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THE SITUATION ROOM

Big Sell-Off on Wall Street; Virginia Now Leaning Obama; Last Debate for Obama, McCain

Aired October 15, 2008 - 16:00   ET

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


WOLF BLITZER, CNN ANCHOR: Happening now, there's breaking news. The market free-falling once again. President Bush warning there won't be a quick fix to this economic mess, and there's proof as stocks tank once again.
Look at these numbers, 750 points as of now. They're tabulating the final sales.

Also, wait until you hear what Donald Trump, a McCain supporter, how he's grading President Bush when it comes to the economy and whether he trusts Sarah Palin potentially having her hand it. We have an interview with Donald Trump.

And a stunner in Virginia. We're unveiling a major shift on our CNN electoral map showing who's now in striking distance of winning Virginia. Stand by for that.

And this is it. Tonight, Barack Obama and John McCain will stare down in their last debate. One hopes to keep things steady. The other hopes to shake things up dramatically. It could get ugly.

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

But we begin with the breaking news, the continuing stock market turbulence. And what a day it's been.

The bears are back in force full time on Wall Street today, with the Dow Jones Industrial Average falling about 740 points just seconds ago. They're still counting all the sales. The numbers will change.

Driving this latest sell-off, renewed fears of recession. A new government report shows weaker than expected consumer spending, with retail sales falling 1.2 percent last month alone. And the Fed chairman, Ben Bernanke, is emphasizing that the government bailout is not a quick fix for the economy.

(BEGIN VIDEO CLIP)

BEN BERNANKE, FEDERAL RESERVE CHAIRMAN: Stabilization of the financial markets is a critical first step, but even if they stabilize, as we hope they will, broader economic recovery will not happen right away. Economic activity had been decelerating even before the recent intensification of the crisis.

(END VIDEO CLIP) BLITZER: President Bush is defending the bailout plan against allegations that it undermines the free market system.

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES OF AMERICA: We have taken extraordinary measures because these are extraordinary circumstances. As I said yesterday, it's very important for the American people to know that the program is designed to preserve free enterprise.

(END VIDEO CLIP)

BLITZER: All right. Let's go to our senior business correspondent, Ali Velshi. He's here.

A 738-point drop. If you take a look at the drop yesterday, the drop today, that nearly 1,000-point gain on Monday wiped out.

ALI VELSHI, CNN SR. BUSINESS CORRESPONDENT: Wiped out, absolutely wiped out. And we're just tabulating, we're looking at our own numbers here. If these numbers stay in this range, it would make it the second biggest point loss we've ever seen on the Dow.

I want to emphasize to those of you who are worrying about your 401(k)s right now, while this is in no way good news, what it doesn't do it put us in the top 10 on a percentage loss just yet.

But as you know, Wolf, from that day we had a massive loss, the 777-point loss on the Dow, it sometimes takes 15 or 20 minutes to tabulate those final sales.

Now, the issue here is that we are all getting very concerned about a worsening economy. You just mentioned those retail sales. That's a very, very big deal. More than any other major economy in the world, the United States depends on consumers and their spending.

Again, you talked about Friday to now. On Friday, we had a relatively small loss of 128 points on the Dow. Monday, massive, massive gain. We've never seen anything like it, a 936-point gain on the Dow.

But then we saw another drop on Tuesday. Again, not a big one, about 76 points, but we've just about erased all of those losses at this point. People are very, very concerned about this market, and there's renewed talk of a recession, which to some is a little academic -- Wolf.

BLITZER: If you take a look at these numbers and the volatility, people are totally confused. They did these steps the other day to try to reassure that the credit market would be OK. But I guess the indications of a recession are too powerful to overcome that.

VELSHI: Right. The credit markets have actually started to unfreeze. We've actually been watching this day after day, and in little bits they've actually started freeing up. The issue is, once you get this financial crisis off the books -- and we didn't know this financial crisis was here two months ago, but we did know we had a recessionary environment. We had jobs being lost. And to the 750,000 people who have lost jobs this year alone, that becomes a bit of an academic argument.

Those people can't afford to spend money, and that's what we're seeing in those retail sales. We are seeing the impact of Americans who are not going to be able to spend until this economy starts to tick up. That's why you're seeing this kind of a loss.

BLITZER: Seven hundred thirty-three points as of now. That will still change. Ali, thanks very much.

VELSHI: OK.

BLITZER: And we have something just coming into CNN right now, something we haven't seen this entire general election. On our CNN Electoral College map, incorporating several factors, we're moving Virginia, the Commonwealth of Virginia, from a tossup to a state now leaning toward Barack Obama. And that's stunning because Virginia hasn't voted for a Democratic presidential candidate in more than 40 years.

Our map also shows more encouraging news for Barack Obama right now. We're moving New Jersey from leaning toward Obama to safe for Obama.

Discouraging for John McCain, North Dakota moves from safe for John McCain to simply leaning toward John McCain. Part of the switch for Virginia is our new CNN/"TIME Magazine"/Opinion Research Corporation poll. And look at this. It shows Obama leading in Virginia by 10 points, 53 percent to 43 percent.

Our poll also shows Obama leading McCain right now in key tossup states elsewhere. Obama's ahead in Florida by five points. Here it is, 51-46 in Florida.

