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THE SITUATION ROOM

Supreme Court Takes Up Same-Sex Marriage; Jobless Rate Drops to 7.7 Percent; Improving Economy in Peril; Seniors Warn Congress Hands Off; Fighting Over Trillions; Axelrod Shaves His Mustache; Secret Service Info Left On Train; Nurse In Duchess Kate Hoax Found Dead

Aired December 7, 2012 - 16:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


WOLF BLITZER, CNN ANCHOR: Happening now, breaking news: The United States Supreme Court just announced it will decide two highly controversial cases about gay marriage.

Also, retailers gearing up for the holidays are having a big impact on the nation's unemployment rate. But, if you look a little bit closer, there's also a disturbing trend in the latest job numbers.

Plus, President Obama's top strategist as you have never seen him before.

And during this hour, a member of the CNN team is ready to up the ante and reach for his own shaving cream.

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

ANNOUNCER: This is CNN breaking news.

BLITZER: Let's get right to the breaking news.

The United States Supreme Court has agreed to decide a pair of cases that could determine the future of gay marriage throughout the entire United States. At issue is the federal government's Defense of Marriage Act, which defines marriage as only the union between a man and woman and California's Proposition 8, which banned gay marriage, but was overturned by an appeals court.

CNN's crime and justice correspondent, Joe Johns, has been following both cases for us.

Joe, explain the impact of today's decision.

JOE JOHNS, CNN CRIME AND JUSTICE CORRESPONDENT: Well, it is a big impact.

And, as you know, this is one of those cases that people talk about over the watercooler. Let's start with Proposition 8. Very simple, Wolf. It is the California ballot initiative passed in 2008 by the people of the state of California that established marriage as between a man and a woman.

It overturned a court case that said same-sex couples have the right to marry. Windsor is the other case you were talking about. It is an attack on Defense of Marriage Act, which was passed in 1996 by the Congress, signed by the president. It's called Windsor against the United States. It is about a woman named Edith Windsor, who had a longtime relationship with her partner, Thea Spyer. They were married in Toronto, Canada, in 2007.

Spyer died in New York in 2009, and Edith Windsor got a lot of money, something like $363,000 as a result of that. She was actually required to pay it in federal estate taxes on her inheritance. She would not have had to pay that money if federal law had given that same-sex relationship the same status as opposite sex marriages get.

So it's pretty clean, a clean-cut case. Even the Obama administration has already said it doesn't think the constitutionality of the Defense of Marriage Act, can withhold a legal attack like this, Wolf.

BLITZER: We expect the arguments to be made when and a decision to be made?

JOHNS: I would estimate some time around March of next year for the arguments, probably some time around June of next year for a decision by the court, Wolf.

BLITZER: All right, thanks very much, Joe Johns reporting for us.

Let's bring in our senior legal analyst, Jeffrey Toobin, and our chief political analyst, Gloria Borger. She's worked hard on this issue as well.

Jeff, first to you. Once the Supreme Court makes that final decision let's say in the spring, maybe by June at the end of the term, we will know whether or not same-sex marriage will be legal, not only in those states like New York state or Maryland or Iowa, where it is legal right now, but throughout the United States?

JEFFREY TOOBIN, CNN SENIOR LEGAL ANALYST: That is not entirely clear. There are many different ways the court could decide this case.

First of all, just to be clear, the states that have same-sex marriage, the nine states, that's not going to change. None of those -- it's not like they could ban same-sex marriage. That is not on the agenda.

The question, the possibility is, do they say marriage is a fundamental right that cannot be denied to anyone in any state? That would be the broadest possible ruling that the court could make here. That is a possibility. But there are much more limited possibilities.

One of the issues in this case -- and the court specifically took note of it in this case -- is whether -- the question of whether the people defending the law in California even have the right to be in court. Do they have standing? They could simply rule that the people defending the law don't have standing. That wouldn't even deal with the issue of the constitutionality of same-sex marriage.

That would be a procedural ruling that would allow the court to duck the issue of is there a constitutional right for gay people to get married. So it's a possibility that all 50 states could be ordered to have same-sex marriage, but it's also a possibility that the court could duck that issue altogether.

BLITZER: Obviously, we have to wait to see what these nine justices decide.

Gloria, you have done a lot of work, as I said, on this. You interviewed awhile ago Ted Olson. He was a Republican. He is a Republican, but he supports same-sex marriage now. Here is one of the things he told you.

(BEGIN VIDEO CLIP)

THEODORE OLSON, FORMER U.S. SOLICITOR GENERAL: A younger woman who works here is a lawyer. She came up to me and she said, Ted, I want to tell you what I think about what you're doing. She said, I am a lesbian. I don't think you know me. We haven't worked together. My partner and I have children. I can't tell you what you're doing for us by taking this case and she started to cry, and then I did.

