Return to Transcripts main page


New Rules on Embryonic Stem-Cell Research; Economic 'Pearl Harbor'; Chinese Sailors Block U.S. Naval Ship; Former President Clinton Looking to Help Haiti; Tent City Sacramento; Should the Automakers be Allowed to Fail?

Aired March 9, 2009 - 15:59   ET


WOLF BLITZER, CNN ANCHOR: Rick, thanks very much.

Happening now, President Obama says he's opening a new frontier that could help even cure millions of Americans who are sick and suffering.

This hour, his new rules on embryonic stem-cell research.

Also, an economic Pearl Harbor gets even worse. The billionaire investor Warren Buffett speaks candidly about a financial system under attack and whether the nation can ever recover.

And middle class Americans out of work and now scraping by in 10 cities. How did they go from living everyday lives to this?

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


BARACK OBAMA, PRESIDENT OF THE UNITED STATES: We will bring the change that so many scientists and researchers, doctors and innovators, patients and loved ones have hoped for and fought for these past eight years. We will lift the ban on federal funding for promising embryonic stem-cell research.


BLITZER: President Obama says he's offering new hope for medical miracles with the executive order he signed today. It's a victory for champions of embryonic stem-cell research who lent their names and dedicated their lives to undoing the Bush administration's restrictions on that policy.

Let's go to our White House Correspondent Dan Lothian. He's watching the story for us.

Dan, a lot of people applauding, but plenty of others not very happy.

DAN LOTHIAN, CNN WHITE HOUSE CORRESPONDENT: That's right, Wolf. You know, this is very controversial, but the president did make a promise that he would do this while out on the campaign trial. Today, he said that he's not guaranteeing or can't guarantee a cure, but what he wanted to do is come up with the funding for scientists in order to do groundbreaking work.


LOTHIAN (voice-over): It's still not a proven science, but President Obama says embryonic stem-cell research is promising.

OBAMA: The full promise of stem-cell research remains unknown, and it should not be overstated, but scientists believe these tiny cells may have the potential to understand and possibly cure some of our most devastating diseases and conditions.

LOTHIAN: Like cancer, Parkinson's Disease, and spinal injuries. The president's executive order allows federal tax dollars to fund broader embryonic stem-cell research, reversing limits imposed by President Bush. And it directs the National Institutes of Health to develop guidelines within 120 days.

Rhode Island Congressman Jim Langevin, who has been paralyzed for 28 years, is optimistic.

REP. JIM LANGEVIN (D), RHODE ISLAND: I've always believed that some day, I would walk again. It's become more real now that stem- cell research will be supported properly in this country.

LOTHIAN: Mr. Obama is finding support across party lines. In a statement, former first lady Nancy Reagan said, "These new rules will now make it possible for scientists to move forward..."

But some say it's a step backwards.

REP. CHRIS SMITH (R), NEW JERSEY: I believe that Barack Obama is turning the clock back and is really going back to what was 10 years ago. It sounded like embryonic stem cells were the future. They're not.

LOTHIAN: Critics are concerned that by destroying human embryos to harvest stem cells, human life is being taken.

Bill and Sherry Keating have two so-called snowflake children, extra embryos from another couple's in vitro fertilization procedure.

SHERRY KEATING, MOTHER OF "SNOWFLAKE" BABIES: Couples need to know they have a life-saving and life-giving choice when it comes to their frozen embryos, and the public especially needs to know that their hard-earned money will require the destruction of the most vulnerable of human life.


LOTHIAN: The president acknowledged that there is strong opposition to this, and that some people are conflicted over this issue, but he says that sound science should not be affected by politics or ideology -- Wolf.

BLITZER: All right, Dan. Thank you.

Dan Lothian's at the White House.

Now to the economy and how it has "fallen off a cliff." That very grim assessment today from one of America's richest men and one of the best financial minds, the billionaire Warren Buffett.

Let's go straight to CNN's Mary Snow. She's working this story for us.

He once described this economic crisis as an economic Pearl Harbor, Mary. What is he saying now?

MARY SNOW, CNN CORRESPONDENT: Well, Wolf, Warren Buffett says now we're witnessing close to a worst-case scenario. He spoke with CNBC earlier today. Take a listen.


WARREN BUFFETT, CHAIRMAN, BERKSHIRE HATHAWAY: It's fallen off a cliff. And not only has the economy slowed down a lot, people have really changed their behavior like nothing I've ever seen.

Luxury goods and that sort of thing have just sort of stopped. And that's why Wal-Mart is doing well and, you know, I won't name the ones that are doing poorly. But there's been a reset in people's minds.


SNOW: Now, Buffett says he's never seen Americans more fearful, and says they will be until confidence is restored.

BLITZER: What does he think, Mary, about the way the Obama administration is handling this crisis?

