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"Disaster" for the Middle Class; "Bad Bank" for Toxic Assets; Economy on a Tightrope; GOP Picks First Black Leader

Aired January 30, 2009 - 17:00   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, President Obama wants GOP support on the economy. And despite getting the cold shoulder from House Republicans, he's planning an unusual weekend charm offensive.

The U.S. economy on a dangerous tightrope -- already in a deep recession, could we be facing disastrous hyperinflation?

Two economic experts are standing by.

Plus, President Obama and the Alaska Governor Sarah Palin -- they will be having dinner here in Washington this weekend.

Will someone need to break the ice?

We'll tell you what's going on. Paul Begala and Bay Buchanan, they're standing by live to tackle this and more.

I'm Wolf Blitzer.

You're in THE SITUATION ROOM.

Another staggering round of grim economic news today -- another punch to the gut of America's middle class.

Here's how President Obama put it today.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: Today, we learned that our economy shrank in the last three months of 2008 by 3.8 percent. That's the worst contraction in close to three decades. This isn't just an economic concept, this is a continuing disaster for America's working families. As worrying as these numbers are, it's what they mean for the American people that really matters and that's so alarming -- families making fewer purchases, businesses making fewer investments, employers sustaining fewer jobs.

(END VIDEO CLIP)

BLITZER: And you're going to be hearing at length from President Obama later on what he has in mind.

But let's go over to our senior White House correspondent, Ed Henry -- Ed, you're picking up more of what the president is planning for next week.

ED HENRY, CNN SENIOR WHITE HOUSE CORRESPONDENT: Well, that's right, Wolf. We've heard so much about him pushing this economic stimulus plan -- over $800 billion. But he's also talked a lot about a three-legged stool and that there's more than just this one bill.

And what we're hearing from senior officials is that next week we can expect him to start rolling out sort of a broader financial reform package. It could be dealing with foreclosures -- trying to stave those off. It could be dealing with more regulations -- more cops on the beat, if you will, to deal with what went wrong on Wall Street, but also those bonuses on Wall Street that he ripped into yesterday. We're hearing specifically that there will be provisions dealing with executive compensation, bonuses, making sure people who received government bailouts are not then using some of that money to hand out these bonuses.

You'll remember, back in the fall when the so-called TARP -- the large $700 billion bailout passed, lawmakers in both parties insisted there would be those kinds of tough provisions.

It didn't turn out. There are a lot of loopholes. One thing the administration is going to try to do is to tighten all that up -- Wolf.

BLITZER: And he's continuing his charm offensive this weekend to try to bring in some Senate Republicans. He got nada from House Republicans.

What's the latest?

HENRY: Yes. He's going to use the Super Bowl to do it. He's having a party on Sunday night here around the Super Bowl. And the White House, just in the last few minutes, has released the guest list. It's mostly Democrats, I should point out. But there are some Republicans on it, including Republican Arlen Specter of Pennsylvania. Of course, the Pittsburgh Steelers from Pennsylvania are in the big game.

My colleague, Gloria Borger, reminding me, as well, that Arlen Specter this week indicated that he'll be supporting Eric Holder for attorney general after some doubt, maybe a little political payback, as well, there.

And then if you look at the House members, there are about 11 House members coming -- eight Democrats, three Republicans.

The point is that this president continues the charm offensive we saw earlier this week -- having a cocktail reception with leaders in both parties even after no Republicans voted for a stimulus bill.

The point is, moving forward, he's still trying to build those bridges to the Hill -- Wolf.

BLITZER: And he can be very charming.

HENRY: He can.

BLITZER: We'll see if it pays off politically.

HENRY: We'll see.

BLITZER: All right, Ed, thanks very much.

Key members of the Obama economic team huddling today on ways to fix the $825 billion bailout program and to improve oversight of the overall financial system. One possible approach -- setting up a so- called "bad bank" to quarantine and clean up the toxic assets, as they're called, of those struggling institutions.

Brian Todd is working this story for us -- all right, what's the latest -- Brian?

BRIAN TODD, CNN CORRESPONDENT: Well, Wolf, some experts say that this is a proven way to turn failing banks around. But just the name "bad banks" gets a lot of people out there nervous. So we broke it down.

(BEGIN VIDEOTAPE)

HENRY (voice-over): Its name sounds like the last thing we'd need at a time like this -- an idea that's been debated in Washington to help failing banks since the very beginning of the financial crisis.

TIMOTHY GEITHNER, U.S. TREASURY SECRETARY: "Good bank-bad bank" type solutions have been present at the solution to most financial crises around the world.

HENRY: Treasury Secretary Tim Geithner said the so-called "bad bank" concept is very complicated and Treasury officials still say they're not committed to it.

The idea is for the government to buy only the bad assets from failing banks and create a holding facility -- called a "bad bank" -- to manage those bad assets separately. Later, the government would hopefully sell those assets as the economy improves.

What kind of assets are they?

SHAWN TULLY, "FORTUNE" MAGAZINE: We're talking about subprime mortgages, commercial mortgage-backed securities, leverage loans -- all of the troubled assets called "toxic" assets that we've been talking about that are still on the books of a lot of these big investment banks.

TODD: The positive aspects of "bad banks?"

The investment banks would unload their bad investments and be paid for them, so they'd have more capital. The investment banks could then attract more investors who had been scared off by the bad assets. And... PROF. JOSEPH STIGLITZ, NOBEL LAUREATE, COLUMBIA UNIVERSITY: The existing banks can go on doing what you hope they should have been doing in the past, which is making good loans.

