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Stocks Surge Following News of Government Bailout; Palin Blasts Iran and Democrats

Aired September 19, 2008 - 18:00   ET

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


WOLF BLITZER, CNN ANCHOR: And, to our viewers, you are in THE SITUATION ROOM.
Happening now: The most sweeping and expensive financial rescue plan since the Great Depression, can the federal government really pull it off? The U.S. economy and taxpayer money on the line.

The presidential candidates weigh in on the mother of all bailouts. Are they helping to calm fears or stoking voters' anxiety? The best political team on television is standing by.

And Sarah Palin takes on Iran's president. Her real target may be closer to home, the Democrats. We are watching this.

We want to welcome our viewers in the United States and around the world. I am Wolf Blitzer. You are in THE SITUATION ROOM.

It is a new lifeline for pillars of Wall Street now drowning in debt. And the price tag will be enormous. Add up the possible costs of the government's new rescue plan and other recent bailouts, and the bottom line could be a simple $1 trillion. In the short term, stock prices jumped on the news that the Bush administration is responding to the financial crisis in a very big way, the Dow Jones industrials today closing up some 369 points.

Let's go to our White House correspondent, Elaine Quijano. She is working the story for us.

Elaine, the administration wasting no time in promising bold action.

ELAINE QUIJANO, CNN WHITE HOUSE CORRESPONDENT: Well, that is right. And, as you said, Wolf, this is expected to be a massive government plan, but one that the president argues will help both Wall Street and Main Street.

(BEGIN VIDEOTAPE)

QUIJANO (voice-over): The president bluntly spelled out how America's financial crisis could get even worse.

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: Further stress on our financial markets would cause massive job losses, devastate retirement accounts and further erode housing values, as well as dry up loans for new homes and cars and college tuitions. QUIJANO: With top economic officials at his side, the president grimly conceded confidence, a critical ingredient in a healthy economy, had been shaken.

BUSH: Investors should know that the United States government is taking action to restore confidence in America's financial markets so they can thrive again.

QUIJANO: Earlier, Treasury Secretary Henry Paulson described the mammoth cost of that action in what is expected be an unprecedented bailout.

HENRY PAULSON, U.S. TREASURY SECRETARY: We're talking hundreds of billions. This needs to be big enough to make a real difference.

QUIJANO: The details have yet to be hammered out with Congress, but the aim is to soak up bad debt, allowing banks to freely lend money once again.

BUSH: We will weather this challenge, too, and we must do so together.

QUIJANO: Just weeks away from the election and amid criticism that his administration didn't do more to head off the crisis, President Bush urged Congress to set aside partisanship.

BUSH: There will be ample opportunity to debate the origins of this problem. Now is the time to solve it.

(END VIDEOTAPE)

QUIJANO: Now, aides here say the goal is to negotiate details of this plan with members of Congress over the weekend, all of course with an eye towards the markets opening again on Monday -- Wolf.

BLITZER: Elaine Quijano is at the White House for us.

A lot of people are really anxious to read the fine print of the government's financial rescue plan, including the chairman of the Senate Banking Committee.

Just a short while ago, the Democrat Senator Chris Dodd shared the shock he felt during a briefing with top members of the president's economic team, including the treasury secretary and the chairman of the Federal Reserve.

And I asked Senator Dodd to describe the mood in that room when the lawmakers heard the dire consequences if the federal government did nothing.

(BEGIN VIDEO CLIP)

SEN. CHRISTOPHER DODD (D), CONNECTICUT: I'm going to be reluctant to repeat exactly the words, not because I can't remember them, but, because, if you were to repeat them exactly, I'm fearful it might cause even more concern. I can't begin to tell you. I have been here for 28 years, Wolf, been in a lot of very critical meetings involving a lot of important events over the last quarter-of-a-century. I can't recall another occasion when I was in a room where statements were made about the conditions of not only our economy, but the global economy, that caused every member in that room, the leadership of the House, the Senate, Republicans, Democrats, leaders of committees, that, when Chairman Bernanke finished his appraisal, a brief appraisal, along with Hank Paulson, there was dead silence in the room for maybe five to 10 seconds.

The oxygen went out of the room. People were stunned by what they heard. And I'm angry about this, because I think this was preventable, I will tell you, but we're not going to talk about that today, because the issue is, what do we do?

And I'm willing to step up and join with my Republican and Democratic colleagues, which we must do, 45 days before the most important national election in my lifetime, and come together, not as Republicans, Democrats, blue, red states, but as Americans responding to this. I'm willing to listen to this plan. I'm not buying into it without seeing it.

I want to make sure that we do this, that we're going to be mindful of the underlying cause of this problem, Wolf. And that is, of course, as was said last evening and again today by the secretary and the chairman of the Federal Reserve, the housing foreclosure crisis.