(END VIDEO CLIP)

BLITZER: That helps explain why he teamed up with David Boies and made the argument in favor of same-sex marriage.

GLORIA BORGER, CNN SENIOR POLITICAL ANALYST: Right. I mean, this is a very clear-cut issue for Ted Olson who as this conservative icon has come under a great deal of criticism by Republicans.

What he says is, look, Proposition 8 violates the equal protection clause of the Constitution, and that's it. And he makes a very clear- cut argument about it. This is somebody by the way who has tried 56 cases before the Supreme Court, I believe. He has won 44 of them, and is, of course, on this case now, teaming up with David Boies. We call them the odd couple because David Boies was the Democrat that opposed him in Bush v. Gore, and Olson obviously won that case.

They say together maybe they have a shot at convincing the swing vote, Justice Kennedy, to go their way.

BLITZER: The attitudes, public attitudes changed, Jeffrey, they have really changed over the years, not only President Obama changing his views -- he supports same-sex marriage -- President Clinton, who signed the Defense of Marriage Act into law, he supports gay marriage, but the American public attitudes have changed.

Back in 2005, 35 percent thought same-sex marriage should be recognized. Now it is up to 53 percent. Here is the question. Do the justices, these nine justices, are they influenced by public opinion?

TOOBIN: You bet. They sure are.

This is an issue that wouldn't even have been on the agenda had the public not changed so dramatically. Let me just tell you a story from Supreme Court history. 1986, the first real significant gay rights case that the court ever had, the swing vote at the time was Lewis Powell.

And Lewis Powell was in his chambers, and he said to his law clerk, you know, "I don't think I have ever met a homosexual." No justice would say that today. As it turned out, that law clerk himself was a gay man, although he didn't disclose it to the justice at the time.

The world has changed so dramatically. The polls have changed. Justice Ruth Ginsburg often talks about the reason she won as a lawyer all the women's rights cases in the 1970s is that the world had changed for women's rights in the '70s. The justices were willing to look at that issue in a new way.

This is a different time when it comes to gay rights. Now, whether that gets the supporters of same-sex marriage to five votes in this case, I don't know, but the fact that the country has changed so dramatically makes a huge difference in how the court approaches this issue, though the justices don't really admit that.

BLITZER: Gloria, there are some who support same-sex marriage who are concerned this nine-member Supreme Court, they don't have the votes, they don't have the five votes that would achieve a victory for same- sex marriage, marriage equality across the country, if you will, so they're nervous about the Supreme Court taking up the case, about the current makeup of the Supreme Court.

BORGER: That's right.

They were nervous about this strategy, saying, gee, why did Ted Olson and David Boies do this? Was it because they wanted to try a case together before the Supreme Court? What if they lose? Would it be a real setback?

And, you know, I asked them that very question saying, why are you doing this? The demographics of the country are changing. Wait for the country to catch up with the way you feel. That's what a lot of gay rights activists felt, and the answer that I got from them time and time again was really the court does do the heavy lift very often for the country.

They point to the case that legalized interracial marriage, that that was more than 40 years ago, and the court was ahead of public opinion. Now, as Jeffrey says, just in the last couple years that I have been doing this story, public opinion has shifted dramatically their way. Whether that will convince Justice Kennedy, of course, remains to be seen, but they say this is exactly what the court ought to be doing. It ought to be doing the heavy lift without the politics involved.

We will see.

BLITZER: And no one knows how those nine justices will adjudicate this issue. Thanks very much for that. Gloria, Jeffrey, thank you.

There's also a big story affecting business and politics today. Retailers gearing up for the holidays, they're behind roughly one of three new jobs created in November, and even though the unemployment rate is down, there's also an alarming trend we're seeing. Stand by. (COMMERCIAL BREAK)

BLITZER: Now to the numbers that at first glance look like they're very good news for the U.S. economy and the Obama administration.

The nation's jobless rate fell, fell to 7.7 percent in November as employers added 146,000 new jobs. The jobless rate hasn't been this low during the entire Obama administration, but that's only part of the story. A closer look also shows a big reason behind today's drop in the unemployment rate is that 350,000 people dropped out of the work force in November.

They're discouraged, many of them are, that they simply quit and they're trying to find work.

Christine Romans is joining us now from New York.

We saw the unexpected drop in the unemployment rate, but, Christine, take us a little behind the numbers that just make up the headlines.

CHRISTINE ROMANS, CNN CORRESPONDENT: Well, 7.7 percent is that unemployment rate, Wolf. It's the lowest since December 2008, from before the president took office, 146,000 jobs created, twice what economists have been expecting.

They really didn't see that pullback because of hiring being depressed because of Hurricane Sandy. Maybe you will see some of that in the next month, but this was a strong report on its surface. Digging in the numbers, Wolf, look at the right side there on that graphic, 14.4 percent underemployment.

