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Obama Announces Crucial Choices for Administration; Eyeing the Next Bailout; Interview With Former Commerce Secretary Bill Daley

Aired November 24, 2008 - 16:00   ET


MILES O'BRIEN, CNN ANCHOR: Happening now, America's economic future may be in their hands. President-elect Obama announces crucial choices for his administration, but he's not revealing much about what they'll do once they're in office.
Also this hour, campaign promises versus cold, hard realities, what President Obama and the rest of us may have to live without.

And Michelle Obama's role as first lady. Will the Ivy League- educated lawyer be anything like Hillary Clinton?

Wolf Blitzer is off today. I'm Miles O'Brien. You are in THE SITUATION ROOM.

We begin with breaking news. Another wild day on Wall Street, this time on the upside to the tune of about 350 points. This, after a crucial announcement from the president-elect today.

It's time to meet the president-elect's choices to run the economy. Are they up to the historic challenges? They have a tough assignment, to say the least -- rescuing the financial system, saving corporate giants, and maybe your job and your home.

Our White House Correspondent Ed Henry is covering the transition in Chicago. Ed, the names weren't surprising. We've been hearing about them. But we still don't know an awful lot about the plan, do we?

ED HENRY, CNN WHITE HOUSE CORRESPONDENT: That's right, Miles. For the third straight day, we heard the president-elect and his advisers hint at a massive economic stimulus plan. But for the third straight day, they still offered no details about what will be in it or how they'll pay for it.


HENRY (voice-over): President-elect Barack Obama is trying to have the best of both worlds, first using his bully pulpit to suggest he's all over the financial crisis.

SEN. BARACK OBAMA (D-IL), PRESIDENT-ELECT: That work starts today, because the truth is we do not have a minute to waste. Right now, our economy is trapped in a vicious cycle.

HENRY: But when pressed on the details of his stimulus plan, he falls back on the notion that there's only one President at a time. OBAMA: I don't want to get into numbers right now. Part of the task of this economic team behind me is to help to shape the details of that plan.

HENRY: The president-elect is also hedging on how quickly to honor a campaign promise to raise taxes on the wealthy. He can push a law to overturn the Bush tax cuts in January or let them expire at the end of 2010.

OBAMA: Whether that's done through repeal or whether that's done because the Bush tax cuts are not renewed is something that my economic team will be providing me a recommendation on.

HENRY: He's leaving the details to his new money team: Tim Geithner, head of the New York Fed, who's now in line for treasury secretary; Larry Summers, who get policymaking power inside the White House as head of the National Economic Council; Christina Romer, who will handle research and analysis at the separate White House Council of Economic Advisers; and Melody Barnes, director of the Domestic Policy Council.

OBAMA: And in the coming weeks, I will provide the American people and the incoming Congress with an overview of their initial recommendations.

HENRY: While team Obama fine-tunes its plan, the president-elect is lashing out at the big three automakers for not having one of their own before seeking a bailout.

OBAMA: I was surprised that they did not have a better, thought- out proposal when they arrived in Congress.


HENRY: Now, the president-elect said he still wants to help the automakers, but they can't get a blank check. Some Republicans on Capitol Hill are saying the same thing though about Mr. Obama's stimulus plan. Senator Jim DeMint of South Carolina saying if the price tag runs up to $700 billion, it could run the nation over a fiscal cliff.

And I can tell you, we'll be pressing, though, Mr. Obama on the details about all this tomorrow. Just announced in the last few moments he's having a press conference here in Chicago 12:00 noon Eastern -- Miles.

O'BRIEN: I suspect there'll be a lot of economic questions at that session, to say the least.

HENRY: You can bet.

O'BRIEN: Ed Henry, thank you very much.

The Obama transition team and the Bush administration say they're working closely on economic matters, including the new bailout of Citigroup. The federal government moved late yesterday to inject another $20 billion into the banking giant and guarantee about $300 billion in risky assets. Here's what President-elect Obama said about that today.


OBAMA: I spoke with President Bush today. I spoke with Chairman Bernanke today. And let me repeat, we have to do whatever is required to keep the financial system working and capital flowing.

That's not important just for the banks. It's important for our entire economy. It's important for small businesses and large businesses alike. It's important for their employees. It's important for retail sales.

So my commitment is to do what's required so that our financial system works and credit flows. President Bush has indicated that he has the same approach, the same attitude. A lot of authority has already been provide to the administration, to Secretary Paulson. Chairman Bernanke has authority, as well. And we need to make sure that that authority is used forcefully in the coming weeks to stabilize the current situation.


O'BRIEN: We'll bring you all of the president-elect's remarks in the 6:00 p.m. Eastern hour of THE SITUATION ROOM. Stay tuned for that.

