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"Recession Could Last for Years"; New Fears of Two-Front War; GOP To Grill Obama Justice Pick; Transition to Power; Cheney Announces Obama's Election

Aired January 8, 2009 - 17:00   ET


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

Right now, it's happening -- the breaking news we're following. Word of an agreement on the United Nations cease-fire resolution for the Gaza conflict, even as rocket strikes in Northern Israel raising new fears potentially of a two-front war.

President-Elect Barack Obama says his plan to boost the economy won't allow for spending on so-called pet projects. But that could mean some trouble for America's cities. I'll be speaking with the Los Angeles mayor, Antonio Villaraigosa. He's standing by live.

And he says they'll have to pry it out of his hands -- why Barack Obama wants to keep his BlackBerry when he heads to the White House, despite some big security concerns.

I'm Wolf Blitzer.


All that coming up.

But first, some dire warnings about the U.S. Economy today from the president-elect, Barack Obama. For years, the U.S. Government has been spending much more than it takes in. President Bush inherited, though, a budget surplus -- a budget surplus eight years ago, but you can see here that federal annual budget deficit has grown and grown and grown. The budget arm of the U.S. Congress warning that the deficit next year could be $1.2 trillion -- trillion dollars. That's almost three times this year's budget deficit figure.

Listen to what the president-elect is saying about all of this.


SEN. BARACK OBAMA (D-IL), PRESIDENT-ELECT: If nothing is done, this recession could linger for years. The unemployment rate could reach double digits. Our economy could fall $1 trillion short of its full capacity, which translates into more than $12,000 in lost income for a family of four. We could lose a generation of potential and promise.

For every day we wait or point fingers or drag our feet, more Americans will lose their jobs, more families will lose their savings, more dreams will be deferred and denied and our nation will sink deeper into a crisis that, at some point, we may not be able to reverse.



Let's go to our chief business correspondent, Ali Velshi.

He's standing by live.

His new book, by the way, is entitled "Gimme My Money Back

Your Guide to Beating the Financial Crisis."

Ali, I don't know about you, I've never heard a president or a president-elect talk about the economy in such potentially dire terms.


BLITZER: Have you heard this before?

VELSHI: Not in recent memory. We've had economic speeches from Nixon, from Ford, from Carter, from Reagan, from Bush, Sr. from -- you know, from all the presidents and they've never had this to contend with. We've never heard that kind of language.

But, you know, we're going to get a jobs report out tomorrow morning, Wolf, and it's going to be a another bad one. We're probably going to see the unemployment rate rise to 7 percent -- or potentially higher.

This will make 2008 the second worst year in history for job losses. And Barack Obama has really got to contend with that and that debt that you see next to me. $1.2 trillion is the projected deficit. That's the shortfall between the 2009 budget that the government takes in and the amount the government spends. You add all those deficits together, you get the national debt -- $10.6 trillion. And think about adding a trillion dollars to that every year.

So the bottom line, Wolf, is that Barack Obama is using terminology and language and a tone that says to the American people and to Congress, this is bad and we are going to have to take action to keep ourselves out of what he says could be years of trillion dollar plus deficits and a continued recession.

BLITZER: I think you have to go back to FDR to hear that kind of talk...


BLITZER: ...from a president or a president-elect. There's no doubt about that.

The economic news, though, right now, Ali, is it continuing to worsen?

VELSHI: Well, I'll tell you the good news. The good news is that the markets have stabilized. The Dow is trading in a range between 8,500 and 9,000. We're going to get that jobs number tomorrow morning and we'll have to see whether it's worse or better than December. We're looking at about 500,000 jobs lost in the month of December.

But we do have reports today from the nation's retailers that compare the sales in December to the sales a year earlier. Take a look at that -- Target down 4.1 percent; Sears down 7.3 percent; Limited Brand -- that's the -- that's a, you know, they have a number of different brands -- down 10 percent; and The Gap down 14 percent.

Now, those retailers, they're the places you shop. But they're also the places that employ many Americans. So you see the connection between people shopping less and the fact that we could see more lay- offs.

So I'm not sure we can say it's worsened. It's still pretty serious -- Wolf.

BLITZER: Ali Velshi, thanks very much.

Meanwhile, there's breaking news -- word of an agreement over at the United Nations Security Council on a cease-fire resolution for the Gaza conflict. In the latest developments we're watching right now, residents of Northern Israel told to stay close to shelters after four rockets were fired from Southern Lebanon -- one crashing into a retirement home in Northern Israel. Hezbollah, with whom Israel fought a bloody war back in 2006, denies reasonability. As Israeli forces pounded targets in Gaza, an Hamas rocket fell in Southern Israel today. There was another brief pause for humanitarian relief. But the United Nations says Israeli forces opened fire on one of its convoys, killing an aide worker. Israeli envoys have joined talks in Cairo on an Egyptian-French truce proposal. But over at the United Nations Security Council, Arab and Western diplomats now say there is an agreement on a cease-fire resolution. No word yet on whether Israel and Hamas will go along.

