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Debt Battle Continues; Norway Terror Investigation Continues

Aired July 26, 2011 - 18:00   ET


WOLF BLITZER, CNN ANCHOR: And to our viewers, you are in THE SITUATION ROOM.

Happening now, always seen as a safe bet, America risks turning into a deadbeat. Six days before a deadline to raise the debt ceiling, lawmakers are no closer to a deal to keep the country from going into default.

Did the man held for Norway's bloody massacre have contact with terror cells there and abroad? CNN's Nic Robertson has the latest from the investigators.

And it was called Fast and Furious, a bungled sting that allegedly put guns in the hands of Mexican drug cartels. Now U.S. federal officials get a grilling from furious lawmakers.

We want to welcome our viewers in the United States and around the world. Breaking news, political headlines and Jeanne Moos all straight ahead. I'm Wolf Blitzer. You're in THE SITUATION ROOM.

what perhaps started out as a game of political chess has now turned into a game of chicken. Democrats and Republicans unwilling or unable to reach a compromise and heading for a collision that could be for the nation's economy. With just six days to go until the deadline for raising America's debt ceiling, high level talks are deadlocked and the country faces a potential default.

Let's go straight to CNN's White House correspondent Brianna Keilar who is working the story for us.

Brianna, we have seen the president's strategy and his own role sort of shift in recent weeks.


And multiple times it has shifted, Wolf. Initially, we saw the president sort of delegate to Vice President Joe Biden as the chief negotiator for the White House. And this went on through May and June during the Biden talks with Congress. Then the president became very involved once those talks fell apart for several weeks in very intense discussions with House Speaker John Boehner.

But now we are seeing his role change once again as House Republicans try to eject him from this conversation.


KEILAR (voice-over): The president visited the Norwegian Embassy today to pay his respects to the victims of the attacks in Oslo, a presidential duty, but this was the only public engagement on his schedule, quite a change from the last few weeks when the president hosted meeting after meeting with congressional leaders.

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: This is the same shot you had yesterday except for we are wearing ties yesterday.

Friday, Speaker Boehner abruptly ended talks with Obama and began negotiating with Senate leaders instead.

OBAMA: I have been left at the altar now a couple of times.

KEILAR: A visibly angry Obama spoke to reporters and many observers wondered if the president had not been cut out of the process.

(on camera): Does the president feel sidelined?

JAY CARNEY, WHITE HOUSE PRESS SECRETARY: Absolutely not. I think not for any lack of trying to keep things somewhat quiet, it's been made clear that conversations between the White House and leaders of both parties in both houses have continued through the weekend into the week. And they have to continue because we have to find a compromise.

KEILAR (voice-over): But the conversations between the White House and Congress have diminished and they have primarily involved Democrats. Now the president's most powerful tool may be the bully pulpit and he used it Monday night in what was just his seventh prime time address since becoming president.

OBAMA: If you want a balanced approach to reducing the deficit, let your Member of Congress know. If you believe we can solve this problem through compromise, send that message.

KEILAR: It worked. Lawmakers' Web sites, including the speaker's, crashed. Offices were inundated with phone calls and e- mails and that is why the president is still a player in this game, says Ron Brownstein, veteran journalist and "The National Journal"'s editorial director.

RON BROWNSTEIN, "THE NATIONAL JOURNAL": The president is in a good position to try to shape perceptions of the deal that is on the table and of the options that are available to the contrary. Right now if you look at polling including our "National Journal" Congressional Connection poll out today, there's no question more people say they trust him than Republicans in Congress to make the right decisions on the deficit and the debt. But that's actually I think kind of a limited asset at this point in the debate.


KEILAR: And why does Brownstein say that's a limited asset, Wolf? He says that's because polling shows that Americans don't show the same or they don't feel the same urgency in the situation that certainly President Obama was trying to convey last night and they may not feel an urgency until in this situation there is actually a default.

And in terms of politics, Wolf, everyone would lose, Republicans, Democrats, the White House, but especially President Obama, when it is seen that a president owns the economy -- Wolf.

BLITZER: Brianna, there is a report in a conservative newspaper today that a conservative group encouraged Americans to call the White House and jam the phone lines there as well. What are you hearing about that?

KEILAR: Yes. And that report actually said that the phone lines had been jammed as I read the report. Wolf, I spoke with a White House official who said that's not true, that they were not jammed, the switchboard was not shut down. It was still working. But we are told there definitely was an increase in the volume of calls and we are waiting for more information to see just how much of an increase, Wolf.

BLITZER: All right, Brianna, thanks very much.

