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Bush Mentions al Qaeda Nearly 100 Times in One Speech: Will All the Repetition Boost U.S. Support For War or is Too Much? United States Spending $592 Million to Build an Embassy in Baghdad. U.S. States Have Figured out a way to hit Iran Where it Hurts, its Pocketbook. Has The Iraq War been for Nothing?

Aired July 24, 2007 - 1900   ET

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


WOLF BLITZER, CNN ANCHOR: Thanks, Lou.
Happening now, President Bush mentions al Qaeda nearly 100 times in one speech. Will all the repetition boost U.S. support for the war or is it simply too much?

Getting your money out of Iran -- find out why your bank account may have more foreign links than you know.

And say it ain't so. As pro basketball is rocked by a scandal, a former NBA ref may admit it is so. That he was involved in betting on games.

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

This is what President Bush wants you to associate with al Qaeda in Iraq, an endless series of bloody attacks, the mass slaughter of civilians. The president today went all-out to boost his case that the war in Iraq is part of the broader war against Osama bin Laden's terror network. Take a listen to this.

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: Al Qaeda in Iraq, al Qaeda in Iraq, al Qaeda in Iraq and al Qaeda in Iraq, al Qaeda in Iraq and there is a good reason they are called al Qaeda in Iraq. They are al Qaeda in Iraq.

(END VIDEO CLIP)

BLITZER: In fact, the president today used the name al Qaeda 95 times in 29 minutes. And it was probably no coincidence that he spoke in Charleston, South Carolina, where an underlying theme of last night's CNN YouTube Democratic presidential debate was a troop pullout from Iraq.

Let's turn to our White House correspondent Suzanne Malveaux who is watching all of this. What was the theory behind the president's message today, Suzanne?

SUZANNE MALVEAUX, CNN WHITE HOUSE CORRESPONDENT: Well, certainly, this is a strategy that's worked in the past, this repetition. It is one that the Bush administration is now going to be using. The president making the case here that al Qaeda, the emphasis here, al Qaeda's role in violence inside of Iraq, its link to 9/11. They are de-emphasizing the warring Iraqi factions. They are playing up the successes against al Qaeda. At the same time, Wolf, they're tying o play down the lack of political progress from Iraq's leaders. As you know, it's been slow going and also the parliament is approaching that August vacation -- Wolf.

BLITZER: Does he concede -- the president of the United States, Suzanne that al Qaeda is in Iraq right now because of the war he launched against Saddam Hussein?

MALVEAUX: Well, President Bush and top officials, security officials, said last week that they acknowledge that al Qaeda essentially, there's a training ground inside of Iraq for al Qaeda, but the president said today it is flawed logic to believe the U.S. invasion of Iraq has fuelled terrorism. He makes two points. Essentially, saying that terrorism existed before the invasion, and, secondly, he believes that al Qaeda would have followed the U.S. anywhere -- Wolf.

BLITZER: Suzanne at the White House. Thanks very much.

So, did the president make his case about al Qaeda? Let's get a reality check. And joining us now from Baghdad, our correspondent, Michael Ware. Michael, you spoke earlier, and suggested that President Bush's speech on al Qaeda in Iraq, in your word, was rudimentary. What did you mean?

MICHAEL WARE, CNN CORRESPONDENT: Well, the president's speech, to me, was breathtaking in the fact that he was giving us an ancient history lesson, so to speak. What the president was highlighting and emphasizing over and over again is clearly well-established and unequivocal fact, that al Qaeda in Iraq is a part of the broader al Qaeda network has never been in question.

That Abu Musab Zarqawi, the man who created it, and his successors, have aspirations beyond Iraq, particularly targeting America, have never been in doubt. They spelled it out from the beginning. And that it's a foreign run organization with foreign leadership and foreign suicide bombers, again, is common knowledge.

So, it really makes one wonder why the president is hammering this point home, when he just glosses over the fact that this war is creating more al Qaeda jihadis, rather than reducing their number. And the only success America has had in blunting al Qaeda is by unleashing the Baathist insurgents in a crude alliance.

BLITZER: What's the bigger problem, the al Qaeda operation in Iraq or the sectarian violence?

WARE: Well, it's much of (UNINTELLIGIBLE) -- they both feed on each other. Now what you need to bear in mind that in terms of the total fighters, in combat, against U.S. forces and government troops, al Qaeda makes up, probably about one percent and the foreign fighters, probably make up about half of one percent of the total fighters in this country. Yet, they're spectacular in the dimensions of their attacks, and particularly inflammatory. They go out and slaughter Shia civilians principally to provoke rage. And it feeds on each other. And Iran, at the same time, is manipulating the situation from its side, as well. It is two enemies, Wolf.

BLITZER: Michael Ware in Baghdad for us. Let's check in with Jack Cafferty. He's in New York with "The Cafferty File" -- Jack.

JACK CAFFERTY, CNN ANCHOR: Is Ware any good or what?

BLITZER: He's great.

CAFFERTY: Oh, unbelievable. Well the United States, pardon me, is nearing completion of its $592 million embassy compound in Baghdad. To a lot of Iraqis, it amounts to a little more than half a billion dollar eyesore. One Iraqi guard told the "Los Angeles Times" quote, "it's all for them. All of Iraq's resources, water, electricity, security, it's as if it is their country and we are guests staying here."

