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THE SITUATION ROOM

AIG in Danger of Collapsing; Interview With Mitt Romney

Aired September 16, 2008 - 17:00   ET

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


WOLF BLITZER, HOST: To our viewers, you're in THE SITUATION ROOM Happening now, another corporate giant in danger of collapsing. That would be America's largest insurance company, AIG. And if that happens, the fallout for all of us could be worse than anything we've been seeing, at least so far.
Also, supporters of Sarah Palin take some dramatic action, suing to stop a controversial investigation that's been dogging her and the McCain campaign.

And former Republican presidential candidate Mitt Romney, he's here live, defending John McCain from Democrats who are hammering him over the economy.

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

A sigh of relief on Wall Street as stocks regain some of yesterday's massive losses. But it could only be a temporary reprieve. Right now the largest insurance company in America, one of the largest, indeed, in the world, AIG, is in a mad scramble for huge amounts of cash and facing possible collapse if it comes up short. And the financial pain from that failure would be widespread and deep.

As investors kept one eye on AIG, they cautiously began buying some stocks again sending the Dow Jones up more than 140 points following yesterday's 500-point loss. CNN's Mary Snow is following all of this for us.

What a dramatic day, Mary. Let's get right to the latest. What's going on?

MARY SNOW, CNN CORRESPONDENT: Wolf, stocks rallied late this afternoon on hopes that AIG might be rescued. But the day was very rocky as Wall Street looked for direction from the Federal Reserve and it braced for the outcome of the latest crisis it faces.

(BEGIN VIDEOTAPE)

SNOW (voice over): At the center of the drama on Wall Street, the fate of American International Group, AIG. The world's largest insurance company is frantically trying to raise enough cash to stave off bankruptcy. This on the heels of the collapse of investment bank Lehman Brothers. Many on Wall Street warned a failure of AIG would be far worse and hope the government would provide some sort of life raft.

BOB LENZNER, NAT'L. EDITOR, FORBES: AIG has got transactions all over the world with banks, investment banks, insurance companies, hedge funds and multinational companies. They can't afford to let it go bankrupt.

SNOW: AIG has businesses in some 130 countries that span from insurance on mortgages, cars, life insurance, to airplane leasing. A blow to them would trigger widespread ripple effects. Adding to the crisis, three credit agencies downgraded AIG;s credit rating, making it tougher to borrow money.

PROF. PETER MORICI, UNIV. OF MARYLAND: If AIG fails because it has inadequate money to back up all the foreclosures that are taking place, then it creates problems for the big banks in New York. They don't have enough money.

SNOW: If banks stop lending, that spells trouble far beyond Wall Street.

LAKSHMAN ACHUTHAN, ECONOMIC CYCLE RESEARCH INST.: What this means for you and me, the man and woman on the street, is that our access to credit for home mortgages, for cars, even just for credit cards gets a lot tighter than normal.

SNOW: As worries mounted, the Federal Reserve decided not to cut interest rates. It said strains in financial markets have increased significantly and noted worries about inflation as a reason why it left interest rates unchanged.

ALAN BLINDER, FMR. FED. RESERVE VICE CHMN.: A lot of people thinking the Fed would cut interest rates. I think if the stock market and the other markets had really been disastrous today, maybe they would have. (END VIDEOTAPE)

SNOW: And, Wolf, some say the Federal Reserve's decision not to cut interest rates today may have calmed some fears about a worsening financial crisis by sending the signal that the Federal Reserve didn't feel that more economic stimulus was necessary right now -- Wolf. BLITZER: If there's a rescue, you say there's some hope AIG might get a rescue, what exactly does Wall Street want, the market out there? What would they like to see? A bailout from the federal government? Not necessarily a bailout? SNOW: Right. Not necessarily a bailout. A lot of people are talking about the possibility of what they would like to see is perhaps a bridge loan. Because AIG has to raise as much as $75 billion. What some people have been talking about today is that they're hoping that a way can be worked out for a loan to get AIG through this. And perhaps have them sell some assets to pay back lenders for a loan.

BLITZER: All right, Mary. You heard the governor of New York, David Paterson, here in the last hour. He made the case that AIG must survive, that there's simply too many ramifications for American consumers if this insurance giant were to go down. We'll follow this story together with you. Thank you, Mary. > Allies of Republican vice presidential nominee Sarah Palin are ratcheting up their criticism of a legislative probe into alleged improprieties in her firing of Alaska's public service commissioner -- public security commissioner, that is.

Just a short time ago, in Anchorage, some Republican state lawmakers filed suit to block the investigation and the McCain campaign is calling it, I'm quoting now, "tainted and partisan". Jessica Yellin is on the scene for us in Anchorage, Alaska, watching this story. More drama unfolding. What's the latest, Jessica?

