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U.S. Economy Loses Jobs; Pelosi Defies President Obama on War; Delays in Disaster Zone; BP Ripe for Takeover After Spill

Aired July 2, 2010 - 17:00   ET



Happening now, the U.S. economy loses jobs for the first time this year. The president insists that the recovery is moving forward, but Americans who are desperate for a paycheck may not be buying that.

And two more alleged Russian spies reveal their true identities. We're going to look at the perils of being a secret agent with kids and we'll hear from the grown son of one of the suspects.

And a leading conservative is calling on the Republican Party chairman to do his patriotic duty this July 4th -- by resigning.

How long can Michael Steele hang onto his job?

Wolf Blitzer is off today.

I'm Suzanne Malveaux. And you're in THE SITUATION ROOM.

Well, job gains in America hit a wall now, adding to fears that the nation may be socked with a second recession. There are new figures that show that the economy lost 125,000 jobs in June. Now you can see there had been job growth every month in 2010 until the June slide. The loss is mostly due to the fact that the Census is over and those jobs related to the Census went away. The overall unemployment rate actually dipped last month to 9.5 percent from 9.7 percent in May. But analysts say that that's only because so many unemployed Americans were so discouraged that they stopped looking for work.

Well, the numbers are fueling new partisan fighting over whether the president's economic policies are really working.


REP. KEVIN BRADY (R), TEXAS: Americans don't see an economy in recovery. They see a White House seemingly incapable of protecting our beaches or getting people back to work.



REP. ELIJAH CUMMINGS (D), MARYLAND: When do we acknowledge progress?

When do we give this president, this administration, this Congress, credit for what we are accomplishing?


MALVEAUX: I want to bring in our White House correspondent, Dan Lothian -- and, obviously, Dan, I guess it just depends on who you talk to. The Democrats say it's a good thing. The Republicans say it's a bad thing.

What are we hearing from the Obama administration?

DAN LOTHIAN, CNN WHITE HOUSE CORRESPONDENT: Well, that's right. You know, but the president was very measured in his response. Yes, he did focus on the positive, pointing out that some 600,000 private sector jobs have been created so far this year. And then when you compare the first six months of this year to last year, there's been a big turnaround. But, obviously, those numbers don't lie. They're very disappointing. So the president pointing out that a lot more work needs to be done in order to fix the battered economy.


BARACK OBAMA, PRESIDENT OF THE UNITED STATES: Make no mistake, we are headed in the right direction. But as I was reminded on a trip to Racine, Wisconsin earlier this week, we're not headed there fast enough for a lot of Americans. We're not headed there fast enough for me, either.


LOTHIAN: In the effort to push the recovery, the president today announcing investment in 66 new projects for Internet and broadband services. This is expected to generate some 5,000 jobs.

But as you pointed out, Suzanne, there is that resistance from Republicans. In fact, the two top Republicans in the House, immediately after those numbers came out today, putting out statements criticizing the stimulus plan, saying that that only leads to more deficits and that essentially what the president is doing is kicking the can down the road.

MALVEAUX: OK. Thank you, Dan.

Appreciate that.

Obviously, there is another unemployment number that drives home what a deep hole the nation is in when it comes to jobs. Almost half of all the jobless workers reflected in the June unemployment rate have been out of work now for about six months.

The new U.S. commander in Afghanistan lands in the war zone on the heels of a brazen new attack by the Taliban. Taliban militants bombed a U.S. aid agency compound in Northern Afghanistan today. At least five people were killed and 20 others wounded. Now NATO officials called the suicide attack an attempt to intimidate the people of Afghanistan and the allies that are fighting to protect them, soon after General David Petraeus reported for duty at NATO headquarters in Kabul. It's been about just two days since the Senate confirmed his nomination to replace the ousted general, Stanley McChrystal.

Joining us is Candy Crowley.

Thank you so much -- Candy, for being here. Obviously, we saw that the president has his team on the ground now. But as you had noted, we saw a vote -- a very important vote, where House Speaker Nancy Pelosi was trying to push forward an amendment that would have restricted funding if they didn't have a clear timetable for withdrawing troops for next summer.

But what does this say about the kind of challenge that the president faces now, even among the people in his own party, about this?

CANDY CROWLEY, HOST, STATE OF THE UNION: Well, mostly among people in his own party. It's the Democrats that are beginning to jump ship here on Afghanistan.

What it tells you is more and more Democrats are looking at this going, wait a second.

First of all, it just looks like we're starting to get the Q word -- quagmire. It looks like we're not going to be able to get out. And then what they've heard the president say about this July 15th -- the July, 2011 deadline -- is, well, that's the beginning of the start of -- it's too mushy for them. And they're beginning to think, uh-oh, that's going to slide, too.

