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Henry Paulson Readies for Trip to China; FBI Agents Investigate Crime & Terror in Iraq; Conversation Continues Over Florida & Michigan Votes

Aired March 27, 2008 - 16:00   ET


WOLF BLITZER, CNN ANCHOR: Happening now, the Democrats promise relief, but not from their bitter primary fight, but from America's economic pain. We're going to tell you what Barack Obama and Hillary Clinton are saying they'd do to try to improve your bottom line.
Also this hour, is Senator Obama's former pastor costing him votes? We have a new snapshot of reaction to the racial tensions and the pot shots in the Democratic contest.

A critical moment in Iraq right now. In the midst of a violent new power struggle, is President Bush giving Americans a true picture of what's really happening on the battlefield? I'll ask a leading GOP critic of the war, Senator Chuck Hagel.

I'm Wolf Blitzer, you're in THE SITUATION ROOM.

We begin with the Democratic presidential candidates going head to head today with dueling plans to help Americans where they live and where they hurt. As the economy has gotten worse and the primary campaign drags on, both Hillary Clinton and Barack Obama are talking more and more about issue number one in this campaign, the economy.

Let's begin our coverage with CNN's Suzanne Malveaux. She's joining us from New York.

That's where Senator Obama gave what his campaign describes as a major policy speech on the economy -- Suzanne.

SUZANNE MALVEAUX, CNN WHITE HOUSE CORRESPONDENT: He certainly did. The Democratic candidates are squarely putting the blame on President Bush for the weak economy. They say it's billions of dollars that have been spent on the war, the tax cuts for the wealthiest Americans have contributed to this crisis.

But they are also taking aim at each other, to try to convince voters that they know what is best to get us out of this mess, Wolf.


MALVEAUX (voice-over): All three candidates are vying to become economists in chief.

SEN. BARACK OBAMA (D-IL), PRESIDENTIAL CANDIDATE: If we can extend a hand to banks on Wall Street when they get into trouble, we can extend a hand to Americans who are struggling often through no fault of their own.

SEN. HILLARY CLINTON (D-NY), PRESIDENTIAL CANDIDATE: We're trying to run today's economy on yesterday's infrastructure. And we're jeopardizing tomorrow's prosperity.

MALVEAUX: Democrats Hillary Clinton and Barack Obama presented competing proposals on how to fix the ailing economy. Obama just a few blocks from Wall Street called for greater government oversight, to protect families from predatory lenders.

OBAMA: The American economy does not stand still, and neither should the rules that govern. The evolution of industries often warrants regulatory reform.

MALVEAUX: Clinton kicking off a three state tour from Raleigh, North Carolina emphasized providing relief.

CLINTON: As president I will work to rein in the corporate special interests and to rebuild a prosperous and strong middle class.

MALVEAUX: Clinton's plan calls for a $30 billion bailout for states to help them buy properties in foreclosure and a 90 day moratorium on foreclosures. Obama's plan calls for a $30 billion economic stimulus package and greater government intervention.

ALI VELSHI, CNN SENIOR BUSINESS CORRESPONDENT: Hillary Clinton has been out ahead of the other candidates for some months in terms of the detail that she's put into her plan.

MALVEAUX: Both Democrats attacked Republican John McCain for his approach which limits the government's role in stabilizing the market.

OBAMA: It amounts to little more than watching this crisis unfold.

CLINTON: But he recently admitted the issue of economics is not something I've understood as well as I should.


MALVEAUX: John McCain's campaign put out a statement in response to all this criticism saying: "I believe the role of government is to help the truly needy. Reform should focus on improving transparency and accountability in our capital markets. What is not necessary is a multi-billion dollar bailout for big banks and speculators as Senators Clinton and Obama have proposed" -- Wolf.

BLITZER: Thanks very much Suzanne for that.

Some political intrigue by the way today when Barack Obama took the stage in New York City. He was introduced by the mayor, Michael Bloomberg, the city's Republican now turned independent mayor. Whenever Bloomberg is in the picture it seems speculation about his future automatically follows.

Let's stay in New York. Mary Snow is watching this part of the story for us.

Any hints of what's going on, Mary?

MARY SNOW, CNN CORRESPONDENT: No hints, but plenty of speculation Wolf. Bloomberg didn't endorse Obama but he did praise him for coming to New York to talk about the economy. In turn Obama said the mayor has shown extraordinary leadership.

An aide to Bloomberg says the senator called just yesterday to ask Bloomberg to speak. The mayor obviously didn't want to pass up the opportunity.


MICHAEL BLOOMBERG, MAYOR OF NEW YORK: A candidate for president of the United States, Senator Barack Obama.

