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THE SITUATION ROOM

How Unpopular Is President Bush?; Illinois Scandal Impacts Incoming Obama Administration; India-Pakistan Tensions

Aired December 26, 2008 - 18:00   ET

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


BROOKE BALDWIN, CNN CORRESPONDENT: And he estimates water temperatures in that area is right around 70 degrees right now.
So, there are search crews on the scene until later tonight. At that point, they will have to determine whether or not to continue until tomorrow -- Suzanne.

SUZANNE MALVEAUX, CNN WHITE HOUSE CORRESPONDENT: Thank you, Brooke.

Happening now, breaking news: desperate cries for help, lives threatened by a man in a Santa suit. We are standing by for those 911 tapes and new details on the Christmas Eve party that ended in flames and bloodshed.

Plus, the dark cloud over Barack Obama's Hawaiian holiday -- the scandal surrounding the Illinois governor could touch the Obama transition team in the form of a subpoena. The best political team is standing by.

Plus, Americans say they are more than ready for the end of the Bush era. Just how unpopular is the president in his final days in office? Well, we have a new snapshot of public opinion.

Welcome to our viewers in the United States and around the world. Wolf Blitzer is off today. I'm Suzanne Malveaux. And you are in THE SITUATION ROOM.

Right now, the breaking news on a Christmas Eve massacre. We now know the killer in a Santa suit had $17,000 and a plane ticket on him as well as weapons he used to turn his former in-laws' house into a scene of carnage.

And we are standing by for tapes of 911 calls from that scene.

Our CNN's Thelma Gutierrez is in Covina, California.

I know you have got the latest details. What are we learning?

THELMA GUTIERREZ, CNN CORRESPONDENT: Suzanne, right now, we are still waiting for the release of those 911 tapes. They should be coming at any time now, but police say that this was a crime extremely well planned. They say the 45-year-old gunman had targets in mind. He went to that Christmas party looking for his ex-wife and her immediate family members.

(BEGIN VIDEOTAPE)

GUTIERREZ: Forty-five-year-old Bruce Jeffrey Pardo was described by neighbors as a gentleman who served as an usher at Holy Redeemer Catholic Church.

But on Christmas Eve, just before midnight, police say the 45- year-old aerospace employee drove to the home of his ex-in-laws, where more than two dozen people, including his former wife and her parents, were their annual holiday party.

KIM RANEY, COVINA POLICE CHIEF: There was a knock at the front door and a gentleman dressed as Santa Claus was at the door carrying a large wrapped package.

GUTIERREZ: It was a tradition for a neighbor to dress up like Santa Claus for the party. So, when an 8-year-old spotted him, she ran toward him. That is when police say Pardo pulled out a semiautomatic weapon and shot her in the face. She is expected to survive.

Horrified party-goers recognized the shooter.

ED WINTER, L.A. COUNTY CORONER ASSISTANT CHIEF: He fired multiple rounds into the people attending the party. And multiple people were struck. And this is when people were trying to escape the residence or hide under furniture.

GUTIERREZ: Some jumped from windows on the second floor of the house. Then police say Pardo pulled out what was in the package.

RANEY: The package that he had appears to be a homemade pressurized device to help spread flammable accelerant throughout the resident.

GUTIERREZ: The home quickly became an inferno. Inside, the bodies of nine charred victims, so badly burned they had to be identified through dental records.

RANEY: He suffered third-degree burns on both arms. It also appears that the Santa Claus suit that he was wearing did melt on to his body.

GUTIERREZ: Two girls, 8 and 16 years old, were also shot, but are expected to survive.

When the rampage was over, police say Pardo drove to his brother's house, where he shot and killed himself. The motive? Police say a failed marriage and a contentious divorce.

(END VIDEOTAPE)

GUTIERREZ: Now, Ed Winter, who works with the Coroner's Department here in L.A. County, had told us that they went through the house. They had initially said that there were eight bodies, and then they went to nine charred bodies that were found there. But he told us that they wanted to comb through that rubble very carefully. They had found remains, and they wanted to make sure that those remains were actually human remains, as opposed to animal remains.

And so he told us eight, and that was right before the news conference, and then they changed it to nine, so, nine charred bodies that were found in that home, and they say, Suzanne, that it was just an absolutely devastating scene.

MALVEAUX: Tragic story.

Thank you so much, Thelma.

The Illinois governor's fight against impeachment is threatening to make president-elect Obama's life more complicated. At issue, possible subpoenas for more than a dozen potential witnesses including incoming White House Chief of Staff Rahm Emanuel.

Our senior White House correspondent, Ed Henry, is with the president-elect in Hawaii.

Ed, obviously, developments in the story. What are you hearing today?

ED HENRY, CNN WHITE HOUSE CORRESPONDENT: Well, Suzanne, what is interesting, as you know, team Obama has been trying to turn the page on this ever since Tuesday, when they issued that internal investigation saying there was no wrongdoing by the president-elect or any of his staffers, like Rahm Emanuel.

But it appears that the Illinois governor does have other ideas. CNN has confirmed that his attorney has sent a letter to the Illinois state panel that is considering impeachment charges, urging that they issue subpoenas of Rahm Emanuel, Valerie Jarrett, among others, to try to seek their testimony in this impeachment drama.

