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Barack Obama at Town Hall Meeting; AIG Bonus Controversy; "Terror Will Never Go Away"; "Mexico is Not Pakistan"

Aired March 19, 2009 - 17:00   ET


BARACK OBAMA, PRESIDENT OF THE UNITED STATES: We are going to have to reform Medicare and that's part of the overall health care reform that we were talking about earlier. If we can get control of health care costs as a whole, then we can start bending the curve of costs for Medicare and Medicaid.

So we are already making some tough choices -- reducing the deficit by $2 trillion. But we're going to have to do more. And the biggest thing we're going to have to do is take on Medicare and Medicaid and health care costs. That's going to be the most important thing that we can do over the long-term.

All right?

OK. It's a woman's turn. This young lady back there. Go ahead.


My name is Blanca Villar Gomez (ph).

And this question is on behalf of my sister, who's a public schoolteacher for the Los Angeles Unified School District and on behalf of all the children, which is over 700,000 children -- the second largest school district in the nation.

We need help. You know, even with the best leadership that we have currently with the district, with Board President Monica Garcia and the new superintendent, Ray Cortines, you know, when we don't -- the state doesn't have the money. And we're having to lay off thousands of teachers. You know, it's scary for our children.

You know, even with the stimulus package, in three years, I think we're going to be in a deficit of $1.3 billion.

Where are we going to get that money?

OBAMA: Well, this is why before we came on the governor and I were talking. And the fact is, is that we are massively ramping up education spending at the federal level on a whole variety of fronts.

But historically, most education funding is done at the state level, at the local level. So, you know, we may be able to take education funding at the federal level from 7 percent to 9 percent, for example, but the lion's share is still going to be coming locally.

And that's why it is so important for everybody to be engaged in the various initiatives that are going to be coming up, to make sure that what you just articulated -- the need to invest in our kids -- that that is reflected in terms of state budgets.

Now, one thing I've got to say, though -- and I think I speak for every public official here.. You can't have something for nothing.. You can't have something for nothing. I was in the White House and we had done this event when we signed stem cell research. And a...


OBAMA: And a woman who was in the audience, she -- she came up to me and she shook my hand and she said oh, President Obama, I'm very excited. But, you know, you just had this health care forum. Please, please, I hope your plan is free health care for all.

And I said listen, nothing's free. Nothing is free.

So the reason I make that point is you can't ask local elected officials to raise teacher's salaries and cut taxes and balance the budget and increase roads. You know, at some point you've got to make some choices.

So if you want a high quality education -- and California historically had the best education system in the country -- then somebody's got to pay for it. Now, the obligation of local officials -- and this is -- the same is true on the federal government -- our obligation is to make sure that every dime of money is being spent wisely. Every dime of money is being spent wisely. And when it comes to education -- when it comes to education -- and I'm speaking to teachers here and educators, let me say this. I want to -- I want to do some truth-telling here. Uh-oh.


OBAMA: I love teachers. There's no profession that is more important than teaching. My sister is a teacher. But -- and I am a huge supporter of the teachers' unions. They were some of my first supporters.

But let me tell you, you can't just be talking more money, more money without also talking about how are we going to reform and make the system better. There's got to be a reform agenda in exchange for the money.


OBAMA: There's got to be a reform agenda in exchange for the money. So -- you know, so don't just say, you know, give us more money or smaller classrooms but you're not willing to consider, for example, how are we going to do better assessments or how are we going to -- you know, how are we going to work to improve teacher performance and if a teacher is not improving, you know, how do we get them to choose a different career, right?

I mean there's got to be...


OBAMA: There's got to be some serious conversation about that.

Now, before I get off the topic of education, let me do a little more truth-telling. Parents...


OBAMA: can't -- you can't complain about the schools and complain about the teachers but when your child comes home, they're playing video games and not doing homework and you don't have time to go to your teacher-parent meeting. You know, our parents have to instill a sense of excellence and a thirst for knowledge.

And the truth of the matter is, even as overcrowded as schools may be, as poor the computer equipment may be, as, you know, poor the computer equipment may be, if you took a bunch of kids right now from China or India and you put them in these classrooms, from their perspective, these would be unbelievable schools. I mean they -- they don't have better facilities, but they're outperforming us in math and science.

Why is that?

Well, part of it is, is that we, as parents, are not insisting and demanding on the kind of higher performance from our kids. So everybody has got to be more accountable in order to improve our education system.


OBAMA: All right. It's a man's turn.

I'm going to turn back here. This guy in the green shirt right here.


OBAMA: What, everybody likes you, man.

What -- is he on like "Gossip Girl" or something?

I don't -- I didn't recognize him, but maybe is -- he's -- is he a movie star?

Who's got a mike?

Go ahead.

UNIDENTIFIED MALE: Not a movie star, just one of your volunteers.

OBAMA: There you go.


UNIDENTIFIED MALE: And they're all around here. And in my book, that's even more powerful.

