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Russian Spy Swap With U.S. In works. Economy is losing Jobs, Robert Gates Announces Mattis

Aired July 8, 2010 - 17:00   ET


WOLF BLIZTER, CNN ANCHOR: Rick, thanks very much. Breaking news right now, the Russian spy suspects plead guilty and agree to be deported. We now have brand new details on plans for a major prisoner swap between the United States and Russia. Stand by.

The defense secretary reveals his choice to be the new head of the U.S. military's central command. It's a U.S. Marine general who once said it's fun to shoot some people. This hour the Pentagon's problem. Military brass with loose lips, and Republican party chairman Michael Steele insists he's 100 percent behind U.S. troops, but is that enough to satisfy conservatives who say it's past time for him to go.

I'm Wolf Blitzer. You're in the situation room.

Well, let's begin with the breaking news right now. All ten Russian suspects appearing in a New York court pleaded guilty just a little while ago in connection with the stunning spy case, and now after days of speculation about a possible spy swap between the United States and Russia, we've learned how the exchange is about to play out.

Let's bring in our Foreign Affairs Correspondent Jill Dougherty. She's got new information just coming in. Jill, tell us what you know.

JILL DOUGHERTY, CNN FOREGIN AFFAIRS CORRESPONDENT: Right. Wolf, this is -- we just got this. It's from the U.S. justice department, and this is a letter from the justice department to the judge who was hearing these Russians, who were making their plea bargains and they are out-ling what's actually being called an agreement between the United States and Russia, an exchange, so four of those ten Russians who are alleged spies, they have now admitted that -- their guilt, and in exchange there will be four people from the Russian federation who will be released.

Now, according to this document, four of them are -- they are in incarcerated in Russia for alleged contact with western intelligence agencies. Three of them have already been convicted of treason in the form of espionage, and interestingly they say they have all had a number of years in prison and some are in poor health.

So the Russian government is going to allow them now to be released and their family members for resettlement. Now who is the fourth person the fourth person we believe is Igor Sutyagin. We've been talking about him now for a couple of days. He is the man who worked for a think tank in Moscow. He was convicted of espionage, and has been imprisoned in Russia.

However, the United States does not believe--in fact today , Wolf, the State Department said they do not believe that he is a spy, but we believe, since Mr. Sutyagin said he's part of this swap, so it's the latest information right now for people in Russia, for these ten Russians here and the United States.

BLIZTER: So the Russians get these ten alleged spies. The United States get four individuals back, three of whom are convicted of espionage serving lengthy prison sentence in Russia right now. We don't know who the three individuals are yet, do we, Jill?

DOUGHERTY: Well, there have been some reports, but these are still so far unconfirmed, that they are people that you might think of in a more traditional vein as spies. They were people who were convicted of working for intelligence for the United States and also for great Britain.

We believe these are the people, and, again, they have been in prison for a long time. We'll have to wait until we can get some type of confirmation, but that fourth person again is a person that the United States says is not a spy. Although the Russians would think he is.

BLITZER: Jill, stand--Jill, stand by. Susan Candiotti is in New York, she's just out of the courtroom in where a lot of the procedures were going forward. Guilty pleas on the part of these ten suspects. All ten of them pleaded guilty. Is that right, Susan?

SUSAN CANDIOTTI, CNN NATIONAL CORRESPONDENT: They did, Wolf. It was fascinating to watch. They came, many of them wearing blue jeans, American sneakers, and even golf shorts, and, yes, all ten of them stood up and pleaded guilty to being what we've heard all along Russian spies.

Legally, it's registering -- not registering to act as a foreign agent in the United States for Russia without first telling the U.S. government that that's what they were doing. And they talked about in effect, this is a case that involved buried money, laptops, meeting in parks, meetings in parks, sending encoded messages.

We heard all kinds of things during the course of this case that came together very quickly, Wolf, within about 12 days from start to finish, and in fact along with pleading guilty, we also know now that there will be a swap.

It was acknowledged in court that there was -- that there is an agreement between the United States and the Russian federation to make an exchange. There will be four people coming to the United States from Russia.

They did not say directly who they are, and in return all of these people that will not have been convicted will be going back in. In fact, we learned now that they're now doing a procedural matter to check to see if were there are technically any holds on any of these people.

We don't believe there are to keep them in the United States, and then we are told by one of the attorneys here that there will be a bus waiting for them. They will be in the U.S. Marshall's custody until then, and then they will be put on a bus.

They will at some point be turned over to the Russians. They will be taken to so far an unnamed airport, put on a U.S. carrier, one of the lawyers tells us, and go straight back to Russia. We believe Moscow is the final destination, and that's just part of it.

