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The Impact of McCain and Obama's Second Quarter Fundraising Numbers. The Meeting Between Bush and Putin.

Aired July 2, 2007 - 16:00   ET

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


SUZANNE MALVEAUX, HOST: Happening now, money changes everything. John McCain's just released fundraising numbers leave his presidential campaign all shook up.
And Barack Obama's jaw dropping cash haul leaves Hillary Clinton in the dust.

We've got all new numbers and the fallout.

Plus, President Bush reels in a surprise during his talks with Russia's Vladimir Putin. We'll have a live report on their meeting at the Bush family vacation home in Maine.

And frightening details unfold in the British car bomb plot. Foreign born doctors in custody, as the investigation moves faster and farther.

Wolf Blitzer is off today.

I'm Suzanne Malveaux and you're in THE SITUATION ROOM.

First thing this hour, John McCain's presidential campaign in turmoil. Just a short while ago, the Senate Republican revealed he raised just $11.2 million in the past three months. That is even less than his disappointing first quarter cash haul. Even worse, McCain reports just $2 million cash on hand. Now McCain's campaign is undergoing what is being called a significant reorganization.

McCain's situation is in stark contrast to the two leading Democratic candidates. Senator Barack Obama is basking in his more than $32 million second quarter bonanza, outraising veteran fundraiser, Hillary Clinton.

CNN's Dan Lothian is in the trial -- on trial with the -- the trail, rather -- with Obama.

And senior political analyst, Bill Schneider, is here with the Republican numbers -- now, Bill, just how bad is this for McCain's camp?

WILLIAM SCHNEIDER, CNN SENIOR POLITICAL ANALYST: Suzanne, it's not good.

(BEGIN VIDEO TAPE)

SCHNEIDER: (voice over): John McCain started this campaign as the establishment candidate, running in a party that usually nominates the establishment candidate. McCain made peace with his old rival, George W. Bush and recruited some key Bush operatives and contributors for his campaign.

What happened?

The campaign manager explained in a conference call.

TERRY NELSON, MCCAIN CAMPAIGN MANAGER: We believe that we have raised over $100 million during this calendar year. And we constructed a campaign that was based on that assumption. We believe today that that assumption is not correct.

SCHNEIDER: The McCain campaign raised a disappointing $13 million in the first quarter. That put McCain last among the six major contenders in the two parties.

The second quarter results?

Worse -- $11.2 million.

What's next?

Cutbacks.

NELSON: We've made a decision to restructure the campaign to help ensure that we have the resources necessary to win the Republican nomination.

SCHNEIDER: Some 50 or more staffers being let go. Senior aides are taking a pay cut.

The campaign attributes its problems to a difficult fundraising environment for all Republicans this year and for McCain specifically, because of one issue.

MARK PRESTON, CNN POLITICAL EDITOR: The McCain people acknowledge that immigration has been the Achilles' heel for the senator in this election.

SCHNEIDER: Where does McCain go from here?

Back to the future.

PRESTON: He's going back to what he did in 2000. He realizes that the way he's going to win this nomination is not by the -- by getting the establishment votes, but, rather, a grassroots campaign.

SCHNEIDER: The campaign says they intend to focus on the early primary and caucus states, like Iowa, Nevada, New Hampshire. The latest polls show McCain running third or fourth in all those states except New Hampshire, where he beat Bush in 2000 and where he's now in a tie for second.

(END VIDEO TAPE) SCHNEIDER: McCain used to have broad bipartisan appeal. Now Democrats are angry at him because of his support for the war in Iraq and Republicans are angry at him because of his stand on immigration. There's bipartisanship for you -- Suzanne.

MALVEAUX: A tough road ahead.

OK, thank you very much, Bill Schneider.

And some more examples of the dire straits for the McCain camp. Campaign Manager Terry Nelson has volunteered to work without salary for the next few months. And campaign officials say they are seriously now considering accepting federal matching funds during the primary season, which they had previously decided to forego.

Now to the second king of second quarter cash. That is, of course, Democrat Barack Obama -- is in New Hampshire today. And he couldn't help but say just a few words about his new financial boon.

CNN's Dan Lothian with the Obama campaign.

Are they yet dancing in the streets -- Dan?

DAN LOTHIAN, CNN CORRESPONDENT: Not dancing in the streets, but certainly smiling. Senator Barack Obama might be trailing Senator Hillary Clinton in many national polls. But for now, he's winning the money race.

(BEGIN VIDEO TAPE)

LOTHIAN: (voice-over): In Laconia, New Hampshire, fresh from a weekend of record breaking fundraising numbers, Senator Barack Obama stayed on message, taking only a short detour to tell supporters why getting, "a lot of money" is a wonderful thing.

SEN. BARACK OBAMA (D), ILLINOIS: It's a wonderful thing because we've got 250,000 people who have donated to our campaign. That we've got people who have been giving $5 and $10 and $25.

LOTHIAN: What Obama calls a dedicated grassroots effort took in $32.5 million in the last quarter. All but $1 million can be spent in the primary race.

OBAMA: People said we couldn't compete by trusting in the American people.

LOTHIAN: It's the richest quarter for any Democratic presidential hopeful ever and well ahead of his rivals, including Senator Hillary Clinton, on the trail in Philadelphia. Her campaign is expecting about $27 million in donations. But only $21 million of that can be used in the primary race.

So what does this big cash haul mean for Obama?