The compound, which is about the same size as Vatican City will have many of the amenities of a small American town, six apartment buildings, a palm-fringed swimming pool, a gym, fast food restaurants, barbershop, beauty salon, commissary. It will also be completely self-sufficient with its own power plant, wells and waste water treatment system.

Now compare to what the Iraqis are going through these days. Many of them wait in line for hours to get gasoline while the ground beneath their feet holds the second largest oil reserves in the world. Many don't have electricity or running water.

They wake up in the morning wondering if there are tortured bodies in the streets or whether today it might be their turn to meet the death squads. Meanwhile, despite the almost $600 million price tag, U.S. planners now say this embassy compound that's built to hold more than 1,000 people isn't big enough.

And that it may not be safe enough if the U.S. pulls out its troops in the middle of an Iraqi civil war. Here's the question. What message does the $592 million U.S. embassy compound in Baghdad send to the Iraqi people? You can't say that on TV. E-mail CaffertyFile@CNN.com or go to CNN.com/CaffertyFile -- Wolf.

BLITZER: It's the largest U.S. embassy in the world, in the world. And you know what one of the major problems -- because we heard about it -- the ambassador sending a cable to the State Department. They have to expedite opportunities for Iraqi citizens who work for the U.S. embassy in Baghdad to get visas to come to the United States, because they and their families are scared out of their minds. They can't even tell anyone they work for the U.S. government, and already, he's worried, the ambassador, about getting these people out of there and getting them out quickly.

CAFFERTY: We're doing a heck of a job, brownie. BLITZER: Jack, stand by. Thank you very much.

The Senate's liberal lion addressing tough questions about whether Democrats just don't get it...

(BEGIN VIDEO CLIP)

BLITZER: The president, though, insists you are wrong and your colleagues who want a quick pullout from Iraq are wrong...

UNIDENTIFIED MALE: The fact is you can't confuse the facts, like the president is attempting to do.

(END VIDEO CLIP)

BLITZER: Senator Ted Kennedy turns the tables on President Bush. Does either, though, truly understand what's happening in the war zone right now?

Plus, you may be investing your hard-earned money, get this, in Iran. Some U.S. states want to change all that -- make Tehran pay for meddling in Iraq.

Also, a wink and a nod, and a wave of the hand -- you're going to find out whose body language gave them the edge on our debate stage.

Stay with us. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: U.S. ambassador to Iraq sat down with his Iranian counterpart today to talk about security. The United States saying that Iran is stepping up its aide to militants targeting American troops. And that made for some fireworks in the meeting.

And joining us now, our State Department correspondent Zain Verjee. How aggressive was the U.S. during this meeting today?

ZAIN VERJEE, CNN STATE DEPARTMENT CORRESPONDENT: Well, they handled the situation pretty tough. The U.S. ambassador to Iraq, Ryan Crocker, told me that at the meeting with the Iranians, they met face- to-face, and he didn't pull any punches.

BLITZER: What does that mean? He didn't pull any punches.

VERJEE: Well what he said was, was that they had some very full and frank discussions. He said there were several heated exchanges, and he basically accused the Iranians of meddling in Iraq, even more, and creating an even worse situation on the ground. Just take a listen to what he had to say.

(BEGIN VIDEO CLIP)

RYAN CROCKER, U.S. AMBASSADOR TO IRAQ: Over the roughly two months since our last meeting, we've actually seen militia related activity that can be attributed to Iranian support go up and not down. (END VIDEO CLIP)

VERJEE: He said also what matters now is not just the Iranians making statements of support and promises and principled arguments, but what matters is real action on the ground. So what are they going to actually do? They are going to form a committee, to start off with.

BLITZER: What is the committee saying? What is that going to accomplish?

VERJEE: Well, the committee is supposed to be Iran, Iraq and the U.S., and basically, they are going to focus in three areas. They are going to focus on reigning in militants, focus on al Qaeda and border security. Those are the three areas they want to focus on, but who knows what the results will be.

BLITZER: What happens if the Iranians don't play ball?

VERJEE: Well that's the question. And it's yet to be seen. If they actually will. There was one person that was actually in those meetings, Wolf, and this person said to me that initially the Iranians were just saying, look, if you want us to cooperate, you've got to give us some kind of reward, and the U.S. says, no way. You know just show some results on the ground and then we'll see.

BLITZER: Well see what happens. Zain, thanks very much.

VERJEE: Thanks.

BLITZER: A number of U.S. states have figured a way to hit Iran where it hurts, in the pocketbook. They are working to cut off financial ties with the Islamic republic.

And joining us now, Ed Lavandera. He's in Dallas. I take it, Ed, Texas is about to join this push.

ED LAVANDERA, CNN CORRESPONDENT: It is the latest state to join this push, Wolf. And there are thousands of firefighters, police officers, teachers across the country who might not even realize that their money is influencing American foreign policy in Iran.

(BEGIN VIDEOTAPE)

LAVANDERA (voice-over): You wouldn't think a boot wearing Texas governor could stomp on Iran, but Rick Perry is sending a financial strike at what he calls a notorious regime. He wants the state's public retirement funds to dump all investment in companies doing business with Iran.

