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Democrat Questions Obama's CIA Choice; Prosecutors Move to Revoke Bernard Madoff's Bail

Aired January 5, 2009 - 18:00   ET

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


WOLF BLITZER, CNN ANCHOR: Happening now, breaking news: remarkable criticism of Barack Obama's new choice for CIA chief from a top Democrat. This hour, tough questions about whether Leon Panetta is the right person for this critical job.
Plus, the president-elect says the economy can't wait until he's sworn in. He's making the rounds on Capitol Hill today, and adding sweeteners to his recovery plan.

And prosecutors try to put alleged swindler Bernard Madoff behind bars right now, at issue, a million dollars worth of jewelry and our assets stuck into the mail, all that coming up and the best political team on television.

We want to welcome our viewers in the United States and around the world. I'm Wolf Blitzer. You're in THE SITUATION ROOM.

Breaking news this hour, two new additions to Barack Obama's national security team, and some lawmakers are asking very publicly if the president-elect is bringing needed change to the Central Intelligence Agency.

Two Democratic officials tell CNN that Mr. Obama has tapped former Clinton White House Chief of Staff Leon Panetta to head the CIA. The same officials say he's chosen retired U.S. Admiral Dennis Blair as director of national intelligence.

Our senior congressional correspondent, Dana Bash, is standing by on Capitol Hill with more of the reaction to the choice of Panetta, including some harsh words from a leading Senate Democrat.

But, first, let's go to our senior White House correspondent, Ed Henry.

Ed, what are you hearing about these critically important choices?

ED HENRY, CNN WHITE HOUSE CORRESPONDENT: Well, Wolf, I'm hearing from the Obama camp surprise at some of the strong reaction. You mentioned Admiral Blair as the director of national intelligence, somebody very well-respected in the intelligence community.

But the reaction, the flash point, is over Leon Panetta, as you noted. He's being tapped to be the director of the Central Intelligence Agency. He would be reporting to Admiral Blair. He's very highly respected, as you know, a real power player, a former Clinton White House chief of staff. So he was a consumer of intelligence in that job, received these intelligence reports, but has never really held any sort of a top intelligence post.

So, there are a lot of intelligence professionals wondering whether he's really up to running such an important agency post-9/11, in a post-9/11 world. And what's interesting about all that is that the Obama camp feels that they need an outsider, they need somebody who is not so well versed in sort of the culture of the CIA, and somebody, frankly, who's not attached to all the controversies over alleged torture by Bush officials, the enhanced interrogation techniques.

So, the Obama thinking right now is that by bringing in an outsider who's a strong manager as a former White House chief of staff, he can shake things up, sort of lead a new direction to the CIA. But that's not what other people want to hear. They think that maybe an opportunity was missed here, that the president-elect did not pick someone who really understands the intelligence community, a fascinating debate that is going to play out, Wolf.

BLITZER: All right, it is fascinating. Ed, stand by.

And surprisingly harsh response coming in to Barack Obama's choice of Leon Panetta. And it's coming in from Democratic Senator Dianne Feinstein of California. She's the incoming chair of the Senate Intelligence Committee.

Let's go to our congressional correspondent, Dana Bash.

Wow, Dana, a very tough and surprising statement coming in from Senator Feinstein.

DANA BASH, CNN CONGRESSIONAL CORRESPONDENT: Very tough, Wolf, indeed. This is a senator who is important for several reasons. But, most importantly, she is going to be the chairman of the committee that is in charge of confirming Leon Panetta as the director or head of the CIA.

And she was upset for two reasons, one, some of the things that Ed was talking about, because she does believe that it should be an intelligence professional at the head of the CIA. And, also, she didn't know about it. This is Obama's fellow Democrat up here again in a very important position and she read about it in "The New York Times" today.

Let me read the harsh statement that she immediately put out when she heard about this.

She said: "I was not informed about the selection of Leon Panetta to be the CIA director. I know nothing about this, other than what I have read. My position has consistently been that I believe the agency is best served by having an intelligence professional in charge at this time."

Now, this is a Democrat who served or who is from the home state of Leon Panetta. They apparently personally are friendly. But she is somebody who clearly believes that he is not the right person for this. What happens now?

Well, an aide to Feinstein tells me that she is now going to wait to listen to the arguments that Obama makes for having Leon Panetta at the head of the CIA at this time and that she is going to weigh her options as she goes through the confirmation process.

I should note, though, she's a very powerful voice, obviously, in opposition to this idea of Leon Panetta, but she is -- there are other Democrats with different ideas. In fact, Ron Wyden, a Democrat from Oregon, is also on the committee. He put out a statement saying that he actually supports the idea of Leon Panetta -- Wolf.

BLITZER: All right. We're going to stay on top of this story. Dana, thanks very much.

Other breaking news we're following right now, Israel's ground assault rages in Gaza right now, while Hamas rockets continue to strike deep into Israel. As both sides defy international cease-fire efforts, President Bush and president-elect Barack Obama are speaking out.

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: All of us, of course, would like to see violence stop, but not at the expense of an agreement that does not prevent the crisis from happening again.

I know people are saying, let's have a cease-fire. And those are noble ambitions. But any cease-fire must have the conditions in it, so that Hamas does not use Gaza as a place from which to launch rockets.