So you are seeing some real Democratic hesitation here about the war, not about funding it, because the...

MALVEAUX: Of course.

CROWLEY: -- the funding did go forward.

But how long that's going to go on is tough to tell, although it is very hard to believe that this Congress would ever stop funding for wars that are ongoing with U.S. troops abroad.

MALVEAUX: And, Candy, you've been talking to folks in Washington about that July 2011 deadline -- how hard, how tough that's going to be.

What are -- what are you hearing?

What are they telling you?

CROWLEY: Well, this -- this Sunday on the show, "STATE OF THE UNION," we talk to three Congressmen, all of whom have been -- served in Iraq and Afghanistan, what that would -- getting their take -- would really be helpful. So we talked to John Boccieri of Ohio, Duncan Hunter of California and also to Mike Coffman of Colorado. And the question simply was, are we going to make that July 2011 deadline to being bringing troops home?

And basically they don't think so.

Take a listen.


CROWLEY: Can it be done in a year before troops begin to withdraw?

REP. JOHN BOCCIERI (D), OHIO: I don't know. This is a -- that's a very difficult proposition. I think what we'll see is a strategy. Our -- our job in Congress essentially is to evaluate the president's strategy, make sure that our troops can achieve and execute the strategy that's in place and make sure they have the resources to do it.

At the end of the day, success, though, is going to be identified on whether the Afghanistan government can stand up and provide the basic necessities for those folks in the outlying areas.

REP. DUNCAN HUNTER (R), CALIFORNIA: I don't -- I don't think so. I was just over there on Memorial Weekend. This one year deadline is weighing down on every commander's shoulders, from the lieutenants to three star generals. It's weighing on everybody.


CROWLEY: So there you had a Democrat, Boccieri, and Duncan Hunter, a Republican, both saying, oh, I don't think we're going to make -- make this deadline.

MALVEAUX: That's going to be a very tough sell for the president, even despite the fact that he's got a new team in place.

Who else are you going to be talking to this Sunday?

CROWLEY: We're also talking to the U.S. ambassador from Afghanistan, to ask him about basically all those questions about Hamid Karzai, the president of Afghanistan. Because that's the other leg to this stool, if you will. You've got the U.S. civilians' strategy, along with the U.S. military there.

But what they need, as we just heard here, is they need the Afghanistan government to step up and provide basic services into the countryside and basic protection so that the U.S. can leave.

So there will be lots of talk about Hamid Karzai.

MALVEAUX: All right. We're looking forward to seeing it.

Thank you so much, Candy.

CROWLEY: Thanks. MALVEAUX: Well, there was a mishap today aboard the International Space Station, which left a cargo ship in limbo.

And lessons from Hurricane Alex -- are oil disaster crews any more prepared for the next storm?

And Republican Party Chairman Michael Steele under fire again from within his own party.

Were his remarks about the president and the war bad enough to force him out?


MALVEAUX: Along the Gulf Coast, oil cleanup and containment crews are dealing with the fallout from Hurricane Alex, even though right now it's just a rain storm.

Our CNN senior correspondent, Allan Chernoff, is joining us from Louisiana with the very latest.

A lot of people, you know, just trying to figure out how -- how long is it going to take to get all of this in place and to -- to get the -- the oil plugged.

ALLAN CHERNOFF, CNN SENIOR CORRESPONDENT: A tremendous amount of work, Suzanne. Nobody really knows the answer for sure. I can tell you that work crews here in Louisiana spent the entire day out in the Gulf fixing up boom that was damaged by the hurricane. The hurricane also prevented skimming and burning of oil -- a real setback. These are just the latest setbacks for BP. And the process has more weeks to go.


CHERNOFF (voice-over): Watch BP's online video and you'll hear the company's technical expert praising progress in BP's ultimate solution -- a relief well.

UNIDENTIFIED MALE: I walk away with tremendous confidence in our relief well operation.


CHERNOFF: BP concedes, though, it is still weeks away from attempting a so-called bottom kill of the blown out well to shut it down after the failure of its "top kill" efforts.

Why is it taking so long?

Petroleum engineers say drilling a relief well is a painstaking process, especially this one since, at 18,000 feet, it's the deepest ever. Normally in oil drilling, companies simply drill to a point within 200 feet of where geologists believe there is oil. In this case, BP has to virtually intersect the well bore, only several inches wide. After drilling 17,000 feet, BP now has to repeatedly pull out its drill pipe to create an electromagnetic signal to locate the metal casing of the original well, which is used to determine which direction to proceed.

ADM. THAD ALLEN, NATIONAL INCIDENT COMMANDER: The directional surveys they have, have a little element of error in them. So -- and the deeper you go, the bigger the error bar gets.

