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THE SITUATION ROOM

"Santa's" Blowtorch Shooting Spree; Nuclear Rivals' "Threats of War"; Interview with Pakistani Ambassador

Aired December 26, 2008 - 17:00   ET

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


SUZANNE MALVEAUX, CNN CORRESPONDENT: You're in THE SITUATION ROOM.
Happening now, breaking news -- authorities will soon release details, pictures and sound of the 911 call as a ninth body is found where a man dressed as a Santa Claus went on a rampage with handguns and a homemade flame thrower.

Pakistani troops move toward the border with India, as nuclear- armed neighbors take a step closer to the brink.

Will tensions over last month's Mumbai massacre push them to war?

I'll speak with the Pakistani ambassador.

And after the worst holiday shopping season in decades, desperate storeowners, including JCPenney and Saks, ask President-Elect Obama for help.

Wolf Blitzer is off today.

I'm Suzanne Malveaux.

And you're in THE SITUATION ROOM.

ANNOUNCER: This is CNN breaking news.

MALVEAUX: We begin with breaking news. We are moments away from hearing, for the first time, the calls for help as a man dressed as Santa walked into a party, guns blazing, then set a raging fire. The Christmas Eve rampage killed nine people. CNN's Thelma Gutierrez is following developments live in Covina, California -- Thelma, what do we know so far?

THELMA GUTIERREZ, CNN CORRESPONDENT: Suzanne, I want to start with a correction. Now, we just talked to Ed Winter from the coroner's office for Los Angeles County. He says that so far, eight bodies have been found in that house that was burned. So eight bodies, not nine, as was previously reported.

But he also said that this was one of the deadliest killing sprees all year long in Los Angeles County. Just a terrible site for some of the investigators who had to show up there. They will be releasing, in just a few minutes, more information about that gunman and what may have caused him to go on this deadly rampage.

(BEGIN VIDEOTAPE)

GUTIERREZ (voice-over): Forty-five-year-old Bruce Jeffrey Pardo was described by neighbors as a gentle man, who served as an usher at Holy Redeemer Catholic Church. But on Christmas Eve, just before midnight, police say Pardo drove to the home of his ex-in laws, where more than two dozen people, including his former wife and her parents, were having their annual holiday party.

CHIEF KIM RANEY, COVINA POLICE: There was a knock at the front door and a gentleman dressed as Santa Claus was at the door carrying a large wrapped package.

GUTIERREZ: It was a tradition for a neighbor to dress up like Santa Claus for the party. So when an 8-year-old girl spotted him, she ran toward him. That's when, police say, Pardo pulled out a semiautomatic weapon and shot her in the face. She's expected to survive.

Horrified partygoers recognized the shooter.

ED WINTER, L.A. COUNTY CORNER ASSISTANT CHIEF: He fired multiple rounds into the people attending the party and multiple people were struck. And this is when people were trying to escape the residence or hide under furniture.

GUTIERREZ: Some jumped from windows on the second floor of the house. Then, police say, Pardo pulled out what was in the package.

RANEY: The package he had appears to be a homemade pressurized device to help spread flammable accelerant throughout the residence.

GUTIERREZ: The home quickly became an inferno. Inside, the bodies of eight charred victims, so badly burned, they to be identified through dental records.

RANEY: Mr. Pardo then left the residence, apparently in a small, compact car. Now, our officers were on the scene within three minutes. And, as you can imagine, they were met with just a scene that was indescribable.

GUTIERREZ: Two girls, eight and 16 years old, were also shot, but are expected to survive.

When the rampage was over, police say Pardo drove to his brother's house, where he shot and killed himself. The motive -- police say a failed marriage and a contentious divorce.

(END VIDEOTAPE)

GUTIERREZ: And a news conference is expected to begin any time now. Police are expected to release 911 tapes -- they say very dramatic tapes of partygoers who were panicked, who were able to escape and run to a neighbor's home for help and then call police -- Suzanne.

MALVEAUX: And, Thelma, just to be clear, it's eight bodies of the victims and then plus the gunman who was killed. That would be -- it would be nine in total.

Is that your information?

GUTIERREZ: Yes, exactly, nine in total. But according to the coroner's office, eight charred bodies that were actually found in the home. They say the gunman then left, went to his brother's house in a rented vehicle. And that is where he shot and killed himself. They say that when they went to that vehicle and they started searching the vehicle, they found something flammable inside. They wouldn't say whether or not it was an explosive device. But they say that as they were trying to take it apart and look at it, it did go off. It did burn the car. But no firefighters were injured.

MALVEAUX: And, Thelma, I understand that we're being told now that this press conference -- this new information could be released as early as two minutes away now. I want to talk a little about this case here so we can go to that.

Is there any sense of motive?

Have officials talked about motive at all of the gunman?

GUTIERREZ: What they have said, Suzanne, is that this was a couple that was married for just about a year. They were going through a very bitter divorce. They had just reached a settlement. They say that this man was very bothered by it. And that is, perhaps, why he went to the home and why he went after this family.

Again, his in-laws, people he probably knew. And he, they believe, had been planning this for a while. They say this probably was months in the making and that he knew exactly what people would expect at that party, that they knew -- that it was a tradition for someone to dress up in a Santa suit and then show up and entertain the children and that that, perhaps, that is exactly why he did that. He knew that he would be let into the home and that's exactly what happened.

MALVEAUX: It sounds like he also knew, perhaps, he was going to be in the home. You were talking about it being a family tradition.

Do we have a sense -- do we know who was actually there among the victims, those eight people?

