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Dow Dives; McCain, Obama Trade Fire; Public Worry Hits Record Levels

Aired October 6, 2008 - 18:00   ET


WOLF BLITZER, CNN ANCHOR: And, to our viewers, you're in THE SITUATION ROOM.
Happening now: the breaking news, the Dow dives, jittery investors even more fearful the Wall Street bailout plan won't fix the credit crisis fast enough.

John McCain and Barack Obama talk about the economy, but some wonder if they're distracted by all the negative attacks. Both sides try to tie the other to men with shady and in one case criminal backgrounds.

And get ready for round two. With political attacks flying fast and furious, might the gloves really come off at the second presidential debate?

All that, plus the best political team on television.

We want to welcome our viewers in the United States and around the world. I'm Wolf Blitzer. You're in THE SITUATION ROOM.

To anyone who thinks the $700 billion financial bailout will cause a quick fix to the economic mess, one expert simply says this -- and I'm quoting -- "Stops the bleeding, so the patient doesn't die right away." Trauma is one way to describe what investors are suffering through right now.

Today, the Dow Jones industrials plunged as much as 800 points, the largest one-day point drop ever. It also fell below the 10000 mark for the first time since 2004. The markets did rebound by the close, down 369 points.

Let's go straight to our senior business correspondent, Ali Velshi. He's in New York. He's watching all of this for us.

All right, viewers are asking, $700 billion, they sign it into law late last week. This was not supposed to happen, Ali. Why did it?

ALI VELSHI, CNN SENIOR BUSINESS CORRESPONDENT: Well, the bailout wasn't going to help the stock market. The bottom line is, the credit markets, which are the problem that this bailout was designed to help, doesn't actually get all the way to the underlying reason why a stock would go up.

You would think $700 billion would solve everything, but fundamentally stock markets operate because people who feel like they have some wealth go and spend it. Those companies do well, and that's reflected in the stock price. Now, that's not going to happen because we still see home prices that are falling. We still see jobs that are disappearing. We saw that on Friday.

So, what's happened is, the focus has moved off of the credit markets for a while. There are a few concerns about whether or not this bailout will work and work quickly enough. But the bottom line is, this still saddles us with a slow economy that's not growing. And that means investors are doubtful as to whether the companies they're invested in will make money. That's the uncertainty, Wolf.

I know you're not a prophet, but what do the experts, the people you're speaking to, what do they think we should be bracing for tomorrow?

VELSHI: Well, look, there are some people who are actually hoping and calling for the idea that the market falls further. And they're thinking if it falls in one big fell swoop at once, maybe more than 800 points in the first part of the day, it will get those people who are jittery about markets out.

Remember, for the people watching us, if this were your first day invested in the stock market, one might say that you got quite a deal. So, your investment strategy can't change because of the uncertainty in the market, particularly if you have 15 years or longer before you need to retire. But, boy, this is unsettling stuff, Wolf.

BLITZER: Certainly is. All right, thanks very much, Ali. Stand by.

So, what's happening here in the United States is certainly rippling across oceans, with markets in Europe and Asia hit very hard as well. Take a look at the stocks in those places, Hong Kong's Hang Seng Index down almost 5 percent, Japan's Nikkei losing 4.25 percent, Germany's DAX off more than 7 percent, and the British FTSE plunging almost 8, 8 percent.

The failures of U.S. investment banks have resembled tumbling dominoes. Today, the CEO of one of them took the hot seat on Capitol Hill.

Let's go to Brian Todd. He was listening, he was watching all day this hearing.

It was not very easy, not very congenial for the CEO of Lehman Brothers. Brian, tell our viewers what happened.

BRIAN TODD, CNN CORRESPONDENT: Some pretty tough questions for Richard Fuld. And get ready. We're starting to now see faces attached to the names of these fallen financial giants. Several will be dragged before Congress in the next few weeks. Today, the man whose investment bank never got a lifeline, its failure in the minds of many triggered this meltdown.

(BEGIN VIDEOTAPE) TODD (voice-over): He's the first Wall Street titan to be publicly skewered in Congress over the financial crisis. Richard Fuld presided over the collapse of Lehman Brothers, the only major investment house not to have been bought out or bailed out. One of the first tense exchanges, over the claim that Fuld was paid nearly $500 during his 14 years as CEO, even while his bank dove into the shaky real estate market and started to lose everything.

REP. HENRY WAXMAN (D-CA), GOVERNMENT REFORM COMMITTEE CHAIRMAN: Is that fair, for the CEO of a company that's now bankrupt to have made that kind of money? It's just unimaginable to so many people.

RICHARD FULD, CEO, LEHMAN BROTHERS: I believe my cash compensation was close to $60 million, which you have indicated here. And I believe the amount that I took out of the company over and above that was, I believe, a little bit less than $250 million, still a large number, though.

