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Fed Cuts Rates; Obama v. Clinton

Aired January 22, 2008 - 17:00   ET

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


BLITZER: Jack, thanks very much.
And to our viewers, you're in THE SITUATION ROOM.

Happening now, stocks do a stunning turnaround after the Federal Reserve offers some medicine for an ailing economy.

But could we still be headed for a relapse and a recession?

They pummeled each other from the opening bell. And long after the debate, Hillary Clinton and Barack Obama are still going at it.

How nasty can it get?

And Barack Obama wants to leave no doubt in voters' minds that he's a Christian, not a Muslim. We're going to hear him, in his own words. That's coming up.

I'm Wolf Blitzer.

You're in THE SITUATION ROOM.

But let's begin with a developing story out of New York -- a shocking story we're just getting some new information on. Police there now confirming to CNN that the young actor, Heath Ledger, has been found dead at his Manhattan home.

Let's get the latest that we know from Carol Costello.

She's watching this story for us -- Carol.

CAROL COSTELLO, CNN CORRESPONDENT: Yes, we don't know too many more details about this, Wolf. We know that Heath Ledger was found dead around 2:00 this afternoon, 2:30, 3:00. A masseuse had come to his hotel room, entered the room and found him unconscious. The medics were called and he was declared dead. New York police are confirming that to CNN.

As you know, Heath Ledger was in "Brokeback Mountain". He was a very talented actor. He was due to appear in "Batman". He was to play the Joker. He was also involved with Michelle Williams.

Remember that?

I believe she, too, was in "Brokeback Mountain" and they have a 2-year-old child. Heath Ledger, as far as we know, was alone in that apartment in Manhattan when he was found dead.

That's about all I can tell you now.

BLITZER: All right.

As soon as we get more information, some more facts on what happened, we'll update our viewers.

Thanks, Carol, very much.

Moving on to other news we're following, they jabbed and they punched like boxers. And just hours after last night's debate, the leading Democratic candidates were still going after each other today.

(BEGIN VIDEO CLIP)

SEN. HILLARY RODHAM CLINTON (D), PRESIDENTIAL CANDIDATE: Senator Obama is very frustrated. The events of the last 10 or so days, particularly the outcomes in New Hampshire and Nevada, have apparently convinced him to adopt a different strategy. So he clearly came -- he telegraphed it, he talked about it -- he clearly came last night looking for a fight. And he was determined and launched right in.

And I thought it was important to set the record straight.

(END VIDEO CLIP)

BLITZER: Barack Obama wasted no time firing right back, telling reporters that both Hillary Clinton and Bill Clinton are quote -- and I'm quoting now -- "attacking me in ways that are not accurate." He said Senator Clinton is willing to "fudge the truth in her quest for the nomination," adding that, "that erodes people's trust in government."

John Edwards today said that after watching his rivals slug it out last night, he's proud to represent what he's calling the grownup wing of the Democratic Party.

Meantime, a major development on the Republican side. The former senator, Fred Thompson, today dropping out of the race. In a brief statement, he said he hopes the country and his party have benefited from his effort. Short on cash and sinking in the polls, Thompson counted on a strong showing in South Carolina but ended up in a weak third place in Saturday's primary.

We're going to have much more on the campaign coming up.

But let's get to the top issue for both parties and millions of people across the country right now -- the nation's ailing economy and the attempts to try to fix it.

Today's wild ride on Wall Street ended just a little while ago. The Dow Jones Industrial Average started the day with a 400 point plunge on recession fears, despite emergency action by the Federal Reserve. It slashed a key interest rate 3/4 of a point just before the markets opened earlier in the morning. It's the largest cut in almost a quarter century. They helped fuel -- that helped fuel a partial rebound. The Dow closed down still 128 points, but it could have been -- could have been a whole lot worse.

And just imagine if the markets had been opened in the United States yesterday, on Dr. Martin Luther King, Jr.'s holiday.

Recession fears are still looming large over the U.S. economy.

Let's go to our personal finance editor, Gerri Willis. She's joining us right now -- Gerri, how did we get to this point?

GERRI WILLIS, CNN PERSONAL FINANCE EDITOR: Well, you know, that's a great question, Wolf.

It's been a long time coming -- over a year. As you know, the markets tanking today. And it comes out of what started in the mortgage market.

Listen to this.

(BEGIN VIDEOTAPE)

WILLIS (voice-over): Mortgage meltdown, recession fears, stock sell-offs -- how did we get here?

Today's financial crisis has its roots in a previous financial crisis -- the dot-com stock market crash. In the wake of the tech stock bubble, the Federal Reserve cut interest rates 11 times in 2001. And that enabled a wave of new borrowers who had never qualified before to get a mortgage loan for the first time. Residential home prices skyrocketed and more people scrambled to get a piece of the action.

Lenders eager to profit from the mortgage boom relaxed their standards -- sometimes giving loans to people who couldn't afford the payments. Lenders and borrowers alike seemed to think the housing market could never turn south.

