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THE SITUATION ROOM

Obama: Watchdogs Were 'Asleep'; Auto Bailout Versus Bankruptcy?; Interview With Donald Trump

Aired December 18, 2008 - 16:00   ET

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


WOLF BLITZER, CNN ANCHOR: Happening now, Barack Obama's new financial watchdogs. He promises they'll put teeth into oversight of the troubled economy after Washington and Wall Street, in his words, "fell asleep at the switch."
Also this hour, is the White House willing to let the big three automakers go bankrupt? Carmakers idle dozens of plants around the country. I'll ask Donald Trump for his take on an auto bailout and America's overall financial mess.

Plus, the Obama inauguration triggers a new culture war. At issue right now, an opening prayer by Pastor Rick Warren and outrage among some gay activists and even some evangelicals.

I'm Wolf Blitzer. You're in THE SITUATION ROOM.

President-elect Obama is casting a pretty wide net of blame for the nation's economic meltdown, pointing to a virtual absence of any serious oversight. Today he named his choices to fill three key jobs as financial regulators, including his nominee to head the Securities & Exchange Commission, Mary Schapiro.

Let's go to our National Political Correspondent Jessica Yellin. She's covering the transition to power in Chicago.

He was pretty biting in his criticism, and it wasn't just directed at one address.

JESSICA YELLIN, CNN NATIONAL POLITICAL CORRESPONDENT: That's right, Wolf. I asked Barack Obama who is to blame for the current economic crisis, and he said there is plenty of responsibility to go around.

(BEGIN VIDEOTAPE)

YELLIN (voice-over): Unprecedented fraud. Crisis on Wall Street. A meltdown in the housing industry. And regulators failed to stop it all.

President-elect Obama says he's outraged.

SEN. BARACK OBAMA (D-IL), PRESIDENT-ELECT: And that's a failure we can't afford.

YELLIN: But can he do any better?

(on camera): Do you plan to overhaul the SEC? Was Congress asleep at the switch?

OBAMA: We have been asleep at the switch, not just some of the regulatory agencies, but some of the congressional committees that might have been taking a look at this stuff. We have not been as aggressive, and we've had a White House that started with the premise that deregulation was always good.

YELLIN (voice-over): He says Wall Street executives need to clean up their act, too.

OBAMA: I think the American people right now are feeling frustrated that there's not a lot of adult supervision out there. And part of what we've tried to talk about during the course of this campaign is a restoration of a sense of responsibility.

YELLIN: The president-elect promises to release a detailed plan to overhaul the system that oversees the nation's financial institutions. He says it will be the second piece of his overall economic recovery package which will focus on creating jobs and stimulating economic growth, cleaning up regulatory agencies, and getting the nation's deficit under control. And if that's not enough to fix, he also promises to admit it when he's wrong.

OBAMA: One of the things that I hope is that the American people will find when we make a mistake, we're willing to fess up to it and change.

(END VIDEOTAPE)

YELLIN: And Wolf, he also says he hopes the American people will start focusing on taking personal responsibility as well, making fiscal choices not just about what will enrich themselves, but be good for the community as a whole -- Wolf.

BLITZER: And we're hearing also, Jessica, he's made his mind up about a labor secretary?

YELLIN: Labor secretary, yes. He has selected Hilda Solis, Democratic officials tell us. She's a five-term congresswoman from California, a Latina, and she has deep union roots. She's being widely praised by the union community. And he has also selected somebody to be his U.S. trade rep. That would be the former mayor of Dallas, Ron Kirk.

So two more down.

BLITZER: All right. Good. Thanks very much for that.

Jessica Yellin's in Chicago.

Let's go to another crumbling pillar of the U.S. economy right now, the auto industry. As carmakers prepare to temporarily stop production at dozens of plants around North America, President Bush is still mulling his bailout options.

CNN's Kate Bolduan is over at the White House looking at this story for us.

He spoke about several options today, the president. What did he have to say, Kate?

KATE BOLDUAN, CNN CORRESPONDENT: That's right, Wolf. He said there are options on the table, but saying there's no decision quite yet.

It's been just about a week since Congress failed to agree on emergency assistance for automakers. And here at the White House, we're getting a better idea of what options are out there.

(BEGIN VIDEOTAPE)

BOLDUAN (voice-over): Very close, but not there yet. The latest word from the White House on its plans to help the struggling auto industry.

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: Let me take a step back. I haven't made up my mind yet.

BOLDUAN: However, the White House is now saying it's not only considering dipping into the Troubled Asset Relief Program to offer auto companies a lifeline, but possibly some type of prepackaged bankruptcy for automakers.

DANA PERINO, WHITE HOUSE PRESS SECRETARY: A disorderly collapse would be something very chaotic that is a shock to the system. There's an orderly way to do bankruptcies that provides for more of a soft landing. I think that's what we would be talking about.

BOLDUAN: A slight nuance with a potentially big impact.

