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Bush Faces Fallout After Failed Bailout Bill; Critical Look: Should Sarah Palin Step Down?; Medical Flight Dangers

Aired September 30, 2008 - 17:00   ET

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


JOHN ROBERTS, CNN ANCHOR: You're in THE SITUATION ROOM.
And happening now, his final months in office consumed by the country's worst financial crisis since the Depression. President Bush facing open mutiny -- now doing battle with talk radio and members of his own party.

Also, he is an economist who helped turn around some of the world's worst economies. This hour he tells us what the U.S. needs to do to put its financial house in order.

Plus, some say let Palin be Palin, others say cut her loose -- the growing storm within the GOP Sarah Palin.

Wolf Blitzer is off today.

I'm John Roberts. You're in THE SITUATION ROOM.

A rebound on Wall Street -- stocks making a strong comeback one day after their biggest point drop ever. The Dow Jones average climbed more than 480 points. That's pushed, in part, by a proposal to double the insurance cap on bank deposits -- a confidence boosting measure for nervous Americans -- actually, more than double it.

Meanwhile, lawmakers are scrambling to revise the proposed $700 billion Wall Street bailout into a passable bill, with the stakes growing higher day each day they fail to do so.

And while the political fallout from the crisis is widespread, much of it is falling squarely on President Bush, who has made his case before news cameras more than a half a dozen times in just the past couple of weeks.

CNN's Mary Snow and CNN White House correspondent Elaine Quijano are both on this story for us.

Let's begin with Elaine.

Elaine, what's the president facing here?

ELAINE QUIJANO, CNN WHITE HOUSE CORRESPONDENT: Well, John, a plan with a price tag this big would be a tough sell for any president, but especially this one, with less than four months left in his term.

(BEGIN VIDEOTAPE) QUIJANO (voice-over): In his final months in office...

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: The reality is that we are in an urgent situation. And the consequences will grow worse each day if we do not act.

QUIJANO: President Bush is losing his outside gain.

(BEGIN VIDEO CLIP FROM RUSH LIMBAUGH. COM)

RUSH LIMBAUGH, HOST: Screw the market. OK, I'll take that. Not screw the market, but let me tell you something, when the government fails to pass a socialism bill and the market goes south, let it go south.

(END VIDEO CLIP)

QUIJANO: On talk radio outside the Beltway, Rush Limbaugh voiced conservative outrage over the $700 billion financial rescue plan. And with that, anger channeled into no votes on Capitol Hill.

UNIDENTIFIED FEMALE: The motion is not adopted.

UNIDENTIFIED FEMALE: We had very principled reasons for voting no.

QUIJANO: President Bush is facing an open rebellion by some in his own party.

JOHN FEEHERY, GOP CONSULTANT: Well, I would say that, you know, you need to make a phone call to Rush Limbaugh.

QUIJANO: GOP consultant John Feehery.

FEEHERY: In the inside game, the president can win all he wants. But if he doesn't win the outside game -- and that's talk radio, people who are kind of saying it's a Wall Street bailout -- it's very difficult for the president in an inside game to overcome those objections.

QUIJANO: The president is trying to ignore the lame duck label. He's dispatched Vice President Cheney to Capitol Hill and delivered nearly a dozen on camera or written statements on the financial crisis in just the last two weeks.

BUSH: We're facing a choice between action and the real prospect of economic hardship for millions of Americans.

(END VIDEOTAPE)

QUIJANO: But so far, nothing has worked. And even if a deal is reached, conservative anger and tough questions will remain, not only about how America's financial situation reached a crisis stage, but whether President Bush will be able to regain his political standing, John, as a Republican leader -- John.

ROBERTS: Elaine Quijano at the White House for us.

Elaine, thanks very much.

While the focus of the bailout may be Wall Street, it is countless small businesses on Main Street that hang in the balance while lawmakers haggle over it.

CNN's Mary Snow is talking to some of the owners -- and, Mary, this is all about the flow of cash for these businesses.

MARY SNOW, CNN CORRESPONDENT: It is, John. And, you know, they're very worried about surviving.

We visited three different small businesses. Some are already feeling the effects of the credit crunch. Others are bracing for the next few months.

(BEGIN VIDEOTAPE)

PHIL CHIANETTA, OWNER, SAL ELECTRIC: That's our generator.

SNOW (voice-over): Phil Chianetta is keeping one eye on his electric business in Jersey City and the other glued to his TV set. With credit markets tight, he's worried about what happens if banks freeze up and stop lending.

CHIANETTA: My sole existence as a company -- Sal Electric's 45 years' sole existence is dependent on banks. I need a bank and the line of credit that I have with a bank in order to operate.

SNOW: To keep operating, he needs to pay 110 employees each week. In a worst case scenario, what would happen if banks stopped lending altogether?

CHIANETTA: I can operate for 60 days without any revenue coming in.

SNOW (on camera): Beyond that?

CHIANETTA: Beyond that, I'd have to depend on my bank for the line of credit. And the amount of money that I have in my line of credit will allow me to go another three months.

SNOW (voice-over): Don Manthey has already felt the effects of his bank's tightening on lending. He had to take out a second mortgage on his home, sell a building and layoff workers to keep his commercial interior business running in Alexandria after being turned down for a business loan earlier this year.

DON MANTHEY, PROSUM SERVICE CORPORATION: It makes no sense. And the only explanation I got was that we were headed to a recession and that they were more concerned about their loans and tightening up their loan standards.

