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THE SITUATION ROOM

President Bush Signs Bailout; McCain's Stake in Bailout; Obama Looks Beyond Bailout

Aired October 3, 2008 - 16:00   ET

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


WOLF BLITZER, CNN ANCHOR: Happening now, breaking news. President Bush signs historic legislation into law to bail out Wall Street and Main Street. But we did not see a euphoric reaction when the stock market just closed seconds ago.
This hour, the economic and political impact now that the Congress and the White House have taken action. Stand by for that.

Plus, no relief for John McCain and Barack Obama on the economy. They're both keeping their eyes firmly on issue #1 and the ground Obama has been gaining because of it.

And the vice presidential candidates move beyond their one and only debate. With the reviews still coming in, what do Sarah Palin and Joe Biden really have to do to prove it right now?

I'm Wolf Blitzer at the CNN Election Center. You're in THE SITUATION ROOM.

After a week of perilous highs and lows on Wall Street and in Washington, the biggest financial bailout plan since the Great Depression is now the law of the land. But that does not seem to be calming the markets at all. The Dow Jones industrials closing down about 158 points only seconds ago.

President Bush is calling the $700 billion bailout essential to helping America weather its economic crisis. He signed the measure just a little over an hour or so ago after the House of Representatives approved it by a vote of 263-171.

Ali Velshi is covering the markets. Stand by, Ali.

Jessica Yellin is up on Capitol Hill.

But let's go to the White House. Elaine Quijano is working this story from there. Does the administration, Elaine, think now this is the beginning of the end of this economic crisis?

ELAINE QUIJANO, CNN WHITE HOUSE CORRESPONDENT: Well, certainly they're hoping so, but we heard President Bush today use some cautious language, Wolf. This, of course, coming two weeks after the Bush administration unveiled that massive $700 billion financial rescue plan to members of Congress.

President Bush today signing, as you said, a modified version that have legislation into law. He did that at his desk in the Oval Office just minutes before he left the White House for this weekend.

Now, earlier, a relieved President Bush in the Rose Garden here at the White House thanked members of Congress who helped negotiate this package.

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: By coming together on this legislation, we have acted boldly to help prevent the crisis on Wall Street from becoming a crisis in communities across our country. We've shown the world that the United States of America will stabilize our financial markets and maintain a leading role in the global economy.

(END VIDEO CLIP)

QUIJANO: President Bush there trying to strike a reassuring tone. Now, after that statement, President Bush headed to the Treasury Department, where he thanked his point man on the financial crisis, Treasury Secretary Henry Paulson, as well as members of Paulson's team, who, as you know, Wolf, have been working around the clock. But President Bush cautioned that it would take some time, he said, before Americans see the full impact of this legislation on the economy -- Wolf.

BLITZER: Elaine Quijano working the story for us at the White House.

Let's go to Capitol Hill right now and how the House of Representatives pulled off a passage of the bailout only days after rejecting a version of that. Our congressional correspondent, Jessica Yellin, is working this part of the story.

All right, Jessica. Walk us through how this happened.

JESSICA YELLIN, CNN CONGRESSIONAL CORRESPONDENT: Wolf, it was a fairly agonizing week for House leaders, many of whom were shell- shocked after this bill went down on Monday. Today, they got it comfortably past the finish line, with 58 new "yes" votes, 32 of them Democrats, 26 of them Republicans. And they got it done, they say, with a combination of phone calls from bank presidents, CEOs, Secretary Paulson, calls from Obama, McCain and President Bush, all saying this is going to affect your constituents, this is going to make a difference in whether they can get loans and live their lives.

Many of those who voted yes say they believe their political future could be at risk, but they did it because they now think it was the right thing to do. Let's listen.

(BEGIN VIDEO CLIP)

REP. HOWARD COBLE (R), NORTH CAROLINA: And I voted aye today, and it may be politically damaging. And the sky may fall tomorrow, but it will fall upon my head. It won't fall upon anyone else's, and no one else will be adversely affected.

(END VIDEO CLIP)

(BEGIN VIDEO CLIP)

REP. HILDA SOLIS (D), CALIFORNIA: I am now looking at supporting the rule and supporting the bill. I know it's hard for my constituents, but I think we have to do the right thing. This is what we were brought here in Congress to do today.

(END VIDEO CLIP)

YELLIN: Some people are calling it a legacy vote, meaning they had to do what their gut told them to do, not what the polls told them to do.

And Wolf, finally, some of the leaders are saying the biggest mistake they ever made with this bill was saying that it's a bailout for Wall Street. They say this is about Main Street, and they needed to communicate that message all along. That's what they failed to do effectively -- Wolf.

BLITZER: And you noticed the president and many of the leaders in Congress, they call it a rescue plan, as opposed to a bailout for Wall Street. But there are still plenty of people out there, Jessica, who are very upset and hate this.

YELLIN: Absolutely. A good number of members are outraged that it's passed. They abhor this bill. They think it's a disaster. One of them who spoke on the floor today says Congress was stampeded into this vote.

