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THE SITUATION ROOM

Wall Street Responds to the Bailout; Palin's Stumbles and the Vice Presidential Debate

Aired September 29, 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: We want to welcome our viewers in the United States and around the world. I'm Wolf Blitzer, you're in THE SITUATION ROOM.
(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: Americans are angry and so are my colleagues. They don't want to have to vote for a bill like this.

NANCY PELOSI: The democratic side more than lived up to its side of the bargain. The legislation may have failed, but the crisis is still with us.

(END OF VIDEO CLIP)

BLITZER: Anger, blame, and frustration. The House of Representatives failing to pass a $700 billion financial rescue package today. And the nation is paying for it right now. The Dow Jones industrials nose-diving more than 777 points. That's the biggest one-day point plunge at the closing bell ever in U.S. history. CNN's Ali Velshi and Mary Snow are standing by with more on the economic fall-out. But let's go to Capitol Hill Jessica Yellin is up there watching this. What a day in congress, Jessica. Because when everyone woke up this morning, they simply assumed that the democratic and republican leadership, they knew what the vote count would be, they had their ducks in a row. You know what, it did happen?

JESSICA YELLIN, CNN CORRESPONDENT: It did not happen, Wolf. And I'll tell you we've talked to people who have been up here for two decades who say they've never seen a vote go down, a day go down just like this. We are learning now that in the moments before this bill went to a vote, even republican leaders on the house side were not certain that they would have the votes they would need to pass this measure. They thought that it was fine to go to the vote because the pressure, this is what they're telling us, they thought the pressure of knowing that these men and women would have to vote with the risk of a stock market plummeting, if they didn't give a yes, would in itself change the nos to yeses. And as we now know, that didn't happen. In the minutes afterward, there was immediate blame going around. Democrats saying they delivered 60 percent of their caucus. Why weren't the republicans able to deliver their conference? Republicans, as we know now, are pointing their finger at a speech Nancy Pelosi gave, but the big question is would one speech really make people decide not to vote on a $700 billion bailout? Is it really on Nancy Pelosi's shoulders. Wolf?

BLITZER: So what happens next? Congress will take a couple of days off is that it and then they come back, the house on Thursday?

YELLIN: Yes. Well, they're not physically here, but you can be sure that phones are going to be busy and members are going to be working hard. We understand that there's now some back and forth. We spoke to the republican whip who would like the senate to vote first. We don't know that that will, in fact, happen, but they do want to see some at least minor changes to the bill before they can deliver any more republicans to sign on.

BLITZER: Jessica is on the hill. She's going to stand by. Today's sell-off on Wall Street wiped out $1.2 trillion in market value. $1.2 trillion. It's the first time ever that more than a trillion dollars has been lost in a single day of trading. That goes back a long time in U.S. history. Let's go to our senior business correspondent Ali Velshi. What a massive loss. Ali, give us some perspective.

ALI VELSHI, CNN SENIOR BUSINESS CORRESPONDENT: All right. That loss, that 777 points on the Dow, is almost 100 points worse than the biggest sell-off we've ever had in point numbers, in point terms. That was September 17th, of 2001, the first day the markets opened after the September 11th attacks. So in point numbers, it's pretty significant. In percentage terms, it's a lot less significant. Still a big loss, about 7 percent. However, if you look at the S&P 500, which actually probably resembles many peoples' 401(k)s more than the Dow does, the loss there was more than 8 percent, almost 9 percent actually. That makes it I think about the fifth biggest loss on a percentage basis. The bottom line is, everybody who has got investments was affected by this today. As I've been saying, this is actually a small part of the equation. The bigger part of the equation is that the credit markets, which have been seized up by the inability to get a deal in Washington, remains seized up and that is going to start to affect the ability of businesses to get money, short-term money, in some cases, to make operating expenses, including payroll. Mortgages are affected by this. Your job may be affected by this. And small businesses' ability to get bridge loans is affected by this. Wolf?

BLITZER: A lot of people are hoping, as you know Ali right now, that the house when they come back on Thursday, there will be some face-saving changes, some cosmetic changes, some of those members will reconsider their no vote in favor of a yes vote and they'll pass it. Should we assume based on historic experience that the markets will then go up 777 points in a single day?

VELSHI: I think as Jessica said, the nay sayers were testing to see whether there would be a serious reaction. The markets gave their answer to that today. I think everybody has staked out their positions. And at this point the message is get back to work, get a deal out here. I think if there's even sentiment that we're moving toward a deal and those holdouts are moving toward it, you'll probably see an improvement in the markets. We'll be tracking that all night to see how those go when they start opening up in Asia.

BLITZER: Let's see what they do. All right, Ali, stand by. As if the bailout bombshell in the house wasn't enough to rock the markets, another reminder today that the financial institutions in this country are in peril. Wachovia taken over by another banking giant, Citigroup. Let's go to Mary Snow. She's in New York watching this latest shoe to drop. Wow. Wachovia, who would have thought?

MARY SNOW, CNN CORRESPONDENT: That's what so many people are saying, Wolf. So far this year, 13 banks have failed. More are expected to follow. The market is asking who's next? And consumers are asking, is my money safe?

