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THE SITUATION ROOM

Obama Defends Treasury Pick; President-elect Meets With Critics

Aired January 14, 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: And, to our viewers, you're in THE SITUATION ROOM.
Happening now: Barack Obama confronts threats six days before his inauguration -- this hour, his defense of his choice for the treasury secretary and his response to Osama bin Laden.

Plus, shocking details of alleged torture and humiliation. A Pentagon official speaking out about the treatment of terror suspects.

And new evidence of stores in crisis and shoppers clinging to their cash, the U.S. economy reeling right now over a record plunge in sales.

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

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

The closer Barack Obama gets to claiming the reins of power in the White House, the more bumps and roadblocks he seems to be hitting along the way -- the president-elect today addressing some of his latest distractions, including his treasury secretary nominee's tax problems.

Our senior political correspondent, Candy Crowley, is here working the story.

It's six days to go, and it's getting tough and tougher every single day.

CANDY CROWLEY, CNN SENIOR POLITICAL CORRESPONDENT: Absolutely. And I suspect that will continue.

The fact of the matter is that today was the day that Barack Obama was to meet with vice president-elect Joe Biden to talk about Biden's recent trip to the Middle East. And there was a trip over to the Supreme Court.

And then, Wolf, there was everything else.

(BEGIN VIDEOTAPE)

CROWLEY (voice-over): With customary cool, Barack Obama dismissed the latest political flare-up. Timothy Geithner, his treasury secretary nominee, did not pay $34,000 in taxes several years ago.

BARACK OBAMA (D-IL), PRESIDENT-ELECT: Is this an embarrassment for him? Yes. He said so himself. But it was an innocent mistake. It has been corrected. He paid the penalties.

CROWLEY: Geithner failed to pay self-employment taxes in the four years he worked for the International Monetary Fund, which does not deduct. He paid on two of the years after an IRS audit. He did not pay for the unaudited years until days before his nomination was announced.

The president-elect says he's confident Geithner will be confirmed. The nominee, making explanatory visits on Capitol Hill, is apparently saving his voice for damage control.

QUESTION: Mr. Geithner, how concerned are you that your nomination is in trouble? Do you think you can survive this?

CROWLEY: Another bump on the road to the White House, the transportation secretary nominee, a former congressman well-versed in the art of slipping money into legislation for pet projects back home. Outside watchdog groups wonder whether that makes Ray LaHood the right guy for the Transportation Department.

RYAN ALEXANDER, PRESIDENT, TAXPAYERS FOR COMMON SENSE: He, you know, rewarded campaign contributors and folks in his district with earmarks. And that's a concern. That raises concern about how he's going to run the transportation bill.

CROWLEY: The Geithner-LaHood problems do not seem fatal and likely be lost in the hubbub as history is made, but they are unwelcome distractions as the incoming president wrestles with a surprisingly resistant Congress for access to emergency bailout funds and a longer-term stimulus package. And that's not to mention a new tape from Osama bin Laden.

OBAMA: Bin Laden and al Qaeda are our number one threat when it comes to American security. We're going to do everything in our power to make sure that they cannot create safe havens, they can attack America. That's the bottom line.

CROWLEY: If nothing else, the presidency is an ultimate exercise in multitasking.

(END VIDEOTAPE)

CROWLEY: In the category of good news, it now looks like the House at least will have a stimulus package somewhere around the $800 billion that Barack Obama is seeking. We don't know yet the details of that, but Speaker Nancy Pelosi seems to think that she will be able to meet that mid-February deadline, at least on the House side.

BLITZER: And just so no one's confused, we're talking about the 800 or so billion stimulus -- economic recovery or stimulus package. There is still that $350 billion second part of the so-called TARP money to bail out the financial institutions. He's got a lot of legislation on his plate already.

CROWLEY: Absolutely. Absolutely.

BLITZER: Thanks very much, Candy, for that.

Barack Obama and Joe Biden stopped by the U.S. Supreme Court today. It's not unusual for the president-elect to decide to visit the court before taking office, but, this time, it was the chief justice's idea, John Roberts saying he and the other members of the court could get better acquainted with the next president.

Ahead, we will be talking to our chief national correspondent, John King, about president-elect Obama's Supreme Court challenges. Stand by for that.

It's nothing short of a bombshell. As President Bush and others in the highest levels of government insist the United States never tortured during terror interrogations over the last eight years, a top official who works for President Bush reportedly saying now the United States did, in fact, use torture.

Let's go straight to our White House correspondent, Dan Lothian, who's following this. All right, Dan, what happened?

DAN LOTHIAN, CNN WHITE HOUSE CORRESPONDENT: Well, that's right. This admission of torture is a serious claim, Wolf, but what's even more disturbing is the fact that, because of this, the official says, this case was not sent forward for prosecution.

(BEGIN VIDEOTAPE)

LOTHIAN (voice-over): It's a stunning revelation from a key Bush administration official, that this man, Mohammed al Qahtani, a Guantanamo Bay detainee, was tortured by the U.S. government.

MICHAEL BERRIGAN, GITMO DETAINEES DEFENSE COUNSEL: This isn't some bleeding-heart judge saying this. This is a Republican appointee.

LOTHIAN: Susan Crawford is that official charged with deciding with Gitmo cases should be prosecuted. Al Qahtani, according to a top official involved in defending detainees, was subjected to harsh interrogation techniques.

BERRIGAN: Complete periods of sleep deprivation for weeks on end, extreme exposure to variations in temperature, forced nudity.

