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Interview With Mowaffak al-Rubaie; Interviews With Senators Kyl, Dodd

Aired July 13, 2008 - 11:00   ET


WOLF BLITZER, HOST: This is LATE EDITION, the last word in Sunday talk.

SEN. BARACK OBAMA, D-ILL.: Senator McCain, unfortunately, doesn't seem to see the problem.

SEN. JOHN MCCAIN, R-ARIZ.: He wants to raise taxes. I want to keep taxes low.

BLITZER: Barack Obama and John McCain battle over everything from a struggling economy to missile tests in Iran. We'll assess how the next president will handle those issues with two top U.S. senators, Obama supporter Chris Dodd and McCain supporter Jon Kyl.

We'll also talk with two governors on the short list for vice president, Republican Mark Sanford and Democrat Janet Napolitano. And top economic advisers from both campaigns, Jason Furman and Nancy Pfotenhauer. And as always, insight and analysis from three of the best political team on television.

AL-RUBAIE: The Iraqi security forces are taking the lead.

BLITZER: Iraq's leaders call for a timetable to withdraw U.S. troops. We'll ask Iraq's national security adviser what it means for the future of U.S. troops and What does it mean for the future of U.S. troops in the region. Where do you believe he is?

QURESHI: I have no idea.

BLITZER: Pakistan's new foreign minister talks about the hunt for Osama bin Laden and new threats in the war on terror. The first hour of LATE EDITION begins right now.


BLITZER: It's 11 a.m. here in Washington, 8 a.m. in Los Angeles 6 p.m. in Baghdad. Wherever you're watching from around the world, thanks very much for joining us for LATE EDITION. Iraq's government took a bold step this week when it called for a new agreement with the United States that includes an actual timetable for withdrawing U.S. combat forces from Iraq.

This is something Barack Obama supports but John McCain and the Bush administration oppose. Just a short while ago, I spoke about that at length and a lot more with Iraq's national security adviser Mowaffak Al-Rubaie.


BLITZER: Dr. Al-Rubaie, thanks so much for joining us. Welcome back to LATE EDITION. I want to get right to the news of the day. The "Washington Post" in a major front page story reporting this today. Let me read it to you. "U.S. and Iraqi negotiators have abandoned efforts to conclude a comprehensive agreement governing this long-term status of U.S. troops in Iraq before the end of the Bush presidency, according to senior U.S. officials, effectively leaving talks over an extended U.S. military presence there to the next administration." Is that true?

AL-RUBAIE: I don't think this is true, to be quite honest with you. Over the last few months or few weeks as well we were trying to secure what is the best approach. What is the best way of getting to the same goal, if you like, and I think we are very clear now what we want to do. We, the government of Iraq and the United States government, I think we have a very clear approach now to go for a comprehensive agreement, what we call the strategic framework agreement whereby it covers all aspects, economy, political, diplomatic, educational.

BLITZER: Excuse me for interrupting, Dr. al-Rubaie, the "Washington Post" says it looks like you're not going to be able to achieve during the Bush presidency that kind of comprehensive agreement. What they are now talking about, according to the "Washington Post" is some sort of temporary or bridge agreement leaving the final status of all the issues to the next U.S. president.

AL-RUBAIE: See, I think they are missing the point. There are two issues. One is the strategic agreement which covers the issues which are none security fields and the other one which is the -- which covers the security side of it, and I think we are -- we are working on both tracks and I think at the end, there will be one agreement, both the strategic as well as the security. Call it the operational authorization or authorization for operational or call it cooperation between the two armies in the same battle states.

BLITZER: When I spoke with your foreign minister a few weeks ago, Hoshyar Zebari he said the so-called status of forces agreement delineating the rights and responsibilities, the duties of U.S. troops remaining in Iraq, he thought that would be achieved by the end of July. Is that now out of the question?

AL-RUBAIE: No. I think we are trying to -- we are trying very hard to get to this timeline, and I believe we -- there is still hope. We're making some good progress, you know. These are difficult issues. This is the issue of sovereignty. This is the issue of moving from a very bad security situation two years ago where we were talking about a long haul of sectarian war and now we are out of this. We have a considerable improvement in the security situation and there is a considerable reduction in the violence in this country and there is now, we can see, the end of al Qaeda. We're still -- we still cannot declare total and final victory on al Qaeda, but we can at least see it.

BLITZER: This is what your prime minister...

AL-RUBAIE: It's a completely different condition that we're living in now.

BLITZER: This is what your prime minister said last Monday, Nouri al-Maliki. "The current orientation of the talks is to reach a memorandum of understanding, either to withdraw the U.S. forces or to set a timetable for their withdrawal."

What do you want, a timeline, a specific timeline for the withdrawal of U.S. forces, or do you want them simply to withdraw right away? AL-RUBAIE: See, we are developing together with the United States government, planning a time line horizon. See, we were -- we're not talking about exact date by days and by months. We're talking about we can see -- now we can talk about withdrawal. We can talk about time line of...

BLITZER: What kind of time line are you talking about? How long do you want the U.S. troops to remain in Iraq?

AL-RUBAIE: Well, this is -- I don't think this is a fair question, Wolf. I think this depends on the situation in Iraq, the condition here, what the enemy is planning now, what is going to happen next year and the year after. What is the speed of the growth in number and in preparedness and in equipment and the army and the Iraqi security forces. Now I'm pleased to say that the Iraqi security forces are taking the lead and doing more than 75 percent of the security operation in the country, so -- and we can see in a very short period of time the Iraqi security forces will be reaching the self-reliance status whereby we can relax the requirement for the foreign troops in this country.

BLITZER: He's how the democratic presidential candidate, Senator Barack Obama, responded to Prime Minister Nouri al-Maliki's remarks calling for a timetable, a time line for withdrawal or the complete withdrawal of U.S. forces if they can't reach an agreement between Iraq and the U.S. Listen to Senator Obama.


OBAMA: The prime minister himself now acknowledges that in cooperation with Iraq, it's time for American forces to start setting out a time frame for withdrawal, and, you know, I hope that this administration, as well as John McCain, are listening to what Prime Minister Maliki has to say.


BLITZER: All right. You want to react to what Senator Obama says, because he basically interprets what your prime minister is saying as a validation of his longstanding view that there should be a timetable, he says 16 months for the removal of all U.S. combat forces from Iraq. AL-RUBAIE: See, there are -- I understand, and I fully understand some of these words, the withdrawal and the timeline are very radioactive toxic material. Words should not be used two years ago but now with the conditions have changed dramatically in the last two years, and we are out of the civil war and we have a very good strong professional Iraqi security forces in place, and our enemy is nearly defeated, although there are some challenges ahead of us, but these words -- shouldn't be as radioactive as toxic as they would like it to be.

BLITZER: But these are words that your Prime Minister Nouri al- Maliki has been using repeatedly in recent days, calling for a timetable for U.S. troops to leave Iraq. These aren't words that others are saying, this is the prime minister of Iraq.

AL-RUBAIE: Yeah. I certainly agree with the prime minister and I think it's the right time now to start talking about planning a timeline horizon.

AL-RUBAIE: When are we going to see the end of the combat operation? When are we going to see the end of the combat battalion?

BLITZER: What I hear you saying, and certainly what I hear Prime Minister Nouri al-Maliki saying is that you certainly could live with a timetable along the lines of what -- of what Senator Barack Obama has been suggesting.

He's been calling for a timetable, for some time, as opposed to what Senator John McCain is saying, that there should be no artificial time line, no artificial timetable whatsoever; it should be strictly be what's happening on the ground should determine -- are you now moving closer to Senator Obama, as opposed to Senator McCain?

AL-RUBAIE: See, I don't think we are negotiating here with adversaries. We're negotiating with allies and friends and strategic allies.

We have said this, time and again, that we, Iraq, is flying west, is heading west. And there is no doubt about it. And we would like to have a comprehensive economic, diplomatic, political, educational, scientific and other fields. These are the important issues. The security issue is probably a small part of this deal.

BLITZER: Dr. al-Rubaie, we have to leave it right there. Thanks so much for joining us. Good luck to all the people in Iraq. Good luck to the negotiators. And hopefully, there can be some peace and stability in your part of the world.

AL-RUBAIE: Well, thank you very much for having me, Wolf.

BLITZER: And coming up next, we're going to get live reaction to what we just heard from the Iraqi national security adviser. We'll speak with a man thought to be on Senator McCain's short list for vice president, Republican Governor Mark Sanford of South Carolina. He's standing by live. And this important programming note for our viewers around the world, CNN's Fareed Zakaria sat down with Democratic presidential candidate Barack Obama for an exclusive interview. You're going to want to see it. "Fareed Zakaria: GPS" airs at 1 p.m. Eastern, right after "Late Edition," later today.

We'll take a quick break. We'll be right back.

(COMMERCIAL BREAK) BLITZER: Welcome back to "Late Edition." I'm Wolf Blitzer in Washington. In the next two months, both presidential candidates have a major decision to make, who they will choose as their running mate.

So, until Barack Obama and John McCain actually announce who will be on the other half of the ticket, "Late Edition" will be taking a closer look at the contenders on the so-called short list for vice president.

Right now, we're joined by the governor of South Carolina, McCain supporter Mark Sanford, who is a favorite among many conservatives in the Republican Party.

He's joining us from the National Governor's Association meeting in Philadelphia.

Governor, welcome back to "Late Edition."

SANFORD: A pleasure to be with you. Thank you, Wolf.