ANNE MATHIAS, STANFORD GROUP: I think what they're saying is we're going to take a half step. We're not going to just bail them out, but we are not going to let these companies just completely flail around, go off the cliff, shed employees willy-nilly, and just go out of existence.

BOLDUAN: While the White House continues to weigh its options, the latest numbers for unemployment claims dropped but remain near a 26-year high, just one signal the pressure to act is mounting.

BUSH: We lost 533,000 jobs last month. What would another million jobs lost do to the economy? What would that do to the psychology of the markets? What would that do to the -- you know, how would that affect the working people?

(END VIDEOTAPE)

BOLDUAN: Now, House Speaker Nancy Pelosi used those jobless claims numbers today to demand action, saying in a statement that the White House needs to provide assistance "... to prevent the imminent insolvency of the domestic auto industry."

The White House, for its part, Wolf, only saying right now they're getting closer.

BLITZER: Kate Bolduan watching the story at the White House.

Here's why the automakers need something to happen, and they need it to happen very, very quickly. Chrysler will stop making cars at all of its 30 plants for at least a month. It starts tomorrow. Twenty-two of those plants, by the way, right here in the United States.

Forty-six thousand employees will be affected. They will be paid during the shutdown, but paid less than they'd normally make. Chrysler blames a continued lack of consumer credit for car buyers.

Now let's go to Jack Cafferty right now. He's got "The Cafferty File" -- Jack.

JACK CAFFERTY, CNN ANCHOR: I got an e-mail from a viewer. His brother works for a Lexus dealer. He said he usually sells between 12 and 15 cars during the month of December. So far he's sold three.

Caroline Kennedy positioning herself to be appointed to fill the Senate seat that will be vacated if and when Hillary Clinton is confirmed as the new secretary of state. The daughter of the late President John Kennedy called New York Governor David Paterson, who will appoint the person who will replace Ms. Clinton, and expressed her interest. She said, I'd like it.

Yesterday, she traveled around Upstate New York, she had closed- door meetings with mayors, union leaders, other officials. Along the way, she touted her devotion to public service, her books on the Constitution, and raising her family. And today she had lunch in Harlem with the Reverend Al Sharpton.

Although it seems like a campaign, it's really not. There's no election, not until 2010, when whoever's appointed to fill the seat can then run to remain in the seat if they wish.

According to "The New York Times," Kennedy's winning hearts, but some Democrats worry about her sense of entitlement and the message that politics is reserved for the upper class. That's leading to some grumbling among some of the Democratic Party.

According to a poll done by Siena College, Kennedy is not the front-runner for this job. Twenty-six percent in the poll favor New York Attorney General Andrew Cuomo, the son of the former New York governor Mario Cuomo -- Is this stuff all incestuous enough? -- compared to 23 percent who favor Ms. Kennedy. However, 31 percent think that Governor Paterson in the end will give the Senate seat to Caroline Kennedy.

Here's the question: Could appointing Caroline Kennedy to fill Hillary Clinton's Senate seat cause a backlash within the Democratic Party?

You can go to CNN.com/caffertyfile and post a comment on my blog.

Is there anybody in political office whose mom or dad wasn't in political office before them?

BLITZER: Yes, Barack Obama.

CAFFERTY: True. Thank you.

BLITZER: OK. Jack, stand by. We're coming back to you.

CAFFERTY: All right.

BLITZER: Donald Trump is an expert at hiring and firing. So what does he think of this economic team that the president-elect is putting together? Trump is standing by. He will join us live. Stay with us.

And efforts to impeach the Illinois governor move forward, and Rod Blagojevich is already paying a price right out of his own pocket.

And America's mayors want to spend over a million of your dollars to build a new water park ride. Would their laundry list of new projects create jobs or just waste taxpayer money?

CNN investigates right here in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: Virtually the whole world wants to see the man accused of running a $50 billion alleged scheme that's left some millionaires right now penniless, but Bernard Madoff apparently wants to escape the spotlight in his lavish $7 million New York City apartment. Madoff is spending his first day under electronic monitoring right there.

My next guest says he knows people who are financially hurt in this scandal. Joining us now is the real estate mogul Donald Trump. He's on the phone from New York.

Donald, thanks very much for joining us.

First of all, do you know this Madoff?

DONALD TRUMP, REAL ESTATE MOGUL: Well, I know him in that he would come to the Mar-a-Lago Club. I own the Mar-a-Lago Club in Palm Beach, and he would be there quite a bit. And we have all the big functions at the ballroom at Mar-a-Lago, and it's a hotbed in the town. And he would come there a lot and I would see him, and everybody thought he was a respected guy, but he certainly turned out to be not much of a respected guy in the end.

BLITZER: It's shocking when you hear some of these stories, but you know individuals who have gone from being millionaires one night and the next morning, they're penniless.

TRUMP: One phone call and they're gone. I know people $100 million and more where they've been totally wiped out. I mean, they put 100 percent of their money with this character, this sleazebag. A hundred percent and they're wiped out. And you know, it's one thing when you grow up and you don't have money and you get a certain age and you learn to live. These people have had hundreds of millions of dollars, and one phone call on a Thursday night and they're wiped out, have nothing left.