Just Texas' move would cost those companies hundreds of millions of dollars. Five states have already made their decision to make Iran pay. Nine others are considering. Together, they could take billions of dollars from Iran's economy.

MITT ROMNEY (R), PRESIDENTIAL CANDIDATE: We also have to be imaginative in the way we pressure Iran. Economically.

LAVANDERA: On the campaign trail, echoes of support from Republicans, Mitt Romney and Democrat Barack Obama, and support from allies like Israel which inspired the decision.

BENJAMIN NETANYAHU, FORMER ISRAELI PRIME MINISTER: The world that didn't stop the holocaust last time can stop any attempt of a future holocaust this time.

LAVANDERA: But isolating Iran economically could backfire, fuelling more anger at the United States.

BILL REINSCH, NAT'L FOREIGN TRADE COUNCIL: We call it chicken soup diplomacy. It makes you feel better. But fundamentally it doesn't really make any difference in the situation.

(END VIDEOTAPE)

LAVANDERA: And critics say there's another drawback. That this gives states too much influence over U.S. foreign policy, and makes it much more difficult for President Bush to deal with Iran in the region. Wolf?

BLITZER: So, let's say Texas does this. Can Iran retaliate?

LAVANDERA: Well, they can't do anything legally against Texas or any of the other states that are doing this or in the process of doing this. But perhaps they could put on political pressure on other countries to return that political pressure back onto the U.S.

BLITZER: Ed Lavandera watching this story for us from Dallas -- Ed, thanks.

And as Ed notes, those divestment efforts target international companies. For the most part, it is illegal for Americans to do any business with Iran. In 2000, sanctions were eased to allow U.S. citizens to import Iranian carpets, nuts, dried fruit and caviar. Otherwise, corporate penalties for violating these sanctions range up to half a million dollars, while individual penalties can reach $250,000 and 20 years in jail.

And up ahead tonight, hot, angry words about war and death.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: Our soldiers died in Vietnam in vain. You can now, John, go to Hanoi and get a Baskin-Robbins ice cream cone.

(END VIDEO CLIP)

BLITZER: Does the Vietnam War teach tough lessons about withdrawal from Iraq? What that might mean.

Plus, the government sends, get this, a billion dollars to dead farmers. Find out what happens to your hard-earned cash once it hits Washington.

Stay with us. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: This video in Pakistan, behind me, was the handiwork of suicide bombers. Now a stunning new study taken throughout the Muslim world may offer some hope that the bloody tactic of suicide bombings may, repeat, may be on the wane.

Let's go to CNN's Jill Dougherty. Jill, does this survey signal a significant change?

JILL DOUGHERTY, CNN CORRESPONDENT: It could, Wolf. It's certainly a major study, the largest global survey that the Pew Research Center has ever done. More than 45,000 interviews in 47 nations. And we have some of the key points up there on the wall.

It shows a sharp decline in support for suicide bombings at least in some countries -- Lebanon, Bangladesh, Pakistan, Jordan and Indonesia. The proportion of Muslims who say suicide bombings and other attacks against civilians are justified in defense of Islam has decline by half or more in the past five years.

However, another difference here, 70 percent of Palestinians believe that suicide bombings against civilians can be often or sometimes justified. And the poll also shows there is a lot of concern among the Muslim public that tensions between the Sunnis and the Shia are not limited to Iraq.

That they respect a growing problem for the Muslim world more generally. Finally, the United States is seen as the greatest threat in many predominantly Muslim countries, Latin American and China.

BLITZER: Jill, what do we know about this change in attitude?

DOUGHERTY: You know it seems to be that people are having less belief in the efficacy of all of the suicide bombings and you can also see a drop in the support for Osama bin Laden. The only place where he still has some support is in the Palestinian territories.

BLITZER: Jill Dougherty, thank you very much.

Let's check in with Carol Costello. She's monitoring stories incoming to THE SITUATION ROOM right now. Carol, tell our viewers what you have.

CAROL COSTELLO, CNN ANCHOR: Well, Wolf, New Haven's mayor is getting quite an earful from unhappy residents. Dozens of protesters booed him today as New Haven became the first U.S. city to give identity cards to illegal immigrants. The protesters got into shouting matches with supporters of the move, who say it will help immigrants open bank accounts, use libraries, and be less vulnerable to crime. Opponents say it will encourage illegal immigration and waste taxpayer money.

Tens of thousands of people received more than a billion dollars from the federal government. The only problem -- they were not alive. Yes, they were dead. Congressional investigators say the Agriculture Department sent farm payments to more than 170,000 deceased recipients between 1999 and 2005. They say the department failed to check whether a two-year grace period on the deceased farmer's estates had expired. Agency officials dispute that but say they will try to improve their record keeping.

A New Orleans grand jury has cleared a doctor of criminal charges in the deaths of four hospital patients, right after Hurricane Katrina. Dr. Anna Pou urged supporters to remember the storm's victims, and to ensure medical workers are not falsely accused in what she calls a rush to judgment.

