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McCain and Obama Promote Federal Bailout; McCain Defends Running Mate

Aired September 30, 2008 - 18:00   ET

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


LOU DOBBS, HOST, "LOU DOBBS TONIGHT": The head of the Congressional Budget Office said, this bailout plan could worsen the crisis.
The reality is, we have the ability, the tools to add liquidity to the system. If we're going to bail somebody up, let's try trickle up. Let's move this money in for the homeowner. Let's move it into the economy with the consumer and -- and create demand, but this nonsense of bailing out these institutions that have screwed it up, it is an absurd, un-American idea.

JOHN ROBERTS, CNN ANCHOR: You will be talking much more about this an hour from now?

DOBBS: You better believe it.

ROBERTS: All right, Lou, good to see you. Thanks.

DOBBS: Good to see you.

Selling out the bailout. Barack Obama and John McCain work to calm economy and act presidential. Are they finding common ground and a way out of America's financial mess?

Also, this hour, stocks rally and Congress regroups a day after nightmares on Wall Street and Capitol Hill. We are keeping you up to the minute on efforts to turn the crisis around. And how the bailout hits all of us closest to home, protecting your savings, your home, and your credit.

Welcome to our viewers in the United States and around the world. Wolf Blitzer is off today. I'm John Roberts. You are in THE SITUATION ROOM.

Many members of Congress are getting an earful today about the state of the $700 billion bailout and what is next for the troubled economy. Even as lawmakers break for the Jewish holiday, new efforts are under way to reject the bailout bill rejected by the House yesterday.

A lot of attention is being focused on a proposal to lift the $100,000 cap on insurance for bank deposits. The federal agency responsible for that insurance now is formally asking Congress to raise the limit.

Stocks prices rallied on hopes that a bailout can be salvaged. The Dow closing up 485 points, regaining almost two-thirds of its historic losses from the day before.

The presidential candidates are out promoting the bailout today and jockeying for political advantage along the way.

Ed Henry is covering the John McCain campaign.

First, though, to Jessica Yellin, who is covering the Obama camp.

Jessica, the Obama campaign's main message today was what?

JESSICA YELLIN, CNN CONGRESSIONAL CORRESPONDENT: Well, Barack Obama, John, is telling the American public that there must be a way to break this impasse. He believes that members of the public don't recognize why this bill is, in his view, essential. And he's scolding members of Congress, telling them they have put party aside and vote yes.

(BEGIN VIDEOTAPE)

YELLIN (voice-over): Today, Barack Obama is selling the so- called financial rescue package to two audiences. To voters, he argues the bill will help working families.

SEN. BARACK OBAMA (D), PRESIDENTIAL CANDIDATE: What it means is, is if we don't act, if will be harder for you to get a mortgage for your home or the loans you need to go to college, or a loan you need to buy a car.

What it means is that thousands of businesses could close around the country. Millions of jobs could be lost. A long and painful recession could follow.

YELLIN: And to members of Congress, he says it's time to compromise.

OBAMA: To the Democrats and Republicans who opposed this plan yesterday, I say, step up to the plate. Do what's right for this country.

YELLIN: The Democrat floated one idea he believes could win more votes. Currently, the government insures up to $100,000 in bank accounts. Obama proposes increasing that federal insurance to cover up to $250,000. He's calling it...

OBAMA: ... a step that would boost small businesses and make our banking system more secure, and help restore confidence by reassuring families that their money is safe.

YELLIN: Obama says the fiscal crisis is an outrage and he promises changes will come.

OBAMA: But while there's plenty of blame to go around, and many in Washington and Wall Street deserve it, all of us now have a responsibility to solve this crisis, because it affects the financial well being of every single American.

(END VIDEOTAPE)

YELLIN: And, John, there is still no word on when this bill will go to Senate or even exactly what it will look when it doe. But you can be sure Barack Obama and John McCain will return to D.C. for that vote. This ongoing impasse does not help either of them.

ROBERTS: And as we heard from Senator Judd Gregg in our last hour, Jessica, he thinks that there are the votes to pass this in the Senate, so it is a matter when they take that up.

Jessica Yellin for us -- Jessica, thanks.

Now to the McCain campaign. The Republican is telling Congress that inaction on the bailout is -- quote -- "not an option."

Let's bring in CNN's Ed Henry.

What is McCain's strategy here, Ed, trying to move this ball forward?

ED HENRY, CNN CONGRESSIONAL CORRESPONDENT: Well, John, even John McCain's aides admit that he has been pummeled over the last couple of days for his role in the bailout, so, today, they tried a new tone.

(BEGIN VIDEOTAPE)

HENRY (voice-over): Advisers to John McCain say he's tired of being a political punching bag over the failure of the bailout. So he's fighting back.

SEN. JOHN MCCAIN (R), PRESIDENTIAL CANDIDATE: Yesterday, the country and the world looked to Washington for leadership, and Congress, once again, came up empty handed.

HENRY: McCain trying to shift blame away from himself for parachuting in on negotiations. But he was careful to only take aim at Congress as a whole, never slamming Barack Obama by name, trying to strike a bipartisan tone.

MCCAIN: I think I need to talk to America and hear what their solutions are, because we're going to have to get the support of all Americans to address this together.

HENRY: Leaders in both parties want to pivot out of the debacle of Monday's finger-pointing to show voters they're ready to work together. Democratic sources say Senate Majority Leader Harry Reid was planning to rip McCain in a speech Tuesday morning but pulled back.

