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Banks' Big Bailout Secret; Digging Up Dirt on the Governor; Public on "Inappropriate Contacts"; Cheney Levels Biden Broadside; Obama Flooded with Resumes

Aired December 22, 2008 - 17:00   ET


Happening now, the banks' big secret -- they're spending tens of billions of your dollars, but they're not prepared to tell you how. We're looking into what they're doing with all that bailout money.

Joe Biden steps up his war of words with Dick Cheney, but he says he already feels badly for President Bush. James Carville tells us what it means.

And drastic money saving measures by Governor Arnold Schwarzenegger -- could that mean massive new layoffs in hard-hit California?

Wolf Blitzer is off.

I'm Suzanne Malveaux.


We begin with a big secret from the big financial firms. Taxpayers gave them billions to stay afloat, but the banks won't even say what they're doing with your money.

CNN's Mary Snow has been looking into this -- and, Mary, what are you digging up so far?

MARY SNOW, CNN CORRESPONDENT: Well, Suzanne, you know, ask banks how exactly they are using the $350 billion in federal bailout money and they are short on specifics.


SNOW (voice-over): With investors on edge, Bank of America is among banks trying to seek customers and soothe nerves with ads like these.

But what banks aren't so public about is what they're doing with the billions in federal bailout money they've received -- money they were given so they could start lending again.

We contacted the banks who were given the biggest amounts -- Citigroup, JPMorgan Chase, Wells Fargo and Bank of America.

Bank of America received $15 billion as part of the Troubled Asset Relief Program, or TARP.

Where did it go?

A spokesman sent us a statement saying: "We're using the TARP funds to build our capital and make every good loan that we can." The banks says it anticipates releasing more information in its fourth quarter earnings report.

Sarah Binder of the Brookings Institution has been monitoring the bailout money.

SARAH BINDER, BROOKINGS INSTITUTION: What the banks have said, largely, is that we are using the money to stimulate the economy -- to get the economy moving. That's far, far too general to know what precisely these banks are doing with the money.

SNOW: Citigroup, JPMorgan Chase and Wells Fargo each received $25 billion -- the largest sum. Wells Fargo says it can't provide details until it releases its fourth quarter statements, though it says it intends to use the funds to help customers avoid foreclosure. Citigroup says it's using TARP money to help expand the flow of credit and formed a special committee to oversee the TARP money.

JPMorgan Chase points out that it recently bought more than $1 billion in Illinois bonds and plans to lend $5 billion to non-profit and health care bought companies.

The Associated Press surveyed 21 banks and reports few specifics. A Republican member of the House Financial Services Committee who opposed the bailout says don't be shocked.

REP. THADDEUS MCCOTTER (R), MICHIGAN: I think, unfortunately, a lot of people were disgusted, but in the surprised. One of the fundamental problems with the Wall Street bailout was the people who had caused the problem were never called in front of Congress to explain what they had done and what needed to be done.


SNOW: Now, Congress did not put conditions on the bailout money and the Government Accountability Office, for one, is calling for more accountability and transparency. And critics say now is the time for Congress to act and demand conditions, since the second round of bailout money has yet to be distributed -- Suzanne.

MALVEAUX: A lot of people asking questions, making those demands.

Thank you so much, Mary.

And auto company execs -- they took a lot of heat when they traveled to the bailout hearings in those corporate jets, you may recall.

Well, I've got to take a look at this. Half a dozen financial firms that received billions in bailout funds -- they are still using corporate jets for their executives. Government records show that AIG, which received $150 billion from taxpayers, has seven jets, although it says it's cutting back.

Bank of America, which took be $15 billion, is registered as the owner of nine aircraft. And some companies require top execs to fly privately for security reasons.

Well, Wells Fargo says that no bailout funds will be used for its single corporate jet.

Well, of course, there is another showdown that is brewing in Illinois. The governor vows that federal corruption charges won't drive him from office, even as state lawmakers look for other ways to impeach him.

Our CNN's Rusty Dornin is joining us now -- Rusty, obviously, there is a new twist in this case, as well, that you're following.

RUSTY DORNIN, CNN CORRESPONDENT: Well, it turns out in four day's worth of hearings by the state's legislative committee, they've heard about alleged money raising policies and accusations that the governor's administration was uncooperative.

But today, that focus turned to corruption.


GOV. ROD BLAGOJEVICH (D), ILLINOIS: ...right off the bat that I am not guilty of any criminal wrongdoing.

DORNIN (voice-over): While Illinois Governor Rod Blagojevich denies all charges and says he's not going anywhere except to work, state legislators continue to look into the possibility there were other impeachable offenses during his six years in office.

Federal prosecutors won't let legislators ask about the criminal corruption charges. But witnesses have been testifying about the state jobs and contracts that were given to major campaign donors.

