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THE SITUATION ROOM

Emergency Interest Rate Cut Calms No Fears; Swaying Swing Voters

Aired October 8, 2008 - 16:00   ET

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


JOHN ROBERTS, CNN ANCHOR: Rick, thanks so much.
And happening now, breaking news -- the bell tolls on a day of wild swings on Wall Street.

An emergency interest rate cut does not calm fears or ease the paralyzing credit crunch.

Also this hour, the presidential candidates' bottom lines, how their second debate and the threat of a global recession are impacting the race right now.

John McCain's debate bombshell, we are dissecting his new plan to buy up bad mortgages. And who had the idea in the first place?

Wolf Blitzer is off today. I'm John Roberts at the CNN Election Center. You're in THE SITUATION ROOM.

Another head-spinning, stomach churning day for the U.S. economy and for all of us who have a stake in it, the Dow Jones Industrial average closing down 201 points just moments ago. Stock prices on a roller coaster ride today as the Federal Reserve and other major central banks around the world slash their interest rates. The Fed cut its key rate by a half a percentage point. The emergency move is aimed at preventing a global economic meltdown as overseas markets tumble.

The White House candidates and the Bush administration welcomed the action but Treasury secretary Henry Paulson is warning that the turmoil may last for a while until the government begins buying up all those troubled assets under the $700 billion bailout package.

(BEGIN VIDEO CLIP)

HENRY PAULSON, TREASURY SECRETARY: We are moving as quickly as possible to organize and implement the most effective process possible. We expect it will be several weeks before our first purchase.

(END VIDEO CLIP)

ROBERTS: Let's bring in our senior business correspondent Ali Velshi.

Ali, a lot of things are being tried to help the economy but no one has found a real cure just yet. ALI VELSHI, CNN SENIOR BUSINESS CORRESPONDENT: Right, or maybe any cure that isn't going to work as quickly. Part of the problem here is expectations. They have thrown everything at this problem including an unprecedented worldwide rate cut. But here's what it is, you just heard Henry Paulson talking about something, it could take several weeks before they make their first purchase of bad loans.

Let's look at that as one of their remedies, this one was issued on October 3rd when that bailout came out, $700 billion. It's going to take a matter of weeks to 18 months for that to work.

That prescription number two came out yesterday and that was the decision by the Federal Reserve to loan money to companies in need directly, short-term loans, two-month loans. Well that is going to take at least seven days to get implemented before the first loans are made and it will work probably for about six months or it will take about six months to be fully digested into your system and cure this disease.

The third one came today, this unprecedented worldwide rate cut, cutting the federal funds rate, cutting your prime rate from 5 percent to 4.5 percent. Listen, one thing we have known for years is that Federal Reserve rate cuts take at least 12 months to work themselves through the system.

So, while there might be some reaction to it immediately, the bottom line is that is going to take let's say nine to 18 months to work. None of these prescriptions are valid today. It's kind of like being on your antibiotics, it's going to take some time to do it, you've got to do it the whole time. The expectations have to be that they have thrown everything at this, something is likely to work. It just may not work today.

So for those people worried about their 401(k)s, a little patience is necessary. We were probably headed to the bottom of this market before the Federal Reserve made these rate cuts. We saw it in Asia, we saw it in Europe, it didn't come today, nobody thinks it's done.

ROBERTS: I can remember all the way back into August of last year where the fed was making a lot of moves to try to keep the market propped up. They have thrown literally everything but the kitchen sink at this in the last 15 months. What else is left to do?

VELSHI: The stuff is new. We've never had a coordinated rate cut with the rest of the world. Clearly they are digging deep into their bag to find out what other drugs they have to cure this thing but very few of these drugs are instant. This is therapy, this market is in big trouble and I just caution people out there to not make rash moves on their own. They are coming together. The message today was that everybody in the world is trying to fix this problem. They'll get it right in some cases, they'll get it wrong but there is a concerted effort to try and fix it.

ROBERTS: Ali Velshi with the very latest on that for us, Ali, thanks so much. Barack Obama is promising voters better days ahead for the economy especially if he is elected president. The Democrat's chances have been looking better as the financial crisis has gotten worse. Now the clock is running down with just one more debate to go and 27 days left until the election.

Here's CNN's Jessica Yellin.

JESSICA YELLIN, CNN CONGRESSIONAL CORRESPONDENT: John, for Barack Obama today, a laser-like focus on the economy and new contrasts with John McCain on health care reform. Obama's campaign is convinced that health care will be a winning issue for them in battleground states.

(BEGIN VIDEOTAPE)

YELLIN (voice-over): In Indiana, flanked by a group of sought after women voters, Barack Obama sounded confident.

SEN. BARACK OBAMA, (D) PRESIDENTIAL CANDIDATE: Thank you, thank you.

YELLIN: But cautious.

OBAMA: So if I'm president -- no, no, no I'm superstitious.

YELLIN: And on the attack.

OBAMA: Back in 1980, Ronald Reagan asked the electorate whether you were better off than you were four years ago. At the pace things are going right now, you're going to have to ask whether you are better off than you were four weeks ago.