And as CNN's Ben Wedeman reports, there are now fears of a two- front war.

BEN WEDEMAN, CNN CORRESPONDENT: Wolf, for the last 13 days, Israelis have been fixated by what's going on in the south. Thursday morning eyes turned north.


WEDEMAN (voice-over): More rockets land in Israel, but this time far from Gaza. Four landed in Northern Israel -- fired from Lebanon. Two people were wounded and demands for revenge followed quickly.

UNIDENTIFIED MALE: I hope that we will give back a very, very strong to show that they cannot play with peoples' lives, because if we do not do nothing now, they won't stop. They want to see how we react. And if we will not react, it will be today three Katushas and tomorrow two and they will terrorize all this area again.

WEDEMAN: Hezbollah, which fired 4,000 rockets into Israel during the 2006 war, was quick to deny any involvement.

When the Gaza operation began, Israel beefed up its forces in the north. But for now, officials are keeping a cool head.

ISAAC HERZOG, ISRAELI SECURITY CABINET: We've been watching the northern front closely for quite a while. We've said that it may and certain flares and we are looking at it coolly and kind of somewhat in a lower level attitude.

WEDEMAN: In the summer of 2006, as a large Israeli operation was winding down, Hezbollah launched a daring cross border raid in Northern Israel, killing three soldiers and capturing two. That incident ignited the more than month-long Israel-Hezbollah war. Hezbollah leader, Hassan Nasrallah, has voiced support for Hamas fighters in Gaza, but that support has remained rhetorical.

While Thursday's rocket attack in Northern Israel sparked fears of a second front opening up, Hezbollah isn't ready to risk a war with Israel -- holding its fire for bigger things, says Israeli military analyst, Hirsh Goodman.

HIRSH GOODMAN, MILITARY ANALYST: You have Hezbollah having built up a strategic stockpiling of 30,000 to 40,000 missiles that Iran is carefully shifting to Lebanon for the day that Israel may attack the Iranian nuclear reactor and they want to react. This isn't something they want to throw away the arsenal on.


WEDEMAN: Expectations of a second front opening up are generally low. But Israel has shown -- in 1967 and 1973 -- that it can fight a two-front war -- Wolf.

BLITZER: All right. Ben, thank you.

Ben Wedeman on the border there.

Let's go to Jack Cafferty once again.

He has "The Cafferty File" -- Jack.

JACK CAFFERTY, CNN ANCHOR: Wolf, as a nation, we are beyond broke. The Congressional Budget Office says the deficit this year will top $1.2 trillion. President-Elect Barack Obama wants a stimulus package on his desk in the neighborhood of $800 billion shortly after he takes office. Predictions are the federal deficits will exceed a trillion dollars a year for "years to come."

Now, Obama's got a tough job. He's got to preach fiscal discipline and try to get the Republicans to support his programs -- not that Republicans have practiced anything approaching fiscal discipline for the past eight years -- while at the same time expanding health care covering, investing in alternative energy and paying all the rest of the nation's bills.

The president-elect continues to talk about cutting federal spending -- eliminating things from the federal budget and so on. But the fact is that meaningful cuts to the federal budget are tough to come by. Unless you take a cleaver to defense and entitlements -- Medicare and Social Security are the fastest growing drains on the federal budget -- there's not a lot of meat on the budgetary bone to trim.

And when it comes to Medicare and Social Security, $50 trillion in unfunded liabilities lie ahead just for those two programs.

Government workers or civil servants -- of course, you can't fire them. They're hired for life.

At a news conference, Mr. Obama did say that he would talk about entitlements, but not until next month.

So here's your chance to give our new president some help: How would you go about cutting federal spending?

Go to and post a comment on my blog -- Wolf.

BLITZER: Not easy at all.

Thanks, Jack, very much.

It's nicknamed a CrackBerry for a specific reason -- millions of Americans are hooked, including the next president of the United States. Despite security concerns, he says they'll have to pry his BlackBerry out of his hands.

Also, Sarah Palin now says she would have been treated much better by the news media if she had been Barack Obama's running mate instead of John McCain's. Our contributors, Hillary Rosen and Alex Castellanos -- they're here to weigh in.

Plus, it's the vote that really counts -- the Electoral College officially named Barack Obama the president of the United States today. And look who made it official.


