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Wall Street Gets Bailed Out; Who Won Vice Presidential Debate?; The Ailing Economy and the Election; Power of the Vice Presidency; Children of VIPs in War Zones

Aired October 3, 2008 - 18:00   ET


WOLF BLITZER, CNN ANCHOR: And, to our viewers, you're in THE SITUATION ROOM.
Happening now: The Wall Street bailout, it gets the bailout, but will the financial bleeding stop? The ink still is drying on the bailout package signed into law by the president. This hour, the big questions and even some bigger costs.

Also, jobs slashed and markets shaky. Despite the bailout, the U.S. economy is still volatile and in crisis, so what it all means to you.

And no big hits or serious fouls. Sarah Palin still very much in the game after debating Joe Biden. Would she be anything like Dick Cheney as vice president? The best political team on television standing by.

We want to welcome our viewers in the United States and around the world.

I'm Wolf Blitzer at the CNN ELECTION CENTER. You are in THE SITUATION ROOM.


GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: By coming together on this legislation, we have acted boldly to help prevent the crisis on Wall Street from becoming a crisis in communities across our country.


BLITZER: President Bush on that $700 billion financial bailout he just signed into law. The House of Representatives finally mustered the support to pass the measure today, capping a week of turmoil in Washington, as well as out there on Main Street, but many Americans feeling the economic pinch. They are not yet ready to breathe a sigh of relief, by any means.

Let's go to Capitol Hill. CNN's Jessica Yellin is standing by.

The House of Representatives, they did today what they couldn't do on Monday. There were some changes in the legislation. Set the scene for us. Tell our viewers what happened. JESSICA YELLIN, CNN CONGRESSIONAL CORRESPONDENT: Wolf, folks on both sides of Capitol Hill tonight are breathing a huge sigh of relief after they fought all week to push this across the finish line. As you say, it failed by 12 votes on Monday in the House of Representatives. It crossed by a healthy margin of 58 extra yes votes today.

Leaders on both sides say the way they got from there to here is through a combination of pressure from the presidential candidates, Obama and McCain, calls from George Bush. Folks were being called at home, at work, lobbied also by CEOs. One member said he has not spoken to this many bank presidents in his entire life.

But many of the members we talked to say what really changed their minds is hearing from the constituents who say their own economic situation was starting to be in peril. Let's listen.


REP. DONNA EDWARDS (D), MARYLAND: I talked to workers who are worried about losing their jobs, a small businessperson in Prince George's County who had to lay off two employees this week because he was not able to make payroll.

REP. ELIJAH CUMMINGS (D), MARYLAND: What they are saying to me, is, Congressman, every day I go to my portfolio, I'm see that, from a pension or whatever, I am seeing that my money is leaving. Can you help me?


YELLIN: And, Wolf, what they tell us, leadership especially, is the biggest mistake they made with this bill was initially describing it as a bailout of Wall Street, which made it wildly unpopular with the public.

They say it should have been sold all along as a bailout or a rescue for Main Street. Now, there are many people, not just Lou Dobbs you were just talking to, but others here on Capitol Hill who still think it was wrong and that it is a bailout of Wall Street, many of whom voted no.

And they are pointing the finger at Secretary Paulson, who they say marched up here, declared that crisis was looming and they had to act immediately. Many wish they had more time to deliberate -- Wolf.

BLITZER: All right, Jessica, thanks very much. Jessica is on the Hill.

Despite the bailout, there is still plenty of reasons for Americans to be very jittery about the overall U.S. economy. The Dow Jones industrials in fact closed down, down 157 points today. A new report shows employers slashed 159,000 jobs in the month of September, the biggest cut in five years.

And the future of another troubled bank remains up in the air. Wachovia and Wells Fargo announced plans to merge today, but Citigroup is trying to stop them, saying it struck an exclusive deal to buy Wachovia only four days ago.

Let's go to our senior business correspondent, Ali Velshi. He is over at the Chicago Board of Trade today.

What was the reaction on the floor today, Ali, to the president's being able finally to sign this legislation into law?


Well, while the vote was going on, it was the same situation at the Board of Trade as it was at the New York Stock Exchange, dead stop. Folks were sitting, watching the monitors, seeing what was going on. There were people saying, is this going to pass? Is this not going to pass?

And then there was a fairly immediate reaction in treasuries, which is the credit market. And we started to see an immediate loosening of this credit freeze that we're in by very little, Wolf. Of course, on the stock market, we were up some 300 points before the vote started, and ended up 150 down.

In fact, this is the worst week in Wall Street in seven years. So, if Americans are left scratching their head, this is confusing for those of us who work in the business, too. Now, here, the thing to remember is that, even though this bill has passed now and there's sense of relief about that, we are now turning our attention to fact that we are in an economic downturn, Wolf.

Look at those job losses. Those are the monthly job losses for this year, this month, 100, in September, 159,000. And that brings the grand total for the year to a loss of 760,000 jobs. That is remarkable, and that is not going to stop just because this bailout bill has been passed. Home prices are not going to go up just because this bailout bill has been passed. And that is why you saw the stock market down, maybe not down by as much as it would have been if the bailout bill hadn't passed, but who knows, Wolf.