YELLIN: Market turmoil seems to be adding urgency to his message that John McCain is bad for the economy.

OBAMA: Senator McCain's campaign announced last week that they plan to turn the page on the discussion about our economy and spend the final weeks of this election attacking me instead. I can take four more weeks of John McCain's attacks but the American people can't take four more years of John McCain's Bush policies.

YELLIN: A new ad takes aim at what Barack Obama calls John McCain's radical health care plan and tells voters to read the fine print.

OBAMA: What he doesn't tell you is that he is going to tax your employer based health care benefits for the first time ever. So what one hand giveth, the other hand taketh away.

YELLIN: But on the stomp Barack Obama continues to hit his patented high note, that there is still cause for hope and optimism.

OBAMA: This isn't the time for fear or for panic. This is time for resolve and steady leadership. I know that we can steer ourselves out of this crisis. (END VIDEOTAPE)

YELLIN: John, Obama's campaign manager tells reporters he believes the McCain campaign has had a quote, terrible few weeks and is quote acting desperate. He also says that come Election Day Obama will be helped by hundreds of thousands of newly registered Democratic voters who outnumber newly registered Republicans in many battleground states -- John.

ROBERTS: Jessica Yellin outside the debate site in Nashville, Tennessee for us.

Jessica, thanks so much.

John McCain's campaign is feeling the weight of the nation's economic crisis and by most accounts the Republican's latest debate performance did not do much of anything to pump him up. McCain and running mate Sarah Palin are appearing together today in the battleground states of Pennsylvania and Ohio. CNN's Ed Henry is in Cleveland for us this afternoon.

Ed, McCain really needed a game changer last night but he didn't get it, where does he go from here?

ED HENRY, CNN WHITE HOUSE CORRESPONDENT: The McCain camp is trying to put the best face on last night's performance. They realize he did not knock it out of the park. So he's immediately trying to turn to these battleground states of Ohio and Pennsylvania and once again walking that fine line of going negative and positive.

On the positive side, he's once again today touting that home rescue plan that he talked about in the debate last night, that he would order his Treasury secretary to buy up bad debt and try to rework these mortgages for average homeowners, but also going negative on Barack Obama again. But sticking to issues, hitting him hard on taxes and the housing crisis, mostly steering clear of personal issues.

(BEGIN VIDEO CLIP)

SEN. JOHN MCCAIN, (R) PRESIDENTIAL CANDIDATE: So who is the real Senator Obama? Is he the candidate who promises to cut middle class taxes? Or the politician who voted to raise middle class taxes? Is he the candidate who talks about regulation or the politician who took money from Fannie Mae and Freddie Mac and turned a blind eye as they ran our economy into the ditch?

(END VIDEO CLIP)

HENRY: But veteran Republican activist Richard Vickry came out today and said that message is not being hit hard enough. He challenged McCain and said he should be making the choice for voters much starker about what an Obama victory would mean on taxes, but also judges other issues, Vickry saying -- quote -- "the opportunities to win this election are dwindling down to a precious few" -- John.

ROBERTS: Ed Henry for us in Strongsville, Ohio, just southwest of Cleveland for us this afternoon.

Ed, thanks so much for that.

Jack Cafferty is off today.

Not all the presidential candidates are rallying behind the $700 billion bailout plan. Libertarian Bob Barr is accusing the Bush administration of misleading Americans to get that bailout bill passed. I'll ask him what he would do to fix the economy. Plus, two down, one presidential debate to go. Why John McCain left Nashville without any new and needed bounce.

McCain got some conservatives hot under the collar by unveiling a plan to buy up troubled mortgages. We'll take a closer look at that proposal and where it came from.

You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

ROBERTS: Predictably, both the Obama and McCain campaigns say their guy won the latest presidential debate. But last night's face- off in Nashville isn't just about who won but also about an opportunity that was missed. Let's bring in our senior political analyst Bill Schneider, he's in Nashville for us this afternoon.

Bill, anything different today than it was 24 hours ago?

WILLIAM SCHNEIDER, CNN SENIOR POLITICAL ANALYST: Well, not so much. The second debate did not seem to be a game-changer. And that's bad news for John McCain.

(BEGIN VIDEOTAPE)

SCHNEIDER (voice-over): Why did John McCain need a game changer? Because he's not winning the game. Barack Obama was leading in the national polls going into the debate, although not by much. The more troubling news for McCain is coming from the key battleground states like Florida where Obama is pulling ahead. Same story in Ohio.

McCain's only hope was to raise doubts about Obama make him look like a risky choice.

MCCAIN: Senator Obama's secret that you don't know is that his tax increases will increase taxes on 50 percent of small business revenue. Small businesses across America will have to cut jobs.

SCHNEIDER: But at a time of crisis and uncertainty, was that what voters wanted to hear?

MARK PRESTON, CNN POLITICAL EDITOR: People right now, especially what we've seen in the economic crisis are looking for answers. They're not looking for people to go on the attack.

SCHNEIDER: Debate watchers got the message. They thought McCain spent much more time on the attack. PRESTON: John McCain seemed like he was a little bit angry, you know, he certainly didn't seem as comfortable as he has in the past.