SNOW: He was only the warm-up act to Senator Barack Obama's economic speech. But New York City Mayor and billionaire businessman Mike Bloomberg sparked plenty of speculation by sharing the stage with the Democratic presidential hopeful in New York. Their appearance comes four months after a breakfast meeting in New York that both were sure to mention.

OBAMA: I have to tell you that the reason I bought breakfast is because I expect payback of something more expensive.

SNOW: Obama joked he's seeking a steak dinner. But political tongues were wagging about a potential ticket mate, something Bloomberg has dismissed in the past.

BLOOMBERG: Nobody is going to ask me to run as vice president.

SNOW: Political observers say for one, Bloomberg doesn't represent a region of the country that a Democrat or a Republican would need. Plus they don't see him as number two.

HANK SHEINKOPF, DEMOCRATIC STRATEGIST: Hard to imagine Mike Bloomberg, who built a multibillion dollar corporation of great success as the vice president of anything.

SNOW: But a Cabinet position such as treasury secretary could be an option, say political observers. First he'd have to support someone and he's holding the door open.

BLOOMBERG: As you know I have not endorsed a candidate for president, but I've been very clear in my hope that all of the candidates will explain in detail how they will handle the great challenges facing our country.

SNOW: Besides Obama, a Bloomberg spokesman says Senators John McCain and Hillary Clinton have reached out to Bloomberg after he said he wouldn't run and might endorse someone. Observers say a Bloomberg staff of approval would help any of them on economic issues. And the attention he gets they say keeps the issues he cares about on the table. CHRIS SMITH, "NEW YORK MAGAZINE": Guns, the economy, urban politics. He wants to continue to generate interest in those issues. So it's a cost-free way of him doing it.


SNOW: One other topic Bloomberg has talked about is the need to cut through partisan bickering in Washington. That's also something that he and Obama have similarities -- Wolf.

BLITZER: The political intrigue will continue, Mary. Thank you.

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

JACK CAFFERTY, CNN ANCHOR: Hillary Clinton, Wolf, is taking a hit when it comes to how Americans see her. A new NBC News "Wall Street Journal" poll shows Hillary Clinton receiving the lowest positive rating in this survey since March of 2001.

Only 37 percent of those surveyed say they have a positive view of Hillary Clinton, compared to 48 percent who give her a negative rating. That's an 8-point drop in her positive numbers in the last two weeks. Also for the first time this poll shows that there are more women now who have negative views of Hillary Clinton than positive, 44 percent to 42 percent. As for Barack Obama, he gets a 49 percent positive rating, a 32 percent negative rating.

One Democratic pollster is calling this poll a myth buster because it shows that the Jeremiah Wright controversy is, "Not the beginning of the end for the Obama campaign." When asked which candidate can best unite the country, Barack Obama comes out on top 60 percent, 58 percent say John McCain, the Republican, would be the best for that -- 46 percent say Hillary Clinton would be the best.

Overall, these poll numbers suggest that the negativity of the Democratic battle for the nomination seems to be hurting Hillary Clinton more than its hurting Barack Obama.

Here's the question: What does it mean if after all of the campaigning Hillary Clinton's positive rating is the lowest it's been since 2001?

Go to Post a comment on my blog -- Wolf.

BLITZER: Jack, thank you.

President Bush is sounding upbeat once again today about progress in Iraq.


GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: One year later, after we sent additional troops into Iraq the situation has changed markedly. With security improving local citizens have restarted the political process. (END OF VIDEO CLIP)

BLITZER: But on the ground in Iraq today there's a major new challenge to the Iraqi government by Shiite militants. Is the president ignoring a potentially pivotal moment? I'll be speaking about that and more with a leading Republican critic of the war, Senator Chuck Hagel of Nebraska, he's likening Mr. Bush right now to Alice in Wonderland.

And are all the attacks and counterattacks between the Democrats sticking to either one of them? The answer, coming up right in THE SITUATION ROOM.


BLITZER: The Iraqi city of Basra in the south is caught right now in a violent power struggle. A potentially pivotal moment for the Iraqi mission and for U.S. troops who are stationed there. On this fourth day of fierce clashes the Prime Minister Nouri Al-Maliki is vowing to fight until the end. His words against the Shiites militias loyal to the radical anti American cleric Muqtada al-Sadr.

Tens of thousands of al Sadr's followers are protesting recent raids and detentions, calling al-Maliki a new dictator. In Baghdad militants fired mortars and rockets at Iraqi security forces, U.S. troops and civilians.

A U.S. government official was killed in the U.S. protected international zone, the so-called green zone in Baghdad and now U.S. embassy workers in Iraq are being told to stay inside secure buildings. All of this as President Bush gave a wide-ranging speech about the situation in Iraq.

CNN's Michael Ware spent years in Iraq, is standing by in London. We're going to talk with him in a moment.