LOTHIAN: Now Crawford tells "The Washington Post" the combination and duration of those techniques -- quote -- "met the legal definition of torture."

Last May, she ordered prosecutors to drop charges against al- Qahtani.

White House spokeswoman Dana Perino refused to comment on any individual Gitmo cases, but pushed back on the notion that torture is an accepted practice.

DANA PERINO, WHITE HOUSE PRESS SECRETARY: It has never been the policy of this president or this administration to torture.

LOTHIAN: U.S. Sources say al-Qahtani was planning to be the 20th hijacker of 9/11, but he was blocked from entering the U.S. a month before the attacks. The Pentagon says that an investigation into techniques used on al-Qahtani concluded they were appropriate then, but not now. They say more restrictive policies are currently in place.

President-elect Barack Obama has made it clear that he wants to shut down the Guantanamo Bay detention facility. Transition sources have indicated the process to do that could begin within his first week in office, but Mr. Obama admits that process and the legal maze over what to do with detainees such as al-Qahtani will be complex.

BARACK OBAMA (D-IL), PRESIDENT-ELECT: We've got a bunch of folks who have been detained, many of whom may be very dangerous, who have not been put on trial or have not gone through some adjudication. And some of the evidence against them may be tainted even though it's true.

(END VIDEOTAPE)

LOTHIAN: There are questions about timing. Why is this claim of torture being made public now? That's unclear. But one official tells CNN that this could really turn up the heat on Barack Obama as he looks to implement his campaign promise of shutting Gitmo down -- Wolf.

BLITZER: Dan Lothian at the White House, thanks.

A federal judge, meanwhile, is ordering that a prisoner at the Guantanamo Bay detention camp who was only 14 years old when he was captured in Pakistan back in 2002 must be released. Mohammed el Gharani is believed to be the youngest person ever held at the camp. He's reportedly accused of working as a courier for al Qaeda 10 years ago, when he was 11 years old, and of participating in the battle of Tora Bora in Afghanistan in 2001.

But the judge ruled there's not enough evidence to hold him.

Let's check in with Jack Cafferty for "The Cafferty File" -- Jack.

JACK CAFFERTY, CNN ANCHOR: The Pentagon says 61 former detainees from that U.S. military prison at Guantanamo Bay have resumed what they call terrorist activities since their release. As Dan Lothian and Wolf were just telling you, president-elect Obama says he will close the prison as soon as his first week in office.

He admits there are issues to work out if he does so, primarily the threat that the suspects still in custody there may pose to the safety of the American people. There are about 250 of them, including two of the alleged conspirators of the 9/11 attacks. They simply cannot be released.

Perhaps the Pentagon is trying to emphasize that very point with the information they released about the 61 prisoners who resumed terrorist activities. But that report lacks details, like what actions these detainees have taken since their release, where they are now and why they were released in the first place.

Human rights advocates are skeptical of the Pentagon's report. President-elect Obama's haste in wanting to close the prison is an attempt to make a clean break from the Bush administration's war on terror.

Yesterday, when he was asked about Obama's plan to close Guantanamo, President Bush told CNN's Larry King that signing the paper is one thing, but actually doing it is more involved. President Bush said he wants the base closed, too, but it's a complex matter.

So, the question is this. If president-elect Obama closes Guantanamo Bay prison, what should be done with the inmates there? You can go to CNN.com/caffertyfile and post a comment.

BLITZER: Jack, thank you -- Jack Cafferty with "The Cafferty File."

It would cause an economic nightmare and could cause you financial ruin. What if there was no credit to buy houses, cars, or much else?

(BEGIN VIDEO CLIP)

SEN. CHARLES SCHUMER (D), NEW YORK: The bottom line is very simple. You cannot have the financial system in lockdown.

(END VIDEO CLIP)

BLITZER: But could political squabbling wind up hurting your pocket?

Also, president-elect Barack Obama's secret meeting revealed, the whole thing shrouded in secrecy. We have some details of what happened.

And what would you do if you had to choose between food and shelter? Our Mary Snow reports on the tough choices the recession is causing.

(COMMERCIAL BREAK)

BLITZER: On Capitol Hill right now, the Obama camp is trying to put out a new fire in its uphill battle to tap into the last of that $350 billion in federal bailout money.

Let's go straight to Capitol Hill. Our senior congressional correspondent, Dana Bash, is working the story.

What's the latest, Dana? DANA BASH, CNN SENIOR CONGRESSIONAL CORRESPONDENT: The latest is that, just moments ago, Wolf, some of Barack Obama's top advisers wrapped up a meeting with all Republican senators, and they came here looking for GOP help to get money for Wall Street.

And they certainly are going to need a lot of Republican support to make that happen. But I can tell you, in talking to several Republican senators today, it's clear they may not get many of their votes.

(BEGIN VIDEOTAPE)

BASH (voice-over): Barack Obama is already having big trouble convincing fellow Democrats to give him the last $350 billion in that giant financial bailout. Now he has a growing Republican problem.

SEN. JOHN ENSIGN (R), NEVADA: I think it would be very difficult to vote for the TARP funds, knowing, first of all, the first $350 billion, there was no transparency. We don't even know how exactly it was spent. There's -- the Obama administration has not been forthcoming on how that they would spend this money.

BASH: Nevada Congressman John Ensign is one of many GOP senators who voted for the rescue in the fall, but tells CNN they will oppose it this time.

John Cornyn is another.