President Bush today is defending the decision to bail out Citigroup. He suggests that he and Treasury Secretary Henry Paulson might step in to stabilize other financial institutions before their time in office runs out.


GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: Secretary Paulson is working closely with the president-elect's transition team. It's important for the American people to know that there is close cooperation. It's important for the American people to know that we will safeguard the financial system as the first step necessary for economic recovery.


O'BRIEN: Let's bring in CNN Chief Business Correspondent Ali Velshi. Ali, this bailout of Citigroup, was this one necessary?

ALI VELSHI, CNN CHIEF BUSINESS CORRESPONDENT: Yes. In fact, the reaction that you're seeing on major markets today has got more to do with Citigroup than it does with the new economic team, and that is because this is considered a systematically important bank. It has so many tentacles out there.

And here's the key, Miles. What the Treasury and the Fed and Citigroup did over the weekend, despite all the problems that Citigroup has had, and despite the fact that they already got a $25 billion bailout out of the original bailout program, is that they figured out how to stop a big bank from failing. And I think that is what the market is satisfied with at this point, that if this happens to another big bank -- and Citi was one of the more at-risk banks -- if it were to happen again, there's a method now that will be carried through into the new administration for how to give them money in a way that seems to help.

And there are conditions attached to this, Miles. The bank will have to limit its executive compensation and any golden parachutes it's got. It's got to make sure that this money is not used for dividend payments to shareholders. It's actually used in some cases to renegotiate mortgages with troubled mortgage owners. So that's a big part of the deal here.

When you started the show a few minutes ago, the Dow was up about 350 points. It's now up close to 400 as it settles in. That's typical after the trading stops.

This will be the biggest two-day point gain on the Dow ever, the biggest two-day percentage gain on the S&P 500 since 1987. So this is a very, very positive market reaction to the fact that they think that they've handled the Citigroup situation well, the government has, and they think that this Obama economic team is solid.

But as you pointed out when you started, Miles, the team is in place. And there are a lot of people who think this is an excellent team. What's the game going to be? What's the strategy? How is this going to play out to help jobs -- create jobs and solve this credit crisis? -- Miles.

O'BRIEN: Yes. People want to know what the game plan is. I'm sure there'll be a lot of questions on that tomorrow when Obama meets with the press. The housing crisis, of course, Ali, is at the root of all this.

VELSHI: That's right.

O'BRIEN: Let's talk about some numbers now. Take a look at this.

VELSHI: All right. So we've got numbers out on existing homes. There are two kinds of homes, existing homes and new homes.

At this point, existing homes used to be about 85 percent of the market. They're a much bigger part now because we're not building a lot of new homes.

Back a year ago, in October of 2007, an existing home, the median price was $206,700. Now it's down more than 11 percent, to $183,300. That's generally speaking bad news, Miles.

But the good news in this is, as interest rates stay low and home prices come down, you might see people start to get into those homes. We've seen sort of scant evidence of it across the country, but that's what could cause us to come out of this thing. If people start to say, hey, that's a good price for a house and I can still get a mortgage for about 6, 6.5 percent if I've got good credit, that's exactly what we're looking at.

That might start to signify a bottom. But we don't have evidence that that's happening yet -- Miles.

O'BRIEN: There's still an awful lot of nervous people. What about further bailouts? Where could we see possibly additional bailouts?

VELSHI: Well, you know, in terms of industries, obviously, we still have problems in the banking industry. We're still obviously discussing the auto industry bailout.

The housing industry is now formulating a plan that says they need stimulus in order to get going. The bottom dropped out of new construction. And by the way, that's a big employer, because that -- you know, existing homes don't really employ anybody but a real estate agent. New homes employ construction workers.

So this is the problem the government's getting into. At what point does this stop? And fundamentally, Miles, the question most people have is, where is the bailout for troubled Americans? Where's the bailout for all of us? So this is -- there's a lot of people in line for bailouts.

O'BRIEN: All right. Everybody wants to know, where's my bailout? All right. Ali Velshi, thank you very much.

It may seem a little like roulette, who gets a bailout who, doesn't. Here's some of the stats that may have helped Citigroup seal it's deal. It's big, and we mean really big, with more than 200 million customers in more than 100 countries. Two hundred million customers.

It's hemorrhaging jobs; 75,000 positions have been slashed in the past year, about 20 percent of its workforce. And its stock is tanking. A year ago, Citigroup closed at about $31 a share. Today, trading of Citigroup opened a little over $6 a share.

Time now for "The Cafferty File." Jack Cafferty, a lot of people watching this program probably a little depressed right now. Lift our spirits, will you?

JACK CAFFERTY, CNN ANCHOR: Let me put a little more frosting on this...