SEN. BARACK OBAMA (D-IL), PRESIDENT-ELECT: Obviously, international affairs are of deep concern.

With the situation in Gaza, I have been getting briefed every day. I have had consistent conversations with members of the current administration about what's taking place. That will continue.

I will continue to insist that when it comes to foreign affairs, it is particularly important to adhere to the principle of one president at a time, because there are delicate negotiations taking place right now, and we can't have two voices coming out of the United States when you have so much at stake.

(END VIDEO CLIP)

BLITZER: In the latest developments, Israeli troops backed by tanks have basically sliced Gaza in two. Two Arab news media reports say heavy fighting inside and around Gaza City continues right now.

The Israeli military says the clashes are limited to the outskirts. Israeli aircraft carried out at least 40 strikes, hitting houses, mosques and tunnels. Hamas fired dozens more rockets into Israel, striking an empty kindergarten in the city of Ashdod.

CNN's Anderson Cooper is in Ashkelon, Israel, not far from Gaza. He's joining us now live.

Anderson, is there any sign at all that the fighting is easing up at all?

ANDERSON COOPER, CNN ANCHOR: No. At this hour, Wolf, there is not.

You talked about some of the diplomatic efforts. You played the quotes from President Bush and president-elect Obama. On the ground here, France's president is here. There is a Russian delegation, as well as a high-level European Union delegation. They have met with Israeli leaders. They are going to be meeting with Palestinian leaders from the Palestinian Authority, as well as Egyptian leaders and others.

But there is no sign of any kind of cease-fire. France's president had asked Israel's president, Shimon Peres, for a 48-hour cease-fire. That was rejected, though. They say that unless the Hamas rockets stop being fired into Israel, this ground operation will go on. And we are now in the third night of this ground operation.

And, if anything, it seems to be intensifying. As you said, there have been increased clashes around Gaza City. Israeli troops have sort of basically cut Gaza in two, trying to stop men and materiel from moving from one section to another. But as far as we know, they have not moved in a big way into Gaza city itself, or into any of these camps inside Gaza.

That would be taking the combat to a whole other level. There was some eyewitness reports of Israeli tanks in two Gaza City neighborhoods, but that has not been confirmed by Israeli Defense Forces.

We're very limited in what we know is happening inside Gaza. Either we're getting firsthand reports from citizens or Hamas officials or doctors on the ground in Gaza or we're getting it from Israeli Defense Forces. We are not on the ground ourselves. So, we can't independently verify a lot of the information that we're getting.

What we do know from sources on the ground, from medical sources, including Norwegian doctors volunteering at one of the Gaza hospitals, more than 530 Palestinians have been killed so far in the more than 10 days of this operation.

He estimates as many as 100 of them are women and children. Four Israelis have been killed in -- by Hamas rockets over the last 10 or so days, landing in cities around near Ashkelon. There was a blast here earlier today. Sirens have gone off several times today.

You can hear right now helicopters crossing over, operating in this border region. It seems the battle continues to intensify. Israel has said they have taken tens of Hamas militants captive over the last several hours. The situation on the ground seems very fluid and our information is very limited -- Wolf. BLITZER: Well, Anderson, be careful over there, especially when those sirens go off. Anderson is going to have a lot more coming up. He has special reporting coming in later tonight from the region. You can follow all of the special coverage live from Israel on the number- one cable news show at 10:00 p.m. Eastern. That's "A.C. 360" right here on CNN.

Let's go to Jack Cafferty. He's got "The Cafferty File" -- Jack.

JACK CAFFERTY, CNN ANCHOR: Well, the nice thing about doing "The Cafferty File" is you get to stay in a nice, warm, safe studio in New York. And there are nothing -- no dangers here.

The Obamas come to Washington. The Bushes are on their way out. The inauguration now just a couple of weeks away. The Bush administration, of course, trying to go out on a high note. That's a bit of an uphill climb, but they're trying.

Leave it to Mr. Sensitivity to throw cold water on that idea. Yesterday on "Meet the Press," Senate Majority Leader Harry Reid called President Bush -- quote -- "the worst president we have ever had" -- unquote.

Sort of like the pot calling the kettle black, isn't it? Reid's not exactly a day at the beach himself. It's not the first time, either, Reid has said stuff like this publicly. In the past, he called President Bush -- quote -- "dangerously incompetent."

Reid isn't holding back, even as President Bush packs his bags to get out of Dodge. And you wonder why there's so much partisanship and ill will in Washington, D.C. This kind of stuff feeds it. Reid doesn't seem to regret any of his words either. In the interview, he said he just calls things the way he sees them.

What a charming fellow.

So, here's the question: Is Senator Harry Reid calling President Bush the worst president we have ever had an unnecessary cheap shot?

Go to CNN.com/Caffertyfile. You can post a comment on my blog.

You can't help but wonder, if he's the worst president we ever had, why did they take impeachment off the table and why for two years while the Democrats have had control of Congress did they do nothing about this -- quote -- "worst president we have ever had?"

It's a phony deal, Wolf.

BLITZER: You're going to be getting a lot of e-mail, Jack, on this question, I suspect.

CAFFERTY: Probably. I think so.

BLITZER: Yes, I think you will. All right, Jack, thank you.