If Congress doesn't meet the deadline to raise the debt limit, that deadline being next Tuesday, the value of the dollar potentially could drop, Americans could face higher interest rates, making mortgages, car loans and student loans more expensive, even harder to get. Stock market could plunge. There are dire warnings that the federal government would not be able to make Social Security payments on time.

Let's bring in our chief political analyst, Gloria Borger, and our CNN contributor John Avlon.

With so much at stake, Gloria, right now, is there a way out within the next six days?

GLORIA BORGER, CNN SENIOR POLITICAL ANALYST: I think you are asking the $4 trillion question and we are not really sure.

There was an encouraging sign and I think this is the person to watch. Senator Mitch McConnell, who leads the Republicans in the Senate, came up with an initial sort of compromise plan and is now clearly looking to find a way out. Let's listen to what he said.


SEN. MITCH MCCONNELL (R-KY), MINORITY LEADER: We are going to have to get back together and get a solution here. We cannot get a perfect solution, from my point of view, controlling only the House of Representatives. So I'm prepared to accept something less than perfect because perfect is not achievable.

(END VIDEO CLIP) BORGER: Wolf, I spoke with the Office of Management and Budget director, Jack Lew, today. And it will be on at 8:00 tonight. I played this exact sound bite for him and said what do you think? He said Mitch McConnell and I are on the same page. He said I agree with him. It can't be perfect, but we have to work it out.

BLITZER: And we did hear also earlier in the last hour, John, from David Plouffe, the president's senior adviser, that maybe there is some common ground between what the speaker has proposed and what Harry Reid has proposed and maybe they can come up with a compromise that way with Mitch McConnell's help presumably.

JOHN AVLON, CNN CONTRIBUTOR: That would be great. Because certainly yesterday the partisan plans that were put out are the kind of thing you usually see at the beginning of a negotiation, not the 11th hour.

But I think the flood of walls and e-mails to Capitol Hill should send a very clear signal to these folks. The president asked folks to do it and they followed through. And I think the overwhelming message has been focus on finding a solution. Stop playing political games with our fiscal future.

And that's a message that everybody in Congress should be getting to stop listening to these ideologues and activists and start listening to the American people.

BORGER: But you can't just say it's ideologues and activists. It's 87 people in the House of Representatives who were elected on a no tax pledge.


BORGER: So in a way it's interesting. I think at this point it goes beyond ideology to theology. This is what they came here to do and they are not interested in compromise. If it were just up to the congressional leaders as you know and the president of the United States, I think they would have cut a deal weeks ago.

AVLON: Well, I think John Boehner would have, but, Gloria, I think that gets to the larger lost opportunity here.

Because the whole movement -- behind the Tea Party movement was allegedly about dealing with the deficit and the debt saying this was generational theft. And when you have got a Democratic president willing to embrace entitlement reform and tax reform as a venue to lower rates and raise revenues and really for the first time have a grand bargain, that is a huge opportunity that future conservatives will regret losing that opportunity.


BORGER: I agree with you. I think it sort of begs the question, why don't Republicans declare victory and go home?


BLITZER: That's what David Brooks in "The New York Times" has been writing.

And, John, you wrote a piece entitled "John Boehner's Hypocrisy" on The Daily Beast today. Explain what you mean by that.

AVLON: Well, I think just the Republican leadership right now has backtracked from the original purpose of this whole forced fire drill, was to come up with a plan to reduce the deficit and the debt.

And right now the plans that are being put forward don't do that in many meaningful sense. Tax reform and entitlement reform, the big things that could actually deal with our long-term deficit and debt, are not on the table. People are instead just looking for a political survival. You see a lot of bipartisan language really just serving as a fig leaf over nakedly partisan plans.

And then this whole idea of now the focus on a short-term plan. well, one month ago, Eric Cantor was saying a short-term plan would be irresponsible, that you need to deal with the tough things now. If not now, when? Good advice then.


BORGER: You could make the case though that both the plan advanced by John Boehner and the plan advanced by Harry Reid are not nakedly partisan. Because there Republicans who really don't like Boehner's plan in his own flock.

And there are liberal Democrats who are I guarantee you going to go pretty crazy when they see what is in Harry Reid's budget cuts. In a way, these two plans are actually geared to try and get a result. I don't think they are as blatantly political as say the House vote on Cut, Cap and Balance.


BLITZER: We will see tomorrow the first state, if -- the latest Boehner proposal has 217 votes in the House to pass. That will be close.

BORGER: We will see.

BLITZER: John Avlon, thanks very much for joining us as usual. Gloria, for our North American viewers, is hosting "IN THE ARENA" tonight 8:00 p.m. Eastern. We will of course be watching.

Even if a debt deal does emerge and the nation averts a financial disaster, America is likely to face some major belt tightening and that couldn't come at a worse time for minority households hit hard by the recent recession.

