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THE SITUATION ROOM

Three More Storms Threaten; Clues in Palin's Past; Iraqi Oil Contract with China

Aired September 2, 2008 - 17:00   ET

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


RUDOLPH GIULIANI (R), FORMER MAYOR OF NEW YORK CITY: We have the ticket in the right order. We've got the most experienced candidate on the top. They've got a candidate with -- all right, no experience or little experience on the top. We've got the younger candidate of the next generation on the bottom of the ticket, someone that can learn, someone that can develop, someone that's already accomplished a lot, but hasn't accomplished as much as at the top of the ticket.
They've got it kind of reversed.

WOLF BLITZER, CNN ANCHOR: But...

GIULIANI: They've got the guy with all the experience at the bottom of the ticket.

BLITZER: But based on what you know, was she thoroughly vetted or was this a rush job?

GIULIANI: Based on what I know, she was thoroughly vetted. I think they -- John knew her, knew what she has accomplished in Alaska. A lot of it's been an open book. I think the issues that are coming out now -- all the ones I've heard so far -- are ones that he knew in advance. He talked to her about it on Friday. And he has confidence -- and this is, after all, the main criteria in getting selected as vice president. The presidential candidate has to have confidence that you've got what he needs to accomplish the job. And I...

BLITZER: Because the argument is, you know, you had Tim Pawlenty, the governor of Minnesota; Joe Lieberman; Tom Ridge...

GIULIANI: They were great choices.

BLITZER: Tom Ridge; Mitt Romney; Rudy Giuliani.

GIULIANI: He had...

BLITZER: You put all of those...

GIULIANI: Except for one...

BLITZER: Rudy Giuliani...

GIULIANI: ...he had great (INAUDIBLE)...

BLITZER: All of these guys, and Sarah Palin, who is obviously not very well-known. GIULIANI: But you know the game, right?

If he'd picked any one of those -- I was in Denver last week. Some of my Democratic friends were telling me that the ads they had ready for Mitt Romney, for Tim Pawlenty -- I mean they were ready to sock them with who knows what. And you can almost imagine what. So no matter who you pick, there are going to be pros and cons.

I think, in her case, she united our party. This is a much more united convention than the Democrats had. The Democrats had to work at getting it united. We don't have to do it.

And I think what we're going to find is that she's a woman who, in a very short period of time, has accomplished a great deal. An enormously positive response to her, at least all throughout the Republican Party.

BLITZER: I think we just got a preview of his keynote address tomorrow night.

GIULIANI: I'm going to have to change it now.

BLITZER: Mayor, go back and do a little rewriting.

Thanks very much for coming in.

GIULIANI: It's always great to see you.

Great coverage.

BLITZER: The former mayor of New York, Rudy Giuliani.

GIULIANI: Thank you.

BLITZER: You don't like the "New York Times," though.

GIULIANI: I like the "New York Times." I respectfully disagree with them.

BLITZER: You're right.

(LAUGHTER)

BLITZER: Thanks very much.

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

Happening now, another killer storm may be getting ready to strike the United States. And two more storms are gaining strength. We're going to get the latest forecast.

Also, Gustav could have been worse. But for a lot of Gulf Coast residents, it's been bad enough -- flooding, damage and 1.5 million households without power right now.

And sidetracked by the storm -- the Republican Convention now back on track.

But will there be a backlash over John McCain's vice presidential pick?

There are new questions about Sarah Palin.

I'm Wolf Blitzer. We're here at the Xcel Energy Center in St. Paul. And you're in THE SITUATION ROOM.

More trouble may be looming for weather-weary Americans, even as the remnants of Gustav continue to punish the Gulf Coast. Tropical Storm Hannah is already a killer and two more storms -- yes, two more storms have been formed farther out in the Atlantic.

Let's go straight to our CNN meteorologist, Jacqui Jeras. She's at our extreme weather headquarters in Atlanta -- Jacqui, this is almost unbelievable, what's going on right now.

JACQUI JERAS, ATS METEOROLOGIST: Yes. We checked with the Hurricane Center to see if this was a record for the number of storms at one time and they said not quite. So, but we are close. You know, we were busy like this, though, in 2005, as well.

And check them out, just lined up here in the Atlantic. So there you've got Josephine, this is Ike and this is Hanna.

And Hannah is the one that we're most concerned about now, because it has the potential to be reaching the U.S. coast by the end of the week.

Now, the problem that we've got going on right now is that Hannah can't make up its mind where it wants to go, because there's a not a lot for steering (INAUDIBLE). And it actually is moving almost in a backwards direction, tomorrow the south and east.

But we're predicting that it's going to kind of make a little more of a U-turn and head on up toward the U.S. Awe could be seeing a landfall on Friday. And Hannah is expected to strengthen to at least a category one hurricane.

Now as for Ike, this one worries me a little bit more because it has more potential of becoming a major hurricane. Conditions much more favorable out here to see this one turn up to a two or possibly a three. And Josephine, we're hoping -- it looks like right now that it will be just a fishing storm -- Wolf, back to you.

