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ISSUES WITH JANE VELEZ-MITCHELL

Panic on Wall Street?; Billions in Bank Bonuses Despite Bailout?; What Does McCain Need to Do to Win?; Hillary Campaigns for Obama;Palin`s Problems; Campaign Crazies

Aired October 24, 2008 - 19:00:00   ET

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


(BEGIN VIDEOTAPE)
JANE VELEZ MITCHELL, HOST (voice-over): Tonight, outrage on Wall Street. Ordinary investors are suffering as the market crumbles. Meanwhile, bad CEOs are getting billions in bonus payouts. Talk about stimulus. But how can this be? I`ll talk to one angry congressman who wants to stop the madness.

Then a lot of polls say McCain is trailing Obama. But is the race really over, or can we expect a mavericky miracle?

And a McCain supporter says a mugger carved the letter "B" on her case. Face. "B" as in Barack? Or perhaps baloney? True story or just more campaign craziness? We`ll have the latest details.

You think you`ve got issues? We`ve got more.

(END VIDEOTAPE)

VELEZ MITCHELL: There`s blood in the streets of the financial district and Main Street as the stock market melt-down worsens day by day. The Dow Jones industrial average plunged 312 points today. The NASDAQ cratered by 52. When will it stop? Who knows.

But here`s my issue. Talking panic creates panic. Yes, we`re going to dissect this mess right now, but let`s not make it worse by using words like the one Alan Greenspan used just yesterday, "tsunami." That scares the wits out of people.

There`s an old saying on Wall Street: if you`re going to panic, panic first. So those of us who haven`t already panicked and pulled out, perhaps it`s too late to panic now. But whatever you decide to do with your savings and your portfolio, just don`t do it in a state of hysteria.

The fact is when there is panic in the streets and the average American is selling at any price at all, that`s usually when those savvy, cigar-shopping sharks move right in and buy cheap. That`s one reason they`re rich.

Here to help us stay sane, Brett Arends, personal finance columnist with "The Wall Street Journal."

Brett, the stock futures were so ominous this morning some predicted the market would plunge today by 1,000 points. So should we be gleeful that stocks only dropped 312 points?

BRETT ARENDS, PERSONAL FINANCE COLUMNIST, "WALL STREET JOURNAL": Well, I don`t know whether gleeful is the right -- is the right answer. People are certainly running around at this point in a state of absolute hysteria. I think you put the -- hit the nail on the head there. Yes, we were looking at a really, really awful opening. It wasn`t as bad, as bad as that. But there`s no question.

Listen, a lot of people have been taking their money out of the market. There`s probably some hedge funds out there that have either blown up and forced sellers to pay back their debts or have simply been hit by redemptions. Clients have demanded their money back. And so they are again, forced sellers.

So some of this is essentially a -- something that starts on the markets rather than ends on the markets. It is a market effect. It could go on for some time. We don`t -- no one should try to predict the short- term movements in the market. No one also should pay too much attention. I know that it`s easier said than done. But to worry about one day`s movement or three days` movement or one week`s movement is not a good idea. You don`t want to panic.

VELEZ MITCHELL: I think everybody`s afraid of the big crash. Like the Great Depression. That one day when it dropped so far that people literally start throwing themselves out of windows. That`s what people are really worried about, not 312 points.

ARENDS: I agree but -- yes. If people are worried about a big crash, I suggest they look in the mirror. We have the rear-view mirror. We`re down 50 percent in a year. I`m amazed.

We hear these -- I mean, you were talking earlier about the media. And you know, people are talking about, well, the market fell because there are fears we might be heading into a recession. Hello! We`re almost certainly in a recession. And that would probably account for the fact that your average share is 50 percent of the price it was a year ago.

VELEZ MITCHELL: Well, you`re saying it is like the big crash, except it`s not happening on one day. It`s happening day after day after day. Just bleeding us.

ARENDS: That`s exactly right.

VELEZ MITCHELL: Now, there`s so many fears. There`s the mortgage fear. There`s the job loss fear. And there`s this global recession fear. Is that the one that`s really overshadowing everything else?

ARENDS: I`m sure we`re going to have some kind of global recession. We`re probably in it. You`ve got to realize that the world financial system essentially just had a heart attack. What happened in September and October seized everything up, and there`s been a lot of -- a lot of stuff, a lot of plans that were made that were put on hold. A lot of companies were unable to borrow.

VELEZ MITCHELL: I just warned about -- I just warned let`s not use words like "tsunami," but we switched to "heart attack."

ARENDS: It`s over.

VELEZ MITCHELL: Let`s get on to the good news. OK? Look, reports today that sales of existing homes rose by the largest amount in more than five years. Why is that not impacting the stock market positively?

ARENDS: Well, as I said, listen. You know, we may have forced liquidations on the stock market. We may have all sorts of things causing the sell-off of the last couple of days. And maybe people taking their money out of mutual funds. Don`t necessarily expect -- one of the things you will notice at the bottom of market is, you know, a lot of -- like good news may just be ignored. People are too busy focusing on the state of panic, on redemptions.