Some people call that the real unemployment rate. That still shows you, Wolf, there's an awful lot of work to be done in this economy. That number is still too high.

BLITZER: And 63.6 percent participation rate, what does that mean?

ROMANS: That means -- that is the percentage of the people who are working, people who are eligible who are in the work force, 63.6 percent. You want to see that higher, too.

BLITZER: Yes, because we also learned that, what, about 350,000 people last month simply gave up and stopped looking for work.

ROMANS: Yes.

BLITZER: And that potentially caused that little drop in the unemployment rate.

ROMANS: Right. That's right. That's important to note, too, 350,000 just gave up working. These could be people that are retiring early, taking early Social Security and they're getting out of the labor market.

It could also be people, Wolf, who have been on extended unemployment benefits, they roll off those benefits. They try to find work for a couple months, they don't. So they drop out, too.

BLITZER: Are the November numbers part of a trend we've been seeing? What does this portend down the road?

ROMANS: So, you got on average this year, about 151,000 jobs created every month. That would be the monthly average. In the last couple months before now were revised downward. So, you look at the right side of that big chart, you can see we're slowly digging our way out of that big sea of red.

But we need to see jobs sustained above 150,000, 200,000 consistently. When we've been able to get 200,000 jobs a month, we usually have a setback. It shows you -- again it underscores how important it is to get this fiscal cliff fixed so you don't have companies holding off hiring early in the year.

BLITZER: Better to be above that line than to be below that line. If we are taking a look, though, at some other economic indicators in the past week or two, there have been some positive signs.

ROMANS: There have been. You know, the stock market, the Dow is still above 13,000. Again, investors are betting on the fact that the fiscal cliff is going to get fixed. You've seen, you know, GDP was revised higher third quarter, that hoping maybe some of that will carry into fourth quarter.

Housing has been strong, too, Wolf. When you look at mortgage rates, they're at record lows still. Housing prices are creeping higher. There are these other bright spots in the economy.

BLITZER: Christine Romans, doing the work for us and doing it well -- thank you.

ROMANS: Thanks.

BLITZER: Despite the signs of a slow but steady growth of the economy, there's still a real fear the U.S. will fall back into recession if President Obama and congressional Republicans can't head off the big tax increases and government spending cuts that are now 25 days away. But for now, the administration is looking at the economy's bright side.

Let's go live to our White House correspondent Dan Lothian.

Dan, what's going on?

DAN LOTHIAN, CNN WHITE HOUSE CORRESPONDENT: The White House aides saying that this is just another indication that the economy is starting to heal from some of those wounds inflicted by the economic downturn.

Vice President Joe Biden who was out speaking with middle class Americans today said that the U.S. economy has turned the corner. He was very emphatic about that, saying that it's moving in a positive direction. Btu at the same time, he was putting pressure on lawmakers to come to an agreement to avoid the fiscal cliff. (BEGIN VIDEOTAPE)

LOTHIAN (voice-over): It was yet another White House effort to rally support around its approach to the fiscal cliff. Vice President Joe Biden sitting down for launch in Virginia with seven middle class Americans worried about their taxes going up.

JOSEPH BIDEN, VICE PRESIDENT OF THE UNITED STATES: These are hard working, serious Americans who are playing by the rules, doing it all right, and struggling already in this economy.

LOTHIAN: The jobs numbers, proof the administration says that the president's economic policies are paying off.

HILDA SOLIS, LABOR SECRETARY: You see it in the retail industry, you see it in transportation, you see it in health care, and you see it in other sectors. You do see a continued movement that continues to show some positive growth.

LOTHIAN: While cautioning the nation's economy is far from a full recovery, administration officials emphasize positive growth, suggesting it puts them in a stronger negotiating position with Republicans.

One senior administration official told CNN, quote, "We shouldn't muck it up by either raising taxes on the middle class or playing chicken with the debt ceiling."

But one economist who advised Senator John McCain sees no advantage in these numbers for either side.

DOUGLAS HOLTZ-EAKIN, PRESIDENT, AMERICAN ACTION FORUM: I don't think this strengthens the president's hand, not sure it does much for the Republicans either. The reality is, this was -- you know, this is like a bloop single on the run where American workers are 2 million runs behind.

LOTHIAN: And after a week of the president meeting with governors, middle class Americans, tribal leaders to put pressure on lawmakers, jobs numbers seem unlikely to push both sides closer together.

REP. JOHN BOEHNER (R-OH), SPEAKER OF THE HOUSE: Well, this isn't a progress report because there's no progress to report. When it comes to the fiscal cliff that's threatening our economy and threatening jobs, the White House has wasted another week.

(END VIDEOTAPE)

LOTHIAN: Vice President Biden was confident that this deal will get done because he's, quote, "optimistic genetically." He says that if everyone can act like adults and can reach an agreement, the upside will be much greater than the downside -- Wolf.