Life will never be the same for Barack Obama. He's coming back to Washington to begin his new life. He's already here, but it will be a tough honeymoon, as crisis after crisis looms, national security crises and economic crises as well.

And Roland Burris is coming to Washington himself. And he vows no one's going to deny him his seat in the U.S. Senate. But what will he do if senators slam the door in his face?

And how might your children's school compare to the school the Obama children attend? We are going to tell you what's going on right here in the nation's capital.

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

(COMMERCIAL BREAK)

BLITZER: Barack Obama is putting his economic recovery pitch in overdrive a little over two weeks before he takes office. That includes face-to-face talks with top congressional leaders today and a little something extra to try to win over Republicans.

Let's bring back our senior White House correspondent, Ed Henry.

He's trying to show he's going to hit the ground running.

HENRY: That's right, Wolf. And he said today that the economy is getting worse and has gotten worse since the election and he's promising swift and bold action.

(BEGIN VIDEOTAPE)

HENRY: Welcome to Washington. The trappings of power include Air Force jets at the ready. And the views are sweet, especially when you drive past the spot where you will be sworn in January 20. But president-elect Barack Obama did not come to Capitol Hill to celebrate.

OBAMA: The inauguration stand is being built in the background, but the reason we're here today is because the people's business can't wait. We have got an extraordinary economic challenge ahead of us.

HENRY: A crisis so extraordinary that for the first time, Obama aides are revealing his stimulus plan will include a massive $300 billion tax cut, money in the pockets of millions of Americans. While details are being worked out, the president-elect campaigned on a tax cut for people earning less than $200,000 a year, $500 for individuals and $1,000 for families.

REP. NANCY PELOSI (D-CA), SPEAKER OF THE HOUSE: It will be -- hit the ground running on the initiatives that you -- some of which you have described to just address some of the pain being felt by the American people.

HENRY: But Republicans will be crucial to making support for the new president's first major initiative overwhelming. So, he's sweetening the plan with business tax breaks as well, a credit for companies hiring new workers or holding back on layoffs, more flexibility to write off net operating losses, and money for new expenditures, such as equipment.

OBAMA: Right now, the most important task for us is to stabilize the patient. The economy is badly damaged; it is very sick. And so we have to take whatever is -- steps are required to make sure that it is stabilized.

HENRY: But Mr. Obama is already dealing with a Cabinet shakeup. Governor Bill Richardson is denying any wrongdoing, but says a grand jury probe would have been a distraction.

While team Obama is downplaying the exit, the president-elect vowed just last month Richardson would be key to selling the economic plan.

OBAMA: I think the notion that somehow the commerce secretary is not going to be central to everything we do is fundamentally mistaken.

(END VIDEOTAPE)

HENRY: Now, the governor is saying that this was his decision, but two Democratic officials outside the transition tell me that, in fact, this was pushed by the Obama team. They were quite concerned they weren't getting good answers about this whole grand jury investigation from the governor.

And, in fact, one Democratic official told me the governor is quite stunned by how quickly all of this turned. He really wanted to be in this Cabinet -- Wolf.

BLITZER: Yes, what a shocking development when it broke yesterday. All right, thanks very much, Ed, for that.

The man tapped to replace Barack Obama in the U.S. Senate also is trying to get started on his new job. But Roland Burris comes to Washington today knowing that fellow Democrats in the Senate may try to shut him out. Still, Burris insists he's not in any way tainted by the scandal surrounding the Illinois governor who appointed him.

Let's go back to our senior congressional correspondent, Dana Bash.

Dana, what are you learning about a possible compromise on Burris that could be taking shape?

BASH: Well, what we're hearing from Democratic sources is that there definitely are discussions, people inside the Democratic leadership trying to figure out a way to avoid what will be serious controversy starting tomorrow.

(BEGIN VIDEOTAPE)

BASH: One last defiant stop at the Chicago cameras before getting on the plane to Washington.

ROLAND BURRIS, FORMER ILLINOIS ATTORNEY GENERAL: With all of the crises that we have in this state and in this nation, and Illinois is needing to have a full complement of representation, and that's what I'm seeking to do.

BASH: But even before Roland Burris left Illinois, official word that, as of now, he will not be sworn in as U.S. senator. The secretary of the Senate formally rejected his certificate of appointment, because the Illinois secretary of state has refused to sign it. Burris insists he is undeterred.

BURRIS: No, I'm not bothered by that, because the appointment's legal. Why don't you all understand that what has been done here is legal? Those -- I mean, that's legal. I am the junior senator from Illinois.

BASH: Burris says he will still come to the Capitol Tuesday with new senators.

But because Democratic leaders are refusing to seat him, Burris will likely have to come into the building with the general public, stopping at the appointments desk. Though Burris and Democratic leaders insist there won't be a scene, this is an unwelcome drama for Democrats.

And CNN has learned that some Democratic leaders are considering a compromise idea, allow Burris to be sworn in as U.S. senator, as long as he agrees it will just be a caretaker position; he will not run for the Senate in 2010.

A Democratic source familiar with leadership discussions says it's just one idea, but one that could assuage Democratic concerns that Burris would lose what was Barack Obama's seat.

