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More Troops to Afghanistan; Military Recruits with Criminal Records; Cross-Border Prisoner Swap; Breaking the Rules of War

Aired July 16, 2008 - 17:00   ET


WOLF BLITZER, CNN ANCHOR: Happening now, a new message to the Taliban -- a shocking setback has the Pentagon scrambling right now to find ways to rush in reinforcements to Afghanistan. We have details.
Two years after a bloody border war, freed militants, including a convicted murderer, get a hero's welcome in Lebanon, while Israelis are weeping as the remains of kidnapped soldiers are returned home.

And your latest raise won't go very far -- stunning new inflation figures may make you feel like you're giving it all away and more. The money expert, Ben Stein, he's here live. We'll talk about money.

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

Progress on one battlefield, stunning setback on the other -- it was a tale of two wars over at the Pentagon today. The top brass reporting significant improvements in Iraq.


ADM. MICHAEL MULLEN, JOINT CHIEFS CHAIRMAN: The security is unquestionably and remarkably better. Indeed, if these trends continue, I expect to be able early in the fall to recommend to the secretary to the president further troop reductions.


BLITZER: But suddenly the Pentagon says it's trying to find more troops to send urgently to Afghanistan.

Let's go to our senior Pentagon correspondent, Jamie McIntyre. He's working this story for us.

All this following a very deadly clash and the deaths of a lot of American soldiers.


And after months of the Pentagon saying it has no more troops to send to Afghanistan, it's in a mad scramble to find reinforcements.


MCINTYRE (voice-over): In the wake of the largest loss of U.S. life from a single firefight in Afghanistan, the Pentagon is reconsidering its decision to hold off sending American reinforcements until next year.

ROBERT GATES, SECRETARY OF DEFENSE: And we are clearly working very hard to see if there are opportunities to send additional forces sooner rather than later.

MCINTYRE: Gates has ruled out two options -- extending the deployment of U.S. forces already in Afghanistan or returning to longer, 15-month tours. That leaves sending troops that were intended for Iraq to Afghanistan this year on the hope that progress in Iraq holds.

The urgency is underscored by Sunday's sophisticated Taliban offensive in Kunar Province, in what until recently was a peaceful part of the U.S. sector. The attack claimed the lives of nine U.S. soldiers from the 173rd Airborne Brigade Combat Team based in Vicenza, Italy and pushed the U.S. death toll for July in Afghanistan to 15 compared to just six for Iraq.

MULLEN: They were well-trained, well-armed and it was a significant -- it was a significant number and it was a very complex attack.

MCINTYRE: The soldiers were scouting the location to set up a combat outpost, like this one under construction nearby, shown in a U.S. military television report.

UNIDENTIFIED MALE: The platoon is tasked with constructing one of three new O.P.s.

MCINTYRE: But military sources say there were no barriers erected yet and only barbed wire protected the unit as it bedded down before the early morning attack. Among the military's findings so far, there were 25 U.S. soldiers and 20 Afghan troops. One group of Americans dug in around their vehicles. The other manned an over watch position from high ground more than 100 yards away. An estimated 200 Taliban militants attacked both places simultaneously. They used mortars, rocket-propelled grenades and small arms. Between 35 and 100 Taliban are believed killed.


MCINTYRE: An after action review is now looking at whether the U.S. troops were too vulnerable and why U.S. intelligence failed to detect the large influx of Taliban fighters in a nearby town. But, Wolf, Pentagon officials continue to say the real problem is that safe haven that the Taliban is able to use just across the border in Pakistan -- Wolf.

BLITZER: A significant problem. Let's hope they learned some lessons from this one, as well.

Jamie is at the Pentagon.

The U.S. Army and the U.S. Marine Corps are signing up -- get this -- a lot of recruits with actual criminal records. Some troops with troubled pasts are now getting into serious trouble in Iraq right now.

Let's bring back Brian. He's working this story for us.

Brian, it's pretty shocking stuff. What are you learning?

BRIAN TODD, CNN CORRESPONDENT: Well, Wolf, some of these recruits are getting in with special waivers. But in some cases, like one involving a young Marine, their past problems don't even show up on background checks.


TODD (voice-over): Marine Lance Corporal Delano Holmes, shown here at his court-martial last year, convicted of stabbing an Iraqi Army private to death with his bayonet. It wasn't his first time in trouble. Holmes had a prior civilian record of assault, disorderly conduct, drug use and once threatened suicide, according to an investigation by the "Sacramento Bee" newspaper.

Holmes is one of hundreds of cases the paper looked at over the course of a year. The newspaper repeatedly found soldiers or Marines with troubled pasts linked to criminal incidents in the military, most in Iraq.

Marine officials tell CNN Holmes' record never came up in background checks, possibly because he might have been a juvenile when some arrests took place. Since his record never showed up, Holmes didn't need a so-called conduct waiver to enter the Marines. But the military is still granting tens of thousands of those waivers each year -- allowing people to join despite felony and misdemeanor convictions in the past.