SCHNEIDER: Obama tried to sound positive and reassuring.

OBAMA: I'm going to spend some money on the key issues that we've got to work on. You know, you may have seen your health care premiums go up. We've got to reform health care to help you and your budget.

SCHNEIDER: Which candidate did voters think did a better job in the debate? It wasn't even close. Obama by 24 points.

(END VIDEOTAPE)

SCHNEIDER: 85 percent of Democrats thought Obama won. Only 65 percent of Republicans thought McCain did better. Now, independents are the key swing constituency. Who did Independents believe won the debate? Obama by better than two to one -- John.

ROBERTS: And Obama seems to be leading among independents in some of those key battlegrounds states as well. Bill Schneider in Nashville for us.

Bill thank you.

Now let's bring in a presidential candidate who has not been invited to any of the debates, that would be the libertarian party's nominee, the former congressman from Georgia Bob Barr, he's in our Atlanta headquarters.

Congressman Barr, good to talk to you this afternoon. Thanks for being with us.

BOB BARR, LIBERTARIAN PRESIDENTIAL CANDIDATE: Thank you John. Even though I didn't get invited to the debates, it's good to be on CNN.

ROBERTS: It's always good to have you here. We appreciate your perspective on things.

I was browsing your Web site today taking a look at your response to some of the news of the last couple of days. On the financial bailout bill, this is sort of paraphrasing you here, but using some of the words you used to describe it. You accused the Bush administration of alarmism, paranoia and misleading Americans to pass the bill. You also claim that the administration's intervention in the markets has made things much worse.

How has it made things worse, because by most people's accounts this bailout bill has not even taken effect yet?

BARR: Well it hasn't even taken effect yet and already the stock market over the last several days since the bailout passed the house after the Senate added $150 billion or so in sweeteners and Senator McCain's insistence, the stock market has been consistently down. Moreover, the fact that you have the government out there promising bailout after bailout after bailout has frozen the credit markets and frozen many of our financial institutions in place. They're afraid to act or they're just unwilling to act to resolve these situations in the marketplace like Wells Fargo did last Friday because they're all waiting around for the government to bail them out.

ROBERTS: But is it too early to say that this bailout bill has made things worse because it is going to take a number of weeks to begin to work through the system.

BARR: Well, as I say, I think it's already made things worse because it has sent the wrong signal to Wall Street. It has sent the wrong signal to investors and potential suitors for these failing institutions that do, in fact, have valuable assets there. Many of the folks that might otherwise be predisposed to look at buying them out or involving themselves to identify the good assets, they are not doing so because of the uncertainty that the federal government has engendered into the financial market.

ROBERTS: I was talking with noted economist Jeffrey Sacks from Columbia University this morning. He seems to think that the bailout bill is obsolete, that events in the global marketplace have already overtaken any effect that this bill will have. Would you agree, disagree with that?

BARR: I would agree with that. History shows that. Whenever you've had a government planned economy that injects itself into the marketplace, they inevitably do too much too late and the market moves beyond them. Hopefully that will happen here within this country.

ROBERTS: Let's say that Bob Barr, let's say we're past November 4th, we're in the middle of this crisis now. Bob Barr has been elected, he was inaugurated president of the United States January 20th, 2009. Immediately, what would you do to address this crisis?

BARR: Fire Hank Paulson, put somebody in the secretary of the Treasury that actually understands small business. I mean, Senator McCain last night was talking about how great he understands small business. Well, these folks that are manipulating the economy right now Ben Bernanke, Paulson, they don't understand small business. We need people in there that do.

ROBERTS: Forgive me, Congressman. That doesn't sound like a plan. What would your plan be, what would you do immediately? How would you get credit flowing again, how would you calm the markets, how would you prevent these banks from continuing to fail?

BARR: Well, hopefully there would have already been an effort made and I would certainly encourage it and be encouraging it between the election and being sworn in to get the private investment houses and the private investors, the Warren Buffetts together. I'm much more interested in what they can do to have a summit domestically rather than worrying about an international summit.

We need to get our economy moving and you do that by putting some of these institutions in forced receivership like Washington Mutual, others need to go through bankruptcy. You encourage private investors to buy up the good assets.

ROBERTS: So you basically would just let the market work itself out?

BARR: Well, it isn't so much as standing back and letting the market work itself out but encouraging it and also by directing that the Securities & Exchange Commission undo some of the damage that it has done over the last several years by these rules and regulations that it has implemented or taken off the table that have encouraged this sort of risky behavior by the financial institutions themselves.

ROBERTS: You of course, are now the libertarian candidate for president but you were a Republican congressman back in 1999, you voted for the financial modernization act otherwise known as the Gramm-Leach-Bliley Act, which a lot of people say was what began this whole thing.

Do you bear some responsibility for where we are today because you supported that act?

BARR: No, freeing up the financial institutions to modernize them which is basically what Gramm-Leach-Bliley did, modernizing the glass (INAUDIBLE) act which had already been around at that time for 60 years without modernizing it, that's not the problem. What the problem was that the SEC and some of our other regulatory agencies were not doing their job as they were supposed to do under the new mechanism of Gramm-Leach-Bliley.