SEN. HARRY REID (D), MAJORITY LEADER: The blame game needs to end and we need to move forward on doing what's right for our country.

HENRY: To that end, McCain declared that, like Obama, he supports raising the FDIC insurance limit from $100,000 to $250,000 as a way of reviving talks on Capitol Hill. But the partisan ship is far from over. As McCain spoke in positive tones, his campaign released a new ad alleging Obama and other Democrats sparked the crisis by not reining in Fannie Mae and Freddie Mac.

(BEGIN VIDEO CLIP, MCCAIN CAMPAIGN AD)

NARRATOR: "The Post" says McCain pushed for stronger regulation while Mr. Obama was notably silent.

(END VIDEO CLIP)

(END VIDEOTAPE)

HENRY: Now, the Obama camp denies that charge and notes that Senator McCain's adviser have also faced questions about close ties to Fannie and Freddie.

And as for the rhetorical shift, it is pretty clear John McCain is aiming towards independent voters. There's nothing that turns them off more than the partisanship sniping in Washington -- John.

ROBERTS: Ed Henry for us in Washington this afternoon -- Ed, thanks very much.

Now a few facts about the FDIC. We have been talking about this idea of raising the limit on insured deposits. The FDIC is an independent agency of the government signed into law by President Franklin Roosevelt. That was 1933. As we mentioned, it currently insures up to $100,000 in deposits in banks and thrift institutions. The FDIC examines and supervises more than 5,000 banks in the country. And when a bank fails, like IndyMac and Washington Mutual, the FDIC sells deposits and the loans of that failed institution to another bank.

Jack Cafferty joins us now with "The Cafferty File."

Good evening.

JACK CAFFERTY, CNN ANCHOR: John, the Street, Wall Street, was looking for something yesterday.

As the vote on the bailout package approached, in the middle of the afternoon, the stock market was hinting that it wanted the deal passed. And, in fact, if you look at a line of the Dow Jones industrial average, look at it around 2:00, maybe a little after 2:00. As the votes were being tallied in the House, the Dow Jones industrials recovered a large piece of a 600-point drop, on the hope that the deal was actually going to happen.

But when it became clear the bill was going to fail, the Dow industrials registered their biggest drop ever for a single day, 777 points.

I don't pretend to know whether or not a $700 billion bailout package is the answer to what ails our economy. But, yesterday, for a little while, the markets were hopeful.

And that was good for the middle class, middle-class Americans, who have stood by and watched their 401(k)s hemorrhage for months. They were also told all weekend by their elected leaders in Congress that a rescue plan was on the way. Their elected leaders lied again.

In the end, politics trumped everything else. Nancy Pelosi gave a speech. That angered some House republicans, and, bingo, just like that, the whole project went right down the toilet.

Now it's the Jewish holidays. Nothing is going to happen for a couple more days. And, once again, the middle class will take it in the shorts because some Washington in moron wanted to make a political point.

Why any of them deserve to be reelected is a mystery to me. By the way, the market rallied today because of talk in Washington that this idea is not dead yet?. Once it is dead and buried, watch out.

Here's the question. What should be next for bailout plan? Go to CNN.com/caffertyfile. You can post a comment on my blog.

ROBERTS: Looking forward to those responses. Jack, thanks. We will see you at the end of the hour.

CAFFERTY: Sure.

ROBERTS: Lawmakers are swamped with phone calls and e-mail about this bailout plan. So many are you e-mailing, that the House Web site crashed.

Can you buy a car, send your child to college, or buy a house? Every American should be concerned about what happens with this bailout plan. Ali Velshi explains exactly why.

And Sarah Palin often talks about being able to see Russia from one place in Alaska, but you might be surprised -- well, she has never been there. But guess what? Our Gary Tuchman is there.

(COMMERCIAL BREAK)

ROBERTS: Members of Congress are being flooded with e-mail about the Wall Street bailout.

Millions of messages are overwhelming the computer system for lawmakers' Web sites. There has been a surge in e-mail traffic since the House rejected the $700 billion bailout plan yesterday.

CNN's Brianna Keilar is on Capitol Hill.

Where do the efforts to salvage this bailout deal stand right now, Brianna?

BRIANNA KEILAR, CNN CORRESPONDENT: Well, John, members are huddling together trying to figure out what they can add on to that plan that failed yesterday, in order to appease House Republicans or even some House Democrats who didn't sign on. That is according to a Democratic leadership aide in the House.

Meantime, members of Congress are keeping an eye on the markets and keeping an ear to what their constituents are loudly demanding. (BEGIN VIDEOTAPE)

UNIDENTIFIED FEMALE: Congressman Sestak's office, how may I help you?

KEILAR (voice-over): Call after call and a flood of e-mails into Pennsylvania Democrat Joe Sestak's office. His staff read us some of the thousands of e-mails he is getting.

BIBIANA BOERIO, SESTAK CHIEF OF STAFF: "I have a problem with bailing out these banks that give out bad loans due to greed. America is watching you, Congressman Sestak. And your actions will be remembered."

KEILAR: Sestak voted for the bailout plan Monday. His colleague, Indiana Republican Congressman Mike Pence, voted against it. He has his own stack of 3,000 e-mails.

In fact, millions of e-mails crashed the House Web site, forcing staff to limit how many people can browse it. Much of the e-mail from voters concerned Congress is bailing out Wall Street, but the key negotiator for Senate Republican says that is a misconception.