An attorney who's been a military prosecutor and defense lawyer says much of this is due to the intense pressure to recruit during two long-running wars.

EUGENE FIDELL, NATIONAL INSTITUTE OF MILITARY JUSTICE: Unfortunately, it is the case that recruiters turn a blind eye, from time to time, to things that really ought to disqualify potential recruits. Or they may advise a recruit to keep certain compromising information to himself or herself.

MCINTYRE: According to military figures, both the Marines and the Army saw an increase in waivers from 2006 to 2007 for recruits who had had felony convictions. Contacted by CNN, officials from both branches emphatically deny that they're lowering their standards and say their screening of recruits is as thorough as possible. Experts say the military does have a tough balancing act.

FIDELL: Now, the matter is complicated because there are times when young people do engage in inappropriate behavior that society can and should allow them to put behind them.


TODD: Now when we asked just what's involved in their background checks, officials with the Army and Marine recruiting commands told us they run fingerprint checks, screen former employers and school officials, and check police records when they can. And they do that not only before enlistment, but also while some recruits are in training. But an Army official did tell us they do that second round of checks only for recruits who are given tactical assignments like combat. So for those who don't get that screening, some bad apples may fall through the cracks -- Wolf.

BLITZER: Brian, tell us about the surprise outcome, this young U.S. marine.

TODD: He was convicted of negligent homicide in that Iraqi soldier's death. He was acquitted of premeditated homicide, given only a 10 month sentence. And that was for time already served.

So what was essentially the mutilation -- if you look at the records, this was really a mutilation of this Iraqi soldier -- he got 10 months time served. He was then discharged. He's essentially a free man now.

BLITZER: Brian Todd working the story.

All right, Brian, thanks very much.

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

This is what happens, Jack, when you need recruits and there's a shortage of volunteers.

JACK CAFFERTY, CNN ANCHOR: Well, the military has been stretched, not to the breaking point, but close to it, because of the five-and-a-half year ongoing war in Iraq. It's a volunteer force. No politician is going to suggest bringing back the draft, because nobody wants their kids to be dragged into the armed forces against their will and sent to fight in a place like Iraq. So we're stuck until we can resolve some of this stuff.

Meantime, John McCain says, "I know how to win wars." And McCain says if he's elected, he will, "get Osama bin Laden, bring him to justice."

Remind you of anybody?

Remember bring them on -- dead or alive?

You get the picture.

McCain's comments came as he and Barack Obama focused on the so- called forgotten war in Afghanistan. We were just talking about it here in THE SITUATION ROOM.

The Taliban staging a dramatic comeback there. Nine U.S. troops killed in Afghanistan on Sunday. In the last two months, more Americans and allied troops have died in Afghanistan than have died in Iraq. McCain insists the strategy of increasing troops in Iraq has worked and the same thing should be done in Afghanistan. He says the U.S. should send three more combat brigades there, along with a presidential envoy. He says Obama's call for withdrawal from Iraq would mean defeat.

Well, Obama is also talking about Afghanistan, saying that Iraq has been a distraction from the fight against terrorism from the day one. Obama says as president, he would quickly end the war in Iraq, which he says has not made the United States any safer and was never the central front in the war on terror to begin with.

Obama's been saying for a year now that more troops should be shifted from Iraq to Afghanistan.

As for John McCain, yesterday -- yesterday the first time he suggested such a move.

Both men also talked about military assistance to Afghanistan and Pakistan, non- military aid to foster goodwill in the region, building alliances to fight terrorism.

Meanwhile, McCain, who touts his foreign policy credentials, made the same blunder in two days talking to two different groups of people. He referred to events on the ground in Czechoslovakia. That is a country that ceased to exist 15 years ago, in January of 1993.

So here's the question: Who would do a better job of capturing Osama bin Laden, Barack Obama or John McCain?

Do you care? You can post a comment on my blog -- Wolf.

BLITZER: We care. We care, because we remember.

CAFFERTY: Well, we have to care. This is how we pay the rent.

BLITZER: That's right. I certainly care.

All right, Jack. See you in a few moments.


BLITZER: Celebration and mourning as Israel and Hezbollah exchange prisoners, both dead and alive. The final chapter in a bloody saga.

Also, the slip-up in the Colombia hostage rescue operation that could turn out to be a war crime.

And jumping the shark -- the story behind the picture that's giving the phrase somewhat of a new meaning.

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


BLITZER: Celebrations and a heroes' welcome today in Lebanon for five militants, including a convicted murder freed by Israel. On the Israeli side, lots of weeping as the remains of two kidnapped soldiers were returned. They were captured two years ago and sparked a 34-day border war between Israel and Lebanon's Hezbollah. Israel unleashed a punishing air and artillery assault on Lebanon, while Hezbollah rained thousands of rockets and missiles down on Israel.

CNN's Ben Wedeman has more on this story from the border -- Ben.

BEN WEDEMAN, CNN CORRESPONDENT: These are trucks from the Red Cross bearing the bodies of 199 Palestinians and Lebanese being returned to Lebanon. For Israel, this was a traumatic deal.


