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Politics As Usual in the Bailout Bill; Americans' Retirement Accounts Take A Hit; Vice Presidential Debate Preview

Aired October 2, 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: Happening now, as stock markets take another nosedive, we'll take a closer look at the Senate's bailout bill. It's supposed to be a response to financial greed, so why is it laced with pork?
The vice presidential debate -- it's Sarah Palin's make or break moment, some argue that. Americans have growing doubts about her readiness for higher office. Joe Biden better not take her lightly, though. That's the advice coming in.

And we'll take you to the front lines of the financial crisis, where dreams of retirement are disappearing fast.

But does one of America's richest men have a rescue plan of his own? We're going to hear this hour from billionaire Warren Buffett.

I'm Wolf Blitzer at the CNN Election Center. You're in THE SITUATION ROOM.

Another brutal day on Wall Street -- stocks tumbling once again amid growing fear about the overall U.S. economy. The Dow Jones average dropped almost 350 points, partly on news of declining factory orders and a seven year high in jobless claims.

But it's uncertainty about the bailout that's keeping investors on edge right now. House leaders hope to vote tomorrow on the plan the Senate approved last night. But despite intense lobbying from Congressional leaders and the White House, it's still not clear if the votes are there to pass the measure. The bill comes back to the House with something extra -- about $110 billion designated toward some pet projects, commonly called pork barrel spending. And some are finding it all very hard to swallow.

CNN's Brian Todd is looking into this part of the story for us -- and, Brian, what are you discovering?

BRIAN TODD, CNN CORRESPONDENT: Well, Wolf, we have heard all the rhetoric about the importance of this bailout bill -- the moral stands being taken for and against it. But take a look at the fine print and this is a lot of politics as usual.

(BEGIN VIDEOTAPE)

TODD (voice-over): The Democrat is certain how we got here.

SEN. BARACK OBAMA (D-IL), PRESIDENTIAL CANDIDATE: This financial crisis is a direct result of the greed and irresponsibility that has dominated Washington and Wall Street for years.

TODD: The Republican is certain none of that greed had better show up in the final bailout bill.

SEN. JOHN MCCAIN (R-AZ), PRESIDENTIAL CANDIDATE: It's completely unacceptable for any kind of earmarks to be included in this bill.

TODD: And yet this emergency legislation, counted on to help pull America out of its financial crisis, is up to its ears in provisions that could be considered earmarks -- those unrelated, sometimes wasteful funding requests made by lawmakers, often for their home districts.

In this case, according to Taxpayers for Common Sense, $100 million in tax breaks for car racing tracks and nearly $500 million in tax incentives for the movie and TV industry. Watchdog groups say it's hard to determine if the Senate's passage of this bailout was bought with earmarks.

STEVE ELLIS, TAXPAYERS FOR COMMON SENSE: And I mean, clearly, you didn't need to have this package in there to make it happen. They could have gotten their majority without any of this stuff.

TODD: For instance, $2 million in tax breaks for the makers of wooden arrows for children. That provision was sponsored first by Oregon's Republican senator, Gordon Smith, and this year by his Democratic counterpart, Ron Wyden. It would be worth about $200,000 to an archery company in Oregon.

A Wyden aide tells us this isn't an earmark because Wyden didn't ask for it to be put in the bailout bill, which he voted against, and because it impacts businesses in several states, not targeted to just one.

That doesn't fly with Steve Ellis. ELLIS: But the bottom line this is, is this is benefiting a very few manufacturers. And I think most of Americans who are concerned about either the bailout package or concerned about the economy are going to be wondering why a provision benefiting wooden arrow manufacturers is catching a ride on the package.

(END VIDEOTAPE)

TODD: And despite those provisions, which John McCain called unacceptable, McCain voted in favor of this bill. When we contacted his campaign about this, they called the inclusion of earmarks regrettable, but said he was willing to vote for it because this is a national emergency and it's a compromise that would protect Americans from losing their homes and savings.

BLITZER: Brian, thank you. Brian Todd working the story for us.

So while Congress continues to consider this legislation and what's going on, a lot of Americans are reacting in horror as they see their retirement accounts simply dwindling.

Mary Snow is looking at this part of the story. And it's pretty heartbreaking for a lot of folks out there -- Mary.

MARY SNOW, CNN CORRESPONDENT: It certainly is, Wolf. And, you know, hardest hit are people who are about to retire. And that includes one couple from Florida. They're living on their savings right now. They're trying not to dip in to their dwindling retirement account.

(BEGIN VIDEOTAPE)

SNOW (voice-over): Kristine and Mike DiGiovanni are on the front lines of the financial crisis and they say it's a scary place to be. Both are looking for work. Kristine just turned 60, but says any hopes of retiring soon are gone.

KRISTINE DIGIOVANNI, 60 YEARS OLD: We were looking, you know, maybe 62 would be a good age. Now it's like retirement, what retirement? You know, it's just not going to happen.

