Return to Transcripts main page

THE SITUATION ROOM

Bailout Deal Standoff; Biggest U.S. Bank Failure; McCain & Obama Face-Off

Aired September 26, 2008 - 17:00   ET

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


WOLF BLITZER, CNN ANCHOR: And to our viewers, you're in THE SITUATION ROOM.
Happening now, they will debate only hours from now -- four hours, to be precise. The candidates move on to Mississippi, but there's still a mess -- a real mess in Washington, where a proposed bailout of the financial system bogs down and bitter wrangling in Congress continues.

As Wall Street waits anxiously for word of a possible rescue, one of the nation's biggest banks goes bust.

Is that bailout urgently needed or overblown? We're going to be hearing from experts -- information you need to know.

And President Bush suffers a power failure. In a stunning twist, he's got backing from Democrats, while lawmakers from his own party, especially House Republicans, turn a deaf ear to his pleas.

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

The debate is on tonight, but how about the deal?

The candidates face-off in Mississippi in four hours, leaving behind the tense standoff in Washington over a proposed bailout of America's financial system.

President Bush today made yet another urgent appeal for Congress to pass his rescue package. But there's no agreement yet.

Let's go live to CNN's Jessica Yellin. She's on Capitol Hill watching this story.

Lots of back and forth. What are we hearing right now, Jessica? What's the latest? Are they actually negotiating, Republicans and Democrats, with the administration?

JESSICA YELLIN, CNN CONGRESSIONAL CORRESPONDENT: We are told, Wolf, that, yes, at the staff level, there's ongoing negotiation and discussion to move forward toward a bill. They plan to work over the weekend to get this thing done. But where the breakdown happened was when there was an attempt to have the actual members -- the principals themselves sit down and talk. A lot of finger-pointing and miscommunication about exactly who was supposed to attend that meeting and why the Republicans didn't show up. But the bottom line is a 3:00 p.m. meeting did not happen among the top negotiators in this bailout plan. Instead, they are waiting now for their staff to come sort of further negotiated agreement and then the principals will sit down. That's at least the latest that we're hearing.

The key point for these House Republicans is that some measure of this bailout be financed through private money, through what they're calling an insurance program.

Let's listen to Representative Eric Cantor.

(BEGIN VIDEO CLIP)

REP. ERIC CANTOR (R), VIRGINIA: First things first. Let's not turn to taxpayers.

Let's have the investors on Wall Street, frankly, who own these assets, pay for the premium, pay for the government guarantee so we can get our markets going again.

(END VIDEO CLIP)

YELLIN: So, Wolf, what I'm hearing is that there's a likelihood that an element of this plan will include or could include an insurance provision that would allow the secretary of the Treasury to, at his will, choose to make a pool of that money available through an insurance program instead of a taxpayer-funded program. Maybe that would allow both sides -- or all sides, I should say, to come together. That's what they're working on now.

BLITZER: All right. We're going to stand by and wait for word on whether there's going to be a deal or no deal.

Jessica is up on Capitol Hill.

The stakes certainly are enormous. And amid already the enormous number of job losses and the enormous number of home foreclosures, there are bank failures -- huge bank failures. The bigger they are, the harder they fall, as they say. Suddenly, one of the best known names in the business is out of business. That would be Washington Mutual -- seized and sold off by federal regulators.

Mary Snow is looking at this story with enormous ramifications. And, presumably, if there's no deal worked out, this could be only the beginning.

MARY SNOW, CNN CORRESPONDENT: Certainly, Wolf. Because everybody says even if there's no deal, don't forget that the country in recession, in tough shape. And several economists we spoke with say that government action is needed to prevent what some describe as scary consequences. But on the other hand, they also say some of the warnings are overblown, despite constant reminders that the economy is vulnerable.

(BEGIN VIDEOTAPE) SNOW (voice-over): It is a stunning turn. Washington Mutual is now the biggest bank to fail in U.S. history. JPMorgan Chase acquired it, took over its deposits and will write-off $31 billion in bad loans.

More bank casualties are likely to follow, say economists, even with a bailout. Without one, economists paint a grim picture. A possible immediate scenario -- banks freeze up and businesses have difficulty accessing cash.

JOSH BIVENS, ECONOMIC POLICY INSTITUTE: And that means people don't get paid, supplies don't get delivered, so businesses can't continue business as usual.

SNOW: As serious as that is, several economists we spoke with say some of the starkest predictions of no bailout, such as a repeat of the Great Depression within days, are overblown. It led one "Fortune" editor to declare: "This isn't Armageddon," saying, "panic right now will only make things worse."

GEOFF COLVIN, "FORTUNE" SENIOR EDITOR-AT-LARGE: Anytime there's a crisis of confidence, it becomes a kind of self-fueling cycle, a genuine vicious circle.

SNOW: One key difference between now and the Great Depression, economists say, when the stock market crashed in 1929, the Federal Reserve tightened credit instead of loosening it. Other policies were put in place to prevent history from being repeated. Economist Maria Fiorini Ramirez says the situation today may be different, but it's serious enough to require prompt government action.

MARIA FIORINI RAMIREZ, GLOBAL ECONOMIC CONSULTANT: If we don't have something like this package, or maybe something even bigger that we might need down the road, then I think the whole economy comes to a screeching halt.

SNOW: Some economists say the risk of doing nothing could mean the worst economic experience since World War II. That means unemployment rising, people earning less money, some having to take two or three jobs to make ends meet. With the bailout, the best case scenario means losses will be stemmed. And this package is just making a dent.

RAMIREZ: It's one step getting us closer to a resolve. It took us a long time to get here and it's going to take us maybe a couple of years to come out of it.