BILIZTER: And we assume that the children will go back with the parents, even though some of them are teenagers. Some of them are even more than teenagers, is that right?

CANDIOTTI: You know, we're still waiting to find out what is going to happen with the children. We know there are at least five of them involved here. Some of them as you indicated young children. I have been told that there's certainly no issue of custody here. If they wanted to go back they certainly could go back. One would presume that that might be the case, but we're still waiting to hear exactly what's going to happen along those lines.

We also learned that seven of the ten people that appeared in court this day acknowledge that they were using fake names. We knew some of that before, but now we know it's seven of the ten so, in fact, Mr. And Mrs. Murphy (ph) from New Jersey, their last name was actually Guriev (ph), or is actually Guriev (ph). We learned Mrs. Foley (ph) from Boston. Her last name turned out to be Vavalova (ph), and it went on and on like that.

And we also, we heard in court that there was an insistence on the part of the U.S. government that no deal was made, no inducement to get them to plead guilty however we learned something fascinating from Vicky Pelaez, she's the language Spanish journalist, and she said that all of them-in fact all the defendants said they met with the Russian federation officials, representatives in jail, that they approved of this agreement before these people pleaded guilty while they were in jail and that she was directly made a promise by the Russians that if she accepted it, that she could live anywhere she wanted to be, would be given free housing in Russia and a $2,000 stipend monthly by the U.S. government for life.

Back to you, Wolf.

BLITZER: Susan Candiotti, stand by. We're going to have a lot more on the breaking news, but a major spy swap now in the works. These ten alleged Russian suspects. They all plead guilty right now in exchange for four individuals. Three of whom convicted of espionage in Russia. One other individual. We'll see how this plays out in the coming hours. Stand by. We'll get more information.

But let's get to the new pick for the U.S. Military Central Command. The Defense Secretary Robert Gates not only named his choice today, he also laid out new ground rules for military leaders to know when to keep their mouth shut, in his words. But guess what? I turns out that General James Mattis has a history saying the wrong thing in public.

Let's go to our Pentagon Correspondent Barbara Starr to give us some context on what he said then, and what is being said now. Barbara--

BARBARA STARR, CNN PENTAGON CORRESPONDENT: Well Wolf, Secretary Gates in fact announcing that the White House pick for U.S. Central Command is General James Mattis, a Marine corps four star overseeing all U.S. military operations in the Middle East, the Persian Gulf, southwest Asia, Iraq, Afghanistan, all of it.

There is no more sensitive job in the U.S. military today. General Mattis, however, is a general with a past. In 2005, he was reprimanded for his choice of public language when he appeared in public before TV cameras and talked about how it was fun to kill. Have a listen to some of what he had to say.


JAMES MATTIS, US CENTRAL COMMAND: Actually it's quite fun to fight 'em, you know. It's fun to shoot some people. I'll be right up front. yes, I like brawling.


STARR: He then went on to say, "You go into Afghanistan. You've got guys who slap women around for five years because they didn't wear a veil. You know, guys like that ain't got no manhood left anyway, so it's a hell of a lot of fun to shoot them". I asked Defense Secretary Robert Gates just a few hours ago at this press conference whether he had any problem with what General Mattis said five years ago.


ROBERT GATES, SECRETARY OF DEFENSE: Well first of all as you point out, that was five years ago. Appropriate action was taken at the time. I think that the subsequent five years have demonstrated hat the lesson has been learned.


STARR: Gates went on to say that General Mattis has been spoken to about this in light of the nomination. feeling is that General Mattis learned this five years ago and won't be doing this again. General Mattis also came to a lot of attention for his role when he oversaw some of the prosecution of Marines in the so-called Haditha case where Marines were alleged in Iraq to have killed innocent civilians.

He was involved in dismissing some charges against Marines in that case, but top Pentagon officials today, Wolf, insist General Mattis is their pick, they have no problem with him and they insist that President Obama is also behind General Mattis.

BLITZER: All right Thank you very much, Barbara Starr, for that report. We'll see the fallout, if any. Someone supposedly is trying to kill off some U.S. senators, but they aren't actually dead. We're taking into a weird story involving the hoax targeting of some of the Capitol's biggest names. Stand by. New information coming in on that.

And President Obama reaching out to Israelis in a brand new way and makes an ambitious promise about peace.


BLITZER: Jack Cafferty is here with "The Cafferty File". Jack--

JACK CAFFERTY, CNN: When it comes to the economy, it's a little tough to find much to be optimistic about these days. For starters, economic confidence is sinking again. A gallup index shows fewer people say the economy is getting better than at any time in the last year. As for the jobs picture, it keeps getting more bleak.