SNOW: Well, Wolf, as you know, Buffett was an early supporter of Barack Obama. He didn't say much specifically about the president, but he did talk about Congress, saying that lawmakers need to stop partisan bickering. And he told CNBC the government will have a big role in how quickly confidence can be restored. And he also warned about muddled messages.


BUFFETT: The message has to be very, very clear as to what government will be doing. And I think we've had -- and it's the nature of the political process somewhat, but we've had muddled messages, and the American public does not know -- they feel they don't know what's going on, and their reaction to that is to absolutely pull back.


SNOW: Now, as for the big question that no one has an answer to, when does he see things turning around, Buffett would give any timetable. He says it will not happen fast. And he says it will all depend on the wisdom of government policies. He does say the economy will be running fine in five years from now, and still sticks to his belief that America's best days are ahead of us -- Wolf.

BLITZER: Five years, that's -- for a lot of people, that's an eternity right now.

The "Oracle of Omaha" speaking out.

All right, Mary. Thanks very much.

Five years -- wow.

All right. Let's go back to Jack Cafferty right now. He's got another week with us.

Jack, welcome back. I hope you had a nice, relaxing weekend.

JACK CAFFERTY, CNN ANCHOR: Well, I did, Wolf. Thank you very much.

Now, this will lift your spirits. Illegal aliens in this country could wind up winning big from the recently passed economic stimulus package.

"USA Today" reports studies by two conservative think tanks show that illegal aliens could take 300,000 new construction jobs, or 15 percent, of the two million jobs to be created by U.S. taxpayer dollars. The numbers of illegal workers getting jobs could be especially high in states like California.

These reports blame Congress for not forcing employers to certify the status of workers. The House of Representatives did include a provision in its version of the bill that would have required employers to use a homeland security program called E-Verify, but the Senate didn't include it, and the provision wasn't in the final bill that went to the president.

So much for putting Americans first.

The recession/depression isn't that bad; right? Unemployment's only at 8.1 percent. We've only lost 4.4 million jobs in the last 15 months. What's wrong with giving a few hundred thousand jobs away to people who shouldn't even be in the country in the first place? This is your government at work.

An advocacy group for immigrants doesn't dispute the 300,000-job estimate, but says it's impossible to know for sure since there could be many jobless immigrants leaving the country because of the recession. He says these are fear tactics and, instead, we should be focussing on economic progress for all.

Excuse me?

Immigrant advocacy groups, along with business groups who, of course, benefit from cheap labor, argue that the E-Verify program has lots of errors that could mean millions of workers would be wrongly identified and not authorized for jobs. The Obama administration has delayed until at least May a Bush-era order that would require all federal contractors to use E-Verify in hiring.

This is disgraceful.

Here's the question: What does it mean if up to 300,000 illegal aliens get jobs created by the economic stimulus package?

Go to, post a comment on my blog.

I'm back on a Monday and I'm already depressed -- Wolf.

BLITZER: It could be 10 percent. If they say they're going to create three million jobs, 300,000, that's a big job right there.

CAFFERTY: The House had tried to address this and the Senate stripped it out, apparently, and it never made it into the final bill. It's just horrible.

BLITZER: Jack, thank you. We'll get back to you shortly.

Meanwhile, the United States took a huge gamble, as all of us know, in Iraq, a gamble that costs thousands of lives and hundreds of billions of dollars. What if another Saddam Hussein were to take over that country after all?

Stand by to hear more about that potentially real possibility.

And the man hired to protect the federal government from cyber attacks quits after just a year. He's now blowing the whistle on what he calls a bad strategy.

Plus this from our man over at the Pentagon...

CHRIS LAWRENCE, CNN PENTAGON CORRESPONDENT: We're looking into a story involving a confrontation on the high seas between Chinese boats and the U.S. Navy, one that ended with the Chinese sailors stripping down to their underwear.


BLITZER: It apparently started with a potentially very dangerous confrontation between U.S. and Chinese vessels on the high seas, and partly ended with some Chinese sailors actually stripping down to their underwear.

What's going on?

Let's go to our Pentagon Correspondent Chris Lawrence to explain.

What is going on, Chris?

LAWRENCE: Well, Wolf, this all took place Sunday, about 75 miles south of Hainan Island, involving a Navy ship that's designed to search for submarines. Now, the Impeccable is unarmed, but at one point, it sprayed its fire hoses at these Chinese boats in defense. Now, that soaked some of the Chinese sailors, but it didn't stop them. They stripped down to their underwear and kept coming. (BEGIN VIDEOTAPE)

LAWRENCE (voice-over): Sunday, in the South China Sea, the Pentagon says five Chinese boats aggressively blocked the American ship Impeccable, one close to within 25 feet and ordered the Navy ship to leave. When the Impeccable asked for a safe path out of the area, two boats cut it off and forced an emergency stop, and the Navy says the Chinese sailors dropped pieces of wood in the Impeccable's path.