Here's what he had to say.

(BEGIN VIDEO CLIP)

REP. BRAD SHERMAN (D), CALIFORNIA: Wall Street wants the $700 billion so bad they can taste it. To get it, they need two things. First, you create panic. Then you block alternatives. And then you herd the stampeding cattle toward passing a bad bill.

(END VIDEO CLIP)

YELLIN: Now, the fury they feel is directed at Secretary Paulson, who they say created a "sky is falling, "chicken little" sense of panic up here and forced them to take action without enough deliberation. To that point, the leaders say they are going to take more action in the coming weeks, holding hearings to make sure that this kind of situation doesn't happen again, to see if they can create new regulations for Wall Street -- Wolf.

BLITZER: Jessica Yellin on the Hill for us.

Despite the bailout, there's still plenty of reason for Americans to be jittery about the economy. A new report just out shows employers slashed 159,000 jobs in the month of September alone. That's the biggest cut in one month in five years. And the future of another troubled bank remains up in the air right now. Wachovia and Wells Fargo announced plans to merge today, but Citigroup is trying to stop them, saying it struck an exclusive deal to buy Wachovia only four days ago. Wachovia says Wells Fargo is offering a better deal to buy all its assets, unlike Citigroup.

Let's go to our senior business correspondent, Ali Velshi. He's over at the Chicago Board of Trade today.

What's the reaction on the floor at the market right behind you? How did they react to the House of Representatives going ahead and passing this legislation?

ALI VELSHI, CNN SR. BUSINESS CORRESPONDENT: And you know, Wolf, it wouldn't be a market if it didn't do things you didn't expect it to do from time to time. You would have thought, given that the market dropped 777 points on Monday, when the bill first failed, that it would be up today. But the Dow is closing 158 points lower, ending the worst week on Wall Street in seven years.

But there is some good news to this, and that is the credit markets -- credit is traded here at the Chicago Board of Trade -- have showed a very, very slight, almost indiscernible sign of thawing. There's a little bit of a discount in the short-term lending rates.

Now, the bottom line, you mentioned it, Wolf, the issue is these jobs, 159,000. That brings the running total for this year to 750,000 jobs lost in America. And the bottom line is we are still in a bad economy.

So maybe now that this bill has passed, everybody sort of woke up and said, OK, the sky isn't falling. But guess what? We've still got a lot of clouds. And that's part of the issue right now.

This bill has passed, and Wall Street can get on with that, but this jobs number, the fact that home prices remain low, all of that is still weighing on this market. Like I said, the worst week for Wall Street in seven years.

For investors out there, Wolf, I sort of said all week, just ignore the markets this week. It's been an irrational reaction all week. Let's see what happens next week -- Wolf.

BLITZER: Yes, because it's very interesting. Just as the House was getting ready to pass it, the markets were up about 270 points. And then as it starts passing, it goes down, and then it winds up now down 157 points.

Is it fair to assume that if it had failed today, it would have been -- that 157 would have looked very, very good?

VELSHI: Absolutely. I think that's exactly right.

So what you're seeing is an accumulated bunch of worries. So it's 150 lower instead of I don't know what lower. That's I think exactly right, Wolf. This market has had wild swings all week. BLITZER: And the job losses, 159,000 jobs lost this month alone, that brings about 750,000 jobs lost since January 1st. That's reinforcing this notion that the country is either already in recession or clearly moving toward a recession.

VELSHI: And remember, the job losses, once they bottom out, when we he start coming out of this thing, it will take months. This is the worst one we've had all year.

But economists are telling me all day today, there's nothing about this bailout plan that immediately solves the housing crisis and the jobless crisis right now. This just was a backstop for a new problem that developed over the last few months. It mayed have its roots in things that have been going on for years, but this wasn't part of the recession we were counting on -- Wolf.

BLITZER: People are worried about their jobs. They're worried about credit. They're worried about a lot.

All right, Ali. Thanks. We're going to get back to Ali shortly. He's in Chicago for us.

Jack Cafferty is off today.

John McCain invested political capital in the bailout. Can he get a return on that investment? We're taking a closer look at how the Republican is struggling to ease the political fallout from the economic crisis.

Plus, Barack Obama tries to keep Senator McCain's feet to the fire on the economy, and Sarah Palin's, as well. New job losses adding fuel to the campaign debate.

And my rare interview with a member of Barack Obama's inner circle. Valerie Jarrett has been called the other side of Obama's brain. I'll ask her to give us her unique insight into the Democrat's hopes, fears, and what he's thinking right now.

Stick around. Lot's of news happening today, right here in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: Senator John McCain has a vested interest in the breaking news today. That would be today's final approval of a massive financial bailout package. Senator McCain has been campaigning out in Colorado at a time when he's been losing ground in some of the critical battleground states.

Ed Henry is working this story. He's in Colorado for us.

How did the senator, Ed, react to the House's decision to go ahead and approve this bailout?

ED HENRY, CNN WHITE HOUSE CORRESPONDENT: Well, Wolf, as you noted, after staking so much political capital on this bailout, you might expect John McCain to pat himself on the back, but he was very careful not to do that.