TODD: Sweden did that in the 1990s and turned its financial crisis around. But that was part of a complete nationalization of its system, which experts say won't fly in the U.S.

WILLIAM SEIDMAN, FORMER FDIC CHAIRMAN: We have, you know, a couple of hundred big banks and thousands of small banks. And obviously the government doesn't want to take all of those over.

(END VIDEOTAPE)

TODD: Other negatives of the "bad bank" idea -- it's tough for the government to figure out how much to pay the banks for their bad investments and it would likely have to overpay just to keep those banks solvent. And the taxpayers would be paying for all of this until they get some money back when those bad assets are eventually sold. And there's no guarantee that they'll get any money back at all -- Wolf.

It's risky for the taxpayers.

BLITZER: Very risky.

But how much would it cost?

Any good estimates?

TODD: Experts who are familiar with this put the cost at between $2 trillion and $4 trillion -- much bigger than the stimulus, the bailout and everything. And that's why it's gotten so many people nervous. But because this is a way to immediately turn around failing banks, it's got to be considered.

BLITZER: Wow!

All right. Thanks very much.

We're going to continue this conversation.

But let's check in with Jack Cafferty right now for "The Cafferty File" -- Jack.

JACK CAFFERTY, CNN ANCHOR: An article by the group Truth Out sheds some light on a true national tragedy.

The Department of Defense and the Department of Veterans Affairs report that battlefield injuries and deaths from Iraq and Afghanistan are up -- way up. According to data obtained through the Freedom of Information Act by the group Veterans for Common Sense, the number of veteran patients now stands at more than 400,000, up from 263,900 in December of 2007, a little over a year ago.

Mental illness, mainly Post-Traumatic Stress Disorder, is the diagnosis for 45 percent of these. Lawmakers have helped out some. The Dignity for Warriors Act was passed. That gives veterans up to five years of free health care for military-related conditions. But getting adequate health care and compensation is still a problem, according to Truth Out.

Bob Filner, who is chairman of the House Veterans Affairs Committee, released a statement asking for veterans to be considered in a stimulus package. It's a request that is way beyond reasonable.

He said, "We can invigorate the economy by modernizing the 153 existing V.A. medical facilities, repairing veterans cemeteries, constructing new V.A. hospitals, addressing the claims backlog and investing in vocational rehabilitation for our returning combat veterans."

According to Filner, the House version of the stimulus package includes $1 billion for veterans out of $850 billion. The Senate allots $3.94 billion for veterans.

We'll see what passes in the end.

Here's the question: Why doesn't this country do a better job of taking care of its veterans?

Go to CNN.com/caffertyfile and post a comment on my blog.

BLITZER: Jack, thanks very much.

It's a good question, indeed -- a very important issue.

I want to remind our viewers, THE SITUATION ROOM is now on six days a week, Saturday nights, 6:00 p.m. Eastern. THE SITUATION ROOM continues tomorrow. We have a strong show planned for you then. We hope you'll enjoy it.

President Obama will be having dinner with Sarah Palin. Yes, you heard me right. We have details of the event where the two of them will be dining together this weekend.

Also, week two of the Obama presidency, with a razor sharp focus on the economy.

So how is the new president doing?

Plus, suits and ties, button-down days apparently over at the White House -- President Obama bringing a little bit more casual style to the White House.

Stay with us.

You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: Week two of the new Obama administration. And the issue that is dominating the president of the United States -- the economy. It's issue number one.

Let's bring back Don Lemon.

How did -- what happened this week -- Don?

There were some decisive moments.

DON LEMON, CNN ANCHOR: Very decisive moments, Wolf.

The president worked through the weekend on that stimulus package and how he would try to win over Republican support. Well, the package was a big part of this week. But there was so much more.

(BEGIN VIDEOTAPE)

GEITHNER: I, Timothy F. Geithner.

UNIDENTIFIED MALE: Do solemnly swear.

GEITHNER: Do solemnly swear.

LEMON (voice-over): Finally, the president has a secretary of the Treasury.

OBAMA: That deserves some applause.

LEMON: Geithner was dogged by tax problems.

By Tuesday he was on the job, announcing new Treasury department rules restricting lobbying. Meantime, his boss went to the Hill, hoping to garner Republican support for a stimulus package.

OBAMA: We had a wonderful exchange of ideas.

LEMON: But just one day later, the president learned his reach across the aisle was in vein. His stimulus plan passed, but the GOP had snubbed it.

OBAMA: All those who live in fear that their job will be next on the cutting blocks, they need help now. They are looking to Washington for action -- bold and swift.

LEMON: "Sober" is how President Obama describes his meeting on Wednesday with top CEOs.

Later in the week, the president scolded Wall Street CEOs for getting and giving big bonuses while their companies floundered.

OBAMA: That is the height of the irresponsibility. It is shameful.

LEMON: Lilly Ledbetter brought cheers to the Capitol on Thursday. The president signed The Fair Pay Act in her honor for standing up for equal pay for women.

And a day later, the president establishes a task force aimed at helping the middle class.

(END VIDEOTAPE)

LEMON: One other thing Wolf, that came out of that press conference you just saw. In an effort to help people keep their jobs, the president is also requiring service contractors at federal buildings to offer jobs to qualified current employees when contracts change. It seems like a small gesture, but every little bit helps right now, when the economy is so bad -- Wolf.

BLITZER: You're absolutely right.

Don, thanks very much.