And some of them put 100 percent of their cash and then mortgaged their house to get him more cash because they were so greedy. And honestly, a lot of the people -- the word is greed. A lot of the people, Wolf, were so greedy that they did just unbelievably stupid things.

They had such faith this guy. He was a Svengali for rich people. They had such faith in this guy and he turned out to be a total scam artist. So it's a terrible thing.

BLITZER: It looks like the federal government, any significant oversight, completely asleep at the switch.

TRUMP: Well, I don't know that you can say that because, honestly, the SEC does a good job. And supposedly people in his own office didn't know about it. Now, I find that hard to believe, to be honest with you.

BLITZER: You don't believe one guy acting alone could do this, do you?

TRUMP: I don't believe it's possible. I mean, he's got two or three floors in a major office building in New York. He has hundreds of employees. He's got his two sons that say they didn't know anything about it. Give me a break.

Look, they obviously made a deal, in my opinion, with the father to say we'll turn you in, we won't sign anything, we'll do all the stuff. This way, we can try and claim that we didn't know. How could the sons not have known this? It's impossible.

BLITZER: But that's just your supposition. You don't have any evidence of that.

TRUMP: No evidence. But doesn't it sound a little strange that a guy can run $50 billion worth of money and nobody in the company knew what he was doing?

BLITZER: The whole thing sounds incredible that some of the most sophisticated richest people out there not only losing so much of their personal wealth, but all these charities going bust right now. It's not just rich people losing money, but very important causes losing millions and millions of dollars.

TRUMP: Wolf, I think it's one of the most interesting stories I've ever read. I've never digested stories like I do this one. I read everything on it.

It's just so fascinating that this guy could have -- and you have to understand, he was revered by these people. These people gave him 100 percent of what they had in many cases. And these are some of the smartest people, some of the wealthiest people that you'll ever see.

I mean, $7.5 billion in one case, a fund for $7.5 billion. They gave him 100 percent. It's the craziest thing I've ever heard. And he just scammed them.

BLITZER: It's unbelievable.

All right. Let's talk about another huge issue right now. The president of the United States says he still hasn't made up his mind whether to provide a bridge loan to two of the three big automakers in the United States, Chrysler and GM.

Should he do it?

TRUMP: Well, I hope he does it, but you have to make a much better deal with the unions. I said yesterday to a group of people that Gettelfinger is one of the greatest salesman that you could ever see.

BLITZER: He's the president of the United Auto Workers, Ron Gettelfinger.

TRUMP: You watch him talking, and it's almost like his men and women are just receiving almost no wages. And then you go out and you hear about stories with years of severance pay, years of this, years of family legacy, things that you never even heard of before. And yet, when you watch him speaking, it's as though his people are just suffering tremendously running -- working at these car companies.

The fact is you have to make the companies competitive. And if you're not going to make a deal with the union, and a great and fair deal and a competitive deal, then they shouldn't do it. But absolutely, they should try and save the companies. You just can't lose Chrysler, you can't lose Ford, and you can't lose General Motors.

BLITZER: I know you endorsed John McCain, but how do you think Barack Obama is doing right now, not only in terms of some of the strategy, the policies he's outlining, but in terms of the appointments he's made?

TRUMP: I think he's doing great. I think Hillary is a great appointment. I think that some of the others are just great appointments.

I know Lisa Jackson very well because I do a lot of business in New Jersey. She's a brilliant person, a great environmental person. And that's going to be an amazing appointment. You watch.

So I think he's doing a great job.

BLITZER: So you're impressed.

One final question, Donald, before I let you go. Like everyone else, there are reports out there that even the Trump Organization is having some financial problems out there, specifically one building in Chicago. Is all that true? TRUMP: Well, we have a lawsuit against a big bank, Deutsche Bank. We're suing them for $3 billion for things. And I'll let you know about how that turns out in a couple of years. I think we're going to do very well on it.

The Chicago building, it's a single asset. But the Chicago building is actually selling well. We're closing a lot of units. But we've had problems with lenders.

You know, the banks aren't putting out money. We've had problems with lenders like everybody else does. And frankly, banks have to get back into the picture, otherwise a lot of people are going to have problems.

Now, we've never been stronger. We have a lot of cash and everything else. But one building in Chicago we do have a problem with, and I think it's going to work out very well. People love the building, they love the asset.

BLITZER: It's like a 90-story building, right?

TRUMP: It's a 90-story building, and we're closing -- it's almost completed. And we're closing apartments literally on a weekly basis, tens of millions of dollars. So I think it will work out in the end, but I'll let you know about it in a year.

BLITZER: Because the story I read in "The Financial Times" or someplace suggested that you had missed a payment and they were suing you.

TRUMP: No, no, no, I'm suing them for $3 billion. I think they've counter-sued me, but I'm suing them for $3 billion.

BLITZER: All right. Well, we'll watch it.

Donald Trump...

TRUMP: You watch it. Watch it closely, Wolf.

