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Israel Preparing to Invade Gaza?; Muslim Family Booted From Flight; Dems Huddle on Economy; Why Moderates Matter So Much; Republicans Flee Inauguration; Obama Opens Up about Growing Up

Aired January 2, 2009 - 18:00   ET

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


SUZANNE MALVEAUX, CNN ANCHOR: Happening now, breaking news: Israel sounds ready to pull the trigger on a ground assault in Gaza, while Hamas militants try to draw Barack Obama into the conflict. This hour, harsh words for the president-elect and a warning of doom.
Plus, the hunt for investor's cash in a tangled web of deceit. Did accused swindler Bernard Madoff bilk people out of millions or billions of dollars? The answer may cost taxpayers a lot of money.

And allegations of misconduct are flying after a Muslim family was booted from a flight. New details on what happened, and the airline's apology.

We welcome 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.

Breaking news this hour: a warning just issued by Israel that its ground forces are prepared to enter Gaza when the order is given. Hamas militants being targeted by Israel are warning of doom if those tanks roll in. A defiant Hamas leader is throwing down the gauntlet for president-elect Obama as well.

Take a listen.

(BEGIN VIDEO CLIP)

KHALED MESHAAL, HAMAS LEADER (through translator): Mr. Obama, your beginning is not good. You got involved and you had a statement regarding the issue of Mumbai, but you would not get involved and say anything about the enemy's crime against Gaza. Enough of your double standards, oh, Western nations.

(END VIDEO CLIP)

MALVEAUX: CNN's Nic Robertson is standing by near the Israeli- Gaza border. We have Kate Bolduan, who is at the White House.

But, first, let's go Brianna Keilar. She is covering the Obama transition in Chicago.

And, Brianna, do we have any reaction there from team Obama?

BRIANNA KEILAR, CNN CONGRESSIONAL CORRESPONDENT: We don't. We haven't heard a response from the Obama transition team, though we have asked them for one. And we're not necessarily expecting to get one, Suzanne. Mr. Obama has stayed very mum on topics of foreign policy for the most part, and in this particular conflict especially.

His transition team has said what we have heard them say before. He is keeping an eye on developments, but there is one president at a time, and that president is George Bush.

I actually spoke with someone, a former aide and adviser in four previous administrations, who told me that it would be strange for Mr. Obama if he were actually the president already to respond to someone who is a member of what the U.S. considers to be a terrorist organization.

So, you will notice, though, president-elect Obama has really pushed the envelope on that mantra of one president at a time when it comes to the domestic issue of save the economy, but you really see him being reticent to appear to be usurping President Bush's power, at least in terms of foreign policy issues like this -- Suzanne.

MALVEAUX: Thank you, Brianna.

We want to go to Israel's border with Gaza, where Israel says its tanks are on alert. They are ready to get orders for a possible ground attack.

Let's go to our senior international correspondent, Nic Robertson.

And, Nic, you're there. You're on the ground. What are you seeing, what are you hearing, any signs of an imminent ground invasion?

NIC ROBERTSON, CNN SENIOR INTERNATIONAL CORRESPONDENT: It is so hard to read the tea leaves right now, Suzanne.

Just a few seconds ago, we could hear Israeli fighter jets flying overhead. We do hear them occasionally. Normally, you hear them after the rocket -- after they drop their missiles, but these sounded as if they were heading down into the Gaza area.

We have been listening to hear if we can hear any explosions. But we hear from the Israeli Defense Forces that they say that are ready. We hear from sources close to the border who say that they are hearing that a ground offensive could be imminent. All psychological pressure or is this the real deal? Is the Israeli army ready now to go right across the border and into Gaza? Very, very hard to tell, but the indications are that they are absolutely ready to do it, and the government here has said they are willing do it as well -- Suzanne.

MALVEAUX: And, Nic, you have actually interviewed that Hamas leader who is warning Israel not to roll its tanks across the border. Can that Hamas leader back it up? ROBERTSON: They -- certainly, from what we can tell and from what we know about how they operate, they have threatened to fire rockets. They have fired rockets. They threaten right now that they have mined the roads in preparation of the possibility of Israeli troops coming in. I think you will find the troops are very aware of that and take that threat very realistically.

They have threatened to kidnap and take prisoner Israeli soldiers. That is something that will be high on the minds of the Israeli army as well as they go in, so I think these threats are taken very seriously. Can Hamas really sustain a fight against a force like the Israeli army? That is a very, very tough question. It depends what the Israeli army does.

They could get bogged down in an urban conflict -- Suzanne.

MALVEAUX: Thank you. Thank you, Nic.

The Bush administration is standing firmly against Hamas and with Israel, Secretary of State Condoleezza Rice today accusing Hamas militants of holding Gaza hostage by using it as a launching pad for rocket attacks on the Jewish state.

