIULIANI: Well, that's the point. I think the president made the change. I think the president made the change at or around this time last year. I think the policy was incorrect up until then, from the time -- you know, the invasion itself was very successful. The toppling of Saddam Hussein was very effective.

It might have something to do, by the way, with the NIE. I don't know. You know, the...

BLITZER: It was based though on a flawed -- a spectacularly flawed piece of intelligence...

GIULIANI: But it may...

BLITZER: ... that they had weapons of mass destruction.

GIULIANI: But it may well have played a role in having Gadhafi wave the white flag of surrender. It may have played a role, if the NIE is correct, with regard to the nuclear program, arms program in Iran. It may have played a role in those things, and it certainly played a role in moving a pillar of support for Islamic terrorism.

So all those are achievements, and all those things happened in lightning fast period of time. (END VIDEOTAPE)

BLITZER: We're going have a lot more of my interview with Rudy Giuliani. That's coming up. We will speak about the issues, including his definition of torture. That's coming up in a few moments.

Back in Washington today, meanwhile, new questions about the Bush administration's role in the destruction of those CIA interrogation tapes, a published report suggesting White House officials were more involved than previously thought.

Let's go straight to our White House correspondent Ed Henry. He's standing by.

Ed, the White House came out swinging on this issue. Tell our viewers what happened.

ED HENRY, CNN WHITE HOUSE CORRESPONDENT: That's right, Wolf.

White House Press Secretary Dana Perino really firing back at "The New York Times" and basically saying that the inference of this story was, in her words, pernicious and troubling. But pay close attention to fact that, once again, citing these ongoing investigations of the whole CIA tape matter, Dana Perino did not deny the underlying facts of this story.

(BEGIN VIDEOTAPE)

HENRY (voice over): On the same day firemen rushed to the White House compound to put out a fire, Press Secretary Dana Perino was struggling to extinguish another problem caused by a "New York Times" headline claiming the White House's role in the CIA videotape case was wider than officials first said.

DANA PERINO, WHITE HOUSE PRESS SECRETARY: ... implying that I had either changed my story or I or somebody else at the White House had misled the public. And that is not true. And I have heard now from "The New York Times" that they will retract that headline.

HENRY: But most notable is the White House did not demand a correction over the story's key assertion, that four White House lawyers were involved in discussions with the CIA about whether to destroy the tapes showing interrogations of terror suspects.

PERINO: I'm not commenting on the underlying facts of the story. I'm sticking with what I had done in the past, which is...

(CROSSTALK)

PERINO: Well, there's...

HENRY: But in fact, "The New York Times" story does suggest a wider role for the White House that this Bush officials suggested earlier this month. When the story first broke, administration officials anonymously told reporters that former White House aide Harriet Miers had urged the CIA not to destroy the tapes. One senior official then telling CNN of the CIA, They were told not to destroy the tapes. It was fairly unequivocal and completely unanimous.

PERINO: I am not accountable for all the anonymous sources that you turn up. I am not. I am accountable -- I speak to the president and for the White House. This says that I was misleading, and I was not.

(END VIDEOTAPE)

HENRY: The House Intelligence chairman, Silvestre Reyes, is saying today that the Justice Department has reversed itself and is no longer trying to block his investigation of the tape matter, this coming under pressure, because Reyes, as you know, had threatened to subpoena CIA officials for documents and testimony.

Justice Department officials insist that they're not reversing anything. And they say they're still concerned that this House investigation going forward could hurt their own investigation -- Wolf.

BLITZER: Thanks very much, Ed Henry, reporting for us from the White House.

Lets get back to the presidential race right now and a comeback of sorts for Hillary Clinton. She's reclaiming some lost ground in New Hampshire, where voters appear to be rethinking some of the big issues.

Is the New Hampshire frozen in place?

Here's our senior political analyst, Bill Schneider.

WILLIAM SCHNEIDER, CNN SENIOR POLITICAL ANALYST: Wolf, not at all. But what's changing most are the issues driving this campaign.

(BEGIN VIDEOTAPE)

SCHNEIDER (voice over): They say if you don't like the weather in New England, wait a few minutes, just like politics. A week ago, Hillary Clinton and Barack Obama were neck and neck in New Hampshire. Now Hillary Clinton has regained her lead.

What happened? Most of the gains came from seniors.

Over the longer run, we're seeing a big shift in the issues. Iraq no longer dominates the campaign.

ANDY SMITH, UNIVERSITY OF NEW HAMPSHIRE: As Iraq drops in importance as an issue, it allows these other traditional issues that come up in any campaign, particularly the economy and health care as an issue related to the economy. It allows them to come up. SCHNEIDER: Health care is now equally important to Democrats. That's an issue Democrats give Hillary Clinton high ratings on, despite her bad experience with health care reform in the '90s. Actually, because of that experience.

SEN. HILLARY RODHAM CLINTON (D-NY), PRESIDENTIAL CANDIDATE: Back in '93 and '94, we tried to come forward with a plan, we weren't successful. I have the scars to show for that experience.

SCHNEIDER: More voters are concerned about the economy, another issue where Democrats give Clinton high ratings.