ROBERTS: But your party had oversight. Where were you?

BARR: Well I wasn't in the Congress at that time. What we had was a Republican president and a Republican Congress that simple political were worried about passing an agenda and not paying attention to what was going on in the financial arena.

ROBERTS: All right. Congressman Bob Barr, it's always good to talk to you. Thanks for joining us today.

BARR: My pleasure John.

ROBERTS: We promise that we'll see you again soon.

He is the other presidential candidate. You didn't see in the debate. Ralph Nader, what would he have said to Barack Obama and John McCain if he could have debated them? Nader is here and one man is ahead in four key states. Find out who and where as we unveil our new CNN poll of polls.

(COMMERCIAL BREAK)

ROBERTS: Susan Roesgen is monitoring stories incoming to THE SITUATION ROOM right now. She's here in New York with us.

What have you got Susan?

SUSAN ROESGEN, CNN CORRESPONDENT: John, it's real police blotter tonight. Crimes, criminals and alleged crimes and criminals and the big name witness coming up.

A big name witness could soon take the stand at the corruption trial of Senator Ted Stevens. Former Secretary of State Colin Powell. Stephen's attorneys say that Powell tops their witness list. The trial actually may not get that far because right now the judge is considering defense arguments that are asking either for a mistrial or a dismissal because prosecutors did not disclose evidence that could have helped Stevens' case. The Alaska Republican is accused of failing to report $250,000 in gifts on Senate financial disclosure forms.

And political fundraiser Tony Rezko will not get sentenced at the end of the month after all. Today a judge granted prosecutors' requests to delay the sentencing while Rezko talks with federal authorities investigating corruption allegations against the Illinois governor's office. Rezko was convicted of launching a multimillion dollar scheme to use his clout with the governor's office to get kickbacks from companies seeking state contracts.

The son of a Democratic state legislator in Tennessee is pleading not guilty to charges that he hacked into Sarah Palin's personal e- mail account. He's 20-year-old David Kernell, he's accused of gaining access to Palin's account and then posting personal information on the web including Palin's address book and her family photos. His trial is set for December and if he's Kernell could face five years in prison.

And that's a look at the police blotter today. A little bit of everything.

ROBERTS: Susan, thanks so much for that. We'll see you again soon.

John McCain often touts his conservative credentials but he is proposing a not so conservative idea. You may have missed what McCain said in last night's debate about housing. You'll hear his $300 billion idea here. Is it a case of fuzzy math? Poll numbers showing a candidate up one week, but down the next. It's happened before, could it happen now?

(COMMERCIAL BREAK)

ROBERTS: Happening now, Osama bin Laden on the run for years but both presidential candidates are vowing to stop him dead in his tracks. Find out how Barack Obama and John McCain plan to nab the world's most wanted man.

Main Street speaking out. A bellwether town in Ohio sounds off on the candidates, the debates and the deteriorating economy.

The face-off over health care. Senators McCain and Obama lay out their startling different plans. Find out what those blueprints will do and not do for you.

Wolf Blitzer is off today. I'm John Roberts in the CNN Election Center. You're in THE SITUATION ROOM. Well, if you paid close attention to last night's presidential debate, something McCain said makes him sound more like a Democrat than the conservative Republican he always claims to be.

CNN's Dana Bash explains.

DANA BASH, CNN CONGRESSIONAL CORRESPONDENT: John, before the debate, a top McCain adviser told me that pushing a new economic idea now would look quote "panicky." Though it might tell you something about where McCain aides thinks he is in the race now that he ended up doing it anyway.

(BEGIN VIDEOTAPE)

BASH (voice-over): With the dragging economy pulling down poll numbers, John McCain started the debate with this.

MCCAIN: I would order the secretary of the Treasury to immediately buy up the bad home loan mortgages in America and renegotiate at the new value of those homes.

BASH: But McCain did not make it clear to the millions of voters watching that he was trying to unveil a new proposal which advisers scrambled to explain the next day. Aides say McCain would order the government to spend $300 billion which would come out of the $700 billion bailout package on buying bad mortgages directly from homeowners. They would be provide with new fixed rate mortgages so they could stay in their homes.

MCCAIN: Is it expensive? Yes.

BASH: Not only is his plan expensive, ordering the government to buy toxic mortgages is a major departure from McCain's conservative credo. In fact, it's an idea long pushed by liberal groups and despite McCain trying to use this to distinguish himself...

MCCAIN: And it's my proposal. It's not Senator Obama's proposal. It's not President Bush's proposal.

BASH: ... Hillary Clinton proposed virtually the same idea just last month, and discussed it on CNN's "AMERICAN MORNING."

(BEGIN VIDEO CLIP, "AMERICAN MORNING," SEPTEMBER 23, 2008)

SEN. HILLARY RODHAM CLINTON (D), NEW YORK: We also have got to give authority to rewrite these mortgages, so that we go to the root of the problem.

(END VIDEO CLIP)

BASH: There are still a lot of unanswered questions about how the government would go about buying people's bad debt.