Here's some sobering research about the wealth gap.

Let's turn to CNN's Mary Snow.


MARY SNOW, CNN CORRESPONDENT: Wolf, the fact this report found that the divide between whites and minorities when it comes to wealth is the widest it's been in at least 25 years comes as no surprise in communities like this.

(voice-over): When Edgare Andrade opened this hardware store nearly three years ago in Brooklyn, he planned on getting it up and running then handing it over to his parents for their financial security when they retired. But the recession changed everything. His small business is struggling. He has had to lay off workers and now taken in relatives who are out of work themselves.

EDGARE ANDRADE, SMALL BUSINESS OWNER: My American dream was to get a business running, being an owner of a business. That was my dream. And basically this dream has become not a nightmare, but basically really hard.

SNOW: For minorities like Edgare, the recession has taken a particularly heavy toll. They have fallen even further behind in the wealth gap behind whites.

The Pew Research Center found that the median wealth of Hispanics fell by a staggering 66 percent. For blacks the drop was 53 percent, compared to a 16 percent drop among white households.

Senior researcher Rakesh Kochhar says the study was done between 2005 and 2009. It finds the main reason for the huge drop in wealth among Hispanics is due to the housing crash and the loss of home equity.

RAKESH KOCHHAR, PEW RESEARCH CENTER: Hispanics are much more likely in live in areas such as Arizona, California, Florida, and Nevada, where the housing downturn was much more severe. So as a result they were very directly and very strongly impacted by the housing downturn.

SNOW: Blacks were also hard hit by the housing downturn, says Kochhar. But he says they were also hurt by larger increases in unemployment. Now the median wealth for a typical black household is just under $6,000. It's slightly higher for Hispanics. Compare that to the typical white household, where the median is estimated to be $113,000.

It's the widest wealth divide between whites and minorities since 1984, when this kind of data started to be collected. And for Edgare Andrade, while he once dreamed of financial security and owning a home, he is now working to survive.

(on camera): How far does this set you back?

ANDRADE: It has set me back probably all the way back to the drawing board. SNOW: As far as how much damage has been done, the Pew Research Center has some sobering projections. It estimates that the recession has set back wealth levels for whites about a decade and for minorities it could be as much as two decades -- Wolf.


BLITZER: Mary Snow, thanks very much, very sobering. America's racial wealth gap is strongly affecting minorities who have traditionally supported Democrats.

Eli, I asked President Obama's senior adviser David Plouffe about the political impact. Listen to his answer.


DAVID PLOUFFE, SENIOR WHITE HOUSE ADVISER: Well, Wolf, we are not worried about the politics of it. We are obviously worried about what the recession -- and I believe that survey was from 2005 to 2009. So some of that even predated the recession.

And it's the point the president made when he ran for office and since he has occupied the white house, which is the problems of the middle class, people trying to get in the middle class predate even the great recession.

And so that's why we need to focus on things like education, on trying to create the kinds of jobs that are required, so that families cannot just survive, but begin to put some more money away and it shows the great devastation that the economic policies of the last decade and the recession which contributed to it have had on these families.


BLITZER: Let's go to Jack Cafferty right now. He's got "The Cafferty File."

Well, after listening to his speech last night, you got to wonder: Is President Obama more worried about the U.S. defaulting on its debt obligations? Or is he more worried about being reelected to a second term in 2012?

The president says he wants a deal on the debt ceiling, but he's been unable to bring both parties together to agree on anything, even after days of closed door meetings. Republican House Speaker John Boehner walked out on talks with President Obama this past weekend, said he won't negotiate with the president anymore and instead he will work directly with Senate Majority Leader Harry Reid. Now, there's a match made in heaven.

The president is in trouble. For starters, a lot of the people who voted for him in 2008 aren't so pleased with the job he's doing. An ABC News/"Washington Post" poll out today shows the number of liberal Democrats who support Obama on his jobs record has dropped from 53 percent last year to below one-third today. The percentage of African-Americans who feel the president has helped the economy and the job situation has plummeted from 77 percent to barely one-half.

One recent poll showed that any generic Republican candidate would beat President Obama by eight points if the election was held today. I don't know if you've noticed, but the current Republican field of presidential candidates leaves a lot to be desired.

Senator Bernie Sanders, an independent from Vermont who caucuses with the Democrats, said he thinks it would be a good idea for President Obama to face some primary opposition as we get closer to the election. The last incumbent president to face primary opposition was -- Ready? -- Jimmy Carter.

Here's the question: Is President Obama more concerned with his reelection than with the welfare of the country?

Go to Post a comment on my blog.

We all remember what happened to Jimmy Carter, don't we?