(BEGIN VIDEOTAPE)

SNOW (voice-over): Even before the house rejected the bailout bill sparking the Dow to plummet, the markets were nervous about what the bailout can't see. Wachovia, the fourth largest bank in the U.S., became the latest to struggle. It didn't fail but was taken over by Citigroup in a deal brokered by federal regulators.

JAMES EARLY, MOTLEY FOOL: Ironically with Citigroup coming in it's almost like the sick buying the sicker, but, hey, that's the times we're living in.

SNOW: Days ago, Washington Mutual became the largest bank to fail in U.S. history. Banking customers remembering long lines outside IndyMac when it failed in July have been asking the Federal Deposit Insurance Corporation if their money is safe. The FDIC has been educating customers about its insurance. Money magazine's Walter Updegrave has been inundated with questions.

WALTER UPDEGRAVE, MONEY MAGAZINE SENIOR EDITOR: I think that people just ought to take prudent measures. Make sure that any money that you have in a bank is well below the deposit insurance limits.

SNOW: The FDIC insures up to $100,000 for individual accounts and up to $250,000 in the case of retirement accounts.

UPDEGRAVE: The simplest thing that you can do is to make sure that you spread your money around enough among enough banks so that you are well below those limits in case something happens.

SNOW: But the FDIC has a list of 117 troubled banks. Some analysts say the bailout and its goal of absorbing toxic assets in the form of mortgage-backed securities will determine the number of bank failures.

EARLY: Invariably, we will see a number of additional bank failures. I think that can be less than 100 with a very proactive bailout. It could be several hundred or more with maybe a less-active bailout.

(END OF VIDEOTAPE)

SNOW: Now, I checked on individual banks to see whether or not they are insured. The FDIC lists information on its website. Now the FDIC has also been answering a lot of questions. One of the things it's been stressing is that it does have enough money to cover insured deposits. And it says it can draw on other resources if it had to, but at this point, that's unnecessary. Wolf?

BLITZER: A lot of worried folks out there watching all of this. Mary, thank you very much. Let's check in with Jack. He's got the Cafferty file. Jack?

JACK CAFFERTY: Of course the calls calling for Sarah Palin to step aside as John McCain's vice presidential candidate is getting louder in the wake of that disastrous interview Palin did with CBS News' Katie Couric. Kathleen Parker, a well respected conservative columnist writing on the "National Review" website says that after watching Palin's recent media appearances, her "cringe reflex" is exhausted. She says Palin's interviews with ABC's Charles Gibson, FOX NEWS' Sean Hannity and CBS' Katie Couric have quote, "All revealed an attractive, earnest confident candidate who is clearly out of her league." Parker admits she had been pulling for Palin as a woman and as a conservative, but her lack of understanding of economic and foreign policy issues is troubling. Really? Parker now says if B.S. were currency, Palin could bail out Wall Street by herself. When we asked if John McCain has any plans to ask Palin to step aside, we called the campaign today, a McCain spokeswoman replied, are you kidding? No, ma'am, we weren't. Here's the question. Should John McCain ask Sarah Palin to step aside? Go to cnn.com/caffertyfile. You can post a comment on my blog.

BLITZER: I know you mentioned -- you raised some of those questions the other day in the Cafferty file and you got an unbelievable response, didn't you, Jack?

CAFFERTY: Yes, we did. People recognize this for what it is. It's sort of like playing politics with the bailout package. He went up there -- you know what it is? The republicans wouldn't let him have Lieberman, so he did this to show them. And it's blowing up in his face just like, you know, suspending his campaign to race back to Washington and calling for the debate to be postponed. That blew up in his face, too. I don't see where he's using a lot of real good judgment here.

BLITZER: Jack stand by, we're going to get back to you shortly.

Here's some advice. Don't panic, don't be afraid. That advice coming in from Barack Obama. He says now that the Wall Street bailout plan has failed, there's time to reassess what's going on. He's talking about his position on the plan, and wait until you hear what Senator Obama is promising Americans regarding this crisis if he becomes the next president.

John McCain also talked about how he feels about today's vote and what he did to try to move it along. The McCain campaign said Sarah Palin is going to what they call debate camp. Will that help her avoid more high-profile gaffs? Stay with us, you're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: America's financial crisis getting more urgent and complicated today for all of us, including, of course, the presidential candidates themselves. Both Barack Obama and John McCain are speaking out about the house defeat of a bailout plan that to some degree had their own fingerprints on it and they're laying blame on one another. Let's go to Ed Henry. He's covering the McCain campaign for us stand by Ed for a moment. Susan Malveaux is in Denver, she's covering the Obama campaign for us. First of all, tell us, Suzanne, what the Obama campaign, what are they saying? How are they reacting to this huge defeat of this legislation on the house floor?

SUZANNE MALVEAUX, CNN CORRESPONDENT: Well, Wolf, Barack Obama is already on his way to Reno. I talked to his spokeswoman, Glenda Douglas, who says he has no intention of changing his travel plans or to stop campaigning. She says that he never thought it was a good idea to go to Washington and inject presidential politics into the process. However, he is getting updated on a regular basis from Secretary Paulson as well as House Speaker Nancy Pelosi for the latest state of negotiations.

(BEGIN VIDEOTAPE)

SEN. BARACK OBAMA, (D) PRESIDENTIAL CANDIDATE: Let's get this done. Democrats, republicans, step up to the plate, get it done.

