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Financial Fraud Crackdown; Watching & Waiting in the Midwest: Iowa Governor Discusses Flood Ravaged Region; Feingold Criticizes Obama for Opting Out of Public Financing; Viral Video Boosts Obama

Aired June 19, 2008 - 17:00   ET


WOLF BLITZER, CNN ANCHOR: And to our viewers, you're in THE SITUATION ROOM.
Happening now, a massive cross-country crackdown on mortgage fraud. Hundreds of industry insiders arrested -- accused of ripping off consumers to the tune of $1 billion. Separately, former Wall Street manager facing charges tied to the collapse of the subprime market. We're all over this story.

As far as the eye can see, floodwaters covering miles and miles of America's heartland, millions of acres and more levees are at risk along the Mississippi. Now a city is in the path of potential disaster, its Earthen barriers already leaking. We're watching this story, as well.

And Barack Obama tries to patch up the rift in the Democratic Party. He's been meeting with former Clinton supporters.

But will that heal the wounds of the bitter primary campaign?

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

Let's begin this hour with important news. The Justice Department today revealing a massive crackdown targeting crooked mortgage brokers, real estate agents and other industry players. More than 400 people have already been charged, nearly 300 of them arrested, many in a massive cross-country sweep of fraud suspects. Most of the suspects are accused of small scale schemes, but fraud losses in these cases are said to total $1 billion.

And a separate operation involving a couple of much bigger fish. Two former Bear Stearns executives arrested today on charges tied to the subprime mortgage mess.

CNN's Mary Snow has been looking into this story for us. She's joining us from New York with more.

Mary, some are making comparisons to Enron. What's going on?

MARY SNOW, CNN CORRESPONDENT: Well, Wolf, you know, government announcements came simultaneously this afternoon in Washington and both here in New York. Here in Brooklyn, two former Bear Stearns hedge fund managers were charged with defrauding investors. They were linked to investments that were at the heart of the subprime mortgage crisis.

Now, within the last hour, lawyers for the defendants say this is a massive government P.R. stunt.


SNOW (voice-over): Matthew Tannin and Ralph Cioffi are the first Wall Street executives to face criminal charges following the subprime mortgage crisis. The two managed hedge funds at Bear Stearns that collapsed a year ago, losing over $1 billion.

BEN CAMPBELL, U.S. ATTORNEY: They lied in the futile hope that the funds would turn around and that their incomes and reputations would remain intact.

SNOW: Prosecutors say e-mails prove their claims. In the indictment, one of the defendants is alleged to have written an e-mail to his colleagues on April 22, 2007, saying: "The subprime market looks pretty damn ugly." Adding that if the latest guidance was true, "the entire subprime market is toast."

But according to prosecutors, three days later, the defendant told investors: "There's no basis for thinking this is one big disaster."

Both defendants pleaded not guilty, but their attorney saying: "We are shocked and disappointed that the government has seen fit to fix blame on these two decent men. He is being made a scapegoat for a widespread market crisis."

But one former prosecutor compares the cases to corporate fraud cases like Enron and WorldCom.

STEPHEN MEAGHER, FORMER FEDERAL PROSECUTOR: I think these arrests, potentially, are very significant. They are, perhaps, the tip of the iceberg. They put a face on the government's investigation. And they obviously could lead to more people in the chain being indicted.

SNOW: Part of the government investigation took a separate turn in Washington. The Justice Department and the FBI announced more than 400 people were charged -- real estate and mortgage brokers and others. Officials say it's all part of a widespread effort to crack down on mortgage fraud.

MARK FILIP, DEPUTY ATTORNEY GENERAL: The Bear Stearns case is just one example of how this is a complex area that all can fairly be included under the idea of mortgage fraud.

SNOW: Attorney Steven Caruso is now fighting in court to get some of that money back for investors suing Bear Stearns.

STEVEN CARUSO, MADDOX HARGETT AND CARUSO: It's very hard to tell at this point. I really can't give you an estimate. But certainly whatever we're able to recover is better than nothing.


SNOW: But, Wolf, you know, we spoke to a number of former prosecutors who say it's very difficult to get that money back in these kinds of fraud cases.

Now, as for the defendants here in Brooklyn, if they are convicted, prosecutors say they face a maximum of 20 years in prison -- Wolf.

BLITZER: Mary, thanks very much.

The Treasury secretary, Henry Paulson, said today the government must act to give the Federal Reserve more authority to regulate the financial system following the near collapse of Bear Stearns in March.


HENRY PAULSON, TREASURY SECRETARY: This will not be done easily or quickly, nor will it be done in a single step. But we must begin to modernize our financial regulatory structure to reflect the breadth of financial institutions that finance the U.S. and global economy.


BLITZER: Paulson's plan is the boldest proposal to reform Wall Street since the Great Depression. It would also allow a strengthened Federal Reserve to step in if the nation's markets are again threatened by an episode like the Bear Stearns debacle.