So, we're going to deal with the effects of this, but we need to deal with the causes as well, so we don't have to come back again with some even larger plan down the road.

BLITZER: But this is going to cost hundreds of billions of dollars, maybe even a trillion dollars. Who knows what it's going to cost.

Don't you think the American people have the right to know what you and your fellow members of Congress were told last night about the dire consequences of doing nothing?

DODD: Well, again, I'm telling you how dire it was without, without getting into the specific wording.

Let me also tell you this, Wolf. You know, I think America, I wish they, in a sense, could have been in the room, in many ways, not only to hear the dire consequences, but to also hear members of Congress, Republicans and Democrats, putting aside differences.

And whatever else was raised about the specifics of it, virtually every member in that room said they wanted to help, they wanted to be part of this. They realized too much was at stake not to work together.

BLITZER: So...

DODD: And I know that's not often said about us here, but that was the case.

BLITZER: Well, let me -- let me -- so, do you think, within the next few days, maybe even by Monday morning, you, the Democrats, the Republicans, and the Bush administration, working with Henry Paulson, you will have a package ready to be approved?

DODD: Yes, I do.

And we will have -- I -- on Tuesday morning, I had already scheduled -- and I think you were aware -- a hearing with Hank Paulson, Ben Bernanke, and Chris Cox before my committee, the banking committee. My committee has already met today, this morning, early this morning. Democrats and Republicans came together on our committee to talk about all of us being on the deck here over the weekend to do whatever we can to work, to listen to these ideas, make our own suggestions to this plan, to try and make it as strong a plan as we can to do the job it needs to do, have our public hearing on Tuesday, and then follow the leadership of Harry Reid, as he will try and move this matter along during the week, before we adjourn at the end of next week.

(END VIDEO CLIP)

BLITZER: Very strong words coming from the chairman of the Senate Banking Committee, Chris Dodd.

The new rescue plan is giving the presidential candidates more reason to rail against the nation's economic crisis. We are going to have complete coverage of their reactions today. I want you to stand by for that, how this is playing out on the campaign trail.

But, right now, here is a taste of what Barack Obama and John McCain are saying today.

(BEGIN VIDEO CLIP)

SEN. BARACK OBAMA (D-IL), PRESIDENTIAL NOMINEE: We cannot only have a plan for Wall Street. We must also help Main Street. I am glad that our government is moving so quickly in addressing the crisis that threatens some of our biggest banks and corporations, but a similar crisis has threatened families, workers and homeowners for months and months. And Washington has done far too little to help.

SEN. JOHN MCCAIN (R-AZ), PRESIDENTIAL NOMINEE: There are plenty of places to point fingers. And it may be hard to pinpoint the original event that set all this in motion, but let me give you an educated guess.

The financial crisis that we are living through today started with the corruption and manipulation of our home mortgage system. At the center of the problem were the lobbyists, politicians and bureaucrats who succeeded in persuading Congress and the administration to ignore the festering problems at Fannie Mae and Freddie Mac.

(END VIDEO CLIP) BLITZER: We are going to have a lot more of what the candidates are saying today, their economic strategies. That is coming up.

Let's go to Jack Cafferty right now for "The Cafferty File" -- Jack.

JACK CAFFERTY, CNN ANCHOR: Henry Paulson, secretary of the treasury, and congressional leaders have themselves quite a little weekend planned.

They will be behind closed doors hashing out the so-called troubled asset relief program. That is their code name for a really, really big bailout. And while we will all be free to carry on our regularly scheduled weekend plans, rest assured that we will still be playing a huge role in this, because we get to pay for it.

Secretary Paulson says the price tag for this thing could reach a trillion dollars, a trillion dollars. That is roughly what we spent on the war in Iraq, by the way, coincidentally. But Paulson is convinced that this bold approach will cost American families far less than the alternative, which is a continuing series of smaller institution failures, frozen credit markets unable to fund economic expansion, and bailouts as needed as we go along.

Wall Street seems to think that Paulson has got the right idea. As word leaked out yesterday, stocks began to rally. And when the plan was confirmed this morning, the explosive rally on the Street continued. Time will tell, though, if the celebration was premature.

Here's the question. Are these federal bailouts of troubled financial institutions a good idea?

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

BLITZER: I am going to be interested to hear what our viewers think. Jack, thank you. We will get back shortly to you.

And what would the next president of the United States do in this situation? We are taking a much closer look at what Barack Obama and John McCain are today saying about this financial crisis. Stick around.

John McCain's running mate, meanwhile,, takes a swipe at the Democrats, saying some of them are putting politics over country when it comes to the issue of Iran. Is Sarah Palin also taking a swipe in the process at Hillary Clinton? You are going to hear what she said today and you will be able to decide.