Today, one witness told the lawmakers efforts by the governor's office to award parking leases to major campaign donors would have been expensive.

ED BEDORE, ILLINOIS PROCUREMENT POLICY BOARD: I've given you a few examples of this administration's actions that have cost or would have cost, to the people of the State of Illinois, approximately $6 million in additional cost.

DORNIN: But legislators weren't sure that constituted corruption.

LOU LANG, ILLINOIS STATE HOUSE: We have to differentiate between what might be called gross incompetence and something else.

DORNIN: Blagojevich's attorney attacked any notion of wrongdoing. EDWARD GENSON, ROD BLAGOJEVICH'S ATTORNEY: You don't know whether that eight years was a mistake or if that eight years additional was intentional.

You don't know that, do you?

DORNIN: Blagojevich's campaign war chest also came under scrutiny.

CINDY CANARY, ILLINOIS CAMPAIGN FOR POLITICAL REFORM: That questionable, even alarming, fundraising practices were in evidence from the time that Mr. Blagojevich first set his eye on the governor's office. During Governor Blagojevich's tenure, we have witnessed a sea change in how money and politics intersect.

DORNIN: The impeachment hearings will resume next Monday. If the committee recommends impeachment, the house would vote and then it would go to the state senate for trial.


DORNIN: There's also word that President-Elect Barack Obama will reveal his staff conversations with the Illinois governor tomorrow.

Meantime, his seat in the U.S. Senate remains empty. And it's not at all clear that it will be filled by the time Congress reconvenes -- Suzanne.

MALVEAUX: Thank you, Rusty.

President-Elect Obama and top aides came up through the Illinois political system.

So is there another shoe that is about to drop in this scandal that is swirling around the governor?

Let's turn to CNN's political analyst, Bill Schneider -- Bill, what is the next step in all of this?

WILLIAM SCHNEIDER, CNN SENIOR POLITICAL ANALYST: Well, the next step, of course, is when the results of the Obama investigation into his own aides' contacts with Governor Rod Blagojevich's office come out.

Does the public suspect there was any wrongdoing?

Only 12 percent in our poll think that -- this is national. Only 12 percent think Obama's aides did something illegal. Another 36 percent believe they might have done something unethical, but not illegal. Those two figures add up to nearly half who think something is fishy.

But almost as many, 43 percent, do not think Obama's aides did anything seriously wrong when they met with Governor Blagojevich.

Now, among Democrats a solid majority rejects any suspicion of wrongdoing or unethical behavior. Republicans are more likely to believe the contacts were unethical. But even among Republicans, only 27 percent think that something illegal happened.

Of course, no one has seen the report from the Obama camp. As Rusty indicated, that will come out tomorrow. And when that report comes out, we're going to see if any of these numbers change -- Suzanne.

MALVEAUX: OK. It will be interesting to note. Obviously, a split among people, whether or not they think that there's any kind of wrongdoing there.

Thank you so much, Bill.


MALVEAUX: When push comes to shove in transition -- Vice President Cheney levels a broadside at Joe Biden and Cheney's successor, of course -- well, he is lashing right back.

What is behind the slams?

Plus, a plane crash live on Twitter -- even as the jet was on -- lurched off the runway and caught fire, a passenger -- well, he took the time to go online.

And the family of the Iraqi shoe thrower says he has been tortured in jail. But they also say he would do it all over again.


MALVEAUX: Vice President Dick Cheney is -- he's headed out the door. Well, Vice President-Elect Joe Biden is on his way in. Now, just a month before the inauguration, push is already coming to shove with these two.

Our CNN's Brian Todd joins me now -- Brian, they're both talking tough, even after they were at the vice president's residence all smiles and handshakes. Now, it's a very different story.


A lot has changed since then. Thinks is now a bare knuckle dispute between two of Washington's long time power players, Dick Cheney mincing no words when asked whether his successor is up to the task of filling his shoes.


TODD (voice-over): How much things have changed since that first meeting after the election. Dick Cheney levels a broadside against Joe Biden on the issue of whether Biden will have as influential a role in the West Wing as did he.

(BEGIN VIDEO CLIP) DICK CHENEY, VICE PRESIDENT OF THE UNITED STATES: If he wants to diminish the office of vice president, that's obviously his call. I think that President-Elect Obama will decide what he wants in a vice president. And apparently, from the way they're talking about it, he does not expect him to have as -- as consequential a role as I've had during my time.


TODD: A spokesman for the next V.P. fires back: "What the American people want from a vice president is not boasting about how much power they have. Only Vice Presidential Cheney would think that putting the vice presidency in its proper Constitutional role diminishes the office." Joe Biden tells CNN he will have the new president's ear.


SEN. JOSEPH BIDEN (D-DE), VICE PRESIDENT-ELECT: My role as vice president is unlike some of the others. I've asked for no specific portfolio -- that is, I take care of the environment or one particular area -- and that I be essentially his counselor-in-chief.