CHERNOFF: While Hurricane Alex didn't come close, if a hurricane does approach the spill area, the rig might have to be evacuated.

ALLEN: For that entire time period, we would have to abandon the site, go -- go to a safe haven and come back. It would be -- it could be a total of 14 days.

CHERNOFF: Once the wells intersect, it'll take at least several days for drilling mud and then cement to be poured down the relief well to try to kill the gusher. If the first relief well doesn't work, a second relief well is underway, as well. But petroleum engineers say there's no assurance of success.

(on camera): Is there a chance this won't work?

I mean that's a -- that's a heck of a well they're trying to clog up.

UNIDENTIFIED MALE: Well, I would say that any human endeavor has a chance that it won't work. So nothing, I think, is 100 percent.

CHERNOFF (voice-over): Indeed, BP has a contingency plan for collecting oil if the relief wells fail. At the earliest, BP predicts, its relief well won't stop the leak until August -- more than a month away, meaning under BP's best case scenario, the gusher will have been shooting oil into the sea for at least 100 days.


CHERNOFF: It could be worse. In 1979, Mexico's Pemex oil company took 10 months to control the blowout called Ixtoc. And that was in shallow waters of the Gulf of Mexico -- Suzanne.

MALVEAUX: Thank you, Allan.

Lisa Sylvester is monitoring some of the other top stories that are coming into THE SITUATION ROOM right now -- hey, Lisa, what are you working on?


Well, NASA officials say the six member crew of the International Space Station is in no danger after a Russian cargo vessel failed to dock. The spacecraft missed after a technical glitch sent it flying two miles past the orbiting outpost. The unmanned vessel, called Progress, routinely delivers supplies to the crew. A NASA spokeswoman calls the failed docking a fluke. Russian engineers will try to dock the vehicle again, but not today. Police in Oakland, California brace for unrest in the streets as a racially-charged murder case goes to the jury. The panel was set to begin deliberations after lunch today. A former Bay Area Transit police officer, who is white, is on trial, accused of killing an unarmed African-American man on New Year's Day, 2009. A statement on the Oakland Police Department's Web site appeals for calm in the community.

Senator Orrin Hatch of Utah says he will oppose the nomination of Elena Kagan to the Supreme Court. In a statement today, Hatch called Kagan "a good person" and "a brilliant scholar." But he says he's concluded that she does not meet his philosophical standard that the law must control the judge rather than the judge controlling the law. Hatch is the ranking Republican on the Senate Judiciary Committee.

And the voice of Cinderella in the 1950 Walt Disney movie classic has fallen silent. Disney studios announced on Twitter today that Eileen Woods has died. She was chosen from among 400 hopefuls to be the singing and speaking voice of the heroine in the rags to riches fairy tale. Woods was 81 years old.

And that is certainly a classic -- Suzanne.

MALVEAUX: Yes, I loved it.

SYLVESTER: I watched some of it. Ah.

MALVEAUX: Yes. Absolutely.

Thanks, Lisa.

Well, some of those accused in a suspected Russian spy ring are back in court today. At issue, the prospect of bail and what to do about their children.


MALVEAUX: We want to talk more about the weather challenges in the disaster zone from Alex and the storms that may hit in the future.

We're joined by our severe weather expert, Chad Myers -- Chad, tell us what is happening with the containment cap. We've been seeing some pictures. It looks like it's wobbly, it's loose.

What do we know about that and how the weather is impacting this?

CHAD MYERS, CNN METEOROLOGIST: We knew it wasn't a perfect seal. We knew it wasn't just like one thing slipped on top of another with a perfect seal. But we didn't realize it was this loose.

Take a look at the pictures here. Now, this is from -- from yesterday. But we noticed this yesterday. And we noticed it this morning. We noticed that the wobble back and forth from the containment cap to the -- what the blowout preventer -- was not perfect.

And kind of said, what was going on?

So we asked BP. And BP said, well, you know what, it is wobbling because the waves up above, on -- on top of the shore -- a mile higher into the water, way up on top, those waves are eight to 10 feet high. And the ships are wobbling. And, yes, that riser pipe is actually wobbling.

And so it is not a perfect seal. And this just out from BP literally three minutes ago. They are saying that nearly 20,000 barrels of oil was being -- unable to be captured today and yesterday because of this weather. That's 800,000 gallons of oil that was not able to be captured because of the skimming or the burning off or that wobbling back and forth of the riser pipe because of a storm that was 600 miles away.

OK, it's a big storm. It's 105 miles per hour. It's a big storm. But it was still 600 miles away.

This is the video that I want you to notice. I want you to kind of see those triangular -- kind of those flares, almost like the bottom part of a rocket ship, the word new.

See the word "new development?"

