Return to Transcripts main page

THE SITUATION ROOM

Financial Turmoil; Campaign Happenings; Houston Under Curfew in Ike Aftermath

Aired September 15, 2008 - 16:00   ET

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


RICK SANCHEZ, CNN ANCHOR: For a while there it looked like it was going to be under the 400's, maybe into the high 300s but 469. That's a big nut. Let's take it over to Wolf Blitzer now who's going to be following up on this during his show, THE SITUATION ROOM. I'm Rick Sanchez. I'll see you again tomorrow.
WOLF BLITZER, CNN ANCHOR: Rick, thanks very much. We're following the breaking news here in THE SITUATION ROOM. Many Americans fear for their investments after one of the biggest banking failures in U.S. history. This hour, crisis on Wall Street. What it means to you and the nation's economy.

Barack Obama and Joe Biden -- they deliver a tag team attack on John McCain. They say Republican policies are to blame for this latest financial blow and they're accusing the McCain camp of smears and deception.

McCain is going to new lengths to prove he knows just how bad the economy is right now. And his running mate Sarah Palin is trying to prove she can go solo out on the campaign trail. I'm Wolf Blitzer, you're in THE SITUATION ROOM.

It's one punch in the gut after another for all of us who have money in the stock market or in some of the nation's biggest investment banks, our retirement funds, all of this at risk right now. The breaking news just moments ago as you saw, the Dow Jones industrials closed down more than 450 points. This on the news that a long-time pillar of Wall Street, Lehman Brothers, is declaring bankruptcy. Adding to the financial anxiety, another Wall Street institution, Merrill Lynch is being bought out by the Bank of America. Our senior correspondent Allan Chernoff is watching all of this unfold. It's a crisis as all of us know. Allan, this is having a ripple effect obviously here in the United States but indeed, around the world. You're on Wall Street right now, what's the latest?

ALLAN CHERNOFF, CNN CORRESPONDENT: Indeed, Wolf, it's affecting Lehman employees here at headquarters and around the globe. And of course stock market investors worldwide.

(BEGIN VIDEOTAPE)

CHERNOFF (voice-over): The crisis of confidence that first hit home prices then morphed investments that finance the housing boom has now claimed two of Wall Street's most venerable names, Lehman Brothers declaring bankruptcy, Merrill Lynch selling itself to Bank of America, both occurring under Washington's watchful eye. BUSH: We're working to reduce disruptions and minimize the impact of these financial market developments on the broader economy.

CHERNOFF: Lehman employees who had already taken heavy losses on company stock were stunned.

YURI KORSKY, LEHMAN BROS. EMPLOYEE: On Friday coming out of the office, everyone thought that it would be ok that something will work out in the end.

CHERNOFF: But in the end, treasury secretary Hank Paulson refused to use taxpayer money to support Lehman as he had for the buyout of Bear Stearns and for Fannie Mae and Freddie Mac just last week. The line was drawn at Lehman's door.

HENRY PAULSON, TREASURY SECRETARY: I never once considered that it was appropriate to put taxpayer money on the line in resolving Lehman Brothers.

CHERNOFF: Merrill Lynch, the nation's biggest brokerage firm fearing it could be next, agreed to be bought by Bank of America.

PAULSON: The American people can remain confident in the soundness and the resilience of our financial system.

CHERNOFF: But on Wall Street, the crisis of confidence sent stocks sinking and threatened yet another financial giant, the nation's largest insurance company AIG. To help, New York Governor David Paterson said he would allow AIG to borrow from its own assets.

GOV. DAVID PATERSON, (D) NEW YORK: No taxpayer dollars are involved. This is not a government bailout.

(END OF VIDEOTAPE)

CHERNOFF: This is capitalism at work, both Lehman and Merrill Lynch made big bets on mortgage investments to get big returns. At first the strategy worked very well but now it has failed miserably, and the companies unfortunately, are paying the price, Wolf. And that price does include thousands and thousands of jobs to be lost.

BLITZER: Do we know, Allan, why the Bush administration was willing to put taxpayer money on the line to save Bear Stearns a few weeks ago, but is not willing to put taxpayer money on the line right now to save Lehman Brothers?

CHERNOFF: Great question. The Bear Stearns collapse happened almost overnight, and there was tremendous fear that this would ripple through the entire financial world, that it would set off a domino effect. Lehman Brothers, fact is, they've been in trouble for months, they've been trying to build up their capital, get financing. It wasn't a complete shock. The other aspect here, the treasury said hey, you know what? We cannot keep on doing this. We can't put the American taxpayer money at risk every single time there's a problem. We have to let the system of capitalism work. BLITZER: And they put billions of dollars at risk to save Fannie Mae and Freddie Mac. That's another factor, as well I don't know how much money the federal government has to bail out these companies. Allan stand by. We're going to be getting back to you for more.

Both major presidential candidates reacting quickly to the growing crisis on Wall Street. Barack Obama and John McCain both acutely aware that the troubled economy is by far issue number one for voters right now. Let's go to our senior political analyst Bill Schneider, he's working this story for us. All right, there's obviously going to be fallout on the campaign. What does this crisis mean politically for the campaign?