CLINTON: When my husband became president, he inherited a lot of economic problems. As someone said the other day, there seems to be a pattern here. It takes a Clinton to clean up after a Bush.

SCHNEIDER: Pocketbook issues are moving to the forefront of this campaign.

SCOTT SPRADLING, WMUR: The candidates are now talking a lot more economic issues than they were just a few months ago.

SCHNEIDER: That explains Mitt Romney's continuing lead among New Hampshire Republicans. They say they trust Rudy Giuliani to deal with terrorism and John McCain to deal with Iraq, but Iraq and terrorism have been declining in importance.

Which candidate do they trust most on the economy? Mitt Romney.

MITT ROMNEY (R), PRESIDENTIAL CANDIDATE: I have worked in 20 countries around the world, working on investments and helping manage a business and so forth. That skill, that experience is essential.

(END VIDEOTAPE)

SCHNEIDER: When the economy is bad, the economy is the issue. And here in New Hampshire, you hear a lot of talk about another economic downturn, like the one this state suffered 15 years ago -- Wolf.

BLITZER: Thanks very much, Bill, for that report.

Let go back to Jack. He has got "The Cafferty File" in New York -- Jack.

JACK CAFFERTY, CNN ANCHOR: Was that a beaver on Schneider's head? Could you tell?

BLITZER: It's some sort of hat.

CAFFERTY: Well, yes, some sort.

Some may call it a troubling sign: foreign governments coming to the rescue of American banks.

Just today, the number-two U.S. investment bank, Morgan Stanley, posted its first quarterly loss ever, and announced a $5 billion cash injection from a Chinese state-run investment fund. That represents less than 10 percent of the company's total shares.

Morgan Stanley says the purpose was to raise capital, along with improving its ties to the world's fastest growing economy. But, mostly, it was to raise capital. They said the China fund would be a passive investor, no management role, and no say in naming a member to the board of directors.

But it's not the first time we're seeing this scenario play out. In fact, it's happening more frequently these days. China also invested heavily in Bear Stearns and the private equity group Blackstone. Rival Citigroup announced a similar move last month, selling a $7.5 billion stake to the Gulf Arab emirate of Abu Dhabi in an attempt to raise capital. Abu Dhabi also invested in the politically connected takeover firm The Carlyle Group.

U.S. banks have been wrestling with issues like the subprime mortgage crisis, which have forced many of them to write off billions of dollars of bad loans.

So, here's the question this hour: What does it mean when foreign governments are having to come to the rescue of American banks?

E-mail us at caffertyfile@CNN.com or go to CNN.com/caffertyfile, where you can post a comment on my blog.

Go write on my blog, if you would like to -- Wolf.

BLITZER: They have got a ton, a ton of money. They don't know what to do with. That's why they're doing it, Jack. Let's hear what our viewers think as well, but they're very, very rich.

CAFFERTY: Yes, they are.

BLITZER: Coming up: Rudy Giuliani, he appears fearless. He says he can do what none of his rivals can.

Listen to this.

(BEGIN VIDEO CLIP)

GIULIANI: One of the reasons that I should be the nominee of the party is, I'm the only Republican candidate that can carry on a 50- state campaign

(END VIDEO CLIP)

BLITZER: You're going to hear some other bold statements from a very confident Rudy Giuliani. He's here -- my exclusive interview aboard the CNN Election Express, that's coming up.

Also, we will have more on that frightful scene over at the White House complex earlier today. Fire rages in on a building where the vice president has one of his offices. We're going to tell you what happened.

And guess who is the "TIME" magazine person of the year? A man the magazine calls dangerous and the country's -- quote -- "new czar." So, how did Russian President Vladimir Putin earn such a renowned title? We will tell you.

Stick around. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: Now to my exclusive interview with Rudy Giuliani on the issues, on attacks by his opponents, and on some missteps by the Bush administration.

(BEGIN VIDEOTAPE)

BLITZER: Mr. Mayor, thanks very much for coming in.

GIULIANI: Thank you for joining -- for coming here and joining us, the campaign.

BLITZER: We're here in Columbia, Missouri. It's an important state for you, because it's a Super Tuesday state.

GIULIANI: It's a February 5 state, yes. It's, you know, one of the 28, 29 between January and...

(CROSSTALK)

BLITZER: And that's part of your strategy. we will get to that later. we will talk politics.

I want to talk about some of the issues...

GIULIANI: Sure.

BLITZER: ... that are facing the American people, and I want them to get a better sense that if you become president of the United States, where will you be coming from, what will you be doing?

GIULIANI: Fair enough.

BLITZER: Hopefully at the end of this interview, they will have a little bit appreciation of what you would be like as president.

GIULIANI: Right.

BLITZER: Which is important at this time of the year.

The CIA interrogation tapes, should those tapes, based on what we all know right now, should they have been destroyed?

GIULIANI: Well, I mean, based on what we know now, no. But, you know, we don't know why they were destroyed. In other words, was it a mistake? Was it some kind of policy? Or was it a deliberate act...

BLITZER: Clearly, it wasn't a mistake. There was a decision made to go ahead -- these are hundreds of hours.

