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THE SITUATION ROOM

Bloody Ambush in Iraq as Pentagon Battles Accusations of Media Manipulation; Bush Welcomes Good News on Economy; Sam Alito May Endure Tough Questions During Confirmation; Two Bodies May Be Those Of Murdered Children; Jeanine Pirro Urged To Drop Senate Bid; Possible New Turn In CIA Leak Case; Fourth Anniversary Of Enron Scandal; Peres and Shimon Meet In The Middle

Aired December 2, 2005 - 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: To our viewers, you're in THE SITUATION ROOM, where new pictures and information from around the world are arriving all the time.
Happening now, it's midnight in Iraq. U.S. Marines suffer a devastating blow in a bloody ambush, as the Pentagon takes heat for planting and paying for positive news in the local media.

Here in Washington, it's 4:00 p.m. His resume is raising new questions about Samuel Alito's stance on abortion. Can the Supreme Court nominee convince senators he'd keep his personal views out of his rulings?

And in New York, members of her own party think she has no chance against Hillary Clinton. Should Jeanine Pirro stay in the Senate race?

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

It's the bloodiest attack on U.S. troops in months. A roadside bomb rips through a patrol of U.S. Marines in Fallujah, killing 10 and wounding 11 others. The military also announces the death of a U.S. soldier assigned to the Marines following an attack in Ramadi and it says three U.S. soldiers died today in another road accident. With the latest casualties, the U.S. military death toll in Iraq now stands at 2,127.

Let's go straight to our senior Pentagon correspondent Jamie McIntyre. He's working this story. Jamie?

JAMIE MCINTYRE, CNN SENIOR PENTAGON CORRESPONDENT: Well, Wolf, these Marine deaths occurred at a nighttime patrol last night in Fallujah, where they were patrolling an area apparently they thought had been cleared of any hazards.

According to John Warner, the senator who is the chairman of the Armed Services Committee, who's over here at the Pentagon today, apparently they gathered in a group, which accounts for the large fatalities. Ten marines from the regimental combat team -- eight were killed, 11 were wounded, four of them seriously enough that they could not return to duty.

And again, the bomb was extremely powerful. Four artillery shells, large artillery shells, wired together, created a tremendous blast and inflicted a deadly toll.

Wolf.

BLITZER: Jamie, the -- let's give some perspective. The battle for Fallujah occurred more than a year ago, November of last year. I was there at the end of March and in early April and it was relatively quiet. The situation had clearly stabilized. I thought things were really getting much better in Fallujah than had been the case earlier. Does this attack today suggest that we're going back to where we were a year ago?

MCINTYRE: Well, it shows that in large areas of Iraq, there are -- insurgents can strike at will using the weapon of choice, these improvised explosive devices, sometimes suicide bombers, that are extremely hard to defend against.

And what the U.S. says is they're not really going to be able to get a handle on these areas until Iraqi troops, who know the language, who know the culture, who can spot the bad guys in among the local population -- until they're primarily responsible for doing these patrols, they're not going to be able to get a handle on this.

BLITZER: All right. What about this other story? The Pentagon is taking an enormous amount of heat right now for supposedly planting these stories in the Iraqi press, trying to create a free press there. But this suggests that some of those articles that Iraqis are reading are bought and paid for by the U.S. government.

MCINTYRE: Yes. And the interesting thing is three days after the story broke, the Pentagon is not denying the central charge, that this Washington-based P.R. firm, under contract to the Pentagon, paid to get these stories written by the U.S. military into local Iraqi papers. But what they're saying is -- and what they told Senator John Warner, who again, came over to the Pentagon today to ask questions about this subject, is that they believe that they were supposed to be disclosing that these stories were paid for and written by the U.S. military. And that's what they're investigating.

But three days later, they say U.S. commanders who approved this program and these stories still don't have a handle on all the facts.

BLITZER: All right, Jamie. Thanks very much, Jamie McIntyre, for reporting for us. We'll have much more.

(BEGIN VIDEO CLIP)

SEN. JOHN WARNER (R-VA), CHAIRMAN, ARMED SERVICES COMMITTEE: ... from the meeting this morning that A, they don't have all the facts. And to me that means they simply did not know the full extent of these operations.

(END VIDEO CLIP)

MCINTYRE: All right, well, that's Senator John Warner speaking after he had that meeting. And Wolf, we'll have more on this whole controversy and allegations of another attempt to manipulate the news media in the next hour.

BLITZER: All right, Jamie, thank you very much.

Also in our 7:00 p.m. hour here in THE SITUATION ROOM, we're going to speak with James Bamford, the author who has written a very provocative story in "Rolling Stone" magazine on the so-called selling of the Iraq war. You'll want to join us at 7:00 p.m. Eastern for that.

The Arab network Al Jazeera has just aired new video in which kidnapers of four Western peace activists threaten to kill their hostages. According to Al Jazeera, the group known as the Swords of Justice Brigade says that the hostages will die unless all detainees in Iraqi and U.S. jails are released by next Thursday.

Two Canadians are seen eating. And in another shot, the American and British hostage are seen but not heard. According to Al Jazeera, the two hostages called on their countries to end their presence in Iraq. Obviously, the hostages are being held against their will. We don't know when the video was taped.