BLITZER: Ali, normally, just to keep up with the population increase, the number of workers, young people or others entering the job market, you need to grow at a minimal level even just to stay in place, isn't that right?

VELSHI: Yes. Economists say 100,000 to 150,000 jobs a month is what we need to create. We have lost an average of 84,000 a month this year. So, that is a spread of 184,000 jobs a month. In a good economy, we should be up 1.5 million jobs. And we are down three- quarters of a million. That is pretty serious.

BLITZER: Very serious, indeed.

All right, Ali, thanks very much.

They came, we saw, but who conquered? Americans are now changing or deepening their opinions of both Sarah Palin and Joe Biden after their vice presidential debate.

Today, Palin was attending fund-raisers in Texas, meeting with the oil magnate T. Boone Pickens to talk about energy. But what does she think about last night's debate?

CNN's Dana Bash is working this story for us from Saint Louis -- Dana.

DANA BASH, CNN CONGRESSIONAL CORRESPONDENT: Wolf, most of the focus is now back on the economy and the candidates running for president, but the running mate who without a doubt had the most at stake in the only V.P. debate believes she achieved her political goals, even if she was not viewed as the winner on policy points.


BASH (voice-over): Before leaving Saint Louis, self-analysis from Sarah Palin.

GOV. SARAH PALIN (R-AK), VICE PRESIDENTIAL NOMINEE: I think things went very well last night. It was...

BASH: Inside Palin's campaign and among most Republicans, relief, no clear win, but no loss either.

WHIT AYRES, REPUBLICAN POLLSTER: If she had bombed last night, the McCain campaign was effectively over.

BASH: With rehearsed responses to camera and an occasional wink, Palin's top priorities were to hold her own and connect.

PALIN: Let's commit ourselves just every day American people, Joe Six Pack, hockey moms across the nation, I think we need to band together and say, never again.

BASH: But Joe Biden had no intention of ceding that to Palin.

SEN. JOSEPH BIDEN (D-DE), VICE PRESIDENTIAL NOMINEE: So walk with me in my neighborhood, go back to my old neighborhood in Claymont, an old steel town or go up to Scranton with me. These people know the middle class has gotten the short end.

BASH: An instant CNN poll shows Palin did not win the race to connect. Biden beat her 50-44 on who's more in touch with people's problems. Biden focused on linking John McCain to George Bush and talked specifics on issues.

BIDEN: We're spending $10 billion a month while Iraqis have an $80 billion surplus. Barack says it's time for them to spend their own money.

BASH: Palin, generalities.

PALIN: Your plan is a white flag of surrender in Iraq. And that is not what our troops need to hear today.

BASH: And when Biden tried to pin her down...

BIDEN: The governor did not answer the question about deregulation.

BASH: She navigated elsewhere.

PALIN: Oh, I'm still on the tax thing, because I want to correct you on that again.

BASH: If nothing else, McCain aides hope she shored up GOP voters she had energized.

LONNIE CELSTEAD, MCCAIN SUPPORTER: After seeing previous interviews, I thought she might have done not quite so well, but she -- she did well.

UNIDENTIFIED FEMALE: Are you reassured now of her abilities to take over as president if need be?

CELSTEAD: I believe so, yes.


BASH: Now, Republicans voters may view Palin's debate performance as a net plus, but the more urgent goal of drawing in independent voters and trying to control of the economic debate, that falls not to Palin, but the man on the top of her ticket, John McCain -- Wolf.

BLITZER: Dana, thanks very much -- Dana Bash reporting on this story.

Joe Biden spent the day, by the way, saying farewell to his son at a deployment ceremony? Is it wise, though, for children of high- profile politicians to serve in war? The Pentagon may be thinking twice about that. We will have a report.

Many Americans struggling to survive the financial crisis, and now that the bailout plan is the law, how soon will it help you?

And as we just mentioned, September saw the biggest job loss in five years. Now Barack Obama is linking McCain to what he is calling job killing.

Jack Cafferty is off today.



BLITZER: Both John McCain and Barack Obama are welcoming the bailout package just signed into law by President Bush. Obama speaking out about the measure just a short while ago.

(BEGIN VIDEO CLIP) SEN. BARACK OBAMA (D-IL), PRESIDENTIAL NOMINEE: The final thing is understanding that even if this rescue package works exactly as it should, it's only the beginning, it's not the end, because we still have 150,000 new people who've lost their jobs this month; 750,000 since the beginning of this year. We still have a health care system that's broken. We're still overly reliant on oil from the Middle East.

And so we've still got the structural problems, the fundamentals of the economy aren't sound, and we're going to have to do a lot of work moving forward.

So if we can stop the bleeding with this package, implement it effectively, and then move forward to deal with the broader problems on Main Street, then hopefully we can start getting our economy back on track.


BLITZER: Concerns about America's economic crisis certainly have been helping Barack Obama's campaign in recent days. And he is staying focused on that issue, the issue that Americans say they care most about.

Let's go the CNN's Jim Acosta -- Jim.

