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Reaction to Cut in Key Interest Rate; What's New on the Campaign Trail; Bailing Out AIG; Comparing the Candidates' Health Care Plan

Aired October 8, 2008 - 17:00   ET


JOHN ROBERTS, CNN ANCHOR: And happening now, dramatic new efforts to fix the country's financial meltdown, but it seems that nothing can stop Wall Street's slide. Now a serious new warning from the president's point man.
Also, mandates versus tax credits -- who really has the cure for our ailing health care system?

We put the Obama and McCain plans to the test.

And a controversial case lands before the Supreme Court, pitting Navy sonar against whales.

When can the president waive environmental laws in the name of national security?

Wolf Blitzer is off today. I'm John Roberts. You're in THE SITUATION ROOM.

Coordinated international interest rate cuts -- the latest unprecedented action to ease the credit crunch and stop the global plunge in stock prices. But on Wall Street, no impact at all. For the sixth session in a row, the Dow is down -- this time almost 190 points.

And the president's point man in the crisis, Treasury Secretary Henry Paulson, he's warning bluntly that the turmoil will not end quickly.

CNN White House correspondent, Elaine Quijano, joins us live -- Elaine, what's the latest from there?

ELAINE QUIJANO, CNN CORRESPONDENT: Well, John, officials here at the White House are delivering a sobering message, with people saying point blank the road to economic recovery will be painful.


QUIJANO (voice-over): In public, President Bush steered clear of commenting on the financial crisis, instead leaving that to his front man, who delivered more bad news.

HENRY PAULSON, TREASURY SECRETARY: I think it's too early to look for encouraging signs in the credit markets. It's going to take a while to work through this problem. QUIJANO: Treasury Secretary Henry Paulson did express confidence the American economy will bounce back.

PAULSON: We are a strong and a wealthy nation with the resources to address the needs we face.

QUIJANO: But on the heels of an internationally coordinated interest rate cut by the U.S.' Federal Reserve and five other leading central banks, credit markets remained frozen and investors wary on Wall Street.

PAULSON: An uncertainty and a lack of confidence have clogged our basic financial plumbing.

QUIJANO: So concerned about the crisis, behind-the-scenes, the president is working to erase that uncertainty. For a second day, Mr. Bush called world leaders, including German Chancellor Angela Merkel, to discuss the crisis. But the White House says there will be no quick relief, despite the newly passed $700 billion bailout plan.

DANA PERINO, WHITE HOUSE PRESS SECRETARY: So we think that the rescue package will do what we need it to do to unfreeze the credit markets. That doesn't mean there's not going to be pain along the way, because there will be, unfortunately, for all of us.


QUIJANO: Secretary Paulson echoed that sentiment, saying that turmoil in the markets will not end quickly. And he warned that significant challenges remain -- John.

KING: Elaine Quijano at the White House for us. Elaine, thanks very much.

This just coming in to us from the Associated Press. You'll remember that the Fed last month gave AIG a loan of $85 billion to keep it solvent. Well, we're hearing this afternoon, according to the Associated Press again, that the Federal Reserve is dipping deep into its pockets once again for AIG, providing another loan of $37.8 billion. What they're going to do is buy investment grade fixed income securities from AIG in return for cash collateral.

So that takes it up to, what is that, just about almost $120 billion that they're providing to this company. Again, $37.8 billion more money from the Fed to help prop up AIG to keep it solvent.

We'll have more on that story coming up for you here in THE SITUATION ROOM.

Meantime, fresh from their latest debate, the candidates are back on the campaign trail, at times continuing the same arguments that they had in person last night.

And Candy Crowley is following all of that for us this afternoon -- Candy, what have you got for us? CANDY CROWLEY, CNN SENIOR POLITICAL CORRESPONDENT: Well, listen, what we have is the top of the tickets out there sounding themes that will sound familiar to anyone who watched last night, John, as you said.

We had Barack Obama, who went up to Indiana and starred talking about John McCain and health care. They think this is a very potent issue, not just for those who don't have health insurance, but for those who are afraid they're going to lose it or for whom the cost has just skyrocketed.

So they are concentrating in his speech and on the air with a new ad on John McCain's health care plan, saying that, A, it's not enough, but that, he will take money that he has given people and send it right back to the health care industry. So that's the direction that Obama has gone.

As for McCain, he is out there, along with his running mate, both trying to sow some doubts about Barack Obama, saying, listen, his rhetoric does not match up with his record.

John McCain saying, you know, he wants to regulate, but he got all this money from executives at Fannie Mae and Freddie Mac, that he talks a good game about tax cuts, but he has voted for tax increases.

Sarah Palin saying, you know, this is a guy who's trying to talk his way into the White House.

So it's very much on target for what -- where the McCain campaign has been for the past week or so -- at least the past several days, which is you do not know who Barack Obama is. Take another look, because what he's saying and what he does are two separate things.

So very tough talk, but at this point, not as personal, at least, as it has gotten before with Sarah Palin. But now very much each of them going after each other on the issues.

ROBERTS: All right. Candy Crowley for us with the very latest from Nashville. Candy, thanks so much for that.

