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Thousands of Wiretaps of Governor; Obama's Economic Resolutions; Under Fire in Israel

Aired January 1, 2009 - 16:00   ET


SUZANNE MALVEAUX, GUEST HOST: Happening now, thousands of secret wiretaps in the case against the Illinois governor -- there are new revelations about why prosecutor Patrick Fitzgerald wants more time to file an indictment.
Plus, a new year for speculation about, who will replace Hillary Clinton in the Senate.

With Caroline Kennedy's prospects in question might Bill Clinton step in to fill the void?

And a candid, personal and a fun glimpse into the future first lady -- my one-on-one interview with Michelle Obama on her husband, their life together and what makes them both tick.

Wolf Blitzer is off today.

I'm Suzanne Malveaux.


First this hour, new evidence that the corruption case against the Illinois governor may be even more staggering and complicated than first thought. Prosecutor Patrick Fitzgerald is asking to extend his deadline for filing an indictment against Governor Rod Blagojevich by 90 days, until April 7th. Now one reason -- there reportedly are thousands -- thousands of secret wiretaps of the governor.

CNN's Susan Roesgen is following this story in Chicago -- and, Susan, is there any indication that the prosecution's case is falling apart?

SUSAN ROESGEN, GULF COAST CORRESPONDENT: No, not from the office and not from the former federal prosecutor that we spoke to just this afternoon, Suzanne. In fact, this is the latest filing in this case. It's just a few pages long. But in it, the U.S. attorney says that he did listen to thousands of wiretapped phone conversations just between October and early December.

And, in fact, when he first announced this case in the first of December, he said he was unable to sleep at night -- he couldn't sleep at night because he was so worried that Governor Blagojevich might commit some kind of crime unless he were arrested right away.

He was arrested right away, but now the U.S. attorney is asking for more time. (BEGIN VIDEOTAPE)

PATRICK FITZGERALD, U.S. ATTORNEY: There's a lot to be said for exposing this to the sunlight.

ROESGEN (voice-over): When U.S. Attorney Patrick Fitzgerald first announced the criminal complaint on December 9th, he said he wanted to get the case out in the open right away. Based on wiretapped conversations, Fitzgerald said he was afraid Illinois Governor Rod Blagojevich might take a bribe any minute to make that Senate appointment. And Fitzgerald said he just couldn't let that happen.

FITZGERALD: I was not going to wait until March or April or May to get it all nice and tidy and then bring charges and then say, by the way, all this bad stuff happened because no one was aware of it back in December. I think that would be irresponsible.

ROESGEN: Now the U.S. attorney wants three more months to make his case and the Blagojevich defense team could say that shows the case is weaker than prosecutors made it out to be. But a former Florida U.S. attorney, Kendall Coffey, thinks it's a sign the case is getting stronger.

KENDALL COFFEY, FORMER U.S. ATTORNEY: What happens when a public corruption scandal breaks is sometimes a dam breaks and witnesses come forward -- all victims of extortion lying low before because of fear of retaliation. Now they step up, because the public figure is going down.

ROESGEN: Still, he says to make the case stick, U.S. Attorney Patrick Fitzgerald will have to prove what's on tape isn't just talk.

COFFEY: The best thing he could get would be somebody who steps forward and says, yes, I delivered the cash, I delivered the payoff either directly to the governor or one of his emissaries. It was a done deal -- not a lot of the trash talk inside the governor's bunker.

ROESGEN: Will the prosecutors be able to get that smoking gun?

At least one former prosecutor says there might be a lot of smoking guns -- and more than one nervous politician.

COFFEY: But there have got to be a lot of people connected closely with Blagojevich who are having a lot of trouble sleeping in Illinois right now.


ROESGEN: And in fact, in the latest filing, Suzanne, the U.S. attorney's office says that there may be multiple defendants in this case and multiple potential defendants -- not just the governor and his chief of staff, who are both facing this criminal complaint right now.

MALVEAUX: OK. Thank you, Susan. The controversy surrounding President-Elect Obama's former Senate seat could prove to be a troubling distraction as he tries to stay focused on the issue number one -- for everyone, that, of course, the economy.

Our Congressional correspondent, Brianna Keilar, is in Chicago with that -- Brianna.

BRIANNA KEILAR, CNN CORRESPONDENT: Suzanne, plans are underway for a meeting on Monday between President-Elect Obama, Senate Majority Leader Harry Reid and House Speaker Nancy Pelosi to discuss Obama's proposal for a new economic stimulus plan. That's according to a Congressional Democratic leadership aid. But the transition team is not confirming this meeting.


KEILAR (voice-over): An economic crisis in full swing -- a year when almost $7 trillion were lost in the stock market finally over. As President-Elect Obama returns from vacation in Hawaii, he wants to focus on the economy. Instead...

STUART ROTHENBERG, EDITOR, "THE ROTHENBERG POLITICAL REPORT," CNN POLITICAL ANALYST: The Burris controversy or the Blagojevich controversy is a significant distraction. And it's not what the Obama administration wants to be talking about. It's not what Democrats want to be talking about.