GUTIERREZ: Police believe that the ex-wife and her parents are among the dead. We're waiting to hear confirmation of that right now. But they had said that yesterday. Those were among some of the people that had not been accounted for at that party.

Again, about two dozen people who all knew each other, presumably family members, relatives, folks who, you know, got together for this holiday party before, in years past and that he would have known this.

But very sad. But they had not accounted for the wife -- the former wife and the parents.

MALVEAUX: Let's take a listen now to the news conference. (JOINED IN PROGRESS)

RANEY: ...is the investigator on the case; Captain Derek Webster; Kevin Stapleton, the mayor of the city of Covina; the assistant chief for the L.A. County coroner's office, Ed Winter; and public information officer, Pat Buchanan.

I'd like to introduce Mayor Kevin Stapleton, who'd like to say a few words on behalf of the city council.

MAYOR KEVIN STAPLETON, COVINA, CALIFORNIA:

WINTER: Thank you, chief.

Good afternoon.

We are in shock, as many people are, that the event that could have happened anywhere in the world happened here, that an individual with some obvious mental issues took the lives of a number of victims in a most unfortunate.

I want to thank our police department and our fire department for the outstanding job they've been doing, the professionalism. But I want the community to know -- and particularly the neighbors immediately surrounding the location on -- in Covina -- that we are here to support you, to try to assist you in any way we can in meeting some of the difficulties and some of the stress that they are going through now and will be going through for some time to come.

We're a very close community, a very supportive community. And this is our opportunity for everybody to reach out.

So we're in the process of doing that. We're going to try to return some sort of normalcy to the community as quickly as possible. And we appreciate your cooperation in helping us achieve that goal.

So I'm going to turn it back over to the chief -- Chief?

RANEY: Thank you, mayor.

All right, since we met yesterday, what I'd like to do is just take a few moments and catch you up.

As you know, yesterday, we had nine people that were unaccounted for. As of today, there have been nine bodies found inside the residence.

The coroner's office has ceased their operations right now. There is -- the crime scene investigation component is going on now. Once that is completed, it's our anticipation that we'll have to -- because of the structural integrity issues with the property -- the house will have to be bulldozed once we release the scene.

If I may, let me walk you through the chronology of the events as best I can and the best information that we have right now. Again, this happened about 11:30 p.m. on Christmas Eve. There was a family party being held at the residence on Knollcrest attended by about 25 people.

It appears that Mr. Pardo drove to the location and parked his car in the driveway, one house east of the party.

He was dressed in a Santa suit and brought with him a homemade device, which we'll release pictures of that later for the press. The device basically consisted of two tanks, one which contained either oxygen or CO2. Then the other smaller tank appeared to contain racing fuel.

He had a homemade device that was basically filled, where once he -- he mixed those two items, it would turn into a vapor or atomize. And he was able to deliver that inside the residence.

He walked up to the door, once he knocked on the door and rang the doorbell and gained entrance, he immediately was confronted with an 8-year-old child who thought Santa Claus had come to the house. He shot her once in the face and then proceeded inside the residence.

Mr. Pardo was armed with four handguns when he went into the residence. All four have been recovered. And to the best of our belief, as of right now, all guns were emptied.

As he went into the house, he began shooting at the partygoers again, indiscriminately. It appears that he did have some intended targets, those being family members and immediate family of his ex- wife.

Once the shooting stopped, it appeared that he then retrieved the -- the homemade device, activated that and went through the house basically delivering that and releasing a gas vapor inside the house. There's no indication that he ignited the vapor, but the vapor was able to be ignited either by a pilot light or if there was a candle inside the house -- because, obviously, there was an explosion that occurred inside the house.

Mr. Pardo was severely injured during that explosion. He suffered third degree burns on both arms. It also appears that the Santa Claus suit that he was wearing did melt onto his body.

As we reported earlier, the partygoers -- obviously in fear for their lives -- fled the location, ran out the back doors. One young lady went out a second story window, jumped off the roof.

We did have two people that were transferred to L.A. County Hospital and treated for gunshot wounds. Both of them will survive her injuries -- or their injuries.

It appears that Mr. Pardo left the location and drove to the City of Sylmar, where he then took his own life.

LAPD detectives and officers responded there yesterday. That was confirmed. Mr. Pardo did have $17,000 of cash Saran wrapped to his legs or concealed inside of a girdle that he was wearing. He also had a plane ticket for a flight on -- an early morning flight, Thursday, Christmas morning, from LAX to Canada. So all indications are that he intended to commit this crime and then flee the country. And what it appears is that he didn't anticipate injuring himself to the point where, obviously, he took his own life.

While detectives were at the Sylmar address, they found the keys to a rental car or a leased car that -- the description was provided from the neighbors -- that we looking for. The detectives found that about a block away from the Sylmar address.

When they went out to investigate the car, they did find the remnants of the Santa Claus suit inside the car. But the car was booby-trapped to explode.

The sheriff's bomb squad assisted our detectives on that investigation. What it appears is that in spited of the third degree burns, Mr. Pardo still had the intent to cause more -- more damage. He basically wired the Santa Claus suit with a device to explode that would -- when the Santa Claus suit was lifted from the car, that would pull a trip wire or a switch, ignite a flare inside the car, which would then ignite black powder. And he had several hundred rounds of handgun ammunition inside the car.

While the sheriff's department bomb squad was rendering the device safe, it did activate and, as you saw some of the footage last night, the car did burst into flames and it was destroyed.