And we are making some significant changes to CNN's Electoral College map. Between McCain and Obama, you are to find out who might benefit and who should be worried, right now -- all of that coming up here in THE SITUATION ROOM.

(COMMERCIAL BREAK) BLITZER: Barack Obama is taking a cautious tone about the federal government's massive new financial rescue plan. And he is warning everyone against pressing the panic button.

Our Suzanne Malveaux traveled with Senator Obama to Coral Gables, Florida, today. That is one of the key battleground states.

All right, tell us about the position he is taking responding to this amazing, amazing development today, Suzanne.

SUZANNE MALVEAUX, CNN WHITE HOUSE CORRESPONDENT: Well, Wolf, he held this 90-minute meeting with his economic team, really a brain trust of economic advisers. We're talking about former Treasury Secretaries Robert Rubin, as well as Paul O'Neill, Lawrence Summers, former Fed Chair Paul Volcker, even billionaire Warren Buffett, who was on the phone in a conference call in all this.

And essentially they were saying that they do not believe that he should not come out with a specific economic plan, that he should do the opposite, that he should simply wait and see, take that kind of approach.

So what Barack Obama said today, he simply talked about his own philosophy, his vision, if you will, and also really looking ahead to the future -- Wolf.

(BEGIN VIDEOTAPE)

OBAMA: This is not a time for fear or panic. It is a time for resolve. And it is a time for leadership.

MALVEAUX (voice-over): Barack Obama's rallying cry, responding to the financial crisis. In Coral Gables, Florida, he continues to present himself as the optimist, his opponent, John McCain, as spooked.

OBAMA: I think it is pretty clear that Senator McCain is little panicked right now.

(CHEERING AND APPLAUSE)

MALVEAUX: Seven weeks before the election, Obama is supportive, but cautious of the federal government's huge proposed intervention to save the financial markets.

OBAMA: What we're looking at right now is to provide the Treasury and the Federal Reserve with as broad authority as is necessary to stabilize markets and to maintain credit.

MALVEAUX: But Obama refused to provide more than that, saying he needed more details about the government's plan, casting his response as staying above the political fray.

OBAMA: I think it's critical at this point that the markets and the public have confidence that their work will be unimpeded by partisan wrangling. MALVEAUX: Surrounded by his team of economic advisers, who he huddled with earlier in the day, Obama rebuffed the notion that, while McCain was providing specific solutions, he was sitting on the sidelines during this financial crisis.

OBAMA: You don't do it in a day. We have got to do it in an intelligent, systematic, thoughtful fashion.

MALVEAUX: Obama reiterated that, under any bailout plan of his, he would push for tougher regulation and government oversight of financial institutions, expand the middle class, and work with other industrialized nations to restore confidence in the markets.

It is estimated the current financial crisis could initially cost taxpayers $1 trillion.

(on camera): If you were president, would you set a limit, a cap, per se, on the kind of burden that taxpayers would have in bailing out these financial institutions?

OBAMA: As president I would say to Secretary Paulson and Chairman Bernanke, do what's required to make sure that people's money market accounts are protected.

(END VIDEOTAPE)

MALVEAUX: Wolf, he also said he would do what was required to make sure that small businesses have credit lines, the economy is still running, that people can work and support their families, but the big unknown, as we realize here, is no one really knows what is required -- Wolf.

BLITZER: Suzanne is in Coral Gables, Florida for us, a key battleground state.

Suzanne, thank you.

America's financial crisis is putting the presidential candidates and their economic policies to the test right now. And, certainly, John McCain has been focusing once again on an issue that he describes as one emanating from corporate greed and abuse.

CNN's Dana Bash traveled with Senator McCain to Minnesota.

(BEGIN VIDEOTAPE)

DANA BASH, CNN CONGRESSIONAL CORRESPONDENT: Wolf, McCain advisers privately admit he stumbled as the financial markets plummeted at the beginning of the week, so they wanted the week with him back on his feet. That meant offering his own prescriptions.

(BEGIN VIDEOTAPE)

MCCAIN: I have proposed and will sign into law...

BASH: A take-charge tone as John McCain tried to show what he would do as president to prevent another financial meltdown.

MCCAIN: Government has a clear responsibility to act and to defend the public interest. That's exactly what I intend to do.

BASH: At this hastily arranged address at a Wisconsin chamber of commerce, McCain called for a new government trust designed to step in before institutions reach crisis.

MCCAIN: An early intervention program to help financial institutions avoid bankruptcy, expensive bailouts and damage to their customers.

BASH: With a few exceptions, McCain spent most of his two decades in Congress pushing for deregulation. Now he wants the government to force financial firms to open their books.

MCCAIN: Americans have a right to know when their jobs, pensions, IRAs, investments, and our whole economy are being put at risk by the recklessness of Wall Street.