The Pentagon calls it "one of the most aggressive actions we've seen in some time." And the Obama administration has protested the Chinese actions.

ROBERT GIBBS, WHITE HOUSE PRESS SECRETARY: We're going to continue to operate in those international waters, and we expect the Chinese to observe international law around them.

LAWRENCE: Analysts say this could be a test to the new administration, and the Chinese will be focusing less on words than what American ships actually do at sea.

UNIDENTIFIED MALE: If we back off on the right of navigation, if we give in to bullying, then the Chinese will interpret that as a real signal of weakness.


LAWRENCE: And the Pentagon says a Chinese intelligence collection ship challenged the Impeccable, you know, just a few days before. And before that, Chinese aircraft were doing low-altitude flying just about 100 feet away.

BLITZER: The Impeccable is a surveillance ship. And Chris, you served in the Navy, so you know something about these kinds of vessels. It's got very sophisticated sonar detection. They're really searching for Chinese submarines, is that right?

LAWRENCE: That's right. They drag these acoustic arrays through the water and basically gather data that they then send back to the Navy very quickly.

You know, again, this happened in international waters, Wolf, but China regards almost all of the South China Sea as its territory. A Pentagon official told me that they have heard reports that the Chinese do not like these survey ships in the area, but officially China has not commented on this incident.

BLITZER: All right. Thanks very much.

Chris Lawrence, our man at the Pentagon.

China, by the way, sparks controversy over its stance on Tibet as well. Tomorrow marks the 50th anniversary that the Tibetans launched their failed uprising against China.

Today, the actor Richard Gere is here in THE SITUATION ROOM to discuss what's happening. He's a passionate human rights advocate. We'll speak about what is going on in Tibet and what could happen tomorrow.

A government official who helped thwart dangerous attacks on the United States is calling it quits. He's angry over the handling of the nation's cyber security.

Our Homeland Security Correspondent Jeanne Meserve is standing by. She has more on a very sensitive story.

What's going on, Jeanne?

JEANNE MESERVE, CNN HOMELAND SECURITY CORRESPONDENT: Wolf, he's the point person who has to coordinate federal cyber security efforts, but he's resigning, citing a lack of cooperation and collaboration.


MESERVE (voice-over): In the past three years, the number of reported cyber attacks on government computer networks has more than tripled. Experts say it is an urgent national security problem.

To better protect government systems, Silicon Valley entrepreneur Rod Beckstrom was hired by the Department of Homeland Security to promote information sharing and coordination among agencies like the Department of Defense and the ultra-secret National Security Agency. But only one year after his appointment, Beckstrom is throwing in the towel, writing DHS Secretary Janet Napolitano, "NSA effectively controls DHS cyber efforts. I believe this is a bad strategy."

Privacy advocates believe it is also a potentially dangerous strategy and point to recent warrantless wiretapping by the spy agency.

MARC ROTHENBERG, ELECTRONIC PRIVACY INFORMATION CENTER: The NSA has two different roles. One is to promote computer security and the other is to conduct electronic surveillance. And it means that when NSA is in charge of computer security in the United States, they're also listening in on communications, and that's a real problem.

MESERVE: In his resignation letter, Beckstrom also complains about a lack of support within DHS, saying during the last year, his office "... received only five weeks of funding, due to various roadblocks engineered within the department and by the Office of Management and Budget."

In a statement, DHS said, "We thank Rod for his service and regret his departure."

The bottom-line impact of his resignation?

JAMES LEWIS, CENTER FOR STRATEGIC & INTERNATIONAL STUDIES: It's not a catastrophe because things were already so bad, that it would be hard to make them worse.

(END VIDEOTAPE) MESERVE: A review of government cyber security efforts is expected to be completed in April, and it may recommend reassigning cyber security responsibilities. But Beckstrom says he made his decision to leave when he found out contracts for new computers, furniture and office space for his group had been canceled -- Wolf.

BLITZER: All right, Jeanne. Thank you.

Jeanne Meserve is our homeland security correspondent.

Politicians want to bring home the bacon, but one lawmaker says this...


REP. ERIC CANTOR (R), VIRGINIA: There's no question we've got to change this entire process. It is a system gone bad.


BLITZER: Spending on pet projects pits Republicans against Republicans, even Democrats against Democrats. One Democratic leader says the Obama administration can't tell Congress what to do.

And a dangerous chemical spills into a swimming pool, putting adults and children at risk. Many of them fled the scene for all-out fear. We'll tell you what's happening.

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



BLITZER: Senate Democratic leaders are trying once again this week to push through a controversial spending bill that's been stalled by outrage over those so-called pet projects.

Our Senior Political Analyst Bill Schneider has been following the debate very closely. He's joining us now live.

Bill, how does Congress plan on dealing with those pet projects, or earmarks, as the lawmakers like to call them?

