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Obama Goes to Capitol Hill; AIG Exec. Defends Bonus in Op-Ed; Pentagon Worries about China Again

Aired March 25, 2009 - 16:00   ET

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


WOLF BLITZER, CNN ANCHOR: Happening now, President Obama is traveling salesman, he travels to Capitol Hill with a $3.6 trillion sales pitch. Can he close the deal over his budget, especially with some key members of his own party?

In the AIG drama, a twist nobody saw coming. A top executive thumbs his nose at public outrage over those bonuses, saying employees who got them, deserve them and now feel betrayed. And he has an act of revenge against AIG.

And China's military muscle is getting stronger, so strong it apparently would now be able to hold the U.S. Navy at bay.

I'm Wolf Blitzer. You're in THE SITUATION ROOM.

It's an all-out presidential press, the White House sending the president to campaign personally for a top priority. The stakes, a $3.6 trillion proposal. Today's turf? Capitol Hill. Let's go straight to our senior congressional correspondent Dana Bash.

Dana, why was it so important for the president, personally, to go up to Capitol Hill today?

DANA BASH, CNN SENIOR CONGRESSIONAL CORRESPONDENT: It was important, Wolf, because there is a healthy group of fellow Democrats here in Congress who think that President Obama's $3.6 trillion budget is simply too big, too much spending, and that it makes the deficit too high.

So the president came -- specifically, you see him there coming in to fight for and explain the priorities in that budget.

Now, I'm told by several senators in that behind closed door meeting that it was cordial, it certainly didn't get very contentious, but then a couple of senators did say, look, how can you do these big things like health care reform and energy reform when deficits are so high?

And that he argued multiple times, I'm told, Wolf, that you just have to spend money now to, according to one senator, deal with the costs later.

BLITZER: Dana, I thought we were going to a sound bite for a second. But I just want to follow up because the Senate and the House, as you know, they're writing their own budgets even as we speak. BASH: Yes.

BLITZER: And they're making changes to what the president has proposed. We're showing our viewers some live pictures.

BASH: That's right. You know, all day we've heard spin, frankly, arguments from both leaders here in Congress and the White House that the budgets really mirror one another, that there aren't really major differences, but there are some changes that those committees are making right as we speak.

And let me give you some examples. We'll put some up on the wall. First and foremost, Wolf, on one of the president's major priorities, something he campaigned on, and that is a tax cut for -- $400 for most individuals, $800 for couples.

What this budget does, at least in the Senate, is after two years it doesn't fund that anymore because it is trying to -- the Senate is at least trying to reduce costs here.

There's another way that the Senate Budget Committee is trying to lower the deficit and overall costs. And that is, you know the president put in his budget $250 billion just in case he asked for another big bailout.

Well, the Senate is getting rid of that. It doesn't mean that this bailout and others bailouts might not happen, but the Senate is not accounting for that now.

And there are two other things that are really important to note, these big issues that the president talked about last night and behind closed doors today: health care and energy reform.

The Senate budget bill, it simply doesn't address that at all. It kicks the can down the road and it says, look, if the president and if Congress, if they write legislation on these big, enormous issues, very costly issues, they're just going to have to find a way to pay for it as well.

BLITZER: And coming up here in THE SITUATION ROOM, Dana, we have got the man in the hot seat, the president's budget director, Peter Orszag, he is going to be here answering some of these tough questions. Dana, thanks very much.

Meanwhile, we are seeing some unexpected, positive signs for the overall economy. Let's bring in our chief business correspondent, Ali Velshi.

Explain what we're seeing -- Ali.

ALI VELSHI, CNN CHIEF BUSINESS CORRESPONDENT: Wolf, we've got some things that are happening that were not expected, as you said, but they really are having an impact on people and we're seeing a response in the market.

Let's talk about the most important of those. And that is mortgage rates. We saw, because of the Federal Reserve's decision last Wednesday to inject more than a trillion dollars into the economy, $750 million went into Fannie Mae and Freddie Mac.

They bought mortgages from your bank. Your bank made it easier to get a mortgage and mortgage rates for 30-year fixed are now down to 4.63 percent. That is the lowest rate in about 60 years for a mortgage. We are seeing people getting encouragement to get into the housing market.

The next thing, home sales. In February -- it takes us a little while to get these numbers. In February, compared to January, up 5.1 percent. That's existing homes or used homes. That's most of the market.

New homes are a big deal, though, because they -- we have a lot of those on -- that are not sold and even those are ticking up in their sales. Again, February versus January, new home sales were up 4.7 percent.

And Americans are buying more than just the big ticket items. Durable goods, those are goods that last more than three years, things like washing machines, appliances, all the way up to military equipment, those sales were up 3.4 percent in January -- in February compared to January.

Wolf, those have been down for six months straight. So we have four things that are going on here that are very, very significant. It's having quite an impact on consumer sentiment and it could be, to some, it's not a trend, but it could be a turning point -- Wolf.

BLITZER: And add one more little piece of good news today, the market is up again today almost 90 points, the Dow Jones Industrial Average. So we'll see what's happening. The numbers have been going up steadily on the stock market.

Despite all of this good news, coming up in the not-too-distant future, Ali, we're going to get the March unemployment number, the number of jobs lost. And if it's another number as was the case in February or January, let's say another 600,000, what will that mean?

VELSHI: Well, you're exactly right on the fact that that's the big deal because this is a consumer-driven economy, Wolf. Two-thirds of this economy is based on what consumers do and how they behave.