WILLIAM SCHNEIDER, CNN SENIOR POLITICAL ANALYST: It certainly intensifies the demand for change, but that has become both candidates' theme.

(BEGIN VIDEOTAPE)

SCHNEIDER (voice-over): Anything that raises economic anxiety should help the out party. In this case, the democrats, all they have to say is look who's been in charge for eight years.

SEN. BARACK OBAMA, (D) PRESIDENTIAL CANDIDATE: I certainly don't fault Senator John McCain for these problems. But I do fault the economic philosophy he subscribes to. Because -- it's the same philosophy we've had for the last eight years.

SCHNEIDER: McCain fell into the trap when he said --

SEN. JOHN MCCAIN, (R) PRESIDENTIAL CANDIDATE: Our economy I think still -- the fundamentals of our economy are strong but these are very, very difficult times.

SCHNEIDER: Obama pounced.

OBAMA: Senator McCain, what economy are you talking about?

SCHNEIDER: McCain was forced to explain.

MCCAIN: My opponents may disagree but those fundamentals, the American worker, their innovation, their entrepreneurship, the small business, those are the fundamentals of America and I think they're strong. But they are being threatened today.

SCHNEIDER: McCain may be the candidate of the incumbent party but he refuses to take ownership of that party's record.

MCCAIN: There's too much debt and there's not enough regulation and there's not enough oversight.

SCHNEIDER: Of course Washington is at fault. The republican candidates say, but that doesn't mean us.

GOV. SARAH PALIN, (R) VICE PRESIDENTIAL CANDIDATE: Guys and gals, our regulatory system is outdated and it needs a complete overhaul. Washington has ignored this. Washington has been asleep at the switch.

SCHNEIDER: The republicans are doing everything they can to say we want change just as much as they do.

POLITICAL AD: Our economy in crisis. Only proven reformers John McCain and Sarah Palin can fix it. Tougher rules on Wall Street to protect your life savings.

(END OF VIDEOTAPE)

SCHNEIDER: It's like an election where nobody represents the incumbent party. Everybody's an outsider. Everybody's for change and a lot of democrats are asking, how can we let the republicans get away with that?

BLITZER: We're going to hear from supporters from both campaigns. They have very different views on what's at stake Bill. That's coming up. Stand by. We have a lot more on this story. By the way, a nonpartisan research group reports that both Barack Obama and John McCain have benefited considerably from Wall Street donations. The Center for Responsive Politics says Obama received almost $10 million from security and investment firms and their employees this year. McCain has received close to $7 million. The analysis shows Obama has received about $370,000 from employees of Lehman Brothers, more than three times what McCain has raised from employees of that failing firm. McCain, by the way, has raised more than $300,000 from employees of Merrill Lynch more than he received from any other investment or securities firm. Merrill Lynch employees were not among the top 20 Wall Street donors to Obama. Remember, lots more on this story coming up.

Let's go to Jack Cafferty, he's got the Cafferty file. Jack, I want you to know we're really happy that you're back with us. There was an outpouring of sympathy and condolences as you know from all of our viewers over the loss of your wife, Carol, for 35 years. And our heart goes out to you, but we're glad you're back and we send our love not only to you but to your daughters, as well.

JACK CAFFERTY: Wolf, thanks very much. I want to take just a minute to acknowledge thousands and thousands of people who wrote, sent e-mails offering sympathy, condolences and prayers for Carol, for me, and for my daughters. It meant a great deal to the Cafferty family. And I thank you very, very much.

On to the business at hand. Campaigning for Barack Obama in Ohio this past weekend, Senator Hillary Clinton revised one of her zingers from the Democratic National Convention last month. Remember when she said, no way, no how, no McCain? Yesterday, she added no Palin. Clinton went on to criticize the McCain ticket but did not single out Governor Sarah Palin again in that speech. Palin, meantime, hit the campaign trail solo in Colorado today. She told voters there she and John McCain were going to shake up Washington. Hindsight being what it is, some are questioning whether Barack Obama might have made a mistake when he chose Senator Joe Biden instead of Senator Hillary Clinton as his pick for vice president. With the sudden Sarah Palin phenomenon taking hold, these people now appear to have been at least somewhat prescient. The question this hour is this, which woman has more credibility with the average American, Sarah Palin or Hillary Clinton? You can go to cnn.com/caffertyfile. Post a comment on my blog and again, thank you all for thinking of me during what was a very, very tough time. Wolf?

BLITZER: Jack, thanks. We're really happy you're back with us, and we'll get back to business although we'll never obviously forget Carol, a lovely woman and once again, our condolences to you and the entire family.

CAFFERTY: Thank you.

BLITZER: On a barrier island off Texas, residents relive the horror of hurricane Ike. The homes and even a friend swept away. Stay tuned, we'll update you on this disaster.

Also coming up, Barack Obama accuses John McCain of pedaling political sleaze. The democrats pushing back harder by the day, how much will it help?

And Sarah Palin flies solo. But the McCain camp still has a lot of control. Stay with us. Lots of news happening. Huge news today right here in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: Crews on Bolivar peninsula in Texas are rescuing victims of hurricane Ike who tried to ride out the storm. That area is one of the hardest hit by this weekend's massive hurricane. Let's go to our national correspondent Susan Candiotti, she's joining us from Houston which was hard hit as well. Susan, we spent a lot of time over the past few days watching this hurricane, during the hurricane, the aftermath. Give us the latest. It's been a destructive -- really destructive storm.