(BEGIN VIDEOTAPE)

HENRY (voice-over): After taking a beating when the bailout stalled, John McCain could now be enjoying a victory lap. But speaking in Colorado just minutes after the rescue plan passed in the House, McCain steered clear of any euphoria.

SEN. JOHN MCCAIN (R-AZ), PRESIDENTIAL CANDIDATE: This is a tourniquet. It's not a cure. It's not a cure, it's a tourniquet. It will stop the bleeding, but now we've got to reform the way we do business in Washington. And it's got to be reformed now.

HENRY: McCain also needs to stop the bleeding in his campaign caused by the financial crisis. So he was careful not to celebrate on the same day the government revealed another 159,000 jobs lost.

MCCAIN: There was a jobs report that came out today that's terrible news for America. I have to give you straight talk, my friends. I can't give you rosy scenarios.

HENRY: Cautious also because the public remains deeply skeptical that the plan McCain lobbied for is really just a bailout of Wall Street.

MCCAIN: I'm not interested in helping Wall Street in any way. Those people that took those risks and engaged in that kind of activity, they will suffer the consequences. But the innocent bystander -- the innocent bystander, the homeowner, those have to be shored up.

HENRY: With the financial crisis helping to fuel Barack Obama's rise in key battlegrounds like Colorado, McCain is vowing to hit the Democrat hard in next week's second presidential debate.

MCCAIN: I guarantee you, you're going to learn a lot about who's the liberal and who's the conservative, and who wants to raise your taxes and who wants to lower them.

HENRY: An issue the McCain camp is pushing in a tough new ad.

NARRATOR: Senator Obama voted 94 times for higher taxes. Ninety-four times. He's not truthful on taxes.

(END VIDEOTAPE)

HENRY: But CNN has done a fact check of that charge, and CNN found it to be misleading. Most of those 94 votes were budget votes that would not have directly raised taxes -- Wolf.

BLITZER: Thanks very much.

Ed Henry, he's out in Colorado covering the McCain campaign.

Let's get to Barack Obama's campaign right now. He's welcoming the bailout while focusing in on the economic crisis that is obviously still very much at hand.

Let's go out to CNN's Jim Acosta. He's covering the Obama campaign in Pennsylvania right now.

Obama had a lot to say about this jobs report today, understandably so, Jim. Update our viewers.

JIM ACOSTA, CNN CORRESPONDENT: That's right, Wolf. Barack Obama did talk about the bailout plan that was passed by the House late today, saying that he wants the Treasury secretary, Henry Paulson, to start working on restructuring those mortgages so people don't see their houses foreclosed on. But you're right, earlier today, Barack Obama seized on that jobs report to talk down on his opponents on the economy.

(BEGIN VIDEOTAPE)

ACOSTA (voice-over): After hitting John McCain for weeks on the economy, it was time to turn to Sarah Palin.

SEN. BARACK OBAMA (D-IL), PRESIDENTIAL CANDIDATE: I wonder if she turned on the news this morning.

ACOSTA: Barack Obama took issue with one of Palin's claims during the vice presidential debate when she questioned the Democratic ticket's vow to only raise taxes on the wealthy.

GOV. SARAH PALIN (R-AK), VICE PRESIDENTIAL CANDIDATE: You're forgetting the millions of small businesses that are going to fit into that category. So they're going to be the ones paying higher taxes; thus resulting in fewer jobs being created and less productivity.

ACOSTA: But on a day when the government announced the worst job losses in five years, Obama's response to Palin? You're one to talk.

OBAMA: So, when Senator McCain and his running mate talk about job-killing, that's something they know a thing or two about, because the policies they've supported and are supporting are killing jobs in America every single day.

ACOSTA: It has at times seemed to be Obama campaign law to avoid all mention of Palin, but even Pennsylvania's outspoken governor, Ed Rendell, couldn't resist the urge.

GOV. ED RENDELL (D), PENNSYLVANIA: Governor Palin kept saying Joe Biden wanted to look backwards. And she's wrong. She's wrong about a lot of things, but she's wrong. Joe Biden and Barack Obama want to look to the future.

(END VIDEOTAPE)

ACOSTA: And before that vote in the House, Barack Obama was urging lawmakers in the Congress to put politics aside and act. Besides all of that talk about sacrifice, Barack Obama is still not scaling back his own campaign promises despite a ballooning deficit that is looming for the next president -- Wolf. BLITZER: Thanks very much. We're going to have a lot more on that part of the story here in THE SITUATION ROOM.

A new snapshot, by the way, of where the presidential race stands right now. Our latest Poll of Polls shows Obama still leading McCain by six percentage points when you average together all the recent national presidential surveys. That's the same margin as yesterday. There you see it right there, 49-43 percent. Eight percent still unsure.

Sarah Palin and Joe Biden have at least one thing in common. They both have a son ready to fight in Iraq. But is it a wise thing for children of high-profile politicians to serve in war? And could not losing badly actually mean you've won? That's what some Democrats and even some Republicans say about Palin and Biden.