SEN. JOHN CORNYN (R), TEXAS: I did so in good faith, based on the representations of the administration and the Treasury and the Federal Reserve chairman. But, frankly, they seem to have acted with the virtual disdain of Congress when it comes to oversight and accountability for that money. They seem to use it as a slush fund.

BASH: Many Republicans say they're angry the bailout funds have not only been mismanaged, but, in their view, misdirected, when used for the auto industry. But another factor is raw politics.

ENSIGN: My constituents overwhelmingly were against it. And they still are. As a matter of fact, they're probably more opposed today than they were back then.

BASH: Opposing hundreds of billions more in taxpayer dollars for a controversial bailout would please outraged folks back home, and, for Republicans, has the added benefit of making life even more difficult for the Democratic president-elect, since securing the money is the first big test of his clout.

Obama allies are frantically trying to round up votes, warning, the economy can't rebound without this $350 billion infusion.

SEN. CHARLES SCHUMER (D), NEW YORK: The bottom line is very simple. You cannot have the financial system in lockdown.

(END VIDEOTAPE) BASH: Now, in the fall, 34 Republican senators voted for the Wall Street bailout. In talking to Republicans, it seems as though most of them will not go that way this time.

And I talked to several Republican senators who just came out of this meeting with top Obama aides, Wolf, and they say that they certainly made a very hard pitch to get Mr. Obama this money, because they say he and the economy needs it. But, in talking to these Republicans, it does not seem at least now they changed many minds -- Wolf.

BLITZER: We will see what happens on the Hill. Dana, thank you.

One by one, all the president's men and women will be questioned. They are confirmation hearings for Barack Obama's Cabinet nominees. Among those today, Lisa Jackson, picked to head the Environmental Protection Agency, former Iowa Governor Tom Vilsack for agriculture secretary, Peter Orszag for director of the Office of Management and Budget, and the hearing for retired U.S. Army General Eric Shinseki for veterans affairs secretary.

A hearing for the transportation secretary nominee, Ray LaHood, was supposed to happen today, but a Senate aide says incomplete paperwork caused a delay.

In another story we're following right now, apparently, many of you are choosing not to shop. Figures out today from the government show retail sales dropped almost 3 percent last month. That's two times more than what economists predicted.

The nation's recession is causing lots of people to save, but also make some very tough choices.

Let's go to CNN's Mary Snow. She's been looking into this for us.

What are you finding out, Mary?

MARY SNOW, CNN CORRESPONDENT: Well, Wolf, as you said, you know, there's the sharp drop in retail sales, and it caught many economists off-guard. And it's a troubling sign for consumer spending, which makes up about two-thirds of the economy.

(BEGIN VIDEOTAPE)

SNOW (voice-over): Despite sales signs just about everywhere you look, consumers are wary of spending.

UNIDENTIFIED FEMALE: Would I have enough to cover the rent, to buy food? It's just a scary situation. And, yes, I am very fearful for the economy now, the way it's going.

SNOW: Even discount stores like the Daffy's chain in New York that prides itself on bargains sees customers cutting back.

UNIDENTIFIED FEMALE: Maybe buying more of the necessities, more of the socks and the underwear. They're being more conservative in their approach, for sure.

SNOW: And Daffy's is facing competition from big department stores desperate to clear inventory. Some of those stores are slashing prices 70 percent to 80 percent, after the holiday season proved to be a big bust.

December sales dropped 2.7 percent, more than double what economists predicted. For retailers wrapping up a conference in New York, their meeting had the tone of a support group.

KIP TINDELL, CEO, THE CONTAINER STORE: I can't believe I'm saying this, but down 8 percent is actually kind of good.

SNOW: And the outlook for 2009 is grim.

Retail consultant Burt Flickinger, dubbed by one trade publication as the Nostradamus of retail, forecasts a wave of bankruptcies in the retail industry.

BURT FLICKINGER, STRATEGIC RESOURCE GROUP: The retailers were overextended. The shopper was overextended. So, the shopper stopped spending and started saving. And the stores are in big trouble, worse that it's been at least 40 years.

SNOW: And the president of the industry's leading trade group is looking for help.

TRACY MULLIN, PRESIDENT, NATIONAL RETAIL FEDERATION: We believe we need a short-term stimulus for the consumer.

SNOW: The National Retail Federation is proposing three 10-day sales tax holidays to be spread throughout 2009.

MULLIN: It costs the government only about $20 billion. And while that's a lot of money, it's nothing compared to what's been spent or what's being considered to be spent. And the best part of it is, if it doesn't work, it doesn't cost the government anything.

(END VIDEOTAPE)

SNOW: And, Wolf, And that $20 billion figure you just heard, what the National Retail Federation wants is for the federal government to reimburse states for revenue lost during those tax holidays if they're approved. The government says they need to do something fresh, because drastic sales are not working -- Wolf.

BLITZER: Mary Snow, with the numbers and the assessment in New York, thank you.

But let's take a closer look right now at where many of you are not spending money. Americans are -- many Americans are buying less gas. Gasoline sales are down some 16 percent. A new look for next year? Maybe not, as clothing purchases fell 2.5 percent.

Americans, of course, still need to eat food, but they're buying less of it. Grocery stores show just over a 1 percent sales drop. And fewer of you are buying televisions, stereos and other electronics. Those sales fell 1 percent.

A secret trip to the suburbs leads Barack Obama into the lion's den. The president-elect breaks bread with some of his toughest critics, a conservative all-star team.

And a stunning announcement by Apple founder Steve Jobs, why he's taking a long leave of absence.