(END VIDEOTAPE)

SNOW: As one economist put it, think of it this way. Think of this money crisis as a hurricane and the goal of the bailout is to prevent it from going from a category three to a category five.

BLITZER: So it's going to be bad no matter what happens for a lot of the folks out there. But it could be really, really bad -- worse if there's no sort of deal that they can work out. SNOW: That's what a lot of people feel like at this point.

BLITZER: All right, Mary. Thank you.

President Bush has urgently and repeatedly pushed for a financial rescue package. But within his own party, especially among House Republicans, bailout foes have been ignoring his pleas.

Let's go to our White House correspondent, Ed Henry. He's working the story for us.

All right, what's behind what some are calling this presidential power failure -- Ed?

ED HENRY, CNN WHITE HOUSE CORRESPONDENT: Well, Wolf, there was a time around here when the president largely got what he waned from Congress, much earlier in his administration. Those days long gone.

(BEGIN VIDEOTAPE)

HENRY (voice-over): Call it take six -- the sixth time in a week the president has tried to show he's got the juice to sway his fellow Republicans.

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: We will rise to the occasion. Republicans and Democrats will come together and pass a substantial rescue plan.

HENRY: But all around him, signs the White House is on bended knee -- literally. Two Democratic sources say in a closed door meeting Thursday night, Treasury Secretary Henry Paulson got down one knee to half jokingly beg Speaker Pelosi not to use the TV cameras on the White House driveway blast the stalled talks. Paulson said he was worried it would further rattle the markets. But Democrats say the real problem is House Republicans balking at the president's $700 billion bailout.

SEN. CHARLES SCHUMER (D), NEW YORK: This is a plea to President Bush. For the sake of America, please get your party in line.

HENRY: Last Friday, the president began his case.

BUSH: This is a pivotal moment for America's economy.

HENRY: Saturday, more promises.

BUSH: As quickly and as big as possible.

HENRY: Monday, a written statement warning "a failure to act would have broad consequences."

Tuesday, Vice President Cheney is dispatched to the Hill to twist arms.

Wednesday, a prime time address.

BUSH: And without immediate action by Congress, America could slip into a financial panic.

HENRY: Thursday, the president's attempt to jump-start talks by inviting Barack Obama and John McCain to the White House ended badly, sparking Paulson's plea to Pelosi.

A week of lobbying has still not won over Republicans. So White House aides have fallen back on a familiar refrain -- the president is willing to take on bold fights, even if it's not always popular with fellow Republicans.

DANA PERINO, WHITE HOUSE PRESS SECRETARY: He has led on important issues like Social Security, immigration and now this one, where we try to help drive to a conclusion.

(END VIDEOTAPE)

HENRY: Now, the White House is still hopeful of driving this particular battle to a successful conclusion. But, of course, the two other battles Dana Perino cited, immigration and Social Security reform, the president lost. Not necessarily good omens -- Wolf.

BLITZER: I think you're right, Ed. Thanks very much.

I want to go back to Jack. He's here.

He's got "The Cafferty File" -- Jack.

JACK CAFFERTY, CNN ANCHOR: The financial crisis that the country is in is uncharted territory. Nobody knows if a $700 billion bailout is going to do the trick or not.

If we do nothing, the pessimists suggest the country is headed right off a cliff -- depression ahead.

Granted, in time, and left to their own devices, the markets would probably self-correct.

The question is whether the country could stand the pain that that would undoubtedly involve.

On the other hand, if we will allow the federal government to, in effect, take over and/or manage some of our biggest financial institutions, we've compromised our capitalism and nobody knows what the long-term effects of that might be, either.

The engines that drove our economy to be the most powerful the world has ever seen are free markets and an entrepreneurial spirit that allows those willing to take big risks to reap big rewards. According to an Associated Press/Knowledge Network's poll, 57 percent say they think the bailout is needed to keep the U.S. out of a serious recession. But only 35 percent say they think the plan's going to work and resolve the financial crisis.

So here's the question: Should the government bailout the economy or should the markets be allowed to correct themselves?

Go to CNN.com/caffertyfile and you can post a comment on my blog.

Not nearly as sexy as that Sarah Palin thing, but probably more important in the long run.

BLITZER: Well, definitely very, very important.

The Sarah Palin story is important, too. If they're elected, that's obviously an important story.

CAFFERTY: I'm moving to Chile.

BLITZER: No, you're not. You're staying right here.

(LAUGHTER)

BLITZER: All right, Jack, stand by.

We just got word, by the way, that Senator Chris Dodd, the chairman of the Banking Committee, one of the negotiators deeply involved in this process, he's going to be joining us in a few minutes.

CAFFERTY: Great.

BLITZER: We'll get an update from him on what is going on right now.

In just a few hours, the very first presidential debate. Barack Obama and John McCain in a one-on-one battle tonight. We're live an the University of Mississippi.

And many stations with no gas at all. Long lines at those stations. Details of a major fuel shortage right here in the United States.

So what's going on?

Plus, exclusive details about Al Qaeda's most wanted -- a $100 million reward out for men that some say may be even more dangerous than Osama bin Laden.

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

(COMMERCIAL BREAK)

BLITZER: Disappointment, uncertainty and now excitement building at the campus of the University of Mississippi, where Barack Obama and John McCain will debate in less than four hours -- a contest we couldn't even be sure would happen until late this morning.

Suzanne Malveaux is on the campus of Ole Miss watching this going on right now.

Lots of excitement, I'm sure, on the campus, Suzanne. But set the scene for us. SUZANNE MALVEAUX, CNN WHITE HOUSE CORRESPONDENT: Well, certainly. John McCain just finished his walk-through on stage, which is something that Barack Obama did 90 minutes ago. And, of course, the moderator, their host, PBS' Jim Lehrer, checking out with his own production team some of the sounds and camera checks at the last minute as these candidates go to their respective locations for some last minute debate prep.