KEILAR: Roland Burris, embattled Illinois Governor Rod Blagojevich's choice to fill Obama's seat in the Senate, is a fixture in the news cycle. A source familiar with the governor's thinking says Blagojevich was not against creating chaos with his pick. And he has certainly stirred the pot.

As Senate Democrats threaten to block Burris's appointment, race has become an issue.

ROLAND BURRIS (D), SENATOR-DESIGNATE: Is it a fact there are no African-Americans in the United States Senate?

That's a fact.

Is it racism that's taking place?

That's the question that someone else may raise.

KEILAR: Even on vacation, the president-elect was forced to take a stand -- issuing a statement saying Senate Democrats cannot accept an appointment made by a governor who is accused of selling this very Senate seat.

Political analysts say this type of distraction is part of being president.

ROTHENBERG: This is a good reminder to the Obama administration and its political advisers and staffers that almost anything can come out of the blue and create a controversy that a president and his senior advisers have to deal with, even if they would prefer to ignore things completely. You can't.


KEILAR: At the same time, analysts say the Burris appointment will be a short-term distraction, that as the new economic stimulus plan takes shape and as Obama's inauguration grows nearer, they will steal the limelight -- Suzanne.

MALVEAUX: Thanks, Brianna.

Right now, President-Elect Obama is wrapping up his Hawaiian vacation. He is set to fly to Chicago before settling in here in Washington this weekend.

Our senior White House correspondent, Ed Henry, has more on the president-elect's plans to hit the ground running, especially when it comes to the economy -- Ed.

ED HENRY, CNN CONGRESSIONAL CORRESPONDENT: Suzanne, after a quiet New Year's here with friends and family in Hawaii, the president-elect is moving quickly to try and sell his plan to fix the economy.


HENRY (voice-over): While keeping one eye on the crisis in Gaza, President-Elect Barack Obama is now returning to the mainland to focus on the issue that propelled him to office -- the economy. Which is why the transition is knocking off the new year by sending Congress a recovery plan in the neighborhood of $775 billion.

SEN. JOSEPH BIDEN (D), VICE PRESIDENT-ELECT: Economists rarely agree, but on this score, there's overwhelming agreement that we need a robust and sustained economic recovery package. The greater threat to our economy lies in doing too little rather than in not doing enough.

HENRY: Transition aides say the goal is to get the bill signed into law as quickly after the inaugural as possible -- to get the new president a quick victory while also giving the economy a shot in the arm. The emerging plan includes billions for backlogged transportation projects to beef up construction jobs and improve the nation's infrastructure, as well as modernizing crumbling public schools to create jobs while also investing in education.

REP. BARNEY FRANK (D), MASSACHUSETTS, CHAIRMAN, FINANCIAL SERVICES COMMITTEE: And if we don't do this, it will cost us even more. This economy is now in the worst shape since the Great Depression. And if we do not respond in a very firm way, it gets worse and worse and feeds on itself.

HENRY: But Republicans are making noise about slowing the stimulus plan down because they're wary about the price tag -- especially on top of a series of government bailouts. REP. ERIC CANTOR (R), VIRGINIA: I think most American taxpayers now are sort of scratching their head and wondering when all this bailout stuff is going to end and probably thinking, you know, when is my bailout coming?

HENRY: To overcome the opposition, aides say Mr. Obama is considering plans to travel the country to sell the economic plan, quickly after being sworn into office.


HENRY: Mr. Obama is moving quickly to sell the plan, because there's no time to waste. This will be the first real test of the new president's clout -- Suzanne.

MALVEAUX: Thanks, Ed.

President-Elect Obama is less than three weeks away from starting his new job. His early days as a lawyer in Chicago may now seem like a lifetime away. But he has his wife Michelle to help keep him grounded.

I sat down with Michelle Obama recently and she recalls the first time that she heard of her future husband.


MICHELLE OBAMA, BARACK OBAMA'S WIFE: I had just graduated from law school. I had spent my first summer year as an intern. And there was all this buzz about this hotshot young first year law student from Harvard. And everyone, I mean from the head of the firm on down, had talked about how brilliant this guy was. And it was rare that a firm as big as ours hired first year students, so he was going to come in as a summer associate. And they decided that I should be his adviser.


MALVEAUX: Stand by for much more of my interview with Michelle Obama -- a wife's very personal insights that you haven't seen or heard before.

Well, Jack Cafferty is off today. Right now, the threat of attack in Gaza and in Southern Israel.


NIC ROBERTSON, CNN SENIOR INTERNATIONAL CORRESPONDENT: The siren's just gone off. Everyone's getting out of their cars and getting down in the road, waiting to see what happens.


MALVEAUX: CNN's own Nic Robertson experiencing the danger firsthand. We'll have a live report from the front lines.

Plus, will Hillary Clinton be able to stay on the same page as President-Elect Obama when it comes to the Middle East war and peace? And will the next U.S. senator from New York also be a Clinton?

The new buzz about whether Mrs. Clinton's seat will be filled by her husband.



MALVEAUX: There are rising fears the Gaza unrest will endanger the already fragile Middle East peace process. And Israel could pose an intricate problem for Barack Obama and his choice for secretary of State, Hillary Clinton.

CNN's Brian Todd is following this story -- Brian, is there any daylight between Clinton and Obama when it comes to Israel?