We confirmed that with the office of the House speaker in Illinois, Michael Madigan. What is fascinating, though, is that, as you know, the prosecutor in this case, Patrick Fitzgerald, has previously urged this impeachment panel not to do things like that, because it could impede his own criminal investigation, but again there is that possibility now out that subpoenas could be issued to people like Rahm Emanuel, keeping this story alive, something that the Obama camp does not want -- Suzanne.

MALVEAUX: And, Ed, obviously, they would rather be talking about their solution to the economic crisis or national security. How much of this really posses a distraction, a risk of distracting people from their agenda?

HENRY: That is the fear among Democrats, that every day they spend talking about this Blagojevich scandal, it's a day that they are not talking as much about the economy, about national security.

And I spoke a little earlier to the Washington attorney Bob Bennett who has been through many of these scandals. He represented President Clinton of course in the impeachment drama. And he said the problem can be the distraction of the drip, drip, drip of more revelations. Take a listen. (BEGIN VIDEO CLIP)

ROBERT BENNETT, ATTORNEY: It is like Count Dracula. The count needs fresh blood every day, and if he doesn't get his daily dose of blood, he withers away. And that is what a scandal is. It needs fresh blood every day.

(END VIDEOTAPE)

HENRY: Now, Bob Bennett, though, said the good news for the Obama camp is that it appears that they are handling this pretty well politically. For example, they put the president-elect out there last week as you know for a private interview with the U.S. attorney's office, suggesting they have nothing to hide.

And Bob Bennett says all they can do along those lines to get as much information out as possible can really help this prevent them from being distracted by this whole drama in Illinois -- Suzanne.

MALVEAUX: OK, Ed. We will see if that works. Thank you so much, Ed.

Caroline Kennedy is speaking out about her qualifications to replace Hillary Clinton in the United States Senate. President Kennedy's daughter says she knows that she would be an unconventional choice for the post, but she says if appointed by the New York governor -- she spoke to New York One about why she wants that job.

(BEGIN VIDEO CLIP)

CAROLINE KENNEDY, DAUGHTER OF PRESIDENT JOHN F. KENNEDY: I think that I have relationships in Washington that I would like to put to work to benefit the people of New York.

You know, I ran -- helped run the vice presidential search process for Barack Obama. I have a good working relationship with him, you know, and I saw -- I know what -- you know, people in Washington, and I want to be able to be part of the team that uses all my relationships.

(END VIDEO CLIP)

MALVEAUX: Since Kennedy has expressed interest in the Senate seat, she has faced criticism that she has acted as though she is entitled to the post because of her political heritage.

California is counting the days before officials say it goes completely broke. The state is reeling amid a multibillion-dollar budget shortfall. Now one question is being asked. Should California get a bailout?

CNN's Dan Simon is in San Francisco -- Dan.

DAN SIMON, CNN CORRESPONDENT: Hi, Suzanne.

I just got off the phone with one of Governor Schwarzenegger's aides. We are told that the governor is on vacation in Idaho with his family, but he has been talking with state lawmakers via videoconference to try to come up with a solution.

(BEGIN VIDEOTAPE)

SIMON (voice-over): Governor Schwarzenegger's goal was to get a state budget by Christmas. Well, there's still no deal between him and the legislature. So, what are they fighting about? Taxes, spending cuts and the environment. Schwarzenegger wants a broader exemption from the state's environmental laws for highway projects, which he says will improve the infrastructure and create jobs.

GOV. ARNOLD SCHWARZENEGGER (R), CALIFORNIA: We need jobs right now. For me, the people are the most important thing. Then we can worry about all the other regulations. But let's get the people to work. That's the important thing.

SIMON: As for taxes, Republicans are unwilling to go along with increases, but Schwarzenegger, of course a Republican himself, appears willing to break with party ranks and agree with some of the Democratic tax proposals. Among the ideas, a 13 cent hike for each gallon of gas.

There's also the question of whether California should seek federal bailout money. But the government this week has been firm.

SCHWARZENEGGER: We are not asking the federal government to make up for anything for our failure. We have to always first solve our own problems, because we can do that. Right now, what I am talking about are self-inflicted wounds.

SIMON: Wounds that could leave California, the eighth largest economy in the world, broke. The state controller says California is just two months away from running out of money. Among the possible consequences, tax refund checks next year could be delayed.

JOHN CHIANG, CALIFORNIA STATE CONTROLLER: That is especially not helpful in difficult economic times, where families need the money to pay their bills, whether it's a rent bill, a mortgage bill, transportation, or food. So, it's going have a strong impact in all our communities across California.

(END VIDEOTAPE)

SIMON: Suzanne, the hope is that this budget crisis can finally be resolved sometime next week. The big headline here is that this Republican governor is willing to go along with some Democratic tax increases, but, in exchange, he wants some deep spending cuts. And that is what they are still trying to work out -- Suzanne.

MALVEAUX: OK. Thank you so much, Dan.