JENNY BACKUS, DEMOCRATIC STRATEGIST: The first thing that it means for people, it's momentum. It's a way of seeing who's interested.

LOTHIAN: Democratic strategists say it also allows Senator Obama to get his message out in a bigger way.

BACKUS: Money can be translated into advertising, whether it's on the airwaves or on the Internet.

LOTHIAN: Critical for a campaign still trying to introduce itself to many voters. And, finally, winning the cash race, say strategists, says a lot about whether a campaign is really ready for prime time.

BACKUS: A sense of field and mechanics of a campaign -- how well is the campaign functioning to run a national race?

(END VIDEO TAPE)

LOTHIAN: Of course, money alone can't win a race. Political strategists say that voters have to be convinced that campaign promises will translate into real change -- Suzanne.

MALVEAUX: And, Dan, who has the record for the most fundraising in a quarter?

LOTHIAN: That's right, Obama winning on the Democratic side. President Bush -- current President Bush -- with $35.1 million in a quarter. And that took place back in 2003.

MALVEAUX: OK.

Dan Lothian, thank you very much.

And we're also getting brand new details about Obama's online fundraising.

Let's go straight to our Internet reporter, Abbi Tatton -- Abbi, how much did Obama raise on the Web?

Is he breaking records there?

ABBI TATTON, CNN CORRESPONDENT: Suzanne, the figure is quite staggering. It's $10.3 million in terms of the second quarter online fundraising for Barack Obama. That's roughly a third of his total. These numbers just released to the liberal blog MyDD. That $10.3 million well above the $6.9 million that Barack Obama brought in in the first quarter in online fundraising. That was a figure that put him ahead of his Democratic rivals.

What we know from the others, we know that John Edwards, in second quarter online numbers, raised $3.5 million, slightly ahead of his third quarter online numbers.

We're still waiting to hear from Hillary Clinton -- Suzanne.

MALVEAUX: OK, Abbi, thank you very much.

And Abbi Tatton, Dan Lothian and Bill Schneider are all part of the best political team on television.

And remember, for the latest political news anytime, check out the Political Ticker at cnn.com/ticker.

The next presidential debate will be July 23rd in Charleston, South Carolina. CNN is teaming up with YouTube. It will be the first debate where all of you can submit your questions to the candidates online.

Now to the day's main event for President Bush. He's due back at the White House soon, after his talks and a little bit of R&R with Russian President Vladimir Putin.

It turns out Mr. Bush walked away from the visit at his family's vacation home in Kennebunkport with something a little bit unexpected.

So let's bring in our own White House correspondent, Ed Henry, who is in Maine -- Ed, just like those talks in Germany, I guess, we both attended, a little bit of a surprise, huh?

ED HENRY, CNN CONGRESSIONAL CORRESPONDENT: That's right, a couple of surprises, in fact, Suzanne, from President Putin today.

The first one came out on the speedboat when Vladimir Putin was the only one of the presidents to actually catch a fish. It was a 30 inch striped bass, according to former president George H.W. Bush.

But the current President Bush later did reel in a bit of a surprise -- a promise from in Mr. Putin for enhanced cooperation on this controversial U.S. missile defense plan. Mr. Bush had warm words for this new proposal that was put on the table today, that would basically enable the whole program to work through NATO and also set up an information sharing center in Moscow.

But Mr. Bush would not budge on a key part of it. He still wants the radar and the missiles to be based in the Czech Republic, in Poland, while Mr. Putin is sticking to his guns. He wants some of this based in southern Russia on his terms and on his turf, as well.

There were impasses as well on Iran. Mr. Putin not going along with tough new sanctions over its nuclear enrichment program.

But by and large, the message from both leaders was that they're trying to convince everyone we're not on the brink of another cold war.

(BEGIN VIDEO CLIP)

GEORGE BUSH, PRESIDENT OF THE UNITED STATES: So you asked do I trust him?

Yes, I trust him.

Do I like everything he says?

No. And I suspect he doesn't like everything I say. (END VIDEO CLIP)

(BEGIN VIDEO CLIP)

PRES. VLADIMIR PUTIN, RUSSIA: (THROUGH TRANSLATOR): Such cooperation, I believe, would result in raising to an entirely new level the quality of cooperation between Russia and the United States. And for all practical purposes, this would lead to a greater development of strategic partnership in the area of security.

(END VIDEO CLIP)

HENRY: So no real breakthrough. But the bottom line is that Mr. Putin is still moving closer and closer to Mr. Bush, at least on the broad outlines of a missile defense program. As you know, he had been previously completely opposed to it -- Suzanne.

MALVEAUX: And, Ed, what about the president's father?

What role did he play?

There's been a lot of speculation and a great deal of sensitivity, I understand, with the current president.

HENRY: That's right. It's really interesting, before they had the press availability, former President Bush came out and started talking to reporters while there was time to kill. And he essentially had a little bit of an impromptu press conference. He really seemed to miss the action, the give and take with reporters, the kind of give and take you don't see with the current President Bush.

But it was -- it's his compound, so the former President Bush started talking, yucking it up, talking about his golf game, talking about fishing. And he even revealed a little bit of information the White House hadn't told us, that basically the Bush family was going to give a Segway, one of those interesting devices, going to give a Segway to Mr. Putin. And the former President Bush even said that at one point he understands Mr. Putin was trying out a Segway, because some of the grandkids on the compound had them. He said Mr. Putin actually did a pretty good job -- Suzanne.