What do you think? Who do you think won last night's debate?

Stick around. You're in THE SITUATION ROOM.

(NEWSBREAK)

(COMMERCIAL BREAK)

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

Happening now, an urgent Wall Street bailout bill is now the law, but are tax breaks for rum producers and wooden arrow makers really an urgent priority? How did those and other tax breaks get into the this $700 plan? We're looking closely into the story.

And what was true, what was false? We listened carefully to what Sarah Palin and Joe Biden said in their debate, and we'll point out exact instances of where CNN finds they were misleading or flat out wrong.

And California sends out a financial SOS, in crisis, needing cash right now because of the credit crunch. Governor Schwarzenegger says California may not have the cash to pay for day-to-day government operations.

I'm Wolf Blitzer at the CNN Election Center. You're in THE SITUATION ROOM.

Many Americans are struggling to survive the nation's financial crisis. Now that the $700 billion financial bailout plan is lost (ph), how soon will it really help people and businesses on Main Street?

Let's go to our senior correspondent, Allan Chernoff. He's working the story for us.

All right. You've been speaking, Allan, to a lot of people whose businesses or themselves are in distress. What are you hearing from the experts? ALLAN CHERNOFF, CNN SR. CORRESPONDENT: Wolf, if only this bailout plan could instantly solve our financial crisis, but it can't. The fact is, the bailout plan has to be put into place. That will take at least a few weeks, analysts expect. And it has to work for lenders to regain the confidence to actually lend money.

(BEGIN VIDEOTAPE)

JENNIFER BEHAR, JENNIFER'S HOMEMADE: And what she's doing is kind of flouring it.

CHERNOFF (voice-over): Jennifer Behar wants to borrow money for her growing bakery in Miami, but bankers have told her, don't even bother applying for a loan.

BEHAR: What they're saying to me now is that right now nothing is happening. That, you know, pretty much everybody has stopped lending. And so that's scary.

CHERNOFF: Jennifer bakes biscotti and breadsticks and sells them nationwide. She's gaining new accounts and knows that she'll need funds to expand. But for now, she's relying on her credit card.

BEHAR: I think as I grow, I have to get creative and look at new ways of financing the growth.

CHERNOFF: It's a story playing out nationwide. Just because Congress has OK'd the bailout and the president has signed it doesn't mean the lending crisis will suddenly come to an end, say financial analysts who warn credit will remain tight.

CARL LANTZ, CREDIT SUISSE: Banks, to be honest, aren't lending to each other except for very short terms, basically overnight. So if it's difficult for a bank to get a loan, you can only imagine the difficulty facing businesses, consumers, both large and small business right now.

CHERNOFF: A cloud of uncertainty still hangs above the nation's lenders as the treasury secretary prepares to use his new powers to buy so-called toxic investments from banks under the bailout plan. Bankers wonder, how much will the treasury pay to buy the bad investments that are weighing banks down? Will enough banks participate in the bailout to restore trust in the financial system? And at a time when the economy seems to be sinking, is it safe to make big loans?

Moments after approval, the House majority leader conceded the bailout bill can only do so much.

REP. STENY HOYER (D-MD), HOUSE MAJORITY LEADER: I hope that today's action will stave off the worst case of a total freeze in lending which could have devastating consequences for jobs, consumer credit and foreclosure.

CHERNOFF: Jennifer isn't counting on a quick economic fix. In fact, she says she may decide to sell part of her business to an investor just to get extra cash.

(END VIDEOTAPE)

CHERNOFF: The bottom line, the financial system did not freeze up overnight. It's going to take some time for the lending freeze to thaw out -- Wolf.

BLITZER: Allan, thank you -- Allan Chernoff working the story.

My next guest is so much a part of Barack Obama's inner circle that one political Web site calls her -- and I'm quoting now -- "the other side of Obama's brain."

Valerie Jarrett is an Obama senior adviser, very close to the Obama family.

Valerie, thanks very much for coming in.

VALERIE JARRETT, SENIOR OBAMA CAMPAIGN ADVISER: My pleasure, Wolf. It's a pleasure to be here.

BLITZER: How long have you known Barack Obama and his family in Chicago?

JARRETT: Well, I have known Barack and Michelle for 17 years, since 1991. In fact, I met them before they were even married.

BLITZER: So, tell us a little bit, something that we don't know this about this Democratic presidential nominee.

JARRETT: Well, you know, people ask me that all the time, Wolf.

And I think what I will tell you is that what you see is what you get. People are always saying to me, is he really like that in private? Is the person that we see out on the campaign trail who is so concerned with the American people who seem so calm and so disciplined and with such good judgment, is that the real Obama?

And I would say to you that the one you see is the one I know.

BLITZER: So, there are no surprises there? This is the -- this is...

JARRETT: No.

BLITZER: What we see on television and what we read about in the newspapers and everything, that's the guy you know as well? You're not -- there's nobody different out there, as opposed to this image that has been created?