And Barack Obama and Joe Biden stop by the U.S. Supreme Court for a get-acquainted session. CNN's John King standing by. He will tell us what challenges lie ahead for the next president and for the high court.

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

(COMMERCIAL BREAK)

ANNOUNCER: This is CNN breaking news.

BLITZER: The situation in Gaza is intensifying right now. I want to go right back to Zain Verjee with more on what's going on in and around the main area of Gaza City.

What do we know, Zain?

ZAIN VERJEE, CNN STATE DEPARTMENT CORRESPONDENT: Well, what we're learning now is that these airstrikes are happening east of Gaza City. There are suspected Hamas positions there. The Israelis, we understand, are using tank machine guns, as well as shelling.

You can see these images. Let's listen to these intermittent explosions, the explosions lighting up the night sky there in Gaza City. We understand as well that there are some Hamas fighters returning fire, the Israelis really wanting to end Hamas rocket attacks on Israeli towns and wanting assurances that Hamas cannot rearm itself from smuggling via Egypt.

This day, Wolf, as the fighting and the explosions go on, Egyptian and Palestinian officials are reportedly making progress on a proposed 10-day cease-fire in Gaza. And, if a deal is reached, it would have to go to Israel for approval, but the situation on the ground, Wolf, still tenuous, still difficult, and doesn't show any signs of ending.

BLITZER: Not at all. All right, Zain, thanks. We will stay on top of this story.

There's other breaking news we're following as well, the Apple founder, Steve Jobs, announcing he's going out on a medical leave due to a health problem he now says is more complex than originally thought.

Let's check in with CNN's Dan Simon. He's working this story for us, a sad story.

What do we know, Dan? DAN SIMON, CNN CORRESPONDENT: Well, Wolf, I think it's probably fair to say that no CEO is more personally identified with his company than Steve Jobs and this announcement today was certainly unexpected. After all, Steve Jobs put out a statement just last week dismissing some rumors in Silicon Valley that he was having serious issues with his health.

Of course, we have seen some pictures, and he's really lost a lot of weight in recent months. Well, Steve Jobs put out a statement today. And it reads, in part: "Unfortunately, the curiosity over my personal health continues to be a distraction, not only for me and my family, but everyone else at Apple as well. In addition, during the past week, I have learned that my health-related issues are more complex than I originally thought."

And, Wolf, we should point out that Steve jobs had a bout with pancreatic cancer four years ago -- no word whether his cancer may have returned. And we should also add that after-hours trading shows Apple 's stock down by about six points -- Wolf.

BLITZER: Thanks very much for that, Dan Simon out in California.

Right now, some senators here in Washington are venting growing concerns about the treasury secretary nominee, Timothy Geithner.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: I'm leaning no right now, actually, but I'm going to look at all the facts.

(END VIDEO CLIP)

BLITZER: Revelations about Geithner's tax problems may be unleashing some pent-up anger.

Plus, the president-elect's secret night out, will it buy him some goodwill among some of his harshest critics?

And what Joe Biden was trying to prove with his just-completed trip overseas. The best political team on television is standing by.

(COMMERCIAL BREAK)

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

Happening now: the president-elect breaking bread with some of his fiercest critics -- details of an unusual and secret get-together coming up.

Another extraordinary pairing -- vice president-elect Joe Biden travels to Iraq and Afghanistan with a Republican senator who blasted both Biden and Obama during the campaign. So, what gives? Interesting theories coming up from CNN's best political team on television.

And the controversy surrounding the president-elect's pick for treasury secretary, it's not all about tax mistakes.

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

It was a night out for president-elect Barack Obama, though shrouded in some mystery. It later turned out to be a move aimed at disarming some of his sharpest critics.

CNN's Brian Todd is here with details.

All right, go ahead, Brian, and tell us what happened in Chevy Chase, Maryland, last night.

BRIAN TODD, CNN CORRESPONDENT: We can certainly unravel who was there, Wolf. That was not a closely-held secret for very long. But what was said, well, I guess you had to be there.

(BEGIN VIDEOTAPE)

TODD (voice-over): The event the organizers all wanted you to see from a safe distance, but none wanted you to hear about, the president-elect on a secretive trip to a house in a Washington suburb.

Pool reporter Ken Bazinet says, journalists weren't told a thing and were kept outside, until a break from security practice literally gave them a window.

KENNETH BAZINET, "NEW YORK DAILY NEWS": Because usually you find curtains drawn. And we were very surprised, in the pool, to find that the -- you know, the windows were wide open and you could see into this very beautiful home.

TODD: That's when they spotted commentators Bill Kristol of "The Weekly Standard" and David Brooks of "The New York Times." They soon found out the house belonged to fellow conservative, George Will.

We've since learned it was a veritable lion's den of Barack Obama is ideological enemies -- people who hammered him during the campaign, like Charles Krauthammer of "The Washington Post".

We called almost everyone who was there. They either didn't call us back or wouldn't comment for the record. The transition team also wouldn't tell us what was discussed.

But a guest who's often slammed Obama is economic policies spoke to his own network.

LARRY KUDLOW, CNBC HOST: I don't think he's trying to win us over. But he's trying to connect with us. He's trying to engage with us, to his great credit.

TODD: While most observers believe these same people will inevitably turn on Mr. Obama, one analyst believes this was still a smart move.

LARRY SABATO, UNIVERSITY OF VIRGINIA: Obama has been around politics long enough to know that it is really difficult to demonize somebody that you've met and actually like. And that's what the president-elect is trying to do.