So the bottom line is with everybody who is unemployed that is less chance for them to contribute to the economy. They could be a net detractor from it.

Next Friday we'll get the unemployment numbers for March. And, again, there will be several hundred thousand people who were laid off. What we're looking for is to see that number lower than it was in February or January, try to break the back of these massive, massive layoffs.

But that is still the overhanging cloud on this economy -- Wolf.

BLITZER: All right. We can only hope. All right. Ali, thanks very much.

Let's check in with Jack Cafferty, he has got "The Cafferty File" -- Jack.

JACK CAFFERTY, CNN ANCHOR: (INAUDIBLE) or maybe it's not. But unemployment usually is a lagging indicator, which means that the economy will begin to turn before it shows up in the unemployment numbers. That's just the way things work.

The Obama administration says it's going to send hundreds of federal agents and crime-fighting equipment to the Mexican border in an effort -- you know, the border that's not secure, in an effort to prevent drug-related violence from spilling over into this country.

It's a little late. The Mexican drug cartels are active in 230 American cities, $700 million meant to bolster Mexican law enforcement and crime prevention efforts probably can't come soon enough.

The mayor of Phoenix, Arizona, says it's a great first step but a drop in the bucket in terms of what's need. Crimes like drug-related kidnappings and torturing are overwhelming the Phoenix Police Department.

And Texas Governor Rick Perry had asked for a thousand more troops for parts of his border with Mexico saying he doesn't care what kind of troops they are as long as they're properly trained.

Meanwhile, the Justice Department has identified 230 U.S. cities where Mexican drug cartels maintain drug distribution networks or supply drugs to distributors. That's a quote from the Justice Department.

And we're not talking about cities along the border here. They include places like Anchorage, Alaska, Atlanta, Boston, Billings, Montana. This mess is the net result of President Bush's failure to secure the borders of this country following 9/11, among other things.

They're still not secure, the borders. Nothing has happened to diminish the appetite for illegal drugs in the United States. The war on drugs is a joke. It's an abject failure and it has been for 30 years.

The drugs flow north out of Mexico. Money and guns flow south into Mexico. The open border advocates think it's fine that illegal aliens come and go in and out of the country pretty much as they please. I wonder if they think it's also OK that Mexican drugs are poisoning their children and contributing to an increase in the crime rate here at home.

Here's the question. What should be done about the fact that Mexican drug cartels are now operating in 230 American cities? Go to cnn.com/caffertyfile, post a comment on my blog. That is a staggering, mind-numbing number.

BLITZER: Two hundred and thirty American cities certainly is, Jack. Thanks very much. As the president gets ready to go to Europe, this sideswipe awaits him. The head of the European Union says President Obama's economic plans, and I'm quoting now, "are a way to hell." How does he explain that?

Also, rapid rise, China's military getting so strong it apparently would now be able to hold the U.S. Navy at bay in the Pacific.

And check out who Chicago woke up to today.

(BEGIN VIDEO CLIP)

ROD BLAGOJEVICH, FORMER ILLINOIS GOVERNOR: Good morning. This is former Governor Rod Blagojevich. How are you? And this is a time for...

(END VIDEO CLIP)

(COMMERCIAL BREAK)

BLITZER: A rapid military buildup half a world away, raising questions over at the Pentagon. A new report reveals China's power is growing and it's growing fast. Some are concerned with how the country might use that power. Let's go to our Pentagon correspondent Barbara Starr who is following these developments for us.

Barbara, what do we know?

BARBARA STARR, CNN PENTAGON CORRESPONDENT: Well, Wolf, exactly right. The Pentagon put out its annual report on the Chinese military today. A lot of concern about Chinese military expansion and China's ability to take on the United States.

(BEGIN VIDEOTAPE)

STARR (voice-over): The Pentagon report is blunt. China is accelerating the ability of its military to project its power and reach and also is, quote, "rapidly developing coercive capabilities to stop Taiwan's bid for independence."

DAVID FINKLESTEIN, DIRECTOR OF CHINA STUDIES, CNA: We are talking about a Chinese military that's being told by the party-state leadership to develop capabilities to secure Chinese interests around the world wherever they may be. And this is something new.

STARR: The Pentagon's latest assessment of China's ballistic missiles shows the ability to target deep into the oil-rich Middle East and Central Asia, and hold the U.S. Navy at bay in the Pacific.

Last year China became the world's second-largest importer of crude oil. Its consumption could reach more than 10 million barrels a day in five years.

The U.S. worries China may resort to military force to keep accessing those resources around the world to fuel its economy. The U.S. felt the chill in Chinese military relations even before the recent confrontation at sea between a U.S. Naval research vessel and Chinese patrol boats.

ADM. TIMOTHY KEATING, CMDR., U.S. PACIFIC COMMAND: We, as you know, do not -- are not able to conduct military-to-military dialogue with the Chinese now. They have suspended that aspect of our security relationship following the November Taiwan arm sales announcement.

(END VIDEOTAPE)

BLITZER: You know, Barbara, one of the biggest concerns is how much the Chinese are actually spending on their military.

STARR: Well, you know, Wolf, the Pentagon is concerned about that because it's a lot of cash and they're really not sure. The public records they say are that China has doubled its military spending to about $60 billion in the last eight years, but they think there's a lot of hidden spending that no one can really see.

BLITZER: All right. Barbara, thank you.