Will President Bush allow a fellow Republican to get out of jail? As the former Illinois governor sits in prison, he is getting unlikely help from a Democrat who is a close ally of Barack Obama.

Also, when it comes to presidential pardons, can money in the form of political contributions help buy a prisoner freedom?

And wanted: a top spy to lead the CIA. One man who wanted consideration withdraws his name. Did liberal bloggers scare him away?

(COMMERCIAL BREAK)

MALVEAUX: As the governor of Illinois finds himself the target of a federal corruption investigation, his predecessor sits behind bars, the result of his own political troubles. Well, that case has crossed party lines, but not really in the way that you might expect.

Our CNN's Elaine Quijano joins us from Crawford, Texas.

And this really is a get-out-of-jail request that is now being made by President Bush. Explain, Elaine.

ELAINE QUIJANO, CNN WHITE HOUSE CORRESPONDENT: Well, it is being asked of President Bush, Suzanne. You are absolutely right.

We are talking about a request for a commutation, a request that was made, we should point, well before the Governor Blagojevich scandal unfolded. What we have is a Democratic senator asking President Bush to commute the federal corruption sentence of a former Republican governor.

(BEGIN VIDEOTAPE)

QUIJANO (voice-over): On one side is Democratic Senator Dick Durbin of Illinois, who's written President Bush a letter requesting that the president commute the six-and-a-half year federal corruption sentence of former Republican Governor George Ryan.

SEN. RICHARD DURBIN (D), ILLINOIS: This action would not pardon him or his crimes or remove the record of his conviction, but it will allow him to return to his wife and family for their remaining years.

QUIJANO: On the other side are members of George Ryan's own Republican Party, including Illinois Congressman Mark Kirk, who's also written a letter to the president, but one adamantly opposing commutation.

REP. MARK KIRK (R), ILLINOIS: For someone that so abused their office, he should not skip out of jail on a political favor. He should stand like any other criminal seeking release.

QUIJANO: In 2006, George Ryan was unanimously convicted on 18 corruption counts, including squashing an investigation of bribes paid in exchange for truck driver licenses. One of those truck drivers was involved in a fiery crash that killed six children from the Willis family of Illinois.

KIRK: This kind of public conduct should not be tolerated in any state, and was not tolerated in our state.

QUIJANO: But Senator Durbin says he believes the 74-year-old Ryan has paid a price during the roughly 13 months he has served so far. Durbin says what he's asking for now is compassion for Ryan's wife, who he says is in frail health.

DURBIN: He has a loving wife who needs him and that he is going to pay a price for as long as he lives for his official misconduct. And it's now in the president's hands.

(END VIDEOTAPE)

QUIJANO: Now, earlier this month, White House aides had said that they did deserve receive Senator Durbin's letter, but they are not commenting beyond that.

Now, in a separate development, Senator Durbin has sent the current Illinois governor, Rod Blagojevich, a letter as well, this one, though, asking the governor to search his heart and step down -- Suzanne.

MALVEAUX: Thanks, Elaine -- Elaine Quijano in Crawford, Texas.

Meanwhile, President Bush pardons one man who pleaded guilty to fraud. Well, then he reverses course on that pardon. Now there's a flurry of questions. Among them, did Brooklyn businessman Isaac Toussie get special treatment from the White House because his father contributed tens of thousands of dollars to Republicans?

Well, the White House says no. In a statement, White House Press Secretary Dana Perino says -- quote -- "Given that no one advising the president knew of the donation by Toussie's father and because of the possibility of the appearance of impropriety, the counsel to the president withdrew his recommendation."

Well, joining me is CNN homeland security correspondent Jeanne Meserve to sort all of this out -- Jeanne.

JEANNE MESERVE, CNN HOMELAND SECURITY CORRESPONDENT: Suzanne, the Toussie case is not the only one. We now know of three people that were pardoned by President Bush this week who made political contributions to Republicans or who have relatives who did. It raises some new questions about who gets those pardons and why.

(BEGIN VIDEOTAPE)

MESERVE (voice-over): President Gerald Ford granted what is probably the most politically controversial pardon, forgiving his predecessor Richard Nixon for Watergate crimes. The first President Bush also created a firestorm when he granted pardons to Iran-Contra Oliver North and John Poindexter.

But, in recent cases, money has been an issue. President Bill Clinton got heat for his pardon of Marc Rich. Rich's ex-wife had donated $450,000 to Clinton's presidential library. President Bush has now revoked the pardon of Isaac Toussie, whose father had donated almost $40,000 to Republicans this year.

But the case again raised the question, can a pardon be bought? KENDALL COFFEY, FORMER FEDERAL PROSECUTOR: The Department of justice does not give any consideration whatsoever to financial contributions to financial contributions when it determines whether to recommend a pardon.

MESERVE: Though the Justice Department usually vets pardon requests, the process can take years. And some petitioners choose an alternative route, taking their requests for pardons directly to the White House.

Political contributions can help gain access, but the White House, too, says donations are not a factor in its decision-making. In fact, officials say, they were unaware of Toussie's father's donations until they were reported in a newspaper.

But one scholar says donations are easily researched and perhaps should be, so a president has a full picture and can avoid later problems.