But let's get the latest from Ed Henry, who has been watching the president's speech earlier in the day.

The president did challenge the Iraqi government to step up. Update our viewers on his message.

ED HENRY, CNN WHITE HOUSE CORRESPONDENT: That's right, Wolf. The president did talk about this violence in Basra. He tried to cast it as a positive development in a long run because it shows the Iraqi government stepping up. But that's far from reality right now.


HENRY (voice-over): Another day of chaos in Basra. Shia militiamen sabotaging an oil pipeline as the Iraqi military's attempt to regain control of the southern city has stalled. Meanwhile at the national museum of the air force in Dayton, President Bush continued to tout progress from the surge, trying to make the case the violence in Basra is actually building on that success. BUSH: Prime Minister Maliki's bold decision, and it was a bold decision, to go after the illegal groups in Basra shows his leadership. It also shows the progress the Iraqi security forces have made during the surge.

HENRY: But the president also seemed to be prepping the American people for a spike in violence as the Mehdi army of Muqtada al Sadr pushes back against the Iraqi forces.

BUSH: This operation is going to take some time to complete. The enemy will try to fill the TV screens with violence. But the ultimate result will be this, terrorists and extremists in Iraq will know they have no place in a free and democratic society.

HENRY: Another possible result, the new violence could spark an unraveling of the cease fire with the Mehdi army that had stabilized the situation on the ground. Nevertheless, the president focused on economic and political gains made by the Iraqis. Even using a sports anecdote he heard from General Ray Odierno, the former number two commander in Iraq who just returned home.

BUSH: He flew over Baghdad 15 months ago and he couldn't see a single soccer game. On his final flight last month he counted more than 180. It is a sign that the surge is working and civil society is beginning to grow. It is a sign normalcy is returning back to Iraq.


HENRY: Just as interesting is what the president is not saying. He's not talking about bringing home a large number of U.S. troops later in the year, and officials here are not knocking down speculation that Mr. Bush might leave office without another major U.S. troop cut on the ground in Iraq.

Obviously if this violence on the ground continues to grow, it's going to be that much harder for the U.S. to pull out more troops. As Mr. Bush has said over and over, he does not want to lose the progress the U.S. has already made -- Wolf.

BLITZER: Thanks very much.

Ed Henry, he's over at the White House.

Let's go to Michael Ware. He's joining us from London.

Michael, you spent years watching the situation in Iraq unfold. On this, the day the president was touting progress, it looks like the situation is deteriorating, especially in Basra, in the south, in Sadr City, and the problems for Nouri al-Maliki's government not coming from Iraqi Sunni insurgents but from fellow Shiites, Muqtada al-Sadr's militias. What is going on?

MICHAEL WARE, CNN CORRESPONDENT: Wolf, what's going on is the future of Iraq without U.S. forces, welcome to it. You think Lebanon in the '80s was bad? Many people say that the future of Iraq with a timetable for withdrawal will be exactly what you're seeing now. We're seeing Iranian backed Shia faction fighting Iranian backed Shia faction.

Now I don't care who in the administration wants to tout this as a positive step. The end result of this, whether you dress it up as a law and order crusade, or whether you dress it up as a successful military operation led by Prime Minister Nouri al-Maliki, who does not share Washington's agenda, the end effect of all of this is--- what's happening is a consolidation of Iranian influence.

BLITZER: So what you're suggesting is does it make any difference if the U.S. troops leave now or if they leave a year from now or five years from now, the end result is going to be chaos and civil strife in Iraq?

WARE: Well, five years from now maybe Iran will have consolidated its gains on power and one has to induce crisis. But put it this way, Wolf, Americans are still in South Korea.

Now if you think American troops can withdraw next year, then someone is being delusional. The only thing that is keeping these groups apart, the only thing that's keeping the Sunni/Shia from Sectarian warfare, the only thing that can possibly contain this Shia on Shia violence, all of which is backed by Iran, is the presence of American forces.

They provide what limited buffer they can do. Now, the Brits in the south of Iraq who technically once owned Basra have now retreated to the air base in that city. They're unable to project combat power or influence. So you're seeing the natural course of events.

BLITZER: Is there any chance you believe that Nouri al-Maliki's forces can crush Muqtada al Sadr's Shiite militia?

WARE: Well that's kind of a moot point in many ways. Let's look at it this way, say Muqtada Al Sadr still has enormous influence on the street. Why? Because he's an Iraqi nationalist.

His main selling point is the fact that under Saddam I didn't leave. Unlike all these Iraqis who fled to Tehran. My father died, my uncle died, he has great sway on the street. Now once upon a time he had great sway with the paramilitary force.

But that's been eroded by the Iranians. The best of his commanders, the most hard lined, have been cleaned away. Retrained, rearmed, refunded and joined with Lebanese Hezbollah and sent back in the field to kill Americans. The Muqtada al Sadr of today is not the Muqtada al Sadr of 2004.