JIM ACOSTA, CNN CORRESPONDENT: Wolf, Barack Obama spent much of his time today talking up his running mate's performance during last night's debate and talking down his opponent's on the economy.


ACOSTA (voice-over): After hitting John McCain for weeks on the economy, it was time to turn to Sarah Palin.

SEN. BARACK OBAMA (D-IL), PRESIDENTIAL CANDIDATE: I wonder if she turned on the news this morning.

ACOSTA: Barack Obama took issue with one of Palin's claims during the vice presidential debate when she questioned the Democratic ticket's vow to only raise taxes on the wealthy.

GOV. SARAH PALIN (R-AK), VICE PRESIDENTIAL CANDIDATE: You're forgetting the millions of small businesses that are going to fit into that category. So they're going to be the ones paying higher taxes; thus resulting in fewer jobs being created and less productivity.

ACOSTA: But on a day when the government announced the worst job losses in five years, Obama's response to Palin? You're one to talk.

OBAMA: So, when Senator McCain and his running mate talk about job-killing, that's something they know a thing or two about, because the policies they have supported and are supporting are killing jobs in America every single day.

ACOSTA: It has at times seemed to be Obama campaign law to avoid all mention of Palin, but even Pennsylvania's outspoken governor, Ed Rendell, couldn't resist the urge.

GOV. ED RENDELL (D), PENNSYLVANIA: Governor Palin kept saying Joe Biden wanted to look backwards. And she's wrong. She's wrong about a lot of things, but she's wrong. Joe Biden and Barack Obama want to look to the future.


ACOSTA: Before that vote on the bailout package, Barack Obama was urging lawmakers on Capitol Hill to put politics aside and act.

But with all of his talk of sacrifice, Senator Obama is still not talking about scaling back his campaign promises, even though there is a ballooning budget deficit looming for the next president -- Wolf.

BLITZER: All right, Jim, Jim Acosta, covering the Barack Obama campaign in Pennsylvania.

John McCain has a vested interest in the bailout after injecting himself into efforts to get it passed. Here is what the Republican presidential candidate is saying about the package and the final approval it received today.


SEN. JOHN MCCAIN (R-AZ), PRESIDENTIAL NOMINEE: This rescue bill is not perfect. And it is an outrage that it is even necessary.

But we have to stop the damage to our economy done by corrupt and incompetent practices on Wall Street and in Washington. The action Congress took today is a tourniquet. It is not a permanent solution. Our economy is still hurting, and hurting badly. And further action is needed, and it should not take a crisis to get this country to act and this Congress to act in a bipartisan fashion.


BLITZER: Let's get some more right now on Senator McCain and his strategy with for dealing with this ailing economy.

Let's go the CNN's Ed Henry -- Ed.

ED HENRY, CNN CONGRESSIONAL CORRESPONDENT: Wolf, after staking so much political capital on this bailout, you might expect John McCain to pat himself on the back, but he was very careful not to do that.


HENRY (voice-over): After taking a beating when the bailout stalled, John McCain could now be enjoying a victory lap. But speaking in Colorado just minutes after the rescue plan passed in the House, McCain steered clear of any euphoria.

SEN. JOHN MCCAIN (R-AZ), PRESIDENTIAL CANDIDATE: This is a tourniquet. It's not a cure. It's not a cure, it's a tourniquet. It will stop the bleeding, but now we've got to reform the way we do business in Washington. And it's got to be reformed now.

HENRY: McCain also needs to stop the bleeding in his campaign caused by the financial crisis. So he was careful not to celebrate on the same day the government revealed another 159,000 jobs lost.

MCCAIN: There was a jobs report that came out today that's terrible news for America. I have to give you straight talk, my friends. I can't give you rosy scenarios.

HENRY: Cautious also because the public remains deeply skeptical that the plan McCain lobbied for is really just a bailout of Wall Street.

MCCAIN: I'm not interested in helping Wall Street in any way. Those people that took those risks and engaged in that kind of activity, they will suffer the consequences. But the innocent bystander -- the innocent bystander, the homeowner, those have to be shored up.

HENRY: With the financial crisis helping to fuel Barack Obama's rise in key battlegrounds like Colorado, McCain is vowing to hit the Democrat hard in next week's second presidential debate.

MCCAIN: I guarantee you, you're going to learn a lot about who's the liberal and who's the conservative, and who wants to raise your taxes and who wants to lower them.

HENRY: An issue the McCain camp is pushing in a tough new ad.


NARRATOR: Senator Obama voted 94 times for higher taxes. Ninety-four times. He's not truthful on taxes.



HENRY: But CNN has done a fact-check of that charge and found it to be misleading. Many of those 94 votes were budget votes and would not have directly raised taxes -- Wolf.

BLITZER: Ed Henry covering the McCain campaign in Pueblo, Colorado. It's a key battleground state.

Two California congresswomen, sisters, and their family are agonizing tonight. A search is on for their brother. You are going to find out what happened next.

And a CNN star makes his first appearance on "Oprah," "Oprah." You are going to see what happened. That's coming up next as well.