With the war weighing very heavily on the White House, the Bush administration today seized on positive economic developments. But will a skeptical public give President Bush any credit? And is the economy really in such good shape?

Let's go to the White House. Our Elaine Quijano is standing by live there. Elaine?

ELAINE QUIJANO, CNN WHITE HOUSE CORRESPONDENT: Hello to you, Wolf.

Well, some analysts say that the economy is strong, especially considering that Hurricane Katrina struck only three months ago. At the same time, though, these analysts say that getting that message to resonate with the American people in this current political environment is proving to be a challenge for President Bush.

(BEGIN VIDEOTAPE)

QUIJANO (voice-over): Citing good old-fashioned American hard work, President Bush touted the latest economic news.

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: Our economy added 215,000 jobs for the month of November. The unemployment rate is 5 percent.

QUIJANO: As his overall approval ratings continue to sag below 40 percent, Mr. Bush sought to claim credit for the recent economic developments, and said Americans have reason to be optimistic.

BUSH: Lower gasoline prices, a strong housing market, increases in consumer confidence and business investment. Our economic horizon is as bright as it's been in a long time.

GREG VALLIERE, STANFORD WASH. RESEARCH GROUP: This is sort of like a quarterback on a football team. If the team is doing really well, he gets more credit than is warranted. If the team is doing poorly, it's the reverse. Right now, you've got to say President Bush does deserve some credit for a very strong economy.

QUIJANO: Yet, a CNN/"USA Today"/Gallup poll last month showed 61 percent of Americans disapproved of how President Bush was handling the economy, a disconnect some say is due in part to another issue weighing heavily on the country.

VALLIERE: Even as the economy gets stronger and the stock market does better, you've got to say that for President Bush, his job ratings really hinge on Iraq.

QUIJANO: Even as the president spoke of a sunny economic forecast, outgoing Federal Reserve Chairman Alan Greenspan warned of a coming storm fueled by a growing budget deficit.

(END VIDEOTAPE)

QUIJANO: And White House economic advisers say President Bush is on track to cut the deficit in half by the year 2009. And the economy will certainly be on President Bush's agenda when he visits North Carolina on Monday.

But Iraq continues to be a central focus for the Bush administration, as well. On Wednesday of next week, President Bush, in the run-up to the Iraq elections less than two weeks away, will be delivering the second in a series of speeches outlining what the administration sees as progress in that country.

Wolf.

BLITZER: Elaine Quijano at the White House. Thanks, Elaine, very much.

The president's Supreme Court nominee may have hit a bump in the road toward confirmation. Democrats are angry over newly released but old documents, which lay out Samuel Alito's views on abortion rights. There's an effort on Capitol Hill to try to unruffle some feathers.

Let's get some specific details. Our congressional correspondent Ed Henry is on Capitol Hill. Ed?

ED HENRY, CNN CONGRESSIONAL CORRESPONDENT: Well, Senate Judiciary Chairman Arlen Specter said today he's still furious at what he called was, this Harriet Miers being run out on a rail recently, the president's Supreme Court pick. He said he does not believe Judge Alito is in trouble, but he's concerned that Miers-style problems could develop because of this growing chorus of Democratic critics.

(BEGIN VIDEOTAPE)

HENRY (voice-over): Under fire for 1985 memos expressing strong opposition to abortion, Judge Samuel Alito met privately with a key senator to clarify his approach to the hot button issue.

SEN. ARLEN SPECTER (R-PA), CHAIRMAN, JUDICIARY COMMITTEE: Judge Alito commented about those matters to me and raised a sharp distinction, as he put it, between his role as an advocate and his role as a judge.

HENRY: Alito also told Senate Judiciary Chairman Arlen Specter he believes Roe v. Wade is - quote -- "embedded in the culture," suggesting he would respect legal precedent. Specter, a Republican who supports abortion rights, refused to say whether he feels comfortable that Alito will not try to overturn Roe v. Wade.

UNIDENTIFIED MALE: George Bush and the right wing's pick for the Supreme Court.

HENRY: A liberal group opposing the nomination is not satisfied with Alito's explanations.

RALPH NEAS, PEOPLE FOR THE AMERICAN WAY: There's a remarkable consistency going back almost three decades. Like with Robert Bork, his written record will be the best evidence against his confirmation. And it's a long paper trail.

(END VIDEOTAPE)

HENRY: Judge Alito does not get to publicly answer his critics until January 9, the start of his confirmation hearings. Senator Specter issued a plea to all sides today: hold your fire until next month, after Judge Alito gets to speak. But fat chance of that, Wolf. There's a television ad war that's still raging.

BLITZER: All right. Ed, thank you very much. We'll be watching these hearings starting in January.

Never before have so many private details about a Supreme Court nominee been at your very fingertips.

Our Internet reporter, Jacki Schechner, is standing by to help us learn a little bit more. What's going on, Jacki?

JACKI SCHECHNER, CNN INTERNET CORRESPONDENT: A true testament to the age of the Internet, Wolf. A big week for documents on Judge Samuel Alito -- what's available online right now, Wolf, specifically his questionnaire for the Senate Judiciary Committee. It's got some particulars of cases that he's presided over. And it's got his biographical information. It's also got his financial disclosure. What do you think he's worth? Well, Judge Samuel Alito is worth $2.1 million.

