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Blagojevich Vows to "Fight This Thing"; Michigan Governor on Auto Bailout; Shoe Thrower's Family Speaks Out; Bombshell Assassination Claims

Aired December 19, 2008 - 17:00   ET

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


WOLF BLITZER, CNN ANCHOR: To our viewers, you're in THE SITUATION ROOM.
Happening now, breaking news -- fighting words from the embattled Illinois governor -- defiant and giving no ground in his most detailed statement yet on the scandal threatening to bring him down.

Also, President Bush tosses Detroit a $13 billion lifeline, but will about automakers squander it by repeating past mistakes?

I'll speak about that and more with the Michigan governor, Jennifer Granholm.

And Russian warships miles from U.S. shores -- what's behind Moscow's show of force in Cuba?

I'm Wolf Blitzer.

You're in THE SITUATION ROOM.

A statement as brief as it was defiant, the Illinois governor, Rod Blagojevich, vowing to fight the allegations threatening to topple him that he tried to sell Barack Obama's Senate seat. He insists that truth is on his side and he says he's not going anywhere.

CNN's Brian Todd is working this story for us, as is Samantha Hayes.

Brian, let's go to you first with the latest on what we know -- Brian.

BRIAN TODD, CNN CORRESPONDENT: Wolf, for 10 days, everyone has been waiting to hear the governor's side of the story. Well, a short time ago, he gave a fierce response to the allegations and in characteristic fashion, took a swing at his opponents.

(BEGIN VIDEOTAPE)

GOV. ROD BLAGOJEVICH (D), ILLINOIS: I'm here to tell you right off the bat that I am not guilty of any criminal wrongdoing, that I intend to stay on the job and I will fight this thing every step of the way.

TODD (voice-over): A spirited rebuttal from the besieged governor of Illinois to allegations of misconduct. Rod Blagojevich says he's dying to answer charges, but will only do so in a court of law. And after taking broadsides for 10 days, he fired back.

BLAGOJEVICH: I'm dying to answer these charges. I am dying to show you how innocent I am. And I want to assure everyone who's here and everyone who's listening that I intend to answer every allegation that -- that comes my way.

However, I intend to answer them in the appropriate forum -- in a court of law. And when I do, I am absolutely certain that I will be vindicated.

TODD: Prosecutors contend Blagojevich was trying to sell Barack Obama's vacant Senate seat to the highest bidder and that when they tapped his conversations, this is what they heard him say.

PATRICK FITZGERALD, U.S. ATTORNEY: "It's a bleeping valuable thing -- thing you just don't give it away for nothing."

TODD: But an attorney on Blagojevich's defense team says regardless of what prosecutors can prove the governor said, it's actions that count.

SAMUEL ADAM, JR. (PH), BLAGOJEVICH'S ATTORNEY: From what I've seen so far, a lot of these conversations that claim to be made are sitting in complaint somewhere, but I haven't seen one single action. Point out to me one single action that's in the criminal complaint here that says the governor did anything. Maybe there was talk.

(END VIDEOTAPE)

TODD: Now, asked whether the governor would resign, at some point later on, that attorney, Samuel Adams, said he would if the people of Illinois were suffering. But so far, there's no evidence that Mr. Blagojevich believes that's the case -- Wolf.

BLITZER: He's not only facing criminal charges, he's also, Brian, facing the potential of impeachment.

Where does that stand?

TODD: Well, that impeachment panel began hearing some minor witnesses yesterday. But they have adjourned until Monday. Prosecutor Patrick Fitzgerald, who would handle criminal proceedings, has asked the panel to hold off calling any of his key witnesses. They have to write him a letter if they want to hear from anyone.

BLITZER: Brian Todd, stand by.

Samantha Hayes is also working this story for us -- Sam, there's reaction that's coming in very, very quickly.

What are you hearing?

SAMANTHA HAYES, CNN CORRESPONDENT: Well, Wolf, you know, this was the first time that Governor Rod Blagojevich spoke publicly about the allegations since his arrest on December 9th on federal corruption charges. The Illinois state legislature has been going through impeachment hearings and several members didn't waste any time reacting to his remarks today.

(BEGIN VIDEO CLIP)

MATT MURPHY, ILLINOIS STATE SENATE: A little bit disappointing. I think I can speak on behalf of the vast majority of the people of the State of Illinois, who were hoping to hear rather than fight, fight, fight, resign, resign, resign. Unfortunately, that's not what we heard.

PAM ALTHOFF, ILLINOIS STATE SENATE: No. I didn't think we'd hear an apology. We were hopeful that we would hear resignation. Again, even more importantly, after hearing the fight, fight, fight, as Senator Murphy has already stated, it's even more important to move swiftly so that we can have a special election. We should be called down.

Remember, this was not an idea that came out of thin air. President-Elect Obama thinks that this is a good idea. Attorney General Lisa Madigan thought it was a good idea. Democratic Senator Durbin thought it was a good idea. We really need to make sure that government moves forward. We have serious issues we're fighting at the national level. You're talking about those problems right now. We need to get somebody in that seat who can address those problems, who can also help us here in the State of Illinois.