BLITZER: Yes. And it was Ted Kennedy who challenged him, softened him up big time. And then Jimmy Carter was defeated in his bid for reelection. You remember that as well.

CAFFERTY: Yes. I do, yes.

BLITZER: OK, Jack, thank you.

Are people on the political extreme sort of calling the shots right now when it comes to the debt ceiling crisis? There's much more ahead on the impasse and the looming deadline. We will talk about it with Democratic Senator Barbara Mikulski of Maryland.

Also, exclusive new information coming into THE SITUATION ROOM about the Norway terror investigation. Was the accused killer planning more attacks?

And outrage on Capitol Hill over a government program critics say may have put guns in the hands, get this, of Mexican drug cartels.


BLITZER: We're getting exclusive new details right now into the investigation in the terror attacks in Norway.

Our senior international correspondent, Nic Robertson, is on the scene for us.

Nic, what are these details, what do they show us? What are we learning?

NIC ROBERTSON, CNN SENIOR INTERNATIONAL CORRESPONDENT: Wolf, the small farmhouse that Anders Breivik rented to buy fertilizer according to the prosecution and to make his bombs as he detailed in his manual has been the scene for the last few days of intense police investigation. And just as we arrived there this ceiling, they were detonating a controlled explosion. What they were doing, they told us, they discovered explosive at that farm that he had made. They have taken some parts away of them for forensic analysis. And they have detonated the other part of those explosives.

But the fertilizer that he bought and stored at that farm and used for making the bomb is a focus of investigations at the moment, because security officials, intelligence officials here are not sure that they can account for all the fertilizer that Breivik bought. And that means there's a possibility, they say, there could be another bomb out there somewhere, Wolf.

BLITZER: How seriously are investigators in Norway right now, Nic, taking Breivik's claim that he was working with terror cells outside of Norway?

ROBERTSON: That's really interesting.

I spoke to the head of intelligence here earlier this afternoon and she said, look, this guy he is really bad. He is -- in fact described him as being incredibly evil. But she says, look, what he is trying to do really here is hog the limelight. We are not sure if we actually believe him or not because we don't know if we can trust what he is saying.

But she says he is doing this just to hog the limelight and make everyone afraid, not just in Norway, but around the world. But I did speak to one of her senior analysts who works on the sort of threat assessment and he said, look, we do not know if we can take him at his face value. But we absolutely have to verify whether this is true or not. We cannot just pass it by.

So they are taking it very, very seriously, in fact. They really are trying to find out do these cells really exist. But they fear he may just be wasting their time -- Wolf.

BLITZER: You have also, Nic, spoken to Breivik's attorney. What does he say about his client, what he is like? What are you hearing from the lawyer?

ROBERTSON: Well, he said that right now in jail that he's very tired, everything that he's been through.

He said he's met with Breivik three times over the past few days, has spent many, many hours with him. He says that he has never met anyone like Breivik before. He finds it really hard to understand him. And when he was asked, do you think he is insane, he said yes.


GEIR LIPPESTAD, ATTORNEY FOR ANDERS BEHRING BREIVIK: This whole case has indicated that he's insane.

He's in a war. And he says that the rest of the world, and especially the Western world, don't understand his point of view, that in 60 years' times, we will all understand him.

He was a little bit surprised that he succeeded, in his mind succeeded.


ROBERTSON: Now, Breivik says -- Breivik's lawyer says that although he thinks he must be insane to have carried out these acts, that's not a clinical statement and there will be doctors who will analyze Breivik for the police to see what mental condition he is in. The lawyer will then make up his mind about what the defense will be.

And he says it's quite possible that he may get back from the doctors that Breivik is insane. And he may go to him and say, look, your case is going to be to plead insanity. And he says in that case, it's quite possible that Breivik will tell him, well, I don't want you as my defense lawyer, because that would delegitimize everything that Breivik has said so far about trying the get rid of Islam, about trying to bring down the government here -- Wolf.

BLITZER: Nic Robertson on the scene for us doing some excellent reporting. Thank you.

With Congress deadlocked over raising the debt limit here in the United States, are lawmakers at both ends of the political spectrum holding everyone else hostage? And if there is a debt deal it still could lead to some cuts in programs for the poor, the middle class, the elderly. I will ask Democratic Senator Barbara Mikulski how she feels about that.


BLITZER: For all the posturing out there, the tough talk, the apparent deadline -- deadlock, I should say, is there any common ground in the debt limit talks?

I spoke earlier with President Obama's senior adviser David Plouffe. Listen to this clip.


PLOUFFE: The Boehner and Reid proposals have quite a bit of similarities. So we ought to be able to do something that reduces spending, that sets up a process so we can do more deficit reduction in months ahead and make sure that what's hanging over the economy isn't a debt. It's clear this debt ceiling drama has not been good for the economy or the country.