BLITZER: Any indication at all when there might be a presidential meeting with the speaker? LOTHIAN: We don't know at all. As you know, Wolf, there's been one phone call this week. White House aides telling us that so far, they're not making announcements about meetings or phone calls.

BLITZER: They need to talk if they're going to resolve this.

LOTHIAN: They do.

BLITZER: Maybe their teams, their staffers could do some advance work, but the clock is ticking.

Dan Lothian at the White House, thank you.

LOTHIAN: OK.

BLITZER: President Obama's top campaign strategist is here in THE SITUATION ROOM in a few minutes. David Axelrod did something today he hasn't done in decades. Look at that, before and after. He's ready to challenge a member of CNN's political team to do the same thing. Stand by.

And take a look at this. We're going to tell you why the driver says she didn't stop outside the store.

(COMMERCIAL BREAK)

BLITZER: Violent protests breaking out again in Egypt.

Kate Bolduan is here. She's monitoring that and some other top stories in THE SITUATION ROOM right now.

It seems like they're not ending.

KATE BOLDUAN, CNN CONGRESSIONAL CORRESPONDENT: Yes, it doesn't look like they're letting up. That's for sure, Wolf.

In Cairo, thousands of demonstrators broke through barricades surrounding Egypt's presidential palace today and sprayed graffiti. Demonstrators also hurled rocks at the home of Egyptian President Mohamed Morsy. They're furious over his decree expanding his powers, really putting it beyond judicial review.

The opposition is also demanding he'd postpone a December 15th referendum on a draft constitution. Critics fear the charter would help the Islamist-dominated government consolidate its power.

And a powerful earthquake struck on Japan's northeast coast today. The 7.3 magnitude quake shook buildings in Tokyo. You're looking at video there. It also triggered a three-foot tsunami wave that rolled ashore. Several minor injuries are reporting.

Japan is still recovering, though, from a massive earthquake you remember and tsunami that killed more than 15,000 people last year.

(VIDEO CLIP PLAYS) BOLDUAN: Wow. The owner of this jewelry store in Georgia says it's a miracle no one was killed when this happened. A driver accidentally rammed her minivan into the store. She told police that a canister lodged against the gas pedal. Flying glass hit customers, one woman had a deep cut in the back of her head. The store suffered more than $30,000 in damage.

But my goodness, thank goodness no one was seriously, seriously injured or killed. Look at that, Wolf. Wow.

BLITZER: Terrible. Be careful.

BOLDUAN: You, too.

BLITZER: President Obama's top campaign strategist is here in THE SITUATION ROOM. He's getting ready. He's only a few minutes away. David Axelrod, he did something today he hasn't done in decades. Look at that, look at the mustache before, no mustache after.

And guess what? He is ready to do something right here in THE SITUATION ROOM. He's going to challenge a member of CNN's political team to do the same thing.

(COMMERCIAL BREAK)

BLITZER: One group of Americans not taking the looming fiscal cliff deadline sitting down, seniors. They're turning out in droves right here in Washington with a strong warning to Congress.

Lisa Sylvester has details.

(BEGIN VIDEOTAPE)

LISA SYLVESTER, CNN CORRESPONDENT: Wolf, the AARP is a powerful group in Washington. It has spent about $7.5 million this year on lobbying. But its real strength may be its grassroots efforts with a large number of senior volunteers. And right now, their aim is to keep Social Security and Medicare intact.

(voice-over): Jean Nofles has often traveled to Washington from her Colorado home. This time, the 70-year-old retiree is here as a volunteer with the AARP. Nofles and other seniors are blanketing Capitol Hill with a single message: hands off.

JEAN NOFLES, RETIREE: We're very concerned. We don't want Medicare, Medicaid, and Social Security to be used as part of the deficit- reducing bill in such a short period of time.

SYLVESTER (voice-over): The clock is winding down towards the fiscal cliff. Once considered untouchable third rail, changes to Social Security and other so-called entitlements are now being seriously discussed.

SENATOR BOB CORKER (R), TENNESSEE: We really have not begun to talk about real entitlement reforms. The only way you have true avoidance where you have solution is to mix an appropriate amount of revenues with true entitlement reform. And until the debate moves to that point, there's no serious debate taking place.

SYLVESTER: House Republicans offered a framework that includes raising the Medicare eligibility age from 65 to 67, squeezing out savings from Social Security by changing the way inflation is calculated, and possible means testing that could disqualify wealthier, older Americans from the Medicare program.

Lawmakers insist any changes will be done gradually and will not impact current retirees, but that's not soothing the fears of seniors who say inflation adjustments will have an immediate impact.

DAVID CERTNER, AARP: To tell somebody living on Social Security, and we have something in the order of one out of every three retirees relies on just Social Security for 90 percent or more of their income, to tell them sorry, we have to cut back your benefits because we have problems in the rest of the federal budget, that doesn't make sense for us.