(END VIDEO CLIP)

HAYES: And in terms of the impeachment hearings, a question about that also came up today, as well.

BLITZER: And when you -- oh, here we go.

(BEGIN VIDEO CLIP)

ALTHOFF: ...are fair and reasonable people. They certainly will give him the opportunity to present his case, to provide information back. Absolutely, he'll get a fair hearing.

(END VIDEO CLIP)

HAYES: You know, Wolf, as we've been talking about, Blagojevich's arrest has been really chaotic for the State of Illinois. Several of the state's political leaders have called on him to resign, including the state's lieutenant governor.

BLITZER: Samantha Hayes, thanks very much for that report.

We'll see what happens to this Democratic governor of Illinois.

He's just weeks away from inheriting an economy in meltdown right now and President-Elect Barack Obama says there are difficult choices that will have to be made.

(BEGIN VIDEO CLIP)

SEN. BARACK OBAMA (D-IL), PRESIDENT-ELECT: I'm confident that we're going to put people back to work. And I'm confident that businesses are going to start growing again. It's going to take some time, but we can get this done.

I want to be very clear, we are going to make some difficult choices on the budget. And I'm going to make sure, by the way, that some of those difficult choices are under my watch and not just somebody else's watch, because historically what's happened is a lot of times presidents say, well, we're going to -- we're projecting that we balance the budget -- oh, and, by the way, it doesn't happen until two presidents from now. And so nothing ever changes. We're going to reform how spending takes place. But it doesn't start until I've left office.

But we're going to start it now. And I expect to -- you know, that we're going to have some fights in Washington around that issue.

(END VIDEO CLIP)

BLITZER: The president-elect also vowed that money will be spent only on projects that are good for the American people saying -- and I'm quoting now -- "if we are building a road, it better not be a road to nowhere.

Let's check in with Fredricka Whitfield.

She's monitoring some other important stories incoming into that's right now -- Fred, what's going on?

FREDRICKA WHITFIELD, CNN CORRESPONDENT: Hello again, Wolf.

Well, despite a rally this morning, stocks end mixed today as investors ponder the Bush administration's auto bailout. The Dow was finished down about 26 points, less than 1 percent. Investors have been uncertain about a possible bankruptcy among Detroit's big three, which could result in steep job losses and prolong the current recession.

And Defense Secretary Robert Gates agrees to 3,000 more U.S. troops in Afghanistan. Gates' move will boost a combat aviation brigade -- part of the buildup of troops there next year. The U.S. commander in Afghanistan previously requested at least 20,000 more personnel to fight the resurgent Taliban forces in the southern and eastern parts of the country.

And a Florida medical examiner confirms remains found in a wooded area are that of a missing 3-year-old. Authorities say there was no obvious trauma that would reveal how Caylee Anthony actually died. She has been missing since June. A utility worker found the bones just last week about a half mile from where the girl actually lived. Her mother, Casey Anthony, has been charged with first degree murder in the case -- Wolf.

BLITZER: All right. Thanks, Fred, for that.

Billions of dollars in rescue loans for the auto industry -- but are their workers overpaid? (BEGIN VIDEO CLIP)

GOV. JENNIFER GRANHOLM (D), MICHIGAN: That is total bunk, Wolf. I mean, since when do people -- are you getting paid for what people are getting pensions for in your company?

(END VIDEO CLIP)

BLITZER: The Michigan governor, Jennifer Granholm, is here to defend the financial lifeline for Detroit. Stand by for that.

Also, new questions about the Iraqi journalist who threw his shoes at President Bush. An Iraqi judge demands to know why the journalist was beaten and bruised.

And it's one of the most coveted jobs in Washington -- who design Michelle Obama's dress for the inauguration balls?

We think we're going to tell you, right here in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: President Bush announcing a $13 billion rescue plan for America's ailing auto industry. The money from the $700 billion Wall Street bailout fund now available as federal loans to carmakers. And they're not the only ones who are grateful.

And joining us now, the governor of Michigan, Jennifer Granholm

Governor, thanks very much for coming in.

GRANHOLM: You bet, Wolf.

Thanks for having me on.

BLITZER: Did you ever think you'd be saying, thank you, Mr. President, for saving two of the big three automakers in the United States?

GRANHOLM: No, I never did. You know, I have -- to be candid with you, I'm a Democrat and I have been pretty tough on President Bush and his -- his ability to help the auto industry or the manufacturing industry in this country. But today, we are all in Michigan and, frankly, the three million workers across the country whose jobs are saved -- at least temporarily -- we are saying thank you to President Bush for stepping in and doing what Congress could not and would not do last week.

BLITZER: He really saved -- saved the autoworkers. He saved the auto industry, at least the U.S. auto industry, didn't he?