BLITZER: I want to get your quick reaction to what we just heard from the Iraqi national security adviser, what we heard earlier in the week from the Iraqi prime minister.

They now want a time line, a timetable for U.S. forces to withdraw from Iraq, which is what Barack Obama and a lot of Democrats have been calling for for some time.

Senator McCain and the Bush administration is resisting that. They want to see what happens on the ground before they have any artificial time line. I wonder if you want to react to what we heard from the Iraqis.

SANFORD: Well, I think, in the last interview, what I heard was a lot of vacillation, and what I heard was a voice not wanting to offend Obama and not wanting to offend McCain, which is to say the obvious. The decision will ultimately be made by the next president of the United States.

And as a consequence, you know, people's view on that particular subject, I think, will drive a good part of the decision-making that's ultimately going to be done in Washington, D.C.

In short, the decision, I think, will be made in Washington, D.C., rather than as a consequence of a particular person's opinion in Baghdad. BLITZER: Well, I don't understand. What you're saying is that the U.S. should decide when it leaves Iraq? It shouldn't listen to what the Iraqi government wants?

SANFORD: No, I didn't say that. What I said was, in the last interview there was a whole lot of vacillation. So he talked about a time line, but, at the same time, nuanced his words constantly.

And so what I think is, we've got to make a decision that fits with keeping our troops on the ground safe as they go through the withdrawal process, whether that's over a 16-month time period or whether that's in a three-year time period.

But, you know, I think you've got to let generals on the ground make the decisions, as they see fit, as opposed to a lot of other folks who are going to have an array of different opinions.

BLITZER: Do you believe there should be a time line?

SANFORD: No, because I think that you ought to make your decision based on conditions on the ground.

BLITZER: All right. Let's move on to the economy, which we like to say is issue number one for so many American voters.

Former senator Phil Gramm of Texas, a top adviser to Senator McCain -- he caused a huge stir, this week, by telling the Washington Times these words. I'll play them for you. Listen to this.


FMR. SENATOR PHIL GRAMM, R-TEXAS: You've heard of mental depression. This is a mental recession. We have, sort of, become a nation of whiners.


BLITZER: All right. If you didn't understand -- some of our viewers might not have understand. He said, "You've heard of mental depression. This is mental recession. We have, sort of, become a nation of whiners."

Now, Senator McCain has totally distanced himself from what Senator Gramm, his longtime friend, has said.

But what do you think? Do you think that Senator Gramm should be dumped from this campaign?

SANFORD: No. I mean, anybody who has, you know, been in the arena has put their foot in their mouth on different occasions. I'm guilty of that, and I think anybody who has been in office has been guilty of that.

So I think that the question is, one, did the McCain campaign repudiate, and did John repudiate what Senator Gramm said?

And the answer is absolutely.

And then the question is, does Phil bring expertise to the table with regard to policy?

And I think he does. So I think it was a stupid comment. I think it was out of line with reality, but it ought to be taken as such, and people ought to move on.

So, as with any person out there who is advising you, I think you're going to take the good and dismiss the bad, and that happened to be bad and not all that thoughtful.

BLITZER: He's got a new ad, Barack Obama, that's been running, this week, in some of the battleground states, saying if you like the economic policies, what's happened over these past almost eight years under George W. Bush, you're going to love John McCain's economic policies.

I'll play a little clip for you.


MALE ANNOUNCER: John McCain. He's got new ads attacking Barack Obama on taxes.


FEMALE ANNOUNCER: Well, that's not new. Bush, McCain, Karl Rove, that's how those guys work.

MALE ANNOUNCER: Oh, yes, but this is shameful. He's just making stuff up.

I guess that's why they say, "John McCain, McSame-as-Bush."


BLITZER: Are there any significant economic differences between what the Bush administration has put forward, over these many years, as opposed to, now, what John McCain supports?

SANFORD: Yes. I mean, for instance, take, you know -- take, for instance, the issue of -- I'm drawing a blank, and I hate it when I do that, particularly on television.

SANFORD: But take, for instance, the contrast on NAFTA. I mean, I think that the bigger issue is credibility in where one is coming from on, are they consistent where they come from.

John McCain has consistently stood against earmarks throughout his tenure in the United States Senate. Regrettably, the president has not been exactly busy with the veto pen on earmarks. I mean, there's just one contrast alone. It's particularly relevant...

BLITZER: Let me get back to -- you raised the issue of NAFTA. I don't see -- he's a huge supporter of free trade, John McCain. The Bush administration supports free trade. I don't see a big difference between the two of them on NAFTA.

SANFORD: No, I was going to go to a point -- I was going to go to a point which is, what you would want is consistency with regard to that position.

What I think is more relevant is Obama had said during the primary process we've got to go ahead and redraw NAFTA, and now his comments have been much more tepid post-primary about well, maybe...

BLITZER: That's a major difference between Obama and the president, but as far as NAFTA is concerned, McCain and Bush are on the same page.

SANFORD: They are, for free trade. And if you think it will help our economy, given the troubled economic times that we live in, lining up a bunch of trade barriers, I think it's at odds with reality that has brought about job growth and a lot of economic job creation the last few years.

BLITZER: But beyond the issue of what's called pork barrel spending or the earmarks, is there any other issue, on the economic issues -- whether tax issues, energy issues -- that you see a significant difference between what we've seen in recent years by the Bush administration and what John McCain would do if president?

SANFORD: You could go down a number of different bills. I mean, if you look at the steel bill that went through way back when, you know, Bush and McCain were opposite sides on that one. If you look at...

BLITZER: Well, they were opposite sides early on in 2001 and 2003 on the Bush tax cuts, which John McCain, along with Lincoln Chafee, the only other Republican voted against. But since then, John McCain says he endorses making those tax cuts permanent.

SANFORD: Which I agree with, and a lot of folks across South Carolina and across the nation I think agree with. The issue there is can we get the economic prosperity by raising taxes?

I think it's also relevant, again, if you look at that whole issue of, again, you know, policy, look at the farm bill. The farm bill was a very modest approach where McCain was to try and say we've got to rein in some of this stuff, you know. Obama talks about change that we can believe in, and yet his approach was not to curtail the benefit packages to people who might get as much as -- might be making as much as $2 million in a families household, or $750,000 household in an individual sense, as an individual farmer, Bush and McCain had wanted to lower that to about $200,000. I don't think that you're going to get out of the mess that we're in if you won't even take small approaches to saying we ought to limit subsidies to somebody getting $2 million in income.

BLITZER: Governor, we're out of time, but a quick question -- have you already been asked for the vetting process by the McCain campaign? In other words, have they started asking for some of your tax records and started asking you formal questions? Because you're widely considered to be on that short list.

SANFORD: Generous and kind, but again, I'm just trying to survive the week. I've made it to Sunday and I'm excited about it.

BLITZER: What's your answer, have they asked you for any documents?

SANFORD: No, sir. No, sir.

BLITZER: Not yet. All right. Well, we'll stay in close touch with you, Governor Mark Sanford of South Carolina. Thanks very much for joining us.

SANFORD: Pleasure.

BLITZER: And in our next hour, we'll be joined by a woman reported to be on Senator Obama's short list for vice president. That will be Democratic Governor Janet Napolitano of Arizona.

But coming up next, the award-winning journalist Ted Koppel, who talks about why the United States needs to keep a good relationship with China. Stay with "Late Edition." We'll be right back.


BLITZER: Welcome back to "Late Edition." Ted Koppel shows us China as we've never seen it before in a brand new Discovery Channel documentary. I spoke with him in the "Situation Room" earlier in the week about the upcoming Beijing Olympic games and the influence of China.


BLITZER: What about the opening ceremony for the Olympic Games? President Bush is going. He'll represent the United States.


BLITZER: Senator Obama says he's not sure that's a good idea, given what's happening with Tibet and freedom in Tibet. He wouldn't do it, he says, if he were president. What do you make of this?

KOPPEL: I must tell you with all due respect to Senator Obama, I think if he were president, he would do it.


KOPPEL: Because the U.S. national interest is in maintaining as good a relationship with China as it possibly can.

BLITZER: Who needs who more?

KOPPEL: We both need each other, I mean, to an extraordinary degree. Let me give you one example. The war in Iraq, the war in Afghanistan. The Bush administration has not raised a single dollar in additional taxes to pay for those wars. Those wars are being paid for by U.S. treasury bills that have been bought by Japan, China, Saudi Arabia, England. The Chinese hold somewhere between $600 billion and $1 trillion of our treasury money.

BLITZER: And so the threat is if they want to call in that debt, they could do that.

KOPPEL: They don't want to do it. I mean, we are in effect holding guns to one another's head. If they called in those bills, it would mean a huge inflationary spiral here in the United States. It would mean we would not be able to buy all the goods from China that we're buying right now. They need us. We need them.


BLITZER: And just ahead, where is Osama bin Laden? Pakistan's new foreign minister talks about that and more when "Late Edition" continues.


BLITZER: Welcome back. You're watching LATE EDITION. There is deep, deep concern here in Washington that Pakistan's tribal region area is becoming a major hotbed for terrorists with al Qaeda and the Taliban gaining strength. During his visit to Washington this week, I spoke about that and much more with the new Pakistani foreign minister.

(BEGIN VIDEOTAPE) BLITZER: And joining us now, the new foreign minister of Pakistan, Shah Mahmood Qureshi.

Foreign Minister, welcome to Washington.

QURESHI: Thank you.