Floodwaters stretching as far as the eye can see covering Midwest farms and homes. Here, check it out -- a Missouri town after yet another levee fails to hold back the raging Mississippi River. The flooding in six states has killed two dozen people and injured some 150. Up to 40,000 have already been evacuated. At least two earthen levees have been breached or topped. And federal authorities say up to 30 more could overflow.

As the waters recede upstream, there are urgent sandbagging underway in Southern Illinois and Missouri, where communities may now be most at risk.

In Iowa, the sun was shining today as President Bush took in an aerial tour of the Midwest flooding and visited two devastated cities.

Presumptive Republican nominee John McCain was also in Iowa today and vowed America will do everything necessary to try to rebuild the lives of residents there. The main front of this war against the floodwaters is now in the towns along the Mississippi River.

Our meteorologist, Reynolds Wolf, is in Hannibal, Missouri right now, where the river still hasn't crested. The levees out there significant.

But what's going on -- Reynolds?

REYNOLDS WOLF, CNN METEOROLOGIST: Well, the levees that you're referring to are doing a great job. In fact, in downtown Hannibal, the historic district is picture perfect. So anyone who has any plans of going to visit this city is in fine shape. However, a quarter mile south of the city, this is what you're going to find. You've got water everywhere. You've got an interesting area here, Wolf, because you have a small tributary, Bear Creek, that is feeding in a lot of moisture into this. But at the same time, you've got the Mississippi River, as you mentioned, which continues to rise. So you've got all the water pushing right back through this tributary and backing up right here.

As you mentioned, the water has not crested yet. We do anticipate the water to crest to around 31 feet as we get to tomorrow. And for that reason, it's very good that we've got sandbags that people have been piling up near their homes.

You'll remember yesterday we were in Quincy, Illinois at a sandbagging facility. And these are actually some of those sandbags. We're across the river. They put them up here and they stack them in these zones.

And many people have decided to leave. Others have decided to stay. And the ones that did leave because of the advancing waters were leaving and bringing everything that they possibly could carry with them -- their wedding albums, those pictures, those mementos that mean so much to them, that make their life so dear. They've taken those and they've gone and they'll come back when those floodwaters recede.

And that's the big question -- when are things going to dry?

But we do anticipate the river cresting tomorrow, 31 feet, as I mentioned, right here at Hannibal. And then that bubble of water is going to push farther downstream and then, of course, the floodwaters will recede much more here easily into next week.

But even when the waters are gone, they're going to be left with a tremendous rest -- a tremendous mess up and down this river for hundreds of miles. And, of course, it's going to be a cleanup both physically, mentally and economically that we're going to feel for some long time -- back to you.

BLITZER: It's going to cost hundreds of millions -- billions probably -- of dollars to deal with this.

WOLF: Absolutely.

BLITZER: Reynolds, thanks very much.

While the flooding upriver has devastated farms and small hamlets, a city is now at risk. Yes, a city. That would be East St. Louis, Illinois, protected so far by what amounts to mounds of earth.

Let's go live to CNN's Drew Griffin of CNN's Special Investigations Unit.

You're on the scene for us -- give us an update, Drew, of what's going on.

DREW GRIFFIN, CNN SPECIAL INVESTIGATIONS UNIT CORRESPONDENT: Well, just this afternoon, the Army Corps of Engineers held a news conference here in East St. Louis, trying to calm anybody's fears that this levee would actually be topped. They say no way is that going to happen during this event, Wolf.

And, in fact, because of those levee breaches up north of here, that's relieving the pressure. And so the forecast for St. Louis has dropped.

But the fact of the matter is East St. Louis is protected by levees that are basically not up to snuff and are about to be decertified by the Army Corps of Engineers.


GRIFFIN: On the Illinois side of the great river, East St. Louis is sitting precariously in the path of a potential disaster. And all that protects it and its residents from the floodwaters of the Mississippi are four levees that no one can guarantee will hold.

TIMOTHY KUSKY, SAINT LOUIS UNIVERSITY: These ones have already been determined by the Army Corps of Engineers, by FEMA, to be structurally deficient and in danger of failing at heights above 40 feet.

GRIFFIN (on camera): And I see all -- I see hotels. I see a casino. I see all of downtown East St. Louis. We're not talking about acres and acres of flooded corn here.

KUSKY: No. We're talking about 155,000 people who live here. We're talking about 50,000 jobs. We're talking about an oil refinery. We're talking about major businesses. We're talking about major development in this part of the country.

GRIFFIN (voice-over): Tim Kusky, professor of national sciences at St. Louis University, is one of the foremost experts on what causes levees to fail. He outlined in a book exactly how New Orleans levees would fail two years before it happened. Now he's concerned what happened in New Orleans after Hurricane Katrina could happen here.