SEN. JUDD GREGG (R), NEW HAMPSHIRE: The problem here is very simple. Credit is freezing up. What is credit? Credit is what you buy your home with, what you buy your car with. If you have a job, it's what probably the person pays you uses to pay you.

KEILAR: On the street, some folks are buying that explanation.

UNIDENTIFIED FEMALE: Well, I would be happy if they could do something to fix the market, because we can't afford the lose our pension and our jobs.

KEILAR: Others are not.

UNIDENTIFIED MALE: I think that the bailout is a big ripoff, and I think they the market should do what it does.

(END VIDEOTAPE)

KEILAR: The House is scheduled to be back Thursday, but it is unclear when they will take up the bailout plan again, John.

ROBERTS: Brianna Keilar for us from Capitol Hill -- Brianna, thanks very much.

Every American should care about what happens with this bailout plan, but, often, you have to have an economics degree to understand it all.

So, here to explain it for us and put it in very, very simple language is our senior business correspondent, Ali Velshi.

It has a lot to do with credit and the free flow of money.

ALI VELSHI, CNN SENIOR BUSINESS CORRESPONDENT: Right.

And the credit markets are different from the stock markets. The stock market is a bit of a distraction right now. The credit markets are this international system whereby banks and major investors move money around. Now, the major investors are things like hedge funds, pension funds, government organizations, central banks, sovereign wealth funds.

They have money and they want to make money off of that money. So, what do they do? Well, number one, they loan it to banks, which loan it to you to get a mortgage, to get a line of credit, to get an auto loan or a student loan. And, as that system dries up, you will find it harder to get a loan.

When we say dries up, or frozen up, it doesn't mean there's nothing there. It means your collateral had better be excellent, your credit had better be excellent. Now, that is not only the way it affects you. Those same banks loan money to other people. Those other people might actually be people who, for instance, are looking to buy your house.

And you can't sell it because they can't close on a mortgage, or the mortgage they were looking for has become too expensive. OK, that is two ways it affects you. Look at the third way. These banks and major investors also lend money to corporations. We are talking to major corporations. We're talking about little corporations, small businesses.

It is typical for businesses to borrow loans -- borrow money on a short-term basis to fund daily operations, which include rent, utilities, paying for supplies, and maybe jobs, salaries. And if these corporations -- and we know that some of them have been having trouble raising money -- if they can't raise that money, that could affect your job, could affect your wage. A plant may have to shut down.

So, John, this is not to say that this is definitely the outcome of this. It's not to say that, if we don't have the bailout package or some bailout package, this is definitely going to happen. But just understand that the entire credit world does end up with you in the end. And that means it is not just a Wall Street bailout.

ROBERTS: So where in the midst of this large Byzantine puzzle does this idea of raising the limits on FDIC-insurance assets come in?

VELSHI: Different story altogether.

Raising the limit on FDIC is largely a psychological move. Back in the Depression, one of the things we had that led to 1,400 bank failures is people went to the banks, took out their money. The problem with that is that companies used that money for financing. If the money is not in the bank, nobody can borrow it. It freezes it up.

So, the FDIC says, raise those limits. Make sure you know your money is safe, so you can keep it in the bank. The other thing, it is a big deal for small businesses that need more money in bank to operate, to pay these things. So, raising that limit will help a lot of small businesses, who have not been helped in this situation at all.

ROBERTS: Ali Velshi making it simple for us tonight -- Ali, thanks very much for that.

Do you fully understand the Wall Street bailout plan? If not, well, you are not alone. Maybe that is because the Bush administration has said so many different things about the economy in just the past few months.

You will hear a string of statements coming up in THE SITUATION ROOM.

Sarah Palin brags about being able to see Russia from a place in Alaska, but she has never been there. But we will show you what it is like.

And what would you do for your pet? Would you fight off a man- eating shark? One man did.

(COMMERCIAL BREAK)

(NEWS BREAK)

ROBERTS: New calls today for Congress to act, or Americans will pay the price. But do lawmakers have the will or the way to fix the troubled economy? Questions for our political panel coming up.

Plus, did John McCain try to do too much? Is Obama doing too little? What is next for the presidential candidates in the battle over the bailout?

And the negative buzz about Sarah Palin's latest television interview and how John McCain came to her defense.

(COMMERCIAL BREAK)

ROBERTS: It is a place that most Americans have likely never been to, but have heard a lot about, the Alaska community from which Governor Sarah Palin says you can see Russia. She has never been there.

But our CBS national correspondent, Gary Tuchman, has. He sat down on Little Diomede to find out what it is all about.

(BEGIN VIDEOTAPE)

GARY TUCHMAN, CNN NATIONAL CORRESPONDENT (voice-over): This is the island, a piece of Alaska that Governor Sarah Palin cites as evidence of her foreign policy experience. No streets, no cars, no airstrip. A helicopter is the only practical way to get there.

Nome is the nearest city on the mainland, Anchorage 550 miles away. TUCHMAN: This is the city of Diomede, Alaska, on an island known as Little Diomede, about 25 miles off the western Alaska coast. This is basically a rock (INAUDIBLE) in the Bering Sea. Only about 150 people live on the entire island.

There are no hospitals, no hotels, no restaurants. And what is most unique about it is this. This is the Bering Sea, the Bering Strait. A half-mile in front of me is the International Date Line. And this rock in front of me, that is the nation of Russia. Right now, it is Tuesday afternoon in the United States. There in Russia, it is Wednesday afternoon.