Take a look at Colorado. Obama's ahead by 51 percent to 47 percent in Colorado.

In Missouri right now, Obama and McCain virtually tied, 49 McCain, 48 Obama.

In the state of Georgia, though, McCain still has a considerable lead, 53 percent to 45 percent in Georgia.

Let's walk over to our Chief National Correspondent John King. He's looking at the Electoral College map, specifically Virginia. This is a real stunner, John.

JOHN KING, CNN CHIEF NATIONAL CORRESPONDENT: Wolf, it is a real stunner. And let me show you the significance.

I already made the change to North Dakota, now just leaning McCain. Made the change to New Jersey, now strong Obama. But watch this.

When we take Virginia and we turn this state not red, as John McCain would like, but we turn it blue, now leading Barack Obama, look what that does to our Electoral College projection as of today. Emphasis on "as of today." But if nothing else changes and these projections held up through the election, Barack Obama would have enough electoral votes to be the next president of the United States and to win this election.

Two hundred and seventy-seven electoral votes. We now project Barack Obama would win if the election were held today.

And Wolf, that tells you heading into the third and final presidential debate that John McCain faces a very significant challenge on the map. He has to change this map. He has to change, of course, the fundamentals behind the map, which is the question of the economy. Now, how does John McCain do that?

Let's start in the state of Virginia. That is the one we just switched his way. It was a George Bush state back in 2004, as you can see on the map here.

If you pull it out -- and our new survey is quite interesting. If you look up here in the northern Washington suburbs, which you know well, Wolf, has been the fastest growing area of the state of Virginia, John McCain is getting trounced by Barack Obama and Joe Biden in the northern Virginia suburbs. And significantly, the Democratic ticket is also winning right now down here in southeast Virginia -- Norfolk, a naval base area; Chesapeake, home of Christian conservative organizations; also a significant African-American population down in here.

If John McCain is to change the fundamentals of the race, of course he has to take command of the economy debate. If he is to change the map, Wolf, he needs to start in a state you just noted has not gone blue since 1964. John McCain in trouble.

Down here, look at all that red from four years ago. And up here, look at all the red in the outlying suburbs from four years ago. The map right now not in John McCain's favor. Not time to start popping champagne in Barack Obama headquarters, but another significant move in our map in the Democrat's favor -- Wolf.

BLITZER: And on the eve, right now only hours away, John, from this final debate, a drop of 730 points or so on the markets, that can't be encouraging for the McCain camp.

KING: It cannot be, because take the names out of this. Take John McCain and Barack Obama out of this.

What happens in a political environment like this, when people are so upset about the economy, any historical guide will tell you the incumbent party gets blamed for this. Whether that is fair or not, that is political reality. And politics, likewise, isn't always fair. And George W. Bush is the Republican president at the moment, Wolf, and in sad economic times like this, the Republican candidate suffers. BLITZER: All right. John's going to be with us throughout. Stand by, John.

We also want to get some more now on this stunning change to our Electoral College map now showing Virginia leaning toward Barack Obama. Virginia's among the states included in the newest edition to CNN's best political coverage on television, the battleground states. We're calling it our battleground coverage, with CNN reporters stationed in key tossup states throughout Election Day.

CNN's Dan Lothian is now in Virginia. He's reporting from Richmond. Wow. This is a huge, huge development potentially for this presidential campaign, Dan.

DAN LOTHIAN, CNN CORRESPONDENT: It really is a huge development. In fact, I was talking to a professor, and he told me that four years ago, if had you said to him that in 2008, a Democrat could win Virginia or had a very good chance of winning Virginia, he would have not been able to have believed it. He said it just didn't seem possible four years ago. But here you see those numbers, Senator Obama up by 10 points at this point in Virginia.

Part of the reason, as John was mentioning a while ago, shifting demographics in the northern part of the state, northern Virginia, where they've seen an influx of new voters there. Some of them immigrants. We've seen Asian immigrants, as well as Hispanics in that area, left-leaning Democrats in that area. That is being blamed for part of this.

Also what we have seen is that Senator Obama has really had a strong ground operation here in Virginia, a lot of leafleting. He's also had a lot of the phone-banking going on. He's outspending Senator McCain 4-1 here in Virginia.

Now, there are some Republicans who are very upset with McCain here in the state of Virginia because they don't feel he has been doing enough. Some of them saying that they feel he has really taken Virginia for granted. That is something that we're digging on, hope to have a little bit more on that later in the week. But I did talk to an official with the state Republican Party, and he said, "I do understand that this will be a very difficult fight," but he believes that in the end, Senator McCain can win Virginia -- Wolf.

BLITZER: Dan Lothian in Virginia for us. We'll be checking with you throughout this program, as well.

And remember to stay tuned to CNN for our newest addition to the best political coverage on television. Our battleground coverage has CNN reporters using their expert political eyes and ears in all these key battleground states. We'll be bringing you their reports all day today and the few remaining weeks before Election Day.

But let's get back to the breaking news right now. Poppy Harlow is standing by at the Nasdaq.

Wow. What a day, a 733-point loss. Susan Lisovicz is over at the New York Stock Exchange.

Poppy, first to you. It's bad enough on the New York Stock Exchange. What about Nasdaq? How bad was it there?

POPPY HARLOW, CNNMONEY.COM: It was horrible here. The same story.