One of those triangles is right there. And it's wobbling back and forth, not a lot, but it's still moving. We all assumed that this was kind of a better seal than this. And we've also noticed that there's more oil coming out from around this seal today, especially every time it wobbles. It's perfectly -- not a good seal. And if it wobbles back and forth, it's going to be less of a good seal.


MYERS: And so probably -- and according even to BP, more oil is in the water today...

MALVEAUX: I can see that...

MYERS: -- because of this hurricane.

MALVEAUX: I can see that wobbling.


MALVEAUX: And -- and what does this mean, though?


MALVEAUX: Because what if we have a -- a storm that's much bigger or even closer to the Gulf Coast?

What is that going to mean for the -- the cap and for the cleanup?

MYERS: You know what, Suzanne, it -- it means that it's going to be devastating. It honestly means that there's not going to be anything we can do about it. This -- this is as bad as it gets today -- 3.9 feet. It's a 3.9-foot wave out there. And they're unable to stop some of this oil. They did get a little bit -- according to Louisiana, they did get a little bit of skimming going on today.

Here's the live picture of that oil. It's kind of been in and out all day, whether we've had a live shot or not. And here is this triangle that I'm talking about -- kind of that little part of the -- almost like a rocket ship that helped it come down. And it is moving back and forth. And it has been moving all day long.

If you get a storm that moves up right through this -- this area and you get it to be a category one hurricane, they're going to have to disconnect it altogether. So all that oil is going to come out unabated. There's not going to be any containment whatsoever. There's not going to be any skimming whatsoever. And depending on what side of the hurricane you're on, all that oil will be just thrown directly onshore.

It's not going to be good. This was a -- this was a good trial run, considering it was 600 miles away. They'd better figure out what they did right and what they did wrong...


MYERS: -- with a storm that was 600 miles away before they get one that's a lot closer.

MALVEAUX: I hope they've learned some lessons here. OK. Thank you, Chad.

MYERS: I hope so.

MALVEAUX: Appreciate it.

MYERS: We -- you know what?

Even here at CNN, we learned lessons about what machines were going to work in the hurricane season, what machines weren't going to work, what did really, really well for BP and what didn't. And -- and so, hopefully, they can use their engineering talent, too, to figure that out for the next time.

MALVEAUX: All right. We -- we shall see. We'll see how that goes.


MALVEAUX: Thank you, Chad.

His mother is accused of being a Russian spy. Ahead, her son talks about her and her tough love. It's a CNN exclusive.

And who would want to buy BP now?

Our CNN's Richard Quest on speculation of a takeover in the midst of the oil disaster. (COMMERCIAL BREAK)



Happening now, deep cover, flight risk, no bail -- the plot thickens in the Russian spy case, as three of the accused face a detention hearing. Some are married with kids.

And there's a big question -- what happens to the children?

And 4th of July weekend and Pensacola Beaches are now empty, except for the globs of oil that are washing ashore. People are calling it the lost summer.

Wolf Blitzer is off today.

I'm Suzanne Malveaux. And you're in THE SITUATION ROOM.

Two more suspects in an alleged Russian spy ring have admitted to prosecutors that the names they've been using are fakes. We'll have more ahead on new developments in this case, including a hearing today in Virginia.

But right now, we have an exclusive interview with the adult son of one of those suspects.


UNIDENTIFIED FEMALE: How do you feel about the possibility of your mother being freed on bail?


Well, as the order said, that this would because she would defend herself more directly and better. And it was obvious because she has a lot of the reputation to defend herself. And because she has a lot of things for her to stay. And, you know, and -- and -- and this -- she is a re -- a prominent reporter -- a journalist now, you know, and well-respected in the whole hemisphere so we just...

UNIDENTIFIED FEMALE: Are you optimistic after, you know, she gets freed on bail that the trial is going to go well?

PELAEZ: Yes. Yes. And she has very good -- very good lawyers, you know. I don't know if -- you -- you spoke with the lawyers yesterday, of course. They're very good lawyers. And I have my trust in them.

UNIDENTIFIED FEMALE: How is your mother?

How would you describe your mother?

Can you say that she's a tough love, the same thing you told me before in English. PELAEZ: She's a -- she's a very tough woman and very lovable. And -- and she's a -- you asked (INAUDIBLE) she's a tough love woman. And she's a tough love mother and very nice.


MALVEAUX: Some of the suspects in the alleged spy ring have young children. Ahead, we'll get the latest of what might happen to them while their parents are prosecuted.

This hour, evidence that the oil giant, BP, is paying a price for the Gulf disaster and may be vulnerable for a takeover. As of the closing bell today, BP's stock was holding at just above $29 a share. It was worth twice that much -- about $60 a share -- on April 19th. That was the day before the Deepwater Horizon rig exploded.

Joining us in THE SITUATION ROOM is Richard Quest.