BLITZER: All right. Stand by, Jacqui, because we're watching all of this very closely. Gustav gave New Orleans a glancing blow but some coastal communities were hit very, very hard by the storm.

Let's to go CNN's Brian Todd. He's in Houma, Louisiana right now. How bad is the damage there -- Brian?

BRIAN TODD, CNN CORRESPONDENT: Fairly bad, Wolf.

This was ground zero of where Hurricane Gustav touched down. The eyewall hit right here in Houma yesterday. Some very dramatic scenes of damage. This massive tree and power pole came right down on this car, on this house, took out two columns in the house. And this is a scene that's fairly typical in this area.

(BEGIN VIDEOTAPE)

TODD (voice-over): A bleak landscape where Gustav's eyewall first made contact with the U.S. mainland. Along the corridor from the fishing village of Cocodrie along the Gulf to the tiny town of Houma, just inland, mobile homes are destroyed, fishing boats disabled, the bayous flooded over, gas station canopies knocked down.

But those few who stayed are feeling fortunate -- even Carl Thomas. This massive tree and power pole came crashing down on his house in Houma, destroyed two of his vehicles, knocked two columns off his front porch. Just moments before, he was out in front trying to crank his generator, happened to get tired and took a break inside.

CARL THOMAS, LOUISIANA RESIDENT: I made it in the house. Thirty seconds later, this tree and that pole come down. And it was -- it happened just that quick. There was no -- no warning, no nothing.

TODD: Just trying to drive South from Houma to Cocodrie was treacherous. The only road we were told might be passable wasn't. With flooded marshes on either side, we maneuvered around some downed trees -- but there were too many of them blocking the road and they were too big. Law enforcement teams couldn't move them, either.

Back in Houma, Sheriff Vernon Bourgeois says his parish will be incapacitated for a long time.

SHERIFF VERNON BOURGEOIS, TERREBONNE PARISH, LOUISIANA: It's like an uninhabitable living. It's living in caveman days. You have -- you have no -- nothing to do with, you know, easily or friendly. Everybody's used to an air conditioner now and all that. You won't have it for three weeks, four weeks. It's not going to happen, you know. And everything that goes with it.

(END VIDEOTAPE)

TODD: Now, Sheriff Bourgeois says that means that getting healthy water to drink is going to be a challenge, that emergency services are going to be curtailed, hospital services curtailed, even just, you know, getting things like, as he said, air conditioning is going to be a challenge. And -- but this is still a whiplashed town and a whiplashed parish that is counting its blessings. The sheriff tells us 95 percent of the residents evacuated. He knows of no deaths or injuries right now -- Wolf.

BLITZER: Brian, thanks for that. Brian Todd on the scene.

The New Orleans levees, which failed catastrophically during Katrina, did hold up to Gustav. But evacuees are being warned that it's too soon to return home.

Let's go to Sean Callebs. He's live in New Orleans with more on what's going on this, the day after -- Sean.

SEAN CALLEBS, CNN CORRESPONDENT: Indeed, Wolf.

A lot of mistrust for the Corps over the past three years. And people here knew the day after the storm there would be celebration or catastrophe.

(BEGIN VIDEOTAPE)

CALLEBS (voice-over): They were the hold your breath moments like this, as water splashed into the Upper and Lower Ninth. But the levees and flood walls held. While Gustav was giving the city its worst, residents depended on the Army Corps of Engineers being at their best.

UNIDENTIFIED MALE: You know, now you watch the reconstruction of everything. They're raising the levees. They're putting the floodgates to alleviate the pressure coming back into the city. So it's a confidence builder, for sure.

CALLEBS: Floodgates were closed for the first time at two of the three canals extending south from the vast Lake Pontchartrain into New Orleans. It worked, just as the Corps had planned.

UNIDENTIFIED MALE: I think what went on last night at the outfall canals, you know, we knew they'd work. We just needed a chance to prove it. And last night we did.

CALLEBS: That's important because during Katrina, wind-driven water rushed down the canal and rapid erosion caused a floodwall to give way.

CALLEBS (on camera): And the city isn't out of the woods yet. Remember, there are miles and miles of earthen levees that are simply saturated. We don't know how well the floodwalls are holding up because the Corps of Engineers hasn't even been able to come in and begin its inspection.

Think about it. Over the past three years, the Corps has spent billions of dollars. And their job -- the demand from citizens to make sure every nook and cranny along 350 miles is safe.

UNIDENTIFIED MALE: And we're surrounded by water, OK? That's a risk we live with every day. But if we can minimize that risk, that's what we need to do. We will never eliminate it, but we can minimize it.

CALLEBS: Simply put, today New Orleans remains a ghost town.

(END VIDEOTAPE)

CALLEBS: Yes, but the celebration for just how long?

Everyone here knows that it wasn't a direct hit and it wasn't as powerful as it could have been -- Wolf. BLITZER: All right, Sean. We're happy -- relieved at that. But we're watching these other storms, as well. You're going to be a busy guy over the next several days. Thanks, Sean Callebs.