Why we would want to have it again in five or six months kind of defies logic.

BLITZER: So, basically, what -- what you're -- what you're suggesting, at least if I'm hearing you correct, is that Boehner get together with Harry Reid and they work out some sort of compromise between the two of them. But one of the bottom lines for you and for those at the White House is there shouldn't be another vote raising this issue next year. That should wait until 2013.

Is that the big stumbling block right now?

PLOUFFE: Well, I don't know. Boehner -- Speaker Boehner and Senator Reid did not have an agreement. Far from it. Senator Reid has said he clearly does not agree with John Boehner's approach.


BLITZER: Yes, but there are some similarities, though.

PLOUFFE: Well, in terms of some of the spending cuts, not all, some of the spending cuts. Both proposals have this Congressional committee that's going to be charged with trying to identify additional deficit reductions.

So you can see how there could be the contours of compromise.


BLITZER: The debt ceiling deadline is now less than a week away, and there are dire warnings of financial catastrophe.

But while talks grind on here in Washington, neither side seems ready to budge, at least publicly, right now.

Here is a question. Are the nation's political extremes calling the shots?

We asked CNN's Jim Acosta to take a closer look.

And, Jim, what did you find out?

JIM ACOSTA, CNN CORRESPONDENT: Wolf, it's starting to look that way. Deals are one thing. Votes are another. The question is not whether leaders like Boehner, Reid and McConnell can close the deal. It's whether the base on either side will let them.


ACOSTA (voice-over): The showdown over the debt ceiling has stretched the Capitol to its extremes, with Tea Party Republicans pulling on one side and liberal Democrats tugging on the other.

REP. JOE WALSH (R), ILLINOIS: President Obama, quit lying.

ACOSTA: Freshman Republican Congressman Joe Walsh posted a video on his House Web site accusing the president of lying about the possibility that Social Security checks could be delayed if the country goes into default.

WALSH: And that's not being truthful with the American people.


ACOSTA: Is it appropriate to say the president is lying, call him a liar?


WALSH: Well, again, a nuanced -- didn't call him a liar. In that case, he lied.

ACOSTA: You are basically calling him a liar.

WALSH: Yes, exactly. And I'm not going to walk back from it.

ACOSTA (voice-over): But back in the late '80s, President Ronald Reagan warned the same thing could happen during his own debt ceiling standoff.

RONALD REAGAN, FORMER PRESIDENT OF THE UNITED STATES: This brinkmanship threatens the holders of government bones and those who rely on Social Security and veteran benefits.

ACOSTA: On the Democratic side, Congresswoman Sheila Jackson Lee suggested Republicans are sticking to the president because of his race.

REP. SHEILA JACKSON LEE (D), TEXAS: Why is he different? And in my community that is the question that we raise.

Why this president?

ACOSTA (on camera): Do you think it could be racial?

LEE: Let me say this. I'd like to get past the personal, and I think -- I posed the question, and I think those individuals need to answer the question.

ACOSTA: Is it a fair question?

LEE: I think it's a fair question.

ACOSTA (voice-over): Instead, the reason may be pure politics. When George W. Bush was president, the Congress voted to raise the debt ceiling seven times. On nearly every occasion, dozens of Republicans, including many of today's GOP leaders, voted yes.

ALICE RIVLIN, PRESIDENT'S DEBT COMMISSION MEMBER: I have never seen anything like this. I think it's very scary and very embarrassing for our system of government.

ACOSTA: Alice Rivlin, a veteran of past budget battles, said President Obama is also to blame for walking away from the recommendations of his own debt commission.

RIVLIN: I think everybody missed an opportunity. Both the president and the leadership of the Congress. ACOSTA: In part, that's because the leaders aren't really leading. One side of Congress is answering to conservatives who won't give on taxes. The other won't touch entitlements. It's no wonder they're getting nervous.

(on camera) Is it getting scary up here?

REP. RAUL GRIJALVA (D), ARIZONA: It's -- it's not to the point of being scary yet, but it is heading in that direction.


ACOSTA: Adding to the polarization in Congress has been a steady stream of centrists leaving the Capitol in recent years. The latest example, Mike Ross, one of a dwindling number of fiscally conservative blue dogs, and Wolf, Republicans predict he won't be the last.

And one final note on Joe Walsh. He came down against the Boehner proposal today.

BLITZER: A lot of those really ardent conservatives in the House. He has got his own problems with his conservative base.

ACOSTA: That's right.

BLITZER: Thanks very much for that, Jim Acosta.

