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President Obama Holds Stimulus Talks; New Economic Rescue Roadblocks; Clinton Taking the Oath

Aired February 2, 2009 - 16:00   ET


WOLF BLITZER, CNN ANCHOR: Happening now, President Obama at the helm of yet another pivotal week for his economic rescue plan. This hour, he meets with top Democrats over at the White House as the bill faces major hurdles in the Senate and a new round of Republican demand.

Hillary Clinton celebrates her new role and pays off the debts from her last one. We're standing by for her ceremonial swearing in over at the State Department. We'll have live coverage.

And the Alaska hockey mom now as a political Washington insider. Sarah Palin spent the weekend with the Washington, D.C., elite.

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

Another whirlwind day for the new president and his administration with rescuing the economy right at the top of the agenda. We're standing by for President Obama to hold talks with Democratic congressional leaders over at the White House on the stimulus package. It's now coming up in the U.S. Senate.

Also this hour, Hillary Clinton's ceremonial swearing in as the secretary of state. Our Foreign Affairs Correspondent Jill Dougherty is standing by over at the State Department.

But let's go to the White House first. Our correspondent Dan Lothian is standing by with the latest on this effort.

A decisive week as far as the Senate and the stimulus package, Dan, is concerned.

DAN LOTHIAN, CNN WHITE HOUSE CORRESPONDENT: It really is. And you know, Wolf, there's no breaking news here that Democrats and Republicans don't see eye to eye on the stimulus plan. But what does deserve some attention is how much distance there is or isn't between all sides.


LOTHIAN (voice-over): President Obama says the stimulus plan requires swift action, and he characterizes the hurdles it faces in the Senate as modest.

BARACK H. OBAMA, PRESIDENT OF THE UNITED STATES: What we can't do is let very modest differences get in the way of the overall package moving forward swiftly.

LOTHIAN: But through the eyes of some lawmakers on Capitol Hill, the hurdles appear to be anything but modest.

SEN. MITCH MCCONNELL (R), MINORITY LEADER: I think there is a bipartisan feeling that this is not the way to get the economy moving.

LOTHIAN: Critics argue the nearly trillion-dollar stimulus plan is too expensive and doesn't have enough tax cuts. Can they find a compromise? The president is lining up Republican allies like Vermont Governor Jim Douglas. The vice chair of the National Governors Association who met with Mr. Obama in the Oval Office is lobbying senators in his own Republican Party to support the plan, even though he doesn't like everything in it.

GOV. JIM DOUGLAS (R), VERMONT: It's not perfect. I think if I were designing it all on my own, it would be different. But we have to find some common ground.

LOTHIAN: But does he have the clout to sway Republicans in the Senate? In the House, Republican lawmakers dug in their heels and refused to come on board. With more grim news that personal spending fell for the sixth straight month, the president said the stimulus plan is the best option for relief.

OBAMA: Do we want to put the investments in place that are going to ensure long-term economic growth?

LOTHIAN: And the clock is ticking.

ROBERT GIBBS, WHITE HOUSE PRESS SECRETARY: Delay in this town may not mean much, but delay in America means that the help that the American people need right now won't get to them as quickly as they need it to.


LOTHIAN: Wolf, within the hour, the president will be sitting down with the Democratic leadership both in the House and the Senate, here at the White House. The White House saying this is just more of the president reaching out to lawmakers. You saw him reaching out up on Capitol Hill to Republicans, now sitting down with Democrats, going over this plan, looking at what works, perhaps what doesn't work, and how they can get bipartisan support -- Wolf.

BLITZER: All right, Dan. We'll come back to you as soon as the Democratic leadership in the House and the Senate shows up over at the West Wing. Stand by.

In the meantime, let's bring in our National Political Correspondent Jessica Yellin.

Jessica, as far as I can tell, among the Republican senators right now, there doesn't seem to be full agreement among themselves yet.

JESSICA YELLIN, CNN NATIONAL POLITICAL CORRESPONDENT: That's right. And I just got off the phone with my sources on the Hill who say that they're trying to come to some agreement. Right now what Republicans have is a sense of broad themes that they want. Some changes they'd like to see in the bill are housing help. For example, they say that, look, they don't want to be the party of "no." They want to be a party that can get behind something. The housing crisis caused our financial collapse, so they want to help homeowners.

Smarter spending -- they're talking a lot about infrastructure spending. Instead of some of these programs that have become -- called pork by the Democrats, or excessive social program spending, they want to do more roads, bridges, we see right here, and then tax cuts.

Internally, the Republican mission is to stimulate the economy with more tax cuts. Democrats don't support that. But this is where the outlines of the debate lie right now for the Republicans.

BLITZER: All right. So these are the broad themes.

The stimulus though is going to be precisely where?

YELLIN: Well, there's a stimulative element of each of these. In the housing category, Republicans are talking about increasing the tax credit for new home purchases to $15,000. This means more people are likely, they hope, to buy a home if they get this big tax credit.