TODD: One historian says it's not really up to the vice president to decide what his role will be.

STEPHEN WAYNE, GEORGETOWN UNIVERSITY: Very much, in his first year, the president said Dick Cheney has a lot of power. That's what I want. I'm delegating a lot to him. I don't think Barack Obama is going to delegate that much to Joe Biden.

TODD: Biden also criticizes Dick Cheney's views on how to keep America safe.


BIDEN: The advice that he has given to President Bush has been not healthy for our foreign policy, not healthy for our national security and it has not been consistent with our Constitution, in my view.



CHENEY: I think the fact that we were able to protect the nation against further attacks from Al Qaeda for seven-and-a-half years is a remarkable achievement. To do that, we had to adopt some unpopular policies that have been widely criticized by our critics.

TODD: No apologies from Cheney for his style, either.


UNIDENTIFIED MALE: Did you really are tell Senator Leahy (OBSCENE WORD OMITTED) yourself?

CHENEY: I did.

UNIDENTIFIED MALE: Any qualms or second thoughts or embarrassment?

CHENEY: No, I thought he merited it at the time. And we've since, I think, patched over that wound and we're civil to one another now.



TODD: Now, when asked what kind of advice he would give to his successor, who once called him the most dangerous vice president in American history, Cheney simply said that Joe Biden hasn't him for any advice -- Suzanne.

MALVEAUX: Well, Brian, how does he stand when it comes to public opinion about his job and his time in office -- Cheney?

TODD: Not very good. We have a new poll out on his approval rating today. It shows just one percent calling him "the best ever," 34 percent calling him "good," 41 percent calling him "poor," 23 percent of our respondents calling Dick Cheney "the worst vice president in American history."


Brian Todd, thank you so much.

Well, it may be the tough economy or his historic election, but Barack Obama's transition team -- well, they have been flooded with resumes from people who really want to work for this administration.

Our CNN's radio Lisa Desjardins spoke with an official of the transition. Obviously, there are tons of folks. There's resumes. How many people are looking for spots in this administration.

LISA DESJARDINS, CNN RADIO: I was amazed -- 300,000 so far. Now, of course, as you say, Barack Obama was known for drawing record crowds when he was on the campaign trail. But this figure dwarfs what Presidents Bush -- the current President Bush and President Clinton saw when they were first coming into office.

And, of course, it means for those who want a job with the Obama administration, the odds aren't so good.

Let's look at the numbers. The total number of presidentially appointed jobs that Barack Obama controls -- 7,996, about 8,000. The applications, as we've just said, so far 300,000. now, I spoke to Obama spokesperson Nick Shapiro.

Here's exactly what he told me on phone.


NICK SHAPIRO, OBAMA SPOKESPERSON: We've had, actually, more than 300,000 expressions of interest. It is definitely a challenge. I don't think any transition has ever seen anything like this.


DESJARDINS: And, of course, to put this in perspective, Suzanne, that 300,000, that's roughly the population of the entire country of Iceland.

MALVEAUX: That's amazing.


MALVEAUX: That's absolutely amazing.

Now, in light of the economic situation and the financial crisis, a lot of people are losing their jobs.


MALVEAUX: Can you figure out -- is there any way to figure out the economic impact of all these jobs in the Obama administration?

DESJARDINS: Well, it seems like it's in one sector. And it really has had an effect, unbelievably, in the job search sector.

I spoke to people here in Washington -- headhunters in Washington are feeling it. But, also, in Macon, Georgia there's one company, Careerpro Global, they write resumes. They say they've seen a huge bump, not just from people losing jobs, but especially from mid-and top level executives who have had their jobs for decades and are now feeling the call of government.

MALVEAUX: Very competitive.


MALVEAUX: Thank you so much, Lisa.

It was really interesting.

Well, coming up, Barack Obama may be "Time" magazine's Person of the Year, but another magazine last named Sarah Palin Conservative of the Year.

Well, does she deserve it?

James Carville and Alex Castellanos are standing by.

And fake criticism of Caroline Kennedy -- "The New York Times" makes an embarrassing correction about a letter purported to be from the mayor of Paris.

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


MALVEAUX: It's a plane crash that is live on Twitter. After the jet he was on skidded off the runway, caught fire in Denver Saturday night, there was a passenger who actually took the time to go online and describe what happened.

Our CNN's T.J. Holmes spoke to him -- T.J.

T.J. HOLMES, CNN ANCHOR: Suzanne, we do our best here at CNN to get the information out as quickly as possible to our viewers. But there was no way we were going to get the scoop on the crash out in Denver to our viewers faster than Mike Wilson was going to get information out -- not to viewers or to his listeners, but to his Twitter followers.


HOLMES: I'm at Denver.

It's 7:10 p.m. And a software engineer named Mike Wilson is one of one million faces taking off, landing or killing time at Denver International.