WILLIAM SCHNEIDER, CNN SR. POLITICAL ANALYST: A lot of members are saying, lord, give us reform. But not yet.


SCHNEIDER (voice-over): Last year, John McCain vowed to end earmarks for special interest projects that members of Congress add to spending bills, often at the requests of lobbyists or contributors.

Barack Obama said...

OBAMA: I want earmarks reform just like John McCain does. SCHNEIDER: Congress now has to vote on this year's budget. What's in it?

REP. PAUL RYAN (R), WISCONSIN: We've got 9,000 earmarks that the House passed last week, $7.7 billion. Four thousand of those earmarks are from Republicans.

SCHNEIDER: Republicans say they're changing their ways.

CANTOR: Leader John Boehner and I have taken a public position advocating that all of our members adopt a moratorium on earmark spending.

SCHNEIDER: It's old business, the White House says. We'll be good from now on.

PETER ORSZAG, WHITE HOUSE BUDGET DIRECTOR: Would we like to get the earmarks down further? Yes. Would we like to make them more transparent? Yes. Will that happen in the future? Yes.

We've been in office less than eight weeks. This was negotiated before we came into office.

SCHNEIDER: House Democratic Leader Steny Hoyer said it would undermine the constitutional responsibilities of Congress if it were to "... abandon its right to add items that it believes are priorities for our country and for the communities we represent." Hoyer added, "I don't think the White House has the ability to tell us what to do. I hope you all got that down."

McCain insists the process has gotten out of control.

SEN. JOHN MCCAIN (R), ARIZONA: I'm saying that the process is broken completely, and many of these earmarks are put in without anyone's knowledge. We have recently, in the last few weeks, had people indicted who were involved in this process. It's corruption.


SCHNEIDER: Indeed, some earmarks in the current bill were added last year by lawmakers who have since been indicted for corruption, or retired, or lost their bid for reelection, or died. But the earmarks live on -- Wolf.

BLITZER: It's been like that a long, long time. I wonder if it will change.

Thanks very much, Bill Schneider.

By the way, in the new spending bill, 10 senators account for more than three-quarters of a billion dollars in those pet projects. Six of the top sponsors are Republicans, four of the top sponsors are Democrats. At the head of the list, Democrat Robert Byrd of West Virginia, followed by a pair of Republicans, Richard Shelby of Alabama and Chris Bond -- Kit Bond, as he's called -- of Missouri.

Almost six years after the overthrow of Saddam Hussein, could someone like him take over Iraq?


UNIDENTIFIED MALE: It's probably not going to be a democracy. It's probably not going to be that stable. The best case scenario was probably a strongman somewhat like Saddam Hussein.


BLITZER: Wow. And that's the best case scenario, he says. A journalist and author's compelling take on what's going on in Iraq now and whether America's gamble will pay off or backfire.

Plus, they used to live in nice homes, then they lost their jobs. And now they live in tent cities.


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

Happening now, it could be that America's enemy is a friend to the U.S. President Obama suggests his administration may talk to a group that's associated with a fierce U.S. enemy.

What's going on?

As the Obama administration scrambles to keep big banks and automobile makers like GM afloat, some Republicans suggest an alternative -- simply let them fail. Would that help or hurt the country?

And something to ease every plane passenger's nightmare. What should you do in an airplane emergency?

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

The number of U.S. troops that Iraq will reduce by 12,000 over the next six months, that according to the U.S. military. In a statement, it says, "This is part of a gradual troop withdrawal," but one expert and a longtime observe of Iraq says a key job for American troops is far, far from done.


BLITZER: And joining us now is Thomas Ricks. He's author of the brand new bestseller "The Gamble." He's a "Washington Post "reporter, also a senior fellow at the Center for New American Security."

Tom, thanks very much for coming in.


BLITZER: This is a really powerful book. Your last book got you the Pulitzer Prize, among other things.

Let's talk about the war in Iraq. We're not hearing a lot about it. There's assumption that things are going in the right direction and it's all but over.

You don't believe that, do you?

RICKS: Well, I think the message of my book "Fiasco", the last book, was that Iraq was in terrible shape, much worse than you thought. The message of this book, I think, is that Iraq is in not as good a shape as people think. The war is not over. I think we'll be fighting there for a long time to come.

BLITZER: You suggested it may only be half over.

RICKS: Yes. And, in fact, General Odierno, the American commander in Iraq, says at the end of the book that he would like to see 35,000 troops there in the year 2015, which would mean that Obama's war will be longer than Bush's war.

BLITZER: In the end, is -- is Iraq going to be a stable democracy, a close ally of the United States, or is it going to be a close ally of its neighbor Iran?

RICKS: It almost certainly is going to be closer to Tehran than Washington.