DICK CHENEY, VICE PRESIDENT OF THE UNITED STATES: Barack Obama, of the State of Illinois, has received for president of the United States, 365 votes.




BLITZER: Up on Capitol Hill, confirmation hearings began today for the Obama cabinet. First, up the former Senate majority leader, Tom Daschle -- the Health & Human Services nominee who warned of corrosive flaws in the health care system. Daschle was introduced by another former Senate leader, Republican Bob Dole, who praised Daschle's integrity and fairness. That bipartisan push could help seal Daschle and help him sail through the Senate confirmation process.

But another nominee may face some serious headwinds.

CNN's Brian Todd is looking at that part of the story- Brian, Republicans seem to have doubts about one pick.

BRIAN TODD, CNN CORRESPONDENT: One pick, Wolf, that some might have thought would have been seemingly safe. Eric Holder is the president-elect's nominee for attorney general and it sounds like he could be in for a grilling when he's questioned next Thursday.


TODD (voice-over): A shot across the bow -- a top Senate Republican putting the new president's nominee for attorney general on notice. Eric Holder may face some tough questions.

SEN. ARLEN SPECTER (R-PA), JUDICIARY COMMITTEE: Aside from these qualifications on Mr. Holder's resume, there is also the issue of character. And sometimes it is more important for the attorney general to have the stature and the courage to say no instead of to say yes.

TODD: Senate Democrats are circling the wagons -- lining up supporters from interest groups to lawmen -- to say Holder's record shows he's no yes man for the White House.

SEN. PATRICK LEAHY (D), VERMONT, JUDICIARY COMMITTEE: I looked at the number of people he prosecuted, both Republicans and Democrats.

Is this is a person who can say no?

Of course he can say no.

TODD: Holder was deputy attorney general during the Clinton administration. Specter questions whether he was willing to buck the White House at the time on issues like investigating Democrats and granting controversial pardons. He also questioned whether Holder was up front about his involvement in President Clinton's pardon of fugitive financier, Mark Rich, right before leaving office.

ERIC HOLDER, DEPUTY ATTORNEY GENERAL: I gained only a passing familiarity with the underlying facts of the Rich case.

SPECTER: Fifteen months before the pardon, Mr. Holder met privately with Mr. Richt's attorney.

TODD: But Holder's supporters point to the Republicans' backing of Alberto Gonzales, who resigned the post in 2007.

LEAHY: Whatever standard they used to justify the decision to support former Attorney General Alberto Gonzales, whatever standard they have, the nomination of Eric Holder far, far exceeds that standard. TODD: Could Senator Specter's opposition derail the nomination?

JEFFREY TOOBIN, CNN SENIOR LEGAL ANALYST: He's not really saying that Holder is in any danger of not becoming attorney general, he's just trying to make sure of the kind of attorney general Holder turns out to be.


TODD: A spokesman for the Obama transition office says they believe they have some Republican support already and they do expect Eric Holder's nomination to go through -- Wolf.

BLITZER: Thank you very much for that, Brian Todd.

If you want to be precise about it, Barack Obama didn't officially become president-elect of the United States until today. That's when the U.S. Congress met to tally up the votes from the Electoral College.

Our senior political analyst, Bill Schneider, reports.


WILLIAM SCHNEIDER, CNN SENIOR POLITICAL ANALYST (voice-over): News flash -- the 2008 presidential election just ended. We have a winner.

CHENEY: Barack Obama, of the State of Illinois, has received, for president of the United States, 365 votes.


SCHNEIDER: Why do we still have the archaic Electoral College system?

For one thing, it's hard to get rid of. You would need a constitutional amendment, which requires a two thirds majority of both houses of Congress and ratification by 38 states.

Do the people want to keep the Electoral College?

No, especially after what happened in 2000, when the people voted for Al Gore, but George W. Bush was chosen by the electors. You would think a wave of public outrage would have abolished the Electoral College, but people were so angry over Florida and the Supreme Court, they didn't pay much attention to the larger problem. Those vote irregularities have not been forgotten.

UNIDENTIFIED MALE: The certificate of electoral vote in the state of Ohio seems to be regular, uniform and authentic.

SCHNEIDER: There is an argument for keeping the Electoral College.

Did you notice how, in the campaign last year, the candidates spent a lot of time in small, out of the way places like Wallingford, Pennsylvania and Chillicothe, Ohio?

They're in battleground states, where votes matter more.

If we had a direct popular vote, the candidates would spend most of their time and most of their money in the big media markets like New York, Los Angeles, Dallas and Houston because that's where so many voters live. Those places didn't see much of a campaign last year. New York, Texas and California are not swing states.