SNOW: In Middletown, New York, the squeeze on car loans has dried up business at A Plus Auto. ROBERT CRISAFI, A PLUS AUTO: We used to do three a day, you know. Now we're down to three a month.

SNOW: And the organization representing small businesses say they are not the ones that need the bailout.

TODD MCCRACKEN, NATIONAL SMALL BUSINESS ASSOCIATION: They're not the ones that created this problem. Unfortunately, they may be ones that have to pay the piper at the end of the day.

(END VIDEOTAPE)

SNOW: And, John, the president of the National Small Business Association says you don't often hear about small businesses because they usually live and die under the radar screen -- John.

ROBERTS: Well, so what do these small business owners hope to get from this bailout?

SNOW: You know, it's certainly not money. What they are hoping for is confidence in the market, because if there is confidence in the market, then people will continue buying things, getting their services and that will keep them going. Without that confidence, they're really feeling the squeeze.

ROBERTS: All right. Mary Snow for us in New York.

Mary, thanks so much for that.

Time now for "The Cafferty File."

And Jack is here to provoke you another time.

JACK CAFFERTY, CNN ANCHOR: Well, it's a related subject. We've never had a situation quite like this before -- a national crisis intervening six weeks before a presidential election. And so far, despite all the grandstanding, Senators Obama and McCain have had relatively little impact on the debate surrounding the Wall Street rescue plan.

Today, John McCain said of the failed bailout package -- quoting here -- "We didn't do a good enough job. We'll go at it.

I'm glad to stay at it. That's what my job is as an American, not as a candidate for president."

McCain said he'll return to Washington to help with negotiations.

Remember how well that worked out last week, when he parachuted into town at the eleventh hour to try to save the day.

He was going to cancel last Friday's debate if there was no deal. Well, there was no deal. He debated anyway. His campaign said he was confident enough there would be a deal. There was no deal. He went to the debate. At the end of the day, McCain looked a little silly. But this is a failure on the part of both parties. Two-thirds of Republicans and a third of Democrats in the House voted against the bailout plan.

Barack Obama supported it. In the wake of yesterday's failure, he is urging calm. He doesn't want Congress to start over on the bill. Quote here: "Given the progress we have made, I believe that we're unlikely to succeed if we start from scratch or reopen negotiations about the core elements of the agreement."

So here's the question -- and it's a bit of a tricky line for them to walk -- when it comes to this bailout package, what's the proper role for the presidential candidates?

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

John McCain did what he undoubtedly thought was the right thing last week. And he's taken a big hit in the press because of it, because it didn't work. So, you know, do you wade in and risk getting your nose bloodied or do you stay away and then appear to be indifferent?

ROBERTS: Well, certainly there are a lot of conservatives who will say the proper thing is just for the whole federal government to stay the heck out of this and let the market take care of itself.

CAFFERTY: Yes, but the conservatives are a very tiny minority when it comes to the 300 million people in this country.

ROBERTS: Jack, thanks so much. We look forward to the responses.

The battle over the Wall Street bailout -- why can't Congress reach a deal? I'll ask one of the lawmakers inside the negotiations.

Plus, what the U.S. needs to do to turn around the meltdown -- advice from one of the world's top economists.

Also, Barack Obama weighing in from the campaign trail -- what he's asking Congress and voters to do amid the crisis.

Plus, Republicans divided over their vice presidential candidate -- the GOP increasingly polarized Sarah Palin.

(COMMERCIAL BREAK)

ROBERTS: There has been an alarming increase in the number of air ambulance crashes. The fatal crash of a medical flight in Maryland on Saturday was the eighth in the past year.

CNN's Miles O'Brien has been investigating the troubling trend. He joins us now.

What a tragedy that happened over the weekend, Miles.

MILES O'BRIEN, CHIEF TECHNOLOGY & ENVIRONMENT CORRESPONDENT: It's a terrible tragedy, John. And the worst part about it is the investigators in general say so many of these are preventable. You know, we found that these accidents are largely preventable with a change of procedures and the addition of new equipment.

But critics of the Federal Aviation Administration say the government is failing these crews who put their lives on the line to save others.

(BEGIN VIDEOTAPE)

O'BRIEN (voice-over): It may look like fun, but this is deadly serious business -- some of the most dangerous flying there is.

TIM WOODRUFF, EMS PILOT: All right, guys. We're a few minutes.

O'BRIEN: Tim Woodruff is piloting an EMS helicopter on an emergency call North of Boise, Idaho.

WOODRUFF: And if you go north, you're in a different world within a very short period of time.

O'BRIEN: It's a world of rugged, sparsely populated mountains -- no problem on this sunny afternoon -- a patient with a dangerous blood clot delivered to the hospital without a hitch.

(on camera): Do you hesitate in any way to do that mission at night?

WOODRUFF: Oh, not at all. I have the night vision goggles. It's really not a challenging mission at all.

Got it?

O'BRIEN (voice-over): Those goggles are literally a night and day safety game changer for EMS chopper crews. But fewer than one in three have them and they say you can blame a lot of that on a broken government and the wars in Iraq and Afghanistan.

DAVE BACON, SON KILLED IN CHOPPER CRASH: I'm proud that my name is Dave Bacon, because that's my son's name.

O'BRIEN: Dave Bacon lost the son he called J.R. In July of 2004. J.R., two crew mates and a patient died in Newbury, South Carolina when their chopper hit a tree as it lifted off from an accident scene before dawn.

