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THE SITUATION ROOM

Supreme Court Takes Up Same-Sex Marriage; Unemployment Rate Drops; Nurse in Duchess Kate Hoax Found Dead; Secret Service Info Left on Train

Aired December 7, 2012 - 18:00   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: the fiscal cliff hanger. Will the new jobs report convince the president or the House speaker to start compromising?

Plus, the future same-sex marriage on the line in the United States Supreme Court, the justices' eagerly awaited announcement.

And the Secret Service is under investigation for a shocking security breach, super-sensitive information left on a train.

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

Analyst warn that you need to dig beneath the upbeat headline of the November jobs report to get a better sense of what is going on in the economy right now. On the positive side, hiring continued to grow at a modest pace, and 146,000 jobs were added last month, and that is better than economists had expected.

A separate survey shows the unemployment rate fell to 7.7 percent. That's the lowest level in four years. Here is the catch. More than a third of the jobs added were in retail, and many of those positions may vanish after the holidays, and the drop in the unemployment rate was mainly due to the fact that 350,000 people simply gave up looking for work.

Let's bring in our national political correspondent, Jim Acosta.

Jim, will these jobs numbers have any impact on the standoff over the so-called fiscal cliff?

JIM ACOSTA, CNN CORRESPONDENT: Wolf, they might. This new jobs report could give the president new leverage in his push to raise taxes on wealthier Americans as part of his proposal to avoid the fiscal cliff. As one GOP congressional source put it, it would be hard for anyone to argue that the Republicans have the upper hand.

(BEGIN VIDEOTAPE)

JOSEPH BIDEN, VICE PRESIDENT OF THE UNITED STATES: Thank you to all the folks around the table here.

ACOSTA (voice-over): Campaigning as if there is another election just around the corner, Vice President Joe Biden sat down with for lunch with a group of invited guests in Virginia. On the table were the fiscal cliff and a new monthly jobs report that beat many analyst expectations.

BIDEN: This is no time to add any additional burden on middle class people. As the old expression used to go, this ain't rocket science.

ACOSTA: After superstorm Sandy did not deliver the blow to the jobs market that economists feared, administration officials are sounding confident.

HILDA SOLIS, U.S. SECRETARY OF LABOR: There could be changes, possibly, in the next morning, but for all intents and purposes, this report looks to me like it's a steady report.

ACOSTA: As for that other storm on the horizon, the fiscal cliff, there appeared to be a momentary break in the clouds when House Speaker John Boehner seemed to suggest he might be open to a tax rate increase on wealthier Americans, just what the president wants.

REP. JOHN BOEHNER (R-OH), SPEAKER OF THE HOUSE: There are a lot of things that are possible to put the revenue the president seeks on the table, but none of it is going to be possible if the president insists on his position, insists on my way or the highway.

ACOSTA: But hours later Boehner put out a statement saying, "As I have said many, many, many times, I oppose tax rate increases because tax rate increases cost American jobs. That has not changed and will not change."

Democrats say that just won't work.

REP. NANCY PELOSI (D-CA), HOUSE MINORITY LEADER: Could it be because the Republicans are holding the middle income tax cuts, as they have all along, hostage to tax cuts for the wealthy?

ACOSTA: But after a week in which Republicans in both the House and Senate signaled a willingness to raise rates, one GOP senator, Rand Paul, came up with another solution.

SEN. RAND PAUL (R), KENTUCKY: All of the Republicans in the House vote present, and let the Democrats raise taxes as high as they want to raise them, let Democrats in the Senate raise taxes, let the president sign it and then they can own a tax increase.

ACOSTA: Economist say the uncertainty over the fiscal cliff could stop a recovery that is gaining steam dead in its tracks.

DIANE SWONK, SENIOR MANAGING DIRECTOR AND CHIEF ECONOMIST, MESIROW FINANCIAL HOLDINGS, INC.: We have seen a number of companies actually come out and say, listen, it's not that we're firing, we're just delaying hiring and delaying investment projects. And that's very important, because delays in an already weak economy, you don't want hesitation.

(END VIDEOTAPE) ACOSTA: As for that statement released by the speaker, he does not say he will block a vote on raising tax rates on wealthier Americans. Still, a Republican source is pushing back on the notion that the White House has the upper hand, saying the president has more to lose if the nation goes over the cliff -- Wolf.

BLITZER: Jim Acosta, thanks very much.

Now to the U.S. Supreme Court's big announcement today that it will in fact take up the issue of same-sex marriage in the United States.