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

CAFFERTY: Well, the good news is, as Sean Callebs just told us, Hurricane Gustav spared New Orleans a direct hit. The bad news is, for some, it freed up President Bush so he could appear at the Republican Convention tonight.

President Bush isn't going to be there in person, but he'll speak to the convention by satellite from the White house.

Some Republicans were actually relieved yesterday when they found out the president, whose approval ratings are at record lows, would not be in St. Paul because of the hurricane. They did manage to get rid of Vice President Cheney. He's off on a trip someplace. They still, though, have Joe Lieberman and Fred Thompson on tap for tonight, so all is not lost.

The president's speech has been shortened. That's apparently due to Gustav and a compressed convention schedule. It's a hard sell for John McCain, who has been trying to distance himself from President Bush. The White House says the president is looking forward to thanking Republicans for all their support and to throw his enthusiastic support behind McCain.

Now, polls show 80 percent of Americans think the country is on the wrong track. President Bush has been driving that train for eight years. And John McCain has voted right along with President Bush 90 percent of the time.

So here's the question: Does President Bush's speaking to the Republican Convention tonight help or hurt John McCain?

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

BLITZER: We'll be covering that speech live tonight, as you and our viewers know, Jack. Thanks very much.

We're also learning right now more about Governor Sarah Palin of Alaska. Our own Kyra Phillips is live in Anchorage, Alaska -- Kyra.

KYRA PHILLIPS, CNN ANCHOR: Wolf, a lot of people are wondering about Governor Palin's experience. And we came to Alaska to check it out. You'll to find out what we've learned right after the break.

BLITZER: All right, Kyra. Thank you.

Also, we'll find out about Iraq. It makes its first major oil deal since Saddam Hussein and that deal is with China. We're getting reaction to that.

Stick around. And later, you're going to hear what Russia's president is saying that's causing new tensions with the United States and the West.

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

(COMMERCIAL BREAK)

BLITZER: Just a week ago, a vast majority of Americans had never heard of Sarah Palin. Now, as the Republican vice presidential candidate, the Alaska governor is in the national spotlight. And we're learning much more about her. There's still lots of questions out there.

Let's go to Kyra Phillips. She's joining us now live from Anchorage, Alaska. We sent her up there to do some digging. What are you finding out specifically about her leadership in Alaska -- Kyra? What are you finding out?

PHILLIPS: Well, you know, personally, she's a pretty amazing woman, Wolf.

No matter what your politics are, she's dynamic, she's charismatic, people love her and they say they look -- she looks them straight in the eye and makes them feel comfortable. They feel like that she listens to them. I mean she's the type you'd want to sit down and have a beer with, do a little salmon fishing. I wouldn't mind doing that just to get to know her and more about her life.

But with regard to her leadership and her experience, you know, a lot of people are wondering, if something were to happen to the president of the United States, could she lead the free world?

Here's a little bit of her background.

(BEGIN VIDEOTAPE)

SEN. JOHN MCCAIN (R-AZ), PRESIDENTIAL CANDIDATE: Governor Sarah Palin of the great state of...

PHILLIPS (voice-over): She's been Alaska's governor for just 21 months and she's hardly a household name.

So who is Sarah Heath Palin and is she ready to lead?

Most of her government experience is local -- two terms on the city council and two terms as mayor of Wasilla -- a town near Anchorage, population 7,000.

She earned a reputation as a tax cutting conservative who limits spending, cleans up government and challenges the establishment.

MAYOR CURT MENARD, MATANUSKA-SUSITNA, ALASKA: She didn't settle for the status quo and she took on the establishment, whether it was in her own party or out of her party.

PHILLIPS: In her first statewide position, as chairman of Alaska's Oil and Gas Conservation Commission, Palin went after the head of her own state party in 2003 for alleged, ethics violations. As governor, she signed an ethics bill and opened up the process for oil and gas bidding.

Her record as mayor of Wasilla gives ammunition to supporters and detractors alike. She did cut property taxes in Wasilla. And while it's not exactly the Pentagon budget, reduced spending on the town museum, while opposing a bigger library.

She was also mayor when the local sales tax was increased to build a popular sports complex. And in her second term, the town received more than $20 million in earmarks.

Speaking of earmarks, running for governor, Palin supported the bridge to nowhere -- now known as the poster child for government pork projects.

MCCAIN: The next vice president.

PHILLIPS: But when John McCain introduced Palin to America last week...

GOV. SARAH PALIN (R-AK), VICE PRESIDENTIAL CANDIDATE: I told Congress thanks, but no thanks, on that bridge to nowhere.

PHILLIPS: A longtime opponent of Palin's accuses her of a flip- flop.

ANDREW HALCROW, PALIN'S GUBERNATORIAL OPPONENT: It was a bridge to somewhere. And then when she got elected and the political winds had changed, it became a bridge to nowhere.