VELEZ MITCHELL: I want to jump in with a quick question.

ARENDS: Yes.

VELEZ MITCHELL: Credit was frozen. Now it seems to be loosening up a little bit. Shouldn`t that also cause the market to jump a little bit?

ARENDS: Yes. We should -- I mean, listen. I don`t ever want to try and either call the bottom of the market or predict the short-term movements. I am fighting the urge to say that we`re near the bottom. As I said a week ago, if I say that, I`m sure the market will fall another 1,000 points. But you know what?

VELEZ MITCHELL: And we`ve got it on tape. We`ve got it on tape.

ARENDS: We`ve gone a long way, gone a long way. There are lots of things you can do with your money. You don`t have to panic. Rebalance your portfolio is the smartest thing to do. Because everything`s down. Bonds are down, gold`s down, the whole shebang.

VELEZ MITCHELL: All right. Thank you so much, Brett. Good advice.

ARENDS: Pleasure.

VELEZ MITCHELL: We`re going to be back in 30 short seconds.

(COMMERCIAL BREAK)

VELEZ MITCHELL: Now the real outbreak. While people are being talked out of their homes on the streets, big-shot bankers are still raking it in. According to an ABC News report, some Wall Street firms, the very firms that are getting billions in taxpayer dollars as part of this financial bailout, may still hand out billions in executive bonuses. That`s right, "B," billions. That even though the bailout package has strict restrictions on executive compensation.

So how is this possible, given those restrictions? With me right now, a congressman who is fighting tooth and nail to hold these fat cats accountable, Ohio congressman Dennis Kucinich. You probably remember him from some of the earner presidential debates, because he was a candidate.

First of all, full disclosure. I know Dennis. I have supported him, because we have a lot in common. We are both committed to wiping out America`s obesity crisis. But beyond that, we are both determined to make sure these financial fatties don`t keep gobbling up all of America`s wealth.

Congressman, great to see you. How is it possible that these banks are going to take the tax dollars of American workers and hand them out by the millions and billions in the form of pay or bonuses to the very people who got us into this mess?

REP. DENNIS KUCINICH (D), OHIO: Well, the way the law was written, it wasn`t really tight enough to preclude this. I think -- I don`t think that Congress ever anticipated that money that was supposed to go for bailouts would end up going for bonuses and these executive pay packages. They were trying to keep a lid on the compensation, but of course, there`s a lot of other ways you can pay people in order to enhance their own personal bottom lines.

I voted against the bailout specifically because I felt that it was rewarding speculators and bad conduct. It was an unwarranted intrusion into the free market.

And so we end up in a situation where you hear about these bonuses, and it absolutely drives people crazy. Look at all the people losing their homes. Investors losing a lifetime of wealth that they worked to accumulate. And I`m asking Congress to get back into this. I`ve looked at it from the standpoint of my subcommittee, which is domestic policy.

And frankly, we`re in a race with time here. I`m going to need help. So I`m going to be communicating to Mr. Waxman, the chairman of the floor committee, to try to get the floor committee involved in this quickly so that we can put a stop to it. I mean, we`re going to need to stop this. We cannot let the taxpaying public...

VELEZ MITCHELL: How do you stop it, congressman? I mean, I want to take a look at some of these -- it`s unbelievable. Let`s put up this chart of the pay and bonuses for these banks.

For the first nine months of this year, Goldman Sachs. This is pay and bonuses, people. Thirteen and a half billion dollars. Morgan Stanley, $10.7 billion. Merrill Lynch, $11.2 billion. Citigroup, $25.8 billion. A total of $61 billion in pay and bonuses.

It`s like your head wants -- we were talking about AIG spending about $400,000, taking its executives to a spa and spending $23,000 on massages. That makes -- that looks reasonable compared to these billions being given to these guys for what? For doing a bad job and almost destroying their companies?

KUCINICH: We`ve got bailouts, partying (ph), bonuses. There`s clearly a culture of license and greed.

Meantime, the real economic problems of the American people are not being dealt with. You have millions of people who are facing the loss of their homes. I mean, it would be different if the government decided to buy a controlling interest in a mortgage-backed securities and work out something in terms of lower interest payments, lower premiums, stretching out the repayments on homes, keep people in their homes, prime the pump of the economy, get people back to work. We`re going to need to do that.

Actually, what this points out, Jane, is we`re looking at a flawed economic model here. You know, the tnethe he banks have been working off fractional reserve. They`ve been leveraging on money they don`t have, creating money out of thin air. This thing is imploding right now.

We need to have the government play a vital role, not to give money to speculators but through priming the pump of the economy and circulating money so it percolates up. The trickle never gets down.

VELEZ MITCHELL: I want to get back to this whole pay and compensation issue. New York attorney general Andrew Cuomo announced AIG is going to freeze $6 million that was set to go to executive compensation.

Why can`t we look at these banks, since we`ve given them money, and say, "Freeze. No Christmas bonuses in the billions going out, period. We`re the government. We gave you this money. You`re not going to spend it that way."