BACON: He got to live his dream. He was the happiest person in the world.

O'BRIEN (on camera): Can you describe the void?

BACON: No. No, not really.

O'BRIEN (voice-over): His pain is compounded by the fact aviation experts believe his son's accident was entirely preventable. The National Transportation Safety Board studied this crash and 54 others between 2002 and 2005, and came to a chilling conclusion.

ROBERT SUMWALT, NATIONAL TRANSPORTATION SAFETY BOARD: What we found was that 29 of those accidents -- 29 of the 55 could have been prevented.

O'BRIEN: The Safety Board recommended the FAA tighten rules on crew hours, give crews better weather information and require technology that tells a pilot how close the aircraft is to the ground. That was in January of 2006.

JIM BALLOUGH, FEDERAL AVIATION ADMINISTRATION: We understand that -- the NTSB safety recommendations and we agree with all of them.

O'BRIEN: But NTSB recommendations are just that. The FAA makes the rules. But nearly three years later, the rules haven't changed.

BALLOUGH: The rule making process can't be done overnight. It takes time to develop the rules.

O'BRIEN: During that time, 52 people lost their lives in EMS flying accidents. At the NTSB, mounting frustration.

SUMWALT: This is unacceptable. The rule making process does take time, but we need to move forward.

O'BRIEN: And, in fact, many EMS chopper pilots are demanding the government mandate night vision equipment.

I'm flying over those same Idaho mountains on a moonless night with former EMS pilot Justin Watlington, who now works for a company that sells night vision technology. It is pitch black. I can't see a thing out the windows -- until Justin turns on my night vision.

(on camera): Oh, my gosh. Oh, my gosh. That is unbelievable.

(voice-over): He easily flew to the spot where I flew earlier with Tim Woodruff.

(on camera): Is this where we landed?

JUSTIN WATLINGTON, PILOT, AVIATION SPECIALTIES UNLIMITED: Yes.

O'BRIEN: Oh, yes, right down there.

WATLINGTON: Yes.

O'BRIEN: Easy to identify, too. It's amazing.

(voice-over): By then, I was ready to try. I was able to fly at treetop level in complete darkness with confidence. There is no doubt that night vision goggles make EMS flying much, much safer.

WATLINGTON: That's the problem, Miles, is that, you know, unfortunately, some of the folks that are making the decisions on the use of these...

O'BRIEN (on camera): They haven't seen it.

WATLINGTON: They haven't seen it.

O'BRIEN (voice-over): But there's one more wrinkle. The wars in Iraq and Afghanistan have created an acute shortage of night vision goggles.

(on camera): Well, why don't they just make more?

MIKE ATWOOD, AVIATION SPECIALTIES UNLIMITED: The plant is maxed out. They're now operating 24 hours a day, seven days a week. It would be very difficult to make any more than what they're making right now.

O'BRIEN (voice-over): A night vision system runs about $60,000 -- a small price to pay, say those who risk it all to save others.

BACON: You know, if I owned an aviation company, I'd like to think I would be -- I would buy goggles immediately as part of our equipment before we ever got going.

O'BRIEN: In the year Dave Bacon laid his son to rest, 15 other families of EMS flight crew members did the same. While no one disagrees on how to make these risky missions safer, the death toll just keeps mounting.

I asked Dave Bacon if it makes him angry.

BACON: No, I can't get angry. Anger is just going to eat you up. We'll all continue on. We all have a life to live. It just happens to have a big hole in it.

(END VIDEOTAPE)

O'BRIEN: We spoke with the Bacons today and they say the EMS chopper company that J.R. Bacon worked for is, in fact, installing night vision equipment on its aircraft as we speak. And lest there be any doubt that pilots want night vision goggles, a survey by the National EMS Pilots Association shows 80 percent want the equipment. And the company that does all those installations in Idaho tells me since our visit, ITT, the big maker of the goggles, has shipped 150 units. So apparently, the war shortage might be easing a little bit -- John.

ROBERTS: So this flight -- this MediVac flight that went down in Ritchie, Maryland over the weekend, killing everybody on board except for a teenage girl, who was a victim of the accident that the chopper pilot was responding to, if they had had night vision goggles on board the aircraft, would it have helped?

O'BRIEN: Well, you know, night vision doesn't see through clouds. So if you're in a fog bank, night vision isn't going to help you. What night vision can do, however, is let you see those fog banks in the distance.

So who knows? It's possible that they could have seen the cloud cover and avoided it. ROBERTS: Avoid the trouble before you get into it.

O'BRIEN: Exactly.

ROBERTS: So the FAA isn't mandating this.

So what might spur the requirement for helicopter pilots or at least helicopters to have this equipment on board?

O'BRIEN: Well, Congress is working on it. There is a bill making its way. Of course, Congress has been preoccupied with some other things right now. But there is a bill this Congress that would force these rule changes -- force the FAA to make those rule changes. That's unusual. Usually the NTSB makes the recommendations and the FAA adopts the rules. So far that hasn't happened.

ROBERTS: A good story on that, Miles.

I didn't know you knew how to fly a helicopter. Well done.

O'BRIEN: All in the line of duty.

ROBERTS: Thanks, Miles.

Would you take on the full force of the U.S. Navy? A group of pirates is and there has been a shooting. We'll have the latest video from the standoff with the military off of the coast of Africa.