PHILLIPS: Now the governor's biggest problem -- an investigation by the Alaska legislature into why she fired public safety commissioner Walt Monegan.

(END VIDEOTAPE)

PHILLIPS: And, Wolf, just to add something to the investigation there with regard to her former brother-in-law, the state trooper. You know, the governor has come forward and said look, there could be this perception that it looks like I fired him for that reason specifically. But even the commissioner has come forward and said look, the governor and I never had direct conversations about that subject matter.

So it will be interesting to see what this legislative committee and this investigation reveals. Before the election we're supposed to find out those findings.

BLITZER: All right. Kyra is on the scene for us.

And when you speak to folks up there in Alaska and they understand what's happening here in the in the lower 48, as they say, what is their reaction -- basically average folks, as you talk to them there -- Kyra? PHILLIPS: Well, it's a mixture of feelings. But for the most part Alaskans, you know, they were dealing with a government here that was embedded in a lot of corruption and a lot of faulty deals. And she was a woman that came in and said look, I'm even going to be critical of my own party and I'm going to make changes. And I represent change.

And that's basically what she -- she won on, Wolf. And people saw her as somebody new and refreshing and dynamic and interesting and engaging, which she is. We've seen that. We've watched that.

Now we'll have to see if she is everything that she says she represents.

BLITZER: Kyra Phillips is in Alaska for us. Kyra, thanks very much. We'll be checking back with you tomorrow.

Russia's president, meanwhile, ignoring Western warnings over Georgia and issuing a stern warning of his own.

Plus, protesters here at the Republican Convention -- they're putting security to the test.

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

(COMMERCIAL BREAK)

CAROL COSTELLO, CNN CORRESPONDENT: I'm Carol Costello.

We'll get back to Wolf and the Republican National Convention in just a moment.

But first, some other stories incoming into THE SITUATION ROOM right now.

Warnings from Russia's top leaders -- Prime Minister Vladimir Putin promises what he calls an answer to increased NATO ships in the Black Sea. He also complains that the ships which carry humanitarian aid are armed with missiles.

When asked specifically how Russia would respond, Putin was quoted as answering, "You'll see."

In the meantime, Russia's president, Dmitry Medvedev, says the West has a lot to lose in sanctions over the war in Georgia.

Iraq's cabinet today approved the first major, major deal with a foreign oil company since the fall of Saddam Hussein. It's not an American company.

CNN's Arwa Damon is in Baghdad.

ARWA DAMON, CNN INTERNATIONAL CORRESPONDENT: Carol, the deal with China's National Petroleum Company could be worth up to $3 billion. It is a service contract only, which means that China will be providing Iraq with equipment, technical advisers and oil workers. They are also required to employ and train Iraqis. And working in Iraq is not foreign to the CNPC. They actually had a deal under Saddam Hussein that was something of a partnership agreement. Under that, back in the 1990s, they were entitled to a certain percentage of oil revenues.

That most certainly is not the case this time. The Iraqi government is adamant that all oil revenue will remain firmly in its hands.

Development is expected to start within the next two months. Within the next three years, the field that is located in Wasit Province in Southern Iraq, right along the Iranian border, should be producing 25,000 barrels of oil a day; within the next six years, 115,000 barrels.

This is only a small fraction of Iraq's oil revenues. The government has actually opened up six oil fields and two gas fields to 35 international companies. What it really wants to do is get that oil flowing and the money coming in.

One of the main inhibiting factors is the near reality that Iraq's oil infrastructure is in shambles. It has not been refurbished in decades. The other inhibiting factor is the reality that the Iraqi government still has to pass the oil law -- Carol.

COSTELLO: Arwa Damon in Baghdad.

A commercial airline pilot is flying again after he was put on a secret terrorist watch list.

CNN spoke to Erich Scherfen recently about being suspended from the skies. He said he was singled out because he's Muslim and sued the federal government for violation of his constitutional rights. Colgan Air informed the FAA that it would allow Scherfen to work, but the airline did not give a reason why.

Hundreds of protesters arrested outside the Republican Convention. Some of them now claiming police roughed them up.

Plus, Louisiana Governor Bobby Jindal joins us live to talk about Hurricane Gustav, his rising star in the Republican Party and more.

(COMMERCIAL BREAK)

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

Happening now, there are massive protests outside the Republican Convention. Hundreds of people have been arrested. Now there are allegations police used a heavy hand. We're watching the story.

Also, new I-Reports just showing the fury of Hurricane Gustav.

Plus, the next big threat facing the United States -- Hanna.

Plus, his state is still reeling from Hurricane Gustav. The storm kept him from appearing here in St. Paul. But the Louisiana governor and the rising Republican star, Bobby Jindal, he'll be here in THE SITUATION ROOM. He's standing by live.

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

President Bush will address the Republican Convention tonight via satellite from the White house. And while he's certain to have high praise for John McCain, that hasn't always been the case.

Let's bring in Ed Henry, our White house correspondent.

He's down on the floor near the Texas delegation -- Ed, tell us a little bit about this relationship between George Bush and John McCain.