AMY WALTER, EDITOR IN CHIEF, "THE HOTLINE": And it would be not only embarrassing to lose a Senate seat that was -- is the president- elect's former Senate seat, but in a state that has really such a strong Democratic tilt.

BASH: But earlier on THE SITUATION ROOM, Burris appeared to reject the idea of promising not to run in 2010.

BURRIS: I was thinking in that regard. And guess what my friends and supporters said to me? Roland, we don't need somebody to warm the seat. You know, you have a statewide base. You have been elected statewide four times. So, you know, we want you to run in 2010.

(END VIDEOTAPE)

BASH: And Democratic sources say that there are other compromise ideas being floated inside the Democratic leadership. There will be a meeting on Wednesday at some point, Wolf, between the Senate majority leader and his number two, Dick Durbin.

They are going to meet with Roland Burris here in the Capitol. It is very unclear, though, what is going to happen. For now, barring any kind of compromise, the plan is to send this to the Senate Rules Committee, which is basically a holding pattern until they figure out what to do in the state of Illinois. BLITZER: What a dilemma for the Democrats in the Senate. All right, Dana, thanks very much.

And this just coming into THE SITUATION ROOM a short while ago from Minnesota. Democrat Al Franken said he's proud to become the state's next U.S. senator, after a long and painstaking recount. The state canvassing board today certified results showing Franklin -- Franken, that is, narrowly ahead of the Republican incumbent, Norm Coleman.

But Coleman's lawyer is promising a legal challenge that will keep the final official outcome of the race in limbo potentially for months. The recount, by the way, ended with Franken ahead by only 225 votes out of more than 2.9 million votes that were cast.

The Internet is buzzing right now over the hacking of celebrities' Twitter accounts. One of them just happens to be president-elect Barack Obama.

Plus, it's the largest U.S. embassy in the world. And the American diplomats there may have one of the toughest jobs ahead of them.

And prosecutors say the man accused of a $50 billion fraud tried to hide expensive jewels -- why they say their case against Bernard Madoff is getting stronger.

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

(COMMERCIAL BREAK)

BLITZER: The accounts of several celebrities on Twitter, a Web site where people post short messages, the Web sites were hacked earlier today. One of the targets, president-elect Barack Obama himself.

Our Internet reporter, Abbi Tatton, is following the story for us.

Abbi, so, what happened?

ABBI TATTON, CNN INTERNET REPORTER: Wolf, during the campaign, the Barack Obama team used Twitter to post short updates like get out the vote, watch our campaign rally.

So, when this one arrived this morning, it seemed more than a little odd. Complete an online survey, it said, and possibly win $500 in free gas.

Now, it wasn't from the Barack Obama team. The Twitter Web site, the co-founder Biz Stone saying that this morning, 33 celebrity accounts on Twitter were hacked, with the hackers purporting to be the celebrities themselves. Britney Spears was apparently a target, as was CNN's own Rick Sanchez, who found himself posting updates to his viewers explaining what had happened. Twitter saying that the hackers had got into the internal tools of the Web site, that this has now been fixed.

Obviously, that $500 in free gas money too good to be true -- Wolf.

BLITZER: Abbi, thanks very much.

Israel's ground offensive in Gaza comes just a matter of days before Barack Obama is sworn in. Is the timing a coincidence or was it carefully planned because of concerns about the incoming U.S. president? The best political team on television is standing by.

Plus, the Obama daughters' first day of class here in Washington, D.C. -- how their private schooling compares with public education in the nation's capital.

And Republican soul-searching. Candidates to lead the party out of political wilderness are debating the best way to go forth.

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

(COMMERCIAL BREAK)

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

Happening now: First, he was accused of bilking billions from investors. Now prosecutors say Bernard Madoff is taking extreme measures to hide part of his fortune through the mail. Stand by. We have new information.

Also, Barack Obama's daughters begin classes at one of the most elite schools in a city where many schools are in crisis right now. We go inside what one expert calls a truly dysfunctional urban school system.

Plus, the president-elect makes a key intelligence appointment, prompting some surprisingly harsh reaction from a top Senate Democrat.

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

The man accused of running what would be the biggest Ponzi scheme in history was back in court today. And prosecutors say he's going to extreme lengths to hide his ill-gotten gains.

Let's go the our senior correspondent, Allan Chernoff. He's working the story for us.

All right, this is an amazing story, but what's the latest involving Bernard Madoff, Allan?

ALLAN CHERNOFF, CNN SENIOR CORRESPONDENT: Wolf, even in his luxurious Upper East Side Manhattan apartment, prosecutors say that Bernard Madoff was actually trying to conceal and give away some of his assets.

(BEGIN VIDEOTAPE) CHERNOFF (voice-over): Bernard Madoff escorted out of his Manhattan apartment this afternoon to hear a prosecutor in court charge the alleged Ponzi scheme operator with mailing expensive jewels to family members, as well as a couple in Florida.

One of the items, the prosecutor said, was worth $1 million, and he added the case against Madoff is strong and getting stronger. A judge will decide by Friday if Madoff has violated terms of his bail and must go to jail.

UNIDENTIFIED MALE: The committee will come to order.

CHERNOFF: At the same time in Washington, a House committee was asking how the Securities and Exchange Commission could have missed Madoff's alleged scam.