(NEWS BREAK) BLITZER: So, what's next? Lawmakers signed the Wall Street bailout bill. How soon will people who need credit for cars, homes and other items get some relief?

And did you hear something stunning from Sarah Palin last night? Does she really want to expand the U.S. constitutional role of the vice presidency?

And Palin and Biden have at least one thing in common, a son deployed to Iraq. Is it a wise thing, though, for children of high- profile politicians to serve in war?

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


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

Happening now: The $700 billion bailout package has been signed into law at the height of the political season. So, what is next for the candidates and for the economy?

And Sarah Palin did better than a lot of her critics expected. We are going to have a closer look at what she has to do next.

And the McCain campaign has released the Palins' tax returns, how much they made, how much they paid.

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

An unprecedented $700 billion Wall Street bailout signed into law, but it could be some time before most Americans get some relief. So, what comes next?

Mary Snow has been working the story for us.

All right, Mary, what should we expect?

MARY SNOW, CNN CORRESPONDENT: Well, Wolf, no easy answers. The bailout drama may be over, but it is just seen as one step in what is shaping up to be a very rocky road ahead.


SNOW (voice-over): Wall Street's reaction to the bailout bill was telling. As soon as the House passed it, a market rally faded.

ART HOGAN, CHIEF MARKET ANALYST, JEFFRIES AND COMPANY: Almost like celebrating when the ambulance finally gets there. You really -- it is hard to say, oh, the ambulance is here. Oh, that's fantastic. Oh, that's right. We really need an ambulance.

SNOW: And the patients has a host of ailments. For one, frozen credit markets causing banks to tighten lending are an immediate problem. The hope for the bailout package is to thaw that frozen market. But economists say, borrowers won't feel it right away. DIANE SWONK, SENIOR MANAGING DIRECTOR AND CHIEF ECONOMIST, MESIROW FINANCIAL HOLDINGS, INC.: Some could be starting see money as soon as next week, but that's going to be the larger companies first. It's going to be taking longer to get to those really Main Street borrowers.

SNOW: Economist Diane Swonk says borrowing for things like car loans and mortgages may not resume to normal levels until the end of the year or early next year, if we are lucky. She says the first challenge is to undo damage done just in the past two weeks, while the bailout was delayed.

SWONK: The U.S. economy was clearly already slipping and deteriorating before we hit this credit market crisis. This credit market crisis just added insult to injury.

SNOW: Compounding problems, September saw the biggest drop in jobs in five years, 159,000, and economists only expect those numbers to get worse before getting better.

LAKSHMAN ACHUTHAN, AUTHOR, "BEATING THE BUSINESS CYCLE": It is a real perfect storm on the economy, in the sense that you have a credit crunch. Then you have a U.S. business cycle recession, and then you have a global recession.


SNOW: So, how long will it be before things start to turn around? Some economists we spoke with say they don't expect to see the economy improving until the second half of 2009 -- Wolf.

BLITZER: Thanks very much, Mary Snow, for that.

The economy certainly is the top issue for voters right now, and for the candidates.

Let's discuss what is going on with Carl Bernstein and Jeff Toobin. They're both part of the best political team on television.

Carl, the job numbers are simply horrendous right now. If you take a look at the number of jobs lost in January, February, and then culminating last month, 159,000 jobs lost, 760,000 jobs lost this year alone, since January 1, talk a little bit about the political fallout on these remaining few weeks.

CARL BERNSTEIN, CNN CONTRIBUTOR: First, it is not just the job numbers.

You have got a situation where the state of California, Schwarzenegger has written to Paulson, saying the state is broken, probably can't make its next payroll, and is going to have to be bailed out, to the tune of $7 billion. This is much deeper than that. And neither of the candidates has addressed the huge implications of this.

Joe Biden last night was asked, well, what will this do in terms of your overall program? What will you cut back on?

They're going to have to cut back on a lot more than Biden or Palin...

BLITZER: They don't want to say it now...


BLITZER: ...but there's no way...

BERNSTEIN: But, for instance, health care. Health care -- there's not going to be universal health care. It's impossible under these circumstances. Entitlements -- some of them are going to have to be cut back. It's going to take some real political will to sit down, tell the American people, this is structural, it goes deeper than we've ever experienced...

BLITZER: I suspect...

BERNSTEIN: ...etc.

BLITZER: ...that McCain would have to do that if he's elected, but I suspect both of these candidates are not going to want to talk about what they would have to scale back in terms of their very ambitious agendas in these remaining few weeks.

JEFFREY TOOBIN, CNN SENIOR LEGAL ANALYST, "NEW YORKER" MAGAZINE COLUMNIST: Yes, that's true, although I'm a little more skeptical than you are about how everything has to be cut back. I don't think that a budget deficit is a necessarily terrible thing during a recession, which is, in effect, what we are in. So the fact that you have to cut everything is not definitely for sure.

But the thing that's remarkable about this is when we started this campaign, we were talking about the war in Iraq, we were talking about global warming. We're not talk about anything -- the candidates aren't talking about anything except the economy. That's what they have to make their pitch on.

And Barack Obama is the outsider. The Republicans have had the White House. That's a very powerful position to be in...