SCHNEIDER: Now, with the direct popular vote, the large urban constituencies would be the ball game. Even New York City, which voted 79 percent for Obama, still gave John McCain over half a million votes -- more than twice as many McCain votes as Montana. Small states and rural areas would find it hard to get their priorities recognized without the Electoral College.

And you know what?

They're not likely to vote to abolish it -- Wolf.

BLITZER: That's a good point. That's why it's probably not going to be abolished anytime soon, Bill.

Thank you.

The president-elect introduces the new chairman of the Democratic National Committee, with the old chairman, Howard Dean, noticeably absent. Insiders are calling it a snub.

So what's going on here?

And rage at the police shooting boiling over -- with some of the worst rioting California has seen in years. We'll go there.

Stay with us.



BLITZER: Fredricka Whitfield is monitoring some other important stories incoming into THE SITUATION ROOM right now -- Fred, what's going on?


A grim sign of the dismal economy -- Macy's is closing 11 stores in nine states, from California to Florida. This after one of the weakest holiday seasons in years. The closures affect 960 employees and will cost $65 million. Macy's, which runs more than 800 stores nationwide, is famous for its Thanksgiving Day parade in New York City.

The U.S. will spearhead an international naval force in the pirate-infested waters off Somalia's coast. That's expected to begin operations next week. More than 20 countries may take part. Pirate gangs have attacked 100 ships in the busy shipping region in the past year alone. Hijacked vessels include a Saudi ship filled with $100 million of crude oil and a cargo ship loaded with tanks and heavy weapons.

Former Republican Senator Larry Craig's long-running battle to reverse his guilty plea may be finally over. Craig was arrested in an airport bathroom back in 2007 and accused of soliciting sex. Well, now his attorney tells CNN he will not appeal the case to Minnesota's highest court, calling it "fruitless." This, after the state's court of appeals rejected Craig's request to withdraw his guilty plea.

And a real life UFO mystery -- dozens of people in Lincolnshire, England say an unidentified flying object slammed into a wind turbine. They claim they saw strange lights in the sky that looked like octopus tentacles. And they say they were awakened by a huge bang. If it was a UFO, it made off with one of the turbine's 65-foot blades. It's still missing.

No kidding -- Wolf.


BLITZER: All right. We'll see if that mystery is resolved.

Fred, thank you.

So was Sarah Palin given a hard time in the campaign because she's a Republican?

How would she have been treated if she were a Democrat on the ticket -- potentially -- with Barack Obama?

And President-Elect Obama doesn't want spending on so-called pet projects to clutter up his economic stimulus plan.

But will that hurt America's cities?

I'll speak about it with the Los Angeles mayor, Antonio Villaraigosa. He's standing by live.

And some of the worst protests the Bay Area has seen in years. Pleas for calm in Oakland, California went ignored, as anger boiled over at the site of a controversial police shooting. We're going to go there live.

Stay with us.



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

Happening now, he helped craft the 50-state strategy that pushed the Democrats to election victory -- so why is Howard Dean not on the guest list for today's big DNC event with the president-elect, Barack Obama?

And the president-elect says no to pet projects spending -- earmarks, as they're called.

What could that mean for California and other cash-strapped states?

I'll talk about that and more with the Los Angeles mayor, Antonio Villaraigosa. He's standing by.

And a shocking new twist in the saga of Wall Street wizard turned accused swindler, Bernard Madoff -- some investors who were left with almost nothing they soon lose even more.

I'm Wolf Blitzer.


Just a short while ago, the president-elect, Barack Obama, stood with his pick to be the next leader of the Democratic Party, the Virginia governor, Tim Kaine. Missing -- missing was the outgoing DNC chairman, Howard Dean. He's visiting American Samoa.

But there was plenty of praise for the president-elect.

Listen to this.


OBAMA: For nearly four years, Howard has served our party and our nation as a visionary and effective leader. He launched the 50-state strategy that made Democrats competitive in places they had not be in years -- working with my chief of staff, Rahm Emanuel, to give Democrats a majority in the House for the first time in over a decade.


BLITZER: Let's turn to our senior political correspondent, Candy Crowley.

She's there watching this story for us -- how are some supporters reacting to Howard Dean's absence, Candy, from today's events?

CANDY CROWLEY, CNN SENIOR POLITICAL CORRESPONDENT: You hear all kind of words -- baffled, puzzled. But really what this is -- when I talked to one source, he said that I'm told Obama is going to praise Dean.

They said, what would be so wrong with praising Dean while Dean was there?

Basically, there are supporters of Dean, including many party chairmen in the states, those who have been around him, who think that this is a slight. They say that Howard Dean was never invited to this event and that he would have canceled his trip to American Samoa had he been invited.