REP. PAUL KANJORSKI (D) PENNSYLVANIA: We now know that our securities regulators have not only missed opportunities to protect investors.

CHERNOFF: The SEC received detailed warnings from an experienced financial analyst that Madoff was running a fraud. The Sec repeatedly investigated but concluded the staff found no evidence of fraud.

REP. CAROLYN MALONEY (D) NEW YORK: Why in the world didn't anyone respond to his allegations? What happened to his report? And did the SEC investigate his allegations.

UNIDENTIFIED MALE: That's exactly what I intend to find out.

CHERNOFF: The SEC found only that Bernard Madoff had failed to register as an investment advisor. As soon as he did, the SEC closed the case, saying violations were not so serious as to warrant an enforcement action.

UNIDENTIFIED MALE: It is crucial for the commission, the Congress and the investing public that answers be given to the very serious questions regarding the SEC's efforts relating Mr. Madoff.

CHERNOFF: Answers can't come quickly enough for Madoff investors who appear to have lost billions. The head of the Securities Investor Protection Corporation says more than $830 million in liquid assets have been uncovered at the Madoff firm, which could be distributed to investors.

(END VIDEOTAPE)

CHERNOFF: The trustee in the Madoff case has sent out more than 8,000 claim forms to investors believed to have been victims. Meanwhile, on both sides of the aisle in Congress, members say that it is essential, especially after this Madoff scandal, to reform our financial regulations and that's something that the president-elect supports -- Wolf.

BLITZER: All right, thank you, Allan, for that. What a story this is. Touching family photos and Barack and Michelle Obama sending their daughters off to their first day of school here in Washington. Let's go to CNN's Brian Todd. He's working this story for us. It's also reigniting the debate over public versus private school education right here in Washington, D.C. , Brian.

BRIAN TODD, CNN CORRESPONDENT: It is, Wolf as it often does in these situations. The Obamas going to be vulnerable to it; familiar criticism for incoming presidents and their families. They say one thing about reforming America's public schools, then turn around and put their own kids in private schools once they get here. But the Obamas and others like them may simply feel the alternative is not an option right now.

(BEGIN VIDEOTAPE)

TODD (voice-over): Barely peering over the door of her heavily guarded SUV, Barack Obama's youngest daughter gets her first glimpse of school day routine. Daily convoys to Sidwell Friends, the alma mater of Chelsea Clinton, the Nixon daughters, Teddy Roosevelt's son. It will cost Sasha and Malia's parents about $28,500 a year for each of them.

Last fiscal year, the D.C. public school system spent $11,284 on each student; among the top spending school systems in the country. Does it make an impact?

KEVIN CAREY, RESEARCH AND POLICY MANAGER, EDUCATION SECTOR: DCPS is one of, if not the worst performing school districts in the United States of America even when you compare it to other urban districts that have a lot of the same challenges in terms of poverty.

TODD: Experts say much of D.C.'s money is spent paying teachers above the national average and on sending kids with disabilities to private schools outside the district because the system can't handle them.

A tough reformist D.C. school chancellor named Michelle Rhee, has started to turn things around over the past year and a half, firing several dozen principals, including the head of her own daughter's school, canning hundreds of teachers who according to school officials didn't meet the fed's "No Child Left Behind" standards. That's a program Barack Obama has promised to upgrade.

OBAMA: We have to provide the funding we were promised, give our states the resources they need and finally, meet our commitment to special education.

TODD: Can the D.C. school system be fixed enough for Mr. Obama and others with means to want to send their own kids there, say within four years?

CAREY: I think it probably takes close to a decade to turn around a truly dysfunctional urban school system.

(END VIDEOTAPE) TODD: Kevin Carey says Boston and New York are examples of that, successful turnarounds that took eight to ten years to complete. The common denominator in each case: same mayor, same reform-minded school superintendent in place the entire time. Wolf, under those standards as well, D.C. is just getting started. They have a long way to go.

BLITZER: And even that elementary school closest to the White House had some problems, didn't it?

TODD: It sure did. Stevens Elementary, last summer it had to be closed down, it had to merge with the nearest middle school. 22 other schools also shut down. The reason, they are underused. The D.C. school officials tell us enrollment has been plummeting in the district for the past 40 years; 40 years straight, it's gone down.

BLITZER: All right, Brian, thank you.

It's been over two decades, by the way, since the child of a sitting president attended public school. Nine-year-old Amy Carter created something of a news media frenzy when she started going to D.C. schools back in 1977.

For two years, she's been the top Democrat in Washington. Now Nancy Pelosi has to make way for Barack Obama. Is she ready and what will her relationship be with the new White House?

Plus, a surprise intelligence appointment draws some harsh reaction from a fellow Democrat. The uproar over Barack Obama's CIA pick. Stay with us here in "THE SITUATION ROOM."

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

REP. NANCY PELOSI, (D-CA) SPEAKER OF THE HOUSE: And then two weeks from tomorrow, we will inaugurate a new president of the United States. As the president-elect indicated, the construction is under way right now. At that time, we will be able to have signed into law legislation which will improve the lives of the American people.

It's a very, very exciting time. We pledge to work together in a bipartisan way with great civility, with great fiscal discipline and I know the debate will be spirited. We welcome it.