MALVEAUX: Well, that -- that's great. You can tell, actually, he misses the spotlight, huh?

All these wonderful, colorful stories coming out.

HENRY: He certainly does.

MALVEAUX: OK.

Thanks again, Ed.

Jack Cafferty is off today.

But coming up, a new development in the search for a terror suspect in Britain -- a report of another arrest. We'll have the latest on the probe into those failed car bombs.

Plus, a brand new court decision that could put even more pressure on President Bush to pardon Lewis "Scooter" Libby.

And a new threat to hold the White House in contempt of court.

You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

MALVEAUX: News just in about the terror investigation in the United Kingdom.

Scotland Yard tells CNN an eighth person has been arrested in connection with the failed car bomb attacks on Glasgow Airport and London. Earlier, authorities identified two of the suspects in custody as doctors from Iraq and Jordan. British officials say that they've searched at least 19 locations in what they are calling a fast moving investigation.

Our own CNN's Paula Newton has more from London -- Paula.

PAULA NEWTON, INTERNATIONAL SECURITY CORRESPONDENT: Suzanne, two more arrests and more developments in a case that continues to look like a new twist on terror.

(BEGIN VIDEO TAPE)

NEWTON: (voice-over): A very different kind of trauma for this Scottish hospital. Police trigger two controlled explosions, checking for bombs, as they investigate what could have been a sleeper cell of foreign doctors. Seven people are now under arrest. At least two of them are believed to be foreign trained doctors working in Britain. A third foreign physician is also being closely investigated.

One of the doctors in custody is believed to be Iraqi physician Bilal Abdulla. He was arrested in the car bombing attack at Glasgow Airport. Another now in custody, Dr. Mohammed Asha, a Jordanian doctor, cornered and arrested along with his wife on a highway in northern England on Saturday, and now being questioned in connection with the bomb plots.

His father in Jordan says there is no way his son is involved. "I'm sure of it," he says, "not only because I'm his father, but because Mohammed was coming back here after specializing in Britain."

Police and security sources have told CNN they believe at least one of the men who launched the attack at Glasgow Airport was involved in planting the Mercedes car bombs in central London.

UNIDENTIFIED MALE: It looks increasingly as though the three events are linked. People can be reassured by the speed and efficiency and professionalism of the police throughout the country and the way they've responded to these matters.

NEWTON: In fact, even before the Glasgow attacks, authorities were tightening the noose, calling this real estate agent's office in Glasgow to ask about a potential suspect who was renting a house from them.

UNIDENTIFIED MALE: We found that one of the names that we had corresponded with one of our tenants.

NEWTON: All of this points to a terrorist cell structure like no other -- a group of medical professionals, usually above suspicion, charged to help, not hurt, but planted in Britain and apparently being used as the newest weapons in Al Qaeda's human arsenal.

UNIDENTIFIED MALE: It's extremely difficult to bust a group like this or groups like this for the security services simply because of their cellular structure. They are small groups of people who may not be in regular contact with a controller abroad, who are -- don't talk to other cells, necessarily, are motivated by some broad sympathy with the overall objectives of Al Qaeda.

NEWTON: Intelligence officials worry that training videos like this posted on Jihadi Web sites, showing propane cylinders being loaded and apparently delivered and detonated by a vehicle, will resonate with Al Qaeda operatives now content with less ambitious acts of terror.

(END VIDEO TAPE)

NEWTON: Suzanne, worrying authorities here is having to track this new type of plot, along with the proven threat of homegrown terror -- Suzanne.

MALVEAUX: Thank you, Paula.

Now more on one of the suspects in the U.K. terror probe, as told by his brother.

CNN's Cal Perry is in Jordan.

Cal just spoke with the brother, the Jordanian born doctor in custody.

CAL PERRY, CNN CORRESPONDENT: Well, good afternoon to you, Suzanne.

We learned a lot today by meeting the older brother of Mohammed Asha, who has been detained by British police. He paints a picture of a young medical student at the top of his game, a neurosurgeon who fell in love, moved to the U.K. and had a child.

This family really is in complete shock. They learned of the news by watching the television and then nobody is giving them information, neither the British authorities nor Jordanian authorities in London are speaking to them. And what they're most concerned about is that young 2-year-old. They have no idea where he is -- Suzanne.

MALVEAUX: Cal, is there any indication that this individual is susceptible to Islamic extremists or somehow being a part of that organization, that group?

PERRY: Well, speaking to his brother, he painted absolutely the opposite picture. He said he sends home postcards and pictures from London on a daily, almost weekly basis. He was, in fact, supposed to travel back to Jordan on July the 14th to visit his family. And every indication was he was getting on quite well with his life in Britain.

As I said, he was recently married. He had a child. And even his brother, who I spoke to, Ahmed, said he was married to a Christian. And it was one of the favorite things of his brother, Mohammed, was his wife.

So there really was no indication in speaking to the family that he would have at all been susceptible to the sort of radical Islamist terrorists that we've seen in the past -- Suzanne.

MALVEAUX: Thank you, Cal.

I'm sure we'll be getting more information as that becomes available.

Thanks again, Cal Perry.

And still ahead, people here in the United States under surveillance on the war on terror.

Who is being targeted and how many?

A startling new claim by the homeland security secretary.

And next, how might -- how soon might "Scooter" Libby go to prison?

We'll tell you about a new ruling on his fate as he appeals his conviction in the CIA leak case.