It was really that critical last hour that we've been seeing, Wolf, for the past few weeks, and you just see the stocks go right down -- 8.5 percent we're down right now, settling there. We're worse than the Dow. So the Nasdaq down 8.5 percent.

Back on that biggest point loss ever for the Dow, it was also big for the Nasdaq when we lost 9.1 percent. But this is coming pretty close to it, and it's all those names that people bank on, those names like Microsoft and Apple and Intel and Cisco that they may have jumped into when we saw the big rally on Monday. Now they're selling those off.

And I want to mention Google, because that stock got hit very hard today. The company is reporting its earnings tomorrow. It's not a good outlook for Google, and the stock as a whole is down more than 50 percent over this year so far. So people are selling really what used to be a reliable name really quickly, jumping out of that.

And again, Intel today a big company that had a better than expected earnings report, shares ended in the read as well.

So there were really no winners here, Wolf. We're down 8.5 percent in one single session for this tech-heavy index -- Wolf.

BLITZER: That's pretty sad at Nasdaq.

Let's go to the New York Stock Exchange. Susan Lisovicz is there for us. Was it simply a matter of all those folks that made a lot of money on Monday deciding to cash in, to sell off, and as a result we see a 733-point drop in the Dow Jones industrials right now, Susan?

SUSAN LISOVICZ, CNN BUSINESS CORRESPONDENT: No, I don't think so, Wolf. I mean, we are in a heavy period in terms of information. And the information that Wall Street received today was not good.

Starting with retail sales, very important, much worse than expected, down 1.2 percent in one month, third consecutive decline. Consumer spending is what it's all about in terms of driving the U.S. economy. And we're seeing a decided trend as we go into the holiday season.

We also got wholesale prices that were worse than expected. We had this thing called the Beige Book which is put out by the Federal Reserve. It looks at the 12 regional Federal Reserve banks, and basically it says the same thing that we've been seeing anecdotally, that manufacturing has declined and consumer spending is softening. And it showed in September that credit, access to credit, was tighter, which, of course, was when we really saw that crisis go into full bloom. We also had a couple of Federal Reserve presidents who are normally very cautious saying that either the U.S. economy appears to be in a recession, or with this retail spending report, that the odds of it are likely to go. And you know, I talked to several economists today, Wolf. Three of them. They all said the U.S. economy is in recession, and one of them said the U.S. economy is under siege from all sectors, and you saw it play out with a sell-off that accelerated, dropped like a stone at 340.

The final 20 minutes of trading, second worst point loss for the Dow ever. And three of the worst four worst point losses, by the way, for the Dow industrials occurred in the last three weeks.

BLITZER: Why is it, Susan, that in that last hour of trading it changes so dramatically? We've seen this now on several occasions over the past few days.

LISOVICZ: Well, it's always very telling if the sell-off -- if you end at the lows. And that's what we've seen happen.

We live in a global economy. I mean, if you couldn't get a picture of that with this financial crisis, for instance, everybody -- you know, the industrialized nations working on all fronts, information continues to come out after the bell. And in this kind of very nervous environment, folks just don't want to hold stocks going another 12 hours.

BLITZER: I'm going to have both of you stand by, Susan Lisovicz. Poppy Harlow's over at Nasdaq. Stand by. We're going to come back to the breaking news.

We're only a few hours away. We're counting down to the big debate tonight. They'll be entering the political arena tonight with two different missions. Barack Obama will try and keep things steady. John McCain will likely try to shake things up. They're facing off for this, their third and final debate. We're covering both sides.

Ed Henry is watching the McCain campaign. But let's go to Jessica Yellin. She's over at Hofstra University, the site of the debate tonight. She's watching the Obama campaign for us. And you know, both of you are there -- Jessica, I'll start with you. This horrendous drop today on the markets, that sets the stage for the subject that's supposed to be the subject tonight, domestic policy, domestic issues, including the economy.

JESSICA YELLIN, CNN CORRESPONDENT: That's right, Wolf. And that plays right to Barack Obama's message tonight. He wants to stay focused as much as possible on the economy. He thinks it's a message that wins for him. His main goal tonight is to do no harm.

(BEGIN VIDEOTAPE)

YELLIN (voice-over): Barack Obama wrapped up his debate prep in Ohio sounding calm.

(on camera): Senator, how are you feeling about tonight? SEN. BARACK OBAMA (D-IL), PRESIDENTIAL CANDIDATE: Feeling pretty good.

YELLIN (voice-over): And calm is the impression he'll try to convey tonight. That would reinforce his campaign spin that Obama is steady while McCain is erratic.

SEN. JOSEPH BIDEN (D-DE), VICE PRESIDENTIAL CANDIDATE: I think what the debate has shown in the last two debates is a guy who is confident and steady and a guy who's not quite sure where he wants to take the country.

YELLIN: Aides expect that tonight Obama will have to defend himself against charges that he'll raise taxes...

OBAMA: You've heard a lot about taxes in this campaign. Here's the truth. My opponent and I are both offering tax cuts.

YELLIN: ... and explain his association with former 1960s radical Bill Ayers, as he did in this interview with ABC's Charlie Gibson.

OBAMA: The notion that somehow he has been involved in my campaign, that he is an advisor of mine, that he -- that I've palled around with a terrorist, all these statements are made simply to try to score cheap political points.