Now, I will tell you that a transition aide says had it not been for the trip, Dean would have been there. So it's a slight different story here. But they do believe this was a slight -- many of those around Dean. They suggest, at some point, that it may be about Rahm Emanuel, the new incoming chief of staff for Barack Obama, who had a couple of pretty public clashes with Howard Dean during Dean's tenure.

So a lot of people don't really want their names out there in public simply because these are high times for Democrats. They don't want anything mucking it up at this point. But they -- they really do think that this could have been handled better.

BLITZER: And speaking of a slight, some people are suggesting, Candy, that it's a slight that, apparently, Howard Dean's not going to be serving in the new administration.

CROWLEY: Well, I was greeted with a list of former party chairmen who did find jobs -- Ron Brown, a Democrat, who worked at the Commerce Department; Ken Mehlman, a Republican who went inside the White House. So there is some precedent -- but it's not 100 percent -- that party chiefs do get something. But Dean's name has never been mentioned.

Now, this is not something that will -- people around him and have heard him complaining about. But there are those, again, supporters, who really think he did a lot for the Democratic Party who wonder why he is so out in the cold.

BLITZER: All right. Thanks very much, Candy Crowley.

Meanwhile, the former vice presidential nominee, Sarah Palin, now says the news media was harsh toward her because she's a Republican. Let's talk about that and more with our CNN political contributor, Hilary Rosen. She's editor at large for and our CNN contributor, the Republican strategist Alex Castellanos.

I'll play a little clip of what Sarah Palin is saying and then we'll discuss. Listen to this.


GOV. SARAH PALIN (R), ALASKA: Yes, had I been chosen perhaps to run as a reformer on the Democrat ticket, you would have seen an absolutely different and if you will, a much prettier profile of Sarah Palin and the Palin family and my administration.


BLITZER: All right. Does she have a point, Hilary?

HILARY ROSEN, HUFFINGTONPOST.COM: I don't think so. I think her beef is really more with her Republican colleagues and her running mate, John McCain, who completely controlled her campaign and controlled her access with the media and you know she said also in this interview that she wishes that after her first bad day of an interview with Katie Couric of CBS News that she had canceled and not done future ones, but they made me do it.

Democratic women have faced problems in the media, Democratic candidates. I don't think Hillary Clinton or Caroline Kennedy this month would tell you they're getting an easy ride from the media because they're Democrats.

BLITZER: All right. Alex, what do you think?

ALEX CASTELLANOS, REPUBLICAN STRATEGIST: Well, I think to some degree Hilary is right. Some of the Palin wounds were self inflicted. You wouldn't take a rookie and put them in front of the news for two hours of taped interview. Hilary in a campaign you know you'd give the candidate 10 or 15 minutes, max. Some of that is just political malpractice, but she does have a point that the Republicans I think are often examined a little closer than Democrats. Look at Leon Panetta. You know he has no experience at all in the intelligence community. There's a little bit of an outcry. The Democrats in Congress shut that down, said he's fine and now, he's not being examined at all.

BLITZER: She also makes the point Hilary that Caroline Kennedy, who wants to the next senator from New York State succeeded Hillary Clinton that she's not getting the rough treatment, the cross- examination that Sarah Palin received.

ROSEN: Well, I don't know why. She must not read the papers or watch New York television because Caroline Kennedy's getting raked over the coals. It may be the end of her candidacy because it has stirred up so much backlash.

There's no question that Democratic women have faced it. Here's the point. Sarah Palin needs to move on. She needs to find the next generation of what matters for Sarah Palin and her relationship to the country. She needs to stop talking about the campaign. It's over. The country has moved on. She needs to figure out her future, not this sort of past griping.

BLITZER: Let's talk about the top story today, Alex, namely the proposals put forward by Barack Obama to try to deal with this worsening U.S. economy. Now, he didn't say anything about repealing, at least in today's speech, repealing the Bush tax cuts for the wealthiest Americans, those making more than $250,000 a year. He's willing to let those tax cuts lapse automatically in 2010 or 2011 if they're not extended but the Speaker of the House, Nancy Pelosi, a different position. Listen to this.


REP. NANCY PELOSI (D-CA), SPEAKER OF THE HOUSE: Put me down as clearly as you possibly can as one who wants to have those tax cuts for the wealthiest in America repealed.


BLITZER: She wants them repealed right away, though economists say in dire economic times it's no time to increase taxes on anyone. What do you think, Alex?

CASTELLANOS: It's a test of strength early in the administration. If Barack Obama gets rolled by the leader of the Democratic Congress now, he's going to get rolled for four years. So we're going to all wait to see here if he stands his ground.