Kate Bolduan is picking this part of the story.

KATE BOLDUAN, CNN ANCHOR: A very big story, Wolf.

The justices will hear two cases, one challenging California's ban on gay marriage, the other challenge a federal law defining marriage as a union between only a man and a woman.

Let's talk more about this with our senior legal analyst, Jeffrey Toobin.

Jeff, this is not only a big deal, but there is also some pretty complex legal questions here. What do you think is a realistic outcome as the justices will be taking this up some time next year? One great Supreme Court reporter in "The Wall Street Journal" put it really well saying justices are not taking up one big question. This issue is arriving at the high court kind of in incremental stages.

JEFFREY TOOBIN, CNN SENIOR LEGAL ANALYST: They are, and the two cases are actually very different from each other.

The Defense of Marriage Act case, that one comes from New York state, that deals with the federal law, the Defense of Marriage Act, passed in 1996 which says that the federal government will not recognize same-sex marriages even in states where it's legal.

That's a case where I think it is very likely to find a sympathetic hearing from Anthony Kennedy, who has been sympathetic to gay rights in his earlier opinions. The Proposition 8 case is more of a wild card and potentially a case of much broader implication, because potentially that's a case about whether every state in the union has to allow same-sex marriage.

There are different ways the court could decide the case, but that is the case that raises the possibility of a guarantee of marriage equality in the whole country.

BOLDUAN: And you're an expert on the justices that are sitting on the court, and what's your sense of how their past cases and how they looked at past issues, how does that inform how they will take on this case?

TOOBIN: I think it's a lot easier to look at past performance when it comes to the Defense of Marriage Act case, because that's a case really about two things. It's a case about states rights. It's about whether states can define their own definitions of marriage.

It's also a case about whether the federal government can discriminate, effectively, against gay people. If you look at Anthony Kennedy's record on gay rights and on states rights, he appears to be someone who would be very sympathetic to the states that want to protect same-sex marriage.

The other case is much tougher to predict how they would come out. It's just -- that is a tough, tough call.

BLITZER: Because, as you know, nine states already, nine states, plus the District of Columbia, already allow same-sex marriage. How would any Supreme Court decision impact them in those states and D.C., about 50 million people live?

TOOBIN: Those nine states, they will not be affected in terms of whether they can allow same-sex marriage.

That's not raised by this case. What is raised is what rights the people who are married in those states have, because, for example, under the internal revenue code, they're not now allowed to file joint federal tax returns. That's one of the key issues in the Defense of Marriage Act case.

But they will certainly be allowed to remain married no matter what happens in these cases. The Proposition 8 case raises the possibility that same-sex couples in other states as well as those nine may be able to get married. That would be the broadest possible decision in this case. But it's not at all clear that is how the court will come out.

BLITZER: And we expect the court to make a decision by June of next year.

TOOBIN: End of June.

BLITZER: Thank you very much for that, Jeffrey Toobin.

Let's go to Egypt right now, and violent protests targeting the president Mohammed Morsi.

Demonstrators broke through barriers protecting his palace in Cairo once again today. Crowds threw rocks and bottles at his home at well. The anger is only intensifying after Morsi vowed to punish those responsible for the violence.

CNN's Reza Sayah is on the scene for us in Cairo with more.

Reza, what is the latest?

REZA SAYAH, CNN CORRESPONDENT: Wolf, the protests continue here in Tahrir Square at the presidential place, mostly peaceful with the exception of some violence including the attack on the president's house in a province northeast of Cairo.

However, the big story tonight is the potential of compromise. Tonight, the president released a statement that could be, could be viewed by the opposition as a concession. In his statement, he said he's willing to postpone the nationwide referendum scheduled next Saturday, December 15, on this draft constitution, but he wants a guarantee that if he delays the vote, he will not be challenged by the court.

Is this a genuine effort by point to reach a compromise, or is it something else? The reaction was mixed down at Tahrir Square.

(BEGIN VIDEO CLIP)

UNIDENTIFIED FEMALE: I don't believe him.

SAYAH: You don't believe him? He's saying he will consider delaying him. You still don't believe him?

UNIDENTIFIED FEMALE: Yes, I still don't believe him.

SAYAH: What do you think he is trying to do with this statement?

UNIDENTIFIED MALE: He is trying to quiet down the street and he's trying to calm down the people. And he's trying to do his best to (INAUDIBLE) to make every Egyptian satisfied.