TODD: Fuld defended the practice of giving huge bonuses and other payments to top executives, even as Lehman was hemorrhaging, saying at the of his company were employees doing business every day with clients. But he also had to defend a conference call in Lehman's final days before bankruptcy, where, according to the committee, investors were told the company didn't need new capital.

REP. DENNIS KUCINICH (D), OHIO: Did you mislead your investors? And I remind you, sir, you're under oath.

FULD: No, sir, we did not mislead our investors. And, to the best of my ability at the time, given the information that I had, we made disclosures that we fully believed were accurate.

TODD: Is Fuld being made a scapegoat for a market gone wild? One former Lehman exec who left 14 years ago, but who knows Fuld and the culture at Lehman, believes he is.

BRUCE FOERSTER, FORMER LEHMAN BROTHERS EXECUTIVE: I thought he was bringing Lehman Brothers back together to a customer-first culture, which was sadly missing at the firm when I was there.


TODD: Still, Bruce Foerster believes that decisions made at Lehman and several other firms over the past five to 10 years led to the financial industry's meltdown. He says the real estate market, with so many properties whose values had been wildly distorted, basically killed the firm. Richard Fuld says he will be feeling the pain of Lehman's collapse for the rest of this life -- Wolf.

BLITZER: Did he say what he would do differently?

TODD: He was asked that very pointedly today. He said regarding the mortgage and commercial real estate markets, knowing what he knows now, he likely would have shut down the firm's mortgage operations. Who knows whether he really would have. And, really, who knows what the markets would have done if he had. BLITZER: And a lot of smart people out there, smarter people looking backwards, as opposed to what they did then. All right, thanks very much, Brian Todd.

Apologetic CEOs are not easing the anger many people feel right now, not only in the United States, but around the world. Here in the U.S., virtually all Americans are deeply worried about their savings, and they are seeking expert advice on what to do in this kind of market.

Let's go to Deborah Feyerick. She's in New York. She's been talking with financial advisers.

Are you getting a sense of what folks out there who are watch , what they do should do?


And I will tell you this. If you're invested in the stock market, it's probably a very good idea to sit down before you open this month's statement. The chances are not pretty that the statement is good. If you're worried, I mean really worried about your 401(k) plan, well, you're in good company.


FEYERICK (voice-over): As the Dow dropped below 10000, everywhere brokers, and financial advisers were fielding calls from thousands of investors.

UNIDENTIFIED MALE: Transfers to those banks and rolling them over.

FEYERICK: Getting messages like this one.

GREG OLSEN, LENOX ADVISORS: "I know it's the wrong time to sell," he just said, "but I have to pull the money out, because I can't take this anymore."

FEYERICK: Greg Olsen is a partner with Manhattan's Lenox Advisors.

(on camera): People who you wouldn't think would panic are now calling you.

OLSEN: Sure.

FEYERICK: They're worried. They're saying what?

OLSEN: They want to know, when is the pain is going to stop? And the answer to that question is, we don't know.

FEYERICK: Are they saying, I can't do this; pull me out?

OLSEN: You have some clients that are very upset, because they thought they had a higher level of risk tolerance than they actually did. They're making the decision to pull out because they want to sleep at night knowing there can't be any more losses.

FEYERICK (voice-over): Olsen says his advice depends on how much time and how much money clients have.

OLSEN: It's the person that has the lesser amount of money to invest that you're worried about, because they can't afford to have these types of losses. Anybody who has a long-term time horizon, a 10-, 20-year time horizon, at this point, it's not the time to make any rash decisions.

FEYERICK: As for investors nearing retirement:

(on camera): You're actually telling some people that they may want to consider putting off their retirement.

OLSEN: I have that -- it was a very difficult conversation with a couple last week. And it's a very difficult conversation to have.

FEYERICK: I think a lot of people are rethinking just how good of a bet the stock market is. What is your advice?

OLSEN: Well, long-term, the stock market has always been the best place to be. As long as you don't have to pull the money out today, you didn't lose anything.

FEYERICK (voice-over): As for when it will stop, that's something even the best advisers can't answer.


FEYERICK: Now, Olsen tells me that some people are considering taking the losses and using the remaining money to buy treasuries, but experts you may get a safe 1 to 2 percent, but that's not a 20-year strategy and you won't even keep up with the cost of inflation in the long run -- Wolf.

BLITZER: Well, what are they saying? If you take out your money right now, you put it into T-bills, you're only going to get 1, maybe 2 percent, which is not very much. But it's certainly a lot better than losing 20 or 30 percent of what's left in your portfolio.

FEYERICK: Well, it is, but chances are you have already lost that money. So, the question is, is do you want to take it out while you're down 20 percent with the hope of making 2 percent or do you want to keep it where it is, with the expectation that, 10 years down the road, it is going to grow, it's going to be back where it was?