President Obama, meanwhile, is getting ready for his first overseas trip to Europe next week, but just days before he's taking some blistering criticism over his economic plans.

Listen to this.

(BEGIN VIDEO CLIP)

MIREK TOPOLANEK, CZECH PRIME MINISTER (through translator): Timothy Geithner, the treasury secretary of the United States, talks about permanent action. And we were quite alarmed by that at the spring council. He talks about a large stimulus campaign -- the "buy American" campaign. All of these steps, their combination and the permanency is a way to hell.

(END VIDEO CLIP)

BLITZER: That's the Czech prime minister, the head of the European Union right now saying President Obama's economic plan, as you just heard him say, are a way to hell. Let's go to CNN's Richard Quest, he's joining us in London.

A pretty bold statement. What's his explanation? Why is he saying that?

RICHARD QUEST, CNN CORRESPONDENT: He is worried, as indeed many are in Europe, about the stimulus package, the size and scope of it, the deficit spending that is taking place in the United States, some 4 to 5 percent of GDP, and for years to come.

So what he's basically saying is that it's mortgaging everybody's future. And of course, if the U.S. is in trouble in the future, then the rest of us all follow.

It must be said, first of all, that the Czech prime minister has just lost a vote of no confidence and, therefore, will be out of office. He wasn't speaking on behalf of the European Union even though his country currently holds the rotating presidency.

And if all of that wasn't enough to damn him, everybody else quickly came out and said, he didn't speak for them. I think this is a nasty row. The Czech prime minister clearly got more than he bargained for and probably spoke stronger than maybe he had ever intended.

BLITZER: And the British prime minister, Gordon Brown, he is getting some heat as well.

Listen to this.

(BEGIN VIDEO CLIP)

DANIEL HANNAN, MEMBER OF EUROPEAN PARLIAMENT: Everyone knows that Britain is worse off than any other country as we go into these hard times. The IMF has said so. The European Commission has said so. The markets have said so, which is why our currency has devalued by 30 percent. And soon the voters, too, will get their chance to say so.

They can see what the markets have already seen: that you are the devalued prime minister of a devalued government.

(END VIDEO CLIP)

BLITZER: Tough words from him. What's the reaction to that?

QUEST: Oh, the prime minister will just laugh this one off. It's embarrassing for him, to be sure. And he is hosting the G-20 next week here in the U.K. So it's -- he doesn't want necessarily to be shown up.

But the truth is, this is -- there is only one "P" in that statement, and that's "politics," pure and simple. Now, Gordon Brown is a big bear of a politician and he'll eat that sort of comment up for breakfast.

BLITZER: Richard Quest, thank you.

To give our viewers an idea of how Europe is struggling during this economic crisis, take a look at this, unemployment in the Czech Republic stood at 5.4 percent as of January. The problem worse in Germany, February's numbers show unemployment there at 8.5 percent in Germany. And in the U.K., the government says it's dealing with its worst jobless rate in more than a decade, 6.5 percent recorded in January.

One of the flight recorders from a deadly New York plane crash is revealing some surprising information. What the data didn't pick up in the moments before the plane plunged into a home.

And the Americans that are twice as likely to be out of a job right now and what one group wants the president to do about it. (COMMERCIAL BREAK)

BLITZER: Flood warnings are in effect right now across North Dakota because of rising water levels on several rivers. President Obama has declared the state a federal disaster area.

In Fargo, residents are preparing for what could be the city's worst flood ever. Abbi Tatton is looking at some I-Reports coming in from the area, it's pretty dramatic what's going on there.

ABBI TATTON, CNN INTERNET REPORTER: Wolf, it's really all hands on deck right now in Fargo, North Dakota. In all of these pictures I'm going to show, you can see them at ireport.com.

We're going, first of all, to the indoor arena at North Dakota State University, the Fargodome, which is transformed into a 24-hour sand-bagging operation right now.

This is a picture just before midnight last night. You can see how packed it was, 10,000 volunteers there over the last few days. I- Reporter Will Baird (ph) is one of them. He told us today that when he was there last night, the sand -- the trucks came up, dumped the sand, and hordes of volunteers were all over it already as part of this operation.

Onto the front lines, around the river, we're going to Moorhead, now, Minnesota. Jen Sondag (ph) went to her parents' house there which is right on the river. You can see the operations there in the last couple days, filling the sandbags, they need to build a four-foot wall along the river there.

This is the last couple of days. If we can advance this, we'll show you what it is right now, a couple hours ago. Snowfall overnight further complicating the efforts, what everyone is watching right now is the Red River, the rising waters there. This is the picture there yesterday afternoon expected to crest on Friday at historic levels.

BLITZER: Let's hope that everybody is OK. Thanks very much, Abbi, for that.

Alina Cho is monitoring some other important stories incoming to THE SITUATION ROOM right now.

What's going on, Alina?

ALINA CHO, CNN ANCHOR: Hey, Wolf, it appears that a data recorder from that plane crash near Buffalo, New York, last month does not show any major icing immediately before the crash.

The Continental Connection plane was flying in icy conditions when it plummeted onto a house five miles short of the airport. Everyone on the plane and one man on the ground died.

Nevertheless, investigators say they will continue to take a close look at the de-icing system and the crew's training. A warning from the top mailman. The U.S. Postal Service will run out of money this year unless it gets some much-needed help. The postmaster general told House members today that salaries will get paid but other bills, well, they may have to wait.