YELLIN: And as much as possible, expect Barack Obama to describe any attacks as a distraction from the issue Americans care about the most, the economy.

(END VIDEOTAPE)

YELLIN: And Wolf, the expectations game is on. Obama's aides insisting that tonight, it's John McCain who needs what they call a game-changer. They insist this is his last chance to really turn this race around -- Wolf.

BLITZER: Jessica, stand by. She's at Hofstra. So is Ed Henry, our correspondent covering the McCain campaign. Ed, give us the strategy, what you're hearing from the McCain camp.

ED HENRY, CNN WHITE HOUSE CORRESPONDENT: Well, Wolf, time is obviously running out for John McCain to shake up the dynamics of this race, but he's getting conflicting advice on just how negative to go tonight.

(BEGIN VIDEOTAPE)

HENRY (voice-over): As he faces enormous pressure from his own supporters to get more aggressive, John McCain has been trying to talk tough.

SEN. JOHN MCCAIN (R-AZ), PRESIDENTIAL CANDIDATE: After I whip his you know what in this debate, we're going to be going out 24/7.

(APPLAUSE)

HENRY: But in the next breath, McCain pulled back, a sign of the tightrope he walks when attacking Barack Obama.

MCCAIN: I want to emphasize again, I respect Senator Obama, we will conduct a respectful race. And we will make sure that everybody else does too.

HENRY: McCain is sensitive to going too negative and turning off undecided voters. The latest Pew poll found 44 percent of swing voters think McCain has been too personally critical of Obama. Only 23 percent of swing voters think Obama has been too personally critical of McCain.

Nevertheless, some McCain allies are pressing him to hit Obama over his ties to former 1960s radical William Ayers and the Reverend Jeremiah Wright.

UNIDENTIFIED MALE: We have all of these shady characters that have surrounded him. I am begging you, sir -- I am begging you, take it to him.

HENRY: McCain continues to resist calls to harp on Reverend Wright, but made clear he does plan to mention Ayers after Obama's claim that he didn't have the guts to bring the issue up to his face.

MCCAIN: I think he's probably ensured that it will come up this time.

(END VIDEOTAPE)

HENRY: But by daring McCain to bring up Ayers, Obama could have been setting a trap for the Republican candidate. McCain starts jumping on the Ayers controversy, it's easy for Obama to say, look, you're going negative, I want to focus on the issues. That's why it's a very difficult balancing act for McCain tonight -- Wolf.

BLITZER: All right. Ed's going to be over there at Hofstra University in Hempstead, New York, on Long Island, throughout the night. Ed, we'll get back to you.

An endorsement of sorts for Governor Sarah Palin.

(BEGIN VIDEO CLIP)

BLITZER: Would you trust Sarah Palin to be in charge of the economy right now?

DONALD TRUMP, CHAIRMAN & CEO, TRUMP HOTELS & CASINO RESORTS: Do we have a choice?

(END VIDEO CLIP)

BLITZER: My interview with Donald Trump, that's coming up. He has a lot to say about Sarah Palin, has some advice for John McCain in tonight's debate. I think you're going to want to see and hear this. And what would you eat if you only had $3 a day for food? A fast-growing number of Americans are finding out first hand as food stamps recipients hit a record high.

Lots of news happening here today right here in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: All right. We're following the breaking news, a horrible day on the markets today, a 733-point drop as of right now. Only moments ago, the New York Stock Exchange closed down, the Dow Jones industrials dropping 733 points.

(NEWSBREAK)

BLITZER: Donald Trump has much more to say about what's going on in this presidential race He offers his thoughts on Sarah Palin's readiness to handle the nation's economy, as well.

And in that $700 billion financial bailout plan, we're supposed to see a curb in CEO compensation, but that may not necessarily be the case. We'll explain, right here in THE SITUATION ROOM.

(COMMERCIAL BREAK)

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

Happening now, Barack Obama's special guest. A former opponent of the Democratic presidential candidate will have a front row seat at tonight's debate. We're going to tell you who it is and what it might signal about his strategy as we head into the home stretch of this presidential campaign.

Also, battleground Ohio. We're going to update you on the race in this key swing state and tell you about a new voter registration battle that's dominating news there right now.

And the Obama campaign hits back as the claims of voter registration fraud expand. I'll ask his chief strategist whether we should be concerned about a fair election on November 4th.

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

This week, the conservative commentator Bill Kristol set off a heated debate with his call for John McCain to simply fire his campaign staff. Today, I sat down with a man who knows quite a bit about hiring and firing, as well as politics and the economy.

Here's my interview with the real estate mogul, the man behind the reality TV show "The Apprentice," Donald Trump.

(BEGIN VIDEOTAPE)

BLITZER: Let's talk politics right now. If -- if you were John McCain, who would you fire right now? Because he's -- he's in trouble, based on all these polls.

TRUMP: Well, John McCain's very interesting, because, during the primary, it looked like he was over. And he came back, and he came back so strongly. And it was very impressive.

So, I don't think I would fire anybody, but I would hire John McCain. I would get back to doing what he does best. And he really did an amazing job in the primary. It looked like he had no chance. It was literally over.