They're very confident, the financial advisers, that in fact the market will do what it's always done, and that is continue to grow and grow and grow. But nobody expected this was going to happen, so it is a big question. What are we looking at down the future? Nobody can predict that -- Wolf.

BLITZER: Yes, people are nervous, as understandably they should be. All right, thanks very much, Deb Feyerick reporting. John McCain and his running mate take off the gloves. They're trying to convince voters that it's simply too risky to cast ballots for Barack Obama. We're going to find out what's behind the scare campaign.

And our latest polls suggest voters are beginning to make a clear choice in the presidential race. We are going to tell you the numbers, who's ahead and who's not. Stay with us.

Plus, Republican hockey mom Sarah Palin, she gets a boost from a key member of the nation's biggest feminist organization. We're going to tell you what the National Organization for Women is saying about that.

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



SEN. BARACK OBAMA (D-IL), PRESIDENTIAL CANDIDATE: I have got news for the McCain campaign. The American people are losing right now. They're losing their jobs. They're losing their health care. They're losing their homes. They're losing their savings. I cannot imagine anything more important to talk about than the economic crisis.


BLITZER: That was Senator Obama today talking about the economy and what his campaign sees as a blatant attempt by the McCain campaign to try to change the conversation.

Obama's campaign says, while Americans are hurting, John McCain would rather launch a smear campaign against Obama to win.

CNN's Suzanne Malveaux has more -- Suzanne.

SUZANNE MALVEAUX, CNN WHITE HOUSE CORRESPONDENT: Well, Wolf, a lot of people are asking and even doubting whether this bailout plan is going to work. And Obama does have something at stake here, having helped push it through Congress. So, voters want to know if he's got faith in this solution or any better ideas.


MALVEAUX (voice-over): As world markets plunged and hearings began surrounding the U.S. financial meltdown, Democratic candidate Barack Obama is hedging his bets, acknowledging the $700 billion bailout plan he pushed is far from a sure fix.

OBAMA: It is a reminder that the rescue package that was passed last week is not the end of our efforts to deal with the economy. It's just the beginning.


MALVEAUX: President Bush's call for patience was answered with a call for urgency.

OBAMA: It is very important for Secretary Paulson and Federal Reserve Bank Chairman Bernanke to move swiftly and try to restore confidence as quickly as possible.

MALVEAUX: If Obama becomes president, he will inherit the economic mess, so he is pushing for $50 billion in additional help.

OBAMA: ... on an economic stimulus package that can provide people some relief from high gas prices, food prices.

MALVEAUX: He is also calling to extend unemployment insurance and give tax breaks to 95 percent of working families.

But while Obama is chatting up his economic policy, his campaign and John McCain's are engaged in a character tit-for-tat. The McCain folks are blasting Obama for his association with '60s radical William Ayers, while the Obama folks are hitting McCain for his link to convicted financier Charles Keating.

Obama defended his campaign on "The Tom Joyner Morning Show" with CNN's Roland Martin.


OBAMA: We don't throw the first punch, but we'll throw the last.



MALVEAUX: Well, despite the fact that Obama's campaign released a 13-minute video clip around the Keating controversy, Obama portrayed himself as above the fray today, saying that the American people aren't looking for the usual what he says shenanigans and smear tactics that have come to characterize campaigns.

Now, the polls actually show that that is true. They want to hear about the economy, who can best fix it, other substantive issues. And, of course, they are going to get that chance tomorrow when the two candidates face off in their second presidential debate in Nashville, Tennessee -- Wolf.

BLITZER: All right, Suzanne, thank you -- Suzanne Malveaux reporting.

One Democratic strategist says what McCain is doing is the political equivalent of the nuclear option, trying to cast Senator Obama as risky, even dangerous.

Let's go to Dana Bash. She's working this story for us. Senator McCain and Governor Palin, they're stepping up the rhetoric against Senator Obama. DANA BASH, CNN CONGRESSIONAL CORRESPONDENT: They sure are.

You know, McCain's aides, Wolf, this morning told us his speech today would be incredibly harsh, and it certainly was. He said, if Obama believes -- believes, I should say, a lie is big enough and repeated often enough, it will be believed. Well, welcome to the final push of the behind-the-polls McCain campaign.


BASH (voice-over): A series of scathing rhetorical questions designed to convince voters of one thing. You don't really know Barack Obama, and that should worry you.

SEN. JOHN MCCAIN (R-AZ), PRESIDENTIAL CANDIDATE: What does he plan for America? Who is the real Barack Obama? But, my friends, you -- you ask such questions, and all you get in response is another angry barrage of insults.

BASH: One month to go and trends moving towards his opponent, John McCain's aides say his central goal now is to sow doubts about Obama.