WEDEMAN (voice-over): This is the moment of truth. At the site of these two plain black coffins, Israel knows that the two soldiers, abducted by Hezbollah in July 2006, are dead. Up to the last moment, hope lingered. But it quickly turned to anguish and despair as soon as the pictures were broadcast.

The deal closes a bloody chapter that began one summer morning two years ago when Hezbollah guerrillas attacked an Israeli patrol and abducted two soldiers. It then demanded the release of Lebanese and Palestinian prisoners in exchange for the soldiers. As Hezbollah handed over the two dead Israelis to the Red Cross, Israel freed five Lebanese prisoners, including Samir Kuntar, who was serving five life sentences for the murder of Israelis in 1979.

SMADAR HARAN, HOME ASSAULTED BY KUNTAR: Samir Kuntar is not just a regular prisoner, he's a murder, a very brutal one.

WEDEMAN: In April 1979, Kuntar, then aged just 17, and three other members of the Lebanon-based Palestine Liberation Front, smashed into Smadar Haran's home in the northern Israeli city of Nahariya, grabbing her husband Danny and 4-year-old daughter Enat. Smadar hid with her other daughter, 2-year-old Yael, in a crawl space, where she accidentally smothered Yael while trying to muffle her cries of fear.

Kuntar forced Danny and Enat by gunpoint to the nearby seashore, where he shot Danny in the back at close range, then smashed Enat's skull with the butt of his gun.

Smadar declined to enter the long and emotional debate in Israel over whether Kuntar should be released. She knows what it means to grapple with difficult choices.

HANAR: I am a second generation of the Holocaust. My mother lost all her family in the Holocaust and she went through experiences like this one.

WEDEMAN: Israel has made its painful choice. Samir Kuntar is now free. (on camera): On Thursday, the funerals will be held for the two Israeli soldiers whose bodies were returned to Israel today. They will be full military funerals -- Wolf.

BLITZER: Ben Wedeman on the border.

Thank you.

Not part of this deal, by the way, an Israeli soldier held hostage by Hamas in Gaza. Gilad Shalit was captured during a cross- border raid on a base near Gaza back on June 25th, 2006. Days after Shalit's capture, Israel launched a massive offensive aimed at trying to free him. His father says Shalit has not been seen by anyone from the outside since he was captured, but Hamas released an audiotape a year after Shalit's capture and the family has received letters, including one delivered just last month.

They didn't fire a shot or spill a drop of blood, but it seems Colombia's military broke the rules of war in freeing 15 hostages from a brutal rebel group.

Let's go back to Carol Costello. She's working this story for us.

What are we learning here -- Carol?

CAROL COSTELLO, CNN CORRESPONDENT: Well, you know, Wolf, that Colombian rescue of the three Americans and Ingrid Betancourt was spectacular, but it turns out it was flawed. Tonight, the Colombian president is admitting at least one rescuer used the symbol of the International Red Cross as a disguise. And it turns out that is a serious breach.


COSTELLO (voice-over): The Colombian rescue operation was widely hailed as ingenious. But now Colombian President Alvaro Uribe admits there was a slip-up. One of the rescuers was wearing an International Red Cross symbol on a bib -- part of the elaborate effort to dupe the kidnappers.

That slip-up is serious. It violates the Geneva Conventions and could be classified as a war crime, according to an international legal expert consulted by CNN. Mark Ellis says the fear is that any misuse of the symbol would weaken the neutrality and would weaken the Red Cross and, he says, potentially put Red Cross workers at risk.

Immediately after the rescue, Uribe acknowledged that intelligence officers had posed as bogus aid workers and journalists. But he denied at a news conference that a Red Cross symbol was used to dupe FARC terrorists. He even questioned Ingrid Betancourt on the issue.


PRES. ALVARO URIBE, COLOMBIA (through translator): Did you see if there were any emblems? INGRID BETANCOURT, FORMER HOSTAGE (through translator): Of course, Mr. President. We had the calm after all these years in the guerrilla. We had become experts in identifying who was before us. That's why I said it was very strange to me. I said, well, what is this, a helicopter?

A white helicopter?

Red Cross?



No. There was no flag. There was nothing. There was no sign anywhere.


COSTELLO: But CNN saw other unpublished video and photos of the operation and they showed what appeared to be the Red Cross logo.

The International Committee of the Red Cross has taken note of the Colombian government's admission, saying: "The ICRC, as neutral and impartial, must have the confidence of all the sides in the conflict in order to carry out its humanitarian work."


COSTELLO: CNN's Karl Penhaul broke this story.

I'll also add this. The Red Cross said, too, as guardian of international humanitarian law, the ICRC reminds us that the use of the Red Cross emblem is specifically regulated by the Geneva Conventions and its additional protocols. As for what happens next, Wolf, we'll have to wait and see.

BLITZER: I know we'll count on you.

Karl doing a good job for us breaking that story.

Thank you very much, Carol.

Inflation -- it's now soaring at a rate we haven't seen in nearly three decades. New numbers just out today. Ben Stein is here to help us make sense of the new twists in the economy.