SUSAN CANDIOTTI, CNN NATIONAL CORRESPONDENT: And you see things, again, that you will just never forget, Wolf. During our five-hour boat ride to and from Port Bolivar from Houston, we saw all kinds of debris in Galveston Bay like pipes and propane tanks and even dead animals and then we pulled ashore to a community that no longer exists.

(BEGIN VIDEOTAPE)

CANDIOTTI (voice-over): Port Bolivar used to be a quiet seaside community until Ike came along. We approached by boat across Galveston Bay, a dead horse floating by, an ominous sign of the destruction ahead. Nearly every home in the beach town flattened by Ike's powerful storm surge. Stilts outline where homes washed into the sea. Cracked foundations layered in the sand. Other homes barely standing. Here a hat hanging in what was a window. The only sound [ beeping ]

A house alarm eerily wailing through deserted streets.

(On camera): And then when you look at a house like this when there is nothing left, you remember that national weather service bulletin that was issued just before hurricane Ike hit that said unless you leave low lying areas, you will "face certain death." I don't know how anyone could have survived this.

(Voice-over): Scattered around, cars submerged in water or stuck in mud. Some flipped over. And what didn't float away, a toilet, a bathtub, a lawn mower, a frightened dog scavenging for food. The aptly named Hurricane Club. These neighbors barely survived the storm. Humans and pets, traumatized in words of one, trapped because of stupidity.

UNIDENTIFIED MALE: Got up, the house was flooded. We went to the second level and stayed in the second level and all we had left after that was the attic.

CANDIOTTO: Was there a point when you thought you would die?

UNIDENTIFIED MALE: Yes.

UNIDENTIFIED FEMALE: When the water kept coming up.

CANDIOTTI: Jean Ready is convinced she lost a friend whose boyfriend says she was swept away.

UNIDENTIFIED FEMALE: The guy she was with, he said they were hanging onto the rafters and a big wave came and took her.

CANDIOTTI: Her friend hasn't been found. The handful who made it rescued by the coast guard from a town that may recover but can never be the same.

(END OF VIDEOTAPE)

CANDIOTTI: And among the 10 reported deaths in the state of Texas, three are said to be from Ft. Bolivar. We are not sure whether that woman who was said to have been swept away in the water was one of them. Wolf, back to you.

BLITZER: What a sad story, Susan, thanks so very much.

Our i-Reporters have been sending in hundreds of photos of the devastation in the aftermath caused by Hurricane Ike. Our internet reporter Abbi Tatton has been watching all of them. What are we seeing Abbi?

TATTON: Wolf, these are images from some communities where there's just nothing left. We're going to take you in via Google Earth here right into Galveston, actually to Bermuda Beach here. There's no barrier here, no seawall, and these photos are coming in from Carlos Ortega and he shows that the row of houses along the front, there's pretty much no trace of them. He says that his house was on the second row. He's now right there on the beach because so many houses have been destroyed. Those are the still standing strewn with debris. Carlos says that he evacuated to Houston and we can take you there as well to some of the neighborhoods. If we go further north here to Houston if we can just load that up. Communities like Memorial Villages in Houston, about 15 miles west of downtown and these pictures of the trees just strewn across the street making access very difficult. Rick Carr lives there, he says some of these trees just slice right through the buildings. He said the problem for him now, not so much the damage but he's got no power, he's got no water and that's what has driven some of these residents out to hotels. Officials say it could be seven to 10 days before power is restored.

BLITZER: There's a dawn to dusk curfew in Houston all week as well. I know you're continuing to go through these i-Reports for us, right?

TATTON: Sure, we'll be bringing more of them in the 6:00 hour.

BLITZER: Thank you Abbi. Abbi is watching this for you.

Oil, turmoil, wait until you hear what impact hurricane Ike and the financial hurricane on Wall Street are doing to oil prices. The price you pay at the pump it may surprise you.

Amid one of the most disturbing days in the history of America's financial markets, John McCain says the economy is fundamentally strong. He then clarifies what he meant. What do democrats think? I'll ask New York Senator Chuck Schumer. He sits on the banking committee. Stay with us. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: Lots more on that financial turmoil on Wall Street. The political spillover on the race for the White House, that's coming up. But let's check in with Carol Costello, she's monitoring some other important stories incoming to THE SITUATION ROOM right now. Carol, what's going on?

CAROL COSTELLO: Guess what Wolf, crude oil prices are now at a seven-month low. They dropped more than $5 a barrel today to close at $95.71 a barrel. Today's drop came amid reports that hurricane Ike did not do as much damage as was originally feared to the Gulf Coast energy infrastructure. Traders are also betting that Lehman Brothers bankruptcy could ignite a massive liquidation of commodities.

More trouble for Congressman Charles Rangel. A new set of potential problems has been found in the New York democrat's financial papers. And that's prompted him to hire an accounting expert to try to unravel the mess. Rangel heads the powerful House Ways and Means Committee. The House Ethics Committee is already investigating him for unreported income and unpaid taxes on his beach house. His lawyer says Rangel does not believe he's done anything intentionally wrong.