Detectives also served a search warrant at his residence in the City of Montross yesterday. That's where we discovered the boxes and information that led us to believe how he assembled the homemade device. We found the jet -- I'm sorry, not the jet fuel -- the racing fuel that he out there to use as his combustible or combustible material. We also found five empty handgun boxes for a high-powered semi -- semiautomatic handguns, as well as two high-powered shotguns. That scene, again, was rendered safe last night.

Let me try to answer some of the questions and some of the rumors that have come up. There has been some rumors that there was a restraining order was in place. To our knowledge as of right now, there was no restraining order between his ex-wife and Mr. Pardo. They were -- they had just finalized their divorce last week. Apparently, they were in court last Thursday. It's our understanding that that was a somewhat contentious procedure. But according to sources, is that divorce was finalized last Thursday.

Mr. Pardo, to our knowledge, has no military experience. We are still doing a lot of background work to find out more about who he is and what might have been his motivation, you know, besides the obvious with the marital issues that were going on in the relationship.

We do -- we have found a copy of a resume that was prepared by Mr. Pardo. Again, I can't verify the authenticity of it. But Mr. Pardo claims to have a bachelor's degree and a master's degree in electrical engineering. He was employed by a radar system that did some foreign government radar system projects. He was terminated from employment there in October of 2008. According to family sources, he then disappeared for about a month. And we understand he might have gone to the Midwest and the East Coast and then returned back to California sometime in December.

It also appears -- or claims to have worked at JPL from 1985 to 1994 and also claims to work at some medical centers and, again, software manufacturers.

What I'd like to do now is turn it over to Assistant Chief Ed Winter. He can talk about what's going on with the coroner's investigation.

Thanks, Ed.

WINTER: Good afternoon.

As the chief said, we did recover nine deceased persons from the residence. All of the bodies are not identifiable at this time. We're going to need both medical x-rays and dental x-rays before we can make positive identification.

We will be working with family members to see if we can obtain that information. And I would ask that you give us some time, because it will be quite a lengthy process.

The bodies were burned and are charred to the point that they are not recognizable.

We will be conducting our autopsies to our examinations. I cannot, at this time, say whether or not they died of the gunshot wounds or as a result of the fire -- OK? Thank you.

RANEY: There is another story or rumor going around that Mr. Pardo might have been either at the party before he returned dressed at Santa Claus or that he was an invited guest. As of right now, to the best of our knowledge, both of those are false. He was not at the party prior to 11:30 and he was not invited to the party.

My staff, by, hopefully, 4:00 today, will have the -- some 911 tapes that we can release for you, as well as some photographs of the device that he brought to the house to dispense the gas vapor inside the residence.

Any questions I can answer?

Yes, sir?

QUESTION: (INAUDIBLE) the material...

QUESTION: When this guy actually was putting all this stuff together, assembling all the incendiary devices, was there anything that he got that was technically illegal or was this basically over the counter stuff that you could buy almost anywhere and it was just a question of having the experience to put it together? RANEY: It appears to be all legal materials. He just had the expertise and the motivation to make a device that he could use for mass destruction.

QUESTION: You said racing fuel?

We're talking about, what, 100 octane -- 108 octane gasoline, something along those lines?

RANEY: If not a higher octane, yes. Racing fuel.

QUESTION: Did he have family in Canada?

Do you have any what his plans were once he got there?

RANEY: No. We have no idea about Canada. We have talked to some of his family today, including his mother. She is in Southern California. But we're continuing to do some more research on -- on his family.

QUESTION: And had he ever said anything to anybody, like I have plans to hurt someone or I'm going to kill you?

Were there any threats or anything made that may show you how long he had been doing this?

RANEY: No. Not to our knowledge at all.

(CROSSTALK)

QUESTION: Chief, this must be a terrible scene for your officers (INAUDIBLE) can you describe, you know, some of their feelings as they've investigated this case?

RANEY: Well, they're professional. And, you know, unfortunately, these are situations that you don't want to have to deal with. But that's -- this is when we earn our money.

The call the night of Christmas Eve was a very traumatic call. First of all, the call came in as an active shooter. And our officers were there within three minutes. They were fully prepared to engage in an active shooting situation.

They quickly formed up. Our patrol officers carry AR-15 Ram 4 rifles in the car. They formed a plan and they basically took the initiative and went to the house to engage the gunman, but he had fled before.

They were then met with basically the trauma and the -- the horror of what was going on inside with the fire. They were confronted with the 8-year-old girl who had a gunshot wound to the face. And they carried her to safety.

So it was, again, it's a very emotional event for all of us, but that's the unfortunate side of this business.

QUESTION: Were either of the children who were shot among the ex- wife's children?

RANEY: No. None of the -- none of his children or her children were shot.

(CROSSTALK)

RANEY: They did not have children together. No.

QUESTION: And how were you guys able to keep the device, the Santa suit that was -- that was meant to hurt officers, I presume -- how did that not go off?

How was that...

RANEY: I don't want to get into the tactics of the bomb squad. But the bomb squad was able to retrieve that at about the same time the device exploded. So the Santa suit and its remnants are intact.

QUESTION: So did they know that something was in -- like, did they have any idea that he had explosives in there or was it a matter of just being meticulous?

RANEY: It was a matter of both. Some of it was luck and some of it was, as investigators looked in the car, they saw what appeared to be some type of device, backed off and the bomb squad came in and -- and made the situation safe.

Yes, sir?

(CROSSTALK)

RANEY: Excuse me.