SYLVESTER: Just to be clear, the senior lobby is a powerful, sophisticated organization, with offices in every state and volunteers ready to fly to Washington at a moment's notice. But Democrats and Republicans aren't going to reach a compromise before the end of the month unless something gives.

ANDY ROTH, CLUB FOR GROWTH: We are racking up levels of debt that's unprecedented in our history. We've got to do something and if we don't, it's been very clear the credit agencies will downgrade us again.

SYLVESTER: Democrats are pushing back.

(END VIDEOTAPE)

SYLVESTER: More than 100 House members signed a letter that they sent to John Boehner saying take Social Security off the table -- Wolf.

BLITZER: Lisa Sylvester, thanks very much.

Let's get to our Strategy Session right now.

Joining us, our CNN contributor, the Republican strategist, Alex Castellanos. He has a mustache.

Also joining us, a very clean-shaven young man, the Obama campaign senior adviser, David Axelrod.

Wow!

DAVID AXELROD, OBAMA SENIOR CAMPAIGN MANAGER: Newly shaven, actually.

BLITZER: Newly shaven.

AXELROD: Yes.

BLITZER: Very nice. Very impressive.

ALEX CASTELLANOS, REPUBLICAN CONSULTANT, CNN POLITICAL CONTRIBUTOR: We need to see some ID, Wolf.

(LAUGHTER)

CASTELLANOS: I'm trying to be serious.

BLITZER: It looks very handsome, don't you think?

CASTELLANOS: He looks younger, I think.

BLITZER: Much younger, much thinner. We're going to get to that...

UNIDENTIFIED MALE: All right.

BLITZER: -- in a moment.

Social Security, should that be on the table now or not on the table?

CASTELLANOS: I think Republicans are saying look, let's put everything on the table. Some support means testing, if you're above a certain income that maybe you don't need to take Social Security.

When we all think the program is going to be in serious trouble down the road, very few people supporting a growing base of people that are on Social Security. So to keep it strong, maybe it is something we should look at.

BLITZER: Right now?

CASTELLANOS: Well, right now, I think we have more urgent things to do. That's certainly something -- it is something to commit to address down the road.

BLITZER: President Bush tried it, didn't work out well for him. What do you think? Because 100 Democrats recently wrote they don't want it on the table at all right now including Bernie Sanders as you know.

AXELROD: Well, I would agree with Alex. I don't think that's not the most urgent of matters. Obviously Medicare is more urgent and that's something that needs to be addressed, the president has said it. Republicans have said it as well.

It is a question of how you do it, and do you do it in a way that preserves the program and protects beneficiaries. So, you know, I think there are discussions to be had around that. Obviously the discussion about what we do on the tax side, which is essentially getting a balanced package.

BLITZER: The key issue seems to me involving marginal tax rates for the top 2 percent, right now, it's 35 percent. Does it go up to 39.6 percent, which is where it was during the Clinton administration? Does it go up to 37 percent?

Boehner says you know what? You can raise tax revenues by eliminating or capping loopholes or deductions. Do it like that. The president awhile ago, about a year and a half ago said this.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES OF AMERICA: What we said was give us $1.2 trillion in additional revenues, which could be accomplished without hiking taxes, tax rates, but could simply be accomplished by eliminating loopholes, eliminating some deductions, and engaging in a tax reform process that could have lowered rates generally while broadening the base.

(END VIDEO CLIP)

BLITZER: That was July, 2011. So what has changed? He says then -- seems to be where Boehner is right now. You can raise tax revenue by capping deductions, limiting loopholes, et cetera, but not raising tax rates.

AXELROD: If you listen to the president's entire statement he said as part of a larger tax reform proposal. The fact is you can't get the revenues that are necessary simply by eliminating deductions, unless you want to whack the middle class, and that's not something we can afford to do now.

Let's also make the point, Wolf, that everyone in America will benefit if we extend the tax cuts for incomes under $250,000. You get the tax cut the first $250,000. But if we're going to deal with the debt problem, we have to do it in a balanced way. Raising rates is part of what we need to do.

CASTELLANOS: Well, one of the things I think Republicans would tell you is that when we created the Bush tax cuts for everyone, including the wealthy, government revenues went up from $1.8 trillion to $2.5 trillion.

BLITZER: You mean in 2001 and 2003?

CASTELLANOS: Over a four-year period right after Bush tax cuts were put in place. So why not stay with that, keep the economy growing. That's $700 billion in additional revenue.

BLITZER: If this whole thing could collapse.

CASTELLANOS: It is something we need to figure --

BLITZER: Is it going to collapse the negotiations, are we going over the cliff because of marginal tax rates for the wealthy?

AXELROD: We don't know what the Republican Party will do.

BLITZER: If they're not raising.