BRIAN TODD, CNN CORRESPONDENT: Not a whole lot of daylight, Suzanne.

Still, the Israelis and Palestinians have openly wondered just what they're getting from this new White House security team. That's because the president-elect and his designated secretary of State have, to put it diplomatically, shown evolving positions on the problem.


TODD (voice-over): They're about to become instant partners in trying to cure what's been called the 100-year headache -- the effort to find some kind of lasting peace between Israel and the Palestinians. This week, that headache may have turned migraine.

Whether Barack Obama and Hillary Clinton can easily approach the two sides with one voice is still unclear.

JON ALTERMAN, CENTER FOR STRATEGIC & INTERNATIONAL STUDIES: I think the Israelis look at President-Elect Obama and they're a little uncertain. It's not that they don't think they have a strong supporter, but they're not as sure where this is going to go.

TODD: Mr. Obama has been seen alternately as sympathizing with the plight the of the Palestinians, earlier in 2008 saying: "Nobody is suffering more than the Palestinian people," and expressing airtight solidarity with Israel.

BARACK OBAMA (D), PRESIDENT-ELECT: Jerusalem will remain the capital of Israel and it must remain undivided.

TODD: A remark he backed away from the following day.

OBAMA: Well, obviously. It's going to be up to the parties to negotiate a range of these issues. And Jerusalem will be part of those negotiations.

TODD: But we've also seen two Hillary Clintons -- one who embraced Yasser Arafat's wife a decade ago and voiced early support for a Palestinian state, but who also, since she first ran for Senator in New York, has become one of the most unwavering hawks in defense of Israel.

During the campaign, they split on Iran -- a key player in the Israeli/Palestinian dynamic. Separate interviews on ABC highlighted that -- first, when Clinton talked about how the U.S. might respond to an Iranian attack on Israel.

SEN. HILLARY RODHAM CLINTON (D), SECRETARY OF STATE NOMINEE: We would be able totally obliterate them.

OBAMA: Using words like obliterate doesn't actually produce good results.

TODD: Mr. Obama has said he's willing to meet with Iran's president without preconditions. Senator Clinton has favored engaging the regime, but not meeting directly with its leader. (END VIDEO TAPE)

TODD: Still, when Mr. Obama announced his security team a month ago, he made it clear that he and Hillary Clinton will work together on the Israeli/Palestinian dispute. And a transition team official says whatever debates may take place as they formulate policy, they will speak with one voice in the end. It's crucial now, Suzanne, now that what's going on is going on, they're going to have to do that.

MALVEAUX: And, Brian, tell us about the people in Obama's inner circle who might have a differing opinion about all of this when it comes to policies.

TODD: There are people who come at this with different positions. His top national security adviser, General James Jones, once helped the Palestinians establish a security force. He has also consulted with Brent Scowcroft, who was very tough on the Israelis during the first Bush administration.

And you compare that with Mr. Obama's chief of staff, Rahm Emanuel, who has family ties to Israel -- a very strong supporter of Israel -- and Mrs. Clinton's support of Israel, you might have some very healthy debates in that cabinet.

MALVEAUX: I can only imagine being a fly on the wall in that meeting.

Thanks again, Brian.

Under fire in Israel -- our own senior international correspondent, Nic Robertson, found out for himself what it's like when militant rockets smashed into the ground dangerously close by.


ROBERTSON: The siren's just gone off. Everyone's getting out of their cars and getting down in the road, waiting to see what happens. That was the explosion. We just heard one explosion going off. I think it came from that direction over there. (VIDEO CLIP)

ROBERTSON: There's no all clear as such, although the cars seem to be moving again. Everyone that stopped is getting going. People are coming out of the buildings right across the road there. So that's sort of an indication that whatever was going to come has come.


MALVEAUX: He ducks for cover behind a car as sirens rang out and explosions resounded.

And Nic is in the southern coastal city of Ashkelon.

He joins us by phone now -- and, Nic, first of all, I'm so glad that you are safe here.

Tell us about that situation that you experienced.

How often were those sirens actually going off?

ROBERTSON: Well, just to give an example, Suzanne, we were driving around for about three hours this afternoon and five times we had to -- we had to get out of the vehicle. We heard the siren -- get out. Everyone stops. It's uncanny. Everyone stops immediately, gets out, hits the dirt.

But we met up with one of our other teams, Ben Wedeman's team, just as it was getting dark, just on the outskirts of Gaza. And that's when that missile came so close overhead and crashed in just a few hundred yards away.

So for people here, this is interrupting everything that they're doing. And it really brings it home just the sort of impact that just a few missiles -- a few rockets can have. It makes people here stop in their tracks and it puts them in a state of fear.

The hospital today, I was told they're getting a lot of cases of people with Post-Traumatic Stress Syndrome -- Suzanne.

MALVEAUX: And, Nic, I understand that there was a major Hamas leader that came under fire and perhaps was killed.

What do we know about that?

ROBERTSON: Nizar Rayyan. He is, according to Israeli Defense Forces, a man whose been behind some very significant suicide attacks in Israel, one in Ashdod about four years ago -- in 2004 -- that killed 10 Israelis. According to Israeli Defense Forces, he sent his son on a suicide mission. His son was a suicide bomber in 2001 in another suicide attack here in Israel.