The immediate fear is subterranean cracks -- leaks in these earthen dams that will expand as the pressure from the rising floodwaters continues. It's called seepage. Enough seepage can create the kind of blowout that could erode the levee from the bottom up.

At one stop on our tour, the professor pointed out it's already happening.

KUSKY: This is water that's come underneath the levee. I'm pretty certain that this is water coming from underneath the levee.

GRIFFIN (on camera): And this is a sign of a particular failure in a levee?

KUSKY: It's a sign of under seepage. And the under seepage is the first stage of -- of dangerous conditions that can lead to levee failure. It has to get a lot worse than this, but this is the first stage. And this is a warning sign.


GRIFFIN: And, Wolf, the Army Corps of Engineers says so far this levee is performing as it should and any risk is going to be manageable. But the water behind me still rising, not expected to crest here until Monday or Tuesday -- Wolf.

BLITZER: All right, Drew.

Thanks very much. We'll stay close with you.

Jack Cafferty has the day off.

Barack Obama is struggling to heal the still fresh wounds of a bitter primary battle. We're going to show you what he's doing to reach out to Hillary Clinton supporters.

Plus, we'll take you behind the viral video that ignited Obama's campaign. The artist who made it is speaking out about it.

And the Army is hoping to convince Congress to pay for some high tech new weapons. But there's one question...



Is that worth -- worth it for the taxpayers?


BLITZER: The answer to that question coming up right here in THE SITUATION ROOM.


BLITZER: Barack Obama is trying to patch up the rift among the Democrats, meeting with key segments of the party today, including former supporters of Hillary Clinton.

But can that heal the wounds of a bitter primary campaign?

Suzanne Malveaux is watching this story for us.

So is this unity effort, Suzanne, working?

SUZANNE MALVEAUX, CNN WHITE HOUSE CORRESPONDENT: You know, it's too soon to tell. Obviously, there is some progress that is being made. But this week, Obama's campaign is aggressively reaching out to the important voting blocs. Early in the week, it was Hispanics. Today, three other critical groups, including labor.

It may be paying off. It was just a few hours ago, the American Federation of State County and Municipal Employees unanimously endorsed Obama. This is the same group that spent lots of money attacking him.


MALVEAUX (voice-over): They aren't exactly sing "Kumbaya," but they're trying.

SEN. BARACK OBAMA (D), PRESUMPTIVE NOMINEE: I want to thank all of you.

MALVEAUX: Wednesday, Barack Obama scheduled back to back meetings with union leaders, black Congressional members and female lawmakers. But scheduling conflicts forced Obama to postpone at the last minute his sit-down with the women's caucus, who needed to cast votes on the Hill. They represent an essential voting bloc for an Obama win.

UNIDENTIFIED FEMALE: A lot of women extremely concerned. They don't feel that he has reached out to them enough. They want to know exactly what he's going to be doing on kitchen table issues.

MALVEAUX: Aides acknowledge getting these folks together and behind Obama is not necessarily going to be easy. Take the Congressional Black Caucus, which was divided between Hillary Clinton and Barack Obama. While members say they're now united, some acknowledge Obama is going to be a hard sell.

REP. EMANUEL CLEAVER (D), MISSOURI: Missouri is a tough, tough state to win. And as I've said to all the Clinton people, do you want Senator Obama, who has already told you what he wants to do in Iraq, or do you want John McCain to keep the Iraq War going?

And if for no other reason, that's why you ought to embrace Senator Barack Obama.

MALVEAUX: Congressman Emanuel Cleaver's sales pitch is similar to other recently converted Clintonites -- that Obama is simply better than the Republican alternative, John McCain on issues like health care, education and jobs.

But just listen to how some labor leaders were casting the candidate during the primary.

UNIDENTIFIED MALE: I've got news for all the latte drinking, Prius driving, Birkenstock wearing, trust fund babies crowding in to hear him speak -- this guy won't last a round against the Republican attack machine.

MALVEAUX: Obama's meeting with rival union groups was aimed at proving the doubters wrong.

OBAMA: The goal of an Obama presidency is to make sure that we've got bottom up economic growth instead of just the kind of tired, worn out trickle down ideologies.

(END VIDEOTAPE) MALVEAUX: I spoke with the president of the United Farm Workers, Arturo Rodriguez, who attended the meeting today. He had initially endorsed Clinton. But he told me that Obama's 45-minute private Q&A session over the weekend with some of his members did turn a corner. Obama pledged to take on immigration reform. That is a big priority for that group -- Wolf.

BLITZER: Thanks very much, Suzanne.

Suzanne is all over this story for us.

Hundreds of dollars waiting for some five million Americans. You're going to find out why they haven't received their stimulus checks yet and what the IRS is doing about it.

And John McCain's delicate balancing act -- how to separate himself from an unpopular president with whom he agrees on many key issues.

Stay with us.

James Carville is here. Bill Bennett is here. Lots more coming up right here in THE SITUATION ROOM.