JESSICA YELLIN, CNN CORRESPONDENT: Wolf, the latest is that five Republican lawmakers have filed suit to essentially get this inquiry disbanded. They say that some of the Democrats on the panel have, quote, "prejudged the outcome."

I spoke to the lawyer who's representing them. He's based in Texas with the Liberty Legal Institute. And the lawyer says that a case in point is one of the lead Democrats on the panel speaking to the press earlier this month said, that he thinks, quote, "This inquiry is likely to be damaging to the governor's administration" and that the campaign may have to deal with, quote, "an October surprise."

Well, the McCain campaign has also been pushing back on their own track separate from this lawsuit, holding now a daily press conference berating the members of this inquiry panel for holding a partisan circus. And one of the former press secretaries for the governor had this statement to make before cameras yesterday.

(BEGIN VIDEO CLIP)

MEG STAPLETON, MCCAIN/PALIN SPOKESWOMAN: Having spoken to the governor as recently as yesterday, I can personally tell you Governor Palin is an open book. And has absolutely nothing to hide. This governor is transparent and honest, and I cannot emphasize that enough.

(END VIDEO CLIP)

SNOW: Now, Wolf, that said, the governor had originally agreed to cooperate with this panel, said there would be no problem, no need to subpoena anyone. Now she won't cooperate. The big change? She's now on the national ticket -- Wolf?

BLITZER: I noticed your pink BlackBerry over there. Is that a pink BlackBerry? Can we see that, Jessica? There it is. Very adorable. We learned today one of these presidential candidates, from an adviser, actually invented the BlackBerry. We'll tell our viewers who that is. That's coming up later. The pink BlackBerry that Jessica Yellin has in Alaska, right?

YELLIN: I can always find it in my purse. Very useful.

BLITZER: All right, we'll tell our viewers what's going on.

A quick question before we get to the BlackBerry invention and all of that, Jessica. What are Alaska Democrats saying about these most recent developments?

YELLIN: Democrats say Sarah Palin and the state had no issue with this panel when it was originally formed earlier this summer. It was a unanimous vote by both Democrats and Republicans to proceed with this inquiry. So, they're scratching their heads saying how can this suddenly be partisan? They're calling this absurd and accuse the Republicans of making it a partisan issue, trying to drag it out, so it doesn't come out before the election in November. This drama will continue, Wolf. >

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

CAFFERTY: Simple enough. It's suddenly partisan because it's suddenly inconvenient to John McCain.

Race, arguably the biggest issue in this election. And it's the one that nobody's talking about much. The differences between Barack Obama and John McCain could not be more well defined.

Obama, relatively new on the scene, wants to change a lot of things in Washington. John McCain's been there a long time. He is Washington. And very much a part of the George Bush legacy. And yet the polls are very close, which doesn't make a lot of sense, unless it's race.

"Time" magazine's Michael Grunwald says race is the elephant in the room. He says Barack Obama needs to tread lightly as he fights back against the McCain/Palin campaign attacks. Quoting now, "Over the past 18 months Barack Obama has been attacked as a naive novice, an empty suit, tax and spend liberal and arugula grazing elitist and corrupt ward healer. The only attacks that clearly stung him involved the Reverend Jeremiah Wright. Attacks that portrayed him, Obama, as an angry black man under the influence of an even angrier black man.

"The angry black man," Grunwald, goes on to say," doesn't have broad appeal in white America. Even though the make up of our population is changing whites are still the majority in this country. How ironic that the giant step forward of nominating an African- American for president may ultimately keep us mired in the past."

Here's the question: Will Barack Obama's race cost him the White House? Go to cnn.com/caffertyfile. You can post a comment on my blog - Wolf.

BLITZER: Jack, thanks for that sensitive, sensitive stuff.

Some of the stories we're working on, right now, here in THE SITUATION ROOM. The Democratic candidates are both slamming John McCain on the economy. His former rival, Mitt Romney, he's here live to defend him. >

And later, James Carville will weigh in on what's going on as well. > Plus, both presidential candidates say they have the cure for our ailing health care system. Now a surprising independent fact check. We'll update you. >

We're also standing by for a town hall meeting with Democratic vice presidential nominee, Joe Biden. We'll go there live once he speaks in Pennsylvania. Lots of news happening right here in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: Barack Obama and his running mate Joe Biden continue to hammer hard against John McCain when it comes to the issue number one, that would be the economy. Let's get the Republican response. The former Republican presidential candidate, former governor of Massachusetts, Mitt Romney is here in THE SITUATION ROOM.

Governor, thanks for coming in.

MITT ROMNEY, (R) FMR. MASS. GOVERNOR: Thanks, Wolf.

BLITZER: It's hard to believe what's going on in the economy right now. You've been involved in the business sector almost your whole life before you got into politics. Lehman Brothers going down, can you believe this?