GIULIANI: No, I meant was the decision a mistake? I mean, we don't have a clear explanation of the decision yet. There's a whole big investigation that's going to determine that. And I think we have to wait until we see exactly why it was -- exactly why it was...

BLITZER: Because as you know, there are already allegations, charges that there could be -- and this is -- you know, it could be obstruction of justice.

GIULIANI: Right.

BLITZER: There could be destroying of evidence, those kinds of allegations.

GIULIANI: Right.

BLITZER: So the question is this -- and I know you're very friendly with the new attorney general, Michael Mukasey. You go way back with him.

GIULIANI: Right.

BLITZER: Should the administration, in effect, be investigating itself, the administration, or, as some are suggesting, should there be an outside special counsel brought in to take a look at these serious allegations?

GIULIANI: I generally in my career have favored the Justice Department doing -- I think the special counsel, independent counsel situation becomes a much more complicated one, and it's better for the institution of justice to handle this. But I...

BLITZER: But you were -- you were the number three guy at the Justice Department...

GIULIANI: I was.

BLITZER: ... during the Reagan administration. Is there a conflict of interest, though, when you ask an attorney general as competent and respected as Michael Mukasey might be -- he was appointed by the president. Do you ask that attorney general to go ahead and investigate...

GIULIANI: Sure.

BLITZER: ... decisions made -- clearly decisions made...

GIULIANI: Sure.

BLITZER: ... by the White House has participated in those decisions?

GIULIANI: Well, we don't -- we don't know the level yet. And even the special -- even the special prosecutor act I'm not sure at this level would absolutely have invoked some kind of a conflict of interest.

So, the attorney general is certainly capable of -- and I'm not just talking about Michael Mukasey. Any attorney general is capable of investigating at this level. And if you start taking away situations like this from the attorney general, then you end up with special counsel for this, independent counsel for that, special counsel for this.

I think this is one where we're going to get a pretty clear exposition of the facts by a Justice Department investigation. And I would like to know, for example, what was done in -- what was done in the past. we have had other situations like this, war tapes destroyed in the past.

Was there a rationale for it? Was it to protect the safety of the interrogator?

BLITZER: Well, the...

GIULIANI: Or was it being done -- was it being done because there was some investigation coming up and somebody...

(CROSSTALK)

BLITZER: Because the tapes apparently showed what they call as harsh interrogation techniques, and some suggesting waterboarding. Is waterboarding -- should that be appropriate? Is there room for waterboarding in trying to get information from suspected terrorists?

GIULIANI: Having looked at this, my belief is it certainly shouldn't be a practice that's approved, a practice that goes on, you know, generally. But I wouldn't want to say with what I know, including how some of these situations were effective with very dangerous people in once in a lifetime situation, once in a decade situation, someone -- we have been asked about this during these debates, possibly even yours, in which you have a terrorist, there's a bomb that's going to go off in a day or might go off in a day, and he knows about information that could stop the killing of thousands and thousands of people.

BLITZER: Because John McCain, your rival...

GIULIANI: I know John...

BLITZER: ... he says that it should be outlawed...

GIULIANI: Right.

BLITZER: ... this is torture, the United States should not engage in torture.

GIULIANI: I'm not willing to go as far on that particular answer to that question.

BLITZER: He speaks with some authority on this subject.

GIULIANI: Sure he does. Sure he does, and I respect John greatly. And I think John's opinion has great weight here.

But I do think you have to preserve for the president, and you have to preserve for our intelligence people at a time of grave national emergency a certain amount of discretion to do what's necessary. So I don't know that you could write this all out as a procedure that would apply in every situation. As a general matter, it would seem to me that a procedure like this would be inappropriate and not allowed.

BLITZER: If American prisoners were subject to waterboarding, would that be considered torture? And would that be a crime against -- a war crime, in effect?

GIULIANI: I'm not sure I know the answer to that, whether that's a war crime or not.

BLITZER: Because they will argue, the bad guys out there, that if we do it, it's OK for them to do it.

GIULIANI: Sure. And that's why this should not be a matter -- a matter of procedure that would always be the case.

I don't think that this should be something that you would allow all the time, or something you would allow as a matter of procedure. Or as you say, something you would allow for the investigation of prisoners.

Again, however, if there's a once in a lifetime situation, and you have -- and you have a person who may know about a massive attack that's going to go on, then I think the president and the appropriate officials have to have some discretion there. And you can't have it all written down as a group of procedures.

(END VIDEOTAPE)

BLITZER: Rudy Giuliani is clearly taking a different path than his presidential rivals.

Take a look at this. Almost all of the White House hopefuls have campaign appearances today in the early-voting states of Iowa and New Hampshire today. Giuliani, on the other hand, is here in Missouri.

And that speaks to his primary season strategy. It hinges on February 5. Missouri is one of 24 states that hold presidential contests that day. Even if Giuliani loses some of the early showdowns in Iowa, New Hampshire, South Carolina, for example, he's banking on a big Super Tuesday sweep, as well as a win in Florida's January 29 primary. It's a risky strategy, but he's clearly going forward with it.

Just ahead: Is the U.S. so focused on minor violations of the Cuba trade embargo that it's hurting efforts at catching terrorists? You're going hear the surprising conclusion of a brand-new report.