(END VIDEO TAPE)

TODD: And before those on the left can cry treason, Mr. Obama held another off-the-record meeting today with commentators on their side of the spectrum. We're told Maureen Dowd and Frank Rich of "The New York Times" were there; E.J. Dionne of "The Washington Post;" and our own Roland Martin, among others.

Again, among that group who we contacted, the content of the discussion a tightly held secret.

Wolf, you know how sometimes these things work -- if you talk a lot about it afterward, you don't get asked back.

BLITZER: All right, we'll check in with some of them, as well.

Brian, thank you.

President-Elect Obama is calling his Treasury secretary nominee's tax troubles an innocent mistake. Some senators aren't so sure.

Let's bring in our national political correspondent, Jessica Yellin.

She's been looking at the concerns over Timothy Geithner's tax returns.

JESSICA YELLIN, CNN Capitol Hill CORRESPONDENT: That's right, Wolf.

You know, ever since Barack Obama named his so-called economic dream team, some conservatives have quietly been critical of them. They say there are too many proteges of Bill Clinton's old Treasury secretary, Bob Rubin, who bears some responsibility for this crisis, they believe, and not enough people who have a history of actually creating jobs.

(BEGIN VIDEOTAPE)

YELLIN (voice-over): Republican Senator Jim DeMint says many of his Republican colleagues who were in favor of Tim Geithner are reconsidering their vote.

SEN. JIM DEMINT (R), SOUTH CAROLINA: I'm leaning no right now, actually. But I'm going to look at all the facts.

YELLIN: The holdup isn't just over Geithner's taxes, though it gives critics an opening to raise what really worries them, his close ties to Wall Street -- ties Barack Obama considers an advantage.

BARACK OBAMA (D), PRESIDENT-ELECT: He will start his first day on the job with a unique insight into the failures of today's markets and a clear vision of the steps we must take to revive them.

YELLIN: That's a matter of debate. Tim Geithner has been a top Wall Street regulator since late 2003. The financial meltdown happened on his watch. Critics question many of the choices he helped make -- letting the investment bank Lehman Brothers fail, which some believe accelerated the financial crisis; crafting the first Wall Street bailout, which has been anything but a hit; and his oversight of Citigroup -- he missed signs of catastrophe that prompted it to take a massive federal bailout.

DANIEL MITCHELL, CATO INSTITUTE: Well, I think the concern with Tim Geithner, at least among people who believe in free markets, is that his whole expertise -- the reason he apparently is being picked -- is that he's had a lot of experience doing bailouts. Well, we should be having fewer bailouts in the American economy, not more.

YELLIN: Senator DeMint says Geithner is just one piece of a larger problem with the Obama economic team.

DEMINT: But I am concerned about the Wall Street mentality. As a small businessman, I'm looking at the decisions they're making. And I realize these guys know how to trade well, but they don't know how it's created. Everything they're doing is tops down.

YELLIN: One senior Senate Republican aide went further, insisting Geithner was a failure in his role at the New York Fed, saying: "His job was not just to fix, but also to prevent. This happened on his watch, under his nose, which begs the question -- is he the best person for the job right now?"

(END VIDEO TAPE)

YELLIN: And despite all this, the overwhelming view of the politicians and economists I talked to is that, one, Geithner will likely get confirmed unless something else comes out about his taxes.

And, two, many experts believe that, as Obama spokesperson puts it, he's the right person for the job right now. His supporters will say no one knows better than Tim Geithner what it takes to rescue Wall Street, because he saw what caused it to fail.

BLITZER: It's still an embarrassment.

YELLIN: A real embarrassment.

BLITZER: No doubt about that.

All right, thanks very much, Jessica, thanks for that.

So how serious an offense is it not to pay taxes?

Under U.S. law, no one can go to jail for owing money, even to the IRS. But there can be criminal penalties if the IRS can prove you intentionally avoided paying taxes.

The vice president-elect, Joe Biden, taking on a high profile foreign policy role.

But why is a Republican who campaigned with John McCain at Biden's side and what does it mean for the next secretary of State, Hillary Clinton?

Plus, it was one of the riskiest missions of his flying career, with the highest stakes possible. The U.S. air Force pilot from Air Force One -- he talks about what it was like to fly President Bush into a war zone in Baghdad.

Stay with us.

You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

SEN. JOSEPH BIDEN (D), VICE PRESIDENT-ELECT: I was there to listen and occasionally express concern about some of their actions or lack of actions.

The third point I would like to make is there's about to become a shift, which you all know. It has been talked about. We mentioned it in the campaign. And that is that there needs to be more resources to attend to the situation in Afghanistan.

(BEGIN VIDEO CLIP)

OBAMA: The vice president-elect, Joe Biden, talking about his tour of the Middle East and South Asia with Republican Senator Lindsey Graham and some other lawmakers.

But why Lindsey Graham?

And if Biden takes up a foreign policy portfolio, what does that mean for the secretary of State nominee, Hillary Clinton?

Let's discuss this and more with CNN's Jessica Yellin; Gloria Borger; and our political contributor, Steve Hayes, of "The Weekly Standard."

Gloria, it was extraordinary, I thought, today to hear Barack Obama praising Lindsey Graham...

GLORIA BORGER, SENIOR POLITICAL ANALYST: Whoa!

BLITZER: ...who as all of us remember, was John McCain's most ardent supporter.

Listen to this.

(BEGIN VIDEO CLIP)

OBAMA: Joe I drafted as vice president. But Lindsey Graham I'm -- I'm drafting as one of our counselors in dealing with foreign policy. Because the fact is, is our tradition has always been that our differences end at the water's edge.