But residential home prices went too high too fast. They started to come down in 2006 and borrowers who thought they would be able to refinance found themselves stuck with adjustable rate mortgages they couldn't afford. As foreclosures became a big problem in late 2006 and early 2007, banks tightened their purse strings. As they did, more homeowners fell behind on payments. And by the end of 2007, more than two million homeowners had lost their homes across the country.

Loans that had been sold to investors lost value. And with it, major lenders and investors saw their bottom lines collapse.

That instability continues. Now talk of a recession looms every day and the markets are responding.

(END VIDEO TAPE) WILLIS: While the markets are responding, the good news -- they didn't go down as much as we expected today. The Dow industrials down just 1 percent. It makes it all that much easier to hear that advice that you typically do, which is just stand pat with your 401K. The old Wall Street pros have it right. They say don't try to catch a falling knife in the stock market -- Wolf.

BLITZER: Probably good advice.

All right, Gerri, thanks very much.

We'll continue to watch this roller coaster.

President Bush had planned to brief Congressional leaders on his Mideast trip today, but instead they wound up discussing the growing economic crisis. There's general agreement on a need for an economic stimulus package, but Mr. Bush warned it won't happen overnight.

(BEGIN VIDEO CLIP)

GEORGE BUSH, PRESIDENT OF THE UNITED STATES: Everybody wants to get something done quickly, but we want to make sure it gets done right and make sure that we're -- everybody is realistic about the timetable. Legislative bodies don't move, you know, necessarily in an orderly, quick way.

(END VIDEO CLIP)

BLITZER: As bad as the recent losses have been, they pale in comparison to the Dow's two worst days. The Dow lost 684 points on September 17, 2001 -- the day the markets reopened in the wake of the 9/11 terror attacks. The worst percentage loss was back on December 12, 1914. That was the day the markets reopened after a four month closure at the onset of World War I. The Dow last 24 percent of its value that day.

Let's go to Jack Cafferty.

He's got The Cafferty File -- Jack.

CAFFERTY: President Bush, Wolf, is desperate for a legacy. Oh, he's going to be remembered, but for all the wrong reasons -- an economy going into recession, trillions of dollars of additional national debt for somebody else to worry about -- my kids, yours, the illegal invasion of Iraq, Katrina, the destruction of our reputation worldwide, the failure to capture or kill Osama bin Laden and countless investigations into the shadiest -- if not the most outright corrupt administration -- in memory.

But all is not lost. Perhaps President Bush will be remembered as the last white male to be allowed to serve as president of the United States for a good long while. Think about it. The Republican presidential field is wide open. And whoever gets that nomination, will have to run against all the stuff I just mentioned. That's no easy task. Seventy percent of Americans think the country is headed in the wrong direction. And that leaves the Democrats. They're down to three candidates and it doesn't look like John Edwards is going to be around too much longer. So unless things change, it looks increasingly like the country will be called upon to elect either an African-American or a woman -- something we've never done before. And despite the tide running against another Republican occupying the White House, there are real questions about whether either an African-American or a woman can win.

In the privacy of that voting booth, will this country make history?

Here's the question -- is the U.S. more ready for a woman president or an African-American president?

Go to CNN.com/caffertyfile and post a comment on my new blog -- Wolf.

BLITZER: Thanks very much, Jack, for that.

Reaching out to Christian voters -- Barack Obama goes on the offensive against an Internet smear campaign that claims he's a secret Muslim. We're going to speak about it with David Brody of the Christian Broadcasting Network. He interviewed Barack Obama today on this very subject.

Plus, voter turnoff -- how squabbling really plays out on the campaign trail.

And the Republican winner of the Democratic debate -- John McCain. The Democrats crown him the frontrunner.

Stay with us.

You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: Democratic presidential candidate Barack Obama is stepping up his fight against an e-mail smear campaign alleging he's a Muslim with ties to radical Islam.

Here's what he told David Brody, the senior national correspondent for the Christian Broadcasting Network, just a little while ago earlier today.

(BEGIN VIDEO CLIP)

SEN. BARACK OBAMA (D), PRESIDENTIAL CANDIDATE: This is obviously a systematic political strategy by somebody because, you know, these e-mails don't just keep on coming out the way they have without somebody being behind it. Basically, the e-mail falsely states that I'm Muslim, that I pledged my oath of office on a Koran instead of a bible, that I don't pledge allegiance to the flag.

Scurrilous stuff. And I want to make sure that your viewers understand that I am a Christian who has belonged to the same church for almost 20 years now. It's where Michelle and I got married. It's where our kids were dedicated. I -- you know, I took my out of office on our family bible. I lead the Pledge of Allegiance when I open up the Senate. I've been saying the Pledge of Allegiance since I was three-years-old.

And, you know, I think it's very important not to buy into the kinds of dirty tricks that we've become so accustomed to in our politics. And people need to understand so that -- you know, I'm unequivocal about this. I have not and never have been of the Muslim faith.

I think that those who are of the Muslim faith are deserving of respect and dignity. But try to feed into this fear mongering and to try to, you know, question my faith commitments and -- and my belief in Jesus Christ, I think, is -- is offensive. And I want to make sure that people are absolutely clear about what's going on with this and if they get another one of these e-mails, that they're the deleting it and letting their friends know that it's nonsense.