SAYAH: And you think this is a positive step?

UNIDENTIFIED MALE: Of course it's a positive.

SAYAH: The president says I'm willing to delay the referendum. What is your reaction?

UNIDENTIFIED FEMALE: We say to him that it's too late.

SAYAH: It's too late?

UNIDENTIFIED FEMALE: It's too late. We don't want any conversations. Please, go.

(END VIDEO CLIP)

SAYAH: Some encouraged by the president's statement, but there is still so much mistrust on both sides, that some supporters of the opposition call the president's statement a plot, a trick.

We should briefly explain why the president is asking for immunity. In Egypt, once a draft constitution is introduced, the law says you have 15 days to vote on it. Obviously, if the president delays the referendum, he will go beyond those 15 days and that's why he's asking for immunity.

Wolf, the ball now seems to be in the opposition's court. Will they receive this offer, or will the conflict continue? That's the big question.

BLITZER: Everything I read about what's going on in Egypt, Reza, suggests if the referendum does take place on December 15, it will be passed.

SAYAH: Yes.

One thing we should tell our viewers is that the Muslim Brotherhood is a powerful and well-organized political movement. For the same reason President Morsi was elected president by a small margin, many believe this constitution, this draft constitution will pass on December 15 if that votes takes place -- Wolf.

BLITZER: Key word, if. Let's what happens. Reza, thanks very much.

BOLDUAN: To another flash point in the Middle East. CNN has learned that the United States is secretly updating its strike options in Syria. The planning is driven by the latest intelligence showing that Syria has loaded aerial bombs with the deadly sarin gas. If the al-Assad regime launches a chemical weapons attack, a senior U.S. official says the U.S. could respond using ships and aircraft already stationed in the region.

BLITZER: Meanwhile, a real tragedy in Britain after a prank on the royals. We're going to have the latest on an apparent suicide, what happened.

And Michigan's governor respond to union who stormed the capitol. They say their rights are being taken away.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: It's going to hurt the economy, it's going to hurt the state, it's going to hurt the citizens. This is absolutely not what's right for the worker.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

BLITZER: Michigan is on track right now to pass right-to-work legislation that is fiercely opposed by labor unions.

BOLDUAN: It's setting the stage for the kind of bitter political battle we saw in Wisconsin. I'm sure you remember that.

CNN's Poppy Harlow has more from Michigan.

(BEGIN VIDEOTAPE)

POPPY HARLOW, CNN CORRESPONDENT: Hi there, Wolf and Kate.

Well, here in Michigan, this is really the heart of organized labor in America. It's the birthplace of the United Auto Workers, but the future of unions in this state is in question at this hour.

(voice-over): The fight over labor unions in Michigan is vocal and physical. Thousands of protesters stormed the capitol trying to stop passage of controversial right-to-work bills. The measures were introduced and passed in a single day, rushed through, Democrats argue, calling it a subversion of the legislative process.

UNIDENTIFIED MALE: It terrifies me that they're trying to pass this through so quickly with no discussion from the other side, no understanding of what's important in it.

HARLOW: The measures would make it illegal for unions and employers to mandate employees join a union or pay any money to the union.

I spoke to Michigan's Republican governor, Rick Snyder.

GOV. RICK SNYDER (R), MICHIGAN: I don't view it as anti-union at all.

HARLOW (on camera): A labor representative told me this legislation is anti-worker, saying that it gives workers less of a choice. What do you say to that?

SNYDER: That is backward. This is about being pro-worker. Again, giving workers the choice, the freedom to choose, that is fundamental.

JEFF BRESLIN, UNION WORKER: Governor Snyder's legislation is anti-worker. It is going to end up being a devastating blow to the middle class here.

HARLOW (voice-over): The three bills impact both public and private sector workers from teachers to autoworkers. Opponents fear they weakened unions and limit workers' rights, benefits, and wages.

UNIDENTIFIED FEMALE: If you pay me less money, if I have to work for minimum wage, I can't go spend that money.

UNIDENTIFIED MALE: It's going to hurt the economy, it's going to hurt the state, it's going to hurt the citizens. This is absolutely not what's right for the worker.

HARLOW: But supporters, including Governor Snyder, say the economy improved in other states when they passed similar laws. He points other Indiana next door.

SNYDER: That's thousands of jobs, so hopefully it creates a lot more opportunities here in Michigan.