Our CNN's Kate Bolduan is at the White House.

And, Kate, what kind of involvement are we seeing from the White House today, obviously taking a look at these developments?

KATE BOLDUAN, CNN CORRESPONDENT: Yes, taking a close look, Suzanne.

In the president's weekly radio address that was just released, the president says, in part, another one-way cease-fire that leads to rocket attacks on Israel is not acceptable, going on to say promises from Hamas will not suffice. The president also say that the U.S. is leading diplomatic efforts, but the big question is how much traction the administration's approach is having as the fighting continues.

(BEGIN VIDEOTAPE)

BOLDUAN (voice-over): A week into Israel's attacks in the Gaza Strip and Hamas rockets being fired into Israel, the Bush administration is still pushing for a long-term solution. Secretary of State Condoleezza Rice appeared for the first time in public after briefing the president.

CONDOLEEZZA RICE, SECRETARY OF STATE: I have talked with our European colleagues, and we are talking is constantly with the Israeli government to find a solution to Gaza that will be a sustainable one.

BOLDUAN: However, the top U.S. diplomat says at this point, she has no plans to head to the Middle East to broker a cease-fire and repeated the administration's conditions.

RICE: It is obvious that that cease-fire should take place as soon as possible, but we need a cease-fire that is durable and sustainable.

BOLDUAN: But with the threat of the conflict escalating with an Israeli ground assault, the White House is declining to comment on whether it would be justified.

GORDON JOHNDROE, WHITE HOUSE DEPUTY PRESS SECRETARY: You know, I don't want to speak to an operation that has not taken place, that may or may not have taken place. Those will be decisions made by the Israelis.

BOLDUAN: Decisions that Mideast expert James Phillips says the U.S. has little influence over.

JAMES PHILLIPS, HERITAGE FOUNDATION: I think it the U. S. ' hands are relatively tied here. And the first priority should be, avoid making the situation worse by pushing for an abrupt end to the conflict that will leave Hamas in a position to continue threatening Israeli civilians.

(END VIDEOTAPE)

BOLDUAN: But, by the U.S. not taking a stronger position, it could appear as the U.S. giving the green light to an Israeli escalation.

Now, both the White House and the State Department declined to comment today on reports that some diplomats are suggesting that international monitors be brought into Gaza as part of any peace deal -- Suzanne.

MALVEAUX: OK, thank you, Kate.

Barack and Michelle Obama are back in Chicago after their Hawaiian vacation, preparing to start their new lives in Washington this weekend. It is a time of big change and reflection for the future first couple.

In a never-seen-before excerpt from my interview with Michelle Obama, she speaks candidly about her husband's longing for the father he barely knew and how it shapes their family today.

(BEGIN VIDEO CLIP)

MICHELLE OBAMA, WIFE OF SENATOR BARACK OBAMA: as much as he loved his mother and loved his family and loved sort of the unconventional upbringing that he had, I think, when he thought about the life that he would want for his kids, I think he -- he longed for the stability that he saw in my family.

(END VIDEO CLIP)

MALVEAUX: Stand by for much more of my interviews with Mrs. Obama and my one-on-one with the president-elect.

Barack Obama may be reaching out. The president-elect will meet soon with Democrats to discuss an economic recovery strategy, and there are plans to take it to Republicans as, but can they sell it?

Plus, a $50 billion question -- where did Wall Street wizard Bernard Madoff hide all of the money he allegedly bilked from investors? We are on the money trail.

And a passenger misinterprets a casual conversation, and a Muslim family is booted off of a flight to Florida. New developments in an airline outrage.

(COMMERCIAL BREAK)

MALVEAUX: President-elect Obama moves to Washington this weekend with a mandate to fix the economy and a Democratic-controlled Congress to help him out, but he is not writing off the Republicans or their concern that he is in too much of a rush.

Let's bring back our correspondent, Brianna Keilar.

And, Brianna, what are we hearing about Obama's plans to meet with congressional leaders on Monday?

KEILAR: We are hearing those meetings are a go, Suzanne. Actually, the transition team is not confirming that these meetings are happening, but John Boehner, the top Republican in the House, came out with a statement today welcoming Obama to the Hill, but at the same time repeating some concerns of Republicans about this economic stimulus package.

(BEGIN VIDEOTAPE)

KEILAR (voice-over): President-elect Obama has promised that saving the failing American economy won't be a one-party effort.

SEN. BARACK OBAMA (D-IL), PRESIDENT-ELECT: And I know we will succeed if we put aside partisanship and politics and work together as one nation.

KEILAR: After a campaign built on a pledge to bring post- partisan politics to Washington, the question remains -- can he deliver?

KEN VOGEL, SR. REPORTER, POLITICO: I think the stimulus plan is going to be the first real test of his ability to sort of reach across the aisle.