(END VIDEO CLIP) BLITZER: And he was equally responsive, I have to say, Lindsey Graham.

BORGER: Right.

BLITZER: What's going on?

BORGER: Well, I think, you know, the old adage, keep your friends close, but your enemies closer is at work here. You saw Barack Obama have dinner last night with conservatives. He had some time today with liberals.

But, also, don't forget, Lindsey Graham -- who was a huge supporter, very, very close to John McCain -- can be very useful to Barack Obama. And they agree on certain things, such as Lindsey Graham also opposes the use of torture.

So I think he can be very important to Obama as he reaches across the aisle in Congress.

BLITZER: He speaks with a lot of authority...

BORGER: Yes.

BLITZER: ...as you know, Steve, on these -- on these military matters. He's also a U.S. Air Force lawyer. So he knows a lot about these international legal issues.

STEPHEN HAYES, SENIOR WRITER AT "THE WEEKLY STANDARD": Yes. I think he does. And, you know, we've talked before about how John McCain was going to be important to Barack Obama -- one of his big friends in the Senate on the Republican side.

I think Lindsey Graham and John McCain, they come from that sort of get stuff done wing of the Republican Party. They like to be facilitators of bipartisan compromise. Barack Obama, I think, is very smart to pick Lindsey Graham and to try to bring him -- bring him inside.

BLITZER: You covered him during the campaign, Barack Obama.

Is this vintage Obama, to go out and have dinner with a bunch of conservative pundits like that and then to bring in Lindsey Graham into his -- you know, if not his inner circle, pretty close?

YELLIN: Well, he hugs them tight. And he knows that -- he has enormous confidence in his ability to charm people and win them over. And I think he believes that if they have this one-on-one contact with him, they can never be as critical of him as they would be otherwise. And, also, if he can get their sign-on -- Lindsey Graham's sign-on on any individual policy, if he eventually agrees withdrawing from Iraq, then he doesn't have to own it alone.

So hug him as tight as you can but never (INAUDIBLE).

BLITZER: It shows how self-confident he is, that he's willing to do these kind of things.

BORGER: Sure. And it also shows the influence of Joe Biden, by the way. Because Joe Biden decided he was going to go on this Congressional delegation before he takes the oath of office as vice president, with Lindsey Graham -- grabbing Lindsey Graham, saying let's go together, let's make this bipartisan.

And I believe you're going to see more of that with Joe Biden as vice president -- taking Republican and democratic senators on foreign trips with him, which Dick Cheney never did.

HAYES: Yes. And I mean the really interesting question, though, came at the end of what Barack Obama said, where he said, as we all know, politics stops at the water's edge.

And listening to that, I wonder if he was around for the past four years.

(LAUGHTER)

HAYES: I mean the fiercest fights have been about foreign policy and national security.

(CROSSTALK)

HAYES: And I would -- I wonder how many Republicans -- and I think Lindsey Graham and John McCain may be ones who would be -- you know, who would welcome this kind of role.

I wonder how many other Senate Republicans are going to -- are going to, you know...

BORGER: It's change.

HAYES: ...join him.

BORGER: It's change, right?

HAYES: Well, I'll believe it when I see it.

BORGER: Yes, but, if you're bringing somebody along on a delegation with you, if you're taking -- if you're including them and saying let's go look at the same things together, then when you return -- you're right, it's a little bit...

BLITZER: Is this...

BORGER: ...more difficult (INAUDIBLE)...

BLITZER: Is this role that Biden seems to be carving out for himself potentially a problem for Hillary Clinton?

YELLIN: No. In a word, if anybody wins that fight, it's Hillary Clinton. But he needs to figure out what his role will be. And this is a smart one. BORGER: Well, and I -- you know, I'm not so sure there's going to be this huge fight, because Hillary Clinton is a team player. I was talking to some folks in Biden's office. And they said look, it's a big world. There's a lot of turf out there. And while Hillary Clinton may be going to more hot spots or envoys will go to more hot spots, maybe Joe Biden will go to places like Russia or China to sort of plant our flag.

HAYES: Yes. Let me be the skunk at the garden party here.

BORGER: As well.

HAYES: That all sounds great six days before inauguration. But when it comes time to actually exercising influence, having the ear of the president, Joe Biden -- God bless him, as he might say -- always thinks he's the smartest guy in the room.

And when Hillary's in the room with him, I think if she has a different view and can make her case compellingly to the president, that's going to be a problem, potentially.

BLITZER: All right...

BORGER: If she has a different view.

BLITZER: ...we'll leave it right there.

There's -- people always have differences of opinion.

But you know who makes the final decision?

The president of the United States. We'll seed what he does.

Guys, thanks very much.

Barack Obama invited to a U.S. supreme Court meet and greet by the chief justice, John Roberts, who Obama voted against. Details of what happened.

Plus, a one-on-one contest -- write a song about the embattled Illinois governor. It's a story made for CNN's Jeanne Moos.

(COMMERCIAL BREAK)

BLITZER: It's being called a get better acquainted session -- Barack Obama and Joe Biden stopping by the U.S. Supreme Court today at the invitation of its chief justice, John Roberts.

Joining us now, the anchor of CNN's new Sunday morning show, "STATE OF THE UNION" our chief national correspondent, John King -- John, how unusual is it for a president-elect of the United States to visit the Supreme Court?