HARLOW (on camera): Opponents will spend the weekend trying to convince their representatives to vote down the bills which could come up for a final vote here in Lansing as early as Tuesday -- Wolf and Kate, back to you.

(END VIDEOTAPE)

BLITZER: Poppy, thank you.

An unprecedented sweep for photos, calendars, and photos. Up next, we have details on a shocking Air Force inspection to crack down on sexual harassment in the United States military. (COMMERCIAL BREAK)

BOLDUAN: An unprecedented inspection of Air Force work spaces is under way. Wait until you hear what they're looking for.

Let's bring in our Pentagon correspondent, Chris Lawrence, who has been looking into this.

Chris, this is happening across the entire Air Force, right?

CHRIS LAWRENCE, CNN PENTAGON CORRESPONDENT: Yes, sort of unprecedented. They're going through all of the public spaces, al little work spaces across the Air Force and basically looking for images that would objectify women.

These could be images like the ones you're seeing here. People have reported seeing these calendars posted up, images posted, some of these images even in official briefing slides. And basically top officials at the Air Force got so many complaints from so many female airmen, as well as some men, that the jokes and the sexual innuendo and the images made them very much uncomfortable, and they felt they could not say anything without fear of getting into trouble.

The Air Force going through and scrubbing all the workplaces. Not going to get into people's personal computers and personal lockers, but any place public where people are working, they want to go through and get the material out of there.

BOLDUAN: What's the big picture here? It's not just about professionalism, I'm guessing.

LAWRENCE: No, it's about sexual assault and abuse.

The Air Force expects to have about 700 cases of sexual assault this year, and that's 100 more than last year. One of the cases at one of the training centers was so bad, it may have, you know, more than 20 alleged perpetrators, and may have nearly 50 victims just in that one case. It was so bad that the Air Force recently instituted a wingman policy, meaning none of the trainees can go outside their dormitories unless they have someone else with them.

Some of the critics of that say it would be the effect of CNN say telling you the only way that you can be safe, Kate, is to take someone with you whenever you leave the newsroom. There are some critics. The Air Force isn't saying every time you see an image on a calendar or picture of a naked woman, that automatically correlates to sexual assault, but what they are saying is they want to make sure if there is a link in some of the cases, they want to sever it right now.

BOLDUAN: Seems reasonable enough.

Chris Lawrence at the Pentagon for us this evening, thanks so much, Chris.

LAWRENCE: Yes. BLITZER: It's the awful outcome of a deejay's prank on the royal family. Our own Piers Morgan is standing by to join us live with his take on the death of a hospital nurse.

(COMMERCIAL BREAK)

BLITZER: Happening now, a prank on the British royals takes a deadly turn. We get reaction from Buckingham Palace to an apparent suicide.

Sensitive Secret Service files left on a train -- the stunning security breach and the investigation now under way.

The presidential adviser David Axelrod takes it off and challenges another political figure with a mustache to do the same.

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

The radio deejays behind a prank on the British royals are being accused of having blood on their hands.

BOLDUAN: The nurse that first took the hosts' call to the hospital where Duchess Catherine was being treated apparently has committed suicide. Here is what the hospital is saying.

(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 and valued colleague.

(END VIDEO CLIP)

BLITZER: Let's talk about the reaction in London.

Our royal correspondent, Max Foster, is joining us from the scene.

What has been the reaction, first of all, Max, from the royal family?

MAX FOSTER, CNN CORRESPONDENT: The royal family has expressed -- or they put out a statement a bit earlier on and then they updated it as well, obviously inextricably linked to this story.

Their royal highnesses were looked after so wonderfully well at all times by everybody at the King Edward VII hospital, says the palace, and their thoughts and prayers are with Jacintha and her family, friends, colleagues, at this very sad time.

And, also, as I say, Wolf, there's a separate statement that followed that, because there was so much talk around this story. A palace spokesman added that: "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 at all times."

I have to say, there is a real sense of tragedy here. You see nurses in tears in this community. We just spoke to someone who works at a different hospital, who just got flowers outside the apartment where the body was found, and very, very emotional.

BLITZER: Where do things stand with these two Australian radio disc jockeys who placed this prank call?

FOSTER: I have to say they're under attack, Wolf, on social media.

If you have a look at the radio station's Facebook page, for example, really, really tough wording. Blood on their hands is a phrase that keeps coming up. They, as a prank, rang the hospital, got through to the ward.

Who put them through to the ward? It was Jacintha. She is to blame in a sense, although the hospital is not blaming her, the palace is not blaming her. She obviously felt a huge sense of responsibility as a result of this. This was a very, very good nurse.