(END VIDEO CLIP)

BLITZER: And David Brody is joining us now from Greenville, South Carolina. He's the reporter from the Christian Broadcasting Network who did this interview.

David, thanks very much for joining us.

Give us a little more context how this discussion you had with Barack Obama started and what's going on. Clearly, he wants to assure Christians out there -- especially in advance of the South Carolina primary -- that he is a Christian, not a Muslim.

DAVID BRODY, CHRISTIAN BROADCASTING NETWORK: You know, Wolf, we had 15 minutes or so -- 10 or 15 minutes to talk about this. And I can tell you that it was going to come up toward the end of the interview. I was about to bring it up. But before I could even get to it, he wanted to bring it up.

And, you know, clearly, an attempt by the Obama campaign to put an end to what he calls scurrilous attacks here. I mean this has been going on for a while, Wolf. This e-mail has been out there. I can tell you that within Evangelical circles -- if we put that in quotation marks -- I can tell you that, indeed, this is -- this is a talker out there. And they know it. The Obama campaign knows it and they want to put an end to it.

So this was pro-active on their part, to let everybody know that these charges within the e-mail are unfounded.

I have to tell you, Wolf, I talked to him about this. I sat down with Barack Obama in November -- early November of '07 and he denied it then. They wanted to revisit it now because that e-mail just won't go away. BLITZER: And even last night at the debate, he volunteered that he wanted to get out the point that he is a practicing Christian, not a Muslim, because there is this widely circulated notion out there on the Internet that he is some sort of secret Muslim.

You also had an interesting exchange with him -- and I'm going to play this exchange -- on the whole Bill Clinton/Hillary Clinton nastiness that has developed in recent days.

Listen to this clip.

(BEGIN VIDEO CLIP)

BRODY: Are you looking for a fight here?

OBAMA: Oh, absolutely not. I wasn't looking for a fight. What I'm looking for is a correcting of the misstatements that have been coming out of the Clinton camp, not just from the senator, but also from her husband, over the last month. And, you know, I think everybody who has watched me campaign knows that we've been trying to focus on the issues. And we've been making sure that we maintain a positive campaign.

But, you know, if you spend a month taking in incoming, at a certain point you have to make sure that we correct the record. And that's what we did. And, you know, my main focus is to try to make sure that I'm communicating with the voters what I'm going to do to help them get health care and what I'm going to do to make sure that the economy is working for them and that people have good jobs and good wages and that we talk about how we're going to make this country safer. Those are my priorities.

This stuff is a distraction. But, you know, it's a purposeful strategy that they've employed over the last month and we've had to sort of put a check to it.

BRODY: You say it's a strategy.

Do you think it's -- a lot of this is done on purpose to kind of get you off your game a little bit?

OBAMA: Oh, there's no doubt. I mean, look, you know, up in New Hampshire, President Clinton, you know, was making stuff up about my opposition to the war in Iraq. You know, we had the Clinton camp repeating that we were in favor of a -- the Yucca Mountain nuclear waste facility in Nevada, even though I've consistently said I wasn't. The latest episode, where I praised Ronald Reagan's political skills and they suggest that somehow I have complimented Ronald Reagan's economic policies and said they were superior to Democrats'.

I mean these were all things that were just made up. And I understand that's the political tactics that we've become accustomed to.

(END VIDEO CLIP) BLITZER: You can see, David, in your interview, he's not backing away from anything that he said last night in that debate with Hillary Clinton and John Edwards.

BRODY: Not at all. You know, Wolf, I asked a seven second question. I got a two minute answer. And I think that really gives you a sense of what's going on. There is a lot of things that he wants to get off his chest. He got them off his chest last night in the debate with you and a continuation, obviously, here today.

You know, it was real interesting, Wolf, where he talked about this is a distraction -- really, the first time he has actually said listen, he understands that this is a distraction -- not just on the issues, but, clearly, to his campaign, as well. He knows what the Clintons, he says, are trying to do. But he plans to not have any of it in the future.

BLITZER: In your meeting, did you get a sense that he's upbeat about South Carolina this coming Saturday?

BRODY: Oh, there's no doubt about it. As a matter of fact, I asked him about Hillary Clinton not being in South Carolina these last -- these next two Sundays. I think she's returning Thursday to the state. And he said listen, we're going to let the voters of South Carolina determine whether or not they think that's relevant or not. He believes that it is a sign, in essence, the fact that she's leaving the state -- that that bodes well for him. And, at the same time, he was talking about the fact that she had said that she's not running -- or he's not running against Bill Clinton. But then, at the same time, Bill Clinton is here in South Carolina by proxy, running against Barack Obama down here in South Carolina.

BLITZER: All right, groundwork, David.

David Brody is the senior national correspondent for the Christian Broadcasting Network.

Thanks again.

BRODY: Thanks, Wolf.

BLITZER: Charges were flying at last night's Democratic debate.

But which, if any, of the charges are actually true?

We're checking the facts for you.