DAN KOBIL, CAPITAL UNIVERSITY LAW SCHOOL: Some consideration should be given to whether you're giving them to people in special situations of favoritism, or at least potential situations of favoritism.

MESERVE: In the past, pardons were more common. President Truman granted pardons every year he was in office, more than 1,900 in all.

President Bush's total, less than a tenth of that, 189.

(END VIDEOTAPE)

MESERVE: In this era of mandatory sentencing, some constitutional experts say there may be a need for more pardons to compensate for a lack of flexibility and compassion in the legal system -- Suzanne, back to you.

MALVEAUX: Thank you, Jeanne.

As President Bush prepares to leave office, many of you are giving him something, well, he surely does not want on his way out.

Also, Pakistan and India could be move closer to the brink of war. With tensions running high, find out what is happening now.

And some socialites left nearly penniless in the alleged $50 billion financial fraud get creative to make up for some of their losses.

(COMMERCIAL BREAK)

MALVEAUX: As Americans look ahead to the Obama administration, they are also taking the measure of the man who has served in the White House for the past eight years.

Our senior political analyst, Bill Schneider, has new poll numbers on President Bush and his big exit -- Bill.

(BEGIN VIDEOTAPE)

WILLIAM SCHNEIDER, CNN SENIOR POLITICAL ANALYST: Suzanne, the Bush era is drawing to a close -- not a moment too soon for most Americans.

(voice-over): As President Bush prepares to leave office, the American public has a parting thought: good riddance. At least that's the way three-quarters feel. Fewer than a quarter say they'll miss President Bush.

It's been like a failed marriage. Things started out well. When President Bush first took office, more than 60 percent saw him as strong and decisive. That impression was reinforced after 9/11.

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: The people who knocked these buildings down will hear all of us soon.

SCHNEIDER: The public still saw Bush as strong and decisive when he took office a second time in 2005. No more.

The public's confidence in this president has dropped dramatically, especially over the past two years. President Bush did once have a reputation as a good manager. Then came Hurricane Katrina.

BUSH: And Brownie, you're doing a heck of a job.

SCHNEIDER: And Bush's reputation as a manager got blown away.

Mr. Bush got elected on a promise.

BUSH: I think people look for someone who is a uniter, not a divider.

SCHNEIDER: But the vast majority of Americans believe he betrayed that promise. He took a country that was divided under President Clinton and he divided it worse. Even some conservatives feel betrayed.

PAT ROBERTSON, CHRISTIAN BROADCASTING NETWORK: I think we've had some goofs along the way. The Katrina matter was terrible. The rebuilding of Iraq has been terrible. The hailing of the economy right now has been terrible.

SCHNEIDER: Fewer than a third of Americans believe George W. Bush will go down in history as a good president. Forty percent say he left a poor legacy. Another 28 percent called Bush the worst president in American history.

(on camera): President Bush's job approval rating has been at or below freezing since the beginning of the year. Where does it stand now? Twenty-seven percent, one of the lowest ratings for any president ever -- Suzanne.

(END VIDEOTAPE)

MALVEAUX: Thank you, Bill.

(END VIDEOTAPE)

(NEWS BREAK)

MALVEAUX: Right now, a possible blowup between two nuclear powers. We are following new troop movements and tensions between Pakistan and India. The U.S. military is on alert.

Plus, was Barack Obama's first choice to be CIA chief torpedoed by bloggers?

And big retailers in crisis, from J.C. Penney and Saks, are pleading with the federal government for a bailout of their own.

(COMMERCIAL BREAK)

MALVEAUX: You are in THE SITUATION ROOM.

Happening now: Pakistani troops move toward the border with India, as nuclear-armed neighbors take a step closer to the brink. Will tensions over last month's Mumbai massacre push them to war?

He may have been in the running to run the CIA, but one candidate for the spy chief job has withdrawn his name. Was he scared off by liberal bloggers?

And a new poll asks Americans which woman today they admire most -- all of this, plus the best political team on television.

Wolf Blitzer is off today. I'm Suzanne Malveaux, and you're in THE SITUATION ROOM.

More breaking news now: India and Pakistan have already fought three wars. Now the nuclear-armed neighbors may be heading toward the brink again. Pakistani troops are said to be on the move, as tensions rise following last month's terror attack in Mumbai.

Our CNN Pentagon correspondent Barbara Starr has been looking into this.

And, Barbara, what are we learning today, at this moment?

BARBARA STARR, PENTAGON CORRESPONDENT: Well, Suzanne, at this hour, there are still conflicting reports about what is happening. All of this forcing the Bush administration to keep a very close eye on this hot spot.

(BEGIN VIDEOTAPE)

STARR (voice-over): Two Pakistani officials tell CNN their troops are moving from the border with Afghanistan, where they are fighting Al Qaeda, to the border with India, amid fears India is planning a cross border attack. Officially, Pakistani Prime Minister Yousaf Raza Gilliani says Pakistan will act only if attacked.

India quickly charged Pakistan is trying to divert attention from the real threat of terrorists.

PRANAB MUKHERJEE, INDIAN EXTERNAL AFFAIRS MINISTER: We would expect that instead of raising war hysteria, they will address this problem. This is a menace to the regional peace and stability.