And Nouri al-Maliki does not see him as a partner. Now, what America has been doing by default and by the admission of American commanders is essentially consolidating the influence of Iran.

Why? Because intelligence against many of these forces in Basra and Baghdad and elsewhere, against the Mehdi army loyal to Muqtada al Sadr is generated by who, the Iraqi government. The Iraqi government is dominated by factions that are heavily influenced by Iran. So that eroding the power of Muqtada to the benefit of pro Iranian factions. BLITZER: All right.

WARE: So that's what we're seeing, Wolf.

BLITZER: It's not a very pretty picture, indeed. Michael, thanks very much.

WARE: Not at all.

BLITZER: Michael Ware will be in Washington in the coming days, we'll talk with him here.

Could the controversy over Barack Obama's former pastor actually be helping the presidential candidate? We'll have analysis, we'll hear from the voters about the Reverend Jeremiah Wright. How is he impacting the campaign?

And amid all the unrest between the Tibetan Monks and China, the region gets a high ranking U.S. visitor. We'll update you on that right here in THE SITUATION ROOM.


BLITZER: Carol Costello is monitoring some other important stories incoming into THE SITUATION ROOM right now.

Carol, what's going on?

CAROL COSTELLO, CNN CORRESPONDENT: Wolf, at least one person is dead after a shooting at a hospital in Columbus, Georgia. According to the Associated Press, the police chief says three people were shot this afternoon and at least one of them has died. The suspect was shot by police in the hospital and he's undergoing treatment in that same hospital.

Treasury Secretary Henry Paulson is going to China next week to meet with Chinese leaders. The focus is to be on an environmental agreement between the two countries, but the trip comes amid international criticism about Beijing's crackdown on Tibetan dissidents. Yesterday the White House said President Bush confronted China's president in a phone call about the violence in Tibet as a need for restraint.

President Bush is inviting Palestinian authority president Mahmoud Abbas to the White House to advance the Middle East peace process. A national security spokesman says details are still being worked out, but he says the talks will likely happen around May 1. President Bush has said he believes a peace agreement can be struck before he leaves office in January. Back to you, Wolf.

BLITZER: Thanks very much Carol for that. Check back with you in a few moments.

A leading Republican critic of the Iraq war suggests President Bush is promoting a fairy tale.


SEN. CHUCK HAGEL, (R) NEBRASKA: I think this is another episode of "Alice in Wonderland." What's up is down and what's down is up.


BLITZER: Up next I'll speak with Senator Chuck Hagel about this critical moment in Iraq and his own disagreements with John McCain. Is there a new ray of hope to solving the Democrats' delegate problem in Michigan and Florida? We're going to tell you what's happening.

Right now, stay with us, you're in THE SITUATION ROOM.


BLITZER: To our viewers, you're in THE SITUATION ROOM.

Happening now, Democratic Senator Bill Nelson of Florida is proposing a new process for choosing presidential candidates. He wants a system of regional primaries with the order rotating. And he wants to do away with the Electoral College.

Social security and Medicare are seen by some as the financial time bombs adding to the federal debt. We're going to take a closer look at what the presidential candidates are planning to do to try to shore up these programs.

FBI agents are risking their lives in Iraq investigating terror attacks and crimes. We're going to get an exclusive look at how scary it gets when investigators take agents outside Baghdad's international zone.

I'm Wolf Blitzer, you're in THE SITUATION ROOM.

President Bush is giving his critics new fuel, offering an upbeat assessment today of the situation in Iraq, right in the midst of fierce clashes between Iraqi forces and Shiite militias.


BUSH: In Baghdad we've worked with Iraqi security forces to greatly diminish the sectarian violence and civilian deaths. We've broken the grip of al Qaeda on the capital. We've weakened the influence of Iranian backed militias. We've dramatically improved security conditions in many devastated neighborhoods, and what some have deemed a reliberation.


BLITZER: Just a short while ago I spoke with Senator Chuck Hagel of Nebraska, an early Republican critic of the war. He's out with a brand new book on ways to try to improve the U.S. image around the world. It's called "America, Our Next Chapter."

I asked Senator Hagel if President Bush is giving the public too rosy a picture of what's happening in Iraq right now. (BEGIN VIDEOTAPE)

BLITZER: Some of his critics, the president's critics, saying he's basically ignoring reality on the ground in Iraq right now, and some of his severe critics say he's living in a dream world.

What do you say, as someone who has criticized him over these years?

HAGEL: Well, I think this is another episode of "Alice in Wonderland." What's up is down. What's down is up. What do you mean stability and security, Baghdad for example has been over the last year essentially ethnically divided. You've separated the Sunnis and the Shias and to somehow make some assertion that things are looking much, much better in Baghdad, and it's calm again, and it's back to where it used to be, is just -- is not -- not the case.