KUCINICH: Well, this is my intention. And I`m, you know -- I`m leading the way and trying to move Congress in a direction of taking action before the end of the year.

I`m confident the chairman of our floor committee, Mr. Waxman, who`s been doing a tremendous job on this, will be receptive to my request that we try to loosen up resources of the full committee to go after Wall Street...

VELEZ MITCHELL: I just want to jump in. We only have a couple of seconds. I just don`t understand this. I mean, why didn`t the government create restrictions that said, you can`t do this, when they handed the money to these banks?

KUCINICH: Jane, I voted against the bailout, because it was a nightmare from the beginning. It did not solve the problem. It rewarded speculators. It gave great license to the banks.

For example, banks are hoarding money. Some banks are using this money to buy other banks. I mean, that`s not what this was supposed to be about.

VELEZ MITCHELL: They were supposed to use the money to give out mortgages. But they`re hoarding the money, just like people who got the rebate checks were hoarding the money and nothing`s really happened.

I mean, this is -- we have to end it there, but we hope you come back. And we hope you`re successful in your effort to freeze these pay and bonuses from going out.

I mean, last thing. If we had gone into bankruptcy, if these banks had gone into bankruptcy, this wouldn`t be happening, right? Yes or no.

KUCINICH: Well, I mean, how could it? Because you know, the courts wouldn`t permit it.

VELEZ MITCHELL: Exactly. Well, Congressman, thank you so much. And again, keep us posted on your efforts to hold these guys, these fat cats accountable.

KUCINICH: Thank you.

VELEZ MITCHELL: Barack Obama continues to lead John McCain by a wide margin in the polls. But according to some reports the GOP, at least some, are already preparing for defeat. Unless, of course, John McCain has one last miracle hidden in his bag of tricks.

He has been counted out before. But a victory would be one of the greatest comebacks in recent history. We`re going to tell you what McCain needs to do to pull off a win.

(COMMERCIAL BREAK)

VELEZ MITCHELL: If you tuned into the political news at all today, you`d be forgiven for thinking that this election was already over. A CNN national poll has Obama leading McCain by eight points, and the "New York Times" says among likely voters, Obama leads McCain 52 percent to 39 percent. In other words, that`s a whopping 13 points.

So a lot of pundits, including some Republicans, are now saying it`s over, with McCain infighting in full swing.

I believe it was Mark Twain who coined that famous phrase, "The reports of my death have been greatly exaggerated," that after a newspaper published his obituary prematurely.

The media does have a tendency to get carried away sometimes. Is this one of these times? Are the widespread reports of an election being a done deal already greatly exaggerated? In a word, yes. It reminds me of a time a chess master indulged me by playing a game of chess with me.

When I was down to just two pieces, he spun the board around, took my place with those two places and then beat me in short order. We cannot predict the future.

So tonight we`re going to two Republican smarties: Amy Holmes, a CNN political contributor and former speech writer for Senator Bill Frist; and Leslie Sanchez, a GOP strategist and also a CNN contributor, with the big question: what the heck does McCain have to do, specifically, to turn this chess game around?

Leslie, let`s start with you.

LESLIE SANCHEZ, CNN CONTRIBUTOR: I`m glad we`re smarties, not smarty- pants. I appreciate that.

You know, it`s interesting. A couple of things. We know it`s going to come to a few of these battleground states. You`re also going to continue to see this election tightening. That happens historically in all of them.

But it`s a difficult challenge for Senator McCain to overcome. But it`s not impossible. There are -- it`s not even going to be falling on these economic policies, as much as the Democratic counterparts may disagree.

I think you know, you can get myriad -- it seems like a patchwork of solutions with very few people instilling tremendous confidence in the economy. I think some people say, let`s give another party a different chance.

But what they`re looking at, I think those few undecided voters, is going to be character. Who has the best leadership, the best experience, the best record to run on? As opposed to, you know, building a career like Barama [SIC] -- Barack Obama has on running a fantastic presidential campaign. You have somebody who`s so fundamentally different with Senator McCain...

VELEZ MITCHELL: I understand what you`re saying, but I`m trying to find out exactly how he is going to do this. The strategery [SIC], let`s say.

Let`s take a look at the electoral map, which -- if the election were held today, Obama would win with 277 electoral votes versus McCain`s 174. McCain`s advisers are saying the key to victory are reigning in key GOP states where Obama has more than a shot of winning.

Let`s take a look at six of them that are in play for Obama. We`re talking Florida. We`re talking Indiana, Missouri. We`re also talking North Carolina, and Ohio, and Virginia.

So taking a look at all of that, Amy, what specifically does McCain need to do to hang on to those states and keep his reliable red states?

AMY HOLMES, CNN CONTRIBUTOR: Well, he needs to campaign like heck. He needs to have fun so that his supporters have a reason to go out and vote. He needs those ground operations, get-out-the-vote efforts.

And he also needs to draw a contrast between himself and Barack Obama. What is the choice on election day? I would say that he needs to draw that contrast on economic policy and the fact that it seems Barack Obama wants to create middle-class welfare on the backs of small businesses.