STARR: A senior U.S. military official tells CNN the Pentagon sees no direct evidence of a significant Pakistani troop movement so far. This may all be another round of posturing by both sides.

But feuding between two nuclear powers is exactly what the Bush administration doesn't want to see. The risk is either side could miscalculate, and India and Pakistan, which have gone to war three times before, could find themselves again at the brink.

Washington wants Pakistan to focus on fighting terrorism inside its borders.

An obviously worried Bush administration issued a statement saying: "We hope that both sides will avoid taking steps that will unnecessarily raise tensions."

All U.S. hopes are with this man, General Asfaq Kayani, Pakistan's Army chief of staff.

Admiral Mike Mullen, the chairman of the U.S. Joint Chiefs of Staff, has had two meetings with Kayani in the last month, making the case any moves toward war play right into the terrorists' hands.

ADM. MIKE MULLEN, JOINT CHIEFS CHAIRMAN: It shouldn't be lost on anyone how a handful of well-trained terrorists, using fairly unsophisticated tools in a highly sophisticated manner, held at bay an entire city and nearly brought to a boil inter-state tensions between two nuclear powers.

(END VIDEO TAPE)

STARR: Now, Suzanne, when you look at the map, you can see just how close all of this is. It appears that what has led Pakistan to become so concerned and move those troops was information they thought they had that India was about to launch air strikes across the border. Tonight, U.S. officials are trying to find out what exactly India's intentions are, communicate to Pakistan and try and diffuse this entire situation -- Suzanne.

MALVEAUX: Thank you, Barbara.

The Pakistan ambassador also saying -- trying to diffuse the situation.

Thanks again, Barbara Starr.

While the president-elect is on holiday in Hawaii, he may be taking time out to mull some possible candidates for CIA chief. And he may be mindful about reaction on the blogs, given to what happened to his first choice.

Our Brian Todd is here -- Brian, and this opening in Obama's national security team has really been a hot topic on the blogosphere.

Tell us about that.

BRIAN TODD, CNN CORRESPONDENT: It has been, Suzanne. And it's got people using a term called blog-o-cide, because there are implications that bloggers caused the demise of Obama's first nominee as CIA director.

The transition team says that's all nonsense. But the political ramifications of this job are significant right now.

(BEGIN VIDEOTAPE)

BARACK OBAMA (D), PRESIDENT-ELECT: ...in a crisis like this...

TODD (voice-over): In an otherwise well-received transition, one prominent hole remains. The Obama team is still looking for a CIA director. Former top counter-terrorism official, John Brennan, withdrew his name, citing "strong criticism in some quarters prompted by my previous service with the Central Intelligence Agency."

Some liberal bloggers had blasted Brennan's past support for rendition -- the capturing and transporting of terror suspects to other countries for interrogation and detention. Some also claimed Brennan supported harsh interrogation techniques, which he strongly denied.

Two knowledgeable sources tell CNN the Obama team pressured Brennan to withdraw. Obama transition officials say it was his own decision.

Was this nomination torpedoed by blogs?

JEFF STEIN, NATIONAL SECURITY EDITOR, "CONGRESSIONAL QUARTERLY": I don't think the bloggers knocked him out so much as that they realized they would have to have a fight at his confirmation hearing.

TODD: Analysts say even if Brennan didn't support harsh interrogation, his overall ties to the post-9/11 era at the CIA, with the prewar intelligence flap and all the controversial tactics in the war on terror, would have made him tough to confirm.

Human rights officials are throwing down their gauntlet.

ELISA MASSIMINO, CEO AND EXECUTIVE DIRECTOR, HUMAN RIGHTS FIRST: It really is incumbent on the incoming administration to choose people for those slots who don't have any baggage from the previous policies and can demonstrate a clear break from those policies.

TODD: Elisa Massimino says that doesn't mean everyone who served in the CIA then should be automatically disqualified. But analysts say it will be hard to find a really qualified spy chief who doesn't have some tie-in to that period. A former CIA officer says if the Obama team can find someone like that...

TYLER DRUMHELLER, FORMER CIA CHIEF OF EUROPEAN OPERATIONS: They have a unique opportunity to make changes now in the agency -- the way the agency fits into the intelligence community, to get back to the real core mission of the service to recruit agents and have -- collect intelligence through classic espionage.

(END VIDEOTAPE)

TODD: Tyler Drumheller says the ideal person for that would not be a former analyst, but someone from the operations side of the CIA -- the division that actually carries out missions in the field. So the challenge right now for Obama's team -- find someone like that, who is not associated with the controversies of the past eight years -- Suzanne, that's a very tall order, because that narrows the field significantly.

MALVEAUX: Sure.

A very interesting story -- the third in one day.

Thank you so much, Brian.

Barack Obama's Hawaiian holiday threatened by a dark cloud -- why the president-elect's transition team could be touched by the scandal surrounding the governor of Illinois.

And the president has urged him to run, but if Jeb Bush does try for a Senate seat, would he be different from his brother?

The best political team on television is standing by.