BLITZER: We'll be watching. We watch everything that Donald Trump does.

We'll speak to you soon. Thanks very much.

TRUMP: OK. Thank you very much.

BLITZER: All right. Good luck to you.

Good luck to everyone out there.

Some Barack Obama supporters do not support something he wants to do, and they're pretty angry right now.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: We worked is very hard for Senator Obama's election, and now president-elect. And for us to not be respected by his choices in this case is really very disappointing to us.

(END VIDEO CLIP)

BLITZER: Gay rights activists say they feel disrespected by the choice of a prominent evangelical pastor to speak at Barack Obama's inauguration. You're going to hear what the president-elect himself has to say about this.

And Caroline Kennedy is campaigning pretty aggressively right now to be picketed for Hillary Clinton's Senate seat. Wait until you hear her discuss what she needs to learn.

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

(NEWSBREAK)

(COMMERCIAL BREAK)

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

Happening now, former President Bill Clinton opens the book on hundreds of thousands of donors to his foundation to help with his wife's confirmation as secretary of state. Does the list help or hurt Hillary Clinton's cause?

His judgment now called into question. Republicans on the Judiciary Committee zero in on the attorney general nominee, Eric Holder. CNN's Brian Todd went digging to find out what they're looking for.

And where there's a will, there's a way. Drug smugglers find a weakness in the border fence between the U.S. and Mexico. And we have the video to prove it.

I'm Wolf Blitzer. You're in THE SITUATION ROOM.

In the Illinois capital right now, lawmakers are hearing arguments for throwing Governor Rod Blagojevich out of office. But there are questions about how far the panel will be able to delve into the hottest allegation of corruption.

Brian Todd has been following this developing story for us.

Brian, tell us about this opening day of testimony.

BRIAN TODD, CNN CORRESPONDENT: It could be really the calm before the storm here, Wolf.

Minor witnesses today at the impeachment hearings, on a day, though, when the governor got some bad news on another front. This time about his legal fees.

(BEGIN VIDEOTAPE)

TODD (voice-over): He's accused of attempting to line his pockets, but legal fees may end up emptying his pockets. Rod Blagojovich's request that the state pay for his legal defense against impeachment efforts was rejected by the Illinois attorney general.

JEFF JACOBOVITZ, DEFENSE ATTORNEY: What it could cost him is probably $5 million to $20 million in legal fees on a case like this.

TODD: Meanwhile, the panel considering impeachment heard from its first witnesses today, some of whom criticized the governor's conduct in years past.

UNIDENTIFIED MALE: Mr. Blagojevich, however, has chosen to ignore the Constitution.

TODD: But in spite of a heated exchange on procedure, there was no discussion of the explosive criminal complaint revealed last week, except when the governor's lawyer said the legislature shouldn't just take that complaint, including the alleged wiretap quotes, on face value.

ED GENSON, BLAGOJEVICH'S ATTORNEY: Until we get a chance to contest it, until we get the underlying documents, the use of this is illegal. And the use of the excerpts that were in the complaint that was read by Mr. Ellis (ph) to this committee should not have been read to this committee and cannot be considered by this committee.

TODD: Blagojevich, through his lawyer, has denied doing anything wrong and said yesterday he hoped to speak soon.

GOV. ROD BLAGOJEVICH (D), ILLINOIS: You know, I -- I can't wait to begin to -- to tell my side of the story.

TODD: But speaking publicly could carry risks of its own.

JEFF JACOBOVITZ, DEFENSE ATTORNEY: He has to decide, "Do have I have a political future? And, if I do not have a political future," at this point, he's better off not saying a thing.

(END VIDEOTAPE)

TODD: Now, a spokesman said that Blagojevich will not speak this afternoon, but would not rule out speaking publicly, maybe as soon as tomorrow, Wolf. We could hear from him for the first time.

BLITZER: So, that would -- it would really get even more interesting than it is right now.

TODD: Well, that's right.

And -- and also watch for next week, because they're waiting -- the panelists on the impeachment panel are waiting for the special prosecutor, Patrick Fitzgerald. He has said this week that he needs to have a written letter from them to see what witnesses they want to call for this. And he will not give them a green light until he sees a list. And then he will have to think about it.

And they don't expect to hear from him before this weekend. So, maybe Monday or Tuesday, this is really going to get hot.

BLITZER: OK. We will watch. And you will be all over it.

TODD: Absolutely.

BLITZER: Thanks, Brian, very much.

In another story we're following, some of Barack Obama's supporters are rather angry with him right now. And it involves the selection of a well-known pastor for a prime inaugural speaking slot.

CNN's Samantha Hayes is joining us now live.

The president-elect couldn't escape some questions about this today.

Sam, tell us what's going on.

SAMANTHA HAYES, CNN CORRESPONDENT: Yes, Wolf, there has been, you know, so much feedback about that selection, that Barack Obama responded to the backlash today.

(BEGIN VIDEOTAPE)

HAYES (voice-over): Before Barack Obama takes the oath of office, this man, Pastor Rick warren, will lead the nation in prayer for his presidency.