And, when you look at the casualties the United States has taken since the so-called military surge, over 900 deaths, you look at almost 30,000 wounded, and the money we have put in there, and then the other point of this is, too, if, in fact, the surge has calmed things to a point where the president and others are saying, well, they have done a -- done a great service, and they have achieved some terrific things, why, then, is the administration talking about keeping more American troops in Iraq for the remainder of this year than we had before the surge? So, no, this is still a very unstable, serious, dangerous situation in Iraq.

BLITZER: You have served with all three of these remaining presidential candidates, John McCain, and Barack Obama, Hillary Clinton. They're all senators. You know them well.

Who is most qualified among these three to be the next commander in chief?

HAGEL: First, I know all three, as you say. I have served with all three. I am not going to endorse a candidate for president today by saying who I believe is the most qualified to be commander in chief. That will play out, Wolf. The American people will make that decision.

I have not endorsed anyone for president. And I have not endorsed anyone partially because I want whoever those final two candidates are to explain to the American people how they are going to unwind American involvement in this fiasco in Iraq, and what their foreign policy is going to look like over the next four years. We have done terrible damage to our country around the world.

BLITZER: So, without endorsing any candidate, as far as the Iraq policies they're enunciated, whether it's McCain or Obama or Clinton, whose Iraq strategy, as you have heard it, do you like the most?

HAGEL: Well, obviously, what I have heard, like the American people have heard, is McCain on one side saying, we will stay there until there's victory, and, whatever it takes, we're going to win. On the other side, both Obama and Clinton have both said, we're coming out.

That's not good enough, because each of the two final candidates are going to have to enunciate, how are we coming out? How, responsibly, are we coming out? Under what basis? Under what timeline? - I don't agree with John McCain. And you know this, Wolf. I think John and the president and others have put the Iraqi situation in the wrong context. This isn't a win or lose. The Iraqi people will decide whether they want the government they want in place and when.

We can help them, but we shouldn't be framing this up as win or lose, because, when we do that -- and this is where I have a major disagreement with McCain -- then, on that -- on that basis, we will be there forever, because the Iraqis are going to have to find some political accommodation, some political reconciliation, to fix this.

Just as General Petraeus said -- Petraeus said a week ago that the biggest disappointment, the biggest failure there over the last year, after and during the surge, has been very little political progress, which, in the end, is all that's going to matter.

BLITZER: So, bottom line right now, at this point, you have an open mind, and you could endorse in the end any one of these three?

HAGEL: Or I may not endorse anyone.

BLITZER: Is that -- is that possible, you think?

HAGEL: Sure, it is. I may not endorse any of the candidates. But I do think this is so serious for the future of our country and for the world that we get this right over the next four years, because of the terrible blunder that we made here over the last few years.

BLITZER: You have -- you have known Obama since he came into the Senate. He's on the Foreign Relations Committee. Have you seen any -- anything that points to him, any strength that he's shown in terms of his Senate record?

HAGEL: I have -- I have cooperated with Obama, and I have cosponsored with Obama a number of pieces of legislation, one on being a new non-proliferation bill, which I'm very proud of.

I think Obama is a very bright, agile, intuitive, not only politician, but individual. John McCain is bright, experienced, smart. Hillary Clinton is certainly experienced and smart. I think any of those three is qualified to be president of the United States. What kind of a president they would be, no one -- no one can tell.

BLITZER: All right. I want to just read one quote from the book, because it's a powerful quote, and get your explanation.

"So, why did we invade Iraq? I believe it was the triumph of the so-called neoconservative ideology, as well Bush administration arrogance and incompetence, that took America into this war of choice. They obviously made a convincing case to a president with very limited national security and foreign policy experience, who keenly felt the burden of leading the nation in the wake of the deadliest terrorist attack ever on American soil."

But the words "arrogance" and "incompetence" jumped out at me. You want to elaborate on what you meant by writing those words?

HAGEL: Sure. Well, I did wrote those words. And I meant it. And I still mean it. And I think it was arrogance and incompetence that put this country in such a hole here around the world, arrogance, meaning that they wouldn't listen to anyone. They didn't listen to our allies.

Every major leader in the Middle East that I talked to and I certainly know the president and others talked to before we invaded Iraq warned the president, warned the vice president, warned Secretary Powell not to do this.

Even a number of senior Israeli officials warned them not to do it. Members of Congress asked questions. I was among those who said, wait a minute, slow down. Let the IAEA, the International Atomic Energy Agency, officials finish their job. Slow this train down.

They wouldn't listen to anybody. It was just raw arrogance. Incompetence? I think it was incompetence.