And did you hear the one about the bear who went shopping at Circuit City?

If you haven't you will, because we have the video.


BLITZER: All right. Let's get back to Carol Costello.

She's monitoring some other important stories incoming into THE SITUATION ROOM right now.

What's the latest -- Carol?

COSTELLO: Well, Wolf, the U.N.'s highest court is stepping in today on behalf of the five Mexicans sentenced to death in Texas. The World Court voted to review the cases and persuade Texas courts to stop the executions. The World Court says the Mexicans had been denied the right to seek help from consular officials. The Bush administration also tried to intervene, but was unsuccessful in convincing Texas courts to change their ruling.

CNN has learned IndyMac, the California-based bank taken over by federal regulators last week, is now under investigation by the FBI. A source with knowledge of the investigation tells us the Feds are looking into whether the bank engaged in fraud when it made home loans to risky borrowers. It is the second biggest bank failure in U.S. history. We'll have a full report right here in THE SITUATION ROOM.

Looking to beat the heat on the beaches of Lake Michigan?

You just might be out of luck. Hundreds of pounds of garbage have washed up along 10 miles of shore. The mess includes prescription drug bottles and even needles. The Coast Guard says it's not sure where the garbage came from, but says some items carry Wisconsin names and addresses. Some beaches are closed because of this and trash is being hauled away by the truckload.

Take a look at this, Wolf. One customer at a Circuit City in Colorado Springs did not want to wait until it opened to look around. A bear -- you see that bear there?

He broke through a store window yesterday morning, after setting off an alarm at a local Italian restaurant. Maybe the little guy was looking for an iPhone or something. I don't know. But after sitting in the customer waiting area, he didn't get any help, Wolf, he decided to leave.

BLITZER: That's pretty amazing.


BLITZER: In Colorado, though, there's a lot of bears out there. You know, they've got to keep all the garbage cans covered. They're really worried about that kind of stuff.

COSTELLO: Well, why didn't he stay in that Italian restaurant?

I don't understand.

BLITZER: There's something to eat that's better in the Italian restaurant, I'm sure, than in the Circuit City.

All right, Carol, thanks.


BLITZER: An airline disaster leads to new rules after a dozen years. But your next flight still may not be as safe as it could be.

Also, the techie holding a major city's computer network hostage right now. He won't reveal the password.

And after 100 terror threats each day, we have an exclusive look at the FBI's new mission.

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


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

Happening now, a major change in U.S. policy toward Iran. For the first time, a top U.S. diplomat will join international talks with Iran's chief nuclear negotiator.

Also, the secretary of State, Condoleezza Rice, launching the Civilian Response Corps. It's like an international FEMA designed to speed civilian experts into countries hit by war or natural disaster.

And the cost of crude oil plunging once again today, down by more than $4 on top of yesterday's $6 dive. And that fueled a Wall Street rally that pushed the Dow and the S&P up more than 2.5 percent and the Nasdaq up more than 3 percent.

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

There was a bright light in the sky seen off the coast of New York. It signaled a catastrophe, though -- the explosion of TWA Flight 800 and the deaths of everyone onboard. That was back in 1996.

Now, a day before the anniversary of that disaster, federal authorities are trying to keep it from happening again.

Let's go to CNN's Deborah Feyerick.

She's working this story for us -- Deb, the FAA has a new regulation concerning these airliner fuel tanks.


Well, the tragedy had two main causes -- the center fuel tank filled with vapors ready to detonate and faulty wiring which in effect acted like a match. The wiring was first fixed. Now a new rule focuses on the other half of the problem.


FEYERICK (voice-over): Twelve years after the tragedy of TWA Flight 800, airlines will now start installing a new device to cut down the risk of a plane exploding mid-air.


MARY PETERS, TRANSPORTATION SECRETARY: The full safety answer lies in not just trying to remove the wires that could short or spark and cause an explosion, but also with inventing a way to reduce the flammability of the tank itself.


FEYERICK: Aviation experts say on every flight there's always a short period of time in which oxygen vapors in the fuel tank reach potentially dangerous levels. The new device adds nitrogen, creating a safer, less flammable vapor mix.


JOHN HICKEY, FAA: And this represents this secondary layer of safety, that if we fail to find, in that very small risk of an ignition source, this gives us that added security that it will not explode.


FEYERICK: TWA-800 was one of three such instances in the last 18 years. In that tragedy, investigators believe a wiring spark ignited vapors in the center fuel tank, which built up when the plane was delayed on the tarmac for two hours in the hot summer sun. Matthew Zienkiewicz's s sister Jill was a TWA-800 flight attendant.

MATTHEW ZIENKEWICZ, NATIONAL AIR DISASTER ALLIANCE: I'm disappointed they didn't do this sooner. It took an act of government to regulate the industry to do the right thing.

FEYERICK: The change will affect nearly 3,000 passenger jets. Old planes will be retrofitted with the device. New planes will have it built in. The airlines picking up the $1 billion tab.