Warren was a strong supporter of a movement to ban same-sex marriages in California. And that doesn't sit well with some liberals and gay rights groups.

HARRY KNOX, RELIGION AND FAITH PROGRAM DIRECTOR, HUMAN RIGHTS CAMPAIGN: The president has chosen to send a message that gay and lesbian people are not welcome by choosing Rick Warren to be the person who represents the totality of the spiritual world in our country at that event. It's just profoundly disappointing.

HAYES: Warren's influence in politics was evident in August, when both presidential candidates came to his California megachurch for a forum on faith. On same-sex marriage. Obama said:

OBAMA: I believe that marriage is the union between a man and a woman.

HAYES: But Obama does support civil unions, something he pointed out today when pressed on the issue.

OBAMA: I would note that, a couple of years ago, I was invited to Rick Warren's church to speak, despite his awareness that I held views that were entirely contrary to his when it came to gay and lesbian rights. There are going to be a wide range of viewpoints that are presented. And that's how it should be.

HAYES: Warren is not the only pastor speaking during the inauguration. Civil rights icon, the Reverend Dr. Joseph E. Lowery, who supports same-sex marriage, will deliver the benediction. KNOX: Reverend Lowery is a great friend of our community. And he's delighted that he's going to be there. But he's not the -- the main event. It's really very sad for us, because we worked very hard for Senator Obama -- or -- yes, for Senator Obama's election and now president-elect. And for us to not be respected by his choices in this case is -- is really very disappointing to us.

HAYES: As it turns out, Warren's selection is also angering many on the right, who are concerned about another social issue: abortion.

DAVID BRODY, SENIOR NATIONAL CORRESPONDENT, CHRISTIAN BROADCASTING NETWORK: My e-mail box literally little is -- my e-mail box is flooded with pro-life conservatives saying, this is ridiculous. Why is Rick Warren associating himself with Barack Obama on such a historic day? They're not happy about it. But, you know, at the end of the day, Rick Warren has heard this criticism before.

(END VIDEOTAPE)

HAYES: And, at least for now, he's not commenting. That's the message from Warren's P.R. forum -- Wolf.

BLITZER: I assume he will be commenting fairly soon, though, Sam.

(CROSSTALK)

BLITZER: Thanks very much.

The Rick Warren pick is also creating a furor online. Lots of people are using Barack Obama's own Web sites to challenge this decision.

Let's go to our Internet reporter, Abbi Tatton.

Abbi, what are we seeing?

ABBI TATTON, CNN INTERNET REPORTER: Wolf, these are the official online platforms for the president-elect, Barack Obama.com, change.gov. These are places where people are encouraged to go on and express their opinions, to organize online.

And people are taking advantage of that opportunity today with the Rick Warren pick. At the transition Web site, someone writing here, "Starting off the Obama administration with Rick Warren is a disgrace."

Over at the social network MyBarackObama.com, people, many of them members of gay and lesbian groups for Obama are writing things like this one: "He's driven a stake right into the heart of his gay and lesbian supporters."

Today, online, you're going to find plenty of other commentary on liberal blogs, on Facebook, where -- where groups on this issue are quickly growing. But it's the people that are using these online platforms from Barack Obama himself that know that they're going to get seen, like this person, who is writing directly to the transition team, saying, "I hope are you reading and tallying these responses" -- Wolf.

BLITZER: All right, Abbi, thank you.

Religious leaders, by the way, are often part of presidential inaugurations. The most frequent participant -- participant is the evangelist Billy Graham. He's been invited to a record 10. Graham attended his first presidential inaugural for President Dwight Eisenhower back in 1953. Ten years later, Graham actually gave his first Inaugural Day sermon. That was at President Lyndon Johnson's 1965 swearing-in.

Over the years, Graham has participated in others, as well. But he could not attend the current president's first inauguration back in 2001 because Graham was in the hospital at that time. His son, Franklin Graham, took his father's place.

America's mayors want to spend billions of dollars on projects they say will create jobs. But will taxpayers want to foot the bill?

(BEGIN VIDEO CLIP)

PETE SEPP, VICE PRESIDENT FOR POLICY AND COMMUNICATIONS, NATIONAL TAXPAYERS UNION: To the people supporting them, these proposals aren't a joke, but, to the taxpayers funding them, yes, it will be a joke to them. Only, they won't be laughing.

(END VIDEO CLIP)

BLITZER: From a polar bear exhibit to a water park ride, CNN investigates the questionable projects now under consideration.

And is Defense Secretary Robert Gates looking forward to working closely with Hillary Clinton? The possible pros and cons of that pairing, that's coming up in our "Strategy Session."

And how the U.S. military is planning for the Obama inauguration, much like it plans for war.

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

(COMMERCIAL BREAK)

BLITZER: America's mayors are asking Congress to send billions of dollars on a wide range of projects, including a costly water ride, to an even more expensive polar bear exhibit. The mayors say the money is an investment in new jobs. Critics say many of those projects are a joke.