It's probably not going to be a democracy. It's probably not going to be that stable. The best-case scenario is probably a strong man, somewhat like Saddam Hussein.

BLITZER: Someone like Saddam Hussein?

RICKS: Somewhat like him, yes.

BLITZER: So, what does that mean? Are we going to go back to the future, in effect? Is that what you're saying?

RICKS: It might mean that we will have to have troops around to keep an eye on the Iraqi government that we create, yes.

But that's not the worst-case scenario. That's the best. Worst- case is the country breaks up, has a civil war, or it becomes a regional war.

BLITZER: And that's realistic?

RICKS: Those are quite possible, actually?

I think, if you pulled U.S. troops out tomorrow, that's -- you would see that begin to happen.

BLITZER: Well, what happens if the Obama timetable works, that, by the end of August 2010, there are only between 30,000 to 50,000 troops, and that, by the end of 2011, there are zero troops, U.S. troops, left?

Do you believe that's doable?

RICKS: I don't think that's going to happen. And, in fact, I don't think people understand what is meant by that.

Obama's going to change the name of the mission. He's going to say it's a non-combat mission. But that doesn't end the war, anymore than hanging "mission accomplished" ended the war.

I was over at the White House last Friday after the speech that the president gave at Camp Lejeune. And I said to a military official, will American troops be fighting and dying in Iraq after August 2010? He said, yes, they will.

BLITZER: In -- in significant numbers, you think?

RICKS: The numbers will get down. I think they will get down not -- maybe to 50,000 by some time at the end of 2010, but I think we will then find that the Iraqis say, you can't leave us now. You created this situation. You need to keep troops around here for some time.

BLITZER: Because there is an agreement between the U.S. government and the Iraqi government worked out in the final days of the Bush administration that, by the end of 2011, there are no U.S. troops left in Iraq.

RICKS: I think that agreement was much more about getting Iraq through 2009 than it was about 2011.

By 2011, you will have a new Iraqi government in place. And they actually -- I think the Americans assume they will invite us to stay longer.

BLITZER: You write in "The Gamble" -- you write this: "The events for which the Iraq war will be remembered probably have not yet happened."

Explain what you mean.

RICKS: Well, that's actually a quote from Ambassador Ryan Crocker, was who our top diplomat there the last couple of years.

Crocker said it to me twice. And, so, in my last interview with him, I said, look, that's going to be the last line in the book, if you still believe in. Absolutely, he said. We don't know how this thing ends. And how this thing ends over the next several years will determine how we remember it.

If a new, tough version of Saddam Hussein takes office, we're going to think about this war very differently than if Iraq becomes a democracy.

BLITZER: You think that this war, the decision to go to war back in 2003, was a horrible blunder.

RICKS: I think it was the worst foreign policy decision in American history.

BLITZER: Explain. RICKS: It was the wrong war. It took our eyes off the ball. We should have been focused on al Qaeda and Afghanistan.

It has cost us a lot and has gotten us very little. The biggest winner in this war so far is Iran. And we have committed much more than we understand. Just because of Americans got bored with this war doesn't mean it ends. We have a lot more that we're going to spend in blood, tears, and treasure in this war than I think any Americans really grasp right now.

BLITZER: And you know a lot about another war that is going on as well, the war in Afghanistan, right now.

Only this week, Congressman John Murtha said, the situation in Afghanistan is so challenging, he estimated it could take 600,000 troops to fully end the violence in that country.

Is he on -- is he on target there?

RICKS: Well, he also knows we don't have 600,000 troops available.

He's not on target, but there is a grain of truth in this. If you're going to pacify Afghanistan, though, it's going to have to come from Afghan troops, Afghan police.

The purpose of having our troops there is partly to keep an eye on these people. Right now, it's not just the Taliban that's the enemy in Afghanistan. It's also Afghan police, who shake down truck drivers five times in 100 miles. You can't run an economy like that.

BLITZER: Is it winnable in Afghanistan?

RICKS: No, it's not winnable, but what you can do is try to keep the lid on militarily until a political solution can emerge. But that's going to take a lot of time.

BLITZER: The book is entitled "The Gamble: General David Petraeus and the American Military Adventure in Iraq, 2006-2008."

The author, Thomas Ricks, thanks very much.

RICKS: You're welcome.

BLITZER: While the United States reels from economic disaster, the former President Bill Clinton is trying today to draw attention to a part of the world that's been devastated by natural disaster.

Let's go back to Zain. She's working the story for us.

What's happening, Zain?

ZAIN VERJEE, CNN STATE DEPARTMENT CORRESPONDENT: Wolf, the former president really wants to put the spotlight on Haiti and draw attention to rebuilding the country. He's there for less than 24 hours. But you see pictures of him there with the U.N. secretary-general just touring the country. Haiti, as you know, Wolf, has been hit really hard by a series of devastating storms and high food prices that have led to a lot of instability in the country. President Clinton is saying this, "I'm hopeful that my trip to Haiti with Secretary-General Ban Ki-Moon will help remind the world that there is a lot we each can do working with the people of Haiti to help expand education, job opportunities in Haiti, even during these economic hard times."