BLITZER: And as long as they're...

TOOBIN: this situation.

BLITZER: As long as they're talking about the economy, if that's the top issue, that's got to be good news for Barack Obama.

TOOBIN: It's always good news for Democrats in general. And here, when it's a Republican president that has presided over this mess, it's doubly good news for him.

BLITZER: Do you agree?

BERNSTEIN: Yes. But I think the real thing is that -- you know, Obama has got to address the larger questions of this. He started to. Whereas McCain has said, you know, economics aren't my strong suit. Then he said, well, I didn't really say that. But we see in his votes that he has had little grasp of the economic realities of the country. And I think the voters have responded to that.

There are private polls that the McCain campaign has done showing that their deficits in states like Michigan, where he pulled out, are much steeper than we have been led to believe. And they know the voters are responding to this economic problem and that he's not up to the measure of it, as he's demonstrate so far.

BLITZER: Beth Fouhy is joining us, a political reporter for the Associated Press, formerly with CNN.



BLITZER: Beth, how is this -- these final four or five weeks, this political -- the political fallout going to play out from this huge economic crisis that may or may not be eased as a result of this $700 billion bailout package being signed into law today?

FOUHY: Well, I think, Wolf, what you saw for the last couple of weeks is a lot of volatility in the race. But everything was starting to move as soon as the $700 bailout package started to be negotiated and discussed very firmly over to Barack Obama.

It's just a horrible climate for John McCain. He's tried very hard to distance himself in almost every way from President Bush, but he is a Republican. This is a Republican president. The country is perceiving it as a problem that Republicans own.

He is the Republican standard-bearer now.

He's tried a lot of different things to make himself look like he's taking charge, that he's assuming some leadership. His gamble last week to suspend the campaign, go back to Washington and help negotiate that bailout, it really didn't work out for him because it didn't -- the members of Congress did not follow his lead.

So he's looking like he's grasping. As Carl was saying, the polls in all of the key states are really starting to go toward Obama. And now Obama is playing on Republican turf, red turf in states like Colorado, North Carolina, Virginia -- states that went very solidly for President Bush. And John McCain is basically just trying to hold onto them.

BLITZER: And, Jeff, in our poll of polls, the most recent one that just came out today, right now we have Obama -- nationally, among registered and likely voters -- 49 percent, 43 percent for McCain, 8 percent unsure. And more important than the national numbers, places like Florida and Pennsylvania and Ohio, the numbers are very impressive for Barack Obama right now, including some of those other states, like Virginia and Missouri. TOOBIN: Missouri -- states that didn't even seem to be on the map. You can see why John McCain, campaigning the other day, said life is unfair, because it's turned out to be unfair to him. All the indicators are moving against him.

You know, we've said for a year this is a close race. This is a close race. This is not a particularly close race -- at the moment.

BLITZER: At the moment.

TOOBIN: It may well change.



TOOBIN: It may well change.

BLITZER: There's still four or five weeks to go.

TOOBIN: (INAUDIBLE) weeks to go.

BERNSTEIN: Anything can still happen and...

BLITZER: But, you know, were you surprised, Carl, yesterday when the McCain campaign formally told us that they were basically ceding Michigan?

BERNSTEIN: Well, I've been talking to Republicans and I know what the private polls show there. And they showed 12 or 13 points for Republicans...

TOOBIN: But why make that announcement?

BERNSTEIN: ...and there were...

TOOBIN: Why make that announcement?

That is a terrible strategy.


BERNSTEIN: Well, look...

BLITZER: Why make that announcement...

FOUHY: They had to make it because all the signs were on the ground. He canceled an event next week in Michigan. They were pulling down all their advertising. I mean it was hiding in plain sight, so they had to acknowledge that this is what they were doing.

TOOBIN: But don't pull the ads. Don't pull all the -- they have plenty of money. I mean keep a few ads...

FOUHY: They don't have...

TOOBIN: ...on the air.

FOUHY: They don't have the money that Barack Obama does. They needed to move it to states where he has a chance.

TOOBIN: I think that's...

FOUHY: They concluded he had no chance in Michigan.

TOOBIN: I think it's a terrible idea.

FOUHY: Well, at the same time...

BLITZER: Well, if he doesn't show up in a state for an event that's previously been scheduled...

TOOBIN: Well, you...

BLITZER:'ve got to explain...

TOOBIN: You say there's a scheduling conflict. Come on. They say that all...

BLITZER: But if...

TOOBIN: ...and announcing...

BLITZER: the same time you show up in, let's say, Pennsylvania or Ohio or Florida, there can't be much of a scheduling conflict.

TOOBIN: I think you can finesse it. You don't say you're pulling out of a major, major state. That becomes a huge news story.

BLITZER: And it's an embarrassment, too, at this...

TOOBIN: Totally.

BLITZER: All right, guys, stand by, because I want to continue this conversation. Our discussion will continue.

Up next, Sarah Palin said the U.S. Constitution allows more authority for the vice presidency.

What did she really mean?

What would her role as vice president be?

And Steve Fossett's secret project -- you're going to find out what he was planning just before he disappeared.