MALVEAUX (voice-over): Barack Obama called for congress to break the gridlock and pass a bailout bill. After being briefed by Secretary Paulson and House Speaker Nancy Pelosi about the failed vote, Obama sought to reassure the nation.

OBAMA: Now is not the time for fear. Now is not the time for panic.

MALVEAUX: He also used the crisis to blast President Bush and John McCain over the republicans' economic policy.

OBAMA: This is the consequence of eight years of irresponsibility. And it is time we had some adult supervision in the White House. They wanted to let the market run free, but instead they let it run wild.

MALVEAUX: Obama said he would have reluctantly voted yes for the failed mammoth $700 billion plan because it contained the kinds of protections for taxpayers and homeowners he'd been demanding.

OBAMA: This administration started off by asking for a blank check of $700 billion to solve the problem. And I said absolutely not.

MALVEAUX: Instead, Obama made a big promise to voters.

OBAMA: If I am president, I will review the entire plan on the day I take office. To make sure that it is working to save our economy and that you get your money back.

(END OF VIDEOTAPE) MALVEAUX: Now, Wolf, whether or not the majority of voters believe that is really an unanswered question. And the answer to that question could very well determine who becomes president. Wolf? BLITZER: Suzanne, thanks very much. Stand by. Let's get to the John McCain campaign right now and its reaction to the house rejection of the bailout bill. He briefly suspended his campaign to put himself at the center of the deal-making. Now he says he's calling on congress to get something passed ASAP.

(BEGIN VIDEO CLIP)

SEN. JOHN MCCAIN, (R) PRESIDENTIAL CANDIDATE: I worked hard to play a constructive role in bringing everyone to the table. The plan is now significantly improved. We strengthened taxpayers' protections and oversight, and the taxpayers were on the hook for less money up front. Don't get me wrong. It isn't perfect. And the fact that taxpayers could have to spend a single dollar to create stability in our economy is a decision that I do not take lightly.

(END OF VIDEO CLIP)

BLITZER: Let's go to Ed Henry. He's watching all of this unfold. He's accusing Obama and the democrats of engaging in what he calls unnecessary partisanship and he's saying that was partially responsible for the collapse. Is that right?

ED HENRY, CNN WHITE HOUSE CORRESPONDENT: That's right Wolf. I mean the bottom line here is that John McCain is playing a little defense. Because as you noted, he raised the stakes himself last week by saying, look, I'm going to suspend my campaign go back to Washington. Sort of portrayed it as I'm riding to the rescue to try to save these talks. He was here in Washington as you know all weekend. Now that it's failed, this is a bottom-line business. He has to deal with the fact that the bill failed. And so he's trying to do two things, first of all say, look, I played a constructive role. At the beginning last week there were only four house republicans on record for this bill. In the end, there were 65 on record for it on the house floor. Not enough, but still, you know, 61 more than when John McCain entered the talks. And secondly he's trying to say the real reason it failed is because Barack Obama, democrats like Nancy Pelosi were excessively partisan. The problem he's going to have with that argument is that there were 133 republicans, as we've been pointing out all day, who voted against this. So John McCain has a lot of his fellow republicans that were not convinced. A lot of republicans not convinced by President Bush as well. So John McCain raised the stakes. Now it's failed. He's got a tough job to try and show it was not his fault.

BLITZER: When all is said and done, when you look at McCain's role in this, I guess there's a lot of second-guessing. Even some republicans are second-guessing.

HENRY: Some republicans are saying, look, why did he raise the stakes like that? But I'm talking to other republicans not just in the McCain camp but outside republican strategists who say, look, he did succeed at least in trying to take the bull by the horns and reinforce the message that he would be an active president, somebody who would be aggressive in trying to address the problems. You're not going to succeed every time, but at least he rolled up his sleeves and went to work. That's certainly the image republicans want to have out there. They're trying to make the charge that Barack Obama, McCain himself said this in Ohio today, Obama was on the sidelines. I was in the middle of the action. But again, at the end of the day, he still didn't win. Wolf?

BLITZER: Ed Henry, thanks very much.

So how did it all happen, the recent bipartisanship over getting the bailout bill passed has dissolved into bickering and finger- pointing. How might this effect your vote on November 4th? The best political team on television stands by.

And the McCain campaign says Governor Sarah Palin is going to debate camp. Might that help her avoid any high-profile mistakes? We'll be right back.

(COMMERCIAL BREAK)

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

FREDRICKA WHITFIELD, CNN ANCHOR: Hello again Wolf. The British candy-maker Cadbury is recalling 11 types of Chinese made chocolates. The products are laced with an industrial chemical. Cadbury says the recalled chocolates were distributed in Taiwan, Hong Kong, and Australia, but not in the U.S. Authorities believe suppliers in China added Melamine to help their products pass quality tests for protein. China's official news agency says police have arrested 22 people and seized more than 480 pounds of melamine.

"The New York Sun" is shutting down. A spokesman for the conservative leaning newspaper says tomorrow's edition will be the last. The paper launched in 2002. Its editor announced on September 4th that "The Sun" had endured substantial losses. He said it would fold at the end of the month without a new infusion of cash.