The Postal Service is fighting a decline in mail volume. The postmaster wants to reduce mail delivery to five days a week to cut costs.

And, Wolf, I hope you're hungry because we have one behemoth burger to show you. Take a look at that. It features a lot more than special sauce. Five beef patties, five cheese slices, almost a cup of chili, chips and salsa, and an eight inch bun.

It weighs a whopping four pounds and has 4,800 calories. The burger will appear on the menu at the West Michigan Whitecaps games this spring and obviously, Wolf, it is meant to be shared.

I did the math. That's about three days' worth of calories -- Wolf.

BLITZER: And think of your arteries, eat something like that, the cholesterol alone.

CHO: Well, we can share it.

BLITZER: We'll share it. All right. Alina, thank you.

Stand by. It's called -- it's a report that is called "The State of Black America" and its conclusion this year not good regarding African-Americans. We're going to tell you what's in the report and what the study's authors want from the Obama administration.

In the AIG drama, a surprise twist today. A top executive has an act of revenge against AIG.

(COMMERCIAL BREAK)

BLITZER: For our viewers, you're in THE SITUATION ROOM. Happening now, the man who is bringing a lot of attention to the Republican Party, not always necessarily positive, how Michael Steele answered when he was asked if he plans to run himself for president.

Plus, wanting the president to fail, does that criticism cross the line? A leading Republican is now stepping into the fray and he is making a harsh prediction.

And chilling words, indeed, a pilot's account of what happened the moments before and after this fighter jet slammed into a house.

I'm Wolf Blitzer. You're in THE SITUATION ROOM.

Can the same environment that put the first African-American president in the White House also erase racial discrimination, division, and inequality in the United States? Not so far says a brand new report. The National Urban League says even amid history, African-Americans have a 71 percent status gap against that of whites. It also says blacks are twice as likely to be out of work compared to whites, three times as likely to be poor, and more than six times as likely to be in prison.

What can be done? The group offers the White House some advice. Let's turn to CNN's Kate Bolduan. She has gone through the report for us.

Kate, what's in it?

KATE BOLDUAN, CNN CORRESPONDENT: Hey there, Wolf. Well, the National Urban League, Wolf, is referencing Charles Dickens, calling this "the best of times and the worst of times."

And they're looking to the president to help.

(BEGIN VIDEOTAPE)

MARC MORIAL, PRESIDENT, NATIONAL URBAN LEAGUE: All Americans are losing ground economically. It is abundantly clear and perfectly clear that African-Americans are faring much worse.

BOLDUAN (voice-over): Following the historic election of the country's first African-American president, the Urban League is now demanding President Obama pay special attention to the struggles of African-Americans.

Mr. Obama says he's focused on the bigger picture.

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: I think that the last 64 days has been dominated by me trying to figure out how we're going to fix the economy. And that affects black, brown, and white.

BOLDUAN: The Urban League is calling on Mr. Obama to specifically take on disparities in education, health care, home foreclosures, and unemployment.

MORIAL: As a part of the opportunity to earn, we're calling on the president and the Congress to make sure that African-Americans participate in the green jobs revolution.

BOLDUAN: But with some already saying the president's ambitious agenda is too much too soon, can he do more?

UNIDENTIFIED FEMALE: I think he needs to (INAUDIBLE) issues like the economy. I don't think anything can be done until you fix the broader issue of everybody struggling.

UNIDENTIFIED FEMALE: People have got to be patient. It took us a while to get here. It'll take us a while to move on back up.

(END VIDEOTAPE)

BOLDUAN: Now, when asked specifically about this report, White House Press Secretary Robert Gibbs today said the president agrees the country has a long way to go, and he said -- Gibbs said that getting the economy moving again is one of the best ways to get there.

So keeping the focus on the economy -- Wolf.

All right. Kate, thank you. We're going to have a lot more about the issues affecting African-Americans today. Joining me later here in THE SITUATION ROOM, Marc Morial, he is the president and CEO of the National Urban League, the former mayor of New Orleans. He's here to talk about the group's inequality report. Then we'll play some of your I-Reports that we've received for him as well. That's coming up later right here in THE SITUATION ROOM.

And of course, CNN continues its award-winning "Black in America" documentary, "Black in America 2," remember, with Soledad O'Brien, will air in July.

We're now hearing a different side of that corporate bonus story that caused so much outrage. An AIG executive is using his resignation letter to blast the bailed out insurance giant and defend his bonus.

Let's go to CNN's Mary Snow. She's ready to pick up the story -- Mary.

MARY SNOW, CNN CORRESPONDENT: Well, Wolf, it's so rare to see this kind of "I quit" letter published in a major newspaper.

And an attorney representing some AIG employees says, while the letter may not generate sympathy, it puts a voice to many employees at AIG that haven't been heard.

(BEGIN VIDEOTAPE)

SNOW (voice-over): "Dear Mr. Liddy, it is with deep regret" starts the resignation letter signed by Jake DeSantis and sent to "The New York Times." He was a vice president at the AIG unit receiving the bonuses that sparked the uproar.

DeSantis says he was not one of a handful of people involved in those credit default swaps that nearly brought the company to collapse, saying, "We in the Financial Products unit have been betrayed by AIG and are being unfairly persecuted by elected officials."

DeSantis says he worked at AIG for 11 years, was asked to work for an annual salary of $1, and was promised his bonus, which amounted to $742,000 after taxes. He takes aim at AIG's CEO.