MCCAIN: For a guy who's already authored two memoirs, he's not exactly an open book. And where other candidates have to explain themselves and their records, Senator Obama seems to think he's above all that.

BASH: Instead of playing up his own prescriptions for the ailing economy, McCain hit Obama for lying about his record, especially Fannie Mae and Freddie Mac.

MCCAIN: To hear him talk now, you would think he had always opposed the dangerous practices at these institutions. But there is absolutely nothing in his record to suggest he did. Nothing. Zero. Zippo. Nada.


BASH: In his quest to label Obama too risky, McCain mostly stuck to policy.

His running mate's task is more personal, stoking concerns about Obama's associations. On the stump, it's been about William Ayers, a 1960s radical whose group bombed U.S. buildings. In 1995, then a college professor, Ayers hosted a campaign coffee for Obama.

GOV. SARAH PALIN (R-AK), VICE PRESIDENTIAL CANDIDATE: Obama held one of his first meetings of his political career in Bill Ayers' living room.

BASH: Camp Obama calls it a casual relationship. And now, even though McCain called Obama's controversial pastor, Jeremiah Wright, off-limits, Sarah Palin says he's fair game, telling the conservative columnist Bill Kristol, "I don't know why that association isn't discussed more, because those were appalling things that the pastor had said about our great country."


BASH: Now, Palin was careful to say it's John McCain's call as to whether the campaign brings up Jeremiah Wright as an issue. Palin's aides say she was simply answering an question honestly, which she has been accused for a long time of not doing enough of.

But, Wolf, the reality is that by talking about Wright in a major newspaper with a GOP columnist, Palin already has by definition brought him into the dialogue and if nothing else sent a signal to outside groups, it might be OK if they do it, too.

BLITZER: If it's good enough for Sarah Palin, could be good enough for some of these outside groups.

Usually, they're more a little bit polite in going back and forth. But did I hear you right? Did Senator McCain flatly call Senator Obama a liar today?

BASH: He didn't flatly call him a liar, but he used the word liar several times and suggested that Barack Obama is not to -- not exactly to quote Bob Dole, however many years ago, but that Barack Obama is not only lying about John McCain's record, but more importantly with regard to the theme that the McCain campaign is pushing, lying or not telling the truth about his own record.

BLITZER: Dana Bash, working the story for us, thank you. So, how bad can it get? The public's mood is sinking lower than the stock market. We have new poll numbers.

And these latest poll numbers show why Americans are so unhappy right now, and also show who may benefit as a result on Election Day.

As the presidential race gets nasty and nasty and nasty, the candidates are set to square off in their second debate. Could push come to shove? We are going to tell you what to look for.

And, this time, scientists saw it coming: an asteroid headed for Earth. Is there any cause for concern?

We will let you know -- right here in THE SITUATION ROOM.



BLITZER: Americans are more worried now -- get this -- than they were during Watergate, even more worried than after 9/11. So, which candidate do voters think will be better for the economy in our brand- new CNN poll? Stand by for the numbers.

And round two happening in Nashville. You're looking at live pictures from the debate hall right there. You're looking at the stand-ins, by the way. They're making sure the lighting and the microphones, everything works for tomorrow night's big debate. Here's a question. How ugly might it get as Barack Obama and John McCain face off for this, their second presidential debate?

And Barack Obama loses in Brazil. That would not be the real Barack Obama, though, eight candidates who used his name in hopes of winning.

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


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

Happening now: Stocks plummet again, despite the Wall Street bailout package. And Americans are more concerned than ever, many now talking openly about a depression. You're going to find out how all of this is impacting the race for the White House.

Also, casualties of Wall Street, Lehman Brothers, Merrill Lynch, and the McCain campaign? Why one political insider says the meltdown will be McCain's undoing.

Plus, both campaigns increasingly going negative, but will it win them any votes? All of this, plus the best political team on television.

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

We have brand-new poll numbers on the election and the economy.

Our senior political analyst, Bill Schneider, is in Nashville, where the debate tomorrow night will take place.

Bill, now that the bailout has passed, are voters more worried, less worried about the future?

WILLIAM SCHNEIDER, CNN SENIOR POLITICAL ANALYST: Well, Wolf, what's happened is, they have gone from bleak to bleaker.


SCHNEIDER (voice-over): The bailout package didn't help. Public anxiety continues to mount. The D-word is back. Nearly six in 10 Americans believe the country is headed for another depression. And, for the first time, Barack Obama has a significant lead over John McCain in the presidential race, eight points.

The two sentiments are closely connected. The more likely you think a depression is, the more you vote for Obama.

McCain is offering his prescription.

MCCAIN: A vote for me will guarantee immediate, pro-growth action, tax cuts for America's hardworking families, strong support for small businesses, which are the backbone of our economy.