BLITZER: You've got a tough job ahead of you. I know you've been meeting with officials in the administration. They're very upset right now that Pakistan, your new government, apparently is not doing enough to stop the infiltration of al Qaeda and Taliban forces from the so- called tribal areas of Pakistan into Afghanistan, where they're killing Americans, killing NATO forces and going after Afghans. What's the problem?

QURESHI: To the contrary. The interaction I've had with the national security adviser, the secretary of state, their understanding. I give them my point of view. And they understand the situation. They know Pakistan is doing its best. And I told them the actions that we have taken in the tribal belt to check across border infiltration.

BLITZER: Robert Gates, the secretary of defense, issued a very tough statement saying he was severely disappointed that the new government in Pakistan wasn't doing enough, and General David McKiernan, the commanding officer of all NATO forces in Afghanistan, he said this. He said, "I link the increased incidents of violence in Afghanistan in part to those sanctuaries across the border and the ability to send militant groups and fighters into Afghanistan." Those are both very tough statements.

QURESHI: Indeed they are. But I want to assure you that Pakistan is doing whatever it can to be supportive. We feel that we have interest in a peaceful, stable Afghanistan. It is in our enlightened self interest to have peace and check the cross-border movement.

But my view is, that it's a bit of exaggeration to just pass the buck to Pakistan. There are serious internal issues in Afghanistan. And I don't say at the Paris conference, the other leaders who were there, talking about Afghanistan.

BLITZER: Because you know a lot of the Afghans --

QURESHI: My discussions in --

BLITZER: A lot of the Afghans and others are blaming at least Pakistan in part indirectly for that bombing at the Indian embassy in Kabul, saying this is sort of dealing an old score retribution, if you will, between the long-standing conflict between India and Pakistan.

QURESHI: No, I think Pakistani relations are on the mend. They are on a very even keel. They are improving. I've had very good interaction in Delhi. The foreign minister of India was in Pakistan. We are moving in the right direction. And we have nothing to gain by creating that environment.

BLITZER: Have you reached an agreement, an understanding with the Taliban elements in the so-called tribal areas of Pakistan in which your forces, the military forces, the intelligence forces basically will step aside?

QURESHI: No. We are not stepping aside. We are not withdrawing. The forces will be there. We have -- we are pursuing a policy of political engagement, but that does not mean that we will capitulate in front of terrorists. We will not negotiate. We will not talk to the terrorists. And if required, we will use force and we have used force in operations.

BLITZER: As you know a lot of U.S. experts insist that Osama Bin Laden is hiding out in Pakistan, perhaps along the tribal areas, perhaps even in Karachi, someplace. Based on everything you know, and you're part of the new government, and there's a lot of new hope for this government in Pakistan, where is Osama Bin Laden?

QURESHI: Well, if they know, I would want them to share that information and we could collectively go and get him.

BLITZER: Do you want to get him?

QURESHI: Certainly.

BLITZER: Where do you believe he is?

QURESHI: I have no idea.

BLITZER: And what about the al Qaeda forces in those tribal areas?

QURESHI: There are elements of al Qaeda that we are confronting, and we are dealing with, and we are using all our resources to fight them. Because we feel that this fight is not an alien fight. It is a fight that we believe in. It's a fight to protect our way of life. We have certain values, and the Taliban, the al Qaeda do not uphold the values that we believe in.

BLITZER: Tell us why you believe the U.S. Congress should continue to provide billions of dollars in assistance to Pakistan? A lot of that money, as you know, not being used in the so-called war on terror, but being used to bolster Pakistan's defenses against possible threat from India.

QURESHI: The U.S. Congress has to have a long-term, broad-based, stable relationship with Pakistan. We have to have an understanding in which we build institutions, we build democracy, we build values that we both ascribe to. We have a shared interest, and we need to support each other on that common approach, and we have to join our resources to fight that common enemy.

BLITZER: What do you want General Pervez Musharraf, the president of Pakistan, to do? Do you want him to stay at what he's doing or should he simply leave?

QURESHI: Well, it's for the Parliament to decide whether he stays or he leaves. But he should be playing his constitutional role as long as he is the de factor president.

BLITZER: He's the de facto president.

QURESHI: At the moment, he is.

BLITZER: That's what you're saying. A.Q. Khan, the father of Pakistan's nuclear bomb. As you know, the International Atomic Energy Agency, the U.S. government, the Europeans, a lot of people would like to question him about his role in distributing nuclear capabilities to North Korea, perhaps Iran, Libya, other countries around the world. will your new government allow A.Q. Khan to testify to cooperate directly with other western authorities?

QURESHI: A.Q. Khan is history. A.Q. Khan does not enjoy any official status. The information that had to be extracted from him has been extracted, and that's as far as Pakistan is concerned, that's a closed chapter.

BLITZER: So you won't allow the U.S. to question him directly?

QURESHI: That's a closed chapter.

BLITZER: Explain to us why not. What would be so bad if U.S. authorities went in there and spent a few hours debriefing him?

QURESHI: We have done that, we have done that to our satisfaction and the information that we've gathered, we've shared with our friends and allies. BLITZER: Who is responsible for the assassination of Benazir Bhutto?

QURESHI: I want to find that out, and that is why I met the secretary-general requesting him to set up an independent inquiry commission to investigate and -- BLITZER: You want the international community to investigate?

QURESHI: We want an investigation, we want an inquiry to be conducted under the U.N.

BLITZER: And you don't trust the authorities in Pakistan to do that?

QURESHI: The initial investigation carried out in Pakistan was full of contradictions and did not enjoy credibility.

BLITZER: Because she laid the blame, as you know, in the letter she wrote, directly on the government of President Pervez Musharraf.

QURESHI: We do not want to point fingers. We want -- that is why we want a credible investigation, we want a credible inquiry. We want an independent institution to do that so that we do not go in for a witch-hunt, we identify the culprits and bring them to justice.

BLITZER: Do you see a difference between the two presidential candidates in the United States, John McCain and Barack Obama, as far as their strategy towards Pakistan would be concerned?

QURESHI: Well, I think both recognize that Pakistan is an important player in the fight against extremism and terrorism. I think there is almost a bipartisan consensus of engaging and remaining engaged with Pakistan and that's good.


BLITZER: And in his interview with Fareed Zakaria, Barack Obama talked about what he would do as president if Osama bin Laden were captured.


OBAMA: If he was captured alive, then we would make a decision to bring the full weight of not only U.S. justice but world justice down on him. And -- and I think that -- and I've said this before -- that I am not a cheerleader for the death penalty. I think it has to be reserved for only the most heinous crimes. But I certainly think plotting and engineering the death of 3,000 Americans justifies such an approach.


BLITZER: And you can see Fareed's entire exclusive interview with Senator Barack Obama. That comes up on "Fareed Zakaria GPS" at 1:00 p.m. Eastern right after "Late Edition" only here on CNN. And coming up next, which candidate has the best plan for your pocketbook? We'll talk to two top economic advisers from the McCain and Obama campaigns. "Late Edition" continues right after this.


BLITZER: Welcome back to "Late Edition."

With no end in sight to rising gas prices and the housing crisis now bringing down a major U.S. bank, both John McCain and Barack Obama are spending lots of time on the campaign trail talking about the U.S. economy, which they should be doing, obviously.

Joining us now to discuss this and more, from Chicago, Barack Obama's top economic adviser, Jason Furman. And here in Washington, McCain economic adviser Nancy Pfotenhauer. Thanks to both of you very much for coming in.

And Nancy, let me start with you, and talk about what Barack Obama said yesterday out on his campaign plane about a recession right now. Listen to what he says.


OBAMA: I think we also have to have an economic stimulus package out quickly. I have little doubt that we've moved into recession at this point.

(END VIDEO CLIP) BLITZER: All right. He says little doubt that there's a recession right now, and the country needs a second economic stimulus package. Do you agree?

PFOTENHAUER: I do agree that the economy is in very soft shape. I mean, obviously, the definition of recession is a technical term, but it doesn't feel technical. We all know the economy is struggling right now, and what that requires is not just a stimulus package, although Senator McCain has been supportive of past efforts along those lines.

BLITZER: Does he support a new one?

PFOTENHAUER: I think he's open to it, but he's more focused on making sure that we embrace the economic policies that are going to bring us economic growth. That is the only way, it's not a Band-Aid approach. It's a tract change, if you will, to get...

BLITZER: And from your perspective, that means keeping the tax cuts that the Bush administration passed and making them permanent?

PFOTENHAUER: It means more than that. It means dramatically ratcheting down the growth rate in federal spending. We've had an explosion of spending in the last eight to 10 years. And, for example, just in the last four, since Barack Obama has been here, it's gone up about 20 percent, and he supported the energy bill, the highway bill, the farm bill, hundreds of billions of dollars in park barrel spending. So there's a huge problem with spending. We have to slow that growth rate of spending down to about 2.4 percent. And we have to make sure that we pursue free trade. So low taxes, low spending, free trade.

BLITZER: Jason, go ahead and respond.

FURMAN: Sure. Barack Obama -- this is a terrific week, actually, because you saw two different economic philosophies on display. And John McCain was talking about tax cuts for corporations, tax cuts for the most affluent, and hoping a bit of that would trickle down to middle class families.

Barack Obama was talking about bottom-up growth. He believes the way to make our economy grow, both in the short run -- to get us out of this recession -- and in the long run, build a foundation for stronger, more sustainable growth -- is to invest in middle class families.

BLITZER: But what is his (inaudible) second economic stimulus package, for example?

