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Obama Slams McCain for Flip-Flopping on Bush Tax Cuts; GOP Group NRCC Says Funds are Missing; Bill Bradley on Supporting Obama

Aired March 13, 2008 - 17:00   ET


Happening now, he's about to make history as the next governor of New York and he's speaking out about the sex scandal that forced his predecessor and friend, Eliot Spitzer, to resign.

Hundreds of thousands of dollars said to be missing from a key Republican campaign fund and now shock at the man some suspect of ripping off the GOP.

And he raised eyebrows by insinuating that Bill and Hillary Clinton are liars. The former Democratic presidential candidate and Obama supporter, former Senator Bill Bradley; he's here to explain his controversial remarks.

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

A cloud of scandal is about to give way to history. A disabled African-American man poised to become the next governor of New York on the heels of a prostitution scandal that toppled his long-time friend, the outgoing governor, Eliot Spitzer.

Let's go to Deborah Feyerick. She's watching this story for us.

Deb, the lieutenant governor is speaking out now and he's speaking out rather bluntly. Update our viewers.

DEBORAH FEYERICK, CNN CORRESPONDENT: Well, we can say that David Paterson was like a rock star in Albany early this morning surrounded by camera crews every time he left his office, getting used to all the media attention. And he stepped up to the microphones later in the day. He was calm and funny and serious and humble, saying he did not become New York State's first African-American governor in a way most people would want.


FEYERICK (voice-over): New York's soon to be governor opened with a joke.

LT. GOV. DAVID PATERSON (D), NEW YORK: Thank you very much. If most of you weren't being paid, I'd be flattered by that.

FEYERICK: And with that, he instantly changed the mood in Albany, while making it clear taking over was not his choice, but his duty.

PATERSON: This has been a very sad few days in the history of New York. And for me, it's been sadder.

FEYERICK: David Paterson did not revel in the fall of his friend nor did he seem to pass judgment.

PATERSON: We have to leave it to the prosecutors. As I said before, I mean, I'm a very dear friend of Governor Spitzer. I know what he's gone through this week. You know, in my heart, I think he's suffered enough.

FEYERICK: Paterson knows his way well around the capital. He spent nearly 20 years at a state senator, pulling off what many considered a coup, to become minority leader in 2002. Legally blind, Paterson ran the New York City marathon in 2006 and is a fierce advocate for people with disabilities.

Unlike his boss, Eliot Spitzer, who promised reform and threatened to steamroll anyone who got in his way, many officials see Paterson as a bridge builder.

MIKE BALBONI, DEPUTY SECRETARY FOR PUBLIC SAFETY: His whole nature is about collaboration, developing consensus, moving people into the right position to give him the right information.

FEYERICK: Paterson says he delayed being sworn in as governor so he could meet with lawmakers and agency officials, political insiders say to ease the tension that gridlocked Albany under the combative Spitzer.

PATERSON: Let me be very clear about this. There may be a five day transition period, but we are hard at work at this moment putting together a budget that will help New York to thrive.

FEYERICK: And if his first press conference is any indication, Paterson will do just fine. Asked by a reporter if he'd ever been with a prostitute, he answered...

PATERSON: Only the lobbyists.



FEYERICK: Now, Paterson will be sworn in Monday and everyone who is anyone in Albany will be there. He admits it's a daunting challenge, but one he's excited to tackle. And it will be interesting to see his style. Whereas Spitzer was a crusader, Paterson is seen more as a conciliator -- Wolf.

BLITZER: Deb Feyerick, thanks very much for that.

The leading presidential candidates are working their day jobs today. They're in Washington for a Senate vote, expected any time now, on a bill that would put a one year ban on so-called pet projects -- earmarks, as they're called -- that are tacked onto spending bills.

John McCain, Hillary Clinton, Barack Obama -- they all support the measure, even though Clinton secured some $342 million in earmarks for New York State last year. Obama grabbed $98 million in earmarks for Illinois.

McCain is a long-time critic of this kind of pet project spending. He refuses to seek earmarks and he took a swipe at both Clinton and Obama for using them.


SEN. JOHN MCCAIN (R-AZ), PRESIDENTIAL CANDIDATE: He should do several things. One, reveal -- he and Senator Clinton reveal the earmarks that they asked for. A lot of those projects, the money has not been spent. Ask that the money not be spent. I call on them to say, hey, don't spend that money because they're earmarks. They didn't go through a proper process and the taxpayers can't afford it.


BLITZER: Last year there were almost 13 pet projects approved, totaling $18 billion in spending.

Obama took his own swipe at McCain, accusing him of flip-flopping on President Bush's tax cuts. McCain initially voted against them back in 2001 and 2003, but now he supports extending them, making them permanent.

Listen to what Obama said on his campaign plane.