"At no time during the past six months that you have been leading AIG did you ask us to revise, renegotiate, or break these contracts, until several hours before your appearance last week before Congress."

During that appearance, AIG CEO Ed Liddy asked for some of the bonuses to be given back.

EDWARD LIDDY, CEO, AMERICAN INTERNATIONAL GROUP: I have asked the employees of AIG Financial Products to step up and do the right thing. Specifically, I have asked those who received retention payments in excess of $100,000 or more to return at least half of those payments.

SNOW: DeSantis also targets the attorney general for New York and Connecticut, who are chasing down the money. "The only real motivation," he writes, "that anyone at AIGFP now has is fear. Mr. Cuomo has threatened to name and shame. And his counterpart in Connecticut, Richard Blumenthal, has made similar threats."

Connecticut Attorney General Richard Blumenthal tells CNN he tried to assure Mr. DeSantis that they wouldn't be making his name public.

RICHARD BLUMENTHAL (D), CONNECTICUT ATTORNEY GENERAL: We're seeking the money back because taxpayers want that money back. It was used unjustifiably and unnecessarily for these bonuses. We are also mindful of the need to protect anyone threatened.

(END VIDEOTAPE)

SNOW: New York Attorney General Andrew Cuomo's office denied comment, but AIG did give us a statement, saying their CEO appreciates the frustration in the letter and believes the recent vilification and harassment of AIG employees is, in his words, grossly unfair and unwarranted -- Wolf.

BLITZER: So, what's he doing with the bonus money? Is he giving it back?

SNOW: He's not. He says he's going to give it to organizations helping people in the downturn and that he doesn't want the money going to either AIG or the federal government.

BLITZER: Mary Snow, thanks very much.

(BEGIN VIDEOTAPE)

WOLF BLITZER, CNN ANCHOR: And joining us now, Republican Senator John Ensign of Nevada. He is a member of the Budget Committee, the Finance Committee, the Commerce Committee.

You have got them all.

Thanks -- thanks for coming in.

SEN. JOHN ENSIGN (R), NEVADA: It's always good to be with you, Wolf.

BLITZER: These AIG executives, many of whom are returning these bonuses, was Congress fair to them, the House of Representatives, specifically, in retroactively going back and taxing those bonuses at 90 percent?

ENSIGN: Well, typical of the House of Representatives, they acted too quickly, before finding out exactly who was responsible, who shouldn't have got the bonuses, maybe, in the first place. First of all, you know, you have to point -- find out why did they get the bonuses. Why didn't the federal government, Tim Geithner, say in -- if we're going to give you this money, you have to stop the bonuses...

(CROSSTALK)

BLITZER: You don't buy the explanations he has been giving?

ENSIGN: No, I do not, because if -- if -- they could not have gotten the bonuses without the federal government's money. So, if the federal government would have wanted to, you know, say to them, as a condition of getting this money, first of all, the money you're going to pay out, not just in bonuses, but to foreign banks and things like that, they're going to have to take a haircut.

BLITZER: Was -- was the whole bailout of AIG a mistake, in your opinion, federal taxpayer dollars going to rescue this insurance company?

ENSIGN: Well, I think that there is a good argument to make. You know, some people have said that it's too big to fail. I have heard others say that -- that, when something is too big to fail, frankly, it's just too big.

And -- and, you know, the market -- how are we skewing the market? You know, some of AIG's competitors are now saying that AIG has an advantage with government dollars, that they will be able to out-compete, you know, people in the marketplace, and, so, we're skewing the market.

There are a lot of unintended consequences, the more the government gets involved.

BLITZER: Nevada, like California, Arizona, really has suffered, especially the housing business. And you have had your special problems with tourism in Las -- Las Vegas. The president of the United States is trying to do whatever he can to help, not only Nevada, but all of these -- these areas, especially housing.

You're not with him on this, though, are you?

ENSIGN: Well, I mean, I appreciate that the president is trying to help housing.

I, actually, as an alternative to the stimulus bill, had a -- had a program to fix housing. I had the homebuilders from Nevada in yesterday, the small homebuilders and some of the larger ones, that don't think that the president's proposals are going to work.

First of all, if you remember, in the stimulus package in the Senate, we had a $15,000 tax credit for anybody who will buy a home.

BLITZER: But there seems to be some improvement...

ENSIGN: And that was... (CROSSTALK)

BLITZER: ... in the housing numbers that have come out in the past few days.

Here's the question. Are you at all concerned that you might be on the wrong side of this debate, assuming these positive indicators continue to come forward?

ENSIGN: Well, listen, we all have to hope, whatever -- whether you're against something or not, you have to hope that it works, because we want the economy to recover. I -- I want people in my state to -- to do better. I don't want them to lose their homes. I want them to be able to have jobs.

But I am concerned that some of the things that they're -- that they're doing will not work. We did have a proposal that -- at least the homebuilders from my state and a lot of homeowners thought would have worked as an alternative to the stimulus bill.

And that $15,000 tax credit, the homebuilders are now coming back to us and saying, why did that get stripped out? We said, you know what? Republicans weren't in that conference committee when that got stripped out.

BLITZER: Here's what the president said at his news conference. Listen to this.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: I mean, we haven't seen an alternative budget out of them, and the reason is because they know that in fact the biggest driver of long-term deficits are the huge health care costs that we have got out here.

(END VIDEO CLIP)

BLITZER: All right.