I guess that's the fundamental question I have, is there's such a passion in this country in -- and you inspires such a passion, for us to do things that we never had before, in the name of volunteerism and in the name of making you become our president. And thank you to everyone that was involved with that.


UNIDENTIFIED MALE: My question is, clearly, this is not something you can do alone, in terms of changing our country.

How can we best partner with you?

How can we be most effective, moving forward, to change this country?

OBAMA: Well...


OBAMA: Well, the first thing, I think, is patience. No, I'm serious about this, because, look, there was a lot of excitement during the campaign and we were talking about the importance of bringing about change. We are moving systematically to bring about change. But change is hard. Change doesn't happen overnight.

And the change we bring has to be matched by a sense of responsibility, because if you try to just change things overnight and you haven't thought everything through, you can have some real problems.

So for example, I closed Guantanamo. That was the right thing to do.


OBAMA: But I made the -- but in making that decision, I said we're going to take a year to figure out how are we going to deal with the folks who are detained there, some of whom really are dangerous folks who, if we just released them, could do us harm.

I believe that we are going to be able to effectively balance our national security needs with our civil liberties concerns. But it's not something that happens overnight. We've got to do it systematically.

On the economy, this financial crisis that we've had is the largest since the Great Depression. I understand how mad everybody is about this AIG bonus business. I understand that. As I said before, I'm mad. And even though I didn't -- I didn't draw up these AIG contracts, my White House didn't, it's my responsibility to fix the system. But fixing the system requires us understanding that if banks are not solvent, if they are not lending, then businesses are not going to be able to invest, we are not going to be able to create jobs. And we can be as mad as we want, but the fact of the matter is we've got to work through this huge mess that was made in the financial system. It's going to cost some money and it's not going to be pretty. People are going to be frustrated. And we are going to get it done.

So on a whole range of these fronts, the first thing we need from the American people is a sense that we are going to get it done, but it's going to take a little bit of time. The second thing is keep paying attention to the debates that are taking place now. So when we have a big budget debate, I want everybody who was paying so much attention during the election to be as interested.

You know, what's going on in terms of education spending?

What's going on in terms of higher -- health care spending?

Are the investments we're planning to make on energy, are they the right ones?

Because, again, we're going to have some tough choices to make. I can't just keep on -- I can't print money. And so if we are going to make a serious investment in clean energy, well, that requires that we phase out dirty energy. And that requires that we stop subsidizing certain things and instead subsidize other things. Somebody's not going to be happy about that, because they've been given subsidies. So they will start running ads on television saying this is the terrible energy plan.

And you've got to pay attention and education your co-workers and educate your friends and your family.

And we're not -- my administration also, here's one last claim I want to make -- a guarantee. We are not always going to be right. And -- and I don't want everybody disappointed if we make a mistake here or there. The important point is are we moving in the right direction, are we, generally speaking, consistent with our campaign promises, are we reflecting the values of our hardworking, middle class Americans who are trying to see Washington work for them. And you know, that's one thing I can assure you of, is that four years from now, you are going to be able to look back and you're going to say, you know what, A, the guy worked hard on what he said he was going to work hard during the campaign. And may not have gotten everything perfect, but we are moving in the right direction. That's what we...


OBAMA: That's what we're going to be focused on over the next few years.


All right. I've only got time for a couple more questions.

WOLF BLITZER, CNN ANCHOR: All right. The president says he's going to take two more questions. We'll take a quick break and continue our coverage.

Remember, Ali Velshi is here in THE SITUATION ROOM.

He's just come from his exclusive interview with the Treasury secretary, Timothy Geithner. And there's news he's ready to report.

Also, my exclusive interview with Janet Napolitano, the Homeland Security secretary. She has some choice words for the former vice president, Dick Cheney.

We'll be right back.


BLITZER: The president just answering a question about student loans and the entire economic crisis.

OBAMA: ...a national service bill coming from the House and Senate. And as part of this, what we're going to be doing is expanding programs like the Peace Corps and Teach for America and other mechanisms...


OBAMA: ...other avenues where you can make a decision, as a young person, to teach for three years or to serve in the Peace Corps or to serve in the Foreign Service or to, you know, volunteer in some fashion in your communities and help finance your education in the process.

And I think that there are young people all across California and all across America who are interested in that opportunity. And I want to give that opportunity to you.


OBAMA: All right. OK. This is the last -- the last question.


OBAMA: You know, I'm going to -- hold on. You know, on the last question, I think I -- hold on a second. I think I want to call on -- I want to call on a young person, a student. But it's got to be a guy. It's a guy.

That no, no. You're not that young. You sit down.


OBAMA: That guy right there. That young guy in the t-shirt. In the t-shirt or in the tie. In the tie. This young man right here. That guy right there. All right, you've got to stand up, though.

You look good in that tie.

ETHAN: Hi, my name is Ethan.