In the smarter spending category, one proposal is cutting some of those Democratic projects they don't like and then increasing, one idea, is $91 billion for infrastructure projects like roads and bridges. And facilities for veterans and -- defense veterans so that there's more going to those areas.

And then in the tax cuts category, this is something the House Republicans wanted and didn't get, five percent across-the-board tax cuts in the lowest brackets for taxpayers. Not likely to happen, but they're still pushing for it.

BLITZER: And they would only want to give tax cuts to those people who actually pay federal income tax, as opposed to the Obama plan, which has a tax credit, as it's called, even for people who don't pay federal income tax.

YELLIN: And they see that -- correct -- as a giveaway to people who don't pay taxes. The Republicans don't want that.

BLITZER: Some Republicans even call that welfare...


BLITZER: ... which makes a lot of Democrats crazy, when they hear that.

All right. Let's talk about the opposition to Democrats. What are they likely to agree on?

YELLIN: Well, one thing we already know, CNN's Dana Bash just broke the news that Republicans and Democrats have now agreed that Democrats are going to remove two controversial pieces of the bill, one that had HIV prevention and one that was smoking prevention. That's sort of a goodwill gesture to the Republicans, saying we're going to take out some of this perceived pork.

And I just got off the phone with the White House. They say they can get behind maybe the $15,000 housing tax credit and maybe some of these decreases in some of the fatty spending. But they do not support these tax cuts. Do not expect to see these tax cuts that the Republicans are pushing, this marginal tax cut we were talking about, that's not going to end up in the final bill.

BLITZER: All right. Stand by for a moment.

I want to go over to the State Department right now. The secretary of state, Hillary Clinton, formally being sworn in at a ceremony. The vice president, Joe Biden, will do the swearing in. But I want to listen in as see what's going on.


UNIDENTIFIED FEMALE: Mr. Vice President, we are truly honored to have you here today. Thank you.


I would also like to offer a special welcome to President Clinton...


... Chelsea...

... Mrs. Dorothy Rodham and the extended Rodham family...


... Speaker Nancy Pelosi...


... Senator Harry Reid...


... and numerous other distinguished members of Congress; Governors Jon Corzine, Governor Martin O'Malley; former Secretaries of State Henry Kissinger, James Baker, Lawrence Eagleburger and Madeleine Albright.

Let's give them a welcome.


We'll begin our ceremony this afternoon with remarks by the vice president. This will be followed by the administration of the oath of office and remarks by Secretary Clinton.

Following her remarks, the secretary and her family would like to greet all of you. We will form a receiving line here in the John Quincy Adams, here on the eighth floor, for that purpose.

Now it is my distinct honor and privilege to present the vice president of the United States.


JOSEPH BIDEN, VICE PRESIDENT OF THE UNITED STATES: My name is Joe Biden and I'm a Hillary Clinton fan.


Madame Secretary, Mr. President, distinguished guests, it's an honor to be back at the State Department.

Today, we swear in the 67th secretary of state of the United States. And history will record that Hillary Rodham Clinton is the 15th secretary of state from New York State.


Throughout American history, presidents have looked to New York for statesmen Seward, Root, Stimson, and many others. And now a stateswoman from New York State, Hillary Rodham Clinton...


... someone to begin once again to lead American diplomacy.

In selecting Senator Clinton for this critical task, I think the president selected a person of unrivaled talent and experience. While serving as the first lady and as a United States Senator, she's already represented the United States in over 80 countries, and as equally at ease in the great diplomatic halls of Europe as she is in the small villages in Africa.

The national challenge before this administration is great. We are engaged in two wars, we face a continued threat of terrorist attack by al Qaeda and its allies. We face numerous transnational threats, including the spread of lethal weapons, climate change, disease, that require common action -- common action. And to meet these threats, our military might is absolutely necessary, but to state the obvious, is not sufficient. We must use the totality of America's strengths, starting with our diplomacy and the ideas and ideals that inform it.

This department is filled and many of you are in this room with thousands of dedicated women and men of great talent.

But Madame Secretary, I have to tell you something else. With your presence, this building and our missions around the world are also filled with a sense of genuine excitement and enthusiasm that I haven't seen in a while. And it's because of you.


No one who was here when Secretary Clinton and the president announced the envoys, the appointment of envoys George Mitchell and Richard Holbrooke, could have missed that sense of enthusiasm as you walked in and through this building. It is contagious. And that's a statement about your ability to aspire, Madame Secretary, as well as to lead.

And so it's with great pleasure I get the honor -- and I think it's a singular honor -- of being able to -- never did I think, by the way, Madame Secretary, I'd get to swear you in as secretary of state. Never did I think about being vice president.


But it is truly one of the great honors of the job.

So, at this moment, Madame Secretary, if you can get some help from that fellow standing to your left, I'd like to turn and swear you in and administer the oath, if I may.