Plus, he has called for shock therapy to turn around some of the world's most dysfunctional economies. Is that the answer for the United States? Top economist Jeffrey Sachs has advice for fixing the financial meltdown.

(COMMERCIAL BREAK)

ROBERTS: Fredricka Whitfield is monitoring stories incoming into THE SITUATION ROOM right now. She joins us.

What do you have -- Fred?

FREDRICKA WHITFIELD, CNN ANCHOR: Hello again, John.

In news around the world, we're just learning a top Taliban commander is dead. Sources tell CNN Baitullah Mehsud, who operates in a tribal area of Pakistan, died of a kidney failure. Pakistan blames him for the December assassination of former Prime Minister Benazir Bhutto. His death is expected to spark a power struggle now over who will succeed him as Taliban leader in Pakistan.

Developments in that hostage drama off the coast of Somalia. A Kenyan negotiator says three of the Somali pirates who seized a Ukrainian ship have been killed in a shootout. He says the pirates are fighting each other over whether to surrender. They have lowered ransom demand to $20 million from $35 million. U.S. Navy ships now surround the hijacked ship, guarding its cargo of Soviet-era tanks and weapons. And home prices fell at a record rate in July. The Standard & Poor's/Case-Shiller City Housing Index tumbled 16.3 percent from last July. But the rate of monthly decline has slowed. Las Vegas housing prices fell the steepest, at nearly 30 percent, followed by Phoenix, then Miami.

And singer Janet Jackson has been rushed to a hospital in Montreal, Canada. Her publicist said that she suddenly got sick during a sound check last night and her concert was canceled. Her publicist gives no further details.

Of course, we're wishing her the best -- John.

ROBERTS: Fredricka Whitfield monitoring all the headlines for us.

Fred, thanks so much.

Their move triggered the biggest point plunge in Wall Street history. Now lawmakers tell us why they voted the way they did on the bailout plan.

Plus, the Republican backlash against Sarah Palin -- why some are saying let her be herself, while others are calling on her to step down.

(COMMERCIAL BREAK)

ROBERTS: You're in THE SITUATION ROOM.

And happening now, a difficult decision either way it went. Two Congressmen on opposite sides of the bailout explain why they voted the way they did and what to do now.

Confronting criticism from within -- Republicans weigh in on how Sarah Palin is doing in the campaign.

And downsizing the American dream -- what current economic climate is doing to our lives and our love of luxury.

Wolf Blitzer is off today.

I'm John Roberts. You're in THE SITUATION ROOM.

A weekend of protracted negotiations led to a confident assumption that Congress would pass a modified rescue plan. That assumption was shattered and we are looking at why lawmakers voted the way they did.

Fredricka Whitfield spoke with two representatives on opposing sides of the issue.

She joins us now -- Fred, what did they have to say?

WHITFIELD: All right. Well, just when people thought that Congress had agreed upon a modified version of the president's proposal to bail out the economy, an about-face -- or was it?

I caught up with two lawmakers who explain in detail why one voted for it, the other against it.

(BEGIN VIDEOTAPE)

WHITFIELD (voice-over): Two Congressmen -- different parties, different votes on the $700 billion bailout proposal. But their reasons for doing so -- the same.

REP. SCOTT GARRETT (R), NEW JERSEY: And what it was supposed to do was solve the credit problem.

REP. JIM MARSHALL (D), GEORGIA: Saving it from a real disaster.

WHITFIELD: Congressman Jim Marshall, a Democrat from Georgia, who stayed in Washington today while most of his colleagues left town for the Jewish holiday, approved the bailout plan with his grandchildren in mind.

MARSHALL: My view is we're playing Russian roulette with the financial future of the country and the financial future of my kids, the people I represent. And that's just something I wasn't willing to do.

WHITFIELD: The next generation is what motivated Republican Congressman of New Jersey, Scott Garrett.

GARRETT: The bill as it was presented would saddle the next generation, potentially, with huge debt. And there's inflationary factors that would have to be considered in the future, as well.

But even in the here and now, before you even get to those things, the real question is would this do the trick?

WHITFIELD: He's among the two-thirds of Republicans who voted against the president's pitch at the risk of disappointing much of his New York financial district constituency.

GARRETT: No, you don't need to just pass something. You need to pass something that actually accomplishes a goal.

WHITFIELD: In an editorial written on CNN.com, Congressman Marshall explained he's a well-known cheapskate whose family doesn't use credit much, but says America's addiction to credit is deep and that getting clean will not be so easy.

GARRETT: Everyone relies on credit in one way, shape or form. And that's why I've always said if you don't fix the problem on Wall Street, you'll still have problems on Main Street.

(END VIDEOTAPE) WHITFIELD: In other points of dissension, things that both of those Congressmen said that they were trying to consider -- the global economy and who actually would manage this money.

Meantime, both Congressmen Marshall and Garrett tell me that their phone lines and e-mails were flooded with constituents' concerned about the proposal. And both tell me the majority voters said that they wanted no votes.

Marshall says he still voted yes, confident that the bill would actually help keep the economy afloat -- John.

ROBERTS: No question members of Congress have been hearing about it very loud and very large in their home districts.

WHITFIELD: Yes.

ROBERTS: Fredricka Whitfield, thanks so much.