O'BRIEN: All right.

CAFFERTY: ... whatever it is you're working on here.

A top economist at the International Monetary Fund told a Swiss newspaper over the weekend the worst of the financial crisis is still in front of us. Olivier Blanchard (ph) went on to say things are not going to start to get better until 2010 or later.

The comments came before the government threw the lifeline overnight to Citigroup. President Bush also left the door open for aid to other banks and financial institutions considered too big to fail should they find themselves in the same spot.

But are bailouts and loans, ones that taxpayers are ultimately on the hook for, really the answer? We're in the midst of the worst financial crisis since the Great Depression. Try these stats on for size.

Twenty-three trillion dollars, or 38 percent of the value of all of the companies in the world, has been wiped out. Three of the biggest Wall Street firms have been brought down. Investors, homeowners, the auto industry, job seekers, everywhere you look, people are suffering.

Americans have high hopes for the new president and his administration in January, but even President-elect Obama said today -- quoting now -- "The economy's likely to get worse before it gets better."

So here's the question: Do you believe the worst of the financial crisis lies ahead? Go to, post a comment on my blog.

The one thing you sense though is that there is great confidence surrounding, so far, the people that President-elect Obama is selecting to try to handle some of this. That's why the markets are doing what they're doing.

O'BRIEN: Yes. The real issue though is the expectations. You know, could the expectations be too high? And that team has to deal with that issue. All right. Jack, we'll see you in a little bit. Interested to see what people say.

Pass the turkey and the political ads. Guess what some Republicans are thankful for this week?


UNIDENTIFIED MALE: A grateful nation wishes to say...

UNIDENTIFIED FEMALE: Thank you, Governor Palin.



UNIDENTIFIED FEMALE: Thank you, Governor Palin.


O'BRIEN: Some Thanksgiving food for thought as a defeated party considers its future.

Plus, she's promised to be a mom first, but how will Michelle Obama use her brains and influence within the White House?

And President-elect Obama wants to pump more cash into the economy. I'll ask a top Obama adviser, former Commerce Secretary Bill Daley, where the money is going to come from.



O'BRIEN: Barack Obama's economic team is taking shape with several key important members named today. The president-elect is quick to note that the Bush administration still is running the show, but it is a transition. It's kind of a tricky time right now.

Joining us is Obama economic transition adviser, the former commerce secretary, Bill Daley of the Daley family of Chicago. Mr. Daley, good to have you with us from very cold and windy Chicago.

Let's try to figure out right now how much of what we're seeing is coming strictly from the Bush administration and how much is with the consultation of the transition team, President-elect Obama and his team.

BILL DALEY, OBAMA ECONOMIC TRANSITION ADVISER: There has been quite a bit of coordination and discussion between -- consultation between the president's team and President-elect Obama's team. The truth is, the transition ordered by President Bush has gone very smoothly.

Josh Bolten, his chief of staff, has been running a very straightforward, complete, great cooperation, not only in the economic area, but in all sorts of agencies that the new administration will have to go into and get a very good sense of exactly what's gone on in the agencies. And then as the team of President-elect Obama and Joe Biden move in, that they're up to date on exactly what's going on. So it's going very smoothly.

Obviously, there's been a lot of consultation over the last almost three weeks by the administration and President Obama's team on the economic difficulties. And the president-elect himself has spoken to Secretary Paulson and to Chairman Bernanke quite a few times.

O'BRIEN: Who is driving the bus? Who should be driving the us?

DALEY: Well, the bus has to be driven by the president and his administration.

O'BRIEN: Does that make sense right now though?

DALEY: Yes, it does. You can't have two governments at once. The transition, this is a -- we have not seen this sort of thing where you have a crisis. We've had military difficulties, foreign affairs problems during transitions in the past, but never an economic crisis like this.

But there is one administration. The Treasury Department and the Federal Reserve are moving forward with programs. They do it in consultation.

As President-elect Obama said he will stand and his administration will stand the behind the decisions of this administration. So there should be no question commitments that are made will be lived up to. But what this transition does give the incoming team, an opportunity not only to bring a new team together -- and it does take more than four people to build a team -- but also gives them time to look at what's working, what may need to be changed, as they prepare to take over in less than 55 days from now.

O'BRIEN: All right. Let's talk about all these bailouts. It's $700 billion-plus others, plus what happened with Citigroup. I'm having a hard time. I certainly don't have enough fingers in all this. The president-elect has said let's have another stimulus package. Aren't we broke already?

DALEY: Well, look, we have a deficit problem, obviously. It's a tremendously large number. But most economists, whether you're a liberal or conservative, all agree that if you're going to do a stimulus, or an economic recovery package next year, you can't pay for it at the same time. That just has not been a stimulus.