SEN. BARACK OBAMA (D-IL), PRESIDENTIAL CANDIDATE: That was how I guess you got your ticket punched to be the Republican nominee. But he was right then and he's wrong now.


BLITZER: Let's talk about it with our senior political correspondent, Candy Crowley.

It looks like Obama is setting the stage -- pushing Hillary Clinton a little bit aside right now, going after McCain.

CANDY CROWLEY, CNN SENIOR POLITICAL CORRESPONDENT: He's been doing this sort of increasingly over the past couple of months -- really, since post-Super Tuesday -- and particularly when he won that sweep of 11 primaries and caucuses. So, obviously, it raises your stature -- and Hillary Clinton does this, too -- to engage John McCain. And I think what they've all proved is that you cannot be in Pennsylvania and still be campaigning on the Senate floor.

BLITZER: I think a lot of Democrats prefer to see both of these candidates going after McCain as opposed to each other. CROWLEY: Absolutely. And, you know, they might as well enjoy this lull, because we know what the stakes are in Pennsylvania and we saw what happened yesterday. So you're right, they would much prefer everybody focus on McCain. But right now, the main job here is for someone to get the nomination.

BLITZER: And Hillary Clinton is trying to take a little bit of the high road today.

I'll play this little clip for you, Candy.


SEN. HILLARY RODHAM CLINTON (D-NY), PRESIDENTIAL CANDIDATE: Remember, I have a lot of supporters who have voted for me in very large numbers. And I would expect them to support Senator Obama were he the nominee because the most important question is whether we're going to have a Democratic president come next January.


BLITZER: That's a line Democrats like to hear, as well.

CROWLEY: Yes, they do. And, again, are things -- you know, the race issue bubbled up again yesterday with Geraldine Ferraro. I know you've talked about that. And this makes, you know, Democratic Party members -- be they elected or officials of the Democratic Party -- incredibly nervous, because they see it as so divisive.

So we saw Hillary Clinton with African-American journalists yesterday apologizing for a number of things that throughout the campaign have offended a lot of African-Americans.

So I think this was, you know, sort a clean up from yesterday, because this is really what most concerns the Democratic Party at this point, because what do they want? They want somebody in the White House and they don't want the party divisions to keep them from that.

BLITZER: That's what they want. We'll see if they get it.


BLITZER: Thanks, Candy, very much.

Hundreds of thousands of dollars missing from a Republican war chest -- possibly an inside job. Possibly.

Let's to go Brian Todd. He's working this story for us.

Brian, what's going on?

BRIAN TODD, CNN CORRESPONDENT: Well, Wolf, it's about a trusted official with the GOP's Congressional fundraising arm, who officials with that group now say pulled the wool over their eyes for a long time.


TODD (voice-over): Some of the most influential people in a high-powered city allegedly ripped off. The head of the group that raises money for House Republicans says they've been deceived and betrayed for years by a trusted bookkeeper. Christopher Ward, former treasurer of the National Republican Congressional Committee, is under investigation by the group's auditors and the FBI.

NRCC officials tell CNN they believe Ward made several hundred thousands dollars in unauthorized transfers -- their money -- into bank accounts he had access to. An NRCC official and the congressman who oversees the group's finances say Ward had gotten so good at navigating campaign finance rules that several Republican lawmakers and candidates had placed their fundraising organizations in his hands.

REP. MIKE CONAWAY (R), TEXAS: This fellow was kind of the gold standard, kind of the go to guy. He had a really good reputation built up over a long period of association with the NRCC.

TODD: A period of nearly 13 years -- four as NRCC's treasurer. Our efforts to reach Christopher Ward were unsuccessful. His attorney declined to comment.

Congressman Mike Conaway says he got suspicious earlier this year, when Ward kept pushing off meetings to discuss an audit of the NRCC's books for 2006. Conaway says he then found out no audit had been done for that year and he believes the deception went back much further.

CONAWAY: The last one that we're comfortable saying we had was in 2001. And that anything was given to the bank subsequent to that and anything shown to the management team in the audit -- interim audit committees -- were, in fact, you know, bogus financial statements.

TODD: Statements that Conaway says looked very sophisticated, which may explain why Ward's alleged fraud wasn't noticed for years.


TODD: Now Conaway and NRCC officials say the exact amount Ward may have shifted around is what one of them called a moving target. But Conaway says the cash on hand the committee actually has now is about $740,000 less than what they reported to federal election officials and their bank debt is $200,000 higher than they thought. They suspect that's all because of unauthorized transfers -- Wolf.

BLITZER: Brian, are there any charges coming forward against Christopher Ward?

TODD: Well, federal law enforcement officials are being pretty tight-lipped about this. But two officials say they have no information right now to suggest that charges are imminent. People on the Congressional side are telling us they're still trying to find out just how much money is gone. BLITZER: Brian Todd, thanks very much for that.