ROMNEY: Yes, it's the bubble's bust and they always bust. And the housing market go way too overheated, with very low interest rates. And then mortgages handed out like they were candy. Housing prices got up and up and up. Speculators moved in. And that's finally now readjusting, it's doing so with a lot of pain for a lot of people.

BLITZER: The Democrats say, you know what, this is under Bush's watch the last eight years. They pushed through all this deregulation and now we're paying a price.

ROMNEY: There's no deregulation that related to this sub prime mortgage crisis. No one was crying that we shouldn't put out the kind of mortgages that were out there. Democrats and Republicans both crowing about more people getting homes, Congress didn't pass a bill saying tighter regulation.

BLITZER: With hindsight, though, the president, he's in charge, the secretary of the Treasury, they should have been paying more attention to what's going on.

ROMNEY: There's so much blame that could be assessed that you'd say, look, Wall Street made mistakes. The S&P, the people that over see the ratings agencies made mistakes, Congress made mistakes. They have oversight committees to look at these various areas. Also in the administration there is something call the OFEHO, the Office of Federal Enterprise Housing Oversight. They weren't doing their job. A lot of people made mistakes. But at this stage, the question is: What's the right thing to strength the economy? John McCain has the answer, Barack Obama doesn't. BLITZER: Obama today is ridiculing John McCain for saying this morning there should be another commission, 9/11-type commission to study what happened. He makes the point, a pretty accurate point, I must say, whenever there's a problem in Washington, the first thing they do is create a commission, sort of to kick the issue down the road. Is this time for a commission or is it time, as Obama says, for action to fix this and make sure it never happens again. ROMNEY: Of course we're going to have to study the regulatory structure on Wall Street to make sure these kinds of bubbles are identified before they become of a crisis proportion. That's going to take study.

But the immediate action that has to be taken is to keep taxes down to allow our trade with other nations to continue, and to get ourselves off of our dependence on foreign oil by drilling for more oil, using nuclear, and also using coal. On those issues Barack Obama's going to have to reverse course.

He can't raise taxes now. He can't add more spending programs. He can't cut off trade. And he just can't say that we're not going to be able to use nuclear and offshore drills.

BLITZER: On the taxes, what he says he wants to do is bring the levels that existed during the Bill Clinton administration and throughout the '90s, the economy was doing just fine.

ROMNEY: Is there anybody out there that thinks raising taxes would help the economy right now? I don't think so. I think everybody recognizes, even Barack Obama has said, he can't put in place tax increases until the economy gets stronger. That's a pretty clear indication even he recognizes that raising taxes right now would not help the economy. It would hurt it.

During the time of Bill Clinton, those were great times. We were over the Cold War. We thought history had ended. But it hasn't. And there are tough times out there.

BLITZER: He is also hammering away on comments he made yesterday, John McCain. Barack Obama saying when he speaks, John McCain, of the fundamentals of the U.S. economy being strong he thinks he's out of touch with what's going on for average folks out there. Listen to Senator Obama today speaking about what happened yesterday with Senator McCain's comments.

(BEGIN VIDEO CLIP) SEN. BARACK OBAMA, (D) PRESIDENTIAL CANDIDATE: He tried to explain himself again this morning by saying that what he meant to say was that the American workers are strong. But we know that Senator McCain meant what he said the first time, because he has said it over and over again throughout this campaign. (END VIDEO CLIP)

BLITZER: All right, you want to respond? Because he says there are at least 16 times over the past several weeks and months when John McCain spoke about the fundamentals of the economy being strong. But really never directly referring to the fundamentals being the American workers, which is what he's now talking about, the American workers are very good.

ROMNEY: Look, I campaigned with John McCain -- against John McCain.

BLITZER: On this issue of the economy. ROMNEY: On the issue of the economy. With regards to the fundamentals of America's economy, what he's referring to is the innovative capacity of America, ability of American workers and productivity levels we have in this country, those fundamental elements.

But John McCain's been saying for a long time the economy is in real trouble. People are hurting. We're going to have to make an enormous effort to stop the slide of our economy and to rebuild it.

The key thing Barack Obama is going to have to do is stop trying to find a gotcha on John McCain and explain how it is he can continue to be for a tax increase, how he can be for restricting trade and how he can be for drawing a line saying no nuclear, no offshore drilling?

That's what he's going to have to abandon. And by the way he can't add new programs right now. New service projects, new health care spending. This would be the worst thing for the economy.

BLITZER: He says also the only new taxes would be on people making more than $250,000 a year. But listen to Joe Biden, because he weighed in on this same issue also today. Listen to this.