And I remember a scene of him walking into a commercial airplane carrying his own bags, actually pulling his bags. And I said, he ought to just give up, because, you know, it's not going to work. And, then, after that, he started doing fantastically well. So, he has to get back to being John McCain. And I think, if he does that, he will do very well.

BLITZER: Because the only -- the big difference between then, when he was written off for dead politically, and now is that there's less than three weeks to go. There's not a whole lot of time.

TRUMP: Well, I think maybe the bigger difference is that he's being blamed for a Bush economy. And I'm not sure that he should be blamed for it, because he's one of 100 people. And then you also have Congress generally. But he seems to be blamed for the economy. It's not his fault.

BLITZER: He's a Republican, and Bush is a Republican.

TRUMP: That's it.

BLITZER: That Republican brand is in trouble right now.

TRUMP: Well, the Republican brand certainly is in trouble.

He's a good man. I know him very well. He's a very smart guy. He's a tough guy. I think he would be a great president. But he has to be John McCain, and he could still probably pull it out, but it's going to be tough.

BLITZER: So, give him some more advice tonight. What do you want to see him specifically do when it comes to issue number one, the economy?

TRUMP: Well, he has to talk economy. He has to say -- the best thing that could happen to him, if the economy turned around. Unfortunately, I'm not sure that it is turning around. Lots of money has been thrown at the banks. But let's see what happens.

The stock markets have reacted unbelievably well for two days, and now, all of a sudden, they're back in their malaise. But he has to come up with plans, and not political plans, real plans, and they have to be very, very economy-based. I think the economy seems to be weighing down everything. You know, at one point, you would have thought the war was a huge negative for McCain. He's made that into a positive, which is hard to believe, actually. But he's made that into a positive. He has to do the same thing with the economy.

Don't forget, his tax cuts, and the other things, I don't know if people know what's going on, but he is offering tremendous tax cuts, whether it's capital gains or other things. And he has to let people know that.

BLITZER: And the -- the notion that he's advancing is that those tax cuts, including for big corporations, for the wealthy, will trickle down and will help stimulate, create jobs, and get the economy going again, although a lot of people are suspicious, because that's been the theory of eight years of the Bush presidency.

TRUMP: But history has proven that to be the case. And the Bush presidency didn't go down because of low taxes. It went down because of deals that were made on Wall Street that were horrendous deals for this country and, actually, as it turns out, for the world.

BLITZER: Who's to blame for that?

TRUMP: Bush is not to blame.

I am certainly, as you know, very well, not a fan of Bush, but he's not to blame for that. That was not policy. This was a bunch of people, primarily on Wall Street or the banking community, that tried to take advantage of a situation. And guess what? It didn't work out too well.

BLITZER: So, you're having no second thoughts about standing -- endorsing John McCain?

TRUMP: No, I'm loyal to him. I know him. See, I don't know Obama. I have great respect for Obama. I have great respect, and from the job -- really, the job he's done, to come from nowhere, and to be running for president, and to be leading in the polls. And I have great respect for Joe Biden. So, you know, it's not that, but I just don't know them. I know John McCain. I know he's a good man. I think he would be a very good president.

BLITZER: Would you trust Sarah Palin, the governor of Alaska, the Republican vice presidential nominee, to take charge of an economic crisis in this country?

TRUMP: Well, I can only go by the people of Alaska. She's got the highest rating in the whole United States, as being the most popular governor. Another great governor friend of mine is Charlie Crist. He has got a very high rating, too. Sarah Palin has a very, very high approval rating from the people of Alaska, 84 or 85 percent.

BLITZER: Let me rephrase the question, then. Would you trust Sarah Palin to be in charge of the economy right now?

TRUMP: Do we have a choice? (LAUGHTER)

TRUMP: I think the answer is yes. I met her recently. I was very impressed with her.

The people of Alaska, who really are the people that know, they think she's fantastic. Again, she's the highest rated governor in the United States.

BLITZER: So, the answer is, yes, you would trust her?

TRUMP: I would trust her, yes.

BLITZER: To deal with this economic crisis, the enormity, something that we haven't seen, some say, since the Great Depression?

TRUMP: Well, look at what other people have been doing, and they had a lot of experience. And they're the ones that got us into this mess. Maybe you need less experience.

BLITZER: If Obama...

TRUMP: And the fact is, Wolf, on your show, two years ago, I said we were going to go into a depression, if you remember that.

And your friends over at FOX, Neil Cavuto -- who I know you don't want me to mention, but I might as well, because he mentioned it -- he said the only one that actually mentioned the word depression two years ago was Donald Trump.

BLITZER: You still think we're going towards a depression...

TRUMP: Well...

BLITZER: ... as opposed to a long and deep recession?

TRUMP: They're throwing a lot of money at it. That was something that nobody knew. That is sort of changing the rules...

(CROSSTALK)

BLITZER: Seven hundred billion dollars.

TRUMP: And I think they did a very good thing in doing that.

But, you know, $700 billion is not very much, relative to the trillions of dollars that we're talking about. But they're throwing a lot of money at the banks, and they're doing it properly. And I think that probably keeps us out.

But I do think we're in a pretty major recession. You have people that don't even think we're in recession. And I'm saying, where are they coming from? We're in a pretty deep recession. And, probably, it will be on that way for a while...

(CROSSTALK) BLITZER: And you think it will actually move towards a depression, along the lines...