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

JACK CAFFERTY, CNN ANCHOR: Eliot Spitzer out come next Monday as governor of New York. But many questions continue to swirl around exactly what will become of him. He resigned yesterday -- that prostitution scandal, you know. He's also in a legal battle to avoid criminal charges that could -- could send him to the joint.

The U.S. attorney said there's no deal between his office and Spitzer relating to his resignation or any other matter. Experts think a possible range of charges the disgraced governor could face include these -- money laundering, wire fraud, tax evasion, violation of the Mann Act -- it's almost never prosecuted, but he did pay a prostitute -- allegedly -- to travel from New York to Washington, thus crossing state lines. That's a federal rap.

Misuse of state resources if he used his government credit card for hotels or meals with prostitutes or if he was being protected by state troopers while he was frolicking with his hooker, structuring or illegally arranging cash payments in order to hide their purpose, and, of course, soliciting a prostitute.

Spitzer doesn't have a plea deal, although it's believed that he's trying very hard to get one. Based on the likely charges, one expert told Bloomberg Radio it seems unlikely that Spitzer would spend any time in prison.

Another possibility is he could be disbarred. In New York, an attorney can lose his license if he's not meeting the standards of conduct expected of members of the bar. It's likely Spitzer missed those standards by at least a few yards, even though history suggests the standards are not very high.

So here's the question: Should disgraced New York Governor Eliot Spitzer face criminal charges in connection with his prostitution scandal?

Go to, where you can post a comment on my blog -- Wolf.

BLITZER: All right, Jack, thank you.

A former Democratic presidential candidate accusing the Clinton campaign of dishonesty. What does Bill Bradley mean and does he stand by his controversial remark? I'll ask him. He's standing by live.

Also, a suspect in the murder of one college student now charged with the death of another. We're going to have details of this new development.

Plus, why there's growing fear of a terrorist cyber attack.


BLITZER: He's a former U.S. senator, a former Democratic presidential candidate. He's raising some eyebrows with some controversial remarks attributed to him about the Clinton campaign.

Bill Bradley is now a strong supporter of Barack Obama. The former senator joining us now from New York.

Senator, thanks for coming in.


BLITZER: I saw the article in "The Times of London" and there were a couple of quotes that sort of jumped out at me and I wanted you to explain what you mean.

Here's one: "The bigger the lie, the better the chance they think they've got. That's been their whole approach."

You're talking about the Clinton campaign. "She's going to lose a whole generation of people who got involved in politics, believing it could be something different." All right, explain.

BRADLEY: Sure. I think there are a number of places that they've totally misrepresented Barack's position, whether it is on NAFTA or whether it's on Iraq or whether it's on credit cards or whether it's on abortion.

And that is symptomatic of what I call the old politics -- just throw something against the wall and see what sticks. I mean, one day, it's plagiarism, one day it's drugs, one day it's race. And if nothing sticks, she'll throw other things.

And I think what Barack represents is something new. And I think a whole generation of Americans want a new kind of politics, one that tells people the truth and puts country ahead of party.

BLITZER: I know it's harsh, but are you saying that Hillary Clinton is a liar?

BRADLEY: No. I'm saying that there have been conscious misrepresentations of positions. And it's very clear in the areas and it's been fully reported and it doesn't go remarked. So I thought I would call it what it is.

BLITZER: So you're -- and, specifically, give me one example that's most egregious, from your perspective, where they consciously misrepresented a position of Barack Obama.

BRADLEY: Well, they had a mailing in, I think, New Hampshire that essentially totally misrepresented his position on abortion. He was actually working with the pro-choice forces of Illinois at the time. And, of course, they charged that he was not. And that's a perfect example. BLITZER: You also have this quote in "The Times of London". And let me let you explain and clarify. In a story it says that "The Clintons do not do long-term planning. They're total tacticians and right now their focus is on Obama, not McCain."

It was a citation saying you believe Clinton would stop at nothing to tear down Obama, even if it boosts John McCain in the process. Is that accurately reporting your thoughts?

BRADLEY: Well, it's very clear that the other day she said John McCain was suited to be the president of the United States on national security, but Barack Obama was not. Well, you know, she's not interested in helping McCain, she's interested in hurting Senator Obama.

And that's what that was all about. And, of course, they got caught a little bit because, on the one hand, one day they were saying he wasn't qualified to be commander-in-chief and the next day they were saying we should be considering him for vice president, which means he'd have to be qualified to be commander-in-chief. So it's important to draw attention to these inconsistencies.

BLITZER: If she were to get the Democratic nomination -- and that's a big if right now -- but let's say she did, who would you support, her or John McCain?