And a behind the scenes move by prosecutors in the trial of Senator Ted Stevens is angering a federal judge. And it's given Stevens an opening to renew allegations that the government isn't playing fair in his corruption case. Prosecutors sent an ailing potential witness home to Alaska today. The judge scolded prosecutors for unilaterally making the move. The judge rejected the defense's bid today to pull the plug on Stevens' trial and throw out the chargers, accusing him of accepting more than $250,000 in unreported home renovations. Wolf?

BLITZER: Thanks Fred. America's financial system already was in crisis and now this. The stock market losing a record $1.2 trillion in value. Can the bailout be salvaged? And even if congress finally acts, can the damage to the U.S. economy be undone? The best political team on television answers the money questions.

And Sarah Palin heads into her first and only debate with Joe Biden, with some new missteps behind her. We'll set the stage for the next big test right here in THE SITUATION ROOM. (COMMERCIAL BREAK)

BLITZER: To our viewers you're in THE SITUATION ROOM. Happening now, a shocking turn of events from Capitol Hill to Wall Street to Main Street. The government bailout fails and the Dow Jones has its biggest point drop ever. The stock sell-off wiping out $1.2 trillion in market value. Can the rescue plan be saved in time to save the economy? We have some reaction coming in from the government, from Washington lawmakers. We're covering the story from all angles.

Plus, what will the impact of the financial turmoil be on the elections? Only a few weeks away, is changing the campaigns of both candidates. All of this, plus the best political team on television. I'm Wolf Blitzer. You're in THE SITUATION ROOM.

The $700 billion plan to save the nation from a deeper financial crisis fails. Defeated under a hail of no votes from some democrats, but mostly from republicans turning their own backs on the president and his urgent pleas to vote for it. It caused the single largest point drop in the stock market's history. CNN's Deborah Feyerick has been talking to people in Times Square in New York.

(BEGIN VIDEOTAPE)

DEBORAH FEYERICK, CNN CORRESPONDENT (on camera): Well, a number of people have been stopping by, taking pictures of the stock ticker here at Times Square, trying to figure out exactly what it all means. There is a lot of anger, a lot of confusion, a lot of disgust. Now that the treasury department will not be able to buy up to $700 billion in these troubled mortgages, which were intended to stabilize the financial system. A lot of questions out here. Why, for example, didn't the democrats get this done as they suggested it was going to be done? Also, why did so many republicans vote against this?

UNIDENTIFIED MALE: I have an annuity account and a pension plan. I mean, that's my retirement. I'm in -- it's in mutual funds. It all depends on these markets.

UNIDENTIFIED MALE: I think the term they used was catastrophic if this was not passed. So we'll just have to wait and see.

UNIDENTIFIED MALE: I think it's pretty irresponsible of them, but that's nothing new.

FEYERICK: There is a lot of uncertainty as to what this all means. Is congress going to give it another shot? Will another bill get passed? We've heard some politicians saying that they were getting a lot of feedback from their constituents who were against this particular bill, but what we're not hearing at least not from this small corner of the world is the word relief. Deborah Feyerick, CNN, New York.

(END OF VIDEOTAPE)

BLITZER: One republican lawmaker says, and I'm quoting now, "Heaven help us." Here to talk about congress' failure to pass this plan, joining us, our senior political analysts Gloria Borger, our senior analyst, Jeff Toobin, and Steve Hayes, the senior writer for "The Weekly Standard." Gloria, as you know, and you've covered congress for a long time, especially the house, the leadership, they don't allow a vote to come up unless they know for sure what the outcome is going to be. How could this happen?

GLORIA BORGER, CNN SENIOR POLITICAL ANALYST: Well, they didn't know. As Jessica Yellin reported earlier --

BLITZER: Then they should have held off. They should've waited until they knew.

BORGER: You know, I think that they were keeping their fingers crossed, Wolf, that they would have had enough votes. They, of course, are blaming Nancy Pelosi's speech. But in truth, conservative republicans in the house are ideologically opposed to this. They've been opposed to it since day one. You can tinker with it all you want, but if you combine those republicans with a weak presidency and the fact that there were also 90 or so democrats who were scared about this, you have a toxic brew and you get nothing done.

BLITZER: I looked at the roll call, Steve. And among all of the House Republican leaders -- whether Boehner or Blunt of Eric Cantor -- you go down the list of the leadership, they all, reluctantly -- Adam Putnam, for example -- they all voted in favor of the legislation, agreeing with John McCain, with George Bush, with Henry Paulson. But, you know, they were in the minority among the Republicans.

HAYES: Yes. They did not like it. They voted for it, but they did not like it. I mean it was very interesting to see some of the Republicans that you talked about. Adam Putnam, for instance, is one of the really -- the young leaders of conservatives in the House of Representatives. He voted -- he ended up voting for a bailout bill that I know that he didn't like. And a lot of Republicans did this, I think, in part, because they wanted to support a president, they wanted to support John McCain. They would make the argument that John McCain's intervention changed the vote total of House Republicans from four to 66. You know, whether that's actually true or not, how much influence he had, I think remains to be seen.

But we've got a mess in front of us, actually, not only behind us.

BLITZER: A huge mess.

What do you think, Jeff?

JEFFREY TOOBIN, CNN SENIOR LEGAL ANALYST, "NEW YORKER" MAGAZINE COLUMNIST: Well, I think this is really a lesson in how the Republican Party has changed. This is really a Southern and Western party now. The Midwesterners who used to be in charge of the Republican Party, sort of the mainstream, country club Republicans, they're, for the most part, gone. And this party really does not believe that government solves any problems ever. They are really a small government party.