ED HENRY, CNN CONGRESSIONAL CORRESPONDENT: Wolf, it's been a very complicated relationship. And we're in the Texas delegation because there are going to be a lot of excited people to hear Mr. Bush's final convention speech as the president.

But as you noted, it's not going to be here in the hall. He's going to be coming in from that giant video wall.

(BEGIN VIDEOTAPE)

HENRY (voice-over): It's still an uneasy alliance.

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: I've campaigned against him and I've campaigned with him.

HENRY: They had a nasty battle in the 2000 Republican presidential race.

MCCAIN: You should be ashamed of sponsoring an event with that man there, who had attacked your own father.

BUSH: (INAUDIBLE).

MCCAIN: Let me finish.

BUSH: Yes. Yes. John...

HENRY: The duo patched things up in 2004, McCain campaigning vigorously for Bush's re-election -- images Democrats are now using against McCain.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: They share the same out of touch attitude, the same failure to understand the economy.

(END VIDEO CLIP)

HENRY: McCain allies But as you noted, the charge of a third Bush term will not work.

ALEX CASTELLANOS, REPUBLICAN CONSULTANT, CNN POLITICAL CONTRIBUTOR: The one thing everyone knows about John McCain is he's a maverick. He's his own man.

HENRY: After getting the president's endorsement in March, McCain suggested they would hit the road together.

MCCAIN: I intend to have as much possible campaigning events together as is in keeping with the president's heavy schedule.

HENRY: But there's been just one joint fundraiser in Phoenix, closed to the media. So the only picture of Bush and McCain together was less than 20 seconds of footage on a tarmac.

(END VIDEOTAPE)

HENRY: And we just got excerpts from the White House of the last few moments of the president's speech. One excerpt they're releasing, Mr. Bush will say, "We need a president who understands the lessons of September 11, 2000: to protect America we must stay on the offense, stop attacks before they happen, and not wait to be hit again. The man we need is John McCain." A very familiar refrain from John -- from President Bush about the war on terror. But you can see him there in that excerpt trying to pass the mantle to John McCain and it's a double-edged sword for John McCain. It will rally some people in the hall. There will be some independent voters out there that don't like the president and are not going to like to hear that, Wolf.

BLITZER: Ed Henry, down at the Texas delegation here in the convention.

Let's bring in two of our political contributors. Joining us right are Democratic strategist James Carville and Bill Bennett, the host of the conservative radio talk show "Morning in America." He's also a fellow at the Claremont Institute.

This is not easy for John McCain, because George Bush is popular with the base of the Republican Party. And so, as Ed says, we haven't seen a lot of joint appearances by these two men and we probably won't.

WILLIAM BENNETT, NATIONAL TALK RADIO HOST: Yes, right. But he is still the president of the United States. And he is a Republican and respect must be paid, almost ex officio. It's a formality, one has to do it. And I think that's right.

Look, we also need to be reminded, everyone thought after 9/11 there would be another attack. There hasn't been, because George Bush as president has kept us safe. We also like other things he's done as the Supreme Court appointees I think has been excellent. But I think this is an appropriate role. He will speak tonight. John McCain will obviously be grateful, say something nice about him, and then we move on. But tonight is his night, tomorrow night is the end of the Bush leadership of the party.

BLITZER: Yes, James, the whole notion of between now and November 4th, the day of the election, joint appearances between John McCain and President Bush, very, very unlikely. Is that your assessment as well? JAMES CARVILLE, DEMOCRATIC STRATEGIST: Well, I think they're going to have a lot of joint appearances and they will be on the Democratic television ads. I think that you're going to see President Bush's endorsement for him over and over again. I think you'll see that picture of them together. It doesn't matter if they campaign together or not, they got about $600 million in ads that they're going to run of this thing and they are going to show that everybody here is about to endorse him, I will promise you that.

BLITZER: It's probably the most successful or singular effective way to try to undermine John McCain, Bill, to sort of say, if you liked eight years of Bush, get ready for another four of McCain.

BENNETT: Well, two things. On that hand, James is absolutely right, I'm sure. But in terms of the ads, the amount of money that will be put in. And, of course, I mean, it that's be said, Republican Party's in bad odor. George Bush is not popular; the right track/wrong track numbers are not our way. But a lot of people have been saying lately, given the state of the country, Wolf, this is the only Republican who has a real shot at becoming president of the United States. We know we're going upstream.

The one great gift that John has, he has the gift of always being himself and no one else. It's hard to say John McCain is some other person. He doesn't easily moor. He is a curmudgeon. He is an individual. He is, you know, himself. And he's hard to confuse with somebody else. The fights and disagreements with Bush maybe can be part of Republican ads or at least distribution.

BLITZER: And let's talk a little bit about the other side of being a curmudgeon or whatever, a maverick, whatever you want to call him, James, the decision to go ahead and select Governor Palin as his running mate which caught almost everyone by surprise. I think she's out on the floor right now. She's going to be out here at some point tomorrow accepting the Republican nomination. Earlier today, she met with Cindy McCain and Laura Bush, who are both here in St. Paul as well. But go ahead and talk a little bit about that.