A presidential candidate very opposed to the Wall Street bailout -- Independent Ralph Nader. He is here to explain why and tell us what he would do instead.

Also, Barack Obama and John McCain both vow to hunt down Osama bin Laden, but can either one of them really make good on that promise?

Plus, Michelle Obama talking right now to CNN's Larry King. We have the first excerpts from that interview.


ROBERTS: Barack Obama and John McCain support it, but there is one presidential candidate highly critical of the planned Wall Street bailout. Independent Ralph Nader joins us now from Hartford, Connecticut. Ralph, it's good to see you again. Thanks for being with us.


ROBERTS: You've got, on October the 16th, a planned protest out there in front of the New York Stock Exchange. You're going to be illuminating your criticism, your displeasure with this bailout plan. You say that it's a disaster.

But let me ask you this question, what does a disaster look like? Because this bailout plan hasn't yet taken effect.

NADER: Yes, but the international markets, including the New York Stock Exchange, have rendered their verdict, haven't they?

They've lost confidence in it. It's not directed toward the right subjects. We should be helping prudent firms and prudent investors first, who are afflicted by this Wall Street orgy of excess and speculative behavior, to quote Richard Fisher, the Federal Reserve official in Dallas.

And imagine he himself said this all comes from an orgy of excess and speculative behavior.

ROBERTS: But are you rendering judgment on this...

NADER: But the way to have gone...

ROBERTS: Are you rendering judgment on the bailout plan too early?


ROBERTS: You know, they haven't bought up the first of these toxic securities yet.

NADER: Yes, but I know what's in the bill, in the law. And what it is, they're going to unload basically junk paper called distressed assets. It's far better if they inject the capital into these banks and investment banks and other institutions and gave the taxpayer ownership, as it was done, in effect, with the Chrysler bailout in 1979.

So if these companies revive and they make profit, the taxpayer is made whole. There is a provision in the bill like that, but it's so porous that everybody on Wall Street says it's not enforceable.

But it's what they left out, John. They left out in this bill -- and the Democrats and Republicans are both responsible -- no re- regulation of the financial securities industry or regulation of the wild orgy of derivative speculation. No tax on derivatives to make the speculators pay for their own bailout. One tenth of one percent tax of $500 trillion in transactions this year...

ROBERTS: But they have (INAUDIBLE)... NADER: ...will produce $500 billion.

ROBERTS: But they have promised that that regulation will be coming. It's probably going to come with the next administration. But what they wanted to do was get this bailout passed now.

NADER: Hey, they gave away the store first and then they're going to try to bring the sheriff later? It doesn't work that way. Wall Street was over a barrel.

Washington had Wall Street over the barrel. They could have had this re-regulation. They could have had shareholder power enhancement to control the bosses. They could have had disclosure. They could have had all kinds of things, because Wall Street wanted that bailout. Instead, Wall Street stuffed Washington into the barrel and rolled it. And it's not going to work.

ROBERTS: Let me take a look at a little bit of...

NADER: What's the second act?

ROBERTS: Yes. Let me take a look at a little bit of a different aspect on this.

Last night, Senator John McCain talked about this plan to use $300 billion to buy up some mortgages. Apparently, that money already allocated in the housing bill that passed this summer. It's an idea that Hillary Clinton floated a couple of weeks ago. What do you think of that idea?

NADER: The question is whether the terms are too onerous to get the cooperation of the parties. I mean, far better was to take Dean Baker's proposal -- an economist in Washington -- and let these homeowners become tenants for a while, until the government can renegotiate this paper. That's one.

And then you can force companies like Countrywide and others -- Countrywide has actually started to renegotiate with their customers.

ROBERTS: Right. But, you know, let me ask you, you know, this idea of renting to own for people who are facing foreclosure, an idea that's on your Web site. I was looking at it today.


ROBERTS: Where's the justice in that, because are you not rewarding people who took risks, people who signed up for expenses that they couldn't -- that they couldn't fulfill?

And what about people who did take the time to make sure that they were able to pay for these mortgages, they didn't take on too much debt? Are you rewarding bad behavior with that?

NADER: Well, it's hard to condemn a potential homeowner for turning down a bargain. I condemn the deceivers, the mortgage lenders and appraisers and all of these people who packaged these and sold them more and more to more and more firms.

ROBERTS: Well, wait a minute...

NADER: You know, really...

ROBERTS: ...don't those people who take on these mortgages have some responsibility?

I mean, I don't want to say that I represent everybody...

NADER: Yes...

ROBERTS: ...but I remember at the age of 23 when I bought my first house, I made sure that I could pay for the mortgage.

NADER: Right.

ROBERTS: It was a small mortgage. I made sure that I could pay for everything. And back then, the interest rates were running at 12 percent for my first mortgage, 20 percent for my second.

NADER: That's because the company made you pay a certain amount every month.

But what if the company says to you, hey, no down payment, you can defer the interest. Would you have said no?

Most people don't turn down a bargain. It's up to the government to regulate deception in the mortgage industry. And we're going to really raise this in this big rally on Wall Street on October 16th. People all over the country, as I campaign all over the country on the Nader/Gonzalez ticket -- they're so outraged, but they don't really know what to do.