GRANHOLM: He did. And what he's done is given them a lifeline to help lead the country out of this recession. We know that this industry can produce these green, lean efficient vehicles, but they need to make the strategic and the structural changes that they've been in the middle of, if it weren't for this darned credit crunch and financial meltdown.

So they are positioned now to help do that, to produce the electric vehicles, to lead the nation in creating jobs in ways that will reduce our dependence on foreign oil. And that's very exciting.

BLITZER: All right...

GRANHOLM: ...and I think the Obama administration is going to be a partner in it.

BLITZER: And to a certain degree, he punted to the Obama administration.

The auto companies now have until March 31st to come up with a strategy. One important part would be the union workers, the UAW workers -- their salaries and benefits being in line with the non- union workers at Toyota plants in the South or elsewhere.

Is that realistic based on what you know?

GRANHOLM: Well, first of all, there is such a misunderstanding out there. Last year, the UAW entered into a contract which reduced the wages from $28 an hour to $14 an hour. That's exactly on a par...

BLITZER: That's for new workers. That's for new workers.

GRANHOLM: That's for new workers. Right. And that's exactly on par with what...

BLITZER: But most of the workers are old -- older workers.

GRANHOLM: Many of them are. And so the older workers make about $28 an hour. And, by the way, the Toyota plant in Georgetown, Kentucky also makes $30 an hour.

So there is a real question about what the UAW is going to do going forward. They're going to -- they recognize they've got more at stake in this than anybody else in terms of saving jobs. So they recognize they're going to have to come up sacrifice in the same way that the executives of the industry are going to have to sacrifice, the suppliers, the dealers. Everyone is going to have to do what they can to ensure that this industry survives. Everyone knows it. And I think they will.

BLITZER: Because if you add in what's called all the legacy and the benefits and everything else, supposedly -- and correct me if you think these statistics are wrong -- the union workers make -- you know, get about $70 per hour...

GRANHOLM: Well...

BLITZER: ...compared to maybe $30 or $40 an hour for the Toyota non-workers.

GRANHOLM: That is total bunk, Wolf.

I mean, since when do people -- are you getting paid for what people are getting pensions for in your company?

I mean that's so -- it's so wrong to assign the legacy -- the pension costs of all of the people who have ever work at the auto company to me -- the worker who's working there now. That's not the way you assign wages. That's not how people determine their hourly wage.

You might roll in your own benefits and your own hourly rate. But to say that you're responsible or that you have to bear the burden of everybody who's ever worked there for 100 years this industry has been around -- that's really -- that has been a talking point that the Republicans have put out that is an utter falsehood.

The bottom line is they do have more legacy costs, because they've been around a lot longer than the foreign transplants. We have to deal with that and figure out as a nation how we're going to provide health care in this country to make our industries -- not just the auto industry, but all industries -- competitive with the industries of other nations when those other nations provide health care.

But we're in a position to do that now. We have an incoming administration that's committed to a green automotive industry and an industry that now has a lifeline to take us there.

BLITZER: There was a really tough piece on Forbes going after you by name. And I'm going to read a little graph from there. The article was entitled, "Here's What's Un-American, Governor Granholm." And this is what it says: "Throughout the financial crisis, Governor Granholm, predictably, has pointed her finger away from the culprits. She has defended the automobile companies, saying their financial situation is not their fault. She neglects -- neglects to explain how it is that other companies are currently manufacturing cars in other U.S. states and actually turning a profit."

Do you want to respond to that criticism?

GRANHOLM: Yes. Do you want to ask -- ask those guys right now if they're turning a profit. Toyota had to stop production, stop their plant being built in Mississippi. They've all lost customers over this financial meltdown, because it is the financial institutions that are not releasing funds.

They get $700 billion in a bailout and they're sitting on the money.

What good is that to stimulate the economic growth, when people can't buy cars because they don't have access to credit?

The auto industry made mistakes in the past. I don't apologize for that. But they have been in the middle of a restructuring that leads us to the plug-in electric hybrid vehicle, to exactly where people want to go.

The unions have made enormous concessions. And they're going to make more, as is the rest of the industry. But to say that the auto industry is in the same position as the financial industry -- and when the financial industry is the one that caused this financial meltdown -- the mortgage industry caused this meltdown./ but to blame the auto industry for that, that's not fair. It's the biggest consumer device -- consumer product that you buy. People should be able to have access to credit to buy it. Everyone is hurting from this. That's the bottom line.

BLITZER: And if you think of the hundreds of billions of dollars that have been spent on bailing out the financial sector, that $14 billion...

GRANHOLM: With no...

BLITZER: ...or $15 billion or $16 billion for the auto industry is rather modest.

Unfortunately, governor...

GRANHOLM: And it's a loan.

BLITZER: Yes. I...

GRANHOLM: It's a loan for the auto industry.

BLITZER: And the taxpayers -- you and I, we're all hoping that loan will be repaid.

GRANHOLM: It will be.

BLITZER: That would be good for the taxpayers. It would certainly be good for all the workers in Michigan, as well.

GRANHOLM: You bet.