Let's get some analysis now from two experts on the economy.

Joining us now is Alice Rivlin of the Brookings Institution. She was President Clinton's budget director.

And Greg Ip. He is the U.S. economics editor at "The Economist," formerly with the "Wall Street Journal."

This economic stimulus package that passed the House without any Republican support, is it going to, A, stimulate the economy, if passes as is and, B, create jobs?

ALICE RIVLIN, BROOKINGS INSTITUTION: Yes, it will stimulate the economy. There is a...

BLITZER: But you think it should be improved?

RIVLIN: I think they should have done it in two packages. But they're not going to. This...

BLITZER: When you say two packages, what do you mean?

RIVLIN: They were trying to do two things at once in this package. One was stimulate the economy. And there's a lot of good stuff for that in this bill -- to get money out into people's hands right away so they'll spend it.

And the other was to invest in the long-term health of our economy, which we also need to do, and do that by improving infrastructure...

BLITZER: Divided...

RIVLIN: Yes.

BLITZER: Divide these two parts up.

RIVLIN: But...

BLITZER: Should they have done that, Greg, do you think?

GREG IP, "THE ECONOMIST": I think that might have been helpful. But I think that changing the package one way or another -- a little more spending, a little less tax cuts or vice versa -- would not have made a big difference.

Wolf, what really has to happen, this has to be combined with a variety of other tools, because we're dealing with a recessionary force going on now that, really, we haven't seen in over 50 years.

And so it's not just fiscal stimulus. We also need a coherent and transparent way of dealing with the bad loans piling up in the banks. And we need the Federal Reserve to be very creative and unconventional about trying to get loan (INAUDIBLE)...

BLITZER: But they've already...

IP: ...down.

BLITZER: ...already lowered interest rates basically to zero.

IP: Yes, I know. So we...

BLITZER: There's not much more they can do, right?

IP: So what we've seen them do is to go out there and buy mortgage-backed securities to try and get mortgage rates down. We need to see more of that.

BLITZER: Is this -- let me repeat the question. Then we'll have Greg first and then Alice Rivlin.

Is this package -- assuming it passes as the House passed it -- will it create those jobs and stimulate the economy?

IP: It will create jobs. But, Wolf, it's more accurate to say that it will mean the jobs we lose will not be as great as we otherwise would have.

The Congressional Budget Office, for example, says that without this package, we'll have unemployment -- which is 7 percent now -- as high as 9 percent by the end of the year. With the package, maybe it will only be 8.5 percent. So you're still looking at a very big jobs hold.

BLITZER: Do you accept that?

RIVLIN: That's exactly right. It's getting worse all the time. We're losing jobs every month. And this package will help us lose jobs not as fast.

BLITZER: Here's what a lot of people are worried about, Greg, is that the U.S. is just printing money and money and money. And that, in the end, it's going to cause inflation. And some people think even the dollar is going to collapse -- runaway inflation.

How worried should American consumers be about that dire scenario? IP: Wolf, we basically are in a situation where we have bad choices and worse choices. It is legitimate to worry that we are running up very large debts here.

I am not so concerned about the inflation problem right now. There's just so much used capacity in our economy. It's going to be hard for workers to get higher wages, for companies to raise prices. That's a problem for three or four years from now.

But I think that it's a golden opportunity here for the administration and Congress to say, OK, we're spending all this money in the short-term, let's also tackle the very serious long-term fiscal problems this country has, entitlements like Medicare.

BLITZER: A trillion dollar deficit this year alone -- that's the projection, if not higher.

How much longer can the U.S. accumulate this kind of debt?

RIVLIN: Well, it's a real question.

And the question is, who's going to lend us that much money?

Right now, it's not hard, because the Chinese and the Japanese and other people are lending us money. They think that our Treasuries are the best thing to buy.

I'm worried that that's not going to last.

BLITZER: How long do we have, do you think, before that collapses?

RIVLIN: We don't know. But we should take steps immediately...

BLITZER: Like what?

RIVLIN: ...to bring down the long-term deficit so that our creditors know we're serious about getting back to balance.

BLITZER: But lowering the deficit when you're spending $1 trillion dollars or $900 billion to stimulate the economy and another $700 billion to bail out Wall Street, that deficit is just going to go up and up and up.

RIVLIN: It is going to go up in the short-term. It has to. It should, because we're in a very bad recession. But five years from now, it's got to be coming down. And we can take steps now, like fixing Social Security, that will bring it down five, six, seven, eight, 10 years from now.

BLITZER: What do you think?

IP: I think that it's possible that we could end up be penny wise and pound foolish on this question, Wolf. Yes, the debt is a problem. But it's not as big a problem if we reassure ourselves that the economy will be growing in the long-term and we can, therefore, support all that payment.

For a lesson in how it could go wrong, look at Japan, which spent a decade trying to get out of a rut -- spending ever larger sums every year. Their debts went up from 70 percent of GDP to 140 percent of GDP. We're still down only around 70 percent.

So what I guess I would say is that make sure you get the economy growing first and that will give us the means to pay off the debt. But then quickly pivot to address some of these long-term problems.

BLITZER: Are you still confident in the dollar, long-term?

RIVLIN: Oh, long-term, the dollar will probably go down. But that's not all bad. That stimulates our export industry.

But I am worried that we will not be able to borrow all this money four or five years from now without having to pay very high interest rates.

BLITZER: If this "Buy American" provision stays in this legislation -- saying that, you know, you spend this money, you've got to buy products only in the United States -- will that lead to retaliation from overseas?