They don't like a bailout. They don't like the government being involved at this level. And so they were voting their consciences.

Unfortunately, that doesn't appear to be something that the economy responded positively to. But I think what you've seen is the Republican Party is just a very different party than it used to be.

BORGER: Well...

BLITZER: Is that true, Steve?

Hold on one second.

Steve?

HAYES: No, I actually don't think that is true, actually. I mean look at the Republican Party today.

Who do they have as their presidential nominee?

The titular head of the party is John McCain, who, while he's a Western conservative geographically, is far from the Barry Goldwater Western conservative or the Dick Cheney Western conservative that we've seen.

I think what we, in fact, have is a split Republican Party. And we have the core sort of Midwestern Republicans that Jeff is talking about, maybe the Northeastern Republicans, who are more moderate. And then you also have the conservatives, the Western and the Southern conservatives who voted against the bill.

BLITZER: If they...

HAYES: It's two different parties.

BLITZER: Gloria, if this does result in a deep recession -- and a lot of people feel we're already in a recession, but in a deep recession not only affecting people's portfolios, their retirement plans, their savings accounts, but their jobs. If firms can't get credit and they can't meet payroll...

BORGER: Right.

BLITZER: ...and they start laying off folks out there, who's going to be suffering politically?

Will it be the Republicans who voted against this legislation or will it be the Democrats?

BORGER: Well, you know, it depends on who you talk to. You know, the Republicans voted against this legislation by a huge margin of 2- 1, Wolf. And I think that what we are seeing is a civil war in the Republican Party.

And, by the way, if John McCain gets elected president, the civil war in the Republican Party could get even worse.

And you see these -- and I call them the descendants of Newt Gingrich, which is who they are -- they're not following John McCain, nor are they following the president of the United States. And the party is going to split wide open, whether or not he gets elected, but particularly if McCain does become president, because, honestly, he doesn't agree with them on much of anything.

TOOBIN: Wolf, it's very clear who's going to benefit here. The Democrats are going to benefit. This is a Republican president. This is a Republican economy. Look at the polls in the last two weeks.

BORGER: Right. Right.

TOOBIN: Barack Obama has taken off. He's got his biggest lead of this entire race because of this crisis. This crisis is being blamed on the Republicans. That may be fair, that may be not fair, but that's just what's happening.

BORGER: But incumbents are going to get blamed, also. Just, you know, look, Congressional...

TOOBIN: I don't see that at all.

BORGER: I think you can play this -- I think you can play this -- and, obviously, the blame is going to be laid at the feet of the Republicans.

TOOBIN: Well, do you think Democrats are going to...

(CROSSTALK)

BLITZER: Hold on a second.

TOOBIN: Democrats are going to be voted out of office?

BORGER: But incumbents will get blamed.

BLITZER: Hold it...

TOOBIN: Democrats are going to be voted out of office because of this?

I don't think so.

BORGER: I think, Democrats, actually, who voted for this plan could be in some trouble.

BLITZER: Well, hold one second.

Steve, when the House comes back on Thursday, will there be enough cosmetic changes to allow a different outcome if the roll call is called again?

HAYES: Well, I don't know. I mean that's the $64,000 question. You know, right now they're scrambling to see if they can incorporate some of these other elements that House Republicans were talking about. You've got the Senate -- I think some people call the Senate Republicans the "adults" who they think will bring some reason to this process.

I'm not so sure. I mean I think there are a lot of conservatives who are out there who are sympathetic to what House Republicans have done today.

BLITZER: All right, hold on...

HAYES: And, you know, I might be one of them.

BLITZER: Stand by, guys. Stand by. We're going to continue this conversation, including vice presidential candidates -- Joe Biden and Sarah Palin, they're getting ready for their first and only showdown. It's coming on the heels of some much publicized missteps by the Alaska governor. We're going to see how the McCain campaign thinks she will do.

We're back with the best political team on television.

And who came out on top in the presidential debate?

It's not just polls that offer some insight.

Stick around, lots more news happening, today right here in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: Amid all of the financial turmoil, both vice presidential nominees are gearing up for their first and only debate on Thursday. The showdown between Joe Biden and Sarah Palin coming on the heels of some widely publicized gaffes by the Alaska governor.

Let's go to CNN's Brian Todd.

He's working this story for us -- all right, what are they saying about the preparations leading up to this first and only vice presidential debate?

BRIAN TODD, CNN CORRESPONDENT: Well, Wolf, McCain campaign officials say they believe Sarah Palin is a valuable asset to them. They're holding firm on that. They say she's able to energize voters, really connect with them. They also believe that her public missteps have been way overblown.

But Sarah Palin is now under a microscope to prove just that.

(BEGIN VIDEOTAPE)

(BEGIN VIDEOTAPE)

TODD (voice-over): At the very least, Sarah Palin's getting valuable training on where political curveballs might come from -- like from a grad student in a South Philly cheese steak joint.

UNIDENTIFIED MALE: So we do cross border, like Afghanistan to Pakistan you think? VOICE OF GOV. SARAH PALIN (R-AK), VICE PRESIDENTIAL CANDIDATE: If that's what we have to do to stop the terrorists from coming any further in, absolutely, we should.