He's talking about you. You're in the Republican leadership. Where is your alternative plan as far as the budget is concerned?

ENSIGN: Sure.

Well, actually, what we're going to do is, we're going to offer an alternative plan by amendment.

BLITZER: When?

ENSIGN: That's an appropriate...

BLITZER: So, no -- no one formal plan?

ENSIGN: You -- you don't need to do one formal plan. You take their basic structure, and you radically amend it.

We're going to have some huge amendments that will show a different vision forward that won't...

BLITZER: Give -- give me an example.

ENSIGN: ... that won't -- well, first of all, we're not -- we will have an amendment as far as cap and trade is concerned. We don't want -- we don't want a massive electricity and an energy tax put on the American people.

BLITZER: Even if it's going to reduce carbon emissions and make the planet safer?

ENSIGN: Well, I don't think the average family can afford an additional $3,000 per year being taken away from their budget. That's not the right thing to do.

The other thing is, is the massive amount of spending that goes into this bill. We end up running up our children's credit cards to a point where today we spent about $180 billion a year on interest per year? That's what we pay on our debt, which is a massive amount right now.

By the end of this 10-year -- president's budget, it goes to over $800 billion a year.

(END VIDEOTAPE)

BLITZER: All right, you just heard Senator Ensign outline the reasons he doesn't agree with the president's budget.

Now we want to hear from you. Do you think Republicans are doing enough to explain how they would do things differently? Submit your video comments to ireport.com/situationroom. Then watch us tomorrow to see if your video makes it on the air.

An approval rating even higher than the president's -- Hillary Clinton, she went from being a lightning rod for criticism to being very well-liked. So, what changed?

And wanting the president to fail, does that Republican criticism cross the line? The governor who's defending it, in his own words, that's coming up.

(COMMERCIAL BREAK)

BLITZER: Secretary of State Hillary Clinton arrives in Mexico. She's there to discuss what's happening as the drug-fueled violence threatens parts of the United States. Secretary Clinton says the U.S. shares the responsibility in dealing with the violence.

Meanwhile, how do you feel about Mrs. Clinton? Our senior political analyst, Bill Schneider, is here.

Bill, have Americans changed their view -- views of Hillary Clinton?

WILLIAM SCHNEIDER, CNN SENIOR POLITICAL ANALYST: Yes, they have. And it's an impressive transformation.

(BEGIN VIDEOTAPE)

SCHNEIDER (voice-over): Barack Obama stunned the political world in December when he named his leading presidential rival to be his secretary of state.

OBAMA: I have no doubt that Hillary Clinton is the right person to lead our State Department.

SCHNEIDER: Is she? More than 70 percent of Americans think she is. That's how many approve of the job she's doing as secretary of state.

In fact, Secretary Clinton's approval rating is even higher than President Obama's. Of course, a president's job is highly political. Partisan opposition is guaranteed. Secretary of state is not inherently political. She's the nation's chief diplomat.

Ever hear, "politics stops at border's edge"? Does it? Look at this. By a narrow margin, Republicans approve of the job Secretary Clinton is doing. The job has changed Hillary Clinton's image. That's a tough thing for a politician to do. She used to be a highly divisive figure.

(BEGIN VIDEO CLIP)

SEN. HILLARY RODHAM CLINTON (D), NEW YORK: There seems to be a pattern here. It takes a Clinton to clean up after a Bush.

(END VIDEO CLIP)

SCHNEIDER: Look at how the public felt about her in December 2007, on the eve of the presidential primaries, 42 percent positive, 44 percent negative -- divided.

As secretary of state, she speaks for the country, the whole country.

CLINTON: The promotion of human rights, as I have said many times before, is an essential aspect of American global foreign policy. It is part of our use and definition of smart power.

SCHNEIDER: Look at how the public feels about her now, 59 percent positive, 22 percent negative, nearly 3-1 favorable.

(END VIDEOTAPE)

SCHNEIDER: That's the difference between a stateswoman and a politician. Now, could her old image come back if, somewhere down the line, she decides to run for office again? Sure. But her new job is likely to take some of the rough edges off -- Wolf.

BLITZER: All right, Bill, thank you -- Bill Schneider reporting.

Veteran political analysts are giving their assessments of the president's news conference.

(BEGIN VIDEO CLIP)

BILL BENNETT, CNN CONTRIBUTOR: I thought he had a rough evening, and I think the honeymoon is over.

(END VIDEO CLIP)

BLITZER: Our Bill Bennett says the news media have now turned against the president. Is he right?

And he ignited a family feud when he criticized Rush Limbaugh. What is the head of the Republican Party have to say now? You will see. Michael Steele, he speaks to CNN.

(COMMERCIAL BREAK)

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

Joining us, the Democratic strategist and former Obama deputy campaign manager Steve Hildebrand, and CNN political contributor the Republican strategist Alex Castellanos.

Guys, thanks very much for coming in.

You have written a very provocative piece at CNN.com, Alex, in which you say -- and we're not even 70 days into this new presidency -- you say that President Obama will be a one-term president. Why?

ALEX CASTELLANOS, CNN POLITICAL CONTRIBUTOR: Well, this is news to some people that there is going to be an election in four years. And, for the first time, I have begun to think that -- that this could actually be a contest.

Now, this is a credit, frankly, to Barack Obama. This guy has seemed politically invincible for the past few months. But there are three reasons, I think, that we're beginning to see how you could mount a competitive campaign against Obama.