You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

MALVEAUX: Former White House Aide "Scooter" Libby is another step closer today to going to prison. A federal appeals court here in Washington rejected his request to remain free on bond while he challenges his convictions in the CIA leak case.

Our Brian Todd is covering the Libby case -- Brian, what happens now to "Scooter" Libby?

BRIAN TODD, CNN CORRESPONDENT: Suzanne, we heard a short time ago from William Jeffers, one of Lewis "Scooter" Libby's attorney. He said: "All I can say is we're weighing our options."

Jeffers did not say if they'll appeal the ruling to the Supreme Court. They could do that. But high court rarely intervenes in these emergency motions. So if another appeal doesn't go through, "Scooter" Libby could start his 30-month prison term within a few weeks. The U.S. Bureau of Prisons still has to decide where he will be incarcerated and the Bureau has to set a date for him to surrender at that facility -- Suzanne.

MALVEAUX: And, obviously, Brian, where do the developments put the White House and the president?

Clearly, there's a deadline that seems to be looming at this point.

We don't get a sense that he might be pardoned, do we?

TODD: Not really. Now, Libby's supporters will put more pressure on President Bush to pardon him. But the White House has given no indication of how it will go either way.

Libby, of course, convict in March of perjury and obstruction of justice in the investigation of who leaked CIA operative Valerie Plame Wilson's identity. But no one charged in the actual leak in that case.

Now, just to be clear here, Libby is still planning to appeal his conviction. But with today's ruling, he's more likely now to be doing it from prison -- Suzanne.

MALVEAUX: So we'll have to see how this all plays out. Obviously, President Bush not giving any indication that he's going to grant him a pardon, but you never know how these things shapes up.

Thanks again, Brian Todd.

Carol Costello is off today.

Today we have T.J. Holmes monitoring the wires and keeping an eye on the video feeds from around the world.

He joins us now with a closer look at on other incoming stories making news -- T.J. I guess you didn't get the holiday either, huh?

T.J. HOLMES, CNN CORRESPONDENT: No, I did not. Still the new kid on the block.

Thank you -- Suzanne.

Up first here, I need to tell you about the attackers targeting a bus carrying Spanish tourists in Yemen. Details still developing here, but Spanish government officials tell CNN that seven Spaniards are dead and five hurt. But an official in Yemen confirms only five Spanish deaths and adds that five Yemenis were killed. Apparently a suicide bomber drove a car into a tourist convoy. The car exploded. The official in Yemen says Al Qaeda may be involved.

Let's head over to Iraq now. And insurgents increasingly, of course, use roadside bombs to target U.S. troops. So the U.S. military is urgently coming up with ways to save more lives. In a story first reported in "USA Today," the Pentagon has approved the purchase of more specially designed armored vehicles. They're called mine resistant ambush protected vehicles. They have a V-shaped pole that deflects a bomb's blast away from the troops riding inside. The Pentagon plans to buy 17,000 more of them, mostly for troops in Iraq and Afghanistan.

Also, consumers are spending, manufacturers are expanding. And that is all good numbers for the manufacturing sector and for the economy. U.S. plants, factories and utilities expanded at a faster pace last month, according to the Institute for Supply Management. It's the fifth month of growth for the manufacturing sector, and it suggests manufacturer confidence, even as they pay more for raw materials like aluminum, chemicals, steel and gas.

So that's a quick look at what's happening.

Back to you, my comrade in holiday work -- Suzanne.

MALVEAUX: OK, T.J.

We'll get back to you very shortly.

HOLMES: All right.

MALVEAUX: And up next, a stunning threat from one Democratic senator. Patrick Leahy compares acts from the current White House to some from the Nixon White House and suggests possible criminal charges.

And amid the threat of terror overseas, worries about terrorists in our midst. The homeland security secretary makes a troubling statement about who's being watched and why.

You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

MALVEAUX: Happening now, a stunning claim. The U.S. military says it has proof that Lebanon's Hezbollah is operating in Iraq. And officials are suspicious over what they say are disturbing ties between Hezbollah and elements in Iran.

Also, high gas prices and not enough supply to meet demand. So many in Iran are angry, even burning gas stations.

How might it hurt the Iranian president's political standings?

And First Lady Laura Bush -- she is urging abstinence in Africa to help fight aids.

But does that work?

My interview with the first lady.

Wolf Blitzer is off today.

I'm Suzanne Malveaux and you're in THE SITUATION ROOM. As reported just a short while ago, there is word from Britain of an eighth suspect being arrested in connection with the failed car bombs in London and Glasgow. In this country, Homeland Security Secretary Michael Chertoff acknowledges, many people here are being watched in the war on terror right now.

(BEGIN VIDEO CLIP)

MICHAEL CHERTOFF, HOMELAND SECURITY SECRETARY: Well, we do actively investigate and actively monitor the activities of a significant number of people in the United States who we are concerned are linked to terrorism, either as facilitators or even as potential operators.

(END VIDEO CLIP)

MALVEAUX: Let's now bring in our justice correspondent, Kelli Arena.

Kelli, that is obviously a very troubling statement.

Can you shed any light on how many people he is talking about, on just the extent of this?

KELLI ARENA, CNN JUSTICE CORRESPONDENT: Well, Suzanne, officially, the government won't comment, beyond Chertoff's statement.