BRADLEY: Oh, I would support the Democratic nominee.

BLITZER: Even if it's Hillary Clinton, because you're...

BRADLEY: Of course.

BLITZER: ...because you don't seem to have a whole lot of confidence in her.

BRADLEY: Well, you tell me what the choice is. The choice between Barack Obama and Senator Clinton, I take Barack Obama. If the choice is between John McCain or Senator Clinton, I take Senator Clinton. If the choice is between John McCain or Senator Clinton, I'd take Senator Clinton. It's pretty straightforward. On a whole series of issues, Democrats are better than Republicans.

BLITZER: Is he being too mild right now, Barack Obama? Should he get a little tougher with her, as you have been just now, over the past few minutes? Because some people say he's trying to take the high road and he's not really going after her as hard as, maybe, as she's going after him.

BRADLEY: Well, I think he represents a new kind of politics and he has a whole new generation of Americans that are involved in this. His whole effort is to tell people the truth and put country ahead of party. He appeals to Independents, to Republicans. He's won more delegates and more popular vote than any other candidate in the race.

And he sees that the American people want someone to be positive. They want them to lay out where the direction is that the country should go and to convey to them that we can get there.

I mean, for example, when most politicians speak and the spotlight shines on them, they swell. But when Barack speaks and the light shines on him, he reflects the light back on the people and empowers them, because he knows that if he's going to defeat the special interests in Washington, he's going to need the people -- not simply for their vote, but for the long-term. That is a new kind of politics and that's been the narrative of this campaign from the very beginning.

BLITZER: Senator Bradley, thanks for coming in.

BRADLEY: Thank you.

BLITZER: Appreciate it.

Older women tend to support Hillary Clinton. Younger women tend to support Barack Obama. The battle over the Democratic nomination is moving to the home front. Some mothers and daughters right now at odds in this race for the White House.

Plus, the financial crisis isn't just hitting middle America. Coming up, the celebrities who face a real danger of losing their homes -- but for very different reasons.

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


BLITZER: Let's go back to Carol. She's monitoring some other important stories incoming into THE SITUATION ROOM right now.

Carol, what's going on?

CAROL COSTELLO, CNN CORRESPONDENT: Well, Wolf, a parked car blew up in a busy commercial area of Central Baghdad today. And Iraqi government official says at least 15 people were killed, dozens more injured. The car was in a parking lot near many CD and DVD stores. In another attack, a journalist for a Baghdad newspaper was killed in a drive-by shooting.

There has been another arrest in the murder of Eve Carson, the University of North Carolina senior killed last week. Police say 17- year-old Lawrence Alvin Lovette was brought in this morning. Lovette is also charged in connection with the January death of a Duke graduate student.

Even celebrities may be having trouble with housing costs. Aretha Franklin says an attorney's $445 mistake forced her Detroit mansion into foreclosure. Published reports that the queen of soul owes than $19,000 in back taxes.

Meantime, an attorney for Michael Jackson says his Neverland Ranch is off the auction block. The singer had owed $24.5 million on the ranch, but his attorney tells the Associated Press he refinanced the 25-acre spread, saving it from auction. Back to you -- Wolf. BLITZER: All right, Carol. Thank you.

The Democratic split putting mother against daughter in one family. It's a house divided between Hillary Clinton and Barack Obama. You're going to find out how feminism factors into their dispute. Carol Costello will be back with that.

Plus, from Iraq to a Caribbean island -- one U.S. company's money trail now under scrutiny. You'll find out why Congress is now involved and involved deeply.

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


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

Happening now, Chrysler is shutting down temporarily for the first time in its history. The automaker will suspend operations worldwide for two weeks in July. The shutdown affects all workers, including salaried employees.

British police apprehend a man at London's Heathrow Airport. He was wearing a backpack and ran onto Heathrow's northern runway. The backpack was detonated. No explosives found. Police don't believe the incident was terror-related. Queen Elizabeth visits Heathrow to open its new Terminal Five tomorrow.

And a Greek cruise ship runs aground. It happened today when the touring vessel hit a barren inlet about a mile off the island of Poros. No one was hurt. All of the more than 3,000 passengers and crew were safely evacuated.

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

The race between Hillary Clinton and Barack Obama isn't just dividing Democrats -- in some cases, it's dividing families.

Let's go back to Carol. She's watching this story for us.

You met one of those families -- Carol. What happened?

COSTELLO: Well, it was a very entertaining family, as well. You know, the Democratic race is putting mother against daughter. I have talked to so many women struggling with this -- mothers and daughters who have never disagree about anything -- until now.


COSTELLO (voice-over): The Clinton/Obama battle has spilled over the home front, pitting mothers against daughters.