BASH: Both here and later in Minnesota, McCain's strategy was as much about discrediting Barack Obama's credentials on the economy as presenting his own.

MCCAIN: Maybe, just this once, he could spare us the lectures and admit to his own poor judgment in contributing to these problems.

BASH: He started both speeches with blistering attacks on Obama for taking more than $100,000 from Fannie Mae and Freddie Mac and taking advice from two of Fannie's former CEOs, Franklin Raines and Jim Johnson.

MCCAIN: While Fannie Mae was betraying the public trust, somehow, its former CEO had managed to gain my opponent's trust, to the point that Senator Obama actually put him in charge of his vice presidential search.

(AUDIENCE BOOING)

BASH (on camera): The reality is, both campaigns have ties to Fannie Mae. Two of McCain's top advisers once lobbied on its behalf. But McCain aides insist it is one thing to be a hired gun. It's another thing to run the institution. And it was the CEOs of Fannie Mae who worked with Obama -- Wolf.

(END VIDEOTAPE)

BLITZER: Dana, thank you -- Dana Bash on the scene for us in Minnesota.

So, don't believe everything you hear between Barack Obama and John McCain. Whose ads about the economy are really true? And whose ads are making false or misleading claims? We are doing a fact-check for you.

And amid the latest on Hurricane Ike's aftermath, the storm did at least one good thing. The damage helped with an amazing discovery. Wait until you see it.

And it is among the newest ways of getting drug into the United States. You are going to find out what that is and what the U.S. is now doing to stop it.

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

(COMMERCIAL BREAK)

(NEWS BREAK)

BLITZER: It could be a bailout or it could be a bust. The Bush administration plans to spend billions and billions of dollars to ease the financial crisis. You're going to find out what it could mean for your own finances.

And what is the real reason Sarah Palin was disinvited from a rally against Iran's president? The vice presidential nominee is publicly blaming the Democrats.

And changes in CNN's Electoral College map, it could cost one candidate in a pretty big way. The best political team on television is standing by.

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

(COMMERCIAL BREAK)

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

Happening now: an unprecedented Wall Street bailout that could wind up costing U.S. taxpayers maybe $1 trillion. What it all means for us. Stand by.

But can Washington really pull it off without falling into the usual partisan bickering? We will discuss with the best political team on television.

And Sarah Palin attacking Iran and some Democrats, as a protest rally becomes a political hot button.

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

Hillary Clinton was supposed to be there. So was Sarah Palin, but now neither will appear at a rally protesting the appearance of the Iranian president, Mahmoud Ahmadinejad, at the United Nations next week.

And Governor Palin is seizing on that in her speeches, turning it into a campaign issue.

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

All right, Brian, tell our viewers what happened.

BRIAN TODD, CNN CORRESPONDENT: Well, Wolf, this is now another peg for Palin and in fact both campaigns to spar with each other. The prospects for Hillary Clinton and Sarah Palin standing together to rally against Iran clearly enticing for the organizers, but what they thought would be a bipartisan rally with some juice to it quickly spun out of control politically.

(BEGIN VIDEOTAPE)

TODD (voice-over): In a double-barreled attack, Sarah Palin takes aim at two opponents, the Democrats and Iran.

GOV. SARAH PALIN (R-AK), VICE PRESIDENTIAL NOMINEE: I will continue to call for sustained action to prevent Iranian President Ahmadinejad from getting these weapons that he wants for a second Holocaust.

TODD: Comments she could have made this coming Monday at a New York rally. The event will protest Mahmoud Ahmadinejad's visit to the U.N. and call for American leaders to do more to stop Iran's nuclear program. But Palin has been disinvited from that event. Why?

PALIN: Some Democrat partisans put politics first. And now no elected official will be able to appear at that "Stop Iran" rally.

TODD: A charge the McCain/Palin team has been leveling since before the governor was told thanks, but no thanks.

The Republicans say, first, Senator Hillary Clinton was pressured by the Obama campaign to go back on her promise to attend the rally with Palin. The Obama team called that a dishonorable lie. And Clinton's office said only that she only wanted to avoid a partisan event.

We asked the McCain campaign who the so-called Democratic partisans were who they believe pressured the Jewish groups organizing this rally to disinvite Palin. One they pointed to is the National Jewish Democratic Council, which has been vocal in its disapproval of the Palin invitation. Did the group lean on the organizers?

ALEXI RICE, NATIONAL JEWISH DEMOCRATIC COUNCIL: We publicly on Wednesday called for the withdrawal of Sarah Palin's invitation to this Iran rally. It had become a political circus. There is no knowledge that I am aware of that our organization put pressure on the organizations involved, but we did put public pressure by going out into the media, by talking to the press.