QUESTION: (INAUDIBLE) determine how recently he had purchased the guns, how recently he had purchased the racing fuel?

And does that give you any indication as to how long he had been planning this?

RANEY: Later on, I'll turn that over to Lieutenant Doona (ph). He might have that information from the search warrant that was served yesterday. I don't have that information.

QUESTION: Chief, were (INAUDIBLE)?

RANEY: I don't have that information yet.

(CROSSTALK)

QUESTION: Chief, can you give us an update on the people who were shot that survived, like who they are and what their conditions are?

RANEY: I'm not going to release their names.

QUESTION: And what their age was.

RANEY: I'll let Lieutenant Doona (ph), you know, provide that information.

QUESTION: Chief, do (INAUDIBLE) a son or a child that was mentally disabled (INAUDIBLE)?

RANEY: My understanding is that he did have a son from a previous relationship that did have some -- some challenges. I'm not sure he was supporting the child, but he does have at least one child.

(END LIVE FEED IN PROGRESS)

MALVEAUX: You've been listening to California officials talk about that Santa Claus shooting spree leaving nine dead.

We are going to go back to that shortly, when those 911 tapes are released -- those who survived seeking help from that shooting spree.

Now, we mentioned the killer in this case had recently settled a divorce. But Justice Department numbers show that homicides are committed by ex-spouses far less frequently than by current spouses, boyfriends or girlfriends -- about 14 times less frequently.

However, when it comes to overall violent crime, 23 percent of female victims were intimate with their attackers. That's compared to just 3 percent of male victims.

More breaking news now -- India and Pakistan have already fought three wars. Now, as the nuclear armed neighbors may be heading toward the brink once again. Pakistani troops are said to be on the move, as tensions rise following last month the terror attack in Mumbai.

CNN's Pentagon correspondent, Barbara Starr, has been looking into this -- and, Barbara, what are we learning today?

BARBARA STARR, PENTAGON CORRESPONDENT: Well, Suzanne, there have been conflicting reports all day long about what two nuclear superpowers may be up to. And that is forcing the Bush administration to pay very close attention.

(BEGIN VIDEOTAPE)

STARR (voice-over): Two Pakistani officials tell CNN their troops are moving from the border with Afghanistan, where they are fighting Al Qaeda, to the border with India, amid fears India is planning a cross border attack. Officially, Pakistani Prime Minister Yousaf Raza Gilliani says Pakistan will act only if attacked.

India quickly charged Pakistan is trying to divert attention from the real threat of terrorists.

PRANAB MUKHERJEE, INDIAN EXTERNAL AFFAIRS MINISTER: We would expect that instead of creating wild hysteria, they will address this problem (INAUDIBLE) peace and stability.

STARR: A senior U.S. military official tells CNN the Pentagon sees no direct evidence of a significant Pakistani troop movement so far. This may all be another round of posturing by both sides. But feuding between two nuclear powers is exactly what the Bush administration doesn't want to see. The risk is either side could miscalculate and India and Pakistan, which have gone to war three times before, could find themselves again at the brink.

Washington wants Pakistan to focus on fighting terrorism inside its borders.

An obviously worried Bush administration issued a statement saying: "We hope that both sides will avoid taking steps that will unnecessarily raise tensions."

All U.S. hopes are with this man, General Asfaq Kayani, Pakistan's Army chief of staff.

Admiral Mike Mullen, the chairman of the U.S. Joint Chiefs of Staff, has had two meetings with Kayani in the last month, making the case any moves toward war play right into the terrorists' hands.

ADM. MIKE MULLEN, JOINT CHIEFS CHAIRMAN: It shouldn't be lost on anyone how a handful of well-trained terrorists, using fairly unsophisticated tools in a highly sophisticated manner, held at bay an entire city and nearly brought to a boil inter-state tensions between two nuclear powers.

(END VIDEO TAPE)

STARR: Now, both Pakistan and India have put various military units on alert since the Mumbai attacks a month ago. The U.S. remains watchful and is still trying to convince Pakistan to keep focused on fighting Al Qaeda and other terrorist groups inside their country, rather than look to India as a potential enemy -- Suzanne.

MALVEAUX: OK. Thank you so much, Barbara.

Pakistan's ambassador to the U.S. says his country needs to be vigilant against what he calls threats of war from India.

Ambassador Husain Haqqani joining me now.

Thank you for being here on THE SITUATION ROOM.

Let's clear up these reports, first and foremost -- reports saying that as many as 20,000 troops being moved from the border -- from Pakistan to the Pakistan/India border.

Is that true and why is this happening?

HUSAIN HAQQANI, PAKISTANI AMBASSADOR TO U.S.: Suzanne, let me just begin saying that Pakistan wants to pursue terrorists in the border areas between Pakistan and Afghanistan rather than go war with India. And we also want to work together with India against terrorists who are responsible for the Mumbai attacks.

That said, over the last few days, we have reason to believe that there has been an escalation of rhetoric in India, which is also accompanied by certain what we consider to be potentially dangerous moves.

MALVEAUX: What kind of evidence do you have?

HAQQANI: I think it is not appropriate for me to go into what intelligence evidence we do have, but we are willing to share that with our friends around the world. And we have attempted to do that.

But the important thing here is we do not want escalation. We do not want to move troops to the border with India. And we certainly do not want a war.

MALVEAUX: So you are saying, however, that the troops have been moved to that border.

Why should the United States -- why shouldn't India see that as an escalation, as some sort of even a shell of bravado or it, if you will?