TRUMP: I don't think so. I don't think so. I mentioned that as a possibility two years ago on your show. I don't think so. But, certainly, it's not good times.

BLITZER: If Hillary Clinton had been the Democratic nominee, as opposed to Barack Obama, would you have endorsed her or John McCain?

TRUMP: Well, I would rather not say, because I don't have to worry about that.

But Hillary's a great friend of mine. Her husband is a great friend of mine. They're fantastic people. I mean, they're -- you know, the thing, they get a bad knock. She's a very nice woman. People think, tough, tough. And I guess she's tough, but she's a very nice woman. And he's a very nice guy. We know all about the smarts and how smart they are, and all, but they are good people.

BLITZER: At the debate tonight, would it be smart for John McCain to raise the issue of William Ayers, the 1960s Weather Underground radical? Would that be a smart strategy on his point?

TRUMP: I really don't know. I think it's better if he keeps it really positive, and talks about what he's going to do for the economy, what he's going to do about the war, what he's going to do with OPEC and oil prices, because, ultimately, it's going to be about OPEC.

BLITZER: Oil prices are going down right now.

TRUMP: Well, they're going down, but they're still at numbers that, other than for the last six months, they're the highest in the history of the world, you know, at $78...

BLITZER: Right.

(CROSSTALK)

BLITZER: So, you want him to take the high road? You think that's better, that's more genuine for John McCain, as opposed to doing a little bit more attacking?

TRUMP: Well, I think William Ayers has been aired out quite a bit already. I think people are hearing about it. And it's a long time ago.

And I would rather see him talk about the economy, talk about the war, talk about OPEC, and what you're going to do to get the oil prices down.

TRUMP: I know you like John McCain, but is there anything specifically about Barack Obama you don't like?

TRUMP: I have great respect for Barack Obama. I don't know him well enough to say I like or don't like, but I have great respect for what he's done, from where he's come from, in terms of this election.

I mean, he was given no chance. And, all of a sudden, he's the nominee. And he beat some very formidable people. I -- I have great respect for him.

BLITZER: You said you met Sarah Palin. Where did you meet her?

TRUMP: I met her last night at the Grand Hyatt Hotel, which I built. And...

BLITZER: Here in New York.

TRUMP: In New York. And they were having a big -- a big fund- raiser, a Republican fund-raiser. And she was very impressive. And her husband was very impressive. I met them both last night.

BLITZER: What was so impressive?

TRUMP: I just think the demeanor, the stature, I was very impressed with both of them.

(END VIDEOTAPE)

BLITZER: We're going to have much more of this interview with Donald Trump coming up. He will explain why he's not -- why he says not impeaching President Bush was a lost opportunity for the House speaker, Nancy Pelosi.

(BEGIN VIDEO CLIP)

TRUMP: It just seemed like she was going to really look to impeach Bush and get him out of office, which, personally, I think would have been a wonderful thing.

BLITZER: Impeaching him?

TRUMP: Absolutely, for the war.

(END VIDEO CLIP)

BLITZER: All right, he's going to explain what he has in mind. Stand by for that -- more of the interview later coming up here in THE SITUATION ROOM.

It was supposed to be one part of the $700 billion bailout plan, a curb in CEO compensation. But wait until you hear what lawmakers are saying now.

And now that our CNN electoral map shows Virginia leaning toward Barack Obama, should John McCain pull out of Virginia? Our political experts assess in our "Strategy Session."

And you have heard the numbers about record home foreclosures, but you have rarely seen the real people who have lived in those homes. You will meet one family, hear their heartbreaking story -- coming up here in THE SITUATION ROOM. (COMMERCIAL BREAK)

BLITZER: Just to recap the breaking news: the Dow Jones industrials dropping 733 points today. We are going to have much more on this breaking news coming up shortly.

During the recent negotiations over the economic bailout plan, there were lots of promises that the -- the pay for top executives of companies receiving U.S. government assistance would be reined in. So, are the days of the golden parachute over?

Brian Todd. He's in Washington. He is looking into that question. Brian, and what are you finding?

BRIAN TODD, CNN CORRESPONDENT: Wolf, we're finding that, despite those promises, the multimillion-dollar CEO is not likely to go the way of the dinosaur.

(BEGIN VIDEOTAPE)

TODD (voice-over): When they starred the bailout process, this is what congressional leaders said about big business execs who led those troubled banks.

REP. NANCY PELOSI (D-CA), SPEAKER OF THE HOUSE: The party is over for the compensation for CEOs who take the golden parachute as they drive their companies -- companies into the ground.

TODD: This is what they're saying now about the new rules for executive pay.

REP. BARNEY FRANK (D), MASSACHUSETTS: Look, I would have written them a little more toughly.

TODD: The bailout does ban so-called golden parachute severance payments for CEOs under some circumstances, but it also will let the nine banks give their departing executives up to three times their average annual pay.

A Treasury Department spokeswoman says that only applies to healthy banks taking part in the rescue plan. It's not for the CEOs of banks that are clearly failing. Still, it draws a mixed reaction from taxpayers footing the bill.

UNIDENTIFIED MALE: It seems like it's the same deal. The rich get richer, and the poor get poorer.

UNIDENTIFIED FEMALE: I do not think that CEOs should be paid unlimited amounts of money if the company is not making a profit.