AXELROD: If they stick with their position, I think the president has made clear that this is something that he believes is necessary.

BLITZER: Will the Republicans stick with that?

CASTELLANOS: Republicans really want to see a strong commitment from the administration for entitlement reform. I know the president is probably waiting for Republicans to put an offer on the table on spending, on some serious spending cuts.

If that gets on the table, and I think you have seen from both sides, it seems to be where the discussion is going, then I think you'll see flexibility on the Republican side on taxes.

BLITZER: All right, stand by, guys. We have much more to discuss. Some issues.

Coming up, when we come back, we're going to talk about David's new non-mustache look. We'll also have a special announcement about who might be next. Stand by.

(COMMERCIAL BREAK)

BLITZER: We're -- we're back with David Axelrod and Alex Castellanos.

You know, something we -- we -- we all watched this morning. Something happened to you. You got rid of the mustache.

AXELROD: That's right.

BLITZER: And I'm going to show our viewers some of the video...

AXELROD: Oh, yes, let's take a look at that.

BLITZER: -- of that moment. There you are. You have a slow shave. Uh, you were on "Morning Joe" today.

How long did you have the mustache?

AXELROD: Forty years.

BLITZER: Forty years.

AXELROD: I don't think I've ever shaved my mustache. I think when it grew in, I just kept it.

BLITZER: So -- so basically, nobody knew you without a mustache?

AXELROD: My wife has never seen me without a mustache. We were walking out...

BLITZER: She was there with you today.

AXELROD: -- we were walking out, she said, you know, I always hated that mustache. We've been married 33 years and now she mentions it.

BLITZER: Does she like you without the mustache?

AXELROD: She -- she seems pretty happy with me.

BLITZER: She -- I -- I don't blame her.

AXELROD: But she's more happy that we raised a million dollars for epilepsy.

BLITZER: So tell us why you did this.

AXELROD: I did it because I have a child whose life was terribly impacted by epilepsy, which kills 50,000 people a year and destroys many, uh, lives and quality of life for many people. And...

BLITZER: (INAUDIBLE).

AXELROD: -- and my wife started a -- a foundation called Citizens United for Research in Epilepsy to fund break -- breakthrough research in epilepsy. And I made a wager on "Morning Joe" that if I could raise a million dollars for lep -- epilepsy research by the end of November, I would shave my mustache off. And we raised $1.1 million.

BLITZER: Wow!

AXELROD: And so I was happy to lose -- people have lost so much more who have been impacted by epilepsy, a mustache seemed pretty trivial, even a 40-year-old mustache.

BLITZER: But it must have been, still, a little, you know -- you know...

AXELROD: No, it was the...

BLITZER: -- you have a little nostalgia.

AXELROD: Let me just say, I was up all night. But...

(LAUGHTER)

AXELROD: -- a little anxiety. But it...

BLITZER: Alex...

AXELROD: -- it turned out to be OK.

BLITZER: -- do you see -- have you seen Alex's mustache?

AXELROD: Well, you know -- you know what?

One of the things that made me, uh, conflicted about this was that I didn't want to leave my buddy alone in the world of mustaches. We were two of the more prominent mustaches around here.

BLITZER: Among political activists.

AXELROD: Yes.

CASTELLANOS: One of the...

AXELROD: My...

--- -- one of the things we had in common.

AXELROD: Right. And so, but, now he's made a very generous offer and I am going to accept that offer. BLITZER: What is the offer, Alex?

CASTELLANOS: Well, we're going to turn to raise some more money for a cure for epilepsy. It's such a wonderful charity, that if we can raise another 500 contributions between now and the beginning of the year -- will I do this?

Should I do this?

AXELROD: Right here in THE SITUATION ROOM. Yes...

(CROSSTALK)

AXELROD: -- it's too late now, man, we're -- we've jumped.

CASTELLANOS: In the spirit, we're going to show that bipartisanship does live in Washington still...

BLITZER: Wow!

CASTELLANOS: -- and that we'll get rid of this mustache, too.

AXELROD: There will be a situation right here in THE SITUATION ROOM.

BLITZER: So, how long have you had your mustache, Alex?

CASTELLANOS: Oh, let's see, I was about two or three years old.

(LAUGHTER)

CASTELLANOS: And well, it's a Cuban thing.

(LAUGHTER)

BLITZER: I know you're -- you've got that Cuban heritage in you.

CASTELLANOS: Yes.

BLITZER: That's -- that's a big deal...

UNIDENTIFIED MALE: Yes.

BLITZER: -- to shave that mustache.

CASTELLANOS: This -- this is worse than taking away your cigars...

BLITZER: Yes.

CASTELLANOS: -- if you're a Cuban. But it's such an important thing. And David and I do have a lot in common. We don't always agree on politics, but we're parents. And, Wolf, you know, when David had his first child, Lauren, this beautiful young girl, took her home, he and Susan.