IP: I wouldn't expect it to result in a sudden or dramatic move. But I think what it tends to do is really corrode the atmosphere and give our trading partners the excuse they may be looking for to adopt protectionist steps of their own. I think at some level, people have a broad commitment to open borders and free trade. But at times like this, everybody -- every country circles the wagons. And so I think it's worrisome.

BLITZER: All right. We'll leave it on that note, because we're out of time.

Alice Rivlin, as always, a pleasure. Thanks very much.

GregIp from "The Economist," thanks to you, as well.

He's everywhere you look in the media, but could overexposure backfire on President Obama?

Paul Begala and Bay Buchanan -- they're standing by to weigh in.

Plus, out of office and now out of sight -- images of former Illinois Governor Rod Blagojevich disappearing right before our eyes.

(COMMERCIAL BREAK)

BLITZER: Guess who's having dinner Saturday night right here in Washington?

The president of the United States and Governor Sarah Palin. Stand by. We have details on what's coming up this weekend.

Let's check in with Zain, though, in the meantime, to see what other stories are coming into THE SITUATION ROOM right now. Zain, what's going on?

ZAIN VERJEE, CNN STATE DEPARTMENT CORRESPONDENT: Wolf, a contractor worker fired from Fannie Mae has pleaded not guilty to planting a virus designed to wipe out all the data on the mortgage giant's computers. Prosecutors say the virus was set to attack the files on 4,000 servers tomorrow. It could have cost millions of dollars and shut down operations for a week. Rajendrasinh Makwana was fired in October and arrested earlier this month.

Former British Prime Minister Tony Blair says he's not worried that the details of cabinet meetings on the invasion of Iraq could be made public. The U.K.'s Information Tribunal has ruled the government must release notes from two key meetings where it committed to the invasion in 2003. But a ruling can be appealed. But Blair says that's a decision for the government of the current prime minister, Gordon Brown, to make.

And, Wolf, new video from the battle against pirates off the east coast of Africa. France has just released these pictures of its navy capturing nine suspected Somali pirates earlier this month. The pirates were captured in the Gulf of Aden and turned over to Somali authorities. But the war is really far from over. Pirates have already captured three ships off the Horn of Africa this year -- Wolf.

BLITZER: Thanks very much, Zain, for that.

Rod Blagojevich ousted as the governor of Illinois. But he told the people of that state last night he's not done working for them.

(BEGIN VIDEO CLIP)

ROD BLAGOJEVICH, FORMER ILLINOIS GOVERNOR: I love the people of Illinois today more than I ever did before. And...

UNIDENTIFIED FEMALE: We love you, too.

BLAGOJEVICH: Thank you. And the fight goes on. Just because I'm not governor anymore doesn't mean I'm not going to keep fighting for you and for the causes that I fought for my whole life.

(END VIDEO CLIP)

BLITZER: Impeached and removed from the governorship in Illinois.

What's happening with the state Web site?

Let's find out some details from Abbi Tatton.

What is happening on that state Web site?

ABBI TATTON, CNN INTERNET REPORTER: Wolf, this morning, we saw images like this one of former Governor Rod Blagojevich -- disappearing in front of our very eyes as we were looking at it.

This is what the state Web site used to look like -- Blagojevich there in the top left hand corner smiling down. Now, this morning, scrubbed of all mention of it.

And it's like this all over the site. It was happening all last night and this morning. The governor's photo album -- dozens of pictures of Blagojevich there. Now we've got a picture of the new governor, Pat Quinn.

All mentions and photos and icons like this, that used to populate the Web site, disappeared.

According to the "Chicago Sun-Times" Web site, Governor Quinn's office ordered them removed by noon today. So at this point, you have to dig pretty deeply to find him lurking in the background of one of the photos.

This is happening all over the place, though. This is at the state capital in Springfield. Overnight, the portrait there taken down -- Wolf.

BLITZER: Interesting stuff. They didn't waste any time.

All right, thanks very much, Abbi.

It's been just days since the nation's first African-American president took office. Now the Republican Party elects its first black chairman. And he issues an immediate challenge.

President Obama and Alaska Governor Sarah Palin are having dinner here in Washington this weekend. Paul Begala and Bay Buchanan, they're standing by live. They can't wait to talk about it.

Plus, she already had six children, now she's given birth to octuplets. That's eight more.

Why some in the medical community are asking questions.

Stay with us.

You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

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

Happening now, President Obama tells Republicans they can't just listen to Rush Limbaugh and get things done. Now the GOP has a new face.

And billions of dollars for children's health care -- President Obama says Congress has scored a major victory.

I'm Wolf Blitzer.

You're in THE SITUATION ROOM.

Let's check in with our senior political correspondent, Candy Crowley, on the history being made at the GOP. It's pretty dramatic. They've got a new chairman -- the first time they've elected an African-American to be their leader.

CANDY CROWLEY, CNN SENIOR POLITICAL CORRESPONDENT: Michael Steele, who is the former lieutenant governor from Maryland. He once ran for the U.S. Senate, but lost. He is a prominent African-American in the Republican Party. So a whole new look to the Republican Party.

But frankly, it is just the beginning of the beginning.

(BEGIN VIDEOTAPE)

CROWLEY (voice-over): Struggling for a voice, direction and survival, the grand old party has a brand new face.

MICHAEL STEELE, RNC CHAIRMAN: It's time for something completely different and we're going to bring it to them.