Plus, the closest thing yet to a cure for diabetes. We're going to tell you which patients stand to benefit.

Stick around.

You're in THE SITUATION ROOM.

(COMMERCIAL BREAK) BLITZER: Carol Costello is monitoring some other important stories incoming into THE SITUATION ROOM right now -- Carol, what's going on?

CAROL COSTELLO, CNN CORRESPONDENT: Wolf, on this 35th anniversary of the landmark "Roe v. Wade" decision legalizing abortion, a federal appeals court has ruled that Missouri must provide transportation for pregnant inmates who want an abortion. The court upheld a lower court's decision that expanded the requirement from the 2005 case of a specific inmate to all female inmates held by Missouri.

It is the closest thing yet to a cure for diabetes. A study just released last hour says obese patients who have their stomach size surgically reduced are five times more likely to see their diabetes disappear than patients undergoing standard treatment. The study says most surgical patients are able to stop taking diabetes drugs and maintain normal blood sugar levels within two years. Of course, we're talking Type 2 diabetes.

That Marine wanted for killing a pregnant colleague in North Carolina was seen in Mexico last week. A cousin of Corporal Cesar Laurean tells CNN he spoke with his wanted relative near their native Guadalajara. He says Laurean told him he was passing through town for a few days. The cousin says he didn't know Laurean was wanted for murder.

And chain restaurants in New York City will soon have to post calorie counts on their menus and menu boards. The city health board voted unanimously to require all restaurants with 15 or more outlets to display the number of calories in each food item starting at the end of March. Officials say the new rules will help consumers make healthier, more informed choices.

And one more word on the death of actor Heath Ledger, Wolf. CNN has now learned that pills were found near the body, although that does not mean he died because of those pills. I'll try to find out more for you.

Back to you -- Wolf.

BLITZER: The actor, Heath Ledger, found dead a little while ago in New York.

Thanks very much, Carol.

You'll update our viewers when we get some more information.

Barack Obama gets hammered over his voting record.

(BEGIN VIDEO CLIP)

JOHN EDWARDS, PRESIDENTIAL CANDIDATE: I don't question whether you worked on...

OBAMA: No, no, no. Hold on a second.

EDWARDS: I don't question whether you worked on tough stuff. But this...

OBAMA: No, no. But you...

EDWARDS: ...the question is, why would you, over 100 times, vote "present?"

(END VIDEO CLIP)

BLITZER: Did he sidestep politically sensitive votes or are his opponents nitpicking at his past?

Also, John McCain as frontrunner -- he was the most mentioned Republican at the Democratic presidential debate.

Also, as we said, we'll get you some new details on the death of the actor Heath Ledger.

Stay with us.

You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

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

Happening now, a 17-year sentence for the former enemy combatant, Jose Padilla. He was once accused of plotting to detonate a radioactive dirty bomb, but wound up being convicted of plotting to support terrorism. We're waiting the story.

Hollywood writers now say they won't picket the upcoming Grammy Awards. But they probably won't be writing for the show, either. Their union hasn't granted a waiver yet. The ceremony is scheduled for February 10th.

I'm Wolf Blitzer.

You're in THE SITUATION ROOM.

After putting their differences on display last night, the Democratic candidates today are busy agreeing on one thing -- the economy needs fixing and needs fixing soon.

Let's turn to CNN's Suzanne Malveaux.

She's watching this story for us -- when all is said and done, though, Suzanne, the Democratic candidates and the Republican candidates, for that matter, they're largely spectators in this effort to try to stimulate the economy.

SUZANNE MALVEAUX, CNN WHITE HOUSE CORRESPONDENT: Well, Wolf, you're absolutely right. I talked to a lot of the voters, South Carolinians, and they're really concerned about the economy. And they're looking to answers for these candidates. But the big question is what can they really do?

(BEGIN VIDEOTAPE)

SEN. HILLARY RODHAM CLINTON (D), PRESIDENTIAL CANDIDATE: You talked about Ronald Reagan being a transformative political leader. I did not mention his name. You...

OBAMA: Your husband did.

CLINTON: Well, I'm here. He's not. And...

(APPLAUSE)

OBAMA: OK. Well, I can't tell who I'm running against sometimes.

CLINTON: You know, well...

MALVEAUX (voice-over): Following a series of bitter personal exchanges in Monday night's debate, today the leading Democratic candidates tried to appear focused on what's important.

OBAMA: We woke up this morning to bad news from Wall Street.

MALVEAUX: Addressing the one issue voters are consumed with -- the tanking economy.

CLINTON: This is a global economic crisis.

MALVEAUX: Senator Hillary Clinton, like John Edwards and Barack Obama, called for serious and swift action by the president.

CLINTON: We need action across the board. And it's imperative that the president and his economic team instill confidence in the competence of our government.

MALVEAUX: Each laid out what they would do as commander-in-chief to fix the economy.

EDWARDS: We've got to get the economy stimulated again. We do. And what I have suggested -- and I said it over a month ago -- is we can use this as an opportunity to not just create jobs and stimulate the economy, but we can do some other big things that need to be done over the long-term.