And take a look at these incredible pictures on the wide screen. Drivers on U.S. Highway 41 in Wisconsin got the shock of their lives on Sunday. Get this, a World War II era plane swooped low -- you see it there -- and made an emergency landing right in the northbound lane in between the cars. The pilot and his teenage son were going to an air show in Oshkosh when they started having engine trouble. It was a perfect landing. No one got hurt, Wolf.

BLITZER: That's good. Thank God for that. Carol we'll be back with you shortly.

Meanwhile, major flooding in Britain is taking its toll. Three people are dead. Hundreds of thousands are without power or running water or both. And damage estimates are running into the billions of dollars. A bad situation, but nothing approaching some past U.S. disasters. Back in 1993, flooding from the mighty Mississippi River wreaked havoc on nine states, reaching hundreds of levees, killing 50 people, causing up to $15 billion in damage.

The worst flood disaster of all, as all of us know, of course, Hurricane Katrina some two years ago. It killed 1,800 people in five states. Displaced as many as a million people initially. Half a million long-term. Ran up a damage tab of up to $25 million -- billion.

Coming up, a majority of you want change in Iraq. Senator Ted Kennedy, he's here, he explains why that might not happen right now.

(BEGIN VIDEO CLIP)

BLITZER: You've been in power now for almost a year in the House and the Senate. You haven't been able to effectively change that policy in Iraq. What do you say to those Democrats...

UNIDENTIFIED MALE: Well, I say, Wolf, they should -- we are -- should understand the history.

(END VIDEO CLIP)

BLITZER: Senator Kennedy here in THE SITUATION ROOM to explain just what that history is and why it matters for the future of Iraq.

And one of them under whelmed, while another wowed the crowd. Find out who voters just like you thought won, our CNN/YouTube debate.

Stay with us. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: To our viewers, you're in THE SITUATION ROOM.

Happening now, a shakeup in the race for the White House. A top adviser to potential Republican presidential candidate Fred Thompson resigning. GOP sources telling CNN the campaign veteran, Tom Collamore, was growing frustrated -- did not see eye to eye with Thompson's wife, Jeri (ph).

The Russian president, Vladimir Putin, is slamming Britain for demanding that Moscow extradite the sole suspect in the fatal poisoning of an ex KGB agent. Mr. Putin calling the demand an insult to Russia, also insisting it's a remnant of colonial thinking.

And a tearful welcome home for five Bulgarian nurses and a Palestinian doctor. They spent eight years in a Libyan jail, accused of infecting hundreds of children with HIV. Libya freed them after round the clock international negotiations.

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

Has the war in Iraq, the loss of so many American lives, been all for nothing? One Democratic presidential hopeful compares this conflict to an earlier war in Vietnam. And that really has touched a nerve, a nerve resulting in last night's presidential debate.

Let's turn to CNN's Brian Todd. Brian, there's been some significant fallout on this today.

BRIAN TODD, CNN CORRESPONDENT: Sure has, Wolf. Mike Gravel has joined those who are now sending more ominous warnings about the road ahead in Iraq and in doing so, he has hit on a very sensitive point.

(BEGIN VIDEOTAPE)

TODD (voice-over): Nobody wants to believe it; nobody will say it, except for presidential candidate Mike Gravel.

MIKE GRAVEL (D), PRESIDENTIAL CANDIDATE: Our soldiers died in Vietnam in vain. You can now, John, go to Hanoi and get a Baskin- Robbins ice cream cone.

TODD: Or you can do what President Bush did and visit the Stock Exchange in Ho Chi Minh City. So what's the point? Why does the ability to eat ice cream or trade stocks with a former enemy mean America's troops died in vain there? Gravel says it's that Vietnam would have turned out that way whether U.S. troops had been there or not, and he says, so will Iraq.

UNIDENTIFIED MALE: Let me tell you. There's only one thing worse than a soldier dying in vain. It is more soldiers dying in vain.

TODD: A comment that offends America's veterans, including this general who fought in Vietnam.

BRIG. GEN. DAVID GRANGE (RET.), CNN MILITARY ANALYST: In Iraq, soldiers are providing, I think, an opportunity for the Iraqis to have a better life. You can argue whether that's or business or not, but so far, I don't think soldiers have died in vain.

TODD: What of the human cost of withdrawal? Hundreds of thousands of Vietnamese died after U.S. forces pulled out in 1973. In Iraq, the civilian carnage is forecast to be worse.

UNIDENTIFIED MALE: We walk away from Iraq now we risk a failed state in the heart of the Middle East, a haven for international terrorists, an invitation to regional war in this economically vital area, and a humanitarian disaster that can involve million of people.

(END VIDEOTAPE)

TODD: Mike Gravel does not buy that. He told me that if the U.S. gets out of Iraq quickly, its neighbors, like Iran, Syria and Jordan, will do what is best for them, which, Gravel says, is to stabilize Iraq -- Wolf.

BLITZER: Brian, in your reporting, you have gotten some warnings about a potential U.S. withdrawal from Iraq.

TODD: Yes, and specifically how the U.S. might withdraw from Iraq. One former intelligence officer who served in Vietnam says you can withdraw under a negotiated peace -- very, very unlikely here -- or under military conditions, which are much more likely, and that means a slow, gradual pullout that will be very bloody, like it was in Vietnam.

BLITZER: Brian, watching this story for us. Thanks, Brian.