(END OF VIDEOTAPE)

TODD: We tried repeatedly to reach the leaders of the various Jewish groups organizing this event to ask them about any pressure brought to bear on them, and they didn't return our calls. But one of them Malcolm from the Conference of Presidents and Major American Jewish Organizations is quoted in "The New York Times" as saying the message of the rally was being lost in the media frenzy and quote, "This is not about Governor Palin." Wolf?

WOLF BLITZER, CNN ANCHOR: It did though become about Governor Palin, given all the race for the White House, the notion of Hillary Clinton and Governor Palin appearing together. It almost had that effect immediately.

TODD: It did. Now this group, the National Jewish Democratic Council, the group that had been pressuring them to drop Palin says that it did do that they say for years. These groups have had elected officials from both parties at these rallies, there was never a problem. The difference this year they say, someone running for vice president, too highly charged politically they say, it just became too much to bear and they pressured the groups publicly they say, but not privately.

BLITZER: Brian, working the story for us as he always does. Thank you.

Let's go back to our top story right now the massive government bailout of Wall Street and what many are arguing a bailout of Main Street as well. Let's talk a little bit about what's going on with our senior political analyst Gloria Borger, our senior business correspondent Ali Velshi and Steve Hayes, the senior writer for "The Weekly Standard." Ali let me play for you, what President Bush said about the consequences if the federal government and the congress did nothing, here is what he laid out. Listen to this.

(BEGIN VIDEO CLIP)

BUSH: The risk of not acting would be far higher. Further stress on our financial markets would cause massive job losses, devastate retirement accounts and further erode housing values as well as dry up loans for new homes and cars and college tuitions, these are risks that America cannot afford to take.

(END OF VIDEO CLIP)

BLITZER: All right, that bleak scenario, Ali, does he have a point?

ALI VELSHI, CNN SENIOR BUSINESS CORRESPONDENT: Yes he does actually, that's very direct. They are all singing off of the same page on this one. Henry Paulson said the same thing. They sort of measured that if we just muddled along and there were more failures of these banks and financial institutions and the government had to get involved and possibly bail more out, the cost to the economy is great, because it just erodes confidence in the system, Wolf, that's the problem. Our economic system is built on confidence. Eight more months of this or 10 more months of this, folks would just take their money out of the markets, and we'd grind to some sort of a halt. So the president is right, some action needs to be taken and the cost of not doing something whether or not you think this is right, Wolf, would have been too great.

BLITZER: It sounds almost, Steve, like they're trying to avert a depression similar to what happened in the 1920s, maybe even a worse scenario, is that what you're hearing?

STEVE HAYES, THE WEEKLY JOURNAL: Yes, it's been very sobering to talk to conservatives and people who have been advocates of free markets around Washington for years now. You talk to them and they say, look, this is not something we want to do. In a sense we'd like to let these banks fail, because it would be the proper punishment, in a sense it would be the market working as it should work. The problem with that is that there are all these secondary and tertiary consequences that would affect people on Main Street, people who were as the president said as both Barack Obama and John McCain have said, sort of innocent in this whole thing, did nothing to bring this on.

GLORIA BORGER, CNN SENIOR POLITICAL ANALYST: You know, Wolf, I spoke to somebody who was inside that meeting last night with Hank Paulson and the congressional leaders. And while that person didn't take notes and couldn't give me exact quotes, he said the mood could not have been more dire or serious. That Paulson warned what he calls not Paulson, but what my source says were sort of cataclysmic results unless congress moved very quickly. And I saw your interview with Chris Dodd, Senator Chris Dodd today, it seems to me like these folks decided that they had to move and move quickly.

BLITZER: That's a good point, Steve, because what Chris Dodd said and a lot of other democrats are saying the same thing, that they have confidence in Ben Bernanke the chairman of the Federal Reserve and Henry Paulson, the treasury secretary. They don't have confidence though in President Bush, that if President Bush would have just met with them, they probably wouldn't have responded as quickly and as dramatically as they are responding right now. Is that your sense?

HAYES: Yeah, I think that's right. In all of the reports as Gloria says, all of the reports coming out of that meeting, I think to a certain extent we in Washington are so used to exaggeration and so used to people being hyperbolic and using language, this is the worst ever and this is it, but this is one of those times where it's actually really true. I mean it sounds like, this really could be a cataclysmic event, it could have long-term consequences that obviously nobody wants.

BLITZER: So Ali, walk us through the money, because in the end this is taxpayer money, let's say it's a trillion, that has to come from somewhere and it has to have an impact on where we are going.