FEYERICK: Now, this won't happen overnight. It will take about nine years for all planes to be equipped with the device. The largest passenger planes, those with the greatest risk will be fixed first. Wolf?

BLITZER: You're speaking to a lot of experts, Deb. What are they saying about the risks right now?

FEYERICK: Well, that's what's so interesting. Engineers say on every flight there's always a window where there's a 20 percent chance of something going terribly gone. Again, short window, but still not even the pilot knows when all the conditions are going to align. That's what makes this device so important. It cuts the risk to seven percent down in 20 percent. Engineers says that virtually guarantees TWA-800 won't happen again.

BLITZER: That seems high, 20 percent risk of something going wrong?

FEYERICK: Small window. Just a small window of time. But still, it certainly was enough time for 800. So they can't rule it out. And that's why this is so important.

BLITZER: All right, Deb. Thanks very much for working the story.

San Francisco, the city's main computer network is being held hostage right now. Allegedly by a city employee. Prosecutors say a computer tech changed the password and won't tell anyone what it is. Let's go to Kara Finnstrom. She is working the story for us.

Kara, what is this one all about?

KARA FINNSTROM, CNN CORRESPONDENT: Well, this seems to be a case of cyber sabotage. It's happening right in the shadow of Silicon Valley and it's raising questions about how safe government computer systems really are.


FINNSTROM (voice-over): The City of San Francisco, the target of one crazy cyber crime. The city's sprawling new computer network is being held hostage.

MAYOR GAVIN NEWSOM, SAN FRANCISCO: Worst case, and this is the absolute worst case in six to eight weeks, they can rebuild the entire system and shut this one down.

FINNSTROM: Administrators are locked out. And the man police say did it and won't give out the new password, he's one of the city's own computer whizzes.

NEWSOM: We just had a rogue employee that got a bit maniacal and full of himself.

FINNSTROM: Terry Childs is charged with four felony counts of computer tampering. He's being held on a hefty $5 million bail which puzzles his defense attorney.

MARK JACOBS, ALLEGED HACKER'S LAWYER: I think it's -- it's crazy. I don't know. I don't know why it's so high. I don't know what they're thinking over there.

UNIDENTIFIED FEMALE: My understanding is based on the charges alleged there is seen to be a threat to public safety and the bail was set accordingly.

FINNSTROM: But neither the D.A. nor city officials are spelling out what the safety concern is. The mayor stressing everything is operating normally. But if something goes wrong or needs to change, the administrators who would fix it are locked out. The network Childs worked on includes the city's 311 information system, employee e-mail, and law enforcement records. So we asked a cyber security expert what's the real threat.

RICHARD GORMAN, CEO, VORMETRIC: It's not the physical lockout itself, but it's the destruction or even worse use of the data and information that's in all of the files and servers. My understanding is it includes things like home assessment values, individuals' names in San Francisco, possibly Social Security numbers, criminal records for a number of employees, payroll information.


FINNSTROM: And CNN has just learned more information about the suspect and what may have set all this into motion. The city's communications director tells us they were not aware that Terry Childs had a criminal record that included aggravated burglary and theft when he was hired. They say they found that out during recent tighter background checks. They now believe the discovery caused Terry Childs to panic and set everything into motion. They do tell us that anyone hired in his position today would have their criminal history in other states checked.

BLITZER: I would think so. I would hope so. All right.

Kara, thank you.

There's no question the price of just about everything right now is on the rise. And new economic proves it. Get this, today we learned of the worst inflation numbers in more than 25 years. We're going to talk about your money with the economist Ben Stein. He's standing by live right here in THE SITUATION ROOM.

Plus, he doesn't have much hope for a significant African American vote. But John McCain spoke at the NAACP convention today. You're going to hear the message that got the most applause. That's coming up right here in THE SITUATION ROOM.


BLITZER: We're earning less and paying more. The Labor Department said energy costs drive up consumer prices last month by 1.1 percent, that's the second biggest jump in more than a quarter century. Average weekly wages fell 0.9 of a percent after adjusting for inflation.

But Wall Street wasn't fazed. Stocks enjoyed a strong rally today on falling oil prices, with the cost of crude sharply once again today. Let's talk about your money, the economy and a lot more with the economist, the columnist, actor, former White House speechwriter, Ben Stein.


BLITZER: He's also the co-author of a new book entitled "How to Ruin the United States of America." We'll talk about that, Ben, in a moment.

STEIN: Yes, sir.

BLITZER: A lot of people are really worried about all these horrible indicators out there right now. But inflation today, the worst numbers in nearly three decades. How worried should people be? STEIN: Not worried at all. That's a blip caused by a sudden spike in oil prices. In my opinion, caused very much by speculation. I know all the defenders and speculators are saying it's not true. But I'm quite sure it is true.

BLITZER: That's reassuring to hear that.

STEIN: That will come down. It's already coming down. It will probably come down quite a lot more in the near feature. We'll not have this near this level of increase in the future in oil. That's already the lamb going through the python.

BLITZER: Inflation's a blip.

STEIN: It's a blip.