President Bush says the Democrats are simply wrong about the war in Iraq. Are they? And why haven't they been able to pull off the troop withdrawal they want so badly?

I turned to Senator Ted Kennedy for answers.

(BEGIN VIDEOTAPE)

BLITZER: Let's talk about the situation in Iraq, Senator. Here is an excerpt of one of the questions that a YouTube viewer submitted last night. I want you to listen to this.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: Isn't it our responsibility to get these people up on their feet? I mean, do you leave a newborn baby to take care of himself? How do we pull out now?

(END VIDEO CLIP)

BLITZER: What do you say to that person? SEN. EDWARD KENNEDY (D), MASSACHUSETTS: I hear what that person is saying, but I'm also -- read the National Intelligence Estimate report, which is the -- effectively, the government's report, the Defense Department's report, that says that the surge is really not working there.

I've read the intelligence reports that say that al Qaeda is stronger today than it was at the time that the war has started, and I also believe that the presence of American servicemen and women inflames the situation in Iraq.

What we need to do is have a program that is going to redeploy those troops out, and at the same time have a surge offensive in terms of diplomacy that is going to say to the Iraqis, you have to stand up, and your neighbors have to stand up and take -- assume responsibility for your own future.

BLITZER: The president, though, insists you're wrong, and your colleagues who want a quick pullout from Iraq are wrong.

Listen to what President Bush had to say today about the current al Qaeda threat that potentially emanates from Iraq.

(BEGIN VIDEO CLIP)

BUSH: We've already seen how al Qaeda used a failed state thousands of miles from our shores to bring death and destruction to the streets of our cities. And we must not allow them to do so again.

So, however difficult the fight is in Iraq, we must win it, and we can win it.

(END VIDEO CLIP)

BLITZER: All right, Senator, what do you say to the president?

KENNEDY: Of course, you can't confuse the facts, like the president is attempting to do. John Adams said, "facts are difficult things." Meaning, we have to deal with the facts, and the facts remain that the National Intelligence Estimate says al Qaeda is stronger because of our presence. The National Intelligence Estimate says that the surge is not working. And, also, the other reports, Baker-Hamilton, suggest that Iraqis will only make the judgment decision about their own future when they believe that we are going to withdraw. They don't believe that at the present time (ph).

BLITZER: But the NIE, the National Intelligence Estimate, also says al Qaeda has formed, in the after-Saddam era, a clear presence in Iraq right now.

KENNEDY: That's right. We have to give focus and attention to battling the al Qaeda. Al Qaeda has expanded into 40 units in Africa over the period of the last two years. I mean, they have expanded worldwide. And what we should have done, is rather than going into Iraq, given focus to going into Afghanistan and al Qaeda.

The situation in Iraq now calls for a change in policy. This administration doesn't understand it.

BLITZER: But, you know, there's a lot of frustration among Democrats and others that you've been in power now for almost a year in the House and the Senate, you haven't been able to effectively change that policy in Iraq. What do you say to those Democrats who are angry?

KENNEDY: I say, Wolf, they should -- we are -- should understand the history. I was here against the Vietnam War from 1967 on. We didn't conclude it until really 1973. We thought we did in 1968, didn't we? We had a Democratic president, nominee that said we're going to end the war and a Republican that said he had a plan to end the war. And still, it went on.

I regret that. And I fought to try to bring an early end to the war. I fought to bring an end to the Contra war. That lasted too long. That lasted five years.

This isn't going to last that long, but until we get the American people that are really going to shake the doors here in the Capitol and shake those Republican doors, it isn't going to happen. But I'm going to be there every step of the way, urging, fighting, struggling, working with my colleagues to get that job done.

BLITZER: Senator Kennedy, thanks very much for spending a few moments with us here in THE SITUATION ROOM.

(END VIDEOTAPE)

BLITZER: And up ahead tonight, which presidential candidate looked defensive? Who had the best eye contact? Who dressed for success? Find out whose body language did the best talking during our presidential debate.

Plus, not suspended. Find out why one of the highest paid players in the NFL gets to keep his day job, at least for now, despite the fact that he's facing the possibility of serious jail time. Stay with us. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: It's the CNN-YouTube debate like you've never seen it. The candidate being graded on their answers in the form of these yellow squiggly lines. Those behind the scoring, a bunch of undecided Democrats and independents, and they tell a different story than a lot of the pundits.

CNN's Mary Snow is getting the view from both perspectives. Just how are they different, Mary, in terms of the pundits versus the average folks out there?

MARY SNOW, CNN CORRESPONDENT: Well, Wolf, you know, they can be very different, and there really is a sharp divide at times between pundits and the public. We saw it firsthand as we watched the debate with a focus group in the early primary state in New Hampshire.

(BEGIN VIDEOTAPE)

SNOW (voice-over): Watch what happens when 24 undecided Democrats and independents in New Hampshire react as Senator Hillary Clinton answers whether she would meet with leaders of countries like Iran and Syria.

SEN. HILLARY CLINTON (D), NEW YORK: I will not promise to meet with the leaders of these countries during my first year. I will promise a very vigorous diplomatic effort.

SNOW: As that reaction line dipped, compare it how the crowd responded to when Senator Barack Obama said he would meet with those leaders.