VELSHI: Yeah, in case you are wondering we don't happen to have a trillion dollars hanging around. And even the Federal Reserve's funds for helping banks out isn't any where close to that. So the bottom line is this would have to come from selling bonds and getting more money which increases our debt. The only good part about this is when and there are very few instances in our history where we have done this sort of a massive bailout either of an industry or a company, the record is good in that the government is able to take the assets that have otherwise failed, do something with them, repackage them, keep them for a while and sell them off at a profit to taxpayers. So in fact, what you're not hearing a lot of is that while we may not have to -- there are people who think we shouldn't be intervening, there is not a lot of the discussion about losing money.

BLITZER: Except for one thing, Ali, when we did this in the past with the S&Ls for example, there was real property there that the government took over, that they could sell and maybe make a little profit, we're dealing now mostly with what's called bad paper, these loans that may be worthless.

VELSHI: And that is the question. We are going to spend more money than possibly we should buying this bad paper, but as Henry Paulson and as President Bush have both said, somebody has done the math on this and it is likely that the cost of not ding it is greater. So it now doesn't become a matter of your philosophy about whether you think government should or shouldn't intervene, it's the which one can our economy sustain better. And a deal is better than no deal.

HAYES: And Wolf, the other thing to remember is I think there is this sense we saw and the markets reflected a little bit today and the comments we have heard from politicians today that we have sort of gotten beyond this. I think that's really scary. I don't think that's true. I mean, if you have paid careful attention to what Ben Bernanke said, he said that the situation was "dire and spreading." So I think we're likely to see the ripple effects of this coming for weeks.

BLITZER: Hold off, guys. I want to take a quick break, but you're absolutely right. Anyone who thinks this crisis is now over should rethink, because there is still a long, long way to go. All right. Guys, standby, we're going to have much more on the breaking news that we have been following, this major economic development. What are the presidential candidates saying about it? And what do they really mean? Are the presidential election commercials also getting nastier? And are they even true? We are fact checking what the candidates are claiming. Howard Kurtz standing by. Plus, who is benefiting from the critical changes in our CNN Electoral College map. Only 46 days to go before the election. We're back with the best political team right after this.

(COMMERCIAL BREAK)

BLITZER: I want to go right back to Ali Velshi, he is getting a little information coming in on a new investigation to what's going on. Ali, tell us what you're learning?

VELSHI: I just learned from the Securities and Exchange Commission which had launched an investigation into whether there was any manipulation, particularly in terms of short selling stocks. We had heard that they have discontinued the ability to short sell, that means bet that the stocks are going down in financial stocks, 799 different stocks. Christopher Cox, the chairman of the SEC has expanded this investigation. He says we are working together with our regulatory partners at the New York Stock Exchange and another organization in order to quickly identify, isolate and aggressively prosecute any violations of the federal securities laws during this period of market turmoil. The SEC coming across very aggressively in trying to see if anybody was manipulating stocks and the allegation here seems to be if anybody was shorting a stock, betting that a financial company's stock would go down and then somehow contributing to rumors that that company was in danger, they're going to try and weed that out. BLITZER: On that point, Steve, were you surprised at how tough Senator McCain was on the chairman of the SEC Chris Cox, basically saying he was derelict in his duties and should be fired. He is a former republican congressman from California.

HAYES: Yeah, I was a little surprised at that actually last night when Senator McCain first said that. He seems to have softened that a little bit today, still calling for his firing, but saying, look, he's a good man, he did his best, you know these kinds of things. But I think he was trying to temper it a little bit. I think what they were trying to do was to be bold. He wanted to do something bold that would sort of suggest that he's in charge, that he's leading.

BORGER: But in doing so, lots of republicans came down on him, because he didn't look presidential. He looked like he was looking for a scapegoat, even the "Wall Street Journal" editorial page was saying that. And in fact what you've seen are two different John McCains. You know the angry John McCain who is out saying fire Christopher Cox, the head of the Securities and Exchange Commission, fire CEOs, it's all about corporate greed. And the other John McCain who pulled back a little bit today and started to try and look I think a little bit more presidential by talking about bi-partisanship.

BLITZER: Let me go back to Ali for a moment, to the viewers who are watching Ali right now, and they are obviously concerned about their investments, their 401(k)s, their IRAs and everything else, tell us what this really means in practical terms for the average people who are watching.

VELSHI: It means that, you are somewhere in the sixth inning of a nine-inning game and things just turned better for the losing team. It does not mean we're at the end of the game, it doesn't mean that the markets are not going to go down further or you may not see other failures. It certainly doesn't mean that the jobless rate is going to get any better. And it doesn't mean that home prices are going to increase any time soon. What it means that the government is done with saying that the fundamentals of the economy are strong and they are saying we have a crisis and we are going to throw everything we have at it, and both Henry Paulson and the president made the comment that we're going to throw a lot of money at this. We are going to take what they need and we're going to fix this problem.

BLITZER: And Gloria, I don't know if you saw the picture of Barack Obama, he was flanked by all these former Clinton administration treasury officials, economic advisers, there they were standing next by Robert Rubin, Laura Tyson, certainly Jean Spurling, Larry Summers, what was the message he was trying to send?