BLITZER: What about the security of our money in banks. We saw those long lines at the IndyMac Bank.

STEIN: It's perfectly safe. Nobody has lost a dollar in a federally insured account of $100,000 or less ever. Since they had the $100,000 limit. It's not going to happen.

BLITZER: People who had $100,000 more in that bank, they're only going to get what, 50 cents on the dollar.

STEIN: That is a good lesson for people they should diversify their accounts. If they're not absolutely solid sure about their bank, have it spread out or have it in a Merrill Lynch or Fidelity or Vanguard money market fund. But people's money is safe. The economy is much stronger than people think.

BLITZER: What about the value of a dollar right now? Compared to the euro, it's really at a record low.

STEIN: It is very low. But how many people are going to be affected by that unless you're taking a vacation to Europe. Basically this country is still extremely prosperous, 94.5 percent of the people are gainfully employed. Stock market is not at a particularly low level.

BLITZER: Since January 1st we've lost hundreds of thousands of jobs. What, about 400,000 jobs? And every month it seems to be increasing.

STEIN: That's out of 140 million.

BLITZER: But we should be gaining jobs.

STEIN: We should be, but we're going through a business cycle.

BLITZER: The economy should be growing right now.

STEIN: We were in a cycle where for about six years it was growing very rapidly. Business cycles are business cycles.

BLITZER: What about the mortgage mess? The foreclosure.

STEIN: That, do you know -- here's, you're a smart guy. What percentage of all the mortgages held by Freddie Mac and Fannie Mae are in default, delinquency or foreclosure?

BLITZER: I have no idea.

STEIN: One percent. The total rate of mortgage foreclosures in this country is barely, barely 1.5 percent.

BLITZER: But how many people does that translate into? How many homes are we talking about?

STEIN: It translates into a lot of people but a lot of those people shouldn't have bought those houses in the first place. I'm sorry for them, I would not like to have my house foreclosed upon. It's a terrifying nightmare. But basically this country is in much better shape than economists (ph) are letting on.

BLITZER: Here's something T. Boone Pickens, a lot of others are concerned about. The unbelievable transfer of America's wealth to ...

STEIN: That's a real - I agree that's a real serious problem.

BLITZER: About $700 billion a year.

STEIN: I agree. That's a very serious problem. Look, I wrote the very first message to congress about a comprehensive energy policy for Richard Nixon in 1973 and '74.

BLITZER: Why didn't he listen to you?

STEIN: He sent it to Congress. Congress did nothing about it. That was 34 years ago. Congress has sat on its hands all that time. We could be energy independent. We could be almost energy independent. We could be taking coal and turning it into oil, taking shale and turning it into oil. We could have massive solar plants all through the American Southwest. We're not doing it. Ask the Congress why not.

It's a crime.

BLITZER: Who has a better economic strategy? Would it be Barack Obama or John McCain?

STEIN: Neither of them has -- neither of them could find his behind with both hands as far as economics.

BLITZER: What's the problem?

STEIN: They just don't know, first of all, that the market will take care of most of it. Get these restrictions off the oil companies and let them drill anywhere they want to drill unless they're going to kill Santa's reindeer. And let's get on with making ourselves energy independent. Look, we are at the mercy of people like Ahmadinejad. If he decides to cut off the oil supply through the Straits of Hormuz, it's going to be a nightmare. If it doesn't happen this year, it is going to happen some year. Let's start working on it right now.

BLITZER: One quick point. You write "How to Ruin the United States of America." What's the single greatest concern that you have right now?

STEIN: I'd say the main concern I have is taking ethics out of the American life by taking God out of the American life. We're sort of equal employment critics. We're very, very angry at the Bush administration for the supply side, but we also do not like taking God out of the public square.

BLITZER: It's good to hear a little optimism from an economist. We've been hearing a lot of pessimism.

STEIN: I'm very, very optimistic. In the long run we'll have business cycles in the long run.

BLITZER: Key words. In the long run.

STEIN: Yes. Let's all stay alive.

BLITZER: Ben Stein is the author of "How to Ruin the United States of America." Thanks for coming in.

STEIN: Thanks so much, Wolf.

BLITZER: Tomorrow the speaker of the House of Representatives, Nancy Pelosi, she will be here in THE SITUATION ROOM and get this, we want to put some of your questions to her. Send those questions to us at We'll get some of your questions to Nancy Pelosi tomorrow.

Suspicious packages, chemical threats, fears of a dirty bomb. The FBI deals with up to 100 threats a day. We're along for the ride as they chase down a new enemy, a behind-the-scenes look. Our justice correspondent Kelli Arena has unbelievable access.

And ordinary beach photos turn up a major surprise. The stories behind the amazing picture. That's coming up.

And for months they were bitter rivals, but now they're pretty tight. What are the chances Mitt Romney will end up on the ticket with John McCain. You're going to hear what Romney told me today.

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


BLITZER: Protecting the U.S. homeland is now the top mission for the FBI, as the bureau marks its 100th anniversary. Let's go to our justice correspondent Kelli Arena. She is working this story for us.