BIDEN: Madame Secretary, please raise your right hand.



BIDEN: "... do solemnly swear...."

CLINTON: ... do solemnly swear...

BIDEN: "... that I will support and defend..."

CLINTON: ... that I will support and defend...

BIDEN: "... the Constitution of the United States..."

CLINTON: ... the Constitution of the United States...

BIDEN: "... against all enemies, foreign and domestic..."

CLINTON: ... against all enemies, foreign and domestic...

BIDEN: "... that I will bear true faith...

CLINTON: ... that I will bear true faith...

BIDEN: "... and allegiance to the same..."

CLINTON: ... and allegiance to the same...

BIDEN: "... that I take this oath freely..."

CLINTON: ... that I take this oath freely...

BIDEN: "... without any mental reservations..."

CLINTON: ... without any mental reservations... BIDEN: "... or purpose of evasion..."

CLINTON: ... or purpose of evasion...

BIDEN: "... and that I will well and faithfully..."

CLINTON: ... that I will well and faithfully...

BIDEN: "... discharge the duties of the office..."

CLINTON: ... discharge the duties of the office...

BIDEN: "... on which I'm about to enter..."

CLINTON: ... on which I'm about to enter...

BIDEN: "... so help me God."

CLINTON: ... so help me God.


CLINTON: Thank you all very much. Thank you. Thank you. Thank you.

It is an overwhelming honor to be sworn in to assume this position on behalf of our country.

I thank my dear friend, Vice President Biden, and I thank President Obama for investing the trust and confidence in me during a particularly challenging time in our nation's history.

I look out and see so many friends and colleagues. I particularly want to thank the speaker and the majority leader, Speaker Pelosi and Leader Reid, for being here and for providing the leadership that you both are doing in the Congress.

I also want to thank my colleagues in government and my former partners in the Congress. I am very grateful to all the members of the House who are here today, and particularly those with whom I served over eight wonderful years who represent New York. And I'm very grateful to all of you.

And to my friends in the Senate, I see the faces of people with whom I have shared so much. And I am deeply grateful to each and every one of you.

But I have to single out the chairman of the Foreign Relations Committee who, after all, presided over my confirmation, for which I am very grateful, Senator Kerry.


I look forward to working with all of you, particularly the appropriators who are here this afternoon. We have a lot of work to do. And it is such important work that lies ahead. I also want to thank two wonderful friends of mine, governors, Governor Corzine from New Jersey and Governor O'Malley from Maryland, who are here.


And I am particularly honored to have four of my predecessors with us today. I have sought their advice and their counsel. And I have to publicly thank each and every one of them.

With us today, Secretary Kissinger and Secretary Baker and Secretary Eagleburger and, of course, my dear friend and fellow Wellesley alum, Secretary Albright.


I also want to thank Secretary Rice and Secretary Powell and Secretary Shultz, with whom I had a wonderful visit just last week when he came to the seventh floor. And Secretary Haig. All of the former secretaries of state who have been so generous with their time. And I think I can predict I will be asking for advice as we move forward, because this ceremony takes place at a real hinge of history time. There is so much that lies ahead in terms of challenges, but also opportunities.

When I came into this building for the first time, a week or so ago now, I told the assembled State Department employees, and then repeated it again at USAID, that we were all on the same team. And it is America's team. And we have in the leadership of President Obama someone who wants us to reach out to the world, to do so without illusions, understanding that the difficulties we face will not be wished away, but meeting them forthrightly and smartly, and that we want to seize the opportunities that exist as well.

I talked in my confirmation hearings about smart power. Well, smart power relies on smart people. And we have an abundance of them in this building and at USAID.

But I've also told my teammates in the State family that we're going to have to be smarter about how we do what we must for our country. There are many ways that we can improve on what we do on a daily basis, and I want to work with my friends in Congress, on behalf of our administration, to really look for those efficiencies and those changes that will make what we do more effective, more cost-effective, so that we can be out there around the world delivering America's message, certainly doing all we must to protect and defend our security, but also advancing our interests and furthering our values.

So for me, this has been an amazing personal journey.

As Joe laughingly referenced, neither one of us thought that we would be standing here together doing what we are now doing together. Life has a funny way of unfolding, and politics is even stranger.

So we are joined in this incredible mission on behalf of our president and our country. And it's one where it's not only those of us holding positions, whether elected or appointed, must perform to the very best of our ability. We're asking everyone in our country to think about how each of you can make a contribution so that we ensure that America's future is even brighter than our storied past.

I'm excited by seeing so many familiar faces. There are friends in this audience who have known me my entire life. And there is the next generation. You know, my niece and my two nephews who are here. I get up every morning thinking about what I must do to make this world of ours safer and more prosperous, and to make our country all that it can be.

As difficult as the times are, I am an optimist. I believe that we can do what we set our minds to do. And so it is the power of our ideals and the intelligence and dedication of our people.