Also available online this week, released on Wednesday were some documents from the Reagan era, and specifically a brief from 1985 that Judge Samuel Alito authored himself. And this contains his strongest words yet regarding the abortion issue. He's talking about Roe v. Wade, saying that they disagree with it and they should welcome the opportunity to argue against it.

Wolf.

BLITZER: All right, Jacki. Thank you very much. Jacki Schechner, our Internet reporter.

Let's go up to New York. Jack Cafferty once again wrapping up an excellent week, as usual, Jack. What's on tap?

JACK CAFFERTY, CNN ANCHOR: Are all the seats on the Supreme Court going to be available before we get somebody confirmed? It looks like now he's going to have trouble, isn't he?

BLITZER: Well, we'll see. You know, it's -- you know, we'll see. I'm not convinced.

CAFFERTY: All right. There's a help wanted sign out. Did you know this, Wolf, that we have an Office of Government Ethics there in Washington, D.C.?

BLITZER: Yes, I knew that because I'm a Washington nerd.

CAFFERTY: Well, you know it. I'll bet a lot of viewers don't, though. And did you know it's been vacant for the last two years?

BLITZER: That I did not know.

CAFFERTY: And did you know it's part of the executive branch of our government? Well, it is. It's been around since 1978. But for last two years, ain't been nobody in the office, nobody there. Its mission is to -- quote -- "exercise leadership in the executive branch to prevent conflicts of interest on the part of government employees, and to resolve those conflicts of interest that do occur."

The "Wall Street Journal" did this little story today. It quotes a White House official who now says the administration is moving - quote -- "as soon as possible to find a director" -- unquote.

Well, here's the question. Who do you think -- let's help out our federal government. Who do you think -- who do you think the director of the Office of Government Ethics ought to be? You can email us at CaffertyFile@CNN.com or CNN.com/caffertyfile.

BLITZER: We have some great viewers out there who will be very creative with these recommendations.

CAFFERTY: Well, we've already gotten a suggestion they name Daffy Duck. So that's kind of an indication of where it's going.

BLITZER: Jack, thanks very much.

CAFFERTY: All right.

BLITZER: Coming up, a CNN exclusive with the director of national intelligence. Is America safer now than before 9/11? John Negroponte speaks out on television for the first time since he took over his new job.

Also ahead, the president's top adviser and the CIA leak. What do new developments mean for Karl Rove? We'll take a closer look.

Plus, the woman who is trying to oust Hillary Clinton from the Senate almost gets ousted herself. We'll explain what's going on.

You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: It may -- repeat may -- be the final chapter in a grim mystery. Two bodies found in Ohio may be the children murdered by their father two years ago in New Hampshire.

Let's go to CNN's Keith Oppenheim. He's joining us now from Chicago. He's watching the story for us. What happened, Keith?

KEITH OPPENHEIM, CNN CORRESPONDENT: Well, Wolf, we're getting some information which could be very promising for a New Hampshire mother who has been trying to find the location of where her two children were murdered and buried.

Authorities in Ohio are telling us that the two children, Sarah and Philip Gehring, that they are looking into the possibility that bodies, which could be these two children -- they're not confirming that but they're looking at a discovery of two bodies in Hudson, Ohio.

In Hudson, Ohio, at 4:00 p.m. yesterday, police say there was a woman who was walking her dog. The dog reacted to something in the ground. And then police were called by this woman and they are at the scene now taking what they have found, two dead bodies in the ground wrapped in plastic bags.

The background to this story is that the father of Sarah and Philip Gehring in 2003, July, 2003, took his children cross-country. He was arrested in California after the children were missing, and the kids were not with him when he was found. But he said he shot and murdered them somewhere along Interstate 80. And while he gave a general description of where he buried the bodies, he didn't know exactly where or didn't say and then seven months later after he was arrested, Manuel Gehring hanged himself in a prison.

We're going to take you now to the Concord Police chief, Jerome Madden, who gave a description of what it looked like where the bodies were found.

(BEGIN VIDEO CLIP)

JEROME MADDEN, CONCORD POLICE CHIEF: My understanding is that the bodies were wrapped up in garbage bags and that there have been two crosses discovered at the scene that were created with sticks and duct tape, that there were two crosses found there in the grave site. So that is consistent, as well.

(END VIDEO CLIP)

OPPENHEIM: There is going to be a forensic examination to determine whether or not the bodies that were found in Hudson, Ohio, are that of Sarah and Philip Gehring.

I spoke to the mother of the deceased children, Teri Knight, earlier today, Wolf. And she says she's just waiting to find out if these are her deceased children. She has been trying hard for the last couple of years to find out where her kids were killed. And she is very hopeful that she will be able to finally get closure and to have a proper burial.

BLITZER: What a horrible story indeed all around. Thanks very much, Keith. And you'll keep us updated on new developments.

Our Zain Vergee is off this week. But Betty Nguyen is filling in. She's joining us from the CNN Center in Atlanta with a closer look at some other stories making news. Hi, Betty.

BETTY NGUYEN, CNN ANCHOR: Hi there, Wolf. Several courthouses in Connecticut were evacuated and shut down today because of a bomb threat. State officials say there were several threats that were directed at county and state courthouses and other state facilities, for that matter. A spokesman for Connecticut's governor says someone called in a threat on a constituent phone line. Now, that number is posted on the governor's Web site.