(END VIDEOTAPE)

ROBERTS: And you can see Gary Tuchman's full report of this small city in Alaska on "ANDERSON COOPER 360." That's at 10:00 p.m. Eastern tonight.

You're in THE SITUATION ROOM.

And happening now: Congress locked in a battle over a Wall Street bailout, but so far unable to reach a deal -- what it could mean for lawmakers and the presidential candidates on Election Day.

Also, President Bush insisting as recently as two months ago that America's finances are sound, failing to see the current meltdown coming.

Plus, John McCain strongly defending running mate Sarah Palin in the wake of a widely criticized television interview. Is she ready for her prime-time debate about Democrat Joe Biden in just two days? Wolf Blitzer is off today.

I'm John Roberts in New York. You are in THE SITUATION ROOM.

A howl of protests from many of you caused hundreds of lawmakers to sink the $700 billion Wall Street bailout plan. Many Americans either don't understand or they are just not buying it. But it could be that Bush administration officials have done a good job of selling it.

Here is CNN's Christine Romans with that story.

CHRISTINE ROMANS, CNN CORRESPONDENT: John, over the past two weeks, increasingly frank and stark language about what is happening in the capital markets and in the economy and charges that this administration has been tone deaf.

(BEGIN VIDEOTAPE)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: Government action in this...

ROMANS (voice-over): It's about as dire as a president can get on the economy.

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

ROMANS: This from an administration that for months said the economy was vibrant, the financial system strong. The president didn't acknowledge -- quote -- "storm clouds" until last December. By then, it was raining.

BUSH: There's definitely some storm clouds and concerns. But the underpinning is good. And we will work our way through this period.

ROMANS: Then, with each disastrous job report or capital market crisis, an upbeat assessment.

In January:

BUSH: Our economy is flexible. It is resilient.

ROMANS: In February, the president surprised by spiking gas prices.

BUSH: What did you just say? You're predicting $4-a-gallon gas?

QUESTION: A number...

BUSH: That's interesting. I hadn't heard that.

ROMANS: In March, Bear Stearns was in a death spiral, and the Fed brokered its sale.

BUSH: We're under -- we're in challenging times. But another thing is for certain, that we have taken strong and decisive action.

HENRY PAULSON, U.S. TREASURY SECRETARY: Our financial institutions are strong. Our investment banks are strong. Our banks are strong. They're going to be strong for many, many years.

ROMANS: In July, IndyMac bank failed.

BUSH: I believe we will come through this challenge stronger than ever before.

ROMANS: The three trying to sell this $700 billion rescue didn't see it coming.

The treasury secretary told NPR last year of the global economy:

PAULSON: It's as strong as I have seen it at any time during my business career.

ROMANS: And again last October.

PAULSON: This is happening against the backdrop of an economy that -- which, in other respects, is -- is very solid. So far, there's very little evidence that it's bleeding over into other areas.

ROMANS: As the subprime crisis devolved, early last year, the Fed chief:

BEN BERNANKE, FEDERAL RESERVE CHAIRMAN: We don't expect significant spillovers from the subprime market to the rest of the economy or to the financial system.

ROMANS: And now?

BERNANKE: This plan is an emergency plan to put out a fire, to resolve a serious crisis which has real Main Street implication.

ROMANS (on camera): Slowly, over the last 10 or 11 months, the administration has been acknowledging the problem, always with the caveat that the underlying system is vibrant and flexible and strong.

It is all about confidence. The administration can't very well set off a panic by down talking down the economy, but many, in hindsight, now are saying, if they didn't see it coming, how can they lead us out? -- John.

(END VIDEOTAPE)

ROBERTS: Christine Romans with more on the mixed messages on the economy for us.

So, what does the bailout battle mean for lawmakers and the presidential candidates?

Joining us to talk more about this, radio talk show host, syndicated columnist and CNN political analyst Roland Martin, who says he is voting for Barack Obama in November, Karen Tumulty from our sister publication "TIME" magazine, and Michael Gerson, a former Bush speechwriter, now a senior fellow at the Council On Foreign Relations.

We've got two competing schools here in Congress and across America. We have one group that says the federal government needs to get involved, needs to bail out the market, needs to free up this credit, increase liquidity. We've got another side that says keep the federal government the heck out of this.

Karen Tumulty, which side do you think is going to win?

KAREN TUMULTY, "TIME" MAGAZINE: You know, I think that what's going to win is that this package is going to get through. It's going to look a lot like it looks right now, maybe with some, as you've been talking about, some higher limits on the amount of deposits that are insured.

I think that what you're going to see is a lot of pressure coming on these members from the outside. Just as I was on my way over here, for instance, a letter went out from 50 separate trade associations saying we've got to have this.

ROBERTS: Michael Gerson, do you agree with that?

MICHAEL GERSON, COLUMNIST FOR "THE WASHINGTON POST," SENIOR FELLOW AT THE COUNCIL ON FOREIGN RELATIONS: I think we're likely to see something. The question is, is it going to be bold enough to make a difference in the economy?

I certainly hope so. I hope they don't back off of the president's approach, which is large enough to make an actual difference. The House, you know, acted irresponsibly in this. They betrayed not only their president, but their presidential candidate five weeks before an election. And I think that there are, you know, political consequences for this for Republicans that are deeply troubling.

ROBERTS: But Roland, what...

ROLAND MARTIN, CNN POLITICAL ANALYST, NATIONAL TALK RADIO HOST: You know what, John...