PENELOPE PATSURIS, CNNMONEY.COM: Three hundred billion represents I don't know how many millions of mortgages. So, I mean, is Hank Paulson going to be there or whoever's, you know, the Treasury secretary, you know, signing off on everybody's mortgage individually? I mean, I don't -- you know, that's -- that's tremendous -- it's just mind-blowing.

BASH: While the details may be complicated, the politics for McCain and simple and obvious. Helping homeowners, voters, is politically popular. Bailing out Wall Street is not.

(on camera): But McCain, of course, voted for the bailout. What is perplexing is why he didn't push for this mandate to directly help homeowners before the package became law -- John.

(END VIDEOTAPE)

ROBERTS: Well, Barack Obama has got some reason to cheer, but not feel completely comfortable. He is beating John McCain in four key states in our latest poll of polls, but not by much.

Let's take a look. We just mentioned that Obama is ahead in Florida by four points. And, in Ohio -- take a look at this -- real key state in this election -- he's ahead by five points. In Nevada, things are not quite as far away as they are in Ohio. He's up by three points.

But take a look at this. In the state of Pennsylvania, really important battleground, he has extended his lead by two points. He now leads John McCain 52 percent to 40 percent in our latest poll of polls in Pennsylvania.

Joining with us more analysis of these poll numbers and what it means going forward at our Electoral College map on the magic wall today is John King, our chief national correspondent.

Where is this all heading, John?

JOHN KING, CNN CHIEF NATIONAL CORRESPONDENT: Well, right now, it is leaning heavily, John, in Barack Obama's favor.

The electoral map -- you know the magic number -- 270 wins. Barack Obama is so close at the moment. We project him leading in states with 264 Electoral College votes, John McCain only 174. What that means essentially is, if nothing else changed, McCain would have to run the map. Seven tossup states -- they're the gold ones -- all carried by Bush four years ago, to get to 270, unless he can turn of these blue states, McCain has to win everything left, a pretty daunting challenge.

But let's look where the candidates are today, because where they are tells you a lot about how they see the race. The Democrats, for starters, the vice presidential candidate, Joe Biden, down here, Fort Myers, as you see, that's the blue from four years ago. Bush carried the state. But there's a small Democratic base down there.

Also, John, you have been on a lot of bus tours right across the corridor.

ROBERTS: Fond memories, back and forth, back and forth. (CROSSTALK)

KING: ... back of a bus.

This is critical. Independent voters, other voters from Tampa, across to Orlando, out to Daytona Beach, that is a critical spot in the state of Florida. Again, the Democrats competing in a red state they think they can win.

Even more audacious, to borrow a word, Barack Obama in the state of Indiana today. We still project this one is leaning Republican. But Barack Obama thinks, with new voters and others, he can turn this around. He was out in Indianapolis today.

The luxury of the lead, you're campaigning in the other guy's territory.

ROBERTS: And the luxury of money to be able to go in here...

(CROSSTALK)

KING: Luxury of the money.

And the Republicans -- the Democrats -- the Republicans, on the other hand, trying to take this one away. This is Pennsylvania. They're down, McCain/Palin right now down 10, 12 points, depending on which polls you look at. Where were they today? They were out here. They were in Bethlehem, just to the east of Allentown.

You remember this area. I'm going to back to the Democratic primaries. This is an area where the Republicans think they can do some business, because that light blue is Hillary Clinton. She spanked Barack Obama in this blue-collar, largely white part of the state. Barack Obama trying to get those voters back. That's a key battleground.

One last place we want to visit is the state of Ohio. And we go back to 2004 for our perspective, John McCain and Sarah Palin also up here in the Cleveland suburbs. Now, Cuyahoga County is going to go for the Democrats. It did for John Kerry four years ago. But where you find the Republican ticket is down here, in the suburbs, where they need to shrink the Democratic margins, and then trying to appeal also to the rural voters you see further out of the city area.

But, again, it is the Democrats on offense in the red states competing.

ROBERTS: We spent a lot of time on buses in that area, too.

(CROSSTALK)

KING: You will spend -- and these guys are going to spend a lot more time on buses out here. You want to go on a bus tour right down in here, this may be where the election is decided, John, right down this stretch of Ohio.

ROBERTS: So, what does it mean in terms of the Electoral College and where we are with the path to get to the Oval Office?

KING: The path to get to the Oval Office, again, let's come back to this map.

I'm going to do it this way. It's I think it favors Barack Obama, without a doubt. The math tells you that. So, let's look at this way. How does John McCain get to the White House? He has to keep Florida, 27 electoral votes, has to put North Carolina back in the red, has to win Virginia, has to win Ohio -- we just talked about that -- has to win Missouri.

Again, Bush won all these states, and McCain is either just ahead or behind in most of these battlegrounds. Even that would get him just back in the hunt, and we could be going out into the Mountain and the Western time zones. If he won Colorado, he would still be just shy. And he would need to win Nevada as well.

So, if nothing else on the map changed, John McCain has to run the board of the seven tossup states to win. Or, the flip side of that coin, Barack Obama needs to win just one of seven, and he's in the White House.

ROBERTS: So, it -- obviously, the math would favor Barack Obama at this point, but still a little less than four weeks to go. A lot can change.