JOHN KING, CNN CHIEF NATIONAL CORRESPONDENT: It's certainly quite interesting, but not unprecedented. Bill Clinton and Al Gore made a trip just after they were elected, on the verge of their inauguration. Ronald Reagan and George H.W. Bush did so back in 1980 and heading into 1981.

What's different in this case is that in both of those cases, the president-elect requested the meeting. In this case, as you know, it was Chief Justice John Roberts who extended the invitation. And Senator Obama -- President-Elect Obama up there at the Supreme Court. Vice President-Elect Biden with him. A chance to say hello, a chance to meet the court -- a separate, but equal branch of government.

And a little bit of interesting political theater, because in his brief tenure in the United States Senate, Barack Obama did vote against the two Bush appointees that came up in that time -- the chief justice, John Roberts, and associate justice, Samuel Alito.

So a little chance for the president to say hello and maybe talk a little politics.

BLITZER: Yes.

KING: A private meeting.

BLITZER: A little bit. But, you know, people don't necessarily realize that he's going to affect the American public over the next certainly four years, maybe eight years. But the nominees that he gets on the Supreme Court over the next four or eight years could affect the country for the next 20, 30, maybe even 40 years.

KING: Always a fascinating drama when it comes to a new president. And in Obama's case -- and let's look at the justices here. Here's the class photo. He could have, Wolf, some people think one or as many as three or four, especially if he has a two-term presidency.

And what's most fascinating is the younger justices are the conservative bloc. The four conservatives range from justice -- the chief justice is only 53 years old, up to Antonin Scalia. He's 72.

But let's look at three of the more moderate or liberal justices. And let's start with the oldest, John Paul Stevens. He's 88 years old, nominated by Gerald Ford. Many think that seat could become a vacancy during the Obama administration.

Let's move over now, Ruth Bader Ginsburg -- the only woman on the court at the moment. Justice Steven G. Breyer, age 75, nominated by President Clinton.

And David Souter -- this is the most disappointing justice from a conservative standpoint. He's 69 years old now. He was nominated by George H.W. Bush, thought to be a conservative at the time, who's turned out to be a moderate -- many would say a liberal justice.

Those three justices on what you would say the left flank of the court are the oldest and considered most likely to maybe move on or retire during an Obama presidency.

This is always the subject of great speculation and drama. And now we wait and see. BLITZER: Yes, but even if he were to replace some of the liberal judges who are in their 60s or 70s or 80s with someone in their 40s or even 50s, that person presumably is going to be there for 30 or 40 years. So that could have a big -- a big impact on this balance of power on the court.

KING: And a big part of any president's legacy, whether or not it tips the ideological balance of the court.

BLITZER: Absolutely.

All right, John, thanks very much.

Good luck with the new show Sunday morning.

KING: Thank you very much.

BLITZER: Thank you.

Lou Dobbs is getting ready for his show that begins right at the top of the hour -- Lou, what are you working on?

LOU DOBBS, HOST, "LOU DOBBS TONIGHT": Wolf, tonight, we're reporting on President-Elect Obama's efforts to prevent the controversy over Treasury secretary nominee Tim Geithner from delaying his economic plans.

And we're going to be trying to answer the question -- whatever happened to no drama Obama?

Also tonight, the House of Representatives voting to expand health care for children -- a program that will make it easier for illegal aliens to obtain medical care at taxpayer expense. We'll have that special report.

And seething anger tonight over the failure of the federal government to bail out virtually any homeowners in this country, as a million people have gone into foreclosure over past year.

And we'll have troubling new information that you'll see only on "LOU DOBBS TONIGHT" about a continuing bailout of big banks and Wall Street.

And we'll have the story of a mainstream media that's ignoring some of most important geopolitical developments. Our military now says Mexico is one of only two nations in the world at risk of a rapid and sudden collapse. The other country is Pakistan. We'll have that story at the top of the hour and a great deal more, all the day's news -- Wolf, back to you.

BLITZER: Thanks very much, Lou, for that.

Let's check in with Jack Cafferty right now for The Cafferty File -- Jack.

CAFFERTY: The question this hour -- if President-Elect Obama closes Guantanamo Bay prison, what ought to be done with the inmates there?

Tony writes from Connecticut: "Reopen Alcatraz and get -- and put them there. Perhaps some can be relocated to San Francisco or L.A. County jails. California has many facilities and it's so close to Hollywood, where the inmates could be entertained. I know the Hollywood crowd would love to visit and make sure they're being treated like celebrities. Problem solved."

Bob in Maryland: "The answer is simple. If they must be incarcerated until hearings can sort out the mess, there's nothing at GITMO that Leavenworth doesn't already have -- unless you count the CIA spooks who can torture at will and the special waterboard suite."

Robert in Tennessee: "Send half of them to Crawford, Texas. Send the other half to Casper, Wyoming."

Iris in Michigan: "Personally Jack, I am a proponent of the terrorist relocation program known as ALARM -- Advanced Liberals Accepting Responsibility for Murderers Program. These GITMO freedom fighters could be delivered free of charge to the homes also of tolerant liberal citizens, where they could continue their righteous plan of bringing about the demise of the villainous United States in the comfort of culturally sensitive homes of like-minded left-wing individuals."

Gina writes from Wisconsin: "If we have enough evidence against them to prosecute them, then we should. If we have no evidence against them, we should let them go. We can't hold these people indefinitely if they have not committed a crime."

And Ira in New York says: "Put them to work under heavy guard at the rebuilding of the Twin Towers Museum. Then when it's finished, put them in the museum."