KEILAR: Mr. Obama is coming to Capitol Hill Monday to discuss his proposal to jump-start the economy with top Democrats, but also Republicans in the House and Senate. As Democrats plan to push a stimulus package through the House in as little as two weeks, Republicans want to slow down, worried about the price tag on the plan which could hit $775 billion.

Republicans, calling for oversight of how the money is spent, are trying to hold the president-elect to his word. In a statement, Senate Republican Leader Mitch McConnell said Friday, We believe that Obama's admonition to go through the federal budget page by page, line by line, eliminating those programs we don't need and insisting that those we do operate in a sensible, cost-effective way should apply to this.

As they push for broad support, political analyst Ken Vogel says Mr. Obama and congressional Democrats must play nice.

VOGEL: As long as Obama is appearing not to be catering to the left base of the Democratic Party, and is making at least token efforts to involve Republicans and to not alienate them, I think he'll be able to claim that is he taking a post-partisan approach.

(END VIDEOTAPE)

KEILAR: I asked a top Republican Senate aide if Republicans are satisfied with what appears to be an effort by Mr. Obama to include them in these discussions about this new economic stimulus package. This aide said it really depends on how these meetings go Monday, if it turns out just to be a photo-op or if Republicans really do feel that Democrats and Mr. Obama are reaching out to them -- Suzanne.

MALVEAUX: Thanks, Brianna.

It is the $50 billion question -- where did Wall Street wizard- turned-accused-swindler Bernard Madoff hide the money that he allegedly bilked from unwitting investors? And just how much was taken? Well, that is what federal prosecutors want to know.

Our own Christine Romans is following the money trail from New York -- Christine.

(BEGIN VIDEOTAPE)

CHRISTINE ROMANS, CNN BUSINESS CORRESPONDENT: Suzanne, where is the money? How much is lost? And will all of it ever be recovered? Investigators are now probing whether Bernard Madoff may have stashed funds offshore, possibly in the Caribbean and Europe, according to published reports. Madoff's attorney Iraq Sorkin says -- quote -- "We have no comment on any investigation being conducted."

Previously, he's called this case a -- quote -- "tragedy."

Bernard Madoff is the Wall Street veteran accused of running a massive Ponzi scheme.

ROBERT HEIM, FMR. SEC INVESTIGATOR: This is the largest Ponzi scheme and probably the largest fraud that any individual has pulled off in the history of the United States.

ROMANS: Madoff now under House arrest in his penthouse apartment. His $10 million bail secured by multimillion-dollar properties he and his wife Ruth own. There's a Palm Beach mansion where someone stole and then returned this $10,000 lifeguard statue with a note attached calling him -- Bernie's a swindler.

There's also this beachfront Montauk, New York, estate. These properties, in all, Madoff's personal and business assets, compiled in a list and delivered to the SEC this week, the very beginning of the process of untangling the money trail. Investigators are keeping the list under wraps for now.

Still unclear how much money is missing, where is it, and whether the promised 10 to 15 percent gains enjoyed by Madoff's clients were ever real or just paid for by new investors in the alleged Ponzi scheme. What is real and eclectic, a growing list of victims: Kevin Bacon, Kyra Sedgwick, Mort Zuckerman, Steven Spielberg, Steven Spielberg, numerous charities and foundations, and private Swiss banks.

Economist and comedian Ben Stein says he turned down an invitation to invest.

BEN STEIN, ECONOMIST: Now, mind you, I have managed to lose a great, great deal of my life savings in the last year anyway, but I did not fall for that one. I fell for plenty, but not that one.

ROMANS: One small investor who pulled her money out last year tells me she grew suspicious because she couldn't access her account online and the paper statements were decidedly low-tech. She, like many other small investors, invested in so-called feeder funds who funneled the money bundled together to Madoff -- Suzanne.

(END VIDEOTAPE)

MALVEAUX: Thank you, Christine Romans.

Airline outrage -- a family kicked off a plane because of something someone overheard. Are Muslims now subject to profiling from other passengers?

And Democrat Al Franken holds a lead of about 50 votes in that wild Minnesota recount. If he is declared the winner, would Republican senators try to block him from taking a seat?

Plus, some Republicans may be planning to get away from it all during the Obama inauguration. Well, where might they be going and why?

(COMMERCIAL BREAK)

MALVEAUX: Two brothers, their wives and their children all kicked off a plane because of something that someone overheard. It is a story that is making headlines for one reason. The family is Muslim.

CNN's Brian Todd is working this story.

And, Brian, tell us what happened.