FURMAN: Sure, Wolf. He's asked for a $50 billion stimulus plan. And let's be clear. He called for this back in January. In January...

BLITZER: But be specific, what's that going to do for the American people? FURMAN: $50 billion stimulus package. The majority of it would be energy rebates that would help families cover the energy bills that they are struggling with. Another $10 billion would be to help with home foreclosures, and $10 billion to help states so that they don't have to actually contract their spending, cancel infrastructure projects, reduce Medicaid and all the other things they would do to make the recession worse.

BLITZER: All right, let me get Nancy's reaction. Good idea?

PFOTENHAUER: His economic plan, it's much more...

BLITZER: The stimulus, the details of the stimulus package.

PFOTENHAUER: The stimulus -- a stimulus package might -- will probably provide some short-term relief.

BLITZER: You said McCain is open to a new one.

PFOTENHAUER: He's been open to it, but he's also very focused on extending the gas tax moratorium, because that's very focused on helping people where the energy costs are rising, and also would affect grocery prices.

But it's much more important to focus on the overall economic plan. Senator Obama -- the big difference here, Senator Obama is proposing about $1.5 trillion in more spending over the next five years. He is proposing to increase income tax...

FURMAN: I've got -- this is not our plan, Nancy.

BLITZER: Hold on. Hold on. Let's let Nancy -- Jason, go ahead and respond.

FURMAN: First of all, the gas tax holiday is a perfect example of the difference between their economic philosophies. John McCain wants to give a tax cut to oil companies, and in addition he has another $1.2 billion in his corporate tax cuts, and then hope that they pass that savings on. Most economists say they won't actually pass that savings on to families.

Barack Obama wants to put that money directly in the pocket of families.

Second of all, when it comes to spending, Barack Obama cuts spending. He cuts the amount we spend overall.

Let me give you one good example. As we wind down the war in Iraq, what he wants to do is take the money he's saving from there and put it back into other spending that will do a better job for national security.

BLITZER: That's about $100 billion a year.

FURMAN: Correct. And we also have lot of unmet needs in defense. He's talked about 92,000 more troops (ph)... BLITZER: Let's let Nancy respond.

FURMAN: ... (inaudible), Marines, Army, so we can go on the offensive...


FURMAN: That's what he's called for, not pretending we can use it to balance the budget when we have all these unmet needs...

PFOTENHAUER: Jason, first of all...

BLITZER: All right.

FURMAN: ... in our defense.

PFOTENHAUER: Jason, before you became Barack Obama's top economic adviser, you supported a cut in the corporate tax rate, because we have the second worst in the world, and it's absolutely essential to lower that to at least the average rate from an international competitiveness standpoint.

Your boss is the first protectionist president we've had -- or nominee we've had in my lifetime. Why? Because it's lousy economic policy. You are raising some taxes. You have to admit that. And you're raising it on the job creators. You're also slamming small business with a health care mandate that could cost $12,000 per employee with a family. That means jobs.

BLITZER: Let's let Jason respond. You've raised several points. Go ahead, Jason.

FURMAN: You know, in fact, if you look at Barack Obama's plans, they are based on the premise that small businesses are really the engine of growth and job creation in our economy, and there's no bigger burden they face than health costs. That's, first of all, why the mandate you're talking about wouldn't apply to small businesses. He's been clear about that. And second of all, this afternoon he's going to be releasing a new policy, which is tax credits for small businesses that provide affordable health coverage to their employees that builds on all of his other ideas about how to bring the costs of health care down.

BLITZER: All right, Jason, I want you to respond to what Senator McCain said this week about Senator Barack Obama and all of our taxes. Listen to this.


MCCAIN: If you believe you should pay more taxes, I'm the wrong candidate for you. Senator Obama is your man.


BLITZER: All right. He says -- this is a standard Republican line. The Democrats, if they are elected to the White House, will simply raise your taxes. Go ahead.

FURMAN: I couldn't really see your clip there, but if he was speaking to an audience of CEOs, he was telling the truth.

FURMAN: If he was speaking to an audience of middle class American families, he should have been telling them that his tax plan leaves out 101 million, this is John McCain. The ones lucky enough to get a tax cut would get $125. Barack Obama, 95 percent of workers and their families, tax cut, $1,000. The dispute in this race is not over whether you want to cut taxes. The dispute is who you want to cut them for.

BLITZER: OK Nancy, we're going to take a break, but I want you to respond quickly because Senator Obama says if you make more than $250,000 a year, you're going to be paying more taxes. If you make under $250,000, especially if you're a middle class worker out there, family person, you're going to be getting a tax cut.

PFOTENHAUER: What Senator Obama's plan does is it raises taxes on capital formation and he imposes very costly mandates on businesses. It will kill jobs. It is the worst thing to do in an economic softening -- period of slowdown or softening, which is why even he's admitting that he may have to defer his tax increases. Now what Jason leaves out of his analysis and many other Democratic think tanks leave out of their analysis is Senator McCain's proposal on health care. He is proposing a $5,000 refundable tax credit per family, $2,500 per individual. In addition to keeping taxes low on capitol gains, keeping taxes low on income --

FURMAN: How do you pay for that?

PFOTENHAUER: Well, we pay for it. We actually balance the budget in 2013. Senator Obama doesn't even pretend to bring the deficit done. He does add significant spending.

BLITZER: Guys, hold on for one second because these are serious issues and we have a lot more to discuss, but I want to get a quick break. We have much more ground to cover, including the housing crisis. Who has a better plan for this mortgage mess? There's concern about banks out there right now. LATE EDITION continues after this. (COMMERCIAL BREAK) BLITZER: Talking about the number one issue for U.S. voters, the state of the U.S. economy. Joining us once again, Obama adviser Jason Furman and McCain adviser Nancy Pfotenhauer. Phil Gramm, the former senator from Texas caused a huge stir this week, saying you've heard of mental depression, this is a mental recession. He went on to say we have sort of become a nation of whiners. Now Senator McCain distanced himself from and repudiated those words quickly. Is he still a top economic adviser to Senator McCain?

PFOTENHAUER: I have heard about no change in status, but you certainly heard very loudly and clearly Senator McCain say Phil Gramm does not speak for me in this regard. I've always said Senator McCain is someone who has in his own inimitable day, has always made it perfectly clear how he feels about something. And he said the person in Michigan who's lost their job because their plants closed down or he has been laid off, this isn't psychological, this is real. So he went through the whole litany of examples of people he's met who are suffering from --

BLITZER: Jason, is Barack Obama were president, would he support bailing out Fannie Mae and Freddie Mac, these huge mortgage lenders, both of which seem to be in some serious trouble right now? Would the taxpayers have to bail them out?

FURMAN: Right. What he's said about this is that he's monitoring it closely. He understands the real seriousness of the situation, and what he's focused on is getting capital into mortgage markets so families can have affordable homes, avoiding foreclosure, and he'd do anything necessary to do that. And that certainly includes an essential role for Fannie Mae and Freddie Mac.

BLITZER: What about Senator McCain?

PFOTENHAUER: I don't think there's much disagreement here among the candidates. I think certainly that Senator McCain says we will not allow Fannie and Freddie to fail. That is just not an option. That you have millions of homeowners that are in their homes because of Fannie and Freddie. And that looking forward, the dislocation to the economic markets here would just be too severe.

BLITZER: How worried, Jason, should Americans be who have money in their banks right now that there could be a run on some of these banks. One of the major banks, IndyMac in California, we just saw has been taken over by the federal government. A lot of nervous people out there.

FURMAN: The federal government should be very nervous about what's happening in our financial system and acting vigorously to deal with it. For the vast majority of your viewers, though, you should know that deposits up to $100,000 are ensured and so most of the depositors at these banks will get their money. It's also, there are more banks that are in trouble, but this is not -- most of the financial system is in tact. Most of people's money is in tact. What we're really worried about is what this does to economic growth and the economy over the next year.

BLITZER: Jason Furman and Nancy Pfotenhauer, unfortunately, we've got to leave it there. Good discussion involving both of you. There's much more ahead on LATE EDITION, including Senators Chris Dodd and Jon Kyl. We'll talk about the housing crisis, the threat from Iran and much more. We'll be right back.


BLITZER: This is "Late Edition," the last word in Sunday talk.


PRESIDENT GEORGE W. BUSH: Tough economic times for the American citizens.

BLITZER (voice over): From the pain at the gas pump to the mortgage mess...

SECRETARY OF STATE CONDOLEEZZA RICE: We will defend American interests and defend the interest of our lives.

BLITZER: ... to Iran's military muscle, we'll look at the issues most important to voters with Obama supporter Senator Chris Dodd and McCain supporter Senator Jon Kyl.

OBAMA: I believe in a whole lot of things that make me progressive and squarely in the Democratic camp.

BLITZER: Has Barack Obama's latest moves alienated his most ardent backers?

Obama supporter Governor Janet Napolitano weighs in.


MCCAIN: Phil Gramm does not speak for me. I speak for me.


BLITZER: John McCain's economic message derailed by a top campaign adviser.

The highs and lows of the week in the presidential race with three of the best political team on television.

"Late Edition's" second hour begins right now.

And welcome back to the second hour of "Late Edition." The financial market spent the week in turmoil over more troubling news about the U.S. housing crisis. IndyMac bank in California was taken over by the federal government after a run on that bank. And two major mortgage lenders, Fannie Mae and Freddie Mac, have mounting debts that could -- could -- require a government bailout as well.