Also, merry campaigning and happy voting cheer -- 'tis the political season for Christmas commercials from the candidates. Will that make a difference for how you vote?

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

(COMMERCIAL BREAK)

(NEWS BREAK)

BLITZER: A piece of Washington up in smoke. We are going to tell you about the fire and the fear just a few yards away from the White House.

Also, Russian President Vladimir Putin's new title? Man of the year. Could "TIME" magazine have made a better choice? Jack Cafferty, Gloria Borger, and John King, they are standing by.

And the campaigns ad wars go on holiday.

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

(COMMERCIAL BREAK)

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

Happening now: Rudy Giuliani sounding off on Hillary Clinton. At one point, he offers some rare praise, but, in another breath, he slams her performance as a senator. We will talk about it with the best political team on television.

"TIME" magazine says Russian President Vladimir Putin is dangerous and that he doesn't care about civil liberties or free speech. So, why did "TIME" magazine name him the person of the year?

And the candidates battling to send some holiday cheer your way -- it seems they are all coming out with holiday ads. Is that giving you some campaign cheer?

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

But, first, smoke pouring out of a White House office building, flames raging within, a two-alarm fire right near offices used by the vice president and not so far away from the West Wing of the White House.

Let's go to CNN's Brian Todd -- Brian.

BRIAN TODD, CNN CORRESPONDENT: Wolf, normally, when reporters are standing where I'm standing, it's to do live reports from the White House.

We're going to pan camera left and show you some of the network positions. This is where reporters normally stand on the North Lawn of the White House to do their live reports. But, today, a lot of these cameras had to do a 180 and focus their attention on the building behind me, the Eisenhower Executive Office Building.

It's on the same grounds as the White House, less than a football field away from the West Wing. Earlier today, a fire broke out on the second floor, and Vice President Cheney's ceremonial office was among those damaged.

(BEGIN VIDEOTAPE)

TODD (voice-over): At its peak, the fire sent heavy smoke through the windows of the Eisenhower Executive Office Building, known in the White House complex as EEOB. And Vice President Cheney's ceremonial office was damaged by smoke and water.

Firefighters scoured ledges, punched through windows. Then, faint images of flames could be seen inside.

CHIEF DENNIS RUBIN, D.C. FIRE DEPARTMENT: There was hands-on combat by the firefighters.

TODD: Also punching through a window, this man -- identified as a U.S. Marine who tried to escape the smoke by climbing onto a ledge three floors above the actual fire.

ALAN ETTER, D.C. FIRE DEPARTMENT SPOKESMAN: Rescue Squad One, using rescue techniques, were able to get to this individual, secure him, get him outside where his injury was treated.

TODD: His hand laceration was the only injury. But the smoke was so thick, some people needed help from firefighters just to make it through the building before being evacuated. Everyone made it out.

CYNTHIA BALL, EEOB EMPLOYEE: You really just don't have time to think. You just move. And it's more scary now that I'm out here and think about it in retrospect, obviously. But, you know, when something's going on, you just -- you just react and you just move.

TODD: The only actual fire damage on the second floor, where the fire broke out.

D.C.'s fire chief talked about the challenges of battling flames in a nearly 120-year old structure that houses the National Security Council and White House communications officials.

RUBIN: Its size, as well as its age and the amount of combustibles, also would add another dimension of the tremendous amount of security that goes along with the building.

TODD: So much security that Secret Service officers had to respond with firefighters -- who got a hearty thanks from their commander-in-chief for saving most of the building.

(END VIDEO TAPE)

TODD: Secret Service and fire officials tell us that some employees were back in this building by this afternoon.

Now, on the cause, officials earlier today said that they believed the fire might have broken out in an electrical closet or a phone bank somewhere on the second floor. They'd backed off that slightly by this afternoon. Right now, they're saying anything definitive on the cause, other than they're investigating it -- Wolf.

BLITZER: All right, Brian.

Thanks very much.

It could have been, obviously, a whole lot worse. Rudy Giuliani hops aboard our CNN Election Express and speaks out.

Let's get some analysis on what we heard from the best political team on television.

Joining us from Iowa, CNN chief national correspondent, John King.

From New York, our own Jack Cafferty. Jack's best-seller is called "It's Getting Ugly out There".

Also joining us, from Washington, our senior political analyst, Gloria Borger.

Jack, I want to play a little clip from the interview we did with Rudy Giuliani aboard the bus right behind me. We had this exchange about the junior senator from New York.

Listen to this.

(BEGIN VIDEO CLIP)

BLITZER: Has Hillary Clinton been a good senator for New York State?

RUDY GIULIANI (R), PRESIDENTIAL CANDIDATE: Not from my point of view -- from the point of view of my ideology and my thinking, the things that I would like to see, which would be, you know, smaller government, tax cuts. She made the right vote on Iraq in having to deal with Saddam Hussein. I think her backing away from that vote -- I know that was popular within the Democratic Party. To me, that was very disappointing.

(END VIDEO CLIP)

BLITZER: It wasn't all that long ago, Jack, that a lot of people thought it was almost inevitable it was going to be Rudy Giuliani and Hillary Clinton -- two New Yorkers, if you will, facing each other. It's not necessarily all that inevitable right now.