A new bridge will open Thursday in Minneapolis to replace the one that collapsed and killed 13 people last year. Officials gathered today on the replacement bridge over the Mississippi River to announce the end of construction. They also detailed plans for a permanent memorial to those killed and to the 145 people injured in the August 2007 disaster. And there is new evidence that many college students are not prepared academically. The group Strong American Schools has issued a report called diploma to nowhere. Says about one-third of college students in the United States have to take remedial classes before they're ready for college-level studies. The group says colleges and taxpayers are spending almost $3 billion each year on classes that students should have had in high school. Back to you, Wolf.

BLITZER: That's pretty disturbing. That's pretty worried.

COSTELLO: Depressing.

BLITZER: Oh, my God. That's unbelievable. All right Carol, thanks very much for that.

The Obama campaign has a new way of describing its rivals. It says the McCain campaign is using some of the dirtiest political tricks ever. Wait until you see the Obama campaign's new way of fighting back. We have details.

And John McCain's running mate is on a political first. We're seeing the Governor Sarah Palin do something she hasn't done much since becoming the vice presidential nominee, she's out there on her own without John McCain. Stay with us. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: To our viewers, you're in THE SITUATION ROOM. Happening now, the election gets closer, so the campaigns get tougher. And the negative ads intensify. Are you tuned in or just turned off?

We've all been warned not to do it, text messaging while driving. But is that what caused a train engineer to crash in California? 25 people are dead. Officials want to know if text messaging played a role. In Texas, many people who left their homes to save their lives are warned don't come back for now. We're following hurricane Ike's aftermath. Efforts to keep people safe and save anyone still in danger under way right now. I'm Wolf Blitzer. You're in THE SITUATION ROOM.

There's a pretty significant shift in CNN's Electoral College map. We're moving the state of Minnesota from a state considered leaning toward Barack Obama to a tossup. Both campaigns desperately want Minnesota's 10 electoral votes. Now there's speculation Minnesota is up for grabs after republicans held their convention in St. Paul. Meanwhile, the candidates campaign in each other's battlegrounds. Obama in Colorado, as did Sarah Palin, John McCain in Florida, Joe Biden in Michigan with about seven weeks until Election Day, both sides are frantically putting out their message while accusing the other side of dirty politics. CNN's Dana Bash is following Governor Palin. Let's start with Jim Acosta, he's in Grand Junction, Colorado. He's following the Obama camp. What happened today? Because I take it they're really ratcheting up the attacks and counterattacks.

JIM ACOSTA, CNN CORRESPONDENT: Wolf, Barack Obama is fighting fire with fire for weeks he has said he would like to see this campaign get back to the issues. Today, he got issue number one.

(BEGIN VIDEOTAPE)

ACOSTA (voice-over): His poll numbers singed by a barrage of republican attacks, Barack Obama reached for his flame thrower and turned it on some of the former lobbyists working for John McCain's campaign.

SEN. BARACK OBAMA, (D) PRESIDENTIAL CANDIDATE: If you think those lobbyists are working day and night for John McCain just to put themselves out of business, well, I've got a bridge to sell you up in Alaska.

ACOSTA: And with the financial markets reeling from the latest turmoil on Wall Street, Obama invested much of his time in slamming McCain on the economy.

OBAMA: And I certainly don't fault Senator John McCain for these problems, but I do fault the economic philosophy he subscribes to. This country cannot afford four more years of this failed philosophy.

(CHEERING AND APPLAUSE)

(BEGIN VIDEO CLIP, MCCAIN CAMPAIGN AD)

NARRATOR: Obama's one accomplishment?

(END VIDEO CLIP)

ACOSTA: Obama is coming off a tough week of absorbing another round of McCain scorched-earth TV ads, spots that were labeled misleading by political analysts on the left and right. So, the Illinois senator launched his own ad, accusing McCain of pedaling political sleaze.

(BEGIN VIDEO CLIP, OBAMA CAMPAIGN AD)

SEN. JOHN MCCAIN (R-AZ), PRESIDENTIAL NOMINEE: I will not take the low road to the highest office in this land.

NARRATOR: What's happened to John McCain? He's running the sleaziest ads ever, truly vile.

(END VIDEO CLIP)

ACOSTA: Aides to Senator Obama acknowledged they are sharpening their lines of attack on McCain.

SEN. JOSEPH BIDEN (D-DE), VICE PRESIDENTIAL NOMINEE: Folks, we have seen this movie before. And we know, the sequel is always worse than the original.

ACOSTA: Some of those lines coming from running mate Joe Biden in the economically hard-hit battleground of Michigan.

BIDEN: Just as George Herbert Walker Bush was nicknamed Bush 41, and his son was nicknamed Bush 43, John McCain could easily become known as Bush 44.

(CHEERING AND APPLAUSE)

(END VIDEOTAPE)

ACOSTA: And the pressure is on. The polls suggest that Obama is losing ground in swing states that were once leaning in his direction. For now, Barack Obama is betting that going negative is the change he needs -- Wolf.

BLITZER: Thanks very much, Jim Acosta, for that.