It just doesn't make economic sense if you have five people making 250 grand a year, you're not going to tax them for being productive, but if you have one person or a wife and husband who make $250,000 a year and grow the economy, you're going to punish them. It just doesn't make sense. Maybe there's room for compromise. Maybe Obama can agree to tax them and Nancy Pelosi can tank the economy and make sure no one makes over 250,000 a year.

ROSEN: First of all, Barack Obama did not say he's going to let those tax cuts expire. He said they're not in his immediate economic recovery plan, which is focused on stimulus spending and tax cuts for the middle class. What the speaker is saying though is that people have not felt the tax system is fair and when Bush instituted those tax cuts for the wealthy at a time when the middle class of this country were hurting, that people had an outcry that was part of why Democrats won this election. I think there's room here to see what happens. How's the economy going? Does the middle class recover? Put me down with the speaker if in a year and a half, this economy is recovering for the wealthy and not the middle class. I think the speaker's going to have trouble holding back her caucus from letting those tax cuts expire.

BLITZER: We'll leave it there, guys. Thanks Hilary and Alex.

Coming up, rage at a police shooting boiling over right now, with some of the worst rioting in California in years.

Plus, the president-elect, like millions of Americans, is hooked on his blackberry and is pushing to keep it despite serious security concerns. We'll explain right here in THE SITUATION ROOM.


BLITZER: The president-elect says there will be no earmarks in his economic stimulus or recovery package, but that could leave some major U.S. cities out in the cold. Let's talk about that more with the mayor of Los Angeles, Antonio Villaraigosa. Here's here in THE SITUATION ROOM.

Mayor, thanks for coming in.


BLITZER: Happy New Year to you. Is it a problem that the Congressional delegation representing Los Angeles or your senators are not going to get earmarks to help your city?

VILLARAIGOSA: First of all, we're not looking for earmarks. We're looking to make investments to leverage what the federal government is doing. Here in November in Los Angeles, we passed a half penny sales tax $40 billion for infrastructure, transportation, public transportation projects. $7 billion to build green, small schools. Three billion for community college facilities. We're ready to put up our own money. We're not looking for a handout. We're looking for the kinds of investments to get people in jobs.

BLITZER: So you're OK on this?

VILLARAIGOSA: We're looking for a partnership of the federal government.

BLITZER: You need it because California's in horrible economic shape. Your governor Arnold Schwarzenegger says you know what, he might not have the money, the state treasurer might not have the money to give California residents, if they overfiled on their state income tax for example, the taxes. Is that acceptable?

VILLARAIGOSA: Absolutely not. As you know, I used to be the speaker of the California state assembly and I can tell you it's an abomination when a handful of legislators, who have made a pledge no new taxes and notwithstanding the fact that they are facing a $43 billion investment, don't want to make the cuts, it's an abomination that these people would hold up 36 million people.

BLITZER: I've never heard that the state or federal government can't afford to give the tax refunds that are legally due private citizens.

VILLARAIGOSA: Not only that, we passed bonds they're not funding because they're going to settle and try to resolve their budget deficit.

BLITZER: But is the economic situation here in California that dire that he potentially could do that?

VILLARAIGOSA: The answer is no. It's a failure of will on the part of some who have refused to balance this budget, to make the cuts, but also to raise the revenue we need. It's irresponsible and unacceptable.

BLITZER: So I take it you don't have confidence in Governor Schwarzenegger? What about the governor?

VILLARAIGOSA: The governor obviously has to be able to convince, he hasn't been able to convince one Republican to get behind this effort. He's made an effort, but he, the legislature on both sides, have to figure this out. They cannot balance this on the backs of cities and taxpayers.

BLITZER: Would you like to be governor of California?

VILLARAIGOSA: I'm happy being mayor.

BLITZER: Some day?

VILLARAIGOSA: Some day's along away way. Right now, I'm focused on my job. About 10% of our general funds, we're going to revolve it by making cuts, finding efficiencies and raising revenues.

BLITZER: Are you happy with the number of Latinos who will be serving with the president-elect?

VILLARAIGOSA: I think he's made every effort to have a broad cabinet. I'm very sad to hear that Governor Richardson has removed his name, but I hope and I expect that the president-elect will make every effort to continue to invest in the kind of cabinet that looks like America.

BLITZER: The cabinet right now, you would agree, does like America.


BLITZER: Thanks for coming in.

Barack Obama is trying to keep his blackberry when he takes office despite some major security concerns. Joking, they're going to have to pry it out of his hands. What's going on? CNN's Mary Snow is working this story for us.