So there's no question, as the president-elect said, we've got to deal with the long-term deficit over a very long term, but the immediate needs of the American people have to be addressed. And the government is the only one that can step up and take the sort of action that you saw today by the Treasury Department. So no one likes doing this.

O'BRIEN: How long can we keep going in hock though? I mean, we're going deeper and deeper in hock. It makes a lot of people nervous.

DALEY: Well, it should make all of us nervous, but the alternative is worse. To allow the financial system to go down would have obviously a devastating impact on the average American, and that can't happen.

But my sense is that everyone -- no one likes to see any of these bailouts. The shareholders of these companies that have cratered sure don't like the position they're in, the employees don't like it. The overall -- the government doesn't like it.

No one would -- we would all like to see no need for bailouts. But the government is the only one who can step up at this sort of crisis that did take us a long time to get into, and it will take us a long time to come out of.

O'BRIEN: Bill Daley is with the Obama transition team. Thanks for your time.

DALEY: Good, Miles. Take care.

O'BRIEN: Who will replace Joe Biden in the Senate when is he sworn in as vice president? We have word his successor has been picked. We'll tell you who it is in just a moment.

And you've been hearing about the pilot hijacking of a ship near Africa, but you may be surprised who's promising to get involved. How the pirates might be tied to terrorists.



O'BRIEN: Happening now, the president versus the president- elect. With so many competing ideas on how to fix the economy, is there a power struggle between President Bush and Barack Obama?

A cause for celebration, a cause for concern. What could happen at the presidential inauguration? Find out how security officials are leaving nothing to chance.

And the fate of U.S. troop presence in Iraq hangs in the balance. Now there are suggestions that Iran is bribing Iraqi politicians over a proposal to get U.S. troops out of Iraq so Iran can wield more influence.

Wolf Blitzer is off today. I'm Miles O'Brien. You are in THE SITUATION ROOM.

Now that Obama last named top members of his economic team, should his pick for treasury secretary immediately come in and Henry Paulson immediately go out?

Our Senior Correspondent Allan Chernoff joining us now.

Timothy Geithner is obviously a popular choice on Wall Street because he's kind of the home team guy. Is this an idea that has a lot of the traction?

ALLAN CHERNOFF, CNN SR. CORRESPONDENT: It's not. But it is an idea that has been floated out there. And this is partly because of Geithner's record, the fact that he's very popular, but it's also partly because of the performance of the current team.


CHERNOFF (voice-over): At a time of economic crisis, President- elect Obama's pick of Timothy Geithner to be treasury secretary is highly celebrated.

PROF. JEFF FRANKEL, HARVARD UNIVERSITY ECONOMIST: Tim Geithner is the right guy. I mean, he has long experience with dealing with financial crises.

CHERNOFF: "New York Times" columnist Thomas Friedman even suggested Geithner take over Treasury early.

THOMAS FRIEDMAN, "NEW YORK TIMES" COLUMNIST: We're supposed to sit around now for two months and wait for the new administration to get in position? This administration has kind of checked out.

CHERNOFF: That sentiment reflects frustration with current Treasury Secretary Henry Paulson's flip-flopping through the financial crisis. Paulson lobbied hard for Treasury to gain $700 billion to buy troubled mortgages from bank, then abandoned the plan. That accelerated the crisis facing Citigroup, a major owner of mortgages, and helped force today's bailout of the bank. Geithner, economists say, should know better than to cause such uncertainty for the financial markets.

AMITY SHLAES, SENIOR FELLOW, COUNCIL ON FOREIGN RELATIONS: Secretary Paulson was -- was making it up as he went along, wasn't very clear about the rules.

CHERNOFF: Another contrast: Paulson spent his career at Goldman Sachs, rising to chief executive. Geithner has no allegiance to any Wall Street firm. He's a product of the Treasury Department, where he spent years handling financial crises around the globe.

Even Secretary Paulson expressed admiration of Geithner saying today, "I have great confidence in his understanding of markets, his judgment, and leadership."


CHERNOFF: But there is no reason to think that the current treasury secretary is going to give up his job anytime soon. Indeed, we should note that Mr. Geithner has been a consultant to the Treasury in the entire bailout. And, come January, he will be the man on the Treasury hot seat -- Miles.

O'BRIEN: So, he's been -- he's been there right there at the center through -- all these -- this turmoil.


O'BRIEN: Are there any issues that have come up that give people reason for pause?

CHERNOFF: Well, you know, the one decision that was made to let Lehman Brothers go, Geithner supposedly did counsel, let them go. They were worried about the moral hazard, the idea that, hey, we're going to bail everybody out, and that was almost rewarding risk. Well, it seemed to have turned out that maybe they shouldn't have let Lehman go.