Last week's employment report shows job recovery suddenly hit a wall. The U.S. economy losing jobs for the first time this year in the month of June, and even though the unemployment rate fell to 9.5 percent from 9.7 percent, this is due mainly to discouraged job seekers not even looking for work anymore. It means they are not counted as part of the overall labor force.

A whopping 1.2 million people want to work but say they are not looking for work because of the weak job market. So it's not surprising when you consider there are five workers available for every single job opening.

What's more, many of the people who worked in sectors like manufacturing and construction, they will need entirely new skill sets in order to switch industries.

Since the start of the recession, 7.9 million jobs have been lost, and it's likely that many of them will never return. Even for people who have jobs, it's not necessarily all good. In California, they are looking to cut the salaries of more than 200,000 state employees to the federal minimum wage.

It's a way to save money because California government officials can't agree on a new budget. And to top it all off, the $787 billion stimulus package, that money is almost all spent, and if that was supposed to jump start the economy, then what happens now? Here's the question. Where do you feel that our economy is headed? go to Post a comment on my blog.

BLIZTER: A lot of people are worried. It's not heading in the right direction.

CAFFERTY: Yes. It doesn't look good, really doesn't.

BLIZTER: I know. All right, Jack, thank you. BLITZER: President Obama, however, says the economy is quoted -- is headed, and I'm quoting him now, in the right direction. He's in Missouri today playing the role of a very fiery campaigner in chief. Later today he'll stump for the Senate majority leader Harry Reid in Nevada.

Let's talk about that and more with our Senior Political Analyst David Gergen. David, thanks very much. I don't know if you heard the president today at this -- at this political event in Missouri, but he really was on fire, and he's in full campaign mode right now. Go ahead, David.

DAVID GERGEN, CNN SENIOR POLICTICAL ANALYST: Oh I'm sorry I thought you were going to play a clip. I did not hear the speech, but do I know he has moved into full campaign mode. It's interesting, wolf, to see president Clinton on the campaign trail a lot more vigorously these days, too. The Democrats have almost got to double barrelled approach.

BLITZER: Who is a more effective campaigner, for a Democratic candidate in trouble right now in a swing state? Do you want Bill Clinton to come in and campaign for you, or do you want Barack Obama to come in and campaign for you?

GERGEN: Well, you said the right phrase, swing state. There are many swing states that are more centrist or more rule in character where Bill Clinton actually helps you more, as he helped Blanche Lincoln in Arkansas, as you know. She looked like she wasn't going to win that.

He went in and picked up that big primary victory. So in those areas he's very helpful. A place like Nevada for Harry Reid, both Barack Obama and Bill Clinton can be helpful in raising money and getting excitement up but there's another aspect that I think is less recognized and that is that Bill Clinton right now is promoting some very promising ideas about the creation of jobs, especially in renewable energy, and the Obama administration is starting to pay serious attention to his ideas.

I think there's a possibility if they could get together that the president could have some ideas he could put out there that would not cost much federal money but would create jobs and be helpful politically.

BLITZER: Bill Clinton is always coming up with new ideas.

GERGEN: Sure is.

BLITZER: His mind never stops as I personally noticed when I interviewed him in Cape Town, South Africa, not that long ago. Let's talk a little bit about the related subject, the need for money and the charm offensive going on right now by the president to try to woo back some of his big supporters from Wall Street.

GERGEN: On this one, wolf, I have to tell you, that I think the president's got a big high hill to climb because relations between the big business community, not small business, but big business community and the White House have become quite hostile. Traveling around the country I've been surprised even in the Chicago business leadership community, where the president got so much of his early support as a senator, they -- there are a lot of people there who have soured.

They feel, as Jeff Immelt of GE put it in Italy a few days ago, it appears the Obama administration doesn't like us, and we don't like them, and that -- and entrepreneurs and government are out of sync.

I have to tell you, Wolf, I think that among business people at least, what one hears increasingly is we're not investing as much money as we might because we're not sure whether people in Washington are going to go after us.

You know, we're uncertainty what the climate, is and there's a lot of money sitting on the sidelines that's a little uncertain where rules and regulations and laws are going next.

BLIZTER: It's a major initiative the president has now to try to get some of those big business supporters he had, the Democrats had, in 2008, back on board, because a lot of them are very nervous right now. All right. You make a good point. David, thank you.

GERGEN: Thank you.

BLITZER: We have some live pictures coming in the blimp sent to New Orleans to help with the oil spill cleanup. Stand by. We're getting more information on that.

BLITZER: And Norwegian authorities make new arrests in connection with plotting terrorist attacks against New York and the UK. We'll have the latest on that front as well.