Stay with us.




GOV. SARAH PALIN (R), VICE PRESIDENTIAL CANDIDATE: Well, I'm thankful that the Constitution would allow a bit more authority given to vice president, also, if that vice president so chose to exert it, in working with the Senate and making sure that we are supportive of the president's policies and making sure, too, that our president understands what our strengths are.


BLITZER: Governor Sarah Palin speaking last night about the power of the vice presidency.

All right, you know a lot, Jeff, about the Constitution, the Supreme Court.

Does she have a point?

TOOBIN: No, I don't think she really does have a point. The context is really remarkable here, because Dick Cheney has expanded the power of the vice presidency beyond what it's ever been before and -- but he's never claimed that he has any real authority over the Senate. All he has the authority there is to do is to break ties in case of a tie vote, and there hasn't been one in seven-and-a-half years.

Sarah Palin suggests there's something she could do regarding the Senate. My own sense is that she was really just kind of freelancing there. I don't think she has a constitutional scheme worked out that she's planning on changing.

BLITZER: Because when I heard it, my ears perked up and I thought well, maybe she wants to have a greater -- if she's elected vice president...

BERNSTEIN: I think the answer, perhaps, was out there in Katie Couric land, that she was making it up as she went along. I don't know.

I think we need to address the larger question of that debate. Because I think the loser last night in the debate was really John McCain. He has put Sarah Palin in an impossible position, which is to demonstrate that she's ready to be president of the United States should something...

BLITZER: But she did a lot better last night...

BERNSTEIN: ...something...

BLITZER: ...than she did in the interviews with Katie Couric.

BERNSTEIN: So could all of us. But that's not the question. The question is, is she ready to be president of the United States?

And everything we know shows that undecided voters are looking very much at that question and up with an answer no. And we've got a 72-year-old nominee with four cancer surgeries. We've had three presidents since Roosevelt come to office as a result of the death of a president or the resignation of Richard Nixon. And this is really on people's minds. And she didn't -- she was not very confidence- inspiring last night.

BLITZER: What do you think about last night?

FOUHY: Well, I do think there was ever going to be a situation where people were going to vote for this ticket based on who was going to be vice president, even with what you're saying, the fact that...

BERNSTEIN: See, I think there is.

FOUHY: ...John McCain is older and...

BERNSTEIN: I think this is the exception.

FOUHY: ...and has been ill. Look, I think Sarah Palin really staunched the bleeding that she was undergoing throughout the week with that drip, drip, drip of the Katie Couric interview. She came back to what she was from -- at the convention, which is a feisty, dynamic speaker.

But, yes, she revealed very -- very little to make one believe that she is intellectually prepared for the job. So what you're saying is certainly true. She did not demonstrate that she's ready to be president. But she did stanch the bleeding. She's still very popular in red states. She's going to go to some of these places like Western battlegrounds -- New Mexico, Colorado and also even places like North Carolina, where the base is -- really needs to be motivated to win.

BLITZER: But the point is that she may have energized the Republican base, the conservative base...

FOUHY: And reenergized them last night.

BLITZER: Re-energized them last night. But if McCain is going to have a chance, he's got to bring in Independent voters.

TOOBIN: He does.

FOUHY: Sure.

TOOBIN: But I think last night, by and large, was a good for Sarah Palin because it really got her off of the national agenda. This race will return to what most races are now, which is the Democratic nominee for president against the Republican nominee. The vice presidents, we probably will not hear much from them.

If she really had a disastrous night, it would have been more like the Katie Couric week. Now I think she will go, work on get -- building up turnout among the base. That's something she could do that would be helpful to John McCain...

BLITZER: Because they've really got to get turnout.


TOOBIN: They have to get turnout. So I actually do think she had a good night last night.

FOUHY: And certainly in those red states that we discussed. I mean if he's got any chance of holding onto them -- North Carolina, Virginia, those kind of places, Wolf...

BLITZER: The states that Bush won.

FOUHY: ...he needs that base.

And if she can help him pull those people out, then she's a benefit.

BLITZER: Were you surprised that she and Biden -- at least they said they basically agreed when it came to homosexual rights?

TOOBIN: Very surprised. There was a moment -- I was very frustrated. Gwen Ifill could have asked a follow up question saying that -- do you really mean that, Sarah Palin?

Because she doesn't usually say, as far as I'm aware of her record. You know, Biden said -- which is sort of the official Democratic position -- that complete equal rights for gay people, except for gay marriage in terms of hospital access, inheritance, tax law...

BLITZER: Insurance.

TOOBIN: That's not the Republican position and that's not Palin's position. And she implied that it was. I'd like to see more follow-up.

Perhaps Sarah Palin will give a press conference and people can ask that. She hasn't done that.

BERNSTEIN: I thought both of them were on the edge of discomfort and possibly disingenuousness on their answers on that issue.

TOOBIN: Really?

BERNSTEIN: Yes. Because I think that probably -- I mean I can't in Joe Biden's mind, but I think that privately Joe Biden probably doesn't have a problem with same-sex marriage. That's just a guess. But I'm speaking out of turn. I'm not in his head.