TODD: On its surface, a position that seems more like Barack Obama's. It prompts her running mate to say on ABC's "This Week" we're on the same page.

MCCAIN: She shares my view that we will do whatever is necessary. The problem is you don't announce it. You don't say to the Pakistanis, we're coming in unilaterally and carry out operations.

TODD: But as she prepares for what's clearly her most important public appearance of this campaign, GOP strategists say the stakes for Sarah Palin and the McCain campaign have been hyped up considerably over the past week. McCain's gambit on the financial bailout raised them, as did Palin's own performance in a CBS news interview parodied on "Saturday Night Live."

(BEGIN VIDEO CLIP FROM "SATURDAY NIGHT LIVE," COURTESY NBC)

TINA FEY: Ultimately, what the bailout does is help those that are concerned about the health care reform that is needed to help shore up our economy...

UNIDENTIFIED FEMALE: (INAUDIBLE).

FEY: Oh, it's got to be all about job creation.

(END VIDEO CLIP)

TODD: McCain campaign officials tell us they're not worried about Palin's debate performance. They say some of her other answers in network interviews show she understood the issues.

Campaign aides say Palin is going to Senator McCain's ranch in Arizona to prepare and that some top staffers from the senator's campaign will help her. Analysts say she's got a tall order to show command of the facts and not look rehearsed.

LISA BURNS, MEDIA ANALYST, QUINNIPIAC UNIVERSITY: If she's not comfortable at this point, she needs to do whatever it is that takes for her to get more comfortable so she can say a few things that are possibly off script, yet, of course, are still going to represent McCain's stance on these issues.

(END VIDEOTAPE)

TODD: So Sarah Palin has clearly got to demonstrate command of the issues, but not look heavily coached.

Now, GOP strategists we spoke to say that while Palin's own gaffes have contributed to the pressure on her here, it is also true that right now expectations for her are so low, that all she's really got to do is not make a major mistake and not really lose this thing -- Wolf. BLITZER: Thanks very much, Brian.

Let's get back to our panel, Gloria Borger, Jeff Toobin and Stephen Hayes.

All right, guys, is that the sort of the standard, Steve, that she's got to simply avoid making a major mistake?

HAYES: Well, I think she certainly benefits from low expectations. But I think she's got to do more than that. I mean what's happened, I think, is that the McCain campaign has kept her so bottled up for so long, that she sort of lost whatever rhythm and whatever natural instinct she has to do these kinds of interviews.

What would have been much smarter is to put her out for a series of short interviews on local television networks, have her get comfortable behind the camera, have her talk more. For one thing, if she were talking more, we wouldn't be quite as focused on every single word that she says, which I think is where she now sees herself.

BLITZER: She does seem, Gloria, just on that Katie Couric interview, to have lost some of her self-confidence over these past few weeks.

BORGER: Oh...

BLITZER: If you remember, the speech she delivered at the Republican Convention in St. Paul and then you compare that to that interview, it's like day and night.

BORGER: Yes. I mean, she looks like she's lost her self- confidence. I mean you can just imagine, they've been sitting her down with a list of 150, 200 questions you need to know the answers to. She's cramming. She's desperately afraid of going off script. If she goes off script, she's afraid she'll contradict what John McCain has said.

And, so, as a result, she censors herself. And when you censor yourself, you're not as good. And so she's trying to work this out. And I agree with Steve, I think they've made this much more difficult for her.

All I can say is she's sitting against Joe Biden and Joe Biden has some debating problems of his own. So, you know, it's going to be interesting to watch the two of them together.

BLITZER: Although I will say this. I moderated some of those Democratic presidential debates when he was participating. Even though he didn't get many votes, he did pretty well in those debates, Jeff. He's a pretty good debater, although occasionally he says, shall we say, not necessarily the smartest of things.

(LAUGHTER)

TOOBIN: His biggest problem is that he's a windbag, is that he talks too much. But he's fortunate in that there will be time limits in this debate.

I think, in fairness to Sarah Palin, we have to point out that the idea of debate camp is not some kind of remedial education program for her. All candidates do this. They go away and they prepare.

The problem is that she's gone into the witness protection program. She's just -- she's not being seen in public, which is customary for people running for national office.

So I do think that this business of expectations, as we've discussed before, is a totally phony issue. I think the expectations should be the same for Biden and for Palin. They're both trying to be vice president of the United States. They're both trying to be a heartbeat away from the presidency.

BORGER: Right.

TOOBIN: So they both should be in capable of doing it.

BLITZER: Well, Steve, the ridicule she's facing -- the "Saturday Night Live" skits, the Tina Fey stuff and all of that, how damaging is it?

HAYES: Well, I think it's damaging. And I think you have a lot of people who don't, you know, maybe watch the news shows as much as we do and some who get their news from places like "Saturday Night Live" or Jon Stewart's show or what have you. You know, they pay attention and they see her mocked. And I think the sense that people take away from that is that she's not to be taken seriously.

And that's why I disagree a little bit with Jeff, because I think that that lowers the expectations for her. And because of the scrutiny she's been under, it's natural that those expectations would be lower.

BORGER: And when you hide a candidate, when you sequester a vice presidential candidate, people start asking the question, well, where is she and why haven't they put her out there and what is there to hide?

BLITZER: Well...