An hour and 15 minutes later, punches these words onto his Twitter account.

UNIDENTIFIED MALE: Holy (OBSCENE WORD OMITTED). I was just in a plane crash.

HOLMES: He calls himself "two drinks behind" but Mike Wilson was right on top of the airport crash -- literally -- keeping his Twitter followers abreast of the accident, the rescue, the panic.

UNIDENTIFIED MALE: Oh, my glasses fell off in the mass exodus getting off the plane.

I can't see very well.

HOLMES: Passengers say the luggage racks were burning, the evacuation slides deployed and for the first time that we know of, someone who had just escaped a burning airliner was documenting the scene in almost real time onto the Internet.

He even took a picture. OK, it's not the greatest picture, but give guy a break. He had just been in a plane crash.

UNIDENTIFIED MALE: I can't see much, but that's the crash site.

HOLMES: Then, while the world watched -- amazed that nobody died in the crash -- Mike Wilson or "two drinks behind" -- kept all of his followers in suspense until 2:00 in the morning.

UNIDENTIFIED MALE: Thanks for all the well wishes, everyone. Sorry for the radio silence, but my battery died in the middle of all of this and I just made it home.


HOLMES: Mike Wilson, we talked to him a little earlier and said he was simply looking for a way to vent. He needed somebody to talk to after going through this traumatic experience. He was looking around. His fellow passengers, just gone through the same experience, were all on the cell phone. He had already called his wife to say he was OK.

So what did he do?

He vented to the only people he knew who would listen -- his Twitter followers -- Suzanne.

MALVEAUX: Thanks, T.J.

Quite a first.

Two weeks after a fighter jet slammed into a San Diego neighborhood, killing four people, questions are being asked about why the military directed the pilot to fly over such a populated area.

Our CNN's Chris Lawrence is following the investigation.

He's joining us live -- and, Chris, what is the military saying?

How are they explaining this?

CHRIS LAWRENCE, CNN CORRESPONDENT: Well, right now, Suzanne, the military isn't making any official comments -- only to tell us that they're still in the middle of an active investigation.

But they have briefed some members of Congress on where their findings are going so far.

And from them, we've learned they feel that Miramar was a straight shot for this pilot.

They also say there are some other factors that made landing at the alternate site unfeasible.

The thing is, we don't know

exactly what those factors are because we still don't know exactly at what point this pilot got into trouble, only that he had taken off from an aircraft carrier after performing some training -- some training exercises.

Now, some of the factors that could have been there, it could be other air traffic in the area at the time; the amount of fuel that the pilot had. There are some residents, including a retired -- the key word being a retired naval aviator -- who say there was an alternate site that could have taken him over San Diego Bay to a peninsula that would have avoided some of those areas -- Suzanne.

MALVEAUX: And, Chris, we're seeing dramatic pictures of that neighborhood and just what happened there, the fire in that residence there. It really is quite extraordinary when you take a look at those pictures.

Thanks, Chris.

Zain Verjee is monitoring the stories that are incoming into THE SITUATION ROOM right now -- Zain, what are you watching at this hour?


Wall Street began the day -- the holiday, rather -- in the red. The Dow is off nearly 60 points. Both the S&P and Nasdaq slipped about 2 percent. Investor anxiety came with a gloomy auto outlook. Toyota warned falling sales and a strong yen will contribute to operating losses next year. G.M.'s shares fell more than 20 percent after analysts downgraded the stock and said the company may already be drained of equity.

Russian riot police beat and detained dozens in the Pacific port of Vladivostok. The protesters were trying to protest an increased tariff on foreign cars. Police say hundreds blocked roads in the city. They were ordered to leave, but they refused. The demonstrators were then hauled away into waiting vans.

And there's now some religious inspiration in your iTunes store. An Italian priest came up with the idea to make the Catholic "Book of Daily Prayers" available as a download. During a pre-trial period, the prayers were downloaded about 10,000 times in Italy. The official version can now be heard in five languages -- Suzanne.

MALVEAUX: A popular iTune.

Thanks so much, Zain.

The vice president and the man who will replace him going back and forth in a verbal throw down and a showdown.

But why does Joe Biden say he feels sorry for President Bush?

We're going to ask James Carville that question.

Also, Governor Arnold Schwarzenegger has some bitter medicine for his state's ailing economy. But it may cause suffering.

And he threw his shoes at President Bush -- now family members say that that Iraqi journalist is paying a very high price.



Happening now, Joe Biden on the Bush presidency -- the vice president-elect gives a very frank assessment of George W. Bush's years in office. We'll talk about that with James Carville and Alex Castellanos in our Strategy Session.

Plus, if Barack Obama closes down the military prison at Guantanamo Bay, where are the detainees going to go?

Well, wait until you hear who is volunteering to take them.