But, unofficially, sources tell us that there are at least 300 people who have been identified as persons of interest. So, what the heck does that mean? Well, Suzanne, those are people who have either communicated -- have either communicated with known or suspected terrorists or somehow their names surfaced in terror investigations. And they're not necessarily terrorists. But, potentially, they pose a threat.

MALVEAUX: Now, are they under 24/7 surveillance? Are they watching these folks?

ARENA: Well, most of them are not. It takes at least 24 agents to successfully tail a person around the clock.

But, instead, agents do things like periodic trash checks, bank statement checks to keep an eye on those people.

MALVEAUX: And do we know any idea, have any idea of where these people actually are?

ARENA: Well, the sources that we spoke to say that there are investigations under way in places like New York, New Jersey, Pennsylvania, Virginia, but that's hardly an exclusive list. There are ongoing investigations from coast to coast.

MALVEAUX: Now, Kelli, we keep hearing from officials that there's no credible evidence that there's going to be an attack here on U.S. soil. Is that what your sources are saying behind the scenes? ARENA: Right. Yes. My sources are saying that they, first, are not ruling anything out, because nobody is that stupid, but that there isn't any credible intelligence to support that there's any imminent terror attack is being planned.

One thing to be aware of, though, Suzanne, terror tactics have changed so much over the past six years that you may not get any intelligence, especially if it's a homegrown group that has no ties overseas.

MALVEAUX: OK, Kelli Arena, thank you so much.

ARENA: You're welcome.

MALVEAUX: All right.

And, right now, a senator is out with a brazen threat to the Bush administration. Democratic Judiciary Chairman Patrick Leahy is outraged at what he suggests is an uncooperative White House, as his committee probes a major controversy. Leahy says that he may resort to a rare act.

Our CNN's Brian Todd joining me once again.

Brian, this involves those fired U.S. attorneys.

What is the development today?

BRIAN TODD, CNN CORRESPONDENT: It does involve them, Suzanne.

And, as the White House has stuck to its guns on this issue, Senator Leahy has gotten so frustrated that he has upped the ante, saying he could go so far as to file criminal charges.

(BEGIN VIDEOTAPE)

TODD (voice-over): The Judiciary Committee chairman accuses the White House of Nixonian stonewalling. And Senator Patrick Leahy says, if the administration continues to reject his subpoenas for information on the firings of U.S. attorneys:

SEN. PATRICK LEAHY (D-VT), JUDICIARY COMMITTEE CHAIRMAN: Then they run the very real risk of being held in contempt of Congress.

TODD: That's a criminal charge for people who obstruct investigations by Congress. Conviction could mean a year in jail. Experts believe this showdown is unlikely to come to that. First, Leahy's negotiations with the White House would have to completely break down. Then he would have to get the full Senate to approve a contempt citation.

JEFFREY TOOBIN, CNN SENIOR LEGAL ANALYST: Then it goes to court, district court, cost of appeals, potentially the Supreme Court, all of which will eat up the year-and-a-half left in President Bush's term.

TODD: In refusing to turn over documents on the firings, the White House cites executive privilege. President Bush has offered informal interviews, not sworn testimony, and says there is good reason he can't go further.

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: Haul somebody up in front of Congress, and put them in oath, and all the klieg lights, and all the questioning, it -- to me, it makes it very difficult for a president to get good advice.

TODD: Senate Democrats want to find out if the firings of several U.S. attorneys were purely political.

(END VIDEOTAPE)

TODD: And, just a short time ago, another indication that the White House is not giving in on this issue. We heard from spokesman Tony Fratto on the contempt from Senator Leahy. Fratto said -- quote -- "If they're interested in getting the facts of the case, they can accept our offer to interview senior White House officials and review the relevant documents that we would provide -- Suzanne.

MALVEAUX: And, Brian, I know that one of the reasons the White House does this is that they -- they ultimately feel the Democrats are going after a bigger fish here. Perhaps Karl Rove?

TODD: Right.

Just last week, Congressman Henry Waxman, chairman of the House Oversight Committee, sent a letter to the White House saying that Rove's security clearance should not have been renewed because of his role in the leak of the identity of a CIA agent.

Today, White House spokesman Fratto said, Rove has had his five- year security clearance review, just like any other staffer, and he told us -- quote -- "It was appropriately cleared, and that's really all I can say about it."

MALVEAUX: We expect they're going to say a little bit more as this battle continues.

TODD: Right.

MALVEAUX: Of course, Brian Todd, thanks again.

And coming up: Buyer, beware. After a scare over contaminated fish from China, is anything being done to keep Americans safe?

And Al Gore's Hollywood connections let him in on classified information. If you are a fan of "The Sopranos," you're going to be jealous.

You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

MALVEAUX: Right now, many Americans are worried about some products made in China. CNN's John Vause is in Beijing, looking at what's recently been causing alarm and just what sparked some new concern.

(BEGIN VIDEOTAPE)

JOHN VAUSE, CNN CORRESPONDENT (voice-over): Now, it's the fish and the shrimp, the latest addition to a buffet of tainted and shoddy Chinese exports from toxic toothpaste, made with chemicals normally used in antifreeze, to Thomas the Tank engines coated in lead-based paint.

Even so, the government here is now urging all countries to honor trade deals, a spokesman saying, "In principle, if you don't find any problem, Chinese goods should be allowed to be exported."

But so far this year, health inspectors here have closed 180 food processing factories because authorities say formaldehyde, illegal dyes, and industrial wax were being added to candy, pickles, crackers, and seafood.