BLITZER: Chuck Hagel, the Republican senator from Nebraska, speaking with me.

This hour, Republican John McCain facing reporters in Utah, along with his former rival turned supporter now, Mitt Romney. It's Romney's first campaign swing with the all-but-certain GOP nominee. And he's made it clear he's interested in being tapped potentially as McCain's running mate.

Romney and McCain tried to sound a unified note on key issues for voters.


SEN. JOHN MCCAIN (R-AZ), PRESIDENTIAL CANDIDATE: There are people who are sitting around the kitchen table, families today, that are saying, are we going to have to take an extra job? Are we going to have to dig into our savings? Are we going to have to take extraordinary measures in order to remain in our home?

And I want to emphasize that those are the people that should be the object of our attention and our care.

MITT ROMNEY (R), FORMER MASSACHUSETTS GOVERNOR: It's an honor to be here with Senator McCain. He is a man who is proven and tested, an individual who is without question the right person to be the next president of the United States.


BLITZER: Romney is joining McCain for fund-raisers in both Salt Lake City and in Denver.

New revelations about how the Obama campaign is weathering its first major crisis. Jessica Yellin talks with people in Pennsylvania about whether the controversy over the Reverend Jeremiah Wright's comments will sway their vote.

Nancy Pelosi won't back down on the issue of superdelegates. But Clinton supporters are still hoping to change her mind.

And the candidates talk economy, but are they willing to touch the third rail? We're looking at what they have to say about the so- called financial time bombs out there, Social Security and Medicare.

Stay with us. You're in THE SITUATION ROOM.


BLITZER: Barack Obama was thrown a curve ball by Hillary Clinton earlier in the week when she criticized his relationship with his former pastor for the very first time. Is the controversy surrounding the Reverend Jeremiah Wright actually hurting Obama, though?

Let's go out to Jessica Yellin. She's over at the CNN Election Express in Philadelphia watching this story.

I take it there are some new poll numbers out on this specific issue. What do we know, Jessica?

JESSICA YELLIN, CNN CONGRESSIONAL CORRESPONDENT: Wolf, what we know is, it appears that Barack Obama has more than survived his first major campaign crisis.


YELLIN (voice-over): On the Clinton tour, no signs of anxiety, despite evidence that Barack Obama has come out of his first major campaign controversy looking strong.

A new NBC/"Wall Street Journal" analysis shows that, since the story about Obama's former pastor broke, support for Barack Obama appears to have risen. He is statistically tied with Senator Clinton.

Voters we spoke with here in Philadelphia were not troubled by the Reverend Wright controversy.

UNIDENTIFIED FEMALE: It actually firms it up, because, when I see how he handles the conflict and I see how he difficulties, I think he's very -- I actually believe him and trust that what he has to say is real and from the heart.

UNIDENTIFIED MALE: I look at that as like something that's like kind of the far in the past, you know, and I'm looking at what is going on now more than anything. YELLIN: The increasingly negative tone of the campaign may be hurting Clinton the most. The same poll shows voters' opinion of Senator Clinton have become slightly more negative over the same period of time.

Still, the drip, drip, drip of information about Reverend Wright continues -- the latest, over the last year, the pastor's page from Wright's church bulletin has featured anti-Israel statements, including articles by an Arab activist and by a Hamas member, saying Israel and South Africa worked on an ethnic bomb that kills black and Arabs, that what Zionist Jews did to the Palestinians is worse than what the Nazis did to the Jews, and calling Israel a deformed modern apartheid state.

A spokesman for the Clinton campaign says these comments have no place in the public discourse.


YELLIN: But, Wolf, this week, Barack Obama is himself calling on both the media and the public not to get distracted from the big issues. He says that he wants a politics that, "gets stuff done" -- Wolf.

BLITZER: All right, Jessica -- Jessica is with the Election Express.

In our "Strategy Session," Barack Obama and Hillary Clinton take a swipe at McCain's solutions to the economic downturn.


OBAMA: John McCain recently announced his own plan, and, unfortunately, it amounts to little more than watching this crisis unfold.

CLINTON: It seems like, if the phone were ringing, he would just let it ring and ring and ring.


BLITZER: But do voters really want more government intervention?

And House Speaker Nancy Pelosi, she is sticking to her guns, after Clinton supporters tell her to butt out of the superdelegate debate -- all that coming up in our "Strategy Session." Jennifer Palmieri and Terry Jeffrey, they're standing by live.


BLITZER: The presidential candidates are weighing in on how much the government should intervene in the economy.

Nancy Pelosi isn't changing her position on the superdelegate issue, despite pressure from Clinton supporters. Let's discuss both of these matters here in our "Strategy Session." Joining us, the Democratic strategist Jennifer Palmieri and the conservative commentator, the editor in chief of the Cybercast News Service, Terry Jeffrey.