CROWLEY: The first African-American elected to the job, former Maryland Lieutenant Governor Michael Steele, is the new chair of the Republican National Committee, beating out four other contenders.

JOHN FEEHERY, REPUBLICAN STRATEGIST: The only person who really kind of inspired a changed message was Michael Steele. Everyone else was pretty much the same guy looking toward the past.

CROWLEY: Steele is only a piece in place for a Humpty Dumpty party trying to put itself back together again.

SEN. MITCH MCCONNELL (R-KY), MINORITY LEADER: And my concern is that unless we do something to adapt, our status as a minority party may become too pronounced for an easy recovery.

CROWLEY: There is no clear message, no single messenger and no clear way out of the abyss of two disastrous elections. Politics loves that kind of void. And as Republicans work through their identity crisis, Democrats are only too happy to define Republican.

Inside this term offensive, now to include a bipartisan Super Bowl party, President Barack Obama is quite capable of throwing sharp elbows, recently telling a group of Republicans, "You can't just listen to Rush Limbaugh and get things done."

A controversial talk show host with an acid tongue, Limbaugh has a large voting conservative audience, but the moderates and swing voters Republicans need to get back in the game, not so much. Outside liberal groups have picked up the president's narrative and put up radio ads to pressure selective Senate Republicans to vote for the president's stimulus plan.

ANNOUNCER: Call Senator Ensign now, at 202-224-3121. Tell him he represents you, not Rush Limbaugh.

CROWLEY: Democrats hope for one of two outcomes, a Republican vote on the 2009 stimulus plan, or some vulnerable Republicans in 2010.

(END VIDEOTAPE) CROWLEY: The presence of Rush Limbaugh now in the political mix has become so loud that Michael Steele and his first news conference with reporters was asked about Limbaugh and he replied, listen, Rush Limbaugh can say what he has to say, and we will do what we have to do as a party -Wolf.

BLITZER: Thanks very much, Candy, for that.

Let's get some analysis now from our CNN political contributors, the Democratic strategist, Paul Begala and the Republican strategist, Bay Buchanan.

First on Michael Steele, a new face for the RNC.

PAUL BEGALA, DEMOCRATIC STRATEGIST: And a good choice. It's none of my business, it's not my party. But Michael's been here in THE SITUATION ROOM many times, we've debated issues. Terribly smart guy. I like that he's run for office. He served as Maryland's lieutenant governor. He had some failed bids for office, which is good too. You learn a lot from the canvas. So, good for them.

But I think Candy's piece is instructive. The real leader of the Republican Party in America today is a corpulent drug addict with a AM radio talk show, Rush Limbaugh. He's the real power in the Republican Party. And so Michael Steele is going to need to stand up to Limbaugh if he wants to actually lead the party of Lincoln.

BLITZER: He was suggesting, Rush Limbaugh, the other day, maybe he was being just rhetorical, that he's more powerful than the Republican leader in the House or the Senate for that matter. Is that true?

BAY BUCHANAN, RUPUBLICAN STRATEGIST: Well, I think more Americans know him, that's for sure. They know the name, they know he's out there, he stands for something. And he really is inspirational. He's sending a very strong conservative message to those here in Washington to stand up and they did. But the key here is what Paul's suggesting is just absolute nonsense.

Rush Limbaugh has always played a major role in our party, represented the conservatives. But Michael Steele here is somebody entirely different and what he brings to this party is an articulate new, fresh face with great ideas, great energy, and he has the ability to reach out with a message that's very important, one he carries from his heart. He's from working middle class folks, you know, working people. And he knows that the way we're going to win back this party is to reach into their hearts and let them know there is a place in the party, we'll fight for their homes, for their families.

BLITZER: There's an elite little club in Washington called the Alfalfa Club. Are you involved? Are you -

BEGALA: I'm not a --

BLITZER: Are you involved in the Alfalfa Club?

BUCHANAN: No, no.

BLITZER: It's an elite group of business -

BEGALA: Are you?

BLITZER: No, no journalists are allowed. It is business leaders and political types. They're having their annual dinner tomorrow night here in Washington, about 200 people or so usually go. Among those who will be attending will be President Obama and the Alaska Governor Sarah Palin. Interesting stuff.

BEGALA: I think it's good, it's interesting. I'm told that these things - you know the tradition is that big politicians and other big shots get up and give speeches and that they try to be funny. That's hard to do in Washington. But if I could give some advice, I've watched Governor Palin carefully in the campaign. And I think her biggest short coming is that she seems attracted to sarcasm and bitterness. That she uses humor in a weapon in a way that Ronald Reagan never did, or that Barack Obama -

Oddly, Obama is stylistically much more like Reagan. He certainly can throw elbows in a partisan way, but he's always welcoming, he's warm, and self-deprecating. Remember he was talking about finding a dog and called himself a mutt. Like he was not going to get a pure bred dog, he was going to get a mutt, like me. That's Reaganesque. Palin is a completely different model. She seems, to me, very bitter, and divisive. I think at this dinner, she may very well have a chance to learn from the master.

BUCHANAN: You know, this is interesting advice from someone who took a cheap shot at Rush here.

BEGALA: Oh, but I'm not a politician. And Rush is a drug addict.

BUCHANAN: The key here is - Sarah, you know the president's going to this thing. And he, of course, will be powerful one. Sarah is going to be the entertaining one. She's going to be where all the news is going, going to want to talk to her. She's a very interesting person and she should be at this function, because she's a national leader.