SNOW: Kristine says her 401(k) is now worth what it was 15 years ago when she starred investing in it. She estimates she lost about $50,000 so far this year, until she recently took her money out of stocks and switched to bonds.

DIGIOVANNI: Every quarter I'd get a statement and, you know, it would be $2,000 or $3,000 less than it was the quarter before.

SNOW: The couple's main investment is in real estate and includes their Madeira Beach, Florida home. But that's lost a third of its value. And the DiGiovannis say they can't afford anymore repair work.

Across the country in Nevada, the real estate downturn has also hurt 43-year-old Catherine Lindsay, but not as up as the plunge in her 401(k) savings. She estimates her 401(k) lost 60 percent of its value this year.

CATHARINE LINDSAY, 43 YEARS OLD: I made a choice to invest in some risky stocks or things that might be considered risky now.

SNOW: Financial planner Constance Barber says her clients haven't seen such dramatic drops, but she has them balance their investments in cash, bonds and stock.

CONSTANCE BARBER, FINANCIAL PLANNER: If you are a 40-year-old and your account is down 20 percent, then you can afford to wait it out, since it is a retirement account. If you're 65 or 70, you shouldn't be 100 percent in stocks.

SNOW: Barber is advising her older clients to work as long as possible. And for Catherine Lindsay, that's something she's already banking on.

LINDSAY: If I'm going to continue this, I also have to accept the fact that I'm probably going to be working until I'm in my mid- 70s.

(END VIDEOTAPE)

SNOW: And one investment research group, Morningstar, says just judging from the past, it can take investors three years, perhaps more, to recover from downturns like this one. And first you have to find out, of course, when is this going to bottom.

BLITZER: Yes, especially folks who are in their 50s and 60s and are getting ready for retirement. This could be, as we just saw, very, very painful, what's going on. Mary, thanks very much. Mary Snow working the story for us.

Candy Crowley is watching the debate tonight. It could be a huge debate -- we're getting some new pictures, Candy, of both Joe Biden and Sarah Palin. They're driving over to the university, getting ready to take part in this historic debate -- the first and only debate among the vice presidential nominees. There you see some motorcades getting ready to escort these candidates around. Sarah Palin is in this car. There she is. She's waving to all of us. Hi, Sarah Palin. She's the governor of Alaska.

All right, Candy, set the scene for us. The stakes clearly pretty enormous, obviously, for these two candidates, much more importantly, though, for their respective tickets.

CANDY CROWLEY, CNN SENIOR POLITICAL CORRESPONDENT: Well, absolutely, because, at the end of the day, this really is about the top of the ticket. I must say, I've not seen a vice presidential debate getting this much attention ever in all the years that I've covered politics. Part of that is because Sarah Palin is relatively unknown still. Part of it is that she's female. But most of it has been her performance over the past three or four weeks, which has been extremely unsteady.

So very high stakes here tonight. She, of course, has a top of the ticket, John McCain, who would be the oldest man ever to take office as president should he win. That makes that particular slot for her important. So what does she have to do?

The bottom line, she has to convince people that she is ready to walk into the Oval Office on any given day should that be necessary. Having said that, Wolf, if you go back in history, the only time I can remember, off the top of my head, where a vice presidential candidate made a difference on whether a ticket won or lost, it was Lyndon Johnson, who pulled in Texas for JFK. And we've looked through, you know, the annals of history sort of, you know, trying to figure this out.

So it's tough to say how much impact this is going to have. But it is very clear that for Sarah Palin, there is a threshold here that she has to meet.

For Joe Biden, it may just be first do no harm. People don't question whether he is capable of being president. He obviously has run for president many times. He's been in the Senate more than 30 years. So that is not his threshold. His threshold, of course, is don't make a big mistake, but basically just don't any harm. And remember, both of them, that this is about the top of the ticket. You are selling your running mate. It's not about the vice president, it's about the guy at the top of the ticket -- Wolf.

BLITZER: Yes. We're going to check in with you throughout the night. Candy is at Washington University in St. Louis.

Look at that stage. They're clearly ready. Those are really red reds and dark blue blues -- beautiful royal blues and red reds, if you're watching us in high definition, you can really appreciate what's going on in St. Louis.

He says America is facing an economic Pearl Harbor. But does the billionaire investor, Warren Buffett, think a Wall Street bailout is the right thing to do? He's speaking to CNN today.

Also, advice to the moderator of tonight's debate from someone who's been there and done it, the former CNN anchor, Bernard Shaw. He's here live in THE SITUATION ROOM. We'll discuss.

And what to expect from Sarah Palin -- we're looking at her past debates in Alaska. Her former opponents are speaking out and they're making a specific point.

We'll be right back.