And "The New York Times" forced to make an embarrassing apology over a letter critical of Caroline Kennedy. Details on that ahead.

Wolf Blitzer is off today.

I'm Suzanne Malveaux.


Well, as the sun sets on the Bush administration, Vice President- Elect Joe Biden offers a harsh judgment -- softening it up with just a touch of sympathy for the president.

He spoke with our own CNN's Larry King.

Take a listen.


LARRY KING, CNN ANCHOR: How do you feel about George Bush going out of office? You feel a little sorry for him? You've known him a long time.

BIDEN: Well -- well, it's pre -- I've known him a long time. It's presumptuous to feel sorry for another man. But I feel somewhat -- I feel somewhat badly for him. I think the incident in Iraq was unfortunate -- the guy throwing the shoes. It was just -- it was just uncalled for and it was a -- I think that President Bush -- and unlike Vice President Cheney -- is, upon reflection, beginning to acknowledge some of the serious, if not mistakes, misjudgments that he made.

I don't like to see any president leave office being viewed as not having been successful.

But the bottom line here is that we're all held accountable for our actions and our judgments when we're in public office. And his judgments on our economy and our foreign policy, I think, have been very poor.


MALVEAUX: Well, you can see all of Larry's exclusive interview with Vice-President Elect Joe Biden. That is "LARRY KING LIVE." That's tonight at 9:00 Eastern here on CNN.

Now, there's some tough words from Joe Biden. Let's -- let's get some reaction.

Now joining me, CNN's political contributor and Democratic strategist, James Carville. And Republican strategist, Alex Castellanos.

Obviously, we are hearing from both of these guys. I mean, a backhanded slap, if you will, do you think, from -- from Joe Biden regarding Cheney?

JAMES CARVILLE, DEMOCRATIC STRATEGIST: Yes. It was not particularly complimentary and neither was the vice president complimentary to the vice president-elect. You get the sense that this is going to be a very different presidency and a very different vice presidency. I think most people are quite frankly very comfortable with that idea.

MALVEAUX: Do you think that some people are saying Joe Biden describes himself as kind of the counselor in chief. He has this kind of middle class czar role, looking at the middle class to see how they're doing but others take a look and say perhaps he's going to be marginalized. How does he get over that?

ALEX CASTELLANOS, REPUBLICAN STRATEGIST: If he doesn't want to be marl naturalized saying things like this doesn't help. At least he didn't throw a shoe. That was good. The incoming administration's success depends on how much help they get from the outgoing administration. Right now you want to be mending fences and don't want to get into this kind of dialogue. The litmus test is would the President-Elect Obama have said this, and the answer is probably no. I think both sides here need to get back to a little more -- it's the spirit of the Christmas season if we're going to solve some of the country's major problems.

MALVEAUX: Was that a mistake for him to say that he felt badly for President Bush?

CARVILLE: I don't know. I think everybody at some point watching this thing wind down and it's sort of a human emotion to feel poorly for President Bush. We're still stuck in these wars and got this terrible economy and the deficit's out of control. We're floundering around on the bailouts. I'm sure the president would have preferred to have left office under different circumstances. I think there are a lot of people that say gee, I kind of feel bad for the guy.

MALVEAUX: Does it help Joe Biden at all to express that sympathy or empathy for George Bush? Do you believe it's an olive branch?

CASTELLANOS: I think he was trying to be heartfelt about it. I genuinely do but it just didn't come out I think in a way that perhaps if he had to say it again, he would find another way to say it. You don't want to call the outgoing administration a failure on the one hand when at the same time you're wanting to appear bipartisan and asking for their help.

MALVEAUX: Why do you suppose there's back and forth between Biden and Cheney?

CARVILLE: Two different people with two different views. That happens sometimes in politics. And we're going to see -- I think that the vice president-elect is going to have a lot more influence. Under his staff, he has a really first class bunch. These are not the kind of people going in there to twiddle their thumbs. By the way, only like in Washington would people think that being in charge of the pistol class is a sort of demotion or something. Most people would rather have a vice president that focuses on the middle class as opposed to torture.

MALVEAUX: Does he need a specific job in looking at the middle class? It's hard to determine what that really means.

CASTELLANOS: If that is a specific job, he says on the one hand that's going to be his job to be the counselor for the middle class. He's not going to have a specific portfolio on the other happened and be the trouble shooter in the administration and going to offer advice on any and all subjects. At the same time, have the secretary of state that's going to have a strong hand. You have a very strong economic team. So where does Joe Biden find his place? It would seem to be that he is counting on being the midnight counselor when that phone rings at 3:00 a.m., he calls Joe Biden. Of course, Biden was the one during the campaign who expressed a little bit of doubt about senator Obama's abilities to handle such things at 3:00 in the morning.