And this comes at a time when consumers still face prices well above $4 a gallon at the gas pump, many parts of the country approaching $5 a gallon.

So what does this all mean for Wall Street and for Main Street?

And what, if anything, can the federal government do about this?

Joining us now to discuss it all and a lot more, two key U.S. senators.

The Democratic chairman of the Senate Banking Committee, Chris Dodd. He's joining us from his home state of Connecticut.

And here in Washington, the Senate's second-ranking Republican, Jon Kyl of Arizona.

Senators, thanks to both of you for joining us.

Let me start with you, Senator Dodd. How worried should Americans be, right now, about their money in all these banks, given what we are seeing at this IndyMac bank out in California?

DODD: Well, fear is understandable, Wolf. And all the situation going on, with 8,000 to 9,000 people filing foreclosure on a daily basis, in the country; the news you've already identified in your opening comments, here, all would make fear understandable.

What's important here are facts. And the facts are that Fannie And Freddie are in sound situation. They have more than adequate capital -- in fact, more than the law requires. They have access to capital markets. They're in good shape. The chairman of the Federal Reserve has said as much. The secretary of the Treasury as said as much.

I know there are those who have been hostile to these GSEs, these government-sponsored enterprises, over the years. But let me remind people that, in the absence of these institutions, that 30-year fixed rate mortgage, which has meant so much to so many people, would not exist.

So they're critically important. And I believe they'll be in good shape. There are other underlying problems that need to be addressed, which created this problem.

BLITZER: But let me just press you. Forget about Freddie Mac and Fannie Mae right now. What about the security of our money in various banks around the country, right now? A lot of nervous people out there.

DODD: Well, as I said, I acknowledge that. And the reason it is so is, of course, because you had these terrible mortgages that were being marketed and regulators that were not doing their job. I remind people of what happened over the last year and a half, that we passed legislation in 1994, requiring the Federal Reserve bank to sit and monitor against deceptive and fraudulent practices when it came to the residential mortgage market.

They did nothing; didn't even propose a single regulation in that area. So weak regulation, cops not on the beat, and out there -- and you had brokers marketing products that were called liar's loans, deceptively drawing people in to mortgages they could never afford.

That's the reason you've had the problems. The bank that is in trouble, Indymac, here, had a huge amount of these subprime mortgages which were dreadful.

Where were the cops on the beat? They weren't there. That's the problem.

BLITZER: Let me let Senator Kyl weigh in. What do you think, Senator?

KYL: Wolf, I would reverse it a little bit. First of all, anybody that has money in insured banks is going to be fine.

BLITZER: Up to $100,000...

KYL: Up to $100,000...

BLITZER: ... per account?

KYL: Yes, exactly. And that's why most of the people even, in a bank like this IndyMac bank, are going to be just fine. That's why we have a system that insures banks.

So people should not be worried about the money in banks.

On the other hand, I disagree, a little bit, with Chris here. I think we should be worried about our GSEs, Freddie Mac, Fannie Mae. Those organizations are holding about $5 trillion in loans. And their assets are about 1.6 percent of that.

So I think that we're going to see, over the next few days, the federal government exercising a lot of different options that it has available...

BLITZER: To bail them out?

KYL: To ensure that they don't get into a financial situation where they can't cover their obligations.

BLITZER: Do you want to respond, Senator Dodd?

DODD: Well, yes. Of course, with the FDIC, that's the way of insured deposits. But why did the bank get into trouble?

That was your question, Wolf. And the reason they got into trouble is because we had regulators not doing their jobs. You had brokers going out and marketing products that, of course, people could never afford. That's the subprime problem. That's why you've got this housing crisis in foreclosures, right now.


BLITZER: But do both of you agree -- and Senator Kyl, let me ask you -- you both agree that, if these two mortgage lenders, Freddie Mac and Fannie Mae, if they're in deep trouble, U.S. taxpayers should go out and bail them out?

DODD: They're not in deep trouble, Wolf.

BLITZER: But we're just speculating. If they did get into deep trouble...

DODD: No, but, Wolf, speculation creates problem. This is a major television program, here. To suggest, somehow, they're in major trouble is not accurate. And even asking hypothetical questions creates its own conclusions, here.

These institutions are critically important. Jon has it right. There's a lot of potential exposure here.

BLITZER: But he seems to be, Senator Dodd, a little more worried about these two mortgage lenders than you are. Correct me if I'm wrong, Senator Dodd.

DODD: No, that's why I authored (inaudible)

I would have liked to have passed a legislation, in the last three weeks, that deals exactly with a strong regulator at the GSEs, and other reforms necessary to put them in an even better position than they're in.

But today they're more than adequately capitalized. They're in good shape, and have access to that capital market. That's very important that people understand that this morning.

KYL: You've seen the value of both of these companies deteriorate over the last couple of weeks, significantly. I think you're going to see announcements by officials of the United States government to ensure that they do not get into a position where they cannot cover the obligations that they have.

I think it is a matter of serious concern. And I also disagree with Chris in this regard. The legislation of which he speaks, I think, will make matters worse, not better.


KYL: Because it adds obligations to these two entities that we're asking to help us out in the form of new fees on every loan that they purchase or acquire as a bundled group.

And the net result is that it's, kind of, like asking a lifeguard to save you, but, by the way, hang on to this anchor while you're going it.

BLITZER: Because the point is, I think that a lot of people are concerned -- the stock value of both of these companies, these government-insured companies, if you will, Senator Dodd, have got -- what -- about $60 a share, down to around $10 a share, right now. That's a significant drop.

DODD: Wolf, absolutely. And surely, these are serious issues, here, we're dealing with. But I'll point out, we passed this legislation, the other day, 63-5.

And it's been over the last two and a half weeks, the overwhelming majority of Democrats and Republicans -- Richard Shelby of Alabama, my Republican colleague and I, 19-2 out of the committee.

We had extensive hearings last year: FHA modernization, GSE reform, and hope for homeowners to try to put a tourniquet on this foreclosure crisis that's occurring in the country.

This is very needed legislation. The administration, by and large, supports, except for a couple of provisions. Jon Kyl, my good friend, here, I'd point out, was one of four other senators that objected to this. Everyone else understands the value of it. And regrettably, we didn't get a pass three weeks ago, where it might have made even a bit of difference on the issues we're talking about this morning.

KYL: Wolf, if I could make this comment?

BLITZER: Yes, go ahead.

KYL: Back when the plan was originally being written, actually months ago -- Senator Dodd has been working on this for a long, long time. And it may be that, back in those days, the kind of things, except for some that he notes the Bush administration strongly opposes, made some sense.

Today, with these two entities in the financial straits that they're in, I think people that vote for this are going to regret imposing additional burdens on them at a time when they really are barely staying above water, as it is.

BLITZER: Senator Dodd, you're in charge of oversight. You're the chairman of the Banking Committee. Are you launching any new investigations?

Because so many people are wondering, how could this situation have deteriorated, the housing crisis, to the level it's deteriorated, right now?

Because we've got to learn some lessons to make sure this never happens again.

DODD: Well, I'll say -- repeat what I said at the outset of the show, Wolf. And that is, of course, when I became chairman, a year or so ago, of this committee, we discovered that the Federal Reserve was aware of this problem 3 1/2 years earlier, and literally nothing happened, despite the mandate from Congress to examine deceptive and fraudulent practices.

You know, this was the wild west. Mortgages were being given out to people who couldn't afford them. They were luring people into situations they didn't have to be in. The Wall Street Journal pointed out that 62 percent of the people who were lured into subprime mortgages qualified for normal mortgages, for prime mortgages.

Luring people into a situation that was far more costly to them, knowing full well they couldn't pay for it -- that's the heart of this, Wolf, more than anything else, is this housing crisis.

DODD: And it's national in scope. The values are declining, as much as 30 percent over the next year or so. That's a major blow to the country. That's why you've got these --

BLITZER: A lot of people, Senator Kyl in Arizona, in the housing market out there, they're suffering big-time right now. How much of the blame, and I know you're a blunt guy, how much of the blame does the Bush administration deserve for allowing this kind of situation to deteriorate, as it has?

KYL: Virtually none.


KYL: We've been predicting for years that this problem would come along. When I was chairman of the Republican Policy Committee, we wrote papers on it.

BLITZER: But isn't the federal government responsible for making sure this kind of situation doesn't happen?

KYL: The problem is, there is very little regulatory authority. That's why this legislation that Senator Dodd has been working on, the one good feature of it is additional regulation. But we should have had that regulation four years ago. The other problem, here, is that much of the bailout here is for the people holding bad loans, not the homeowners. It's for the speculators, the investors. I know in the oil crisis, everybody's concerned about the speculators driving up the price. What do you think happened in the housing market?

BLITZER: Senator Dodd, go ahead and respond.

DODD: No, no, no. Very specifically, Jon, we absolutely seclude speculators from having any benefit all the under the act. That's very clear in the law. Of course, this is a highly regulated industry, Jon. This isn't like hedge funds. The mortgage market has been a highly regulated industry. Where were the cops? Why weren't they out there saying when brokers were luring people in and saying I'm your financial adviser, a fully indexed price, don't worry about it, lie about it if you want, we'll get you into that home.

Those were people that had a responsibility, that failed in that responsibility, and the regulators watching them should have been doing a better job and they didn't do it. That's a major reason why we're seeing the problems we're seeing today. KYL: Just one quick example. There's much to be said. The provision that Chris alluded to that the Bush administration opposes and would veto the legislation over are these CDBG grants. They don't help.