But let's be real clear. You know, right now, all the cards are in his hands. He's a gifted communicator.

BLITZER: But you say he is going to be a one-term president.

CASTELLANOS: I think there's a -- for the first time, we could see, yes, how we could run -- Republicans could run a competitive campaign against him, for three reasons: one, inexperience.

His youth has now become -- he has no business experience. There are very few business people, if any, I think, in the Obama Cabinet. And we have economic problems.

(CROSSTALK)

CASTELLANOS: Two, that he's -- we saw a flash of not only self- confidence, but something maybe one step beyond -- and that's arrogance -- last night. He didn't like getting pressed and challenged by Ed Henry.

You combine inexperience with a little bit of arrogance, and you're distancing yourself from voters. But the most important thing is that he has gone so far to the left. In the campaign, he didn't scare people.

BLITZER: All right.

CASTELLANOS: He was very middle-of-the-road.

STEVE HILDEBRAND, FORMER OBAMA DEPUTY CAMPAIGN MANAGER: Alex...

(CROSSTALK)

HILDEBRAND: Alex...

CASTELLANOS: But I will ask you this, Wolf. If he had said a week before the election...

(CROSSTALK)

HILDEBRAND: There's too many partisan Republicans like yourself who want this guy to fail. And -- and that's -- that's your role. That's your job.

There are people hurting in this country, like they have never been hurting before, people losing their homes, losing their jobs. They don't have health care.

What your party is not doing and what some people in my party aren't doing is stepping up to the plate to help this guy succeed. When his presidency is successful, this country -- it means this country is going to get back on track.

(CROSSTALK)

CASTELLANOS: Not necessarily.

HILDEBRAND: That is true.

(CROSSTALK)

HILDEBRAND: His presidency is going to -- his presidency is going to be based on whether or not he's got this country back on track.

BLITZER: Here's -- here's the -- here's...

HILDEBRAND: If he's successful, we're successful.

CASTELLANOS: Well, I think that is true. I would agree with you on that.

(CROSSTALK)

BLITZER: If, in fact -- if his strategy succeeds and, in the next year or two or three, the economy does turn around, he will be well-positioned to get a second term.

CASTELLANOS: But the reason -- but the reason we don't think it will succeed is because, if he had said a week before this election, hey, if you vote for me, I'm going to go in and I'm going -- in my first 60 days, I'm going to triple the deficit, double the national debt, I'm going to pass a bill with 8,000 earmarks, I'm going to give AIG execs a $165 million bailout...

(CROSSTALK)

HILDEBRAND: This guy has been in office -- this guy has been in office less than three months.

(CROSSTALK)

CASTELLANOS: If he had said that, would he have won?

HILDEBRAND: And he was handed eight years of failed policies, OK?

(CROSSTALK)

CASTELLANOS: OK, that's fine.

(CROSSTALK)

HILDEBRAND: ... your party.

(CROSSTALK)

HILDEBRAND: ... right now, and the Republicans should get in and get their hands dirty and help this guy get this...

CASTELLANOS: But we don't want to help him triple the deficit. We don't want to help him double the debt.

(CROSSTALK)

HILDEBRAND: You don't want to put people back to work.

CASTELLANOS: Yes, we do.

HILDEBRAND: You're not helping with the green economy. You're not helping with health care reform.

CASTELLANOS: You know what the Republican plan is?

BLITZER: All right, guys, hold on for a second. I want to play that little exchange.

(CROSSTALK)

BLITZER: Hold on a second, Steve.

CASTELLANOS: We have a different way...

(CROSSTALK)

BLITZER: Our senior -- our senior White House correspondent had this exchange at the news conference last night with the president.

(BEGIN VIDEO CLIP)

ED HENRY, CNN SENIOR WHITE HOUSE CORRESPONDENT: Why did you wait -- why did you wait days to come out and express that outrage? It seems like the action is coming out of New York and the attorney general's office. It took you days to come public with Secretary Geithner and say, "Look, we're outraged." Why did it take so long?

OBAMA: It took us a couple of days because I like to know what I'm talking about before I speak.

(LAUGHTER)

(END VIDEO CLIP)

BLITZER: Do you sense he was irritated, the president, with Ed's follow-up question?

HILDEBRAND: I think it's a piece that's overplayed in the media. I think it was one little exchange that shouldn't be a big marker.

BLITZER: A lot of people say, you know, he gave a pretty good answer. Before he speaks out on a sensitive subject like that, he wants to gather all the facts.

CASTELLANOS: He also, I think, a lot of people might say, felt a little impatient there.

And there's no shortage of self-confidence in this man. And, sometimes, that's a good thing. You need that in a leader. But you don't want someone out there who doesn't like to be challenged on their policies. And the fact is that there's a certain...

(CROSSTALK)

HILDEBRAND: We eight years of George Bush, who had -- who had a great resistance to being challenged on his policies.

(CROSSTALK)

CASTELLANOS: And now we're seeing, I think, some of that arrogance.

BLITZER: Steve...

HILDEBRAND: I think Barack Obama is very open to being challenged on his policies. He's always inviting people to give their...

(CROSSTALK)

HILDEBRAND: ... invite input. BLITZER: Do you think, Steve, that -- that Bill Bennett is right when he said on our air last night, repeated this morning, the Republican strategist, that the news media has now turned against the president?

HILDEBRAND: I don't think Barack Obama had any time for a honeymoon with the press or the American people.