JARRETT: Absolutely. He's grounded. He's down to earth. He's honest. He has the best judgment, integrity, discipline, all of the things that you have seen throughout this campaign and the folks who have known him back in Chicago, it's the very same person you know.

BLITZER: He's quoted in "The Detroit Free Press" as saying this -- and I want you to help us understand -- he says, "What keeps me up at night is winning the election." He explains that he has more sleepless nights thinking about winning the election, as opposed to losing the election, given the enormity of the responsibility, the challenge that he will face.

Does that sound like the Barack Obama you know?

JARRETT: Absolutely.

He takes the responsibility of being president of the United States very seriously. Our country is in crisis. We have two wars going on. We have seen what's happening on the economic front here at home. These are challenging times for the United States.

And he -- you know, every day he's on the campaign trail. He gathers strength and energy from the American people, who are fighting so hard. And all they really want is to be able to have a job that's here that's not being shipped overseas. They want their environment to be sound. They want to make sure that we get our economy back on track. They want to send their kids to college.

They want to make sure that we reduce our dependence on foreign oil and that we treat each other with decency. And I think that the hope and aspirations that he's seen across this country, that what gives him the strength to go out every day. And he sees this -- this sense of momentum to move our country in a very different direction, a positive direction.

And that's the direction that Senator Obama and Senator Biden will take our country.

BLITZER: All right, take us inside the campaign.

How does he use you? What role do you play? I know you have known him for a long time. But what role do you play in helping him with his decisions, as opposed to some of his political strategists, some of his senior advisers? Take us a little bit inside the campaign.

JARRETT: Well, what Senator Obama does is, he -- he enjoys surrounding himself with people who have different opinions, who have a common set of values and direction for the country, but who aren't afraid to speak their mind.

And, so, I think he enjoys a good circle of people who have diverse opinions, but, yet, this common vision. And he's a very good listener. I always say that, you know, Senator Obama will listen to everyone who is talking in the room, and, if there are a couple of people who aren't speaking up, he will ask them, what are they thinking, because he has this insatiable thirst for knowledge and for people who will push him to think of -- to think things through to their natural conclusion.

And, so, he's -- he's very responsible. He makes decisions in a very deliberate way. And he's just a terrific advocate for the American people. BLITZER: Valerie, do you ever go up to him and say, "Senator, you're wrong; this is a bad decision; rethink what you're about to say, what you're about to do"?

JARRETT: I often encourage him to make sure that he's thought things through. I feel very comfortable with my relationship with him, as so many people do, that you can be candid and honest with him.

The one thing Barack does is really generates trust. And people feel safe being very open with him. So, it's not a matter of being confrontational. It's a matter of being honest and direct. And what he really wants to do is to make sure he's making the best decisions for the American people.

BLITZER: How does he handle criticism?

JARRETT: Very well, very well, because, keep in mind, he's focused on what's best for the American people. He wants people to push him hard.

Part of why he selected Joe Biden, who I think did a terrific job last night in the debate, is because he wants people who stand on their own two feet and give him honest and candid feedback. He has enough self-confidence and inner strength to know that he's going to ultimately make the decision, but he wants us to push him to make sure that he's absolutely making the best possible decisions.

BLITZER: Valerie Jarrett, thanks for coming in.

JARRETT: My pleasure. Look forward to seeing you again.

BLITZER: All right. Thanks very much, Valerie Jarrett joining us from Chicago -- actually, from Washington, but she's from Chicago.

Sarah Palin and Joe Biden emerged from their one and only debate pretty much gaffe-free. But which vice presidential nominee helped themselves the most last night? And where do they go from here?

And a change of tone from the House speaker, Nancy Pelosi, it may have helped her get this bailout bill passed, but could it hurt Democrats on Election Day?

And, later, it's happening in October, but it's not exactly a surprise -- how the economic crisis could take on a bigger and more sudden toll on the presidential race.

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

(COMMERCIAL BREAK)

BLITZER: They came, we saw, but who conquered?

Americans may be changing -- or at least deepening -- their opinions of Sarah Palin and Joe Biden after their vice presidential debate. Today, Palin is attending fund-raisers in Texas and meeting with the oil magnate T. Boone Pickens to talk about energy. Biden attended a deployment ceremony for a Delaware Army National Guard unit. His son is part of that unit and is going to Iraq with them.

Who do you think did better last night? Let's go to Dana Bash. She's in Saint Louis working the story for us.

Dana, Governor Palin has her own thoughts what happened. But update viewers on what we know.

DANA BASH, CNN CONGRESSIONAL CORRESPONDENT: Well, what we know today, as you have been reporting, the focus really is back on the economy and on the candidates at the top of the ticket.

But the woman who, without a doubt, had the most at stake in the one and only V.P. debate, she actually thinks she achieved her political poll, even if the view isn't that she achieved her policy goals with regard to this debate.

(BEGIN VIDEOTAPE)

BASH (voice-over): before leaving Saint Louis, self-analysis from Sarah Palin.

PALIN: I think things went very well last night. It was...