(APPLAUSE) SCHNEIDER: But more and more voters believe that McCain's policies would be the same as President Bush's. And President Bush's job rating -- 24 percent -- is the same as Richard Nixon's was when he resigned after Watergate.

Only 26 percent of Americans have confidence in Bush's ability to handle the nation's financial crisis. Confidence in McCain -- 50 percent. More than two-thirds have confidence in Obama's ability to handle the crisis.

OBAMA: The rescue package we just passed in Congress isn't the end of what we need to do to fix our economy, it's just the beginning of what we need to do to fix our economy.


SCHNEIDER: Why do voters have so much confidence in Obama's economic skills?

Partly because he has a lot of Clinton people around him.

OBAMA: We need to do what a guy named Bill Clinton did in the 1990s and put people first again.



SCHNEIDER: The bad economy is driving a growing consensus that Obama is going to win. Right now, 61 percent of Americans think Obama will get elected. Now, that is greater than the number of people who are planning to vote for him, because 30 percent of Republicans believe their guy is going to lose -- Wolf.

BLITZER: Bill Schneider in Nashville, where the second presidential debate gets underway tomorrow night.

Let's discuss all of this, the breaking economic news, its impact on the campaign.

Joining us now, Gloria Borger, our senior political analyst; Steve Hayes, senior writer for "The Weekly Standard;" and our senior Pentagon correspondent, Candy Crowley.

All right, Gloria, if we take a look -- if we add Ralph Nader and Bob Barr to this poll, likely voters' choice for president -- look at this, 53 percent say Obama, 42 percent say McCain, 2 percent Nader and 2 percent Bob Barr.

How worried should the McCain folks be right now?

GLORIA BORGER, CNN SENIOR POLITICAL ANALYST: I think they should be very worried and they are very worried. I mean once you reach over that 50 percent threshold, Wolf, it's very, very important.

It's clear that this economic issue, I would say, since the middle of September, has really, really worked in Barack Obama's favor. And it's going to be very difficult for McCain to undo, unless he can convince the American public that Barack Obama is not qualified to manage the economic problems the country faces.

BLITZER: And, Steve, if you look at these numbers -- and Bill Schneider touched on them in his piece just now -- "are you confident in the ability to handle the financial crisis?"

Sixty-eight percent say they were confident in Obama. Fifty percent said they were confident in McCain.

And I'm sure that's contributing to this growing gap in the overall numbers nationwide.

STEPHEN HAYES, SENIOR WRITER AT "THE WEEKLY STANDARD": Yes. I think there are basically two things at work there. One was Barack Obama's decision to essentially play it cool, to take a step back, as he talked about this economic crisis, not to involve himself too much, but to sort of pass judgment on things that were going on.

And then I think John McCain and George W. Bush -- I thought for months that it was silly of the Democrats to try to link John McCain to George W. Bush, because we all knew John McCain in opposition to George W. Bush. But it turns out they may have been right, especially given the current economic crisis and the fact that voters are blaming George W. Bush and the Republicans for it.

BLITZER: And look at this, Candy. In the question, "How is President Bush handling his job as president?," only 24 percent approve of the way -- the job he's doing. Seventy-four percent disapprove. Twenty-four percent -- this is a number approaching Richard Nixon when he was forced to leave the White House.

CANDY CROWLEY, CNN SENIOR POLITICAL CORRESPONDENT: Yes. It's really the perfect storm for John McCain. Try as he might, he still does have an "R" behind his name.

And I have to tell you, the Obama campaign has been hitting the Bush/McCain tie for months now. It didn't just happen in this past 10 days. They have been going at it and at it and at it. And I don't know if you noticed, but almost -- I bet more than half their commercials have a picture of John McCain and George W. Bush together. I mean it's -- they've really been working at it. And this is the kind of poll number that tells you it's working out.

BLITZER: And, you know -- I'll go back to Gloria. If you look at that likely voters' choice for president, 53/42 right now, if you add Nader and Barr to the equation. If we asked our viewers, "Would McCain policies be the same as Bush or different from Bush?," the numbers are almost exactly the same -- 56 percent say the same as Bush, 43 percent say it would be different than Bush. And I guess that explains the growing gap that we see nationally.

BORGER: It sure does. Sure does. I mean, when you have a president whose approval ratings are in the 20s and you have a country -- almost 80 percent of the people think you're headed in the wrong direction, and you tie one of the candidates to the president, that's really bad news for McCain. Which is why he's trying to kind of take this campaign in a different direction now, Wolf.

He's pummeling Obama on character, on ability to lead, on qualifications to be president -- not to manage the war in Iraq or to be commander-in-chief, as we thought it was going to be, but really to manage the economy. And he's got to try and turn that around and he's only got 29 days to do it.

BLITZER: And, quickly, Steve, is that going to work?

HAYES: It could. I think if you if you sow enough -- enough doubts, as Dana Bash said, you sow enough doubts about Barack Obama, who he is and what his policies will be, it could be effective.