The government says the vast majority were small, unlicensed operators employing fewer than 10 workers. Most of the country's one million food processing plants are small and privately owned, so, too, an estimated 200 million farms, tiny, about a third of an acre. And that, say experts, makes enforcing regulations an immense challenge.

HU JIGUO, AGRICULTURAL UNIVERSITY (through translator): The small companies are the ones who have the problems. They have no standards. Sometimes, they deliberately break the law.

VAUSE: And it's all made worse by overlapping agencies.

HENK BEKEDAM, WORLD HEALTH ORGANIZATION: Nine major ministries have responsibilities in food safety. That poses instantly a coordination issue.

VAUSE: None of this is helped, say analysts, by the razor-thin profit margins for many suppliers. The chemical melamine, for example, normally used to make plastics, was added to wheat gluten, because it's a cheap way to fake high protein levels and increase the sale price, and was not illegal here, until dogs and cats began dying in the United States after eating pet food tainted with the chemical.

(on camera): In many ways, China is like the Wild West, a developing country still developing rules about how to deal with a booming food processing industry, which now has an image problem like never before.

John Vause, CNN, Beijing.

(END VIDEOTAPE)

MALVEAUX: And is Carol Costello off today.

Our T.J. Holmes is monitoring stories incoming into THE SITUATION ROOM at this very moment. T.J., what are you looking at right now?

T.J. HOLMES, CNN CORRESPONDENT: All right, Suzanne.

Of course, officials say it was crude, homemade and low-level, a device that exploded in a trash container in a parking lot in Walt Disney World today in Florida -- no injuries, here, thankfully, to report. Officials are now investigating.

Meanwhile, we turn to Ohio now. And the man accused of murdering his pregnant girlfriend waived his right to a preliminary hearing. Bobby Cutts Jr. appeared in court today, as did Myisha Ferrell. She is charged with obstruction of justice in this case. She also waived her right to a preliminary hearing. This now means that a grand jury will hear the cases.

Well, he has already been disbarred, suspended, replaced, and, yes, even disgraced. Now, in a new resignation letter, North Carolina prosecutor Mike Nifong says he will leave office immediately. Last month, the former prosecutor in the Duke lacrosse case submitted a resignation letter, saying he would leave office July 13. But his critics wanted him out of there sooner.

Also, from Kansas into Oklahoma, crude oil spilling from a refinery into a flooding river in Kansas, now flowing toward Oklahoma, this after high water forced many people from their homes. Officials in Oklahoma say they're hopeful the spill will dissipate before it reaches a lake about 30 miles northeast of Tulsa.

Also in Utah today, a prison inmate accused of killing a guard while escaping a medical clinic appeared in court via video. Yes, you see him there. That's Curtis Allgier. He's facing eight charges, including an aggravated murder count that could land him the death penalty, if he's convicted.

A state corrections officer was shot with his own gun when he was alone with Allgier last month at a University of Utah clinic. Allgier contends, he did not shoot the guard, but that the gun simply went off while Allgier was trying to escape.

We covered that story a bit when it was breaking. And everybody was amazed to see the video and the pictures of this gentleman.

MALVEAUX: Sure.

HOLMES: Interesting artwork. He's not really going to get away or try to disguise his appearance too much.

But he says he didn't do it. So, that's a case we are going to continue to follow, of course, Suzanne.

MALVEAUX: Easily identifiable.

HOLMES: Yes.

MALVEAUX: OK. Thank you very much, T.J. Holmes.

Up next: Senator Barack Obama is in the money.

(BEGIN VIDEO CLIP)

SEN. BARACK OBAMA (D-IL), PRESIDENTIAL CANDIDATE: It's a wonderful thing, because we have got 250,000 people who have donated to our campaign.

(END VIDEO CLIP)

MALVEAUX: The Democratic presidential candidate isn't just rolling in cash. He is bragging about the number of donors. Is Hillary Clinton running scared now? Well, our own Paul Begala and Rich Galen are standing by for our "Strategy Session." They will also consider whether John McCain can overcome his cash crisis and the new shakeup in his campaign.

You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

MALVEAUX: In today's "Strategy Session," they are showing you the money. Some of the presidential candidates are reporting impressive fund-raising totals. And at least one is not.

Joining me now, CNN political analyst and Democratic strategist Paul Begala, and Republican strategist Rich Galen. Rich's son, Reed Galen, is a senior staffer with the McCain campaign. Have to, of course, disclose everything, let it all out in the open here.

RICH GALEN, REPUBLICAN STRATEGIST: Absolutely right.

(CROSSTALK)

MALVEAUX: Let's just -- let's talk about McCain here, because this really is stunning, the news that we have seen today. We're talking about $11.2 million for the second quarter. They're revamping. And it looks like they're getting new folks on board. And even his...

(CROSSTALK)

GALEN: Well, they're taking folks off. They're not going to bring anybody new on.

MALVEAUX: Taking them off, putting them on, and obviously saying, look, we have got to do something different here.

If you were to advise them, what do you say to...

(CROSSTALK)

GALEN: I mean, here's the thing. I listened in on, with a bunch of other reporters, to the conference call this afternoon from the -- and what Terry -- Terry Nelson -- I almost said Terry McAuliffe.

(LAUGHTER)

MALVEAUX: Sure. Terry Nelson said he's working for free.

GALEN: ... said was -- he said, at the beginning of the campaign, we thought we were going to raise $100 million.