I could not be standing here before you today without all of you, but in particular the three people who stand with me on this stage. It's literally true I wouldn't be here without my mother.



And so I'm especially delighted that she can be with me.

And to my daughter, who I am just bursting with maternal pride over, but who I look to also for advice and, frankly, for some cultural cues that I might otherwise miss.

And finally, to my husband, who understands so well the awesome responsibilities resting on the shoulders of President Obama and Vice President Biden and all of us who serve with them. I am so grateful to him for a lifetime of all kinds of experiences which have given me an extraordinary richness that I am absolutely beholden to and grateful for.

So now let me thank Gladys (ph) and her crackerjack protocol operation that put this together. We had to schedule it around two schedules that were hard to mesh -- Vice President Biden and Chelsea Clinton. And when we finally got a time when both of them could be in the same place, we rushed to fill it. So if you're wondering why you didn't get an invitation until Thursday, Friday, Saturday or Sunday, it's because we just had to make sure that we had the main people here. But I do want to greet all of you individually, and obviously my family wants to say hello as well.

So we're hard at work already. And we're working hard, with a great team of people, here in this building and at USAID. And we're looking forward to fulfilling the excitement and the promise that the Obama administration represents here at home and around the world.

Thank you all very, very much.


BLITZER: There she is, the secretary of state, with her husband and the vice president. The formal swearing in ceremony, although she was sworn in days ago, has been on the job ever since.

Our Foreign Affairs Correspondent Jill Dougherty is over at the State Department.

You were watching, Jill, and you were listening. Do we have any idea what her first priority is going to be now, since George Mitchell is sort of taking over the Middle East as a special envoy, Richard Holbrooke taking over Pakistan, Afghanistan as a special envoy? What is she going to be focusing in on, first and foremost?

JILL DOUGHERTY, CNN FOREIGN AFFAIRS CORRESPONDENT: Well, Wolf, the indications are that we could see a trip by the secretary to Asia. It could be this month, and that would be her first real outreach to some part of the world that could be basically her own.

After all, you do have Mitchell handling the Middle East. You have the other special representative, Richard Holbrooke, handling Afghanistan and Pakistan. And now Hillary Clinton is honing in on a part of the world that is very, very important.

China is extremely important. In fact, today she had lunch with Treasury Secretary Tim Geithner, and on the agenda was the world economy. And you can't mention that without mentioning China.

Some sensitivity in that area, and Hillary Clinton says that the previous administration tended to focus more on the economic part of that relationship. She is saying that she wants to broaden it, that they need to talk about the world role, as well as economics -- Wolf.

BLITZER: She wants to make sure that the diplomats have a say on the economic issues, as well as the military issues as well. And we're going to continue to talk about this.

Jill is over at the State Department.

Thank you, Jill. We'll stay on top of this story.

Meanwhile, the defense secretary is warning President Obama and the nation to expect a long slog in Afghanistan, even with additional troops. CNN has obtained new information about just how bad things have gotten in that war zone.

Plus, what Sarah Palin was trying to accomplish during her weekend right here in Washington. She was partying with the political elite.

And an American kidnapped in a brazen daylight attack in Pakistan. We're all over that story as well.

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


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

Happening now, the winds of change. The Republican Party elects its first-ever African-American chairman. Now the new RNC chief, Michael Steele, he's standing by to join us live here in THE SITUATION ROOM. He'll share his vision for the Republicans' future.

Plus, the first lady, Michelle Obama, she is venturing out today as well. First stop, the Department of Education. We examine the shaping of Mrs. Obama's role in her husband's administration.

And "Vanity Fair" goes inside the Obama administration. Some remarkable and intimate portraits of the new team in the White House through the lens of the renowned photographer Annie Leibovitz.

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

But first, a short while ago over at the White House, President Obama was briefed by the defense secretary, Robert Gates, about plans to shift more U.S. troops to Afghanistan.

Let's go to our Pentagon correspondent, Barbara Starr, who's working the story for us.

Barbara, what's going on?

BARBARA STARR, CNN PENTAGON CORRESPONDENT: Well, Wolf, by all accounts, both men had a number of matters to discuss. But sources tell CNN the Pentagon has decided on which troops it wants to send to Afghanistan. Secretary Gates want to run it all by the new president so he can make the final decision for the first time in his presidency about sending troops into harm's way.


STARR (voice-over): A car bombing in Kabul Monday, just another indicator of why President Obama and the Pentagon are under pressure to fix the war in Afghanistan. In a White House meeting Monday, Defense Secretary Robert Gates was discussing with the new president plans to send an additional 15,000 combat troops to Afghanistan, but Gates is also lowering expectations.

ROBERT GATES, SECRETARY OF DEFENSE: That this is a -- going to be a long slog, and, frankly, my view is that we need to be very careful about the nature of our -- of the goals we set for ourselves in Afghanistan.

STARR: There's good reason to worry.