Well, the Transportation Security Administration says starting on December 22, there will be more random searches of passengers at the nation's airports and those searches will be more thorough. TSA says screeners will have more time for the searches because they won't be confiscating small scissors and tools. But if you're planning to carry a saw, bludgeon or crowbar on your next flight, forget about it. Those things are still prohibited.

And an unusual and fatal case of alleged careless driving in Colorado. A 17-year-old driver allegedly struck and killed a 63-year- old cyclist. Police say the teen was sending a text message on his cell phone as he drove. He was charged with careless driving causing death. Now, it is a misdemeanor with a maximum penalty of one year in prison. But, Wolf, this is really a wakeup call. I know a lot of us try to use that BlackBerry or text message while we're walking, driving, whatever. Obviously very dangerous.

BLITZER: Very dangerous. And don't do it. Don't even start dialing on your cell phones.

NGUYEN: Really.

BLITZER: Especially when you're driving on a highway. That's awful.

NGUYEN: Wakeup call.

BLITZER: Thanks, Betty, very much.

It's the title match in the New York Senate race, but some want to cancel the entire fight -- the Democratic Senator Hillary Rodham Clinton versus the Republican District Attorney Jeanine Pirro. Some in Pirro's own party want her to drop out of the contest. But Pirro says she won't.

Let's bring in our senior political correspondent, Candy Crowley. She's got some details. Candy.

CANDY CROWLEY, CNN SENIOR POLITICAL CORRESPONDENT: Well, we can stand down, Wolf. All that talk that Republicans' main hope to unseat Senator Hillary Clinton might drop out is over at least for this second.

There are others, as you know, in the Republican primary, but Jean Pirro was the main name we've been hearing. But fresh from a two- hour chat with New York's Republican governor, Jean Pirro was wearing her best what are you all doing here look.

(BEGIN VIDEO CLIP)

JEANINE PIRRO, (R), NEW YORK SEN. CANDIDATE: What's happening? I said from the beginning, I'm running for the United States Senate. I am a candidate for the United States Senate. I had a good meeting with the governor. We have meetings all the time. And I am excited about how my campaign's going.

(END VIDEO CLIP)

CROWLEY: She must know something we don't. In a head-to-head with Senator Clinton, the latest polls show Pirro trailing by more than 25 points. Senator Clinton has about 14 million cash on hand, Pirro about 400,000.

That kind of showing on Election Day can affect a lot of other races down the ballot, which is where the top Republican in the New York Senate was going when he suggested earlier this week that Pirro ought to drop out of the Senate race and run for the state attorney general slot.

(BEGIN VIDEO CLIP)

JOSEPH BRUNO (R), NEW YORK STATE SENATE: And all I'm saying is, while she may make a great U.S. senator, she would be of greater public service, she would be of greater service to a state ticket to be on as attorney general.

PIRRO: I am grateful for their belief that I can run for any office in this state. Right now, I'm a candidate for the United States Senate.

(END VIDEO CLIP)

CROWLEY: Catch that right now. There are, in fact, people in the state, Wolf, who believe that Pirro still will drop out at some point. A long time to go obviously between now and November.

In their heart of hearts, Republicans would probably tell you chances are not great that anybody could unseat Senator Clinton. But they were hoping for somebody who could rough her up a little bit in advance of what they believe will be Senator Clinton's run for president.

Wolf. BLITZER: All right. Thanks very much, Candy. Good report.

Still ahead, he's the new man in the new job. And that job is to run America's intelligence community. Up next, John Negroponte speaking out on television for the first time in a CNN exclusive with our David Ensor.

Plus, it's been four years since Enron went bankrupt. How much did the controversy rock the corporate world? And yours? We'll ask our Ali Velshi.

Stay with us.

(COMMERCIAL BREAK)

BLITZER: Is the dramatic overhaul of America's intelligence agencies making the United States more secure?

In our CNN "Security Watch," an exclusive interview with the director of national intelligence, John Negroponte. In fact, it's his first television interview in that newly created post. He spoke with our national security correspondent, David Ensor.

(BEGIN VIDEO CLIP)

DAVID ENSOR, CNN NATIONAL SECURITY CORRESPONDENT: The legislation that set up your job as director of National Intelligence was passed by Congress, pretty soon it will be a year. Is America safer now?

JOHN NEGROPONTE, DIRECTOR OF NATIONAL INTELLIGENCE: Well, I certainly believe America is safer since 9/11. And I believe that from an intelligence point of view, that our intelligence effort is better integrated today than it was previously.

I think we're doing a good job at bringing together foreign, domestic and military intelligence. And, in addition to that, of course, we are on the offensive against al Qaeda and its affiliates around the world.

(END VIDEO CLIP)

BLITZER: We're going to have much more of this interview, this very important interview, in our next hour right here in THE SITUATION ROOM. And stay with CNN day and night for the latest news on your security.

There may be a new turn in the CIA leak case. The "New York Times" reporting today that President Bush's adviser Karl Rove changed his testimony before the grand jury last year after a conversation between his lawyer and a journalist.

Let's get some specific insight what this may or may not mean for Karl Rove. We bring in Bob Franken, our national correspondent. What are you picking up, Bob?