So events at vote Nader.Org, you can connect and show up at Wall Street for a major confrontation by the taxpayers and small investors of these Wall Street swindlers and speculators who have jumped into a golden life boat with tons of money and loaded the debt and the debris on the backs of innocent taxpayers. That's really what it's all about, John.

ROBERTS: The latest count on your Web site, you're now on the ballot in 45 states, pulling as much as 4 percent in some states, including some key battlegrounds. You're arguing that you should have been included in these national presidential debates. By what criteria?

NADER: One, every national poll starting in 2000 say they wanted me, by name, on the presidential debates. That's one.

Second, we're on -- we're number three. If you're number three at Wimbledon -- if you're number 60 at Wimbledon, John, you get an opportunity to go to center court. If you're number 60 at the NCAA, you've got a chance to go to the final four.

But if you're number three in the presidential race, as Ralph Nader and Matt Gonzalez, Gonzalez are, you're locked out of this debate company, which is controlled by the Republican and Democratic Party.

And on that spacious stage, they don't want any competition. That is the basic problem. It's the only way to reach tens of millions of people, unless you're a multibillionaire presidential candidate.

ROBERTS: But as you know, this isn't a tennis or a basketball tournament and the Presidential Debate Commission has got rules. You've got to be polling 15 percent to get into the debates. You've been polling, as I said, about a high of about four percent. You didn't make the criteria.

NADER: Hey, if you get five percent, you get federal money on the next round. Why isn't that good enough?

But the key is this, the five polling groups that you're supposed to be measured by, they're secret. The Debate Commission will not disclose the names and they won't disclose the media conglomerates who control it. And the media conglomerates, you know, NBC, ABC, CBS -- they have blacked us out since February 25th, when I announced on "Meet The Press."

Only CNN, a little bit of MSNBC, a little Fox, give the viewers diversity. But not Katie Couric, Brian Williams, Charlie Gibson. You know, Charlie Rose, Jim Lehrer, maybe I'll go on.

If you don't get to the press, how in the world are you going to show up in the polls? That's the key.

ROBERTS: Well...

NADER: It's a Catch-22.

ROBERTS: Ralph Nader, you know always have a home here on CNN, THE SITUATION ROOM, "AMERICAN MORNING." We're always happy to have you on.

NADER: And I really thank you, John. And I thank your viewers.

ROBERTS: All right. Appreciate it. Ralph, we'll see you again soon.

Ali Velshi is going to be talking about this new -- what looks like another bailout here. He's with us now -- Ali, it's a 35 -- $37.8 billion that the Fed is going to give...


ROBERTS: AIG on top of the $85 billion that it's already given it?

VELSHI: Yes. It's a brand new loan. This isn't even part of the bailout package. This is a new loan by the Federal Reserve. What they're going to do is take $37.5 million of what they say are good securities as collateral and give money to some subsidiaries of AIG to be able to meet their requirements.

But, yes, this was just announced, a brand new loan of $37.5 billion. This is part of what the Treasury secretary said we were trying to sort of avoid by having this overall bailout package. But he did announce today that it will be several weeks before they've evaluated where that $700 billion should go.

And it seems that AIG, according to the Federal Reserve, has already drawn down the entire $85 billion facility that was extended to them by the Federal Reserve. And so it's a new $37.5 billion out to AIG to keep it afloat -- John.

ROBERTS: Do we know what happened here, Ali, how this price tag suddenly jumped by almost $40 billion more?

VELSHI: No, we don't.

ROBERTS: I mean we're into AIG now for $120 billion.

VELSHI: Right.

ROBERTS: And, of course...

VELSHI: We've got our calls into them to find out. But we don't know what this is for. They did say very specifically, that first $85 billion has been fully drawn down and this was new money that they needed.

ROBERTS: Right. Well, you know, we saw during these hearings, when we had these CEOs in front of Congress, that, you know, a lot of money was spent on spa weekends and things like that. They haven't been spending it on that. But so we still -- we don't have any idea where this money has gone?

VELSHI: No. And we are working on that right now. As soon as we find out what this new money is for and why that sort of wasn't calculated into the first $85 billion that isn't even a couple of weeks old.

This is kind of the problem that people are worried about is how bad is this and do we have some sense of it?

You kind of hope that when the government commits $85 billion to a company, they've got some sense that that's kind of -- that's kind of it and that will get them through.

So this is a bit of a mystery. We're going to get right down to it as soon as we can and I'll bring it back to you -- John.

ROBERTS: So is there any other indication that -- any indication, Ali, that there are other large financial institutions or insurance institutions like AIG that about to have to be bailed out again by the Feds?

VELSHI: Well, what we do know -- and Treasury Secretary Henry Paulson, a few hours ago, said in no uncertain words more banks will fail. He did say that that means everybody who's in trouble does not qualify for assistance under this new bailout program. But we don't know -- he said it will be several weeks before they've made their first purchase of bad assets. So what happens between now and several weeks, it remains to be seen.

Does that mean they're going to have to intervene in other cases with money that falls outside of that $700 billion? Does this new $37.5 billion get rolled into the $700 billion bailout package? These are all questions we don't know. But he did say more banks will fail, so we can expect to see that.