BLIZTER: Take a look at this. The blimp has now arrived in New Orleans. It's going to be flying over the Gulf spill to monitor what's going on. It can stay up in the air for a long time, unlike a helicopter or a plane.

It will constantly look at what's going on. It will have -- it will have important -- an important service for this overall cleanup effort and as a result of the oil spill. By the way, it's still being tested on the ground there. It should be going up though relatively soon.

On the Gulf coast right now, officials in the cleanup command center sound like they are finally catching a little bit of a break. 80 long hard days into this disaster. Admiral Thad Allen predicting new progress within the next week or so as better weather moves into the Gulf. He says the first relief well BP is drilling now has reached 17, 780 feet, and it could connect with the gushing well within ten days.

That would be ahead of schedule. That would certainly be a major step toward plugging the leak.


THAD ALLEN, NATIONAL INCIDENT COMMANDER: We are down to the final days and weeks of closing in to a point where we can intercept the well. Our target date remains the middle of August because there are a number of uncertainties related to what happens when we get down and penetrate the well bore which I'll talk about in a minute.

There are certain things that could move that date up, but for right now my official position is that it will be the middle of August before this well is capped.


BLIZTER: Allen says the next ten days may present a weather window in the Gulf that we won't see again this summer, and the Obama administration now is demanding to know how BP plans to move forward. Let's bring in our Senior White House Correspondent Ed Henry. Ed, the White House wants a lot of answers from BP sort of every 24 hours.

ED HENRY, CNN SENIOR WHITE HOUSE CORRESPONDENT: They do, and this letter they just sent out today is basically giving them 24 hours to get this new information because what BP wants to do is sort of have a dramatic situation where they have got two operations going on simultaneously, that if it works, it could collect a lot more oil or if it goes horribly wrong we could see the situation spiral downward.

So they're basically what BP wants to do is hook up the helix producer that would contain a lot more oil in the medium and long term. But also, at the same time, they would want to put a new sealing cap on to contain more oil but to do that you've got to take off what everyone's been calling the top hat.

And so in the short term a lot more oil is going to gush out. The White House wants to make sure all the necessary safety procedures are going forward to make sure that this can actually work, and they want to make sure all the contingencies have been run through. As you said the main reason they want to move forward, here BP, that weather window that Thad Allen is talking about, eight to ten days where they feel like there won't be any tropical storms, that is critical to try to get these two operations working.

BLITZER: Thad Allen says that he's been very consistent maybe by mid-august, maybe a little earlier, those relief wells will be ready and hopefully that will stop this leak. Although BP officials say it could be earlier.

HENRY: That's right. Now there have been some reports suggesting that BP believes that they could get the whole well killed by July 27th and that would be a really optimistic situation. The White House said today was very cool to that idea.

White House officials saying they don't believe that and BP officials are clarifying saying, look, they didn't say this would get done by July 27th. Instead, if everything were to go right, the weather, all these other factors possibly it could be done by July 27 but they think it's more likely it will be August, and as we've -- if we've learned anything in this whole sorry story set fact that if something can go wrong, it will go wrong and no best case scenario has worked out just yet, so it seems like August is much more likely than July.

BLITZER: Just want to do it right and stop this well from leaking, whether it's the end of July or mid-August. Just stop it so then they can get on with the clean up and deal with this. Thanks, Ed.

HENRY: Thanks, Wolf.

BLITZER: President Obama is taking tough new swings at Republicans. He wants them to admit they screwed up Mary Matalin and Roland Martin are standing by to talk about his fiery speech today, and Republican party chairman Michael Steele is rejecting new calls for him to step down.

Did he undo the damage from his remarks about the war in Afghanistan? And we'll take you inside a lab testing Gulf seafood to make sure it's safe.


BLITZER: You're in "THE SITUATION ROOM". happening now. Breaking news. Accused Russian spies plead guilty, all ten of them, in a New York City courtroom and agree to be deported as new details emerge on plans for a major prisoner swap between the U.S. and Russia.

Four individuals the U.S. wants, about to be released from Russia. And president Obama giving his first interview to an Israeli news organization since taking office. You'll hear why he says having the middle name Hussein might lead some to question his connection to Israel. I'm Wolf Blitzer. You're in the situation room.

President Obama took out the brass knuckles today delivering another round of sharp punches at Republicans. It's no coincidence that he did it in Missouri, a state he lost, barely, back in 2008. The president now has been to Missouri four times, more than any other red state except for Louisiana, and his trips there had more to do with the oil spill, as you know. Listen now to the president's fiery rhetoric in Missouri today.


People get surprised when we follow through and keep our campaign promises, so, he went ahead and did health care. Why did he do that? I said I was going to do health care. It's the right thing to do.