All right. Mary, what is the president-elect saying?

MARY SNOW, CNN CORRESPONDENT: The president-elect says the secret service and lawyers have concerns about it, but if he wins the battle, he'll become the first president to use a blackberry while in office.


SNOW (voice-over): Less than two weeks before taking office, President-elect Barack Obama reveals that he'll go down to the wire in a fight to hang on to his blackberry. He talked about it on CNBC.

OBAMA: I'm still clinging to my blackberry. They're going to pry it out of my hands.

SNOW: In the White House, there are concerns about security and the fact that any information could become public record. The president-elect is making the case that having the blackberry will allow him to be in touch.

OBAMA: It's not just a flow of information. I can get somebody to print out clips and I can read newspapers, what it has to do with is having mechanisms where you are interacting with people who are outside of the White House in a meaningful way.

SNOW: One security analysts says there are no benefits that outweigh security risks and point out a hacking just days ago.

IRA WINKLER, AUTHOR, "SPIES AMONG US": Because of no fault of his own, his twitter account was hacked. If some other open technology can be hacked like this, there's nothing special about his blackberry and the underlying technology that cannot itself be hacked. SNOW: One former justice department official believes security risks can be revolved and doesn't think it's a bad idea for President- elect Obama to use a blackberry if the issues are resolved.

DANIEL METCALFE, AMERICAN UNIVERSITY: President Obama would be well advised, make those people aware, that when they send information to President Obama electronically and therefore the information is recorded on his White House device of one fashion or another, that that information becomes part of a presidential record.


SNOW: The president-elect says while he's still hoping to have it in the oval office, he say he thinks he'll be able to get access to a computer, but it may not be right in the oval office -- Wolf?

BLITZER: All right. A lot of us are addicted to those blackberries. Mary, thank you.

It was almost ten years ago that the device was first launched by Canadian wireless company Research in Motion. Since 1999, the number of users has grown to some 21 million. With new models becoming available, the company hopes to add three million new subscribers and make $3.5 billion in the current fiscal quarter.

Rioting in the streets as anger erupts over a controversial police shooting. Appeals for calm are ignored.

Also, there will be road closings and perhaps millions of visitors. New resources help you navigate the inauguration. We'll tell you what's going on right here in THE SITUATION ROOM.


BLITZER: It's some of the worse riots the region has seen in years. Police were calm in Oakland California went ignored as anger boiling over a police shooting. CNN's Dan Simon is live where the shooting happened.

Dan, what's the story out there?

DAN SIMON, CNN CORRESPONDENT: Well hi, Wolf. We are at the Fruitvale station. The shooting actually happened on the platform up there. It was all captured on video and that's why there was so much outrage.


SIMON (voice-over): It was senseless and all caught on camera. Rioters busted windows, set fires and pounced on police cars. One woman tried to defend the violence.

UNIDENTIFIED FEMALE: We live a life of fear and we want them to be afraid tonight. We are a community and we are a voice.

SIMON: The tension had been building for days. The aftermath of a New Year's Day police shooting in an Oakland subway station that left an unarmed man dead. The shooting may not have received national attention, except it was captured on video by several bystanders with cell phones. The disturbing images appear to show a man lying face down with two police officers over him while a third officer stands up, pulls his gun and fires a shot. 22-year-old Oscar Grant died several hours later. Transit police say he had been involved in a fight aboard a train, and that's why they wanted to arrest him. The victim's family has already hired a lawyer and filed a $25 million death claim against the city.

JOHN BURRIS, GRANT FAMILY ATTORNEY: It is without a doubt the most unconscionable shooting I have seen ever.

SIMON: Some law enforcement experts have speculated the officer intended to reach for his taser but accidentally grabbed his gun. But the officer, 27-year-old Johan Messerly, on the job for two years, won't agree to be interviewed by investigators or make any public statements under advice of his lawyer. He has since resigned and also has been the target of multiple death threats.

UNIDENTIFIED MALE: We want justice now.

SIMON: Many in the Oakland community are pressing the district attorney to file criminal charges, and march to his office.

DESLEY BROOKS, OAKLAND CITY COUNCIL MEMBER: We are a community that will not tolerate, will not tolerate those who are charged with protecting us, executing our children in broad view for the world.

SIMON: But what started as a peaceful protest turned ugly. Police responded to the violence in riot gear, fired tear gas and arrested more than 100 people.


SIMON: There are two investigations taking place right now, one by the police department's internal affairs unit, the other by the district attorney's office. No word yet when things will wrap up, or whether or not this officer will face any charges. Back to you.

BLITZER: That video so dramatic, Dan. Thanks very much for bringing it to us.