BLITZER: You've got your hands full, Governor.

Thanks.

Good luck.

GRANHOLM: You bet.

Thanks, Wolf.

Yes.

BLITZER: Bombshell accusations coming out of North Korea right now. It's accusing South Korea of plotting to assassinate its leader, Kim Jong Il.

And wait until you hear what Secretary of State Condoleezza Rice said. It wasn't all that diplomatic, shall we say.

And allegations the man who threw his shoes at President Bush was beaten and left with broken bones. We're investigating in Baghdad. And the spotlight on Caroline Kennedy heating up as she seeks Hillary Clinton's Senate seat -- revealing a potentially embarrassing detail. We're talking to her family.

Stay with us.

You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: The now jailed Iraqi journalist who hurled his shoes at President Bush is winning praise from a top cleric in neighboring Iran and he's calling the incident -- and I'm quoting now -- "the shoe intifada."

This as an Iraqi judge wants to know why the journalist was beaten and bruised.

CNN's foreign affairs correspondent, Jill Dougherty, is in Baghdad and spoke to the family of the journalist -- Jill.

JILL DOUGHERTY, CNN FOREIGN AFFAIRS CORRESPONDENT: Wolf, support for the shoe thrower is growing. In Iran, they're praising him. In London, they're rallying in his support. And here in Iraq, they're calling him a hero.

(BEGIN VIDEOTAPE)

(VIDEO CLIP)

DOUGHERTY (voice-over): The incident has become so famous in Iraq that people now refer to it simply as what Muntathar did. Muntathar being the first name of the Iraqi journalist who threw his shoes as U.S. President George Bush.

As a journalist remains in Iraqi custody, accused of assaulting a foreign head of state, the political significance of the shoe throwing grows -- a kind of popular referendum on the Iraq War, on the American president and on Iraqi Prime Minister Nuri Al-Maliki, who was at the news conference with President Bush.

(on camera): Right from the start, the journalist's brother has maintained that al-Zaidi was beaten while in custody and today he, his family, friends and colleagues of al-Zaidi held a rally in his support.

(voice-over): The journalist's brother, a television cameraman, claims his brother was beaten by the Iraqi prime minister's security staff and that security for President Bush tried to stop them.

DHIRGHAM AL-ZAIDI, JOURNALIST'S BROTHER (THROUGH TRANSLATOR): A friend from inside the Green Zone -- I can't tell you his name because he will be killed -- said that Muntathar has a broken hand, his rib is broken and he also has bruises on his faced and leg.

DOUGHERTY: Colleagues of Muntathar al-Zaidi turned out for an all day demonstration Friday in a Baghdad park.

The television station al-Zaidi works for has been broadcasting non-stop reports on his arrest, demanding he be freed.

Another supporter of the journalist, a member of parliament, says the shoe throwing is now a major political issue.

ZAINAB AL-KINANI, PARLIAMENT MEMBER (THROUGH TRANSLATOR): I hope the prime minister will treat him like a son. With the elections coming and people waiting to see who will represent them, is he going to be merciful?

DOUGHERTY: Emotions on this case are raw. This woman calls al- Zaidi a patriot and the American president a criminal. "He is a patriot," she says, "because he saw the killing of children and young men. He was expressing what I feel, what this child feels."

Feelings aside, it's the court that must decide.

(END VIDEOTAPE)

DOUGHERTY: And, by the way, the prime minister's office says the journalist has written a letter asking for leniency -- Wolf.

BLITZER: Jill Dougherty in Baghdad for us.

Thank you, Jill.

Meanwhile, there are bombshell accusations coming out of the reclusive communist nation of North Korea. It's accusing South Korea of plotting to assassinate the North's leader, Kim Jung Il.

Let's go to Seoul.

CNN's Sohn Jie-Ae has much more -- Sohn Jie-Ae.

SOHN JIE-AE, CNN CORRESPONDENT: Wolf, the already frosty relations between South and North Korea have sunk to a new low as the communist North accuses the South of trying to assassinate its leader, Kim Jung Il. The North's state TV quoted a North Korean state security official as saying that an operative identified only by his last name, Lee, was caught while trying to carry out a mission given by the South's intelligence agency to do harm to the safety of the North Korean leader. The report says the operative was trained in the South and was sent in with equipment and poison.

The South's intelligence agency tells CNN that it has nothing to do with this.

North Korean watchers say that it is quite unusual for the North to identify an operative by name and to accuse the South directly. They also said that this may have something to do with recent suspicions about the ailing health of the North Korean leader, Kim Jung Il. Kim is said to have suffered a stroke earlier this year, but is said to be recovering. The North denies that its leader was ever ill and has recently reported -- released several reports and photos of Kim touring army units and industrial facilities, looking healthy and active -- Wolf.

BLITZER: Sohn Jie-Ae reporting from Seoul, South Korea.

Thank you.