CARVILLE: Well, I said on this network, on I think it was the Anderson Cooper show on August the 15th, that I expected that Senator Obama would reassure us that and Senator McCain would surprise us. I was slightly wrong. He floored us.

This is like the weirdest thing that I've ever seen. I can't even explain it. I have no idea why they did this. I think they must be having some terrible second thoughts at the convention right now, it's going to be all about -- it's all about Sarah Palin. They got every kind of story from the cockamamie secessionist party that she was part of up in Alaska to trying to get rid of books in the library and god knows what else.

I think frankly I'm stunned because the Republicans are also very competent at vetting people and ending up lawyers and accountants and all that sort of thing. And I, for the life of me, I don't know what happened here. But somebody didn't do their homework, and they are paying an incredible price for it right now. BLITZER: All right, hold on, both of you. I want you to hold on for a second, because Dana Bash is down on the floor. She's been looking at all of these questions.

Dana, you're getting some new information?

DANA BASH, CNN CORRESPONDENT: That's right. You were just talking about the fact that -- that -- that Sarah Palin met today with Cindy McCain and Laura Bush. I think we showed a picture of that to you. She also went to speak to the pro-Israel lobbying group APAC. We've been also talking about the fact that we haven't seen her at all very much in the public since over the weekend when she was campaigning with John McCain in the state of Pennsylvania and then in Missouri.

And we've been told by our John King a little bit of color about what she's doing. No surprise, she's working on her speech and her convention speech which we do expect her to deliver in the halls tomorrow night. We are told that she has actually been working with someone by the name of Matt Scully. He's a speechwriter who the McCain campaign brought in to work on McCain's speeches shortly after he won the nomination. In fact, Scully helped -- was up pretty much all night with Governor Palin the night before her surprise announcement working on that initial speech. He's the one who has been working with her behind closed doors over the last couple of days on her speech that she'll deliver here tomorrow night. She's been -- she actually had a read-through and a run-through of that speech, we're told, today.

And just obviously is coming from people who are fans of Sarah Palin, who are with Sarah Palin, but the way they are describing the way she is reacting to being in this position, somebody who has never been in this kind of spotlight before, that she is in an ocean of calm, as every Blackberry around her chirps, and she's trying to stay very focused and calm as she knows that everybody's going to have a lot of eyes on her tomorrow night when she gives her speech, Wolf.

BLITZER: All right, Dana. Stand by. Bill Bennett and the James Carville, they're still with us.

Do you think she had any idea what was in store for her and her family when John McCain suddenly, unexpectedly said, I want you to be my running mate?

BENNETT: Well, possibly in some way in her imagination. But can anybody really be in store for this, for what happens, for the enormity of it and the intensity of it?

Let me say a couple of things for James, if I can. I'll vouch for him. First of all on August 15th, I was on that show with him, Anderson Cooper, when he said that he'll do something very surprising. He did do something very surprising.

In terms of Sarah Palin's past, there's a lot being thrown out here. We don't know yet what is true or not true. As Oscar Wilde said, every saint has a past, every sinner has a future. There's a lot of Barack Obama's past too. There's a lot of things that can be said. We should be very careful about saying things on TV or anyplace else until we're sure we can lock them up. But I think everyone will be waiting for tomorrow night. That is a big deal, her speech tomorrow night, a lot rides on it, and then I think she'll create the impression in her own voice which will make a great deal of difference to independents and who John McCain is trying to woo with this.

BLITZER: Now to that point, James, we've been doing some checking, there have been some reports out there, including in the "New York Times" and ABC News that she had been a member of the Alaska independence party which is a party in its current platform which says there should be another vote in Alaska, whether it should be part of the United States, should not be part of the United States. We have confirmed she did speak, she did address, send a video to this party's convention in 2006 and 2008. But the McCain campaign released her voter registration records and they say she's been a registered Republicans since 1982, when she started voting. So, it's unclear. It doesn't look like she was ever a member of the Alaska independence party.

CARVILLE: Alaska independent party says that she was and I think she was going to the conventions back in the '90s. And her remarks in 2006 she certainly didn't take issue with -- with any of their positions. But, you're right, it will have to be thoroughly vetted. But let's put it this way, she certainly -- she seems to become sympathetic to these people and they are kind of a different bunch, if you will.

BLITZER: And that raises a lot of her critics, the McCain critics, saying when he says, country first and all of this. If, in fact, she was elevating or giving some prestige to this Alaska independence party, which is sort of unclear where it stands on whether or not Alaska should be part of the United States, would that be appropriate for a vice presidential nominee?

BENNETT: I would need to look at it, obviously, and vet it myself and read the document. But, look, I have no problem with the principle, you know, sunlight's the best disinfectant. Everything she has done in her public life, as a candidate, as -- when she was running for office, it's something we should look at.