MALVEAUX: But wait a minute.

Remember this guy?

He's still the president for another year. And while he may be perceived as a lame duck, President Bush is the only one who's got the power to try to do the kinds of things that candidates are talking about.

GEORGE BUSH, PRESIDENT OF THE UNITED STATES: I believe we can find common ground to get something done that's big enough and effective enough so that -- so that an economy that is inherently strong gets a boost. MALVEAUX: So in the meantime the candidates are left with trying to outdo each other in appearing presidential and making sure the media stays focused on them.

(END VIDEOTAPE)

MALVEAUX: And, Wolf, those campaigns, various ones, having conference calls with reporters to highlight the issue of economy, the number one issue for voters but also these candidates want to make sure they remain in the spotlight. They'll continue to spotlight it. Wolf?

WOLF BLITZER, CNN ANCHOR: Suzanne Malveaux in Myrtle Beach, South Carolina; Suzanne, thanks also for last night for doing a terrific job, as usual, last night at the democratic presidential debate.

Barack Obama is being forced to defend himself against critics who say that as a state senator in Illinois he often failed to take a stand on some difficult sensitive issues.

Let's go to CNN's Brian Todd. He's watching this story for us. What's the real story? I know you've been doing fact-checking on this sensitive matter, Brian.

BRIAN TODD, CNN CORRESPONDENT: Well, Wolf, the Clinton and Edwards campaign having pushing this about Obama's voting record for a long time. Obama's campaign said it's a cheap shot, so we decided to look into it to see how his record played out.

(BEGIN VIDEOTAPE)

TODD: Opponents have attacked his voting record. Now they have accused Barack Obama of weaseling out of tough votes.

JOHN EDWARDS (D), PRESIDENTIAL CANDIDATE: What I didn't hear an explanation for why over 100 times you voted present instead of yes or no when you had a choice to vote up or down.

TODD: Obama's campaign said he did vote present instead of yes or no nearly 130 times as a state senator in Illinois. Obama defended the practice.

SEN. BARACK OBAMA (D), PRESIDENTIAL CANDIDATE: Often times you vote present in order to indicate that you had problems with a bill that otherwise you may be willing to vote for. And often times you would have a strategy that would help move the thing forward.

TODD: Or a strategy to kill legislation. Take some anti- abortion bills in Illinois several years ago. Top democrats are often counted on to vote against those. Obama voted present. A Planned Parenthood lobbyist in Illinois tells us that was part of a strategy to counter republicans who she says proposed these bills to force democrats from conservative districts to vote no so they could be bashed politically in their campaigns. The lobbyist thinks Obama voted present to provide cover for them, even though he wanted to vote no. Obama's camp confirms that's how it happened.

But the senator has also voted present on less divisive bills. In 1999, a bill providing more privacy for sex abuse victims in trials passed 58-0. Obama was the only legislator to vote present. He had co-sponsored the bill. An Obama campaign aide says he is always supported the bill, always seeks to protect victims, but voted present when questions about its constitutionality came up.

How does he now counter his opponents' claims that he can't take a stand?

NATHAN GONZALES, ROTHENBERG POLITICAL REPORT: Obama is going to continue to run on a campaign of change. He'll try to portray this criticism of his voting record at the state level as part of the reason why we need to get above this bickering.

(END VIDEOTAPE)

TODD: But for the moment Obama's campaign is fighting back directly, saying these attacks questioning his commitment to fight for victims are dishonest. One political analyst in Illinois tells us that Obama is not known as someone two ducks votes citing his leadership on controversial measures on campaign finance reform and police interrogations, Wolf.

BLITZER: Brian, I know you've been checking. Is it common for legislators in Illinois to vote present?

TODD: The analysts that spoke to both here and in Illinois say that it is common that state legislators there, even if they're in the minority, which Obama was for much of his time there, often do it to avoid getting trapped politically on certain votes or to engage in complicated strategies to change legislation. So this could be seen, at least in some cases, as Obama simply working the system there.

BLITZER: All right. Thanks, Brian, for that.

The charges flew fast and furious in last night's democratic presidential debate. One dramatic moment came when Hillary Clinton suggested Barack Obama has raised some of the things that republicans stand for - has praised some of the things that republicans stand for. Obama denied that. Then listen to this.

(BEGIN VIDEO CLIP)

SEN. HILLARY CLINTON (D), PRESIDENTIAL CANDIDATE: It certainly came across in the way that it was presented as though the republicans had been standing up against the conventional wisdom with their ideas. I'm just reacting to the fact, yes, they did have ideas. And they were bad ideas. Bad for America, and I was fighting against those ideas when you were practicing law and representing your contributor, Rezko in his slum landlord business in inner city Chicago.

(END VIDEO CLIP)

BLITZER: All right. Joe Johns is here. He's been looking into this part of the story and more. That's tough talk from Hillary Clinton, isn't it?

JOE JOHNS, CNN CORRESPONDENT: It certainly, is Wolf. The word slum lord, as you know, is sort of an over simplification.