You're going to face a choice in November, and I want everybody to be very clear about what that choice is. This is a choice between the policies that got us into this mess in the first place and the policies that are getting us out of this mess, and what the other side is counting on is people not having a very good memory. Think about it. I mean, they are not making any new arguments. They are not coming back and saying, you know what, we really screwed up, but we've learned our lesson and now we've got this new approach and this is how things are going to turn out really well.

That's not their argument. They are trying to sell you the same stuff that they have been peddling -- I'm just saying.


OBAMA: They are peddling that same snake oil that they have been peddling now for years. They are trying to run the okey-doke on you, trying to bamboozle you.

I made you laugh on the okey-doke. You remember that?

But that's what they are trying to do. They run these ads thinking, you know, well, we might be able to fool them one more time. This might work again.

It's not going to work.


WOLF BLITZER, CNN ANCHOR: All right. Let's talk about that and see if it will work in our "Strategy Session."

Joining us, our CNN political contributors Roland Martin and Mary Matalin.

Guys, thanks very much.

Mary, he's good on the campaign trail when he's all fired up like that. He was good in 2007 and 2008. He seems very comfortable taking some swings at Republicans right now.

MARY MATALIN, CNN POLITICAL CONTRIBUTORS: Yes. The problem is that that "blame Bush" dog doesn't hunt anymore and the evidence of that is every time a new poll comes out he loses those constituencies that won -- went for him in 2008.

Most considerably independents who are the swing votes and not only are turning against him and giving him a higher disapproval every time they come out. They are intensely disapproving of his job performance.

So he is -- he's a good talker, but this walk ain't going to take him anywhere anymore.

BLITZER: He's got to rally -- he's got two missions right now, Roland, as you know. He's got to rally that Democratic base, but he's also got to win back some of those independents that Mary is talking about.

ROLAND MARTIN, CNN CONTRIBUTOR: Well, no doubt. He obviously have to rebuild in terms of that coalition that put him into office but also what you're looking at is creating this narrative, if you will.

I mean, certainly from a Republican standpoint, they have gone back to the whole focus of fiscal conservatism. And you hear the president saying, look, it's no, no, no, what have they done? It's the same old thing, and so it's not necessarily all about blame Bush.

It's also about saying here are Republican ideas and Republican policies that were at the forefront of the country during the Bush years -- those Republicans in Congress and the White House -- and saying this is what they didn't do. This is what I've done.

So at the end of the day it's smart politics. I mean we see it on the other side as well.

BLITZER: But you've got to admit, Mary, and -- maybe you don't want to admit -- he's pretty good at this kind of political stuff, isn't he?

MATALIN: He's good in a vacuum and in 2008 some nine out of ten people who voted for him, particularly independents, had no idea what they were voting for. Hope and change. Now people know what that means.

It means a quadruple debt. It means mandated health care that -- that the country continues to be disposed against. It means an economic plan that's created no jobs except for government jobs.

It's not about talking anymore, Wolf. I would admit it if he has some -- if people were supporting his policies. It's great to be able to communicate something people want, but he's talking about -- he's talking about things that people don't like. In fact, they are intensely opposed to. This is not --

MARTIN: Well, actually, Wolf --

MATALIN: Go ahead.

MARTIN: Actually, folks were -- they knew what they were voting for in 2008. They also knew what they were voting against in 2008 as well. The key here, I think, when it comes to economics, it's going to be difficult for the president and for Democrats to be able to tell this story when you have so many jobs being lost -- half a million a month -- and all of a sudden you're seeing an incremental growth.

Yes, people don't want to hear incremental but trust me. Creating 10,000, 20,000 jobs a month in the private sector is a heck of a lot better than losing half a million. But again, that's a difficult narrative to get folks to understand, but we were in a ridiculous shape a couple of years ago. That's what you're likely going to hear them lay out.

BLITZER: All right. Let me move on, Mary, and get your reaction to Michael Steele. We now heard from him publicly today saying he's not going anywhere. He's the chairman of the Republican National Committee and he's staying. Listen to this.


MICHAEL STEELE, REPUBLICAN NATIONAL COMMITTEE CHAIRMAN: But, you know, stepping down, look. Every time something happens, you know, people -- step down, step down, step down. Well, the reality of it is that's not happening. So stop the noise on that. Number two -- number two, you don't need the distraction. We're focused on winning.


BLITZER: Should he stay on, Mary? What do you think?

MATALIN: It is a distraction, but it's only distracting 500 of us Googling monkeys as we used to call ourselves. Nobody who's going to the polls this fall -- likely voter on either side -- is going to change their vote because Michael Steele is agreeing with the progressive Democrats against Obama on Afghanistan.