CNN has obtained the latest NATO statistics showing just how bad things have become: from January to November last year, a 30 percent increase in overall attacks. IED attacks alone are now the single largest cause of casualties. There's also been a nearly 50 percent rise in kidnappings and assassinations.

Seventy percent of all attacks happen along the border with Pakistan and in the south, where most of the additional U.S. troops are headed. One of the most delicate issues is the increase in the number of Afghan civilians being killed, a 60 percent increase last year. NATO says most were due to insurgent attacks.

But Gates warn, ordinary Afghans may not see it that way. GATES: My worry is that the Afghans come to see us as part of their problem, rather than part of their solution. And then we are lost.


STARR: Now, the good news is that, as security improves in Iraq, that, of course, frees up more troops for this new mission in Afghanistan.

But, Wolf, two weeks into the Obama administration, there's already talk about -- around Washington, has Afghanistan become a quagmire; has Afghanistan become Barack Obama's Vietnam? -- Wolf.

BLITZER: I see the cover of "Newsweek" magazine, "Obama's Vietnam: How to Salvage Afghanistan," by our own Fareed Zakaria.

Thanks for that, Barbara Starr.

Let's head over to CNN's Michael Ware. He has been covering the war in Iraq since day one. He's joining us from our studios in New York.

They had elections over the weekend. By all accounts, they went relatively smoothly, with Iraqi military forces taking the lead, U.S. forces playing a secondary role.

Does this open the way for President Obama to accelerate, accelerate a -- a withdrawal of U.S. combat forces from Iraq? He hopes to do so over 16 months, Michael. But might he be able to do it even more quickly?

MICHAEL WARE, CNN CORRESPONDENT: Well, if he wants to terrify his U.S. military commanders, and put the fear of God throughout the Iraq population, he certainly can accelerate the pace of his withdrawal.

Let's not muck around here. The relative success so far of this Iraqi provincial election -- now, remember, they're voting state by state -- they're not voting for the national government -- is clearly a success. But let's not go patting ourselves on the back anytime soon.

I would have bet last month's salary that this would have been a successful election, in terms of security and the absence of attacks. In fact, I would argue that most of this year, most likely, we will see an ongoing downward trend in attacks. Why?

Because it's in none of the parties' interests right now to promote attacks. All of the political factions are competing in the political process, waiting to see what they get out of the game. But, remember, to be in this game, you must have your own militia or paramilitary force. That's what's backing every player here.

Now, in the provincial elections, we hear the secular parties have done well, and so has the party of Prime Minister Nouri al- Maliki. If that's true, let's see what the big loser, the Islamic party, the ISCI party, which was created in Tehran, does about the loss of its share in the provinces.

This could just be the beginning of the true political warfare in Iraq -- Wolf.

BLITZER: S, it's by no means a done deal in Iraq.

But what about Afghanistan? He's got to make a major decision. You saw the article Fareed Zakaria is writing in the new issue of "Newsweek" magazine about potentially Afghanistan becoming Obama's Vietnam. And we all remember the connotations of that.

He's going to be moving troops from Iraq to Afghanistan. What do you think about that decision?

WARE: Well, it's between a rock and a hard place. And, in Afghanistan, that's literally what it can be.

Put it this way. The president is obviously a much braver man than I. To hang to bulk of his foreign policy credibility, to hang that cap on Afghanistan, is a daring maneuver. Afghanistan is the graveyard of empires. No one has ever won in Afghanistan.

Now, pouring U.S. troops into those mountains, this is the -- this is the end of the Himalayas, remember -- isn't going to solve anything quick. Even 30,000 extra troops will disappear rapidly along that border. The mountains will just swallow them up. So, it's going to require a lot more than just shifting troops from one theater of warfare to another.

Let's see whether the special envoy, Richard Holbrooke, and President Obama, and the newly sworn secretary of state can step up to the plate here. It's going to be miracle-making that's demanded of them -- Wolf.

BLITZER: Michael ware. The challenge is enormous.

All right, Michael, thanks very much.

Coming up in our "Strategy Session": questions about a deal to allow Senator Judd Gregg to become commerce secretary without Republicans losing a Senate seat.

And Governor Sarah Palin often says she's a Washington outsider. So, why was she just here with a whole bunch of Washington insiders Friday night and Saturday night?

And the first lady goes to the Education Department with a special message.


MICHELLE OBAMA, WIFE OF SENATOR BARACK OBAMA: I am a product of your work. I wouldn't be here if it weren't for the public schools is nurtured me and helped me along. (END VIDEO CLIP)


BLITZER: Some Republicans are not happy with a massive plan to fix the economy. So, President Obama is counting on some high-powered political guns to help win them over.

They are Republicans who are breaking with those congressional Republicans to support the president's economic plan. Today, it was the Vermont governor, Jim Douglas. He's vice chairman of the National Governors Association.