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

BLITZER: Thank you very much, Jack, for that.

The embattled Illinois governor, Rod Blagojevich, providing plenty of fodder for late night TV. But not exactly the source of inspiration for song writers -- until now, that is.

CNN's Jeanne Moos reports on a Moost Unusual musical contest.

(BEGIN VIDEOTAPE)

JEANNE MOOS, CNN CORRESPONDENT (voice-over): They're not exactly singing his praises, but they are singing.

(BEGIN VIDEO CLIP, COURTESY WGN)

UNIDENTIFIED MALE: Blago, Blago, Blago, go, go.

(END VIDEO CLIP) MOOS: Blagojevich isn't gone yet. In fact, he's inspired the Write A Song for G-Rod Contest.

Governor Rod Blagojevich.

(BEGIN VIDEO CLIP FROM REDEYE, COURTESY CHICAGOTRIBUNE.COM)

UNIDENTIFIED MALE: Yes, Blago, how low can you go?

UNIDENTIFIED FEMALE: Money talks, are you listening? Campaign cash is a glistening.

(END VIDEO CLIP)

MOOS: Blame it on the Chicago paper called the "RedEye." They got the idea when a "Chicago Tribune" reporter asked Blagojevich...

(BEGIN VIDEO CLIP, COURTESY YOUTUBE/"CHICAGO TRIBUNE")

UNIDENTIFIED MALE: So, Governor, why are you out for a run this morning?

GOV. ROD BLAGOJEVICH (D), ILLINOIS: It keeps love in your heart.

(END VIDEO CLIP)

MOOS: Struck by that phrase, the "RedEye" launched its song contest, asking for original compositions that include the line...

UNIDENTIFIED MALE: Keep love in your heart.

UNIDENTIFIED MALE: Keep love in your heart.

UNIDENTIFIED MALE: Some (INAUDIBLE).

MOOS: The entries ranged from rap...

UNIDENTIFIED MALE: This goes out to Blago. This, the (INAUDIBLE) greed makes you move. You ain't nothing but a (INAUDIBLE) to me.

MOOS: To ballads...

UNIDENTIFIED MALE: This is the story about Rod, who thought he needed a was.

MOOS: The governor's hair was a common theme.

(BEGIN VIDEO CLIP, COURTESY ILLINOIS INFO SVC)

UNIDENTIFIED MALE: Every morning I look in the mirror and brush my luscious hair.

UNIDENTIFIED MALE: Where did you keep your money from pay to play? Did you stash it underneath your gigantic toupee?

MOOS (on camera): Now, since the Blagojevich scandal is all about pay for play, you'd think the contest winner would get paid to play the winning song -- a cash prize, right?

(BEGIN VIDEO CLIP, COURTESY WGN)

UNIDENTIFIED MALE: Come on, baby, let's pay to play.

(END VIDEO CLIP)

MOOS: Wrong. What the winner got was air time to perform on WGN's midday news.

(BEGIN VIDEO CLIP, COURTESY WGN)

UNIDENTIFIED MALE: Nobody knows aggravation like the least popular governor in the nation.

(END VIDEO CLIP)

MOOS: The Keith Harrison band took the honors.

KEITH HARRISON, CONTEST WINNER: I really don't know much about Governor Blagojevich.

I'm originally from New Jersey.

MOOS: But music and corruption are universal.

UNIDENTIFIED FEMALE: We'd all like to know where Rod got his dough, walking in Blagojevich's land.

UNIDENTIFIED MALE: Blago, Blago, Blago, go, go, go.

MOOS: We're going.

Jeanne Moos, CNN...

UNIDENTIFIED MALE: Your heart, bleep, bleep, bleep, bleep.

MOOS: ...New York.

(END VIDEO TAPE)

BLITZER: Only Jeanne Moos does those reports.

Some insight now into Air Force One and what President-Elect Barack Obama can expect when he's on board. I interviewed the outgoing pilot of the presidential aircraft, Colonel Mark Tillman, right in the cockpit.

And I asked him about President Bush's secret trip to Baghdad in the war zone in November of 2003 and the perils of flying into that area.

(BEGIN VIDEO CLIP)

COL. MARK TILLMAN, AIR FORCE ONE PILOT: The challenge wasn't so much to get him in there, because we easily fooled everybody and got him in there. The challenge was once he was on the ground and everybody knew he was there to get him back out again.

So we worked very hard to make sure he had minimum time on the ground. He accomplished his mission, which as explained to me early on was, the goal was to meet with the United States servicemen and women and thank them for everything they've done and actually serve them Thanksgiving dinner. And he accomplished his mission. It was amazing what he did, taking care of the military.

(END VIDEO CLIP)

BLITZER: And we're going to bring you that interview over the next two days -- it's pretty fascinating -- right here in THE SITUATION ROOM, aboard Air Force One.

(COMMERCIAL BREAK)

BLITZER: Barack Obama is gearing up for the inauguration on Tuesday. And on Saturday, he'll ride a train from Philadelphia to Washington, D.C. -- a whistle stop tour inspired by Abraham Lincoln's inaugural journey.

On Sunday, entertainers, including Beyonce, Bruce Springsteen and Sheryl Crow perform at the Lincoln Memorial.

On Monday, the Obama and Biden families will take part in a day of national service on the Martin Luther King, Jr. holiday.

Of course, Tuesday is Inauguration Day.

Stay with us, CNN, for complete coverage.

I'm Wolf Blitzer in THE SITUATION ROOM.

Let's go to Lou in New York -- Lou.