And according to -- according to some Israeli media reports, they say that Rayyan himself supported Hamas returning to suicide missions, because remember, over the past year or so, Hamas had foresworn putting militants -- putting suicide bombers out on Israel's streets. And just yesterday, he was on television to -- speaking to the Palestinian people, telling them that they would win this fight against Israel, that they would imprison and kill the Israeli men -- rub their noses in the sand, as he said. He was seen as a very, very tough leader by many in Gaza -- Suzanne.

MALVEAUX: Thank you, Nic Robertson, in the conflict zone.

Please be safe.

Searching for a job in the new year -- millions of Americans are out of work right now.

Well, if you're one of them, we'll tell you what you should do to get yourself off the unemployment rolls.

And a grim toll for U.S. troops in Afghanistan in 2008, even as Iraq takes control of troop operations.

What will this mean for Barack Obama?

Well, we're taking a close look in our Strategy Session.


MALVEAUX: Jim Acosta is monitoring the stories that are incoming into THE SITUATION ROOM right now -- Jim, what are you watching?

JIM ACOSTA, CNN NATIONAL CORRESPONDENT: Suzanne, also happening now, flames shooting out windows, new year's partiers trapped inside. This was the scene at a nightclub in Thailand when a fire broke out this morning. About 60 people are dead, another 200 injured. Police say most killed were either trampled in the stampede to get out or died from smoke inhalation. Investigators don't know whether planned fireworks or sparklers brought by club goers started the fire. And three separate explosions in a crowded part of India killed at least five people and injured 50 more. The blasts today happened in the troubled northeast region about an hour before the nation's top security official arrived in the area. Police blame the bombings on a militant group waging a decades long fight for independence from the government. India's leaders are under pressure to clamp down on terrorists after the November attacks in Mumbai.

A man whose program has helped millions of people attend college has died. Claiborne Pell, a former six term senator, died today after a long-term battle with Parkinson's Disease. The Rhode Island Democrat may have best been known for the Pell Grant program he created. He was just 90 -- he was 90 years old -- Suzanne.

MALVEAUX: That's an excellent program.

ACOSTA: Absolutely.

MALVEAUX: Thank you, Jim.

On the hunt for a new job in 2009? Well, the unemployment lines are long and getting longer. Well, we are following one woman who's keeping the -- who's keeping her hopes up as she searches for work.

New York governor David Paterson's Senate seat dilemma -- what to do about Hillary Clinton's soon to be empty spot.

Why some say a benchwarmer is the best option.

And before she met him, Michelle Obama thought Barack Obama would be a little nerdy. Well, she's telling us what changed her mind.



Happening now, a popular resort town shut down -- bombs wrapped as presents left around Aspen, Colorado -- the chilling New Year's Eve threat and the surprise police found today.

Plus, a national financial meltdown and the Treasury Department took the heat. Well, now the Treasury is answering back.

And California is overspending by the billions. Governor Arnold Schwarzenegger's plan -- well, cocktails will cost more, children will go to school less and the state is going gambling

Wolf Blitzer is off today.

I'm Suzanne Malveaux.


On this first day of 2009, many out of work Americans have only one resolution -- and that is, of course, to find a job. For every victim of the staggering unemployment rate, there's a personal story of lost dreams and dwindling hope.

Let's bring in CNN national correspondent, Susan Candiotti. You have been talking to people who obviously have lost their jobs and are having kind of a tough time.

SUSAN CANDIOTTI, CNN CORRESPONDENT: Suzanne. It's not easy out there. The number of Americans now drawing unemployment benefits is up to four-and-a-half million. And in 2009, that number is expected to grow.


CANDIOTTI (voice-over): It's hard to be happy when you're starting off the new year without a job.

JEN KWOK, UNEMPLOYED: It's just scary not knowing like when your next paycheck is coming.

CANDIOTTI: Jen Kwok was let go last fall as a Web site writer and despite accounting skills, still can't find a job.

KWOK: I think it might be another year or so. I mean I'm not really -- I'm not that optimistic that it's going to happen very soon.

CANDIOTTI: Kwok is among a staggering two million Americans who lost their jobs in 2008. That's far more than the 1.6 million jobs lost in the last recession in 2001. And the worse the job outlook gets, the harder it is to break out of a vicious cycle -- no factories, no jobs, no spending.

JOHN CHALLENGER, CEO, CHALLENGER, GRAY & CHRISTMAS, INC.: It certainly got much worse much quicker in 2008.

CANDIOTTI: Bleak is putting it mildly.

ED YARDENI, ECONOMIST, YARDENI RESEARCH, INC.: The problem is companies are having a very difficult time getting credit. And so they can't roll over their credits. They're desperate for cash. There's a dash for cash. And the fastest way to do that is to cut back on payroll employment.

CANDIOTTI: Economic Ed Yardeni says a key to stabilizing the job market is reviving the housing industry by lowering interest rates. Until then, what can job-hunters like Jen Kwok (ph) do right now?

JOHN CHALLENGER, CEO, CHALLENGER GRAY & CHRISTMAS INC.: Be open to changing industries, but stay in your field. So, if you have been an accountant or a human resources professional or an administrative worker, you can take those skills and move them, say, out of automotive or banking, if things are just too tight there, and go into health care or energy or some of the other areas of the economy.