(COMMERCIAL BREAK)

MALVEAUX: Now, more one of our top stories tonight -- the Illinois governor's fight against impeachment and the possibility that members of Obama's team may be forced to testify before a panel considering impeachment. Well, joining me now, CNN's senior White House correspondent, Ed Henry; "Time" magazine's Karen Tumulty; and BET anchor Jeff Johnson.

I want to start off first with you, Ed, because, obviously, you've been talking to some of these folks.

How much of this is a problem and a distraction for Team Obama?

They do not want to be talking about this now, but potentially you're going to have key members of his administration being called forward before this impeachment panel.

ED HENRY, CNN CONGRESSIONAL CORRESPONDENT: You're right. I mean that's the potential problem here for Team Obama, is the fact that as much as they want to keep saying they're ready to turn the page on this whole Governor Blagojevich scandal, his investigation -- the investigation of Patrick Fitzgerald into the governor is ongoing. It's wide. It's been going on for years, in fact. It's a very serious criminal investigation.

And it's going to keep playing out in the months ahead, just after Barack Obama is officially sworn in. And nobody knows what other revelations are around the corner.

I was talking to Bob Bennett, the Washington super attorney, today. He's been through many of these scandals as a defense attorney. And he said wait until the tapes come out in a few months. Reporters are going to be scouring over every detail.

And we know that Rahm Emanuel and other folks could be on those tapes -- we stress could. We haven't heard them yet. But there could be all kinds of salacious details. It may not show wrongdoing, but it may lead into other avenues.

And so as much as they want to shut this down, the potential problem is this could drag on for months and months and show sort of the seamy side of Chicago politics that runs counter to what the president-elect has talked about in terms of change -- Suzanne.

MALVEAUX: Jeff, we saw this intel report by Team Obama here.

Are people satisfied, to your knowledge, that there is no wrongdoing here?

Is this a little bit of a stretch?

JEFF JOHNSON, BET ANCHOR, "THE TRUTH WITH JEFF JOHNSON": Well, I think that the media, us included, have over sensationalized what's already sensational and that there is a time period that's required in order for real information to come out, in order for Fitzgerald to be able to do the kind of investigation that's necessary. And there will be a lot of things that come out.

Whether that implies or whether that means that the Obama folks were dirty or not remains to be seen. But I think there has to be some kind of wait and see attitude that not only the public is taking, but that the press is taking, so that there's not as much sensationalization -- if that's a word -- of what's already a sensational issue.

MALVEAUX: Karen, how do you believe that the Obama team has handled this so far?

KAREN TUMULTY, "TIME" MAGAZINE: You know, I think they have tried to get it as much out as they could. But, you know, when you asked your first question, you used two words -- distraction and problem. I think this is a distraction, but unless there is something in there that we don't know about, the reason that Blagojevich's lawyer would be subpoenaing the Obama team would be to prove that there wasn't a conspiracy, that nothing was asked, that nothing was offered.

And so I think, given where that subpoena would be coming from, I think they're trying to get the governor out of this case, not embroil the Obama people in it.

MALVEAUX: Let's talk about now former Florida governor, Jeb Bush -- the possibility that he may actually run for Senate. Our own Candy Crowley earlier asked President Bush about whether or not he suggested his brother go for the position.

Take a listen.

(BEGIN VIDEO CLIP)

CANDY CROWLEY, CNN SENIOR POLITICAL CORRESPONDENT: Have you told Jeb to run for U.S. Senate in Florida?

GEORGE BUSH, PRESIDENT OF THE UNITED STATES: Yes.

CROWLEY: Is he going to?

BUSH: I don't know.

CROWLEY: You really don't know?

BUSH: I really don't know. I wish he would. He'd be a great senator.

(END VIDEO CLIP)

MALVEAUX: All right, Ed. I don't know if I believe he really doesn't know. We know Bush pretty well. I'm not sure if that's the real deal or not.

But how do you think that Jeb Bush would be differently -- different from his brother and even from the father, in terms of how he's governing?

HENRY: Well, certainly a very popular governor when he was in charge in the State of Florida. And so he could bring a lot to the table -- issues like education. He was known as the education governor. And I think maybe President Bush has another motive there, which is that, as you see in the latest CNN/Opinion Research poll, some two thirds or so of the public wants to see him out. They think his presidency is already done and they don't like what he's done as president. He's got extremely low approval numbers.

And so I say half jokingly, maybe he wants Jeb Bush to carry on the family legacy and try to repair some of that, because Jeb Bush was very popular in Florida, somewhat popular nationally. In fact, a lot of Republicans wish he had been able to run for president in 2008. But, obviously, having a Bush on the ballot then probably would have been a disaster. But down the road, who knows, for Jeb Bush.

MALVEAUX: Jeff, do you think that that would help the Bush legacy?

JOHNSON: I think anything would help the Bush legacy at this point. But I do think that Jeb was, I agree, a very popular governor. I think that by no stretch of the imagination is his political career over, that this could be a great opportunity for him -- in many cases, the party moving forward.

So there is a great deal of opportunity and, I think, excitement by a number of people about his potential run for the Senate.