BLITZER: You've got to explain what that means.

KYL: The community development to block grants, which enable local governments to purchase homes from the people who are holding them, the investors that are holding them. It doesn't help the homeowner at all. They're in foreclosure. It helps the people holding the paper, the money. It's a good example of how --

BLITZER: I want to move on, but I'll let Senator Dodd respond.

DODD: The community development block grant is money that goes directly to governors and mayors in order to help them rehabilitate foreclosed properties so they can put them on the market and sell it. It doesn't go to the homeowner at all.

KYL: That's my point.

DODD: That money, because you have declining property values, that is the resources coming from for police and fire and other matters. These are things that mayors need. We provide that when you have floods and hurricanes. This is a national crisis and our communities need to help. But you're not purchasing mortgages with that money at all.

BLITZER: Senator Kyl, what should Senator McCain, your good friend from Arizona do about former Senator Phil Gramm, who caused an uproar this week when he suggested that you've heard of a mental depression, this is a mental recession. We have sort of become a nation of whiners. In our most recent CNN/Opinion Research Corporation poll, 75 percent of the American public think the United States is in a recession. Not a mental recession, but a real recession. What should he do about Phil Gramm?

KYL: First of all, I think he already has. He's made it clear that he doesn't agree with that comment of Senator Gramm. Phil Gramm is a very outspoken guy, as you remember when he was in the Senate. He's also an economist and he is technically correct when he says that we haven't been in a recession because of the definition that economists use for a recession.

The problem is, people don't care about that. They care about the high gas prices, they care about the mortgage problem, the high cost of food and everywhere else. So I think Senator McCain is correct, that in one sense, it really doesn't matter whether you've met the technical definition of recession or not. People are hurting, and that's one of the reasons Senator McCain has been so focused on this issue.

BLITZER: Do you want to weigh in on this point, Senator Dodd?

DODD: Well yes look, talk about change. If you want more of the same, John basically has braced the Bush economic policies. We've just discussed the problems we have in the country today. He embraces virtually every one of them. I think Phil Gramm was basically reflecting what the attitude is of John McCain and the Bush administration.

Technically, we're not there. You explain that to the 8,000, 9,000 people tomorrow morning that will start filing for foreclosure. Every day that number goes on, $4 to $5 for gasoline prices. The 4,000 to 5,000 people who have lost their jobs in the last four five months. This is hardly some psychological problem these people have. And if you're looking for change, Barack Obama offers that fundamental change. The most important set of issues are our economy. A decent job, having a house that you can afford, having a college education you can afford, seeing to it your family can grow up with some decent standard of living. That's all at risk in this election. Barack Obama offers real change.

BLITZER: I'm going to let Senator Kyl quickly respond.

KYL: Real quickly, the economic program and the energy program of McCain and Obama couldn't be different. And with respect to change, it is Senator McCain who has the balanced approach with more production of energy, as well as conservation. Obama is just say no to any kind of new production.

And on the economy, one of them is for tax increases, the other one is for keeping taxes where they are. You don't raise taxes when people are suffering.

BLITZER: Senator Dodd, the Associated Press reported this week that they've already started vetting you as a possible vice presidential running mate for Barack Obama. Is that true?

DODD: I think all 99 of the senators are being vetted in the process.

BLITZER: What about you? Have they asked for your IRS returns? Other documents? Have you been interviewed already?

DODD: No, I mentioned that last week. Let me just say, Wolf, here, my concentration and my effort, we've been talking about this housing issue. We've been on it all weekend frankly talking about it. We've got the Iranian sanctions bill coming up this week. I've got matters before the health and education committee. That's where my focus and attention is going to be. Barack Obama would make a great choice. I wouldn't comment on it any further than that.

BLITZER: But have they started questioning you, asking you questions about possibly being on the ticket?

DODD: Wolf, we're going to leave it at that. I've got a lot of work on my hands this week.

BLITZER: All right, I'll take as a possible yes.

KYL: I hope they have, Chris. BLITZER: One final question for you, Senator Dodd. Joe Lieberman, a lot of speculation he's going to speak at the Republican Convention, endorsing John McCain. He's been traveling all over the country with them. If in fact he does do that and he's your long- standing colleague from Connecticut, would you be among those Democrats in the senator that would strip him of his chairmanship, assuming the Democrats increase their majority in the U.S. Senate?

DODD: He's not only my colleague, he's my friend. And Joe Lieberman does a great job on many issues affecting this country, a strong supporter of Democratic principles and values over the years and I would continue to be his friend and his colleague and I would not support an effort to strip him.

BLITZER: All right, we'll leave it at that. Senator Dodd, thanks very much for coming in. Senator Kyl, thanks to you as well. Good discussion.

Some of Barack Obama's supporters are frustrated about what they say are changes in his policies as the candidates move towards the center. Is Senator Obama alienating his base? We'll ask Arizona Governor Janet Napolitano. She's also been mentioned as a potential Obama vice presidential running mate. LATE EDITION continues after this.

And this important programming note. CNN's Fareed Zakaria sat down for an exclusive interview with Barack Obama. You're going to want to see that full interview. "FAREED ZAKARIA GPS" airs at 1 p.m. Eastern right after LATE EDITION, right at the top of the hour. We'll be right back.


BLITZER: Back to LATE EDITION, I'm Wolf Blitzer in Washington.

Hillary Clinton may be the best-known woman reported to be on Senator Barack Obama's short list for vice president, but there are at least two others. One is the Kansas governor, Kathleen Sebelius and the other is our next guest, the governor of Arizona, Janet Napolitano. Governor Napolitano, welcome back to LATE EDITION.

NAPOLITANO: Thank you.

BLITZER: I'll ask you the question I asked Senator Dodd just a few moments ago, have they started vetting you? Have they started asking you questions about your tax returns and other information?


BLITZER: So as far as you know, you're not necessarily on that short list?

NAPOLITANO: No. But I wouldn't repeat something that Senator Dodd said. This is Senator Obama's choice. The Democratic bench is a deep one, some very talented people there, and whatever choice he makes, I'm going to be enthusiastic about.

BLITZER: Would you like to be the vice president of the United States?

NAPOLITANO: You know, I'm not even going to answer that question, it will just fuel speculation. This is the nominee's choice. Like I said, the bench is a deep one.

BLITZER: And you've been a strong supporter of Senator Obama for a long, long time. Let's talk about some of the issues involved that are going forward right now. I'm going to play a little clip for you of a charge that Senator McCain leveled against Senator Obama this week.


MCCAIN: When you cut through all the smooth rhetoric, Senator Obama's policies would make it harder for women to create new businesses, find new jobs, harder for women to manage the family budget, and harder for women and their families to meet their tax burden. (END VIDEO CLIP)

BLITZER: All right. Those are serious charges affecting more than half of the voter outs there who happen to be women. Go ahead and respond.

NAPOLITANO: Well, I happen to think that deserves the Pulitzer Prize for fiction. It's just not true. Senator Obama has a platform that very much helps women, helps them with small businesses, helps women with child care, helps women with equal pay. All things that Senator McCain has voted consistent against in his years in the United States Senate.

So it is a platform and a series of beliefs that propel him, understanding that women are over 50 percent of the workforce now and that 85 percent of married couples in our country, both parents have to work. So you need to support the family. You need to support the children, the mom, the dad and everything, but a very, very strong proponent of Senator Obama.

BLITZER: Well he says that Senator Obama is going to raise taxes not only on those people making more than $250,000 a year, but on middle class investors, for example, by raising capital gains taxes and other investment-related taxes. The people -- the women out there and men, they're going to be paying more taxes under Senator Obama.

NAPOLITANO: Not true, not true. What Senator Obama's plan details is at the very, very upper part of the income bracket, yes, you would adjust taxes upward so that everybody is paying their fair share, but that means you have resources to deploy to those in the middle class, those who have been hurt so badly over the past seven years.

BLITZER: Here's how former governor Mitt Romney put it the other day in going after Senator Obama.


MITT ROMNEY (R), FORMER PRESIDENTIAL CANDIDATE: What Barack Obama wants to do, instead of extending the current tax rate is to raise the tax rate. So John McCain is lowering the taxes and Barack Obama wants to raise them. The answer is that the right way to balance our budget is not by taking more money from the American people, but by reducing unnecessary spending and growing our economy.


BLITZER: At a time when the economy is in deep, deep trouble, raising taxes, a lot of the economists point out, as you well know Governor Napolitano, that could merely exacerbate the decline in the economy and the loss of jobs.

NAPOLITANO: Yes, but the economists agree that what Obama is proposing is the correct thing, which is to say at the very, very tiptop, to spread out the tax burden so those at the lower levels pay less. And by the way, in terms of balancing the budget, the economists are uniform in agreeing that McCain's plan, because he doesn't tell you where he's going to cut spending, nor does former Governor Romney. It's very careful, they say you've got to cut spending. Well, the question needs to be, where exactly would you cut? Who's ox would you gore? They don't do that. And so the end result is under the McCain budget, we have deeper and deeper deficits, and that's not good for the long-term health of the country.

BLITZER: Some very, very liberal Democrats, ardent supporters of Barack Obama are expressing concern now that he seems to have changed his position on some very, very important and sensitive issues.

For example, surveillance, voting with the president on the new surveillance legislation, on public funding for his general election, on the D.C. gun law. How worried are you that some of the most ardent supporters that he has on the left are going to abandon him and not be as enthusiastic because he seems to be moving toward the center on some of these sensitive issues?