On the economic issue, there seems to be a real split between the two Democratic candidates and John McCain. Here's a little example of what they're saying.



OBAMA: If we can extend a hand to banks on Wall Street when they get into trouble, we can extend a hand to Americans who are struggling, often through no fault of their own.


MCCAIN: I have always been committed to the principle that it's not the duty of government to bail out and reward those who act irresponsibly, whether they're big banks or small borrowers.


BLITZER: All right, so, there, in a couple of sound bites, you have a real difference. Should the federal government intervene, regulate more, or not?

Usually, when economic times are good, the public says, butt out. But, when economic times are bad, politically, Terry, the public often says, help.

TERRY JEFFREY, EDITOR IN CHIEF, CYBERCAST NEWS SERVICE: Yes, well, there's no doubt about it. I mean, the economy is turning in a direction that is helpful for the Democrats politically. But I think John McCain here hit on the principle exactly right, Wolf.

He's saying that people who borrowed money that they shouldn't have and people who loaned money that they shouldn't have should not be bailed out by hardworking taxpayers. We shouldn't transfer wealth from people who saved their money, used it intelligently, didn't overextend, to people who didn't.

On the other hand, he's saying -- and it was right after that quote -- that, if there's a systemic threat to the financial system or to the economy, he favors practical steps to make sure that innocent people are not in fact economically injured. And I think that's exactly the right principle.

BLITZER: Talk about the politics of this.

JENNIFER PALMIERI, DEMOCRATIC STRATEGIST: Well, I think the politics are difficult, because a lot of homeowners that are losing their homes feel that they -- that it was because that the rules were set up for them to fail and that they -- and that it's not fair their fault.

And the problem politically, I think, for John McCain is that he's siding -- he's saying, Bear Stearns, it's OK to bail them out, but I don't want to bail out people who have actually lost their homes.

BLITZER: Well, he actually said, to be fair to John McCain, he said, whether they're big banks or small borrowers, you know, stay out of it.

PALMIERI: But the big bank did get bailed out. I mean, Bear Stearns did get bailed out.


JEFFREY: But he said it was a close call when he was asked about that. But the principle there, the question there is, they shouldn't have -- they don't -- the Bear Stearns people, and the bankers, these millionaires in New York, they don't deserve a bailout from middle- class taxpayers in any place in America.

The question is whether that bailout was designed to protect innocent people from collateral economic damage. That's a prudential decision. And he said it was a close call.


PALMIERI: Right. But I think, politically, it's difficult to be seen as bailing out Bear Stearns and not being as concerned about the homeowners.

And there is -- there does seem to be an interesting thing that -- about him in deregulation. You know, he -- yesterday, Secretary Paulson gave a speech where he said that -- he suggested that perhaps we might need a little more regulation in the financial markets. And McCain is saying, we actually need to have less.

And this is a big thing with Phil Gramm, you know, his -- one of his supporters. And I don't -- and it -- and -- and he does the same thing with health care. He doesn't think there should be as much regulation on insurers and health care. So, I actually think that could be problematic...


BLITZER: I mean, you can have economists on both sides of this. And we can debate the economics of it. And in a lot of Econ 101 courses, they study all this intensively.

But, in terms of the political fallout, in this environment right now, when there either is a recession or there's enormous fear of a recession, politically, does the McCain position get dividends, or does the Democratic position get dividends?


JEFFREY: Wolf, I think, if he refines his message, he can really make it work.


JEFFREY: I think people really do resemble bailouts. And what Barack Obama is trying to do is sort of create a class war scenario, where they're helping the rich guys in Manhattan, and they're hurting the poor guys in North Carolina.


JEFFREY: But the real wealth transfer here that McCain should focus on is taxpayers who were prudent with their money. Hillary Clinton and Barack Obama are going to take their money, and they're going to give it to the guy down the street.

BLITZER: See, when Hillary Clinton -- when Hillary Clinton says McCain is Herbert Hoover all over again, a statement like that can obviously have an impact.

PALMIERI: I do. I mean, I think that it's just -- I mean, I -- you know, McCain can try to thread the needle, but he's on the wrong side of this politically. I think it's going to be really difficult.


BLITZER: Nancy Pelosi -- switching gears right now -- is not backing down from what she said, that whoever has the most pledged delegates should get the Democratic presidential nomination, in the face of severe criticism from a lot of Hillary Clinton supporters, who think they can get the nomination -- she can get it -- with the superdelegates, once they weigh in. just put out a statement: "The Democratic nomination should be decided by the voters, not by superdelegates or party high- rollers. We have given money and time to progressive candidates and causes and we will support Speaker Nancy Pelosi and others who stand up for democracy in the Democratic Party."