(COMMERCIAL BREAK)

BLITZER: Governor Sarah Palin is taking some heat for sounding supposedly ill-informed during her interviews and that's lowered expectations for her performance in tonight's big debate in St. Louis. She's handled herself well, though, in previous showdowns.

Fredricka Whitfield is looking at that. The key, some say, is to let Sarah Palin be Sarah Palin.

FREDRICKA WHITFIELD, CNN ANCHOR: Let her be her. And we haven't seen that. We've seen a very scripted Sarah Palin. But those who know Sarah Palin or have watched her debate in the past, say the Alaska governor is in her element when she's spontaneous and simply being herself.

(BEGIN VIDEOTAPE)

WHITFIELD (voice-over): Hours before the big debate, John McCain confidently boasting of his running mate.

(BEGIN VIDEO CLIP)

MCCAIN: And I have total confidence in her. She's very comfortable in her own skin.

(END VIDEO CLIP)

WHITFIELD: In past debates Sarah Palin seemingly at ease -- like in this match-up in 2006. (BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: Ms. Palin, do you want to enter this fray?

(END VIDEO CLIP)

WHITFIELD: Prior to being elected governor...

(BEGIN VIDEO CLIP)

PALIN: Glad I'm sitting here in between them to make sure it doesn't get out of hand.

(END VIDEO CLIP)

WHITFIELD: Palin had about a dozen debates leading up to her gubernatorial win. And no matter what the format, Palin earned points -- even from opponents -- for being smart, poised, unscripted.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: If your daughter were pregnant or your son was involved in a pregnancy, what would be your reaction -- I mean if it was before marriage or anything like that -- what would be your reaction and advice to him or her?

PALIN: Again, I would choose life. And certainly I'm quite confident here that you're going to be asking my opponents those same scenarios.

UNIDENTIFIED MALE: I will.

But if your daughter had been raped, would that be something you would feel...

PALIN: Again, I would choose life.

WHITFIELD: Independent Andrew Halcrow ran and debated against Palin two years ago.

(BEGIN VIDEO CLIP)

ANDREW HALCROW (I), FORMER ALASKA GOVERNOR CANDIDATE: She's one that's got a very unique ability to connect with the crowd, to really make the crowd focus more on her presence rather than her answers.

RON FAUCHEUX, GEORGE WASHINGTON UNIVERSITY: She's somebody who is much better when she's comfortable about what she's talking about. She's somebody who has very certain opinions about things and is very direct.

WHITFIELD: From issues on abortion to Native Alaskans.

(BEGIN VIDEO CLIP)

PALIN: You're referring to those Native leaders as the fringe? I think that that's disrespectful to those who are ready to try a new approach, resolving -- to resolve the issue, not another tactic of divisiveness here in Alaska, but a building unity, working together -- coming to the to solve this impasse.

(END VIDEO CLIP)

WHITFIELD: If Palin's past performance in the hot seat is any barometer for what America may see tonight...

(BEGIN VIDEO CLIP)

PALIN: Laugh, if you will, but that is my answer, yes.

(END VIDEO CLIP)

WHITFIELD: ...the McCain-Palin ticket is counting on a winning bounce with just under five weeks before election day.

(END VIDEOTAPE)

WHITFIELD: The McCain camp is certain audiences will see that Palin -- the one who is confident and charismatic -- not the Palin in what have appeared to be very uncomfortable television one-on-one interviews.

BLITZER: Yes, some of them pretty uncomfortable, indeed.

WHITFIELD: Yes.

BLITZER: All right.

WHITFIELD: So this is kind of a second chance and maybe the last chance, too.

BLITZER: A second chance to make a good first impression or whatever.

WHITFIELD: Reporting tonight.

BLITZER: All right, thanks, Fred, for that.

WHITFIELD: Sure.

BLITZER: What about Joe Biden?

His colleague and long-time friend, Senator Chris Dodd, is joining us now live from Capitol Hill.

You've been his friend for a long time, Senator Dodd. You know him quite well. You've debated him when both of you were running for the Democratic presidential nomination.

What advice do you have for him tonight?

SEN. CHRIS DODD (D), CONNECTICUT: Well, to be Joe. I mean he's got a wonderful personality. There's great warmth to him. The people of Delaware have elected him six times. When you get elected from a small state, they get to know you pretty personally. And the fact that Joe has worn so well for so many years, I think, is a great tribute to him.

And so I expect you're going to find -- as I have known him to be -- this talented, knowledgeable, patient individual who will, I think, engage in a very -- a very warm and hospitable debate with Governor Palin.

He'll be firm. He'll assume, I think rightly so, that Governor Palin basically is there to be a spokesperson for John McCain's views on these issues.

BLITZER: Would he be smart...

DODD: And so it will be a debate over (INAUDIBLE)...

BLITZER: Would he be smart, Senator Dodd -- excuse me for interrupting -- to focus mostly on Senator McCain as opposed to Governor Palin?

