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Stimulus Compromise, But No Deal; 9th Death in Salmonella Outbreak; Plea to President Obama Pays Off; Stimulus Snag Resolved; YouTube Ad Dust Up

Aired February 11, 2009 - 17:00   ET


WOLF BLITZER, CNN ANCHOR: I'm not surprised, Jack. Thank you.

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

Happening now, breaking news -- Congressional negotiators compromise on the economic stimulus. They've already counting the jobs they say it will produce.

But are they also counting it too soon?

There's late word of a new sticking point. Stand by.

They're accused of knowingly distributing tainted products blamed for a deadly salmonella outbreak. But executives of a peanut company refuse to tell what they know to Congress.

And the first lady is now a fashion icon. She's on the cover of "Vogue" magazine. We're going to hear how Michelle Obama and her daughters managed to stay within their style budget.

I'm Wolf Blitzer.


But let's begin this hour with the breaking news. Congressional negotiators are reaching a compromise on the economic stimulus plan by cutting billions from its price tag. But it may not necessarily completely be a done deal yet.

Let's bring in our senior political correspondent, Candy Crowley.

I can't imagine it won't be a done deal. But you've covered Congress for a long time. Usually there's some last minute snags.

CANDY CROWLEY, CNN SENIOR POLITICAL CORRESPONDENT: A little bit of a misfire here. I mean, look, we're talking about a $789 billion bill -- $10 billion. And this is about process. It's an important process to the House and the Senate, but it's about how you funnel $10 billion worth of school construction, of course, into states or do you send it to localities?

The House wants to get that money directly to those who need it the most using a preexisting formula. The Senate wants to give it to governors and let them decide. So it seems like something they will work out, because right now, what the Senate and the House want to do is pass this bill a quickly as possible because it's all about J-O-B-S.


SEN. HARRY REID (D-NV), MAJORITY LEADER: This bill creates three-and-a-half million jobs. More than one third of this bill is dedicated to providing tax relief for middle class families.

SEN. SUSAN COLLINS (R), MAINE: We were able to increase the amount of funding for infrastructure. That is the most powerful component in this bill to create jobs.

UNIDENTIFIED MALE: And today you might call us the jobs squad.

CROWLEY: $150 billion of the package -- roughly 20 percent -- is money for infrastructure.

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: Look around us. Look at this construction site right where we're standing.

CROWLEY: The deal on a compromise package was reached just hours after the president showed up on a parkway in Virginia to talk about -- you've got it -- jobs.

OBAMA: We're surrounded by unmet needs and unfinished business -- in our schools, in our roads, in the systems we employ to treat the sick and the energy we use to power our homes. And that's the core of my plan -- putting people to work doing the work that America needs done.

CROWLEY: The agreement also includes a tax cut for middle and lower income Americans and help for the jobless -- bigger unemployment checks and an increase in food stamps, better access to health care.

And there are billions in federal taxpayer money headed to states struggling to fund social services and make payroll.

The president is now just two final votes away from getting that stimulus package on his desk. Then it's show me the jobs time.

OBAMA: So much depends on what we do at this moment. It's not just about the future of my administration. It's about the future of our families and communities, our economy and our country. We are going to do this carefully and transparently and effectively as possible, because so much is on the line.


CROWLEY: Again, while it seems that the Senate leadership, Wolf, has come to an agreement amongst themselves, they still don't, apparently, have Speaker Nancy Pelosi fully on board. It looks as though they will. It's a minor issue that they're talking about now. But there's that saying about for want of a nail, the war was lost.


CROWLEY: It isn't over until it's over.

BLITZER: And there's another saying, the devil is always in the details.


BLITZER: A little detail. Well, I'm sure they'll work it out, though.

Thanks very much, Candy, for that.

With unemployment rolls growing and growing and growing, more and more Americans are hoping the stimulus dollars will help get them back to work.

CNN's Ted Rowlands is watching this story.

He has more from Los Angeles -- Ted.

TED ROWLANDS, CNN CORRESPONDENT: Wolf, the current economic stimulus package calls for billions of dollars to be spent on highway construction around the country, creating thousands of new jobs. There are thousands of people who are currently out of work that would love to get one of those jobs.


ROWLANDS: Thirty-year-old Scott Bates says he's struggling to provide for his 8-year-old son Christopher. Bates paints roads for a living. He says because he's only working about two days a week, he's had to sell most of his things and will likely lose his house if nothing changes.

SCOTT BATES, ROAD WORKER: Well, I'm going to be a 30-year-old man with a son moving back to my mom's. And because with one day a week or two days a week, I couldn't even rent anything.

ROWLANDS: Scott Bates could be working full-time if federal stimulus money pays for a $190 million carpool lane on this stretch of the 10 Freeway in Los Angeles. State officials say the project, which would otherwise would be shelved because there's no state money for it, could create up to 3,400 jobs.