BLITZER: Democratic Senator Russ Feingold of Wisconsin, a champion of campaign finance reform, has just issued a statement criticizing Barack Obama for his decision to opt out of public financing for the general election campaign. Feingold saying, among other things, this: "This is not a good decision. While the current public financing system for the presidential primaries is broken, the system for the general election is not. The entire system must be updated."

Feingold goes on to say: "Senator Obama is committed to reforming the current system and I look forward to working on this and other reform issues with him when he becomes president. But this decision was a mistake."

A strong statement from Russ Feingold, the Feingold legislation, together with John McCain, for campaign finance reform, well-known. Here he is distancing himself from Senator Obama's decision today.

We're going to have more on this story coming up. We'll also discuss this whole issue with James Carville and Bill Bennett. They're here in THE SITUATION ROOM.

Let's move on to some other campaign news. More than any presidential campaign in history, the Internet is swaying voters and helping candidates who are able to harness its power. Case in point, Barack Obama with a video that's now a cornerstone of his campaign.

Carol is back. She's watching this story for us.

How did this video, Carol, manage to do what it clearly has done? CAROL COSTELLO, CNN CORRESPONDENT: Oh my god, this is a fascinating story. You know, I just talked to Will.I.Am. He's a music producer and a member of the Black Eyed Peas. His Internet political video will be awarded an Emmy tomorrow. And he's, quite frankly, floored by that. But it's another sign the Internet is increasingly important in the world of politics.



COSTELLO (voice-over): It's a viral video sensation -- 25 million views online since February.


COSTELLO: Music producer Will.I.Am's "Yes We Can" enhanced Barack Obama's image among young people in a way words could not. Made without the campaign's knowledge, it mesmerized young online users by putting an Obama speech to music.

Michelle Obama quickly pounced, e-mailing her husband's supporters: "I've seen a lot of things that have touched me deeply, but I had to share this with you." And then she hit the send button.

It wasn't long before the Obama campaign was using "Yes We Can" video at events.


COSTELLO: The video became so wildly popular, it made its way out of the virtual world to television. Friday, it will be awarded an Emmy. Its creator says "Yes We Can" illustrates the power of the Internet.

WILL.I.AM. MUSIC PRODUCER/PERFORMER: These tools that the people have now, the power is in their hands. They can check the news. Before, they were subject to just listening to the news and that's what the news was.

COSTELLO: According to Pew Research, 35 percent of all Americans have watched videos on the Internet to get political news or inspiration.

ANDREW RASIEJ, FOUNDER, TECHPRESIDENT.COM: The political campaign that recognizes how to leverage that facility and use it as a tool to continue to drive the message, not through traditional means, but through supporters' own use of the Internet. We're seeing a 21st century politics born right before our eyes.

COSTELLO: The thing is, it's hard to predict exactly what online will transfer offline. Ron Paul's online effort netted him more than $34 million, but few actual votes.

John McCain's camp is trying to excite young Internet viewers with a video of its own, a parody of MTV's "Cribs," featuring not the 71-year-old McCain, but his bus, the Straight Talk Express.


UNIDENTIFIED MALE: This is where the rubber meets the road, on the Straight Talk Express.


COSTELLO: It's too early to tell if the bus will bust out of the clutter as an Internet sensation.


COSTELLO: Like "Yes We Can" did.

Will.I.Am also told me Al Gore called him to thank him for the video and for how it united people. The artist was really wowed by that. He said it was a sign of how powerful music can still be in the world of politics.

BLITZER: It's a phenomenon, I've got to tell you.

Thanks very much, Carol, for that.

It's believed to contain millions of barrels of oil.

But what impact would drilling in the Arctic National Wildlife Refuge in Alaska really have on gas prices?

We're going to show you.

Also, this...


MCINTYRE: Ten million dollars.

Is that worth it to the taxpayers?


BLITZER: Jamie McIntyre, he's standing by. He's going to show us what's going on with the latest high tech weapon. A huge price tag.

Is it worth it?

You're going to see for yourself.

And find out why the presidential Medal of Freedom is now wrapped up in some controversy. Details of the latest recipients and a lot more coming up right here in THE SITUATION ROOM.


BLITZER: To our viewers, your eve in THE SITUATION ROOM. Happening now, a huge campaign shakeup that could have a major impact on the race for the White House. Barack Obama now says he's going to raise his own money for the general election campaign -- the first time that's been done since 1976, when the campaign finance laws went into effect. Also, we heard from them daily for months on end. Now suddenly silence from Bill and Hillary Clinton. We're going top find out what they're doing from insider James Carville. He's standing by, along with Bill Bennett.

And details of a mad dash by American oil companies to return to Iraq's lucrative oil fields after a 33-year absence.

All those stories coming up.

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

A huge move by Barack Obama, now saying his campaign is opting out of public financing, the first time this is going to be done by a major presidential candidate since 1976. Back in November, Obama pledged he'd agree with the GOP nominee to stick with public funds.