All of this, as you say, Wolf, a huge relief to so many people here, who essentially were in limbo -- didn't even realize whether or not this was going to happen.

(BEGIN VIDEOTAPE)

MALVEAUX (voice-over): Game on -- here at Ole Miss, people are having a toe tapping good time -- students thrilled that their school is back in the game.

UNIDENTIFIED FEMALE: I'm very, very excited because this is a new day for us.

UNIDENTIFIED MALE: I'm glad John McCain's coming to debate and excited to see what happens.

MALVEAUX: Word that John McCain is now attending the debate has the town of Oxford buzzing again about the presidential candidates.

UNIDENTIFIED FEMALE: I'm just exhilarated, so glad he's coming.

UNIDENTIFIED MALE: Hopefully we'll get some real meat to the issues and not just little sound bites and quips.

MALVEAUX: For 48 hours, this community was turned upside down waiting for word whether the debate would even happen. Many were upset that McCain considered opting out to participate in the bailout negotiations taking place on Capitol Hill.

UNIDENTIFIED MALE: It would like be a slap in the face to the people of Mississippi.

MALVEAUX: But this afternoon, both candidates arrived to check out the setup and do last minute prep work before the battle. The university's chancellor says the debate is a $5.5 million investment, but it's also an opportunity for the school to write a new chapter in its racially charged history.

UNIDENTIFIED MALE: The spotlight is on a Deep South University that's come from the dark past of the days in the '60s to where we are today, in 2008. And it gives us an opportunity to be presented to the world and to the nation today. And we love that opportunity.

(END VIDEOTAPE)

MALVEAUX: And, Wolf, obviously, big expectations from a lot of people who are going to be watching this tonight. And, of course, both of the campaigns playing the expectations game. We got a statement from Bill Burton, a spokesman from the Obama campaign, simply saying here that if McCain -- if he slips up, makes a mistake or fails to deliver a game-changing performance, it will be a serious blow to his campaign. Obviously, he even put out some talking points, saying McCain is a good debater, Obama not necessarily so. It is all about tomorrow -- how they're going to frame their performance. And a lot of that has to do with how they set the expectations hours ahead -- Wolf.

BLITZER: Suzanne, stand by. We'll be getting back to you at Ole Miss.

Tonight's formal, topic foreign policy. And that's certainly going to include the war in Iraq.

Let's bring in CNN's Michael Ware, who's covered this war now for almost, what, six years in Baghdad.

MICHAEL WARE, CNN CORRESPONDENT: Yes.

BLITZER: You're here in New York, Michael, right now.

What do these candidates, from your perspective, need to say tonight?

WARE: Well, I'd like to see if they take this opportunity in Mississippi and make it worthwhile.

Will they go beyond the glib responses about Iraq and beyond and actually say something substantive?

First and foremost, what will they, as president, do to protect America's interests in the future of Iraq?

And that is essentially the Sunni allies that are now on the U.S. government payroll. America is handing them back to the Shia-dominated government, who hates these American allies.

BLITZER: So do you fear there could be yet a bloodbath if the U.S. were to pull out?

WARE: Well, I don't think it will be an overt bloodbath. But we've already see these American-paid allies under assault from the Iraqi government.

Now, this is an Iraqi government more closely aligned with Iran than it is America. Already, the government's chipping away at these American allies.

And let's talk about Iran. Because of the war in Iraq, Iran is bigger, stronger and more emboldened than ever. Let's hear the candidates acknowledge that and let's hear how they intend to deal with Iran as a regional superpower.

BLITZER: What about the so-called war on terror, the hunt for bin Laden, for example?

WARE: Well, hey, you want to defeat Al Qaeda, you want to beat these Islamic militants?

Let's hear the candidates answer how on earth do they intend to counter the rogue elements of Pakistan's intelligence agency, which are continuing to support Al Qaeda. Until they address that, you're not going to be able touch Al Qaeda.

Let's hear something real.

BLITZER: And there's so many other world crises underway.

WARE: Oh.

BLITZER: You were just in Georgia -- the Republic of Georgia...

WARE: Right.

BLITZER: ...where there was a Russian invasion.

WARE: Right. And we now have a resurgent Russia. Now, they have America over a barrel in some ways. America needs Russia's support in the U.N. Security Council and elsewhere on key issues, such as Syria and Iran's nuclear development, just to name a few.

What -- what leverage does America have, if any, to get Russia to play ball? I'd like to hear some inventive out of the box thinking. And let's get something real rather than some pastiche sort of thrown together answers that say nothing -- Wolf.

BLITZER: And you know what, you're going to be with us after the debate and we're going to pick your brain. You're going to be taking notes and we'll get your sense of what you thought was good, what worked, what didn't work and all that.

Michael, thanks very much.

WARE: My pleasure, Wolf.

BLITZER: Michael Ware is going to be with us throughout the night.

The first debate usually a defining moment for the candidates. How do they prepare?

Coming up, James Carville, the man who helped Bill Clinton prepare for his debates, he'll weigh in on what the candidates need to do, as well.

Plus, some unexpected fallout from the financial crisis forces the U.S. Mint to make a surprise move. We'll explain right here in THE SITUATION ROOM.

(COMMERCIAL BREAK)

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

Carol, what's going on?

CAROL COSTELLO, CNN CORRESPONDENT: A couple of things, Wolf.