KING: The one thing we have learned in this race, it can change while you're having your three-hour sleep.

(LAUGHTER)

ROBERTS: All right. John King for us today -- John, thanks so much.

Well, a day after her husband's big debate, Michelle Obama is going toe to toe with CNN's Larry King -- what she's saying about the race and about the McCain camp's tactics.

Also ahead: Can John McCain make a new comeback? Yes, if history is any guide. James Carville and Alex Castellanos know are standing by for our "Strategy Session."

And what is more important: saving the whales or training the military? The battle over submarine sonar goes all the way to the Supreme Court. Find out what the justices have to say.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: Combat bridge. Whales 500 meters out, 020.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

ROBERTS: Senator Joe Biden was back on the campaign trail today, after taking a few days off to mourn the death of his mother-in-law. This morning, in Florida, Biden picked up his campaign efforts right where his running mate, Barack Obama, left off after last night's debate, with a focus on the economy and why they say John McCain is not the man to fix it.

(BEGIN VIDEO CLIP)

SEN. JOSEPH BIDEN (D-DE), VICE PRESIDENTIAL NOMINEE: The economic situation that we face today is the final verdict of a failed economic philosophy. And it needs a wholesale change...

(CHEERING AND APPLAUSE)

BIDEN: ... total change.

(CHEERING AND APPLAUSE)

BIDEN: In my view, they're the only three intellectually honest options that can be chosen.

But there's one other option. There's one other option. The one they have chosen is to appeal to fear with a veiled question: Who is the real Barack Obama?

Ladies and gentlemen, to have a vice presidential candidate raise the most outrageous inferences, the ones that John McCain's campaign is condoning, is simply wrong.

(CHEERING AND APPLAUSE)

BIDEN: They went out -- the McCain campaign went out and hired some of the very -- the very political manipulators in the Republican primary who, in 2000, led those vicious attacks against John's daughter and John's lovely wife. They hired those people to come on board.

And now these same people, they're attacking Barack Obama in the ugliest of ways.

Ladies and gentlemen, this is beyond disappointing. This is beyond disappointing. This is wrong.

Ladies and gentlemen...

(CHEERING AND APPLAUSE)

BIDEN: ... some of you may remember that back in the beginning of September, John McCain's campaign manager said, and I quote, "this election is not about issues." On Monday, this past Monday, one of John McCain's top strategists told the "New York Daily News," and I quote, "if we keep talking about the economic crisis, we're going to lose" -- end of quote. Another strategist, another McCain strategist, told the "Washington Post," -- quote -- "we're looking forward to turning the page on this financial crisis." And ladies and gentlemen, he didn't mean in solving the crisis, he meant in ignoring it and attacking Barack Obama instead. That's what this campaign has been about. (END VIDEO CLIP)

ROBERTS: Well, Republican vice presidential candidate Sarah Palin had some choice words for her opponents as well, as she joined her running mate, John McCain, at an event in Pennsylvania today. Palin accused the Obama/Biden ticket of being unclear about energy policy and pushing an anti-President Bush strategy, above all else.

(BEGIN VIDEO CLIP)

GOV. SARAH PALIN (R-AK), VICE PRESIDENTIAL NOMINEE: And we have a clear choice in November.

Just a couple of weeks ago, Joe Biden told a voter that he's against clean coal.

(AUDIENCE BOOING)

PALIN: And, yet, two, Barack Obama has always opposed offshore drilling. But, of course, last night, he changed his position on that, too.

(AUDIENCE BOOING)

PALIN: What that told me is that he's not willing to drill for energy, but he's sure willing to drill for votes.

(CHEERING AND APPLAUSE)

AUDIENCE: Drill, baby, drill! Drill, baby, drill!

PALIN: Yes.

AUDIENCE: Drill, baby, drill! Drill, baby, drill!

(LAUGHTER)

AUDIENCE: Drill, baby, drill!

PALIN: You're right.

AUDIENCE: Drill, baby, drill! Drill, baby, drill! Drill, baby, drill!

PALIN: You're right.

In a McCain/Palin administration, we will achieve energy security for our country. And that means American energy resources brought to you by American ingenuity and produced by American workers.

(APPLAUSE)

AUDIENCE: USA! USA! USA! USA! USA! USA! USA! USA! USA! USA! USA!

PALIN: So, last night, Senator McCain talked about real and pragmatic solutions. Barack Obama talked about why he would rather run against George Bush.

(LAUGHTER)

PALIN: And that strategy is starting to wear pretty darn thin.

(LAUGHTER)

PALIN: John McCain didn't just come out of nowhere. The American people know John McCain. They know that he's the maverick. And that's what our opponents are afraid of most.

(CHEERING AND APPLAUSE)

(END VIDEO CLIP)

ROBERTS: Sarah Palin on the campaign trail in Bethlehem, Pennsylvania, today.

In the "Strategy Session" with James Carville and Alex Castellanos: Is there a hidden anti-Obama vote out there?

(BEGIN VIDEO CLIP)

WILLIE BROWN (D), FORMER MAYOR OF SAN FRANCISCO: Race could rear its ugly head. I just hope it doesn't before November 4.