So the two DJs have taken themselves off air. That's what the radio company's statement said, at least, and they did so out of respect. But they are under attack, and they are going to lie low, I suspect, for a while. There's a lot of feeling about this story, and they're getting the brunt of it.

BLITZER: Max, thanks very much. Let's talk about this hoax and the tragic aftermath.

Joining us now, CNN's Piers Morgan. Piers, I don't know about you, but I was stunned when I heard about this. I was so sad. You're talking to a lot of your friends over there. You've written your former colleagues. What are you hearing?

PIERS MORGAN, CNN ANCHOR: Well, I think like you, Wolf, I was absolutely just stunned, saddened. It's a dreadful tragedy. I can't help feeling there must be something we don't know here in the story. It seems very, very odd that a woman who's a mother of two young children, perfectly happy, enjoying her work, enjoying her life, in all the reports that I've read, would take her own life over what, in the end, was a silly prank. And it shouldn't have happened, but DJs have been pulling stunts like this for -- for donkey's years. And it just seems odd to me that a woman would go to that extremity of taking her life over something that was apparently so trivial.

BOLDUAN: And as Max Foster was reporting for us, the royal family released a statement, saying that their thoughts -- their thoughts were with the nurse's family and, of course, with her, but how do you think the royal family is reacting privately? This is clearly more unwanted attention on them.

MORGAN: Well, the interesting thing there, I'm sure that William would have been furious. Because there was his wife. She was pretty ill, suffering from acute morning sickness, and she's obviously much better now. She's out of hospital.

Prince Charles made light of it yesterday. He made a joke about the whole situation. And so I guess the royal family, once she was fine and out, were beginning to see the funny side, as they would with something like this. They've been through much, much worse than this other the years, and I'm sure they would have seen it as a daft prank by -- by a couple of silly DJs in Australia.

But obviously, what has happened overnight has turned this into a most appalling tragedy. And a very fine nurse, who's been there for a number of years, has taken her life.

And we still don't really know -- we have to be a little bit fair, I think, here to these two DJs. We don't actually know that this woman definitively has taken her life because of what happened. It certainly looks that way. But until there is some substantive evidence, you have to give them a little bit of a benefit of a doubt.

I would imagine -- I don't know these people at all; none of us do over here. I'd imagine they're going through their own horror. They have to live through the conscience of this woman, if it turns out she did take her life over this, for the rest of their lives. They've taken themselves off air. They'll probably never get their jobs back again. So their careers are ruined. A life has been ruined, and all for what, in the end, was a fairly daft prank.

And, you know, I think you can get a little too sanctimonious about this. I've heard some people on social media getting into a complete apoplexy. But, you know, these things have been done over the years many, many times by many DJs, newspapers, magazines, and so on.

And so I think you should cut a little bit of slack. These people did something wrong. It was stupid. But did they have any idea they would cost somebody their life? Of course they didn't.

And if you listen to the tape, because I did, several times, to try and understand what had happened here, there's no doubt that they never thought in a million years they would get through to actually be discussing Kate Middleton's health, the Duchess of Cambridge's health, in any way. And they were completely taken aback by what happened.

It doesn't defend what they did, and I'm not defending them, but I think you have to put it into some kind of context. Because the ramifications of a silly prank could not have been more serious.

BLITZER: You know, a lot of people are going to have to take some deep lessons, assuming the worst here, as this woman was so distraught by what happened, she was blaming herself for embarrassing the royal family.

My hope -- and I assume it's yours, as well -- that some of these disk jockeys may -- may learn a lesson from this. And even under the best of intentions -- they're trying to be funny, they're trying to be cute -- you never know where this is going to wind up.

MORGAN: Yes, I think, you know, the thing about pranks, you know, pranks have been around for as long as we've been alive, Wolf. And they will probably continue.

I think you have to be very, very careful, though, if you're in the world of broadcasting. They broadcast this live, and they didn't know what was going to happen. And at the very least, probably somebody who worked at the hospital was going to be compromised and made to look a fool. And that, in itself, for a broadcaster, is I think, pretty unacceptable. Certainly, if you or I pulled that kind of stunt at CNN, I suspect we'd lose our jobs, and rightly so.

And I'm just trying to put it into some kind of proper context, because I've seen people who I know before the news this morning had found the stunt a bit puerile but sort of amusing on a certain level.