BRIAN TODD, CNN CORRESPONDENT: Well, Suzanne, members of this family, who are all American citizens, say they have been subjected to profiling by other passengers. They say because of their beards and head scarves, maybe even the color of their skin, they endured what one called discrimination. (BEGIN VIDEOTAPE)

TODD (voice-over): A family trip to Florida cut short before takeoff. Eight members of the Irfan family and a friend, all from the Washington, D.C., area, were removed from an AirTran flight from D.C. to Orlando.

ATIF IRFAN, PASSENGER: They questioned me about the fact that someone had overheard or had thought at least that they overheard us saying something either about bombs or about some other, you know, terrorist activities.

TODD: AirTran officials said only that a passenger reported hearing something inappropriate.

INAYET SAHIN, PASSENGER: The conversation as we were walking on the plane as we were trying to find our seats was just about where the safest place of an airplane is, and we were just talking whether it was the wing or was it the engine in the back or the front, but that is it.

TODD: Former TSA official Chad Wolf.

CHAD WOLF, FORMER TSA OFFICIAL: If you are going to talk about the security of the aircraft, the security of the airport, or the security in general when you're flying, you need to be aware of who is around you and what comments you are making.

SOBIA IJAZ, PASSENGER: Everybody just assumes we are Muslims, we're terrorists, we're up to something. Every time when we walk into the plane, that is the kind of regular stare we get from everybody.

TODD: After some family members were questioned and cleared by the FBI, the airline refused to book them on another flight.

IRFAN: They would not book us on any flight, even though the FBI agent went to the counter and recommended to them that we were completely safe.

TODD: AirTran says -- quote -- "At the time, the airline had not been notified by the authorities that the passengers were cleared to fly."

IRFAN: The FBI actually was very helpful. It was more so on the airline side, AirTran, that we felt that we were not treated very well.

(END VIDEOTAPE)

TODD: An FBI spokesman also contradicts somewhat what AirTran said. The FBI says its agents did ask AirTran to re-book the family. Here's a quote from the FBI.

"The FBI determined that there was no threat and provided assistance to help the family continue their travel plans." Now, when AirTran refused, the FBI helped the family book on another airline. AirTran this afternoon issued an apology to the nine passengers, saying -- quote -- "We regret that the issue escalated to the heightened security level it did." AirTran also offered to pay for the flights they got on another airline and offered to bring them back to Washington, D.C., for free -- Suzanne.

MALVEAUX: So is the family considering any legal action?

TODD: Well, most members of the family said they just wanted that apology, which they just got. But one member of the extended family -- actually, he's the family friend -- said he is considering a civil rights lawsuit. And it should be said that at least two of the members of this group are attorneys. They are going to know exactly where to go in this situation.

MALVEAUX: OK. Thank you, Brian.

(NEWS BREAK)

MALVEAUX: Well, there could be fireworks in the U.S. Senate next week. Will the man tapped to replace Barack Obama be barred at the door? We are investigating.

Plus, the president-elect prepares to sell his economic fix-it plan to congressional leaders. Do Republicans have a point when they say, not so fast?

And, later, president-elect Obama opens up about why his father was a tragic figure in my interview with him.

(COMMERCIAL BREAK)

MALVEAUX: You're in THE SITUATION ROOM.

Happening now: Senate Democrats are facing an awkward and potentially risky situation -- what to do about the Senate appointment most see as tainted. Well, we will look at their options.

Also, moderate Republican lawmakers, will they be the key to Barack Obama's success? Why one is warning the GOP to take a close look at the election results.

Plus, a battle on the high seas pitting the French navy against African pirates. We have new images just in.

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

The Illinois State House could vote as early as next week on whether to impeach Governor Rod Blagojevich. Lawmakers moved up their special session to consider the corruption allegations against the governor.

Meantime, the governor's disputed choice to fill Barack Obama's former Senate seat may face a major confrontation on Capitol Hill in the days ahead.

Our CNN's Samantha Hayes is here.

And what do we expect next week, Sam?

SAMANTHA HAYES, CNN CORRESPONDENT: Well, Suzanne, on one hand, the Democrats have been looking forward to the beginning of 2009. One of their own will be in the White House soon and they have a majority in Congress. But the first thing they have to do next week is figure out how to deal with Roland Burris.

(BEGIN VIDEOTAPE)

HAYES (voice-over): If Roland Burris shows up on Capitol Hill Tuesday, the welcoming committee won't be waiting. Burris may enter the Capitol here, but once through security, he has no office, no staff, and it's possible no one will acknowledge him as the new freshman senator from Illinois. But that's not stopping him.

ROLAND BURRIS (D), FMR. ILLINOIS ATTORNEY GENERAL: We're certainly going to make contacts with the leadership of the Senate to let them know that the governor of Illinois has made a legal appointment and that I am currently the junior senator for the state of Illinois.