FOUHY: Well, I think in Alaska, Sarah Palin actually did stand in the way of legislation that would have harmed gay civil rights. So she's sort of has taken a position there. But I think she also knows that she's -- there is a general impression of her that she's a very, very right-wing conservative. She's alienating the Independents, as we discussed.

To this, perhaps, was just a chance for her to step out and say, hey, I'm not quite that person that you think I am. I'm thoughtful. I've got...

TOOBIN: Tolerant. She used the word tolerant.

FOUHY: Tolerant, yes. I'm not as inflexible as you think I am.

BLITZER: Guys, we're going to leave it right there.

Thanks very much.

A good discussion.

The candidates' kids in Iraq -- Joe Biden, Sarah Palin, John McCain -- their sons are either serving in Iraq right now or about to go or were just there.

But should they really be in the war zone?

And just out, Sarah Palin's tax returns, released by the McCain campaign. We're taking a closer look at what's inside.

Stay with us.



BLITZER: Let's check in with Lou to see what's coming up right at the top of the hour.

What are you working on -- Lou?


Congressmen and President Bush ramming the Wall Street bailout down the throats of the American people. Then they rushed out of town, leaving the scene of the crime, if you will, but with a bill of nearly a trillion dollars behind them.

And seething anger across the country after lawmakers loaded this Wall Street bailout down with pork. We'll have complete coverage.

And two lawmakers who refused to be bribed join me tonight.

And Governor Palin defies her critics and goes on the offensive in one of the most watched debates in this country's history.

Will Governor Palin's performance move Senator McCain and the ticket?

We'll find out. Three top political analysts join us.

And who will look after the interests of working men and women after the Congress has sold them out?

Three of the smartest economic thinkers in the country join me. Join us for all of that at the top of the hour here on CNN, for all of that, all the day's news and much more, from an Independent perspective -- Wolf, back to you.

BLITZER: See you in a few moments, Lou.

Thank you.

Earlier, we mentioned what Sarah Palin is doing today, now Joe Biden. Today, he attended a deployment ceremony for a Delaware Army National Guard unit. His son is part of that unit and is going to Iraq with that unit.

Governor Palin also has a son already deployed in Iraq.

So what are the challenges posed when children of such high profile politicians serve in war?

We asked our senior Pentagon correspondent, Jamie McIntyre, to look into the story for us -- and what are you discovering, Jamie, because it's not as simple as it looks?

JAMIE MCINTYRE, CNN SENIOR PENTAGON CORRESPONDENT: Well, Wolf, it's a situation the Pentagon hasn't had to face for more than half a century.


UNIDENTIFIED MALE: Delaware salutes you.

MCINTYRE (voice-over): At a deployment ceremony in Dover, Delaware, Senator Joe Biden said he spoke not as a candidate, but as a father -- another American parent sending a child to war.

BIDEN: Thank you for answering the call of your country. Thank you for doing what brave women and men have always done in uniform and always do. So stand strong, stand together, serve honorably, come home to your families that love you. May God bless you and may he protect you.

MCINTYRE: Thirty-nine-year-old Captain Beau Biden is Delaware attorney general, but also an army JAG. Guard officials say he'll likely be a military prosecutor in Iraq.

Last month, Alaska Governor Sarah Palin also spoke at official ceremonies when her 18-year-old son, Track, left for Iraq.

Officially, the Army says the sons of potential future vice presidents will get no special treatment. But, privately, Pentagon officials say they are considering whether such high-profile VIPs should continue to serve in a war zone after the election.

One person in a unique position to weigh in says presidential children don't belong in battle. In 1952, John Eisenhower was a 30- year-old Army major assigned to an infantry unit fighting in Korea. His father was running for president. In a "New York Times"' op-ed, the son of the late president writes that: "Avoiding combat duty was and is an unforgivable sin." So he agreed he would take his life before being captured, because his father felt if his son were taken prisoner, he could be forced to resign the presidency to avoid being blackmailed.

Now almost 90, John Eisenhower thinks, in retrospect, he should have had no choice but to be reassigned to a safe job, as he was after a short stint on the front lines in Korea.

He writes: "The next president and vice president will be busy enough without being burdened with worries about an individual soldier, especially a child."


MCINTYRE: So, privately, Pentagon officials confirm that they are considering what to do. They know after the election that the vice president, whoever it is, will have a son in the combat zone. And if John McCain is elected, they know his son Jimmy could go back for a second tour in combat -- Wolf.

BLITZER: It's amazing. Three out of those four candidates have sons serving in the military, either already in Iraq or about to go to Iraq. Barack Obama has two little girls, obviously too young to serve in Iraq, serve in the military, for that matter.

Jamie, thanks very much.

Fascinating information.

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

FREDRICKA WHITFIELD, CNN ANCHOR: Well, Wolf, I bet you didn't know that millionaire adventurer Steve Fossett had a secret project. He was about to test a submersible, which its builder reveals was capable of diving to the deepest spot on Earth -- a trench in the Pacific, in fact. The project was put on hold when Fossett went missing last year. The wreckage of his plane, meantime, was finally found Wednesday night in the Sierra Nevadas.