DOUG FAILING, CALIFORNIA TRANSPORTATION DEPARTMENT: Equipment operators, masonry guys -- they're really energy $24, $35, $36 an hour -- very good wages, very important wages in these times.

ROWLANDS: One of those jobs could go to Scott Bates if his boss, Denny Sterndahl, is the low bidder for the project. But Sterndahl says because of fierce competition, that's not as easy as it used to be.

DENNY STERNDAHL, STERNDAHL ENTERPRISES: It's getting to the point where people are so desperate for work, they're -- they're almost going to cost, you know, just to keep their guys employed. ROWLANDS: State highway officials say if funded, the Interstate 10 project could last more than a year -- a potential economic lifeline for people like Scott Bates.

BATES: I never thought it would be this way. Never.


ROWLANDS: Of course, even if the Highway 10 project is funded with stimulus money, there's no guarantee Scott Bates will get a job out of it. In fact, economists say despite the thousands of jobs that would be created, there will be many people that won't be able to benefit from the stimulus package and will still be out of work -- Wolf.

BLITZER: Lots of traffic in Los Angeles.

Thanks very much, Ted, for that.

Let's go back to Jack.

He has got "The Cafferty File" -- Jack.

JACK CAFFERTY, CNN ANCHOR: If you want to save money on your health insurance, try the salad bar. In South Carolina, obese people may soon have to start paying more for their monthly health premiums. A bill in the state senate would charge fat public workers an extra 25 bucks a month -- tying the fee to an employees' body mass index, which is a measurement of white -- height and weight, he tried to say.

A subcommittee delayed the vote when the author of the proposal said he'd be willing to rewrite it and might turn the whole thing around and turn the surcharge into an incentive instead of a punishment, meaning that the state would increase everybody's premiums and then give a discount for fit workers.

But either way, it sounds like a win-win. It's no secret that fat people tend to eventually require more health care than skinny people -- diabetes, heart attacks, strokes tend to occur more frequently in the overweight population.

And South Carolina has a lot of them. The state ranks fifth nationwide when it comes to adult obesity and diabetes. Thirty percent of residents of South Carolina are obese and one in 10 has diabetes. The state has already approved a proposal that charges smokers $25 more a month for their health insurance.

Critics say the fee would be too difficult to administer and enforce. One senator calls it "an intrusion into people's lives" and another says it wouldn't be fair to those who have weight problems for health reasons and not just because they eat too much and don't exercise.

Last summer, Alabama became the first state to approve charging fat workers more if they don't shed some pounds.

So here's the question: Should obese people pay more for health insurance?

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

BLITZER: See you in a few moments, Jack.

Thank you.

His enthusiasm nearly stole the show at President Obama's town hall meeting.


JULIO OSEGUEDA, TOWN HALL PARTICIPANT: Oh, this is such a blessing to see you, Mr. President. Thank you for taking time out of your day. Oh, gracious God, thank you so much.


BLITZER: But it was his plea for help that resonated with so many people. And now help is on the way. We have details of how his life has suddenly and dramatically changed.

Also, the first lady, Michelle Obama -- she's speaking candidly about her struggles balancing career and family; plus, the question she hates the most.

And nine deaths now linked to tainted peanut butter. The company's owner, accused of knowingly shipping the products. But he's refusing to answer questions from Congress.


UNIDENTIFIED MALE: So the food poisoning of people, is that just a cost of doing business for your company?

STEWART PARNELL, OWNER, PEANUT CORPORATION OF AMERICA: Mr. Chairman and members of the committee, on the advice of my counsel, I respective -- respectfully decline to answer your questions based on the protection afforded me under the United States Constitution.



BLITZER: State health officials say an elderly Ohio woman has become the ninth person to die from the salmonella outbreak that has also sickened more than 600 people in 43 states. The outbreak is traced to tainted products from a Peanut Corporation of America plant in Georgia.

Let's go to CNN's Abbi Boudreau.

She's part of our Special Investigations Unit. The executives -- what happened?

They're refusing to testify? Is that what's going on right now -- Abbi?

ABBI BOUDREAU, INVESTIGATIVE CORRESPONDENT: Yes, you've pretty much got it. Officials from the Peanut Corporation of America refused to answer any questions from members of Congress today -- even after dramatic revelations from internal company documents and e-mails.


REP. GREG WALDEN (R), OREGON: In this container are products that have your ingredients in them.

And I just wonder, would either of you be willing to take the lid off and eat any of these products now?

BOUDREAU (voice-over): With nine deaths now linked to the salmonella outbreak, hundreds sickened and the FBI looking into Peanut Corporation of America to see whether the poisonings were crimes, the top officials of the peanut company at the center of it all had only one thing to say to Congress on Wednesday.

PARNELL: On the advice of my counsel, I respectfully decline to answer your question based on the protections afforded me under the United States Constitution.

BOUDREAU: Committee Chairman Henry Waxman revealed new documents that show the trail of salmonella poisonings in the plant.