NAPOLITANO: I don't know so much is that again you get into that kind of age-old, you're on the left, the center, or the right and some of these issues don't really permit of that easy categorization and changes are made in the FISA law, for example, and I haven't spoken with Senator Obama about his vote there, but obviously that was a process that he went through.

One thing, though, that he has been very strong about is when he is announcing a major policy or something that could be perceived as a shift, explaining it. And he does that by using the Internet so very effectively.

BLITZER: Here's what the "Washington Times" wrote in an editorial on Tuesday. "There is a pattern emerging. Mr. Obama does not stand his ground when it is not politically expedient. When he reverses course, he is willing to blame others for his errors in judgment. He also makes convoluted, misleading statements. The Democrat is both a flip-flopper and a deceiver. This is indeed a manifestation of audacity, but not offer voters much hope for new politics." That's coming from the "Washington Times". NAPOLITANO: Well I think I'll put them in the category of not being Obama supporters. But I just think it's editorial excess. Of course, that's not true. And again, to me, and to anybody who's been in leadership in government, your positions may be perceived as changing, but as new facts come in, new development occur, they evolve over time.

That's part of being a leader is making sure that you are matching current circumstances, current facts, new facts as they come to light. We've had seven years of inflexibility, where despite whatever factual presentation that's made, there's no change, no adjustment of policy.

But I'll tell you this, Obama's beliefs, his core values, they haven't shifted one wit through the course of this campaign. BLITZER: We'll take your word for it, although a lot of people, as you well know, including a lot of Democrats disagree that he hasn't moved from the left to the center as this general election campaign goes forward. I'll let you respond and then we'll call it a day.

NAPOLITANO: Again, I think as the election goes on, sure, he's had some movement. But when I'm suggesting and saying is that movement to align with current facts and things that have changed make sense. His core values, that we have an inclusive politics, a new sort of politics that brings everybody into the system and is fair for everyone, those remain unchanged.

BLITZER: Governor Napolitano, thanks for coming in.

NAPOLITANO: Thank you.

BLITZER: If they start vetting you for the vice presidential list, you'll let us know, right?

NAPOLITANO: I'll give you a call.

BLITZER: Thank you. McCain supporter Phil Gramm uses the word whiners and Obama supporter Jesse Jackson uses a word a whole lot worse than that. Both found themselves in trouble. We'll talk about that and all the week's political news with our panel when we come back. Stay with us, LATE EDITION continues right after this.


BLITZER: Welcome back to LATE EDITION, I'm Wolf Blitzer in Washington. This campaign season, it often seems as if the surrogates for the presidential candidates are making more news than the candidates themselves. And it's not always very good.

This week, Jesse Jackson and Phil Gramm both made remarks that got them into some very, very hot water. Let's discuss that and a lot more with our senior political analysts, Bill Schneider and Gloria Borger and our congressional correspondent, Jessica Yellin. Guys thanks very much for coming in.

Gloria, let me start with you on Phil Gramm. I'll play a little clip of what he told the "Washington Times." This is just a little bit of what he said.


GRAMM: We've never been more dominant. We've never had more natural advantages than we've had today. We've sort of become a nation of whiners.


BLITZER: He was very upbeat about the U.S. economy, very, very positive. Never been more dominant. Never had more natural advantages. We've sort of become a nation of whiner.

BORGER: Oops. And I think he told Dana Bash later in a personal conversation that he meant that our country's leaders have become --

BLITZER: The political leaders.

BORGER: The political leaders are the ones who have become a nation of whiners. But honestly, he should have known better. That is not the kind of thing when you're an economic adviser to a presidential candidate who's out there saying, I feel your pain, I feel your pain.

BLITZER: Because it makes him sound, Bill, as if he's sort of obtuse, he doesn't understand what's going on.

SCHNEIDER: It looks like he's completely out of touch with ordinary Americans and he's undermining the message of his candidate. This was an editorial meeting at a newspaper. This wasn't a casual comment to a mike.

BLITZER: He is representing the McCain campaign at The Washington Times. The next day, he met with the editorial board of the Wall Street Journal. It's not as if he's just Phil Gramm, a senior executive for a big Wall Street firm. He's Phil Gramm, a close friend of John McCain; Phil Gramm, a long-standing top economic adviser to John McCain.

SCHNEIDER: And if he thinks the economy is in good shape, then a lot of Americans going to say, what does he know? What does he understand about us? And that is exactly the opposite of McCain.

BLITZER: Here's, Jessica, here's how Senator Obama reacted to this little uproar.


OBAMA: America already has one Dr. Phil. We don't need another one. When it comes to the economy, we need somebody to actually solve the economy. It's not just a figment of your imagination. It's not all in your head.


BLITZER: All right. You covered the Obama campaign. They must have been gleeful when they heard this.

YELLIN: This fell right into their lap. I mean, Barack Obama's message is he is stronger on the economy and he will help the average American more than John McCain. You know, his tax policy, you were just talking about it for quite a while, is aimed at middle class folks, people who are hurting. And so it plays perfectly to their theme that they are going to address real people's needs better than John McCain and it couldn't have been worse for McCain.

BLITZER: But McCain did handle it well in terms of immediately dissociating himself with that. I haven't heard him dump from the campaign yet, although I suspect he won't be out here very visibly -- very visible much longer.

BORGER: He won't be displayed prominently, but there was talk that a Phil Gramm could be a secretary of the treasury in a McCain administration. I doubt that would be the case right now. I think this was a real, real problem.

BLITZER: Let's talk about the whole Jesse Jackson slap. He was caught in an open mike speaking on FOX News. I'll play that little excerpt.


JESSE JACKSON, RAINBOW/PUSH COALITION: See Barack, been um, talking down to black people on this faith based. I wanna cut his (EXPLETIVE DELETED) off.

(END VIDEO CLIP) BLITZER: All right. We bleeped out that one word. He apologized to Senator Obama. Senator Obama accepted that apology, but this has been a really ugly episode.

SCHNEIDER: It was. It was unfortunate for Jesse Jackson, but there's a real difference between this incident and the Gramm incident.

BLITZER: Tell me what it is.

SCHNEIDER: The difference is the Gramm incident I think was damaging to McCain because it undermined his message. The Jesse Jackson incident may have helped Obama, because Obama wants to look like a different kind of African-American politician. He's not Jesse Jackson and here's Jesse Jackson expressing anger and exasperation with him. What could he want more?

BLITZER: Because of the faith-based initiatives that Senator Obama was at a church the other day, saying you know what, we need more of that.

YELLIN: This is really about well, it is partly about personal politics. People who know both men say that there's a history there. But there's also this debate within the African-American community. Barack Obama is saying regularly, or every so often we hear him say that African-American men need to do more to be fathers. Jesse Jackson is being critically because he thinks that needs to be paired more forcefully that government also needs to do more to help the African-American community. Now Obama does make that case. He makes both cases. Jackson thinks he emphasizes the personal responsibility more than the government responsibility. Barack Obama is speaking to the NAACP Monday night. Expect this to come up.

BORGER: This is also a generational issue because what was so interesting about this was Jesse Jackson says this and then within an hour, his son came out and.

BLITZER: Congressman Jesse Jackson Jr.

BORGER: Congressman Jesse Jackson Jr. and said, don't pay any attention to my father. You know, Senator Obama is speaking to people the way he ought to be speaking to people and you could see the generational change within the African-American community. Some people say, look, it's about time we stood up and faced this problem. And it's right for Obama to be talking --

BLITZER: So you agree that this is a political plus, the Jesse Jackson flap for Barack Obama?

BORGER: When Independent voters see that Barack Obama has distanced himself and separated himself from Jesse Jackson, that's not a bad thing for Independents.

BLITZER: Stand by, guys. We have much more to talk about, including some straight talk from the governor of California, Arnold Schwarzenegger. In case you missed it, our very popular segment. That's coming up. More of our roundtable, right after this.


BLITZER: We'll get back to our political panel shortly, but first in case you missed it, some of the highlights from the other Sunday morning talk shows here in the United States.

BLITZER: On NBC, two women believed to be under consideration for vice president -- that would be Democratic Senator Claire McCaskill and McCain economic adviser Carly Fiorina -- clashed over the candidates' plans for the economy.


SEN. CLAIRE MCCASKILL, D-MO.: If anybody believes that John McCain can balance the budget on his plan, right now, I've got a meeting they need to have with the tooth fairy.

There is no way -- because he is counting the money from not fighting the war in Iraq, but yet he's saying we're going to stay in Iraq.

CARLY FIORINA, MCCAIN CAMPAIGN ADVISER: The numbers in Barack Obama's plan just don't add. You cannot possibly pay for over $300 billion in government mandated programs, which is what he has proposed thus far, and cut taxes on 95 percent of the American people at the same time. The numbers simply don't add. (END VIDEO CLIP)

BLITZER: On ABC the California governor, Arnold Schwarzenegger, had some blunt words for politicians promising a quick fix for those high gas prices.


GOV. ARNOLD SCHWARZENEGGER, R-CALIF.: First of all, let me just make it clear. Anyone that tells you that drilling, nuclear power, alternative fuels, fuel cells, solar, all of those things will bring down the price, right now, I think is pulling wool over your eyes. Because we know that all of this will take at least 10 years.


BLITZER: On CBS, the Senate Armed Services Committee, Chairman Carl Levin, reacted to reports that Iraq was insisting that a status of forces agreement must include an actual timetable for U.S. troop withdrawal from Iraq.