BOB FRANKEN, CNN NATIONAL CORRESPONDENT: Well, it's very delicate. We're picking up that there could be two principals in this getting deposed next week -- giving sworn statements. Those two would include Karl Rove's attorney, Robert Luskin and Viveca Novak of "TIME" magazine.

Now it really comes down to, when all is said and done, a question of who said what, to whom, when. And the who is very important because we're being told by a variety of sources that the special prosecutor, Patrick Fitzgerald, was planning to indict Karl Rove for misrepresenting during the investigation an interview comments that he had made to a reporter. However, there was a key conversation, sources say, and there may have been a misunderstanding by the special prosecutor that a conversation that he was attributing to Rove with Viveca Novak of "TIME" magazine may, in fact, have really been held by Rove's attorney, Robert Luskin.

As we've talked many times before, you and I, and just about any reporter who's been involved in this, has had conversations on the record with Luskin. So now comes the process where Luskin is going to be testifying under oath during this deposition, then Novak. Then Fitzgerald is going to have to make a decision on whether he will change his mind about indicting Rove.

It gets kind of complicated, and it gets even more complicated when you're told by a variety of sources this will not end the investigation. This is something that could go on for a while as they'll be looking for other parties who may have had a role in all of this.

Wolf.

BLITZER: And briefly, Bob, how unusual is it for a prosecutor, the special counsel in this case, to be getting a deposition from one of the attorneys representing one of the potential targets out there?

FRANKEN: Well, quite unusual. But here you have an attorney who came to the special prosecutor and initiated the claim that he was the person who had talked to Novak. This is Viveca Novak, not any relation to Bob Novak.

In any case, that he had initiated it. So he is willing to do this. And that's why it's going to go ahead.

BLITZER: All right, Bob. Thanks very much, Bob Franken is all over the story for us. He'll continue to monitor it.

The online community is all over the CIA leak story, as well. Why should any of us care? Our Internet reporter Jacki Schechner is joining us to explain what's going on.

SCHECHNER: You're going to make me defensive, Wolf.

Well, the story that the "New York Times" reported today has actually been online on the Internet for about three days now. Now to be fair, it was posted as unsubstantiated rumor on this blog, Fire Dog Lake. And it was labeled as such. But then the next day Jane Hamsher, who was the author of that blog, recreated the post with more fact over at the Huffington Post this is Arianna Huffington's big celebrity blog. She has a lot of famous people who post on her. Jane, herself, is an L.A. producer.

Now, we pay attention to the Huffington Post on this case specifically because this is where we found out that Karl Rove was Matt Cooper's source, Lawrence O'Donnell posting that in early July. Now, the fact that the "New York Times" came out with the exact same news today was not lost on the bloggers. Jane Hamsher again posting today that the mainstream media was playing catch-up.

The reason why we pay attention to all of this is because sometimes the blogs are right and sometimes they're wrong. Sometimes they're first, sometimes they're not. But they are carrying news.

Wolf.

BLITZER: All right. Jacki, thank you very much. Jacki Schechner reporting.

It was a company whose business foundation was said to be built on a house of cards. That would Enron. You remember Enron? Today marks an anniversary of infamy for the now-dissolved company.

Let's bring in our Ali Velshi. He's joining us. Here's here in Washington today with more on this story. Ali?

ALI VELSHI, CNN ANCHOR: Hey, Wolf, it was the most famous of those modern area corporate scandals. And it became public four years ago today on December 2nd, 2001, Enron, which was in the business of selling energy at a wholesale level, and it was once ranked seventh among Fortune 500 companies, filed for bankruptcy.

Enron said at the time it was because a company it was planning to merge with, Dynegy Corporation, pulled out of the deal and Enron really needed the cash that they were going to get from the merger. It was worth $63 billion just before it filed for bankruptcy. And at the time, that made it the largest U.S. bankruptcy filing ever.

It turned out that Enron had been overstating its earnings. Company executives back then blamed smaller subsidiaries, but when they were faced with tough questions about those fudged numbers, Enron's bosses took the Fifth.

Four thousand people were put out of work because of it, and unlike the top executives, those workers were prevented from selling the stock that they had, which dropped from a high of $90 four months earlier to 26 cents on the day that the company filed for bankruptcy. So they didn't just lose their jobs. Many Enron workers lost their life savings.

Now, some executives cooperated with the prosecution, they've gone to prison. The whistle blower in the case, Sherron Watkins was named one of "TIME"'s people of the year in 2002. Enron and the corporate scandals that followed it resulted in the new law called the Sarbanes-Oxley Bill. It was created to deal with corporate America and protect investors from this sort of thing again. Ken Lay, who was Enron's former CEO, is now waiting for his trial to begin in January in Houston.

Wolf.

BLITZER: All right, Ali. Thank you very much. We'll check back with you very soon.

Up next, the supreme battle over Samuel Alito. Does this week's fight over abortion help or hurt the Democrats? We'll ask the experts in today's strategy session.

Plus, it appears it's full steam ahead for the U.S. economy. So why is that good news and why isn't it helping the president in the polls? We'll find out when we return. Stay with us. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: In our strategy session today, President Bush was out heralding what he called the vibrant state of the U.S. economy. But are all Americans feeling the economic good times? And are they giving the president credit?

Plus, Supreme Court nominee Judge Samuel Alito facing some new opposition on Capitol Hill. Could his nomination be facing a tough road ahead?