REP. HARRY WAXMAN (D-CA), ENERGY & COMMERCE COMMITTEE: These documents, obtained by our subcommittee, are very disturbing. Because what they show is that this company cared more about its financial bottom line than it did about the safety of its customers.

BOUDREAU: Representative Waxman showed this e-mail that the president of the company sent after he learned the company's product tested positive for salmonella: "We need to discuss this," the president wrote to the manager of the peanut plant, "it's costing us huge dollars. We need to protect ourselves."

In another series of e-mails from last August, after one lab tested positive for salmonella in the company's product, then another lab showed the product to be clean. Stewart Parnell wrote: "OK. Let's turn them loose, then."

That seems to contradict a later e-mail written in early January, as the outbreak become more publicized, stating: "We do not believe the salmonella came from our facility."

Various members of Congress tried to directly press Parnell and also the plant manager, Sammy Lightsey, about these documents.

REP. BART STUPAK (D), MICHIGAN: Did you or any officials at the Peanut Corporation of America ever place food products into the Interstate commerce that you knew to be contaminated by salmonella?

PARNELL: On the advice of my counsel, I respectfully decline to answer your question.

SAMMY LIGHTSEY: On advice of counsel...

PARNELL: On the advice of my counsel...

STUPAK: Is it your intention to refuse to answer all our questions today based on the right against self-incrimination?


BOUDREAU: In earlier statements, the company denied it shipped out dangerous products and that it's top priority has been and will continue to be to ensure the public safety.


BOUDREAU: Testimony also revealed the company knew about a contamination problem as far back as 2006. The Peanut Corporation of America now faces at least three lawsuits. And another plant in Texas has been closed by officials there because of concerns over possible contamination -- Wolf.

BLITZER: Abbi, thank you.

Abbi Boudreau working the story for us.

All of us remember what happened yesterday at that town hall meeting in Fort Myers, Florida. A woman -- an elderly woman and a young man both asked very intriguing questions of President Obama.

We asked CNN's Mary Snow to check in to see what's happened to those two individuals, Mary, since then.

MARY SNOW, CNN CORRESPONDENT: Well, you know, Wolf, two very different stories -- both grabbing a lot of attention. Support has been pouring in, particularly in the case of Henrietta Hughes, who told the president that she and her son are homeless.


SNOW (voice-over): Her emotional plea to President Obama at this town hall meeting in Fort Myers, Florida has already brought offers of help.

HENRIETTA HUGHES, TOWN HALL PARTICIPANT: I have an urgent need on employment and homelessness -- a very small vehicle for my family and I to live in. We need urgent. The housing authority has two years' waiting lists and we need something more than a vehicle and parks to go to. We need our own kitchen and our own bathroom. Please help.

SNOW: The president said he'd have his staff talk to Henrietta Hughes. And since then, the head of the local housing authority tells us he's met with Hughes. He says he's working on finding her a housing unit with a shorting waiting time and that he's e-mailed a White House staffer with the update.

In the meantime, Hughes has been offered the temporary use of this house...


SNOW: ...owned by Chene Thompson, wife of Republican State Representative Nick Thompson.


CHENE THOMPSON, OFFERED HOME TO HUGHES: I just, you know, got teary-eyed and said what can we do to help this woman?


SNOW: Nick Thompson says all the attention from the town hall meeting sheds light on the record number of foreclosures in Lee County.

NICK THOMPSON (R), FLORIDA STATE HOUSE: We've had a huge boom over the years in construction and housing. And, of course, when the economy turned, that pendulum swung very far back in the negative direction.

SNOW: Hughes wasn't the only one getting offers of help. College student Julio Osegueda caught the president's attention when he asked about benefits for low wage workers.

JULIO OSEGUEDA, TOWN HALL PARTICIPANT: OK. I've been at the same job, which is McDonald's, for four-and-a-half years because of the fact that I can't find another job.

SNOW: He told the president he wants to be a broadcaster or a disk jockey. That resulted in a series of TV interviews and Osegueda says he's been offered an internship at a radio station. He's also been invited to help broadcast the opening game for the Fort Myers Miracle baseball team.


SNOW: And, Wolf, a Web site has also been set up called, calling Hughes "the face of the economic crisis." The site's owner is identified as a Southwest Florida resident wanting to raise awareness of people facing similar circumstances -- Wolf.

BLITZER: And good luck to both of these people, indeed.

All right, Mary.

Thanks very much.

Let's get right back to the breaking news.

Dana Bash, our senior Congressional correspondent, is working the story -- Dana, there was a snag, but what's going on with that snag over this nearly $800 billion economic stimulus package?

DANA BASH, CNN SENIOR CONGRESSIONAL CORRESPONDENT: Well, it appears in talking to Democratic sources they worked out the snag. And, in fact, the official conference -- the official meeting that will is going to meld the Senate and the House bills is supposed to get underway momentarily.

Now, the snag was over a philosophical difference, really, on how to spend money for education.