Let's go right to Dana Bash. She's watching what's happening with Governor Sarah Palin on this day, the second time she's actually been out on the campaign trail, outside of Alaska, Dana, by herself.

DANA BASH, CNN CONGRESSIONAL CORRESPONDENT: That's right.

We have actually been following Sarah Palin. And it's really her first campaign trip alone to battleground states. And in the two-and- a-half days that she has been in Nevada and then here in Colorado, she's held two rallies, and largely stuck to her central task. And, Wolf, that is ginning up enthusiasm in Republican strongholds, where there hadn't been a lot of excitement for John McCain.

(BEGIN VIDEOTAPE)

BASH (voice-over): Sarah Palin didn't hesitate to point fingers at a town run by a Republican president.

GOV. SARAH PALIN (R-AK), VICE PRESIDENTIAL NOMINEE: Our regulatory system is outdated and it needs a complete overhaul.

(CHEERING AND APPLAUSE)

PALIN: Washington has ignored this.

(CHEERING AND APPLAUSE)

PALIN: Washington has been asleep at the switch and ineffective.

BASH: A taste of the reform message McCain advisers call the key to winning, and the biggest bonus of adding a Washington outsider to the ticket, especially in the anti-establishment Mountain West, her first foray at campaigning alone.

PALIN: We have got a lot in common, these Western states.

(CHEERING AND APPLAUSE)

PALIN: You know, we hold together and we pull together.

BASH: Here, Palin added a few new lines to her stump speech, like what she would do in the White House.

PALIN: My mission is going to be energy security and government reform.

(CHEERING AND APPLAUSE)

BASH: And got a big response for a new swipe at Barack Obama.

PALIN: Our opponent wants to raise income taxes, and raise payroll taxes...

(AUDIENCE BOOING)

PALIN: ... and raise investment income taxes.

(AUDIENCE BOOING)

BASH: But independent groups say, that's not true. Most Americans would get a tax cut under Obama's plan. And Palin is still repeating another claim that doesn't tell the whole story.

PALIN: And that infamous bridge to nowhere, I did tell Congress, thanks, but no thanks.

BASH: The reality, she originally supported federal dollars for Alaska's infamous bridge. But McCain aides won't drop the line, because those stories are drawing these crowds, newly enthusiastic GOP voters, and even some conservative Democrats, like Gail Loftridge (ph).

UNIDENTIFIED FEMALE: And I have been (INAUDIBLE) And Palin just has reenergized (INAUDIBLE) to come to see what she has got to say.

BASH: And what she has to say is still carefully scripted with Teleprompter and her events tightly controlled. Even these homemade looking yellow signs were distributed by the campaign.

(END VIDEOTAPE)

BASH: Now, Palin spent almost as much, if not more, time signing autographs furiously from voters than she did actually speaking to them. And she stayed, Wolf, as far as away from those of us in the press corps traveling with her as possible.

She also hasn't taken Q&A with voters on the campaign trail yet, but that is going to change. We're told, on Wednesday, she's going to have her first town hall with John McCain by her side in Michigan.

BLITZER: It will be a joint town hall, I take it, not a solo town hall; is that right?

BASH: A joint town hall -- That's right -- with Sarah Palin and John McCain...

(CROSSTALK)

BASH: ... taking questions.

BLITZER: Are they saying when she will do it -- when she will take questions by herself, either have a news conference or a town hall meeting by herself?

BASH: Nope, not at all, not saying -- not saying a word about when -- or maybe if -- that is going to happen.

BLITZER: All right, seven weeks to go until the election, basically.

Dana, thanks very much.

With the race so tight, every -- every praise and putdown could make a difference. Today, Barack Obama had this to say about his rival's focus on the economy.

(BEGIN VIDEO CLIP)

OBAMA: It's not that I think John McCain doesn't care what's going on in the lives of most Americans. I just think he doesn't know.

(CHEERING AND APPLAUSE)

OBAMA: He doesn't -- he doesn't get what's happening between the mountain in Sedona where he lives and the corridors of power where he works. Why else would he say that we've made great progress economically under George Bush?

Why else would he say that the economy isn't something he understands as well as he should?

Why else would he say today, of all days, just a few hours ago -- think about this. We just woke up to news of financial disaster, and this morning he said that the fundamentals of the economy are still strong.

(AUDIENCE BOOING)

OBAMA: Senator McCain, what economy are you talking about? What's more fundamental than the ability to find a job that pays the bills and that can raise a family? What's more fundamental than knowing that your life savings is secure and that you can retire with dignity? What's more fundamental than knowing that you'll have a roof over your head at the end of the day? What's more fundamental than that?

(END VIDEO CLIP)

BLITZER: A big investment bank falls, stock prices take the biggest plunge in years, and the presidential campaigns are pointing fingers at one another. I will speak like with Senator and Banking Committee Member Chuck Schumer, and we will talk about if Democrats should share in some of the blame.

And a new Obama campaign ad blasts John McCain's political commercials in the harshest in terms. They're now using words in that ad such as vile, smear, and sleaziest.

Stand by for Paul Begala and Leslie Sanchez. They're coming up in our "Strategy Session."