And she started having convulsions. And she had as many as 20, 25 a day. And the doctors couldn't stop them. And they went on like that for 20 years, uh, before research advanced and they found a way to provide some relief.

The -- epilepsy -- that's what epilepsy is. And these are -- are parents who have struggled with that. And they're remarkable people, remarkable friends, but also, remarkable parents.

But there are so many folks out there who need help...

BLITZER: Are we any closer, David, to...

AXELROD: I think we...

BLITZER: -- a cure?

AXELROD: Well, it's very complex. As you know, the brain is so complex. And there are 40 different kinds of epilepsies. But we're making -- we're making advances every day. There are -- there are small discoveries we're making that are going to add up to something big.

But the key is to think outside the box. And that's what CURE does. CURE preside -- provides seed money for that. The money we -- we raised is going to -- are going to -- is going to fund young investigators who -- to keep them in the field, you know, as well as seasoned investigators all over the world.

And I am absolutely convinced that the work they're doing will make a difference.

But I just want to amplify on something Alex said. You know, we've competed. We've battled. We don't agree on a lot of things.

But there are things larger than politics and our common humanity is larger than politics. And that binds us.

CASTELLANOS: We agree.

AXELROD: So, uh, I'm so moved that he was willing to do this, not just to provide good programming for you...

CASTELLANOS: So...

(CROSSTALK)

CASTELLANOS: -- if you're a...

AXELROD: -- to raise some money for...

(CROSSTALK)

BLITZER: -- make a thought, because I want him to remind us, if viewers want to make a contribution...

(CROSSTALK)

BLITZER: -- go to a Web site.

AXELROD: Yes.

(CROSSTALK)

BLITZER: Think about that first.

(CROSSTALK)

BLITZER: Think about that for a second.

CASTELLANOS: Yes.

BLITZER: But first, Alex, make your point.

CASTELLANOS: You go to slashthestash.com. And that's where you can do it.

BLITZER: All one word.

CASTELLANOS: But if you're a Republican out there and you've said for years, you know, hey, Washington doesn't have to do everything, well, it's time to step up, Republicans. And if you're a Democrat that wants to get rid of the thing, Alex Castellanos values the most...

BLITZER: (INAUDIBLE) right now.

CASTELLANOS: -- then this could be your moment.

I also want to say that, you know, many of us come to Washington because we want to change the world and make it a little better. Susan Axelrod did.

AXELROD: Yes, she did.

CASTELLANOS: She started this charity. She put this together and she has grown this thing. And it has made a difference. This is -- this is a very worthwhile effort here, so...

AXELROD: Thanks, Alex.

CASTELLANOS: Yes.

AXELROD: Just go to the site.

(CROSSTALK)

BLITZER: I think a lot of our viewers are going to want to go to that site and make a contribution...

AXELROD: Slashthestash.com.

BLITZER: -- as they should do. We've had it up on the screen.

AXELROD: Thank you.

BLITZER: And some people are going to go there.

AXELROD: Thanks, Wolf.

BLITZER: Thanks for what you're doing.

AXELROD: Thank you.

Thanks, Alex.

BLITZER: Thanks to what you are going to do.

CASTELLANOS: Oh, man.

BLITZER: Thank you.

We're getting emotional.

We're learning new details about another major embarrassment for the U.S. Secret Service. Some vital information has been lost for years.

In our next hour, a terrible turn in the royal pregnancy story, a nurse that fell for a radio station's prank call apparently took her own life.

(COMMERCIAL BREAK)

BLITZER: We're learning about a new investigation of the United States Secret Service for what's being called an immense and embarrassing security breach. All sorts of sensitive information about employees and informants lost in a very public place.

Brian Todd has been investigating this story for us. What are you finding?

BRIAN TODD, CNN CORRESPONDENT: Wolf, law enforcement and congressional sources telling us the Secret Service is being investigated for a potentially damaging loss of information.

The data was on two backup computer tapes, which contained very sensitive personal and investigative information, according to our sources, and it was left by a contractor on a train in Washington's Metrorail subway system.

Our sources say this occurred in February of 2008, but it is now the subject of investigation by the Department of Homeland Security's office of inspector general. That office is not commenting.

Our sources say the contractor was transporting the two tapes in a pouch from Secret Service headquarters in Washington to a now closed data facility in Maryland. At one point, the contractor got off the Metro train, later realized the pouch had been left behind.

The Secret Service and Metro police were contacted, and an aggressive search took place, but one source says the tapes have not been recovered. I spoke about this case with former Fbi counterespionage agent Eric O'Neal.

He was the agent that took down Robert Hanson, the FBI official who have spied for the Russians in the '80s, '90s and early 2000s. O'Neal spoke about the risk of this information getting out.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: Some of the information could cause lives to be at risk if someone wanted to get at families of a high level government worker, or someone they perceived as could work against a terrorist cell.