President Obama, our school is in big trouble because of budget cuts. Our halls -- 25 of our teachers already have been fired to get pink slips and the whole school, my class, we made this.

OBAMA: Oh, you made -- you made -- are those letters for me?


OBAMA: Well, what's your name?

ETHAN: Ethan Lopez.

OBAMA: Ethan Lopez.

How old are you, Ethan?

ETHAN: Eight.

OBAMA: Eight.

So what grade are you in?

ETHAN: Third grade.

OBAMA: Third grade.

Do you like school?


OBAMA: Yes, you do.

Is that your mom next to you?


OBAMA: Yes. She looks very nice.


OBAMA: Well, let me, as I said before, Ethan, we're going to do everything we can to protect our teachers. We already passed a law in Washington that's going to give more money state to help keep teachers in their jobs. And one of the things we didn't talk about earlier, we're also going to be putting more money into school construction, because there are a lot of overcrowded schools and overcrowded classrooms that don't -- aren't wired for the Internet effectively. And we are going to make sure that we invest in that, as well, because I want you to get a first class education.

What -- what do you want to be when you -- when you grow up?

Have you decided yet?

ETHAN: Yes. OBAMA: What would you like to be?

ETHAN: A cop.

OBAMA: A cop.


OBAMA: That's what I'm talking about. All right.


OBAMA: Well, I can -- I can tell that you will be an outstanding police officer. Your mom's proud of you. We're all proud of you.

Give Ethan a big round of applause.

Thank you, everybody.

God bless you.

BLITZER: All right. He spent more than a hour speaking at this town hall -- a presidential town hall in Los Angeles, answering questions. That last question upstaging a lot of the earlier questions, that little boy.

We're going digest what we've just heard from the president of the United States.

We also have two exclusives coming up -- my exclusive interview with Janet Napolitano. She has some strong words on a lot of subjects, including the former Vice President Dick Cheney.

Also, Ali Velshi -- he's here in THE SITUATION ROOM. He's going to be walking in, in fact, right now. He's just come from the Treasury Department, where he sat down with Timothy Geithner.

Ali Velshi and his interview with Timothy Geithner -- Ali, come on in -- when we come back.


BLITZER: Let's get to a CNN exclusive right now.

He's the president's point man for dealing with the worst financial meltdown in generations.

Is there light at the end of the tunnel?

On the road to rescue, the Treasury secretary, Timothy Geithner, speaks one-on-one with our chief business correspondent, Ali Velshi.


ALI VELSHI, CNN CHIEF BUSINESS CORRESPONDENT: And when do you think we'll start to see a recovery? TIMOTHY GEITHNER, U.S. TREASURY SECRETARY: Well, as we said just talking earlier, you know, most economists look at the path of this recession now and they expect to see the economy start to stabilize and start to -- growth start to come back later this year. And, again, the important thing is that the government does what's necessary to achieve that.


BLITZER: The Treasury secretary -- he's been on the hot seat now for the handling of this crisis. The latest controversy -- the loophole in the stimulus bill that allowed those big bonus payments -- $165 million -- to go out to AIG executives.

Ali is here in THE SITUATION ROOM.

Good work, Ali.

Tell us a little bit more about the secretary of the Treasury and his responsibility for all of this.

ALI VELSHI, CNN CHIEF BUSINESS CORRESPONDENT: Well, we had a -- we had a great conversation with him today, which also was part of -- you know, last week for a couple of days, we followed him around to sort of see what he does on a daily basis.

Now, since then, this whole situation with Senator Chris Dodd and that loophole that has allowed these bonuses to go out to AIG executives has come to light.

I asked the Treasury secretary -- because Chris Dodd said somebody from Treasury asked him to do this. So I asked the Treasury secretary about this.

Here's the exchange that we had about it.


GEITHNER: Let me just start by saying that Chairman Dodd has played an enormously important leadership role in this. He's doing the right thing in trying to make sure that the assistance we provide don't go to benefit who shouldn't benefit in these things. And I'm enormously impressed by the importance of what he's tried to do in this case.

VELSHI: But did somebody -- have we figured out who told him to put this clause in?

GEITHNER: Oh, this provision?


GEITHNER: We expressed concern about this specific provision because we wanted to make sure it was strong enough to survive legal challenge. But we also worked with him to strengthen the overall framework. And his bill has this very important provision we're relying on now to go back and see if we can recoup payments that were made that there was no legal ability to block.

VELSHI: But you're -- inadvertently, might somebody at Treasury have told Senator Dodd to do something that has now resulted in these payments not being able to be...

GEITHNER: No. Again...

VELSHI: met?

GEITHNER: ...what we did is just expressed concern about the vulnerability of a specific part of this provision to legal challenge, as you would expect us to do. That's part of the legislative process.

But, again, his bill also has this very important provision that allows us to go back and see if we can recoup these payments. And we're going to explore that.

But in any case, we're going to make sure that the American people are compensated for any payments we can't recoup.