I covered it on my show and pointed out that the accents they used were so ridiculous, it seemed crazy to me that anybody could have got through to the actual ward and discussed the duchess's health using such crazy accents, with corgis yapping in the background. It seemed to me comical rather than malicious. And they had, themselves, been surprised they even got through.

And I really put that down there, because I think that the temptation now is to blame these DJs for the loss of this life, and that may just be a step too far, I think.

BLITZER: Piers, thanks very much. Good insight from Piers Morgan, as usual.

By the way, Piers has an exclusive tonight. The Newark mayor, Cory Booker, spent the last week living off of Food Stamps and just $30 to spend. He'll -- he'll be on with Piers later tonight. That's 9 p.m. Eastern. "PIERS MORGAN TONIGHT." Thanks very much for that.

BOLDUAN: And still ahead, the names of Secret Service agents and informants exposed because of computer tapes left on a train. We'll ask a former federal official how this could happen.

(COMMERCIAL BREAK)

BLITZER: We're learning about a new investigation into the United States Secret Service for what's being called an immense and embarrassing security breach.

BOLDUAN: Sensitive information about employees and investigations lost in a very public place. Brian Todd has been looking into this and has the details. This had all of us asking how could this happen?

BRIAN TODD, CNN CORRESPONDENT: How could it happen. And I think they're still asking that question. Kate and Wolf, this data was on computer tapes that were misplaced. It is potentially damaging information that one expert said could put Secret Service agents' lives at risk or the lives of their families, and it's been unaccounted for for almost five years.

(BEGIN VIDEOTAPE)

TODD (voice-over): Law enforcement and congressional sources tell CNN the U.S. Secret Service is being investigated for a potentially damaging loss of information. The data was on two back-up computer tapes which contain very sensitive personnel and investigative information, according to our sources.

UNIDENTIFIED MALE: You lost the drive containing the identity of every agent.

TODD: It might remind you of the new James Bond movie, "Skyfall," where the villains steal a device with top-secret information on British agents.

But in this case, our sources say the tapes were left by a contractor on a train in Washington's metro rail subway system. The incident occurred in February of 2008, but is now the subject of an investigation by the Department of Homeland Security's inspector general. That office is not commenting on why the probe is going on now. I asked former FBI counter-espionage agent Eric O'Neill about the loss.

ERIC O'NEILL, FORMER FBI COUNTER-ESPIONAGE AGENT: Some of the information could cause lives to be at risk if someone wanted to get at the families of a high-level government worker, or somebody perceived as being someone who could work against a terrorist cell.

TODD: O'Neill is the agent who took down Robert Hanson, the FBI official who spied for the Russians. The Secret Service says no lives were endangered by the 2008 loss. No fraud occurred as a result, but how did this happen?

(on camera) According to our sources, the contractor was transporting two tapes in a pouch from Secret Service headquarters in Washington to a now-closed data facility in Maryland.

The sources say the contractor got off a metro train, later realized the pouch had been left behind. The Secret Service and metro police were exacted, an aggressive search took place, but one source tells us the tapes have not been recovered.

(voice-over) In a statement, the Secret Service said, "These back-up 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."

Still...

(on camera) Why put sensitive information about agents or anything else on a removable disk?

O'NEILL: Well, part of the reason, I think -- once again, this is conjecture -- that in 2008, when this occurred, some of the information might have been on removable disks because that's how they transported information. We have -- we have leapt forward in technology since then.

TODD: But O'Neill has his own questions.

O'NEILL: Why did a contractor have it? Why wasn't it chained to his wrist with a handcuff and a case that he would -- the second he stood up, he'd need to grab it?

(END VIDEOTAPE)

TODD: I put that to a Secret Service official who did not answer the question directly, but said protocols had been put in place to make sure this doesn't happen again -- Kate, Wolf .

BOLDUAN: Were these tapes encrypted? How easily...

TODD: It's not quite clear. We're getting conflicting information from a lot of different sources, law enforcement and elsewhere. Some are saying it was encrypted, some saying it was not encrypted.

Eric O'Neill says even if it was encrypted, that's 2008 encryption. Any good hacker these days, with the technology available these days, could break it within moments, he said. So if somebody gets hold of this, it's gone. It could be in pretty bad hands.

BOLDUAN: You know the technology improves in leaps and bounds every six months, it seems.

TODD: Yes.

BOLDUAN: Brian, thank you.

BLITZER: Let's dig a little bit deeper with our CNN contributor, the former FBI assistant director, Tom Fuentes.