ROBERTS: Wow! You've just got to wonder where does any of this end.


ROBERTS: Ali Velshi working the story for us. Ali, we appreciate that.


ROBERTS: Thanks very much.

It is one of the biggest policy differences between John McCain and Barack Obama -- health care. We are looking at their plans and what they really mean for you

Plus, a candidate's slip of the tongue on the campaign trail.



ROBERTS: Our Susan Roesgen is monitoring stories incoming into THE SITUATION ROOM right now. She joins us -- hi, Susan.

SUSAN ROESGEN, CNN CORRESPONDENT: Hi, John. We've got some dramatic pictures in here today, too.

First, President Bush has signed landmark legislation allowing American companies access to India's multi-billion dollar nuclear market. This deal allows American companies to sell nuclear fuel, technology and reactors to India in exchange for safeguards and U.N. inspections at India's civilian nuclear plants. That reverses a 30- year-old ban on that, first imposed after India's first nuclear test.

And Justice Department attorneys are urging a federal court to block the release of more than a dozen Guantanamo Bay detainees. They are 17 men, Chinese Muslims, who were taken into custody while they were trying to get out of Afghanistan into Pakistan in 2001. A lower court had ordered the Bush administration to release those prisoners by Friday, because they said they're no longer enemy combatants. But the administration insists that they still pose a security risk and has asked for a ruling on this standoff by the end of the day.

Now have you seen this yet? This absolute devastation in Portland, Oregon -- a house slid off its foundation, fell about 100 feet down a steep hillside and just fell apart. If you can believe it, nobody was hurt. And there were at least two homes there that were hit by that house and they were damaged. It's unclear yet what caused the house to fall. They've got an investigation right now.

And for the second time in two days, a rock slide at Yosemite National Park in California. Rocks slammed down on cabins and tents and knocked down trees. No confirmed injuries there, but witnesses say that several people were hurt, including at least one child. There was a smaller rockslide yesterday that didn't cause any injuries -- John.

ROBERTS: There's obviously something going on there in the West.

ROESGEN: I know. Things are sliding all over.

ROBERTS: We'll have to keep a close eye out. Susan, thanks so much for that.

Michelle Obama sitting down with CNN's Larry King. We've got the first excerpts from that interview for you.

Plus, John McCain catches everyone by surprise, unveiling a plan to solve the mortgage meltdown. But is it really new?



And happening now, two candidates, two health care plans, with dramatically different objectives. Barack Obama and John McCain faced off over the issue during the debate last night. We will break down their blueprints and find out what it could all mean for you.

Race within the race -- some voters admit that they have a problem with Obama being black. Now Obama's supporters are hitting the streets to change minds and votes.

And the question of leadership -- a new CNN/Opinion Research Corporation poll shows a majority of debate watchers believe Senator Obama was the stronger leader last night -- 54 percent to John McCain's 43 percent.

Wolf Blitzer is off. I'm John Roberts.


One of the biggest policy differences between John McCain and Senator Barack Obama is on health care.

CNN's Susan Roesgen is looking at their plans for us this afternoon -- Susan, what are you finding?

ROESGEN: Well, I'm finding that both candidates do agree that something's got to be done. But which plan would cover more and which plan would cost more is still up for debate.


UNIDENTIFIED MALE: When my father broke his leg, he didn't know that he'd broken his leg and really didn't have the insurance to cover the bill and he really didn't want to go to the hospital for it.

ROESGEN (voice-over): It's another health care horror story. And both candidates agree they've got to do something about it.

Senator Obama's plan would require employers to provide health care coverage, when right now many employers are cutting back on coverage or not offering it at all because of the cost. And, under Obama's plan, the unemployed could join a national coverage plan.

SEN. BARACK OBAMA (D-IL), PRESIDENTIAL CANDIDATE: If you don't have health insurance, you're going to be able to buy the same kind of insurance that Senator McCain and I enjoy as federal employees.

SEN. JOHN MCCAIN (R-AZ), PRESIDENTIAL CANDIDATE: As you notice, he starts talking about government. He starts talking government will do this and government will do that and then government will. And he'll impose mandates.

ROESGEN: Instead, Senator McCain wants the government to give individuals a $2,500 annual tax credit to buy their own insurance -- $5,000 for families. But by offering a tax credit for you to buy your own insurance, under McCain's plan, you would lose the tax break you've been getting on your company's insurance.

OBAMA: So what one hand giveth, the other hand taketh away.

ROESGEN: But the fine print in Obama's plan troubles some people, too.

MCCAIN: Senator Obama says if you don't get the health care policy that I think you should have, that you're going to get fined.

ROESGEN: In fact, Obama doesn't call it a fine, but his plan would require most companies that don't offer health care coverage pay into the national plan.

Which candidate has the better plan is hard to tell. But nearly everybody thinks we'd better do something.

UNIDENTIFIED MALE: If we can spend $700 billion on bailing out a stock market, how come we can't spend that same kind of money, or more, to insure the health and welfare of our people?


ROESGEN: And one thing to keep in mind here. Right now, there are 46 million people in this country who don't have any insurance at all. And, by the way, the American Medial Association does not endorse either of those plans -- John.