SEN. CARL LEVIN, D-MICH.: If they're willing to have that kind of a time line, it seems to me, for heaven's sake, why should we be resisting that?

We ought to be insisting on it, rather than resisting it.


BLITZER: The Senate Foreign Relations Committee's top Republican, Richard Lugar, responded to another report that U.S. troop withdrawals could be sped up.


SEN. RICHARD G. LUGAR, R-IND.: General Petraeus still may have a word of caution, because he will say, with all this movement, the goal of America to have a stable Iraq, a democracy that works and so forth, might be in a little bit of jeopardy.


BLITZER: Highlights from the other Sunday morning talk shows, here on "Late Edition," the last word in Sunday talk.

Fox News Sunday, by the way, devoted its entire program, today, to their first anchor, the former White House press secretary, Tony Snow, who passed away this weekend at the age of 56 -- 53, that is.

When we come back, our political panel, who have had many encounters with Tony, over the years, will share some memories. We'll have some personal thoughts, as well, later in the program, about the loss of Tony Snow. We'll be right back.


BLITZER: We're back with three of the best political team on television, Bill Schneider, Gloria Borger, and Jessica Yellin.

What are you looking for from Obama this week?

He's got certain things on his agenda.

YELLIN: Well, the big thing we're looking at his speech to the NAACP on Monday. We'd mentioned it a moment ago. How does he address these issues within the black community that came up last week with Jesse Jackson?

And I think that will get a lot of play, a lot of attention.

BLITZER: What are you looking for this week, Gloria?

BORGER: I think I'm looking for that same thing. I also want to watch Obama continue to handle the charges that are being made, that he is flip-flopping, that he's deserting his Democratic base, how he manages to finesse that to attract independents, while still keeping his Democratic base there. Because that could become a problem for him.

BLITZER: Bill? SCHNEIDER: And the news from Iran is very disturbing. And I want to see how the candidates are responding to that and also what they make of all these offers, now, coming out of Iraq. You know, the most amazing piece of news I've heard was that Prime Minister Maliki is on the streets of Baghdad, handing out money because of the oil bonanza coming into Iraq from those high oil prices.

I can't think of anything more calculated to anger Americans.

BLITZER: You know, it was interesting that, when I spoke with the Iraqi national security adviser, earlier, here, on "Late Edition," they're saying they want a time line, which is what Barack Obama wants.

John McCain and the Bush administration don't want any artificial time lines.

BORGER: And that's another thing we ought to be looking for, because this obviously plays into Barack Obama's hands, particularly as he heads to the region to do a fact-minding mission. It's just a gift for him.

SCHNEIDER: Big threats now: Pakistan, Afghanistan, where more Americans are being killed, and increasingly, of course, Iran.

BLITZER: And Senator Obama's going to be heading over to Iraq. And it's interesting who he's taking along with him.

YELLIN: He is taking a Republican and a Democrat. He is proving his bipartisan bona fides. BLITZER: Jack Reed is the Democrat, of Rhode Island, is a former Army Ranger, a lot of military experience; and Chuck Hagel, who served in Vietnam -- he's the Republican who's been a critic of the war.

YELLIN: And there have even been rumors that Chuck Hagel could potentially be on an Obama short list as vice president.

It seems unlikely. But the message, here, is that Barack Obama is with two people who can, sort of, check him if anybody here is saying, oh, he's not listening to the generals on the ground; is he being open and flexible? Chuck Hagel's there to say, yes he is.

BLITZER: Let's talk about our old friend, Tony Snow, who unfortunately, tragically passed away this weekend. I worked with him closely over many years.

And, Gloria, I know, way back...

BORGER: Way back.


BLITZER: ... in the early days, when Frank Sesno was anchoring "Late Edition," you were a panelist and Tony Snow -- he was a regular on this show as well. BORGER: There was a "Late Edition before Wolf Blitzer?"


BLITZER: Yes, there was.

BORGER: Unbelievable.

BLITZER: There was a long "Late Edition," with a distinguished history.

BORGER: Tony Snow was wonderful because he could disagree with you without being disagreeable. I know that's a cliche, but it's true.

So smart, so engaging. And one of his talents was listening. That's why he was such a good host of the Sunday show. He was such a good listener. And he was able to respond to you by just taking apart your argument.

And he did it so well, but always with a generous nature. And he was one of the kindest, most caring people. Of anybody you know was ill, Tony Snow would be the first person to inquire about it.

BLITZER: All right. Stand by, guys. Because we're standing by. The president of the United States is about to make a statement on Tony Snow's passage -- passing, and we're going to take that live, right after this.

(COMMERCIAL BREAK) BLITZER: The president of the United States is now back on the South Lawn of the White House. There you see Marine One, it has just touched down. The president has spent the weekend out at Camp David. He's about to get off of Marine One, walk over to the microphone and make a statement about his former press secretary Tony Snow. Once he goes there, we'll bring you his remarks live.

Jessica Yellin, you were a White House correspondent when Tony Snow was the press secretary. You had a lot of exchanges with him. What was it like to work with him as the press secretary?

YELLIN: He had a real sense in the debate and the exchange. He came in at a time when the press was enormously frustrated, feeling cut out and he really engaged everybody. He didn't always give you the answer. He was very good at changing the topic. But I'll tell you one thing, the minute he came, people started to expand their vocabulary. They would walk out of that press briefing room asking, what did that word mean and they'd look it up? He raised everyone's game.

BLITZER: He was a very different kind of press secretary than his predecessor, Scott McClellan.

SCHNEIDER: Scott McClellan, Ari Fleischer. I mean, the press conferences in the early days of the Bush administration were grim. They were tense. It was like a showdown between the press secretary and the administration and the press corps. It was very, very, sometimes unpleasant. When Tony Snow came in, there was an immediate transformation. It was lively, it was vigorous and it was actually fun to watch.

BLITZER: Here's the president and Mrs. Bush. They're walking over to the microphone. He's going to be making a statement now on Tony Snow. Yesterday while he was out at Camp David, they issued a statement on paper, expressing his deep condolences, his deep love, his thoughts going out to the family of Tony Snow, his wife and three kids who survived. I want to listen into the president of the United States right now as he speaks about his former press secretary.

BUSH: Well, we had some bad news this weekend. Our good friend Tony Snow passed away. Tony, you know, worked with us and made a lot of friends here in the White House. And Laura and I are, we're really saddened by his death. I came to know Tony as a very smart and capable man. He had good values, he's an honest guy. You know, he had a wonderful sense of humor. He loved to laugh. He loved his country and he loved his family.

And our thoughts are, you know, with Jill and the three children now as they deal with their grief. We went to church this morning at Camp David and I prayed for Jill and the family, that they would find comfort and strength dung this tough time for them.

And I just hope they understand that Tony was loved here in the White House and a lot of those who got to know him really do care about Jill and the kids. So, anyway, thank you. BLITZER: The president speaking about his former press secretary, Tony Snow, only 53-years-old, Gloria Borger. How sad to see his death, because a lot of us, we could have disagreed, we agreed, whatever. But you know what? He was always a pleasure to work with.

BORGER: He was a total pleasure to work with. And you know, the people at the White House, it was kind of interesting, before Tony Snow came, there were some folks in the White House who were very worried about it. Because they thought, the guy is a journalist. He's not going to be able to do this job.

BLITZER: And when he had been a radio talk show host, he had been critical of President Bush on several occasions.

BORGER: He had been critical of Bush. So there was some trepidation about Tony Snow coming in. I think within a day, they were completely transformed over there and understood that they had a gem. Because he would spar with reporters, as if he were still on television as a pundit or an interviewer. And he was terrific. And he just, as you were saying, he just kind of raised the level -- or you were saying, raised the level.

BLITZER: It's interesting because I've worked with a lot of press secretaries, all of us have, over the years, and I must say, as a journalist, I thought, journalists don't always make excellent press secretaries. They make excellent journalists, but not excellent press secretaries.

YELLIN: He took it because he knew the debate. He knew how to have the television-style fight. And he really play to the cameras, more than promote the president's agenda. He never always was up to speed on the latest in the briefings, but he knew how to make the case in a TV-friendly way.

And if I can say one more thing is that when he had to leave, he also said I want everyone to know you can live a nice life with cancer. And I'm going to go out there and show people -- he used his platform to say, you can live with the disease and I'm going to embrace my time remaining.

SCHNEIDER: When he was press secretary, it was wonderful television to watch those press conferences. It was like a matching of wits between the press corps and the press secretary. It was friendly, there was not a mean bone in his body. He was open and he said something very interesting, I remember when he took the job. He said, I'm not taking notes, I'm not keeping a diary, I'm not going to write a book. Well with Scott McClellan's book that just came out, I think a lot of Republicans are very relieved that he never did do that.

BLITZER: Let me just behalf on all of us and everyone here at CNN. And Tony was one of our contributors in his most recent days. We express our deepest, deepest condolences to his family, especially his wife Jill and three kids and all of the friends of Tony Snow, and he had a lot of them. And that is your LATE EDITION for this Sunday, July 13th. Please be sure to join us next Sunday and every Sunday at 11:00 a.m. Eastern for the last word in Sunday talk. I'm in "THE SITUATION ROOM" Monday through Friday from 4:00 to 7:00 p.m. Eastern. Until tomorrow, thanks very much for watching. I'm Wolf Blitzer in Washington.

In just a moment, Fareed Zakaria's exclusive wide-ranging sit down interview with Democratic presidential candidate Barack Obama.