Let's talk a little bit about Tony Rezko. He and other people in Illinois have ties including the governor and these ties have somewhat raised some eyebrows. He's a real estate developer. Also has raised money for Senator Obama. Tens of thousands of dollars of that money is now being given back to charities. Rezko has been indicted for fraud, attempted extortion and other charges but Senator Obama's name has not come up in the investigation. He's not accused of any wrong- doing. Obama's name did get drawn into because of a questionable land deal. Senator Obama bought a house on the south side of Chicago. Rezko's wife bought an adjoining property which since has been sold. Obama has said everything was above board and legal but he also said it essentially created the wrong inference, and that, he says, was a mistake, Wolf.

BLITZER: All right. So Hillary Clinton hits him, and he hits right back. Listen to this.

(BEGIN VIDEO CLIP)

OBAMA: What I said was is that Ronald Reagan was a transformative political figure because he was able to get democrats to vote against their economic interest to form a majority to push through their agenda, an agenda that I objected to because while I was working on those streets, watching those folks see their jobs shipped overseas, you were a corporate lawyer sitting on the board at Wal- Mart. I was fighting these fights. I was fighting these fights.

(END VIDEO CLIP)

BLITZER: All right. So I know you're looking into this part of the story as well. What's the truth about Wal-Mart and Hillary Clinton?

JOHNS: Well, Hillary Clinton freely admits that she did serve on the board of Wal-Mart in the late 1980s and the early 90s. This is of course seen by some of her critics as a problem for her because Wal- Mart is one of those companies some folks on the left love to hate. She has said she took an active role in promoting diversity and involvement of women. She also worked on environmental issues. She has said she disagrees with Wal-Mart and its approach to organized labor. Wal-Mart isn't seen of course as a big friend of union workers who are key constituents of the Democratic Party. Still the question that has been raised is whether Senator Clinton, who is active and effective in the causes she supported, was she active and effective in the causes she supported. That's a potential issue of disagreement. But when Senator Barack Obama raised the issue of Senator Clinton's membership on the Wal-Mart board, he was factually accurate.

BLITZER: That's when she was an attorney in Little Rock, Arkansas at the Rose Law Firm and she was active in a lot of corporate matters at that time.

JOHNS: That's correct.

BLITZER: All right. Thanks very much, Joe Johns doing an excellent job for us. Thanks for the debate. By the way, you and Suzanne were both terrific in asking excellent questions.

JOHNS: It was quite a debate.

BLITZER: We're going to talk about it more later. Thanks very much, Joe Johns.

And he entered the presidential campaign with very strong hopes. Now he's dropping out after weak support from voters. The best political team on television looks ahead. Who may benefit from Fred Thompson's exit?

Stick around. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: Got some more on that shocking story developing out of New York City. Police there confirming to CNN that the young actor, Heath Ledger, has been found dead at his Manhattan home. Let's go straight to CNN's Jason Carroll. He is in New York watching the story for us. I know you're checking. What more can you tell us, Jason?

JASON CARROLL, CNN CORRESPONDENT: Well Wolf, a fire department spokesman has in fact confirmed to us that Heath Ledger is dead from a possible, stressing the word possible, drug overdose. It was about 3:30 that paramedics arrived at an apartment in Soho, New York. That's where they found his body. Apparently what happened was his housekeeper tried to wake him up. He was unresponsive, tried to wake him up for an appointment that he had with a masseuse. She could not wake him up. When paramedics arrived, they did find what appeared to be sleeping pills near the bed where his body was found.

Heath Ledger, 28 years old, best known for his role in "Brokeback Mountain," in fact, Wolf, nominated for an Academy Award for that role in 2006. Also starred in other critically acclaimed movies such as, "Monster's Ball," with Halle Berry and in fact, he was set to star in the what was said to be a blockbuster, this summer's soon to be released movie, "Bat Man, The Dark Night." Heath Ledger starring as the Joker in that movie. Heath Ledger born in Perth, Australia. He really became known as an Indy actor early in his career. He gained a lot of notoriety. Recently separated from actress Michelle Williams, who he also met on the set of "Brokeback Mountain." They have a baby girl together.

What you're looking at right there, Wolf, are pictures outside that apartment in Soho, New York. You can see there are a lot of paparazzi who are stationed outside the apartment at this point. We're trying to get more details about the why. Why this happened? How something like this could have been happened. Some of those details should be coming shortly within the next few hours or within the next few days. Wolf?

BLITZER: Thanks very much, Jason, for that. Kareen Wynter out in Los Angeles is working the story as well. What are you picking up, Kareen?

Unfortunately it doesn't sound like we have Kareen Wynter. We'll try to connect with her and see what else we can get. Kareen, can you hear me?

KAREEN WYNTER, CNN CORRESPONDENT: I can hear you, Wolf. Can you hear me?

BLITZER: What else are you getting?