But what is the president doing, Wolf? He's not missing a party. He's got cocktail parties. He's got "Super Bowl" parties, he's going to this party tomorrow night. He's a fraternity boy.

BLITZER: It's a charm offensive.

BUCHANAN: Charm offensive. It's time for him to act like the president. I'm sorry, it's a very lonely life, but that's what he needs to start doing.

BLITZER: In fairness to Sarah Palin she did go on "Saturday Night Live" and there was some self-deprecating humor there. I thought she did pretty well when she was sitting around and dancing.

BEGALA: That's right. That's a good point.

BUCHANAN: You're right.

BEGALA: But this will be, I think, the test a lot of people will have for her, can she laugh at herself rather than -- very often, we did, particularly I was struck at the convention, a lot of bitterness. And you get that from the Republicans. I understand, I've been in campaign that was lost too. It doesn't feel good. But she needs to exhibit a largeness of spirit that thus far has eluded her.

BLITZER: Let me read to you from Peggy Noonan's column in "The Wall Street Journal" today.

"In the time since his inauguration, Mr. Obama has been on every screen in the country, TV, and computer every day. But it's already reaching saturation point. When the office is omnipresent, it's demystified. Constant exposure deflates the presidency, suddenly robbing it of power and making it more common."

Does Peggy Noonan have a point, Paul?

BEGALA: I think she might in a year or two. But this -- it's been what, ten days, even, into this new presidency. We have urgent crises that have been neglected for many years. Our prior president set a standard for not showing up. It's the best thing he ever did, was not go to work, because when he went to work, things got worse. It's a jarring juxtaposition of a spectacularly lazy president with a spectacularly energetic one. So at this new start, we need our president out there and talking to us and working very hard to try to get this country organized.

BLITZER: He's not wasting any time, you've got to admit.

BUCHANAN: He's not wasting any time, but look what he's done. He seems more interested in glad handing and bringing people in and looking like he's the guy that wants to talk to everybody rather than just take authorship of the bill. He like, oh, you want to change it? Oh, you want to change it? We'll listen to anyone. He let these Democratic friends of his just put so much Democratic agenda in there that is not stimulus. It's just a big fat pork bill, will not give us jobs. And then he just says, oh, yes, but we need to do something. He was not voted to put dag-gone money in a cannon and shoot it out of it. He needs to show some responsibility and take charge of this bill.

BLITZER: On that optimistic note, we'll leave it there, guys. Thanks very much.

And we'll try to figure out what's going to happen at that Alfalfa Dinner tomorrow night. We'll bring that to our viewers on Monday.

President Obama has an ambitious plan to deliver new energy.

(BEGIN VIDEO CLIP)

OBAMA: It will lay down 3,000 miles of transmission lines to deliver this energy to every corner of our country.

(END VIDEO CLIP)

BLITZER: We're going to be hearing extensively from the president. There are major hurdles though. We're digging deeper into the president's energy plan.

Plus, a new twist in a story that's making headlines. The mother of those newborn octuplets in California, that's eight kids, has six other children. And there's much more we're discovering about her story. Stay with us, you're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: There's a new dress code over at the White House at the Oval Office. Stand by, we have the details and the pictures.

Meantime, Kentucky and other states are struggling right now to turn the lights back on after this week's deadly winter storm knocked out power to more than 1 million people. That comes as the White House wants to spend billions of dollars to jump-start the nation's entire electric grid. But getting power to where it's need is a massive project easier said than done. CNN's Jeanne Meserve has been looking into this for us -Jeanne.

JEANNE MESERVE, CNN SECURITY CORRESPONDENT: Wolf, President Obama is proposing $11 billion worth of spending to transform a deteriorating and inefficient electric grid into one that's bigger, better, and smarter.

(BEGIN VIDEOTAPE)

MESERVE (voice over): Wind farms and solar arrays are sprouting, many in remote areas, far from the urban centers where the energy they produce is needed. President Obama's stimulus proposal would address that.

OBAMA: It will lay down 3,000 miles of transmission lines to deliver this energy to every corner of our country.

MESERVE: That is easier said than done. Communities across the nation have risen in protest over the sighting of big, unsightly transmission lines, particularly if the electricity is going somewhere else.

REVIS JONES, ELECTRIC POWER RESEARCH INST.: History has shown that it has been difficult. We certainly have some instances where it's taken as long as a decade or more to approve transmission lines.

MESERVE: So it is unclear how quickly lines could be built, although the president claims the energy proposals in the stimulus bill will put almost half a million Americans to work and double the capacity to generate alternative energy over three years.

Experts see immediate benefit in proposals to spend $100 million training replacements for aging line workers, and $4 billion installing 40 million smart meters in American homes. The devices let homeowners time their energy consumption to increase efficiency and decrease cost. It would also allow new technologies like plug-in hybrid cars to feed power back into the electric grid.

DAVIS OWENS, EDISON ELECTRIC INST.: At times when the plug-in hybrid electric vehicle were not being used, it would now become an energy storage device that the utilities could call on.

(END VIDEOTAPE)

MESERVE: The administration says smart meters alone will reduce electricity consumption by two to four percent, but everyone acknowledges these steps are only the first of many needed to create an efficient, reliable electric system. By one estimate the grid needs $1.5 trillion of investment by 2030, more than a 100 times what the stimulus provides.

Wolf, back to you.

BLITZER: All right. Jeanne, thank you.

They came to the United States to work, many of them illegally, and now they're finding the day jobs they rely on are simply vanishing as the economy slows down. We're talking about day laborers. CNN's Thelma Gutierrez has the story.