CANDIOTTI: Tips that job-seeker Jen Kwok takes to heart.

UNIDENTIFIED FEMALE: I think I will find something. However, I don't think that I'm going to get the job that I want.


CANDIOTTI: And experts say expect the job hunt to be even more competitive in 2009 -- Suzanne.

MALVEAUX: Thank you, Susan, tough times for a lot of folks. Thanks.

Senator Hillary Clinton is preparing to give up her day job to become secretary of state. And the speculation about who will replace her is taking some fascinating new turns. After all the buzz about Caroline Kennedy, well, there's a new and very familiar name on many people's lips.

CNN's Deborah Feyerick is working the story.

And, Deb, this is really fascinating, one Clinton, perhaps, for another. Tell us about what this is all about. DEBORAH FEYERICK, CNN CORRESPONDENT: Well, exactly. Imagine it, Senator Bill Clinton. Why not? So many qualified people want to be appointed to the Senate seat Hillary Clinton will leave when she's likely confirmed secretary of state. The question becomes, why not put in place -- put in place a placeholder, a seat-warmer, someone with the political clout, let's say, of Bill Clinton? This way, the Republican -- this way, the public can vote in two years who should hold the seat for the long run.


FEYERICK (voice-over): They are big-name New Yorkers, Caroline Kennedy, Andrew Cuomo, Carolyn Maloney, and others, all jockeying to fill the state's soon-to-be-empty Senate seat. And the stakes are high.

STUART ROTHENBERG, EDITOR AND PUBLISHER, "THE ROTHENBERG POLITICAL REPORT": There usually isn't a lot of turnover. Yes, particularly in New York, where there are so many visible personalities, so much media coverage, I don't think it's a surprise.

FEYERICK: Which could be why Democratic Party advisers cited by the Associated Press suggest New York's governor, David Paterson, may consider a seat-warmer, someone to level the playing field among so many qualified people, and instead fill the Senate seat for two years, while the others face each other in a special election.

In Delaware, the governor made just that choice, appointing a longtime Joe Biden adviser.

GOV. RUTH ANN MINNER (D), DELAWARE: In 2010, it should be the voters of the state, without impact from anyone, who decides who Delaware's U.S. senator will be.

FEYERICK: In New York, names bandied about as possible seat- warmers include former President Bill Clinton, who has said categorically he's not interested, or former New York Governor Mario Cuomo, whose son, State Attorney General Andrew Cuomo, is a contender. Governor Paterson today denied he's considering an interim senator.

GOV. DAVID PATERSON (D), NEW YORK: I'm actually opposed to that. It would cause New York to lose seniority. And, in the United States Senate, the most effective senators are the ones that have seniority.

FEYERICK: Political observer Charlton McIlwain says any pick the governor makes is likely to be controversial.

CHARLTON MCILWAIN, PROFESSOR IN MEDIA, CULTURE AND COMMUNICATION, NEW YORK UNIVERSITY: The idea is that these people could get in there and make a good start in two years, run again, and, if they're reelected, could really build on something that they have already started, rather than simply having someone to sit there and just sort of fill time for two years.

(END VIDEOTAPE) FEYERICK: And, don't forget, anyone not appointed to the Senate could run for governor against Paterson, something he has to consider. As for Delaware, some political insiders suggest the two-year placeholder will enable Joe Biden's son, Beau Biden, to run for Senate when he returns from duty in Iraq come September -- Suzanne.

MALVEAUX: And a fascinating story, Deb. We will be talking about it later here in THE SITUATION ROOM. Thank you.

Hillary Clinton's Senate seat isn't the only one with a big question mark hanging over it. With Senator Ken Salazar tapped for interior secretary, Colorado's governor will have to appoint a replacement for the fellow Democrat. The status of president-elect Barack Obama's former Senate seat still is very much in the air, after the Illinois governor's disputed appointment of Roland Burris.

And there may not be a winner in Minnesota's Senate seat for days, or even weeks, as the recount continues. At last report, Democratic challenger Al Franken currently was leading Republican incumbent Norm Coleman by 49 votes.

Well, after a long campaign, voters eventually were won over by president-elect Obama. Apparently, his wife once needed a little convincing, too.


MICHELLE OBAMA, WIFE OF SENATOR BARACK OBAMA: He was sort of pulling out all the stops. And then we wound up having a drink on the 99th floor of the John Hancock Building. And that -- that gives you a beautiful view of the city. And, probably, by the end of that date, it was -- it was over.


MALVEAUX: You were sold?

OBAMA: I was sold.


MALVEAUX: Michelle Obama opens up about her early days with the next commander in chief. Stand by for my never-before-seen portions of my interview with the future first lady.

And, as president-elect Obama prepares to meet with congressional leaders on the economy next week, Republicans may be cooking up plans to stand in his way.


MALVEAUX: Today marks a turning point in the war in Iraq.

The U.S. military turned over authority of Baghdad's Green Zone to Iraq. At the same time, the war in Afghanistan is getting deadlier for troops, all just days before Barack Obama is set to take office. Well, joining me now for today's "Strategy Session" are Democratic strategist Peter Fenn and CNN political contributor and Republican strategist Bay Buchanan.