HAYES: Tuesday, Senate Majority Leader Harry Reid made his position clear stating, ... anyone appointed by Governor Blagojevich cannot be an effective representative of the people of Illinois and will not be seated by the Democratic Caucus. But a confrontation with Burris, who was constitutionally qualified and would be the only African- American senator, is a risky matter for Democrats.

MARTIN KADY, CONGRESSIONAL EDITOR, POLITICO.COM: There have to be some back-channel negotiations that must be going on to have some sort of middle ground where they don't necessarily seat him as a full- fledged senator, but they don't sit there and have the chaos and the poor imagery of blocking this guy at the Senate door.

HAYES: Senate rules could prevent Burris from entering the floor because he is appointed, not elected. But the man in charge of enforcing those rules says a confrontation is unlikely.

TERRANCE GAINER, U.S. SENATE SERGEANT OF ARMS: I do not think he's the type of person and the Senate is not the type of institution that looks for fistfights at the door. I think we'll have this all worked out. And then if there's disagreement, we'll leave it to the courts.

HAYES: Whatever happens next week, the conflict may soon take a back seat to other news.

KADY: Congress, regardless of whether it's Senator Burris or not so much Senator Burris, they will have to go to work on an $800 billion economic stimulus. Then we're going to inaugurate President Obama. That's a -- those events will overtake this -- this fascinating little side story here. (END VIDEO TAPE)

HAYES: And one of the reasons the sergeant at arms is so confident that there will be no problems is because he knows Burris from his days in the Illinois legislature -- Suzanne.

MALVEAUX: Thanks, Sam.

Well, it's the ultimate Democratic power meeting -- President- Elect Barack Obama will huddle Monday with House Speaker Nancy Pelosi and Senate Majority Leader Harry Leid -- Reid, rather -- to talk about the economy.

Joining us to talk about that and much, much more is Clarence Page of the "Chicago Tribune;" CNN political contributor Stephen Hayes of "The Weekly Standard;" and Karen Tumulty of our sister publication, "Time" magazine.

Thanks for joining us in THE SIT ROOM.

First of all, I want to start out with this from Representative John Boehner, minority leader, about these meetings that are going to take place. He says: "I'm concerned by media reports that suggest the Democrats' emerging proposal may cost taxpayers up to $1 trillion in new government spending with little debate or public scrutiny of the still unseen legislation. Republicans have offered solutions to help create American jobs, get our economy back on track without asking taxpayers to pay up for $1 trillion in new government spending and they merit serious consideration."

So Stephen, what does Barack Obama need to do when he goes before the Republican leadership and sell this plan?

STEPHEN HAYES, SENIOR WRITER AT "THE WEEKLY STANDARD": Well, I think he's got to -- whatever he can do to demonstrate that he's talking to them in good faith. Say, listen, what are your ideas, talk to me about things that I can actually incorporate, places where we might overlap, places that give them some common ground. I don't expect that there will be much, frankly. But that would be a good first step.

MALVEAUX: Karen, what do you think -- what does he need to offer the Republicans to get them on board?

KAREN TUMULTY, "TIME" MAGAZINE: Well, I think -- I think Steve is right. He's got to offer them a hearing. And as a result of that, where the Democrats quite recently were saying that they were going to have this stimulus plan on Barack Obama's desk his first day as president, now they're saying that they'll be lucky to have it by the end of the month.

MALVEAUX: Clarence, is he taking this too fast?

Is it too ambitious?

CLARENCE PAGE, "CHICAGO TRIBUNE": Well, he has to -- to move quickly now, because the public is demanding it. And he himself has committed himself to moving quickly.

The thing is that what's interesting here about Boehner is that the Republicans are now sounding much more bold as fiscal conservatives now that they don't have a Republican president. They weren't sounding that bold before because President Bush was calling for this massive $700 billion plus package.

Now they have to be careful not to sound like obstructionists, while at the same time getting back to their fiscal conservative roots.

So I think Barack Obama has a lot of wiggle room here insofar as showing good faith and trying to move this whole thing forward.

MALVEAUX: But, Stephen why do you surprises they're a bit bolder now?

HAYES: Well, I think, one, Clarence is right. They're not saddled with the Bush administration, which has been let's say, not terribly restrained in its -- in its spending policies. So the Republicans are going to be more comfortable that way.

But I think Barack Obama is going to be pulled in several different directions. You had five Democratic governors today hold a conference call saying they wanted a trillion dollar stimulus package, asking for specifics -- $250 million in education spending.

This is going to be a dicey first few -- few days, I think, for him.

MALVEAUX: And, Karen, I want you to weigh in on this. Moderate Republicans who are speaking out now -- Senator Susan Collins of Maine in the "Los Angeles Times" saying: "I would hope that the more conservative members of our caucus would take a look at these election results. It's difficult to make the argument that our candidate lost because they were not conservative enough."