So if and when a debt deal does emerge -- and that's a big "if" right now -- it may not include any of the new tax revenues for the government that so many Democrats had sought. It may lead, in fact, to spending cuts and social programs that could affect seniors, the middle class, the poor. That's drawing some sharp criticism from liberals out there.

Let's talk to Democratic Senator Barbara Mikulski of Maryland.

Senator, thanks very much for coming in.

SEN. BARBARA MIKULSKI (D), MARYLAND: Hi, Wolf. It's very tense and very toxic here right now.

BLITZER: All right. Well, let's get to some of the specifics. Are you with Harry Reid's latest proposal, which includes no what they call tax revenue, no tax increases on millionaires or billionaires, no tax increases on corporate jet owners or anything like that? All of the cuts come from what's called discretionary spending that could affect middle class, elderly, young people? Are you with Harry Reid on that?

MIKULSKI: I am with Harry Reid to move towards a solution. And I'm with Harry Reid to work on a solution with Speaker Boehner.

The reason I'm with Harry Reid is that we cannot fall and we cannot falter in allowing the -- America to default on its debt and also to have the downgrading of our debt. Everything I believe in -- the protection of Social Security, veteran's benefits, health care, Medicare -- we would lose if we default. It would be the biggest tax on the American people when interest rates go sky high. Their mortgage will go sky high, their student loans, their car loans. We cannot allow this to happen.

BLITZER: So -- so you're -- I assume you're also not only with Harry Reid on his latest proposal, but you're with the president, who was even willing to make cuts in entitlement spending like Social Security, Medicare, and Medicaid, if necessary, to get a deal with the Republicans?

MIKULSKI: Well, the president was working for a deal -- or -- that also included not only reform and entitlements, but also revenue. That is now off the table.

What Harry Reid is suggesting is not only cuts in discretionary spending, but we will cut defense. We will cut defense by $1 trillion with the drawdown from the war in Iraq and Afghanistan.

This is something the Republicans have already agreed to. It was in the Ryan budget, and it will not negatively affect our troops, nor veterans and the military health care. I'm for that. Would I like to get rid of more of the sacred cows like tax subsidies for ethanol, oil and gas subsidies, the private jets used to take kids to summer camps so they're pampered and they're prosperous? You bet. But we're not there. Where we have to be, though, is with the American people.

BLITZER: Would you be willing to go as far as so many Republicans would like, especially in the House of Representatives to include a balanced budget amendment to the Constitution so you don't have to worry about these problems in years to come if you're required to balance the budget?

MIKULSKI: The balanced budget amendment is a sham and a scam. What it would take to get through the states would be several years, and we need to balance this budget now. What we need to do is the down payment, which is being suggested by Harry Reid and a joint committee of the Congress, House, and Senate which will get to us and bring us in balance in 10 years.

I worked on the ERA. We never got it through. It could take years. And by the way, if they offer a balanced budget amendment, I'm going to second it with the ERA Amendment to make sure women and children aren't thrown under the bus.

BLITZER: You say the current environment on Capitol Hill is toxic. That's the word you just used. You've been a senator for quite a while. Is this the worst you've ever seen it in Washington?

MIKULSKI: Yes. And -- because we were so polarized. We need to make sure that we put, instead of our political party first, we need to put America first. We need to think about the United States of America continuing to be a super power. We need to think about creating jobs in the United States. We need to begin to move forward in a 21st-century economy. And the only way we're going to do that is if we're citizens of the United States with one pledge, which is to the flag and not to a political party or a political platform.

And there are people like me. I'm a Dino (ph) Democrat, and I'm sure want to make sure that the people I represent are at the table and we're working for them.

BLITZER: All right. So I know you want a deal between now and Tuesday when the debt ceiling has to be raised. But here's the question. Will there be a deal to avert this economic catastrophe?

MIKULSKI: I think for there to be a solution, there has to be the changing of hearts and minds. I think the only way you get the change of hearts and minds is for the American people to continue to flood our phones, as they are now, saying act like Americans, act like adults, work for the good of the country and not for the good of your own.

BLITZER: So is that a yes? There will be a deal, you think?


BLITZER: OK. Let's hope there will be. Thanks very much, Senator Mikulski, for coming in.

We've just received word that a United States congressman has actually been arrested over at the White House. We'll give you the details. That's coming up next.

And ATF officials admit they made mistakes, but did they allow hundreds of guns to actually fall into the hands of the Mexican drug cartels?


BLITZER: Just into THE SITUATION ROOM, a United States congressman has been arrested over at the White House. Lisa Sylvester has that and some of the other top stories in THE SITUATION ROOM right now. What happened?

LISA SYLVESTER, CNN CORRESPONDENT: Wolf, an Illinois congressman arrested in a protest outside the White House just a short time ago, as you mentioned. Democrat Luis Gutierrez was among 11 people sitting on the sidewalk to protest immigration and deportation policies. They were led away in plastic handcuffs after ignoring repeated warnings by police to leave.

