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THE SITUATION ROOM

Obama Senate Seat for Sale; Who Will Replace the Illinois Governor?; The Buzz About Caroline Kennedy

Aired December 9, 2008 - 17:00   ET

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


WOLF BLITZER, HOST: Happening now, breaking news -- the governor of Illinois arrested by the FBI -- accused of trying to sell Barack Obama's Senate seat for personal gain. There are new developments this hour, including President-Elect Obama's reaction to this stunning scandal.
Also, the long record of corruption in Illinois -- how did Barack Obama rise through the state's political ranks and emerge untainted?

We're watching all of this. Paul Begala and Bay Buchanan -- they'll be here this hour to assess.

And growing buzz about Caroline Kennedy possibly being appointed to fill Hillary Clinton's Senate seat. Her cousin, Kerry Kennedy, is standing by live with some family perspective.

I'm Wolf Blitzer.

You're in THE SITUATION ROOM.

A remarkable day in the history of political scandal. The Illinois governor, Rod Blagojevich, accused by federal prosecutors of trying to sell Barack Obama's Senate seat. The alleged crime secretly caught on tape by the FBI. He's been arrested and he's been hauled into a federal court.

Drew Griffin of CNN's Special Investigations Unit is in Chicago. He was there. He watched at all unfold. It was pretty dramatic inside that courtroom -- something you don't see every day, a sitting governor charged the way he was.

DREW GRIFFIN, CNN SPECIAL INVESTIGATIONS UNIT: A surreal scene, Wolf. The governor, just a couple of blocks behind me, walks into a federal courthouse dressed in a blue jogging suit and jogging shoes -- supposedly the clothes he was wearing as federal agents knocked on his door at 6:00 a.m. to take him into custody in handcuffs. A very brief hearing. The governor and his chief of staff, John Harris, charged in this two-count complaint, read their rights, told to come back to court and released, basically, on their own recognizance with, you know, no other real restrictions, other than not to travel.

And, Wolf, I must tell you a personal observation -- the governor very cocky in court, even shaking hands with one of the prosecutors. But as a U.S. prosecutor said today, this is nothing to joke about.

Here's Patrick Fitzgerald. (BEGIN VIDEOTAPE)

(BEGIN VIDEO CLIP, COURTESY CLTV/CHICAGO)

PATRICK FITZGERALD, U.S. ATTORNEY: This is a sad day for government. It's a very sad day for Illinois government. Governor Blagojevich has taken us to a truly new low.

(END VIDEO CLIP)

GRIFFIN (voice-over): That new low, according to this complaint, includes the most distressing to local leaders -- that Blagojevich was putting up for auction to the highest bidder the U.S. Senate seat vacated by Barack Obama. According to Prosecutor Patrick Fitzgerald, the bugged conversation of the governor's phone was the most appalling.

(BEGIN VIDEO CLIP, COURTESY CLTV/CHICAGO)

FITZGERALD: The conduct would make Lincoln roll over in his grave. The governor's own words describing the Senate seat: "It's a bleeping valuable thing -- thing -- you just don't give it away for nothing."

(END VIDEO CLIP)

GRIFFIN: How much?

The complaint says $500,000 to a million dollars. One of the supposed bidders would be someone favorable to a powerful Illinois labor union.

The pay to play scheme, as prosecutors allege, also included trying to get "Chicago Tribune" journalists critical of the governor fired. In exchange, the state would help with selling the Tribune's Wrigley Field ballpark.

In another alleged scheme, $8 million in state help for a children's hospital was being held up in exchange for a political contribution.

In October, Fitzgerald placed wiretaps on the governor's phones, as well as his conference room.

And on Monday, Blagojevich addressed the media -- that had reported last week the Feds are wiretapped him.

GOV. ROD BLAGOJEVICH (D), ILLINOIS: If anybody wants to tape my conversations, go right ahead. Feel free to do it.

(END VIDEO TAPE)

GRIFFIN: Today, appearing before a federal magistrate, the governor -- dressed in a jobbing suit -- said nothing as a federal magistrate released him on a low bond and made him surrender his passport. The Feds knocked on Blagojevich's door at 6:00 a.m. To arrest him. The governor reportedly asked if it was a joke.

But Prosecutor Patrick Fitzgerald says there's nothing to laugh about.

(BEGIN VIDEO CLIP, COURTESY CLTV/CHICAGO)

FITZGERALD: The most appalling conduct that Governor Blagojevich engaged in, according to the complaint filed today or unsealed today -- is that he attempted to sell a Senate seat -- a Senate seat he had the sole right under Illinois to appoint to replace President-Elect Obama.

(END VIDEO TAPE)

GRIFFIN: And, Wolf, the complaint is really stunning, also talking about Blagojevich seeking a position at a non-profit for himself or for his wife or other lucrative deals in exchange for that Senate seat.

We should say, no involvement from the Tribune Company is alleged in any of this -- or from the union, as far as we know. But the investigation, according to the prosecutors, is continuing -- Wolf.

BLITZER: You've been investigating these politicians, Drew, for a long time. This was -- the allegations are so brazen.