BLITZER: All right. Stand by, guys. Stand by for a moment. We'll continue with the race for the White House.

And as we say, it's turning negative. But will it change who you vote for? We're looking at the impact of an increasingly ugly battle.

Plus, winking, tearing and more -- all eyes -- Sarah Palin's eyes, that is. Stay with us.


BLITZER: As our friend Jack Cafferty would say, it's getting ugly out there, with both presidential campaigns increasingly going negative.

We're back with the best political team on television.

Candy, Howard Wilson in "The New Republic," writes this or says this. He says: "Bill Ayers isn't going to save John McCain. The race is over. John McCain's candidacy is as much a casualty of Wall Street as Lehman or Merrill."

It may a little premature to say that, but that's Howard Wilson, who used to, obviously, work for Hillary Clinton, now supports Barack Obama. But he says, guess what, it's over.

CROWLEY: Well, and he should know, because a lot of these things that we are seeing John McCain try now are things that Hillary Clinton tried. They also tried to sow doubts -- you don't know this man, you don't know what he's about, what has he ever done, the whole experience question, the kind of mystery question, you all don't understand who this man is.

So that is where Wilson is coming from. Whether or not he's right, I guess we can tell you some time in early November.

But, obviously, if you're a betting person now looking at the polls, that's the direction you would take.

BLITZER: Because as significant, Steve, as the polls are nationally -- and they do show trends and snap shots -- if you look at these battleground states, the gap in several of them seems to be improving for Barack Obama.

HAYES: Yes, that's for sure. And one of the things that I think isn't being talked about quite enough, actually, is the fact that Barack Obama is, right now, today, as we speak, outspending John McCain 2-1 in ads, especially in a lot of these states like North Carolina and Indiana, places where John McCain would be expected to be, you know, not even having to defend this.

This has clearly all shifted so that John McCain is now playing defense, you know, on his own end of the field and Barack Obama is clearly on offense.

BLITZER: At the same time, Gloria, we always say, you know what, 28, 29 days in politics, it's still a long time to move numbers around. And you always see some closing of the gap, at least usually you see it, near the end.

BORGER: You do. You do, because as John McCain tries to raise doubts about Barack Obama, there are going to be lots of people who are going to say, gee, you know, that makes some sense.

But to Steve's point, Barack Obama is playing in red states. He's outspending John McCain by 2-1 in states like Florida. And, also, he's out registering Republicans. You do have that enthusiasm gap.

One of the great benefits for the Democrat, in having this long primary process, is that they've been out there registering their voters. And this is going to be really, really important for Barack Obama.

BLITZER: It's true, Candy. The Democrats' numbers are out now. New registered voters overwhelmingly Democrats as opposed to Republicans. I assume that that's got to be great news for Obama.

CROWLEY: Well, yes. But even greater news is he's got the money to have really good operations in a lot of these states. We are beginning to hear anecdotal reports and have seen, in fact, in some of these states, important states like Missouri and, you know, along that Mississippi, where a lot of those states are really important and can swing, is that Barack Obama has an enormous get out the vote group -- get out the vote machine -- that is not evident on the McCain side.

Now, the RNC has been very good at this. But the fact of the matter is if you take those who have registered and those who are volunteering, it does looks like a pretty powerful machine for Obama.

HAYES: Yes, but, Wolf, I will say, the RNC -- I think Candy is right. The RNC is at a distinct disadvantage in this. I had a conversation with somebody two months ago who was talking about the Republican Party's concerns about get out the vote efforts, because it was working to spend all of its money on behalf of John McCain to offset the tremendous fundraising advantage Barack Obama has had in other ways.

So I think there's not as much money and hasn't been, going back several months, for the kinds of get out the vote efforts that would keep Republicans competitive.

BLITZER: So what you're saying is that Karl Rove ground game in Ohio, it's necessarily going to be that powerful this time?

HAYES: Yes, I don't think you can just snap your fingers and make it reappear. It takes a lot of work, a lot of sort of care and feeding of the local Republican Parties, the state Republican Parties. And by all accounts -- or by at least the accounts that I was getting -- that care and feeding hasn't been happening.

BORGER: Look, the Obama campaign has learned a lot from Karl Rove's micro-targeting. And they've been doing that throughout the primary process and they're continuing to do it.

BLITZER: Guys, thanks very much. Candy, don't go away. We've got to talk in a second to about tomorrow night.

We're counting down to tomorrow night, in fact -- the big debate, the second of three debates between Barack Obama and John McCain. It's a new format. Who will do better in this town hall meeting? We're going live to Nashville in a moment.

Plus, Sarah Palin gets a boost from an unlikely source, who now is calling her a sister.

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


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

What are you working on -- Lou?