(END VIDEO CLIP)

TODD: The Secret Service says that hasn't happened. A secret Service official says no one at the agency or family members have been put in danger by the loss of information. The Secret Service says no fraud occurred as a result, and the agency refuses to characterize this as a breach.

In a statement, the Secret Service says, quote, "These backup tapes were not marked or identified in any way and were protected by multiple layers of security. They could not be accessed without the proper equipment applications and encoding."

And the Department of Homeland Security has just told us there have been no reports they know of that any information was improperly accessed. The Secret Service says measures have been taken to make sure this type of incident can't happen again -- Wolf.

BLITZER: Were these tapes encrypted?

TODD: We are getting conflicting information from all the law enforcement sources, some saying it was encrypted, some saying it was not. That is not clear right now, but Eric O'Neal said even if they were, that would have been 2008 encryption.

In short, because of the technology advances in the ability of hackers he says, anybody could get in this in just moments if they got access to it if they know what they're doing.

BLITZER: It's pretty frightening when you think about the potential disaster it could have resulted in. Thanks very much, Brian.

So anyone who flies will want to stick around for the next hour of our SITUATION ROOM. We have an update on the push to let airline passengers use their electronic gadgets during takeoff and landing.

Up next, a terrible turn in the royal pregnancy story, a nurse who fell for a radio station's prank call apparently took her own life.

(COMMERCIAL BREAK)

BLITZER: A prank on the British royals has taken a horrifying turn. The nurse that first took the hoax call at the hospital where Duchess Katherine was being treated apparently has committed suicide. Here is what the hospital is saying about the nurse's death.

(BEGIN VIDEO CLIP) JOHN LOFTHOUSE, CHIEF EXECUTIVE, KING EDWARD VII HOSPITAL: We can confirm Jacintha was recently a victim of a hoax call to the hospital. The hospital had been supporting her through this very difficult time. Jacintha was a first class nurse who cared diligently for hundreds of patients during her time with us. Everyone is shocked by the loss of a much loved person.

(END VIDEO CLIP)

BLITZER: Let's bring in our royal correspondent, Max Foster. He is in London. Max, a really shocking story so what do we know specifically about the suicide, the victim and the palace reaction?

MAX FOSTER, CNN ROYAL CORRESPONDENT: Well, it really is turning into a tragedy as you say, a very well regarded nurse. Everyone had nothing but good things to say about her. She actually died on her own.

She has two children and a husband, but they live out of town so they weren't with her thankfully at the time of her death. Certainly a well regarded nurse and people feeling absolutely terrible about the situation.

Started as a joke, certainly isn't a joke any more, this is what the palace said, "The royal highnesses were looked after so well by everybody at King Edward VII Hospital. Our thoughts and prayers are with Jacintha's family, friends and colleagues at this very sad time."

After they issued that, Wolf, they actually added to that, there's been so much talk around the story. Said at no point did the palace complain to the hospital about the incident. On the contrary, we offered our full support and heartfelt support to the nurses involved and the hospital staff, Wolf, at all times.

BLITZER: So Max, where do things stand with these two radio deejays in Australia that placed this prank call.

FOSTER: Well, there's lots of smoking in Australia after the event. The hospital took it extremely seriously because this was a breach of patient confidentiality.

What we now know, the two presenters told by the chief executive of the radio station decided they're not going to carry on in that role for now out of respect for Jacintha.

I have to say, there's been fierce reaction about the statement. Many feel it was a bit disrespectful in itself. It was not very clear that this terrible tragedy occurred and actually they were part of that.

BLITZER: You know how old this nurse was?

FOSTER: We don't know how old she was. There's lots of speculation. I am sticking to the facts that we know at this point. She had two children and a husband, suggested she's middle aged.

I have to say, there's huge amounts of support for her online, two presenters that called the hospital behind me had their Twitter accounts closed down, such a big reaction on those accounts.

In the last hour, the radio station's Facebook page has been closed down because you should have seen the comments on there, Wolf. They were fierce, talk of the station having blood on its hands. It has been a huge reaction against the radio station as a result of what happened today.

BLITZER: Is there any indication that they're going to be taking steps to make sure this can never happen again?

FOSTER: Well, all the hospital said is they're going to review their calling system. What's interesting here, there has been speculation around, the nurse, she was a nurse, not a receptionist, was filling in on reception, certainly had expertise as a nurse, she put the call through to the ward.

That should not have happened. The nurse on the ward answered questions, thinking the call had been checked. Clearly it hadn't been. She felt the full force of the media pressure, although we didn't know her name until today.

The hospital is simply saying it is going to look at its systems again. There is no chance that Kate could have been contacted directly and the palace is leaving it as a hospital matter.

BLITZER: What a truly tragic, heartbreaking story. Max Foster, thank you.