I think when John McCain explains to the voters what his opponent has in mind for them, and then he also has to explain his own vision. What is he going to deliver? Why should he be put in charge?

We know that he has the leadership skills. We know he`s someone who has served his country heroically and with great acclaim. But still those undecided voters, they`re not sure.

I agree with Leslie. Part of the reason they`re not sure, because they`re not sure if Barack Obama is ready to lead. We have polling data that shows that. But John McCain, he has to show not only is he ready but here`s what he`s going to do.

VELEZ MITCHELL: Well, first, let`s take a look at McCain`s newest ad just out.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: Listen to Joe Biden, talking about what electing Barack Obama will mean.

SEN. JOE BIDEN (D-DE), VICE-PRESIDENTIAL CANDIDATE: Mark my words. It will not be six months before the world tests Barack Obama. The world is looking. We`re going to have an international crisis to test the mettle of this guy. I guarantee you it`s going to happen.

UNIDENTIFIED MALE: It doesn`t have to happen. Vote McCain.

(END VIDEO CLIP)

VELEZ MITCHELL: Leslie Sanchez, even Obama scolded Biden for saying that. Now is that possible that that`s the game changer McCain needs? That Biden handed them the key to this victory?

SANCHEZ: It puts a question in people`s minds. There`s no doubt about that. National security is definitely Senator McCain`s strength. And it talks about, I think, the fundamental reality that we know that there are threats to this country every day, many of which we don`t know anything about.

I don`t think we`re seeing what -- I think in fairness, I think Senator Biden was speaking as chairman of the foreign relations committee and not as a vice presidential candidate. He sees and has access to a lot of classified information. And I don`t think he wants to start a panic. That doesn`t help in a campaign, to move that. But it`s a very real concern: who has the leadership experience?

VELEZ MITCHELL: All right. We have to go but hang tight. We`re going to have you guys back in just a second.

Hillary Clinton hits the trail, and she hits it hard in support of Barack Obama. Can a little Clinton magic lock this thing up once and for all?

Speaking of being locked up, this woman definitely qualified to be behind bars. The truth finally revealed about her very, very, very bizarre claim.

(COMMERCIAL BREAK)

VELEZ MITCHELL: As we all know, Hillary Clinton lost the Democratic primary and there was bitterness, especially among her supporters. Many suspected Hillary would secretly pull for a McCain victory come November, perhaps paving a way for another crack at the White House in 2012.

Well, that shows you exactly how much or how little all those political talking heads know. As the past few weeks of campaigning have shown, in swing states like Ohio, Michigan, Florida, Pennsylvania, New Hampshire, and Nevada, Hillary Clinton has been a force of nature on the stump, drawing crowds and money. Not just for Barack Obama but for all of the Democrats running.

So will this cement her future as one of the most influential Democrats ever? Well, they don`t call it the Clinton magic for nothing.

CNN senior political analyst Bill Schneider has more.

(BEGIN VIDEOTAPE)

BILL SCHNEIDER, CNN POLITICAL ANALYST (voice-over): The marathon runner is back in the race.

SEN. HILLARY CLINTON (D), NEW YORK: We are 15 days from the finish line. This has been a marathon race.

SCHNEIDER: Hillary Clinton is out on the campaign trail, rallying the troops for Barack Obama.

CLINTON: Will you vote today? Go right from here to vote.

SCHNEIDER: And for Democratic House and Senate candidates like Al Franken in Minnesota.

CLINTON: Now, it said you can`t go home again. But for Al, I don`t think he ever really left. He certainly left his heart here in this state.

SCHNEIDER: Senator Clinton has reactivated her political action committee which contributes to Democratic congressional campaigns.

If Obama wins, it`s likely to shut down the Democratic nomination until 2016. If Obama loses, Clinton becomes the instant front-runner for 2012. Is it really incentive to Clinton`s interests for Barack Obama to get elected? The question came up at a bipartisan dinner last week.

SEN. JOHN MCCAIN (R-AZ), PRESIDENTIAL NOMINEE: I can`t shake that feeling that some people here are pulling for me. I`m delighted to see you here tonight, Hillary.

SCHNEIDER: Clinton may be making a different calculation: that Democrats are likely to enjoy a big victory this year. She wants it to be her victory, too. She`s bursting with ideas.

CLINTON: Jobs, baby, jobs. That`s what we`re for. With your help, America will once again rise from the ashes of the Bushes. Tell them Hillary sent you to vote for Barack Obama!

SCHNEIDER: Clinton lost the nomination, but she gained respect during the course of the primary campaign. Her favorability ratings went up. That doesn`t look like a loser.

(voice-over) If Obama wins, Clinton could become the leading force for Obama`s agenda in the Senate and possibly one day the first woman to become Senate majority leader.

Bill Schneider, CNN, Washington.

(END VIDEOTAPE)

VELEZ MITCHELL: Fascinating.