For some members of Congress, the political repercussions for supporting yesterday's bill may have loomed very large. According to our political unit, 25 House members are in competitive re-election races and most of them rejected the measure. On the Democratic side, eight of 13 incumbents in competitive races voted no. On the Republican side, nine of 12 representatives in competitive races turned it down.

For more on efforts to hammer out a deal on the bailout plan, we're joined now by Republican Senator Judd Gregg of New Hampshire.

He took part in negotiations over the weekend.

Senator, it's great to see you.

SEN. JUDD GREGG (R), NEW HAMPSHIRE: Thank you, John.

ROBERTS: You said this past weekend that if Congress didn't pass the bailout bill, you shouldn't be a Congress. You said: "If we don't pass it, we shouldn't be a Congress."

And you didn't pass it, but I don't see anybody heading for the exits.

GREGG: No. Well, hopefully we'll pass it before we're done, because the implications of not passing it are staggering. And I think Monday's stock market debacle showed that. And, more importantly, Main Street is starting to show it as credit starts to dry up, as people try to find financing to buy a car or send their kids to college or small businesses try to finance their receivables or their inventories and hospitals try to roll over their hospital bonds and industrial parks try to roll over industrial park funds, where jobs are created.

It's -- it really is an issue that goes right to the heart of Main Street. If you don't have credit in America, Main Street can't function. And the problem we are confronting -- and you can't -- you can't underestimate it, you can't understate it, is that the credit marks have frozen up and we need to do something to address that.

ROBERTS: Now, you in the Senate haven't taken up this bill yet. Because it's an appropriations bill, congressional rules state that it's got to go through the House first. So it has not landed on your floor yet. But did your colleagues in the House fail the American people.

GREGG: Yeah. I'm hopeful they'll go back and take another look at it so that we can get this done. In the Senate I think we're ready to pass this bill. I believe there's a consensus that this is a crisis that requires immediate action. Also, we recognize this isn't the full solution. I look on this as a tourniquet placed on somebody who's bleeding profusely from a severe injury.

And what we're trying to do is stabilize the patient, get him to the hospital and then hopefully return him to a normal life of in this case normal economic activity.

But if we don't do this the consequences are the patient's going to bleed a lot more. That's not good. And the economy is going to suffer dramatically.

ROBERTS: Let me take you back to something you said a few seconds ago. Do you believe you have the votes in the Senate to pass this bill?

GREGG: We do, yes. In the Senate, I don't think there's any question the Senate is ready to pass this bill and was ready to pass it on Monday. There a strong understanding and it's bipartisan that this is an issue that cannot be left unattended.

Because if it is, we're going to end up with this massive meltdown in credit. I think the problem we have here is really the market, the people -- not the market, but the folks who have been listening or just tuning in a little bit to this debate have heard a lot of hyperbole, a lot of exaggeration, a lot of folks saying things that are really fairly demagogic about what this does. And they're inaccurate. This proposal basically takes taxpayers' dollars and buys assets, we will resell those assets into the market that have value and it buys them at deeply discounted values. And then as the market stabilizes, we resell those assets into the market. The taxpayers aren't going to pay a lot of money here. In fact it's very likely they'll break even or even make money.

ROBERTS: I guess in the best of all words, senator, that's the way it would work out. Many critics of this bill are saying there's no way to adequately value these toxic assets that the Treasury Department would be buying.

GREGG: Well, basically, these assets can't be valued. That's why they're clogging up the credit markets.

ROBERTS: So how do you know -- how can you assure taxpayers they'll get all their money back?

GREGG: Well, because when the federal government guys them, we're buying at 20, 30 percent off the face market value. And we will value them. And when the market recovers we will be able to sell them. We don't have to mark to market. We don't have to reduce the value on our financial sheets to take these assets over.

What you've got here is real estate that basically is nonperforming because the value in real estate has dropped or the owners of the homes can't meet the mortgages as they reset out on the sub primes. What we can do to the federal government is say to those folks we're going to reorganize the mortgage so you can afford to pay it. That puts value under these assets. Then we can resell them into an orderly market and they will appreciate.

There are very few people of any substance in the economic world who deal with this type of asset who don't feel if the federal government buys them at these highly reduced prices we aren't going to do very well. And even if we were to lose money, which I don't think we will, and most people who look at this don't think we will, then we put language in the bill which says the president will propose how we recover any loss to the taxpayers.

ROBERTS: And that language was in the House bill and got defeated.

GREGG: That was in the bill that got agreed to. More importantly, all the money we receive, and we are going to receive a lot of money back for purchasing these assets, it goes to reduce the federal debt. It doesn't go to expand the government. That's a very important point.

ROBERTS: Senator, we're out of time. Thanks very much for joining us.

GREGG: Thank you, John.

ROBERTS: Are you going to take this up tomorrow or are you going to wait for the House?

GREGG: That hasn't been decided yet. The Senate's ready to vote, I think.

ROBERTS: Appreciate you coming in. Thanks.

GREGG: Thank you.

ROBERTS: There has been so much backlash about Sarah Palin's series of interviews with Katie Couric. Now there's another one. What you're going to hear she says this time around coming up.

Greed and gluttony are out. Penny pinching and prudence are in. The worst financial crisis since the Great Depression. You'll see why far fewer people are bragging about being rich. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

ROBERTS: In the wake of the worst banking crisis since the Great Depression, it's being argued that greed is no longer good. Extravagance is going out of style faster than the Donald can say, you're fired. Here's CNN's Carol Costello.