Listen to what he said in a Web cast though, today.


OBAMA: Hi. This is Barack Obama. I have an important announcement and I want all of you, the people who built this movement from the bottom up, to hear it first. We've made the decision not to participate in the public financing system for the general election.


BLITZER: The public financing system, as we said, began back in 1976, to reform campaign financing after the Watergate scandal. That year, each major party received about $22 million. By 1992, that amount grew to a little more than $55 million. Now it's up to $85 million.

So what impact will Obama's rejection of public funds have on the presidential campaign?

Joining us now our CNN contributors, the Democratic strategist James Carville, the Republican strategist Bill Bennett. He's a good conservative, a good liberal.

Guys, thanks very much to both of you for coming in.

You know, they're saying he's a hypocrite already, Barack Obama, for opting out of the campaign finance, for the public funding for the campaign, from $85 million. The first time a major presidential candidate has done this, opted out of the public financing since 1976. Is this smart on his part?

JAMES CARVILLE, CNN CONTRIBUTOR: Yes. I think I look at the figures, he raised $172 million. He can make the case he doesn't take back money. There's nobody in history, there's no three candidates in history that have as many small donors as he has. I don't think --

BLITZER: What about the charge he's a hypocrite? Earlier he and his campaign indicated that they would if the Republican accepted public funding, he would accept public funding.

In terms of political hypocrisy on a scale 1 of 10, that's a .05. I mean I just don't think the public is really engaged in it.

BILL BENNETT, CNN CONTRIBUTOR: They're not really engaged in it. I agree with James, he's smart, not principled here, but smart.

BLITZER: He could out raise McCain.

BENNETT: Oh, yes but it's about the money. This is Barack Obama imitating Cuba Gooding Jr., show me the money and he's getting the money and he will out raise McCain enormously. Now McCain may get out a letter or the RNC may get out a letter saying we'll have a problem, so let's raise money for the RNC. He changed his position when he saw how much he could raise. I think the change in position hurts him as he is the transcendent change guy, the new politician.

BLITZER: Because if you go to his Web site as I went earlier, he's got a video out there now explaining his decision, about a three- minute video in which he makes the point, the system is broken. It's unfair if I accepted this. The Republicans and all their 527s, their unaffiliated groups, they'd raise millions to "try to swift boat me in all of that." And that's why he's got to raise with millions of small donors out there.

BENNETT: Look, if it was broken now, it was broken before. It didn't just break. He knew how broken the system was before when he pledged to do it. John McCain said he said he was going to do it, another promise. He shifted on NAFTA, Jerusalem, campaign finance, let's see what else.

CARVILLE: Thank god John McCain never shifted on offshore drilling.

BENNETT: Good one to shift on.

CARVILLE: Again, it doesn't -- if we can all go through things that we shift on, I just don't think that -- I think it makes sense for Obama to do this. I think he can point to the fact that he doesn't take PAC money. The overwhelming majority of the money he raises is from small donors. I don't think this is a huge issue.

BLITZER: Let's talk about your favorite couple Bill and Hillary Clinton right now. We heard Hillary Clinton come out and formally, enthusiastically endorse Barack Obama. We still haven't heard Bill Clinton say anything about it.

CARVILLE: Gary Hart didn't endorse Walter Mondale until July. I haven't read anything into Al Gore's silence who just endorsed Barack Obama earlier this week.

BLITZER: You don't have any doubts he'll eventually do it? CARVILLE: You know he's going to endorse Barack Obama. And it could be a matter of timing. He may want to wait. He may want to do different things. It's not unusual at all until people wait late and come out and endorse a campaign or anything like that.

BLITZER: Barack Obama and Hillary Clinton, next week here in Washington. They're going to have a joint fundraiser. They're going to show the flag, be together publicly and try to raise some money.

BENNETT: They say the devil himself doesn't know the heart of men. I don't know the heart of Bill Clinton but I'm confident he will endorse Barack Obama. I can't see him missing that boat for any reason.

CARVILLE: He's not going to miss it.

BENNETT: He may even contribute to the campaign. $20, $30.

BLITZER: I'm sure he'll give the maximum, whatever that is. Let's talk a little bit about --

CARVILLE: I've sent my check.

BLITZER: I'm sure you have.

What about George W. Bush, he's out in Iowa today watching the damage from these horrible, horrible floods. John McCain is out there. But they didn't go together. And apparently not going to be together in Iowa. It's a difficult dance he's trying to walk right now, John McCain, distancing himself yet at the same time, not too much.

BENNETT: He's a very familiar guy in the American political life, John McCain. I think most Americans could pick him out from George Bush in any -- put the two photos up. They're very different men. I don't think he has a problem distinguishing himself from him.

Now everybody should visit Iowa, anybody who wants to be president of the United States, or is the president of the United States. I don't think you can make much out of that.