BARACK OBAMA, PRESIDENT OF THE UNITED STATES: I want to thank Governor Douglas for being here. We met early on during the transition period with all of the governors from across the country. And with very few exceptions, I -- I heard from Republicans and Democrats the need for action, and swift action, and that's what we've been trying to do in moving this package forward.

And nobody understands this better than governors and mayors and county officials who are seeing the devastating effects on the ground of this contraction in the economy. People are being laid off, and that means that governors like Jim are having to not only deal with declining revenue, but increased social services to provide support for people who are unemployed as they're seeking work.

And the recovery package that we are moving forward is designed to provide states relief, to make sure the people who are laid off from their jobs are still able to get unemployment insurance, are still able to get health care, and that we are putting in place the infrastructure -- rebuilding roads, bridges, waterways, other projects at the state levels -- that allow us to put people back to work.

And we want to create or save 3 million jobs, and we want to put the investments in place that are going to ensure long-term economic growth.

So, as -- as Jim indicated, there are still some differences between Democrats and Republicans on the Hill between the White House and some of the products that's been discussed on the Hill. But what we can't do is let very modest differences get in the way of the overall package moving forward quickly.

And so I'm very gratified that Governor Douglas, along with many governors from across the country, are going to be weighing in, in these critical next few days. And we hope to be able to get a bill to you in the next couple of weeks so we can put America back to work and start digging ourselves out of this deep hole that we're in.

So, thank you so much for taking the time to be here.

(END VIDEO CLIP) BLITZER: President Obama over at the White House earlier today. He's getting ready for a meeting with the congressional Democratic leadership. We will have coverage of that coming up. Stand by.

Meanwhile, Tom Daschle appears soon before his former Senate colleagues to try to save his nomination to become the health and human services secretary -- Daschle now saying he's sorry and embarrassed by tax issues revealed late last week.

Let's go to our senior congressional correspondent, Dana Bash. She's working the story for us.

Dana, looks like you're in the midst of some activity over there.


We're now in the Senate Dirksen Office Building. And, in fact, you can see reporters behind me. Everybody is waiting for Tom Daschle to come here. And what he is doing is, he is going to have an opportunity, potentially, to meet with, and discuss, and, most importantly, answer questions from members of the Senate Finance Committee, who will be determining whether or not the fact that he did not pay until the beginning of -- until the beginning of January about $140,000 in taxes and interest, whether that is going to be disqualifying.

And I will tell you, you see the people waiting here, but what is going to happen is, he's going to come here. This is where the Senate Finance Committee offices are, right over here. And they're actually -- most of them, Wolf, interestingly, are going to be meeting and discussing this matter for the very first time.

Most of the senators on the committee really don't know the details beyond, at this point, what we have been reporting. We reported on a -- a confidential memo that was distributed to them. But, in terms of the nuts and bolts of what happened with Senator Daschle, in terms of his tax issue, and perhaps other issues, this is where they're going to be meeting in probably about 15 minutes to discuss it.

Senator Daschle is going to be behind these doors, but he's going to be able to come and answer questions, if senators have them, or perhaps just be there just in case. So, we're going to be interested to see what these senators say when they come out of the meeting and what Tom Daschle may say for the very first time since this controversy began -- Wolf.

BLITZER: We will stay in touch with you. Dana, thanks very much.

Dana is up on the Hill.

We're standing by also for Bill Schneider. He has got the latest on what Governor Sarah Palin was up to in here Washington this past weekend. Stand by for that. Meanwhile, Republicans say they want to fix the plan that's supposed to fix the economy.


SEN. MITCH MCCONNELL (R-KY), MINORITY LEADER: But we're not trying to prevent a package from passing. We're trying to re -- re- form it, reformulate it, put it in a different place.


BLITZER: So, what exactly do the Republicans want? We will discuss that in our "Strategy Session."

And you may already have or want them, buttons, T-shirts, other items, with pictures of President Obama.

But might the White House go after people who sold them to you?

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


BLITZER: The House speaker, Nancy Pelosi, she is over at the White House right now. We just got the videotape. She just arrived a few moments ago -- the president meeting with the congressional Democratic leadership right now.

Presumably, they're plotting strategy on what to do next, as the president's economic stimulus -- stimulus package goes through the Senate. It passed overwhelmingly in the House last week with no Republican support.

Let's talk about what's going on in our "Strategy Session."

Joining me now, the Democratic strategist Mo Elleithee and the Republican strategist Rich Galen.

Here's what John McCain -- and a lot of Democrats have often looked to John McCain to work together on this kind of legislation -- what he said on "AMERICAN MORNING" here on CNN earlier today. Listen to this.


SEN. JOHN MCCAIN (R), ARIZONA: We're clearly prepared to sit down, discuss, negotiate a true stimulus package that will create jobs. We all know how tough the economy is. But now it's time, after the way it went through the House, without any Republican support -- it's been rammed through the Senate so far -- we need to seriously negotiate. And we haven't done that yet. We can do it, though.