Our understanding in talking to Democratic sources is that they have worked that out in consultation with some of those moderate Republicans in the Senate, that everybody needs to vote for this. We don't know how exactly they've worked it out.

But the bottom line is we are told that they have done that and they feel that they are going to now continue to move forward on this nearly trillion dollar spending bill. Excuse me -- a trillion dollar stimulus bill -- some spending, some tax cuts -- in order to try to get it to the president's desk, Wolf, by this weekend.

BLITZER: And so basically the House will now vote on this compromised version.

When do we expect the House to vote?

BASH: Possibly as early as tomorrow. They're actually trying to work that out. And, in fact, right now, the House Democrats are going to go into a meeting of their own to try to talk about that very issue.

But first things first. The first thing that they're going to have to do is officially vote. House and Senate negotiators are going to have to officially vote to make this deal official and then they're going to send it to both the House and Senate floor.

But they're not sure on the exact timing, but they hope to do it in the next couple of days.

BLITZER: Thanks very much, Dana, for that.

New bailout outrage -- four top executives at a collapsing company take $121 million in bonuses just ahead of a buyout financed by your tax dollars.

Plus, under pressure from labor unions, aides for one Republican congressman respond with a foul-mouthed parody. But no one is laughing.


BLITZER: Let's go to Deborah Feyerick.

She's monitoring some other important stories incoming into THE SITUATION ROOM right now -- Deb, what's going on?

DEBORAH FEYERICK, CNN CORRESPONDENT: Well, Wolf, it's happening again. More suspicious fires are raging in parts of Southeastern Australia. They broke out last night just days after the country's worst wildfires scorched almost a million acres. Officials say there's evidence the new fires were deliberately set. Arson is also suspected in some of the devastating blazes that broke out last week. More than 180 people were killed and that death toll could rise even higher as crews search hard hit areas.

Shiite Pilgrims targeted today in a deadly debate car bombing. Officials say the pilgrims were gathered at a Baghdad bus station when the bomb detonated. At least 16 people were killed. Forty-three others were wounded. Roadside bombs killed two other pilgrims in Baghdad. Fearing a surge in sectarian violence, a top U.N. Official urged Iraqis not to respond to "the provocation of extremists."

And in Southern Oklahoma, emergency crews are searching through mounds of debris a day after a string of deadly tornadoes tore through that state. At least eight people were killed -- all of them in this town, Lone Grove. About 50 others were injured. Emergency workers are on the scene helping survivors and searching areas where there may be more victims. They're hopeful that the people will be found alive -- Wolf.

BLITZER: Thanks, Deb.

We'll get back to you shortly.

A labor union got into a dustup with Republican Congressman Eric Cantor of Virginia after his office e-mailed a video response to an ad backing President Obama's stimulus plan.

Let's go to our Internet reporter, Abbi Tatton.

She's here to explain what's going on.

What is going on -- Abbi?

ABBI TATTON, CNN INTERNET REPORTER: Wolf, it started with this ad from labor groups, including AFSCME going after Republican leaders on the stimulus bill.

When Virginia Congressman Eric Cantor's office was asked for a response by Politico, his spokesman said use this.

Now, we at CNN have done a fair bit of editing here.


UNIDENTIFIED MALE: (EXPLETIVE LANGUAGE) because amalgamated federalization. But, hey, I don't know what the (EXPLETIVE LANGUAGE) it means. All I know is we're hardworking taxpaying people like you and we don't take (EXPLETIVE LANGUAGE) from nobody. You got that (EXPLETIVE LANGUAGE)?


TATTON: A profanity-filled parody of AFSCME. That's the American Federation of State, County and Municipal Employees. It's been on YouTube for a couple of years. Congressman Cantor's spokesman, Brad Dayspring, said he e-mailed it as a joke.

But labor groups aren't laughing. AFSCME's president said: "Eric Cantor may think the greatest economic crisis in 70 years is a joke, but we don't."

Dayspring has apologized, saying the video was: "In no way an official response from Congressman Cantor."

Clearly, not a time to be joking about the economy -- Wolf.

BLITZER: There's not a whole lot of people laughing right now.

All right. Thanks very much, Abbi, for that.

The Senate Judiciary Committee chairman, Patrick Leahy, wants to investigate the Bush administration.


SEN. PATRICK LEAHY (D), VERMONT: Let's find out the illegal things that were done.


BLITZER: Is it time to move on?

I'll ask Democratic strategist Donna Brazile and Republican strategist Ed Gillespie. They're standing by live.

And inmates are cutting -- getting sick in California's overcrowded prisons.

Will tens of thousands of them be released?

Plus, Michelle Obama is now the first lady of the United States. She's also becoming a first lady of fashion. She'll be on the cover of "Vogue" magazine, the new issue. We'll hear how she stays within her style budget.

Stay with us.



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

Happening now, the stock market gaining some ground today after yesterday's massive sell-off. The Dow rose about 50 points, closing at 7,939. Analysts say investors were encouraged by the progress the economic stimulus plan was making up on Capitol Hill.