He, Wolf, wants to just get more aid into Haiti. He's extremely popular in this country. When he arrived, there was a lot people just carrying signs, saying, "We love you, President, and we need your help" -- Wolf.

BLITZER: I remember back in the '90s, when I was the White House correspondent for CNN, I traveled to Haiti with then President Clinton, and he really has a soft spot in his heart for the people of Haiti. And it obviously still continues right now.

Zain, thanks very much.

Some hard-hit Americans are wondering right now how low things will go.


UNIDENTIFIED FEMALE: We're already out here. You know, I mean, we can't go a whole lot farther down.


BLITZER: They were working middle-class Americans, but, after losing their jobs and homes, they now live in tents, yes, in tents right in the middle of nowhere.

Also, is your doctor caring for you, but costing the U.S. lots of money?

And Richard Gere, he is here. He's going to explain why you should care about what's happening in Tibet on this, the eve of a very important and potentially dangerous anniversary.


BLITZER: They are people likely just like you, middle-class folks who had jobs and homes, but who lost those jobs and are now forced into a shocking new reality, nowhere to live, with only pieces of canvas over their heads.

CNN's Dan Simon has more.


DAN SIMON, CNN CORRESPONDENT: We are in Sacramento, California, in an industrial area, the state capital just a few miles away. And we are in a place that you might call tent city, because there are literally 300 tents here. And they are filled with homeless people. And when you about these homeless people, about 10 percent of them are newly homeless. In other words, these are people who had jobs, who had homes, and now find themselves living in a tent.

(voice-over): One is 50-year-old Jim Gibson (ph). He's a construction worker and says he cannot find work. He says he made about $45,000 a year, but then homebuilding and construction slowed. Gibson downsized, first from a house, and then to an apartment. And when the recession stopped construction altogether, he ran out of money.

UNIDENTIFIED MALE: So, it's kind of a mess. I didn't clean it this morning.

SIMON: Now, he lives here in a three-by-six tent.

UNIDENTIFIED MALE: The only thing I can really say about my situation is that I am not the only one out here. There's a lot of people that are homeless because they choose to be. But I'm not one of those. We don't want to be out here. All we ask for is basically to be given a chance at -- given a job or some kind of a work situation, and just let us take it from there and take care of ourselves.

SIMON: Gibson's wife died 12 years ago. He has five grown children, but he won't tell them he's here. He's too embarrassed, he says.

And just a little ways away, another new resident in this tent city, 50-year-old Tina Garland (ph). She was a construction truck driver. And the work is gone. Her husband is also not working. They pitched their tent here 11 months ago.

UNIDENTIFIED FEMALE: It's so scary, because you look at the economy, and see that we're already out here. You know, I mean, we can't go a whole lot farther down. But we're going to be joined by hundreds, thousands of people, because they're losing their houses. And, after the shelters run out, then they're going to be out here, like we are.

SIMON (on camera): So, you might ask, why are these people not in a homeless shelter? Well, there's a good reason for that. There are only 2,000 beds for homeless people in Sacramento. And they're all full.

Dan Simon, CNN, Sacramento.


BLITZER: A very sad story. It could be getting worse, though, in the immediate period ahead.

Meanwhile, all of us who have spent time waiting or worrying in a doctor's office probably have some ideas on how the system can be fixed, or at least improved. President Obama's plan for health care reform takes some cues from his plan to repair the economy, namely, to start by cutting out a whole lot of waste.

Our national political correspondent, Jessica Yellin, is here with more on this really important story.


And it's interesting, Wolf. We have all heard President Obama point out that the U.S. spends more than any other nation on health care. When his administration begins, we can all get better medical care for less money, so we took a closer look at one of the ways he thinks this can happen.


YELLIN (voice-over): If you're admitted to the hospital with heart disease, one doctor might give you 10 treatments, but another doctor in the same hospital could give you twice as many treatments at twice the cost, without knowing there's a better way.

Experts say inefficient doctors are costing the nation $150 billion a year.

PETER ORSZAG, DIRECTOR OF OFFICE OF MANAGEMENT AND BUDGET: And all that you seem to be getting in exchange for the extra costs are more tests, more days in hospital, and other things that don't actually improve your health.

YELLIN: Consultant Mitch Seltzer is one of a handful of researchers studying the best, most efficient medical practices. He's advising the Obama administration. And he says doctors who are more efficient also have patients with the best results.

MITCH SELTZER, EFFICIENCY CONSULTANT: If we buy care from physicians who are clinically effective and cost-effect, we will get better -- we will get better health care. The outcome for those patients are better.