Thanks for being here.


MALVEAUX: Obviously, we're taking a look at BP. The investors seem to be quite worried.

And should they be, because people always say that BP is a company that is too big to fail?

QUEST: The -- the company is maybe thought of as too big to fail, but the corporate world is littered with companies that were thought to be exactly that. And the truth is that, yes, if you get a group of investors together and start discussing BP, within short order there are two groups of -- schools of thought.

The first says that this is a buying opportunity, the shares are dirt cheap, having fallen by 50 percent and now is the time to get in and get a bargain whatever happens.

The second group immediately says the liabilities are open-ended, no caps, the $20 billion plus, it's simply too big a risk to take hold of.

Now, you know, it's one of those dreadful phrases, Suzanne, but only time will tell who's right.

But, yes, there is a definite debate about whether BP is now a company in play.

MALVEAUX: But, Richard, I don't understand this.

Why would it be a company in play?

Why would any investors find this an attractive investment?

If you take a look at the cost here and break it down, we're talking about $2.65 billion for the cleanup of the oil spill, $130 million for claims and then $20 billion for this escrow account. I mean, these are costs that are going to go on for decades.

Why would this be an attractive investment?

QUEST: You just summed it up, Suzanne. They are costs that go on for decades, but they don't all have to be paid in one go, except the $20 billion. And that was the importance of the escrow account. That money had to come up front.

But any more money, it will dribble out over years, as we discovered from Exxon Valdez. Twenty years on and the money is still just going out in little bits and bobs.

No, Suzanne, the point is BP has huge free cash flow. It's a money making machine. It has good dividend streams, until this particular crisis. And importantly, it has superb assets, whether it's in Russia, the gulf, the Middle East, and the deep sea exploration.

MALVEAUX: So when will we see these investors actually swoop in? What are they waiting for?

QUEST: There are two names you hear talked of, Royal Dutch Shell, RD Shell, and ExxonMobil, Exxon. They are believed to be the two that could best integrate BP into the wider picture. They are also the ones, particularly in Exxon's case, that would be able to quantify how much risk is worth taking in terms of taking on a damaged company like BP.

It is the talk of the market at the moment. BP at just under 3 pound, 3 pound 20 a share is a bargain, but only if you believe that the full liabilities will only be $30 billion or maybe $40 billion.

You know, Suzanne, and I hate to put (ph) it because there's so much misery in the gulf region as a result of the spill, but investing is about risk. It's about believing you are spotting something at a bargain basement price, getting in there, scooping it up, and making off.

MALVEAUX: Well, all right, Richard. We're going to see if those companies are going to step forward and do just that. Thank you so much. Richard Quest in THE SITUATION ROOM.

The chairman of the Republican National Committee hits another sour note with conservatives and those in his own party. What Michael Steele said and why it has some calling for him to resign.

And later, we'll go behind the scenes with filmmakers telling the story of President Obama's Indonesian childhood.


MALVEAUX: Small businesses are struggling in the wake of the oil disaster off the Gulf Coast. And what is more is that Louisiana officials say the Small Business Administration is turning away a lot of the requests for relief loans. Our CNN's Lisa Sylvester -- she's joining us. Lisa, tell us why these loans aren't going through. How difficult is this? What is the problem?

LISA SYLVESTER, CNN CORRESPONDENT: Well, this is what it breaks down to, Suzanne. The Small Business Administration says it actually has a more lenient approval process than a conventional lender. Even still, though, many businesses in the gulf are being turned down. And the reason is that even though many of these small businesses will qualify for compensation and reimbursement from BP eventually -- well, those future claims are not being considered in SBA's loan approval process.


(voice-over): Kelby Linn runs APC Real Estate, a company that manages vacation rental properties in Dauphin Island, Alabama. Since the oil spill, he says, they've lost more than half a million dollars in revenue, but he monthly bills are still coming in, totaling $60,000 a month. Linn says the BP claims process has been lengthy and cumbersome.

KELBY LINN, ACP REAL ESTATE: The BP claims process from day one has been pretty much a fiasco. It has been a moving target.

SYLVESTER: Linn has applied for a loan from the federal government's Small Business Administration to help tide him over until he gets fully reimbursed from the BP funds. But what many small businesses are finding out -- that's not easy, either. The SBA has set up an economic injury disaster loan program as part of the oil spill response, but numbers obtained by CNN show the SBA has actually denied two thirds of gulf small businesses seeking loans, saying they lack adequate credit or repayment ability.

REP. JOSEPH CAO (R), LOUISIANA: I believe that the approval rate of 30 percent is quite dismal. Many small businesses are struggling, as you have seen in the past couple of months. You have oyster companies shutting down. You have restaurants struggling to survive.