Have you seen anything like this in a long time?

GRIFFIN: No. What is stunning -- stunning about this is the governor had to know that the Feds were watching him. Wolf, you and I know this. This prosecution of federal corruption here in Chicago has been going on since 2003. It's the reason that Anthony Rezko, the real estate dealer connected to Barack Obama, was indicted.

The governor had to know that this was getting closer and closer to him. And yet the allegation is that the mischief -- that the criminal behavior continued up and until and through the point where the governor may have even known his phones were bugged by the Feds.

It is stunning. And some court observers watching him in court today noticed that kind of swagger -- that he still walks around the courtroom and acknowledging people with a nod, even though they're not nodding back -- a kind of arrogance they point to, in this politician, that may have led to his own demise.

BLITZER: Drew Griffin doing some good reporting for us, as he always does.

Thank you.

The complaint against Governor Blagojevich mentions several possible replacements for Barack Obama's Senate seat.

So who are they?

Brian Todd has been working this part of the story for us -- Brian, what are you learning?

BRIAN TODD, CNN CORRESPONDENT: Wolf, no one mentioned as a possibility for that seat is saying that they're one of those unnamed candidates in this complaint. There is one who we pieced together as a pretty good possibility. But right now, everyone is running as far away from Rod Blagojevich as possible.

(BEGIN VIDEOTAPE)

TODD (voice-over):

According to prosecutors, Rod Blagojevich knew all too well how much leverage he had as the only person who could appoint Barack Obama's successor to the U.S. Senate.

(BEGIN VIDEO CLIP, COURTESY CLTV/CHICAGO)

FITZGERALD: The governor's own words describing this Senate seat: "It's a bleeping valuable thing -- thing -- you just don't give it away for nothing."

(END VIDEO CLIP)

TODD: U.S. Attorney Patrick Fitzgerald's complaint against Blagojevich give those Senate candidates numbers, not names and says Blagojevich tried to garner money or jobs in exchange for awarding the seat. One mentioned often -- candidate one, an adviser to Barack Obama, a female, said to be Obama's top choice for the seat.

(BEGIN VIDEO CLIP, COURTESY CLTV/CHICAGO)

FITZGERALD: This part of the scheme lost steam when the person that the governor thought was the president-elect's choice of senator took herself out of the running.

(END VIDEO CLIP)

TODD: According to Fitzgerald, when the plan fell through, Blagojevich said...

(BEGIN VIDEO CLIP, COURTESY CLTV/CHICAGO)

FITZGERALD: Reaction: "They're not willing to give me anything but appreciation. Bleep them."

(END VIDEO CLIP)

TODD: Candidate one could be Valerie Jarrett, because she's the only female who was an adviser to Obama mentioned as a possibility for the seat and who dropped out of the running. We were unsuccessful in reaching Valerie Jarrett through the Obama transition office. There's nothing suggesting Jarrett spoke with Blagojevich about the post.

And Fitzgerald is clear -- none of the people mentioned as Senate candidates is accused of wrongdoing.

(BEGIN VIDEO CLIP, COURTESY CLTV/CHICAGO)

FITZGERALD: People should not cast aspersions on people who are discussed on wiretap or bug tape.

(END VIDEO TAPE)

TODD: Now the only -- the only other candidate mentioned as often in the complaint as that candidate one is candidate five. Now, the complaint says just last week, Blagojevich said he might be able to cut a deal with candidate five. And the complaint says this: "with something tangible up front."

There's no way to confirm who candidate five is yet.

CNN contacted several of those people widely reported to be on that list of Senate candidates. Among those who responded to us, Congressman Jesse Jackson, Jr. . He issued us a statement saying that he met with Blagojevich about the post, but that he is shocked at the charges and is upset that this was tainted.

Congresswoman Jan Schakowsky told CNN she had spoken with Blagojevich about that job, but said nothing untoward was said in that conversation.

And another candidate, Illinois Veterans Affairs Director Tammy Duckworth, an aide to her said that Duckworth has never spoken or met with Governor Blagojevich about that job -- Wolf.

BLITZER: And as amazing as it may seem, even with all that's just unfolded today, the breaking news -- correct me if I'm wrong, Brian, he still has the power, technically, to go ahead and name a successor to Barack Obama's Senate seat?

TODD: As long as he sits as governor, yes, as of right now. But there are people who are scrambling who really want to change that.

Senator Dick Durbin says he wants the Illinois legislature to pass a law that would set up a special election to fill Obama's seat. There's a lot of maneuvering going on right now to make sure that it may not be Rob Blagojevich who makes that appointment.

BLITZER: Brian Todd, thank you.

Prominent controversial cases are nothing new to Patrick Fitzgerald. He began his career as an assistant U.S. attorney in New York City back in 1988.

By 1993, he was taking on the Mafia with the prosecution of the Gambino crime family boss, John Gotti.

A year later, he handled a case against Sheikh Omar Abdul Rahman and 11 others in the 1993 bombing of the World Trade Center.