As for whether North Korea can be trusted, the secretary of State, Condoleezza Rice, recently had this to say about Pyongyang's promises to dismantle its nuclear program. Let me quote: "Nobody was trusting of the North Korean's. I mean, who trusts the North Koreans? You would have to be an idiot to trust the North Koreans. That's why we have a verification protocol that we are negotiating."

That comment from the secretary of State, Condoleezza Rice.

Ron Reagan used to say trust but verify.

An ominous sight off the coast of Cuba -- Russian ships moving in. You're going to find out what they're doing and how long they'll be just 90 miles off the American coastline.

Backlash against the pastor, Rick Warren, might even get worse after what he had to say about gay people. He was trying to defend himself, but it could have the opposite effect. You'll judge for yourself.

And will the world cave in to the demands of those pirates?

They could soon be getting -- yes -- millions of dollars.

Stay with us.

You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

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

Happening now, defiant and ready to fight -- the Illinois governor, Rod Blagojevich, says he's dying to tell his side of the story. But there's one thing he won't do.

And a hijacked ship, demands for a ransom and the pirates who might actually get what they want -- to the tune of millions.

And first there was Jackie O. Now there's Mrs. O. as in Mrs. Obama -- why she's earning the title fashion icon.

I'm Wolf Blitzer.

You're in THE SITUATION ROOM.

Fighting words from the embattled Illinois governor, Rod Blagojevich -- making a brief, but defiant statement about allegations he tried to sell Barack Obama's Senate seat. Those allegations now have Illinois lawmakers taking steps toward impeachment. Blagojevich vehemently denies doing anything wrong and says he's not backing down.

(BEGIN VIDEO CLIP)

BLAGOJEVICH: Thank you very much.

I'm here to tell you right off the bat that I am not guilty of any criminal wrongdoing, that I intend to stay on the job and I will fight this thing every step of the way. I will fight. I will fight. I will fight until I take my last breath. I have done nothing wrong. I'm not going to do what my accusers and political enemies have been doing, and that is talk about this case in 30 second sound bites on "Meet the Press" or on the TV news.

Now, I'm dying to answer these charges. I am dying to show you how innocent I am. And I want to assure everyone who's here and everyone who's listening that I intend to answer every allegation that comes my way. However, I intend to answer them in the appropriate forum in a court of law. And when I do, I am absolutely certain that I will be vindicated.

Roger Kipling wrote "If you can keep your head when all about you are losing theirs and blaming it on you, if you can trust yourself when all men doubt you and make allowance for their doubting too, if you can wait and not be tired by waiting, or being lied about don't deal in lies or being hated, don't give way to hating."

Now, I know there are some powerful forces arrayed against me. It's kind of lonely right now. But I have on my side the most powerful ally there is, and it's the truth. And besides, I have the personal knowledge that I have not done anything wrong.

(END VIDEO CLIP)

BLITZER: All right. Let's discuss this statement from the Illinois governor. Joining us our CNN political contributors the Democratic strategist Paul Begala and Republican strategist Leslie Sanchez. You were listening, you were watching.

What did you think, Paul?

PAUL BEGALA, DEMOCRATIC STRATEGIST: It was theater of the absurd, maybe theater of the obscene. The notion that he can stand there and say I know I have done nothing wrong. Now, whether he did something illegal I have to say Patrick Fitzgerald the prosecutor made a very strong case in the papers that he released that perhaps the governor that certainly the governor broke the law. But that should play itself out. Let's let the legal experts judge that. The notion whether he did something wrong, it seems to be incontrovertible that he did something wrong. It was pathetic. I guess we didn't expect much out of Governor Blagojevich.

BLITZER: This Paul Begala speaking of a sitting Democratic governor, Leslie, you don't hear that every day. LESLIE SANCHEZ, REPUBLICAN STRATEGIST: Paul Begala is a very smart man. He understands the game. What's interesting here and eerie about that statement was it's so similar to Richard Nixon. You think about the parallels caught on tape, trying to change society through the backdoors and not transparency and most importantly the third part is denial. He also talked about being a lonely man. It's a lonely road. It's so similar. I don't know if he's going to be hauled off in a helicopter. He's not a crook. But there's definitely our intuition is that he has done something wrong and needs to pay the price.

BLITZER: Some have suggested Paul in that defiant statement that he made, angry statement that he made, he was taking something from your friend and former boss Bill Clinton's playbook. Remember today is the tenth anniversary of the impeachment of Bill Clinton in the House of Representatives.

BEGALA: I think it's a radically different set of facts here. President Clinton had a personal sin. John Hyatt the songwriter called infidelity the most unoriginal sin. That's all that that was. Blagojevich plainly talked about and perhaps sought to sell the United States Senate seat. He talked about and perhaps in fact acted on a plan to shake down the head of a children's hospital. I mean, the things that are on those tapes, the things alleged by Mr. Fitzgerald, they certainly look like they're crimes. Again, we'll stay out of the legal but Morley and politically indefensible. Look at the difference. He has no support from his own party. I mean, Leslie correctly points out, I'm a very loyal Democrat. I'm not defending him. He has no support from the legislature or the citizens of his state. That's completely different from Clinton who had universal support among the American people, 65, 75percent and support from the Congress and Senate which found him not guilty. This is a completely different situation.