(BEGIN VIDEO CLIP)

SEN. JOE BIDEN, (D) VICE PRESIDENTIAL CANDIDATE: The middle class is dying. John talks about the strength of the American worker. The American worker has been left out in the cold. Look what's happened. We accumulated a trillion dollar debt to foreign governments. We're paying the highest price we've ever paid for oil because we have no energy policy. We have the highest unemployment rate in five years. We're in a situation where middle class people are struggling. They're hanging on. What are they doing for them? Zero. (END VIDEO CLIP)

BLITZER: All right, they're not letting up, the Democrats as you can see.

ROMNEY: What's humorous in listening to Joe Biden is that he's been there forever. He's been in Washington.

BLITZER: So has Senator McCain.

They've both been there. John McCain has been arguing for an energy policy that makes sense. Joe Biden hasn't been. And right now you can look at what their prescriptions are for the economy. John McCain has said we're going to give a tax cut to middle income Americans. We're going to hold taxes down for all Americans. We're going to keep our corporate tax down so we can bring companies into this country and grow more jobs. And we're going to develop our energy resources. Barack Obama and Joe Biden, their plan is to do just the opposite. That's not going to help.

BLITZER: Governor Romney, thanks for coming in.

ROMNEY: Thank you. BLITZER: Good to have you here in THE SITUATION ROOM.> ROMNEY: Good to be back, Wolf.

BLITZER: More than 1 million people still without power. Now President Bush gets a firsthand look at the devastation in Texas from Hurricane Ike.

Plus, Democratic vice presidential nominee Joe Biden about to hold a town hall meeting near Philadelphia. It's the battleground state of Pennsylvania. We're standing by. We'll go there live, we'll check in to see what Senator Biden is saying. Stay with us. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: There's a story involving Lehman Brothers that's just developing now, just coming in.

Carol Costello, what are we learning? CAROL COSTELLO, CNN CORRESPONDENT: We have just confirmed it, Wolf. The British bank Barclays has reached an agreement to buy a least part of Lehman Brothers. And that is a good thing, because as you know, Lehman was in danger of going under, of disappearing, really. But it's been trying to sell off parts of itself. Barclays, the third largest bank in the UK has agreed to buy Lehman Brothers. 8,000 employees will be able to keep jobs as a result of this. We're still continuing to get this information in, Wolf. When we get more, of course, we'll pass it along. >

In other news tonight, this time-lapse video gives you an idea of the beating coastal Texas took from Hurricane Ike. Thousands of people are still in shelters and 1.5 million customers are without power. President Bush toured the hardest hit areas today and promised the government will work as fast as it can to aid recovery. Officials want residents to leave most of the devastated areas like Bolivar Peninsula and Galveston, of course. > General Ray Odierno is now in command of U.S. forces in Iraq. He takes over for David Petraeus, who is credited with halting Iraq's slide into all-out civil war. Odierno says he's encouraged by the progress in Iraq, but stresses it is in a fragile state and much more needs to be done.

Those are the headlines, right now, Wolf.

BLITZER: Thanks very much. Wish General Odierno a lot of success in his new command in Iraq. Thanks very much, Carol.

A new front in the battle for the White House. The Obama and McCain campaigns now have dueling ads out there on the economy. We'll assess. >

James Carville and Leslie Sanchez, they're standing by live. >

And whose health care plan would actually do more for the uninsured? We have a fact check for you. Christine Romans has that. Plus, Joe Biden is standing by live out on the campaign trail. In his own words, raw and unfiltered, once he starts talking, we'll check in with Joe Biden right here in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: To our viewers, you're in THE SITUATION ROOM. Happening now, the candidates and the economy. As the Obama campaign lashes out at John McCain over the latest financial crisis, he's hitting back with a new ad. Our political contributors James Carville and Leslie Sanchez are standing by live to talk about that and more. >

Also, Joe Biden heating up the Democratic vice presidential nominee is sharpening his attacks on the McCain/Palin ticket. He'll be taking the stage at the rally outside Philadelphia any minute. We'll go there live to hear what he has to say. >

And health care crisis. Both candidates say they have a plan for a major overhaul. But does their rhetoric match the reality?

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

Once again we're standing by for a town hall meeting. The vice presidential nominee on the Democratic side, Senator Joe Biden, there you see it, getting ready to speak. We'll go to Media, Pennsylvania, when that happens. Pennsylvania being one of those key battleground states. >

After getting hit hard by Democrats on the economy for the last 24 hours, the McCain campaign is fighting back with a new ad. Let's weigh what's going on with our CNN political contributors. The Democratic strategist, James Carville, and the Republican strategist, Leslie Sanchez, they are both here to discuss.

Guys, thanks very much for coming in.

LESLIE SANCHEZ, CNN POLITICAL CONTRIBUTOR: Thanks, Wolf.