Meet Juana, a 60-something, passionate supporter of Clinton and her 30-year-old daughter Lorenza, an ardent supporter of Barack Obama.

LORENZA MUNOZ, OBAMA SUPPORTER: We actually don't talk politics at the table anymore.


COSTELLO: They aren't alone. CNN exit polls for Ohio show an astounding split. Barack Obama wooed young women voters in large numbers. Hillary Clinton won older women 71 to 25 percent.

MUNOZ: The reason I'm supporting Barack is I think he stands for something new. He does, to me, signify hope.

COSTELLO: Her mom doesn't quite get that. Hope is Hillary Clinton. Clinton's achievements in a man's world resonate with her, as do her feminist credentials, which were solidified for many women when Hillary proved herself a strong person in her own right.

CLINTON: I suppose I could have stayed home and baked cookies and had tea.

COSTELLO: Those words hit the right core for a generation that fought for equality.

MUNOZ: She's a very intelligent person. She's a very strong. She really is prepared for the job. It will take a woman to really change the women issues.

COSTELLO: But many younger women think Clinton is admirable, but from a different time. They told me Clinton's vote for the Iraq war is old school. As was Clinton's choice to remain with a husband who was unfaithful. And Lorenza says Clinton's brand of traditional feminism seems old-school, too. Since it seemed to focus on a single issue, abortion.

MUNOZ: The feminist movement that she was a part of that you know her generation to me has not addressed the bigger issues of my generation, which is that, you know, equal pay, which is child care, which is flexibility on the job.

MUNOZ: You cannot believe how angry it makes me.

COSTELLO: So angry that after today they'll go back to not talking politics until November. With this caveat, Lorenza knows full well if her candidate wins conversation with mom still won't be easy.

MUNOZ: I think it's going to be very difficult. Barack is going to have to be batting 100. Because any little thing he does wrong my mother is going to say, see, I told you.


COSTELLO: Just like a mom, right? I asked Juana if she would taunt her daughter if Hillary Clinton wins the nomination, and like many loving mothers she said, no, she loves her daughter. She's just wrong -- Wolf.

BLITZER: Carol, thanks very much. Let's talk a little bit more about this and more. For that we're joined by the former mayor of Dallas, Ron Kirk. He's an Obama supporter. And Lanny Davis, former special counsel to President Bill Clinton, the White House, he's backing Hillary Clinton.

You guys can certainly relate that they are families divided. Democratic families, Mr. Mayor, divided other whether to support Hillary Clinton or Barack Obama.

RON KIRK, FORMER DALLAS MAYOR: Absolutely. My sister is a big Hillary Clinton fan. And Larry was telling me his son is a big Obama fan.

BLITZER: You have a son who supports Obama. You guys still like each other.

LANNY DAVIS, FMR. WHITE HOUSE SPECIAL COUNSEL: If Seth Davis is watching, he ought to be focusing on the NCAA tournament and not Barack Obama.

BLITZER: Lanny is the father of a famous major sportscaster that we're all very familiar with.

All right. Hillary Clinton is trying to make amends now. She went before a black group last night. She's trying to take the high road to a certain degree. I'll play you a little clip. Mr. Mayor, listen to this.


CLINTON: Remember, I have a lot of voter who is have supported me in very large numbers. And I would expect them to support Senator Obama were he the nominee. Because the most important question is whether we're going to have a Democratic president come next January.


BLITZER: If she gets the nomination, will the Democrats out there be united?

KIRK: I would certainly hope so. This is a very important election.

BLITZER: They are a lot of Democrats who don't like her at all, as you know.

KIRK: But, one, it speaks to the fact -- and I don't think it's a bad thing. We've had two of the most exciting candidates in a party as we've had in a long time. And the fact that this is such a tight race, there's a lot of passion on both sides but we have to elect a president who can get the country running in the right direction.

I was listening to your conferring with Senator Bradley earlier. When the choice is between Barack Obama and John McCain or Hillary Clinton and John McCain, I can't imagine Democrats defaulting to McCain. We'll come together. BLITZER: I don't know if you heard Senator Bradley. He's a major supporter of Barack Obama. He didn't have any nice words to say about the Clinton campaign. Basically standing by the remarks he made in the Sunday Times in London about big lies and really distorting Barack Obama's views on a whole host of issues.

DAVIS: You know Senator Bradley has turned angry and bitter. He did that in al gore campaigns. It's one of the reasons he lost.

I join with Ron in being more positive about what we have in these two great candidates and getting away from the personal and negative. I'm disappointed. He's one of my heroes. One of the best jump shots I ever saw was Bill Bradley.