ROBERTS: Susan Roesgen for us this afternoon. Susan, thanks so much. John McCain made some news in last night's debate, unveiling a plan for the government to buy up bad mortgages and convert them into low interest loans in an effort to help people keep their homes.

Joining us now to talk more about that is Lisa Caputo. She's the former press secretary to Hillary Clinton. And Republican strategist and CNN political contributor, Leslie Sanchez. This was presented last night in this debate as something of a new idea. It struck many of us as being oddly familiar and then of course we remembered, Hillary Clinton proposed the same thing about 2 1/2 weeks ago.

LISA CAPUTO, FORMER CLINTON PRESS SECRETARY: Well it's not exactly the same but let's remember.

ROBERTS: It's the same idea to buy up these bad mortgages.

CAPUTO: The idea is the same but what he's talking about is quite different in that the treasury already has this ability to do that and in the McCain plan, he's talking about spending close to $300 billion of this bailout plan on this. There's a real danger here because taxpayers could get stuck with the short end of the stick and also, if the government overpays for these bad loans, then they've got a problem.

ROBERTS: But, is this similar to, what is it the homeowner's loan corporation from the 1930s, the depression era program?

LESLIE SANCHEZ, REPUBLICAN STRATEGIST: I can't speak directly to that.

CAPUTO: You weren't around?

SANCHEZ: No, I'm not that old. What I can say is there was a pushback and there has been to some extent with conservatives today on that. This is not the kind of plan you unveil in a debate. This is something you bring out where was it three weeks ago and you lay it out, and Lisa almost made the points.

ROBERTS: It was almost an afterthought in the debate too wasn't it?

SANCHEZ: No, the positives are it's good, it's a bold move, it's aggressive. It's failing in its presentation and its execution. People don't know what it means. Where are you going to get the $300 billion? There's too many questions. Or is it another example of leaving taxpayers holding the bag? I think that is not the type of effort you want to move forward with in a very tight election.

CAPUTO: I think too, you've got Senator McCain on the record saying the fundamentals of the economy are strong. I think that this is a last ditch attempt to try and change the game here and try and take the economic issue away from Barack Obama when Barack Obama is 20 points up in the polls when it comes to who do you trust most on economic issues. Obama has the confidence of the American people.

SANCHEZ: People are upset about the economy, there's no doubt and they want to punish the party in power. That's historic, that's not unusual. I don't think that directly deals with how Senator McCain has run his campaign as much as its just bad will. People want a change and they think give the other guys a chance. The distinct difference is, there is an opportunity here for McCain to be almost like a Teddy Roosevelt, a trust buster. Let me go in there, you know there's good and bad on both sides. I want to go and clean it up. He started down that path. I think that's what people were looking to hear but it hasn't fundamentally materialized.

ROBERTS: Our latest poll of polls has shown that the national race is tightening up just a little bit, it's now within four points, it was within five a day ago. But of course it's not the national numbers that matters, it's what happens in the battleground states and Senator Barack Obama still has a significant lead in some of those battleground states. So the McCain campaign now turning its fire toward character again, trying to make it appear as though Barack Obama is not ready for this job, that he is dangerous. They have used those words and they have a new ad-out called not presidential. Let's take a look at that from the McCain campaign.


UNIDENTIFIED MALE: When pressed, how does he defend himself?

OBAMA: They're not telling the truth. I hate to say the people are lying but here's a situation where folks are lying.

UNIDENTIFIED MALE: Mr. Obama, we all know the truth.

OBAMA: Folks are lying. Folks are lying.

UNIDENTIFIED MALE: Not presidential.


ROBERTS: So here's the ad that says he is not presidential. You've got other ads out there, he's not ready to take on the oval office. But Leslie, last night in our CNN Opinion Research Corporation poll of the debate, Obama was seen as being a better leader by 54 to 43 percent. How is he not presidential?

SANCHEZ: I think the bigger question is did he look presidential, does he sound presidential? Absolutely. He's tall, he's charismatic, he's engaging, he's articulate, he talks about good ideas, he inspires people. These are all tremendously positive qualities that a presidential candidate really must have to succeed. On the downside, I think people are looking at that and saying what about his judgment, what about his character, everything from campaign finance, public financing for his campaign that he decided to get more money and decided to move away from that, these flip-flops, these strange relationships he has with like a Tony Rezko, somebody who helped him buy the mortgage on his home. There are questions of that, and I think fundamentally, he has a liberal doctrine. Is it going to be something where he cannot compromise with Republicans across the aisle? Because remember, most of the battle is between the goal posts in the middle is where we fight in terms of policy, not to the extreme left.

ROBERTS: Lisa, of course the Obama campaign is saying don't listen to them, they are just trying to change the subject. But in the past, these attacks on character have been somewhat effective.

CAPUTO: Well I think you have to take a step back and remember, the American public doesn't like negative campaigning and they are really watching now. And I think John McCain is very closely identified with this administration, a lot of people refer to it as the McCain/McBush administration in policies. And I think that McCain has been very erratic on his leadership or lack thereof on economic issues. Let's remember, he suspended his campaign, went to Washington and couldn't really help be part of the solution. So I think, again, this is a desperate attempt to go negative and negative usually doesn't prevail in the waning hours of a campaign --

ROBERTS: You said people don't like it, but it has proven to be very effective.