And our own best political team was giving the answers on "Jeopardy" last night, at least in one category.


BLITZER: I'm Wolf Blitzer.

Federal Election Commission rules for 2007-2008 put a limit of this much for an individual gift per candidate per election.


What is $2,000?


Eric, you were so close. The correct response is $2,300, not $2,000.


WHITFIELD: Oh, well. He didn't get that one right. But we know you did, Wolf. You are the man. Candy Crowley, Anderson Cooper and other members of the best political team on television also appeared with Wolf on that popular game show.

I bet that was a lot of fun, wasn't it?

BLITZER: It's always fun to be on "Jeopardy." I was once on celebrity "Jeopardy" many years ago.

All right, thanks very much for that.

Our own Ali Velshi, by the way, brought his straight talk about the economy from CNN to "The Oprah Winfrey Show" today. Ali giving the talk show superstar and her viewers a clear understanding of the current crisis and how we got where we are today.

Listen to Oprah explain why she wanted Ali as a guest.


OPRAH WINFREY, HOST: My friend Gayle King, on "X.M. And Friends" -- "Oprah and Friends" on X.M. -- had interviewed Ali. He explained it to her so well she could explain it to me. So I said this is the guy. This is the guy.

Welcome, Ali.



VELSHI: Thanks.

WINFREY: You get poked fun at. I hear often you get poked fun at for your gloom and doom reports.

But is it really as gloomy and doomy as you said?

VELSHI: It's serious, Oprah. But the fact is we'll get through this, if we understand how it affects us and what we can do.


BLITZER: Now Oprah's viewers know, and all of our viewers know, Ali is the best in the business.

In our Political Ticker today, the McCain campaign releases tax returns for Governor Sarah Palin and her husband Todd. The returns are for two years. In 2006, the campaign says the Palin's paid $11,944 in federal taxes on a gross income of almost $128,000. In 2007, the campaign says they paid $24,738 in taxes on gross income of just more than $166,000. Between the two years, the Palins contributed $8,205 to charitable causes.

Everyone has been painstakingly taking apart the Joe Biden-Sarah Palin debate -- but no one quite like our own Jeanne Moos. From the candidates' smiles to their winks to all those folksy sayings. She's filling us in, coming up right after this.


BLITZER: So why was Sarah Palin winking?

That's just one of the angles CNN's Jeanne Moos is eyeing in her take on the vice presidential debate. And it's all Moost Unusual.


JEANNE MOOS, CNN CORRESPONDENT (voice-over): What happens when shoot from the lip meets a gaffe a minute?

It's only human nature to want to watch as two trains collide.


UNIDENTIFIED MALE: This debate is going to be a train wreck of astonishing magnitude.


MOOS: But what kind of train wreck starts out so friendly?

PALIN: Can I call you Joe?

MOOS: And stays so polite?

PALIN: With all due respect, I do respect...

BIDEN: And I give her credit for it.

MOOS: Even when attacked, Joe Biden was all smiles.

PALIN: That's not patriotic.

MOOS: And all those gaffes we were expecting?

Our Gaffe-O-Meter barely moved. OK, Sarah Palin accidentally called Joe Biden O'Biden at one point.

PALIN: Barack Obama and Senator O'Biden...

MOOS: And she referred to a well known general, General David McKiernan, as...

PALIN: McClellan (ph). McClellan didn't... MOOS: And she insisted on pronouncing nuclear...

PALIN: Our nucular weaponry...

MOOS: But that kind of small stuff hardly registers on the Gaffe- O-Meter. What did register with viewers were her folksy expressions.

PALIN: And I'll bet you...

Darned right it was the predator lenders.

Say it ain't so, Joe.

Doggone it.

MOOS: Phrases like that drove a group of Democrats watching in Pittsburgh nuts.


MOOS: They scoffed when Governor Palin made a soccer mom reference.


MOOS: And while the Democrats hooted, Republican viewers in Virginia rooted...


MOOS: ...booing when Joe Biden said global warming was caused by man.

BIDEN: It's absolutely manmade.



MOOS: And when Sarah Palin gave a shout-out...

PALIN: Here's a shout out to all those third graders at Gladys Wood Elementary School. You get extra credit for watching this debate.

MOOS: The Democrats shouted back.


MOOS: But a debate that some tuned into expecting to see a car wreck...

UNIDENTIFIED MALE: Oh, he just clipped somebody. Oh, he's going into the pole.

MOOS: ...ended without anyone losing control.

BIDEN: It really was a pleasure getting to meet you.

UNIDENTIFIED MALE: Governor Palin did not crash and did not burn.

UNIDENTIFIED FEMALE: There were no major gaffes.

MOOS: Instead of gaffes...

PALIN: So my dad, who's in the audience.

MOOS: ...we in the media had to settle for unsettling winks.

PALIN: How long have I've been at this, like five weeks?

MOOS: Jeanne Moos, CNN, New York.


BLITZER: That's it for us.

I'm Wolf Blitzer in THE SITUATION ROOM.

Up next, "LOU DOBBS TONIGHT" -- Lou?