BASH: Inside Palin's campaign and among most Republicans, relief, no clear win, but no loss either.

WHIT AYRES, REPUBLICAN POLLSTER: If she had bombed last night, the McCain campaign was effectively over.

BASH: With rehearsed responses to camera and an occasional wink, Palin's top priorities were to hold her own and connect.

PALIN: Let's commit ourselves just every day American people, Joe Six Pack, hockey moms across the nation, I think we need to band together and say, never again.

BASH: But Joe Biden had no intention of ceding that to Palin.

SEN. JOSEPH BIDEN (D-DE), VICE PRESIDENTIAL NOMINEE: So walk with me in my neighborhood, go back to my old neighborhood in Claymont, an old steel town or go up to Scranton with me. These people know the middle class has gotten the short end.

BASH: An instant CNN poll shows Palin did not win the race to connect. Biden beat her 50-44 on who's more in touch with people's problems. Biden focused on linking John McCain to George Bush and talked specifics on issues.

BIDEN: We're spending $10 billion a month while Iraqis have an $80 billion surplus. Barack says it's time for them to spend their own money.

BASH: Palin, generalities.

PALIN: Your plan is a white flag of surrender in Iraq. And that is not what our troops need to hear today. BASH: And when Biden tried to pin her down...

BIDEN: The governor did not answer the question about deregulation.

BASH: She navigated elsewhere.

PALIN: Oh, I'm still on the tax thing, because I want to correct you on that again.

BASH: If nothing else, McCain aides hope she shored up GOP voters she had energized.

LONNIE CELSTEAD, MCCAIN SUPPORTER: After seeing previous interviews, I thought she might have done not quite so well, but she -- she did well.

UNIDENTIFIED FEMALE: Are you reassured now of her abilities to take over as president if need be?

CELSTEAD: I believe so, yes.

(END VIDEOTAPE)

BASH: Now, Republican voters may think that Palin's performance was a net plus, but the much more urgent challenge of drawing in independent voters and of course taking command of the economic debate, that falls not to Palin, of course, but that falls to the man on the top of the ticket, John McCain -- Wolf.

BLITZER: Dana is working the story for us. Stand by, Dana.

The McCain campaign has just released tax returns for Governor Sarah Palin and her husband, Todd. The returns are for two years. For 2008, the campaign says the Palins paid $11,944 in federal taxes, on a gross income of almost $128,000.

In 2007, the campaign says they paid $24,738 in taxes on gross income of just more than $166,000. Between the two years, the Palins contributed $8,205 to charitable causes.

As we just mentioned, Sarah Biden -- Senator Biden's son, that is, is about to go to Iraq with his army National Guard unit. And Governor Palin has a son already deployed, as well. What are the challenges posed when children of such high-profile politicians serve in war?

Our senior Pentagon correspondent, Jamie McIntyre, has been looking into this story for us.

A lot of parts of this story that may not necessarily be all that apparent to the average people watching what's going on, Jamie.

JAMIE MCINTYRE, CNN SR. PENTAGON CORRESPONDENT: That's right, Wolf.

And, you know, it's a problem the Pentagon really hasn't had to face square on for more than half-a-century, since the Korean War.

(BEGIN VIDEOTAPE)

UNIDENTIFIED MALE: Delaware salutes you.

MCINTYRE (voice-over): And a deployment ceremony in Dover, Delaware, Senator Joe Biden said he spoke not as a candidate, but as a father, another American parent sending a child to war.

BIDEN: Thank you for answering the call of your country. Thank you for doing what brave women and men have always done in uniform and always do. So, stand strong, stand together, serve honorably, come home to your families that love you. May God bless you, and may he protect you.

MCINTYRE: Thirty-nine-year-old Captain Beau Biden is Delaware's attorney general, but also an army JAG. Guard officials say he will likely be a military prosecutor in Iraq.

Last month, Alaska Governor Sarah Palin also spoke at official ceremonies when her 18-year-old son, Track, left for Iraq.

Officially, the Army says the sons of potential future vice presidents will get no special treatment, but, privately, Pentagon officials say they are conferring whether such high-profile VIPs should continue to serve in a war zone after the election.

One person in a unique position to weigh in says, presidential children don't belong in battle. In 1952, John Eisenhower was a 30- year-old Army major assigned to an infantry unit in Korea. His father was running for president. In a "New York Times"' op-ed, the son of the late president writes that avoiding combat duty was and is an unforgivable sin. So, he agreed he would take his life before being captured, because his father felt, if his son were taken prisoner, he could be forced to resign the presidency to avoid being blackmailed.

Now almost 90, John Eisenhower thinks, in retrospect, he should have had no choice but to be reassigned to a safe job, as he was after a short stint on the front lines in Korea.

He writes, "The next president and vice president will be busy enough, without being burdened with worries about an individual soldier, especially a child."

(END VIDEOTAPE)

MCINTYRE: So, the Pentagon is quietly considering how to deal with having a vice president's son in the war zone and the potential, if John McCain is elected, to have a president's son. His son Jimmy is a Marine and could return to Iraq or Afghanistan.