SANCHEZ: Negative ads work. I'm not saying I condone the act. I'm saying negative ads work, and then they work for a reason. There's an underlying current of people that think he is flawed as a candidate because they don't know him well enough?

CAPUTO: Well I think there's an underlying current as well that John McCain is a flawed candidate because he's exerted no leadership on the economic issue and people are hurting right now. People's pocketbooks are hurting. People are worried. When you look at what the stock market is doing, where is John McCain's leadership been on this issue? Nowhere.

ROBERTS: Last quick point to you Leslie.

SANCHEZ: I don't think either of them inspired a tremendous amount of confidence that they feel the pain in terms of the economic current. It sounded like words and rhetoric and not a real connection. I think they're both flawed.

ROBERTS: We're going to have to leave it at that. You hit the first word, we have to give her the last word.

CAPUTO: No problem.

ROBERTS: Leslie Sanchez, Lisa Caputo, it's great to see you always, thanks.

A sour economy, a big presidential debate. How do Americans feel about what's going on? We're going to go to a small Ohio town that is considered to be an indicator of the country to see if you agree with folks there. That's ahead.

Also Larry King goes one-on-one with Michelle Obama on "LARRY KING LIVE" tonight. What she thinks about the debate. That's ahead as well. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK) ROBERTS: The economic crisis is what everyone is talking about, and for many Americans, it is the top factor as they weigh which presidential candidate will get their vote. CNN's Mary Snow is live in Chillicothe, Ohio this afternoon. Mary, what are you hearing there?

MARY SNOW, CNN CORRESPONDENT: John, no one was sold on last night's debate. We came to Chillicothe because the election results here often mirror the state's election results. We try to get a pulse from people not only on the election but on the economy.


SNOW: It's a small Ohio town that's been called America's bellwether. The thinking goes the way Chillicothe votes, Ohio votes and so does the country. But with less than a month to go until the election its concern about the markets and the economy that dominate the airwaves of the town's radio station.

DAN RAMEY, RADIO HOST, WBEX-AM: The only other people that have experienced like what we're experiencing now are our grandparents or great grandparents.

SNOW: At Carl's townhouse, the outlook among the breakfast crowd was dim.

MIKE MILBURN, CHILLICOTHE RESIDENT: I think the money they just passed in Congress is just postponing what's going to happen in the future which I think is going to be another depression.

SNOW: Mike Milburn says he lives paycheck to paycheck to support his four kids. For Dan Degarmo, it's the same. His fourth child is due soon.

DAN DEGARMO, CHILLICOTHE RESIDENT: I don't see how either of those candidates offer any solid solutions that give Americans comfort.

SNOW: Both are registered Republicans. Mike says he might not vote at all. Dan says he'll vote for McCain. Jeff Ragland is a cement worker who didn't watch the debate but already knows he's voting for Obama.

JEFF RAGLAND, CHILLICOTHE RESIDENT: I feel that he's more for the people that are people like me.

SNOW: It's people like Theresa Hall that both candidates want to target. She's an independent who remains undecided.

THERESA HALL, CHILLICOTHE RESIDENT: It's like when you watch them, it just seems like they're pretty much just at each other. You know, he says this, and he says that.

SNOW: Along Chillicothe's Main Street, there are reminders that this is a once booming industrial town that has seen better days. Team Obama is trying to make inroads among the population of 22,000 that went for George Bush in the last two elections. Down the block, team McCain is working to keep the county red. Right now, people say the town is divided and so are the predictions from two Republicans.

UNIDENTIFIED MALE: This community seems to just be enough Republican to help that pan out.

SNOW: Is that going to be the case this time?

UNIDENTIFIED MALE: My gut feeling? Yes.

DEGARMO: Honestly, I think Obama's going to win.


SNOW: So those split anecdotes that you get John, the only real indicators because there's no recent polling here in this small town. But what is an indication of just how much this town has swayed, John McCain has already paid a visit here and Barack Obama is scheduled to come here on Friday -- John?

ROBERTS: No question that the presidential candidates pay a lot of attention to Chillicothe. Mary Snow for us this afternoon. Mary, thanks so much for that.

With several key swing states clearly trending toward Barack Obama, the Democrat is now in a strong position on CNN's all important electoral map. Some supporters say they are not feeling as comfortable as you might expect and the reason, race. Carol Costello reports on the X factor in this year's presidential race.


CAROL COSTELLO, CNN CORRESPONDENT (voice-over): It remains an ugly truth. Race still matters. The question is, how much? Barack Obama leads in the latest national polls, yet his foot soldiers on the ground still worry.

UNIDENTIFIED MALE: When we finally got to where she finally just sort of lowered her voice and said well it's because he's black.

COSTELLO: In this small town in Pennsylvania, Jim English with the United Steelworkers Union is sending out teams of union workers like Andy, Laura and Doug to knock on doors. Their job is to make sure their fellow steelworkers vote Obama.

UNIDENTIFIED MALE: I'm just worried about foreign policy with Obama.

COSTELLO: That's an argument they feel they can win. But sometimes it's more complicated.