VELSHI: Do we know who in Treasury had this conversation with whomever on the Banking Committee?

GEITHNER: Treasury staff were working with Senator Dodd's staff throughout this process. Again, that's part of the legislative process.

VELSHI: But you -- you weren't involved in that directly?

GEITHNER: Oh, I did have, with other officials, some conversations with Chairman Dodd, as he was going through this pro -- this process, but about other provisions.

VELSHI: So not about this particular one?

It wasn't you telling Senator Dodd, it was someone on your staff?

GEITHNER: No. But I'm not sure that's relevant, because Treasury staff did express concern about whether this provision was vulnerable to legal challenge.


VELSHI: So the point here is that the Treasury secretary was telling me they were concerned that if the bill went through without this loophole, that the bill would not hold up to challenge because people who had the contractual right to get a bonus would -- would have been able to sue. So he's saying that he rec -- Treasury recommended to Chris Dodd's staff that they put this provision in there and this provision may now be responsible for AIG not being able to recover some of these bonuses.

BLITZER: So even with hindsight, knowing what we now know, he thinks, six weeks ago or whenever they did this, they did the right thing? VELSHI: He thinks they did the right thing. This might be a situation of unintended consequences. But he says they did recommend to Senator Dodd's staff on the Banking Committee that this provision be put into the bill.

BLITZER: Ali Velshi, thanks very much.

And Ali is going to have a lot more of this exclusive interview coming up later tonight on Campbell Brown's "NO BIAS, NO BULL" at 8:00 p.m. Eastern.

And we're going to have more of the interview here in THE SITUATION ROOM in the next hour, as well.

The Treasury secretary, Tim Geithner's, resume brought some very high expectations. He headed the Federal Reserve Bank of New York and earlier, he worked for five different Treasury secretaries. But Geithner has been taking lots of heat, as you know, most recently for failing to halt those AIG bonuses.

He started on the wrong foot when it was revealed during his confirmation process that he had failed to pay $34,000 in taxes. His speech last month introducing the economic stimulus package lacked details, with his delivery not all that reassuring to a lot of folks. And two months after the inauguration, the only top official listed at the Treasury Web site is Geithner himself. A key post, several key posts still unfilled.

Let's get to another CNN exclusive right now. The United States faces a terror threat that's here to stay. But extraordinary new dangers may be building up along the border with Mexico.

Let's get to my exclusive interview with Homeland Security secretary, Janet Napolitano.


BLITZER: Let's go through some of the threats.

You're talking about the war on terror.

First of all, there's been some confusion.

Do you still use that phrase that there is a war on terror?

JANET NAPOLITANO, U.S. HOMELAND SECURITY SECRETARY: Well, yes. Terrorism is -- is a -- is a threat that is with us and, sadly enough, will never go away. But the thing is not to create fear about it, but to stay look, there is a risk of terror, either coming from abroad or homegrown.

It's about preparation and being able to recover so that people have the confidence that goes with knowing that we're prepared.

BLITZER: And so do you still consider the United States to be engaged in a war on terror? NAPOLITANO: I consider the United States -- yes, to be very engaged and in working with our international partners and others in preventing terrorist acts from occurring.

BLITZER: Here's what was written about Mexico recently by the U.S. Joint Forces Command: "In terms of worst case scenarios for the Joint Force and, indeed, the world, two large and important states bear consideration for a rapid and sudden collapse -- Pakistan and Mexico."

And the report goes on to say: "In particular, the growing assault by the drug cartels and their thugs on the Mexican government over the past several years reminds one that an unstable Mexico could represent a homeland security problem of immense proportions to the United States."

How worried are you about that?

NAPOLITANO: Well -- and I speak not only as the Homeland Security secretary, but as the two term governor of Arizona, the attorney general of Arizona and the former U.S. attorney for Arizona. So a lot of familiarity with the border and with relations with Mexico.

Mexico is not Pakistan. And so I think that verbiage was incorrect and has led to some kind of incorrect characterizations in the media.

But it is very clear that the state of Mexico, in the person of President Calderon and the federal government, is really taking on these big cartels. And we have an important stake in that battle.

BLITZER: Because he says, President Calderon, he said, on February 26th: "To say that Mexico is a failed state is absolutely false. I have not lost any part -- any single part of Mexican territory."

Which is true, but there are areas along the border that are extremely violent and potentially the spillover for the United States could be enormous.

NAPOLITANO: Well, this -- that's exactly why I'm saying this is an important battle to be waged, but it's being waged by the state of Mexico, the government of Mexico.

BLITZER: Do you have confidence in the government of Mexico?

NAPOLITANO: I have confidence in President Calderon and I think we want to do everything we can to help them.

BLITZER: Here is a fact, 6,290 people were killed last year in these drug-related wars and more than 1,000 in the first eight weeks of this year alone. Now what can be done to stop this?