YELLIN: The White House sees this as key to health care reform. Already, it got more than $1 billion in stimulus money to fund research on the best practices, which could lead to a national database.

But critics are howling. Richard Scott, who runs for-profit urgent-care clinics, is mounting a media campaign against the Obama health care plan.

RICK SCOTT, CHAIRMAN, CONSERVATIVES FOR PATIENTS' RIGHTS: Are the decisions that I make with my doctor for my care going to be dictated by some federal bureaucracy? That's very scary.

YELLIN: Conservatives worry the government will eventually limit doctors' options by reimbursing only those treatments deemed cost- effective.


YELLIN: Now, the Obama administration insists that won't help -- happen. And Seltzer, the consultant we interviewed in that piece, says doctors voluntarily choose to adapt the most efficient practices once they see how effective they are.

Now, Wolf, I reached out to the nation's hospitals and doctors' organization, and they say they support this idea of gathering all this data. They're just worried. They want to make sure the government doesn't ever force doctors to follow certain standards of care, certain -- dictate to them how to do their job.

BLITZER: Yes. But they have got to start somewhere, dealing with this problem.

YELLIN: Exactly. Big debate.

BLITZER: All right, thanks.

Yes, and the debate should go forward.

Thank you, Jessica.

Survival of the financial fittest -- if the bank handling your money is having problems, what should happen?


UNIDENTIFIED MALE: Some of these banks should be closed. Will they cost money to close? Will they send -- send shockwaves through the system? Absolutely. But, if you keep subsidizing banks, when do you stop?


BLITZER: What do you think about the notion of letting struggling banks and automakers, like GM, simply fail?

And he's president for all Americans, but can President Obama really advocate everything for everyone, or should he focus on certain issues affecting specific groups? We will discuss right here in THE SITUATION ROOM.


BLITZER: One airline is practicing for a plane crash. Richard Quest takes us on board to show how crews are keeping us safe.


BLITZER: Should President Obama let the automakers, the U.S. automakers, simply fail?

Let's talk about that, the political fallout, and more in our "Strategy Session." Joining us, the Democratic strategist and CNN contributor Hilary Rosen, and Republican strategist, former RNC communications director Danny Diaz.

Guys, thanks very much for coming in.

Listen to Senator McCain yesterday on FOX. Listen to this.


SEN. JOHN MCCAIN (R), ARIZONA: I don't think they made the hard decision. And that is to let these banks fail, to let General Motors go into bankruptcy and reemerge and reorganize with new contracts with labor and others.


BLITZER: A lot of people, Hilary, are beginning to feel exactly like Senator McCain. You know, it's time to stop throwing, they believe, good money after bad.

HILARY ROSEN, CNN POLITICAL CONTRIBUTOR: Well, the automakers in particular, President Obama, I think, has been fairly strong.

He has said, they have got to prove that they're viable, and they have got to prove that they can work themselves out of this situation, if they use this federal money wisely. The question is whether they should get more federal money. And I think the jury's still a little bit out.

Their workout plan is -- is being evaluated.

BLITZER: What about the banks?

ROSEN: Banks, you know, they're -- there are multiple lending institutions. And there may be a little more flexibility. If you transfer assets, you can do acquisitions and things like that.

There may be a bank or two that fails. And we have seen the White House and the Treasury Department ask for legislation that -- just this last week to -- from the Congress to make sure that depositors are protected, should banks fail. So, they are expecting one or two to fail.

BLITZER: You think McCain is right or wrong, Danny?

DANNY DIAZ, REPUBLICAN STRATEGIST: Well, I think, at the end of the day, we want these industries to survive and succeed, because we're talking about jobs.

But, you know, we have to ask ourself a question. Are we funding flawed business models? I mean, these people can't continue to come back to Capitol Hill asking for money. Why aren't they moving forward? Why aren't they achieving success? Where's the return on investment? The American taxpayer has invested in these corporations. Where is that return? And I think Democrats on Capitol Hill are getting nervous. And you can see that in the omnibus bill, an 8 percent increase over last year's budget. Why are they getting nervous? Because they're not seeing that return. And they have got to explain that to their constituents.

BLITZER: And there's a lot of fear out there that, you know, hundreds of billions more will be needed to prop up these -- these banks.

ROSEN: I think financial institutions -- Danny makes a great point. The problem is, that -- that ship sailed a little bit. And, in the last administration, they already made the decision to infuse capital.

It had been the Democrats' original proposal to buy toxic assets, and pool that, and create sort of a bad bank, and let the banks work out. Now, we're actually financially invested in the banks themselves because of some decisions that were made. We may be stuck.

BLITZER: And a lot of people believe the big problem was, at least recently, was that the treasury secretary, when he came out and spoke about all this, he didn't have the details, he didn't have the plan in place.

And what everyone seems to hate right now is the -- the lack of specificity in how this is going to work out.