Look, if you look at the ten most important issues facing the country, and you ask Barack Obama and Hillary Clinton where do you stand, they're almost identical. Yes, there are differences on health care proposals. They're both for getting out of Iraq. They're both for universal health care. And they approach it differently. We're going to be united as a party on issues. The Republican Party is where the philosophical --

BLITZER: Do you agree, Mr. Mayor, that they are very little differences on the most important issues between these two Democrats?

KIRK: I think there is a lot of commonly. If you've heard the debates, they've been fairly civil in that regard. But where they are I think major differences, and the reason I think Barack Obama is where he is in this position in this race is a lot of people do think there is a substantial difference and a meaningful difference in terms of his ability to do something about that.

And I have to say one thing. Bill Bradley is not running for president. And Bill Bradley has not been if candidate that has interjected race and religion and sex and other issues into this primary, particularly against Senator Obama for the purpose of political expediency.

BLITZER: She was out apologizing last night about those specific issues that the mayor just mentioned.

DAVIS: Well, she apologized for somebody who is a supporter of hers who has a great heart and a great progressive Democrat named Gerry Ferraro.

BLITZER: Well, also her husband, what he said about Jesse Jackson after South Carolina.

DAVIS: If anybody, and I know that Ron agrees with me, would suggest that Bill Clinton in his heart isn't pro-civil rights and didn't have the capacity of making a mistake when he spoke just as Gerry Ferraro did but we are united as a party that is against discrimination.

I would respectfully suggest they are differences. I truly think Senator Obama is a great candidate. He inspires young people. But he's not ready to be president. I think Senator Clinton is. That's a difference. It's a respectable difference of opinion. It's not going to divide our party.

BLITZER: So you wouldn't want her to pick him as a running mate?

DAVIS: I want Senator Clinton to pick Senator Obama.

BLITZER: But you just said he's not ready to be president. Why would you pick someone that's not ready to be president?

DAVIS: I think it's going to take some learning in the White House.

BLITZER: But you can't have a vice presidential candidate who is a heartbeat away from the presidency who needs learning.

DAVIS: He will be more ready as the vice president than any other Democrat that I think would bring the kind of inspiration and energy he would bring to a ticket. So I'll take my chances that he can learn on the job, but I do think he would be a great vice president.

KIRK: He doesn't have to learn on the job. The skill sets of being an effective senator, the skill sets of leading a country are very different.

Barack Obama is ready from day one because the most important thing is that he realizes and the American people have said we agree with you. You've got to change the culture of how we do business in Washington. Senator Clinton, as effective as she is, has told us her best asset is she's ready to go fight.

DAVIS: There's some disagreement on that.

BLITZER: We have to leave it right there. Lanny Davis and Ron Kirk, guys, thanks for coming in.

KIRK: Thank you for having us.

BLITZER: An Internet attack, 10,000 breeches against American government Web sites, the Pentagon, congress, even NASA. What's behind it? Who is behind it? Sources say terrorists may be stronger than al Qaeda.

Plus, a controversial sermon by Barack Obama's friend and former pastor, you're going to hear exactly what he's saying. He's using race to go after Hillary Clinton. We'll play it for you.

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


BLITZER: Right now there are new concerns about what Iranian backed Hezbollah might be up to following last month's assassination of its top commander. The Islamic militant group is based in Lebanon, but has been blamed for attacks around the world. Is Hezbollah ready to strike on another front?

Here's CNN international security correspondent, Paula Newton.


PAULA NEWTON, CNN INTERNATIONAL SECURITY CORRESPONDENT: Summer 2006, Israel is at war with Hezbollah. That's the U.S. government says another battlefield opened up in cyberspace with U.S. military sites reporting more than 10,000 breeches, the Pentagon, the House of Representatives Web site, even NASA. Officials suspect Hezbollah sympathizers.

Now CNN has learned intelligence officials in Britain and the U.S. believe Hezbollah sleeper cells could use their expertise to launch a cyber attack on the orders of the group's patron, Iran. Especially if Tehran's nuclear program is attacked. Bilal Saab is an analyst who has met with Hezbollah leaders.

BILAL SAAB, BROOKINGS INSTITUTION: The ambition is there. They would have a vested interest, actually, in retaliating and working with the Iranians.

NEWTON: Hezbollah has been described as Iran's surrogate army. For years, U.S., Israeli and European security services have accused Iran of exporting terror around the world using Hezbollah operatives.

In 1994, 85 people were killed, hundreds injured when a van was detonated at a Jewish cultural center in Buenos Aires.

MARTA NERCELLAS, ARGENTINEAN LAWYER (through translator): What I can say with certainty is they can quickly launch a terrorist attack. Because they have the sleeper cells ready. They have their research ready. They have the agents.

NEWTON: Iran and Hezbollah deny any involvement in the attack. FBI sources, though, say the agency now believes Hezbollah to be even more capable and robust than al Qaeda.