The U.S. Mint is temporarily halting sales of its American buffalo 24 carat gold coins. And you can blame the economic turbulence for the suspension. Investors have been rushing to buy gold as a safe haven and the mint simply hasn't been able to keep up with the soaring demand for the coins. This year, sales of the gold buffalo coins have been up 54 percent from the same period last year.

A gasoline shortage in the Southeast is putting the squeeze on independent gas station operators. At least one analyst says major oil companies are supplying their branded stations and cutting off independents. The gas shortage started after Hurricane Ike and could alter plans for many people in Southeastern states this weekend.

And here's one for the record books -- a Swiss daredevil crossed the English Channel today strapped to a homemade jet propelled wing. Really. He jumped from a plane, fired up the jet's turbines and made the 22-mile trip from Calais, France to Dover, England. The wing weighs about 121 pounds when loaded with fuel and it has no steering devices. The man moved his body to control the wing's movements -- you know, just like a bird. Pretty amazing.

And pirates are holding a Ukrainian sea vessel and its 21 crew members captive. The ship was headed from Ukraine to Kenya yesterday when pirates flying a Belize flag seized the vessel off the coast of Kenya. The ship was carrying 33 Russian-made tanks, tank artillery shells, grenade launchers and small arms. Ukraine had sold the weapons to Kenya. Three of the vessels' crew members are from Russia. A Russian patrol ship is now heading to that area. We'll keep you posted -- back to you, Wolf.

BLITZER: Carol, thank you.

Tonight's debate a potential -- potential game changer, exposing each candidate's strengths and weaknesses.

Plus, my interview with Pakistan's new president. The world's most wanted terrorist is almost certainly hiding in his country.

What about that?

(BEGIN VIDEO CLIP)

BLITZER: Do you know, or do you believe you know, where Osama bin Laden is hiding?

PRES. ASIF ALI ZARDARI, PAKISTAN: If I did know, he wouldn't be there.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

BLITZER: To our viewers, you're in THE SITUATION ROOM. Happening now, after much uncertainty, tonight's presidential debates will take place. And one major gaffe could be deadly. We'll take a closer look at each candidate's potential pitfalls.

Many people are wondering what, if anything, Pakistan's new president will do to try to find Osama bin Laden. I spoke with him, the Pakistani president, Asif Ali Zardari, today about where he thinks bin Laden may be hiding.

And CNN now has a new list of other Al Qaeda and Talabani leaders the U.S. government is tracking. U.S. officials worry they may be plotting new attacks.

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

We're counting down to tonight's presidential debate between John McCain and Barack Obama -- a face-off that has the potential to be a game changer, magnifying both men's strengths and weaknesses.

Carol Costello is joining us now. She's looking at the stakes involved tonight.

The stakes are enormous, Carol.

COSTELLO: Oh, you're not kidding. It is safe to say, Wolf, this will be one of the most watched presidential debates in history. According to Nielsen, a record 80 million people watched Reagan and Carter back in the day. Well, this debate is expected to break that record. Ninety million could be watching.

The stakes are high. And because of the drama surrounding the economy, Americans will be much more critical.

(BEGIN VIDEOTAPE)

COSTELLO (voice-over): As debaters, both men have certainly had a lot of practice. During the primary, McCain logged 14, Obama 22. Still, this series of three debates will be different. One major gaffe could be fatal. The race has been that close. And both men have shown they can slip up.

When Barack Obama uttered this line while debating Hillary Clinton...

(BEGIN VIDEO CLIP)

SEN. BARACK OBAMA (D), PRESUMPTIVE NOMINEE: You're likable enough, Hillary. No doubt.

SEN. HILLARY RODHAM CLINTON (D), FORMER PRESIDENTIAL CANDIDATE: Thank you so much.

COSTELLO: ...he gave credence to those who feel he's condescending.

OBAMA: A, to find out... COSTELLO: And his sometimes long-winded, professorial answers don't help, either.

JIM VANDEHEI, POLITICO EXECUTIVE EDITOR: It seems a little absurd that we don't want our candidates to sound too smart, but sometimes we don't want them to sound too smart and too long-winded. We actually want to like have a sort of an emotional connection with them.

SEN. JOHN MCCAIN (R), PRESIDENTIAL CANDIDATE: If you look very carefully at...

COSTELLO: Some analysts say McCain has the opposite problem -- he is sometimes slow to answer questions, which make him appear uncertain. In May of last year, when McCain was asked whether he believed in evolution...

MCCAIN: Yes.

UNIDENTIFIED MALE: I'm curious, is there anybody on the stage that does not agree -- believe in evolution?

MCCAIN: May I just add to that?

UNIDENTIFIED MALE: Sure.

MCCAIN: I believe in evolution, but I also believe when I hike the Grand Canyon and see a sunset, that the hand of God is there, also.

COSTELLO: The big plus for McCain in Friday's debate will be its topic -- McCain's passion, foreign policy.

MCCAIN: On the subject of Osama bin Laden, he is responsible for the deaths of thousands of innocent Americans. He is now orchestrating other attacks on the United States of America and I'll follow him to the gates of hell.

VANDEHEI: McCain views the world through sort of like right or wrong and honor and honor or dishonor. And he is sort of at his best, and I think he's at his most authentic, when he's talking in those visceral terms.

COSTELLO: And while humor won't exactly fit into the debate during these troubled times, Obama is clearly capable of connecting in a warm, humorous way.

Listen to how he responded to a question about Bill Clinton being the first black president.

OBAMA: I would have to, you know, investigate more, you know, Bill's dancing abilities and...

(LAUGHTER)

(END VIDEOTAPE) COSTELLO: And that did bring out a good laugh. Analysts say Obama needs to show more warmth, more passion, and John McCain needs to show less passion and share more measured answers -- Wolf.