In the case of the offshore oil drilling, which is a good idea, and we'll see what the Democrats do about this, whether they will respond to this crisis, it was really George Bush following John McCain.

CARVILLE: You know, if there's anybody think that George Bush's approval is 65, to John McCain wouldn't be there with George Bush. Anybody thinks that, raise your right hand. And also go get your IQ checked. I don't blame McCain. I don't think -- but you're not going to see Bush and McCain together very much in this. It's going to be like, you know, we all knew, and I don't blame him, John McCain is in a difficult situation and he'll try to keep as much separation as possible. And I don't blame him.

BLITZER: You know, go ahead. BENNETT: He's in a very difficult situation. Look, if John McCain and George Bush were linked more in the Republican mind, there would be more conservative support for John McCain --

CARVILLE: Then he should go campaign with him.

BENNETT: He has to watch both ways. It's a political calculation, no doubt about it. John McCain is facing a big uphill fight. Money, that's the first question, indicates just a part of it. But also these other --

BLITZER: Anytime that the Democrats will charge that John McCain is a third Bush term, the Republicans will come back and charge that a Barack Obama is a second Jimmy Carter term.

CARVILLE: I think what they'll like to say is it's a third Clinton term.

BLITZER: They're not saying that.

CARVILLE: But that's the ticket to 70 percent. You know, how old was Barack Obama when Jimmy Carter took office?

BENNETT: I love this. Nobody can remember back to Jimmy Carter. This is my case for teaching American history. They all said Hoover and Coolidge.

CARVILLE: Let's run on a third Bill Clinton term or a third Bush term.

BENNETT: Different guy.

BLITZER: All right. Guys, thanks for coming in.

BENNETT: Thank you.

CARVILLE: Appreciate it.

BLITZER: I want to go right out to the governor of Iowa. Governor Chet Culver is joining us on the phone right now.

It's a horrible situation. Is it going to get worse, Governor, in Iowa before it gets better or is the worst over with so far?

GOV. CHET CULVER (D), IOWA: Well, I wish I could report that the worst is over. We still have a rough fight on our hands in southeast Iowa. Roughly a dozen communities there in the southeast corner are still fighting either the river basins within the basin. Hopefully by Sunday the record flood levels will leave the state.

BLITZER: I know you toured some of the areas with President Bush when he came in today. What was your message to him?

CULVER: Well, it was very simple. We need as much help from the federal government, and from the Bush administration as possible. We've actually asked for 100 percent in terms of federal assistance for counties and for cities and in terms of things like debris removal, for example. We had more than 100 cities that were impacted. Tens of billions of dollars across the state in terms of damage to public buildings and to our infrastructure. So we need the White House to do everything they can to help us short-term and in the long term.

BLITZER: Did you say tens of billions of dollars or tens of millions of dollars?

CULVER: Tens of billions, with a "B."

Our second largest city, Cedar Rapids, Iowa, 135,000 people, they are estimating $1 billion, $1 billion, in just that city alone. Our agricultural sector is estimating $2 billion to $5 billion in potential loss, three million acres of soybeans and corn impacted, 1,500 miles of roads throughout the state, 400 miles of railroad tracks. This is massive devastation, unlike anything we've seen in this country since Katrina. It's going to be a real challenge.

But Iowans are up to the fight. We're going to be stronger at the end of the day for it, but it's going to take a lot of help from a lot of places.

BLITZER: Good luck to everyone in Iowa out there. I know these floods are moving south through Illinois and into Missouri. We're going to be speaking with Governor Blunt of Missouri in the next hour.

Governor Culver, thanks very much.

CULVER: Thank you, Wolf. I appreciate you focus some of the attention on the Midwest that's getting hard. We're going to keep fighting, though. Thanks for the time.

BLITZER: All right. Governor, we'll be there with you. Thanks very much. Good luck.

As the price of oil surges, what if Congress decides to drill for oil in the Arctic National Wildlife Refuge. CNN's Frank Sesno standing by to take a look at the pros and cons.

And Cindy McCain talks about a very emotional issue that puts her at odds with her own husband. Stand by. John King's interview with the would-be first lady in Vietnam.

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


BLITZER: The oil supply and demand, sending oil prices tumbling almost $5 today. China announced it's dropping oil subsidies because prices will increase 8 percent starting today. The increased demand for gas in China helped drive down the cost of crude to just under $132 a barrel.

U.S. and other bill oil companies are eyeing Iraq's oil reserves and moving aggressively to return to the country more than three decades after they were forced out.

CNN's Brian Todd is working this story for us.

Brian, what's going on? How is this unfolding?

BRIAN TODD, CNN CORRESPONDENT: Wolf, right now some big oil companies are doing some free consulting with the Iraqis to generate good will, but at the same time, they're working to get in position for a high-stakes race for oil there.