After moving to Illinois, Fitzgerald launched the corruption investigation that ultimately sent the former governor of Illinois, George Ryan, to jail two years ago. And last year -- you certainly will remember this -- Fitzgerald successfully prosecuted Lewis "Scooter" Libby, the former top aide to Vice President Dick Cheney, for lying in the Valerie Plame CIA leak case.

Jack Cafferty has got The Cafferty File.

He's standing by in New York.

It's sort of breathtaking, when you think about it -- Jack.

CAFFERTY: Yes. And Blagojevich is in a lot of trouble, if Fitzgerald's reputation is anything. He has a reputation for being exhaustingly thorough in his preparation of these cases. He once launched, I don't know, 26 or 27 corruption investigations against people in Chicago and got convictions on all of them. So he is a tough guy.

According to a new CNN/Opinion Research poll, 79 percent -- 79 percent of Americans approve of the way President-Elect Obama is handling his transition to the White House. Now those are good numbers -- 14 points better than President-Elect George Bush; 17 points better than President-Elect Bill Clinton.

But, don't you know, some are voicing concerns about Barack Obama -- many of whom championed him, campaigned for change alongside him, but feel that they have ended up with something quite different from what was promised. Specifically, we are talking about some liberals who are not happy with Obama's cabinet appointments from the political center, as well as his change of mind on things like rolling back the Bush tax cuts, taking on big oil and perhaps hedging plans on pulling troops out of Iraq.

In Sunday's "Washington Post," David Corn, who's the Washington bureau chief of a liberal non-profit magazine called "Mother Jones," said: "Sure. Obama's appointments do represent change -- that is change from the widely unpopular Bush/Cheney status quo. But do these appointments amount to the kind of change that progressives, who were an essential part of Obama's political base during the campaign, can really believe in?"

So, the guy is not even in office yet and the liberals are already complaining about his choices for the cabinet.

Here's the question -- are liberals right to be upset with President-Elect Obama's cabinet picks, as well as his tax cut plan?

Go to CNN.com/caffertyfile and you can post a comment on my blog.

You know, someday the nut cases on the extreme left and right will understand that the voice that governs the country is in the middle.

BLITZER: When would that day be, Jack?

CAFFERTY: Well, I don't know. Maybe -- maybe the day after I stay at your house for the inauguration.

BLITZER: Are you coming?

CAFFERTY: No.

(LAUGHTER)

BLITZER: Thank you.

CAFFERTY: You're welcome.

BLITZER: A political scandal of the highest order -- the Illinois governor accused of trying to sell Barack Obama's Senate seat. We're discussing the political fallout -- and it's only just beginning. Paul Begala and Bay Buchanan -- they're standing by live.

And Caroline Kennedy a possible replacement for Hillary Clinton in the Senate. Her cousin, Kerry Kennedy, is here. She's standing by live. We'll get the family insight on what's going on?

And gas prices are down dramatically.

But could they drop down to a dollar a gallon?

Wow! We're watching the pumps to see how low they can go.

Stay with us.

You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: It's pretty amazing right now, the Kennedy saga. There potentially could be a major new chapter about to unfold.

Let's talk about what's going on.

In New York, Kerry Kennedy is joining us.

She's the cousin of Caroline Kennedy, who's been widely mooded (ph) as a potential replacement for Hillary Clinton's Senate seat.

Kerry Kennedy is also the author of a new book entitled "Being Catholic Now."

And, Kerry, I want to talk about the book shortly.

But let's talk about your cousin.

Have you spoken to Caroline Kennedy about this?

Does she want to be Hillary Clinton's successor in New York?

KERRY KENNEDY, AUTHOR, "BEING CATHOLIC NOW": You know, I think Caroline has worked so hard in the last year on the Obama campaign. And she's -- she's incredibly smart. She's a lawyer. She is a best- selling author. She's run the Profiles in Courage Award at the JFK Library for years and years and years. She's raised $65 million for the public school system in New York. And she'd just be a great candidate and a great senator -- I mean, primarily because Caroline is only about the public interests. She has no need for fame or for power or for money. She just really, really cares about public education and about women's issues. And I think she'd be a great, great, great Senator.

BLITZER: All right. So just to be precise, everything you're saying -- I take it she has told you, yes, this would be something I would be interested in?

KENNEDY: No, she hasn't told me that. She's -- we've exchanged a few e-mails and I think that she's trying to figure out exactly what she wants to do.

But I'm hoping she'll go for it, because I think we need that in New York. And, you know, we're facing a tremendous crisis in our country, both domestically and internationally. And we need her kind of leadership -- somebody who is really committed to the public interest.

BLITZER: And as everybody remembers, she's the daughter of the late President John F. Kennedy and Jacqueline Kennedy Onassis.

Most of her life, though -- correct me if I'm wrong -- and you know her, obviously, a lot better than I do -- Caroline Kennedy has sought to stay out of the public spotlight.

If she gets this, she has to run for election in 2010 and then once again in 2012.

Does she want to go to Upstate New York -- to Buffalo, my hometown or Rochester or Schenectady -- and go shaking hands and campaigning and doing what Hillary Clinton did to get herself elected?