ROBERTS: Roland, what are your listeners telling you?

Are they saying that this Bush bailout is the way to go?

ROBERTS: John, absolutely not. I mean -- I mean I'm sorry. This might be a nice Washington conversation, but the real people out here don't want to see this.

Look, I've done commentary on the "Tom Joyner Morning Show," my show on WVON and people are saying absolutely not. That's the problem here. You have politicians who are up against constituents who are saying we don't want to see this. And that's why you hear John McCain and Barack Obama, and even President Bush, saying we have to explain this, because this thing has been framed as a Wall Street bailout.

If they don't change how they explain it, this thing is dead in the water. Constituents will not allow it and people are running for office in November. We can't forget that.

ROBERTS: Karen Tumulty, what about that?

How much pressure is there on members of Congress out there in the home districts?

TUMULTY: There is an extraordinary amount of pressure. You know, they -- the number of calls that are coming into Congressional offices, even last week, was, you know, a hundred to one against this bailout bill.

It's not, however, just a question of marketing. I think that people's fundamental sense of fairness is offended by the idea that the government would come in and take the problem off the hands of the people who created it. And I think that that is a big hurdle that voters are going to have to get over if this package is going to pass.

But I do think it's going to happen, because I think as people see this volatility in the markets, as they begin to feel the credit squeeze in areas like not being able to get car loans, they're going to understand that the consequences spread beyond Wall Street.

MARTIN: But, John, it has to reach critical mass. That's the point. GERSON: Right.

MARTIN: And so you have people who are saying we don't necessarily see it right now. So until they truly see it and feel it, they're going to say this is really a creation of Washington.

ROBERTS: Well, Michael Gerson, what about the political calculation here?

There are varying estimates, anywhere from 25 to 38 members of Congress who are very vulnerable come November the 4th.

Are they going to vote politics over their country?

GERSON: Well, I do think that, you know, the tide has been -- at least to this point -- overwhelmingly against the plan. But I don't think the House ends up looking good when it, you know, is the victim of paralysis. When you look like you have a failed speaker of the House, when you look like you have Republicans that are inflexible and ideological in this approach. I think Americans are eventually going to want something done. And it's going to have to be a large enough scale to make a difference.

You know, legislators sometimes have to buck public opinion to do what's in the public interest. And this is a clear case.

ROBERTS: And what about -- what does this mean for Senator John McCain, Michael, because he went to Washington and he made a big deal out of suspending his campaign, even though operations at the ground level continued, and he could not close the deal -- he could not deliver enough Republicans to pass this?

So what does it mean for him?

GERSON: Well, it was not just that he couldn't deliver Republicans, but I think the House Republicans actively betrayed their candidate for president in many ways. He invested his, you know, his campaign in success on this issue. And they, you know, they took that away from him. And I think it's been a bad -- with the debate and with this failure, it has been a bad few weeks for Senator McCain. And it's going to have to turn around.

MARTIN: Gosh...

ROBERTS: What about Barack Obama, Roland, because the McCain campaign is saying that he stood there on the sidelines, he didn't do anything, failed leadership?

They're sort of equating this to his time in the Illinois legislature, where he voted present so many times and didn't really get involved.

MARTIN: Well, sure, he voted present 130 times, but he actually voted several thousand times on other things.

Look, the McCain campaign wants company in this. They jumped in here, had the fake suspension. Now all of a sudden, it blew up in their faces. Now they want to say hey, we need some company here.

Obama did exactly what you're supposed to do. You let leadership do their job and you come in when you need to. You don't insert yourself at the wrong time. You work the phones behind-the-scenes and you build it that way.

And so they can criticize all they want to. Republicans failed John McCain. They can't try to say Obama stood on the sidelines.

Pelosi was there. Frank was there. Reid was there. They're the ones who were negotiating the deal. That was their job.

ROBERTS: Karen, give us a quick view from the middle here.

Who's benefiting most in the presidential campaign from what's happening right now?

TUMULTY: I think absolutely, without question, it's Barack Obama.

ROBERTS: All right. Folks, stay there, because we've got lots more to talk with you about.

John McCain defending his running mate, Sarah Palin.

But is she ready for prime time in the debate with Democratic rival Joe Biden in just two days?

Plus, what should be next for the bailout plan?

Jack Cafferty has got your e-mail.

Stay with us.

(COMMERCIAL BREAK)

ROBERTS: John McCain is strongly defending running mate, Sarah Palin, in the wake of a widely panned interview. We are back with our CNN political panel, analyst Roland Martin, Karen Tumulty of "Time" magazine and Michael Gerson of the Council On Foreign Relations.

I spoke with Senator McCain this morning. I asked about the answer that Sarah Palin gave to Katie Couric during that interview where she talked about when Putin pops up his head, the first place he comes is Alaska and we go out there and we keep an eye on Russia.

I asked him simply what he thought of that answer.

Here's what he said.

(BEGIN VIDEO CLIP)

SEN. JOHN MCCAIN (R), PRESIDENTIAL CANDIDATE: I think that Sarah Palin -- I'm not going to parse every answer that she gives to every question. The fact is she's -- she knows the issues, she shares my world view, she has the right positions on the issues and she has had the right positions for a long time. And she's the most popular governor in America. She understands energy, which is one of our major challenges.

(END VIDEO CLIP)

ROBERTS: And the senator went on the say that he's got full confidence in her ability to become president should, God forbid, something happen.

Karen Tumulty, is she ready for this debate on Thursday night?