BORGER: And that's really hurt her.

BLITZER: We'd love to have her here in THE SITUATION ROOM if she'd like to join us. She's more than welcome.

All right, guys. We've got to leave it...

TOOBIN: Wolf...

BLITZER: We've got to leave it there.

TOOBIN: Wolf, don't hold your breath.

BLITZER: I -- well, you know, I...

(LAUGHTER)

BLITZER: I'm an upbeat person, an optimist by nature.

TOOBIN: Yes, you are.

BLITZER: All right, guys, stand by.

Thanks very much.

Remember, Thursday night, our coverage for the vice presidential debate will begin right here in THE SITUATION ROOM.

Lou Dobbs is getting ready for his show that begins at the top of the hour and he's going to give us a preview -- Lou?

LOU DOBBS, HOST, "LOU DOBBS TONIGHT": Well, Wolf, I'm shocked. I wish you guys would take it easy on Joe Biden, because I think you're being really unfair to him, just because he makes so many more misstatements than Sarah Palin. But, anyway, I'm sure you can sort that out.

Tonight at the top of the hour, we'll have complete coverage of what has been a remarkable day -- a victory for the American people and a stunning defeat for the Bush administration and the Democratic leadership of Congress -- and, oh, yes, the Wall Street folks who were counting on that $700 billion bailout that went down in flames. The House of Representatives voting against that massive Wall Street bailout.

And stock prices plummeting almost 800 points -- the Dow's biggest decline in points ever. But it could have been worth it.

Is this bailout plan dead or are these lawmakers committed to trying again?

Well, we know the White House is and the Treasury secretary, but what do they know?

We'll find out.

And we'll have a special report on the refusal of political and financial elites to tackle the foreclosure crisis that is facing working men and women and their families all across this country. Among my guests here tonight, three of the smartest economic thinkers and three of my favorite political analysts.

Join us for all of that at the top of the hour, for all the day's news and much more from an Independent perspective -- Wolf, back to you.

BLITZER: Quickly, a remarkable day of victory for the American people...

DOBBS: Absolutely.

BLITZER: ...the collapse of the bailout bill? Explain.

DOBBS: Very simply, this bill would have rolled back the entire free enterprise system. It is nothing more than a sell-out to corporate elites on Wall Street and an absolute travesty and an attempt to extort money from the American taxpayer. And the fact that Barack Obama, John McCain, George Bush, Nancy Pelosi and Harry Reid want to lead that effort is despicable, in my opinion, and absolutely worthy of a celebration of victory for the American people.

BLITZER: All right, Lou.

Thanks.

We'll be watching and listening.

DOBBS: Thank you.

BLITZER: Lou Dobbs coming up in a few moments.

Jack Cafferty is coming up right after this short break.

His question of the hour -- should John McCain ask Sarah Palin to step aside?

And an ominous sight in Key West this afternoon. We're going to show you the photos. How it unfolded, right here in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: We're just getting some videotape of Sarah Palin speaking out, explaining why she thinks she's ready to be vice president of the United States. We'll show you that videotape in a moment.

But let's check in with Jack Cafferty.

He's got The Cafferty File -- Jack.

CAFFERTY: I can't wait to see that.

The question this hour, should John McCain ask Sarah Palin to step aside?

Last Friday, I ran an excerpt of Katie Couric's interview with her on THE SITUATION ROOM. Somebody put it up on YouTube. It got almost a million hits of people looking at that thing on YouTube. It was breathtaking.

Steve writes: "John McCain can't replace Palin because he'd be admitting to his own poor judgment. McCain constantly claims he puts country first. His actions suggest otherwise."

Mickie in Tehachapi, California -- I think there's a women's prison in Tehachapi -- "Yes, especially if she does as badly as I think she might in Thursday's debate and Republicans continue to support her. Never before have I seriously been frightened that a nominee might actually win."

Stefano: "People are so quick to criticize Palin because of lack of experience or knowledge. These are the same people that were watching TV in 1929. Are you guys serious? If Palin had made the same mistakes Biden makes every time he opens his mouth, she would have been crucified."

Martin in Florida writes: "McCain should do it, but he won't admit that he made a bad decision. I believe for the sake of Palin's political career, she is the one who should remove herself from the ticket. She's not ready."

Jake in Texas: "I appreciate some of the Sarah Palin conservative views and toward Second Amendment and immigration, but she is the most unqualified candidate running any office in the U.S. government. So, yes, John McCain should pick someone else -- but he won't."

Richard writes: "You should -- you asked should John McCain should ask Sarah Palin to step aside. Heck, no. With the two of them on the ticket, it's glaringly obvious they're both awfully inept. I guess the Republican Party decided to forgo this election and keep their powder dry for 2012 if the Democrat screws up while in office."

If you didn't see your e-mail here, you can go to my blog and look for it there -- Wolf.

BLITZER: All right, Jack, stand by, because a few moments ago, the CBS Evening News with Katie Couric ran another excerpt of their interview with Sarah Palin. We'll play the clip right now.

(BEGIN VIDEO CLIP FROM "THE CBS EVENING NEWS WITH KATIE COURIC," COURTESY CBS)

KATIE COURIC, CBS ANCHOR: Some Republicans said you're not prepared, you're not ready for prime time. People have questioned your readiness since that interview. And I'm curious to hear your reaction.