That's just not how voters think. So it's an interesting cocktail chatter for all of us, but he's not going to step down. There's no mechanism to make him step down. A lot of conservatives rightly took umbrage to -- what he had to say about Afghanistan.

That's the one place conservatives and Republicans have supported this president and continue to support him. He said the wrong thing. He said he said the wrong thing, but it's not going to influence any votes in the fall.

MARTIN: Actually, Wolf, he agreed with 58 to 60 percent of the American people, not just progressive Democrats when it comes to what is happening in Afghanistan. It is true. He's not going to go anywhere.

More importantly, they're going to have another vote for RNC chairman come January. That's the real issue. I mean so Republicans -- it won't make any sense whatsoever to go ahead and try to force him out right now leading up to an election.

I mean, they have the wind at their back. That makes no sense. You can deal with this come January, but he's not going anywhere. People shouldn't listen to what he had to say when it comes to Afghanistan because we're not seeing the progress there, and you even have Ann Coulter siding with Michael Steele on this.

But I'm sure that makes Mary very excited.



MATALIN: Well, I like that Roland is quoting Ann Coulter. That makes me most excited.

MARTIN: Well -- I like Ann. We talk.

MATALIN: I love Ann. No. I mean, look, there are -- there are more than a few conservatives that are split on this issue, but the majority of conservatives and all of Americans know that this is an American war and our inability to prosecute on it successfully is going to be a detriment to our national security.

Petraeus hasn't had a chance to get in there and get this thing cooking, and they said the same thing about Iraq that they are saying about Afghanistan now, so let's just see what General Petraeus can do.

BLITZER: Mary --

MARTIN: The CNN polling is clear. Fifty-eight percent do not agree with it, and so, yes, all Americans say -- Americans say it is an American war. People still disagree with what is going on.

BLITZER: Roland Martin and Mary Matalin, guys, thanks very much.

Some of the biggest names in the U.S. Senate, right now they are the targets of a hoax claiming they are dead. We're investigating what's going on. This is a serious important story.

And Major League Baseball is getting dragged into the legal fight over Arizona's immigration law.


BLITZER: A court date is now set for Arizona to defend its controversial new immigration law. The date, July 22nd. The Justice Department is suing the state saying it's trying to establish its own immigration law in violation of the U.S. Constitution.

Lisa Sylvester is looking into the legal and political battle that is now under way.

What are you finding out, Lisa?

LISA SYLVESTER, CNN CORRESPONDENT: Well, Wolf, the federal government is asking for an injunction to keep this law from taking effect on July 29th.

Now the case has been assigned to District Court Judge Susan Bolton, who is a Clinton appointee, and she will not only hear the government's case but also several other lawsuits filed by plaintiffs challenging the law.

This is a legal fight but it's also a political battle that's even roped in our national pastime -- baseball.


SYLVESTER (voice-over): Outside Major League Baseball headquarters, calls to strike out Arizona's tough immigration law. Immigrant groups are pressing Major League Baseball to move next year's all-star baseball game out of Arizona.

ESTEBAN DURAN, PROTESTER: We're big supporters of Major League Baseball, both financially and culturally, and we want to send a message that we don't support this Arizona law. SYLVESTER: The White House is suing Arizona over the law that makes illegal immigration a state crime and gives state and local police the authority to question a suspect's immigration status.

ROBERT GIBBS, WHITE HOUSE PRESS SECRETARY: The president believes that we filed a strong case based on the fact that you can't have -- and he said this and I've said this, you can't have 50 states making a patchwork of immigration decisions.

SYLVESTER: But when it comes to the court of public opinion, the majority of Americans disagree with the Obama administration. Fifty- seven percent surveyed in a CNN Opinion Research poll in May say Arizona has a right to tackle the issue of illegal immigration.

For Republicans like Senator John McCain in Arizona, this is a surefire way to win support with the base, but for Democrats from border states, not so cut and dry. Representative Gabrielle Giffords doesn't like the new law but she doesn't like the lawsuit either.

REP. GABRIELLE, GIFFORDS (D), ARIZONA: I think it's ironic that the federal government is saying that Arizona shouldn't take the right away from the federal government to enforce our immigration laws, where if they had been doing this all along we wouldn't be in this situation that we are in today.

SYLVESTER: Political analyst Jonathan Martin says in the short term Democrats may have more headaches by this wedge issue, but in the long term he says it may circle back to hurt Republicans in 2012 and beyond.

JONATHAN MARTIN, POLITICO: In the longer course, demographically Republicans are going to have to figure out a way to get more Hispanic votes to be relevant in border states but also across the country.

This is going to be a real challenge for them, and if they are just seen as immigration hardliners, immigration hawks, that is going to be difficult for them.