LOU DOBBS, CNN ANCHOR: Well, Wolf, we're working on a lot on the stock market. A lot going on there. The Wall Street bailout -- well, it's working out so shiny. We'll be talking about that. And you won't believe who's in charge of the $850 billion bailout of Wall Street. Well, he's 36 years old, he's a former banker from -- you guessed it -- Wall Street.

And what was the name of the firm that the Treasury secretary used to work for?

Oh, yes. Oh, yes. Goldman Sachs. Well, we'll be telling you about that.

And as our financial crisis worsens, this presidential campaign is getting even nastier. It's about time. Both candidates still failing to offer any new ideas on how to help our working men and women and their families. Three top political analysts join me.

And troubling new evidence of the federal government's failure to protect the safety of airline passengers -- it's an issue that we have been reporting on for literally four years. We'll have a special report for you. Please join us for all of that, all the day's news and much more, from an Independent perspective -- Wolf, back to you.

BLITZER: We'll see you in a few moments, Lou, at the top of the hour.


BLITZER: On our "Political Ticker" today, Governor Palin is also getting some support from the head of a prominent women's group. That would be the president of the Los Angeles chapter of the National Organization for Women. Shelly Mandell introduced Palin at a rally in California over the weekend. The NOW leader said she's a life-long Democrat, but said it's an honor to call Palin -- and I'm quoting now -- "sister." The NOW leader said she was speaking as a private citizen, not as a representative for the National Organization for Women.

If today is any preview, things could get really ugly tomorrow night in Nashville. John McCain and Barack Obama will spar for their second presidential debate.

Let's go back to Candy Crowley. She's in Nashville, taking a look at what's going on -- Candy, what is going on, because it's a different format than it was in the first presidential debate.

CROWLEY: Absolutely. It may get nasty, Wolf. But it may not, for one very specific reason -- voters.


CROWLEY (voice-over): This debate is a town hall meeting. Barack Obama has done hundreds of them. He is thoughtful and thorough, but it's not always his best forum. He can seem removed.

One New Hampshire supporter described myriad health problems in her family, which forced her husband to join the military as the only way to get insurance.


UNIDENTIFIED FEMALE: He is going off to war and leaving behind a wife and two children so that he can provide a living for us. I mean, it's not -- you know, he's proud to serve his country, but he -- that's the choice we have.

OBAMA: Well, look the -- I...


OBAMA: You know, I wish your story was unique and it's not.


CROWLEY: In debates, moments matter. His numbers falling as the days disappear, John McCain has the most to gain in the town hall. He is a master in the forum -- engaging, funny, direct. And the Obama campaign has been busily jacking up the stakes. McCain, said an Obama aide, is the Michael Phelps of town halls.

But the senator can be edgy and what he claims as humor can backfire in front of the uninitiated.


UNIDENTIFIED MALE: Do you ever you worry that like you might die in office or get Alzheimer's?

MCCAIN: Thanks for the question, you little jerk.


CROWLEY: In truth, they both need to watch it tomorrow. They are in the midst of the nasty season -- the hostilities ever more personal.

That may work in short sound bites in front of adoring crowds, it does not work over the course of an hour-and-a-half in front of the cameras nor would those uncommitted voters who will be asking the questions -- literally within feet of the candidates.

Style matters -- victory may go to the candidate who can keep his cool.


CROWLEY: And so far, Wolf, as you know, the candidate that has been able to keep his cool, both in debates and on the campaign trail, has been Barack Obama. But, obviously, for McCain, huge stakes tomorrow. And, as we say, a lot of it is substance and some of it is style.

BLITZER: All right. Very much -- thanks very much, Candy, for that.

Candy will be in Nashville for us.

By the way, you see the second presidential debate right here on CNN. Our special coverage of all of the debate activities kicks off right here in THE SITUATION ROOM tomorrow. Be with us for that.

Let's go back to Susan Roesgen. She's monitoring some other important stories incoming into THE SITUATION ROOM. What's the latest -- Susan?

SUSAN ROESGEN, CNN CORRESPONDENT: Well, Wolf, China is retaliating for proposed U.S. arms sales to Taiwan. Beijing has called off upcoming senior level military visits to the U.S., as well as visits by Chinese ships and other military and diplomatic contacts. China considers Taiwan part of its territory and will officially protest that proposed weapon sale.

If you're a parent anxious about handing over the car keys to your teenager -- sure, you are. Well Ford Motor Company says it has the answer. Ford plans to roll out a feature in two years that can limit teen drivers to 80 miles an hour. It still seems kind of fast, but they're going to use a computer chip in the key to do that. And if you're a parent, you can program the key to control the volume of the C.D. player, so you're not blasted out of the car when you get in. Continuous alerts will also sound if your teenager is not wearing a seat belt.