This is a story that CNN's special investigations correspondent Abbie Boudreau has been working on. She is standing by. She's joining us now live.

What did you uncover, Abbie, in your investigation? ABBIE BOUDREAU, CNN SPECIAL INVESTIGATIONS UNIT: Well, Wolf, if you read through this 800-page report from the U.S. Conference of Mayors, you will see some of the ready-to-go projects include rebuilding roads, waterways, and schools. But we discovered other projects that are raising red flags.

(BEGIN VIDEOTAPE)

BOUDREAU (voice-over): You usually don't think a nearly $5 million polar bear exhibit in Rhode Island would help turn around the economy. But the U.S. Conference of Mayors sure thinks so. It's one of more than 11,300 ready-to-go infrastructure projects proposed by 427 cities, at a total cost of $73 billion.

SEPP: To the people supporting them, these proposals aren't a joke, but, to the taxpayers funding them, yes, it will be a joke to them. Only, they won't be laughing.

BOUDREAU: Just this month, Miami Mayor Manny Diaz, the president of the U.S. Conference of Mayors, and other big-city leaders went to Capitol to make the call for their list of critical projects.

MANNY DIAZ, MAYOR OF MIAMI, FLORIDA: Our plan calls for investments that will stimulate our economy by quickly creating jobs.

BOUDREAU: Mayor Diaz even held up the report, saying the projects weren't a bailout, but a build-out to put Americans back to work.

(on camera): Did you have a chance to even read through the report?

DIAZ: Well, I read through -- I read through a lot of it. Obviously, I didn't sit there and look at all 11,300 projects that were submitted.

BOUDREAU: Why is that?

DIAZ: Why is that? I didn't have time.

BOUDREAU (voice-over): If he made the time, he would have found projects like a $20 million minor league baseball museum, $42 million for improvements to zoos, $3 million for murals, and even $1.5 million for a new water park ride.

DIAZ: You can't simply just say that because something like that it isn't right, that it isn't in fact right.

BOUDREAU (on camera): A new ride at a water park?

DIAZ: Well, you know, again, I would have to -- I would have to look that the particular project and try to understand why that city feels that it's an important project. But, again, we're talking about 11,300 projects, not just one.

BOUDREAU: The new ride at the water park is in your city. DIAZ: Mm-hmm.

BOUDREAU: So, what is your response? I mean, I'm asking you as a mayor. I'm surprised that you didn't know about the new ride at the water park.

DIAZ: Well, we have a number of projects, and I don't know which one you're referring to. But we just built a new water park. And it may be related to that water park, or it may be outside the city. I'm not sure.

BOUDREAU: A million-and-a-half dollars for a new ride at a water park.

DIAZ: But -- but the point is that part of investing in infrastructure also includes parks.

BOUDREAU (voice-over): While there were plenty of roads and bridges and water treatment projects on the list, we also found plenty of other interesting multimillion-dollar projects, like skateboard parks, museum and zoo renovations, aquatic centers, bike and horse paths, a dog park, even programs beyond infrastructure, to help prostitutes get off the street, and buy thousands of Tasers for police departments.

The total cost? More than $300 million. And many of the proposals in the report don't create jobs.

Pete Sepp of the National Taxpayers Union says, it smells like pork.

SEPP: It's impossible for any normal taxpaying American to read this and not come away scratching your head and saying, wait a minute, this isn't about infrastructure. This is about political power grabs, money grabs.

BOUDREAU (on camera): To the average American, doesn't this sound like pork?

DIAZ: I don't know. You would have to ask the average American.

(END VIDEOTAPE)

BOUDREAU: Mayor Diaz says he would hope that members of Congress would read the entire list of projects his group submitted to make sure that they are legitimate before handing over billions of dollars. He also tells us there will be even more proposed projects from other cities by the end of the year -- Wolf.

BLITZER: I know that states are coming up with all sorts of lists. And you will probably be going through those as well.

Abbie, thank you.

BOUDREAU: No problem.

BLITZER: Abbie Boudreau of CNN's Special Investigations Unit reporting.

Defense Secretary Robert Gates has the same old job, but he's hoping for a new attitude.

(BEGIN VIDEO CLIP)

ROBERT GATES, SECRETARY OF DEFENSE: More often than not, during my career, the secretary of state, the secretary of defense have not been on speaking terms...

(LAUGHTER)

GATES: ... which complicates policy-making.

(END VIDEO CLIP)

BLITZER: His hopes for a -- with a -- his hopes for a new administration, and whether he might get them, that's coming up.

And the bad news for Republicans just getting worse. Would you believe a total of 52 GOP seats vanished in the past two years alone? Bill Schneider looking at the numbers -- right here in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: Robert Gates staying on as defense secretary, Hillary Clinton coming in as secretary of state, how will they work together? We have an assessment coming up -- right here in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: Joining us now in our "Strategy Session," our CNN contributor Hilary Rosen, and conservative commentator Terry Jeffrey.