BLITZER: We got a new ad from Obama today. We got a new ad from McCain today. Let's do the Obama ad first, and then we'll talk about it. Here's a little bit of what Obama put out today slamming John McCain when he says the fundamentals of the economy are strong. Listen to this. (BEGIN VIDEO CLIP)

MCCAIN: Our economy, I think, still, the fundamentals of our economy are strong. The fundamentals of our economy are strong.

The fundamentals of our economy are strong. (END VIDEO CLIP)

BLITZER: James, it looks like he's been listening to you and Paul Begala. I said this earlier. You have been anxious for him and his campaign to take the offensive and put John McCain on the defensive. It looks like they've succeeded, at least over the past day or so. JAMES CARVILLE, CNN POLITICAL STRATEGIST: I think that September the 15th will be the day that John McCain's chances for the presidency pretty much evaporated. Barring some big gaffe by Obama this race is essentially over. This is like the 16th time he's defended this economy has being fundamentally strong. He said before he didn't know much about the economy.

And the Obama people are never going to let a day, probably an hour go by without mentioning this. It offers a very vivid contrast between -- you know, it's strong if you don't think the stock market is part of the economy, or personal income growth is part of the economy, or energy prices, or health care costs, or the budget deficit, or anything else is part of the company. If you have nine houses and 164 lobbyists working for you it's understandable why you would think the economy is strong.

BLITZER: I heard about seven or eight lobbyists. I didn't know about 164.

CARVILLE: I think that's how many he has working on his campaign. I think I can verify that.

BLITZER: OK. Stand by. Let Leslie way in on this because it's a very effective tool the democrats have been given.

LESLIE SANCHEZ, REPUBLICAN STRATEGIST: I don't know by whose measure. I think we should cue up that tape that this race is essentially over. I think there's about 9 percent, 10 percent of the voters looking at these two candidates. It's going to be a very polarized election like 2000 and 2004, they're trying to figure out who's going to be the best steward of this economy and have yet to buy into the rhetoric and oratory of Barack Obama to think he's the best person there. What you have is John McCain saying in the height of this national economic crisis trying to lay out a plan and Senator Barack Obama trying to lay out blame. And his oratory, like we talk about, doesn't explain how a tax hike on working families and small businesses is going to help this economy. You can put all the spin and all the armor you want. That's fundamentally what it's coming down to.

BLITZER: All right. James, that was a pretty strong prediction you just made, September 15th will go down as the day this race basically ended.

CARVILLE: Right, barring some big gaffe of Obama because we now have a contrast. I think Steve Schmidt and Wayne Bermen, a lot of them are good friends over there. I think they've done a good job to this point. I know that they understand the nature of this. This gives the Obama people a complete framework to make it. This is the 16th time he said it. He's admitted he didn't know much about it. I just can't imagine that people sitting at home seeing this are not going to say this guy really is clueless as to what's going on in the country and clueless about any way to fix it.

BLITZER: Leslie, hold on a second because the McCain campaign put out their own ad today. I want to play it and then you'll weigh in. Listen to this.

(BEGIN VIDEO CLIP)

SEN. JOHN MCCAIN (R), PRESIDENTIAL CANDIDATE: The economy is in crisis. Enough is enough. I'll meet this financial crisis head on. Reform Wall Street. New rules for fairness and honesty. I won't tolerate a system that puts you and your family at risk. Your savings, your jobs. I'll keep them safe.

UNIDENTIFIED FEMALE: Experience and leadership in a time of crisis.

(END VIDEO CLIP)

BLITZER: All right. What do you think of that response to the Obama ad, Leslie?

SANCHEZ: I think it's a right start, Wolf. It's the right tone because I will tell you a lot of independent voters, swing voter look at vulnerability. Who's going to have the right judgment, who's not going to jeopardize U.S. interest. It comes down to those types of questions. He's also talking about greed, fundamentally a problem that was on Wall Street but also extended to K Street. Those are both areas that John McCain's been very strong in fighting back without any help, I would add, from Barack Obama.

BLITZER: But Leslie you know that K Street in recent years has been dominated by republican lobbyists.

SANCHEZ: You know that John McCain has been somebody who's been so much - he's ostracized from his party in terms of what he's done in campaign finance reform, what he's done internally in terms of transparency. It's funny you talk about that with lobbyists. It's all been about Biden and Biden's son and all those contrasts tied to the Obama campaign. This hasn't even been a conversation with the McCain campaign.

CARVILLE: This is almost -- excuse me. This is almost kind of funny. He says the economy is fundamentally strong. Then they try to come up -- I admire them for trying to do this. He puts ahead of his transition team a fellow by the name of Timmons who's actually a lobbyist for the American Petroleum Institute. That's a man who spends his time trying to get more tax breaks for oil companies. There's not enough to document the number of lobbyists he has working on campaign. I'll be glad to do that. But essentially the race now has texture. He now has a framework and I think between now and the first Tuesday of November that the Obama people are going to drive this home. We're going to ask again what's the fundamental that they're so impressed with?