SYLVESTER: The Louisiana economic development office sent a letter to the SBA's administrator asking if loan underwriting standards can be changed to take into account future payouts to affected businesses by BP. The SBA says the 33 percent approval rate is in line with other disasters, and so far, the agency has approved 120 recent disaster loans and deferred 500 existing loan payments.

Jonathan Swain is an SBA assistant administrator. He says the agency bases its lending decisions on the recipient's credit and repayment history.

JONATHAN SWAIN, SMALL BUSINESS ADMINISTRATION: From our standpoint, the last thing you'd want to do to a business who lacks repayment ability is layer a loan on top of them that they're going to have for 30 years to try to repay.

SYLVESTER: The irony is that many of the companies applying for the emergency loans may actually qualify for compensation from BP, it's just that the money hasn't come in yet. That's the case for Kelby Linn, who's trying to stay afloat as long as he can.


Now, the Small Business Administration says one reason it has not taken into account future claims to be paid by BP is that it does not have access to their records, specifically who is entitled to compensation and who is not. Well, now that there is a separate fund run by Kenneth Feinberg, the SBA is reaching out to try to get this information so that when the agency processes a business loan application, they can take into account future BP payments. But right now, Suzanne, that system is not up and running.

MALVEAUX: So is Congress doing anything to help out here, Lisa?

SYLVESTER: Well, Representative Cao -- I talked to him and he has introduced legislation, along with a congresswoman from Texas, Sheila Jackson Lee. And what they're trying to do is set up a separate loan program specifically for small businesses in the gulf region. Again, it's all about trying to streamline the process because for many of these small businesses, what you have to realize is they need the money now. They can't wait for a lengthy process of a month or two from now in order to get a check from BP.

MALVEAUX: OK. Thank you, Lisa.

A prominent conservative columnist calls for the resignation of Republican National Committee chair Michael Steele for comments about President Obama and the war in Afghanistan. Should Steele step down?

And the U.S.'s loss to Ghana in the World Cup and "Avatar's" loss at the Oscars -- a Texas congressman pulls out the sarcasm, tells Democrats to quit blaming President Bush for everything. "Strategy Session" is just ahead.


MALVEAUX: More heat today for Republican National Committee chairman Michael Steele, who called the war in Afghanistan one of President Obama's choosing. Now there are calls for his resignation from within conservative ranks. Joining me for today's "Strategy Session" are Democratic strategist Jamal Simmons of the Raben Group and Republican strategist Tony Blankley of Edelman PR.

I want to start off first with the comments that Michael Steele made. This was a Connecticut fund-raiser. And it has been posted on YouTube. I want you to listen carefully. It might be a little hard to hear him, but here's what he said.


MICHAEL STEELE, RNC CHAIRMAN: Keep in mind, again, federal candidates, this was a war of Obama's choosing. This is not something the United States had actively prosecuted or wanted to engage in.


MALVEAUX: Now, this is just -- I mean, the outrage is palatable here from the conservatives, Bill Kristol as well as Erick Erickson calling for him to resign. This is an open letter from Kristol today, where he says, "I ask you to consider over this July 4th weekend doing an act of service for this country you love. Resign as chairman of the Republican Party. Your comment is more than an embarrassment, it's an affront both to the honor of the Republican Party and to the commitment of the soldiers fighting to accomplish the mission they've been asked to take on by our elected leaders."

I want to start of with you, Tony. Why would Michael Steele say something like this? It doesn't make any sense.

TONY BLANKLEY, REPUBLICAN STRATEGIST, CNN CONTRIBUTOR: Well, look, I know both Bill and Michael, and obviously, whatever he said is garbled. It doesn't make any sense. There's no way in the world that Michael doesn't know that the war started with President Bush, and Obama -- so that's an indefensible statement. I don't think he meant it. It must have sort of been garbled, as some of us have.

On the other hand, I think Bill Kristol's call for him to resign is way over the line for two reasons. One, there's no need to do that. And two, the moral component I don't get at all. Now, I agree that the party chairman is (INAUDIBLE) the party or to keep out of controversial politics. Their job is to raise money and run the committee and not get into stuff (ph). So that -- but as far as the moral issue of opposing the war -- I think people -- you can be moral on both sides of that issue. I don't think Billy (ph) has any basis for that. And we're four months from the campaign. You know, obviously, the chairman got off to a rocky start. I think he's steadying pretty well now, and I know that the party's going to stick with him well through the campaign.

MALVEAUX: Jamal, is this a gift here, to see this kind of back and forth and the head of the Republican Party in this kind of mess again?

JAMAL SIMMONS, DEMOCRATIC STRATEGIST, CNN CONTRIBUTOR: You know, Michael Steele has made these kind of comments over and over again. It's going to be tough for him and tough for the party to keep having to defend the chairman when he does this. Everybody knows the war not only started with president Bush, it actually with Osama bin Laden, who attacked us from Afghanistan, which was the reason why we're fighting there.