But what do you -- what do you think about that possibility still emerging?

CAFFERTY: Well, I think it would be a great match-up. We all got cheated out of seeing the Clinton-Giuliani match-up in the race for the Senate seat that she now holds, because he was diagnosed at the time with prostate cancer and he had to withdraw. Everybody was anticipating a battle royal. No reason to expect that that would be any different if they tee it up on the national stage. I thought Giuliani was very smooth today, very much on top of his game, if you will. He handled your questions easily, comfortably. He's a smart man. You could make the argument he might be the smartest mind in the field. He's a brain cell or two ahead of what we've got in the Oval Office now.

I liked the interview. I don't agree with a lot of his foreign policy stuff -- or some of it. But I remember what he did when he was running New York City. He's a hell of a manager. And today he was able to look you in the eye and say, you know, I'm not perfect. I made some mistakes. Kerik was a mistake. I don't know the answer to the question. How refreshing from a politician to hear those kinds of things come out of their mouth.

BLITZER: Fair points.

What did you think, Gloria?

GLORIA BORGER, SENIOR POLITICAL ANALYST: Well, I've never heard anybody call Rudy Giuliani refreshing before, so there you go. There you go, Jack.

(LAUGHTER)

BORGER: I guess -- I guess he might have been today. I think he's never going on run out of things to say about Hillary Clinton. And if it's a Hillary Clinton/Rudy Giuliani match-up, watch out. Just watch out.

BLITZER: You know, John -- I want to bring in John King. He's out there in Iowa right now. He's really not very visible in Iowa or New Hampshire -- or South Carolina for that matter -- correct me if I'm wrong, John, because Rudy Giuliani is spending a lot of time in Florida and some of those other, bigger states -- whether New York or California -- that are going be players on February 5th, Super Tuesday.

JOHN KING, CHIEF NATIONAL CORRESPONDENT: Exactly right, Wolf. He is a non-factor here in Iowa. Some think he could finish fourth or fifth in Iowa. He is starting to spend a little more time in New Hampshire, although they pulled some money from Boston TV. That is an indication that they don't think they can win or place there in New Hampshire. It will be interesting to see what he does over the next few days.

And he was -- early on, he tried to dabble in South Carolina. Like Iowa, that is a state where you have very -- a very powerful Evangelical, anti-abortion base of the Republican Party. And many are beginning to question this strategy, saying they see more and more proof of Rudy Giuliani erosion among conservatives as they get to know his record.

And I'll tell you, I thought -- he did get along very well with Senator Clinton when he was the mayor. And he was very honest about that in that interview today. Any red meat Republican who doesn't like Hillary Clinton might not like the fact that Rudy was so kind, if you will, saying she works very hard as a senator, I just disagree with her.

Among conservative, hard core Republicans, going after Hillary Clinton is the best red meat you can do.

BLITZER: Jack, listen to this exchange I had with Rudy Giuliani when it came to the subject of Iran and its leader.

Listen to this.

(BEGIN VIDEO CLIP)

(CROSSTALK)

BLITZER: ...you would meet with Ahmadinejad.

GIULIANI: There would have to be preconditions.

BLITZER: Like what?

GIULIANI: I think...

BLITZER: Like what?

GIULIANI: Well, I don't think you lay out all your preconditions. I think that's a very big mistake. The last thing you do -- and some of these Democratic candidates have made the mistake of saying they would -- they would take regime change off the table or they seem to be less firm about the military option or -- if you start taking all of these things off the table, there's nothing to negotiate with. There's no pressure. There's no leverage.

(END VIDEO CLIP)

BLITZER: He didn't exactly rule out, Jack, meeting face-to-face with the Iranian leadership. He's simply demanding there have to be some preconditions. The table has to be set.

What do you think of that answer?

CAFFERTY: Well, you know, they say that there are three options when it comes to Iran -- you can attack them, like we did Iraq; you can negotiate with them, which is what Giuliani was suggesting he might be willing to do with certain preconditions met; or you can let them develop nuclear weapons and live with that eventuality. A lot of intelligent people suggest that talking to them might be the best place to start.

BLITZER: Gloria, what do you think?

BORGER: Well, it was sort of interesting to me that -- that he said he wouldn't meet with Ahmadinejad because, you know, I mean I think -- or that he would meet with Ahmadinejad, because I think Hillary Clinton, on the other hand, said that she would be a little bit more reluctant. She took on Barack Obama on that issue.

So I'm wondering if there's a difference between the two of them on that.

KING: And, Wolf, this is a very interesting issue...

BLITZER: (INAUDIBLE) Gloria, that there would -- there would have to be preconditions.

Go ahead, John.

Let me let you weigh in.

KING: This is a reflection, though -- this is Rudy Giuliani's strength -- when he's talking about terrorism, when he's talking about national security, when he's talking about standing up and being a strong and robust America. Yes, I might sit down with Ahmadinejad. That might have some Republicans saying well, but he did say with those preconditions.