SANCHEZ: There are a lot of Republicans that tried to make that argument and say it was a Bill Clintonesque deny, deny, deny. It's almost psychosis to deny all those elements together when society believes something is wrong it, does parallel Richard Nixon so much more than a Bill Clinton.

BLITZER: Did the president-elect make a mistake by asking Pastor Rick Warren to be the invocation presenter at the inauguration? It's generating a lot of concern especially among gay and lesbian supporters of the president-elect himself?

BEGALA: You know, I understand the impetus behind it, right? President-elect Obama in fact wants to be a uniter, not a divider after eight years of somebody yapping about it but only dividing us more. The way you unite a county is you must reach out to people with whom you disagree. I understand that. I admire the motive there. But I think what he didn't fully perhaps comprehend is the pain that Pastor Warren has caused in the gay and lesbian community and among progressives like me who support equal rights for gays and lesbians. Pastor Warren is an admiral man. He's a leader in the evangelical movement in curing poverty which is something central to the gospel of Jesus Christ. He's a leader on commanding his followers to exercise proper stewardship over god's earth on the environment. There's much to admire about him. Yet, the pain he has caused is very real. It's not my place but he needs to apologize.

BLITZER: Listen to what he told Ann Curry of the "Today Show" on NBC. He said this before this uproar right now, but he is explaining why he opposes same-sex marriage. Listen to this.

(BEGIN VIDEO CLIP)

RICK WARREN, PASTOR, SADDLEBACK CHURCH: I've had many gay friends tell me, well, Rick, why shouldn't I have multiple sexual partners? It's the natural thing to do. Well, just because it seems natural doesn't mean it's best for you or society. I'm naturally inclined to have sex with every beautiful woman I see. But that doesn't mean it's the right thing to do.

(END VIDEO CLIP)

BLITZER: He was making the case that it might be natural for homosexuals, lesbians to want to have sex with people of the same sex, but it's not the right thing to do. And that's causing a lot of anger out there among homosexuals. What do you say?

SANCHEZ: It was such a poorly worded statement and to look at Ann's face I think is very telling that she bit her tongue to some extent in that interview. It's more of a political problem than a religious problem. I think Paul very much alluded to the fact that this is causing a problem very much among the folks on the left in questioning his judgment to select somebody like Rick Warren to be part of the inauguration and part of the ceremony. I can't defend the statement in terms of what he said but I think it does play into where Barack Obama's challenges are going to be in trying to be more of a sent tryst and trying to appeal to a broader group of people.

BLITZER: Paul, you can understand why a lot of gays and lesbians are deeply disappointed right now in the president's decision.

BEGALA: It's causing a lot of hurt. And I don't think that ever was the president-elect's intention. I don't think that's what he saw the out to do at this important moment. I would say this, let's put substance ahead of symbolism. Right? Symbolism causes a lot of pain here. Let's watch the substance. Senator Obama campaigned for the presidency as a committed supporter of equal rights for gays and lesbians, not marriage but yes, civil unions and nondiscrimination in hiring. Let's watch and see if he practices that. So let's watch the substance. I think it's going to be a lot more important. But people are very upset and they're very hurt right now.

BLITZER: We'll leave it on that note. Guys, thanks very much for coming in.

Caroline Kennedy is opening herself up to scrutiny and what journalists are finding might have her answering a few questions. You're going to find out what's going on.

And CNN hunts down the designer who might be doing Michelle Obama's most important gown.

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

(COMMERCIAL BREAK)

BLITZER: There's growing scrutiny of Caroline Kennedy as she seeks to replace Hillary Clinton in the United States Senate and it's revealing potentially some embarrassing information. Let's go to Mary Snow. She's in New York.

Mary, what are we learning about Caroline Kennedy?

MARY SNOW, CNN CORRESPONDENT: Wolf, public records show that she has skipped voting in a number of elections. This is the first time Kennedy comes under the microscope.

(BEGIN VIDEOTAPE)

SNOW (voice-over): Should Caroline Kennedy be appointed to Hillary Clinton's Senate seat, she will need to ask fellow New Yorkers to vote for her in 2010. But Caroline Kennedy is facing scrutiny for not always voting herself in a number of elections. Her spokesman acknowledged she has not voted on a handful of occasions in the last two decades and noted Caroline Kennedy recognizes just how important it is to vote. It's the kind of personal detail that will Caroline Kennedy the candidate should expect won't go ignored and it made its way into newspapers Friday. The daughter of the former president eased her way into the public spotlight this week as she made her interest in the Senate seat known.

CAROLINE KENNEDY, DAUGHTER OF JOHN F. KENNEDY: Times are tough and I feel if I have something to offer, I'd love to continue.

SNOW: With Kennedy grabbing headlines and public attention, some political observers wonder how much room Governor David Paterson has to make his pick among the roughly dozen other contenders for the Senate seat.