Hezbollah declined to be interviewed for this report, telling CNN they don't answer these kinds of questions. Yet Bilal Saab says the group's expertise is impressive.

SAAB: There's an argument tout there shared by most independent specialists on Hezbollah that Hezbollah is actually better at understanding and using cyber warfare against the Israelis than Israel is.

NEWTON: Diplomatic and security analysts say Hezbollah is a potent ally to Iran and could be unleashed on the ground or in cyberspace with retaliation for any attack on Iran's nuclear program.


NEWTON: Wolf, there is debate about their capabilities so far. But one thing intelligence officials will tell you is they get better and better at these kinds of attacks every month -- Wolf. BLITZER: Pretty frightening stuff. Paula Newton in London, thank you.

Voters in Iran go to the polls tomorrow for parliamentary elections and it's a much different process than we have here in the United States.

Our Middle East correspondent, Aneesh Raman has more from Tehran.

ANEESH RAMAN, CNN MIDDLE EAST CORRESPONDENT: Wolf, as Iran elects a new parliament, there's little doubt here who will win between the reformists left and the conservative right.


RAMAN: If you're an Independent candidate in Iran it's tough to build a following. With 290 seats in parliament up for election on Friday and with reformists saying 70 percent of their major candidates have been barred from running, the battle is among friends in the ruling party.

PROF. SADEQ ZEBALAKALM, TEHRAN UNIVERSITY: It's a fight between supporters of Ahmadinejad and opponents of Ahmadinejad within the right, within the conservative current.

RAMAN: There are new rule this is time around. For the first time, campaign posters are not allowed to show large pictures of the candidates. A move critics say aimed at preventing lesser known candidates from gaining recognition. Even so, some broke the rules. This poster was gone the next day.

On the streets, it's tough to gauge how high turnout will be. Many here were hoping for more of a clash of ideas to bring out the vote, though hard liners are confident.

Those who sit around and say the Iranian nation does not vote are wrong, says Ara (ph). We will vote. We love our country. But minutes later as he was telling us he would vote came this.

UNIDENTIFIED FEMALE (through translator): Whether we vote or not the hard liners will be elected. He won't say that. Nobody says it. He's afraid. That woman before was from the police force. She's one of those who pinches us and catches us and patrols how we wear the head scarves. The majority will not vote.

RAMAN: There is frustration with President Ahmadinejad among all political factions for his handling of an economy that's seen inflation unofficially almost double in the past three years. And his autocratic style that stifled decent. But decent remains albeit with few places to turn.

UNIDENTIFIED MALE: The lack of the voice of the silent majority.

RAMAN: And will they speak at some point?

UNIDENTIFIED MALE: I don't see a situation for them to speak. RAMAN: So if not now, when?


RAMAN: In just over a year, spring 2009, Iran will elect a new president. At that point Ahmadinejad himself will have to address the country's growing frustration -- Wolf.

BLITZER: All right, Aneesh. Aneesh Raman in Tehran for us.

An American business getting paid billions of dollars by the U.S. government, but is it using a loophole on an island nation to avoid paying taxes? How congress wants to change the law.

That story and a lot more coming up right here in THE SITUATION ROOM.


BLITZER: An American company working for the defense didn't is under fire today. Critics say KBR is trying to save money on taxes by taking part of the operations outside of the United States.

Let's bring in Kate Bolduan. She's joining us now from Capitol Hill watching the story.

I take it, Kate, congress is getting involved.

KATE BOLDUAN, CNN CORRESPONDENT: They definitely are. They're definitely stepping in. Some Democratic lawmakers, Wolf, they say they're outraged. This is a big company. They found a big tax break. These lawmakers now say they're out to stop it.


BOLDUAN: It's the largest U.S. defense contractor in Iraq. KBR, once a subsidiary of Halliburton, has billions of dollars in government contracts to rebuild the war-torn country's infrastructure. But some lawmakers accuse the company of not paying an estimated $100 million a year in taxes.

SEN. JOHN KERRY (D), MASSACHUSETTS: It doesn't even pass the most basic smell test.

BOLDUAN: The allegation is that KBR, based in Houston, set up shell companies in the Cayman Islands, a tax haven. By saying Americans work for the Caribbean companies, KBR avoided paying U.S. payroll taxes. Critics say this deprives KBR's workers of retirement benefits, and the government the money it needs to fund social security and Medicare for everybody.

REP. RAHM EMANUEL (D), ILLINOIS: You cannot use a subsidiary to avoid paying taxes and get a government contract. The taxpayers are not going to be played for dumb money here.

BOLDUAN: So lawmakers citing an investigation by the Boston Globe are pushing a bill that would close a legal loophole that let's KBR out of paying payroll taxes.

KERRY: We're going to change the law so this kind of act is not just unethical, but clearly illegal.