In the end, Wolf, the decision, like so many here, may fall to the next commander in chief.

BLITZER: It's fascinating, Jamie, that three of these four presidential and vice presidential candidates have sons who are either serving in Iraq or have been in Iraq, about to go to Iraq. Senator Obama has twos little girls, obviously way too young to serve in the military. But it's interesting that three of the four do have service members in their immediate family. Jamie, thanks very much.

In the "Strategy Session": What a difference a few days make.

(BEGIN VIDEO CLIP)

REP. NANCY PELOSI (D-CA), SPEAKER OF THE HOUSE: In our bipartisan negotiations between the White House and the Congress, we demanded tough additions to the bill. And they are contained in this legislation.

(END VIDEO CLIP)

BLITZER: That's the House speaker, Nancy Pelosi, stressing bipartisanship. So, what made her change her speech today, as opposed to the speech she delivered on Monday?

And Palin vs. Biden -- who did a better job appealing to those independent and undecided voters? Donna Brazile and Ed Rollins, they are here. They are standing by -- right in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: Let's get right to our "Strategy Session."

Joining us, our CNN political contributor Donna Brazile, a Democratic strategist, and Ed Rollins, a Republican strategist, former chairman of the Mike Huckabee campaign, once worked for Ronald Reagan, as well. We remember him.

All right, here's Nancy Pelosi. I'm going to play two little clips, what she said on Monday in introducing the legislation that went down in defeat, the bailout, and how she phrased it sort of today, a very different tone.

Let's -- let's roll the tape.

(BEGIN VIDEO CLIP)

PELOSI: And, now, eight years later, the foundation of that fiscal irresponsibility, combined with an-anything-goes economic policy, has taken us to where we are today.

(END VIDEO CLIP)

(BEGIN VIDEO CLIP)

PELOSI: We are addressing real pain felt by Mr. and Mrs. Jones on Main Street. They are why we must pass this legislation today.

(END VIDEO CLIP)

BLITZER: Today, it was all kumbaya over there on the -- John Boehner, Nancy Pelosi, everybody was talking about the bipartisan effort. And it worked. They got it passed.

Was what she said on Monday, the tone, responsible for turning off some of those Republicans?

DONNA BRAZILE, CNN POLITICAL ANALYST: No, I don't think so, Wolf.

Look, this was a bitter pill that the Democrats tried to make better. Members of the caucus were -- many members were very hesitant to embrace a bill that did not have enough protections for taxpayers, that did nothing to bring about transparency and accountability.

Nancy Pelosi had to go out there and rally Democrats to support this bill. On Monday, she delivered 141 votes, today 172 Democrats. That's real leadership.

BLITZER: What do you think?

ED ROLLINS, CNN SR. POLITICAL CONTRIBUTOR: It didn't -- it didn't cost her the vote on Monday, but it can go into the hall of fame for stupid things that you say. That should be said in a cloakroom, not on the floor of the House of Representatives.

It's a great speech for her constituents in San Francisco.

BLITZER: Because it irritated Republicans, even though they probably...

ROLLINS: Well, irritated them. And we're in the spirit of bipartisanship. And this is probably the biggest bipartisan bill we have had in a long, long time. And that means both sides have to swallow hard and come together.

BLITZER: Those Democrats and reporters who switched their from no votes on Monday to yes votes today, is that a politically vulnerable move for them in this -- going forward in November?

(CROSSTALK)

ROLLINS: First of all, there's 30 or 40 total seats that are up in play. So, the vast majority of these people may get beat up a little bit by their constituents, but they're not vulnerable to losing their seats.

BLITZER: Because most of them are pretty safe seats to begin with. You agree with that, right?

(CROSSTALK)

BRAZILE: I agree. This was a crisis of leadership on Monday.

ROLLINS: Yes.

BRAZILE: And, today, the leaders came together, Republicans and Democrats, to really help Main Street. And I think the important lesson here is that, when the country is facing a crisis, economic crisis, national security crisis, politics should be placed somewhere on the back-burner.

BLITZER: Do you agree, Ed, that, if between now and November 4, this bailout legislation reassures the markets, credit, the banks, things start to get a little bit better, that's got to be good news for John McCain?

ROLLINS: I don't think five weeks is going to do it. I mean, I think -- I think we stopped a very serious crisis here for the short term, but we're not out of it, and I don't -- I think the economic news is not going to be really good.

I think McCain's got to do something very bold, has got to say, I'm going to run for one term, got to name his treasury secretary. He has to make people convinced...

BLITZER: He's been doing a lot of bold things since asking Sarah Palin to join his campaign.

(CROSSTALK)

ROLLINS: Well, that was bold. And it worked for a couple of weeks. Now he's got to do something bold for a couple more weeks.

BLITZER: It's the equivalent of a political Hail Mary?

ROLLINS: He really does. He cannot win this thing on a conventional campaign. This is sort of a state-of-the-art 1996 Bob Dole campaign. And I think he just has to do something dramatic to make people pay attention...