DOUG MUZZIO, BARUCH COLLEGE: The attempt is to make it so public that it would be very difficult for Paterson to make a decision other than Caroline Kennedy. It is this inevitability strategy.

SNOW: One local political leader who met and endorsed Caroline Kennedy on Thursday admits her efforts to seek support and heavy media attention does drown out many of her possible competitors but says Kennedy's rollout is perfectly timed.

VITO LOPEZ (D), N.Y. STATE ASSEMBLYMAN: With four or five weeks to go to make the appointment it was perfect timing. She's nominating the press, she's reaching out, she's energized and she's traveling throughout the state and doing it seven days a week. I think it's a perfect strategy.

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SNOW: How damaging is the fact that Kennedy didn't vote in some elections? We put that question to political science professor, you just saw him, Doug Muzzio. He say he doesn't think it has major significance but it's certainly not positive. We should point out that none of the votes Kennedy skipped in the past two decades were in presidential elections -- Wolf?

BLITZER: Mary, thank you.

We should point out it's by no means a done deal. There are others believed to be running for this Clinton Senate seat as well, among them New York's attorney general Andrew Cuomo and Buffalos' Mayor Byron Brown. Five members of the New York delegation are also seen as potential contenders including Kristen Gillibrand, Carolyn Maloney, Brian Higgins, Steve Israel and Jerrold Nadler. Some local New York State officials are also considered possible, let me repeat, possible picks.

It's one of the most coveted jobs here in Washington. Who will design Michelle Obama's dress for the inauguration ball? CNN's Brianna Keilar went on the hunt to find out -- Brianna?

BRIANNA KEILAR, CNN CORRESPONDENT: Wolf, change is coming to the White House, a change of clothes that is.

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KEILAR (voice-over): Fashion insiders are buzzing about Michelle Obama.

UNIDENTIFIED FEMALE: I think she will be the biggest fashion icon in recent history in the White House. You know, there's Jacqueline Kennedy but up until since then, really, we haven't seen a fashion forward first lady.

KEILAR: The comparison is rampant as you can see on Mrs. O, a blog that chronicles Obama's every outfit. Michelle Obama's fashion choices can cause controversy or send a message in a troubled economy.

MARY ALICE STEPHENSON, STYLE EXPERT: She has to be recession chic all the way and she's been very smart in doing so in the last year by mixing her fashion choices. Yes, sometimes she splurges and picks clothes that are expensive. But we also see her in H & M and Target wearing clothes that don't break the bank but are just as fresh and just as feminine as designer clothes.

KEILAR: With January 20th quickly approaching, top designers submitted sketch after sketch clamoring for the opportunity to make the gown Obama will wear on inauguration night. In the fashion world, bets are on a designer from the Obama's hometown of Chicago.

MARIA PINTO, FASHION DESIGNER: I'm a very attracted to color because I think it really lifts our spirits and it flatters a woman.

KEILAR: Maria Pinto is responsible for most of the clothes Obama has worn at historic events when her husband announced his candidacy and clinched the nomination at the Democratic Convention and on this historic visit to the White House. But asked if she's designing the dress, she plays coy.

PINTO: We have many clients that will be wearing Maria Pinto including myself.

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KEILAR: Whoever designs it, it's a huge honor because the gown goes on permanent display in the Smithsonian's first ladies collection, Wolf.

BLITZER: We'll be anxious to see. Brianna, thank you.

No surprise President-Elect Obama was named "Time" magazine's person of the year. By now all of you know that. Obama's roots go deep in Chicago. In today's just in time segment, the man who hired Obama to work as a community organizer in Chicago's Southside back in the 1980s looks at how his experience there could shape his presidency.

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JERRY KELLMAN, HIRED BARACK OBAMA: Barack is the only person that's ever been president who as an adult has lived with the poor and worked with the poor in that kind of way. He has that aspect of knowledge and involvement which I think makes him unique and gives him a broader sense of who and what America is about than a lot of people. Many of the issues involve bringing services to the black community. Barack was not -- making the leap to identify with people who are poor, people who face racial discrimination was not a stretch for him. He wanted to be a civil rights organizer.

(END VIDEO CLIP)

BLITZER: Russian ships coming very, very close to the United States. The military exercises with Cuba. What they might mean and when those ships will be moving on.

And the FBI is unveiling key pieces of evidence. They're hoping you, repeat, you might be able to help them find the person or persons who sent dozens of envelopes to governors' offices and American embassies around the world. We'll tell you what's going on right here in THE SITUATION ROOM.

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BLITZER: Cuba may be trying to make a deal with the U.S. after releasing long held political prisoners, but is Washington receptive? This as warships are visiting Cuba for the first time since the soviet era. We go to the man in Havana, Morgan Neill working the story for us -- Morgan?