BORGER: It was not subtle, it was times were better when these people were running the economy. And you were doing really well in the '90s. Remember that? And so, that was the not so subtle message, but Wolf, both of these candidates right now they have done their bickering, they have to sort of step back and I think they are both trying to do that and wait and see what the government proposes, whether it's over the weekend or next week, and then react to that. Because, we don't need anymore flames thrown on this fire. And I think they both can at least agree on than right now.

BLITZER: They'll be working hard all weekend as they should. They should not leave town any time soon, lots of work to do. Guys, thanks very much for coming in.

Charges and countercharges in the candidate's latest ads. What's the truth? We're fact checking what's going on. Howard Kurtz is standing by.

Also, are federal bailouts of troubled financial institutions really a good idea? Jack Cafferty and your e-mail.

Plus, the newest viral video, more than 8 million hits. You'll be surprised what it is about. Stay with us, you're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

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

CAROL COSTELLO, CNN CORRESPONDENT: Well, hurricane Ike did a lot of damage on the gulf coast, Wolf, but it also helped uncover an historic ship wreck seen here in this footage sent from one of our i- Reporters. Archaeologists say the wreck on an Alabama beach could be a civil war schooner that ran aground in 1862. But they can't be sure until an excavation is carried out. We'll keep you posted.

A week after Ike though, power is still out in more than half of Houston and thousands are still unable to return to Galveston where water and power are spotty at best. 20,500 people remain in shelters. Authorities blame 57 deaths on Ike, 23 of them in Texas. Those are the headlines right now.

BLITZER: Thanks very much Carol. Big changes in CNN's Electoral College map which suggests that the presidential race is actually tightening. Based on the latest state-by-state polling CNN is moving Missouri and its 11 electoral votes from a yellow tossup to light red, that means it's leaning McCain. Wisconsin and its 10 electoral votes move from light blue leaning Obama to a toss up. And a plus for Obama changing Oregon from leaning Obama to solid blue that means safe for Obama. The changes in Wisconsin and Missouri cut Obama's electoral lead almost in half. If the election were held today, CNN's estimates Obama would get 223 electoral votes to 200 for McCain. As you know 270 are needed to win the White House.

In the wake of the financial turmoil that's seizing Wall Street, the economy or issue number one as we like to call it is center stage in ads from both the Obama and McCain campaigns. Howard Kurtz of CNN's "RELIABLE SOURCES" is fact checking the accusations being hurled all about. Howard?

HOWARD KURTZ, CNN'S RELIABLE SOURCES: Wolf, as they tar and feather each other on the struggling economy, John McCain and Barack Obama are now taking aim at each other's advisers. (BEGIN VIDEOTAPE)

(BEGIN VIDEOTAPE)

KURTZ (voice-over): Obama now has two juicy targets, close McCain aides who have stepped out of the spotlight because of controversy.

OBAMA CAMPAIGN AD: Carly Fiorina, the fired CEO who got a $42 million golden parachute, Phil Gramm, the ex-senator who pushed through deregulation and called Americans hurt by this economy whiners.

KURTZ: That's true. Fiorina was forced to resign at Hewlett- Packard and got a huge severance package. Gramm championed a law loosening barriers between banks and insurance companies that was also believed signed by President Clinton. Gramm did recently call America a nation of whiners complaining about a mental recession. But one line in Obama's ad distorts something that McCain said this week.

OBAMA CAMPAIGN AD: They think the economy's fundamentally strong.

KURTZ: What McCain actually said was.

SEN. JOHN MCCAIN, (R) PRESIDENTIAL CANDIDATE: The fundamentals of our economy are strong.

KURTZ: That's a key distinction since the underlying system can be strong even as Wall Street is reeling. A McCain ad, meanwhile, tries to link Obama to a former chief executive of the mortgage giant Fannie Mae.

MCCAIN CAMPAIGN AD: Who advises him? The post says it's Franklin Raines for advice on mortgage and housing policy. Shocking. Under Raines Fannie Mae committed extensive financial fraud. Raines made millions. Fannie Mae collapsed.

KURTZ: Raines did tell "The Washington Post" in April that he was offering some advice to the Obama campaign. Now he and the campaign are denying any such role. So today McCain unveiled a new ad aimed at another former CEO of Fannie Mae, Jim Johnson.

MCCAIN CAMPAIGN AD: Fannie cooked the books and Johnson made millions. Then Obama asked him to pick his VP and raised thousands for his campaign.

KURTZ: That's true and Johnson gave up his role vetting vice presidential nominees over controversy about his own home loans.