(CROSSTALK)

BLITZER: Do you agreement with that?

BRAZILE: This is day three of the fiscal year, Wolf. And the next president...

(CROSSTALK)

BLITZER: The new fiscal year, which starts October 1.

BRAZILE: The new fiscal year.

And the next president will inherit a $600 billion deficit, and growing, on top of another $9 trillion. That's $32,000 for every taxpayer. So, it's time that both candidates do something bold and offer a plan on how we get our economy going again and start growing jobs in this country.

BLITZER: Who did a better job last night, Sarah Palin or Joe Biden, in reaching out to those still undecided, independent, or middle-of-the-road voters who are trying to make up their minds? ROLLINS: I think Joe Biden did a great job, intellectually, of defending his 30-year career, 30-plus-year career in the Senate, and condemning McCain's.

I think, emotionally, she -- she basically connected with voters.

BLITZER: She connected -- did she connect with the base, the Republican base? She obviously did.

ROLLINS: Yes, she absolutely did.

BLITZER: But did she connect with those independents sort of in the middle?

ROLLINS: Independent -- independent voters are not going to vote for a vice presidential candidate. Once again...

(CROSSTALK)

BLITZER: So, it really didn't make much difference?

ROLLINS: You have not seen a whole lot of movement. There's still a lot of them. They're independent for a deliberate reason.

BLITZER: But I keep hearing from some independents that -- who were inclined to vote John McCain that his decision to select Sarah Palin, who many of them think is not necessarily qualified to be commander in chief, that turned -- turned this race for them, because it said a lot about him, as opposed to what it said about Sarah Palin.

BRAZILE: Going into this debate, Wolf, two-thirds of the American people believed that Sarah Palin was not up to the job of being vice president. One-third said they were less likely to vote for John McCain as a result.

Last night, she reassured conservatives that, you know, she can handle the job. But she has not persuaded independents and undecided voters that she's prepared to handle the duties of vice president.

BLITZER: You want to have a final thought?

ROLLINS: You know, neither -- neither of the presidential candidates have convinced a majority of independents to vote for them yet either. And the race really, it's not about V.P.s anymore. We have heard the last of the V.P.s. It's really about the two major...

(CROSSTALK)

BLITZER: Rarely do people vote for vice president.

BRAZILE: I know you hope so. You hope so.

(LAUGHTER)

BLITZER: We will leave it there, guys. Thanks very much.

ROLLINS: Thank you. I love her. She's a good girl.

(LAUGHTER)

BRAZILE: I love him, too.

(LAUGHTER)

BLITZER: All of us love Donna, of course.

On our "Political Ticker": The best political team on television makes a cameo on "Jeopardy."

Take a watch at this.

(BEGIN VIDEO CLIP)

BLITZER: I'm Wolf Blitzer. Federal Election Commission rules for 2007, 2008 put a limit of this much for an individual gift per candidate per election.

(END VIDEO CLIP)

BLITZER: Was that "Double Jeopardy" or was it just "Jeopardy"? We're going to tell you what happened on "Jeopardy." If you know the answer, that's pretty good. It's coming up in our "Political Ticker."

And those questionable congressional pet spending projects, they helped get the economic rescue plan or the bailout, as it's called, over the goal line. But who wanted them? Brian Todd is continuing to work this story. He has new details.

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

(COMMERCIAL BREAK)

BLITZER: On our "Political Ticker" today: An Alaska judge is refusing to block a state investigation into Governor Sarah Palin's firing of her public safety commissioner.

Yesterday, the judge threw out a lawsuit filed by five Republican state legislators who said the probe was driven bipartisan attempts to hurt Palin before the November election.

The Alaska legislature has hired an independent investigator to look into allegations that Palin dismissed the commissioner when he refused to fire a state trooper involved in a contentious divorce with Palin's sister. Palin denies any abuse of her power.

Remember to check out our new poll of polls from New Hampshire. This is what we're learning right now. It shows Barack Obama widening his lead over John McCain to six points when you average the latest surveys from that state. Obama had a two-point edge in our New Hampshire poll of polls only a week ago.

And our new poll of polls in Pennsylvania shows Obama maintaining a 10-point lead over McCain in that key battleground state. Please be sure to put -- and be sure to put your answer in the form of a question. As we told you, the best political team on television appeared on television yesterday, not only here on CNN, but on the hit game show "Jeopardy."

Listen again to the clue I gave one contestant. He didn't get the answer.

Let me ask you, did you?

(BEGIN VIDEO CLIP)

BLITZER: I'm Wolf Blitzer. Federal Election Commission rules for 2007, 2008 put a limit of this much for an individual gift per candidate per election.

ALEX TREBEK, HOST "JEOPARDY": Eric (ph)?

UNIDENTIFIED MALE: What is $2000?

TREBEK: No.

Wes or Jenny?

Eric, you were so close. The correct response is $2,300, not $2,000.

(END VIDEO CLIP)

BLITZER: All of our viewers knew that, I am sure.

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