TUMULTY: Well, the good news for Sarah Palin is that the expectations couldn't possibly be lower as she comes into this debate.

But I think that the big challenge for her is that in all these interviews, not just the Katie Couric one, but the other interviews that she's done, she's just sounded too much like she was spouting sort of canned talking points. I mean I think we've all been through -- in situations where we -- we're sort of trying to fake our way through an essay question.

She's really got to sound like she has a real comfort and depth and grasp and fluidity with the subject matter.

ROBERTS: Well, Michael Gerson, give us a view from the inside here, because you've written hundreds of speeches for President Bush. You've been involved in debate preparation.

Where is she here?

GERSON: Well, I think she's raised some eyebrows among Republicans with some of these recent interviews, not with huge gaffes.

If you look at the standard of gaffes, Biden makes far more than Palin does -- I mean on serious issues, from, you know, clean coal to Iran.

But she has seemed a little bit uncertain here. And the debate does have high stakes, because it's not just about Palin, in a certain way, on Thursday night. It's about McCain, his judgment.

Did he do something impulsive?

And so the burden is pretty heavy.

ROBERTS: Well, wait a second, Michael. The gaffe that you pointed to on clean coal, that was a question that was shouted at the senator during a rope line.

Was that any different than what Governor Palin said while she was ordering a cheese steak the other day in Philadelphia?

GERSON: No, it's pretty similar. I guess what I'm saying is if you apply this standard, you have to apply it broadly.

ROBERTS: OK. GERSON: If the standard is experience, she compares favorably with the Democratic nominee. If the standard is judgment well, you know, Biden's judgment on the cold war, on the first Gulf War, on the surge, has been deeply flawed. So it depends on who you're comparing to.

ROBERTS: And, Roland, what about Joe Biden?

What's the task for him on Thursday night?

Obviously, he has a great command of the issues. He's been in the Senate for 36 years. She reminds people that she was watching his speeches when she was in the second grade.

But we all remember George Bush, in 1984, debating Geraldine Ferrera, where he looked overbearing. He looked lecturing. I mean not that it mattered, because Reagan won a 49-state victory.

But does he have to be careful here, Roland?

MARTIN: No. I think Joe Biden -- all this talk about him being careful, absolutely not. Joe Biden's focus should be very clear -- this is what an Obama-Biden administration is going to mean, this is what a McCain-Palin administration is going to mean.

My deal is -- I mean he'll -- it won't be like John McCain, who will actually look at Governor Palin. But his whole focus has to be on saying these are the differences.

Not only that, look, she -- all this about low expectations, forget that, John. She has very high expectations. I expect her to come out and be very aggressive. I expect her to go after Joe Biden, go after Obama, because she wants to portray toughness, she wants to portray that she can actually go on the attack.

What Joe Biden has to do is to stay focused and say this is what we are going to do compared to what they are going to do, not make it personal. It's all business.

ROBERTS: So does he really have to watch his body language, Karen?

We remember that famous debate with Rick Lazio and Senator -- now Senator Hillary Clinton, who was then a candidate. And Lazio was like literally looming over her. I mean we weren't quite sure what he was going to do.

MARTIN: Well, he walked across the stage.

(CROSSTALK)

TUMULTY: Well, I think...

ROBERTS: Oh my goodness.

TUMULTY: I think for Joe Biden, having watched him a lot, as all of us have, the danger is less that he's going to come off as too aggressive and more that he's likely to come off as patronizing. But I think that, again, having watched him through the debates in the primary season, he was, for many people, surprisingly disciplined. And, in fact, he got off some of the best lines there were in the Democratic debates.

MARTIN: He'd better not come out there passive. And, John, all this talk about dancing on egg shells, he needs to come out and be Joe Biden, not be passive.

ROBERTS: All right.

Michael, is there a chance that she could win this?

GERSON: I think so. It's a -- debates are always expectations games. I agree that expectations are low. They were probably too high initially, after her very successful convention speech. They're probably a little low now.

But, you know, it is high stakes here. I mean she has to prove some of the critics wrong aggressively, by being fluent, confident, knowledgeable. And, you know, that would prove that she's a quick study, which is an important part of being a vice president.

MARTIN: John, I'm sorry, John...

ROBERTS: Roland...

MARTIN: John...

ROBERTS: Roland...

MARTIN: Come on.

ROBERTS: Roland, we've got to go. We're out of time.

MARTIN: Well, vice president -- we keep saying low expectations. It's for the vice president. Come on.

ROBERTS: All right. We've got to leave it there.

Roland Martin, Michael Gerson, Karen Tumulty, thanks very much.

GERSON: Thank you.

ROBERTS: It would seem by all indications, though, that this is going to be the most watched vice presidential debate in history.

The stock market and the fear factor -- are Americans in a panic over the economic mess or are they taking it all in stride?

We'll hit the streets of New York to find out.

And New York Mayor Michael Bloomberg weighs his political future and apparently doesn't want to play by the current rules.

And the man accused of assassinating Pakistani leader Benazir Bhutto is dead.

(COMMERCIAL BREAK)

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

She's in Washington.

What have you got for us -- Fredricka?

WHITFIELD: All right. Well, John, the man Pakistan's government is now accusing of assassinating Benazir Bhutto is dead. Sources tell CNN that Taliban commander Baitullah Mehsud, who operates in a tribal area of Pakistan, died of kidney failure. Mehsud once said in an interview that his ultimate aim was to attack New York and London.