Let's go back to Jack. He has "The Cafferty File."

CAFFERTY: Different subject, Wolf. This hour the question is: How would you go about cutting federal spending?

David in San Diego: "I would eliminate corporate welfare. For example, farm subsidies and make all expenditures go through the committee review process. No earmarks added after markup without committee scrutiny. I'm not opposed to pet projects proposed by individual legislators as long as they're subject to open, transparent review and decision making."

GRL in Pennsylvania: "How about bringing our troops home from the Middle East. That should certainly cut some spending. Not only does it cost to keep our troops in Iraq and Afghanistan, but the medical costs to help to attempt to mend the bodies and minds of the survivors of those wars are prohibitive. There must be a more cost-efficient way to stop terrorism."

Steven writes: "Raise the age of social security to 70 and the ceiling on earnings on which social security tax must be paid to $500,000 a year."

Mark in Oklahoma: "How about sending back 10 million illegal aliens so their own governments can support, education and care for their health care needs."

Billy in Las Vegas: "You can start with some of this overpriced consistently overbudget pentagon foolishness that doesn't work. Like "Star Wars" style ABM programs. This country spends more money for so-called defense than all of the other nations in the world combined and a lot of it is pure waste."

Ike in Plainview, New York: "I would reduce the federal budget by eliminating social security for those who earn more than $100,000 a year and Medicare for those who get more than $150,000. How much do you need after the kids are out?"

And Jim in Las Vegas, Nevada: "Legalize pot. Not only would that cut enforcement spending in prisons, but the tax revenue would be handy, too." Go get something to eat, Jim.

If you didn't see your e-mail here, go to my blog, Look for yours there among hundreds of others. $1.2 trillion in debt and the guy says legalize pot.

BLITZER: Lots of ideas out there. Jack, thank you.

With nearly two million people, dozens of road closings and over 50 inaugural balls, resources are springing up all over the web to help folks plan for the big event. Let's go back to our internet reporter, Abbi Tatton.

Abbi, what's happening online?

ABBI TATTON, CNN INTERNET REPORTER: It seems like there's a new toll for the aspect of this inauguration. This from Korvis Communications that helps you navigate the streets of Washington, using GPS technology to help you get to the metro, or the swearing-in ceremony or the inaugural ball if that's are you're headed.

If you're headed to one of those galas, you might want to check out this website, allows you to upload the outfit you'll be wearing to a particular inaugural ball. If you're planning on wearing something like this, you can avoid the embarrassment of somebody wearing the same thing when you get there.

Of course, there's the problem of where you're going to sleep. There are plenty of resources for that one. This is a good one This is a list of people in and around Washington, D.C. who are renting out their floor or their air mattress or sofa, all for a few dollars. All unofficial tools and resources online. The official site is the presidential inaugural committee site. They have a constant stream of information -- Wolf?

BLITZER: Abbi, thank you.

Key Congressional Democrats, now openly pushing back against parts of Barack Obama's tax plans. We have some new details of what could be an uphill battle for the president-elect, from within his own party.

Plus, Washington State, inundated by some of the worst flooding on record. Tens of thousands of people urged to simply get out. We're going to go there live.

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


BLITZER: As we've been reporting here in THE SITUATION ROOM, California's comptroller has warned that the state will be so short of cash, they'll have to start issuing IUOs in February to any vendors and taxpayers expecting state tax refunds. Lou Dobbs keeping an eye on this as well. Amazing what's going on in California, Lou.

LOU DOBBS, CNN ANCHOR: It really is, Wolf. And to think that this state, which is so glorious in its potential, has been run like some sort of Banana Republic for a number of years now. And to come to this, issuing IOUs. You were talking with Villaraigosa of Los Angeles earlier, even he has to acknowledge at least tacitly that the Democratic leadership of that state legislature in California is out of its cotton picking mind. These people have been irresponsible. They've tried everything to avoid their duty, their responsibilities, and the last thing they would consider is to be prudent and responsible. They are a disgrace to the great people of California. And somebody needs to bring them to account.

BLITZER: Well, I know you're going to be reporting extensively on this in an hour on "LOU DOBBS TONIGHT." Lou, thanks very much.

DOBBS: Thank you, Wolf.

Happening now, Barack Obama fails to convince fellow Democrats that big tax is the way to go. They're casting a shadow over the president-elect's highest profile pitch yet.

Plus, victims of alleged swindler Bernard Madoff may be losing this, get this, even more money this hour. Why the courts could be coming after them.

And flooded rivers, closed highways and fears of an avalanche. The weather crisis in Washington State right now is awful.

We want to welcome our viewers in the United States and around the world.

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