Tom, when you heard about this, what did you think? How surprised were you that this had happened?

TOM FUENTES, FORMER FBI ASSISTANT DIRECTOR: I was very surprised, Wolf. I mean, it's just amazing to me that something that sensitive, the two back-up tapes with information about employees, personnel, cases, informants, would be in the hands of some low-level contractor, riding the train like he's carrying his lunch in the bag next to him. I mean, it just makes no sense that they would do it that way.

And, you know, having worked in Washington for many years, you see the Secret Service escorting the president or the vice president or dignitaries in multi-caravan armored cars, black SUVs roaring up and down Pennsylvania avenue. If the information was this sensitive, why was it not put in armored cars, and taken with escort -- armed escort, at that, to the facility in Maryland, where it would then be stored for later use in terms of continuity of government. So to me this makes absolutely no sense.

BLITZER: Have you ever heard of a blunder like this before? FUENTES: No, I have not.

BOLDUAN: Tom, this sounds, I mean, as Brian says in his piece, it sounds like it's straight out of James Bond or even a "Homeland" episode, if you will. Say this happened to one of your colleagues at the FBI. Are there -- are there protocols in place if this kind of material goes missing?

FUENTES: There's protocols in place to not have it be that vulnerable in the first place. So -- so the idea of hand-carrying something like that around, and I don't buy the story that, well, it was encrypted or nobody would know what it is, it was unmarked, that's ridiculous.

I think even in 2008, it would not have been hard to break the encryption and get into it, much less, as mentioned in the piece by Brian, much less today's technology and today's expertise.

So -- so to have that kind of material and then to later say no big deal, nobody was in danger, that's ridiculous. If you have those agents' identity, their Social Security numbers, their home addresses -- that would include family members, probably insurance information -- you're placing entire families in a vulnerable situation, even for just identity theft, much less physical danger.

So I think that that's part of the investigation now, is not only how could this happen, why does it happen, but who was this reported to at the time? How serious did they take it, even at that time -- or were they trying to cover it up, and not have the public become aware of this serious breach?

I've also seen some reporting that said that even the employees were not notified that their personal information was at risk and was at large, so to speak. So there are a lot of questions with this, and it's pretty serious. Even five years after the fact, it's still serious.

BLITZER: It's not only employees. It's also informants, if you will, people who were, in effect, risking their lives. If their names are out there, they're lives certainly could be in danger.

FUENTES: That's absolutely true. I mean, the number of things that are indicated as being on those tapes, is just extremely important. The identity of the employees, the identity of informants, probably case information. There may be information about policies and protocols that go into how they do presidential and vice presidential security, especially when they travel overseas.

So the idea that, since the tapes haven't turned up, that no harm no foul -- we don't know that. We don't know if they're not in the hands of a foreign intelligence service, and if they've just being very discreet in how they use the information to possibly track presidential movement or track the methodology used to protect the president of the United States and other key officials.

BLITZER: It's a very, very scary situation. Tom, thanks very much for your expertise.

FUENTES: Thank you, Wolf.

BLITZER: The president's top campaign strategist, David Axelrod, has done something he hasn't done in decades. And now he's challenging a member of CNN's political team to do the same thing.

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BLITZER: President Obama's campaign senior strategist David Axelrod was here in THE SITUATION ROOM earlier today, but his mustache wasn't. Take a look at what happened when he convinced CNN contributor Alex Castellanos to reach for the shaving cream, as well.

(BEGIN VIDEOTAPE)

BLITZER: Something we all watched this morning. Something happened to you. You got rid of the mustache. We're going to show our viewers some of the video of that moment. There you are. A little close shave. You were on "Morning Joe" today. So you -- how long did you have that mustache?

DAVID AXELROD, OBAMA ADVISOR: Forty years.

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

BLITZER: So basically, no one knew you without a mustache.

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

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 seems pretty happy. But she's more happy that we raised $1 million for epilepsy.

BLITZER: 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 lives and quality of life for many people.

BLITZER: There she is.

AXELROD: And my wife started a foundation called Citizens United for Research in Epilepsy to fund breakthrough research in epilepsy. And I made a wager on "Morning Joe" that, if I could raise $1 million for 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 -- people have lost so much more who have been impacted by epilepsy. A mustache seemed trivial. Even a 40-year-old mustache.

BLITZER: It must have been a little nostalgia.

AXELROD: Let me just say I was up all night. A little anxiety.