(END VIDEO CLIP)

ROBERTS: Former San Francisco Mayor Willie Brown was with me on "AMERICAN MORNING" today. We will assess his prediction.

And, Ralph Nader, he was persona non grata in last night's presidential debate. But we will get his prescription for the economic meltdown -- here in THE SITUATION ROOM.

(COMMERCIAL BREAK)

ROBERTS: National security or protecting the whales, which comes first? And can President Bush tip the scales his way?

Ahead in THE SITUATION ROOM.

(COMMERCIAL BREAK)

ROBERTS: Reversal of fortune or just fuzzy math? Poll numbers in a presidential race can show a candidate up one week and down the next. It's happened before.

For our "Strategy Session," let's bring in two CNN contributors, James Carville, a Democratic strategist, and Republican consultant Alex Castellanos.

Good to see both of you.

James, last night, in post-debate coverage, you indicated that this race might be over. You said something thing to the effect that, I think, absent some unforeseen circumstances, you can call the dogs in, wet the fire, and leave the house. The hunt's over.

Do you really believe that?

JAMES CARVILLE, CNN POLITICAL ANALYST: Absolutely. I think yes. I think this race is, for all intents and purposes, it's over. I think the congressional races are going to be a huge win for Democrats and Senate races.

My suggestion to the Republicans is, is start the blame game and the finger-pointing. Get an early jump on it, because I don't think this thing is going to be close.

ROBERTS: Now, Alex, James has got a 100 percent record here, because he said early in the game that it was over for Hillary Clinton. He was right about that. Do you buy him on this one?

ALEX CASTELLANOS, CNN POLITICAL CONTRIBUTOR: I think one out of two is not bad for James.

(LAUGHTER)

CASTELLANOS: No, look, James knows this. Voters, they're going to show up at the polls and vote anyway, even if we call it now.

And races like this, especially long race, often have a self- correcting mechanism built in. When someone gets a lead, gets a little bit ahead, and voters start thinking, you know, this candidate might win, they also take the next step. And that's, well, what would that be like? How would they govern?

And you get a little bit of almost a buyer's remorse before the election. I think, in the next week, you're going to see this race tighten, as voters start looking at, well, what would a Democratic Congress and Democratic president be like, when there's no one to check either of them, like a car with two accelerators and no brake pedal. So, yes, I think you're still going to see this tighten up.

ROBERTS: All right.

Well, let's take a for instance on what Alex said. Let's look back at the 2000 race. October 2 to 4, our CNN/Gallup tracking poll had Vice President Al Gore leading George Bush 51 to 40.

And, then, the night of October the 3rd, Vice President Gore sighed his way through the first presidential debate. And take a look at this, reversal of fortune. October 6 to 8, the same tracking poll, President Bush -- or then Governor Bush -- up 50 percent to 42 percent.

So, James, things can change quickly. And we have got 27 days left in this campaign.

CARVILLE: Well, they can, but I would not be saying what I'm saying if it was based on one poll. This is based on any number of polls, including my own firm, Democracy Corps, which polls extensively, and talking to people around -- in the states and everything else.

I just think that -- look, I'm willing to be the first person to call it. I think this race is -- Obama is going to win, and it's not going to be close. And I think that the Congress is going to be a sweeping win for them.

Look, can I be surprised? Can I be wrong? Of course I can, but this is an instance where I don't think I'm going to be.

ROBERTS: We will San Francisco Mayor Willie Horton (sic) on this morning, and...

CARVILLE: Willie Horton?

(LAUGHTER)

ROBERTS: Willie Brown. I'm sorry.

CARVILLE: All right. That's OK.

(CROSSTALK)

ROBERTS: We certainly didn't have Willie Horton on.

(LAUGHTER)

ROBERTS: I have been up for a while, guys. I have been up since 2:00 a.m.

(LAUGHTER)

(CROSSTALK)

ROBERTS: Let me start that again. We had San Francisco Mayor Willie Brown on this morning. And he was talking about this idea of race potentially being raised in the campaign between now and November the 4th. In fact, here's what he told me about it. Let's listen.

(BEGIN VIDEO CLIP, "AMERICAN MORNING")

BROWN: I think race will play 4 or 5 percentage points in this whole operation in some key states, states like Ohio, states like Pennsylvania, states like North Carolina, Virginia. There can be some devastating numbers coming out of those states. And I fear those states. And I think the Obama campaign fears those states for that very reason.

(END VIDEO CLIP)

BROWN: Alex, what do you think about what the former mayor said? Do you believe that race could be an issue between now and Election Day?

CASTELLANOS: You know, everything's an issue, from age, to anything that makes you different. Voters always look at you and say, well, are they going to serve what makes them different first, or are they going to serve what binds us all together first?

Kennedy had to answer that same question about his faith. But I would say this. In this particular election, with an economic crisis the way we have, it's probably going to be much less of a factor. When somebody is trying to break into your house, you don't care if the policeman, what faith is he, what color he is, what his last name is. You want someone to help protect you.

And, right now, I think people are putting together small things that might separate us and looking at the big things that address our problems.