Hilary, I know you're not happy that Pastor Rick Warren is going to be giving the inaugural invocation on January 20.

HILARY ROSEN, CNN POLITICAL CONTRIBUTOR: I think it was a mistake. I think it's a divisive choice. There are plenty of well- known and respected preacher who could have given an invocation without this kind of controversy. And I think the fact that people have been talking about it for two days shows that it was a mistake.

BLITZER: But you heard Barack Obama earlier today say, what's wrong with being inclusive, bringing in people, even if you disagree with some of their ideas?

ROSEN: Well, you know, his idea is -- is about human beings. This is not like a policy or a political difference. It's not because he's against gay marriage or anything like that. Lots of people are.

What he's done is, he said that gay relationships are like incest, like pedophilia, or, you know, that it's -- it's to be disrespected, in a way. And he uses the moral authority of the Bible, the -- you know, the -- that -- that preaching authority that he is going to be using on Inauguration Day to put people down. And that's the wrong way to do it.

BLITZER: Terry, Tony Perkins, the president of the Family Research Council, he welcomed this decision by president-elect Obama: "I'm heartened by his choice of one of America's leading evangelical pastors, who is pro-life and pro-marriage, for this honor. Let's hope that Rick Warren will use his channel of communication to the new president to press him for more pro-family policies, rather than simply being used by Mr. Obama to make political inroads with evangelicals."

TERRY JEFFREY, EDITOR IN CHIEF, CYBERCAST NEWS SERVICE: Well -- well, Wolf, I don't think the liberals have anything to worry about with Barack Obama.

I think this is the most pro-same-sex-union, most pro-abortion president that's ever been elected. I think -- I think a question for Warren is, are the Obama people going to vet his prayer when he gets up there?

We're talking about a disagreement here on the two most morally significant issues in America today, whether we're going to legalize the killing -- legal killing of unborn babies and how we're going to define marriage.

And I think there's such a degree of disagreement between Warren and President Obama, I think a lot of conservatives are going to be looking to see whether or not Pastor Warren is capable of signaling that he is giving approbation to President Obama's agenda when he stands up there and gives that prayer.

BLITZER: You want to respond to that?

ROSEN: Well, it's just -- no matter, it's -- it bears repeating. This is not about opposition to same-sex marriage.

This is about, do you use your -- your moral authority on a bully pulpit of Inauguration Day to advance an agenda that is hurtful? And I -- and -- and that's the problem. It's just the fact that this discussion keeps happening proves that people are going to feel bad about this. And I don't think that's what Barack Obama wanted.

JEFFREY: Well, you know, it raises a question whether Barack Obama takes these things seriously.

He promised at the Planned Parenthood Action Fund back in July of 2007 the first thing he would do as president is sign the Freedom of Choice Act. And that would legalize unrestricted abortion on demand all across the country.

He also endorsed Proposition 8, Wolf. He sent a letter to the Alice B. Toklas Democratic Club in San Francisco saying that he wants full equality for gay unions, and he congratulated them for having same-sex marriages. Either he's serious about these issues or not.

(CROSSTALK) JEFFREY: Either's he's a political -- political posturer, or he and Rick Warren are absolutely on the opposite ends of the two most morally significant...

(CROSSTALK)

ROSEN: Inauguration Day is not a policy and legislative negotiations. It's not the place for it. It's not what people are looking for. It's a time to bring the country together, to seek the common ground...

JEFFREY: And it is...

(CROSSTALK)

ROSEN: ... and make people feel good about the new direction the country is going.

JEFFREY: And it is about setting a vision for our country. And I think issues like abortion and marriage are as fundamental to what this country is about as slavery once was.

This is an issue that is going to be decided one way or another. You have to take a stand. And you have to fight for what you believe in.

ROSEN: So, you're saying that -- that, actually, you guys think that this is an opportunity for Rick Warren to push a policy agenda?

(CROSSTALK)

ROSEN: That makes the decision that much worse.

JEFFREY: This -- this is a good question for....

(CROSSTALK)

ROSEN: See, it's exactly that pressure to do that.

JEFFREY: This is a good question for president-elect Obama. Are they going to review in advance the prayer and approve the prayer that Rick Warren is going to give, or is he going to be able to choose what he says? And then a lot of people are going to be watching what this man says when he gets up there.

BLITZER: We will all be watching on January 20...

(LAUGHTER)

BLITZER: ... to see what all of them say.

All right, guys, thanks very much.

Amid criticisms she's not qualified to be a senator, Caroline Kennedy now making her case publicly.

(BEGIN VIDEO CLIP)

CAROLINE KENNEDY, DAUGHTER OF PRESIDENT JOHN F. KENNEDY: This is a time when nobody can afford to sit out. And I hope that I have something to offer.

(END VIDEO CLIP)

BLITZER: She's out there campaigning to win Hillary Clinton's seat. But she acknowledges she has some things she needs to learn.

Bill Clinton had been keeping some secrets, but the secrets are all out right now. He's trying to help his wife become secretary of state. And he's released thousands of pages of documents and names of his big supporters.