KENNEDY: You know, I think the great thing about Caroline is that she genuinely cares about people and cares about the issues that are facing people.

What she does not care about is putting her name in the press a lot.

So I think that she's protected herself and her family throughout her life from the sort of tabloid journalism and has really concentrated on the issues that impact Americans. And I think that she'll continue to do so. And if she becomes senator from New York, she'll join in a long line of tremendous senators from our state.

BLITZER: And Bobby Kennedy, of course, being one of them, as you well remember.

But do you think she's ready to get into that?

You know, she's been protective of her personal life. You know, when you're a United States senator, all that goes away. KENNEDY: Right. And, you know, I think that Caroline has always been incredibly smart about using her fame in order to in order to -- in order to advance a public interest agenda. And I think that if she's willing to do that now, we will all benefit from it. So I hope she is.

BLITZER: All right. Let's talk briefly about your new book, "Being Catholic Now."

A lot of American Catholics, they voted for Barack Obama, even though he supports abortion rights and gay rights. And the leadership of the Vatican, as you know, has a very different position.

Tell us a little bit what you discovered about this battle that goes on for the heart and soul of American Catholics.

KENNEDY: Well, what I discovered -- and this book covers interviews from Bill O'Reilly to Bill Maher to Nancy Pelosi. And what I found is that all Catholics have an argument with the church, from the most conservative, orthodox Catholics who think that church is too big tent and the more liberal, progressive Catholics think that the church did not fulfill its potential after Vatican II.

But the other thing about writing the book is I found that I was laughing throughout. You know, when I asked Nancy Pelosi, she said that her mother always wanted her to be a nun. And when I asked her if she wanted to be a nun, she said, no, I wanted to be a priest.

And so -- and then Susan Sarandon said, when I was a very young girl, I was told that I had an overabundance of original sin.

So there's a lot of fun in the book and a lot of insight into what it means to be a Catholic.

BLITZER: And Kerry Kennedy is one of those prominent Americans who speaks about it, as well.

"Being Catholic Now" -- that's the name of the book.

Kerry, thanks for coming in.

KENNEDY: Thank you.

BLITZER: Barack Obama speaking out about charges the Illinois governor trying to sell his Senate seat.

What are the implications for the president-elect, who got his start in Illinois politics?

Paul Begala and Bay Buchanan -- they're standing by live to weigh in.

And a major new development in that bathroom sex scandal involving Senator Larry Craig. We have details of a new court ruling about his conviction. Stand by.

You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: Deborah Feyerick is monitoring some other important stories incoming into THE SITUATION ROOM right now -- Deb, what's going on?

FEYERICK: Well, Wolf, a government spokesman in Zimbabwe says the country's cholera outbreak is under control. What's more, he told reporters today that the West caused the crisis and used it as an excuse to intervene militarily. The South African nation was struck in August by cholera, which killed nearly 600 people. Leaders of the U.S. Britain and France have blamed President Robert Mugabe's government for the outbreak. They're calling on Mugabe to step down.

And on the heels of a two day rally, an off day for U.S. markets. The Dow Jones Industrial average fell back 242 points today on disappointing news from the corporations. Sony Corporation, for instance, announced today that it would be cutting 8,000 jobs worldwide. That's about 4 percent of the Tokyo-based giant's workforce. Sony says it will also shut down five or six of its 67 factories around the world.

And Senator Larry Craig has lost another attempt at having his guilty plea in an airport sex sting overturned. A three judge panel of the Minnesota Court of Appeals turned down the Idaho Republican's bid to have his disorderly conduct conviction thrown out. Craig was arrested in June 2007 in a sting operation against men cruising for gay sex at the Minneapolis-St. Paul Airport. He may still appeal to the Supreme Court.

And what to wear at the inauguration -- well, it seems the Obamas have made that decision. President-Elect Obama has apparently selected his tuxedo for his big night. He's believed to have ordered a simple and classic black tuxedo by the Illinois designer, Hart Schaffner Marx. As for future first lady, Michelle Obama, the designer Maria Pinto designed the dresses she wore for her speech at the Democratic National Convention, as well as her dress on election night. But several designers have submitted other designs they consider the dream dress for Mrs. Obama. The magazine, "Women's Wear Daily," features these sketches on its Web site.

Choices, choices -- Wolf. Boy, I'm having the same problem -- not really.

BLITZER: I'm looking at those. I like the Isaac Mizrahi, although the pink one is sort of nice. The Betsy Johnson is good. You know what, I like them all.

FEYERICK: Exactly. Exactly.

BLITZER: Then again, the...

FEYERICK: And I'm sure you will look dapper.

BLITZER: Then what do I know? (LAUGHTER)

BLITZER: All right. Thank you very much for that, Deb.

His governor allegedly tried to sell his Senate seat.

Will there be a political fallout for Barack Obama from the scandal rocking Illinois?

Obama is speaking out. Paul Begala and Bay Buchanan -- they're standing by live to assess the political fallout.

Also this, there are new details emerging right now about that deadly fighter crash -- jet fighter crash in a San Diego neighborhood.

What went wrong?