NAPOLITANO: Well a couple of things, number one is like I said before, to support President Calderon. One of the ways we can do that is to recognize that a lot of this violence is fueled by guns and cash that's coming from the United States south into Mexico.

BLITZER: How do you stop that?

NAPOLITANO: Well, you stop it a couple of ways. One is you increase inspections of southbound traffic. We al ready are seizing more cash, more guns going south across our border into Mexico. Number two, you increase intelligence efforts about who is supplying the big bulk loads, I mean we're talking carloads of cash and mega weapons going into Mexico. Congress has set aside money for us to train Mexican law enforcement, not only to train but to properly equip them so they have the wherewithal to go against these cartels.

BLITZER: Does the United States have enough troops on the border with Mexico right now? Would you recommend sending more?

NAPOLITANO: What do you mean by that?

BLITZER: Border agents and then U.S. military personnel.

NAPOLITANO: Right. We have almost 20,000 border agents right there now, that's in addition to state and local law enforcement.

BLITZER: Is that enough?

NAPOLITANO: It is enough in one way, but we are looking at what we can do to augment that. In other words, we're looking at can other federal agents be sent to the border. I will be announcing some of those movements very quickly here, and also, as you know, two governors of states have asked the National Guard be placed back at the border and that's being evaluated.

BLITZER: How worried are you about an influx of illegal immigrants just crossing the border from Mexico into the United States? A lot of them simply want to escape the violence.

NAPOLITANO: We're not seeing that right now. We just aren't. The very highest numbers of illegal immigration from Mexico into the United States, we saw during the economic high points when there were lots of jobs here. As the economy has gone down, so has illegal immigration, plus, we've put a lot more resources on the border over the last 18 months. So for example, in Arizona, there were half a million border patrol apprehensions a few years ago, now there are less than half that. So we've already seen a lot --

BLITZER: Because the economy in the U.S. is so bad right now.


BLITZER: So there's less incentive for these folks to cross the border.

NAPOLITANO: Right. But you know, there always is -- regardless of how remote and I think you have to say you always are evaluating, well, what could happen under worst case scenarios and one of those is, we would see such a surge and we would be prepared if such a thing were to occur. BLITZER: Is the fence or whatever the technical term is, that's being built along the border, is that enough?

NAPOLITANO: A fence will not stop a mass wave of illegal immigration.

BLITZER: No matter how good that fence is.

NAPOLITANO: No matter how good.

BLITZER: Because they can always get around it, find ways to get around it.

NAPOLITANO: Over it, under it, around it. Now, some fencing, combined with manpower and technology, as part of a system of border protection, makes sense, but to build a fence from San Diego to Brownsville it's not going to stop such a wave.

BLITZER: Dick Cheney, former vice president of the United States, was on CNN the other day. He told our John King this when John asked him this question, do you believe the president of the United States has made Americans less safe?


DICK CHENEY, FORMER VICE PRESIDENT OF THE UNITED STATES: I do. I think those programs were absolutely essential to the success we enjoyed of being able to collect the intelligence that let us defeat all further attempts to launch attacks against the United States since 9/11.


BLITZER: Those are strong words from Cheney that the United States now, since President Obama's taken office, is less safe because of the actions he's taken involving prisoners and Guantanamo Bay and other decisions. What do you want to say to Dick Cheney?

NAPOLITANO: Well I'd like to say, if he were sitting in that chair, I said you're just wrong, that this administration is very committed to the safety of this country. That we, I wake up in the morning thinking about what we can do to be more safe, more secure, my colleagues do the same and the president does the same. And that we don't have to have a Guantanamo to have safety.

BLITZER: And the enhanced interrogation techniques that some call torture that the former vice president says were absolutely essential in saving American lives, do you have any regrets about the president's decision to go back away from those so-called enhanced interrogation techniques?

NAPOLITANO: Absolutely none. I think the president has set the right standard. I think it has restored the United States in the eyes of our allies and restored us to the fundamental values that we share.

(END VIDEOTAPE) BLITZER: In our next hour, the homeland security secretary, Janet Napolitano, takes us on the tour of the new and future campus of the Department of Homeland Security. Stand by for that.

And also, another exclusive. In his first TV interview since resigning as the governor of New York in a sex scandal, Eliot Spitzer, he speaks with our own Fareed Zakaria. That's coming up right here in THE SITUATION ROOM.


BLITZER: We have another CNN exclusive for you right now. The former New York State governor, Eliot Spitzer, giving his first interview since he resigned last year. The interview given only a little while ago to CNN's Fareed Zakaria. Spitzer tells them that there were hints of a looming disaster at AIG when he investigated the company year ago as the New York state attorney general. And he also speaks candidly about the prostitution scandal that forced him from office.


FAREED ZAKARIA, CNN ANCHOR: So, do you think that the problems that AIG got into later on stemmed from some of the same practices that you were trying to get at?