Joining us, our CNN political analyst, Democratic strategist Paul Begala, Bay Buchanan, president of American Cause.

Guys, thanks very much for joining us. So why is it -- in your opinion, Mr. It's The Economy, Stupid, creator of that slogan, Paul Begala -- why is it that if the economy is pretty good right now, and all indicators are it is pretty good right now, it's not necessarily helping the president politically? Because when the economy was good for Bill Clinton, even when he was facing impeachment, his numbers were still pretty good.

PAUL BEGALA, CNN POLITICAL ANALYST: Absolutely. I think two reasons. I do two as Texas Longhorns because they're playing tomorrow for the Big 12 championship. But, two reasons.

First, the economic numbers that drive voters' behavior and perceptions are family income. It's not the Dow Jones, it's not the GDP, it's family income, which is stagnant. You measure that against housing, health care, energy, tuition, those are all going up. And so people don't feel like the economy is doing well for them. And it's unwise for the president to try to spin that.

The second reason, though, is more tragic, and that is the facts on the ground in Iraq. There are bigger and more important worries that people have, even than their own pocketbooks, when, as we say in the last two days, 10 marines killed in Fallujah yesterday. We just learned that today. And today, four more troops killed in Iraq. This is the bloodiest two days, I think, since August.

BLITZER: So what he's saying basically, Bay, is that it's the economy, stupid, unless there's a war.

BAY BUCHANAN, PRESIDENT, AMERICAN CAUSE: Well, clearly the war's playing a major role. I agree with him. It's clear that is driving the president's numbers down. And also, you just had a couple hurricanes. You had gas prices skyrocket there for a while.

BLITZER: But now they're coming way down.

BUCHANAN: You see, that's key, and that's why I think you're going to see the president's numbers start to come up. They've been a little more confident, now. You've understand that we've got a real good Christmas season starting here.

These are numbers that will reach middle America overnight. But the other thing is, the president does have a problem in that jobs is very important, and we had the big announcement just a couple weeks ago, 30,000 jobs GM is going to lay off. That's going to start playing out in the next couple weeks as those people are laid off.

Local stories are going to focus on what's happening to these families during Christmastime. So this was really good and timely news for the president, because he's going to have to beat back that other information that's come out.

BLITZER: And he's going out, speaking about this today. Monday, he's going to give another speech on the economy. Listen briefly to what he said today.

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: Our economic horizon is as bright as it's been in a long time. The foundation for growth is strong. It's based upon low taxes and restrained government spending, legal reform, incentives for saving and investment.

(END VIDEO CLIP)

BLITZER: That sounds like a very upbeat analysis.

BEGALA: But it didn't look upbeat.

BUCHANAN: Exactly. He could have said that with a little more energy, Mr. President.

BLITZER: He could have been smiling, is that what you're saying? It's the Rose Garden. It's a nice look in the Rose Garden. You remember when President Clinton used to go out in the Rose Garden and make those statements.

BEGALA: Yes, but he didn't look like he just sucked a lemon. The president has bigger problems too, just like Americans do. He's worried about Iraq. He's got, you know, I don't know how many members of staff being hauled in front of grand juries. He's god big problems.

Honestly, if I were advising him -- and said this to Bill Clinton. Don't try to spin the economy. If it's really doing well, you'll get the credit, or the blame if it does badly. But you can't convince people the economy is different from what they experience.

BUCHANAN: You know, but this was important. The president did the right thing. These are enormously good numbers in light of the fact that we just went through two hurricanes, enormous economic hit down there in the South. And so all of a sudden, the numbers come out.

It shows how strong the economy really is. We're going into a real good season. He's sending the message to the consumers that it is solid. And I think he did the right thing to make certain he got an enormous amount of attention to these numbers.

BLITZER: Here's the latest poll number. It's almost a few weeks old, though. How is Bush handling the economy? Only 37 percent, Bay, approve of the way he's handling the economy, 61 percent disapprove. I suspect, maybe in the coming days if we do this question again, he might improve a little bit with the price of gasoline going down.

BUCHANAN: There's no question. You know, you go every couple days, you get the gas, you see it coming down. We're all out there cheering, thinking tomorrow we might even do better. This is what reaches the voters immediately, and I think they're going to respond very strongly.

Plus, all the news is that the Christmas season is going to be a good one. So you have consumer confidence up. That they know about. That's their response.

BLITZER: Let's talk Samuel Alito, the Supreme Court nominee. Senator Ted Kennedy, Democrat, member of the Judiciary Committee said this -- quoted in the "Washington Post" -- "A credibility gap is emerging with each new piece of information released on Judge Alito's record." Listen to what Senator Arlen Specter, the chairman of the Judiciary Committee, said today.

(BEGIN VIDEO CLIP)

SPECTER: Give this nominee a chance to be heard. Let him be sworn in, and let him be subjected to relayed grilling by 18 well-prepared interrogators. And let's not jump to conclusions based on smatterings of ideas which come up.

(END VIDEO CLIP)

BLITZER: That sounds like a reasonable request that the chairman is making.

BEGALA: Absolutely. And he's a reasonable guy and a reasonable chairman. But Teddy Kennedy smarter than the average bear. I mean, he is really one of the brightest guys on Capitol Hill because he's not yapping about abortion. OK. I think it's really unwise for the Democrats to pretend the Supreme Court is the abortion court of the United States. There are a lot of other issues. And he's driving at credibility.