So be it with Barack Obama. I've been saying for months, months, can we please find out more about Bill Ayers. I don't think the media has done a particularly great job of looking into that but I think that's entirely appropriate, where he got his political start and so on. This was the guy that tried to blow up countries.

Is it a legitimate question that you can pursue with Sarah Palin? Absolutely. Maybe she'll answer some of these things tomorrow night. You know when she gets before the press, you know what that first press conference is going to be.

BLITZER: James Carville and Bill Bennett will be with us throughout this night for our extensive coverage of the Republican convention. Guys, thanks very much. Barack Obama's bounce. Why did the Democratic convention give him only enough of a boost to keep this race relatively close? Did he get a bounce? What's going on in the polls? Stand by.

And an aerial tour of the storm zone. CNN rides along with top officials as they assess the damage from Gustav.

Stick around. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: After each major political convention, the candidates hope for a substantial boost in their support. It's the so-called bounce. According to the Gallup Poll figures, both parties' nominees have enjoyed an average of about ten percentage point gains over their opponents going back to 1964.

Let's bring in our senior political analyst, Bill Schneider. He's tracking all the numbers, as he always does.

And here's the question, Bill -- is the Obama campaign seeing a bounce out of their convention last week?

BILL SCHNEIDER, CNN SENIOR POLITICAL ANALYST: A very small bounce, just about two points. Why? Because there were really two bounces last week.

Obama picked up about ten points among independents, a very crucial swing group. But McCain, by naming Sarah Palin to the ticket, he picked up eight points among Republicans. So, they canceled each other out, and the result was a very small bounce for Barack Obama.

Right now, John McCain has to do four things in four days. Actually make that three days, because the Republican convention lost a day to Hurricane Gustav.

(BEGIN VIDEOTAPE)

SCHNEIDER: Here's John McCain's to-do list for the Republican convention; item one, distance yourself from President Bush. Good news, Bush will be speaking from the White House, 1,000 miles away. No photo ops of McCain and Bush raising arms.

The Democratic convention did do some damage to McCain. Remember how Barack Obama kept saying McCain equals four more years of Bush? It worked. The number of Americans who believe McCain's policies would be the same as Bush's has gone up. Most Americans now believe it.

Item two, regain the Iraq issue. There's a lot more optimism about the war in Iraq. More Americans believe the United States can win and will win. But the war issue is receding in importance. And McCain's advantage on the Iraq issue has disappeared. Voters now see Obama and McCain as equally qualified to handle Iraq. What an irony. Just when voters think the war is going better, they take the issue away from McCain. Item three, close the energy gap. We're talking about voter energy, not gas for your car. Two-thirds of democrats say they're very enthusiastic about voting this year. Among Republicans, the figure is less than half. McCain's got to get Republicans to where democrats are, all fired up, ready to go.

Item four, unite the Republican Party. We spent a lot of time talking about how divided the democrats were, between Hillary Clinton and Barack Obama. Well, guess what? Republicans are just as divided. The percentage of democrats who say they would rather have seen their party nominate Hillary Clinton? 37 percent. The percentage of Republicans who would like to see their party nominate someone other than McCain? 38 percent.

(END VIDEOTAPE)

SCHNEIDER: The Democratic convention was a sustained effort to reconcile party differences and rally the party behind the nominee. You know, the Republican Party's going to have to make just as big an effort -- Wolf?

BLITZER: Bill Schneider, thanks very much.

Here's a question: What does the Obama campaign say about this tight race? You're going to find out. That's coming up next.

And later I'll speak with the Louisiana governor, Bobby Jindal. He's a Republican rising star. He stayed home from the convention to confront Hurricane Gustav.

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

(COMMERCIAL BREAK)

BLITZER: We're here at the St. Paul Republican National Convention. We're watching what's going on, is about to begin in the next couple hours or so, but let's bring in a top staffer from Barack Obama's campaign. Linda Douglass is joining us right now, one of his press secretary senior advisers.

Linda, we spoke awhile ago with Rudy Giuliani. He'll be addressing this convention tomorrow night. I'll play a clip. He previewed what part of his message will be tomorrow night. Listen to this.

(BEGIN VIDEO CLIP)

GIULIANI: Barack Obama is not ready. Barack Obama has never run a city, never run a state, never run an agency, never run a business, never made a payroll, has never really negotiated which is why he makes so many mistakes how to negotiate. Negotiate without pre- conditions, that's absurd.

(END VIDEO CLIP)

BLITZER: All right. Linda, I want you to respond, go ahead. LINDA DOUGLASS, OBAMA SENIOR ADVISER: Well, first of all Rudy Giuliani, you know, has his own record he could talk about listen, here's the thing. The Republicans are going to try to throw everything they can at Senator Obama, who has a great record of accomplishment in the United States Senate, where he served on the foreign policy committee, I mean the foreign relations committee and certainly also in addition to that, as a state legislator, who passed measures providing health insurance for families.