(END VIDEO CLIP)

BLITZER: House Speaker Nancy Pelosi pledging bipartisanship but how will her role change now that a Democrat is about to be in the White House?

Let's talk about that and more with our CNN senior political analyst Gloria Borger; our CNN political contributor Steve Hayes of "The Weekly Standard" and Marcus Mabry of "New York Times."

Gloria, what do you think? There is going to be a little change there, isn't there? GLORIA BORGER, CNN SENIOR POLITICAL ANALYST: Yes, there is going to be a little change and I think Nancy Pelosi is clearly quite excited about working with a Democratic president. But don't forget, Wolf, she remembers those awful days back in '93 and '94 when a majority became a minority and she understands the things she's got to do to make sure that that doesn't happen again. That means getting things done. She'll compromise when she has to.

There was a story in "The New York Times" Steve, you probably read it today. I'll read a sentence from that story. "She has been queen of her castle for quite awhile now and the face of the Democratic party. I think she will want to continue to be, at least, the co-face as much as possible," quoting a longtime senior Congressional official.

What do you think about potential friction that could develop?

STEPHEN HAYES, "THE WEEKLY STANDARD": I'm not sure if she can be the co-face. I think she's going to want to have a say, clearly, and she deserves to have a say, as majority leader. I think -- or as the speaker.

I think this will be a period of adjustment for her, though, because I think what she's going to be doing is a lot more behind the scenes maneuvering and preparing legislation that the White House wants to see passed rather than coming up with these policy proposals on her own and ushering them through.

BLITZER: You know, there are some people who just think, Marcus, that the Democrats, the Democratic majority in the house and the senate simply going to be a rubber stamp for the Obama administration. But today, we saw some friction develop after the word was released that Leon Panetta was Barack Obama's choice to be the CIA director. All of a sudden, Dianne Feinstein, the incoming chairman of the intelligence committee says you know what, not so good.

MARCUS MABRY, "NEW YORK TIMES": I think there are two issues here, Wolf. In that regard, you have the issue of the senators, even though the senators are one in 100, especially an experienced one like Dianne Feinstein. They demand respect and so the Obama administration is going to have to remember that. Feinstein's comment was that she had not been informed and that she also thought that there should be an intelligence professional in that job.

But I think what the Obama administration is trying to learn from are the mistakes of the Bush administration. There are many different ways of appointing the head of the CIA and one is a bureaucratic player who's close to the president.

I think we saw with George Tenet in the Clinton administration, he was close to the president; not nearly as close to President Bush as he was to President Clinton. And some in the CIA will credit Tenet saying that the case against Iraq and Saddam Hussein was a slam dunk when it was not as far intelligence to go into Iraq with George Tenet trying to ingratiate himself with President Bush.

And so the Obama people are trying to follow a different path.

BLITZER: Gloria, we've covered Leon Panetta for a long time going back to the days when he was a member of the house. He was chairman of the budget committee in those days, then became head of the office of management and budget in the Clinton administration, went on to become the White House chief of staff. What do you think about this appointment?

BORGER: It's an interesting appointment. It's a little out of the box. I think that in talking to people who have worked with Leon Panetta -- and as you say, Wolf, you and I have covered him for many years -- he's someone who's very disciplined, has terrific managerial skills.

You remember the Clinton White House; there was lots of chaos there. He had some order in the house when he came. He's known for keeping people in their lanes, and making decisions.

However, the CIA doesn't take to outsiders very well, and that could be a problem for Leon Panetta. His personality, however, is very inclusive, so you could see that he wouldn't make the same mistakes that, say, Porter Goss made. He came in, had a very unsuccessful short tenure at the CIA because he brought in his own people and built a wall around himself. I don't think Leon Panetta would do that.

BLITZER: What do you think about this appointment, this nomination, Steve?

HAYES: I would like it if I thought that he was going to come in and be the outsider to shake up the institution. I think a lot of conservatives think the CIA needs to be basically broken down and rebuilt from scratch. It didn't happen during the Bush administration and one of the reasons that I think a lot of conservatives at least thought that an outsider could be helpful in that intelligence culture was that there might be somebody who could do something like that.

Leon Panetta, I think, is better probably than a lot of conservatives would have liked, but he doesn't, you know, he's not likely to be the person to really reshape the institution and to start, sort of start over.

BLITZER: He brings the advantage that he was a major consumer or customer of intelligence when he was the White House chief of staff.

Marcus, what do you think about the criticism that Barack Obama's facing now, at least some criticism, that he isn't saying enough about the crisis in the Middle East in Gaza?

MABRY: Well, you know, one certainly understands it. He keeps repeating that mantra that we only have one president although he has commented on some other foreign policy issues, such as the attacks in Mumbai, of course. He's talked about a lot of the economic issues that the country is facing.

I think it's smart to stay away from Gaza; I really do. This is one of the thorniest political and foreign policy issues we have in the country and have for a long time. I think as an incoming administration, you don't really want to pronounce yourself on such a sticky problem, such a long-term problem, until you know what American aims are in the region. I think it's smart right now to say as little as possible, because it's just too difficult of a problem.

BLITZER: He'll have a lot to say after January 20th, I'm sure, because that problem is not going away by any means.