OK. That's a staggering amount of money. But you have to think that, at some time in February, they knew they weren't going to get to the $100 million mark. So, why they waited until the six-month mark to start paring down on staff and what have you is a little bit hard to understand.

MALVEAUX: So, are they in trouble?

GALEN: Well, I mean, I -- they're in trouble, because they are not -- they're at the bottom of the top-tier candidates. I think, on the other side, though, the fact that they have been through six weeks on immigration, the fact that the campaign is standing at all is probably at least as much of a surprise.

MALVEAUX: So, Paul, how much of that is an excuse, when they say, it's all about immigration reform? It failed. Obviously, he was a key player in that. And how much of it is just, he doesn't have the appeal anymore?

PAUL BEGALA, CNN POLITICAL ANALYST: I think it's more an explanation than an excuse. I think immigration was killing the McCain campaign. Base voters in the Republican Party did not like the president's position on immigration or Senator McCain's position on immigration.

And I think it was hurting him grievously. But I think it's -- I think there's a more fundamental problem in the McCain campaign. And I say this more out of sadness than anger, in the sense that I admire John McCain. He's an American hero.

But, you know, Bobby Kennedy said, if a person plants himself on principle, then, over time, the world will come around to him. And, if McCain had just planted himself where he was in 2000, right -- when he was ran against George W. Bush, he was anti-Bush. He was moderate to progressive on a whole lot of issues.

And, instead, he spent the last six years chasing that base, chasing them, going to Reverend Falwell, the late Reverend Falwell's university to speak, changing his position on a variety of issues. And I think it hasn't borne out successfully.

(CROSSTALK)

GALEN: His voting record has been very conservative straight on through. I don't think that's...

(CROSSTALK)

MALVEAUX: What does he do now, because, obviously -- you were on the conference call.

GALEN: Yes.

MALVEAUX: Our CNN political team was on the conference call.

(CROSSTALK)

GALEN: ... questions.

MALVEAUX: Absolutely.

And he says, we have got to get back to the Straight Talk Express bus; he's too much of an establishment figure.

But isn't it too late to change the image here at this point?

GALEN: No. I mean, we look at Bill Clinton. He was the comeback skid, because he had to come back from somewhere in 2000.

And, four year ago, John Kerry was left for dead, ended up as the nominee. So, can they do it? Who knows who will all be supporting him six months from now. But if you -- we know this. You can stay in -- the big thing is to stay in the game.

As long as you have got enough cash to keep the doors open and the lights on, you can stay in the game and see what happens.

MALVEAUX: But how much of Iraq is really a problem here? He's on his way to...

(CROSSTALK)

BEGALA: But it's a Republican primary, remember.

MALVEAUX: He's on his way to Baghdad now. And, obviously, it did not work out as they had thought before...

BEGALA: No, it's a Republican primary.

MALVEAUX: ... when a lot of people thought it was a -- he painted too much of a rosy picture. Does that work for or against him?

BEGALA: McCain, in his defense, was more critical, particularly of Donald Rumsfeld and the conduct of the war. Even though he was very hawkish and pro-war, he didn't always give the sort of the happy talk that we often got from the White House. So, I think he can claim some credibility there.

Rich makes a good point. In a Republican primary, still, self- described conservatives, seven out of 10 of them still support the war. The problem is, if somehow he survives the primary -- and it looks unlikely now -- he can't win the general. Iraq will kill him in a general election.

In the primary, it's still, I think -- in that narrow band of Americans who still call themselves Republicans in the age of Bush, which is shrinking every day, the war is still fairly popular.

MALVEAUX: Let's talk about the other news of the day, obviously, Barack Obama. I want to put up some figures here. This is the second-quarter figures for the Democrats: Barack Obama, $32.5 million; Hillary Clinton, $27 million; John Edwards, $9 million; Bill Richardson, $7 million; and Chris Dodd, $3.25 million.

Ten million more dollars than Hillary Clinton for the primary. You worked for the comeback kid.

BEGALA: I did.

MALVEAUX: What does Hillary Clinton do now? Can she come back here?

BEGALA: It's stunning. It's stunning. This -- it's hard to describe how important this is, seriously. Barack Obama has gotten hundreds of thousands of people to give him small donations.

MALVEAUX: Right.

BEGALA: OK, that's even more impressive -- and the audience should know, just like Reed Galen works for Senator McCain, I have donated to Hillary Clinton. I love her, and I worked for her husband, as you know.

But I have given her the legal maximum. I can't give her another nickel. The huge majority of people who donated to Barack Obama can give again and again and again, because they are not overpaid cable television blowhards like me.

MALVEAUX: Is she tapped out? Is she tapped out fairly soon?

BEGALA: She's not tapped out. But she will have -- I talked to her campaign today. And one of her strategists said, look, we will have enough money to compete and enough money to win, but not as much as Barack.

And, if you do take that money that Senator Obama has, you can do a lot with that in American politics. It's a really big deal, I guess, is what I'm saying.

(CROSSTALK)

GALEN: Remember what I said about, as long as you have money, you can stay in? As of this second, Barack Obama is in this thing until Denver. He's never getting out.

MALVEAUX: Well, obviously, he can stay for a long time.

What about the second-tier candidates, the Edwards, the Richardsons of the bunch? Do they stand a chance now? Or is it time to reconsider?