SANCHEZ: I have to respond to that. I do think I would agree people are making up their mind, the 80 million people who didn't vote in the primary who are going to vote in November are looking at these candidates, looking at judgment, they're looking at leadership, they're looking at character, and they're looking at country first. All of those align with the republicans ironically in this ticket when it should be traditionally a democratic year. So it's going to come down to the end. James, I don't think it's decided today.

CARVILLE: Yesterday it got decided.

BLITZER: Leslie, on top of everything today, Douglas Holtz- Eakin, the top domestic economic adviser to John McCain, said something on a radio station that's generating a lot of buzz out there. He said McCain when he was chairman of the commerce committee helped create the Blackberry. It was a miracle that John McCain helped create. They're now saying he was trying to be funny, he was joking. He should stick to economic policy and not try to be a standup comedian.

The Obama campaign has come out with a statement saying, if John McCain hadn't said that the fundamentals of our economy are strong on the day of one of the nation's worst financial crisis, the claim that he invented the Blackberry would have been the most preposterous thing said all week. We remember the whole internet creation and Al Gore back in 2000.

Leslie, is this going to plague John McCain right now with his top domestic adviser suggested?

SANCHEZ: I think it's catnip. It was just really poorly worded. There's no excusing that. But, you know, fundamentally what he's trying to say is John McCain was responsible, very much so, for the telecommunications act in 1995 and 1996 that had the advent of having a very strong part of our economy. Again, not a funny line. I think we'll hear about it for the next few days. It was really a bad misstep.

BLITZER: Very quickly James.

CARVILLE: I think the man's a better comedian than he is economist. By the way, he works with Phil Graham who's the leader of the Obama campaign who said we're a nation of whiners, who's a banking industry lobbyist.

SANCHEZ: Who's not tied to the campaign.

CARVILLE: Who is an architect of modern Wall Street. He was the chairman of the whole campaign. He wrote the whole McCain economic plan. He's a flunky to Phil Graham.

BLITZER: But Phil Graham was dumped after he said a nation of whiners.

CARVILLE: He dumped the name but he's the architect of modern Wall Street. He's the biggest contributor, the biggest supporter of Senator McCain that they have and he's a lobbyist for the banking industry, of course he is.

BLITZER: All right, guys. Leslie, if you want to say something speak quickly right now. I'm out of time.

SANCHEZ: Mud on the boots on both sides in terms of ties to Wall Street. Don't say it's just republicans there.

BLITZER: Leslie, James, we'll see you soon. Thanks guys.

Third party presidential candidates traditionally have a hard time getting noticed.

RALPH NADER: Sometimes I think I get more media if I just dressed up as a panda.

BLITZER: The independent presidential candidate Ralph Nader, his strategy to attract attention to his campaign. It doesn't actually involve dressing up as a panda.

The elephant in the room. Could Barack Obama's race cost him the presidential election? That's Jack's question. He's got your e-mail and a lot more right here in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: Barack Obama has come under heavy criticism for suggesting that he would talk to hard line leaders of so-called rogue nations like Iran. Now a group of former U.S. secretaries of state, they say America how old do exactly that. Among them, several who served in republican administrations. CNN's Brian Todd reports.

(BEGIN VIDEOTAPE)

BRIAN TODD, CNN CORRESPONDENT: It could be the most serious security challenge for the next American president. What to do about Iran's nuclear ambitions. But what if Iran were to break the ice with the next president and say it's ready to talk? That hypothetical presented to five former secretaries of state at an exclusive CNN forum. All five, three republicans, two democrats, agree.

COLIN POWELL, FORMER SECRETARY OF STATE: Don't wait for, you know, a letter coming from them. Start discussion. We were talking to them up to middle of 2003.

TODD: Henry Kissinger who brokered the opening to China and peace talks with the North Vietnamese put it this way.

HENRY KISSINGER, FORMER SECRETARY OF STATE: I do not believe that we can make conditions for the opening of negotiations.

TODD: Are Kissinger and his brethren on a page with Barack Obama? The democratic nominee blasted as naive from the McCain campaign for his answer to this question at a CNN YouTube debate, would he meet without precondition with Iran's leaders?

SEN. BARACK OBAMA (D), PRESIDENTIAL CANDIDATE: I would. And the reason is this that the notion that somehow not talking to countries is punishment to them, which has been the guiding diplomatic principle of this administration, is ridiculous.

TODD: The former state men say they'd want the talks to begin at the secretary of state level or lower, something we're now told both Obama and McCain agree with. That's McCain's line in the sand.