Thanks for joining us in THE SITUATION ROOM.


MALVEAUX: Obviously, Green Zone very important symbolically, success in Iraq. How does this weigh on Barack Obama when he first comes into office? Should this be priority number one, or does it allow him some leeway, a chance to focus on the economy?

Bay, I will start with you.

BAY BUCHANAN, CNN POLITICAL CONTRIBUTOR: You know, he -- he clearly has to focus on the economy. And -- and I think he would be extremely wise. We have got now a plan, an exit strategy, if you like.

And, if he were wise, he would say, OK, that's the exit strategy -- exit strategy; implement it -- Because, if he makes any alteration to it, and there is a bloodbath, he will be held responsible. Right now, the American people are happy. Let's get the heck out of there. Here's the exit strategy. Let it take place. Then it's Bush's war. If a bloodbath occurs, it's Bush's folly.

I would tell Obama, do not mess with it. Just let it move ahead as it's planned.


PETER FENN, DEMOCRATIC STRATEGIST: I agree with Bay on this one. I think it's really important to have an orderly transition. This is what people want. This is what the Iraqis want.

And it's not easy. I mean, there were -- four days ago, they shelled the Green Zone. So, this isn't over. But, you know -- and the United States now says, we will go in, we will help out, you know, if there's a problem.

But we need to have this transition of power. And that's -- that's the approach that Barack should take.

MALVEAUX: At the same time, we're seeing a record number of fatalities, American troops that have been killed in Afghanistan, obviously a big problem for Barack Obama.

In his first 100 days, how does he handle Afghanistan, politically, Bay?

BUCHANAN: You know, I would -- I would have a word of caution here -- advise a word of caution, because this is going to be his war.

If he escalates Afghanistan, it is his war. And he's a candidate that ran as an anti-war candidate, and, yet, he's there sending more and more troops into a place. I would like to ask him, what is it that he hopes for here if he changes the policy? What is it? Does he want the Taliban to be out; they can't rule? Then, who is going to rule?

This is a troubling spot. I don't see an answer. I think he makes a big mistake escalating in that conflict.

MALVEAUX: Want to switch gears real quick, if I may, here.

Barack Obama is going to be meeting with Nancy Pelosi, obviously, on Monday to push for the -- the billions of dollars, this stimulus package. Do we expect that he's going to have a hard time pushing this through Congress? Are we going to see resentment from the Republicans?

FENN: You know, I think, at the end of the day, no.

I think there's some resistance now that Republicans want to be included in the discussions. They should be included in the discussions. There's concern about not only the numbers, but where it's going to go. There's concerns about, are there going to be earmarks in there? Are there going to be -- is there going to be wasteful spending?

But I will tell you, I think this is going to move, and move fast. I think the president is going to go on the road in early February to sell this plan. This is a jobs plan. We need three million new jobs. We need new taxes paid. We need a stimulus fast.

MALVEAUX: Are the Republicans going to slow it down, Bay?

BUCHANAN: It's not just the Republicans. It's conservative Democrats as well...


MALVEAUX: The Blue Dogs.

BUCHANAN: They -- absolutely -- they are very nervous about the huge numbers here. And whenever you send up $700 billion and say you can spend it, you know that there's going to be corruption and -- and earmarks and all kinds of problems. You do not want to put your name to that.

FENN: But, with so much at stake, you have got to move fast on this.


BUCHANAN: ... going to move on some parts of this.

FENN: You don't want this thing delayed for -- for -- for months, certainly. And I think that both Republicans and Democrats...


MALVEAUX: Peter, Bay, I got to...

BUCHANAN: I think there should a debate.


MALVEAUX: OK. I have got to leave it there.


BUCHANAN: There should be a debate.



MALVEAUX: Oh, wait. Wait. I have been told I get a little bit more time.


FENN: Oh, more time. All right.



MALVEAUX: Finish your thought. Finish your thought.


FENN: Well, my thought is only that I think this is something that -- that will be a first test for Obama on whether he can bring in Republicans on this.

I think he will. I think he will have the country saying, look, we do need these jobs. We do need this tax cut, $200 billion tax cut for middle-class families. Let's go.

BUCHANAN: And he should not do it January -- in January. He should deliberately go out there, talk to the American people, make certain they know what's in there, and then have the Republicans raise this issue or that issue, and -- and say -- say, OK, we're going to cut this out, so it looks like a -- both sides are together on this. Or, otherwise...

FENN: Just like Reagan did in 1980.


BUCHANAN: Absolutely. Absolutely.


MALVEAUX: Good idea or bad idea?

(CROSSTALK) FENN: Good idea.


FENN: Go out on the road. Sell this. Move it. But I think you can do that fast.

BUCHANAN: Take a couple months to do it.

FENN: Oh, one month. One month.

BUCHANAN: Take a couple months.


BUCHANAN: Oh, three or four.



MALVEAUX: We have got to wrap it up there.

Happy new year to both of you.

BUCHANAN: Thank you.

FENN: Happy new year. Thanks, Suzanne.

MALVEAUX: Thank you so much.

Well, it's Michelle Obama as you have never seen her before.