The State of California is locked in a battle over the fate of these prison inmates. A federal court wants thousands of them released and we're going to tell you why.

And the mayor of Las Vegas demanding an apology from President Obama for mentioning his city at a town hall earlier this week.

Just what got the mayor so miffed?

That story coming up.

I'm Wolf Blitzer.


Let's get back to the breaking news. Our top story, the Congressional negotiators reaching a cost cutting compromise on the economic stimulus plan. President Obama is already looking ahead.


OBAMA: So we're at the doorstep of getting this plan through Congress. But the work is not over. When we do, the challenge will shift to administering successfully this endeavor of enormous scope and scale.

Now, there are those who have expressed the opinion that we won't be able to do it, who say that this plan is too big to be implemented effectively and efficiently. And the fact is, there's a certain amount of skepticism -- much of it justified -- by what we're accustomed to seeing in Washington.

So I understand these concerns. But I'm confident that we can do things differently and better. As president, I expect to be judged and should be judged by the results of this program.


BLITZER: The president speaking earlier.

Let's bring in our Democratic strategist and CNN political contributor, Donna Brazile, and Republican strategist, Ed Gillespie. He was counselor to President Bush, as most of you probably know. Guys, thanks for coming in.

The road trips he is making, Florida, Indiana, Virginia, going to Illinois tomorrow. Is it paying off?

DONNA BRAZILE, DEMOCRATIC STRATEGIST: Absolutely because more Americans are becoming aware of the plan. They are not reading talking points from either party. They are listening to the president explain what is in the details, to create jobs and invest in America's future. It is important the president stay on the road.

BLITZER: He seems to have more support from Republicans outside of Washington than inside, Charlie Crist the governor of Florida, Schwarzenegger, the governor of California are any examples.

ED GILLESPIE, REPUBLICAN STRATEGIST: That is not surprising if you look what is in the package for state relief. I'm not sure Republicans as a whole, some of the Republican elected officials in states may be supportive because they are going to get something out of it. I don't think you find many Republicans as a whole supportive of this package.

BLITZER: A lot of people disappointed in the treasury secretary yesterday Timothy Geithner. They didn't think he instilled a lot of confidence reading that speech from a teleprompter. He was a little awkward. Not that easy if you're not used to doing it. President Obama does it very, very well. What do you think because the market collapsed yesterday, as you know in the aftermath of his financial bailout.

BRAZILE: It wasn't a stellar performance, Wolf. But after all the creation of the T.A.R.P. program has not left many Americans joyful these days. I think what Mr. Geithner was trying to do was give us broad outlines. But clearly most Americans including those on Wall Street, Main Street, we need details. We need to know what he means.

BLITZER: A lot of people are saying if you are going to release a plan like this involving $1 trillion or maybe even more money, you can't leave questions unanswered. You have to have the whole thing wrapped up as it's being released.

GILLESPIE: And that's right Wolf. I will confess having been at the White House when the original T.A.R.P. was unveiled we were focused frankly on the market's response and not enough focus frankly on the public's response to the plan. I think in this instance this White House wasn't focused enough on the market response to the plan. Somewhere in between there is the balance.

BLITZER: How important, Donna, is it for a treasury secretary to instill confidence not only in Wall Street but Main Street and give the American public a sense they know how to deal with this enormous economic crisis?

BRAZILE: I think the most important thing the secretary can do is assure us we are not throwing good money after bad money. In producing I guess more revenue for these banks money will finally fall on Main Street. Most Americans are concerned right now this money is not flowing to the people who need it.

BLITZER: You worked as the former chairman of the RNC but you more recently you worked for President Bush as counselor in the White House. I want you to listen to what the chairman of the Senate Judiciary Committee, Pat Leahy, what he told me just a little while ago about his desire to have this sort of truth commission as he calls it to review controversial decisions made during the eight years of the Bush administration.


LEAHY: Let's find out the illegal things that were done, puts in checks and balances so they won't be done again by the Obama administration or the next administration. (END VIDEO CLIP)

BLITZER: He says unless there is a complete review, Americans will make the same mistakes down the road.

GILLESPIE: Wolf, this has been thoroughly reviewed. I guess old habits die hard. The Bush administration was investigated and investigated and investigated. Senate Intelligence Committee on pre- war intelligence on Iraq a three phase report, the 9/11 commission, the Rob Silverman commission, countless hearings. In fact, the Bush administration, the White House produced enough documents, enough pages that if you stacked them one on top the other it would be double the size of the White House behind you. Imagine a stack of papers reaching up to the Washington monument. I think their time would be better spent if President Obama is going to close Guantanamo, Chairman Leahy might want to have hearings on how to do that without releasing some pretty dangerous people on our streets.

BLITZER: At his news conference the other night, we did hear Obama say he is more interested in looking ahead than looking back.

BRAZILE: Well as Patrick Leahy said, before we can turn the page, we need to find out what is on the page. Did anyone break the law? This is a review commission. Not to put anybody in jail but to find out what happened. It is about accountability. That is what the Senate is trying to get at.