(BEGIN VIDEOTAPE)

THELMA GUTIERREZ, CNN CORRESPONDENT (voice over): On the corner of this busy Los Angeles intersection, day laborers gather and wait for work. Manuel Barajas arrived at 6:00 a.m., so did Pedro Pablo and about 100 others.

Nine hours later, they are still waiting. Manuel, who tells me he's in the country illegally, tells me he's desperate, because he has two small children to feed in Mexico City, rent to pay here, and hasn't worked more than three days in the past year. His brother helps to support him. He says he wants to go home, but can't even afford a ticket.

When I asked the man at the day labor center if they're having similar problems, all raised their hands.

Jeronimo Saguero, director of a day laborer center says employment has fallen off by as much as 75 percent this past year.

JERONIMO SAGUERO, CARECEN, DAY LABORER CTR.: They come to the office and say, Jeronimo, please help me. I want to go back to my country.

GUTIERREZ: Pedro Pablo, also undocumented, is one of them. They say he's out of money and can't even afford rent, which is $117 a month. He took us to his one-bedroom apartment that he shares with seven other workers. This is where they sleep and each of them has their space and this is his right here in the corner along with his picture of his family. Pablo says he supports a wife and five sons in Guatemala, but he hasn't been able to send any money home for four months, and that weighs heavily on him.

PROF. ABEL VALENZUELA, UNIV. OF CALIFORNIA, LOS ANGELES: You're seeing fewer immigrants, from all over the world, who are here in the United States, sending fewer resources back home, right, from where they come from. This can have a really, really big impact on those countries that are most vulnerable, economically speaking.

GUTIERREZ: Pablo has decided to leave. The Guatemalan consulate gave him a one-way bus ticket home. He takes with him a duffel bag and an unfulfilled dream to make it in America. Until then, he goes back to the corner to wait for work. He says when he returns to his family empty handed, he will ask for forgiveness.

(END VIDEOTAPE)

GUTIERREZ: Pablo returns home to Guatemala on Sunday. And Wolf, the Guatemalan consulate is providing its citizens with one ticket a week, that is out of here, Los Angeles, to return home. We reached out to the Mexican consulate to see if they have a similar program. They have not responded yet.

BLITZER: If they do respond, let us know, Thelma. Thanks very much.

Is President Obama's casual style causing a ripple effect?

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: The fact that he doesn't wear a tie, maybe this is the end of the tie in American business fashion.

(END VIDEO CLIP)

BLITZER: We're going to take a closer look at the laid-back atmosphere and a very different tone in the Obama White House.

And a California mother gives birth to octuplets. But those eight babies join her six other children and there's a twist to this story you may not know about. Stick around, you're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: President Obama speaking out passionately, directly, about the economy right now, the disaster that's unfolding. He's also addressing the important issue of the middle class. You're going to be hearing extensively from President Obama in his own words, he's getting passionate about this subject today. Stand by for that right here in THE SITUATION ROOM.

Right now, I want to go out to California. CNN's Ted Rowlands is standing by. He's got more on those octuplets that were born.

This is an amazing story that's really developing, Ted. Tell what the latest is.

TED ROWLANDS, CNN CORRESPONDENT: Yes. Well, Wolf, the hospital just released a statement saying that the babies are fine. Six boys, two girls, all but one breathing on their own, and the one that isn't breathing on his own is just getting a little help and should be fine as well.

The big question now is circling around the mother. Why would a woman who already has six children at home seek out fertility treatment to have more children?

(BEGIN VIDEOTAPE)

ROWLANDS (voice over): The man who identifies himself as the grandpa of the octuplets confirmed to the media camped in front of his house that his daughter already had six children before getting pregnant with octuplets.

UNIDENTIFIED MALE: She did not seek to have more children. She thought she was going to have one more child, and it happened.

ROWLANDS: The octuplets grandmother told the "LA Times" that her daughter had fertility treatments to get pregnant, which has raised eyebrows in the medical ethics community.

ALEXANDER CAPRON, LAW & MEDICINE PROF., USC: Naturally occurring octuplets are so totally unheard of, that this was the result of a fertility treatment. Why a woman with six children would need a fertility treatment is certainly unclear and puzzling.

ROWLANDS: The mother of now 14 children released a statement through the hospital saying, in part, we understand that you are all curious about the arrival of the octuplets. My family and I are ecstatic about all of their arrivals.

(END VIDEOTAPE)

ROWLANDS: And grandpa says that he has the money to support his family, all 14 of his grandchildren, but he apparently is going Iraq, Wolf, where he works as a contract worker. His wife told "The LA Times" that she is a bit concerned because he will be out of the picture, while he'll be providing financially, they will need all hands on deck when all the kids are together. There will be a lot of mouths to feed and a lot of arms needed to do that feeding. Fourteen children, hard to imagine. A lot of unanswered question about how this fertility treatment was delivered, who did it. In fact, the woman, the mother, who is still in the hospital here, she'll be out in a couple of days. She says she is going to fill everybody in eventually.

BLITZER: All right. We will stay on top of the story and we wish all those kids, obviously, only, only the best. Thanks very much for that, Ted. Let's check back with Jack for "The Cafferty File".

CAFFERTY: Question this hour is: Why doesn't this country do a better job of taking care of its veterans? And in the credit where credit is due department, I want to mention as far back as December of 2008, is Steve Buyers, the ranking Republican on the House committee, Veterans Affairs Committee urged both the House leadership and President Obama to include $2 billion for veterans in any new stimulus bill that was passed by the House. As I understand it, the version that did finally clear the House as $1 billion allocated for veterans. Ain't enough.