Meantime, as the election clock counts down, the kooks are coming out of the woodwork. Let`s get to the really fascinating stuff: the growing trend of campaign craziness. And I mean craziness across America. The lengths some people will go in support of their candidate will simply shock you.

This story you`ve got to see to believe. It involves a black eye and more.

(COMMERCIAL BREAK)

JANE VELEZ-MITCHELL, HEADLINE NEWS ANCHOR: Trooper-Gate, Kid-Gate, Fashion-Gate, Per-Diem-Gate; GOP vice presidential nominee Sarah Palin definitely seemed plagued by a lots of gates lately. While some of them were just heating up, others are resurfacing. You thought Trooper-Gate was over? Well, not quite.

Palin and her husband Todd, testified today in connection with the Alaska personnel panel`s probe into Trooper-Gate. This is the second inquiry into whether Palin improperly fired Alaska`s Public Safety Director allegedly because he wouldn`t fire her ex brother-in-law, who is a trooper, hence Trooper-Gate.

Remember the first inquiry found that Palin did not break any laws but did abuse her power. To me, that doesn`t exactly sound like a ringing endorsement of her behavior. Not surprisingly, Palin has a different take.

(BEGIN VIDEO CLIP)

GOV. SARAH PALIN, (R) VICE PRESIDENTIAL CANDIDATE: No, I don`t think that it was an abuse of power of my office at all. And I was very thankful that that report cleared me of any illegal dealings or anything else. I replaced the commissioner because he was not doing the job that I expect of my cabinet members.

(END VIDEO CLIP)

VELEZ-MITCHELL: All right, she may be overstating just a tad. She wasn`t entirely clear. Or was she?

Joining me now to discuss Trooper-Gate, the sequel, and all the other gates plaguing Governor Palin, CNN political contributor and Republican strategist, Leslie Sanchez and former speech writer for Bill Frist, Amy Holmes, who is also a CNN political contributor.

Amy, let`s start with you. Sarah Palin has been whizzing all over the country. Today she was in Pennsylvania outlining a government plan for special needs kids. But isn`t this hurting the campaign that one, she`s involved in all these gates, and two, she has to stop her campaigning in order to testify?

AMY HOLMES, CNN POLITICAL CONTRIBUTOR: You know, I don`t think this is hurting her campaign at all. In fact, I think it`s hurting the media`s credibility that they`ve been just digging into all of these frivolous cases. She was cleared of any wrongdoing in asking this guy if he wanted to be reassigned to the ABC board. He said he didn`t and he resigned from government.

The second investigative body she actually called herself because she wanted to get this thing done with. But here we are talking about Sarah and her clothes, Sarah and her daughters. Sarah and her baby, is it hers?

And we`re not talking about why is she a popular governor. What did she do as governor of Alaska that has been successful or not successful, depending on your point of view?

And instead we`re mired in this soap opera of Alaska and a brother-in-law who tasered his stepson. I mean, this is the kind of drama and soap opera that Americans today throw up their hands and say, how come we can`t get any real information?

VELEZ-MITCHELL: So Leslie, there are rules. There are rules that the Governor is supposed to follow. There are regulations. There are laws. And when somebody`s pushing the envelope on these, it`s going to create controversy.

For example, let`s talk Kid-gate. An AP investigation claims Palin charged $21,000 of her children`s travel expenses to the state including a trip to New York with her 17-year-old Bristol for a five-hour conference.

Those plane tickets cost $1,300 and they stay for four nights at a luxury hotel. Now, Palin`s spokesman defended Palin`s actions saying quote, "There`s an expectation the first family participates in community activities. They are representing the first family of the state of Alaska."

But Leslie, the kids were not invited to some of these events.

LESLIE SANCHEZ, REPUBLICAN STRATEGIST: You know, I think the bottom line is you have to look at it in the whole. Ed Henry from CNN reported it very well. He talked about in comparison to the previous Governor who spent $500,000 on this type of travel that her family and her travel amounted to about $100,000, it was a lot less. And also, there`s nothing in the rules that specifically says she can`t do that.

So it`s a question of judgment. It`s a question of many times that the family members are onstage with her at part of those events.

You`ve raise an interesting point. It`s always one of these things you have to look with a jaundiced eye. Is it something that you`re going to have to go back and explain later?

If it is, then you tend to counsel your candidates or you`re elected officials to err on the side of caution so that it`s not questioned and raises any doubt.

VELEZ-MITCHELL: Well, let me just say this, the former governor who lost to her, a Democrat named Tony Knowles and he lost to Palin in 2006, says he never charged the state for his three kids` commercial flights.

Now, we could debate that all night, but I just want to get that in there.

I think Amy, the question is, she`s presenting herself as a maverick who`s fighting pork barrel, who`s fighting for the people against government waste. And the theme under these seems to be government expenses.

HOLMES: But I think Leslie`s exactly right. If you compare it to previous government expenses, I mean, Joe Biden has gotten away with this line that he only takes Amtrak home from the Senate.