BLITZER: We'll leave that here. Guys, thanks very much. Ed we hope you will be a frequent visitor. Donna has no choice.

BRAZILE: I like Ed, too.

BLITZER: Thanks guys very much. By the way, the full interview with the chairman of the Judiciary Committee Patrick Leahy's will air Saturday at 6 p.m., our Saturday edition of THE SITUATION ROOM, 6 p.m. eastern.

Anybody who meets the first lady needs to know, don't ask this.


MICHELLE OBAMA, FIRST LADY: The question I hate most we ask of young people is what are you going to be when you grow up. The truth is I still don't know and I'm 45 years old.


BLITZER: The first lady speaking candidly.

The company that dumped Olympic champ Michael Phelps over that infamous picture of him smoking some pot, now Kellogg's is facing a backlash. We'll explain right here in THE SITUATION ROOM.


BLITZER: The situation in Afghanistan seems to be going from bad to worse. At least 19 people dead in a shocking mass suicide attack in the heart of Afghanistan's capital. Let's go to our pentagon correspondent, Barbara Starr.

I assume folks at the Pentagon are upset wondering what's going on over there.

BARBARA STARR, CNN PENTAGON CORRESPONDENT: You are absolutely right. It is the motive behind this latest attack that has folks worried.


STARR (voice-over): Afghan security forces responded quickly when armed gunmen launched a coordinated suicide attack against several government buildings in Kabul, at the ministry of justice, a three-hour fire fight finally brought that part of the siege to an end. Dozens killed and injured. The chief of intelligence in Afghanistan was quick to point the blame across the border.

AMRULLAH SALEH, AFGHAN INTELLIGENCE CHIEF: As they were entering the ministry of justice and before starting their indiscriminate killing of the civilians there they sent a message to Pakistan.

STARR: U.S. military officials say the Taliban attack is a further challenge to President Hamid Karzai and is an attempt to send a message to the Afghan people that Karzai, already a weak leader, can't even protect his nation's capital.

At the White House where secretary of defense Robert Gates was meeting with the president, the expected statement of concern.

ROBERT GIBBS, WHITE HOUSE PRESS SECRETARY: Obviously, we are reminded today of the brutal tactics that extremists like the Taliban wants to employee. It hardens our resolve.

STARR: However, President Obama didn't hide his deep unhappiness with the Karzai regime.

B. OBAMA: They have elections coming up but the national government seems very detached from what is going on in the surrounding community.

STARR: Traveling in the region, the new U.S. envoy, Ambassador Richard Holbrook is underscoring to leaders in Afghanistan and Pakistan there will be a new U.S. strategy focusing on both countries realizing they must work together against more attacks.


STARR: But at the moment the top priority remains getting more troops, more U.S. troops into Afghanistan as quickly as possible -- Wolf?

BLITZER: What a story. All right. Thanks very much, Barbara, for that. Bonus outrage, a New York State's attorney general reveals that Merrill Lynch handed out huge sums of money, bonuses on the eve of the taxpayer supported buyout of Bank of America. Let's go to our special correspondent Allan Chernoff who is working this story in New York. Allan, explain what is going on?

ALLAN CHERNOFF, CNN SPECIAL CORRESPONDENT: Wolf, these numbers are incredible but true. As Merrill Lynch was losing $27 billion last year and literally collapsing, throwing itself into the arms of Bank of America it was doling out $3.6 billion in bonuses. The top four recipients at the firm received a combined $121 million. Nearly 700 employees got bonuses of more than $1 million. New York State's attorney general says the payments are outrageous particularly because the federal government invested billions of taxpayer funds into Bank of America's buyout of Merrill Lynch.


ANDREW CUOMO, NEW YORK ATTORNEY GENERAL: I don't want to see the taxpayers taken advantage of and I don't want to see the taxpayers paying performance bonuses that shouldn't be paid. How do you pay a CEO a performance bonus when by definition the institution was failing? What did they do to deserve that money? This is not a little bit of money. $20 million, $30 million, 700 people were made millionaires by Merrill Lynch while the taxpayers are paying through the T.A.R.P. program.


CHERNOFF: John Thain, the CEO of Merrill had reportedly been demanding a $10 million bonus for himself but backed away after that number was made public. The CEO of Bank of America was questioned before the House financial services committee. He said he did not have the power to stop Merrill executives from handing out the checks.


KEN LEWIS, CEO, BANK OF AMERICA: I do know that we urged the Merrill Lynch executives involved in this compensation issue to reduce the bonuses substantially particularly at the top. I will remind you though they were a public company until the first of this year. They had a separate board and composition committee. We had no authority to tell them what to do, just urge them what to do.


CHERNOFF: Bank of America adds that a substantial amount of the bonuses were contractually guaranteed. The attorney general says he asked Merrill to reveal its bonus plans. Instead of getting a detailed response he accused the firm of secretly moving up the date of the bonus payment and Attorney General Cuomo is investigating to see if any Merrill officials violated New York law.