BLITZER: All right. Good advice.

Carol, stand by.

Let's discuss the debate a little bit more.

For that, we're joined by CNN political contributor, the Democrat strategist, James Carville and Republican consultant Alex Castellanos.

James, you helped prepare Bill Clinton for his debates. The fact that the past couple of days both of these presidential candidates came to Washington, got directly involved in these negotiations, if you will, over a government bailout, what impact, if any, do you think that will have tonight?

It took away time from their so-called debate prep.

JAMES CARVILLE, CNN CONTRIBUTOR, CLINTON SUPPORTER: It did. And it was just weird. I mean from the time that McCain announced that he wouldn't debate because he wanted to work on a deal in the White House meeting and then be coming back and the debate is on -- if I'm in these campaigns, my equilibrium is completely off because you have a schedule. And Alex will attest to this. There's a schedule and it's worked out how are you going to work this.

And I can't believe that both of them are not discombobulated, to some extent, by just the weirdness of the last 48 hours.

BLITZER: Alex, you've prepared candidates for debates. Do you agree?

ALEX CASTELLANOS, REPUBLICAN CONSULTANT, CNN POLITICAL CONTRIBUTOR: Oh, sure. You even rehearse your debates at the same time of the evening in your rehearsal so that the candidate can get used to it.

But, you know, this is also an opportunity. One of the great things about campaigns is that we want to see how our leaders do under pressure. And moments like this, when they're both thrown off their game, and when the agenda is turned upside down, let's see how they react tonight.

Are they calm, serious people who demonstrate strength or do they look a little lost?

BLITZER: All right, James, give us a little recommendations or guidelines, what you would recommend to these two candidates -- what for example, Barack Obama and John McCain need to do tonight.

CARVILLE: Well, the first thing I would say is, is I know the topic is foreign policy. But I would be shocked if they don't spend at least 15 minutes on the current financial crisis. You know, it's just too big a story and it would seem too strange if it wasn't asked about that. So I would certainly be ready for that.

You know, what you want to do if you're -- the analyst said before, if you're Obama, you want to have a little bit crispier answer. You want to sound like you know what you're talking about and kind of confident.

I think McCain has -- you know, has sometimes a tendency to ramble. You want to be careful and you want to be sure that he keeps his sort of emotions in check.

I don't know. I mean, other than that, both of these guys have 14 debates, 22 debates. Generally, nothing really -- you know, there's really no big gaffe and the supporters of each candidate think they'll win.

Given the strangeness of this election, I'll tell you, I'll be honest with you. I normally ratchet down expectations of something happening. But I wouldn't be surprised if something happened tonight.

BLITZER: Yes, you never know what's going to happen.

CARVILLE: It's just been too weird (INAUDIBLE).

BLITZER: Even a weird little thing like a sigh or whatever, that could have an effect, as Al Gore certainly remembers.

All right, give me some advice, Alex.

What do you -- what recommendations, if you were talking to these two candidates, would you give them going into tonight's debate?

CASTELLANOS: I think we've seen some things they should and shouldn't do in the debates they've had before. You know, in the Saddleback debate, Barack Obama was very cerebral and not visceral. He didn't connect at all. You could almost see him mentally engineering some answers. And people, I think, thought he was a little removed from their life and problems.

McCain, I think, was a little more, you know, gutsy and demonstrated strength.

But I think tonight, one of the things you want to see if McCain will do, is try to turn this into a debate about doing versus talking. Some people, I think, are advising Senator McCain, be warm, connect on the economic issues. And that's just not John McCain.

McCain is a guy who, look, I've reformed things in Washington before, taken on campaign finance, the tobacco industry. I know how to get things done and change things. You want somebody who's done that before.

BLITZER: Should these two candidates, James, just try to make themselves look as strong and as articulate and effective as possible or should they also try to hit a button that would bring out, perhaps, a mean or nasty side of the other candidate?

I ask the question because a lot of people say that John McCain has a temper and he can lose that temper.

If you were advising Barack Obama, would you try to get him to hit one of those -- those hot buttons?

CARVILLE: You know, there's a lot of things that are going through these guys' minds. You can book one thing -- they're nervous. I've never -- you know, I've seen -- been through a lot of these things. Alex has, too. It's big drama. And anybody who says that their candidates are not nervous here are -- that's just not true.

And I would -- you know, I would trust my candidates' instincts, but I would just try to hit the questions. And I'd try to -- this is a very serious time in American history. This is a very serious moment. People are, you know, concerned out there. And I think they're looking for something -- they're looking for somebody that can be a leader that has a grasp of things.

I wouldn't try to be too clever here. I really wouldn't. I don't think this is the time for it.

BLITZER: What do you think, Alex?

CASTELLANOS: I think -- I hope the Republicans listen to James' advice, because I think he's dead on. Tonight's not the night for the bumper sticker line. Tonight's not the night for that zinger. Tonight's the night to actually look like the president you want to be.

BLITZER: And I think it's also a good piece of advice to answer the questions.

CARVILLE: Right.

BLITZER: Don't try to dodge and give a clean, succinct answer, to the point, and don't try to be overly cute, right, James?

CARVILLE: That's true. Yes, I agree completely. And that's so '80s, where you just take any question and you give the kind of answer to it. I think people are looking for -- you know, you can give a crisp, direct answer and then if you want to explain it a little bit after that.

And I think McCain was fine when they showed him asking does he believe in evolution and he said yes, but -- I thought that was actually a pretty good answer that he gave.

But yes, this is -- this is a serious time here. And I thought that -- and, again, I go back to -- I just think this last 48 hours, McCain's antics have just been very weird here. Very weird.