BLITZER: Do you think they can? Or is this going to be a partisan piece of legislation once again in the Senate, like it was in the House?


I think, if John McCain is right here, that the Republicans in the Senate are willing to sit down and Actually negotiate and come to an agreement, then I think we're in good shape. The problem is, his colleagues in the House set a pretty poor standard for -- for the Republicans in the Senate.

They -- they said, no, we're not interested in this bill at all before the president even had a chance to make his case to them. I think there is room for bipartisanship here. I think the fact that Governor Douglas from Vermont, a Republican, is -- is helping this effect along, shows that there is room here for bipartisanship. Let's hope the Senate doesn't take its cue from the House.

BLITZER: A lot of these Republican -- these governors, Democrats and Republicans and Democrat, they are desperate right now, because their state budgets are in deep, deep trouble.


And -- and the reality is that a lot of what's being proposed isn't going to help that. What will help that is putting people back to work, generating revenues through taxes, income taxes, property taxes, whatever, that will allow the governors to do...


BLITZER: But will they work a deal in the Senate?


GALEN: Yes, of course -- and allow mayors to go back and hire cops and do the things they want to do.

You had Mitch McConnell in a clip just a minute ago saying that everybody knows there's going to be a stimulus package. That's not the issue. The issue is whether it's really stimulus or whether it's going to be a classic congressional Christmas tree, where everybody knows that you can hang your ornament on it.

There's -- there's a saying here that -- that pork is what's in somebody else's district. In my district, it's a needed project.

BLITZER: Because the criticism is that the president, the White House let Nancy Pelosi and House Democrats really put way too much stuff in there that they didn't actually -- weren't all that thrilled about.

ELLEITHEE: Look, we have got a package here that creates immediate jobs through a number of different jobs and makes long-term investments in the future through college aid and through a whole of other projects, as well -- as well as some tax relief.

That's the kind of package that takes care of our short-term need, as well makes -- takes care of some long-term needs. Now, I think the White House and Robert Gibbs said it best today. The American people can't wait. They need action now. And I hope that the Republicans are willing to work with the Democrats.

GALEN: Well, I mean, there is -- in Washington, there's another phrase. It's called regular order.

All those other -- the long-term investments, there are appropriations processes. There are committee structures. There's a way to get to those. What -- if you want to get this thing done quickly -- and this is what I think Senator -- and even Chuck Schumer yesterday was -- was pretty close to this same position.

Let's get the stuff in there out of here. Let's move it into the economy. Let's get people working. And the longer-term -- the things that you may want to do -- even Kay Bailey Hutchison said this morning, those sorts of things, there are times and places to work on them.


BLITZER: Let's talk about potentially the next commerce secretary, the Republican senator from New Hampshire, Judd Gregg.

It seems -- at least there's a lot of talk about some sort of deal where the Democratic governor of Vermont actually names a Republican to fill out his term, until the end of 2010.

There's something about those kind of quid pro quos, even if there's nothing illegal, even if there's nothing inappropriate in the sense of the law, that I guess upsets some people. Why should the governor be making those kinds of deals?

ELLEITHEE: Well, I don't know that it's a quid pro quo.

Look, the current state of play is that governors, in these circumstances, get to make an appointment. I think what we have seen throughout this entire transition, where so many members of the Senate have gone on to Cabinet positions, is that the balance of power hasn't really shifted.

In Colorado, in New York, potentially in New Hampshire, the governors are appointing senators from the same party. In two years, these seats are up. The voters will get a chance to make -- to make their say there.

BLITZER: It's very significant, in the sense that, right now, the Democrats have 58, if you include the two independents who vote with them, 58 seats. The Republicans have 41 -- Minnesota still up in the air right now. We don't know who's going to win there.


BLITZER: But you need really 60 to break any filibuster. And this could be significant.

GALEN: It could be significant, but this -- this happens all the time in the Senate.

It sounds like we're -- we're undoing the 17th Amendment, before which U.S. senators were elected by their state legislators, not by -- not by popular vote. But we had a deal when it was 50-50 and Cheney was the tiebreaker. They made a deal when Jeffords changed parties.

So, this sort of goes on in the Senate all the time, because there's only 100 members, and unlike the House, with 435. There's only 100 members. They have to get the same amount of work done. And, institutionally, you can't afford to have blood feuds.

BLITZER: Some people, like Russ Feingold, they hate this idea of senator -- of governors simply naming someone. They want a constitutional -- he wants a constitutional amendment to call for an election.

GALEN: Well, it's state by state. Not all states do that.

BLITZER: I know. I know. But that's why people don't like the feel of this kind of stuff. But, as you point out correctly, it's been going on for a long time.

Guys, thanks very much.

GALEN: Thank you.

BLITZER: If you needed any more evidence that the Alaska governor, Sarah Palin, has certainly come a long way from her hockey mom days, you should have seen her this weekend here in Washington.