GOV. SARAH PALIN (R), VICE PRESIDENTIAL CANDIDATE: Well, not only am I ready, but willing and able to serve as vice president with Senator McCain, if Americans so bless us and privilege us with the opportunity of serving them, ready with my executive experience, as a city mayor and manager, as a governor, as a commission, a regulator of oil and gas.

(END VIDEO CLIP)

(BEGIN VIDEO CLIP)

MCCAIN: This is not the first time that I've seen a governor questioned by some quote expert. I remember that Ronald Reagan was a cowboy. President Clinton was a governor of a very small state that had no experience, either. In fact, I remember how easy it was going to be for Bush I to be... (END VIDEO CLIP)

BLITZER: All right, so an excerpt from "The CBS Evening News" tonight with Katie Couric.

We'll continue to monitor what's going and watch and bring you others, if appropriate.

And when it comes to the presidential debates, a smile or a smirk could be worth a thousand words.

(BEGIN VIDEO CLIP)

DAN HILL, BODY LANGUAGE EXPERT: McCain was trying to look -- make it look softer there by smiling. But, in fact, his eyes were very narrow in what's a snake eyes expression of anger and there was contempt on his face.

(END VIDEO CLIP)

BLITZER: A facial coding expert shows us what to look for.

It's pretty easy to read this Wall Street trader's body language. It's been a long day.

This and a lot more when we come back.

(COMMERCIAL BREAK)

BLITZER: An amazing sight in Key West, Florida. Take a look at this. A water spout moved onshore over the northwest side of Key West around 4:00 this afternoon. It then went back over water. The local sheriff's office says there were no immediate reports of damage. When a waterspout moves onto land, it becomes a tornado. This water spout dissipated just before hitting a causeway. Pretty impressive.

That old saw, it's not what you say, it's how you say it is never more true than it is in presidential politics. The candidates have plenty to say, but not nearly as much as their bodies do.

CNN's Jeanne Moos takes a Moost Unusual look at last week's presidential debate.

(BEGIN VIDEOTAPE)

JEANNE MOOS, CNN CORRESPONDENT (voice-over): A debate note to Sarah Palin -- you don't only have to watch what you say, you have to watch for people watching how you say it. Take that Alaska's proximity to Russia counts as foreign policy experience answer. It's been imitated on comedy shows.

(BEGIN VIDEO CLIP FROM "SATURDAY NIGHT LIVE," COURTESY NBC)

TINA FEY: You've got Alaska here and this right here's water. And then that's up there's Russia.

(END VIDEO CLIP)

MOOS: It's been ridiculed.

(BEGIN VIDEO CLIP FROM "REAL TIME WITH BILL MAHER," COURTESY HBO)

BILL MAHER, HOST: That was the sentence to nowhere.

(END VIDEO CLIP)

MOOS: And now we've asked someone called a facial coding expert to analyze.

HILL: Her mouth tightened in what is a second level notch of anger or indignation.

MOOS: But that's nothing compared to the body language bonanza during the first presidential debate.

OBAMA: While he's spewing his nonsense...

MOOS: There was disdain from McCain.

HILL: A really smirking smile in the corner of the mouth.

MOOS: A lack of passion from Obama.

HILL: He's got talking points, but he doesn't have feeling points.

MOOS: Who needs political pundits when Dan Hill can dissect a smile?

JIM LEHRER, PBS: Now, having resolved Iraq, we'll move to Afghanistan.

HILL: You can see Obama's smile is -- his smile is about twice as large as McCain's. McCain, when he smiles, it's always really more of a grimace smile. There's a tension that permeates McCain's personality.

MOOS: And maybe not enough tension permeating Obama's.

HILL: What strikes me how much Obama will look down when he's talking. He is quite an introvert, I think. He would probably be one of most introverted people we've ever had as president.

MOOS: But Dan Hill's main takeaway from the debate was what he calls McCain's lack of respect for Obama.

OBAMA: It would strip away those tax breaks that have gone to oil companies.

HILL: McCain was trying to look at -- make it look softer there by smiling. But, in fact, his eyes were very narrow in what is a snake eyes expression of anger and there was contempt on his face. MOOS: But contempt is in the snake eye of the beholder. It didn't take a body language expert to notice that McCain didn't seem to look at Obama. But when asked about it on ABC...

MCCAIN: That's just foolishness.

MOOS: McCain said he was focused on the moderate and viewers.

Despite the exchange of good job when the debate ended...

OBAMA: Good job, John.

MCCAIN: Good job.

OBAMA: Good job.

MOOS: McCain's look didn't linger.

Our expert found a link to his own cuff link.

HILL: What McCain really specializes in is indignation. He is not afraid of being the frowning face.

MOOS: An analysis that might make McCain smile or raise an eyebrow.

Jeanne Moos, CNN, New York.

(END VIDEOTAPE)

BLITZER: The vice presidential debate -- Sarah Palin and Joe Biden -- this Thursday. Our coverage begins here at 4:00 p.m. Eastern in THE SITUATION ROOM. The debate actually starts at 9:00 p.m. Eastern. We hope you'll join us and watch it right here on CNN.

That's it for me today.

Thanks very much for joining us.

I'm Wolf Blitzer in THE SITUATION ROOM.

Up next, "LOU DOBBS TONIGHT" -- Lou.