DOUGLAS WARD, UNION MEMBER: One lady I went to told me that the reason why she had the issue was because of how she was raised. She said her father's still alive and he's 85 and he couldn't see himself voting for a black man.

COSTELLO: So they had to convince some of their union brethren the race isn't about race.

ANDY ZANAGLIO, UNION MEMBER: She flat out said to me, I can't vote for that black boy.

WARD: They talked about him being a Muslim. He said countless times that he's a Christian.

COSTELLO: Obama is and always has been a Christian. The union feels the Muslim tag is really code for he's black.

JIM ENGLISH, UNITED STEELWORKERS: What they're saying is probably a cover for being uncomfortable with him because of his race.

COSTELLO: In other words, he says, sadly in some circles, it's socially acceptable to call Obama Muslim rather than something else and it's not just here in Pennsylvania. Subtle references on the campaign trail to Obama's middle name just reinforced those Muslim beliefs.

UNIDENTIFIED MALE: On November 4th, let's leave Barack Hussein Obama wondering what happened.

COSTELLO: Just last week in Ohio.

UNIDENTIFIED MALE: He was a Muslim but he won't say that.

COSTELLO: Andy, Doug and Laura are used to that by now. Andy says about a quarter of the people he talks to raise the race issue but he has a ready response.

ZANAGLIO: What I do when they bring that up, I just say, look, we've got to get past that. We live in America. We're the best nation on earth. We've got to get to the real issues of what's going on in this campaign.

COSTELLO: Carol Costello, CNN, Washington.


ROBERTS: Well, Michelle Obama has just finished taping an interview with CNN's Larry King. He asked her about this exchange from last night's debate.


MCCAIN: It was an energy bill on the floor of the Senate loaded down with goodies, billions for the oil companies. And it was sponsored by Bush and Cheney. You know who voted for it? Might never know. That one. You know who voted against it? Me.

LARRY KING, CNN ANCHOR: Did you take offense to "that one"?


KING: People are talking about it. M. OBAMA: Well, I think there are two conversations that have been going on throughout this whole election. There's the conversation that's been happening with the pundits and you know, the polls and then there's the conversation that's been happening on the ground. And the folks out there right now are scared. They're nervous about the economy. They don't care about the sort of back and forth between the candidates. They want real answers about how we're going to fix this economy and get the health care benefits back on track. So you know, this is part of politics.


ROBERTS: Live tonight at 9:00 eastern, 6:00 pacific only on CNN.

Both presidential candidates are vowing to track down Osama bin Laden but it's going to take a lot more than just tough talk. General David Petraeus talked about that today. We'll hear from him ahead. And the Supreme Court is hearing a case that pits the U.S. Navy against whales. We'll explain. You're in THE SITUATION ROOM.


ROBERTS: At last night's debate, there was plenty of tough talk from both candidates on Osama bin Laden. But how likely is it that they will be able to follow through on their promises? Our pentagon correspondent Barbara Starr has been looking into that question. She's in our Washington bureau this afternoon. Barbara, what are you finding?

BARBARA STARR, CNN PENTAGON CORRESPONDENT: You know, John, bin Laden has been playing catch me if you can for years. The candidates both talking tough but very few solutions.


MCCAIN: My friends, I'll get him.

STARR (voice-over): Presidential style machismo about getting world's most wanted man.

MCCAIN: I'll get Osama bin Laden, my friends, I'll get him. I know how to get him. I'll get him no matter what and I know how to do it.

STARR: From Senator Obama, a promise about what he will do if bin Laden is located.

OBAMA: We will kill bin Laden, we will crush al Qaeda that has to be our biggest national security priority.

STARR: But how to get him, because the reality getting bin Laden isn't getting any easier. U.S. intelligence officials tell CNN they haven't had a credible tip in years about where he is hiding in Pakistan.

PETER BERGEN, CNN NATIONAL SECURITY ANALYST: The likelihood of finding Osama bin Laden in the next several years either McCain or Obama administration is low. Given the fact that the United States has not found him in the last seven years, why is that he would magically make the set of mistakes?

STARR: And General Petraeus about to take over as top U.S. commander in the region says that bin Laden still is a priority.

GEN. DAVID PETRAEUS, INCOMING CMDR., U.S. CENTRAL COMMAND: Clearly, Osama bin Laden remains very important if for no other reason than just the sheer symbolic importance that he has.

STARR: Both candidates agree Pakistan holds the key, but they differ greatly on what to do next.

B. OBAMA: If Pakistan is unable or unwilling to hunt down bin Laden and take him out, then we should.

STARR: That's actually President Bush's position, but McCain says it is a bad idea for the U.S. to announce its intentions.

MCCAIN: It is pretty obvious that you have the effect that it had in Pakistan. It turns public opinion against us.


STARR: So John, you might be wondering what bin Laden is up to right now watching all of this. Well, U.S. intelligence officials are watching to see if he releases a new videotape just before the election as he has in the past. Some think he just won't be able to resist the urge and wonder if there is a tape if it could show new clues about his location. John?

ROBERTS: And so far the tapes that had been released have not shown any clues, have they?