And imagine gas for only a dollar a gallon. It's certainly a possibility. Our chief business correspondent, Ali Velshi -- he's crunching the numbers for us, right here in THE SITUATION ROOM.

(COMMERCIAL BREAK)

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

Happening now, President-Elect Barack Obama still on his post- election high.

But how are his transition weeks playing out with Americans?

Our senior political analyst, Bill Schneider, unveils the results of the latest honeymoon poll. That's what we're calling it.

A child is still missing after yesterday's disastrous F-18 crash into a San Diego neighborhood that killed three other family members. We're going to have the latest on what happened. We'll go there.

And riots are reaching a fever pitch in Greece right now in the wake of the shooting death of a teenage boy. CNN's Phil Black will be joining us from Athens with the latest developments.

I'm Wolf Blitzer.

You're in THE SITUATION ROOM.

Barack Obama is still more than a month away from taking office, but our new poll numbers just out show his political honeymoon with the American people is still in full swing.

Let's go to our senior political analyst, Bill Schneider.

He's standing by live to join us.

How is this honeymoon going -- Bill?

WILLIAM SCHNEIDER, CNN SENIOR POLITICAL ANALYST: Blissfully. And, you know, a good honeymoon raises expectations for the marriage.

(BEGIN VIDEOTAPE)

SCHNEIDER (voice-over): How is Barack Obama handling the transition?

Seventy-nine percent approval. That's the sort of rating you see when the public rallies a leader after a national disaster.

To many Americans, the Bush administration was a national disaster.

AL FRANKEN (D), MINNESOTA SENATE CANDIDATE: We are going to replace the worst president in our history with a man who I believe will be one of the greatest presidents in our history, Barack Obama.

(APPLAUSE)

SCHNEIDER: President Bush's current job rating? More than 50 points lower. President Bush came in promising to be a uniter, not a divider. During his first year, most Americans did see President Bush as a uniter. By 2004, people were not sure. By 2007, the judgment was in, by better than 2-1, Americans saw Bush as a divider. Obama got elected because people thought he could deliver what Bush did not.

BARACK OBAMA (D), PRESIDENT-ELECT: We're going to have to get behind the old ideological debates. The old divide between left and right.

SCHNEIDER: By nearly 4-1 people see Obama as a uniter than a divider. He hasn't taken office yet, but so far, so good. The honeymoon has set expectations soaring. Nearly 80 percent believe Obama will do a good job as president including a majority of republicans.

GOV. SARAH PALIN (R), ALASKA: I think time is full of optimism and an opportunity for everybody to get it together and start working together for us as republicans to reach out to Barack Obama.

SCHNEIDER: Who has the highest expectations for Obama? Young people. Obama's campaign was propelled by the youth vote and this is their first honeymoon.

(END VIDEOTAPE)

SCHNEIDER: Obama has the opportunity to create a new democratic majority. Young people tend to be imprinted with their earliest political commitments and they retain them as they get older. Unless their hopes are dashed. Wolf?

WOLF BLITZER, CNN ANCHOR: Bill Schneider with the latest numbers, thank you.

Chicago, Illinois are not strangers to political scandal. How did Barack Obama emerge untainted? Let's talk about that and more with CNN's political contributor and democratic strategist, Paul Begala and CNN contributor, Bay Buchanan. Guys, thanks very much for coming in.

Let's talk a little bit about our top story, the breaking news. The governor of Illinois, Rod Blagojevich, indicted today by the U.S. attorney in Chicago. Here is how Barack Obama responded to this truly stunning news. Listen to this.

(BEGIN VIDEO CLIP)

OBAMA: I had no contact with the governor or his office and so we were not -- I was not aware of what was happening. As I said, it's a sad day for Illinois. Beyond that, I don't think it's appropriate to comment.

(END VIDEO CLIP)

BLITZER: He is accused -- the governor is accused of trying to sell, sell Barack Obama's senate seat.

PAUL BEGALA, DEMOCRATIC STRATEGIST: First off, it's interesting that comment. I had no contact with the governor's office. It would have made sense if he had had contact. My guess is that Joe Biden probably had some influences, I hope, as to who his successor would be.

BLITZER: In Delaware?

BEGALA: In Delaware.

But this is telling. Jesus said you should be in the world but not of the world. Right? I think Barack Obama is in Illinois politics but he is not of Illinois politics. When he was in Springfield he was a reformer and a tough place to reform. He passed a gift band, comprehensive gift band for state officials and passed other measures and "Chicago Tribune" a very conservative paper said it was a sweeping landmark. When he came to Washington he made a lot of colleagues in the senate because he was a strong reformer. He has been able to succeed in the system even while he changes the system so he ought not be tainted at all.

BLITZER: The only taint he had a hint of political scandal with his relationship with Tony Rezko, this businessman now in jail. That was the only hint of political scandal that he had over the years.

BAY BUCHANAN, CNN CONTRIBUTOR: Who, by the way, is friends of the governor. At all seems to be tied in out there. I think, number one, what we know now it appears that there is -- Obama has no ties to this whatsoever and no knowledge of it. I mean, that's what it looks like from what we're hearing from the prosecutor.