And search-and-rescue amid the hurricane rubble -- the U.S. military's role in the mission to pick up the pieces after Ike -- a busy news day right here in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: On Wall Street, today, we're seeing the worst drop in the Dow in more than seven years, almost 500 points. What a collapse, and couple that with the financial nightmare that caused the bankruptcy of Lehman Brothers and the takeover of Merrill Lynch.

So, today, John McCain couldn't avoid addressing this crisis. Democrats are certainly criticizing what he had to say.

Listen to Senator McCain.

(BEGIN VIDEO CLIP)

MCCAIN: You know that there's been tremendous turmoil in our financial markets and Wall Street. And it is -- it's -- people are frightened by these events.

Our economy, I think, still, the fundamentals are -- of our economy are strong, but these are very, very difficult times. And I promise you, we will never put America in this position again. We will clean up Wall Street.

(CHEERING AND APPLAUSE)

MCCAIN: We will reform government. And this is a failure.

(CHEERING AND APPLAUSE)

MCCAIN: We have got to take every action to build an environment of robust energy supplies, lower inflation, controlled health care costs, access to international markets, low taxes, and reduced burden of government to allow people to move forward toward a future of prosperity.

The McCain/Palin administration will replace the outdated patchwork quilt of regulatory oversight and bring transparency and accountability to Wall Street. We will bring transparency and accountability. And we will reform the regulatory bodies of government.

(CHEERING AND APPLAUSE)

(END VIDEO CLIP)

BLITZER: Let's talk to Democratic Senator Chuck Schumer right now. He's a member of the Senate Banking Committee, a strong supporter of Barack Obama.

Senator Schumer, thanks very much for joining us.

SEN. CHARLES SCHUMER (D), NEW YORK: Good afternoon, Wolf.

BLITZER: Do you agree with Senator McCain and the New York City mayor, Michael Bloomberg, that the fundamentals of the U.S. economy right now remain strong?

SCHUMER: No, I think it shows you how out of touch John McCain is.

Let me give you one statistic. The average family at median income in 2001 made $48,000. They now make $46,000. And, in buying power, they're down to $41,000 or $42,000. So, while, overall, the economy has grown, it hasn't gone down to the middle class.

And, when John McCain says the economy is strong, he may be talking to some people who are very prosperous and doing very well. He's not talking to average folks. I think Joe Biden said it pretty well. He was somewhere else in Michigan. He said, I will walk all the way to Lansing. You won't find me one person who says the economy is strong.

BLITZER: Well, he's -- he's also clarified later in the day the point to say, the American workers, the American creativity, all of that remains fundamentally strong. And that's what he was suggesting, that the underlying -- of the underlying talent of the American people is strong.

SCHUMER: Well, that's not what he said.

BLITZER: Well, he later -- he later clarified it.

SCHUMER: Well, OK, after his advisers said, hey, the economy's not so strong. We had better clarify. Of course everyone thinks American workers are great.

But we have had seven years of mismanagement. And here's the question you have to ask John McCain or Governor Palin. Name one significant way that you are different than George Bush on fundamental economy, on taxes, on health care, on education, on energy. It's all more of the same. So...

BLITZER: The biggest point they point to is that he would do -- he would veto...

SCHUMER: He would get rid of earmarks.

BLITZER: ... all the earmarks, the pork barrel spending...

SCHUMER: OK.

BLITZER: ... and he would cut spending dramatically, something that President Bush has not done over these past almost eight years.

SCHUMER: Well, earmarks are about 1 percent of the budget. And they're not at the fundamentals of what's wrong.

You can say you want to eliminate earmarks. You won't change a darn thing for the middle-class person. And that's the problem with John McCain. He doesn't understand the economy. He doesn't understand how to change it. He doesn't understand how to redirect it, so that great worker that he refers to actually benefits, his policies, on taxes, energy, education, and health care. Those are the big four when it comes to an economy, and he has the same policies as George Bush.

BLITZER: I -- I want you to listen to one of his senior advisers, Carly Fiorina, former chairman of Hewlett-Packard. I spoke with her earlier today. And she says you and your fellow Democrats are to blame for this current mess, in part.

But listen to this, how she explains that.

(BEGIN VIDEO CLIP)

CARLY FIORINA, VICTORY CHAIR, REPUBLICAN NATIONAL COMMITTEE: The Democratic-controlled Congress, who have a great deal of say over what happens with Fannie and Freddie, let that situation get out of control.

(END VIDEO CLIP)

BLITZER: She makes the points, as other Republicans do, that the Democrats have been in charge of both houses of Congress for the last two years, and you were asleep at the switch, they say. You didn't do your oversight of Fannie Mae and Freddie Mac and these other securities firms.

SCHUMER: Well, first of all, most of the problems that happened occurred starting far before two years ago, in terms of Fannie and Freddie. All the fundamentals, all the outlandish things that they did, in terms of capital, and in terms of other things, were under the Bush administration.

And that's the second point. Fannie and Freddie, the SEC, the CFTC, the Federal Reserve are all creatures of George Bush. So, if Carly Fiorina is not happy with what happened with the economy, the number-one person to blame is George Bush. And the candidate she is supporting simply wants to continue Bush's policy on 95, 98 percent of big fundamental economic issues.

BLITZER: Senator Schumer, thanks for coming in.

SCHUMER: Thank you.