Guys, thanks very much for coming in.

It's a party on the outs. Now Republicans are looking for a new chairman and having to do some serious soul searching in the process.

Also this hour's question: is Senator Harry Reid calling President Bush the worst president we ever had an unnecessary cheap shot? Jack and your e-mail, that's coming up.

And the first day of school, unlike just about any other; Barack Obama's daughters in the spotlight. Jeanne Moos takes a "Moost Unusual" look.

(COMMERCIAL BREAK)

BLITZER: It's a rather grim time for the GOP right now and the battle for leadership of the Republican National Committee is in full swing, with six candidates facing off today in a debate. Our senior political analyst, Bill Schneider, is joining us now live.

Did the debate highlight any serious differences among these candidates, Bill?

WILLIAM SCHNEIDER, CNN SENIOR POLITICAL ANALYST: Well, it did, but most of their differences were with President Bush.

(BEGIN VIDEOTAPE)

SCHNEIDER (voice-over): Republicans got beat bad in '06 and worse in '08. Now is the time for all good men to come to the aid of their party. Six of them are doing just that. They are competing for the votes of Republican National Committee members who will choose a new party chairman at the end of the month.

It's a miniature presidential campaign complete with debate. All six agreed there's nothing wrong with what the party stands for.

MICHAEL STEELE, CHAIRMAN, GOPAC: We need to stay committed to those values that draw us together and keep us strong as a party.

SCHNEIDER: So where do they think the Republican Party went wrong? It abandoned its conservative principles.

SAUL ANUZIS, MICHIGAN REPUBLICAN PARTY CHAIRMAN: And I think until we actually start articulating those principles and stop being hypocritical ourselves, that we as a party will not be victorious.

SCHNEIDER: Who's to blame? They had few kind words for President Bush.

ANUZIS: I think that big government conservatism was an oxymoron.

SCHNEIDER: They agreed what the party has is a failure to communicate.

CHIP SALZMAN, FORMER TENNESSEE REPUBLICAN PARTY CHAIRMAN: We have done a very poor job in communicating any message from the Republican Party.

SCHNEIDER: What can the party do better? Look to technology: Twitter, Facebook.

KEN BLACKWELL, OHIO SECRETARY OF STATE: I have 4,000 friends on Facebook. That's probably more than these two guys put together.

SALZMAN: Yes, I do Twitter. I have probably just under 3,000.

SCHNEIDER: Blog.

STEELE: I've even gone and seen some of the neatest, hippest things to do on the web.

SCHNEIDER: Above all, communicate.

UNIDENTIFIED MALE: If they stick to the core beliefs and if they are able to explain it in really plain terms and reach out to people beyond the core group that has made up the Republican Party, then that's where they're going to survive and that's where they're going to thrive.

(END VIDEOTAPE)

SCHNEIDER: In the presidential election, Republicans lost badly among Latinos, Asian-Americans, Jewish voters, African-Americans, young voters and women. When confronted with that fact, the candidates for party chairman agreed, "those groups share our values." The Republican Party has not done a good job reaching out to them -- Wolf.

BLITZER: Not this time around or in 2006. We'll see what happens in 2010. Thanks, Bill, very much.

Let's go back to Jack; he has got "The Cafferty File" -- Jack.

CAFFERTY: I had a quick question for you before I read the e- mails. On New Year's Eve, somebody asked you what was your biggest problem in "THE SITUATION ROOM."

BLITZER: The Cafferty file. Just joking.

CAFFERTY: You were joking?

BLITZER: Of course. I was saying it out of affection.

CAFFERTY: Well, you know, I wanted a clarification, as they say, in the trade.

BLITZER: Yes, you didn't see that?

CAFFERTY: No, I didn't.

BLITZER: I called in -- Anderson Cooper and Kathy Griffin -- they were doing the live cast, so I called in on the phone and weighed in.

CAFFERTY: And said that I was your biggest problem.

BLITZER: Yes, but I said -- let's go to the videotape and check it exactly. I think I praised you profusely, in addition to saying Jack occasionally can be a little bit problematic.

CAFFERTY: Might I suggest it's probably not a good idea to go to that videotape. The question this hour --

BLITZER: For other reasons.

CAFFERTY: Yes, for other reasons.

The question this hour: Is Senator Harry Reid calling president bush the worst president we ever had an unnecessary cheap shot?

Greg in Canada: "When did we start defining the truth as a cheap shot? The Bible may say the Jesus said "judge not lest you be judged" but he wasn't dealing with George Bush."

John writes: "Reid's being unnecessarily nasty and while it's serious business, phrasing it like he did is not being as bipartisan as the Democrats need to be in order to make this administration work."

Brian in Trinidad writes: "It was more of as personal remark that should have come from any Senate Majority Leader and yes, it was the cheapest of cheap shots. But you have to consider the source. Reid is no prize himself and he's proven that since the Democrats took control of the Senate."

Mike in New York writes: "Given that Congress for the last two year under Reid and Pelosi's leadership is even less popular than Bush, I'd have to say he has no standing to complain about Bush. He's also undercutting the message Obama's trying to send of bipartisanship."