BLITZER: Have you seen -- have you seen Alex's mustache?

AXELROD: You know what? One of the things that made me conflicted about this was I didn't want to leave my buddy alone in the world of mustaches. We were two of the more prominent mustaches around.

BLITZER: Among political activists. Yes.

ALEX CASTELLANOS, CNN POLITICAL CONTRIBUTOR: One of the things we had in common.

AXELROD: 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 try to raise some more money for 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?

AXELROD: Right here on THE SITUATION ROOM. It's too late now, man. We've joined here.

CASTELLANOS: We're going to show bipartisanship does live in Washington still and that we'll get rid of this mustache, too.

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

BLITZER: So how long have you had your mustache?

CASTELLANOS: Let's see. I was about 2 or 3 years old. It's a Cuban thing.

BLITZER: I know you've got that Cuban heritage in you. That's -- that's a big deal to shave that mustache.

CASTELLANOS: This is worse than taking away your cigars 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 of a day, and the doctors couldn't stop them. And they went on like that for 20 years before research advanced and they found a way to provide some relief.

Epilepsy. That's what epilepsy is. And these are parents who have struggled with that.

(END VIDEOTAPE)

BLITZER: I applaud both David and Alex. By the way, you can make a donation to Citizens United for Research in Epilepsy. Go to the Web site SlashTheStache.com. You'll be doing a good deed.

BOLDUAN: Good to see some bipartisanship around a wonderful, wonderful cause. And it will be great to see the first mustache shaving or haircut of any kind to happen in THE SITUATION ROOM.

BLITZER: First time ever.

BOLDUAN: There's a first for everything.

Still ahead, same-sex marriage, marijuana and the culture wars. It's all happening at the top of the hour on "ERIN BURNETT OUTFRONT." Tom Foreman is filling in for Erin.

Tom, a lot's going on.

TOM FOREMAN, CNN CORRESPONDENT: There is a lot going on, Kate. You've ought to check Wolf out and see if he wants to join in on that shaving party. I think it would be really funny to watch. Wolf.

Yes, one of the things we think we're sniffing out this evening is that there's the makings of a deal. I know you guys were working on it. We've been working on it, too. All this talk about the fiscal cliff for days and days and days and all the tough words. There's this code coming through in the language this evening, which could make quite a difference if it leads to a deal. It's really worth looking at very, very closely, and we will.

And we're also going to talk about the president's pot problem. He doesn't really have a pot problem, but he's got a pot problem. He's out west, and it could make a big difference to him and a lot of his constituents who helped push him back into office. It's really going to be a difficult issue for the White House to grapple with, I suspect. It's all coming up on "ERIN BURNETT OUTFRONT" -- Kate, Wolf.

BOLDUAN: The interesting thing about the pot problem, as you say, well, it's clearly been a big topic ever since the election. There is a real federal/states' rights issue going on there.

FOREMAN: Yes, there is. And the problem is if you pursue that path, well, there are a lot of other things that are federal states' rights issues. So it's a very tricky thing to watch. You can't just look at one part of the issue and say it's just about that because then other people will come in and say, well, if that's how you feel about pot, then how do you feel about, for example, gay marriage rights state to state? How do you feel about immigration rights state to state? Where does the state take over? Where do the feds take over? It's a very, very tricky little needle to thread.

BOLDUAN: All right. We'll be watching it. Tom Foreman filling in for Erin Burnett. "OUTFRONT" starts at the top of the hour. Thanks so much, Tom.

BLITZER: Commemorations today of an attack that changed America, dragged the United States into a world war.

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(BEGIN VIDEO CLIP)

FRANKLIN DELANO ROOSEVELT, FORMER PRESIDENT OF THE UNITED STATES: December 7, 1941, a date which will live in infamy.

(END VIDEO CLIP)

BOLDUAN: It was 71 years ago today, Japan attacked Pearl Harbor and America joined World War II.

BOLDUAN: The pivotal moment in American history, remembered today with a moment of silence at Pearl Harbor in Hawaii at 7:55 a.m. That's the exact time the bombs dropped, killing 2,390 service members and 49 civilians. Amazing.

BLITZER: That's it for us. Thanks very much for watching. Remember, you can always follow what's going on here in THE SITUATION ROOM on Twitter. I'm @WolfBlitzer.

BOLDUAN: I'm @KateBolduan.

BLITZER: That's it for us. "ERIN BURNETT OUTFRONT" starts right now.