Amtrak is expensive. If you actually look at his daily expenses it`s over $300 very often to be in business class on Amtrak. And as far as taking her daughter to New York, I thought the Democrats and Liberals used to be for "take your daughter to work day," to include your daughter in seeing how her mother is out there as a public figure, a successful public figure --

VELEZ-MITCHELL: Yes, apparently it was one of them was to go to a snowmobile --

HOLMES: It`s all such a distraction to me from the question of who are we going to be electing in one week to be commander-in-chief: John McCain or Barack Obama? And instead of talking about that, we`re going on and on about Sarah Palin.

Yes, she`s great for TV, she boosts ratings. "Saturday Night Live," they`ve never had better ratings than when they started mocking her on their weekend shows. But are we really getting anywhere, with informing the American people about the choices before them? Honestly, I don`t think so.

VELEZ-MITCHELL: There`s something to be said about, there was a very orchestrated attempt to savage this woman in the media, and to talk about all of these types of things. This is not unfamiliar -- un-similar to what Hillary Clinton faced when she first came on the national stage.

For a variety of things, they talked about her hair, her clothes, her pantsuits, and all these different things. This is something that happens with new candidates, we know and expect that.

But I think there`s very little discussion about the fact she has been a reformer, her entire career as mayor. Even if you look at the fact when she first came on the national scene, the Democrats would referred to her as a mayor and didn`t acknowledge the fact that she was a governor --

SANCHEZ: You`re exactly right.

VELEZ-MITCHELL: So Leslie, are you saying it`s the Democrats or it`s the sexists?

SANCHEZ: Good question. Well, both.

HOLMES: It`s the Democrat sexists, how about that.

SANCHEZ: The truth is, it had an effect, this media. There`s a report that came out a couple of days ago, talked about 7 to 1 is the ratio of negative ads about John McCain and Sarah Palin, compared to Senator Barack Obama.

It has an impact especially when you`re getting to know a new candidate on the stage. Her negatives are a lot higher. You have a lot of Republicans and Conservatives who are now kind of not knowing who the leaders are going to be of this party and now and in the future. And that`s some words that the Republicans are going to have to do to clarify.

VELEZ-MITCHELL: Well Amy, first of all, I agree with you that it would be better to be discussing issues. Her stand on -- of all the issues that are important particularly her cultural issues. I, mean, reportedly she believes in teaching creationism in public schools --

HOLMES: That`s not true.

VELEZ-MITCHELL: That`s not -- ok let`s clarify that one.

HOLMES: No, that`s not true. And she actually clarified. She thought that if the issue comes up, that it should be discussed. But she in no way has made any efforts to have creationism taught in Alaskan public schools.

Again, we have all of these -- and this came out in the first week. A lot of these things that were false; they got their legs. They ran around. Halfway around, what is it a lie halfway around the world before the truth gets its boots on. A lot of that happened to Sarah Palin.

I think, in part as Leslie said it`s because she`s new. People don`t know a lot about her so you can fill the void with a lot of negativity that`s unfair and I think vicious.

VELEZ-MITCHELL: And the question is --

HOLMES: But I think it`s also that we have a fascination with women in the public eye, its women who sell the covers of "Us Weekly" every week.

VELEZ-MITCHELL: That`s true.

HOLMES: Did she get dumped, divorced, who`s she pregnant with, who she`s dating. And I think that there is a gender component to that and that Sarah Palin has been caught in those crosshairs.

SANCHEZ: Well, it`s exactly true. When she first came out that very first day, the questions were, can she be a mother, a leader, a governor, a vice presidential candidate with a child with special needs? It was a very sexist comment. And those were the types of things that were surrounding her candidacy and her introduction to the national scene.

VELEZ-MITCHELL: We`ve got to leave it right there but you`re absolutely right; politics makes for strange bedfellows. And suddenly you have the feminist on the liberal side saying, she can`t do it all, which is they`ve been trying to get women to be able to do for decades.

Thank you both, Leslie, Amy.

SANCHEZ: Thank you.

VELEZ-MITCHELL: One quick programming note, shocking new evidence in the case of missing Florida toddler Caylee Anthony. Coming up in the next hour, authorities have been investigating the strange disappearance since the little girl was reported missing by her grandmother in July.

Caylee hasn`t been seen alive since June. The latest evidence is grim and it is breath-taking. I`ll be filling in for Nancy Grace tonight and you cannot miss these new bombshells. That`s coming up right after this program at 8:00 p.m. Eastern.

VIRGINIA CHA, HEADLINE NEWS CORRESPONDENT: Hey there, Virginia Cha with your "Headline Prime Newsbreak."

Watch the pump. Gas prices may drop again as oil prices continue to fall Friday, that`s despite a decision by OPEC to cut production by 1.5 million barrels a day. Now, analysts say buyers are more concerned with falling demand than with its availability.

The judge in Senator Ted Stevens` corruption trial ordered a halt to jury deliberations Friday, to accommodate a juror whose father died and to give the panel a break. Stevens is accused of lying to hide gifts from an oil contractor. And now politically he`s in a tight race with his Democratic challenger back in Alaska and now he may not get a verdict before Election Day.