SEN. BARACK OBAMA (D), ILLINOIS: Ronald Reagan and Democratic presidents like JFK constantly spoke to Soviet Union at a time when Ronald Reagan called them an evil empire.

SNOW: So, who fared best? This crowd chose Obama overall -- a surprise, says this political consultant hired by CNN to gauge reactions. Before the debate, these voters expected Clinton to win.

RITA KIRK, SOUTHERN METHODIST UNIV.: One of the people said, "you know, I'm not sure that it was that Hillary performed poorly, but other people performed better than we thought they would."

SNOW: But to hear professional political observers tell it, it was Clinton who won, exhibiting experience.

DONNA BRAZILE, DEMOCRATIC STRATEGIST: Her debate performance was spectacular.

DAVID GERGEN, FORMER PRESIDENTIAL ADVISER: And I must tell you, I think these debates are helping her a whole lot.

SNOW: The New Hampshire crowd thought the debates helped John Edwards the most. Stong responses helped his favoribilty rating.

SEN. JOHN EDWARDS, (D) PRESIDENTAL CANDIDATE: We have got to stand up to the insurance companies and the drug companies that Barack just spoke about. It is the only way we're ever going to bring about real change.

(END VIDEOTAPE)

SNOW: Another candidate who fared well with this New Hampshire group, Senator Joe Biden. Of course, these findings are unscientific. But you definately get a sense from these voters that, yes, they know Senator Clinton is considered the front runner, but they want to hear more from the other candidates.

Wolf?

BLITZER: What did these people is respond to, Mary?

SNOW: Well, you could definately see some of the meters go up when they heard very specific answers to the questions. And that's what they indicated they wanted to hear and not generalizations.

BLITZER: They want details. Mary Snow, reporting for us, thank you. Fascinating information.

They shrug, they sigh, they glance at their watches, they roll their eyes in debates. Some of the candidates don't say much, but by their very actions, they certainly can say something. Carol Costello is walking in here now. You are watching this story for us, and it is amazing what some experts can do, simply by seeing these candidates behave.

CAROL COSTELLO, CNN CORRESPONDENT: Oh, it is amazing. You know, I sat down with Jo-Ellan Dimitrius, a body language expert. She says body language matters, especially when it is bad.

1960, take a look behind me, Nixon. Richard Nixon, famously sweats next to a cool JFK and he lost big time. And he just faced one opponent. This is what he'd face today.

(BEGIN VIDEOTAPE)

GREG HAMEL, CNN/YOUTUBE QUESTIONER: What will you do to ensure that my son will live a full and happy life?

COSTELLO (voice over): Welcome to 2007, and a new kind of debate. Experts say body language in this forum means even more, because candidates faced you, who demanded real.

UNIDENTIFIED MALE: How are you going to be any different?

COSTELLO: So who projected real? Let's start with dress. Our expert says dark suits intimidating. Bright jacket, fresh, feminine. A winner, despite John Edwards gentle jab.

JOHN EDWARDS, (D) PRESIDENTAL CANIDATES: I'm not sure about that coat.

COSTELLO: Hands clutching the podium or in pockets scream, I need a safety zone. Hands on top of the lectern say open, friendly. Big gestures in contract to controlled, defensive. And someone should have told Mike Gravel, angry works only in small doses.

MIKE GRAVEL, (D) PRESIDENTAL CANDIDATE: Has it been fair thus far? Every single day.

JO-ELLAN DIMITRIUS, JURY CONSULTANT: Gravel only knows one speed, and it's -- in your face about whatever question he's been asked. You know, what was your first cat? It was spot!

GRAVEL: Lobbyists in Washington.

SEN. BARAK OBAMA, (D) PRESIENTAL CANDIDATE: We've been talking ...

COSTELLO: Barak Obama, great eye contact. Chris Dodd looked like he were pontificating on the Senate floor. As for subtle digs, Clinton managed to build an imaginary wall between herself and Obama.

DIMITRIUS: When other candidates are speaking, Hillary will oftentimes nod in agreement. She will never do that with anything that Obama says.

COSTELLO: And that, and more worked for Hillary Clinton, who our exports said, won the body language debate.

(END VIDEOTAPE)

COSTELLO (on camera): That, she did. As for how this will translate in the voting booth, well, it is still early, and the candidates certainly have time to adjust, Wolf.

BLITZER: Senator Edwards didn't like her pink outfit, I thought it was very attractive.

COSTELLO: And my expert said that young voters would probably more relate to that because it's less intimdating.

BLITZER: All the men liked the dark suits, the white shirts. Maybe a light blue shirt. Although, I have got to tell you, I'm not one that can complain when they are wearing dark suits.

COSTELLO: OK, well, I have a suggestion from Dr. Dimitrius. She said olive green is less intimidating than dark gray or black. So the candidates, at least some of them, should have worn olive green, or maybe even khaki.

BLITZER: Really? Good advice, maybe, for the Republican presidential candidates, they will be in St. Petersbug, Florida, September 17th for the next CNN/YouTube debate. Thanks very much.

COSTELLO: Sure.

BLITZER: In our debate, voters took their questions directly to the candidates. Now, we're giving you the opportunity to weigh in with your reactions. Our Internet Reporter Jacki Schechner has been monitoring CNN's iReport. What are people saying, especially about this new format?