Kelli, what do we know?

KELLI ARENA, CNN JUSTICE CORRESPONDENT: Wolf, the FBI allowed us exclusive access to tell this story. Fighting terrorists now the FBI's number one priority. Agents track down as many as 100 threats a day. But it wasn't always so.


ARENA (voice-over): Busting the likes of John Dillinger, Al Capone and Bonnie and Clyde, earned the FBI its reputation. And gave birth to the legend of the G-man, button down, squeaky clean.

UNIDENTIFIED MALE: Stay alert and stay alive.

ARENA: There's still sporting suits and ties, but the mission has changed. Instead of a Tommy gun, public enemy number one now carries a box cutter. An explosives vest. A dirty bomb.

GARY ADLER, FBI SUPERVISORY SPECIAL AGENT: This is relating to a plot for an extortion back in February.

ARENA: New Jersey special agent Gary Adler leads a rapid response unit that chases down all reports of possible terror activity throughout the state, 24/7. Today it's a suspect who allegedly threatened to send a suspicious package to a government office.

ADLER: No problems whatsoever. Everybody's safe. Suspect in custody.

ARENA: Adler's team runs down as many as 30 threats a day. Many can be put to bed in a matter of hours. And sometimes all it takes is an interview.

MARC ITICOVICI, FBI AGENT: Truck coming through the Holland Tunnel tolls that apparently had a radiation hit on one of their monitors. What it turned out to be was the driver of the truck wound up having radioisotope therapy.

ARENA: Other threats are harder to resolve. Military pilots flying over New Jersey reported seeing a laser aimed at their plane. It's somewhat common, but very hard to trace.

SCOTT ROBINSON, FBI AGENT: Now, who would have the radar reports? Would it be you or would it be the FAA?

ARENA: Then there's the fear that terrorists will use crop dusters to spray biological or chemical weapons. More than a dozen field offices chased that one down, including Newark.

ROGER MORRISON, FBI COUNTERTERRORISM OFFICIAL: The individual purportedly was from Dubai, and purportedly wanted to obtain specific training on crop duster aircraft.

ARENA: The effort was coordinated by FBI agents at the National Counterterrorism Center near Washington, D.C. UNIDENTIFIED MALE: Do we know right now how many field offices have actually received that letter? Because I understand that there was as many as, what, 20 or so?

UNIDENTIFIED MALE: Right. We believe we think we're up to 22.

ARENA: It turns out to be a false alarm. But there's no let-up.

UNIDENTIFIED MALE: You have the Cincinnati bomb threat?

ARENA: The FBI dismissed warning signs back in 2001 and its hard-earned reputation took a big hit. Unlike Europe and other countries, there have been no terrorist attacks on U.S. soil since 9/11. And if the FBI can sustain that record, it may well be the stuff of legend for the bureau's next 100 years.


ARENA: I had a chance to sit down with FBI Director Robert Mueller as well, Wolf. I asked him what he thought the FBI needed to prepare for in this next chapter. And he said it was to keep weapons of mass destruction out of the hands of terrorists.

BLITZER: Let's wish them in good luck in achieving that mission.

All right, Kelli. Good access and good work. Thank you.

ARENA: Thank you.

BLITZER: Let's go back to Jack, he has got "The Cafferty File" --Jack?

CAFFERTY: That's great stuff. We spend money -- what is that? We spend money on a lot of junk, the taxpayers do. That agency, the stuff those guys do, whatever their budget requests are, give them the check.

The question is: Who would do a better job of capturing Osama bin Laden? Now I can put the question up. Barack Obama or John McCain?

Peter in Connecticut writes: "It's highly unlikely either candidate when he is the president will effect the capture of bin laden. He's too convenient a bogeyman to be made to go away. A side comment. McCain said, 'I know how to win wars.' What war did he win that gives him the credentials to make that statement? The only war he participated in, we lost."

Terrence in Georgia: "I think it's obvious who would catch Osama. Barack Obama has been saying it for months we need to increase troops in Afghanistan and should be putting more emphasis on targeting high ranking al Qaeda and Taliban members in the tribal regions of Pakistan. That's how we'll catch bin Laden."

Jared in Korea writes: "Hands-down, John McCain. As a former POW, member of the military and member of the Senate for many years, he has the credentials, the initiative and the fortitude to seek out, find, capture and bring bin Laden to justice. Obama is just now getting around to visiting Iraq and Afghanistan."

Jack writes from Long Island: "With Obama in charge we may actually have allies who might help us find bin Laden, unless McCain's Czechoslovakians can do it alone."

Jerry in Boston writes: "I suspect Obama will capture bin Laden the same way Reagan secured the release of the Iranian hostages. He had nothing to do with but he got all the credit. He'll be turned over, bin Laden, by the Pakistanis in time for the inauguration as a snub to Bush. If McCain wins, we'll never see bin Laden."

Jim writes: "Jack, the Grim Reaper will claim bin Laden before Obama or McCain."

Tom in Cincinnati writes: "Of course McCain would find bin Laden. He'd just use his experience from the wars in Mesopotamia or was it Persia?"