The issue and what some would say the problem for Rudy Giuliani is that the terrorism issue, the national security issue, the war in Iraq -- those are all fading right now and the economy is raising as an issue. In these early states, also, the social issues matter more.

And so many see a problem for Rudy Giuliani, especially in the short-term, because the issues even Republicans care most about right now are not his biggest strengths, which are those national security and terrorism issues.

BORGER: I agree. I...

BLITZER: All right, guys, stand by, because we have a lot more. Hold on for a moment, because we're going to get to a lot more with the best political team on television.

We're also standing by, by the way, for some brand new poll numbers just coming in on the presidential race nationwide. We'll tell you what's happening on that front. We're going to be checking to see if there are any new surprises.

Also, he's been dubbed the new czar of Russia. "Time" magazine names Russia's Vladimir Putin as the Person of the Year. We'll tell you what's going on on that front, as well.

Stick around.

You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: Let's get back to the best political team on television.

Jack Cafferty, we'll start with you.

There are some new poll numbers just coming into THE SITUATION ROOM right now from "The Wall Street Journal"/NBC.

Take a look at this. Nationwide -- nationwide, on the Republican side, Giuliani and Romney are now tied at 20 percent; Huckabee close by at 17 percent; McCain 14; Thompson at 11.

This is a significant setback for Giuliani because until now, Jack, as you know, in almost of the national polls, Giuliani had a significant lead. But this race is tightening up big time right now.

What's your immediate thought?

CAFFERTY: Well, my immediate thought is it's absolutely wide open. Giuliani banking on doing well in the big states that vote later could be a mistake. He's pulled money out of New Hampshire. He's not campaigning as strongly in Iowa.

And Huckabee has absolutely caught fire. He's zoomed up, I think, 13 or 14 points in this poll since the last time it was taken. Romney is tied at the top.

So I don't think the Republicans don't have a clue yet who they want in the White House.

BORGER: Wolf, I also think this actually means...

BLITZER: And, you know -- and, Gloria, let me just -- let me just make the point, Gloria, that Huckabee has done this with virtually no money compared to Giuliani and Romney.

BORGER: Yes. You know, it may mean that Iowa and New Hampshire really, really matter, Wolf, and that the rest of the country is paying attention to what's going on in Iowa and New Hampshire. And Giuliani is really nowhere in those two states. And, also, Wolf, he may be being seen as yesterday's news. Huckabee is today's news and Giuliani may suddenly seem old.

BLITZER: I hear a train going by.

BORGER: I do.

BLITZER: I think that's in Iowa.

CAFFERTY: I'm hoping it isn't in this building.

(CROSSTALK)

BORGER: Well, I was wondering what that was.

BLITZER: I hope it's not too close to you, John.

But...

KING: The train is across...

BLITZER: Go ahead, John.

Give us your thoughts about these "Wall Street Journal"/NBC News poll numbers.

BORGER: Get out of the way. KING: The train is across the street and Rudy Giuliani is not on it. That's my reaction to these poll numbers, Wolf.

Look, this is a capital (INAUDIBLE) for Rudy Giuliani, because -- I'll give it back to you until the train passes so you can hear.

CAFFERTY: Maybe tomorrow night we could have John set up on the tarmac of some large airport somewhere.

(LAUGHTER)

BLITZER: All right, John...

(LAUGHTER)

BLITZER: John is going to...

BORGER: I hope Giuliani is not under that train.

BLITZER: Hold it.

(CROSSTALK)

BLITZER: Hold it.

KING: (INAUDIBLE)...

BLITZER: I think we've got to hold this thought for a second.

We're going to get back to him.

(LAUGHTER)

BLITZER: Go ahead, John.

KING: Are we all right now?

This is a big deal because, as Gloria noted, the action is here in Iowa and in New Hampshire, and Rudy Giuliani is not a player here. And he mentioned to you earlier that he's ahead in 18 or 20 of those big states that vote on February 5th. But that is based on his lead in the national polls and on his name recognition and on the fact that many Republicans who disagree with him on a lot of issues think that he is the candidate toughest to go into the general election.

Once they think he might not be the toughest, there's a huge danger that those state leads will erode, as well.

So he needs to change the dynamic quickly, but the action is here in Iowa and he's not a player -- Wolf.

BORGER: Wolf, I think we're already seeing the fallout from Iowa...

BLITZER: All right, let me get...

BORGER: ...and New Hampshire before they happen.

BLITZER: And it's a -- it's a wide open race, let's put it that way, among these top five Republicans, to be sure. And it's a wide open race on the Democratic side. We're going to watch both very closely.

But, Jack, give us your immediate reaction when you heard that Vladimir Putin was "Time" magazine's Man of the Year.

CAFFERTY: Well, a couple of things. They -- the editors said they awarded him this for bringing stability to Russia, which he did. They traded the chaos of freedom for the stability of autocracy. He has a 70 percent approval rating despite co-opting civil liberties.

In this country, George Bush as a 30 percent approval rating for doing virtually the same thing. President Bush said he could see Putin's soul when he looked in his eyes. John McCain says he can see the letters "KGB".

BLITZER: Yes.

Gloria?