ROBERTS: You know, James, Mayor Brown was suggesting that, when the economy is in bad shape, as it is now, that's -- that's a particular issue that will outweigh any consideration of race.

CARVILLE: Well, yes, and I -- now, look, I love Mayor Brown. He's a dear friend of mine. But we don't know -- certainly, this thing will be studied ad infinitum, ad nauseam after the election. Every political scientist in the world is going to be looking at this.

But I think, also, there are a lot of people -- you know, I think we're going to have an expanded African-American turnout. And there are a lot of people out there, me being one of them, that think it's kind of nice that a major political party has nominated an African- American.

I don't -- I would have voted Democratic anyway. So, we will -- we will have to wait and see. But I just think that -- I think that the forces are in place in this election, and I don't see much changing between now and Election Day.

ROBERTS: You know, we see now, as we get down to the short strokes in this election campaign, the issue of character coming out again.

And Cindy McCain, on the campaign trail today, seemed to raise that to another notch. She made this very personal, in terms of Barack Obama and his views about the Iraq war.

Let's listen to what she said.

(BEGIN VIDEO CLIP)

CINDY MCCAIN, WIFE OF SENATOR JOHN MCCAIN: I'm proud of my sons.

But, let me tell you, the day that Senator Obama decided to cast a vote to not fund my son, when he was serving...

(AUDIENCE BOOING)

C. MCCAIN: Sent a cold chill through my body, let me tell you.

(END VIDEO CLIP)

ROBERTS: Talking about her son serving in the military there. James, this -- this is a new tactic by the McCain campaign, I mean, taking it down to this very, very personal level, and having Cindy McCain do it.

CARVILLE: Well, the -- again, that proves my point last night, is, you know, they're done, and they pretty much know it. But people don't go gently into that long, good night.

The truth of the matter is that Senator Biden has a son that just deployed to -- the Iraq. And the vote -- Senator Obama voted to fund the troops with a timetable. Senator McCain voted against that. So, it's a difference of opinion.

And, by the way, we have got gone through this in two debates already. We are going to have a third one. This issue has been explored in great depth, and was explored last night. And I'm sure it will continue to be explored.

ROBERTS: What about this negativity, Alex? Is that a winning strategy? I mean, involve, going negative can suppress voter turnout and can play in favor of the party that doesn't have as many votes at its disposal as the other one.

But do people want to hear this sort of thing? That played very well towards -- in a Republican crowd, but is it going to play well with independent voters, moderates, people who might change their vote, the people who will decide this election?

CASTELLANOS: Look, I have made a few negative ads in my time...

(CROSSTALK)

(LAUGHTER)

ROBERTS: I remember the one in 2000, those rats.

CASTELLANOS: You know, not -- they're not all bad.

(LAUGHTER)

CASTELLANOS: And it depends if they're relevant to your life or not. If it's trivial, if it's politics for politics' sakes, then, of course, everybody's tired of it.

But, sometimes, you do want someone to yell fire in a crowded theater when it's on fire, when it can -- it can warn you of a risk, when it can help you avoid trouble down the road. And that's the situation we're in now.

I think, you know, success is dangerous in politics. We're being successful in Iraq. It's receding as an issue. Trying to draw differences there is probably not going to advantage Republicans that much. We need to draw differences on the economy and where this country is going. And I think, there, we ought to have a tough, divisive, negative campaign. Who's going to lead a stronger economy into the future, the team that's going to raise taxes on American businesses, take liquidity out of the economy, or the team that wants to cut taxes, lighten the load, so we can compete in the new global frontier and win?

ROBERTS: All right.

CARVILLE: All right.

ROBERTS: Alex Castellanos, James Carville, good to see you.

CARVILLE: Alex knows, he the ads. He was pretty -- he was good at it, too. I have got to tell you that.

(LAUGHTER)

ROBERTS: I remember -- I remember that 2000 campaign ad, that Democrats were complaining that he had the word "rats" in the middle of the screen.

CASTELLANOS: I'm running out of animals.

ROBERTS: Was that intentional, Alex?

CASTELLANOS: No.

(LAUGHTER)

CASTELLANOS: You know, I just -- I haven't figured out how to you spell bureaucrats without those letters in there.

(LAUGHTER)

ROBERTS: All right. Thanks very much, guys. Appreciate it. We will see you again soon.

Barack Obama is gaining ground in some key states. And this could be one reason why. Wait until you hear how much he spent on advertising.

And whales, the military and the U.S. Supreme Court -- we will take you inside a fascinating case.

(COMMERCIAL BREAK)

ROBERTS: On our "Political Ticker": A new analysis shows almost every television ad that John McCain ran last week was negative, while about a third of Barack Obama's ads were negative. That reflects the McCain campaign's sharper attacks on the campaign trail in recent days.

The Wisconsin Advertising Project reports that, to date, 73 percent of McCain's ads and 61 percent of Obama's have been negative.

That same report shows that Obama is outspending McCain on advertising. The Democrat forked over more than $17 million for TV commercials between September the 28th and October the 4th. The McCain campaign and the Republican National Committee spent just under $11 million on television ads in that period. The two sides had been spending about the same amount on campaigns ads in mid-September.

You're in THE SITUATION ROOM.