How much does Barack Obama need and is going to depend on the moderate Republicans to help push the legislation, because it's not filibuster-proof?

TUMULTY: Very much so, because those moderate Republicans are going to be the difference between getting to those 60 votes you need and not getting to them. The problem is that there are not very many of them left. There are a lot fewer of them even than there were in November. So they are -- they're going to matter a lot.

MALVEAUX: Who is he going to be turning to, do you think?

PAGE: Well, certainly Susan Collins is a potential ally insofar as trying to get some middle ground. And Barack Obama is a middle ground kind of guy.

But I think John Boehner himself wants to appear to be part of the solution, not part of the problem. So there's a lot of avenues here now during his honeymoon period where he can sound like a guy who is bringing everybody together.

MALVEAUX: Now, I don't know where you guys are going to be on Inauguration Day, but there are some Republicans who are getting the heck on out of here.

(LAUGHTER)

MALVEAUX: They're saying we don't want to be anywhere around.

This is from a former aide to Mitt Romney, Charlie Zweiss (ph). And he's at the Politico. And he says: "What better way to mark the Barack Obama inauguration and his millions of adoring fans that will be in D.C. than to get out of town to fabulous Las Vegas?"

And he's going to be throwing some sort of, you know, party.

Stephen, what do you make of this?

Obviously -- I mean it's one thing to head out of town on that day. But they're going to have to -- they're going to have to stick around and work with him.

HAYES: Yes, eventually. I mean, I don't know what he's going to do in Las Vegas.

I mean the hotel rooms are cheap there, but who has money to gamble these days, right?

(LAUGHTER)

HAYES: Yes. And Republicans will have to deal with him after that brief interlude of the Inauguration Week. I think people can be hands- off...

TUMULTY: Hey, those of us who have 401(k)s have been gambling, so...

(LAUGHTER)

MALVEAUX: Yes, so to speak.

HAYES: You might have better odds at black jack these days.

MALVEAUX: How do -- how does -- how do they deal with this, though?

Obviously, I mean there are -- what do you think is going to be the one issue that they will see eye to eye with Barack Obama on and perhaps they can work together initially?

TUMULTY: Well, I do think that there's actually some room in sort of helping out the middle class with tax cuts -- you know, how they structure it. I do think there's a lot more room for agreement.

You know, the Democrats are not going to go for capital gains tax cuts. But, you know, I do think that there's some place where everybody can look like they can get something.

HAYES: Right.

MALVEAUX: Are there other issues -- environment or energy?

PAGE: Well, Barack Obama wants public works spending. This is the Roosevelt model. And with the recent disaster in Tennessee, with that coal ash dam that broke, with the collapse of the bridge in Minnesota, the country is infrastructure conscious. Those are job heavy projects. This is where he sounds like the New Deal president.

Whether he can move the economy that much or not, he's got to appear to at least be engaged.

MALVEAUX: OK.

Thank you so much, Clarence Karen and Stephen.

Thanks for joining us.

Barack Obama is speaking candidly about the father he barely knew.

(BEGIN VIDEO CLIP)

BARACK OBAMA (D), PRESIDENT-ELECT: I started to open myself up to understanding who he was. But then he was gone and I never saw him again. That was the last time I saw him.

(END VIDEO CLIP)

MALVEAUX: The president-elect opening up in part of my one-on-one interview with him that has never been seen before.

Plus, a disputed Senate race and now a new threat. It could be a major twist in a heated contest.

(COMMERCIAL BREAK)

MALVEAUX: President-Elect Obama is opening up about his childhood in Hawaii and what it was like to be the son of a father who lived half a world away. It is a rare and revealing look.

(BEGIN VIDEOTAPE)

MALVEAUX: You've said before the best in you has come from your mother, Ann.

B. OBAMA: Um-hmm.

MALVEAUX: Tell us a little bit about her.

What was she like?

B. OBAMA: Oh, she was just -- she was spectacular. She was an only child. You know, she had traveled a lot growing up. You know, she was born in Wichita, Kansas. My grandparents were from small towns in Kansas.

I think because she was an only child, she was a voracious reader and really ended up having this amazing imagination and always, I think, was looking to the larger world beyond where she -- where she was living. And that's partly how she came to marry my father, how she came to marry my stepfather and we ended up moving to Indonesia.

And by the time she was an adult, she was somebody who was fascinated with different kinds of people and different cultures. She became an anthropologist and worked specializing in micro lending -- you know, providing assistance to -- to women in villages all across Asia and Africa. And was, you know, one of the kindest, sweetest, most generous people I knew and really taught me compassion and empathy in a way that I still think carries over to the work I do today.

MALVEAUX: If I can turn it just a little more personally, just give me a sense of what she was like as a mother -- as a mom, the two of you together.