MCCAIN: What I continue to oppose and will continue to oppose is a face to face meeting with no preconditions with Ahmadinejad.

TODD: But analysts say voters need the nominees to clarify what they would do beyond that talking stage.

DAVID GERGEN, CNN CONTRIBUTOR: What do we do under the really, really tough situation if Iran -- if the negotiations fail and Iran then gets a nuclear weapon? What do we do? That's the jackpot question.

(END VIDEOTAPE)

TODD: They may get a chance to answer that question next week in the first presidential debate which will focus on national security issues. David Gergen says Iran is now shapes up to be front and center, moving ahead of Iraq as maybe the toughest foreign policy problem for the next president.

BLITZER: It's interesting the timing of this. The first presidential debate a week from Friday in Mississippi is devoted to -- to foreign policy.

TODD: Right.

BLITZER: Now you have all these secretaries of state basically saying, you know what, what Barack Obama suggested, that there should be a dialogue with Iran, was the right strategy.

TODD: They're saying it with some caveats. Obviously it was a hypothetical question. They would start the talks at a lower level than directly with leader. You talk about timing. It comes three days after Ahmadinejad himself speaks at the United Nations. He always makes news. It's going to be a great opportunity for them to clarify positions on Iran. BLITZER: Looking forward to all those debate. I know I am and I'm sure you are as well. Brian, thanks very much.

You can hear more from the former secretaries of state on the CNN special, the next president, "A World of Challenges." It airs Saturday night at 9:00 p.m. Eastern. Once again, Sunday at 2:00 p.m. Eastern this weekend, a CNN exclusive.

The independent presidential candidate Ralph Nader is talking to a parrot as part of his new strategy. It may be working a little bit. Stay with us. You're in the situation room.

(COMMERCIAL BREAK)

BLITZER: Remember, we're waiting to hear from Joe Biden. He's getting ready to speak outside Philadelphia. We'll go there shortly. Let's check in with Jack for the Cafferty File.

Jack?

JACK CAFFERTY, CNN CORRESPONDENT: The question this hour is will Barack Obama's race ultimately cost him the white house? Mike in St. Louis writes, "Considering the disaster of this last eight years with the republican white house, a typical democratic candidate would have an insurmountable lead in this campaign now. While Barack Obama's an inspiring leader and promises to heal the nation, I fear his race is a major factor in the close nature of the election. There's a lot of distrust in this country." Charlie in DeKalb, Texas writes, "I live in a rural Texas community and quite frankly it still isn't safe to publicly be a white person in support of Barack Obama. The world hasn't really changed much here. Most white people in this area still thinks black have their place." That's in quotes. "And apparently president of the United States isn't one of those places. I just don't get it really. I was raised by parents who believed this way but I rose above it. Why can't others?" Tom in Florida writes, "If you're drowning and a man throws you a rope, what difference does his race make? We're drowning. I hope America's better in 2008 than it was in my father's day. Ignorance has always been a trait of bigots. I hope they're smart enough to grab the rope or we'll all drown."

Glenn in Houston, "Barack Obama's race won't cost him the white house. Selecting Joe bidden instead of Hillary Clinton for vice president will cost him the white house. Simple as that."

Curt writes, "When 90 percent of African-Americans are polled and saying they're voting for Obama why is there no question as to racism being a motive for those voters. Why is it someone who doesn't vote for Obama is considered racist? What if you don't agree with his policies?"

Finally George says, "My heart wants the answer to be race won't cost Obama the election. But my head says it will."

If you didn't see your e-mail here, you can go to my blog at CNN.com/Caffertyfile. Look for yours there. We post hundreds of them every hour.

Wolf?

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

The independent presidential candidate, Ralph Nader, doesn't think he's getting enough news media coverage. He's using a feathered friend to voice his concern. Let's go to our internet reporter, Abbi Tatton. It's all over the internet. What are we seeing, Abbi?

ABBI TATTON, CNN INTERNET REPORTER: Wolf, this is one of the stranger things I've seen on YouTube. Ralph Nader bearing his soul to a parrot about the state of his campaign.

NADER: Sometimes I think I'd get more media if I just dressed up as a panda. And just went to the zoo. I know you don't like zoos.

TATTON: Nader, who was very excited about this video when we talked to him earlier, said the parrot was all his idea and assures us there's a strategy here to point out what he says is the media covering animal stories more than they cover Ralph Nader. It's certainly a novel video. Not the first time that the YouTube alternative YouTube approach has been used in the election. Democratic long shot Mike Gravel got hundreds of views last year before the primaries by picking up a rock and throwing it into a pond. Actual votes were a little bit harder to come by. Wolf?