BLITZER: You keep hearing, Alex, from the Democrats, that McCain has been "erratic" on the economic issues -- changing his positions from day to day. And I assume we're going to hear some of that tonight in this debate on the substance.

Are you confident that McCain has a good, detailed grasp of the enormity of this economic crisis right now?

CASTELLANOS: Oh, it's hard for any American not to. I mean anyone who's listened to the president these last few days know that we have an economy on the precipice. So, no, I don't think that that's a problem.

But, you know, the challenge, I think, for Senator McCain tonight is to -- is to actually demonstrate that he's, I think, the opposite of what Obama is. You know, Obama has never actually dealt with a big problem. That's the case the Republicans are going to try to, I think, make tonight.

Senator McCain is going to say, look, in tough situations -- I've captained a boat in stormy seas before. Barack Obama may be ready, but not now.

BLITZER: And how does he answer that, James, if it comes up, the whole experience issue?

CARVILLE: Well, first of all, he will obviously say experience at doing what. And I'm sure he has a complete rift of things that they're going to say that are sort of unfavorable about McCain. They've got to be very careful here.

I think the way that you answer this, look calm, look reassured and, you know, look like you know what you're talking about. And I think everybody realizes that Senator McCain has been around longer than him. That's a strength in some ways. It's a weakness in other ways. And each candidate knows that going in.

But in the end, I think that the way that you come across to people is, is you reassure them that you know what you're talking about. You answer the questions. You don't try to be too clever. And you understand the gravitas of the moment that the country is facing.

And I think that if they do that, they'll be fine. And I think -- you know, I think Obama -- don't try to be too clever here, because the chances neither one of these candidates are really great debaters.

I think McCain did have a little bit of edge at the Saddleback debate. Senator Obama got good experience debating Senator Clinton 22 times, but basically she bested him on a lot of these debates.

BLITZER: And he...

CARVILLE: But they don't need to beat it. The country is not looking for cleverness. They're looking for something like steady and people that sort of have some sense of what they're talking about and (INAUDIBLE).

BLITZER: And they want direct answers.

The Saddleback forum, it wasn't really a debate. It was a Q&A, Pastor Rick Warren asking questions.

CASTELLANOS: Right. BLITZER: ...separately to the two candidates. And we can't call it a debate...

CARVILLE: Right. You're right.

BLITZER: ...even though both of you did.

CASTELLANOS: Correct.

CARVILLE: You're correct.

BLITZER: So I'm trying to be precise.

CARVILLE: Yes.

BLITZER: Tonight is the first presidential debate, where they will go back and forth a little bit, given the constraints, given the rules of what's on the agenda right now.

Do you agree -- and I'll throw the question to Alex right now -- that on the whole issue of the economy, that both of these candidates would be smart, no matter what the question really is, to weave it back to the -- you know, to the economic lifestyle, the economic well- being of the American people, because foreign policy has direct ramifications on what happens here?

CASTELLANOS: Sure. I think both of these candidates want to bring it home to how you live and to talk about this is going to affect your ability to have a job. This is going to affect your ability for, you know, growing the economy so that we can have health care and things like that.

But in McCain's case, I don't think it's enough just to take it to an immediate economic concern. I think he's actually got to take it to results and action.

If you ask voters out there which candidate can talk -- is the better talker -- it's Obama by 30 points. If you ask them which one is better at getting things done, it's McCain.

And so I think the, that's McCain's challenge, to try to focus on results, as opposed to soaring oratory.

BLITZER: All right...

CASTELLANOS: And, by the way, as James aid, you know, in the Hillary debates with Obama, she scored more points than he did on substance almost in every debate, but viewers at home often thought Obama won.

CARVILLE: Right. You know, and I mean he's got...

BLITZER: Because it's one thing to see the debates in person, it's another thing, as tens of millions of Americans will do, James, to see it on television. That's much more important. CARVILLE: Right. Well, I mean, for instance, they're going to get a question about -- almost assuredly they're getting a question about North Korea tonight. I would advise them to give a direct answer about North Korea, show that they know the history of what happened, what's going on, the current state of the negotiations and what things have happened here. That's going to be pretty hard to relate back.

I mean at a point -- and I think it's very important, particularly I mean for Senator Obama, this should be Senator McCain's night. He can't take a tie tonight. A tie would go to Obama in his first debate. This is supposed to be his big night.

And so I think with the Obama people, if they come out of this, you know, kind of tired, I think in some extent they'll be fine. But they've got to -- Senator Obama's got to show that when the questions like North Korea come up, he's got to be very direct, very knowledgeable and very clear of where he wants to go here.

BLITZER: All right, guys. I know both of you are going to be with us throughout the night, do don't go away. We've got a lot to watch, as we get ready for this debate. Three hours and 17 minutes to go.

He's only been on the job for two weeks and he's already targeted by assassins. Coming up, my one-on-one interview with Pakistan's new president. What he intends to do about Osama bin Laden.

Plus, he's a major part of the negotiations on Capitol Hill. Senator Chris Dodd, the chairman of the Banking Committee, he's standing by to join us live in just a few minutes to give us the latest on where these negotiations stand. Chris Dodd coming up right here in THE SITUATION ROOM.

Stay with us.

(COMMERCIAL BREAK)

BLITZER: There's intense negotiation underway on Capitol Hill right now. You're looking at live pictures. We're going to go there very soon. We'll get an update on what's going on. At stake -- that $700 billion bailout package. We'll hear from one of the inside players, Chris Dodd, the chairman of the Banking Committee. He's standing by to join us live. We'll get to there shortly.

But first, some other news.

The United States facing new tensions with its close ally in the war on terror. That would be Pakistan.