DIAZ: Yes, absolutely.,

If you're a taxpayer, you're asking yourself the question, are they selling me a used car one part at a time, piece by piece. More and more money each week on Capitol Hill is going out the door. When are we going to see a return? And I think that's what people are asking themselves. And they're very concerned.

ROSEN: There are a lot of jobs at stake in the auto industry, you know, three -- three million jobs, the -- the same amount that President Obama has said he wants to create over the next year.

I think you're going to see -- you're going to see him decide, all right we're not going to let all of those jobs go away, just to have to recreate them elsewhere. They're going to try and be more balanced about this.

BLITZER: What do you think of the way the president is reaching out to Hispanics right now, so far, in his new presidency?

DIAZ: I think he's doing a great job. And I think Republicans need to do a better job.

I mean, if John McCain got beat as badly as he did with Hispanics, that says a lot for future Republican candidates. I mean, John McCain has a lot of credibility with the Hispanic community. We need to be concerned. We need to be aggressive. We need to be forward-leaning. We need to use every vehicle and tool available to reach out to Hispanics.

BLITZER: They're reaching out to almost everyone in this new White House. Haven't you noticed?


ROSEN: They're -- you know, they're -- they're hitting on what I call a lot on the forgotten population that, for the last eight years, really did not feel like there was a seat at the table, working men and women in the Labor Department, Hispanics, African-Americans that -- both middle-class and -- and poor African-Americans, gays and lesbians.

What They're saying is, you know what? We're creating a new America. Everybody's got to get back to work.

And I think it's great.

BLITZER: Got to leave it there, guys. Thanks very much.

DIAZ: Thank you.

BLITZER: Imagine if you could celebrate your birthday being serenaded by President Obama. Stand by, and you will hear the singer in chief in action.


OBAMA (singing): Happy birthday to you. Happy birthday to you. Happy birthday...


BLITZER: Not Hillary Clinton. They were singing happy birthday to someone else. But Hillary Clinton has her own issues right now. She's talking about, guess what, falling in love and her fondness for people-watching. The secretary of state gets personal. We will talk about that.

And former basketball star Charles Barkley ends up with a very unconventional stint in jail. He is about -- he has just been released. We will tell you what he's saying.

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



OBAMA: (singing): Happy birthday to you. Happy birthday to you. Happy birthday, dear (INAUDIBLE) Happy birthday to you.


(END VIDEO CLIP) BLITZER: It was quite a night last night at the Kennedy Center. I was -- I was there. They celebrated Senator Kennedy's birthday. There he is. The president was up in the presidential box with some VIPs. James Taylor was there. It was quite a night.

Jack, I wish you had been there. You would have thoroughly enjoyed it, as all the people did.

JACK CAFFERTY, CNN ANCHOR: I'm sure it was lovely.

I didn't realize President Obama had such a high singing voice.

BLITZER: Yes, that was not him.

That was Bernadette Peters, I believe...



BLITZER: ... someone like that, somebody from Broadway.


CAFFERTY: I was confused. I was confused.


CAFFERTY: The question this hour is: What does it mean if up to 300,000 illegal aliens get jobs created by the economic stimulus package?

No big surprise, a lot of you don't think this is a great idea.

Bill in New Jersey: "There are some parts of the stimulus package debate that are just nitpicky. Who cares if pig manure is studied in Iowa as long as the guys doing the studying are paying their mortgage, buying a car with the salary? But this ain't one of them though. Every cent of this stimulus needs to go to bona fide taxpaying Americans who are in trouble right here. They expect no less from their government. And every one of us, their fellow citizens, should stand behind them.

Alan in New York writes: "I have been an Obama supporter since day one, but this is so wrong. How can you create jobs and then give them away to people who are here illegally? Aren't these jobs being created with funds that belong to the U.S. taxpayers? How can this president and this Congress justify giving these jobs to people who don't deserve them? Illegal aliens are lawbreakers."

Hector writes: "Aren't we jumping the gun here, Jack? Why provoke such a one-sided question? This will do nothing more than bring out this country's bad side. Last I looked, even illegal aliens who raise their children and have jobs in this country spend money here. Isn't that good for our economy? Shouldn't we stop scapegoating and come together to pull out of this?" D. writes: "If the company hires illegal workers, put the CEOs in jail and fine the CEOs $100,000 for each person hired. I think the law is already on the books. Enforce the laws, and they will go home."

Marie writes: "E-Verify should be mandated in every state in our nation. There is no excuse in the world why it is not. I have been writing the president and my representatives regarding the stimulus package and the use of E-Verify. What a slap in the face to all of us that some of these jobs will go to people who are here illegally."

And Craig writes from Palm Springs: "Great. My ancestors got here around 1665, and I've been trying to find a job since last July."

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

BLITZER: Thank you, Jack.