BORGER: Well, I think we ought to give Putin some kind of award anyway for figuring out how to remain in power without being crowned, because, as you know, he's leaving his current post in March and will become the prime minister. And so he will still have an incredible impact on this country for years and years to come.

CAFFERTY: There's a joke about...

BLITZER: You know, it's amazing, John, when you think about it. Putin has really emerged as someone -- if he goes back and forth, now he's going become prime minister.

But you know what?

Under the coast, he could run again for president. He could emerge as sort of the leader for life if he plays his cards right, I guess.

KING: And, Wolf, he has cracked down on press freedoms. He has cracked down on political opposition. It is a striking turn of events.

I was at that trip to Estonia where, early on, President Bush did say -- Slovenia, I'm sorry -- where early on President Bush said he had looked in President Putin's soul and believed him to be a good man, committed to Russian democracy. Now the State Department, of course, has been warning about backsliding in Russian democracy. And it is a very difficult challenge for this president and the next president, because of Russia's growing role in the energy markets and Russia's great importance in the showdown with Iran and any other global matter -- a huge issue facing the next president. And it will become a question for all of these candidates over the next couple of months -- would you keep the cozy relationship President Bush has had or would you change it? CAFFERTY: A quick joke.

BORGER: I...

CAFFERTY: In Russia about -- about Putin...

BLITZER: John King...

CAFFERTY: ...and his handpicked successor, who is a guy named Medvedev. Putin walks into a restaurant with Medvedev to have lunch. He orders a steak. The waiter says, what about the vegetable? Putin says he'll have a steak, too.

(LAUGHTER)

BORGER: I want to...

BLITZER: (INAUDIBLE) Jack.

BORGER: I want to know, Wolf...

BLITZER: All right, thanks.

Stand by, because we're -- we're out of time.

Gloria, we're out of time.

(LAUGHTER)

BLITZER: We can't go on.

But Jack is going to do standup later tonight for all of us when we're done with this -- with this show.

All right, John King, thanks very much.

Gloria, thanks to you.

Jack will be back with some more standup and The Cafferty File. That's coming up, as well.

Also, your fuel economy ought to improve by a lot. But just check back in the year 2020. We'll tell you what's happened today. Auto manufacturers have to boost their averages to 35 miles per gallon. It's now the law.

And do their holiday messages have hidden meanings?

The candidates send out Christmas cards in the form of TV ads. Jeanne Moos standing by with that.

We'll be right back.

(COMMERCIAL BREAK)

BLITZER: In our Political Ticker today, the House of Representatives moving to give final Congressional approval today to another $70 billion in war spending in Iraq. The vote -- 272-142 -- caps a year of frustration for Democrats, who took control of both houses of Congress pledging to end the conflict in Iraq. The money was part of a $555 billion spending bill that combines war funding with money to run cabinet departments.

It should help Americans save money on gas. Today, President Bush signed an energy bill that mandates more fuel-efficient cars and trucks. It says car makers should increase the fuel-efficiency of their vehicles to an average of 35 miles a gallon by the year 2020.

Let's go back to Jack.

He's got The Cafferty File in New York -- Jack.

CAFFERTY: Wolf, the question this hour is what does it mean when foreign governments are having to come to the rescue of American banks?

Several large American financial institutions have relied on foreign money to get the needed capital to continue operations and solve the write-down on some of these sub-prime mortgage losses.

Martin writes from Blue Ridge, Georgia: "It means we will have what we have all suspected for some time now. America as we have known it is gone. We've been sold down the river by the feds in every way possible. Our sovereignty has been compromised by big money."

Bob says: "China's investment is a great thing for U.S.-China relations. This growing co-dependence between the two countries and their economies will only lead to stronger political ties between the two nations -- an essential outcome for the U.S., given China's growing role on the world stage."

Bill writes: "Perhaps foreign countries are coming to the rescue of our banks for the same reason we come to the rescue of weak, oil- rich countries such as Iraq -- ownership by hostile take over."

Jason writes: "It means the United States is mortgaged to the hilt. We are owned by the world -- a sad day when the U.S. has to be bailed out. We've spent almost a trillion dollars on a failed war and that money should have been spent here at home. Oh, well, attention K- Mart shoppers -- today's blue light special is America -- to the highest bidder. Let the shopping begin."

Maria writes: "This country is in the toilet. The world's waiting to flush us down."

Grant says: "It means that America is crumbling before our eyes. This is the tip of the iceberg. Americans have been surviving the past 20 years borrowing on the equity in their homes. Now their homes are losing value and their equity will become negative. They'll not be able to sell their homes or continue borrowing to support consumer spending. We're not looking at a recession next year, we're looking at the beginning of a financial collapse in this country that will decimate the middle class." And Michelle writes: "I guess we all should start learning Chinese or Arabic." -- Wolf.

BLITZER: Jack, thanks very much.

The candidates are sending out some holiday cheer. CNN's Jeanne Moos takes a closer look. That's coming up.

(COMMERCIAL BREAK)

BLITZER: So what happens when the political season meets the holiday season?

Here's CNN's Jeanne Moos.

(BEGIN VIDEOTAPE)

JEANNE MOOS, CNN CORRESPONDENT (voice-over): On Comet, on Cupid, on Donner -- on Rudy?