But besides the Michael Steele question, the problem is this is a bigger problem for the entire Republican Party. They have been off message, it seems, all year. You've got Joe Barton, who went after the president saying that -- and apologized to BP. And then you've got these Senate candidates all over, from Sharron Angle, who says Nevadans are too spoiled, out in Nevada, or people like Rand Paul in Kentucky, who got in a little bit of trouble. This is a big problem for the party. They can't stay on message about what they want to do to take the country forward and I think the Democrats will probably benefit from that. (CROSSTALK)

MALVEAUX: Tony, how big a problem is this when...

BLANKLEY: I think it's a small problem.

MALVEAUX: ... a division...

BLANKLEY: It's a small problem.


BLANKLEY: Angle is 8 points ahead of Senator Reid. Yes, every party has little off-message moments. The trouble for the Democrats, of course, is hat their policy's failing. The public has turned against them. The generic ballot -- that is, you can vote Republican or Democrat -- 7 or 8 points favorable to the Republican. The intensity of Republican voters to come out and vote is at 58 percent, the Democrats are down in the 30s.

So yes, you'd rather have every member of your party perfectly on message, but I don't think there's a Republican or a Democrat in town who'd rather be in the Democratic position than the Republican.

SIMMONS: Well, this is exactly -- this is exactly the issue, Suzanne. This is exactly the issue. The Democrats should be on the ropes, should be laying face down in the dirt...

BLANKLEY: You are.

SIMMONS: ... and instead -- no, we're not. Instead, in state after state, we've got Republicans who keep sticking their feet in their mouth, and we end up having a strong case -- Democrats end up having a strong case to make throughout the rest of this campaign.

MALVEAUX: I think it's important to note -- I want to be fair to Michael Steele. He was invited, obviously, to speak for himself on CNN. Through a spokesman, he declined. But he did release a statement himself. He said today, that, "During the 2008 presidential campaign, Barack Obama made clear his belief that we should not fight in Iraq, but instead concentrate on Afghanistan. Now, as president, he has indeed shifted his focus to this region. That means this is his strategy. And for the sake of the security of the free world, our country must give our troops the support necessary to win this war."

BLANKLEY: Yes, look -- look...

MALVEAUX: Is this explanation enough? Is it enough to save him, essentially?

BLANKLEY: That's a correct statement, but it's not the statement he made originally. Originally, he misspoke, obviously. It is true that President Obama said this is the war that was necessary and he has put out more troops, 30,000 more troops. He has recommitted -- recommitted -- not committed, recommitted -- our government to the war. But it's also the case, obviously, the war started when we invaded after -- after we were hit on September 11.


MALVEAUX: What does he need to do? Does he need to do anything or...

BLANKLEY: No, I think...

MALVEAUX: ... is this going to just kind of disappear?

BLANKLEY: To be honest, what -- Republicans need to not take shots at him, and it'll be a one-day story. They took a shoot at him, so it's a two-day story.

SIMMONS: It'll be more than a one-day story, just like the apology to BP, just like Rand Paul, who said that President Obama was un-American for going after BP. These statements are going to have to be answered for by Republicans all over the country during the course of the next year as Democrats campaign against them.

MALVEAUX: One of the things that we're hearing, this kind of back and forth -- obviously, the president has been using some of the Republican statements to make the point that he believes they're out of touch. But he also has blamed President Bush for a lot of the problems that are -- that he's facing now. And we heard from Representative Kevin Brady. This is how he described, kind of in a sarcastic way, what's going on here.


REP. KEVIN BRADY (R), TEXAS: I do think President Bush should apologize for the United States losing its soccer game the other day, Chicago not winning the Olympics bid, "Avatar" not winning the best motion picture of the year, and Democrats not passing unemployment benefits for those who are out of work.


MALVEAUX: Very deadpan delivery, but I want to give this to you real quick, Jamal. Does he have a point here, you know? I mean (INAUDIBLE)

SIMMONS: He absolutely does not have a point.

MALVEAUX: Almost two years. Does he have to blame Bush?

SIMMONS: It's not about blaming Bush. It's about -- let's talk about history. And the history is that George Brush was president. He helped dig the ditch the country's in. But the truth is, Democrats have been taking responsibility for the entire time since Barack Obama's been in office. They took responsibility with the stimulus package. They took responsibility with passing health care. And they took responsibility for Afghanistan and putting more troops on the ground in Afghanistan because it's a war we needed to fight.

MALVEAUX: You've got five seconds. BLANKLEY: Yes, the fact is, every president blames the other president (INAUDIBLE) he can't get away from it anymore. I think Obama is getting to the point where it doesn't serve him to blame Bush anymore.