All right, take us behind the scenes. What's going on?

PALMIERI: Well, I don't imagine -- I mean, I think -- you know, the more -- it seems to me the more that the Clinton people try to push Nancy Pelosi, the more dug in she's likely to get, right?

I don't expect, if you're trying to push her to say something different, she's likely to do that. So, I wonder if their strategy is to make her not credible as an honest broker, to say -- so that when it comes the time when you do need people to step in, like maybe her and Harry Reid, the Clinton people will argue, well, you know, she's already exposed herself...


COOPER: From the Clinton camp, that -- that line, she may have crossed already.

But, go ahead, Terry.

JEFFREY: You know, Wolf, I think that, if Nancy Pelosi wants to, she can single-handedly give the nomination to Barack Obama, because she has the moral high ground here.

The real question that Nancy Pelosi is basically getting to is, does the Democratic elite want to say, we don't care what the voters in our party said; we're going to award the nomination to Hillary Clinton, even though Barack Obama won more delegates, he won more votes, and he won more primaries? Hillary cannot win that argument.

If Democratic leaders as prominent as Nancy Pelosi make it clearly and persistently, Barack Obama wins; Hillary Clinton loses.

BLITZER: We have got to leave it there, guys. Thanks very much.

Jennifer, thanks for coming in.

Terry, always a pleasure.

JEFFREY: Good to be here.

BLITZER: We delve into Obama's special dinner plans, leave the crisis for later policy, and a push for making the popular vote the final word. A $25 donation gets a single mother a meal with Obama. We're going to get -- have a guest who has declared that's what is happening to Social Security is criminal, explains why ignoring the obvious is riskier than ever.

And a Florida senator floats a plan to get rid of voting practices that make some Americans angry. We have the why and what is going on.

Stay with us -- lots more right here in THE SITUATION ROOM.


BLITZER: On our political ticker today, representatives of Barack Obama's campaign, they are now reaching out to Democrats in both Michigan and Florida. They have asked to begin a dialogue about how to seat the delegates from those two states at the convention in Denver.

Both states rejected primary do-overs urged by the Clinton campaign. The Obama camp is accusing Clinton of refusing to negotiate another solution. Michigan and Florida were stripped of their delegates by the Democratic Party as punishment for moving up their primaries.

Four Barack Obama supporters will get a seat at the table for an intimate dinner with their choice for president. The Obama camp is offering the contest to lure even more cash into his coffers. So far, one winner has been named. She's a single mother of three from Indiana who donated $25 to the Obama campaign.

Remember, for the latest political news any time, check out That's where you can read my daily blog post as well. Posted one just before the show.

Let's go back to Jack. He's got "The Cafferty File" -- Jack.

CAFFERTY: A new poll out troubling for Hillary Clinton. The question this hour is, what does it mean if, after all the campaigning, Hillary Clinton's positive rating is the lowest it's been since 2001? This is an NBC News/"Wall Street Journal" poll.

Susan writes from Baton Rouge, Louisiana: "It means that more than a year of campaigning has allowed the American people to see Hillary Clinton's true colors. Her lack of transparency, her repeated lies about experience, and her attempts to inject race into the campaign have given people a negative, albeit accurate, view of her."

Will in California says: "Reverend Wright makes controversial comments, and Obama responds by speaking to the country on the progress and roadblocks of racial relations in the country. Clinton pads her resume in speeches with fictitious tales of bravery, and, when caught, claims she misspoke. One of these responses is not like the other. One of these responses just cost the candidate eight points."

Judy in North Carolina: "It means the media has done its job. And, yes, her Bosnia screw-up hurt as well. The majority of the media has always been pro-Obama. The most qualified Democratic candidate may be going down."

Nora in Texas writes: "Negative campaigning, telling outright lies, trying to change the rules as you go along, depending on how they will benefit you, and only you, thinking she had the nomination in hand as soon as she said, 'I am running for president,' like she was entitled to it. I think I could go on for a while. But, Jack, you know, everyone knows, why she took this nosedive in the polls."

This letter from R.: "Sticks and stones. Get a life, folks. Thank God we live in a country where candidates and the electorate can go negative without getting violent. I hope Hillary campaigns all the way to the convention. If we are truly as great a democracy as we claim, her efforts will highlight our nation's strengths in the end."

And this from Nakisia in Georgia: "My father used to tell me that you are as good as your word. As a child, I did not understand. In my teens, I understood it perfectly: Tell the truth. I wish my father was still alive to talk to Hillary. She likes to lie. And, every time she does, it makes her look worse. Please don't say anything about her ratings taking a hit in the ratings or the polls. I promise you, she will call it sniper fire, and she will put her head down and run to the car" -- Wolf.

BLITZER: Thanks, Jack. See you in a few moments.