DODD: Oh, certainly, because that's what the debate is about. I mean Joe would be the first one to tell you that when people walk into that voting booth on election day, they'll be voting for the presidency of the United States.

And so Joe and Barack Obama have very clear ideas on the economy. You heard Barack Obama last Friday night speak eloquently about what middle class families are going through.

John -- I was sort of disappointed -- never mentioned working class families or any association with them, not even once in the 90 minutes. So Joe tonight will be talking about those things that he has fought for over the years, how he's committed to seeing these people get back on their feet again.

BLITZER: But yet...

DODD: This will be about an attack between Sarah Palin and Joe Biden.

BLITZER: Does it make any...

DODD: It will be about John McCain's views.

BLITZER: Does it make any difference he's debating a woman?

DODD: I don't think so. I mean, again, Joe and I were in the forums with Hillary Clinton, of course. And Joe has been debating here in the Senate. We have women in the Senate on his committees, working with him, discussing issues back and forth. Joe is very comfortable in that setting and has demonstrated so over the years that he's been serving here, as well as in the contest for the Democratic nomination.

BLITZER: A lot of us were surprised -- you were one of the leaders, Senator Dodd, in the Senate in getting that bailout bill passed through the Senate overwhelmingly last night -- that it wound up including what some are calling pork barrel legislation, for example, an exemption from excise tax for certain wooden arrows designed for use by children; a cost recovery period for motor sports racing track facilities; extension on rebate against excise taxes charged on rum imported from Puerto Rico and the Virgin Islands; extension and modification of duty suspension on wool products. I could go on.

Why was it necessary to include stuff in this legislation that had absolutely nothing to do with the emergency stabilization legislation that you wanted passed?

DODD: Well, first of all, that's not unique and I regret that.

But, second, let's keep our eye on the ball, Wolf. It's also over $60 billion that 25 million American families would be (INAUDIBLE) if we didn't deal with the alternative minimum tax in the bill. We provide, of course, for the first time ever parity on mental health issues, which is also part of this. Millions of people will be affected by it.

I mean, obviously, talking about a wooden arrow company in the same breath you talk about the alternative minimum tax, they may take the same time to describe them, but there's vast differences here.

BLITZER: Well, it may...

DODD: We didn't include that. We just finished what...

BLITZER: Right. I'm just wondering...

DODD: ...we didn't find that (INAUDIBLE) huge.

BLITZER: I'm just wondering why it was necessary to include anything other than what you really needed?

Why -- why couldn't you just pass a clean -- what they call a clean piece of legislation?

DODD: Well, again, the alternative minimum tax, with 25 million American families facing with a $62 billion tax increase without it, the decision was to put it as a part of this, along with what we had agreed to, of course, on the financial relief effort, along with the increase in the FDIC. That was new, as well. Only a few days ago, we realized we probably had to increase that deposit insurance program in order to cover banks that were seeing capital flight out of them.

It's very important, Wolf, right now -- and we can talk about wooden arrow companies. Our economy is in deep, deep trouble. And if we don't take this major step forward here, we could watch our economy slip to the point where efforts up here would be almost meaningless.

So it's very important that people keep their eye on the big picture here. And while wooden arrow companies and a few other issues -- I don't like them in the bill either. But we shouldn't be confusing people by suggesting that that's more important than the issues included in the larger package. That's why I feel so strongly about it.

BLITZER: And if the House doesn't pass it, what happens?

DODD: Well, I think we've got trouble. And we'll have to come back again and keep trying. But the American people are not going to be satisfied with that. They're angry about this and I don't blame them. But they'll be angrier if we do nothing and leave town.

BLITZER: Senator Dodd, thanks very much for joining us.

DODD: Thank you.

BLITZER: The law that New York City Michael Bloomberg wants to see changed -- it would have a very personal impact on him and the country's largest city for years to come. We'll explain.

And hundreds of people, including two dozen children, still missing weeks after Hurricane Ike.

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

(COMMERCIAL BREAK)

BLITZER: Fredricka Whitfield is monitoring some other important stories incoming into THE SITUATION ROOM right now -- Fred, what's going on?

WHITFIELD: Thanks, Wolf. A lot.

New York City Mayor Michael Bloomberg wants laws changed so that he can take a crack at another four years in office. Bloomberg says he's up to facing what he calls the unprecedented challenges brought on by the financial meltdown. Current terms limits allow the mayor two four year terms. Some lawyers and government groups are considering legal action. And voters have twice supported a cap.

Three hundred people remain missing in Texas nearly three weeks after Hurricane Ike battered the coastline there. But according to a volunteer group working with authorities there, many on the list may be living in shelters and are unaware that they are listed as missing. Meanwhile, searchers are preparing for the first organized search and recovery effort with dog teams in Galveston and Chambers County. Twenty-four of the missing people are children, by the way.