ELIOT SPITZER, FORMER NEW YORK GOVERNOR: They stem from an effort from the very top to gin up returns whenever, wherever possible and to push the boundaries in a way that would garner returns almost regardless of risk. Back then, I said to people, AIG is at the center of the web. The financial tentacles of this company stretched to every major investment bank. The web between AIG and Goldman Sachs is something that should be pursued and as I've written --

ZAKARIA: Meaning what? That a lot of the money that we the taxpayers gave AIG has ended up being paid to Goldman Sachs and other companies?

SPITZER: The so-called counterparties to these very sophisticated financial transactions. When AIG initially received $80 billion, a decision that was consequence of a very brief meeting of the New York -- president of the New York fed, the secretary of the Treasury, perhaps Chairman Bernanke and arguably some reports say the chairman of Goldman Sachs, $80 billion, virtually all but flowed out to counterparties, $12.9 billion to Goldman Sanchez. Why did that happen? What questions were asked? Why did we need to pay 100 cents on the dollar on those transactions if we had to pay anything? What would have happened to the financial system had it not been paid. These are the questions that should be pursued. The bonus is a real issue, it touches us miserably. The real money, the real structural issue is the dynamic between AIG and the counterparts.

ZAKARIA: You know there are a number of people watching who are going to say, Eliot Spitzer doesn't have credibility to talk about these issues because of what happened over the last year with your own behavior. What would you say to them? SPITZER: I would say to them that I never held myself out as being anything other than human. I have flaws as we all do arguably. I failed in a very important way in my personal life and I have paid a price for that. I spent a year with my family, with my wonderful and amazing and forgiving wife and three daughters and rebuilt those relationships and hope to do that as time goes on. I also feel that to the extent that if I'm asked and I can contribute to a very important conversation, I will do that as well. That is our right, our obligation as citizens, I will do what I can and with full awareness and heaviness of heart about what I did.


BLITZER: The full interview with Eliot Spitzer on Fareed Zakaria GPS will air Sunday, 1:00 p.m. eastern. I think you're going to want to see this.

Let's assess what we've just seen and heard with our Democratic strategist, with CNN political contributor Hilary Rosen and Republican strategist, Danny Diaz, former communications director for the Republican National Committee. What did you think?

HILARY ROSEN, CNN CONTRIBUTOR: Well I think you know this AIG -- what's happened is an enormous distraction and really unfortunate. They got their money as part of the bailout --

BLITZER: Before we talk about AIG, Eliot Spitzer and the effort to rehabilitate himself. Can he do that politically?

ROSEN: You know I don't think he has an elective career any more but he actually has some expertise in some of these business issues. He was very aggressive when he was attorney general in New York. You know to the extent he adds to the conversation, good for him for not shying away from the conversation.

BLITZER: Others have come back from sex scandals and had remarkable careers, including Bill Clinton.

DANNY DIAZ, REPUBLICAN STRATEGIST: That's true. It's hard to know what to make of it. I mean at the end of the day when he's talking about these problems at AIG coming well in advance of what's in the news right now, I think it just furthers the mindset in the taxpayer that the establishment has failed them. And I think that's the message people are receiving.

BLITZER: All right let's back to AIG right now. The house earlier today, went ahead and passed legislation that would basically strip all these guys of these bonuses.

ROSEN: And I think you're going to see the Senate do the same and I think this was something that was resisted from the get go. There was a strong view, when this money first got distributed by the Bush Treasury Department, who didn't want Congress to put any restrictions on this money, because all of this is old money that was distributed before President Obama took office. And then later, there was a question of should we go back. Now the Democrats were in charge and President Obama was in charge, and try and rewrite the rules and change some of the rules that that was distributed. I think Secretary Geithner said today, properly at the time, we decided to move on and not get involved in an old legal fight. That was probably the wrong call but it was legitimate for wanting to move on.

BLITZER: About half of the Republicans in the House voted against this legislation, saying it was going too far.

DIAZ: I think at the end of the day when people look at AIG, the question is, how are we going to insure that this doesn't happen again. I mean every other day I read an article about Geithner being the only guy at Treasury. How are we sure that there aren't other AIGs already in the pipeline. What is this administration doing to ensure that they're going to alleviate this kind of problem and suffering on the part of the taxpayer.

ROSEN: The president has already said what we're going to do and what they're going to do is they're not letting another dime go out and they haven't let another dime go out without very strict conditions. And they're focused on that.

BLITZER: We're going to see how strict those conditions are because there's a lot of questions that still remain to be answered. All right guys, thanks very much.

Tonight, President Obama will be a guest on Jay Leno's show. We want to hear your response to his appearance. How do you do that? This is what you do, you submit your video comments to then watch tomorrow's program to see if your iReport makes air right here in THE SITUATION ROOM.

Revealing new details of an alleged Chinese spy case here in the United States. A former Chinese spy now a defector tells what he knows to our Brian Todd.

Plus, American journalists seized in North Korea. We're learning new details, including their ties to the former vice president, Al Gore.