CARVILLE: A, I think he's very well positioned for this job. He was chairman of the foreign relations committee; he's a first class guy. He's lead a real-life. Got an absolute first class staff and America has a lot of things to worry about, the competence, intelligence of Joe Biden is not one of them. I promise.

MALVEAUX: You let's talk a little bit about Sarah Palin. The person who wanted to be the vice president for John McCain. This is from an interview with human events political editor John Gizzy. This is a conservative publication. She's named conservative of the year. She said this regarding the auto bailout. She says, he says stand with Senator Bob Corker and other Republicans who stop the auto industry bailout in the Senate? She says, "I do. Once bitten, twice shy. We learned a lesson at least being amenable if not enthused to the idea all those weeks ago to the first rescue plan." Obviously she got a lot of raise for that from fellow conservatives and fellow Republicans. Do you think she's on the right side of the issue?

CASTELLANOS: She's on the same side that the American people are on and that the Senate and house were on, really, the Congress -- Congress ultimately couldn't get this through. I think a lot of Republicans are disappointed in this administration for really not listening to the American people on this. So yes, I think she's on the right side of it. I think she was -- was that conservative of the year or best dressed conservative of the year? I'm not sure which award Sarah Palin got. I think if we were giving that award, there are other contenders, a Bobby Jindal who I think is doing a good job in a tough situation in Louisiana.

MALVEAUX: She broke with President Bush on this issue over the auto bailout.

CARVILLE: She didn't break on the bank bailout. Very convenient thing is that oh, the banks are fine. I think that used to be a tenet of conservativism most people had good manners. Alex reflects that. That was a very credible story that President George H. W. Bush has called her twice and she's not returned his phone calls. She might be a busy woman but a good tenet of conservatives, liberals or whatever you want to call them is when a former president calls you, pick up the phone and you return their calls.

MALVEAUX: Sarah Palin is very popular but Alex you said she's on the side with most Americans when it comes to the auto bailout plan. Our latest CNN poll shows most people approve what happened. You need to give the automakers a helping hand here. Is that a risk for her that she is on the other side of this issue?

CASTELLANOS: It's not a risk within the Republican Party because there I think the idea that we're going to somehow fix these companies in three months when we haven't done it in years and years and they haven't fixed themselves, I think most Americans are enthused about if we have to do it, let's at least put conditions on it that require them to change so that the big three auto companies aren't all in Japan anymore. No, I think ultimately, think when she gets conservative of the year, it tells you something about the Republican Party. We didn't have a conservative voice in the Republican Party at the top of the ticket. That's why people I think turned to her as that conservative voice.

CARVILLE: I agree totally with Alex. I think it says something. There's a lot of -- that said, there's a real vacuum when you come to the fact that Sarah Palin is named conservative of the year. That tells you that there's a lot of opportunity out there on the conservative side for somebody to rise up. I completely agree.

MALVEAUX: Alex, is there anybody else you think should be at the top?

CASTELLANOS: A lot of people are what's going to happen in Florida with Mel Martinez retiring. A lot of people are talking about Jeb Bush, very different than his brother. New generation Republican. Governed well in Florida. Transformed schools down there.

MALVEAUX: Who's the anti-Obama?

CARVILLE: I don't know. Right now, there's Mike Finn. That changes and one should not understand that. But if Jeb Bush is sort of -- he's sort of like the new face of the Republican Party, very nice guy. Extremely amiable guy.

CASTELLANOS: New generation of Republicans.

CARVILLE: But he's, they don't have -- like I say, the bench is a little short here. These things have a way of filling themselves back up. And I just think that Governor Palin is -- you don't return president's phone calls, that's not a good thing.

CASTELLANOS: It's hard to ring you up when you're out there moose hunting I guess.

MALVEAUX: All right. You get the last word. Thank you, Alex, James.

Governor Schwarzenegger takes painful steps for California's ailing economy.


UNIDENTIFIED MALE: It feels like we're getting kicked.



MALVEAUX: Why drastic measures to fight the deficit could mean massive layoffs.

Family members say he is paying a price for throwing his shoes at President Bush. Well, the question is, would he do it again? You're in THE SITUATION ROOM.


MALVEAUX: The brother of the Iraqi man who threw his shoes at President Bush claims that he is being tortured in jail. Spokesman for Mr. Bush's national security council today declined to respond to those allegations but he said "the president has repeatedly said he did not want Iraqis to overreact." We get more on the alleged abuse from Jill Dougherty in Baghdad. Jill?

JILL DOUGHERTY, CNN CORRESPONDENT: Suzanne, the Iraqi journalist Muntadar Al Zaidi is still in jail. He has a court case coming up December 31st. CNN spoke with the family. They say they talked with him by phone on Saturday and then on Sunday, they saw him in person. And the brother claims that he had bruises, a broken tooth, cigarette burns and a swollen hand and also, the brother continues to insist that he was tortured. He says that the journalist was forced to write a letter to the prime minister asking for leniency and apologizing.