He was handed a very difficult set of circumstances that no president in American history has ever had to deal with. And, with that, there's not much of a honeymoon. He had to get to work.

BLITZER: He's had some very difficult circumstances. But Franklin Roosevelt had some very difficult circumstances when he took office, too.

CASTELLANOS: So do most presidents, by the way.

HILDEBRAND: We're in a financial collapse in this country, and people are hurting.

BLITZER: Yes.

HILDEBRAND: And this guy is trying to do his best to get things back on track. He wants to work with Republicans.

(CROSSTALK)

HILDEBRAND: But Republicans don't seem to want to work with him right now.

BLITZER: Guys, we're going to leave it right there.

But, you know, CNN.com, that is where your column is. And I'm sure it's generating a lot of commotion out there.

Alex, Steve, thanks for coming in.

HILDEBRAND: Thank you.

BLITZER: Condoleezza Rice is given the chance to do what Dick Cheney did, and criticize President Obama. What she says may surprise you. Stand by.

He's the head of the Republican Party. Would Michael Steele ever want to be president of the United States? You are going to find out what he has told CNN today.

And every second counts in North Dakota. People are working at breakneck speed to lessen the dangers of what could be record flooding.

(COMMERCIAL BREAK)

BLITZER: On our "Political Ticker": Live from Chicago, it's the governor kicked out of office. (BEGIN VIDEO CLIP)

ROD BLAGOJEVICH (D), FORMER ILLINOIS GOVERNOR: Good morning. This is former Governor Rod Blagojevich. How are you?

And this is a time for a little more conversation and a little less action. That was Elvis' song that was remixed a few years ago and became a big hit.

I'm here filling in for Don Wade and Roma. It just seems like only yesterday I was the governor of the fifth largest state in America.

(END VIDEO CLIP)

BLITZER: That's right. You heard it right, the former governor of Illinois, who was ousted after being accused of trying to sell President Obama's Senate seat, Rod Blagojevich substituting for two radio hosts in Chicago.

On "The Tonight Show," Condoleezza Rice, she was given the chance to slam the president, but didn't take the bait.

(BEGIN VIDEO CLIP, "THE TONIGHT SHOW WITH JAY LENO")

JAY LENO, HOST, "THE TONIGHT SHOW WITH JAY LENO": I know President Bush says he wants to remain silent...

CONDOLEEZZA RICE, FORMER U.S. SECRETARY OF STATE: Yes.

LENO: ... and give Barack his -- an opportunity.

Vice President Cheney out there saying that Obama has made the U.S. less safe, we shouldn't be closing Guantanamo Bay, the interrogation method.

What is your opinion?

RICE: Look, these are difficult questions and -- and difficult issues.

My view is, we got to do it our way. We did our best. We did some things well, some things not so well. Now they get their chance.

And I agree with the president. We owe them our loyalty and our silence while they do it, because I know what it's like to have people chirping at you when they perhaps don't know what's going on inside.

These are quality people.

LENO: Right.

RICE: I know them. They love the country. And they won't make the same decisions perhaps that we did.

But I believe they will do what they think is best for the country, and I will give my advice privately and keep it to myself.

(END VIDEO CLIP)

BLITZER: Taking the high road, Condoleezza Rice, with Jay Leno.

All right, let's go to Jack Cafferty for "The Cafferty File" -- Jack.

JACK CAFFERTY, CNN ANCHOR: Cavalcade of stars, Rod Blagojevich and Condoleezza Rice. A little slow today down there, is it?

(LAUGHTER)

BLITZER: I thought it was very interesting, Jack, little -- little political nuggets like that.

CAFFERTY: Fine.

(LAUGHTER)

CAFFERTY: The question is, what should be done about the fact that the Mexican drug cartels are now operating in 230 American cities?

Mark writes: "We learned nothing from prohibition. Imagine for a moment legalizing and regulating the sale of medical-grade narcotics. Would the bad outweigh the good? Drugs are the scourge of this nation, but our approach is not sustainable. We need to consider things that can only be described as more drastic."

D.P. writes: "Give the special interest groups like La Raza and Southern Poverty Law Center more ways to explain why the southern border fence is a bad idea. And keep telling the stories of illegal immigrants and their hardships, while not running stories of how cops are being killed by these thugs. If you tell one side of the story, this is what you get."

Sue in Austin, Texas: "We need to send in regular U.S. military troops to the Mexican border to help the Border Patrol. These troops would need to have arrest power and permission to fire back if fired upon. Why not have a police action on our own border? We have done it so many times elsewhere."

Joe in Virginia: "We must secure the border, despite the forthcoming howl from the politically correct gang. We must also work to change the attitude about drug consumption. The cartels wouldn't be here, except for America's huge appetite for illegal drugs. I think we ought to consider legalizing some drugs, get tax revenue from them, control them, like we do alcohol and tobacco. For those people stupid enough to burn out their brains and ruin their lives on drugs, let them at least do it without the criminal element."

And Frankie writes: "That's too easy. Legalize pot. No, I don't mean for me. I'm clean and sober, but pot should be dealt with exactly like alcohol was and for the same reasons as when prohibition was repealed. You can't legislate morality. You can take the market away from the illegal drug dealers."

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

I wonder. The overwhelming number of e-mails, Wolf, on this subject were about the possibility of legalizing drugs. I wonder if we're not starting down that road.

BLITZER: We will see, Jack. I know there's a big mood out there for -- among a lot of people.