O'BRIEN: It looks a little different in hindsight, but most things do. Allan Chernoff, thank you.

In their new roles, Timothy Geithner and Larry Summers have a clear path to stop the bloodletting within the economy. As treasury secretary, Geithner will act as the chief financial officer for the country, and he will take over Henry Paulson's daunting job of overseeing that $700 billion bailout, the rescue of Fannie Mae, Freddie Mac and AIG.

Summers will be President Obama's right-hand an on economic matters. As director of the National Economic Council, he may play a big role in early decisions on budget and tax policy. Well, promises, promises. During the campaign, Barack Obama essentially said: Read his lips, no more tax cuts for the wealthy. But now that he's president-elect, can he deliver on that and other economic promises?

CNN's Cynthia Hayes -- Samantha Hayes -- excuse me -- joins me. You have been looking at rhetoric vs. the reality. What have you found out, Samantha?

SAMANTHA HAYES, CNN CORRESPONDENT: Well, Miles, first of all, the new economic stimulus package Obama wants will cost hundreds of billions of dollars more than what he proposed before the election. And that's not the only change.


HAYES (voice-over): When you want to make major changes in health care, education and energy policies, something else has got to go.

OBAMA: What I'm trying to do is to provide a tax cut for 95 percent of working families. We are going to roll back the Bush tax cuts on the wealthiest Americans, those making more than $250,000 a year.

HAYES: But he said that in October. The economy was bad then. It's worse now.

UNIDENTIFIED MALE: The number-one priority that is trumping all other priorities is to prevent the greatest financial crisis since the Great Depression from turning into the next Great Depression.

HAYES: Obama has another option. Let the tax cuts for the wealthy run out on their own, at the end of 2010, something he says he's now considering.

OBAMA: Whether that's done through repeal or whether that's done because the Bush tax cuts are not renewed is something that my economic team will be providing me a recommendation on.

HAYES: The economy may force Obama to prioritize.

PETER MORICI, ECONOMIST, UNIVERSITY OF MARYLAND: My feeling is, some things won't get done that he promised, and he will use the recession as an excuse to evade them.

HAYES: On the other hand, it may afford the new president an unprecedented opportunity to get much of his agenda on everything from education to health care reform under way quickly and all in the name of creating jobs.

DAVID GERGEN, CNN SENIOR POLITICAL ANALYST: From the Obama team's point of view, all of these things are integrated. If you move forward on all of them, you bring -- you bring economic recovery faster. That's contrary to the Republican view, is, this is going to blow huge holes in the side of the federal deficit ship, that this ship will sink under the weight of all of these deficits, and we would be far wiser to take it one step at a time.


HAYES: And some Republicans are saying, hold on. Wait a minute. If federal spending created economic growth, well, shouldn't we be in better shape right now? They don't want to see government programs expanded.

O'BRIEN: Thank you very much, Samantha.

O'BRIEN: A one-time presidential candidate who knows a thing or two about money has harsh words for the current treasury secretary. Steve Forbes standing by to tell us why he thinks Paulson is the worst treasury secretary in modern times.

Michelle Obama is a strong, smart and accomplished woman in her own right. Will she be forced to play all that down once she's in the White House?

And some conservatives are giving thanks for Sarah Palin in a very public way .


O'BRIEN: Barack Obama's wife is an Ivy League-trained lawyer, and spent years as a high-powered executive, but she's entering a role that's very traditional. So, some wonder if her experience and expertise will be sort of put in a box.

CNN's Susan Roesgen is in Chicago. Susan, I know you have been looking at what the first lady might -- or what the future first lady might do. What do you know?

SUSAN ROESGEN, CNN GULF COAST CORRESPONDENT: Well, you know, Miles, she has said publicly that her first priority as first lady is caring for her children, her two daughters. But there are other things that a future first lady could fill her time with.


ROESGEN (voice-over): The first lady of France, Carla Bruni, was a star before she married Nicolas Sarkozy, and she says she doesn't intend to stop strumming her own tune.

So, what's Michelle Obama doing these days? Well, while her husband is choosing his new Cabinet, she's choosing a Washington school for their two daughters. Don't be fooled. Michelle Obama is a Princeton graduate with a Harvard allow degree, but her career is in Chicago, and there are no plans for her to practice corporate law or set up community development programs in D.C., as she did here. Can she still be herself without her own job?

RUTH MANDEL, POLITICAL SCHOLAR: I wouldn't tie identity to paycheck. I would tie it to what you see as your opportunity, what you can accomplish with that, and there's so much you can do from the platform of a first lady. ROESGEN: Political scholar Ruth Mandel says every first lady defines the role for herself. Eleanor Roosevelt was an advocate for the working poor. And she reported back to her husband, Franklin. And Rosalynn Carter was her husband's diplomatic partner on foreign trips.