BLITZER: Allan Chernoff, thanks very much. We will stay on top of this story.

Not easy being a wife and mother let alone first lady with children in the White House.

OBAMA: There isn't a day that goes by particularly after having kids that I don't wonder or worry about whether I'm doing the right thing for myself, for my family, for my girls.

BLITZER: You are going to hear much more of the first lady Michelle Obama. Speaking very frankly on how she balances her very busy life.

And President Obama saying he is working to fix the economy. But is he making things worse for the city of Las Vegas? You will hear from the mayor of Vegas.

That and a lot more coming up here in THE SITUATION ROOM.


BLITZER: Let's check in with Jack. He's got "The Cafferty File" -- Jack?

JACK CAFFERTY, CNN CORRESPONDENT: The question this hour is should obese people pay more for their health insurance? There is a debate in the South Carolina legislature on that very subject.

Pete writes from Florida: "If obese people were forced to pay more it would make them more inclined to lose weight. I'm tired of being the fat country of the world. I saw we start the plan now."

Larry in Ohio: "Personal habits have played into the cost of insurance premiums for a while now, smoking, et cetera. If a person chooses to put themselves in jeopardy by having a Big Mac heart attack I see no reason why this person shouldn't have to pay more."

Mark writes: "Once again we are making the poor pay for our financial problems. Many poor people are overweight because the cheaper food they can afford is high in calories and low in nutrition. From our school lunch programs to cheaper fast foods, the poor are caught in a situation where to eat normal amounts is to become obese."

Larry in Houston says: "Jack, if the cost of insurance was decided by how much you would weigh can you imagine what American people would look like in the future. The fast food places would go out of business."

Maria says: "Well, I don't know. As someone who has struggled with her weight since she was 12 yes and no. Yes because I think they should be held responsible when they won't make any attempts to lose weight and continue to live unhealthy lives. But no because I do think that obesity is a genetic condition and at times cannot be controlled."

Santo in Tallahassee says: "Elementary dear Jack, you weigh more, you pay more."

And Roland writes: "My answer is a big fat yes." If you didn't see your e-mail here, you can go to my blog at and look for yours there among hundreds of others.

BLITZER: Lots of thoughtful answers. Not surprising, Jack. Thank you.

She is no longer officially a working mom but a former executive and very busy first lady Michelle Obama knows the struggle of balancing family, career and school. She talked at length at Howard University in Washington.


M. OBAMA: This issue is something I have dealt with my whole life, trying to figure out how to juggle work/family balance in the process of getting an education. There suspect a day that goes by particularly after having kids that I don't wonder or worry whether I'm doing the right thing for myself, my family, my girls. So I think this issue is particularly important for us to tackle. Not just as women but men as well because these conversations are going to help us shape our lives in the years to come.

And the one message that I have is for all of you struggling with this issue is just remember there is no right answer. It took me a long time to figure that out. There is no one right way to do any of this. And the choices and the decisions will change given your circumstances.

The person I was when I was in college is very different than the person that I am today. That person is very different than the person who was single and married. I was different when was single when I was not married. I was married, I was different when I was married with kids. I was different when I was married with kids in certain types of jobs. And every step of the way I wondered whether I was doing the right thing.

So know that in your struggle to figure these things out as women, as professionals, that you have to do what's right for you at any given time, and that's going to change from week to week, from month to month, from year to year.

The question that I hate most that we ask of young people is, what are you going to be when you grow up. And the truth is, I still don't know. And I'm 45 years old.

All I know is that it's important for you to be true to yourselves. Not to worry too much about what other people are going to think, or make of your choices, because everyone will question what you do, and tell you should have done it the other way.


BLITZER: The first lady is also having some of her fashion secrets revealed.

UNIDENTIFIED MALE: It's all J. Crew. Her favorite resources is J. Crew.

BLITZER: She's on the cover of the new issue of "Vogue" magazine. The editor in large is here with details.

And a panel of federal judges order tens of thousands of convicts released from California's overcrowded prison. Now state officials come out swinging.


BLITZER: The first lady, Michelle Obama, now on the cover of the next issue of "Vogue" magazine. Just as fascinating as the cover, the story behind it.

Joining us now, Andre Leon Talley, editor at large of "Vogue" magazine. We saw it on the website, Andre, a great picture of Michelle Obama, the first lady of the United States. I see a broad smile. I read the article you wrote. Tell us about this photograph. Tell us about the first lady.

ANDRE LEON TALLEY, VOGUE EDITOR AT LARGE: Great, Wolf. It's great to be on your show and I'm happy to talk about our first lady. The cover wanted to evoke the real Michelle Obama. It's a cover about her warmth, which comes from within. It's not about her being a fashion icon. We're not trying to put her on a pedestal and making her into a fashionista. It's who she is. What you see is what you get. And it all comes from her smile, her naturalist. She's beautiful. She can wear anything. But the cover expresses the hope and the optimism that comes with the Obama administration and a new era.