He's passed legislation in the Senate to stop the proliferation of nuclear weapons. He has a vast record of accomplishment in the United States Senate, and in the state senate, of a very large state, Illinois, so Rudy Giuliani is just going to be throwing these barbs up because the Republicans want to change the subject away from the fact that they'll continue the policies of George Bush, if they get in for four more years.

BLITZER: And they're suggesting, Linda, that Governor Palin of Alaska, the vice presidential running mate to John McCain, she has much more executive experience than Senator Obama has. Go ahead and respond to that charge.

DOUGLASS: Certainly John McCain has made the issue of experience a centerpiece of his campaign. Now, it appears that that might have just been a political ploy, since he's picked Sarah Palin, who was just a couple years ago the mayor of a town of 9,000 people. It's certainly worth taking a look at her record, what did she do in that town, what kinds of issues did she deal with.

She's been governor of Alaska for 18 months. He's pointing to the fact that she was the head of the PTA as part of the experience that he's citing that he says qualifies her to be a heartbeat away from the presidency. So if John McCain wants to put that issue on the table, we're happy to have that conversation.

BLITZER: So is she qualified to be president of the United States, Sarah Palin?

DOUGLASS: Well, we're not going to get into those kinds of characterizations. John McCain has picked somebody who is going to work with him to continue the policies of George Bush for the next four years if that ticket is elected where more economic misery will continue, the war in Iraq will presumably go on without end, $10 million a month it is costing the American people that, is the ticket we're talking about and those are the issues that Sarah Palin will be working with John McCain to execute.

BLITZER: Linda Douglass joining us from Chicago, thanks, Linda, very much.

DOUGLASS: Thanks, Wolf.

BLITZER: Hurricane Gustav and the next big threat, that would be Hanna. We have brand new I-reports coming into THE SITUATION ROOM from you our viewers giving us up close looks at these dangerous storms. First here's another unconventional moment from Jeanne Moos.

(BEGIN VIDEOTAPE)

JEANNE MOOS, CNN CORRESPONDENT: Watch John McCain's eyes.

PALIN: And I thank you, Senator McCain.

MOOS: Two times. No, three times.

PALIN: The best that I have to give.

MOOS: No, ten times the first minute of introducing his running mate his eyes wandered downward, and that led to this, a YouTube hit that made it seem like Senator McCain was tapping a backside glance at his attractive new running mate.

This reminds us of the time John McCain was accused of sleeping during the state of the union. McCain and others were just reading a speech in their laps.

John Kerry got similar treatment when he was snatched with downcast eyes. In McCain's case, he was caught with looking at something on the podium. The moral of the story, don't look down.

With an unconventional moment, I'm Jeanne Moos, CNN, New York.

(END VIDEOTAPE)

(COMMERCIAL BREAK)

BLITZER: Let's check back with Jack for "The Cafferty File" -- Jack?

CAFFERTY: The question this hour is: Does President Bush's speaking to the Republican convention tonight help or hurt John McCain?

Dee writes: "It will hardly help. It will help even less when the delegates show how out of step with the country they are by giving Bush's speech a hero's welcome. Bush is radioactive and it's not as if there are any real differences between his administration and the policies John McCain was boxed into embracing in the primaries. The nomination was a devil's bargain and the devil is on a live feed tonight."

Diane in Houston says: "I wouldn't have said it last week but it will probably help McCain at this point. At least it gets the coverage off of his disastrous VP selection."

David in Spokane: "It hurts McCain. As a lifelong Republican, I can tell you this and I'm not alone, Gustav was looking like our savior. We wish Bush would pull a Dick Cheney, go into hiding for four days. Bush at the podium is like a porcupine at a balloon factory. Bad news." Billy writes: "I think Bush's speech will help McCain with the Republican base just like his choice of Governor Palin as his running mate. However, I believe it will add to the concerns of many undecided voters as well as well as Democratic supporters that McCain is simply a George Bush puppet."

Rob in Florida writes: "Bush's speech will help the campaign tremendously. That's the Obama campaign I'm referring to."

Paul writes: "If Bush wants to help McCain, he ought to continue what he's been doing - avoiding the campaign as much as possible same for the convention."

Gabriella writes: "I don't think Bush can hurt McCain anymore than he's already hurt himself."

And Joan writes from Canada: "Poor Johnny. Bush will shoot him in one foot. Sarah Palin will shoot him in the other."

If you didn't see your e-mail here, you can go to my blog, CNN.com/Caffertyfile, and look for yours there. We've got lots and lots of mail today -- Wolf?

BLITZER: Not surprised at all, Jack. Thank you.

And it's happening right now, Republicans are ready to get started with day two of their convention, but questions swirling over the vice presidential pick, presenting a potential roadblock. John McCain is responding firmly, and we've learned that the governor, Sarah Palin of Alaska, had to answer some very embarrassing questions in her vice presidential vetting. Stand by.

Meanwhile, are some of the questions currently confronting Governor Palin fair? Especially the question of whether or not she can balance parenthood with political ambition? The best political team on television weighs in.