Sam in Texas writes: "I'm a disabled veteran and I get great care from the VA. Some veterans don't seek help that's available. Others don't want to follow policy and rules to get help. And still others just don't want anyone's help. For years the disabled veterans numbers declined because we didn't have a war. Now we have a bunch of kids coming back from Iraq with mental problems, and physical ones as well. It is kind of like the squeaky wheel, Jack. No one paid attention to it before and few even knew a disabled veteran, except on Veteran's Day. The times are changing.

Fred writes: "The government has no money for us, the veterans, because it's all going to the fat cats. We did our duty to our country. We died for our country and got crippled for life for our country. We didn't mind. It was our duty. Tell us, Jack, what do we get for doing our duty? We were not draft dodgers. We didn't use this country. We love and die for this country.'

Kelly in Virginia: "We would rather spend millions on executive bonuses, quit smoking programs, car companies and art museums and whatever pork project seems good at the time. Wouldn't all that money in the stimulus package go a long way towards increasing veterans benefits, housing for elderly veterans, and psychiatric care for soldiers return from Iraq and increased job placement programs? But, hey, they are just veterans. D.C. has more important stuff to deal with. Who cares about the 93-year-old World War II veteran who froze to death? Money to be made and spent on the important things in life."

Susan in Wisconsin says: "My husband is a Vietnam veteran, says that it costs too much to take care of the veterans as far as Washington is concerned. The reason why the vast majority of our troops come from poor families is because there is no other way out of poverty for them. And the power structure knows this. So, the soldier is taken advantage of instead of being cared for."

And John in Indiana says: "Good question. We seem to have plenty of money for bullets, no money for wheelchairs. The Limbaugh party just likes to start wars that the poor then have to fight. Bush and Cheney's lies destroyed so many lives. If either of them had the courage to actually serve their country in time of war, maybe things would be better for our heroes. What's McCain's excuse for voting against veterans benefits anyway?"

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

BLITZER: See you in a few moments, Jack. Thank you.

President Obama setting a new tone and a new style over at the White House and turning up the heat, literally. Plus, the president blasting them for taking huge bonuses and now some of those Wall Street executives are telling their side of the story. Stay with us, you're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: There's a new dress code over at the White House. CNN's Samantha Hayes has the story.

(BEGIN VIDEOTAPE)

SAMANTHA HAYES, CNN CORRESPONDENT (voice over): We know his politics are different, but so is Barack Obama's presidential posture. Take a look. Leaning forward and elbows on his knees and sitting next to new Treasury Secretary Tim Geithner. Contrast this with this image of President Bush. You may not have noticed it right away, but Obama's first picture as president in the Oval Office lacked a certain article of clothing.

GARRETT GRAFF, THE WASHINGTONIAN: President Bush was always very strict about the suit and tie in the Oval Office.

HAYES: President Obama apparently turned up the thermostat in the White House because he's cold by nature, according to a spokesperson, but he may also be striking a more casual tone. His staffers seem to have caught on and if history is any indication, the country may follow.

GRAFF: And so what you saw was that John Kennedy, when he took the White House, was really the first president who didn't wear a hat. That was really the end of the hat, for men in American fashion. For instance, like the fact that he doesn't wear a tie, could, you know, maybe this is the end of the tie in American business fashion.

HAYES: Cocktail attire however may be back in at the White House. While President Bush didn't drink as a matter of habit, Mr. Obama has already opened the doors of the White House, and it's bar, to members of Congress.

GRAFF: Gather Republicans and Democrats in one room over the famous Washington cocktail party. So, I think we are just going to see a very different type of socializing, as well from the Obamas.

HAYES: One thing may stay the same, punctuality; an area where he apparently differs from the last Democratic president.

GRAFF: President Clinton, of course, was famous for never starting on time or ending on time, and never being on time to anything.

(END VIDEOTAPE)

HAYES: Of course as presidents had different tastes, literally, President Obama has apparently brought his personal chef from Chicago to join the White House kitchen staff, Wolf.

BLITZER: We wish him only the best. All right, Samantha. Thanks very much.

Let's check in with Lou.

Lou, the issue of illegal immigration, you know you are working on it on your broadcast, but how is the Obama administration, from your perspective, doing?

LOU DOBBS, CNN ANCHOR: They are sending very confusing signals, confounding signals, but overall they are committed to amnesty. They are committed to apparently open borders and big business, and socio- ethnocentric special interest groups that are combing to destroy, in point of fact, what seems to be the program for this government, this administration.

They are going after the most effective government program to combat illegal immigration. The program is E-Verify, requiring federal contractors to verify the legal status of their workers, part of the stimulus package. And as we reported here extensively, the E-Verify program is more than 99 percent accurate. The Obama administration, the open borders, pro-amnesty groups, like the U.S. Chamber of Commerce, La Razza (ph), and others, trying to kill the E-Verify program because it actually works. Imagine that. The program initially delayed by the Bush administration and now the U.S. Chamber of Commerce and some of the ethnocentric organizations having their way attacking it. So we're going to be dealing with that.

BLITZER: All right.

DOBBS: Talking with two Democratic senators and a Republican senator about that tonight. Join us for that.

BLITZER: We'll see you in a hour, Lou.

DOBBS: You got it.

BLITZER: Thanks very much