HAQQANI: Well, first of all, there is no bravado. Pakistan is not trying to make a show of might. Pakistan understands the rage that has followed the attacks in Mumbai last month and Pakistan has been fully cooperating. We have arrested many people that the Indians have named. Now, of course, we are asking for evidence. After all, people, once they have been arrested and charged, they need evidence to prosecute them. And we are a country under the rule of law now that democracy has been restored in Pakistan.

So, essentially, none of this is bravado. All we are trying to do is reassure our people that we do not want to go to war, but in case there are aggressive moves from the other side, then certainly we will take defensive positions.

MALVEAUX: So, do you want to deliver a message to India today and to the Bush administration, both of them concerned that this might be some sort of provocative, aggressive move?

You're saying that that is not true?

HAQQANI: It is certainly not an aggressive move on the part of Pakistan.

What it is, is a call for India and our friends internationally to make sure that this remains a situation in which we work cooperatively. There is no need for escalation. There is no need for calling for war.

Unfortunately, in the rage that has followed the Mumbai terrorist incident, there have been people in India who have been calling for war. And in Pakistan, too, there are hawks.

But we would like for both governments to work together. Pakistan and India are neighbors. And we don't need to discuss history right now. We need to discuss the future of our children.

MALVEAUX: The Bush administration is counting on your government -- on your country here -- to participate in the war on terror. Clearly, there are troops that have been involved in the Pakistan/Afghan borders in going after the Taliban and particularly in possibly searching for the number one terrorist, Osama bin Laden.

In moving those troops from that area to the border with India, what are you saying about the focus, the priority of your nation?

Are you still committed to fighting as aggressively you can in the war on terror?

HAQQANI: Suzanne, first of all, there have been no movement of troops from the active engagement against terrorists and their supporters in the border areas between Pakistan and Afghanistan. What has happened is quite different from that characterization.

The most important thing is Pakistan wants to continue pursuing the war against terror. We remain the allies of the international community in fighting terrorists. And we certainly do not want to divert our attention from that. And we hope that our friends in India will work with us so that that does not happen.

MALVEAUX: Mr. Ambassador, thank you so much for joining us here in THE SITUATION ROOM.

HAQQANI: Nice to be here.

MALVEAUX: Spy tactics often Include trickery, interrogation -- but Viagra?

How the little blue pill could be helping the CIA get the information it needs in Afghanistan.

Passengers on an American Airlines Flight got a bigger shove-off than expected -- the tarmac mishap still to come.

And missing at sea -- the disappearance on board a Caribbean cruise line that has rescuers searching the water right now.

You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

MALVEAUX: You're in THE SITUATION ROOM.

Happening now, the presidential pardon that's getting a second look -- hundreds of homeowners who say Isaac Toussie duped them want to know what the White House was thinking.

Plus, the little blue pill -- well, some believe it can do wonders in the bedroom, but what's it doing for the CIA?

The new weapon in the war on terror.

And before he was president-elect, before Barack Obama was a household name, he was Professor Obama. We have the tough questions his former students say he was asking even back then.

Wolf Blitzer is off today.

I'm Suzanne Malveaux.

And you're in THE SITUATION ROOM.

But first, an SOS to Barack Obama -- store owners are asking him to save their shops.

CNN's senior correspondent, Allan Chernoff, says they are looking to the next administration for real relief -- Allan?

ALLAN CHERNOFF, CNN SENIOR CORRESPONDENT: Suzanne, the holiday shopping season has been an absolute bust for retailers. So bad that the National Retail Federation is asking President-Elect Obama to include a series of sales tax holidays as part of his planned economic stimulus program.

(BEGIN VIDEOTAPE)

CHERNOFF (voice-over): After a dismal holiday shopping season, the nation's biggest retailers are begging for help. The situation is critical, reads a letter to President-Elect Obama from the National Retail Federation signed by the CEOs of J.C. Penney, Saks and Petsmart. They are asking Obama to approve a series of tax-free shopping holidays in March, July, and October. Thirty days in all when consumers can buy without paying state sales tax. Washington would reimburse states for lost revenue.

MARSHALL COHEN, NPD GROUP: The tax-free exempt shopping is one part of the puzzle that will help, bus we've seen a consumer now used to very large discounts and only the tax exempt piece of the puzzle may not be enough.

CHERNOFF: Discounts are especially deep. At J.C. Penney merchandise is marked down 50 and 60 percent.

UNIDENTIFIED FEMALE: Mom was out to get herself a gift. Everyday work bag, great price. Get a discount, plus you get this coupon. The sales are excellent today.

CHERNOFF: The retailers' distress is the shopper's delight.

UNIDENTIFIED FEMALE: Five pair of corduroy pants, four cotton tops, two watches and a beautiful vase, all for $101.

CHERNOFF: Instead of tallying their profits, merchants are trying to minimize losses.

UNIDENTIFIED MALE: At 50 to 60 off, they're about breaking even. When they discount at 75 off or 75 off plus another 25 off on top of that, they're not making money. They're losing money.

CHERNOFF: Retailers knew would be a tough season, held inventories low, but not low enough. Clearance sales that usually begin in January are already under way.

(END VIDEOTAPE)

CHERNOFF: The shoppers with disposable income are the winners add stores tried to clear out winter merchandise to bring in new goods for the spring when they hope the economy will be showing some signs of improvement -- Suzanne?

MALVEAUX: Thank you, Allan.

A stunning move by President Bush this week reversing one of his final day pardons, but some are still angry over his gesture towards a man tied to a fraud case. CNN's Richard Roth has that story from New York, and Richard, tell us what this is all about.