And a private funeral was held today in London for singer Amy Winehouse, and her father released a statement saying that, in the days before her death, she was the happiest she had been in years. He says Winehouse conquered her drug addiction and was trying to control her drinking, and she had just marked weeks of sobriety when she died. The cause of her death is still unknown.

Congressman David Wu is resigning. The Oregon Democrat has been embroiled in a scandal involving unwanted sexual advances. There were also allegations of bizarre behavior, including this picture of him in a tiger suit, which he sent to members of his staff, who urged him to seek psychiatric help. He says he was under the influence of prescription painkillers at the time.

And McDonald's is bowing to pressure and making changes to its Happy Meals for kids. The company says it will cut in half the portion of French fries that comes with the Happy Meal and add apple splices, and that will reduce the meal's calories by 20 percent. The new Happy Meals will debut in California this September, and they will go nationwide by next spring. So a happy and healthier meal.

BLITZER: You've got French fries or apple slices.


BLITZER: Your kids, what are they going to want? Apples or French fries?

SYLVESTER: My son actually likes apples, but he also likes the fries, too.

BLITZER: Operation Fast and Furious under fire. Did the ATF fuel Mexico's drug wars with hundreds of weapons? Angry lawmakers here in Washington are demanding answers.


BLITZER: Tempers flare today in a House hearing on an undercover U.S. operation that may have put hundreds of guns directly in the hands of Mexican drug cartels. CNN's homeland security correspondent, Jeanne Meserve, is joining us now with the details.

Jean, what's this all about?

JEANNE MESERVE, CNN CORRESPONDENT: Well, Wolf, the inspector general of the Department of Justice has begun an investigation at the request of Attorney General Eric Holder into the controversial ATF operation named Fast and Furious. Furious is exactly the word to describe a hearing on the subject today.


REP. PAUL GOSAR (R), ARIZONA: It seems like this is the Moe, Curly and Larry show. And we're looking for Larry.

MESERVE (voice-over): But this was no comedy. Members of Congress were fuming at their failure to get answers about the ATF's Fast and Furious program. It was intended to bring down large firearms trafficking organizations linked to Mexican drug cartels.

But ATF whistle blowers alleged they were forced to sit and watch as more than 2,000 guns were trafficked, allowed to walk, in the parlance of law enforcement. Many ended up in Mexico.

Two ATF officials told Congress they made mistakes, but when they denied that permitting weapons to go across the border was part of the operation, one member was incredulous.


WILLIAM NEWELL, FORMER ATF SPECIAL AGENT IN CHARGE, PHOENIX: Sir, this investigation, it is my opinion we have not let guns walk.

ISSA: You're entitled to your opinion and not to your facts.

MESERVE: ATF personnel based in Mexico during Fast and Furious said they were never told about it and offered apologies to the Mexican people. Agents said it violated the basics of ATF training and best practices.

CARLOS CANINO, ATF ACTING ATTACHE TO MEXICO: This case made my life more difficult for me personally. Imagine my shame -- when my mother called me on the telephone and said, "Please tell me you weren't involved in this."

MESERVE: Republicans want to know if higher ups approved Fast and Furious and accused DOJ of stonewalling.

ISSA: The Justice Department is not our partner in this effort. They are the subject of this investigation, and their continued interference will not be allowed to derail the committee's work.

MESERVE: A Justice Department spokeswoman says that is, quote, "ridiculous, simply not true. We provided thousands of documents, interviews and testimony."


MESERVE: More than 1,000 of the Fast and Furious guns are still unaccounted for, and the straw buyers, the people who allegedly bought the guns that eventually went to the cartels, are free on bail. According to testimony today are still able to buy firearms -- Wolf.

BLITZER: Jeanne, thank you.

We'll be right back.


BLITZER: There's been a significant setback to House Speaker John Boehner's proposal to deal with the debt ceiling crisis. Let's go to our congressional correspondent, Kate Bolduan. She's got the details.

What do we know, Kate?

KATE BOLDUAN, CNN CORRESPONDENT: A potentially big problem, at least some very unwelcome news for House Speaker John Boehner this evening. As you well know and you well remember, Wolf, in Boehner's plan it called for cutting spending by over $1 trillion over 10 years.

Well, the Congressional Budget Office, the office that's charged with scoring or giving a cost estimate for legislation, it just released its estimates of the Boehner bill, and it says that the speaker's plan falls short of what its aim was. It says that it only -- the bill only reduces deficits by $850 billion over 10 years, and that's a problem because of the speaker's pledge.