TODD: A massive oil reserve, with huge potential for profit has western oil companies doing some major jockeying in Iraq, getting ready for when the Iraqis pass a law governing the control of oil. Already some of the largest oil companies are providing free consulting and are negotiating to turn that into temporary contracts for technical services, perhaps as soon as the end of this month.

TOM WALLIN, PETROLEUM INTELLIGENCE WEEKLY: The hope is that these relations and contracts will lead to, in the long term, access to oil reserves, and oil fields, and development of new fields, exploration.

TODD: Are these agreements, no-bid contracts, according to "The New York Times," tantamount to the spoils of war?

RICK BARTON, CENTER FOR STRATEGIC & INTL. STUDIES: It's really hard to get away from the feeling that our interest in oil was clearly one of our core strategic reasons for being in Iraq. And this doesn't help with diminishing that argument.

TODD: The Bush administration has always denied that oil was a motivation for invading Iraq. There are other reasons for Iraq to turn to western companies.

WALLIN: ExxonMobil and Shell and BP and so forth, these are world class companies. These companies have some of the best technology. They have the best expertise in the world.

TODD: Iraqi oil production is still below pre-invasion levels but has almost caught up. Iraq's oil minister tells CNN they are doing their share to increase production at a time when global oil supplies are tight.

HUSSAIN AL-SHAHRISTANI, IRAQI OIL MINISTER: Our production in May was more than 2.5 million barrels a day. And this was all done by Iraqi efforts, without much help from outside. And we are very proud of that.


TODD: The Iraqi parliament is debating their oil right now and how big of a cut of the action they should allow foreign companies to come in and build new oil fields. Once Iraq sets up the rules, Chevron and ExxonMobil, two of the largest oil companies that are negotiating technical assistance deals, that they tell us they're eager to pursue opportunities in Iraq, and they have the know-how -- Wolf.

BLITZER: What are the foreign oil companies physically, Brian, doing in Iraq right now?

TODD: Well until they passed this new law, some of them are only helping the Iraqis fix and maintain the existing oil fields. But the security situation obviously is very dicey. For example, BP told us they don't have a single employee actually on the ground right now. Once again, the oil law is passed for development, we could see a land rush for deals and Iraq has the second or third largest proven oil reserves of any country in the world.

Wolf, it's a gold mind.

BLITZER: Thanks very much, Brian, for that.

In 1914, the British controlled 50 percent of the company exploring for oil in Iraq. By 1928, 95 percent of Iraq's oil was owned by companies located outside the country. But starting in 1961, Iraq started to nationalize its oil program. And by 1975, Iraq owned all of its oil. An interesting fact, the companies negotiating a return today have evolved from the same companies that owned 95 percent of Iraq's oil back in 1928.

The U.S. army rolls out a big gun. It's a weapon unlike any other, a high-tech cannon that finds enemies it can't see. Can the army actually afford to put it into service?

And Barack Obama unveils a new ad. It's the first time a general election campaign that we'll show it to you right here in THE SITUATION ROOM.


BLITZER: All this talk of the high price of gas, and oil, has our special correspondent Frank Sesno wondering "What If."

Joining us now for this week's "What If" segment our special correspondent Frank Sesno.

What's going on, Frank?

FRANK SESNO, CNN SPECIAL CORRESPONDENT: Well Wolf, there's been a lot of what if in the last little bit about if they started drilling for oil offshore again. OK, we're hearing about that but what about Alaska? What if the president who says go to Alaska, because there's a lot of oil there, prevails, even though Obama's opposed to it, McCain's opposed to it and the Congress stands in the way.

Some simple math explains a changing equation. Gasoline today $4.07 today a gallon. Crude oil, $132.03 a barrel. They talk about not filling the strategic petroleum reserve. What would that save?

About 70,000 barrels a day. What would Alaska bring? What if I told you it would bring 1 million barrels a day, in Alaska.


SESNO: With prices this high, what if John McCain and Barack Obama flip and the U.S. Congress decides it's time to drill for oil in the Arctic National Wildlife Refuge, ANWR, after all, maybe as much as 16 billion barrels of it. There would be a firestorm of environmental protests for sure. But Alaska's governor says people want it, and the time is right.

GOV. SARAH PALIN (R), ALASKA: If we want to become more energy independent, it makes sense obviously to be looking domestically.

SESNO: If they drill, results will be a long way off. It would take two to three years to get the leases, another two to three years to drill a single exploratory well, years more to build pipelines, plants, drilling pads and the wells themselves. Maybe ten years the energy department says before the oil would flow. And if it flowed, it wouldn't be insignificant. Maybe 1 million barrels a day at its peak, that's less than 5 percent of what we use today.

Impact on price? Not much, maybe a buck a barrel or so.