M. OBAMA: I mean, Barack wouldn't want much to change at all in his life, not in me, not in his kids, not in himself. So, I respect that in him.


MALVEAUX: The incoming first lady tells me what she most admires in Barack Obama and what he did on their first date that had her sold from that moment on.

Close call bomb threats empty downtown Aspen, Colorado, on New Year's Eve.

And California Governor Arnold Schwarzenegger's drastic plan to get his state out of the red, but will it work? We're taking a close look.


MALVEAUX: Michelle Obama up close and personal, like you haven't seen or heard before. The incoming first lady opens up to me about her first-ever meeting with Barack Obama. And he wasn't anything like she had expected. Take a listen.


MALVEAUX: Tell me about the first time you met Barack. What was your impression?

M. OBAMA: I was a first-year associate at -- at Sidley & Austin. I had just graduated from -- from law school, had spent my first summer as an in -- year as an intern.

And there was all this buzz about this hot-shot young first-year law student from Harvard. And everyone, I mean, from the head of the firm on down, had talked about how brilliant this guy was. And it was rare that a firm as big as ours hired first-year students. So, he was going to come in as a summer associate.

And they decided that I should be his adviser, probably because we both went -- both went to the same law school. We were both minority students. So, I remember getting his bio.

And I probably did what a lot of people do when they hear about Barack Obama. First, I thought, what kind of name is Barack Obama? And I found out that he grew up in Hawaii. And I found that strange, as a girl who grew up on the South Side of Chicago. I had never met anybody who lived in Hawaii. That was always where you vacationed. It wasn't where you were from.

MALVEAUX: Right. Right.

M. OBAMA: And I found out that he was biracial. So, my assumption was, this guy has got to be kind of weird, right, probably a little nerdy. I had already sort of created an image of this very intellectual nerd.

And I was prepared to be polite and all that. And then he walked into my office on that first day, and he was cuter than I thought he would be.


M. OBAMA: So, that was a first positive impression.

But I had to take him out to lunch on that first day. And we got to -- we had to talk. And he told me more about his background, and he fleshed it out a bit more. I found out that his father was from Kenya, his mother was a white woman from Kansas, and that he had spent part of his life in Indonesia.

And I just found him intriguing in every -- in every way that you can imagine. He was funny. He was self-deprecating. He didn't take himself too seriously. He could laugh at himself. I mean, we were -- we clicked right away. He was very down-to-earth, despite having come from this very exotic background, compared to mine.

MALVEAUX: And -- and, yet, you didn't date him. You -- you pass him off to your friends. Why? M. OBAMA: You know, that was sort of part of where I was in my life, because I was taking my job as an adviser -- I was his adviser -- very seriously. And it was my first responsibility, as a -- as an associate.

So -- and my mind wasn't focused on dating. I -- I thought, this guy's going to be a good friend of mine. I liked him. We hung out. But I just didn't see that. I didn't see a relationship coming out of that.

MALVEAUX: So, tell me about the first date, because he -- he wanted to go out with you. And something must have changed. Tell me about that first date.

M. OBAMA: You know what? We...

MALVEAUX: What did you do?

M. OBAMA: We had spent -- we had spent a month in -- in the firm together, and we were developing a really good friendship. And he lived near me in Hyde Park. I lived in South Shore. I still lived with my parents.

So, I just -- I liked him. But he insisted that we should go out on a date. And I thought, no, that wouldn't be -- be the right thing to do. And he said, who cares? So, I said OK. We will go on this one date, but we won't call it a date. I will spend the day with you.

So, we wound up spending the day. We went to the Art Institute in Chicago. And he impressed me with his knowledge of art. And we went to lunch in one of the outdoor cafes at the Art Institute, where they were playing jazz. So, that was really sweet.

And then we walked up Michigan Avenue. It was on a -- on a really beautiful summer day. We just walked. And we talked and we talked. And we wound up going to see a movie. And our first movie was "Do the Right Thing" by Spike Lee.


M. OBAMA: And it had just come out. So, that was sort of his cultural side, too. So, he was...


M. OBAMA: He was sort of pulling out all the stops.

And, then, we wound up having a drink on the 99th floor of the John Hancock Building. And that -- that gives you a beautiful view of the city.

And, probably, by the end of that date, it was -- it was over.


MALVEAUX: You were sold? OBAMA: I was sold.


MALVEAUX: There's much more ahead of my never-before-seen- interview with the future first lady.


M. OBAMA: You know, he was a guy -- you know, he -- as I said, he came out of a community organizing background, right? So, that wasn't, you know, Wall Street, button-down, wearing-suits, kind of -- you were working in communities.


MALVEAUX: Michelle Obama tells me what made the next president so different from anyone she had ever met before and why she was the last one in her family to know he planned to propose to her.

Plus, Arnold Schwarzenegger unveils his latest plan to fix California's budget woes. But will fellow Republicans revolt at tax increases?

And deadly plot, the target, Aspen, Colorado -- how police stopped a tragedy from happening.


MALVEAUX: Now more of my interview with Michelle Obama, like you haven't seen or heard before. She told me why Barack Obama wasn't like any other guy that she had ever met, and how he proposed to her.