Students at a suburban St. Louis High School are being tested for HIV. A person who tested positive for the virus told health officials that as many as 50 teens may have been exposed. But officials are refusing to give any more details from that.

That`s the news for now. Stay with us, we`ll be back.

I`m Virginia Cha.

(COMMERCIAL BREAK)

VELEZ-MITCHELL: All of us were horrified yesterday when we learned that a McCain volunteer said she was attacked by an Obama supporter who robbed her, beat her, and then scratched the letter "B" backwards into her face.

Well, today we are not as shocked to learn that she made this whole story up. After pointing out some inconsistencies in her story, Pittsburgh police say 20-year-old Ashley Todd admitted to fabricating the whole thing. She is now being charged with filing a false report.

Joining me now, Jerome Sherman, a reporter from the "Pittsburgh Post Gazette" who has been following the story since it broke. And you might say it was always broke.

Jerome when did the police first realize something was a little bit fishy with Todd`s story? Was it perhaps the backwards "B"?

JEROME SHERMAN, PITTSBURG POST GAZETTE: Well, I think that there were a lot of suspicious things from the get-go. When police initially went to her friend`s house some Wednesday night to see what had happened, after her friend had called police, she was very belligerent with police.

They asked her where did this take place and she said, I don`t know, I`m not from here. They drove around until they saw -- until they saw this ATM machine, she said this is where it happened. The police officer asked her if she wanted medical attention, she declined.

And then the next day, she went in for an interview with a robbery detective. She was there for about five hours. They gave her a polygraph test.

At that point she added details that she didn`t give to the initial officer who investigated what happened. She said that she was also sexually assaulted. She said that she was briefly unconscious. And that she was missing money but she didn`t remember him taking the money from her.

VELEZ-MITCHELL: And how did she describe her assailant, who we now know does not exist?

SHERMAN: She described him as a 6`4" black man, about 200 pounds, and medium build. It was a description that was similar to a suspect involved with some past robberies in the area. It`s possible that she heard about that description and maybe thought she would use it.

VELEZ-MITCHELL: And did she believe or did she claim to police that this was an Obama supporter who attacked her? And what was her evidence of being a McCain supporter or volunteer at the time? Was it a pin, was it a bumper sticker?

SHERMAN: When she was at the ATM machine, she told police that when she walked away from the ATM machine after this robber had approached her she started heading back to her car. He noticed that her car had a McCain sticker on it. He became enraged, pushed her to the ground, started punching her. And the story that`s been inconsistent, but said something that, you need to support Barack and at that point then he carved the "B" in her face. And --

VELEZ-MITCHELL: I`ve got to jump in and ask you, is this is a real black eye or is this a makeup? What is this?

SHERMAN: Yes, I`m not sure. And it looks like -- her friends -- I spoke to one of her friends this afternoon. And when she came over after the incident, she called to this friend of hers, she was very upset, came over. It looked like to him that she had been beaten up. They didn`t think -- they didn`t question her initially.

And if somebody says that they`ve been attacked and mugged your initial instinct is to not question them, to want to figure out what happened and get try to get help for the person. So it didn`t.

VELEZ-MITCHELL: Well, you could see somebody actually doing that to themselves in terms of carving. But you have to really punch yourself in the eye to create a black eye like this.

SHERMAN: Yes.

VELEZ-MITCHE: This is bizarre.

Ok, thank you so much. Good work, good journalism there, getting that story and busting it up wide open.

All right, call me insane. Actually, don`t call me insane. But doesn`t it seem like the crazy-meter is ramping way up as we skid towards Election Day? And it strikes me that this presidential campaign in particular seems a little more cuckoo for coco puffs than usual.

Campaign signs are being vandalize and stolen, protesters are jumping in front of Palin`s motorcade. People are ranting into cameras and then posting them on YouTube. What is it about this particular election that is getting the lunatic fringe so fired up?

With me now, a political psychologist Jeff Gardere. Jeff, why would a woman either carve a backwards "B" into her face or presumably allow somebody else to do that along with possibly punching herself or allowing somebody else to punch her in the eye? And is there a clinical diagnosis for this type of behavior?

JEFF GARDERE, CLINICAL PSYCHOLOGIST: Well, I like to say, Jane, I may not know karate but I know crazy. And this woman, this woman certainly does have some issues it appears to me.

But I think we have to look beyond what this woman has been doing. Some of the other things you referred to; people jumping in front of buses; people acting out at rallies and so on. And I think what`s going on with this particular campaign is that people are afraid.

People are afraid of a tremendous amount of change that may come, either with a black president, or if looking at the economy, the possibility that banks may be taken over by the government. The cash infusion in exchange for equity and that we may soon have a socialist type of government.

And I think all of these things bring out a lot of fear and anxiety in people and a lot of inappropriate behaviors.

VELEZ-MITCHELL: Maybe the stock market crash and the financial melt-down is why she pretended all this happened in front of an ATM possibly.

But I want to go back to this woman with the "B" backwards on her face and the black eye. Because she described her assailant, whom we now know does not exist, as being a very tall, 6`4" black man. Race is a factor in this election. Give us some insight into why she chose to make that description.