JACKI SCHECHNER, CNN INTERNET REPORTER: Wolf, they are saying the format worked. We are getting some general positive response, a lot of iReports, people weighing in, saying they think last night's stage may have set the stage for good things to come. Let's take a listen.

(BEGIN VIDEO CLIP)

MARY MATTHEWS AND JEN WEIDENBAUM, CNN IREPORTERS: The YouTube debate is an exciting opportunity for democracy, and, we hope it's just the beginning of this kind of debate in politics.

UNIDENTIFIED MALE: I think what we're going to find is a more engaged citizenry, a citizenry that's more interested in the political process. SCHECHNER: Now of course, not everyone was totally optimistic. We certainly did have our critics, and people are sending us iReports, saying what they would have liked to have seen us do better.

UNIDENTIFIED FEMALE: These good questions weren't answered by every candidate. I feel that the next time you have this sort of debate, you allow every candidate to respond to the people's questions.

UNIDENTIFIED MALE: Despite its unique format, the YouTube debates forecast a likely future of politics as usual.

SCHECHNER: The good news is, Wolf, is we are going to get to do it all over again. The Republican CNN/YouTube debate is scheduled for September 17th.

BLITZER: That's in Florida. Jacki, thanks very much.

And up ahead, corruption on the court. An NBA referee accused of betting on his own games and having possible links to organized crime.

Plus, busted again for drugs, alcohol, driving under the influence. We'll have the latest Hollywood disaster story. Jeanne Moos on that story. Stay with us. You're in the SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: The former NBA referee at the center of an alleged betting scandal may accept a plea bargain. The FBI is looking into whether Tim Dunehey (ph) bet on his -- games, games he was officiating, possible ties to organized crime, as well. He's turned himself -- he's expected to turn himself in this week or next. At least two bookies may also face arrest. The NBA Commissioner, David Stern, said today, he's stunned by the allegations, also saying he thinks this is an isolated case.

The NFL is outraged over claims football star Michael Vick entertained himself by watching dogs fight to the death. Now, the NFL and Vick's team they are speaking out. Let's go back to Carol Costello, she's here watching this. A lot of people are emphatic that the Atlanta Falcons have to do something about Michael Vick.

COSTELLO: And that's what everybody expected them to do today, Wolf. You know, a lot of people are enraged over Vick's alleged crimes. They are calling for the Falcons to act, like suspend him, strip of his salary, punish him in some way. Don't know if the Falcons owner satisfied any of them today. He told reporters that the NFL asked him to hold off on any action and that the man described in the indictment was not the Vick he knew.

(BEGIN VIDEO CLIP)

ARTHUR BLANK, ATLANTA FALCONS OWNER: The notion that anyone would participate in dog fighting is incomprehensible to me. However, we do need to rember that we're dealing with allegations at this point, I want to be clear that we're not here today to pass judgment on Michael's guilt or innocence.

(END VIDEOTAPE)

COSTELLO: Here is another thing. The NFL has asked Vick not to show up for early practice and has hired a lawyer to investigate any further action against Vick. As you know, he is a star player with a $130 million contract.

BLITZER: That's a lot of money. A lot of money involved in this. You know, I'm a huge NFL fan, huge NBA fan. But these scandals, obviously, not helping. All of us sports fans enjoy this.

COSTELLO: Well you know, in fairness to the NFL, they are kind of stuck because he Hasn't been convicted of any crime, and also there's a players union who kind of like, has thrown a wrench into things. They can't act without the union's approval, either. So there they are with the Vick problem and no solution as of yet.

BLITZER: All right, Carol, thanks very much.

Let's go check back with Jack Cafferty, he's watching this and a lot of other stuff in New York for the Cafferty File. Jack?

CAFFERTY: I think all the NFL players have to abide by a personal conduct rule that's part of the NFL employment agreement. And you can probably make the argument that he may have violated that. The question is what message does the $592 million U.S. Embassy in Baghdad send to the Irawi people?

S writes in language not wrapped in White House spin writes it means that "American Oil Giants have no desire to let thier spOILs of war slip out of thier control. The largest American Embassay in the world is being built to plainly show that we have no intention of leaving Iraq, ever. Or at least until the oil runs out."

John in Utah writes "What the U.S. "embassy" says to Iraq is what they're already aware of: that we can in fact build functioning infastructure if and when that's our intent. And that all our failed rebuilding projects would have, could have, should have succeeded, if our government and it's war profitering contractors so inclined.

Sarge in Indiana, "I couldn't care less what the Iraqis think, I want to know if the roof will be big enough to handle the evacuation helicopters. We don't want another Saigon."

Alex in Wisconson writes, "It's simple. The embassy that's bigger than the Vatican is telling the Irawi people that the U.S. is never going to leave thier country. The media's general refusal to talk about this embassy," like we are doing right now. "And the 14 other permanent bases in Iraq is shameful. And should send the message to the American people that they cannot trust the mainstream media. Wake up it was never our intention to leave Iraq."

Eric writes, "The $600 million embassy says, "Insert all your bombs and bullets here." Rob in Texas writes, "Dear Jack, wouldn't it have been more polite to just thumb our noses at them? Opulence in the middle of war-torn poverty while telling them that you're making thier coutnry better is just bad taste."