You know, Judge Alito signed a document when he was first put on the appeals court saying he would never rule on a case regarding Vanguard mutual funds where he has investments. And then he turned around and he did. He broke that agreement. He broke his word, and in fact, he ruled in favor of the company that he owns the shares of, Vanguard.

Then he signed a questionnaire for Senator Specter's committee recently where he was supposed to describe all the cases he worked on in the Reagan administration. He left out his enormous role in the abortion issue. There's nothing wrong with working to repeal Roe versus Wade. There's something very wrong with not disclosing it and not being candid. That's his problem.

BUCHANAN: He did a nice lengthy memo, laying out a case where he thinks it would be a wise direction for the administration to go in, sent it over there to Justice, or made certain they saw it. That does not mean he had a significant role in that particular case. And that's what he's saying.

It is up there. He said, these are the ones I was significantly involved in, these are the ones -- and I wasn't in the others. I don't think they have anything on this fellow. They had like to get something other than abortion. Paul is right. I don't believe the Democrats want the battle over that issue.

BLITZER: In fairness, though, that memo is often cited by a lot of others. It was not necessarily just a minor memo. It was a significant document.

BUCHANAN: It's significant in that he sent it to him. But what was his involvement? If he just sent it and went about his business, then his involvement was not there.

BEGALA: According to the documents, he was helping the solicitor general, the government's chief lawyer in front of the Supreme Court, devise a strategy to chip away at and then repeal Roe versus Wade. Again, good for him.

But you can't fib about it. You can't hide it. You can't mislead. And he has a real credibility and ethics problem, I think. And that's going to be his Achilles heel in this thing, not abortion.

BUCHANAN: I'll be interested to see if that gets off the ground.

BLITZER: Let's hold our fire and see what happens when he actually swears to testify before the Judiciary Committee. That's going to be in January. We'll get ready for that. Thanks, guys. Have a great weekend.

BUCHANAN: Sure. Thank you. BLITZER: Coming up, is there a nursing crisis in America? A reality TV show is trying to remedy what could be a major problem for all of us. That story coming up in our 7:00 p.m. Eastern hour of THE SITUATION ROOM.

But up next, how do you hold an election when most of your voters don't even live in the district? That's the dilemma New Orleans now faces. Details in today's political radar.

Stay with us.

(COMMERCIAL BREAK)

BLITZER: Today on our political radar, New Orleans Mayor Ray Nagin may have to wait to see if he'll get to keep his job. The Louisiana secretary of State is recommending that the city postpone its municipal elections. The secretary of State is urging the Louisiana's governor to move the date from February 4, to later next year. The official says many polling places are simply unavailable and many badly damaged voting machines need to be replaced.

And the Justice Department is defending a controversial Texas redistricting plan. It was spearheaded by Congressman Tom DeLay to elect more Republicans to the U.S. House of Representatives. Officials are defending the department's decision to ignore staff lawyers' objections.

Those lawyers believe the Texas plan would dilute minority voting rights. But a memo first reported today in the "Washington Post" shows department officials approved the Texas redistricting plan anyway.

Up next, a job opening in the Bush administration -- the director of the office of government ethics. It's reportedly been open now for two years. Who do you think should be in charge of government ethics? Jack Cafferty's going through your emails.

Stay with us.

(COMMERCIAL BREAK)

BLITZER: Betty Nguyen once again is joining us from the CNN Center in Atlanta with a closer look at other stories making news, including a developing story out of Florida. What's going on, Betty?

NGUYEN: Here's what we know so far, Wolf. Two prisoners have escaped the Indian River County Jail in Florida. Now, it's really interesting how they made their escape. They removed a metal cover and some bars around the showerhead of one of the cell blocks, and then made their way to the maintenance grounds. That led to a recreational yard, and they scaled two 12-feet high fences that was topped with razor wire and some barbed wire. Now, the people that they're looking for, you see them there -- Marty Finney and Edward Roberson -- they are still on the run.

But another prisoner who also escaped with them, a third person, Keith Carter, well he was caught yesterday on I-95 driving recklessly. So he is back behind bars, but the search is on for those two gentlemen. And police are searching by air and on the ground. We're going to keep you posted on all of that -- broke out of the Indian River County Jail in Florida.

Now on to other news. A two-alarm fire gutted a medical office building near Tacoma, Washington. No one was hurt, but workers say they smelled hot wires then saw smoke coming from the heating vents. By the time firefighters arrived, there were flames throughout the building. You can see those flames there.

Now, Israel says it has successfully tested its missile defense system today. In that test, an Israeli Arrow missile intercepted and destroyed a missile similar to one in Iran's arsenal. Israel fears that Iran wants to develop nuclear weapons. Now, Iran says its nuclear program is only for peaceful purposes.

And doctors for the French woman who underwent the first partial face transplant say her first words since the surgery was merci, or thank you. The 38-year-old woman was severely disfigured when she was attacked by her own dog. And doctors say the injuries made it very hard for her to speak or eat, but now they say she's eating strawberries and even chocolate. This is such a fascinating story. And you know what, Wolf, it's probably only just the beginning of these type of transplants.