And Barack Obama was not a big hit in Brazil. And at least eight other political candidates thought he would be. They borrowed Obama's name on the ballot in local elections, but they all lost. Brazilian electoral law allows candidates to put any name on the ballot, as long as it isn't offensive -- although some candidates did use Osama bin Laden's name -- Wolf, a rose by any other name is still a rose.

BLITZER: Ooh. Ooh. All right. A tough crowd down there in Brazil.

All right, thanks very much, Susie, for that.

During an election, it's inevitable that reporters will keep a close eye on the candidates. But we have one reporter who is keeping her eye on the candidates' eyes.

CNN's Jeanne Moos will be along with a Moost Unusual look at the knowing winks of Sarah Palin.

Also, a man walks barefoot out over hot coals -- we're going to tell you why when we share our "Hot Shots" of the day.

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


BLITZER: There they are in Nashville, Tennessee. They're getting ready for tomorrow's debate -- 26 hours, by the way, from now, 9:00 p.m. Eastern Tuesday night. The candidates -- the presidential candidates in the second of three debates. We'll, of course, have live coverage. The coverage will begin right here in THE SITUATION ROOM.

Let's take a look now at some of the "Hot Shots" coming in from our friends over at Associated Press -- pictures likely to be in your newspapers tomorrow.

In Thailand, a man races across hot coals during a fire walking session as part of a vegetarian festival. Followers are encouraged to walk on fire to purify themselves in their communities. Ouch.

In Baghdad, a U.S. soldier greets an Iraqi boy while on foot patrol in a Sunni neighborhood.

In Afghanistan, a woman shows off her voter identity card. Voters began registering today for next year's presidential election.

And ear Mount Everest, a Canadian skydiver jumps from a plane at an altitude of almost 30,000 feet. Some of this hour's "Hot Shots" -- pictures worth a thousand words.

Lately, all eyes seem to be on the Republican vice presidential candidate -- whether her eyes are winking during a debate or filling with emotion at a campaign rally.

CNN's Jeanne Moos takes a "Moost Unusual" look at the eyes of Sarah Palin.


JEANNE MOOS, CNN CORRESPONDENT (voice-over): She may have earned the nickname Sarah Barracuda, but the pit bull of politics, the moose slayer herself teared up at a rally Monday.

PALIN: Ma'am, some of your signs just make me want to cry.

Thank you so much. I love you guys.

MOOS: Those who don't see eye to eye with Sarah Palin sure seem to be keeping a close eye on hers.


ALEC BALDWIN, ACTOR: She did connect with the audience...



MOOS: From Alec Baldwin to Tina Fey giving a shout-out to third graders.


TINA FEY, COMEDIAN: You were so helpful to me in my debate practice.



MOOS: The Sarah Palin wink...

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

MOOS: ...has eyelids fluttering.

PALIN: And I'm going to keep pushing them on.

MOOS: Pushing forward the great wink debate.

(on camera): You don't think it might have been a tic?

UNIDENTIFIED FEMALE: Oh, no. Please. Come on. You give her too much credit.

UNIDENTIFIED FEMALE: Trying to look sexy, hot.

UNIDENTIFIED FEMALE: She's a nice fresh, face and she seems very honest.

UNIDENTIFIED MALE: It's totally fake.

MOOS: While liberals were rolling their eyes over winking, conservatives were raising eyebrows over botox claims.

(voice-over): The "New York Post" ran photos of Democratic V.P. pick Joe Biden a couple of years before the debate, then Biden at the debate, asking: "Is Joe hiding facial work or botox use?"

A Biden campaign spokesman called it "completely untrue and completely stupid."


UNIDENTIFIED FEMALE: The forehead did not move the entire debate.



UNIDENTIFIED MALE: And the forehead that looks like a baby's bottom. I prefer her winks to his botox.


MOOS: The liberal Huffington Post put her four winks to music.


JAY LENO, HOST: She kept winking all the time. For a minute, I thought maybe John McCain had been captured again and she was trying to send some kind of a signal.



MOOS: But when Rich Lowry, editor of the conservative National Review," seemed smitten by Palin, Bill Maher got laughs just repeating his words.


BILL MAHER, HOST: He said I'm sure I'm not the only male in America who, when she started dropping her first wink, sat up a little straighter in my couch.



MOOS: Which prompted a woman to write in to Andrew Sullivan's blog, "Did she just wink at us like she was America's cocktail waitress?"

Or better yet, Betty Boop.


UNIDENTIFIED FEMALE: If you send me to Washington, I'll divide the dough. Oh, when I'm the president


MOOS: For a woman who said she didn't blink when asked to run for V.P. she sure is winking now.


UNIDENTIFIED FEMALE: Now we'll have a perfect country


MOOS: Jeanne Moos, CNN, New York.


BLITZER: All right, Jeanne Moos. Thanks very much.

Let's go to Lou. He's in New York -- Lou?