And here's the question -- is the government in Pakistan doing all it can to hunt down the leaders of Al Qaeda?

I sat down in New York today with Pakistan's new president, Asif Ali Zardari.

(BEGIN VIDEOTAPE) BLITZER: Do you know or do you believe you know where Osama bin Laden is hiding?

ZARDARI: If I did know, he wouldn't be there.

BLITZER: Do you have any idea, though, where he is?

ZARDARI: No, I have no idea where he is.

BLITZER: Do you think he's in Pakistan?

ZARDARI: I could not say that for sure.

BLITZER: Because there's a working assumption in the intelligence community in the U.S. that he's hiding out somewhere along that border, probably on Pakistani side.

ZARDARI: And I don't know about that. But if he is there, then probably they've known him about seven years now. We've been on the job 17 days. So, obviously, we don't know more -- much about it. But if they do think that he's there, let them share the information with us and we'll get him.

BLITZER: If you got him, Osama bin Laden or his number two, Ayman Al-Zawahiri, what would you do with him?

ZARDARI: What would I with him?

BLITZER: What would you do with them if you captured them?

ZARDARI: If we captured them?

BLITZER: If you captured them alive?

ZARDARI: If we captured them alive, we would try them.

BLITZER: Would you try them in Pakistan or would you hand them over to the United States?

ZARDARI: We would try them in Pakistan.

BLITZER: Why not hand them over to the United States for the 9/11...

ZARDARI: It depends on...

BLITZER: ...for the 9/11 crimes that were committed?

ZARDARI: But we could even -- we can hand them over or we could try them ourselves.

BLITZER: Because in the past, there have been terrorists apprehended by Pakistan who have been handed over to the United States.

ZARDARI: Yes. That is a policy which has been followed in the past and it will be pursued in the future, also.

BLITZER: You would try them -- but specifically on these two high value targets, Osama bin Laden and Ayman Al-Zawahiri, just explain what you would do.

ZARDARI: I would go around with my friends and see what they want. If they want him tried in Pakistan, we'll try him in Pakistan. If they want him tried this New York, so be it.

(END VIDEOTAPE)

BLITZER: And there you heard it. He says they could be tried in New York. That's where we are right now. And that's only just the beginning. The interview with Asif Ali Zardari will air on "LATE EDITION" this Sunday at 11:00 a.m. Eastern. "LATE EDITION" -- the last word in Sunday talk.

Jack Cafferty is asking this question -- should the government bail out the economy or should the markets be allowed to correct themselves? Jack and your e-mail, that's coming up.

And is a bailout deal in the works for the weekend? We've got some new information right here in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: All right. Let's check back with Jack Cafferty.

He's here. He's got "The Cafferty File" -- Jack.

CAFFERTY: The question this hour: Should the government bail out the economy or should the markets be allowed to correct themselves?

Astor writes: "Unfortunately, I think we need a bailout -- one that strips CEOs of the golden parachutes, allows judicial reworking of bad mortgages and one that ensure Americans will share in any profits made in this deal down the line. We ready to move forward on that idea until Captain Geriatric air-dropped himself right into the Capitol to save the day. Right."

Rich in California writes: "The markets will correct themselves. The bailout is just that. In the absence of any meaningful changes, like banning short selling, banning credit swaps, re-regulation, etc. this will all happen again."

Jane in Delaware says: "I don't think we ought to bail out Wall Street. I'm for a free market correction. In America there are opportunities, not guarantees."

Patrick in New York: "The dot-com craze was financed by people who knowingly gambled with expandable income. This is different. Greedy corporations should not be bailed out on the backs of innocent taxpayers. We never stood a chance to benefit during the good times, why should we suffer during the bad?"

Doug in writes: "Don't do anything, Jack. I've seen the movie and read the book,

"The Grapes of Wrath." Hoover was a public works project, not a successful president. Ask anybody over 75 what they think of the idea of not doing anything."

Barbara in Florida says: "Maybe what this country needs is a good old depression. Tough? Yes. But a bailout gets us deeper into this whole mess. I just pray my grandchildren still aren't paying for this in 20 years."

And Greg in South Carolina: "I'm not sure about the bailout, but, Jack, moving to Chile, now there's an idea we can all support."

Thank you, Greg.

If you didn't see your e-mail here, you can go to my blog at CNN.com/caffertyfile and look for yours there among hundreds of others.

I was just kidding about Chile, Greg.

I'm coming to South Carolina -- Wolf.

BLITZER: Jack, thank you.

On our Political Ticker today, who's up and who's down in key battleground states. In our new average of fresh polls -- look at this -- New Hampshire is still a virtual dead heat, with Obama ahead by just two points.

In Pennsylvania, a slightly bigger lead for Obama. He leads McCain by four points.

Our poll of polls for Wisconsin shows Obama leading McCain by six points.

And Obama is ahead by 8 points over McCain in Michigan.

That result for Michigan, by the way, is causing to change our CNN electoral map. With Obama gaining ground there, we believe Michigan is no longer a toss-up, but leans toward Obama. So we're adding their 17 electoral votes to the Democratic column. That means that by our estimate right now, if the election were held today, Obama would win 240 electoral votes, John McCain would get 200 and there would be 98 electoral votes up for grabs in the toss-up.

Let's go to President Bush right now. He's speaking over at the White House.

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: I really want to thank you very much for, you know, staying in touch in this difficult period of time, not only for us, but for people all around the world.

Secondly, we talked about trade. There's no stronger advocate for free and fair trade than Prime Minister Brown has been. And I appreciate your strong support for trade, because he knows what I know, that if the best way to help deal with poverty and hopelessness is to give people opportunity through free and fair trade. And so I thank your steadfast support on Doha.