He said that one of the principles moving forward, Wolf, you know, was that the cuts -- spending cuts had to be greater than the amount they were going to increase the debt ceiling by, and they were going to be increasing the debt ceiling this first step by $900 billion. So this does not work. This does not go along with what he's pledged to do.

And so now we're told that staff are scrambling at this moment trying to figure out the path forward, really. And a spokesman for Speaker Boehner, in a statement to me, acknowledged that they are looking at options still this evening on the eve of this expected vote on ways to rewrite the legislation in order to keep with their pledge and get their numbers really right -- Wolf.

BLITZER: Because it's obviously a key issue right now. The vote is supposed to come up tomorrow. If they rewrite the legislation, do we know if they could still have that vote tomorrow, or do they have to wait the two or three days, post it once again, let the CBO score it once again? Because the clock is ticking. We only have until next Tuesday.

BOLDUAN: Great question, Wolf. It doesn't seem that they technically would have to start all over, if you will. They still were told at this moment are aiming for a vote tomorrow. Possibly something could be worked out in an amendment process to this bill.

But at the very least, this is -- could be a big problem in selling this plan, especially to House conservatives. As you and I talked earlier this evening, that House conservatives are not happy with the bill. They don't think it goes far enough. This does not help House Speaker's -- House Speaker John Boehner's argument to get them on board.

BLITZER: And there's no guarantee, as we just heard from a few conservative Republicans in the House who have bolted from Boehner's earlier proposal. They don't even believe he has the 217 votes necessary to get it passed, assuming they can come up with the legislation. Have you done any head counts up there?

BOLDUAN: No head counts yet, but we've been told -- my colleague here, Dewalt Shu (ph), she has been told that policy -- policy aides, if you will, have been working with various staffs, trying to brief everyone to try to explain to them this -- this bill, this legislation, to try to kind of convince them to get on board. This does not help this argument this evening.

They still can work on this. They can still work at ways. They're looking at options, they say, on ways to rewrite it and -- so it can match the pledge that they've said they would make. But this evening it's not good news for them.

BLITZER: Yes, another setback indeed. All right, thanks very much.

Jack Cafferty's coming up with your e-mail. Is President Obama more concerned with his re-election than with the welfare of the country? That's Jack's question. The e-mail when we come back.


BLITZER: Check back with Jack for "The Cafferty File" -- Jack.

JACK CAFFERTY, CNN ANCHOR: Quick addition, Wolf, to something we told you earlier. There was one other incumbent president challenged by a member of his own party. Pat Buchanan ran against George Herbert Walker Bush back in 1992 to no avail.

The question this hour: "Is President Obama more concerned with his re-election than the welfare of the country?"

M. writes, "It depends on who you are. If you're a Tea Partier and Republican, yes. If you're not with either one of those groups, then you'll realize he's looking after the middle class and the poor. After all, he's not a Republican. McConnell specifically stated that his main goal is to make this man a, quote, 'one-term president.' Who's only thinking about elections?"

Michael in California writes, "Seriously, Jack? Not only is the question inflammatory; it's inaccurate. Shouldn't the question be are the House Republicans concerned with raising the debt ceiling or defeating President Obama? You're showing your true colors, old man, trying to move over to Fixed News where you belong."

Willie writes, "No, I think he's desperately trying to roll a huge uneven, uncompromising Republican boulder up a steep hill."

Charles in Michigan: "Whether or not he's more concerned with re- election, the president is correct to insist on a debt limit that will take us past the election. Without that, there will be nothing but posturing until the election. The business of the country be damned."

David in Florida writes, "No more so than the rest of the slime balls in elected office. Wouldn't it be nice to make those characters live in cardboard boxes in Arlington National Cemetery until the debt ceiling mess is resolved and they actually have a 2012 budget in place? Take the bus instead of being driven to work. Go Dumpster diving for their meals and bathe in a stream. Why should I care about their well-being? They don't care about mine or anybody else's, for that matter."

David in Virginia writes, "Frighteningly yes, it was clear from his budget submission in February that he's absolutely out of touch with economic reality. His current preference for a smoke-and-mirrors deal from Harry Reid that will kick the can down the road and take him past the next election. I wish he'd spent the 30 minutes he spent on TV last night politicking reading a book about leadership instead."

And Jerry in Arizona writes, "It's all about re-election and Obama's personal agenda. Taking the debt ceiling issue to the people in his speech last night amazed me. Here's the man who got us into debt, demanding a blank check to get us farther into debt."

You can read more about this on my blog -- Wolf. BLITZER: Jack, thank you.

I'm Wolf Blitzer in THE SITUATION ROOM. For our international viewers "WORLD REPORT" is next. In North America, "JOHN KING USA" starts right now.