CAROL COSTELLO, CNN ANCHOR: John, the rich have taken a hit. They're not so admired anymore. Maybe they never were. But for a while, many of us lived the rich life. Whether we could afford it or not.

(BEGIN VIDEOTAPE)

COSTELLO (voice-over): Blame the fat cats for the mess we're in all you want. And they are to blame. In part.

UNIDENTIFIED MALE: It was a lot of greed.

UNIDENTIFIED FEMALE: Greed got in the way.

UNIDENTIFIED FEMALE: They ought to learn to tighten their belts.

COSTELLO: But the rest of America is not completely blameless in this mess either. As the Hoover Institution's Victor Davis Hanson writes online, we may be victims of Wall Street greed but not quite innocent victims.

Because many in America wanted to maintain a bloated version of the American dream whether they could afford it or not. They bought jewelry, drove Hummers. Can you say McMansions? Heck, the National Restaurant Association says Americans gave them $1.5 billion of business every day. Pinching pennies was not only out. It was maligned in our popular culture. Remember "The Simple Life"?

PARIS HILTON, CELEBRITY: I always heard that people hang out at Wal-Mart.

NICOLE RICHIE, CELEBRITY: Why?

COSTELLO: There was delight in how the rich and powerful put the less powerful in their place.

DONALD TRUMP, CELEBRITY: You're fired.

COSTELLO: Until we woke up one day to $850 billion in credit card debt. Massive foreclosures. And a Wall Street bailout.

HENRY PAULSON, SECRETARY OF THE TREASURY: We're talking hundreds of billions.

COSTELLO: All of a sudden conspicuous consumption is out. And we're discovering there really are things we don't need.

UNIDENTIFIED FEMALE: Maybe I'm not going to the spa.

UNIDENTIFIED FEMALE: Things like the hairdresser.

UNIDENTIFIED MALE: Putting off vacations.

UNIDENTIFIED FEMALE: Riding my bike now.

COSTELLO: Our politicians are reading the political tea leaves just right. George Bush, who ran as the CEO president in 2000 is out.

GEORGE W. BUSH, U.S. PRESIDENT: And I've been the chief executive officer of the second biggest state in the union.

COSTELLO: In 2008 both presidential candidates are running not as CEOs, but populists who are in.

SEN. BARACK OBAMA, (D) IL: I was born to a single mom who had to work and go to school, at the same time had to borrow money. Once had to -- a couple times had to go on food stamps.

COSTELLO: And they see the value now in playing down wealth.

BARBARA WALTERS, "THE VIEW": How many houses does he have, do you both have?

CINDY MCCAIN, JOHN MCCAIN'S WIFE: You know something, that's not part of this campaign.

COSTELLO: Now, arguably, because of our country's collective yearning for more, we're in a mess. And there is plenty of blame to go around.

(END VIDEOTAPE)

COSTELLO (on camera): Now middle class values are in vogue, maybe for the long haul. John?

ROBERTS: Carol Costello for us. Carol, thanks so much.

So how do we fix the troubled economy. Jeffrey Sachs is a Columbia University economist noted for his work helping to turn around failing economies the world over. His latest book is called "Common Wealth, Economics for a Crowded Planet."

And Jeffrey joins us now. So you have gone into places like Bolivia and Poland and Russia when the economies go south. If you were parachuting into the United States right now, what would your prescription be to get us out of this mess?

JEFFREY SACHS, ECONOMIST, COLUMBIA UNIV.: Got to keep the banking sector up. Got to keep liquidity, so people with money market accounts, so that banks that need to borrow from each other, so that businesses that need working capital can all get it. That's the lifeblood of the economy.

ROBERTS: But how do you do that? This is what's being talked about in Congress but there are so many ways to get to that.

SACHS: They went, I think, not the most direct way. Recently the Fed did something very important. It guaranteed the money market funds. That was a major positive step. That didn't even require congressional legislation. It just calmed down what had become nearly a panic. In that sector after the Lehman failure. So Ireland today did a similar thing. It guaranteed all the deposits in the banking sector. Now they'll never have to make good on the vast majority of that. Basically what they did was to say, stop running from the banks. Stop panicking.

ROBERTS: It's just a boost of confidence.

SACHS: It's a boost of confidence that prevents a self- fulfilling panic. And that's a bit what we're in right now.

ROBERTS: And what was the amount they guaranteed?

SACHS: Well, they guaranteed hundreds of billions of dollars worth of deposits. Maybe more than $500 billion if you took the total amount that they announced they would put their umbrella over.

ROBERTS: Almost the amount we're talking about here but as you said, they won't have to spend that whereas we would.

SACHS: That's right. And that's a very small economy. So they went to reportedly twice their GNP levels. They will not have to make good. What they were trying to do and I think what they have a good chance of doing is stopping a self-fulfilling panic. You know, when people run out of stadium and trample each other in a panic. The panic itself causes more people to run. When people leave the banks or when the money market funds pull their money out of banks that then get squeezed that then scare other deposits, we better pull out our money, that's when the liquidity of the system goes down. All of a sudden absolutely healthy companies say, wait a minute, I can't even get my 10-day, 20-day, one-month loan to pay the payroll or to buy the inventory.

That's not the situation we're in right now. We never have to come to that. But that's what we have to prevent happening. A lot of analogies these days, John, to the Great Depression. We're nowhere close to that kind of disaster.

ROBERTS: Well, that's comforting.