BLITZER: It's an amazing story for all the individuals who are so severely, severely hurt and they desperately need this kind of work. Thanks very much, Betty, for that.

Let's go to New York right now. Jack Cafferty's joining us with the "Cafferty File". Jack?

CAFFERTY: Or for Joan Rivers. She could get one.

BLITZER: She's not one of the severely in need of a transplant. Maybe a little cosmetic surgery.

CAFFERTY: Take a look at it. Yes, she is.

BLITZER: She's had a little cosmetic surgery, I believe.

CAFFERTY: A little? We'd better stop, here. Washington, D.C., has this job opening for the director of the Office of Government Ethics. We have one of those.

BLITZER: Is that an oxymoron, Jack?

CAFFERTY: Yes, I believe it is. That's a very good point. Today's "Wall Street Journal" says that this office has been vacant for two years. The "Journal" quotes a White House official who says the administration is now suddenly moving as soon as possible to find a director. The question we asked is, who should be the director of the Office of Government Ethics?

William in Kent, Ohio writes: "I'd put Colin Powell on the job. At least he actually has something resembling common sense." Dale in Oklahoma: "If not me, then Al Sharpton. I'm probably the only white guy in Oklahoma who voted for Al Sharpton because I knew he was ethically right on, on the Iraq war, and he does an awesome James Brown." Which he does, by the way.

BLITZER: He does an excellent James Brown.

CAFFERTY: He's terrific. Daniel in Morganfield, Kentucky: "Jimmy Carter. Enough said."

Kitty in Sladington, Pennsylvania: "Director of Ethics? What are you smoking? The only days of the week that there are ethics in government are the ones that don't end in Y."

Carol writes from my home town, Reno, Nevada: "Jack, I nominate you. And if you choose not to accept the position, how about Lou Dobbs? No one in the current administration is qualified to run it. But then, perhaps that's why it is vacant."

And finally, Joe in Los Angeles writes" "I'm sorry, I cannot concentrate on your question. I need to know what you did with Zain Verjee, the most beautiful woman on television."

BLITZER: All right, we've got good news for Joe. She will be back here in THE SITUATION ROOM Monday.

CAFFERTY: She gets a lot of time off, doesn't she?

BLITZER: No. At the end of the year, people accumulate days off. They want to either use them or lose them.

CAFFERTY: Does anybody keep track of how much time off Zain takes? I mean, she's not taking any more than she's entitled?

BLITZER: No, only what she's totally entitled to take off.

CAFFERTY: I'm off next week.

BLITZER: Are you entitled to take off your days off?

CAFFERTY: Doesn't matter. I'm not going to be here.

BLITZER: OK. We're going to miss you.

Still to come here in THE SITUATION ROOM, our "Political Play of the Week" -- when old adversaries become allies. Bill Schneider is standing by.

And in our next hour, is it news or is it propaganda? A U.S. senator wants to know more about revelations that the United States government, that means we taxpayers, paid Iraqi newspapers to publish good news about the war. And that was not notified that it was coming from our pocketbooks.

Stay with us.

(COMMERCIAL BREAK)

BLITZER: In our play of the week, their careers began more than half a century ago. They became political opponents, but remained friends. Now, they've each taken a sharp turn, meeting in the center of the political spectrum.

Here's our senior political analyst Bill Schneider. He's standing by. Bill?

WILLIAM SCHNEIDER, CNN SENIOR POLITICAL ANALYST: Wolf, it takes bold leadership to bring together a bitterly divided country, and that's what happened. Not in the U.S., but in our political play of the week.

(BEGIN VIDEOTAPE)

SCHNEIDER (voice-over): Ariel Sharon is 77. Shimon Peres is 82. They've been political rivals for decades. Sharon, the hawk, was the driving force behind the Jewish settlements and led the invasion of Lebanon. Now prime minister, Sharon led the right-wing Likud party, which he helped found in the 1970s. Perez, the dove, used to lead the left wing Labor Party. In 1994, Peres shared the Nobel Peace Prize for his role in negotiating the Oslo peace accords, which Sharon opposed.

Now, these two old bulls of Israeli politics have joined forces to support a new party of the center, let by Sharon.

ARIEL SHARON, PRIME MINISTER OF ISRAEL (through translator): Staying in the Likud means wasting time in political squabbles.

SHIMON PERES, FORMER PRIME MINISTER OF ISRAEL: The Sharon party is for a Palestinian state, for negotiations with the Palestinians, for the road map, and to start it right away. That was my position all my life.

SCHNEIDER: What happened is the two old timers moved closer together politically while their parties moved farther apart.

ETHAN DOR SHAV, POLITICAL ANALYST: These two look around them and say, "We need to solve the eternal problems of the state of Israel within the next two years because we don't see anybody else that can do this once we leave."

SCHNEIDER: Imagine if former president Bill Clinton and his old rival and new friend, former president George Bush, joined forces to form a new party of the center. A lot of Americans would be very happy. Well, guess what? Polls show Sharon's new center party in the lead for Israel's March election. A bold, risky move - exactly what we look for in the "Political Play of the Week."

(END VIDEOTAPE)

SCHNEIDER: Sharon is not trying to come back to power, he's in power. They are putting principles ahead of party, and in politics, that's revolutionary -- Wolf.

BLITZER: Interesting, Bill. Thank you very much. Bill Schneider reporting for us.

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