(BEGIN VIDEO CLIP FROM RUDOLPH GIULIANI FOR PRESIDENT CAMPAIGN AD)

RUDY GIULIANI (R), PRESIDENTIAL CANDIDATE: It'll be a really nice fruit cake.

(END VIDEO CLIP)

MOOS: On Obama?

(BEGIN VIDEO CLIP FROM BARACK OBAMA FOR PRESIDENT CAMPAIGN AD)

SEN. BARACK OBAMA (D), PRESIDENTIAL CANDIDATE: So from our family to yours...

(END VIDEO CLIP)

MOOS: On Huckabee. He started it.

(BEGIN VIDEO CLIP FROM MIKE HUCKABEE FOR PRESIDENT CAMPAIGN AD)

MIKE HUCKABEE (R), PRESIDENTIAL CANDIDATE: And Merry Christmas.

(END VIDEO CLIP)

MOOS: Since when do presidential candidates treat us to Christmas commercials?

(BEGIN VIDEO CLIP FROM HILLARY CLINTON FOR PRESIDENT CAMPAIGN AD)

SEN. HILLARY RODHAM CLINTON (D), PRESIDENTIAL CANDIDATE: Where did I put universal pre-K? Ah, there it is.

(END VIDEO CLIP)

MOOS: Barack Obama even dragged out his kids. (BEGIN VIDEO CLIP FROM BARACK OBAMA FOR PRESIDENT CAMPAIGN AD)

UNIDENTIFIED CHILD: Merry Christmas.

UNIDENTIFIED CHILD:

Happy holidays.

(END VIDEO CLIP)

MOOS: And why stop at just the kids?

(BEGIN VIDEO CLIP FROM RON PAUL FOR PRESIDENT CAMPAIGN AD)

RON PAUL (R), PRESIDENTIAL CANDIDATE: I'm Ron Paul.

(END VIDEO CLIP)

MOOS: Maybe they think they'll win our support if they leave us...

(BEGIN VIDEO CLIP)

UNIDENTIFIED PEOPLE (SINGING): Laughing all the way...

(END VIDEO CLIP)

(BEGIN VIDEO CLIP FROM RUDOLPH GIULIANI FOR PRESIDENT CAMPAIGN AD)

GIULIANI: And I really hope that all of the presidential candidates can just get along.

UNIDENTIFIED MALE: Ho, ho, ho. I was with you right up until that last one. Ho, ho, ho.

GIULIANI: You can't have everything.

(END VIDEO CLIP)

MOOS (on camera): As my CNN colleague, Candy Crowley, put it -- what's next, Fred Thompson singing with Alvin and The Chipmunks?

(VIDEO CLIP OF ALVIN & THE CHIPMUNKS)

MOOS (voice-over): Actually, we added Fred's head. The campaign is blameless.

The trend started with Mike Huckabee's Christmas greeting, which was greeted with howls by the press on account of the so-called floating cross in the background.

(BEGIN VIDEO CLIP FROM MIKE HUCKABEE FOR PRESIDENT CAMPAIGN AD)

HUCKABEE: What really matters is the celebration of the birth of Christ. (END VIDEO CLIP)

MOOS (on camera): What else to you see in this commercial?

UNIDENTIFIED FEMALE: Oh, it looks like a cross, which is very, very subtle.

(BEGIN VIDEO CLIP)

HUCKABEE: That was a bookshelf behind me, a bookshelf.

(END VIDEO CLIP)

UNIDENTIFIED FEMALE: And he says it's a bookcase, but it's a cross.

UNIDENTIFIED FEMALE: It's like if you're voting for me, you're voting for Christ. And, hey, Christ gets a lot of votes.

MOOS: Mike Huckabee deflected the controversy with humor, joking that he was also blinking in Morse code -- sending secret signals. But we in the press were blinded by the cross.

(BEGIN VIDEO CLIP)

UNIDENTIFIED CHILD: I see a "T". It's a God cross.

(END VIDEO CLIP)

MOOS: This lady even used her goggles to peer more intently.

(on camera): Do you see anything else in there now that you've got the goggles on?

UNIDENTIFIED FEMALE: That's funny. I just see the three balls.

MOOS: Thank you very much.

UNIDENTIFIED FEMALE: But let's not get me on the topic of balls.

MOOS (voice-over): The controversy reminds us of the time back in the 2000 campaign when the word "rats" flashed across a Bush commercial. The Bush folks denied they were subliminally dissing the opposition. But what outlasted the brouhaha was the pronunciation.

GEORGE BUSH, PRESIDENT OF THE UNITED STATES: Subliminable...

MOOS: But when it comes to the subliminal cross controversy...

(BEGIN VIDEO CLIP)

HUCKABEE: If you play the spot backwards, it says, "Paul is dead, Paul is dead, Paul is dead."

(END VIDEO CLIP)

MOOS: Jeanne Moos, CNN, New York.

(END VIDEO TAPE)

BLITZER: I'm Wolf Blitzer here with the CNN Election Express.

Up next, "LOU DOBBS TONIGHT".

Kitty Pilgrim sitting in for Lou -- Kitty.

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