SACHS: Not like it. But what caused the Great Depression was the collapse of that liquidity.

ROBERTS: What about this idea of raising the limit on federally insured deposits in banks? FDIC limit right now is $100,000. It's being proposed on both sides of the aisle to raise it to $250,000? What would that do?

SACHS: I think it's a small and useful step. Most accounts are not of that magnitude. Raising the protection would help to stop this self-fulfilling panicked withdrawal of funds from the banks. But the banks need more than keeping their stable depositors. They need access to commercial paper. They need the money market funds to be investing in the banks. That's what nearly went haywire last week. That's where we need the Fed to be very convincing to say, money market funds, keep funding the banks short term. That's not about long-term banking decisions. That's just about the blood flow of the economy.

ROBERTS: So you don't think that the bill that went down in defeat was the right way to do it. What about some of the other ideas that are being floated in a modified bill, creating an insurance pool that would potentially buy up some of these toxic assets as opposed to the Treasury Department going out there and buying each and every one.

SACHS: Let me be clear about two things. One, I would have held my nose and voted for it.

ROBERTS: You would have?

SACHS: Nothing's perfect. It's the end of a failed administration. We're going to have a new president. I would have as a stopgap said at least let's get with survival to January 20 to a new administration. So I would have held my nose and voted for it just to be clear about that.

Second thing people have to understand is with or without that legislation our economy's going into a recession. It's been said you have to vote for this or we'll have a recession. We're going to have a recession in the sense that the housing market is down. It's going to stay down. Consumers that borrowed a lot aren't going to be able to get credit. What we're trying to avoid right now is a real crash, though. That's still absolutely avoidable.

This economy is slowing down. It will have a recession. But it doesn't need to have a crash. It doesn't need to have a disaster. That's what we're fighting to avoid.

And protecting deposits in banks, keeping the money market funds moving, and then gradually recapitalizing the banks that have lost all the money by investing in mortgages that are going into foreclosure and into default will be the key. That's going to take months. It's not going to happen immediately.

ROBERTS: Jeffrey, it's always good to hear from you. Thanks for coming in. Taking time away from your studies. I'm sure you're getting lots of interesting things to teach your students.

SACHS: We don't want to teach, we want to solve this problem.

ROBERTS: Jeffrey, thanks so much.

We're just two days away now from the vice presidential debate, Palin versus Biden. But the GOP is separating over their candidate. Ahead, brand-new sound from Katie Couric's latest interview with Sarah Palin and what role should the presidential candidates play in talks about the financial rescue package. Jack Cafferty's got your e-mails. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

ROBERTS: Republican vice presidential candidate Sarah Palin is facing growing criticism from within her own party. Some want her set free from the constraints of the McCain campaign. Others want her set free all together. CNN's Brian Todd is working the story for us. Brian, what are you picking up today?

BRIAN TODD, CNN CORRESPONDENT: Well, Brian, some of Sarah Palin's recent network interviews have out and out scared some Republican insiders.

Now she and John McCain are aggressively countering the argument she's simply not ready.

(BEGIN VIDEOTAPE)

TODD (voice-over): Determined to counter critics and comics alike, Sarah Palin defends her credentials. Appearing with John McCain in an interview with CBS News, Palin says she's not only willing to take on the job as vice president but.

GOV. SARAH PALIN, (R) VICE PRESIDENTIAL CANDIDATE: Ready with my executive experience, as a city mayor and manager, as a governor, as a commissioner and regulator of oil and gas.

TODD: A direct response to a criticism from Republicans. Syndicated columnist Kathleen Parker wrote that Palin should quit the ticket. Quote, "Quick study or not, she doesn't know enough about economics and foreign policy to make Americans comfortable with a President Palin should conditions warrant her promotion." A McCain campaign aide calls that nonsensical, says Palin knows those issues and she is going on the offensive with her Democratic counterpart.

PALIN: I have been hearing about his Senate speeches since I was like in the second grade.

COURIC: You made a funny comment and you said you have been listening to Joe Biden's speeches since second grade. Something like that.

PALIN: Since like '72. Yah.

COURIC: When you have a 72-year-old running mate, is that a kind of a risky thing to say since Joe Biden has been around for a while?

PALIN: No, it is nothing negative at all. He's got a lot of experience. I am stating the facts that we have been hearing his speeches for all of these years.

TODD: But other conservatives say the problem has been in the handling of Palin, not allowing to play to her strengths.

DAVID WINSTON, REPUBLICAN STRATEGY: I guess one thing I would have done slightly differently if I had been the campaign would have been that clearly as the governor of Alaska, your focus is energy and taking her and making her issue energy I think would have been more helpful to her.

TODD: A McCain campaign official says we will see more of Palin being Palin after the debate in venues where she can connect directly with the voters. Other party faithfuls say conservative critics are in the minority. LESLIE SANCHEZ, REPUBLICAN STRATEGIST: The criticism you're hearing is from conservative intellectuals who historically have been with cross purposes with many in the Main Street Republican Party.

(END VIDEOTAPE)

TODD (on camera): Still a lot of Republican insiders and many others are pointing to Thursday's debate as a critical test for Sarah Palin. Both camps playing the game of low expectations for that debate. Palin's team says she has her work cut out for her on Thursday to rebut Joe Biden's 35 years' experience and even Biden's people are hinting that it is going to be tough for her to counter her enthusiasm, her connectability.