BLITZER: Stunning new insight right now into how China spies on the United States. It's coming straight from a former Chinese spy. Brian Todd is working this story for us. Brian, what's going on?

BRIAN TODD, CNN CORRESPONDENT: Wolf, as you know, Russian spy defections are legendary in this country, but we almost never see a Chinese intelligence officer in the west, much less one who's interested in talking to the media. We caught up earlier today with Li Fengzhi.


TODD (voice-over): A rare defector from Chinese intelligence tells CNN how the communist regime tries to tap into America's military, political and economic secrets. LI FENGZHI, FORMER CHINESE INTELLIGENCE OFFICER: The main focus is still human intelligence through spies. But just like other countries, China uses other useable channels like technology.

TODD: Li Fengzhi says he walked away in 2004 from China's Ministry of State Security, the MSS, its top foreign intelligence branch. He's now aligned with a group affiliated with (INAUDIBLE), an outlawed Chinese Buddhist sect that opposes the regime. He mainly wants to tell westerners how the Chinese government is repressing its people. So his answers on intelligence gathering are vague. But Li who first spoke to the "Washington Times", does offer one method of how the Chinese MSS operates.

FENGZHI: They try to get to the heart of the economic or political situation. They use individuals including U.S. citizens.

TODD: When we asked if Li was legitimate, a U.S. official told CNN he was a low level MSS agent. But wouldn't say if he's of interest to the U.S. intelligence community. What could he provide?

JAMES MULVENON, CENTER FOR INTELLIGENCE RESEARCH & ANALYSIS: We can learn about the recruitment policies. We can learn about their internal organization. We can learn about of the various ways in which they are taught trade craft, the training they receive, and then the specific methodologies they use in order to carry out their domestic and foreign intelligence functions.


TODD: We contacted the Chinese embassy here in Washington to respond to Li's remarks. An official there e-mailed us saying China never engages in any activities that would harm other countries' national interests. And quote, "There are always a handful of people with ulterior motives who would stage farces of various forms and spread political lies to vilify China's image and sabotage U.S.-China relations." Wolf, they are not happy with Mr. Li's remarks.

BLITZER: He waited more than four years to break his silence, speak out. He spoke to Bill Gertz as you point out of the "Washington Times." Why did he wait so long?

TODD: He says it was because he wanted to make sure his family was safe in the United States. He's got a wife, two sons and his father here in the United States. When I asked him where he lives in America, he did not want to give that out. He's still a little bit fearful.

BLITZER: Brian Todd, thanks very much.

Communist North Korea seized two U.S. journalists with ties to the former vice president Al Gore. Let's go to CNN's Jill Dougherty, our foreign affairs correspondent with details. What's going on Jill?

JILL DOUGHERTY, CNN FOREIGN AFFAIRS CORRESPONDENT: Wolf, at this hour the state Department says it does not know where those two American journalists are being held. Secretary of state Hillary Clinton is personally engaged and she is working with former vice president Al Gore.


DOUGHERTY (voice-over): CNN has learned the journalists were filming along the Tumen River, the border between North Korea and China, for years a crossing point for refugees fleeing the north. Media reports say Laura Ling interviewed on CNN last month, and Eunah Lee were working for the online media site Current TV. Officials say former vice president Al Gore who founded the site has reached out to secretary of state Hillary Clinton for help. The arrests were the lead on the website Thursday morning, but hours later not a trace of the story. The site's editor is giving a flat "no comment" to all questions. The state Department, tight lipped but concerned.

ROBERT WOOD, STATE DEPARTMENT SPOKESMAN: We have two American citizens who are being held against their will. We want to try to find out all the facts, and try to get, you know, gain their release.

DOUGHERTY: U.S. officials are trying to pin down where exactly the journalists were when they were grabbed. On the Chinese side of the border or in North Korea. Complicating matters, officials tell CNN, the journalists were standing on the frozen river where the border is not clearly marked. The U.S. is asking Beijing for help. And a Chinese official tells CNN they're investigating. Washington has no formal ties with the north, so it's making contact through the Swedish embassy in Pyong Yang. And North Korea's mission to the UN in New York.


DOUGHERTY: Now it's unclear exactly what Secretary Clinton can do. And all of this comes just as the U.S. is threatening to shoot down a missile that North Korea says it's going to launch in just about two weeks. Wolf?

BLITZER: Let's hope that Eunah Lee and Laura Ling are released, and released quickly. Jill Dougherty, thanks very much. Laura Ling was just interviewed last week by our own Rick Sanchez. Let's hope these two women are released.

Michelle Obama's dream comes true. A group of successful women help the first lady reach out to young people. We're back in 60 seconds.


BLITZER: Stimulus watchdog groups are making first appearances on Capitol Hill today. Let's go to CNN's Kate Bolduan, she's looking at the story for us. Kate?