It would reduce dependence on imports somewhat. The U.S. buys about 60 percent of its oil abroad now. That would drop to 49 percent or so at ANWR's peak. What about the environmental cost? Negligible say proponents. If all of ANWR were the front page of "The New York Times," they calculate the affected area would be the letter "T," 2,000 acres out of more than 19 million.

Opponents say if they drill, it would disrupt the wilderness and be a costly distraction from efforts to find alternatives. Without ANWR, Alaska's oil production will decline by 29 percent in the next six years. If hybrids, biofuels and conservation don't change things a lot, that will mean more dependence on imported oil.


SESNO: But still 1 million barrels is very seductive and very tempting. And opinion does seem to be moving, Wolf, compared to where it's been. If we look at the latest poll that we've seen, a Gallup Poll to allow drilling in coastal and wilderness areas, protected areas Wolf, 57 percent now favor it. So what we're beginning to hear with this discussion, this debate over offshore oil is soon predictably going to move back to Alaskan oil.

BLITZER: People presumably more they pay for a gallon of gas, the more open they're going to be looking for alternative sources or looking for oil in places like Alaska.

SESNO: They're concerned about costs. They're concerned about availability. They're concerned about where it's coming from. The argument the proponents have is this could be American oil. In the case of Alaska, when you look at the coastal area that could be affected by the drilling, it's actually fairly flat. It's not the super sensitive environmental area. These new technologies they talk about, those also matter, too. It's easier than it was, but it's no less controversial.

BLITZER: Frank Sesno, thanks very much.

SESNO: Sure, Wolf.

BLITZER: One on one with Cindy McCain, our own John King caught up with her in Vietnam today. They talk about releasing her tax returns, the attacks on Michelle Obama, and a lot more; the interview coming up.

Plus, the $10 million cannon the U.S. army wants badly. But is it worth the money? You can decide for yourself. Jamie McIntyre standing by right here in THE SITUATION ROOM.


BLITZER: Millions of Americans have a check waiting, if only the IRS can find them. The IRS Commissioner Doug Schulman said the IRS is trying to get stimulus checks to some 5 million people who didn't file the necessary tax returns to qualify. Schulman says they're mainly older Americans. You might be one of them watching right now. The IRS is launching an aggressive campaign to get them their money.

Stand by for more information. We're watching this story.

The U.S. Army has a major fight on its hands right now and it has nothing to do with the wars in Iraq or Afghanistan or anyplace else. It's over future wars and which pricey weapons the soldiers of tomorrow will take into battle.

Our senior Pentagon correspondent Jamie McIntyre has the story -- Jamie.

MCINTYRE: Wolf, we're standing here in the Pentagon parking lot in front of the army's new non-line of sight cannons. It's one of the big guns the army has pulled out in the looming battle of the budget.


MCINTYRE: In the shadow of the U.S. capital last week, the army mounted a rear guard action, assembling a strike force of future weapons in the shameless bid to impress the likes of Texas Democrat Sylvester Reyes. With Congress struggling to fund the current wars, the army is lobbying furiously to save its future wish list.

GEN. GEORGE CASEY, U.S. ARMY CHIEF OF STAFF: This vehicle behind me has a crew of two. And it can fire six rounds a minute very precisely.

MCINTYRE: The army's prototype non-line of sight cannon is a hybrid marvel whose on board diesel generator produces enough electricity to power nine city blocks. And thanks to the latest GPS technology, it can put a 155 millimeter artillery round on a specific building from miles away.

UNIDENTIFIED MALE: I can see the power and the utility of systems like the ones you see around you here today in the hands of our soldiers in Iraq and Afghanistan.

MCINTYRE: Not so fast, warns Defense Secretary Robert Gates who recently singled out the army's future combat system, which includes the non-line of sight cannon as a cold war concept the Pentagon may not really need. Making the case for the army, calls to Major General Charlie Cartwright.

I get it that this is the best damn howitzer money can buy. But $10 million, is it worth it when look at all the other things you have to buy?

MAJ. GEN. CHARLIE CARTWRIGHT, U.S. ARMY: Now I guess I would ask you when I only put two soldiers in harm's way and double survivability versus five soldiers in harm's way, that's a pretty good option for the American public.

MCINTYRE: But the question is, are this better, cheaper technologies to hit over the horizon targets than a 27-ton tracked vehicle the size of a tank? Why not more unmanned attack planes. They put no one at risk and are several million dollars cheaper.

But right now couldn't they call in an air strike on that target?

CARTWRIGHT: They can do the same thing with the air strike. What this gives them is the organic piece to that squad and platoon that's down there in the fight.


MCINTYRE: While Secretary Gates has the army's future combat system in his cross hairs, he won't be here when the money is dolled out. He said Congress did the Pentagon a big favor by coming up with extra money for those MRAPS, the mine-resistant ambush protected vehicles. That's not going to happen with all the competing programs and it's going to get messy -- Wolf.

BLITZER: Jamie McIntyre, thank you.

And to our viewers, you're in THE SITUATION ROOM.