BLITZER: And our interview with Carly Fiorina is coming up a little bit later here in THE SITUATION ROOM.

Barack Obama lays out what the election is really about. Forget the candidates or talk of lipstick or celebrity. Obama says it's really all about you. But, with all the negative ads out there from both sides, how can voters really focus on the issues?

And, with Wall Street in meltdown, who is really to blame? Analysts say some key warning signs were there all along. Stay with us. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: Let's get right to our "Strategy Session."

Joining us, our CNN political contributor Paul Begala. He's a Democratic strategist. More importantly, he's the author of a brand- new book entitled "Third Term: Why George W. Bush Hearts John McCain." We spoke about it last week.

(LAUGHTER)

BLITZER: Also joining us, Republican strategist Leslie Sanchez. She's a CNN political contributor. Unfortunately, she has no book she's pushing right now.

LESLIE SANCHEZ, CNN POLITICAL CONTRIBUTOR: Not today.

(CROSSTALK)

BLITZER: But we're hoping, Leslie, that book will be coming out soon.

SANCHEZ: Right. Thank you.

(CROSSTALK)

SANCHEZ: Thank you very much, Paul.

BLITZER: All right. Well, as soon as that book comes out, we will be talking about that.

(LAUGHTER)

BLITZER: Let's -- let's play a new McCain ad that's just come out, and then we will discuss. Here's a little clip of it.

(BEGIN VIDEO CLIP, MCCAIN CAMPAIGN AD)

NARRATOR: Our economy in crisis. Only proven reformers John McCain and Sarah Palin can fix it, tougher rules on Wall Street to protect your life savings, no special-interest giveaways, lower taxes to create new jobs.

(END VIDEO CLIP)

BLITZER: All right. You get the point. John McCain and Sarah Palin they can turn the economy around better than Barack Obama and Joe Biden.

PAUL BEGALA, CNN POLITICAL ANALYST: Yes, this is what we in the Catholic Church call chutzpah. It's astonishing.

If you go -- and not to sell a book too hard, but I did the research for this, page 62-64 in this book. You see Phil Gramm, then the chairman of the Senate Banking Committee, wrote a bill called the Commodities Futures Modernization Act. He slipped a bill into a must- pass spending bill 10 days before Christmas, right at the end of the recount in Bush vs. Gore. Nobody really noticed. He slipped it in.

It deregulated Wall Street and allowed them to create what Warren Buffett called financial weapons of mass destruction. Phil Gramm today is both a lobbyist for UBS, a big bank based in Germany, and the senior economic adviser to John McCain.

BLITZER: The former senior -- the former senior...

SANCHEZ: No, former...

(CROSSTALK)

BEGALA: No, former campaign chair. He still -- McCain still says he's the smartest economist he knows, and he's still advising him.

BLITZER: I don't know if he's still saying that, after the whining -- America is a nation of whiners.

BEGALA: Right.

(CROSSTALK)

BLITZER: He was sort of formally dumped from the campaign.

(CROSSTALK)

BEGALA: But this crisis came about for a reason. Because Republican policies of deregulation were passed by McCain's best friend in the Senate. When Gramm ran for president, McCain endorsed him.

BLITZER: Right. All right.

Let's Leslie talk about...

(CROSSTALK)

SANCHEZ: I don't think -- you know, there's enough mud on everybody's boots. I mean, we just heard Senator Schumer talking about this, you know, denouncing Freddie and Fannie, Freddie Mac, Fannie Mae. The Democrats are up to their elbows in what's gone wrong there.

Look at Franklin Raines and all the connections in terms of the Democratic connections there.

BLITZER: He was a former head of Fannie Mae. And he's a former White House chief of staff during the Clinton administration.

(CROSSTALK)

SANCHEZ: Exactly. BEGALA: Budget director.

BLITZER: Yes, budget director.

(CROSSTALK)

SANCHEZ: I think the tactical things that the Democrats want to do...

(CROSSTALK)

BLITZER: Deputy chief of staff?

SANCHEZ: OK. We're moving -- we're moving...

BLITZER: Yes, go ahead.

(LAUGHTER)

BLITZER: The tactical thing that he wants to do is try to say that the Republicans are deficient here.

And I think what McCain has done is a very strong ad, going back to the ad he's talking about we have got an American economy in crisis. He wants to be responsive. It's very Teddy Roosevelt in its nature, in the sense that he wants to take on the abuses in the system, the greed, and fundamentally -- fundamentally protect the middle class.

BLITZER: All right, let's do a new Obama ad today, because it's getting tougher out there. Listen to this.

(BEGIN VIDEO CLIP, OBAMA CAMPAIGN AD)

NARRATOR: Truth be damned, a disgraceful dishonorable campaign,. After voting with Bush 90 percent of the time, proposing the same disastrous economic policies, it seems deception is all he has left.

(END VIDEO CLIP)

BLITZER: All right. It's probably going to get even uglier out there, because some of those involved in the 2004 Swift Boat campaign against John Kerry are coming back with a new set of ads against Barack Obama.

SANCHEZ: You know, I think, fundamentally, this can backfire. Because these are different types of candidates, I think coming out of the convention, the political dynamic has changed completely.