But Cherie Blair, the wife of former British Prime Minister Tony Blair, has some advice for Michelle Obama. Mrs. Blair says Mrs. Obama should learn to take a back seat to her husband, both publicly and privately. Others say she shouldn't have to.

MANDEL: I think every first lady has had an opportunity that few other people have, and that is to express her opinion, give her advice. And then he gets to choose how he wants to use that. So, everything really depends on the relationship they have and what her interest is in influencing his thinking.

ROESGEN: And, as former first lady Nancy Reagan once said, a woman is like a tea bag. You never know how strong she is until she's in hot water. The water is always hot in the White House.


ROESGEN: Now, Miles, I could think of a lot of things to do as first lady, long naps, a good book read in some hidden-away alcove, but Michelle Obama has also said that she's going to focus on military families, especially military spouses, especially these families that are really struggling economically when the men and women come back from Iraq -- Miles.

O'BRIEN: Well, that's a good focus, certainly. Susan Roesgen, thank you very much.

Meanwhile, Republicans could use the holiday to reevaluate their political misfortunes. They might be doing that right now.

CNN senior political analyst Bill Schneider joining us now. Bill, do Republicans believe they have anything to be thankful for this Thanksgiving?

WILLIAM SCHNEIDER, CNN SENIOR POLITICAL ANALYST: Well, some do, and they want everyone to know it.


SCHNEIDER (voice-over): What do Republicans have to be thankful for? Here's one answer in a national television ad campaign being run this week by a conservative political action committee.


UNIDENTIFIED MALE: Governor Sarah Palin, as Americans sit down to their Thanksgiving dinners of turkey or moose, a grateful nation wishes to say.

UNIDENTIFIED FEMALE: Thank you, Governor Palin. UNIDENTIFIED MALE: Thank you.


UNIDENTIFIED FEMALE: Thank you, Governor Palin.


SCHNEIDER: For what exactly?


UNIDENTIFIED MALE: For your passionate, hopeful and articulate advocacy of commonsense conservative values.


SCHNEIDER: Governor Palin comes out of this campaign with a following among conservative populists, the Republican Party's grassroots base. They don't want her blamed for the party's defeat.

GOV. SARAH PALIN (R), ALASKA: As far as we're concerned, the past is the past. It's behind us.

SCHNEIDER: They blame the party's Washington establishment for the defeat.

MIKE HUCKABEE (R), FORMER ARKANSAS GOVERNOR: Republicans didn't lose because they stuck to Republican principles. They lost because they didn't.

SCHNEIDER: Normally, the Republican Party enjoys an orderly success of leaders. There was a Dole or a Bush on every Republican ticket from 1976 through 2004. In 2008, John McCain was the next in line, but McCain lost.

Right now, the Republican Party establishment doesn't have anyone next in line. But conservatives see some attractive new faces outside of Washington. Mike Huckabee has a television show and a new book.

HUCKABEE: Well, the first chapter in the book is called, "I Love Iowa."

SCHNEIDER: Sarah Palin is being showered with offers of book deals and TV interviews. She comes across as anything but a Washington insider.



UNIDENTIFIED FEMALE: What were those ingredients again for the moose chili?



SCHNEIDER: Conservative populists see an opening to take power away from what they regard as the party's corrupt Washington establishment, and they believe they have just the candidate to do it -- Miles.

O'BRIEN: Couldn't -- couldn't be farther away from Washington. That's for sure.

SCHNEIDER: That's right.

O'BRIEN: All right, Bill Schneider, thank you very much.

A prominent columnist warns of possible economic disaster.


FRIEDMAN: There is a storm coming, OK? And it hasn't hit yet. And I believe the decisions made possibly in these next two months could determine the next four years.


O'BRIEN: Should President -- should President Bush allow some of Barack Obama's economic heads to take over now?

Also, are you seeing enough change in Obama's picks, or is it just deja vu of a Clinton White House?


O'BRIEN: Can America wait two whole months for Obama's administration to take office? Some say his nominees should jump in now. Donna Brazile and John Feehery are standing by for our "Strategy Session."


O'BRIEN: In today's "Strategy Session": As Americans celebrate Obama's history-making election, an awful lot of worries, sobering worries, about the economic realities, as I heard on CNN's "FAREED ZAKARIA GPS" OVER The weekend.


FAREED ZAKARIA, CNN WORLD AFFAIRS ANALYST: Tom, is this a big moment for Barack Obama, a kind of testing moment?