(END OF VIDEOTAPE)

KURTZ: It's the age-old tactic of guilt by association. Whether the voters really care about advisers who are hardly household names remains to be seen. Wolf?

BLITZER: Howard Kurtz, thanks very much. Howie's going to have a lot more coming up Sunday on "RELIABLE SOURCES" 10:00 a.m. eastern. Those are just some of the dozens of ads aired by both McCain and Obama. According to the TNS Media Intelligence campaign media analysis group, Senator McCain has run 40 ads since clinching the nomination, spending more than $55 million. The republican national committee has pitched in another $5 million on its ads. Senator Obama has run 37 ads at a cost of more than $64 million, with the democratic national committee spending about $354,000 on its ads.

Today in our political ticker, we want to show you an on-line video from a John McCain supporter that's getting a huge amount of views on YouTube. Let's check in with our internet reporter Abbi Tatton, she's working this story for us. All right, what's it all about Abbi?

ABBI TATTON, CNN INTERNET REPORTER: Wolf, this on-line video has 8 million views on YouTube. Those are staggering numbers even for the videos made by supporters of Senator Obama. But it's this video about supporting the Iraq war and John McCain called "Dear Mr. Obama" that has people watching.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: I'm supporting Senator John McCain for president. He too made a huge sacrifice promoting freedom because he understands the fundamental truth. Freedom is always worth the price.

(END OF VIDEO CLIP)

TATTON: That's army specialist Joe Cook from Illinois. He lost his lower leg in Iraq, as you can see as he turns and walks away from the camera, he made this video after being approached by a local filmmaker, Michael Brown, a registered republican who says he made this independently of the McCain campaign. I spoke to Joe Cook's father who said the family was amazed when this even had hundreds of views. Now it's well into the millions in just three weeks after being pushed on conservative blogs and on talk radio. The website that tracks this kind of things calls this the GOP's first viral video. Wolf?

BLITZER: That's amazing. All right thanks very much for that Abbi. It's the most far-reaching financial rescue plan since the great depression of the 1920s and '30s. Wall Street seemed thrilled, but are federal bailouts of sinking financial institutions really a good idea? Let's hear your e-mails and Jack Cafferty coming up. And a countdown to a new era for the Bronx bombers. This is the final weekend for historic Yankee stadium. The hot shots coming up next.

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BLITZER: Here's a look at some of the hot shots. In India, villagers battle flooding by holding hands. Off Louisiana, a man inspects a damaged oil platform from hurricane Ike. In Jerusalem a Palestinian boy praised during Ramadan. And in New York, two fans find seats for one of Yankee stadium's final games. Some of this hour's hot shots. Pictures worth a thousand words. Let's go right back to Jack, he's got the Cafferty file. Jack?

JACK CAFFERTY: The question this hour, is are federal bailouts of troubled financial institutions a good idea? Ben writes, "Bailouts are not a good idea but if the damage that results from not bailing out certain institutions is truly going to be so much worse, then it becomes the lesser of two evils and I guess we just have to swallow hard and do it." Jane disagrees, "Federal bailouts are great for the million and billionaires who don't want to lose their shirts. For the rest of us, we'll be paying this bill for the rest of our lives. No! Won't somebody help the middle class? Where is the outrage?" Jeff writes from New York, "For at least 100 years we've been told regulations are bad for business. Yet every time we deregulate, the rich fire both barrels and everybody else takes the bullet. So what's really bad for business?" Mike writes, "It's a horrible idea unless you're the ones running the financial institutions that are being bailed out. At the very least, since this brain fart of an idea is going ahead anyway, the CEOs, boards of directors, and all senior management need to be permanently barred from working in the financial industry ever again." Chris in Bradenton, Florida, "Why is it we socialize losses and privatize profits? If these mega companies were booming, don't hold your breath that these profits would be passed around to the rest of us. But if they're too big to fail, the losses get thrown on our backs. Am I missing something?" And David in California writes, "Federal bailouts are great for those getting bailed out. But not so good for everybody else. I sure wish the government would come along and bail me out from all of my bad decisions so I could make a fresh start."

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: The picture they laid out for these congressmen, Henry Paulson, Ben Bernanke, was of such dire consequences, almost like a depression if they didn't do something.

CAFFERTY: You know this thing has been coming down the tracks at us for a couple of years. My guess is that it didn't get the attention it deserved until it became probably a lot worse than we'll ever know.

BLITZER: Good point, Jack. Have a good weekend. We'll see you back here on Monday, Jack and the rest of the crew in THE SITUATION ROOM. I'm Wolf Blitzer in THE SITUATION ROOM. Thanks very much for watching. "LATE EDITION" on Sunday don't forget, 11:00 a.m. eastern. Until then, thanks very much. "LOU DOBBS TONIGHT," starts right now. Lisa Sylvester is sitting in for Lou.

Lisa?