BLITZER: She looks fabulous. It's a great dress. Who picked out the dress? Did the first lady pick it out?

TALLEY: The first lady picked out her dress from one of her favorite designers, Jason Wu. J. Crew, one of her favorite resources. In the first days like Jackie Kennedy, they couldn't shop online at J. Crew. One of the advantages of Michelle she embraces being a mother, a wife and she's got a lot of things to juggle and she can sit down and shop and get a whole outfit online for $400.

BLITZER: Annie Liebowitz, who is a fabulous photographer as we know, she must have taken a lot of pictures. We saw a picture in which you see the first lady there, pen in hand, taking some notes on a legal pad it looks like. People tend to forget, she is a trained attorney. She went to Harvard Law School.

TALLEY: Exactly. You have to realize she has the best education. She grew up in Chicago. That was her home, her roots. And she's a lawyer, trained a lawyer. She's a community activist. And she's a very intelligent woman. The thing that impresses you most when you're in the midst of Michelle, or with the president and Michelle, is her clarity and her focus, of her vision, of her goals, of goals for the White House, her new ideas about entertaining, opening the White House at seminars for children. You know, she wants to use the kitchen as the classroom for young urban kids to come and see how a kitchen works.

BLITZER: What about the outfit that she's wearing in that picture on the couch? We see a sweater and her skirt.

TALLEY: All J. Crew. All J. Crew. It's all her favorite, one of her favorite resources is J. Crew. She dressed her daughters in J. Crew for the inaugural. They had lovely coats and matching accessories. It all came from J. Crew. It's a great resource for every American woman. You get style for price.

BLITZER: You've known her for awhile, right?

TALLEY: I got to meet her at Oprah Winfrey's house in Santa Barbara.

BLITZER: When was that?

TALLEY: Two thousand five, when she had her big legends ball. The night before the ball, Oprah had an impromptu dinner party. Very impromptu at her home, in the dining room. She went to set me down. There was no place settings. She said, here, you're going to set here. On my right was Michelle Obama, on my left was Tina Turner. I was so impressed with Michelle, not what she was wearing, but I'd never heard of Michelle Obama until I sat next to her. Of course, I found out she was the wife of Barack Obama. She was just so incredible to talk to. She could talk about so many things. When I got up from the table, it wasn't what she was wearing that I remembered, I remembered her as a human being.

BLITZER: Tell us one thing, Andre, about the first lady that most of our viewers don't know.

TALLEY: One of the things about the first lady is, when she was on the train coming from Philadelphia to Washington, the way Abraham Lincoln had done, with her family and her husband, her go daughters spent two hours in the children's train decorating it to give their mother a surprise birthday party, because she was turning 45 that day. And the mother took the party over and she was surprised, and she led all the kids in a stomp dance singing a capella. Singing on the train, with her children around her, just giving that moment of fun was so important. And the first thing she said to me after the party was, I just said to Barack, this is nice. But who's going to clean up this mess? We can't leave Amtrak in this mess. So this was really a queue for all of us to get up and volunteer, to pitch in and pick up all the paper cups and streamers and party things. We did. I think it's wonderful.

BLITZER: She's only the second first lady ever to be on the cover of "Vogue" magazine. Michelle Obama, the sub headline, the first lady, the world's been waiting for. Andre Leon tally editor at large at "Vogue" magazine. Thank you for coming.

TALLEY: Thank you, Wolf. I appreciate it. Thank you very much.

BLITZER: The other first lady who was on the cover was Hillary Clinton. The economic stimulus plan includes a lot of money to help people buy digital converter boxes for their TVs. Let's bring in Lou. He's keeping an eye on this part of the story for us.

I know you'll have a lot more an hour from now on your show but tell us what's going on.

LOU DOBBS, CNN ANCHOR: You bet Wolf. Tonight we'll have much more on the final negotiations over that economic stimulus package. We're going through every element of the legislation.

Also tonight in "LOU'S LINE-ITEM VETO," we're focusing on the $650 million provision to help people make the switch to digital television. Tonight we're asking why the funding is in a bill that's supposed to create jobs and stimulate the economy, and in point of fact, the federal government has already spent more than $1 billion on a digital conversion plan. And you won't believe where some of that money has gone. We'll have all of those details in tonight's "LOU'S LINE-ITEM VETO" at 7:00 p.m. eastern on "LOU DOBBS TONIGHT." Let your elected officials know about how you feel about this before the so- called stimulus package has a final vote. Wolf, back to you.

BLITZER: Lou, see you in an hour. Thank you.

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

Happening now, breaking news. A new stimulus compromise is on track. A last-minute snag has been resolved just moments ago. We're going to tell you how the deal was sealed.

Also this hour, tough choices on the road to recovery. What matters most, the money to states or tax cuts. We'll hear from the president and from his conservative critics.