MALVEAUX: How was Barack different than -- than other guys you had known? And what did he look like at that time? Can you describe him?

M. OBAMA: You know, Barack hasn't changed much physically over the years. He's got a few more gray hairs, but, you know, he looks exactly the same, the same, you know, physique, the same mannerisms.

MALVEAUX: Can you give us a sense of his style? Is he flip- flops and jeans? Was he a little different than other folks, or...

M. OBAMA: You know, he was a guy -- you know, he -- as I said, he came out of a community organizing background, right? So, that wasn't, you know, Wall Street, button-down, wearing-suits, kind of -- you were working in communities.

And you were, you know, working with single-parent mothers and grandparents raising grandchildren. So, that was the world he had come out of. So, I think that was more his style, you know, shirts and pants


M. OBAMA: Very simple.

But that's really Barack today, you know? I mean, Barack still has the same pants and shirts that he had when we got married, which is why I crack up when people say he's one of the best-dressed men. I think maybe that means he looks good in his clothes, because he's tall and thin. But, trust me, if you look up close, those pants have a hole in the back, and his shoes...


M. OBAMA: I was looking at his shoes the other day. I was like, you need new shoes.


MALVEAUX: But you're the fashion icon in the family now.

M. OBAMA: Yes, but, you know, his stuff is old.


M. OBAMA: I'm not talking about style. I'm just talking about, get some new shoes.

MALVEAUX: He needs to update?

M. OBAMA: He needs to update a little bit.

MALVEAUX: Upgrade.

M. OBAMA: So -- but that's very much who he was then.

And I liked that about him, because he didn't really care about what other people thought and how he looked. He wasn't into fashion. He was very much into issues. He cared more about the work that he was doing in the community than how he looked.

I mean, his apartment was no-frills. Her was subletting from a friend, sleeping on a futon. You know, he was -- he's a -- always has and always will be a kind of no-frills guy. To the extent that he does anything that is upgraded, it's because I coax him into buying...


M. OBAMA: ... a new suit. It's like, you can do this. You can get a new suit.


MALVEAUX: Is there anything else that you're encouraging him to upgrade or change?

M. OBAMA: No. No. I mean, that's the one thing that, you know, Barack and I -- it's why our relationship is -- is so strong, because we appreciate each other as we are.

I mean, Barack wouldn't want much to change at all in his life, not in me, not in his kids, not in himself. So, I respect that in him.

MALVEAUX: Did he fit in into the -- in -- with your friends on the South Side? Did he fit in, or did he stand out in some way?

M. OBAMA: Yes, no, he -- he very much...

MALVEAUX: What was that like, to meet your friends?

M. OBAMA: Yes, he very much fit in.

You know, Barack is one of the those people who is comfortable in his own skin. So, he's comfortable in every space that he's in. So, he was comfortable with my family, that is very diverse in -- you know, in opinions and perspectives.

But he was also very comfortable at Sidley & Austin, in a very upper-crust firm. But he was also comfortable in that church basement that he took me to, where he talked about the concept of how you make the world as it is and the world as it should be one and the same.

And that's what I liked about Barack, that he could very much be himself, but connect with people all over the place. And, then, as I got to meet his friends, and saw the diversity of his -- not just his family, but his friendships, the folks in college, and the kids -- the folks that he grew up with Hawaii, all very different people, but all basically the same.

MALVEAUX: How did you come to the point where the two of you decided that you would get married? How did he propose? I understand there was kind of a little bit of back-and-forth discussion over -- over marriage.

M. OBAMA: You know, Barack -- you know, through the couple of years that we dated, we, you know -- Barack was very clear that he was very serious, and -- and, you know, he -- he believed that I was the one for him. So, we got very serious very quickly.

But it wasn't until after he finished law school -- because I -- he was still in law school, and I was working in a firm -- that we started talking about marriage. And Barack would always -- sometimes -- I shouldn't say always -- he would sometimes say, well, you know, if you love -- two people love each other, you know, what is marriage?


M. OBAMA: And I would say, marriage is everything.


MALVEAUX: I want that ring.

(LAUGHTER) M. OBAMA: Right. It's like, you know, marriage means a -- a great deal.

So, we would sort of go back and forth with that. But I think, in his mind, he -- he had always intended to propose, because, apparently, he had talked to my father, talked to my family before he bought the ring. I think everybody knew but me.

So, he was just sort of goading me on. But...

MALVEAUX: And -- and how did he propose?

M. OBAMA: We were one of our favorite restaurants, and we were there under the guise of celebrating the fact that he had just finished the bar, because he had taken the bar exam. So, he said, let's go out and celebrate.

So, I thought we were there celebrating the fact that he was done with the bar, which, as any person who has gone to law school knows, is that that's a cause to celebrate.

So, we were, you know, having our typical dinner and going back and forth and talking about life and all that. And at -- and then dessert comes. And the waiter brings out a tray, sets it in front of me, uncovers the little silver dish, and there's a ring. And he asked me to marry him. And I said yes.



MALVEAUX: You can see more of my interview with Michelle Obama and the president-elect this weekend in a CNN special report, "The Obamas." It airs this Saturday and Sunday at 8:00 p.m. Eastern.

Well, you're in THE SITUATION ROOM.

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