BLITZER: Remember that YouTube video. All right, Abbi, thank you. Sarah Palin touting her record on taxes as the governor of Alaska. What would it mean for the rest of Alaska and what would that mean for the rest of us? We have a reality check. That's coming up.

(COMMERCIAL BREAK)

BLITZER: Bill Clinton plans to roll out the welcome mat for the man he does not support for president, and that is Senator John McCain. The republican nominee will in fact be one of the prominent guests at the annual meeting of the Clinton Global Initiative later this month in New York. McCain reportedly would deliver opening remarks at the nonpartisan event at New York City while his rival Barack Obama addresses participants via satellite. Barbra Streisand is adding her voice and her star power to raise cash for Obama's campaign. The Obama camp confirms Streisand will sing at one of two fundraisers later in Los Angeles tonight. Obama reportedly plans appearances at the fundraisers which could raise a total of more than $9 million.

Remember, for the latest political news, any time, you can check out CNNpolitics.com. That's where you can also download the political screen saver and check out my blog there and lots of things coming up.

We'll take a quick break. Remember, we will check in with Joe Biden who is in Media, Pennsylvania, outside of Philadelphia. There is the governor, Ed Rendell. He is introducing Joe Biden. Once Biden starts to speak, we will go there and let you know what he is saying.

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

(COMMERCIAL BREAK)

BLITZER: You have heard of offshore drilling as being an energy solution. Abbie Boudreau of the special investigations unit tells how onshore drilling may offer an answer.

(BEGIN VIDEOTAPE)

ABBIE BOUDREAU, CNN SPECIAL INVESTIGATIONS CORRESPONDENT: Oil is in the blood of this six-generation family-run business. Do you think that when someone hears the word stripper well, they have any idea what that is?

UNIDENTIFIED MALE: No, I don't think. That is part of the message is to make the public realize that we are not the Exxons and the Mobiles. BOUDREAU: No, we are not talking about big oil rigs like the ones you see on TV. And no, we are not in Texas, where most people think of oil. We are actually in a small town in Pennsylvania, where there are thousands of stripper wells or small oil wells, just like this. Some of these Pennsylvania oil fields go back more than 100 years. Individuals can be active for decades and slowly pulling up leftover oil and gas and a typical stripper well pulls out less than ten barrels of oil a day, but it quickly adds up.

This one pumps about two barrels a day?

UNIDENTIFIED MALE: Yes about two barrels a day.

BOUDREAU: But when you take two barrels a day and multiply that times 22,000 wells, that adds up?

UNIDENTIFIED MALE: Well, that is a part of the whole that is very significant.

BOUDREAU: Combined these stripper wells produce about 335 million barrels of oil each year. In 2006, stripper wells accounted for nearly 18 percent of total oil production in the U.S. according to the Stripper Well Consortium. But the pump technology has not changed much over the years. And Joel Morrison, the director of the consortium, says that because of that, a lot of the oil is left in the ground.

JOEL MORRISON, STRIPPER WELL CONSORTIUM: If you have 50 to 60 percent of the oil still left in the ground, why can't we develop better technologies to get that out?

BOUDREAU: Technologies like this pump which the manufacturer says kin crease production by 100 percent to 300 percent. The pump uses no electricity. Instead, it uses the natural pressure of the well to lift up more oil.

MORRISON: Oil standards --

BOUDREAU: But for now, Morrison says that too much oil in those old fields sits in the ground untapped. Abbie Boudreau, CNN, Bradford, Pennsylvania.

(END VIDEOTAPE)

BLITZER: Out in California, opponents have discounted tuition for illegal immigration are claiming a victory. We go out to Lou Dobbs, because his team has been doing reporting on this. What is this about, Lou?

LOU DOBBS, CNN ANCHOR: Well what this is about is common sense and a sensible, rational judgment in court on the issue of whether or not illegal aliens should have preferential rights to the American citizens and in this case a three-judge appellant panel ruling that illegal aliens should not be granted in-state tuition rights when it is denied American citizens and this is going to be a case watched very carefully across the country.

BLITZER: Because there are similar rules in other states, is that right?

DOBBS: Absolutely. And there is a federal law which strictly prohibits offering in-state tuition to an illegal alien when it is denied out-of-state residents. Can you imagine that, Wolf? It is crazy.

BLITZER: What will happen next?

DOBBS: What will happen next is what we are seeing across the country, slowly, some of the politically correct, ethnocentric nonsense and the stuff pushed by the chamber of commerce and round table for cheap labor at any case and open borders are going to end. The American people are waking up quickly. In point of fact, these two presidential candidates are going to have to stand up and declare themselves on illegal immigration and amnesty and what to do in the country about illegal immigration and border security crisis. It is all part of the same direction.

BLITZER: Lou will have more in an hour on his show and continue the conversation. Thank you, Lou.

DOBBS: Thank you, Wolf.