BLITZER: Personally they did not have a good relationship, Blagojevich and Barack Obama. I would say they had a tense relationship.

BUCHANAN: The problem here is this. This is the last thing the governor -- the president-elect needs. The very last thing. As you know, scandals. They tend to keep going on and on and you have an investigation and next thing know members of his transition teams and might be members of the administration who is being questioned. I'm not saying that it is. But an investigation, the rumors are who is being asked questions today? Who knew what, when? And it's a drip, drip, drip. They never can get over it until finally the trial. You've been there, Paul. I've been there. This is what is going to be on TV night after night.

BLITZER: After Barack Obama made his statement, Mike Duncan, the chairman of the Republican National Committee issued this statement. I'll put it up on the screen. "Americans expect strong leadership, but President-Elect Barack Obama's comments on the matter are insufficient at best. Given the president-elect's history of supporting and advising Governor Blagojevich, he has a responsibility to speak out and fully address the issue."

BEGALA: He's trying to do his job. Look. It's his job. He is partisan guy running a political party. I don't take it all that seriously. Here is the character test, though. This is what I think when you get Mike Duncan in THE SITUATION ROOM, Patrick Fitzgerald is the U.S. attorney for the northern district of Illinois. The person who, today, arrested or ordered the arrest of the governor. Patrick Fitzgerald is the same guy who indicted and convicted "Scooter" Libby, Dick Cheney's chief of staff. When he was doing that a whole lot of republicans saying he was out of control and overreaching and unethical. Democrats said he was principled and independent. I still say he is principled and independent. Let's see if the republicans now all of a sudden think there is political motive by Patrick Fitzgerald.

BLITZER: He's as tough a nails prosecutor and doesn't getter than that.

BUCHANAN: You know what? The democrats for how many years now have been pounding against the corruption of the Republican Party? Duncan said exactly the right thing. This is where it's going. We learned our lessons from the democrats. That church of the Democratic Party who now find themselves corruption actually goes into their church as well as the other one. So I think, number one, it's appropriate for Duncan to say let's have full disclosure from Obama. The key here is Obama said today had he no contact but we hear just a couple of weeks ago Axelrod said of course he is talking to the governor. Let's get our facts straight out there on the street.

BEGALA: Was there anything --

BUCHANAN: I would say nothing wrong but don't tell us you didn't talk to him.

BEGALA: He said he didn't --

Look. This is where it's getting partisan. You have Barack Obama someone with a proven record as a reformer even against his own party in his own state. And you see people like Mike Duncan trying to score cheap political points and leverage this thing in a way I don't think is helping the Republican Party frankly. BLITZER: It's -- what it does underscore and I think you both agree that political corruption is an equal opportunity event for both democrats and republicans.

BEGALA: When the same prosecutor was going after Dick Cheney's chief of staff, by the way, Fitzgerald said a cloud is over the vice president, not just Mr. Libby. Republicans attacked him. And democrats defended him. Now let's see.

BUCHANAN: Attack --

BEGALA: Let's see -- look. I'm staking my flag again. I think he's a professional prosecutor. Trying to do the right thing. I thought so when he was going after republicans and I think so when he is going after democrats. Let's just watch it.

BLITZER: I think Bay agrees with you on that point.

BUCHANAN: I agree he's a good prosecutor but I have to tell you this case is more serious than anything he ever thought he had on "Scooter" Libby.

BLITZER: That's a subject for another debate. We don't have time for that. All right, guys.

BUCHANAN: Senate seat as a sitting governor?

BLITZER: Take this conversation into the green room, as they say. Thank you.

Crews still searching for a child in the neighborhood where that military jet crashed yesterday. Ahead, what the pilot is now saying happened in the minutes before the F-18 went down.

We're going live to Athens where thousands of people are still rioting. What has happened to the tourists who are there and why this could bring down Greece's government?

Stay with us. Lots of news happening on this day right here in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: New information just coming into THE SITUATION ROOM right now about that U.S. Marine Corps jet that crashed into a residential neighborhood in San Diego. Let's go to Ted Rowlands who is on the scene for us.

What do we know, Ted? Because they have been searching for another potential victim.

TED ROWLANDS, CNN CORRESPONDENT: Yeah. Wolf, they found a mother, a grandmother, and the remains of a 2-month-old little girl and just within the last couple of hours they found the remains of a 15-month-old little girl who they presume was also in the house, one of the two houses completely destroyed behind me here. We're also learning a lot more about exactly what happened. But we're not getting it from the military.

(BEGIN VIDEOTAPE)

ROWLANDS: As the Marine Corps investigates exactly what happened, witness accounts seem to back the theory that both engines of the F-18 fighter jet failed before impact.

JASON WOODMERE, WITNESS: Then I could see where he was landing into the trees.

ROWLANDS: Jason not only saw the crash, but actually talked to the pilot who, after ejecting, ended up in a tree. His friends took these photos. Woodmere says the pilot told him he lost one engine over the Pacific Ocean and then lost the second over the San Diego neighborhood.