RICHARD ROTH, CNN CORRESPONDENT: Suzanne, the "New York Daily News" here used to simply state, beg pardon when issuing corrections. White House this week first said you're pardoned and now is saying pardon you to a New York area realtor with a shady past.

(BEGIN VIDEOTAPE)

ROTH (voice-over): They're still buzzing in New York about the Christmas Eve gift that was returned to Washington by President Bush a day after he granted a prize pardon to Brooklyn businessman Isaac to Isaac Toussie. Toussie pleaded guilty to mail fraud in a Long Island mortgage fraud scheme in 2001. He served five months in prison. News of the pardon was followed by a flurry of unfavorable pardon reviews in the "New York Press" highlighting Toussie's alleged scamming of minority home buyers and his father's contributions of nearly $30,000 to the Republican National Committee. The White House reversed course sending the pardon for further review. Press secretary Dana Perino said in a statement, "The counsel to the president reviewed the application and believed based on the information known to him at the time that it was a meritorious application."

Maxine Wilson was shocked that Toussie was pardoned. She was also shocked at the condition of this house in 1997 she bought from Toussie. Wilson who since moved to Georgia joined with more than 400 mostly minority owners who claim they were sold poorly constructed homes and were fooled into thinking property taxes would be paid for.

MAXINE WILSON, SUING TOUSSIE: It's kind of ironic to me even at the White House level or at that level, people who wouldn't know about this issue. We pound the pavement for the past ten years. We've had a lot of press coverage. We have a very large lawsuit in court. I mean, how could you miss that?

ROTH: So what went wrong?

PAUL CALLAN, FORMER PROSECUTOR: Somehow, this escaped the normal vetting process, and I think it demonstrates a real tin ear for what's going on in the United States.

ROTH: An attorney for Toussie says his client is glad President Bush found merit in his pardon application and remains confident the pardon attorney will agree with the president and the White House counsel. There are mixed feelings about the Toussies and their Manhattan Beach community. They drew praise for reportedly giving to charities but are embroiled in a heated fence dispute regarding beach access with neighbors.

UNIDENTIFIED MALE: He got off very lightly and then to pardon him on top of that is an insult.

(END VIDEOTAPE)

ROTH: White House spokeswoman Perino told CNN today, "No one advising the president knew of the political donation by Toussie's father and because of the appearance of impropriety the pardon's recommendation was withdrawn." Toussie's attorneys deny the allegations in the lawsuit by the long island homeowner - Suzanne?

MALVEAUX: Thank you, Richard.

So how badly did the White House stumble in this pardon? Joining me, Karen Finney, director of communications for the Democratic National Committee along with CNN political contributor and republican strategist Leslie Sanchez.

I want to start with you first, Karen. Is the White House essentially making what's wrong right? They done enough?

KAREN FINNEY, DNC COMMUNICATIONS DIRECTOR: Obviously, somebody did do their homework. A good thing they pulled that back. At this point so many mistakes and missteps. The point made in the piece about the tin air to what's going on in America, we've seen that from this president and this administration so many times over the last eight years, it's one more reason people are ready to turn the page on this administration and move on to the next.

MALVEAUX: Leslie, you're shaking your head.

LESLIE SANCHEZ, REPUBLICAN STRATEGIST: If you were already frustrated with the Bush administration, this is doing nothing more but saying more of the same. The merit, once the counsel's office learned about the discretion and the proprietors, that they took the -- this idea of the donation of nearly $30,000 and then the pardon can look like a pay to play, or that is really inappropriate and inexcusable type of action. The president's office did the right thing.

FINNEY: It's certainly ironic given the way this administration has conducted itself to see it actually acting this way at the very end.

MALVEAUX: I want to turn the corner, if I may here, "USA Today" Gallup poll showing the most admired man, what man living today do you admire most, Barack Obama at the top of the list 32 percent, George Bush, five percent, John McCain three percent, the pope two percent followed by Billy Graham and Bill Clinton. How the A.P. sees this dilemma for Barack Obama. It says "But political veterans and presidential scholars say Obama can't waste time. His must decide which major issues to tackle in his first 100 days when his political capital will be its peak." Karen, does Barack Obama, does he risk here being put in a box where he has to be superman, where he has to do so much in the first 100 days to keep the popularity up to where it is today?

FINNEY: You know Suzanne what I think is so encouraging and probably part of the reason that he is at the top of this list is that actually he's wasted no time during this transition period, really stepping up to the plate and making it clear he's going to put together an administration that's going to be ready to go on day one. He's already talking about an economic stimulus package and having that read to go on day one. So certainly a president always comes in with a lot of pressure in that first 100 days to make some changes, but I think what you've seen from Obama so far is he's already doing that. Again, he's wasted no time getting going, and I think people have been just really pleased to see that from him.

MALVEAUX: Does he get some credit, Leslie, for man of the -- most admired here?

SANCHEZ: I don't know about most admired but definitely good kudos for his transition efforts. I think republicans and democrats agree he is really running with that initiative. You know, I do believe you'll see a tamping down of expectations. This is going to be a game of under-promising and over-performing. You're seeing a hint of that. How long it will take to get out of the economic crisis. There are very serious concerns with the economic depression and recession, say it that way, in terms of how people are feeling and what's going to get the economy on track that cannot be fixed right way. He's walking right into that. Just to see how well he navigates.

MALVEAUX: OK. Leslie Sanchez, Karen Finney, thank you of joining us in THE SITUATION ROOM.