WYNTER: Well, you can just imagine what a shock wave this is sending on both coasts, really, not only in New York but here within the Hollywood community. You know, Heath Ledger is such a huge star. Jason Carroll touched on so much in terms of his accomplishments, the fact that he was nominated for an Oscar. He's so widely recognized in the Hollywood community. We're working, reaching out to so many different parties right now for reaction from publicists to Michelle Williams, who he was recently engaged to, Wolf. They just broke off their engagement in September. Also, he had ties to Naomi Watts. Another big thing that people are talking about is a big budget movie that's coming out that is really slated for this summer starring Heath Ledger, and, you know, what this will all mean. He's accomplished so much. People are just wondering how this could have all happened. Very young star. 28 years old. What we're hearing from New York officials is they did confirm to CNN that it had to do possibly with some sort of drug overdose. So was it the over the counter sleeping pills that they are some reports that it may be involving here. We don't know. So we're, you know, just reaching out to all parties and seeing not just reaction but how this really could have happened to, again, such a young, bright star.

BLITZER: Kareen Wynter out in L.A. Jason Carroll in New York; both watching the story for us. Thanks to both of you very much.

Coming up, democrats crown a republican front-runner.

CLINTON: I am better positioned and better able to take on John McCain.

OBAMA: We've been sort of like John McCain but not completely.

BLITZER: John McCain, the most mentioned republican in the democratic presidential debate; you're going to find out why.

Also, get who got caught snoozing but he's not alone. We're going to show you some other high profile nappers nodding off as cameras roll.

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

(COMMERCIAL BREAK)

BLITZER: Even as they beat up on one another in last night's prosecute presidential debate, the democratic candidates were looking beyond their battle to one possible republican opponent in November. Here's how they each view the match up.

(BEGIN VIDEOTAPE)

EDWARDS: And it's becoming increasingly likely, I think, that John McCain is going to be the republican candidate. And who can compete against John McCain in every place in America? I think I can go everywhere and compete head to head with John McCain. The last time I saw one of your polls that had all three of us against John McCain, I was the one who beat McCain everywhere in America.

CLINTON: If John is right and Senator McCain is the republican nominee, once again, we will have a general election about national security. That is what will happen. I believe of any one of us I am better positioned and better able to take on John McCain or any republican when it comes to issues about protecting and defending our country and promoting our interest in the world.

OBAMA: I fundamentally disagree with that. And I want to tell you why. Because I believe that the way we are going to take on somebody like a John McCain on national security is not that we're sort of, we've been sort of like John McCain but not completely. You know, we voted for the war. But we had reservations.

EDWARDS: You know, I think that John McCain has made central to his time in public life and his campaign, campaign finance reform and cleaning up the money in politics. I think it's dangerous for us to send somebody against him who presents a contrast to what he represents and I'm proud of the fact that I've never taken money from a Washington lobbyist or a special interest.

(END VIDEOTAPE)

BLITZER: Best political team on television will have a lot more on the democrat's fascination with John McCain. That's coming up in our next hour.

Let's check in right now with Jack Cafferty. What do you think about this? They already have given him the nomination.

JACK CAFFERTY, CNN CORRESPONDENT: Well, he ought to send him a thank you note for giving him all that free air time last night. Didn't you say it was the most watched primary debate in television history?

BLITZER: By far.

CAFFERTY: So they spent two or three minutes talking about how John McCain is going to be the nominee. I mean that's good stuff. I bet Rudy Giuliani was thrilled.

BLITZER: McCain should be happy about that.

CAFFERTY: Oh, yeah. Absolutely. That's fine. All right. The question this hour is the U.S. more ready for a woman president or a black president? Mel writes, "I'm an African-American and I'm a woman. Although I love the idea of having either choice in the White House, I think America is still a man's world, even if it's a black man. It will be Obama over Hillary."

Eric writes, "The U.S. is ready for neither. Thankfully the way the campaign is going there should be a brokered convention. The democrats then can turn to the one candidate that can actually win the general election: Al Gore." Now that's an election we can all look forward, Gore Versus McCain.

Peggy writes, "Well neither could do any worse than what we currently have. I just wish they would stop beating each other up before they get to the big dance. I think that Bill is really hurting his wife's chances." That would be Bill Clinton. "She had great ideas when he was president and he should take a giant step back."

Mike says, "Yes, America is ready but not this black candidate and not this woman. America needs quality leadership and these two are lacking."

Ron writes, "A woman has an uphill battle to be president. A man who attacks another's record is praised as confident and bold. A woman does the same thing and she is bitchy and overreaching. Any woman to win will have to do what they always have to do, twice the work of a man." Come on. They do it every day so maybe there's a chance.

Brian says, "I think the country is probably more ready for a woman but I'm not sure Hillary is that woman. I think in the end the U.S. is tired of 8 Clinton years and 12 Bush years and Obama will be the victor. I'm 25. I wonder what the country is like without a Bush or a Clinton running it."

And R. writes, "Yes, in order to get different results, we have to do something we have never done before." Wolf?

BLITZER: See you in a few moments, Jack. Thank you.

With the Florida republican primary only a week away, Mitt Romney, who is a proponent of English only in education, is reaching out to the state's Spanish speaking voters in a new television ad.

Let's go to our Internet reporter Abbi Tatton who's watching the story. What is he saying in the ad?