KATE BOLDUAN, CNN CORRESPONDENT: Hey there Wolf. Earl Devaney has a reputation as a straight shooter, and today he said when it comes to his new boss, the vice president, in watching over stimulus funding, he's going to tell him what he needs to know, not what he wants to know.


BIDEN: They said last night don't mess with Joe. That is the guy you don't mess with.

BOLDUAN (voice-over): But the watchdog Earl Devaney is having a hard time getting started, without a real office.

EARL DEVANEY, RECOVERY ACCOUNTABILITY TRANSPARENCY BOARD: I'd like to get an address. I would like to get some phones and computers and start taking control of this.

BOLDUAN: Devaney is in charge of making sure the $787 billion of stimulus money doesn't get wasted or misused. Experts say seven percent could be lost to fraud.

DEVANEY: The first time I took a pencil and figured that out, I was horrified to see it was $55 billion. So obviously the challenge is to try to minimize those losses.

BOLDUAN: He helped uncover the Jack Abramoff lobbying scandal and is now chairman of the Recovery Accountability and Transparency Board. The chairman of the House oversight committee is demanding swift action.

REP. ED TOWNS, (D) NEW YORK: Mr. Devaney, who has a tremendous reputation, I hope that he would be able to pull together a team to make certain that the money goes to where it's supposed to go, do what it's supposed to do. We want to stimulate the economy, not stimulate some pockets.

BOLDUAN: Devaney's goal, fraud prevention rather than rooting it out after the fact. However, he hasn't yet taken control of the board's key tool, the website, where taxpayers are supposed to be able to track spending and report potential misuse. Meanwhile, money is already out the door and projects are under way.

DEVANEY: I arrived at the train station and found that the train had already left.


BOLDUAN: Devaney says the website is getting almost 4,000 hits per second. Americans clearly want to know where their money is going, and it seems, Wolf, Devaney knows that is a huge job.

BLITZER: Huge indeed. All right Kate, thank you.

A group of very successful women are now joining Michelle Obama, the first lady, to reach out to young people. Let's go right to CNN's Zain Verjee for details -- Zain?

ZAIN VERJEE, CNN STATE DEPARTMENT CORRESPONDENT: Hi there, Wolf. There was a really long line of limos and black cars outside the White House today. The first lady invited actresses, musicians, business women, athletes and others to the White House for a key mission.


VERJEE (voice-over): A-list women at the White House helping make Michelle Obama's dream happen.

MICHELLE OBAMA, FIRST LADY: I couldn't have imagined this a year ago. Gathering an amazing group of women together, and going out and talking to young girls around the country. But we're here today, hopefully we can do more and more of this. But this is part of that dream.

VERJEE: Among the women celebrating women's history month, musician Alicia Keys, Fran Drescher, star of the nanny, sisters Felicia Rashard and Debbie Allen from The Cosby Show and Fame. All heading to D.C. area schools to talk to students.

M. OBAMA: Many of us have forged a path to some amazing things. We want to share that with these young people. Our job is simple. Just be open, be honest, be real, be clear and have fun.

VERJEE: She did. At a high school in southeast Washington.

M. OBAMA: I can tell you the president is upset because he's in California. And I reminded him that today I was doing this. He was like, I want to do what you're doing. Yes. You think he's cute? I do, too. He's cute. He's cute.

VERJEE: Mrs. Obama talked about growing up.

M. OBAMA: My parents were working class people. My father was a city worker. My mother stayed at home until I went to high school. I have an older brother.

VERJEE: And that it's ok to have growing pains.

M. OBAMA: You're just in high school. There are no decisions or things that you've done that change your life forever for the good or for the bad, right? If you've made some bad choices now, you can completely correct it.

VERJEE: She gave these students a vote of confidence.

M. OBAMA: There are a whole lot of people out here like me and the women who come to D.C. today who just want to take that potential and just push you forward to the next place.

VERJEE: And talked about what helped her.

M. OBAMA: If I were to point to anything that was different, it was the fact that I had somebody around me who helped me understand early on that hard work, discipline and the choices that I made in life were really the only things that define me.

VERJEE: She'll host all the celebrities at the White House for dinner, along with more students from other schools.

M. OBAMA: Many young people will have never set foot in this place, never could have imagined that they would be dining in the east room with so many great people. We'll be joined by even more women. Now just imagine what they're going to feel like at the end of this day. And then we can do this again, and again, and again and again.


VERJEE: Wolf, the students had no idea she was coming. They wanted to know more about her lifestyle. One of them asked her who does her makeup. She said she does it by herself except for special occasions. They asked her about her clothes and what she does for fun. She said, all kid stuff mainly, and that she hadn't been to a grown-up movie in a long time -- Wolf?

BLITZER: All right Zain, thank you.

To our viewers, you're in THE SITUATION ROOM. Happening now, a new bailout shocker. More than a dozen companies that accepted federal money owe millions of dollars of back taxes. This hour the mystery over how this happened and which companies haven't paid up.

The Treasury secretary is forced to answer for corporate arrogance and greed.