B. OBAMA: Well, I mean she was just a -- she was a really loving, sweet person. She was somebody who had very clear ideas about what was right and what was wrong. She had no patience for bigotry. She had no patience for intolerance. She had no patience for closed- mindedness. She had no patience for lies.

She was somebody who carried around what I consider to be the best of American values -- you know, honesty, kindness, hard work, decency.

MALVEAUX: You lived apart for some time. She was overseas when she was studying in Indonesia.

Did you have a sense of longing for her as a child?

B. OBAMA: You know, I'm sure that, as important as she was in my world, that the times when I was still going to school in Hawaii and living with my grandparents while she was still back in Indonesia -- I'm sure that there were times where that had a deep impact on me.

When you're a kid, you don't necessarily recognize that immediately.

But one of the things that I always knew was that I was the center of her world. And, you know, I've always believed that if kids know they're loved, if they know that in their parents' eyes they are special, that can make up for a lot of instability and a lot of -- a lot of change.

And that's what she was always able to transmit to me -- never doubting how I was the center of her world and my sister was the center of her world. And I think we both grew up feeling that fierce love that she had for us.

MALVEAUX: Your father was largely absent.

How did that impact you? B. OBAMA: Well, you know, I think it had a profound impact, although more as an object lesson of -- of what it's like growing up without a father in the house. You know, he -- my father had a reputation as being this larger than life figure -- charismatic and very smart, very engaging. And all those things were true. He was part of that first generation of Africans who moved West to get an education and then intended to bring it back to develop their country.

And he -- he made a great impression on people, you know. But he also was a tragic figure, not only because he didn't stay with my mother and me, but, you know, he generally had trouble providing stability for his other children and his -- his subsequent wives.

And he -- he was somebody who was incredibly brilliant, but also, because of the tensions of leaping from a small African village to Harvard and being part of this modern world, he never resolved those tensions. He'd be -- he fought, when he got back to Kenya, against tribalism and nepotism, but ultimately was consumed by it, black- balled from the government, ended up having a serious drinking problem, was in a severe car accident, ended up dying a tragic and bitter man.

And so when I think about his impact on me, I mean, there are some superficial things. He went to take me, when I was 10 years old, to see a jazz concert. And I became a real jazz buff after that -- or he gave me my first basketball. And it was only later that I realized that that had been the case and might have been part of the reason I became so obsessed with playing basketball.

But for the most part, what I understood from him was an absence. And I vowed that when I became a father that one of the most important things I could do is be a presence in my children's lives.

MALVEAUX: That visit when you were 10 years old, at that time, was there anything in your 10-year-old mind that you thought maybe I can do to keep him to stay?

B. OBAMA: No, I don't think that's how 10-year-olds think. If you've got this person who suddenly shows up and says I'm your father and I'm going to tell you what to do and you don't have any sense of who this person is and you don't necessarily have a deep bond of trust with them, I don't think your reaction is how do I get them to stay. I think the reaction may be, you know, what's this guy doing here and who does he think he is?

And so it was only during the course of that month -- by the end of that month that I think I started to open myself up to -- to understanding who he was. But then he was gone and I never saw him again. That was the last time I saw him.

He would write to me occasionally. He wrote me letters and would -- we would talk on the phone intermittently. But -- but it was not until I traveled to Kenya and heard from relatives of who he had been and the story that he had lived that, I think, that I fully was able to understand him and, obviously, in some ways, understand myself.

(END VIDEOTAPE)

MALVEAUX: Well, they came from very different backgrounds...

(BEGIN VIDEO CLIP)

M. OBAMA: Although his traditions were pretty solid, it was just with a small group of people. So I think he -- you know, he has said that, you know, what he would want for his own children would be the kind of traditions and stability that was more reminiscent of how I grew up.

(END VIDEO CLIP)

MALVEAUX: And now their children are about to grow up in a world known only to a few -- my one-on-one interview with Michelle Obama -- this part never seen before.

Plus, pirates armed with automatic weapons and rocket-propelled grenades -- we have new images.

(COMMERCIAL BREAK)

MALVEAUX: Well, you heard Barack Obama tell me what it was like to grow up without a father in the house. Michelle Obama also talked to me about the emotional impact that it had on her husband.

(BEGIN VIDEOTAPE)

MALVEAUX: He writes about in his book this sense of longing and missing for stability -- his father being absent, his mother living overseas.

Do you think that he was seeking that, as a part that stability, to be a part of your family?

MICHELLE OBAMA, BARACK OBAMA'S WIFE: You know, I think he has admitted that -- that, you know, as much as he loved his mother and loved his family and loved sort of the unconventional upbringing that he had, I think when he thought about the life that he would want for his kids, I think he longed for the stability that he saw in my family. You know, the sort of the mom and dad at dinner table.