ABBI TATTON, CNN INTERNET REPORTER: Well, Wolf, this is a Mitt Romney ad in south Florida. That's where it's airing, targeting Cuban/American votes. They're up for grabs there.

That's the narrator. That's Craig Romney, the son, who is fluent in Spanish. He also touts Mitt Romney's business credentials. But elsewhere on the Mitt Romney web site there is a very different approach. This here is from a speech from Mitt Romney last fall in Midland, Texas. "To be successful in America, you have to speak the language of America." The Romney campaign spokesman, Kevin Madden, sees no conflict here. He says that Romney believes learning English is essential and that Spanish language media is a source of information for millions as well. Ahead of next week's Florida primary, it's clearly important the Giuliani campaign is also airing Spanish language ads. Wolf?

BLITZER: Thanks very much, Abbi, for that.

World markets are reeling as recession looms over the U.S. economy. Lou Dobbs is standing by with his take on that.

And the democratic presidential debate.

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

(COMMERCIAL BREAK)

BLITZER: Let's check in with Lou Dobbs. He's going to have his own show coming up in an hour but I want to pick your brain, Lou, first of all on the debate last night. What did you think -- I assume you watched it.

LOU DOBBS, CNN ANCHOR: Oh, absolutely. You did a marvelous job, I must say. The candidates should have done as well as you did, Wolf, if I may suggest.

BLITZER: I largely stayed quiet. I didn't want to interfere.

DOBBS: I have to tell you, staying out of that cat and dog fight, that food fight, whatever you want to call it between Obama and Clinton was the smartest thing you could have possibly done. Edwards, I think it's remarkable to see a man win a debate based on nonparticipation, as he obviously did.

BLITZER: The fact of the matter is we wanted to ask serious questions about the economy, as you like to say, the middle-class jobs, sub-prime mortgage prices, it didn't make a difference what we were going to ask because Hillary Clinton and Barack Obama came in ready to go.

DOBBS: It's their choice. It's their candidacy. It's not their $100 million, it's their campaign contributors who put up $100 million to put on this kind of spectacle. If people think we're getting our money's worth it, if they think that after we've spent $100 billion to select the president that these folks are deserving of that and we're getting our money's worth, great. I for one think it's a joke and a sad one on the country.

BLITZER: Did you learn anything new yourself about these? You're smiling. Did you get a better sense of the differences between these three democratic presidential candidates?

DOBBS: Yeah, you know, I find myself as often is the case in disagreement with the sages, wags, wants, savants and gurus. They were saying that Hillary was far too shrill. I thought she was aggressive but I thought she did well. They were talking about Obama doing well. I thought he came across precious and a little bit -- Edwards just came across as glad to be there. I was singularly unimpressed with the proceedings on the part of the candidates. I think they didn't do themselves any good and I certainly don't think they did the country any good.

BLITZER: Imagine if the stock markets had been opened in the United States yesterday on Dr. Martin Luther King Jr.'s holiday. You saw what happened in Asia, what happened in Europe. Our markets were closed yesterday. We woke up early this morning and all of the sudden the fed cuts interest rates by three quarters of a percent, the first time in 23 years they have done that large a cut. And it did stop the blood letting to a certain degree today.

DOBBS: I think they have made a number of mistakes other the past year. But I do think you have to give the fed great credit for moving in and carrying out that emergency surprise, interest rate cut 3/4 of a percent off the discount rate. Very wise on the part of the fed.

The absurdity is, Wolf, to see the president of the United States and Speaker Pelosi and Leader Reid sitting there, you know, the three of them, talking about they're going to get together on this economic stimulus package. Well, the fact is we not only need that stimulus package and we need it now. We don't need these three amigos sitting around waiting for time to pass. We need it now. We also need the leaders to talk about the real issues in the country, the fact that we need desperately to get our trade policies in order. We need responsible fiscal policy. We need real leadership. We need to regulate the markets, the very market and institutions that create third-degree crisis, for example. They are not talking about those deeper issues. Neither are the presidential candidates in either political party. That has to change and now. We need quality leadership and no more of the platitudes.

BLITZER: You don't think any of the democrats or the republicans who are running for president right now that none of them are talking about the issues you want to hear?

DOBBS: To be honest with you, no. As a matter of fact, after I watched each debate by the candidates of either party, I've never been prouder to be an independent, Wolf. I don't know about you. I'm just thrilled to death to be an independent because this kind of partisan nonsense is precisely how we got in this mess and to perpetuate it or to be complicit in its perpetuation is something I certainly would not want to be.

BLITZER: Lou Dobbs, as usual, thanks very much; Lou Dobbs standing by getting ready for his show.

DOBBS: Good to be with you, Wolf.

BLITZER: You got anything big coming up at 7 p.m. eastern?

DOBBS: We've got a lot big coming up at 7:00 p.m. We're going to be looking at this market in detail. What's happening to the middle class and what's likely to happen to this country and what the world is reacting to our lack of quality national leadership and how that's playing into all of this as well. All of that at 7:00 eastern.

BLITZER: We'll see you in an hour, Lou. Thanks very much.

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