MORGAN NEILL, CNN CORRESPONDENT: Wolf, reporters in Brazil say that Cuban President Raul Castro has offered to release political prisoners held in Cuba in exchange for five Cuban men held in the United States for espionage charges. When asked by a reporter about political prisoners in Cuba, Castro responded that if the United States wanted them free, Cuba would release them tomorrow but Washington would have to free the men known in Cuba as the five heroes. The U.S. State Department immediately rejected the offer.

Cuba insists that the five men arrested in 1988 were monitoring the activities of exile groups in Florida that Cuba accuses of terrorism. For years the government in Havana has pursued an intense campaign calling for their release.

In the meantime in Cuba, for the first time since the collapse of the Soviet Union, Russian war ships are docked in Havana Bay. Russia and Cuba have strengthened ties recently with Russian President Medvedev visiting Havana just last month. Russia says the visit is intended to strengthen relations between the two country's navies. It is part of a tour by Russia's navy that's included joint exercises with Venezuela's navy as well as visits to Panama and Nicaragua -- Wolf?

BLITZER: Morgan Neill for us in Havana. Thank you.

The Cuban visit caps what Morgan describes as the Latin American tour by these Russian warships which President Dmitry Medvedev describes as a move to restore, and I'm quoting now, privileged relations in the strategically vital region. Recently that flotilla took part in joint maneuvers with Venezuela's navy and one of the warships actually sailed through the Panama Canal for the first time since World War II. The vessels then made their way to Nicaragua bringing humanitarian aid there before heading on to Cuba.

In the pirate-infested waters off of Somalia, a tank crashed with weapons and ammunition may be set free but only for right price. The shipping company may be willing to hand over millions. Let's go our CNN Pentagon correspondent Barbara Starr.

What are the pirates demanding in this ransom, Barbara?

BARBARA STARR, CNN PENTAGON CORRESPONDENT: Well, Wolf, they want, money, money, money while the U.S. and other countries are trying to cope with the piracy threat.

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STARR (voice-over): In days a multimillion ransom could be paid to pirates holding this cargo ship full of Russian tanks and weapons off of the coast of Somalia according to a senior U.S. military official. The ship has been held since September 25th and ransom talks going on for weeks and the latest demand is for $20 million. The U.S. Navy has the ship under continuous surveillance to make sure that the weapons are not unloaded. There are nearly 20 other ships being held like this oil super tanker shown in satellite photos "Serious Star" being held just a couple of miles off of the Somalia coastline. Questions continue about how to implement the recent U.N. resolution calling for possible ground and air action against the pirates. Canadian navy rear admiral Bob Davidson just completed a tour of duty overseeing maritime operations in the region.

BOB DAVIDSON, CANADIAN NAVY REAR ADMIRAL: I believe it is true that there are different levels of views and enthusiasm for going into Somalia.

STARR: The latest country to join the fight is China. They plan to send warships for the first time in centuries that China's ships have sailed from the shores. One reason China are getting involved is every 1 in 5 ships has been hit in the area. This week, the crew of this Chinese ship fought off pirates for hours proving that protective measures are still the best defense.

DAVIDSON: You could probably flood the area with all of the world's navies, and they could still find a patch of ocean to nab a ship.

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STARR: And consider this, more than 20,000 cargo ships a year now pass through these treacherous waters -- Wolf?

BLITZER: All right. It is amazing. Thank you, Barbara.

President Bush said he had no choice, and finally a plan for the failing U.S. auto industry. You will find out just how the $13 billion rescue package will work.

Rock music, it is torture? Some in Guantanamo Bay detainees are suing -- yes, suing, and we are investigating this new controversy.

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BLITZER: President Elect Barack Obama's nomination of Hilda Solis to be his labor secretary is interesting especially for Lou Dobbs. He's standing by.

Lou, she says some rather unfriendly things about you in the past, hasn't she?

LOU DOBBS, CNN ANCHOR: Well, she has been downright nasty but that's OK. It is part of the advocacy for amnesty of open borders and I'm kind of used to it coming from those advocates, and hopefully she will be more constrained in the role as labor secretary. If not, we can deal with that just as we have dealt with all of the other nonsense from the advocacy groups who are really representing ethnocentric interest groups, multinationals and the U.S. Chamber of Commerce all arrayed and allied against the interests of the American people and the U.S. law. So I'm happy and by the way, Alina Cho has been a toady for corporate American and the chamber of commerce for eight years and it is about time that labor had their own, don't you think?

BLITZER: Well, I just report the news. And I know you do a lot of the thinking out there.

DOBBS: I won't let you stay with that comment. You think a lot.

BLITZER: I think all of the time, but you know what, it is Lou Dobbs and Hilda Solis, and I assume you will have a good conversation with her at some point? DOBBS: Certainly, she is welcome to join me on the broadcast at any time and discuss the issues of the day, any of them.

BLITZER: Good, good work Lou. Thanks very much. We'll see you in an hour.

Happening now, President Bush tells the U.S. carmakers that help is on the way. He's finally signed off on a multi-billion dollar bailout, but will auto executives be back soon asking for more?