MALVEAUX: Got to leave it there. Jamal, Tony, thank you so much. Have a great holiday.

New court appearances in the Russian spy ring case. Will the suspects' young children be booted from the country?

And the whale that's looming off Louisiana. When will it get the go-ahead to dive in and clean up all that oil?


MALVEAUX: Senator Robert Byrd was remembered today during a memorial service in his home state of West Virginia. Among those mourning the 92-year-old Democrat's passing, President Obama, Vice President Biden, and congressional leaders from both sides of the aisle.

Former president Bill Clinton spoke at today's ceremony.


WILLIAM J. CLINTON, FORMER PRESIDENT OF THE UNITED STATES: The point I want to make is he made a decision against his own interests, his own conviction, his own fight. And that's one reason I thank God that he could go in his wheelchair, in his most significant vote at the end of his service in the Senate, and vote for health care reform and make it a real law.


CLINTON: Now, I will say this. If you wanted to get along with Senator Byrd and you were having one of these constitutional differences, it was better for your long-term health if you lost the battle.


CLINTON: I won the battle over the line-item veto. Oh, he hated the line-item veto! He hated the line-item veto with a passion that most people in West Virginia reserve for blood feuds, like the Hatfields and the McCoys. That's -- you would have thought the line- item veto had been killing members of the Byrd family for a hundred years. It made his blood boil. You've never been lectured by anybody -- as Nick Rahall said, until Bob Byrd has lectured you, you have never known a lecture. I regret that every new president and ever new member of Congress will never have the experience of being dressed down by Senator Robert Byrd. And I'll be darned if he wasn't right about that, too. The Supreme Court ruled for him instead of me on the line-item veto.

(APPLAUSE) CLINTON: The point I want to make here is a serious one. Yes, he did as good a job for you as he could. As far as he was concerned, there was no such thing as too much for West Virginia. But the one thing he would not do, even for you, is violate his sense of what was required to maintain the integrity of the Constitution and the integrity of the United States Senate so that America could go on when we were wrong, as well as right, so we would never be dependent on always being right.


MALVEAUX: Senator Byrd will be buried on Tuesday.

Blood on the battlefield in Afghanistan and arguing over strategy here at home. What would happen if the Taliban sat down with Afghan leaders for peace talks?

And we'll have a full report on the failure to dock aboard the International Space Station.


MALVEAUX: A change of command is under way in Afghanistan now that General David Petraeus is on the ground. But what if a political solution could be hammered out with the Taliban? Our Pentagon correspondent, Barbara Starr, has been looking into that possibility. What do we think?

BARBARA STARR, CNN CORRESPONDENT: Well, you know, Suzanne, President Obama says it is time to start thinking about a political settlement in Afghanistan. But the question is, what would it look like?


(voice-over): Taliban attacks across Afghanistan have killed thousands of Afghan civilians, U.S. and coalition troops in nearly nine years of war. So it seems inconceivable, but President Obama says there's good reason to consider peace with the Taliban.

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: We're going to have to have a political solution, not simply a military solution.

STARR: But what if the Afghans and Taliban came to the peace table?

OBAMA: We have to view these efforts with skepticism, but also openness.

STARR: The Taliban ranges from top leaders like Mullah Omar to young men in villages fighting to earn money. So what would peace look like?

TERESITA SCHAFFER, CENTER FOR STRATEGIC AND INTERNATIONAL STUDIES: The concept in Mr. Karzai's head, I would guess, is that he would continue to be in charge and that he would work out an arrangement with some elements of the Taliban, who would recognize that they were the subordinate part in a government that he was continuing to run.

STARR: So far, Defense Secretary Robert Gates is skeptical.

ROBERT GATES, DEFENSE SECRETARY: The opportunity for a political solution in Afghanistan and for reconciliation will only come when the momentum of the Taliban has been reversed and they see that the chances of their being successful are diminishing day by day.

STARR: The U.S. wants reconciliation to be led by the Afghan government, but that's not the say that the U.S. doesn't have its own conditions,, such as the Taliban must lay down arms, support Afghan law and reject al Qaeda, something many say is unlikely.

General David Petraeus knows he has to convince everyone reconciliation is at least possible.

GEN. DAVID PETRAEUS, CMDR., U.S. FORCES IN AFGHANISTAN: We cannot kill or capture our way out of an industrial-strength insurgency like that in Afghanistan. Clearly, as many insurgents and citizens as possible need to be convinced to become part of the solution, rather than a continuing part of the problem.


STARR: But consider this potential nightmare scenario. Afghan president Hamid Karzai brings the Taliban back into government, but the Taliban once again force him out and take over the country -- Suzanne.

MALVEAUX: Thank you, Barbara.