SYLVESTER: Now the state of Arizona has until July 20th to file a response to the government's case, but keep in mind this law is supposed to go into effect July 29th, so it is possible that because of that narrow timetable the judge may not be able to rule on the injunction before then.

So this law, Wolf, could still take effect on that day -- Wolf?

BLITZER: All right, Lisa, thanks very much. We'll watch the legal and political fallout.

So what's behind these new hoax e-mails that are now surfacing? Some claiming that living senators are dead.

And President Obama sitting down with an Israeli news organization for the first time since taking office. And he says -- get this -- he says he can broker an Israeli/Palestinian peace deal during his first term in office.


BLITZER: In New Orleans right now a court battle has begun over the Obama administration's six-month ban on deepwater drilling.

Let's go to CNN's David Mattingly. He's covering this story. He just emerged from that courtroom.

What did you learn, David?

DAVID MATTINGLY, CNN CORRESPONDENT: Well, Wolf, the president wants his moratorium back. It was struck down by a district court judge. Now they are in the Circuit Court of Appeals arguing that they should get it back, at least temporarily, while they argue the merits of this case.

The judges -- the three-judge panel -- pressing the government very hard today to support its arguments that there's going to be irreparable harm if they don't have this moratorium in place.

At the same time, the judges were pressing the attorneys for the drilling interests here very hard as well to support their argument that this moratorium was based on speculation and not on fact.

Well, these are arguments we have heard before, but these judges are now going to try and consider whether or not to reinstate at least temporarily that moratorium that was struck down.

Everyone, though, coming out of the courtroom today wondering why bother today because it was even brought up in court that there has been a chilling effect that while this court case is going through the federal court systems, whether there's a moratorium there or not.

Drilling companies are not drilling, waiting to see how this turns out.

Also, there's been talk of Secretary Salazar coming out with another moratorium in the interim that might trump what they have been having in the past. So everyone wondering what the future holds and everyone waiting now to see what these judges decide, what their opinions are going to add to the mix. They say they might be able to come out with a decision no later than early next week -- Wolf.

BLITZER: Lots at stake in this decision. All right, David, thank you.

Let's go back to Lisa. She's monitoring some of the other top stories in THE SITUATION ROOM right now.

What else is going on, Lisa?

SYLVESTER: Hi there, Wolf. Well, we want to bring you some new pictures that are just coming into CNN courtesy of our affiliate WABC.

You see there a fire that has broken out at a building. It's at East Houston Street and Avenue A in downtown New York City. See those flames, quite a fire there. This is a two-alarm blaze right now.

From all indications at this point, the information that we have is nobody has been injured.

In other news, at least 17 people have been killed and more than 100 injured today in bombings across Baghdad. The violence is the latest in a string of Sunni attacks targeting a Shiite pilgrimage leaving a holy shrine. Forty-nine people were killed yesterday and hundreds wounded. Shiite pilgrims have long been targets of Sunni militants.

And the alleged grim sleeper serial killer is being arraigned in Los Angeles today. Fifty-seven-57-year-old Lonnie David Franklin Jr. faces 10 counts of murder and additional counts of attempted murder in at least 11 deaths since 1985.

The nickname comes from the long breaks he's believed to have taken between attacks. State officials credit a DNA search program with cracking this case.

And efforts are under way to save a beached gray whale in Washington state. A scientist says the whale is currently alive but is likely injured or sick. He also says it isn't unusual to see this happen during the summer. Witnesses tell a CNN affiliate that the whale has been seen in the area over the last few days -- Wolf?

BLITZER: Thanks very much, Lisa. We'll check back with you. There's more news coming in.

Jack Cafferty is standing by to read your e-mail. Also the breaking news we're following. New details emerging right now about a major prisoner swap between the U.S. and Russia. We'll have the latest.

And Sarah Palin's political action committee putting out a brand new Web video with a very much campaign feel. Could it mean a potential presidential run?


BLITZER: Jack is joining us again with the "Cafferty File." Jack?

CAFFERTY: The question this hour is, where do you feel that the economy is headed?

Kevin in California -- White House called this recovery something, by the way. Kevin in California, "It would seem that the economy is headed toward a very ugly bout of stagflation. American wages will flatline or continue to decrease because of chronic high unemployment, and at the same time the price of imported Chinese goods will increase because of currency decoupling and 10 percent growth rates in China. As a result prices will increase here and wages will remain flat at best."

Jerry writes from Ashford, Arizona, "Unless the private sector can pull off a miracle, we're doomed for another five years at least. Contrary to the administration's propaganda, the government does not create jobs. Growth is delayed with heavier taxation. It's sort of like strangling the chicken to increase egg production.