MALVEAUX: Karen, I want you to pick up on this next topic here. The most admired woman from the "USA Today"/Gallup Poll showing Hillary Clinton at the top of the list, at 20 percent; followed by Sarah Palin, at 11 percent; Oprah Winfrey, 8 percent; Condoleezza Rice, 7; Michelle Obama, 3 percent.

What do you make of this?

TUMULTY: Well, I don't find it surprising at all. Hillary Clinton, this year, made a lot of history. And she has been at the top of the list for something like 13 of the last 15 years. She's -- she's a perennial favorite, I think, in this particular poll.

MALVEAUX: Well, Karen, does it surprise you that Sarah Palin came in second?

TUMULTY: You know, it did, actually, given the amount of controversy that she brought with her. But again, the people who loved Sarah Palin loved her in this election. She was a polarizing figure, but for good and for bad -- for getting Republicans really excited about the ticket.

MALVEAUX: You know, we're looking at this -- three of five of the most admired women are African-Americans. Jump in.

Who thinks that's actually relevant?

What does that say?

JOHNSON: Well, I mean, I think it's a -- I think it's a great thing. But I also think that what's key is these are three very different African-American women. I mean, Oprah Winfrey clearly has a demographic that's beyond the African-American community. And Condoleezza Rice, in many cases, is not always supported by the African-American community.

This just speaks to the diversity of the African-American community and I think us beginning to see an America that's not viewing women, especially African-American women, in particular, as this monolithic group.

MALVEAUX: We've got to leave it there.

Jeff, Karen and Ed, thank you so much for joining us in THE SITUATION ROOM.

HENRY: Thank you.

JOHNSON: Thank you.

MALVEAUX: Good to talk to all of you.

Thank you.

An SOS to Barack Obama -- store owners are asking him to save their shops.

Our CNN senior correspondent, Allan Chernoff, says that they're look into the next administration for some serious relief -- Allan?

ALLAN CHERNOFF, CNN SENIOR CORRESPONDENT: Suzanne, the holiday shopping season has been an absolute bust for retailers -- so bad that the National Retail Federation is asking President-Elect Obama to include a series of sales tax holidays as part of his planned economic stimulus program.

(BEGIN VIDEOTAPE)

CHERNOFF (voice-over): After a dismal holiday shopping season, the nation's biggest retailers are begging for help. "The situation is critical," reads a letter to President-Elect Obama from the National Retail Federation that's signed by the CEOs of JCPenney, Saks and PetSmart. They're asking Obama to approve a series of tax-free shopping holidays in March, July and October -- 30 days in all when consumers could buy without paying state sales tax. Washington would reimburse the states for their lost revenue.

MARSHALL COHEN, NPD GROUP: The tax-free exempt shopping is one part of the puzzle that will help. But what we've seen is a consumer that's now gotten used to very large discounts. And only the tax- exempt piece of the puzzle may not be enough.

CHERNOFF: Discounts are especially deep now. At JCPenney, merchandise is marked down 50 and 60 percent.

UNIDENTIFIED FEMALE: My mom was out to get herself a gift -- an everyday work bag, great price. You get a discount, plus you get this coupon. The sales are excellent today.

CHERNOFF: The retailers' distress is the shoppers' delight.

UNIDENTIFIED FEMALE: I got five pair of corduroy pants, four cotton tops, two watches and a beautiful vase.

CHERNOFF (on camera): All for $101.

UNIDENTIFIED FEMALE: Fabulous.

CHERNOFF (voice-over): Instead of tallying their profits, merchants are trying to minimize their losses.

COHEN: At 50 to 60 off, they're about breaking even. When they start discounting at 75 off or 75 plus another 25 off on top of that, they're not making money, they're losing money.

CHERNOFF: Retailers knew this would be a tough season, so they held inventories low -- but not low enough. So clearance sales that typically begin in January are already under way. CHERNOFF: Shoppers with disposable income are the winners in this dismal retail environment, as stores simply try to clear out their winter merchandise so they can bring in new goods for the spring -- when they hope the economy will be showing some signs of improvement -- Suzanne.

MALVEAUX: Thank you, Allan.

"LOU DOBBS TONIGHT" is coming up at the top of the hour.

Lisa Sylvester is in for Lou -- and, Lisa, what are you working on?

LISA SYLVESTER, GUEST HOST: Hi.

Thanks, Suzanne.

Coming up at 7:00 Eastern, it's the story that won't go away for the Obama team -- the Blagojevich scandal. Now top Obama staffers may be subpoenaed by the governor's defense attorneys. We'll have complete coverage.

Also, it could be the worst Christmas shopping season in decades. Sales of just about everything plummeted, as economic fears kept consumers home. We'll have a report.

And just what does it take to be the White House dog?

There's been no shortage of canine advice for the new first family. We'll have that story.

And please join us at the top of the hour for all of that and more, from an Independent perspective -- Suzanne, back to you.

MALVEAUX: It sounds like a great show.

Thanks, Lisa.

A new twist in the scandal involving investment broker Bernard Madoff. Some socialites may have lost their shirts. Now they're scrambling to sell their jewelry to make ends meet.