And suicide bombers hit two Shiite mosques in Baghdad today, killing at least 24 people and injuring dozens of others. The attacks came during celebrations marking the end of Ramadan, the Islamic holy month. Six members of a Sunni family were also gunned down to the north of the city. Today's violence is fueling fears of a renewed Sunni/Shiite conflict after a series of explosions earlier this week killed 32 people and wounded 100.

And GARDASIL, a vaccination that treats the sexually transmitted disease, HPV, has been added to a list of vaccines female immigrants ages 11 to 26 must receive before they can obtain their green cards. Immigration advocates are up in arms over the new requirement because of the cost. It's about $400. Green card applicants already pay about $1,000 in fees and hundreds of dollars for medical exams -- Wolf.

BLITZER: Fred, thanks very much.

We'll check back with you shortly.

Just over three-and-a-half hours until the vice presidential debate tonight. James Carville and Alex Castellanos -- they're here with their advice for the candidates.

Then, he's one of the world's most trusted investors -- the billionaire, Warren Buffett. He weighs in on the Wall Street bailout and more right here in THE SITUATION ROOM.

(COMMERCIAL BREAK)

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

Happening now, we're counting down to tonight's highly anticipated vice presidential debate between Joe Biden and Sarah Palin. He's a veteran politician. She's a relative newcomer. But their real advantages may lie elsewhere.

Also, one of the world's top investors compares the economic crisis to one of the worst attacks ever on America -- Pearl Harbor. Warren Buffett tells CNN how the country must respond.

And only a select few journalists have ever moderated these presidential and vice presidential debates. Former CNN anchor Bernard Shaw is one of them and he's here with some advice for tonight's moderator.

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

It has all the makings of a must-see political theater. But there's a lot riding on tonight's debate. And Americans are making their feelings known about the vice presidential candidates.

Let's go live to our senior political analyst, Bill Schneider. He's working the story for us -- what do voters, Bill, expect to see and hear in tonight's debate and who do they expect to do better?

WILLIAM SCHNEIDER, CNN SENIOR POLITICAL ANALYST: Well, actually, Wolf, they're not sure.

(BEGIN VIDEOTAPE)

SCHNEIDER (voice-over): Both Barack Obama and John McCain took a risk when they named their running mates. Obama's message is all about changing Washington.

OBAMA: If we want to grow this economy and prevent a crisis like this from ever happening again, then the ways of Washington must change. SCHNEIDER: He picked a running mate who's been in Congress for 36 years. Can Joe Biden help Obama make the case for change? We'll see. McCain claims the advantage of experience.

MCCAIN: I've been involved, as I mentioned to you before, in virtually every major national security challenge we've faced in the last 20 some years. There are some advantages to experience and knowledge and judgment.

SCHNEIDER: He picked a running mate with no national or international experience. Will Sarah Palin dare to talk about Obama's inexperience? We'll see.

What are the voters' expectations? They're not sure. About half expect Biden to do a better job in the debate. Nearly the same number expect Palin to win.

Voters do have serious doubts about Palin. While 70 percent believe Biden has the experience it takes to be president, only half that number believe Palin does. The nation's financial crisis is an extremely complex issue. Biden's been around. Voters expect him to understand complex issues. Palin they're not sure. She has to address those doubts. But Biden and Palin are rated the same on one quality, empathy. 58 percent believe Palin understands the problems of people like themselves. 57 percent believe Biden does.

(END VIDEOTAPE)

SCHNEIDER: Do voters believe a Washington outsider like Palin is more in touch with their problems than a Washington insider like Biden? Well, it turns out they don't see much difference -- Wolf?

BLITZER: Bill Schneider in St. Louis watching the debate getting ready for it. Thank you.

John McCain certainly gambled in picking Governor Sarah Palin. Now his political fortunes may be in her hands. But what if things don't go well tonight?

Joining us now our CNN political contributor the Democratic strategist James Carville and the Republican consultant Alex Castellanos. Guys, thanks very much for coming in.

How huge, James, is this debate tonight?

JAMES CARVILLE, DEMOCRATIC STRATEGIST: Well, it has the potential for a real downside if it doesn't go well for Governor Palin. But the truth of the matter is Senator McCain needs a boost tonight. I mean, a status quo debate is going to be helpful to Senator Obama because the polls are favoring him now and he's got a low wind at his back. It's going to be pretty difficult I think. We've got to wait and see for Governor Palin to give Senator McCain a boost. Anything's possible. That's why we watch.

BLITZER: Alex, same question to you; how big is this debate tonight? ALEX CASTELLANOS, REPUBLICAN CONSULTANT: It's a tremendous opportunity for Senator McCain for the reason James mentioned. Sarah Palin has stepped up to the plate twice before, when she was announced and at the Republican convention and she did something that helped the McCain campaign. She gave them a theme and a message and a direction. Hey, we're Washington outsiders. Washington's a mess. It's not going to fix itself. We need someone who's going to go in there and change that place. Sometimes real Americans have to do that. She has to get that message through again tonight.