GARDERE: Well, I think if we all remember, there was a situation where a woman put her kids in a car and the car rolled into a lake.

VELEZ-MITCHELL: Oh yes, Susan Smith.

GARDERE: Yes and what happened was she said it was a black man who did that. And we`ve seen this before and heard of it before. A 6`4" black man is the biggest nightmare for any person, black, especially white; and so we know that race has been a real issue in this particular campaign.

Obama doesn`t want to talk about it because it`s such a big issue. But I think in many ways, people don`t want to talk about race in this particular country. It`s a really tough thing to bring up.

VELEZ-MITCHELL: But I think that what you`re saying is a valid point is that there are lot of emotional triggers in this particular election. Race is one of them. Gender is one of them. Geography is another one. Obviously the war, and then the fear about the economic collapse. I mean, that really stirs up a cauldron of crazy emotions.

GARDERE: Yes, absolutely, but again you`re right about this. At the foundation of all of this is this issue of race. All of the pundits have talked about -- hey listen with these failing economy with George Bush being described as one of the worst presidents we`ve had in modern times, why is it that this particular Democrat, Barack Obama, doesn`t have a wider lead?

Some are saying a few points, some are saying, 10 points, but it`s an issue. Race is an issue.

VELEZ-MITCHELL: We have a very little bit of time. What`s going to happen after Election Day on the losing side? Are we going to see real craziness?

GARDERE: I think we`re going to see this issue of race being addressed in a real way. If Obama wins, then it`s got to be something that`s inclusive where we can talk about it. If McCain wins, then these issues of race must be resolved, must be part of the American discussion.

VELEZ-MITCHELL: And we must leave it right there. Jeff, thank you so much for your insight.

GARDERE: Thanks Jane.

VELEZ-MITCHELL: Now, thankfully, not all the craziness surrounding the president campaign is so frighteningly bizarre. Some of it just kind of makes you wonder.

Up next, we`re going to tell you why even the candidates or perhaps especially the candidates have left us scratching our heads in amazement.

(COMMERCIAL BREAK)

VELEZ-MITCHELL: And now, more strange behavior on the campaign trail.

Here is CNN`s Jeanne Moos, with her latest installment of weird.

(BEGIN VIDEOTAPE)

JEANNE MOOS, CNN CORRESPONDENT: Candidates say the darndest things. Take Sarah Palin speaking after country star Gretchen Wilson, serenaded a crowd about what kind of woman she is.

GRETCHEN WILSON, COUNTRY STAR: Red neck woman.

PALIN: Someone called me a red neck woman once, and you know what I said back? I said, why thank you.

MOOS: Governor Palin is probably fed up with the press, but at least she hasn`t sneezed on us.

SEN. BARACK OBAMA, (D) PRESIDENTIAL NOMINEE: It should be the banks taking -- I`m sorry.

UNIDENTIFIED MALE: Bless you.

OBAMA: I was fighting that off for a while.

MOOS: Not only did Senator Obama sneeze, he then reached out and touched the poor reporter. The video is spreading faster than germs on the web, as is this photo of the Senator with holes in his soles.

Obama`s VP soul mate has some trouble with their opponent`s names.

SEN. JOE BIDEN, (D) VICE PRESIDENTIAL CANDIDATE: John McLean -- excuse me. John McCain.

MOOS: We know John McLean, senator, from "Die Hard" and McCain, you`re no McLean. From "Die Hard" to "007", "Parade" magazine have to asked actor Daniel Craig, which candidate would be the better boss? And Craig said Obama, and McCain would be a better "M." Craig said McCain has a kind of Judy Dench quality.

Meanwhile Sarah Palin told "People" magazine that if she had another child, joining the ranks of Trig and Piper and Track, she would have him name Zambony. What, not Joe the Plumber?

SEN. JOHN MCCAIN, (R) PRESIDENTIAL NOMINEE: Joe over here. Thank you, Joe. Joe thank you, there`s Joes.

OBAMA: He`s fighting for Joe, the hedge fund manager, Joe the CEO.

MOOS: The Joe the Plumber costume is big on Ricky`s Halloween Website though it doesn`t amount to much more than a bald cap, a plunger and a name tag.

We thought you might like to take a look at our few of our favorite campaign souvenirs.

For instance the Obama and McCain gargoyles and this are the designer Obama underwear. Cap`n McCain`s and Obama old cereal, custom cereal, 39 bucks a box. And speaking of boxes; Barack in a box.

Reminds us of that 13-foot puppet an I-reporter sent in, intended to encourage early voting in Cleveland, Ohio. It looks like he`s had his Wheaties or maybe his Obama O`s, "Hope in every bowl" versus "a maverick in every bite."

Jeanne Moos, CNN, New York.

(END VIDEOTAPE)

VELEZ-MITCHELL: Funny stuff. I`m Jane Velez-Mitchell, and I just trying to keep it real.

See you Monday. I`ll have some more "ISSUES" for you.

END

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