"I hear of more people walking away from their homes forfeiting their equity. After listening to Obama's alibi this morning where he blamed all the previous administrations, I can only believe that he, too, sees a pretty bleak financial future."

Ed writes from New Hampshire, "Jack, in general the economy is improving. As an example, my son who has a masters in journalism recently got his first job as a reporter for a newspaper. OK, so he's making $10.50 an hour and it's in Wyoming, but it's a job."

Becker writes, "I sell to large corporations every day and I can tell you this, they don't want to spend money unless it's absolutely necessary. If we're recovering at all, it's a slow ride. When consumers and corporations begin spending, things will turn around and not before. Even businesses that don't experience traditional bumps in the road are reporting lower revenue."

Sandra in California says, "We're stalled at the bottom. Come January with the expiration of the Bush tax cuts and the new taxation on our employer-provided health plans he will sink us even closer to a depression. How is this going to help the struggling middle-class?"

And Cat sums it up this way, "We're in deep trouble, and this is only the beginning."

If you want to read more on this happy topic, you'll find it on my blog,

BLITZER: Issue number one for so many folks out there. There's no doubt about that.

CAFFERTY: Tough stuff. Very.

BLITZER: All right, stand by.

President Obama is reaching out to Israel in a brand-new interview. You're going to find out how he's answering critics who say he is anti-Israel. Stand by.

And 10 accused Russian spies pleading guilty in a New York City courtroom. We're going to take you to New York to hear exactly what happened.


BLITZER: And the majority leader Harry Reid to a very troubling list of U.S. senators targeted in a hoax claiming they are dead.

Our congressional correspondent Brianna Keilar is looking into this story for us. It is a pretty worrisome story.

What do we know, Brianna? BRIANNA KEILAR, CNN CONGRESSIONAL CORRESPONDENT: Well, Wolf, these hoax e-mails, as you know, they came on the heels of the death of West Virginia Senator Robert Byrd, so of course it's a real time of sensitivity on this subject. But the other thing here is it's recess so we normally see these lawmakers in the halls every day. We weren't, and that meant that their aides were getting a flurry of phone calls.


KEILAR (voice-over): "United States Senator Patrick Leahy has passed away of liver cancer." That's what the news release read and it came -- so it seemed -- from the official e-mail address of Leahy's Senate office.

Rumors quickly spread over the Internet, but were just as quickly dismissed because here is the thing. Leahy was and is very much alive.

Here he was, days before the e-mail went out presiding over Supreme Court nominee Elena Kagan's confirmation hearings.

(On camera): Was there any sort of sense of this is just so ridiculous? Or was there a serious concern about this?

DAVID CARLE, LEAHY SPOKESMAN: Well, certainly, himself took this in good spirits.

KEILAR (voice-over): David Carle is Senator Leahy's communications director. After the hoax e-mail about his boss, there were others. New Jersey's Frank Lautenberg, California's Dianne Feinstein, even the leader of the Senate, Harry Reid.

CARLE: The bigger question is, how could someone apparently so easily mimic or spoof official Senate addresses?

KEILAR: We asked Ira Winkler, a cyber security expert.

(On camera): If you were to get an e-mail from me and it looks like it's coming from the e-mail address that you know to be mine, that doesn't necessarily mean I'm sending it?

IRA WINKLER, CYBERSECURITY EXPERT: No, there's a variety of different ways to what they call spoof an e-mail address. It's really easy to send out a message indicating it's from one person.

KEILAR: Will the culprit be caught here?

WINKLER: I tend to think in this case the culprit might be caught, and the reason is that when somebody does something this stupid for no reason whatsoever other than their own enjoyment or doing something else, they tend to make a lot of mistakes.


KEILAR: Capitol police are investigating this and the Senate is adding extra security precautions, Wolf, so that internally people can more easily recognize if there is, you know, a phony e-mail coming through that maybe appears to be coming from an e-mail that they're familiar with.

BLITZER: Brianna Keilar working the story for us. Brianna, thanks.

And you're in the SITUATION ROOM. Happening now, breaking news. Ten Russian spies suspect plucked from the American suburbs plead guilty. Now they face deportation as Moscow and Washington engage in a major spy swap.

President Obama speaking frankly about Middle East peace prospects and why some Israelis don't trust him. You're going to hear his exclusive interview with Israel's Channel 2. That's coming up.

Obama can rally both Democrats and independents and whether Michael Steele should leave the RNC. Court date has been set for Arizona to defend its new immigration law against the federal government's lawsuit. Hearing under way in New Orleans today in the government's appeal to reinstate the six-month moratorium on deepwater drilling. False e-mails spreading Internet rumors that some prominent senators including Majority Leader Harry Reid have died.>