And Rick in Pennsylvania, "It don't mean jack, Jack. I think the Iraqis would rather have electricity. I'd rather see New Orleans rebulit."

If you didn't see your e-mail here, you can go to CNN.com/caffertyfile, where we post more of them along with video clips of the cafferty file on the internet.

Wolf?

BLIZER: Let me just go out on a limb, Jack, and predict the $592 million price tag is going to be higher when that building is complete.

CAFFERTY: As I understand it, the president wanted a billion dollars to build this thing and the Congress only gave him half that much. And they've already run over almost $100 million, and, yes, you are probably right. I wouldn't bet against you on that.

BLIZER: Thanks, Jack. Thanks very much.

Still ahead, a child actress turned poster child for addiction. Jeanne Moos on one Hollywood starlet's run-in with the law again. Stay with us. You're in the SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: Here is a look at some of the Hot Shots coming in from the Associated Press. In Massadonia, residents rally together to fight a growing forest fire early this morning.

In Bogada (ph) a rat is nuzzled by a cat in the Columbian Police Station.

In India, professional thread maker gets thread ready to make flyiung kites.

And in Daytona Beach Florida, a seemingly oblivious man passes by a display of scantily manicins.

Some of this hours Top Shots, pictures often worth a thousand words. Busted, again. A Hollywood actress with a hard partying image is arrested just five days after she faced some other legal problems. Today Lindsay Lohan was booked on five charges, including drunken driving, driving without a license and possession of cocaine, which is a felony. Our Jeanne Moos has more on this most unusual story.

(BEGIN VIDEOTAPE)

JENNE MOOS, CNN CORRESPONDNENT (voice over): Just another day in the life of Lindsay Lohan. LT. ALEX PADILLA, SANTA MONICA POLICE: She was arrested for driving under the influence.

MOOS: Not to be confused with her influence on teens.

UNIDENTIFIED FEMALE: I looked up to her so much and it just breaks my heart.

MOOS: First, just the facts ma'am.

PADILLA: She was chasing after another car. The other car was being driven by the mother of her personal assistant.

MOOS: Her personal assistant had just quit. Her mom was picking her up.

PADILLA: The mother was afraid, she wasn't quite sure what was going on. So she called the police. Regarding a verbal argument that was occurring in the parking lot.

MOOS: Not only was Lindsay allegedly DUI.

PADILLA: While in the jail, officers found in her possession a small amount of cocaine.

MOOS: And before you can say, this just in -- Madame Toussauds Wax Museum had dressed Lindsay in prison stripes and alerted the press.

How do you think she looks in stripes?

UNIDENTIFIED FEMALE: Fat.

MOOS: Horizontal stripes do that to you. Just a month and a half ago, it was wax Paris Hilton's turn to wear stripes.

MOOS: Do have like, a large supply in case they all get in trouble at the same time?

UNIDENTIFIED FEMALE: No, we do not.

MOOS: But something was missing.

She's wearing this thing that's supposed to detect whether she drinks. And though wax Lindsay wasn't wearing it, the real LIndsay was when police arrested her, and so have news anchors demonstrating the device.

UNIDENTIFIED FEMALE: If you drink any amount of alcohol, it seeps through your skin.

UNIDENTIFIED FEMALE: You can't wear your skinny jeans with this.

MOOS: At least in her mug shot, Lindsay doesn't look as bad as say, James Brown or Nick Nolte. Even in our celeb-saturated world, there are still those that can't pick Lindsay out of a lineup of celebs gone wild.

You think this is Lindsay Lohan?

UNIDENTIFIED MALE: Yes. I mean, yes, I think so. I'm just a tourist, you know.

MOOS: And that's just Nicole Richie. In the wake of her latest alleged DUI, Lindsay canceled an appearance on the "Tonight Show." Replacing her, comedian Rob Schneider dressed to look like Lindsay.

UNIDENTIFIED FEMALE: I just don't like her. I jsut think that she reperesents women badly.

UNIDENTIFIED FEMALE: She used to be so cute in "Parent Trap."

UNIDENTIFIED MALE: And introducing Lindsay Lohan.

UNIDENTIFIED FEMALE: Now she's in rehab, again.

MOOS: An occurance so common, it's become a hit song.

AMY WINEHOUSE, SINGER (singing): They try to make me go to rehab, I say, no, no, no.

MOOS: But Lindsay said, yes, yes, yes. Again. Little girls are still holding her hand, Madame Toussad's hasn't put a drink in it, yet.

Jeanne Moos, CNN, New York.

(END VIDEOTAPE)

Lindsay Lohan's next court appearance set for August 24th. Her father, by the way, Michael, going to be a guest on "Larry King Live" tonight, 9:00 p.m., Eastern.

Tomorrow here in the SITUATION ROOM, 50 years of Washington. Scandals, secret sources, backroom deals, the journalist Bob Novak, he'll be here in the SITUATION ROOM. We will see you tomorrow, 4:00 p.m., 5:00 p.m., 7:00 p.m., Eastern. Until then, thanks for watching. I'm Wolf Blitzer. Up next, "Paula Zahn Now."

Paula?

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