FRIEDMAN: I think it's not just a big moment for him, Fareed. It's a huge moment for America and the global economy. I think we should seriously consider moving up the inauguration date.

There is a storm coming, OK? And it hasn't hit yet. And I believe the decisions made possibly in these next two months could determine the next four years. This administration could be over before it starts, over in the sense that it will spend the next four years digging out of a hole that has been created right now that may be deeper and darker than anyone realizes.


O'BRIEN: Wow. Apocalyptic.

Joining me, our CNN political contributor and Democratic strategist Donna Brazile and Republican strategist John Feehery.

Man, that's -- that's depressing stuff. Let's -- let's get right to it. Obviously, we're not moving the inauguration. I think you have got to change the Constitution for that.

But, Donna Brazile, is it possible that there could be some way for appointments to be made, and sort of the shadow government to be installed in the interim, given how urgent things are?

DONNA BRAZILE, CNN POLITICAL ANALYST: Well, you heard president- elect Obama today talk about calling President Bush.

I believe that they're consulting with each other. The White House chief of staff, the current one, is also reaching out to John Podesta and members of the Obama transition team. And, if they can -- Miles, as you well know, Washington sometimes grinds to a halt during the holidays -- but, if -- if the team has -- has been vetted and president-elect Obama ready to submit some names of the people that he announced today, I think the -- the Senate should come back in December and -- and go ahead and get these people through the pipeline.

O'BRIEN: John, what do you think about all this? The devil is in the details on these things. You know, it's -- in principle, to say, let's accelerate the transition process, it seems like a good idea. But, in the real world, would this really work?


And I like Tom Friedman. Obviously, he's a great columnist. He is not much of a constitutional scholar. You know, the fact of the matter is, the Obama and that Bush team have been working very closely together, probably the most seamless transition we have ever had in our nation's history. They both know the stakes.

But, under the Constitution, President Bush is president for another month-and-a-half or two months, if my addition is right. I'm not sure what it is, Donna.


FEEHERY: And I think that we have got to stick with the Constitution. They're working very closely together, but the decisions that he makes are very important decisions for the future of the country.

O'BRIEN: All right. Let's shift gears here, Donna, and let's talk a little bit about some of the picks that president-elect Obama has made. I have read a lot of things on kind of the left-leaning blogs. There's some disillusionment with some of the choices. I have heard the term triangulation, you know, Clintonistas, whatever the case may be. Barack Obama promised change, change coming from outside Washington. And what we're seeing are seasoned insiders. What do you say to that?

BRAZILE: Well, there are some of them outsiders as well. And perhaps one of the biggest outsiders is the president-elect. He just got to Washington just a few years ago.

Look, I -- I think that president-elect Obama has put together a very good transition process. He is choosing exceptional people. I know a lot of them, especially those who served in the Clinton/Gore administration. They served with honor and distinction.

Remember, they created record employment, a record number of people who were in homes. They reduced the level of poverty in our country. And, of course, they got us to a balanced budget and even left a surplus. So, I think, by bringing these seasoned people into Washington, that's a good thing.

O'BRIEN: And, of course, they had the benefit of good economic times. And this administration is starting in a big hole.

John, let's talk about that. You know, when you hear Friedman talking about it, it's positively apocalyptic. How deep a hole is this administration in as it gets started?

FEEHERY: We don't know yet.

I think -- I do think that Donna is right. They -- they picked some of the good ones from the Clinton administration. I think Larry Summers, for example, is for free trade. They have good people that they have picked. They haven't picked the bad Clintonites, like Robert Reich, who wants -- who wants bigger -- much bigger labor, much bigger government.

They haven't been any Carterites either. So, so far, it's been good news, from the Clintonites' perspective. We don't know how deep the hole is, Miles. You know, it's obviously very serious. And I think that everyone's taking it very seriously.

O'BRIEN: Well...


O'BRIEN: Go ahead, Donna.

BRAZILE: No, I just want to say that Melody Barnes, who he picked today to chair the Domestic Policy Council, she is an exceptional woman. Of course, she comes from the United States Senate. So, I think president-elect Obama is reaching out. He's talking to people, as you know, Brent Scowcroft. He's talking to a lot of people. And I think progressives should just take a little deep breath. President-elect Obama, his values, his instincts are very progressive. He will have a progressive administration.

O'BRIEN: Let's talk, John, about Bill Richardson as commerce secretary -- a lot of people talking about him in the role of secretary of state. That's apparently not going to happen, as we have been seeing.

Is this a good role for him? Can he have an impact, and -- as you would put it, is he one of the good Clintonites?


O'BRIEN: Well, you know, he's a gregarious guy. I think he would be actually very good.

The interesting thing is how he gets along with Hillary Clinton at State. Actually, State Department and -- and Commerce...