TODD: The only thing really limiting compensation under this bill? Companies will now only be allowed to deduct from their taxable income the first $500,000 of the salaries of each of their top five executives.

But analysts are critical of that, too. JAMES REDA, EXECUTIVE COMPENSATION EXPERT: What they need to do is to extend it to a broader group of executives who work within these companies that are receiving this bailout and perhaps extend the period of time that it applies to these executives. Right now, it only applies to when they stop receiving government aid.

(END VIDEOTAPE)

TODD: And experts say, that limit on deductions won't stop companies from paying executives more than $500,000 a year. They simply won't deduct those amounts anymore, and that will hurt shareholder more than it will hurt the CEOs themselves -- Wolf.

BLITZER: All right, Brian, thanks very much -- Brian Todd reporting.

Coming up in our "Strategy Session": John McCain certainly has a long history with the Commonwealth of Virginia.

(BEGIN VIDEO CLIP)

MCCAIN: This was my first duty station, and it's almost like coming home. And I'm so glad to be back here.

(APPLAUSE)

(END VIDEO CLIP)

BLITZER: But, in our latest poll, he's trailing in Virginia. Should he stay? Should he fight? What's going on?

And David Axelrod, Senator Obama's chief strategist, he is here in THE SITUATION ROOM. Does Senator Obama plan on playing it safe or swinging for the fences tonight?

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

(COMMERCIAL BREAK)

BLITZER: And we're just getting this into THE SITUATION ROOM, more political news: The Obama campaign is confirming to CNN that it's pulling some staff members out of Michigan and sending them to other battleground states. John McCain pulled his staff out of Michigan a few weeks ago. And polls now show Obama with a very strong lead in Michigan.

Let's discuss this and more in our "Strategy Session."

Joining us, the Democratic strategist and CNN political contributor Donna Brazile and Republican strategist and CNN political contributor Leslie Sanchez.

Smart to start assuming you're going to win Michigan and take those resources, Donna, and move them elsewhere?

DONNA BRAZILE, CNN POLITICAL ANALYST: Well, McCain abandoned Michigan several weeks ago. So, what the Obama campaign now is doing is shifting their -- some of their top staffers to other battleground states. I think it's a very important move. But I hope he's putting them in Ohio and Pennsylvania, two states that still remain relatively close.

BLITZER: Ohio very close. Pennsylvania may not -- maybe not that close. But we will talk about that. What do you think about this move?

LESLIE SANCHEZ, CNN POLITICAL CONTRIBUTOR: Well, the...

BLITZER: A lot of people -- a lot of Republicans complained when -- when Senator McCain gave up on Michigan.

SANCHEZ: It's frustrating. I mean, I was there in 2000, 2004. We fought very aggressively for Michigan. And it was sad to see the campaign leave early.

But it's political strategy 101. He has to do what he has to do. The race is going to tighten. And, if you look at it, it's really about seven to eight states that are the true battlegrounds, many of them Republican states, traditionally, that John McCain is fighting for.

BLITZER: Would this battle be different -- and it's a huge would -- would it be different if the economy were in good shape right now?

BRAZILE: It would be different in John McCain had a message and didn't rely on just the old smear and fear tactics.

But, yes, the economy is driving the conversation, because voters are concerned. They have one eye on the presidential race and the other eye on their wallet. They're worried.

SANCHEZ: Yes.

BLITZER: Because that Republican brand right now is not such a great brand, when you take a look at these polls.

SANCHEZ: It's not likely overall, historically, to win again -- to win a third term. Let's look at history precedents. You have voter fatigue, on top of that, economic anxiety.

What's interesting is that John McCain has kept this race very competitive, within four or five points, despite all those things. And many people have written on -- written off Senator McCain. But anybody who's tracked his life knows that he's best in these types of situations, and you shouldn't write him off yet.

BLITZER: That's what Donald Trump said. And a lot of people who know John McCain say the same thing.

Virginia, right now -- and look at this -- our brand-new CNN/"TIME" magazine/Opinion Research Corporation poll, 53 percent for Obama, 43 percent for McCain. This is a state, Leslie, you know well. It's pretty amazing when you think about it, because, what, it's been about 40 years since Virginia went Democratic in a presidential contest.

SANCHEZ: Since 1964, absolutely right. But, also, those numbers were reversed in 2004 with Bush-Kerry, when it suddenly came down to it. It's ridiculous to think John McCain should be leaving that state. You don't know Virginia.

Virginia, they're really, I think, drinking the Kool-Aid up in the northern part of Virginia, which is very Washington, D.C.-based. But the southern part and some of those counties are very competitive right now.

BLITZER: What do you think about this dramatic development in Virginia? We actually -- and you saw John King on our magic map -- we actually have moved Virginia from tossup to leaning Obama. Let me repeat that, leaning Obama.

(LAUGHTER)

BLITZER: Hard for you to believe, isn't it, Donna?

BRAZILE: Well, yes and no.

Look, I worked in Virginia in '84, Jesse Jackson campaign. That's in the primary. But you remember Doug Wilder's race. Doug Wilder was leading by 15 points two weeks before the election. He was leading on Election Day by 10 points.

BLITZER: When he was running for governor.