I told him that we are still optimistic that the Doha round can be reinvigorated. And we strategized as to how to do that. And I thank you for your advice on that.

Finally, we talked about Iraq and Afghanistan. Both our nations still have troops in those two countries. We're helping the young democracies not only survive, but grow and thrive. And I fully believe that when people look back at this period of history, they will say thank goodness the United States and Great Britain stood strong, because we're helping to lay the foundation of peace for generations to come.

So I welcome you back to the Oval Office.

Thank you for coming.

PRIME MINISTER GORDON BROWN, BRITAIN: It's a great privilege to be here this afternoon and I thank you for your hospitality, President Bush.

BLITZER: All right, so there you have it, the president of the United States receiving Gordon Brown, the British prime minister.

We'll monitor what he has to say. We'll see if they take any questions, by the way, reporters who are there.

But Lou Dobbs is here right now.

Let's talk a little bit, Lou, about what's going on. You've got a show coming up in an hour.

LOU DOBBS, HOST, "LOU DOBBS TONIGHT": Absolutely.

BLITZER: It's debate night in America.

DOBBS: It is.

BLITZER: I don't know if you heard about it.

DOBBS: I did hear about it and they're going to be -- you know, everybody is going to be pretty interested, I think. And I suspect that the outcome of this debate will probably determine who's president of the United States, in all likelihood.

BLITZER: On tonight's debate alone?

DOBBS: Absolutely.

BLITZER: The first debate is that important?

DOBBS: It's been locked up for this long. Think back to 2004, back to 2000. The impressions that were formed in that first debate seemed to carry through. And it might -- it might be the case again. BLITZER: Who's got the advantage tonight?

DOBBS: Oh, I don't think there's any question but that Obama does. He's leading in all the polls...

BLITZER: But foreign policy is supposed to be John McCain's strong suit.

DOBBS: Oh, but, you know, come on. Think what it would take for the liberal national media to declare John McCain the winner. So he's going to have overcome that, first off. And the second is he's not as gifted a public speaker as is Barack Obama. So he has a -- without a question, a deficit to overcome.

BLITZER: But Barack Obama is a gifted public speaker when he's reading a teleprompter...

DOBBS: Right.

BLITZER: ...and has got a script in front of him, a speech...

DOBBS: Well...

BLITZER: He's less gifted when he's just ad-libbing in an ex -- I moderated five of those presidential debates. He's good, but he's not fabulous in these debates.

DOBBS: Well, you know what?

You've just broken news right here on this very network, because everyone I've heard on this network has been saying that this is the most rhetorically gifted politician.

BLITZER: He's very gifted.

(LAUGHTER)

BLITZER: He's very gifted in delivering a speech. He's great orator. But as you know, it's very different without a script.

DOBBS: It's very different without a script. And it's going to be interesting to see. But I think there's still but no question but what Obama goes into this thing favored. And you've got both of these guys coming off of the heels of this absurd bailout discussion. We'll see how closely they can align themselves to that.

BLITZER: Why is it absurd?

DOBBS: Because it's...

BLITZER: Because listening to the president and Henry Paulson, you listen to the leaders out there...

DOBBS: I rest my case.

(LAUGHTER) BLITZER: ...they say the stakes for all of us are enormous right now unless this deal is put together within a matter of days.

DOBBS: If there's one thing that the American people, I think, have learned over the course of the past several years, it is not to take the word of any one of these politicians. I mean I cannot imagine why anyone is listening to anything that Henry Paulson, George W. Bush, Nancy Pelosi or Harry Reid is saying about anything. There is absolutely no trust nor reason for trust.

BLITZER: So you're with the Republicans with this?

DOBBS: I'm with the Republicans...

BLITZER: You're with the House Republicans, who say you know what, not so fast...

DOBBS: No, no, no, no, no. I'm with the American people, who have been screwed repeatedly by both parties and the people I just mentioned -- Pelosi, Reid and Bush. And it's time to stop the nonsense. This stuff of fear politics has got to end. Both parties are indulging in it and it's absurd.

BLITZER: So would the country be better off if there was simply no deal?

DOBBS: Absolutely.

BLITZER: Really?

DOBBS: Without question.

Well, let me ask you this, have you talked to anyone over the course of the past week who can describe what the bailout is to be used for, what precisely would be the result of those expenditures, exactly how will success be guaranteed and precisely how will it be measured?

The answer is you can't because no one has articulated such a thing. They have walked in with a two-and-a-half-page proposal asking for $700 billion. You and I would have to spend a little more time on the paperwork if we were looking for a $5,000 loan.

BLITZER: So when Bush tells the nation the other night, the country faces -- and I'm paraphrasing -- a long and deep recession and potential panic in the markets...

DOBBS: Yes.

BLITZER: He used pretty dire words, as you know.

DOBBS: Whoooo, aren't you scared?

BLITZER: Didn't that...

DOBBS: I mean when George Bush tries fear, that's the stuff I rally to.

BLITZER: But it's not just...

DOBBS: When Nancy Pelosi and Harry Reid tell you they know something about...

BLITZER: What about the Federal Reserve chairman, Ben Bernanke...

DOBBS: ...the economy...

BLITZER: ...and Henry Paulson?

He's had a long career on Wall Street, as you know.

DOBBS: They did. They did. And they did very well for themselves. And if they get their way on this, a lot of their friends are going to do very well, too. It's time to quit rewarding incompetence in government and Wall Street.

BLITZER: Lou is going to have a lot more in one hour.

DOBBS: You'd better believe it.

BLITZER: You're going to tell our viewers what you really think then, right, Lou?

DOBBS: As always.

BLITZER: Thanks very much.

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