WOODMERE: He tried to aim it into a clearing, but he had to eject before he could steer the bird any farther because it was descending too fast so he had to eject, you know, to make sure he was out of harm's way as well. The only thing he kept reiterating to me is "I hope I didn't kill anybody."

ROWLANDS: Dennis Connor took these phones with his camera phone. Seconds after the crash he said no engine noise as the jet fell to the ground which backs the theory both engines went down.

DENNIS CONNOR, WITNESS: It was early silent, you know? It was scary because you know -- you just hope he makes it to the canyon. You see this and you just pray.

ROWLANDS: The jet destroyed two homes, one was vacant and the other a mother and grandmother and two little girls, one a 2-month-old newborn and the other, her 15-month-old sister.

(END VIDEOTAPE)

ROWLANDS: The other member of that family, the husband, who was at work at the time, this is a Korean family who moved into the neighborhood recently. He is going to be addressing the media at 4:00 outside what remains of his house, which is not much.

The big question, Wolf, is what was this plane doing flying over residential neighborhood with what, just one jet engine in operation? Well, experts say that's exactly not a big deal that they can land an F-18 with the one engine and he was close to Miramar air force base. The problem when you lose the second engine in an F-18 you drop basically like a rock and that is substantiates what the pilot told the witnesses. He told other witnesses pretty much the same story.

BLITZER: What a tragic story, indeed. Ted, thank you.

It started when police shot a 15-year-old boy over the weekend. Days later, the rage in Greece is expanding. Gangs of rioters clashing with officers yet again today and it's getting worse. CNN's Phil Black is in Athens and he is following these developments for us.

What is the latest? Is there any light at the end of this tunnel in Greece right now, Phil?

PHIL BLACK, CNN CORRESPONDENT: Well not tonight, Wolf. Tonight, as for the past four nights, riot police and these big crowds of rioters are clashing in Athens and riot battles taking place not too far from here. We are a little bit above that, a short distance away because one of their favorite target is our cameras and our equipment. It's been much that way through the day even at the funeral of the young boy at the center of this crisis in Greece, the 15-year-old boy shot by police either accidentally or deliberately over the weekend. His death has triggered much of that anger here and there is no sign as to just when these riots may subside, Wolf.

BLITZER: A lot of tourists go to Greece and including a lot of Americans. How is this impacting tourism right now and those Americans who are there and potentially a lot of American students are studying there as well.

BLACK: Yeah, indeed. When this first started, the hotels in this city were full. People were warned and advised to stay in their hotels. They slowly made their way. The hotels are now dead. Governments around the world are advising their citizens to keep away. But even the mayor of Athens is telling his own people to stay out of the center of this town until it cools down.

BLITZER: The government of Greece, it seems to be precarious right now as a result of what happened. Is that right?

BLACK: Because of what's happened and so much more. The government in this country is deeply unpopular. It holds a very slim majority in parliament. It is broadly disliked for its economic and its social policies. Tomorrow, a national strike has been called long before the recent rioting broke out. This country is going to shut down as a gesture of anger against this government and trying to build a political consensus among opposition parties against the rioters and left wing parties, they are even urging the protesters to try to topple the government of Greece, Wolf.

BLITZER: Normally politically calm place but not right now. All right. Phil, we'll stay in close touch with you. Phil Black is our man in Athens right now.

Some good economic news amiss the economic crisis. The prices at the pump keep dropping. Are we nearing the bottom? Ali Velshi is standing by to tell us how low they night go.

And preparing for the unprecedented what Washington, D.C. officials are doing to get ready for the massive crowds expected to attend the inauguration. Millions of folks coming to D.C.

And wasting no time, why federal investigators arrested the Illinois governor early this morning.

UNIDENTIFIED MALE: Governor Blagojevich has taken us to a truly new low. Governor Blagojevich has been arrested in the middle of ...

(COMMERCIAL BREAK) BLITZER: One bright spot right now in the economic horizon, what is it? The price of gas. AAA reporting that the national average for a gallon of unleaded is $1.69. Let's go to CNN's chief business correspondent Ali Velshi who is watching the numbers for us.

Ali, how long will this last, because not long ago we remember $4 a gallon.

ALI VELSHI, CNN CHIEF BUSINESS CORRESPONDENT: $4.11 and let me show you the picture of how this thing looked over the last few months. Gas prices were up in record levels in July.

Take a look at what gas prices did, right around the middle of the year, and you will see this momentarily, gas prices hit $4.11 and then tracking downward until today where you said $1.69.

Now gas prices are based on the price of oil. So let's just superimpose a chart which shows you the price of oil. The yellow line is gas and the red is oil. As you can see, they are moving in lock step. What happened in the summer, there was a sense that there is a lot of speculation about how demand in China and India was all growing rapidly, and then the recession started to set in right around September where we saw the credit crisis developing, and it is what you call demand destruction. It's a combination of two things, the high price of gas and oil caused people to abandon their SUVs and trucks and buy more fuel-economic cars and just economize generally on their fuel consumption, and the recession means that fewer people will otherwise be spending and driving and going on long trips. So together that brings us down to that low price. But one thing to remember Wolf is that at that low price of oil, if you are talking about $42 or $43 a barrel of oil, there is some companies that will stop producing oil, because it is not as profitable. So as the price goes lower, you will see less supply and that will start to bring the prices back up. I wouldn't get too used to these kinds of these gasoline prices.