And developments in that hostage drama off 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 over whether to surrender. They have lowered their ransom demand to $20 million from $35 million. U.S. Navy ships surround the hijacked ship, guarding its cargo of Soviet-era tanks and weapons.

And with flu season almost upon us, the FDA says it has approved a new test that will allow labs nationwide to identify flu strains within four hours instead of four days. Officials say the test developed in part by the CDC could be crucial if a deadly new flu strain were to emerge and it will help doctors make better treatment decisions, they say -- John.

ROBERTS: Fredricka, thanks very much.

That's actually news that Jack Cafferty could use, because you're feeling a little bit under the weather...

CAFFERTY: A little.

ROBERTS: But you're still here doing the good work.

CAFFERTY: Well, you know, we have to play hurt around here. It's in the CNN playbook.

Our question this hour is what ought to be next for this bailout plan?

Scott says: "Nothing. I'm hedged with puts against the Dow, S&P 500 and NASDAQ. I'm from the government and I'm here to help you. Has it ever worked before?"

Selena writes: "The news all says don't approve a bailout. The House says don't approve the bailout. Facebook groups all say don't bail out the billionaires. People are ridiculous. Does anybody understand that if we don't bail out the markets, the bottom will fall out and our banking and monetary systems will come crushing down? The country will go into a depression. Does anybody understand how the market and the economy works?" Hajah writes: "Seriously, Jack, I think it's time to bail out on the bailout plan. Everybody in Washington are trying to push the people into something we don't want to do. I think we should just let them fall on their faces so they can see what it's like to be in the lower or middle class like the rest of us."

Diane in Florida says: "Next, flush it down the White House toilet, along with The Patriot Act, FISA, The Military Commissions Act and the war on terror. Throw in the Federal Reserve and we'll get our country back."

Samir writes: "The next step is this -- scrap the deal, give each American a million dollars. It's a lot cheaper and more effective. It will become very obvious who the illegal aliens are. They'll be the ones without the new Mercedes in the driveway."

That's cruel.

Cheryl writes: "Credit is what got us into this. More credit won't get us out. As a nation, we have to stop living beyond our means, spending more than we earn and worshipping our stuff. No bailout."

Alan writes: "If one lost their thumb, forefinger, ring finger and little finger, they would then be well positioned to salute the Congress of the United States."

(LAUGHTER)

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

ROBERTS: That was a kind of a roundabout way of getting there, wasn't it?

CAFFERTY: Well, it's a...

ROBERTS: But an evocative image, sort of like you...

CAFFERTY: It's a family show, you know?

ROBERTS: It's sort of like you crawling through barbed wire.

CAFFERTY: We could have gone right to it.

Hmmm?

ROBERTS: I said it's sort of like you crawling naked through barbed wire.

CAFFERTY: Oh, man, you're not going to -- you won't forget that, will you?

ROBERTS: No. It's one of those images that sort of just sits in your brain forever and just kind of turns around over and over and over again.

CAFFERTY: Yes. That's a nightmare.

ROBERTS: Jack, thanks so much.

Feel better.

CAFFERTY: Thank you, sir.

ROBERTS: All right.

Lou Dobbs is getting ready for his show right at the top of the hour -- Lou, what are you working on?

LOU DOBBS, HOST, "LOU DOBBS TONIGHT": John, thank you.

The American people are rising up and taking back our government. That's the effort, that's the motive. But you wouldn't know that if you listened to these two presidential candidates, the White House or the Democratic leadership of Congress.

And both Senators Obama and McCain are determined to thwart the will of the people and save that massive Wall Street bailout.

Why?

We'll have complete coverage tonight.

And we'll report on charges that this nation's most powerful lobby, the U.S. Chamber of Commerce, helped create this crisis that they want a little taxpayer money to help with the repercussions.

And new concerns about election fraud tonight, the integrity of our democracy in the battleground -- the pivotal battleground State of Ohio. We'll have that report.

And among my guests here tonight, two leading Congressmen who've had a belly full of all of the silly efforts to ram a Wall Street bailout down the throats of both Congress and the American people. I'll be joined by Congressman Peter DeFazio and Congresswoman Marcy Kaptur. They have a plan and it won't cost you a fortune.

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

ROBERTS: Lou, looking forward to it eight minutes from now.

On our Political Ticker, New York Mayor Michael Bloomberg reportedly is set to seek a third term. But there's a catch. You see, there are term limits in the City of New York. Bloomberg would need to get the city to change its law limiting mayors to serving two terms. There are reports out today that the Democrat turned Republican turned Independent will allowance his plans on Thursday, after months of wrestling about his political future.

Arizona is set to launch a unique early voting system. Starting on Thursday, voters who are registered in the state but live overseas will be able to vote online. Previously, Arizona election officials only allowed early ballots to be faxed. The move is expected to aid thousands of overseas voters, including many members of the U.S. military.

ROBERTS: And remember, for the latest political news anytime, check out CNNPolitics.com. The Ticker is the number one political news blog on the Web.

Well, for many keeping an anxious eye on Wall Street, desperate times call for desperate measures.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: I put some money under my mattress last night.

(BEGIN VIDEOTAPE)

JEANNE MOOS, CNN CORRESPONDENT: Literally?

UNIDENTIFIED MALE: Literally. I put some money under my mattress.

MOOS: If I went to your house and looked under your mattress, I'd actually find money?

UNIDENTIFIED MALE: You would. I'm not going to tell you where I live, though.