Let's bring in our senior political analyst, Bill Schneider.

Bill, what was Governor Palin doing here in Washington?

WILLIAM SCHNEIDER, CNN SENIOR POLITICAL ANALYST: Well, very simple, Wolf. She was trying to take control of her own image.


SCHNEIDER (voice-over): Sarah Palin insists, she's no Washington insider.

GOV. SARAH PALIN (R), ALASKA: I am obviously an outsider of the Washington elites and of -- of the conventional, I think, media.

SCHNEIDER: But she was in Washington last weekend, attending exclusive off-the-record dinners with Washington's A-list, like the Alfalfa Club dinner Saturday night.

The governor gave no major-media interviews. Palin's made it clear she feels she was treated unfairly by the national press during the campaign, mocked.

PALIN: They're like, geez, she's -- where did she -- where did she come from? Surely, it should be our job -- I think they assume -- is to pick and be negative and find things to mock. And that's just, I guess, part of the political game, I guess.

SCHNEIDER: So, when she came to Washington this time, she came on her own terms.

MARK PRESTON, CNN POLITICAL EDITOR: During the presidential campaign, Sarah Palin was thrust into the national spotlight, but she was given no control over her own image. So, what we have seen since November is that she's now taken back control of how she's portrayed.

SCHNEIDER: Sarah Palin wants to be part of the national conversation, but on her own terms. She has started a political action committee, SarahPAC. On her Web site, she mentions energy, health care, education, and government reform -- no social issues.

PRESTON: You don't open up a political action committee unless you have some further designs in your own political career.

SCHNEIDER: It's kind of hard to get national attention when you live in Alaska. But notice, on her Web site, Alaska is depicted as the heartland.


SCHNEIDER: If Governor Palin is going to be part of the national conversation, she's -- she's going to do it her way -- Wolf.

BLITZER: All right, Bill, thank you.

Meanwhile, a new crackdown by the White House is in the works that targets many of those Barack Obama presidential souvenirs you see everywhere these days. Does team Obama have a legal case?

And joining us here in THE SITUATION ROOM, the new Republican Party chairman, Michael Steele. He is standing by live. The first African-American in the post is warning he may knock some people over. I will ask him what that is all about.

And a true and remarkable story of sunken treasure that could be worth a billion -- yes, a billion -- dollars.

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


BLITZER: The new president of the United States has been doing his part to stimulate the economy by inspiring a cottage industry of Obama souvenirs. But now the White House wants to crack down.

Let's go to Brian Todd. He's looking into this story.

Brian, what is going on?

BRIAN TODD, CNN CORRESPONDENT: Well, Wolf, as you know, you would be hard-pressed to find anyone at this moment who is more popular than the president. But those looking to cash in on that popularity might have to look over their shoulders. (BEGIN VIDEOTAPE)

TODD (voice-over): Sweatshirts, T-shirts, buttons for sale. Get your Obama cufflinks here. People are making a buck off the president's image all over the place. And while the sellers of these items might be safe, others might find themselves legal targets of the White House.

In a statement, a White House spokeswoman says: "Our lawyers are working on developing a policy that will protect the presidential image, while being careful not to squelch the overwhelming enthusiasm that the public has for the president."

White House officials wouldn't tell us what specifically triggered this, what legal strategy they're taking, or who they're going after.

Intellectual property lawyer Jonathan Band has an idea.

JONATHAN BAND, INTELLECTUAL PROPERTY ATTORNEY: I imagine they would most aggressive when -- when we're talking about uses of the children. And I think their -- their -- the likelihood of success is greater there, because there would be very little First Amendment basis for using the children's images in a -- in a commercial context.

TODD: That means White House lawyers wouldn't likely win a case if a person or group argued they were using the image of the president in some kind of free speech political discourse, like this ad by the clean coal lobbying group.


BARACK OBAMA, PRESIDENT OF THE UNITED STATES: You can't tell me we can't figure out how to burn coal that we mine right here in the United States of America and make it work.


TODD: Experts say people selling T-shirts and mugs could argue they're simply showing support for the president and they likely wouldn't be targeted, nor would businesses using humor, like Ben and Jerry's takeoff of Mr. Obama's "Yes, we can" slogan.

BAND: In that example, it -- it could be that the political factors would sort of be paramount, to say, well, gee, doesn't the White House have a sense of humor, and, you know, Ben and Jerry's is very popular, and how can this really hurt his image?


TODD: But the image of the administration could be hurt if it pursues some of this too aggressively, according to former White House attorneys who we spoke with.

One gave us an example of a letter from the White House in 2002 warning one Web site to stop using Lynne Cheney's image. Now, that Web site was devoted to spoofing the president. And, of course, that letter was posted, making the White House look a little bit bullying -- Wolf.

BLITZER: Brian Todd, thanks very much.

And, to our viewers, you're in THE SITUATION ROOM.