FINNEY: You, too. Thanks.

MALVEAUX: America may have a new weapon on the war on terror, all it reportedly took to turn an Afghan village chief into a valuable informant. Some little blue pills.

The man who threw his shoes at President Bush has become a hero to some Iraqis. Now he's inspiring mass imitations in Iran.

And we're awaiting the tapes of the desperate 911 calls phoned in during that gruesome slaughter carried out by a man dressed as Santa Claus.

You are in THE SITUATION ROOM.

(COMMERCIAL BREAK)

MALVEAUX: The CIA reportedly has a new weapon in the war against terror. They are some little blue pills. CNN's Brian Todd has been digging into this.

Brian, I have to say I was a little surprised by this story. Help me understand. What are we talking about? BRIAN TODD, CNN CORRESPONDENT: The little blue pills that so famously help couples here in the west Suzanne. Former intelligence officials we spoke to say it's crucial to get personal with a source. Give them something you know they want or need. In Afghanistan it appears one CIA operative got very creative with that idea.

(BEGIN VIDEOTAPE)

TODD (voice-over): In the fight against Islamic extremists in Afghanistan, U.S. intelligence officers are reportedly trying to win over more than just hearts and minds. The "Washington Post" reports a CIA officer in Afghanistan trying to get information from a 60-year- old village chieftain with four wives offered the man Viagra. The "Post" says the man took it, and four days later the grinning chief offered up a bonanza's information about Taliban movements and supply routes followed by a request for more pills. CNN could not independently confirm the information and a spokesman for the CIA wouldn't comment. Tyler Drumheller, who spent nearly three decades in the CIA isn't surprised with the method.

TYLER DRUMHELLER, FORMER CIA FIELD OFFICER: To get people to do things that are really serious, they have to have a personal relationship with the person involved. They have to trust them. They have to feel there is a shared sense of responsibility for each other, and so you look for something that you can help them with.

TODD: Drumheller recalls one source he had in Africa who had skin lesions on his head.

DRUMHELLER: I said, want me to try and help you with that? I'm with the American doctors, this was somewhere in Africa, and he said, if you can help me with that that would be great so I sent the cable back and they said take a credit card and scrape the lesions off of his head into an envelope and pouch them to headquarter. So I had to -- had them over for dinner and my wife held the envelope and I scraped the lesions off his head and they actually gave him something to help. They sent some potion that helped him.

(END VIDEOTAPE)

TODD: Drumheller says that source in turn became a very valuable asset. Suzanne, it's crucial CIA officers say it gives something they want or know. So in that respect, Viagra works great.

MALVEAUX: So you've got this Afghan chieftain and he's getting Viagra, how is that seen in the Muslim world? Is it different?

TODD: Experts tell us in the Arab Muslim world if Viagra's is at popular. And so here in the west, the Afghan chieftain can keep it under wraps and no one knew the better for it.

MALVEAUX: Thank you so much, Brian Todd.

The man who hurled his shoes at President Bush is a hero to some Iraqis and now he's an inspiration to copycat protesters in Iran's. CNN's Zain Verjee joining us now. Zain, tell us what this is about. ZAIN VERJEE, CNN CORRESPONDENT: Well Suzanne they just keep throwing and throwing. Now the shoe thrower case is becoming a hot political issue just ahead of key elections in Iran.

(BEGIN VIDEOTAPE)

VERJEE: Hitting their mark, crowds in Iran's capital flinging shoes at cartoon pictures of President Bush.

This man says he supports the Iraqi journalist who threw his shoes at the U.S. president in Baghdad, the ultimate show of contempt in that part of the world.

In Iraq, a week of demonstrations supporting the shoe thrower. For now, Muqtada is in Iraqi custody, accused of assaulting a foreign of state. He's set to stand trial and could face jailtime. His brother says he's been beaten in prison. Although a hero in much of the Arab world, many share his hatred of the U.S. for its invasion of Iraq.

CONDOLEEZZA RICE, U.S. SECRETARY OF STATE: The United States is not loathed. The policies of the United States are sometimes not liked.

VERJEE: A lady's face has become a political issue as Iraq gears up for next month's provincial elections. Putting him on trial could increase public anger. Prime Minister Nouri al Maliki could use the shoe thrower case to his advantage by offering him an official pardon or a lesser punishment ahead of the election to give his party a boost at the polls. In a recent interview, Secretary Rice says the shoe- throwing incident is just a meaningless headline from President Bush's last visit to Iraq while in office.

RICE: I hope it isn't allowed over time to obscure the fact this is the president of the United States standing in Baghdad next to the democratic elected Shia prime minister.

(END VIDEOTAPE)

VERJEE: So far Prime Minister Nouri al Maliki really kept his distance from the whole legal process in the shoe thrower case but could weigh in.

MALVEAUX: Is this sort of a critical, crucial next six months for Maliki?

VERJEE: It is. There's a fierce competition. It's a test for the prime minister, because it's the very first time all the Shia parties in Iraq will compete against each other independently. Remember, Maliki came to power.

MALVEAUX: OK. Thank you Zain.

Long before he was president elect, Barack Obama was a law professor and now some students are speaking out on Obama the teacher. And a new twist in the scandal involving investment broker Bernard Madoff. Some socialites may have lost their shirts but now are scrambling to sell their jewelry to make ends meet.

You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

MALVEAUX: Barack Obama's inauguration may not draw as many millions as planners had feared. CNN's Brian Todd has been looking into it.

And Brian, the numbers are showing a different picture now.