STARR: They have not to the best of the public's knowledge, but I must tell you the intelligence community looks very carefully at tapes and signals intelligence and of course there have been rising numbers of missile strikes inside of that federally administered tribal region on the border and a lot of people thinks the U.S. is really pounding away at his network in hopes of trying to crack the network and get him -- John?

ROBERTS: See what happens. Barbara Starr for us in Washington today. Barbara thanks so much.

The U.S. Navy is locked in a battle with environmentalists over its use of sonar during exercises off of the pacific coast, at issue whether the blasts' loud underwater noise are harming whales and other marine mammals. CNN's Jamie McIntyre joins us now not from the pentagon but outside the U.S. Supreme Court. Court hearing arguments in the case today Jamie, any indication of which way the justices may be leaning?

JAMIE MCINTYRE, CNN SENIOR PENTAGON CORRESPONDENT: Well, the justices seem to be somewhat sympathetic to the Bush administration and of course the issue here is when can the president wave environmental laws in the name of national security.


UNIDENTIFIED MALE: 200 meters out.

MCINTYRE (voice-over): So far, it's been smooth sailing for the environmentalists locked in litigation with the U.S. Navy over whether powerful sonar signals are driving whales to beach themselves. Up until now lower courts have agreed with the national resources defense council that sonar is a clear hazard to marine mammals.

JOEL REYNOLDS, NATURAL RESOUCES DEFENSE COUNCIL: There is a very long list of where these strandings have occurred and yet the Navy for some reason not supported by any evidence has been arguing that southern California waters are somehow immune from that impact.

MCINTYRE: A federal judge ordered the Navy to curtail sonar use during training exercises off the California coast in March. Now that the legal battle has reached the Supreme Court, the NRDC finds itself on the defensive. Several of the justices indicated the lower courts may not have given enough weight to military commanders who insist the restrictions would make vital training impossible and jeopardize national security. As Chief Justice John Roberts observed at no point did the district judge undertake a balancing of the equities, putting on one side the potential for harm to marine mammals and on the other side the potential a North Korean diesel electric submarine will get within range of Pearl Harbor undetected.

The Navy has made many concessions noted Justice Breyer who then asked the lawyer for the NRDC Richard Kendall why couldn't he work this thing out. When Kendall replied, "The Navy is focused on having it its way or no way," Chief Justice Roberts cut him off. Saying, "That's very unfair. There were six conditions imposed by the district court, the Navy didn't even appeal four of them, that's not insisting on having it their way."


MCINTYRE: Now scientists are still debating how much of a hazard sonar really poses to the whales. But the justices don't have to resolve that, they just have to decide to what extent the president can put warfare ahead of the welfare of sea mammals -- John?

ROBERTS: We'll be looking forward to that decision. Jamie McIntyre at the Supreme Court today. Jamie, thanks.

John McCain's plan to stop the mortgage meltdown. Why it could appeal to independents while alienating conservatives.

Plus, new polls out from critical battleground states, how they are impacting our electoral map. You're in THE SITUATION ROOM.


ROBERTS: Lou Dobbs is joining us tonight. His program is coming up an hour from now, what are you going to be talking about? LOU DOBBS, CNN ANCHOR: We call the program Lou Jobs Tonight.

ROBERTS: If only there were some more jobs, right?

DOBBS: Exactly. I would be glad to name the program jobs tonight if we only could. What we are seeing of course is a reversal of fortune in these markets. For the last six days we've seen $2 trillion ripped out of this market. We have seen over the course of the past three days, 1,000 points John lost on the Dow Jones industrials.

ROBERTS: There are a lot of people worried out there.

DOBBS: They'd better be, because we have a leadership in this country, political, economic, and corporate that is simply failing the American people. That's what we should be concerned about because that is the referendum in my opinion that's going on in these markets right now as much as the credit crisis and the housing crisis, there is absolutely no confidence in this leadership whatsoever. And by the way, it is not a misplaced sentiment in my judgment at all.

ROBERTS: Do we know where the bottom is yet? Today the fed was out with this coordinated rate cut, half a percentage point, taking it down to 1.5 percent. That means that they don't have much more to deal with in terms of cutting interest rates. They cut interest rates in Europe at the same time, Japan may follow suit as well, but yet it's sort of slowing the bleeding, but the artery starts bleeding again.

DOBBS: This is incrementalism, it is also a bad idea, pursue the bailout the way in which this Congress and this president created this new law, $700 billion. We'll be reporting tonight that AIG will report after getting $85 billion is back with more and now receiving another $38 billion. This is in the matter of three weeks' time, while some people have got to wake up to the fact that our economic leadership in Washington is out of control and certainly out of their depth.

ROBERTS: All right, we'll be seeing you tonight an hour from now, Lou's Job's tonight.

Looking forward to it, appreciate it Lou, thanks.

Happening now, breaking news, as Lou was just saying, an insurance giant still in peril and in need of an even bigger bailout. Why the fed is loaning more cash to the troubled firm AIG. Plus, wild swings on Wall Street. An emergency interest rate cut fails to ease the fear factor. Is there anything that the government can do to restore confidence?

And John McCain borrows a page from Hillary Clinton, his new plan to buy up bad mortgages is leaving some conservatives cold and confused.