GALEN: I think, on both sides, they're getting close to the point where they say, OK, look, we're -- we made our point. We got in here. We did -- I think probably the fourth one on each side may do -- may stick around, but I think the Dodds and -- you know, we haven't even heard from -- who is the senator from Delaware? I'm sorry. Biden.

MALVEAUX: Right. Biden.

(CROSSTALK)

GALEN: I'm sorry. I just lost -- lost my head.

BEGALA: Bill Richardson ticks up a little bit, though. He raised $7 million, from the reports that I saw.

John Edwards, who has always been considered a top-tier candidate, still leading or tied in the polls of Iowa, which matters most, Edwards is falling down a little in fund-raising, only raised about $9 million. Bill Richardson catching up, about $7 million. Richardson may bump and pass John Edwards, if he continues...

(CROSSTALK)

GALEN: He has a -- they have a very small campaign. They don't have 150 people on the payroll.

MALVEAUX: Right. Right. But...

(CROSSTALK)

GALEN: So, they can stay in for a long time.

MALVEAUX: But what does this in do in terms of the fight against Barack Obama and Hillary Clinton? Because she performs better in the polls, obviously popularity polls, but she just doesn't have as much money.

BEGALA: No. I think and where she is lacking is in the sort of excitement, passion, Internet-based fund-raising. That's where Barack is doing so well.

Now, Hillary, I think, has done better in the debates. She has a certainly more tested machine. A lot of her husband's former advisers are there. And, also, she's won two tough campaigns in New York, which is a very difficult environment for her to run in, being as she hadn't lived there until she became a senator from there.

So, I think it's going to be a wonderful fight. It will be a great thing for the Democrats, I think, to have at least two, and maybe more, very well funded and very talented candidates. Let them go at it. I think it's great.

(CROSSTALK)

MALVEAUX: Rich, you get the last word here.

GALEN: Yes, but the thing I think that's important is two things. One, she -- still an enormous amount of money, but $10 million behind Obama. And, second, she appears to be stuck at about 35 percent of the Democratic vote. So, that -- I think both of those things say, this will be fun to watch for the next few months.

MALVEAUX: We're going to have a lot of fun. We're going to talk about this for a long time.

(CROSSTALK)

(LAUGHTER)

MALVEAUX: Rich Galen, and, of course, Paul Begala, thanks again.

GALEN: Thanks, Suzanne.

MALVEAUX: And still to come: while Americans rail over high gas prices, some people in Iran are actually burning gas stations. In an oil-rich country, there is not enough fuel to meet the demand. How might it hurt Iran's president?

And the latest on the terror investigation in the U.K. -- we have just learned an eighth suspect has been arrested in those attempted attacks in London and Glasgow.

We will have a live report.

(COMMERCIAL BREAK)

MALVEAUX: On our "Political Radar" this Monday, Senator Hillary Clinton picks up a new endorsement in the key battleground state of Pennsylvania.

The Democratic presidential candidate is being backed by Philadelphia Mayor John Street. Street said Clinton is the best candidate to restore America's rightful place in the world stage.

And what one man does will partly determine what another man does. Newt Gingrich says he will wait to see how well Fred Thompson does as a presidential candidate, if Thompson becomes one. That is according to columnist Bob Novak. The former House speaker reportedly says that, if Thompson runs an effective campaign, then he, Gingrich, is not going to run himself.

We all know Al Gore is a hit in Hollywood, but even the former vice president might have been surprised by his own poll. "The New York Times" reports Gore was able to get a copy of the finale of "The Sopranos" before it aired, because he knew he would be on a plane and unable to watch it. The chairman of Paramount sent it to him in a steel case with a special code, so he could watch it while he was on board.

And, remember, for the latest political news at any time, check out the Political Ticker at CNN.com/ticker.

Be sure to log on to CNN.com today. It's new and improved, with the most news, video, on the Web, including free live images, all the video you want, at CNN.com/video.

On Friday, we told you that Mitt Romney is in the doghouse with animal rights activist over a 1983 family vacation in which the Romney's dog rode on the car's roof. Romney's wife, Ann, is now responding online.

Let's bring in our Abbi Tatton.

Abbi, what does she say about the dog? Dog-gate, this continues?

ABBI TATTON, CNN INTERNET REPORTER: Suzanne, she's weighing in online on the campaign Web site -- Ann Romney saying, "Mitt and I love our dogs," responding to this story that's been hard to miss online in the last few days.

It started with a "Boston Globe" account last week of a 12-hour Romney family trip more than 20 years ago in which the dog was placed in a dog carrier on the roof rack. This resulted in -- quote -- "payback," according to "The Boston Globe," in the form of brown liquid dripping down the car.

Well, the People for the Ethical Treatment of Animals weighed in on the episode, calling it a lesson in cruelty. Mitt Romney addressed the story last week on the campaign trail.

And now Ann Romney is using the Five Brothers blog to say: "Seamus rode in an enclosed kennel, not in the open air. And he loved it. Every time he saw it, he jumped up on the tailgate, walked in, and lay down."

The Romneys no doubt hoping to put this story behind them, a story that you can even find cropping up on international news sites -- Suzanne.

(LAUGHTER)

MALVEAUX: All the rage. OK.

Thank you very much, Abbi Tatton.

You're in THE SITUATION ROOM.

Happening now: a summit surprise, as President Bush and Russian President Vladimir Putin go head to head over U.S. plans for a missile defense system in Moscow's backyard.

Also: American suspicions confirmed, Hezbollah in Iraq leading attacks on U.S. troops. We will show you new evidence

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