Now, in the first 24 hours when these allegations of torture came out, the prime minister's office said they did not know anything about those allegations. Meanwhile, the brother says that the journalist does not regret at all what he did, and if given the chance to do it again, he would throw those shoes again. Finally, he says that al Zaidi wants a new suit and wants an Iraqi flag so that first appearance in court. But there is no word on whether he actually wants a new pair of shoes, Suzanne.

MALVEAUX: Thank you, Jill.

Barack Obama has made it clear he wants to shut down the U.S. detention center at Guantanamo bay, Cuba. But what would he do with all the terror suspects held there? Let's turn to our Pentagon correspondent Barbara Starr.

Barbara, obviously there's a lot of things to be worked out. Perhaps easier said than done. How is this going to happen?

BARBARA STARR, CNN PENTAGON CORRESPONDENT: That's what we don't know, Suzanne. We do know the president-elect has absolutely vowed to shut down Guantanamo Bay.


STARR (voice-over): President-elect Obama has already given the order unofficially, of course.

SEN. BARACK OBAMA (D-IL), PRESIDENT-ELECT: I have said repeatedly that I intend to close Guantanamo and I will follow through on that.

STARR: The Pentagon is now trying to figure out how to make it happen. One thing that could help, Germany and Portugal are now indicating a willingness to take some detainees who might be released but fear going back to their own countries. Defense Secretary Robert Gates ordered a new review of plans to be ready as soon as possible on how to close the detention facility at Guantanamo Bay.

UNIDENTIFIED MALE: The president-elect has made it perfectly clear throughout the course of the campaign that this -- that he wishes to address this issue early on in his administration.

STARR: Since the 9/11 attacks, the U.S. has sent nearly 800 men and some teenagers to the navy-run prison. Most were captured in Afghanistan, many have been sent back to their home countries, but about 250 detainees are still there. If Guantanamo is closed, alternative sites include Ft. Stewart, Georgia, the Navy Brig at Charleston, South Carolina, and Ft. Leavenworth, Kansas. Like other states, Kansas's Congressional members are opposed to the idea.

UNIDENTIFIED MALE: The problem is, this is a terrorist level that we're anticipating there are going to be people trying to break them out or to make political statements around they will and we are not at all set up for that.

STARR: Closing Guantanamo may be a legal nightmare. If the detainees are sent to U.S. soil, the big question -- would they get the right to a trial in a U.S. court for the first time?


STARR: Now, the Bush administration has long said that deans at Guantanamo Bay are not tortured but the specter of mistreatment continues to hang over that will entire facility. And many in the military and on Capitol Hill now say just shut the whole thing down -- Suzanne?

MALVEAUX: Thank you very much, Barbara Starr at the Pentagon.

Some drastic measures for California's massive deficit.


UNIDENTIFIED FEMALE: It's not -- it's going to destroy us, probably lose our vehicle next.

(END VIDEO CLIP) MALVEAUX: Why state workers fear governor Arnold Schwarzenegger's drastic measures.

And Secretary of State Rice spends her final days in office worrying about pirates. But she is taking a lesson from the American history books. You're in THE SITUATION ROOM.


MALVEAUX: We have breaking news right now. California's Governor Arnold Schwarzenegger has just been put on notice that his state is very close to running out of money. Our CNN's Dan Simon is in San Francisco for us.

And Dan, you just heard this announcement. What does this mean? Who is saying this? What have we learned?

DAN SIMON, CNN CORRESPONDENT: Hi, Suzanne. These are unprecedented times for the state of California. I want to show you something we just got. This is a letter from the California state controller John Chung. It's a letter addressed to the governor, Arnold Schwarzenegger. And it basically says that the state now is less than 70 days from running out of money. That on top of a $42 billion deficit that the state is now facing. What does that mean? Looks like we're looking at steep pay cuts and job losses for government workers.


SIMON (voice-over): Diane and Ray have spent a combined 60 years working in California state government.

UNIDENTIFIED MALE: It feels like we're getting kicked.

SIMON: Getting kicked, he says, because of Governor Schwarzenegger's mandate that state workers, all 235,000 of them, be required to take two days of unpaid leave each month starting in February. The pay cuts are part of a belt-tightening as California struggles to deal with its $42 billion deficit. They say it will result in a combined $400 pay cut each month.

UNIDENTIFIED FEMALE: It's going to totally destroy us. Probably lose our vehicle next.

UNIDENTIFIED MALE: We might have to go down and apply for food stamps.



SIMON: About a dozen state workers voiced their displeasure toward the governor today as he held a news conference. Schwarzenegger's order requires state agencies to reduce their payrolls by 10%, a move that could lead to massive lay-offs. SCHWARZENEGGER: I hate to lay off any state employees because they're hard-working people and they have to provide for their families. But we are running out of cash by February. I have no other choice.