TODD: Well, they are now, Suzanne. We are less than a month away from this historic event and we're hearing projections for the crowds here are being scaled back significantly. But when you hear about numbers and the Barack Obama numbers, the term scaled back is relative.

(BEGIN VIDEOTAPE)

TODD: From Tear Garden Park in Berlin to Grant Park in Chicago, Barack Obama has proven he's a draw but officials are now dialing back projections that he'll draw four to five million people to Washington, D.C. for his inauguration. The mayor and the city Congresswoman, recent predictions ranged from 1.5 to 3 million, but at this point, they are not even committing to those numbers.

UNIDENTIFIED FEMALE: I used a number that security people often use, and they have been using it to tell us it is a guesstimate, so there are no reliable number, and anyone who tells you, don't know what kind of an event this is. We are throwing away the old playbook.

TODD: That is because 1.5 million people would shatter the old record of 1.2 million for Lyndon Johnson's 1965 inauguration. The city's capacity to handle those kinds of crowds will likely be stretched to its limits on January 20th. Officials of D.C.'s subway system said they expect to carry about 1 million passengers that day, but they cannot accommodate 2 million. The mayor said that the buses flooding into town is the biggest logistical worry.

UNIDENTIFIED MALE: One, it is a lot of buses coming in, and two, you have to park them in somewhere, and three, they are coming for less than a 24-hour period, and that means they are in and out.

TODD: That is prompting a warning for those wanting the inaugural tickets, if you are living or staying within a two-mile radius, walk to the event, but that also carries risks.

UNIDENTIFIED FEMALE: My biggest worry is the elderly or the people not used to the walks and even if they are not elderly and the people not used to cold weather.

(END VIDEOTAPE) TODD: And Congresswoman Norton is trying to get people to open up their doors so people can take shelter if they need to, but she does haven't a full commitment from everyone yet.

MALVEAUX: Obviously the crowd size has gone down, but tell us about the security situation, because obviously, it is a big concern.

TODD: Yes, it is. We're told that every law enforcement agency from the secret service to the people who guard the train station will beef up the force. We are told that they are bringing in an additional 4,000 officers from other cities, so that the security is beefed up, but again, a huge logistical challenge for those forces as well.

MALVEAUX: Absolutely. Thank you, Brian.

With the revised estimates we wanted to see how comfortable or how packed you might be at Obama's inauguration. The biggest crowd at the National Mall was at President Lyndon B. Johnson's 1965 inauguration. The National Park Services say that would be about 1.2 million. Now, if all of the people feet, they would have 2 1/2 feet space to fit around them if everyone shows up.

Barack Obama as we know is "Time" magazine's person of the year but long before he was president-elect, he was a law professor at the University of Chicago. Today' just in time segment, some of his former students recall the former teacher and spoke to Time about him. Listen to this.

(BEGIN VIDEO CLIP)

JESSE RUIZ, ATTORNEY: Sometimes he can get lost in the law, and the loftiness of what we are studying, and we forget that this involves the lives of people, and he wouldn't let us forget that.

DAN JOHNSON-WEINBERGER, LOBBYIST/ATTORNEY: One of the skills that he developed at the University of Chicago Law School was a real hunger for lots of people preventing new and innovative and sometimes untested ideas to solve problems. But I think that the times are calling his campaign calling for bold change. I don't think that Washington is a bold place. My hope is that broken political culture in Washington really does change.

RUIZ: I think that the greater gains will be, will be seen long after he leaves office in eight years, and that will be a change in attitude of Americans.

(END VIDEO CLIP)

MALVEAUX: Now you can go to time.com for more video on his background and pick up the copy at your local newsstand.

Well, the Illinois governor's scandal just made life for the president-elect a little more complicated. Why Obama's right-hand man could be called to testify at the governor's impeachment hearings. And terrified partygoers call for help when a man dressed as Santa open fire on them. The 911 calls from a Christmas Eve killing spree are set to be released.

(COMMERCIAL BREAK)

MALVEAUX: The U.S. Coast Guard has joined the search for a woman missing from a cruise ship. Brooke Baldwin is tracking the story.

What do we know so far?

BROOKE BALDWIN, CNN CORRESPONDENT: Well, Suzanne, let's just get right to what we know right now. Search crews are combing the waters off of the coast of Mexico in search of a woman who appears to have fallen off of a cruise ship. She is 33 and American and fell off of the Norwegian Cruise line, the Norwegian Pearl that was cruising through the Caribbean and her husband was traveling with her. He notified security that his wife went missing. An official with the U.S. Coast Guard says she went missing around eight o'clock last night and a couple of hours later, her husband notified security that she was nowhere to be seen and that is when the search and rescue operation began. There are helicopter crews hovering over the waters near Cancun where she was last seen. The Mexican government also helping out with three boats and a helicopter. We spoke with Coast Guard officials who said that their aircraft right now is flying very low right above the water.

(BEGIN AUDIO CLIP)

LT. MATT MOORLAG, U.S. COAST GUARD: What you are looking for here is a person in the water. So really a small percentage of the person is above the water, so it is really looking for a needle in a haystack.

(END AUDIO CLIP)

BROOKE BALDWIN, CNN CORRESPONDENT: It sounds like we lost him, but essentially Lieutenant Moorlag is his name and he estimates water temperatures in that area is right around 70 degrees right now.

So, there are search crews on the scene until later tonight. At that point, they will have to determine whether or not to continue until tomorrow -- Suzanne.

MALVEAUX: Thank you, Brooke.