(END VIDEO CLIP)

ROBERTS: The mattress, the coffee can -- Jeanne Moos has got a Moost Unusual look at our fears.

And in the Philippines, a celebration at the end of Ramadan -- we'll have a look at it in our Hot Shots.

(COMMERCIAL BREAK)

ROBERTS: A little bit more of the interview that Katie Couric has been doing with Sarah Palin over these last few days. The topic tonight, global warming.

Let's listen.

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

GOV. SARAH PALIN (R), VICE PRESIDENTIAL CANDIDATE: What I've done up there is form a sub-cabinet to focus solely on climate change, understanding that it is real and...

KATIE COURIC, CBS EVENING NEWS ANCHOR: Is it manmade, though, in your view?

PALIN: You know, there are man's activities that can be contributed to the issues that we're dealing with now, with these impacts. I'm not going to solely blame all of man's activities on changes in climate, because the world's weather patterns are cyclical and over history, we have seen changes there.

(END VIDEO CLIP)

ROBERTS: Governor Sarah Palin in conversation with CBS's Katie Couric.

As the economy spirals downward, some people are philosophical and some are panic-stricken.

Jeanne Moos helps us to rate our fears, and it's Moost Unusual.

(BEGIN VIDEOTAPE)

JEANNE MOOS, CNN CORRESPONDENT (voice-over): All those screaming headlines on the day the market plunged -- "Meltdown," "Now What?," "What Now?," "What A Mess," "Well, That Didn't Work," "Where Do We Go from Here?," "Ouch."

This is starting to sound like a Sarah Palin interview. But all joking aside...

(BEGIN VIDEO CLIP FROM "THE COLBERT REPORT," COURTESY COMEDY CENTRAL)

STEPHEN COLBERT, HOST: Calm down.

(END VIDEO CLIP)

MOOS: How calm or panicked are people, regular people?

(on camera): Your personal financial fear level on a zero to 10 scale, 10 being petrified.

UNIDENTIFIED FEMALE: Ten.

UNIDENTIFIED MALE: Six.

UNIDENTIFIED MALE: Definitely an eight.

UNIDENTIFIED MALE: A good eight.

UNIDENTIFIED FEMALE: Probably a six.

UNIDENTIFIED MALE: Probably five.

MOOS (voice-over): Here is a five's financial philosophy about the safety of keeping money in the bank these days.

(on camera): What are you going to do?

Where are you going to put it, in your sock?

UNIDENTIFIED MALE: I put some under my mattress last night.

MOOS: Literally?

UNIDENTIFIED MALE: Literally, I put some money under my mattress.

MOOS: If I went to your house and looked under your mattress, I'd actually find money?

UNIDENTIFIED MALE: You would. I'm not going to tell you where I live, though.

MOOS: He rated his fear level at nine.

The most commonly picked level?

UNIDENTIFIED MALE: I'd say about seven.

UNIDENTIFIED MALE: Seven.

UNIDENTIFIED MALE: Seven.

UNIDENTIFIED MALE: Eight.

MOOS: This eight abandoned his bank.

(on camera): You had money in it and you took it out?

UNIDENTIFIED MALE: I took it all out. MOOS: On the opposite end of the scale...

UNIDENTIFIED MALE: We're buying stock today. It's a great day to buy.

MOOS: He's buying battered and cheap financial stocks like AIG. This 89-year-old...

UNIDENTIFIED FEMALE: I'd say an eight.

MOOS: ...wishes she'd never bought $25,000 worth of bonds from the now bankrupt Lehman Brothers.

UNIDENTIFIED FEMALE: Oh, bonds are the safest, I was told.

MOOS (on camera): But you haven't been scared enough to go take it out of the bank?

UNIDENTIFIED FEMALE: I have thought about it. But I think that people might start robbing houses and checking under the mattresses.

MOOS (voice-over): No wonder she ranked herself a 10 on hopefully unscientific fear scale.

There actually is something known as the fear index, called the VIX. It's based on options trading on the Chicago Exchange. Tuesday, the fear index went down as the Dow went up.

This 7-year-old is keeping her money in cash.

(on camera): Kids don't have piggy banks anymore?

UNIDENTIFIED CHILD: Actually, I don't have a piggy bank. It's kind of like a cow.

MOOS (voice-over): There's only one thing safer than a cow bank.

(on camera): You don't have any money in the market or anything?

UNIDENTIFIED MALE: No, I'm broke.

MOOS: Good for you. Congratulations.

UNIDENTIFIED MALE: I'm so happy.

MOOS (voice-over): Zero money, zero fear rating.

Jeanne Moos, CNN, New York.

(END VIDEOTAPE)

ROBERTS: We want you to check out our political pod cast. To get the best political team to go, subscribe at CNN.com/situationroom.

I'm John Roberts in THE SITUATION ROOM, in for Wolf Blitzer today.

I'll see you again bright and early tomorrow morning at 6:00 a.m. Eastern for "AMERICAN MORNING". We've got a great line up of guests for you -- Bob Barr, Ron Paul, Oscar de la Hoya and Jenny McCarthy. It's going to be a fun filled morning.

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

DOBBS: You've got your work waiting for you.

Thank you very much, John.

Tonight, Senators Obama and McCain announcing they're determined to thwart the will of the people. They say they're going to save the massive Wall Street bailout. We'll have complete coverage.

And tonight, charges that this nation's most powerful lobby, the U.S. Chamber of Commerce, helped create this housing and financial crisis. We'll tell you how in our special report.