SIMON: The cash situation is so dire, the state has pushed the pause button on nearly 2,000 public works projects. Many schools, roads, levees, all on hold.

SCHWARZENEGGER: The craziest thing about this is that here's President-Elect Obama who is talking about an infrastructure package to rebuild the whole United States. To put people to work to stimulate the economy and we here at the same time are canceling infrastructure projects. Is that not ironic? Is that not crazy?


SIMON: Well, right now the governor and the legislature face an impasse over the budget. The Democrats, which control both houses of the legislature, they have submitted a budget plan to the governor, but the governor has vowed to veto that budget because he says it doesn't do enough to cut spending and stimulate the economy.

Meanwhile we're learning, of course, from this letter from the state controller that the state is looking like it's going to run out of money in 70 days. This letter says we are weeks away from a meltdown of state government that threatens the delivery of critical public services. So obviously we're looking at a very urgent situation for the state of California.

MALVEAUX: Dan, is there any sense of what would happen to certain services? What's actually going to go away in that time frame? If we're talking about no more money, what is it going to look like?

SIMON: You know, it's really unclear at this point. Obviously we rely on government for so many different functions. Right now, the critical thing is infrastructure. Of course, there's been a lot of infrastructure development happening in California with roads, bridges, schools, levees, things that the governor wants to put in place. New items that he wants to put in place to stimulate the economy and create jobs. Those things have been put on hold because of this budget impasse. The fact that the state is short on cash, that could mean a reduction, you know, for residents that we depend on every day. I'm not sure what those things are. Obviously, it's of great concern to the state controller, who has just submitted this letter to the governor. We'll stay on top of it and get back to you when we get new information.

MALVEAUX: Dan, I talked to Governor Schwarzenegger a couple of weeks ago when he was visiting with Barack Obama to talk about this bailout, some loans and money for the governors. He said he needed to get his own financial house in order before he was going to reach out for federal dollars. Is there any sense that that has changed at all?

SIMON: No change whatsoever. I mean, the state is really looking like it's been in the worse situation in its history. Of course, the governor would like to get some federal bailout money. I know there's still some negotiations with respect to that. But the bottom line here is the governor says that it's up to the state of California to really get its house in order before it receives government bailout funds. Right now, the critical thing is to get this budget passed. They've had an impasse now for several weeks. Of course, the governor has called a special legislative session to get that going and hopefully there will be a budget passed soon. Without that, the governor doesn't have the leverage to say that he needs government bailout money before he can, you know, get his own house in order.

MALVEAUX: In light of the urgency of this, 70 days before they run out of money, what are the lawmakers doing? Are they on vacation now? Are they going to try to work all of this out, figure this out?

SIMON: They have taken a break for the holiday. But I know that certain key leaders are in Sacramento right now working on this exact issue, trying to come up with some sort of compromise that sort of meets the governor's priorities here. The governor says he'll veto what's been put in front of him right now because it doesn't do enough to cut spending and also stimulate the economy. The Democrats, as I said, control both houses of the legislature and they felt like they put together a good budget plan that the governor would sign, but he says no, he's not going to do it. Now it's back to the drawing board.

MALVEAUX: Dan, thanks so much. A dire situation in California. Thanks again, Dan. The breaking news.

Barack Obama's working vacation. The president-elect spends some of his Hawaii winter getaway facing dire new warnings about the nation's future.

And the "New York Times," a victim of a hoax letter? Details on that and the paper's embarrassing apology. That up next.


MALVEAUX: The "New York Times" admits it published a fake letter. Allan Chernoff has more on this from New York.

What actually happened here?

ALLAN CHERNOFF, CNN CORRESPONDENT: How embarrassing. The "New York Times" this morning published a letter from the mayor of Paris. The problem is, the mayor didn't write a letter to the "Times." it was a fake. To compound the embarrassment, the letter is highly critical of Caroline Kennedy and her effort to become a U.S. senator. She'll be appointed to replace Hillary Clinton. What title has Ms. Kennedy to pretend to Hillary Clinton's seat?" reads the fake letter. "We French can only see a dynastic move of the vanishing Kennedy clan in the very country of the Bill of Rights. It is both surprising and appalling. The fake letter goes on to say I find her bid in very poor taste. In my opinion, she has no qualification whatsoever to bid for Senator Clinton's seat."

The "Times" says the hoax arrived by e-mail. The staff responded to the e-mail but did not hear back and then failed to call the mayor's office. On its website, the "Times" apology reads: "This letter was a fake. It was not have been published. It violates our standards and our procedures in publishing signed letters from our readers. We have already our regrets to Mr. Delano's office and we are now doing the same to you, out readers." Talk about a faux pas -- Suzanne?

MALVEAUX: OK. Glad they figured all of that out. Thank you, Allan.