BLITZER: The criticism she's faced Alex, as you know, when she delivered that excellent speech at Republican convention, when she delivered that excellent speech right after he named her, it was all scripted, teleprompter, she delivered -- she does that very well just as Barack Obama reads a teleprompter very well. The question though is, she hasn't necessarily done so well when things haven't been scripted for her.

CASTELLANOS: Well, we're trying to set those expectations low and I think we've got them right where we want them, Wolf. She's done very well in debates as I think CNN has noted before she's run for governor. She handles herself well in public life. I think it's an opportunity for her tonight to go out and say look, change has to come from the outside in Washington. She can't try to tell us that she has a lot of experience in the way Washington works now. She can tell us that is sometimes people from outside Washington have to change.

BLITZER: The expectations games, James, she certainly has lowered expectations.

CARVILLE: No doubt about that. She has. By the way, let me say I expect Senator Biden is going to do just fine tonight. Be running for vice-president, people should expect they will conduct themselves with knowledge on the issues and do that. I fully expect he will do fine.

The thing about Governor Palin, when she's not been scripted, in particular this Katie Couric interview, she wasn't bad, she was horrible. I mean just horrible. And I mean it, the university agreed by conservatives, liberals, Democrats, Republicans and everybody. If I'm a Republican, I have to worry that she's going to get in a situation tonight that she's not able to extricate herself from. I don't know that's going to happen. It very rarely happens. I suspect she'll be adequate tonight. I'm going to watch like everybody else.

CASTELLANOS: Well you know, Senator Biden certainly had a rough moment or two in this campaign on the campaign trail. All these candidates have. It is tiring and it's tough out there, especially your first time out on the stage. Barack Obama has had a few missteps himself. Again, tonight, I think we're going to see be who's going to focus on that message and also, I think raised this issue. Look, this country's on the edge of an economic precipice right now. Do we really want to drive a car, a Democratic president and Congress, a car with two accelerators and no breaks? I would expect Republicans to make that case.

BLITZER: James, what do you think?

CARVILLE: They're going to make a case tonight. But I mean again, I think that Senator Biden, he's naturally a friendly guy. He's got a good way about him. I thought that was significant in the poll where there was no difference between the two on the empathy question. I think he can come across as very much a good guy. That's what he is. He's very knowledgeable. He's got to be very concise in his answers and I expect he will.

BLITZER: Take us behind the scenes, I'll start with James. This is the month of October. The word surprise is often mentioned when you get to the month of October. Take us inside these campaigns. Are they both, do they both have what some would call October surprises up their respective sleeves?

CARVILLE: Oh, I just think every day that we pick up the paper, there's a new surprise. We have no idea what's going to happen in the financial markets. We have no idea what's happening in the credit crisis or what the Russians are up to or anybody else. The only thing that would surprise me if we're not, you have so many big stories coming in, that's about all that you can do on your television show is just cover them. The ability of these candidates to shape events is not near as much as it is in a normal campaign because events are overtaking these campaigns on a daily basis.

BLITZER: The financial meltdown right now specifically, Alex, what do you think?

CASTELLANOS: I think the Obama campaign's ahead. They don't want a surprise this next month. They want a very predictable month coming ahead. The McCain camp is behind. They'd love anything. Throw all the cards up in the air and see if anything changes.

The man who doesn't want a surprise tonight is Joe Biden. He'd rather this debate not occur. They've got to lead, go with it. What he doesn't want to do is a misstep. I think he has it the highest risk tonight of anyone of doing something untoward.

So, tonight for Joe Biden, the suggestion don't debate subpoena. Debate the two men who aren't there, George Bush and John McCain.

CARVILLE: I agree completely with Alex. The danger is if Governor Palin has a bad debate that McCain could lose contact. They could be face a disaster. You're right. They need surprises, and I promise you, they're going to get them between now and Election Day.

BLITZER: I don't know if you heard Glenn Beck on our show earlier. The conservative commentator say he thinks it's over for McCain because he voted for the bailout legislation even though it included tens of billions of dollars with what they call pork barrel spending after promising he wouldn't do so. He says you know what? That so disappointed a lot of conservatives out there. It's not going to happen for him. What do you think?

CASTELLANOS: I think the biggest thing today may be that John McCain has pulled back on his campaign in Michigan. That's one of the key states that Republicans need to win to just to make the electoral map work.

BLITZER: But Republicans have won recent elections without carrying Michigan.

CASTELLANOS: The yes but the way this map shapes up, the field starts to narrow. You're drawing a little bit more to an inside straight in this kind of situation. So it makes it a little tougher for Republicans today.

Of course, this thing is not over. As James said, you know, this election is stranger than any country song we've ever heard. More hair pin turns than you can find in a road in the Alps. Singh else surely about l happen. Right now, Republicans have a tough hand of cards to play.