BOLDUAN: KBR acknowledges in a statement that the two Caribbean companies were set up "in order to allow us to reduce certain tax obligations of the company and its employees." But the spokesperson defends the actions saying the companies were established in accordance with IRS rules and regulations to be competitive in the market. But lawmakers say they're determined to put an end to this practice.

KERRY: If an individual or family in the United States didn't pay their taxes and was somehow getting some other service, we would hold that individual and throw a book at them. Why does a company get a different set of laws?


BOLDUAN: Now if the bill passes the law would apply to future work by the company's American employees. Now that would mean KBR is not responsible, would not have to pay additional taxes for past years -- Wolf.

BLITZER: All right Kate. Thanks very much. Kate Bolduan working the story.

Let's go back to Jack. He's got "The Cafferty File" -- Jack.

CAFFERTY: The question this hour is: Should disgraced New York Governor Eliot Spitzer face criminal charges in connection with his prostitution scandal?

Brian writes from Georgia: "Why not? Didn't he make a name for himself prosecuting lots of people for similar behavior? The money laundering alone should earn him some jail time. I think most people do not care about the fact that he used the services of a prostitute but they are angered by his hypocrisy in holding himself out to be a pillar of ethical behavior all the while he was buying the services of a hooker. I think they should give him a nice stay in jail to think about it."

Roger writes: "Actually, he ought to faces charges for stupidity. As a lawyer/prosecutor, he obviously knew the risks he was taking. He also had to know that after the way he treated other, he could expect no support from his colleagues in government. He'll probably only get a slap on the wrist even though he ruined others for much the same behavior."

V. writes from Ottawa: "What an irony. This is a nation where impeachment proceedings or criminal charges can be so seriously considered against people's sexual failings. Look at Bill Clinton or Eliot Spitzer. But a person like President Bush whose every policy has damaged the country, often irreparably, seems to be able to get away Scott free." Nicole in Tampa, Florida: "Absolutely. The man bullied his way into office and conducted a witch hunt on Wall Street. He should be taken down the same way he took down so many others. He is a despicable man and I feel so sorry for his wife and daughters. Silda looks like she's aged 10 years in the last week."

Fred writes from Maine: "He's a hypocrite. I say a public whipping is in order."

And Gerald in Monroe County, West Virginia: "Consenting adults, free trade. Don't we have more serious crimes to solve? If only he had gone to Vegas it would have stayed there. And it's legal, too" -- Wolf.

BLITZER: Thanks, Jack, very much.

So what do siblings have to do with being president of the United States? A lot apparently. Coming up, the impact birth order may have on White House aspirations.

And a plan for a Democratic primary redo in Florida. I'll talk about it with the always outspoken Lou Dobbs. He's standing by right here in THE SITUATION ROOM.


BLITZER: Will Florida redo the primary?

Let's discuss with Lou Dobbs. He's the host of "LOU DOBBS TONIGHT," the show that's coming up in one hour.

What do you make of all this talk of a makeover in Florida and Michigan for that matter?

LOU DOBBS, HOST, "LOU DOBBS TONIGHT": Well, I think, you know, a makeover, a do over, whatever you call it. I think that both of the states their governor should get very serious and work with the congressional delegations and the Democratic National Committee and get it done.

This is ridiculous that the Democratic Party leadership would disenfranchise the boaters of both Michigan and Florida. Put this aside. Stop the nonsense emanating from Howard Dean's office and start worrying about the people. Make their votes count. Have a do over.

BLITZER: As you know, they say in Florida some of the politicians don't have the right machines. They're making a transition to new machines.

So I pointed out to a couple of them, I said you know what? You have a ballot. It says Obama. It says Clinton. This is not that complicated. And if you have to count it by hand, you know, you count it by hand.

DOBBS: Well you know, I think it's probably a very good idea. Make the boxes really big. And you just X one of them. It's about as simple as an election can get. I was going to be unkind to our fellow citizens in Florida. They couldn't screw this one up in Palm Beach County. I can guarantee you. It's that simple.

BLITZER: And no hanging chads this time. It's just you put an X in front of the name and that's it. You don't need fancy equipment for a simple election like this one. There are two candidates, no propositions, no city councilmen, no nothing.

DOBBS: The problem is, Wolf as you know, and everyone watching and listening to us knows, the problem is you've got a bunch of fancy folks in Washington and in particular at the Democratic National Committee who don't want to do this do over and they are just as conformable as they can be these elites sitting there on the Democratic National Committee with Howard Dean bleating their leader's call saying you know go ahead and just disenfranchise these people.

They were so arrogant these people as to move their primary election dates and they don't deserve to be heard in this election. I think they should run the Democratic National Committee if they don't turn this thing around and get it done right out of town.

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