And Rocky in Massachusetts says: "Neither one. Geraldo Rivera is the only choice for finding Osama bin Laden."

If you didn't see your e-mail here you can go to my blog at or not -- Wolf.

BLITZER: And there are hundreds of comments there that people love to read. All right, Jack, see you in a few moments.

It's the second biggest bank collapse in American history. Now the FBI is launching a formal investigation into IndyMac. New details coming up.

Plus, an unbelievable day at the beach. The photographer, the surfers and one big jumping shark. CNN checked this out and will tell you what we know.

And a young tee ball player gets nervous over at the White House. We'll show you what happened right here in THE SITUATION ROOM.


BLITZER: They're images you have to see to believe. And they might make some people think twice before plunging into the ocean. A shark actually jumping up behind an unwitting surfer. Let's go to John Zarrella, he is down in Florida working this story for us.

John, what do we know about this amazing picture?

JOHN ZARRELLA, CNN CORRESPONDENT: Well, Wolf, Mark Twain wrote a famous short story called "The Celebrated Jumping Frog of Calaveras County."

Now we have the famous "Celebrated Jumping Shark of New Smyrna Beach.

(BEGIN VIDEOTAPE) ZARRELLA (voice-over): Take a look at these pictures. Right there behind the surfers. Yes, go ahead. Rub your eyes. You're not seeing things. It's a shark out of water.

KEM MCNAIR, PHOTOGRAPHER: I looked at the camera. You've got to be kidding me.

ZARRELLA: Kem McNair was taking photos on the beach in New Smyrna when a spinner black-tipped shark literally jumped into his image. Straight out of the water and twisting in midair.

MCNAIR: I saw something in the background. What was that? I looked and backed it up a tad. And there's the spinner shark.

ZARRELLA: Over the years there have been many doctored photos showing sharks. So these have understandably raised eyebrows. McNair swears his photogenic shark is legit. Others on the beach saw it.

UNIDENTIFIED MALE: He took the shot and I was witness to it.

ZARRELLA: Sonny Gruber, one of the world's leading experts on sharks believes him because Gruber says he's seen it.

SONNY GRUBER, SHARK EXPERT: That's a species known to jump. I've seen it. Many people have seen it. As a consequence, I believe the pictures are real.

ZARRELLA: One theory? They jump to dislodge the sucker fish called remoras.

GRUBER: They'll jump and spin. When they do that, the remoras all scatter.

ZARRELLA: It's not uncommon to see large numbers of sharks swimming along Florida's coastline, but not as many as there used to be. University of Miami researchers are studying them.

UNIDENTIFIED FEMALE: And it is a black-tipped female shark.

ZARRELLA: Trying to figure out how fast their numbers are declining. But it's not surprising to shark experts these photos were taken in New Smyrna, the area with so much surfing and wave action is sometimes called the shark bite capital of the world.


ZARRELLA: Now in this instance, there are no reports the shark bit anyone. In fact, Wolf, those surfers apparently had no idea the shark was behind them.

Smile, Wolf.

BLITZER: All right. Amazing story for us. Nobody can report it better than John Zarrella. Done a lot of vetting and checking and got the story for us, as he always does.

John, thank you.

By the way, there were about 50 shark attacks in the United States last year. Thirty two of them in Florida alone. With another six in Hawaii and two in California. None of those attacks was fatal. Only three other countries reported shark attacks in 2007. That would be Australia, South Africa and New Zealand, for a worldwide total of 71 attacks. One of them, one of them, fatal.

The Federal Reserve Chairman Ben Bernanke was on capitol hill today offering some assurances to lawmakers. But overall painting a gloomy picture of the economy.

CNN's Kate Bolduan has details.


KATE BOLDUAN, CNN CORRESPONDENT: Ben Bernanke did try to increase confidence but he did offered another gloomy recast today. Part two of his semi-annual report on the economy to Congress. Bernanke says hard times due to the struggling housing finance market and record energy costs will likely continue through the end of the year.

On top of many lawmakers' minds today, probably not a surprise, is gas prices, the housing prices and its impact on consumers' household budgets. Bernanke says we could see the housing market start to recover at the end of this year or the beginning of next. He says that's part of the reason behind the government's proposal to protect mortgage giants Fannie Mae and Freddie Mac.

BEN BERNANKE, FED CHAIRMAN: ... concern about the companies per se but they are critical to the U.S. mortgage market. And there are people out there who want to get a mortgage. People out there who would hope the housing market would come back. That can only happen if there is renewed interest and ability to buy homes. So these actions are intended to make our system work for the benefit of all Americans.

BOLDUAN (on camera): (AUDIO GAP) ... have signed on to the plan -- this plan to protect Fannie Mae and Freddie Mac. While many House Republicans agree that some action is needed to stabilize these mortgage lenders, conservative members and even House Republican leaders -- they're concerned over the cost of the plan to tax payers and are calling for hearings on the plan before they move ahead.


BLITZER: Kate Bolduan reporting for us.

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