BLITZER: We'll leave it there. James, I know you're going to want to weigh in but you know what? That's why there's always tomorrow here in THE SITUATION ROOM. All right. Guys, thanks very much.

John King, by the way, is going to have more on what's going on in Michigan and some of these other battleground states. He's going to be joining us with the magic map, the wall coming up.

He calls it an economic Pearl Harbor. We're going to hear from the billionaire investor Warren Buffett on the financial meltdown, the bailout and his own thoughts on a rescue plan.

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

(COMMERCIAL BREAK)

BLITZER: He's called the oracle of Omaha and many of those who followed Warren Buffett's investments through the years have reaped huge rewards. He's speaking out about the financial crisis and he's calling it, "an economic Pearl Harbor."

Poppy Harlow of CNNMoney.com caught up with Warren Buffett in southern California just a little while ago. All right, Poppy. What does he have to say about this current financial meltdown?

POPPY HARLOW, CNNMONEY.COM: Well, he certainly says this is a massive crisis. The biggest he's seen in his lifetime but in terms of the plan that is awaiting a vote in the House, he says he supports it, he strongly supports it.

But you know what? Warren Buffett woke up this morning with an idea of his own. Now instead of having the treasury put up $700 billion of taxpayer money, he says why doesn't the treasury lend 80 percent of that to the private sector, have hedge funds and investors put up the other 20 percent. That gives them a stake in the game that helps you value the assets and that kicks off the demand for these assets. He says why we need a plan in general why we need one soon because, as you said, Wolf, this is as economic Pearl Harbor.

(BEGIN VIDEO CLIP) WARREN BUFFETT, CEO, BERKSHIRE HATHAWAY: We had the resources to win the pacific war after Pearl Harbor. We got off to a terrible start but we had the resources. We didn't spend a lot of time arguing who was at fault for having the ships in the bay or saying we've got to have a complete battle plan before we send out the fleet. We got into action and everybody joins in. We needed something similar now. Now everybody's worried. That worry is contagious and affects the real economy. You have to break that cycle. The federal government is the only one that can do it. They have the resources.

(END VIDEO CLIP)

HARLOW: Now, Buffett told me this is a massive problem. It all really stems from the housing crisis in this country. It will take some time to unwind. So he says there will not be any quick fixes.

(BEGIN VIDEO CLIP)

BUFFETT: The bill that's before Congress is not a panacea. It's necessary to prevent something way worse than would otherwise happen but it doesn't cure everything in a month or six months. We have an economy like a great athlete but it's had a massive cardiac arrest. The big thing to do is to apply resuscitation and get the athlete back on his feet. He's not going to leave the hospital tomorrow. I wish I could say that that would happen. It's going to take awhile. I will tell you it will be far, far far worse if we don't get right on it.

(END VIDEO CLIP)

HARLOW: Keep in mind here, Wolf, Buffett is not a neutral party. He has a lot of money in the market and made a $3 billion investment in General Electric yesterday. One the week before in Goldman Sachs to the tune of $5 million. His book relies on the market performing well. Very interesting his take on this. The full interview is on CNNmoney.com.

BLITZER: We'll watch the whole thing. Poppy, he's also a Barack Obama supporter. Did you get into that with him a little bit?

HARLOW: We didn't get into that with him exactly. Everyone thinks that Barack Obama has the right plan. We'll see if Obama listens to the Buffett plan that he announced to us today -- Wolf?

BLITZER: When he speaks, a lot of people listen. Thanks very much. Poppy Harlow reporting from California.

We're a little more than three hours away from the first and only vice presidential debate. Just ahead, a man who's been on the other side of the podium asking the serious questions, Bernard Shaw. There he is. We're going to talk about what the candidates need to do tonight.

And is there such a thing as being over-prepared for such a debate? Should the debate coaches just let Sarah Palin be herself? I'll ask her friend and former aide. That's coming up, as well stick around. You're in THE SITUATION ROOM. (COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

BERNARD SHAW, FORMER CNN ANCHOR: Governor, if Kitty Dukakis were raped and murdered, would you favor an irrevocable death penalty for the killer?

MICHAEL DUKAKIS (D), FORMER PRESIDENTIAL CANDIDATE: No, I don't, Bernard and I think you know I've opposed the death penalty during all of my life.

(END VIDEO CLIP)

BLITZER: A debate question turned out to be a key moment in Michael Dukakis's 1988 presidential campaign. Joining us now, the man who asked that question, the former CNN anchor Bernard Shaw.

Bernie, thank you for joining us.

SHAW: Thank you for having me, Wolf.

BLITZER: Give us advice for our friend Gwen Ifill. She's moderating this debate. What was the most important lessons you learned from the presidential and vice presidential debates you moderated?

SHAW: Well, a couple. A lot of times these candidates do not answer directly and specifically your question. But I learned that succinctness on my part in the formation and the drafting and wording of questions is absolutely important.