He used to always tease me that my upbringing was like "Ozzie and Harriet," "Leave It To Beaver" because probably compared to his life -- you know, having a father in the home who went to work every day, you know, I had the big brother who was a jock.

I mean it was probably pretty all-American in the black community, because we didn't have much money. Our table was smaller. It was in a little bitty apartment. But you know, we had consistent traditions and rituals and routines in our family that he embraced -- the fact that we all got together on Thanksgiving, you know, the fact that our Christmases were big, with lots of family and cousins. I think that was something, coming from a smaller family, that he missed, although his traditions were pretty solid. It was just with a small group of people. So I think he, you know, he has said that, you know, what he would want for his own children would be the kind of traditions and stability that was more reminiscent of how I grew up.

But at the same time, you know, obviously, he has taken very unconventional paths in terms of his career. And there's a part of me that had to release some of that stability and embrace, you know, all the newness that comes with marrying Barack Obama.

MALVEAUX: Can you tell me Barack's relationship with his father?

Did his absence affect him in any way?

M. OBAMA: You know, yes. He's written a book about it. I didn't know his father because, obviously, he had died way before I knew him. But I think he's like any kid that grows up wondering who was this absent person in my life and what impact did that absence have on me. I think he pondered those questions, like many kids who find that they don't grow up with a parent.

But at the same time, I did know his mother. You know, I did have an opportunity to get to know her and love her, like many people would if they got to know her. She was one of the sweetest, most gentle, open-hearted people that you -- you'd want to know. And that very much filled up the space. But there were still questions in his mind who was this man and what was had he like and what aspects of me are a part of him?

MALVEAUX: Does he still have those questions?

Is there a sense of...

M. OBAMA: No. I think...

MALVEAUX: ...curiosity?

M. OBAMA: I think that's the good thing about writing a best- selling book. I think he's explored them pretty, you know, in depth -- you know, met his family, has traveled, developed relationships with his family in Kenya. And I think, in many ways, he's gotten the answers that he longed for by embracing that part of him. And he's written about it in such an eloquent way.

I don't see any residual, you know, sort of questions. But you know, one never knows.

How do you -- how do you measure absence?

It's really hard. It's a tough thing to do.

MALVEAUX: And, obviously, you talked about his mother Ann. He says the best parts of him came from his mother and one of his greatest regrets is that he wasn't at her bedside when he passed.

M. OBAMA: Yes.

MALVEAUX: Were you with him when he got the news?

M. OBAMA: Oh, yes. Yes. I mean, that was hard for all of us because, you know, with cancer, you never know. It's always, you know, she's better she's not, I'm not sure. I think it was sudden to the point where I think in his mind, he had hoped that he would have more time. But that's not, you know, how life ends, often. It's not so predictable. So, yes, it hit him very hard.

(END VIDEO TAPE)

MALVEAUX: And you can see more of my interview with Michelle Obama and the president-elect this weekend in a CNN special report, "The Obamas." It airs tomorrow and Sunday at 8:00 p.m. Eastern.

Jim Acosta is monitoring the stories incoming into THE SITUATION ROOM right now -- Jim, what are you working on?

ACOSTA: Suzanne, Republican Senator John Cornyn says his caucus would block any attempt to seat Al Franken before a court case over the Minnesota election is settled. Democrat Franken currently holds a lead of about 50 votes over incumbent Republican Norm Coleman. That does not include some 1,300 absentee ballots that officials say might have been rejected in error. Coleman's campaign has argued in the state supreme court that no uniform standard is being followed in adding those ballots to the recount.

Here are some pictures from the battle against pirates off the Horn of Africa. The French Navy says it captured eight Somali pirates yesterday and handed them over to authorities in Somalia. The pirates were said to be attacking a cargo ship in the Gulf of Aden. They were aboard two skiffs and were armed with automatic weapons and a rocket- propelled grenade launcher.

A major traffic tie-up on a Miami expressway caused by thousands of shoes -- just one of the stories in our Hot Shots -- pictures worth a thousand words -- Suzanne.

MALVEAUX: Thanks, Jim.

(COMMERCIAL BREAK)

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

In Afghanistan, Shiites gather to kiss the holy mass during a holy day.

In Norway, two chess grand masters face-off in a tournament.

In Switzerland, children play ice hockey on a frozen lake.

And in Miami, thousands of shoes are dumped on the expressway.

That's this hour's Hot Shots -- pictures worth a thousand words. Among Wolf's guests this Sunday on "LATE EDITION," former Republican presidential candidate Mitt Romney. "LATE EDITION" begins at 11:00 a.m. Eastern.

I'm Suzanne Malveaux in THE SITUATION ROOM.

Up next, "LOU DOBBS TONIGHT".

Kitty Pilgrim is in for Lou -- Kitty.