BLITZER: So there are those who are hoping it ill go below $1 a gallon, Ali. Is that at all realistic?

VELSHI: No I don't think it's likely to be the case. It could get there momentarily but fundamentally, there is a way to control the gas and oil out there, and we may not like it, but that is the way the world looks. If the price of oil or gas gets too low, there will be less production and it will go up again. Enjoy it while you have it.

BLITZER: Good advice. All right. Ali, thanks very much for that.

Let's check in with Jack. He's got the Cafferty File.

Jack?

JACK CAFFERTY, CNN CORRESPONDENT: The question this hour Wolf, are the liberals right to be upset with President-elect Obama's cabinet appointments and tax cut plans? Ray in Nashville, Tennessee writes, "In almost recent election the winner has moved away from his base and to the center of the electorate in order to win. Obama did the same. The liberals saw it then and now they want to act disappointed? When will the fringe elements of both parties realize this country's a centrist country, no longer dominated by conservatives and will not be dominated by liberals?"

Dan in West Virginia, "If Obama turns out to be a closet republican like Clinton was, we Democratic voters will vote out so many democrats in the 2010 election, Obama will feel like he's been neutered. He can become the first Munich president if he forgets the base."

Robert in New York, "I'm a liberal democrat and I am absolutely thrilled at Obama's pragmatism and desire to bring the country together. When you elect an adult to the presidency, don't be surprised that he acts like an adult. May I remind my fellow liberals who are complaining, that I am really tired of losing elections and that we elected Barack Obama and not Dennis Kucinich."

Michael in Maryland says, "If liberals were looking at Barack Obama through the rose-colored glasses of his rhetoric, then it is understandable that they would be disappointed. Obama is a master of the art of ambiguity and many people read into his statements what they want to hear. Now that he's named a cabinet largely full of Clintonites it much harder to project the source of policies that progressives hold dear onto his presidency."

And Burt in Philadelphia writes, "The folks on the far right live in the la la land of god, guns and libertarian values and the folks on the left live in the la la land of populistic quality, the good of human nature and socialist values. What neither of them understand is that 90 percent of America is neither idealistic nor democrats. We're pragmatists who just want to make a fair living, enjoy our lives and make a better place for our children."

If you didn't see your e-mail, too bad. No, go to my blog at CNN.com/Caffertyfile and look for it there and if it is not there, well, you didn't make the cut.

BLITZER: Are you surprised, Jack, that the price of a gallon of gasoline has gone down this quickly and rapidly?

CAFFERTY: Yes, I am. And OPEC is surprised as I understand it. Ali talked about ways to control prices, and OPEC has been desperately struggling with these collapsing oil prices, and so far, they have not come up with anything that works. I was surprised because I wrote to a guy who said he paid $1.53 for regular. That's unheard of in what ten or 15 years in this country?

BLITZER: Yeah, it is amazing. $4 one day and a few days later, $1.50 or $1.60 and something is going on here.

CAFFERTY: But Ali is right, it won't stay down real low like this, and at some point it will go up. But the problem is that the whole globe is in the economic slowdown and nobody has money to do much of anything.

BLITZER: Good point. Thank you, Jack. Standby.

New details right now emerging of a stunning political scandal, and the arrest of the Illinois governor for allegedly trying to sell Barack Obama's senate seat.

UNIDENTIFIED MALE: It was a phone call from me to the governor, advising me that we had a warrant for his arrest and there were two FBI agents outside of his door, and asked him to open up the door so we could do it as quietly without the media finding out and without waking the children.

BLITZER: Wow. Can you imagine the details coming into THE SITUATION ROOM about the investigation and the possible fallout for the president-elect and beyond.

And we are following other developments on Capitol Hill. Intense efforts under way right now to hammer out a deal to save the U.S. auto industry. Details of the sticking points and more when we come back.

(COMMERCIAL BREAK)

BLITZER: Billions of dollars to bailout the U.S. auto industry. Should Chrysler, specifically Chrysler get any of the cash? Let's go to Lou Dobbs. He has an opinion on this.

What do you think, Lou?

LOU DOBBS, CNN ANCHOR: Well, as you know, Wolf, I have been saying from the outset that I believe it is important that General Motors and Ford receive some federal help. Too many jobs at stake here and they definitely need that help, but I think it is unrealistic and impractical and probably something that we should not consider, and that is money to a private company which is Chrysler. Chrysler, which as you know is owned by Daimler Benz, and at one point selling to Cerberus, a private equity company with billions of dollars at its disposal and if they wanted to, they could put the money forward to Chrysler. Where they are unwilling to do so, I don't believe that the taxpayers should anteing up money to support a private firm.

BLITZER: And Lou will have a lot more on this breaking story coming up in one hour. Lou, thank you very much.