BLITZER: If they don't answer the question, should the moderator follow follow-up and press and point out that you didn't answer the question?

SHAW: Well, your viewers and listeners have to know that the rules of the debate have been predetermined and negotiated by lawyers for the candidates. There is some wiggle room. You cannot ask a follow-up, but you do so at the risk of blowing up the format. Time in a debate is very finite, and you have many things that you want to cover, but you are not sleeping at the switch as a moderator. You can tell when a candidate is not answering a question. You can tell when the question begs the answer begs for a follow-up.

BLITZER: And we are going to try to put the question up on the screen to remind the viewers what the actual question was so that if the candidate doesn't answer but diverts and goes into something else, it will be clear even if the moderator just has to move on because of the format on to the next letting the other candidate shall we say respond.

SHAW: Yes.

BLITZER: What about the candidates themselves? What advice do you have for them as someone who has been on the other side? SHAW: I don't advise newsmakers and certainly not politicians, but it will be interesting though.

BLITZER: And what would you like to hear from these two vice presidential candidates?

SHAW: One question, to the governor and to the senator, how under-prepared are you to be president?

BLITZER: How under-prepared so in other words to be in awe of the enormity of what is going on?

SHAW: Well, yes. And also if they were candor and if candor were to break out upon being asked that question, we will find out if they are candid and truthful about how they assess their abilities to the moment.

BLITZER: I want the play for you an exchange that you had at the 2000 vice presidential debate with the then vice presidential nominee on the Republican side Dick Cheney. This will bring back a memory to you, Bernie. Listen to this.

SHAW: OK.

(BEGIN VIDEO CLIP)

SHAW: Washington is a caldron of political bickering and partisanship. The American people, gentlemen, have had enough. How would you elevate political discourse and purpose?

DICK CHENEY, VICE PRESIDENT OF THE UNITED STATES: Well, the -- I think that there are a number of ways to do it. First of all, I agree with your assessment.

(END VIDEO CLIP)

BLITZER: All right. Over the past eight years, Bernie, what has changed?

SHAW: Very little. Very, very little. That is the problem with governess in the great country, the people on the hill and the talented and capable and patriotic men and women of the Congress, and they mean well. But they are almost genetically incapable of addressing the basic needs of this country right now and that why we are in the fix we are in.

BLITZER: Well, you have had a unique perspective of the past few years and no longer being the lead anchor here at CNN, and give us the impression of how the news media has covered this current campaign from the, shall we say an outsider's perspective albeit sympathetic with those on the inside.

SHAW: Well, my lone regret is that there has been some sloshing over from just straight journalism, news reporting and hard news reporting to actually enabling writers and people on the air to -- television and radio -- out of one side of their mouths report the news and out of the other to actually tell readers and listeners and viewers what they personally think about the news. I am an old fashioned journalist when it comes to that. My idols were Edward R. Murrow and Walter Cronkite. I don't believe people should know my personal opinions. I have strong personal opinions and they have no place in reporting the news and certainly not in reporting a presidential news, but I am staggered at what I see and read and observe on the internet.

BLITZER: Thank you, Bernie Shaw. CNN is still your favorite network though?

SHAW: Yes.

BLITZER: And Sarah Palin is not the only opponent, because some members of the media say that the media is lined up against her. We will hear what Lou Dobbs has to say about that. And John king shows us the latest on the "Magic Map."

She has been cramming for days, so how will Sarah Palin perform on the test so far and we will ask her friend and aide Meg Stapleton who is standing by live.

Stay with us in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: First we know that Joe Biden will be Sarah Palin's opponent tonight, but some on the right say that the so-called liberal news media are also ling up against her. We will see what Lou Dobbs thinks about that.

LOU DOBBS, CNN ANCHOR: Well, no question about it, the national media and including this network and all of the cable networks with the exception of one have taken shots at this woman that are unconscionable, and ABC about this how much she would and would not detract from McCain and they don't have a similar vote out about Joe Biden. The fact is that Joe Biden has twice been certified to be a plagiarist.

BLITZER: And all of that stuff has been widely reported about Joe Biden.

DOBBS: But they are questioning her ability to be vice president, and if that is not the heart of the character of the issue to be vice president of the United States and ultimately president, what does, Wolf? This is an unconscionable act on the part of the media what they have done. It is a character assassination attempt of the liberal media by Governor Sarah Palin.

BLITZER: Remember, when she came in she got great reviews for the speeches.

DOBBS: No, she didn't. She was attacked for five straight days before she was introduced to the American people, and then she gave a speech and got rave reviews and then those were discounted across the board. This woman has been without question unconscionably attacked and if the same were applied to Joe Biden, we will see tonight if it will be evened out and the American people can see for themselves.

BLITZER: And Lou in one hour will have more on his show. We watch you then, Lou.

And to our viewers, you are in THE SITUATION ROOM