BRAZILE: And, of course, he won by half-a-percentage point. So, while I like the polls that I'm seeing, I'm cautious -- cautiously optimistic.

BLITZER: But you have a problem with some of these polls, don't you?

BRAZILE: Well, you know, we don't know who will turn out. We don't know if we have a dramatic increase in young people. As Leslie mentioned, in some of the northern parts of the state, we don't know what will happen in Hampton Road, the Shenandoah Valley. So, it's all about who turns out on Election Day.

SANCHEZ: You know...

(CROSSTALK)

BLITZER: But, in general -- hold on a second -- do you have a problem with these polls that, most of them showing really good numbers for Barack Obama? What's your basic problem?

BRAZILE: My gut is that this race will still tighten up. This is still a very divided country, in terms of party registration. It's all about independents. It's all about who turns out on Election Day. So, while I enjoy polls, eight years ago, Al Gore was up in some polls. And look how that election...

(CROSSTALK)

BLITZER: You were his campaign manager.

(CROSSTALK)

SANCHEZ: Savvy strategist for you.

BLITZER: Do you have a problem with some of these polls, too?

SANCHEZ: I think, you talk to a lot of Republican and Democratic pollsters, they're going to tell you the same thing.

Sometimes, some of them over-weight on the Democratic side or they overcompensate how many -- in terms of thinking what the African- American turnout is going to look like. They're saying it's going to be larger than expected and maybe suppressing what they think non- Hispanic white turnout is going to look like. It's hard to say with each of these polls.

And that's why it's so much in the air, especially with the youth vote and the use of that mobile technology. It's something we have never seen in this country.

BLITZER: Because those are the wild cards, really. And I think Leslie makes an excellent point. We don't know. Will the young people who are registering actually vote? In the past, they really haven't, as opposed to their parents and grandparents.

And African-Americans, they're registering. They are enthusiastic right now, for understandable reasons. But will they actually go out and vote? And we don't know about that so-called Bradley effect...

BRAZILE: Absolutely.

BLITZER: ... the hidden racists out there who won't vote for a black person.

BRAZILE: Well, look, here's what we know. Eighty-seven percent of young people, according to latest MTV poll -- and I watch MTV -- young people say they are going to vote.

What we know about African-Americans is that we have an increase in registration, which always leads to an increase in turnout. And what we know about the Bradley effect, some 26 years later, is that it might be eroding. I think we have reached a moment where we should focus on the Obama effect, because he has brought new energy and new excitement to a new generation of voters in this country.

BLITZER: On that note...

(CROSSTALK) BLITZER: Hold on, Leslie, because you're going to be with us all night.

(LAUGHTER)

BLITZER: We have got to leave it right there, because we're up against the break.

Barack Obama will have a special guest at tonight's debate. It's a former foe who could be instrumental in helping him in this, the final homestretch of the presidential campaign.

And it's a sign of the tough economic times. More Americans are now on food stamps than ever before. So, how do you eat on $3 a day? Wow.

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

(COMMERCIAL BREAK)

BLITZER: With the candidates squaring off on the economy tonight, the Obama campaign is unveiling an online tax calculator, letting voters figure out how much they would save if Obama is elected.

Our Internet reporter, Abbi Tatton, is looking into all of this.

How does it look, Abbi? What's going on?

ABBI TATTON, CNN INTERNET REPORTER: Wolf, the Obama campaign is saying, come here to the Web site, punch in a few details, and figure out how much money will be coming your way in an Obama presidency.

Annual income of $60,000, say, for a married couple filing together, with two dependents, it will spit out the number $1,000 in Obama tax savings, vs. $645 that they work out for Senator McCain. Add in some mortgage repayments to that number, provided you don't itemize, and that tax savings number goes up. Take away those two dependents, and that McCain number disappears.

It's a simple tool designed to display tax breaks that Obama is promising for the middle class. Go to higher incomes and it gets a little bit more fuzzy. If you put in that you're making more than $250,000 a year, and you will get only -- no number, just this message -- "You will probably not get a tax cut under the Obama-Palin (sic) plan, something the conservative group Americans For Tax Reform called misleading."

From the Republican National Committee Web site, they have been doing some online calculations now for months with their "Spendometer." They have been figuring out what they think all of Obama's proposals will cost -- Wolf.

BLITZER: Thanks, Abbi, for that.

On our "Political Ticker" right now: Barack Obama's running mate playfully admitting something. He was arrested more than 40 years ago. Senator Joe Biden joked about it in Ohio. He said he was attending a football game between his university and Ohio University, and he mistakenly followed what he called a lovely group of women into an all-female dormitory.

Biden says an officer quickly stopped him, noting that men were not allowed inside. Senator Biden joked, it was only a temporary detention.

A prominent conservative leaving a conservative magazine for supporting Barack Obama. Christopher Buckley is the son of conservative icon William F. Buckley. He resigned his job at "The National Review," the magazine his dad founded, only days after he formally endorsed Barack Obama.

Buckley says many "National Review" readers were outraged. On a Web site, Buckley wrote that McCain is now "inauthentic" -- that's a quote -- and that Obama appears to have -- and I'm quoting now -- "a first-class temperament and first-class intellect."

Remember, for the latest political news any time, you can always go to CNNPolitics.com.

And, to our viewers, you're in THE SITUATION ROOM.