(VIDEO CLIP)

MALVEAUX: And you know her cat-like purr very well. Well, Eartha Kitt's voice is now silent. We have the latest on the singer/actress once called the most exciting woman in the world.

(COMMERCIAL BREAK)

MALVEAUX: We're now learning the French financier who killed himself after losing more than $1 billion of his clients' money also lost his own money in Bernard Madoff's alleged investment fraud. That is according to the Associated Press.

Now to the other victims. Some caught in the scheme are finding themselves penniless -- except for one gold lining.

CNN's Susan Roesgen has the story in Chicago -- Susan.

SUSAN ROESGEN, GULF COAST CORRESPONDENT: Well, Suzanne, some of those investors who now have millions of papers that are just worthless are finding that they actually have real gold right in their hands.

(BEGIN VIDEOTAPE)

TOBINA KAHN, HOUSE OF KAHN JEWELERS: 14.16 carats of emerald -- cabochon emerald with 3.33 carats of diamonds.

ROESGEN (voice-over): This is not the kind of ring you'd find in a jewelry store in the mall. It's an estate piece, which is a fancy name for expensive jewelry that used to belong to someone else.

KAHN: Just the workmanship on it, it's just really, really unique.

ROESGEN: Tobina Kahn is part of the family-owned House of Kahn -- well known estate jewelers with two locations, this one in Chicago and another one in Palm Beach, Florida. And it's the one in Palm Beach that's suddenly buying a lot of estate jewelry.

Mega investment broker Bernard Madoff did a lot of business in South Florida. When he was arrested for investment fraud, many of his clients lost their shirts -- but still have a necklace or two to try to make ends meet.

KAHN: Granted, we probably cannot give them what they paid for it, but at least we can recognize what a beautiful item.

I'm a gemologist and I can tell them, you know, what fantastic stones that you picked out. So we can appreciate the workmanship, the craftsmanship in these pieces.

ROESGEN: In fact, the Palm Beach socialite who parted with this aquamarine necklace had very good taste. Now it will be sold to someone else for $85,000

KAHN: Queen Isabella sold her jewels to finance Christopher Columbus's discovery of the New World. And that's what a lot of the people with the Madoff scam, you know, are going to be doing, too -- a lot of them selling their jewels to create a new world and create a new world quickly for themselves. And we hope that we can do it for them.

ROESGEN: A fortune in jewels for a fortune that's lost.

(END VIDEO TAPE)

ROESGEN: And, Suzanne, you'll -- Suzanne, you'll notice that I didn't mention any names there because in that kind of business, discretion is as valuable as diamonds.

MALVEAUX: OK.

Thank you very much, Susan.

Zain Verjee is monitoring the stories that are incoming into THE SITUATION ROOM right now -- Zain, what are you watching?

VERJEE: Suzanne, another airport mishap, this time on the tarmac at LAX. CNN affiliate KABC reports an American Airlines jet bound for Chicago from Los Angeles was getting shot back from the gate today when the tow vehicle became wedged under the plane's nose. The accident damaged the plane, forcing all the passengers to board other flights.

Chinese warships set out today on a ground-breaking mission to fight piracy in the waters off Somalia. It's the first time the communist nation has sent its navy to face possible fight so far from home.

She was once called the most exciting woman in the world. Now, many are mourning Eartha Kitt's death. The singer died yesterday of colon cancer. Her career spanned six decades. One of her biggest claims to fame -- the purring Catwoman on the "Batman" TV series. In a 1997 interview, Kitt talked about being a mixed race child.

(BEGIN VIDEO CLIP)

EARTHA KITT: I had no choice, except to say I belong to no race at all. I belong only to me. And I feel very comfortable with any race that I happen to be associating with at any given moment. And that we are recognized -- those of us who are of interracial blood are recognized as whomever we choose to be at the particular moment. And if we want to have a race, then what should that race be called?

I've always said that my race is called Eartha, because I made my name through the help of the public. So if you want me to belong to a race, I belong to Eartha.

(END VIDEO CLIP)

VERJEE: Kitt was 81 years old -- Suzanne.

MALVEAUX: Thank you, Zain.

A teammate's mom, a soccer player, who scored the winning goal -- just one of our Hot Shots -- pictures worth a thousand words.

(COMMERCIAL BREAK)

MALVEAUX: Here's a look at this hour's Hot Shots coming in from our friends over at the Associated Press -- pictures likely to be in your newspaper tomorrow.

In England, a soccer player gets mobbed after scoring the tying goal.

In Hungary, an orangutan enjoys the basketball he received on Christmas.

In Bulgaria, a man rides into the snowy weather.

And in Thailand, a quiet moment during a remembrance of the 2004 tsunami.

That's this hour's Hot Shots -- pictures worth a thousand words.

And this weekend on "LATE EDITION," Wolf's interviews with some of the biggest political newsmakers of the year. Among them, President-Elect Barack Obama, Governor Sarah Palin and Secretary of State Condoleezza Rice.

I'm Suzanne Malveaux in THE SITUATION ROOM.

Up next, "LOU DOBBS TONIGHT."

Lisa Sylvester is in for Lou -- Lisa.

SYLVESTER: Thanks, Suzanne.