John, they are both playing this game, we know they would do it. I think it's safe to say there is an enormous amount of pressure on Sarah Palin right now.

ROBERTS: They lower the own bar and try to raise their opponents'. Brian Todd for us. Brian, thanks very much for that.

Well, the pressure is so high on Palin and Biden, because the election is so close. One big mistake could hurt. Even if they don't make a mistake, unscripted moments during debate can get everyone talking or laughing. You may remember these memorable moments from past V.P. debates.

Here is John Edwards criticizing Dick Cheney's ties to oil services giant Halliburton and Cheney's response to moderator Gwen Ifill who by the way will also moderate this Thursday's vice presidential debate.

(BEGIN VIDEO CLIP)

JOHN EDWARDS, (D) FORMER VICE PRESIDENTIAL CANDIDATE: Not only that, they have gotten $7.5 billion no-bid contract in Iraq and instead of part of their money being withheld which is the way it's normally done, because they are under investigation, they have continued to get their money.

GWEN IFILL, PBS NEWS ANCHOR: Mr. Vice President?

RICHARD CHENEY, VICE PRESIDENT: I can respond, Gwen, but it is going to take more than 30 seconds.

IFILL: Well, that is all you have got.

CHENEY: Well.

(END VIDEO CLIP)

ROBERTS: Or you may also remember this moment from 1992 vice presidential debate.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: Admiral Stockdale, your opening statement pleas, sir?

ADMIRAL JAMES STOCKDALE, (I) FORMER VICE PRESIDENTIAL CANDIDATE: Who am I? Why am I here?

(END VIDEO CLIP)

ROBERTS: And then there was this exchange that went down in vice presidential debate history.

(BEGIN VIDEO CLIP)

LLOYD BENTSEN, FORMER VICE PRESIDENTIAL CANDIDATE: Senator, I served with Jack Kennedy and I knew Jack Kennedy and Jack Kennedy was a friend of mine. Senator, you are no Jack Kennedy.

(END VIDEO CLIP)

ROBERTS: Time now to check back in with Jack Cafferty, 20 years later, it still hurts, doesn't it?

JACK CAFFERTY, CNN ANCHOR: Yes, it does. And I noticed on the presidential debate, they don't let the audience participate anymore and they have to sit and be quiet. I like when the audience gets in and voices their opinion on stuff.

The question this hour is when it comes to the bailout package, what is the proper role for the presidential candidates? "None." Says Robert. "By definition, candidates are deep in politics and this rescue is no place for politics. A good practice and good examples, they should let the Congress do their job first and then do all they can to support and sell it."

Marie writes, "I think they ought to monitor the situation from a distance and let the lawmakers do the work and in part what John McCain did last week to indicated he is more comfortable as a senator than presidential candidate and for that reason, he ought to return to the Senate."

Joan writes, "Their role is to educate the public in a nonpartisan way as to why the rescue plan is needed, a task both the president and Congress have failed to perform. The media have been quite good in the past week, but as usual too little education, too late. After too many weeks and months of Britney, Anna Nicole and murder and mayhem. I fear for the future when the public is so poorly informed."

Johaad writes, "What role, Jack? How about understudy, they should only be involved if called upon by their Senate peers."

Valerie in Pittsburgh writes, "They should be acting like senators. While I'm not a Republican I fully agree with McCain;s decision to return to Washington. That is what we are paying them for. All three candidates who are senators should return to Washington at once."

As long as they don't compromise the debate on Thursday. I would crawl through a barbed wire fence nude to get a seat in front after TV set for that.

Jess, "Both candidates ought to stay out of it. Neither is in a position of authority that matters. They are aspiring to it, but not there yet. Neither serves on any committee involved in the negotiations and they need to concentrate on their and the nation's recent need and tell us in great detail not only how they would do things differently, but better."

And Richard in Texas writes, "The day that the Senate votes, show up and vote and other than that, keep quiet."

You didn't see your e-mail here go to my blog at cnn.com/caffertyfile and look for yours there among hundreds others.

ROBERTS: You are enthusiastic about this debate on Thursday.

CAFFERTY: I can't wait.

ROBERTS: It is an interesting visual.

CAFFERTY: I can't wait.

ROBERTS: Jack, thank you so much.

Millions of e-mails on the bailouts and crashing computer systems on Capitol Hill. What Americans are telling their lawmakers plus Lou Dobbs and the bailout battle. He joins us live.

(COMMERCIAL BREAK)

ROBERTS: Lou Dobbs has been keeping an eye to the reaction of the bailout failure, and he joins us now. What are you thinking about all of this?

LOU DOBBS, CNN HOST: Well, I just any that absolutely the American people got a victory when the House of Representatives voted down this bill. I think that we should all be concerned that two presidential candidates have weighed in that we should be supporting this idiotic bailout of Wall Street, that a president, a Republican president with a second lowest approval ratings in history and Democratic congressional leaders with the worst approval rating in history are telling people that they should ignore their own judgments and go along with the bailout.

ROBERTS: But what about with Jeffrey Sachs who just joined us a couple of minutes ago said a credit crisis here and there is a problem with liquidity, and unless you get into the market like the federal government is proposing, you will dry up the credit in the country and potentially around the world.

DOBBS: So explain to me why the Dow Jones Industrials went up several points and the dollar posted the best one-day against on the euro since the euro was put on the market. There is a lot of nonsense going around here by otherwise intelligent people.