Eileen in Massachusetts: "Yes, it is. Does he think this comment is some kind of epiphany? We all know the facts, and he ought to show some semblance of courtesy, keep his mouth shut. What I do foresee here is President-elect Obama's going to have the biggest fight with the likes of Reid if he intends to change politics as usual."

Ken in Connecticut: "If the shoe fits, fling it. History, no matter how hard he's been trying to change it, redact from it, spit or sell it, will not be kind to George W. Bush. He will go down in history as the worst President America has ever had, and we've had some beauties."

And Lois in Canada writes: "Yes it was, and who does he think he's talking to? It's insulting to average minded people to assume we all didn't know this already."

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

Wolf, you're my biggest asset and blessing on this program. I want you to know that.

BLITZER: We have a good team going forward in this New Year 2009.

CAFFERTY: Yes, we do.

BLITZER: All right, Jack, thanks very much.

CAFFERTY: Welcome.

BLITZER: Lou Dobbs is getting ready for his show that begins right at the top of the hour. He's standing by with a little preview. What's coming up Lou?

LOU DOBBS, CNN ANCHOR: Well, Wolf, first, happy New Year.

And coming up next, President-Elect Obama begins work in Washington, D.C. He faces new questions about the so-called economic recovery plan and a worsening crisis in the Middle East. We'll have complete coverage tonight from Washington to the Middle East.

Also disarray in the Democratic Party. From the showdown over the Roland Burris appointment to the U.S. Senate, to Governor Bill Richardson's abrupt withdrawal from the President-elect's cabinet, to what some are calling funny business in the disputed senate race in Minnesota.

Four of the country's best political analysts join us here tonight.

And outrage over demands for an increase in the federal gasoline tax, a tax hike that if implemented would hit working men and women and their families reeling already from the impact of the recession. We'll have that report.

Please join us for all of that, all the day's news at the top of the hour, all from an independent perspective. Wolf, back to you.

BLITZER: Good to have you back, Lou. Happy New Year to you and your family as well.

DOBBS: Thank you.

BLITZER: The new First Kids trailed by the news media on their first day in a new school. Our own Jeanne Moos finds that's sparking some not so fond recollections.

(BEGIN VIDEO CLIP)

JEANNE MOOS, CNN CORRESPONDENT (voice-over): Do you guys have any memories of your first day in school?

UNIDENTIFIED MALE: I was beaten up for wearing a blazer.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

BLITZER: Most of us have memories of our first day at school. Some were happy, some you'd like to forget. But as our Jeanne Moos shows us, when you're the daughter of a president, the first day of school is "Moost Unusual."

(BEGIN VIDEOTAPE)

MOOS (voice-over): Saying good-bye to dad at a luxury hotel, hopping in the motorcade with mom for the ride to school. You know, that girl who belongs to this guy, sure, they can try to make things seem --

UNIDENTIFIED FEMALE: Normal, normal, normal.

UNIDENTIFIED FEMALE: Ah, the quest for a normal life.

UNIDENTIFIED MALE: It won't be normal at all.

MOOS: You'd think all the attention could turn a kid into a basket case. NBC made a public virtue of having its reporter vamoose right before the Obama kids arrived at school.

TOM COSTELLO, NBC CORRESPONDENT: About the last thing they need is for a camera crew to stand outside their school, so we are leaving. Back to you.

MATT LAUER, NBC ANCHOR: Not a bad idea. Tom Costello, thank you very much.

MOOS: but it was hard to resist replaying that motorcade footage say, oh, five times.

UNIDENTIFIED FEMALE: Can we roll it back and see it one more time because you can see -- I think you can see Sasha's little head.

UNIDENTIFIED MALE: That is an adorable shot.

UNIDENTIFIED MALE: I would have liked to have gone to school in a motorcade.

MOOS: watching the Obama daughters had us out dredging up memories of first days in school.

UNIDENTIFIED FEMALE: Nametags. UNIDENTIFIED FEMALE: Nap time.

UNIDENTIFIED FEMALE: Snack time.

UNIDENTIFIED FEMALE: I remember being dropped off and finding out that my nickname was not my real name. I had always been called Bobbi, and then I found out that my real name was Roberta.

UNIDENTIFIED FEMALE: I remember I was chewing game and I had to throw it out.

UNIDENTIFIED MALE: I was beaten up for wearing a blazer.

MOOS: That never would have happened to him if the guys with the earpieces accompanying Sasha Obama had been around.

Back when Amy Carter was the kid under the microscope, "Saturday Night Live" parodied her Secret Service protectors.

But whether you arrive by motorcade or school bus --

UNIDENTIFIED MALE: I was scared. I was crying.

UNIDENTIFIED MALE: I was petrified and I missed my mom.

MOOS: I missed my mom so badly that I threw up on my outfit and she had to come with a new dress for me.

UNIDENTIFIED MALE: See, I don't feel so alone now.

Jeanne Moos, CNN, New York.

(END VIDEOTAPE)

BLITZER: I remember that day very well; school 81, Buffalo, New York, going to kindergarten. Every first day of school, the teacher is always asking the same question -- so what is your real name, Wolf? It is my real name, in case you're wondering.

Thanks very much for joining us. We'll see you back here tomorrow in "THE SITUATION ROOM". I'm Wolf Blitzer reporting.

Up next, "LOU DOBBS TONIGHT" -- Lou.