And we can now confirm the Republicans suffered an even more devastating defeat after Election Day. We will explain -- right here in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: It was clear on -- it was very clear on Election Day that Republicans had taken a terrible beating here in Washington and across the nation.

Well, now, a month-plus later, there's even more evidence that the GOP is at a very significant and dangerous crossroad.

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

Almost all of the election results, Bill, are now finally in. And what do we know?

WILLIAM SCHNEIDER, CNN SENIOR POLITICAL ANALYST: Well, they're all in, except that one Senate race in Minnesota. But we know that Republicans are in deep trouble.

(BEGIN VIDEOTAPE)

SCHNEIDER (voice-over): The last House race just got decided for the Democrats. The final result? Republicans lost a net total of 21 House seats this year. That's on top of a 31-seat GOP loss in 2006.

Republicans have lost a total of 52 seats in the last two elections, which is exactly the number of House seats the party had gained in the 1994 landslide. The Republican revolution has been erased.

STUART ROTHENBERG, EDITOR AND PUBLISHER, "THE ROTHENBERG POLITICAL REPORT": They are now a -- in the House at least, an -- bordering on an insignificant minority.

SCHNEIDER: And in the Senate? Depending on the outcome in Minnesota, the Senate will have 41 or 42 Republicans next year, the lowest number since the 1970s.

ROTHENBERG: They're in a really feeble position, almost the way they were before Ronald Reagan.

SCHNEIDER: Republicans have begun dropping out of the Senate, like Senator Mel Martinez of Florida, a former national chairman of the party.

SEN. MEL MARTINEZ (R), FLORIDA: I announced that I will not run for reelection to the United States Senate.

SCHNEIDER: And Senator Sam Brownback of Kansas, a former presidential candidate.

How bad is it for Republicans?

SEN. LAMAR ALEXANDER (R), TENNESSEE: We have had a failure of imagination -- imagination on the Republican side. We need to turn the principles we believe in into solutions that affect Americans on an everyday basis.

SCHNEIDER: Only 23 percent of Americans say they trust the Republicans to cope with the nation's problems, the lowest number for either party since 1982.

Right now, 37 percent approve of the way Democrats in Congress are doing their job. President Bush's approval rating? Twenty-nine percent. Republicans in Congress? Twenty-five, even lower than President Bush.

(END VIDEOTAPE)

SCHNEIDER: According to a report just released by the Center for the Study of the American Electorate at American University, Republicans continue to have a -- quote -- "durable advantage" only in the Deep South, the Great Plains, and two strongly Mormon states, Utah and Idaho, plus Texas, which also may become competitive in the next decade, the report says, because of its fast-growing Latino population -- Wolf.

BLITZER: As you point out, all bad news, at least most of that, for the GOP. Bill, thanks very much.

Let's check back with Jack. He's got "The Cafferty File" -- Jack.

CAFFERTY: Wolf, the question this hour is: Could appointing Caroline Kennedy to fill Hillary Clinton's Senate seat cause a backlash within the Democratic Party?

Ryan says: "There shouldn't be any backlash. She's just as qualified as Hillary was when she took the office. I think the Clinton camp, and friends, are afraid that Caroline Kennedy might try to run for president in eight years."

Mark in Oklahoma City: "Are you kidding? It would be wonderful to have a Kennedy in the Senate to take RFK's old seat. By the way, what exactly were Mrs. Clinton's qualifications to be a U.S. Senator? In fact, Obama is a little short on qualifications to be president, but that didn't stop millions of people from standing in line for hours to vote for him. Democrats can just get over themselves."

Chet in New Jersey writes: "It's a shame she is putting this kind of pressure on the New York governor. It's supposed to be his choice. Typical Kennedy ego. There are so many more qualified people."

J.D. in New Hampshire: "I should hope not. What's with the Caroline hatred, anyway? There is a long, long list of individuals who have been appointed to fill Senate seats over the years. I'm unaware that there is a special clause in the rule that excludes Kennedys."

David writes: "There will be backlash no matter who the governor appoints. He can minimize this by consulting widely among Democrats before making his decision, and listening especially closely to Senator Schumer."

Michael in Virginia writes: "Anything is possible, but I don't think so. Governor David Paterson has come to see Ms. Kennedy as a strong potential candidate whose appointment would keep a woman in the seat and whose personal connections would allow her to raise the roughly $70 million required to hold the seat in the coming years. Governor Patterson craves national attention and money. And, if you connect the dots, they lead to her."

If you didn't see your e-mail here, you can go to my blog, CNN.com/caffertyfile. Look for yours there, among hundreds of others.

We're out of here right on time for the first time in a long time -- Wolf.

BLITZER: Good news.

(LAUGHTER)

BLITZER: All right. We're not leaving. We're not going anywhere. Stand by.

CAFFERTY: No, no, I meant at the end of the 4:00 hour.

BLITZER: All right, good.

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

Happening now: former President Bill Clinton doing something he's resisted doing for a decade or so, revealing