O'BRIEN: Might be some bad blood there.

FEEHERY: There might be some bad blood there.



FEEHERY: And they don't particularly like each other now.

So, I'm not sure how -- how good that -- I do think that Bill Richardson will be a gregarious guy and will be able to get a lot of businesses in different areas around the globe. And, you know, frankly, we need global trade. So, I don't think he's a bad choice at all.

O'BRIEN: You know, Donna, John brings up an important point, because those two departments, State and Commerce, do have to work hand in glove to -- to be efficient. Do you think there will be some bad blood there?

BRAZILE: No, absolutely not. Hillary Clinton is a professional.

And, more importantly, she cares deeply about the future of this country. Look, they both report to the president of the United States. And he reports to the American people.

And, if they can't get along, and the president cannot organize his Cabinet in such a way that will work for the American people, trust me, there's another election just two years away.

O'BRIEN: All right, let's starting singing kumbaya right now. Everybody is going to get along.


BRAZILE: Oh, we're -- we're singing it.


O'BRIEN: All right. All right.

Donna Brazile and John Feehery, thanks for your time in our "Strategy Session."

With all the Obama transition hoopla, the defeated candidate is angling for some airtime. Remember him?

Also ahead, Joe Biden's replacement in the Senate, we will tell you who he is and the limits that he has set for himself.

And frightening scenarios for Inauguration Day -- new details about security officials and what they're trying to do to prepare for anything and everything, as the inauguration lies ahead.


O'BRIEN: Let's go to the "Political Ticker."

Almost two-thirds of the votes have been tallied in the U.S. Senate recount in Minnesota. Yes, they're still counting in Minnesota. And more ballots are being challenged, about 2,000 so far, at last report. Unofficial results put Republican incumbent Norm Coleman just a few hundred votes ahead of his Democratic challenger, Al Franken.

The recount could continue into next month, keeping Democrats uncertain about the size of their majority in the Senate.

And a sign that Senator John McCain does not plan to fade away after losing his presidential bid. The Arizona Republican has alerted the media that he will hold a news conference in Phoenix tomorrow -- no specific word on what he plans to talk about. We will, of course, keep you posted on that.

Jack Cafferty is back and joins us with "The Cafferty File." Jack, what do you have?

CAFFERTY: He already announced he's going to run for another term in the Senate, right?

O'BRIEN: I think that's...



CAFFERTY: So, I wonder what that thing is tomorrow.

O'BRIEN: I don't know.

CAFFERTY: We will probably have it live.



CAFFERTY: The question this hour: Do you believe that the worst of the financial crisis lies ahead? The head of the IMF says things are not going to begin to recover until probably 2010, maybe later.

Carol in Maryland says: "Yes. The good news is that over time things have a way of turning around. Maybe the cycle can be broken, especially with new leadership."

Ken in California: "There are no new jobs in sight. Every economic downturn since World War II was ended because many good- paying jobs were created by a new technology, a new product, or a new industry. At the moment, it appears none of those opportunities are in sight. Without coming technology, products, or industry, the economic future becomes predictable. The American lifestyle as we know it becomes a memory."

Paul writes: "No, the worst is over. The air has been let out. Thank God we didn't burst. Real values are returning to the market, hopefully to society. We're taking our first steps down the only path out of this recession, an industrial-scale green technology revolution. This will be remembered as the great correction before a sustainable economic boom that will benefit everyone on Earth."

Tom in Minnesota: "Of course the worst is ahead of us. A year ago, the government told us they had their arms around the housing foreclosure crisis. It turns out they didn't have a clue how big that problem was. The government is always slow to recognize the problems we face and even slower to take the proper corrective action."

Joan in North Carolina: "Unfortunately, I believe the worst is ahead of us. The full effects of deregulation will hit us with a vengeance. We seem to be acquiring a great new financial team, but they have a lot of years of corporate socialism to overcome. Let's hope."

And Steve in California writes: "The worst is behind us. Houses are becoming more affordable. Obama has a plan to create millions of jobs. And the markets appear to be recovering. Let's keep our fingers crossed."



O'BRIEN: You know, it does occur to me that it becomes a self- fulfilling prophecy.

CAFFERTY: Well, to a degree.

O'BRIEN: Could be.

CAFFERTY: If there's hope, if there's confidence, then, you know, that triggers a willingness to invest, a -- if house prices come down far enough, interest rates remain low, you might say, OK, I can make a bargain on buying a house.

Anyway, if you didn't see your e-mail here, you can go to my blog at Look for yours there. We post hundreds of them every hour.

O'BRIEN: Jack Cafferty, thank you very much.

CAFFERTY: You're welcome.

O'BRIEN: See you next hour.