People are -- and, you know, for the people that are polarized, they're going to feed into these small attacks on Sarah Palin, these nuances that come out.

But I think, psychologically, that 80 million people that didn't vote that are now looking to November are starting to say, you know what? We want someone who is positive, who wants to take on Washington, to be a true reformer, and that the McCain/Palin tickets fits better.

BLITZER: You know, it's interesting. It's interesting, Paul. John McCain keeps saying, if Senator Obama would have accepted his invitations to 10 town hall meetings over these past several months, since both of them wrapped up their nominations, this level of ugliness would have never developed, because they would have gone out, spoken around the country together, and it would had never have come down to this.

BEGALA: So, John McCain wouldn't be lying if Barack had gone to some town hall meetings. It's a preposterous argument. It's ridiculous.

When -- when John McCain, who, as a Naval officer, embodied the word honor, now, as a politician, embodies dishonor with these lies -- Karl Rove, who's a pretty famous guy and not exactly known for high ethical standards, Karl Rove yesterday said he thinks McCain has gone too far.

When Karl Rove thinks you're too sleazy, that's like Dennis Rodman saying, gee, that guy's a little too weird for me.

BLITZER: Well, he says the Obama campaign has gone too far, too. But go ahead.

(CROSSTALK)

BEGALA: But he's Karl Rove. Of course he's going to hate Obama.

(CROSSTALK)

SANCHEZ: I love now that the Democrats are giving Karl Rove credibility. Before, he really didn't have much.

(CROSSTALK)

BEGALA: He runs sleazy very campaigns, but if this is too much for him...

SANCHEZ: These sleazy campaigns, the Democrats, it's the only tactic they know. They're crying foul, as opposed to talking about ideas.

(CROSSTALK)

BLITZER: We have got to leave it there, but we will be talking over the next 50 days. Guys, thanks very much.

(CROSSTALK)

BLITZER: Wall Street giants are dropping right now. Should officials in Washington have seen this crisis coming, and done something about it, at least something? Brian Todd is working that story.

And there's new evidence that Sarah Palin is a polarizing figure among some women, the voters she's supposed to be trying to attract. We have got some numbers to share with you.

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

(COMMERCIAL BREAK)

BLITZER: On our "Political Ticker" today: Colin Powell's presidential choice. The former secretary of state says he hasn't chosen between Barack Obama and John McCain yet. He was asked how the rest of the world would react to an African-American being elected president of the United States while taping a CNN forum just a short while ago.

Listen to this.

(BEGIN VIDEO CLIP)

COLIN POWELL, FORMER U.S. SECRETARY OF STATE: ... be electrifying. But, at the same time, we have to make a judgment here within our country as to which of the candidates brings the right measure of experience and judgment to the task and which would be best for America.

I have been watching both of these individuals. I know them both extremely well. And I have not decided who I'm going to vote for yet. And I'm anxious to see what the debates are going to be like, because we have got to get off this lipstick-on-a-pig stuff and get into issues.

(APPLAUSE)

(END VIDEO CLIP)

BLITZER: And you will hear a lot more from Colin Powell on a CNN special, "The Next President: A World of Challenges." It airs Saturday night at 9:00 p.m. Eastern, again Sunday at 2:00 p.m. Eastern, only here on CNN.

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

JACK CAFFERTY, CNN ANCHOR: The question this hour, Wolf, is, which women -- which woman, rather, has more credibility with the average American, Sarah Palin or Hillary Clinton?

Michelle writes from Florida: "You can't compare Sarah Palin to Hillary Clinton. Hillary has a clear record of accomplishment, a long and clear record. Palin has a bridge to nowhere and an investigation into her ethics."

Robert writes: "Hillary is the same tired feminist diatribe that we've always heard from Washington. Palin is something new. And she has messages from a female perspective that feminists have been telling us were nonexistent. Amazingly, we are seeing women back Palin in numbers that we've never seen behind another female candidate."

Aric writes from California writes: "Kind of a silly question." There's a mike open in Washington, D.C., I believe."

"Kind of a silly question. We will know the reasons McCain chose Palin were merely anatomical and political. Hillary Clinton was not running for president because she was a woman. She was running for president because she, and many voters, felt she was qualified. No matter how many speeches the McCain camp carefully scripts for Governor Palin, she is merely a sign of how out of touch McCain really is, if he thinks he can win this election by pandering to the female vote."

Amy writes -- there's still a mike open in Washington, I think.

Amy writes: "I think the true question would be which one can you trust. I vote Sarah Palin."

Bobby writes: "If you take any of the four candidates to the small Oklahoma town I grew up in, walk them into the coffee shop where the locals convene to discuss the news of the day, Governor Palin wins hands down. She is comes to the office with a real background, as a real person, real-world and grassroots experiences. She is a true life 'Mr. Smith Goes to Washington.'"

And Terry writes Butte, Montana: "This is a no-brainer. Hillary fought for us for many years on the national level. Palin can see Russia from her house. It is like comparing a Major League Hall of Famer to a little league relief pitcher."

If you didn't see your e-mail here, you can go to my blog at CNN.com/caffertyfile, and look for yours there, among hundreds of others -- Wolf.

BLITZER: All right, Jack, see you in a few moments.