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THE SITUATION ROOM

McCain Camp Fights 'Smear'; Second Obama-Clinton Debate; Interview With McCain Attorney Robert Bennett

Aired February 21, 2008 - 16:00   ET

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


WOLF BLITZER, CNN ANCHOR: Happening now, John McCain is defending his integrity after a newspaper report suggests he had questionable ties to a female lobbyist years ago. "The New York Times" is standing by its report, but the McCain campaign says it's the ultimate -- and I'm quoting now -- "smear campaign."
I'll talk to a lawyer representing Senator McCain in this matter. The longtime attorney, Robert Bennett. He's here in THE SITUATION ROOM.

And what happens just hours from now in Texas could impact the Democratic presidential race. Barack Obama and Hillary Clinton will debate right here on CNN. Might she try to slow his momentum by going on the attack?

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

How you view an unflattering report about John McCain depend on whom you believe right now. "The New York Times" calls it a fair reporting of the facts that took a long time to research. But some parties mentioned in the piece say it's based on fantasies, part of a "campaign of character assassination."

At issue right now, McCain's connections to a woman who is a Washington lobbyist. Let's check in with CNN's Dana Bash. She's watching the story.

And it's sparking quite a controversy, Dana, as you well know.

DANA BASH, CNN CONGRESSIONAL CORRESPONDENT: It sure is, Wolf. You remember, Wolf, when John McCain first ran for president eight years ago. He ran on a promise to clean up corruption and impropriety in politics, just like he is now. Well, a story suggesting that he's actually part of the problem in Washington is a big problem for his campaign.

(BEGIN VIDEOTAPE)

BASH (voice over): With his wife by his side, a subdued John McCain issued an unequivocal denial.

SEN. JOHN MCCAIN (R-AZ), PRESIDENTIAL CANDIDATE: I'm very disappointed in "The New York Times" piece. It's not true.

BASH: That emphatic "not true" was meant for every suggestion and allegation in this lengthy article, first that he had a romantic relationship with lobbyist Vicki Iseman.

(on camera): Senator, can you describe your relationship with Vicki Iseman?

MCCAIN: We're friends. I've seen her on occasions, particularly at receptions and fundraisers and appearances before the committee.

BASH (voice over): On that, an assist from Mrs. McCain.

CINDY MCCAIN, WIFE OF JOHN MCCAIN: My children and I not only trust my husband, but know that he would never do anything to not only disappoint our family, but disappoint the people of America.

BASH: Then the charge that McCain used his powerful position on the Senate Commerce Committee to help Iseman's corporate clients.

J. MCCAIN: At no time have I ever done anything that would betray the public trust nor make a decision which in any way would not be in the public interest and would favor any one or any organization.

BASH: The Times also says eight years ago, during McCain's first presidential run, his advisers were so corn concerned about his relationship with Iseman, they confronted both and tried to block her access. Again, flat denial.

(on camera): Nobody on your campaign said, "Senator, she's a problem, don't deal with her"?

J. MCCAIN: No.

BASH (voice over): The one-time source to go on the record is McCain's former top political adviser, John Weaver. He confirms to CNN he was worried and did confront Iseman, but insists it wasn't about a romantic relationship. Rather, that Iseman was spreading word "around town" that McCain helped her lobbying clients, something Weaver said would undermine McCain's reformer campaign.

"My concern wasn't about anything John had done. It was about her comments. It was about access she claimed to have head," Weaver told CNN.

McCain insists he knew nothing about that.

J. MCCAIN: I never discussed it with John Weaver. And so, as far as I know, there was no necessity for it. But that's a judgment that he made.

(END VIDEOTAPE)

BASH: Iseman's lobbying firm issued a statement calling the story "fantasies of a disgruntled former employee" -- a campaign employee, I should say -- saying it's without merit or foundation.

And Wolf, as for the McCain campaign, the irony here is that they're actually relishing in this controversy, because it allows the candidate who's trying to appeal to conservatives to pick a fight with one of their biggest enemies, and that is "The New York Times".

In fact, McCain's campaign manager, Rick Davis, he even issued a fundraising letter today, calling on donors to send money to fight "the liberal establishment" -- Wolf.

BLITZER: Dana Bash, thanks very much.

And we're standing by to speak live with Senator McCain's attorney, Robert Bennett. He's here in THE SITUATION ROOM.

Dana, thank you very much.

Tonight, Barack Obama and Hillary Clinton will do what they've only done once in the race, debate each other one-on-one. You're going to see it right here on CNN. It will be a substantive discussion of the issues, we're told. But sparks could fly now that Obama beat Clinton in 10 straight contests and now that some people think Clinton must win in Texas.

Our senior political correspondent, Candy Crowley, is watching the story for us. She's in Austin right now.

Candy, how are both of these campaigns looking at this debate tonight?

CANDY CROWLEY, CNN SR. POLITICAL CORRESPONDENT: Well, they're looking at it as a very important milestone in what has been a very long, long road to this nomination. What they believe is that tonight will help shape the race, if not be definitive.

(BEGIN VIDEOTAPE)

CROWLEY (voice over): A laid-back day belies a high-stakes night.

SEN. BARACK OBAMA (D-IL), PRESIDENTIAL CANDIDATE: It's not a game. It's debate day.

CROWLEY: For Barack Obama, now 11-0 with today's results from Americans abroad, the plan is this: do not fumble. Stick with what brought you to the game.

OBAMA: It's time to move beyond the politics of yesterday, because we are the party of tomorrow. We're going forward.

CROWLEY: And come prepared to play defense. Since last they met, he has been criticized for backtracking on taking federal campaign funds in the fall, not being full transparent about his business relationship with a now jailed land developer, and stealing words from a friend. All story lines the Clinton campaign has been pushing as part of her central theme that he is all rally and words, that she is experience and results.

SEN. HILLARY RODHAM CLINTON (D-NY), PRESIDENTIAL CANDIDATE: It's time that we moved from good words to good works, from sound bites to sound solutions. (APPLAUSE)

CROWLEY: Having lost 11 straight, her game plan is as tricky as the time is crucial. She needs to be aggressive enough to slow him down. But too negative, and she looks like the old Washington the team that he's running against. Her main objective, go on offense, but don't go ugly.

The dynamic will be something to watch. The Wisconsin primary featured the first negative ads of the season.

NARRATOR: Why won't Barack Obama debate these differences? Wisconsin deserves better.

NARRATOR: Tired of the same old politics? Vote for change we can believe in.

CROWLEY: But TV is one thing. Democrats have shown an aversion to nasty when the two share the stage. So who shows up tonight, the Bickersons of Myrtle Beach...

CLINTON: Barack, I did not -- I did not say...

OBAMA: Hillary, you just spoke -- you just spoke for two minutes.

CLINTON: ... anything about Ronald Reagan.

CROWLEY: ... or the cooing couple of Los Angeles?

(END VIDEOTAPE)

CROWLEY: From issues to atmosphere, Wolf, it's certainly sizing up as a really interesting debate.

CROWLEY: We'll be watching it three hours and 53 minutes from now, Candy. Thank you very much.

And all of our viewers know Candy Crowley and Dana Bash are both part of the Emmy Award-winning best political team on television.

Remember, for the latest political news any time, check out our political ticker at CNNpolitics.com. The ticker, by the way, is the number one political news blog on the Web. It's also where you can read my latest blog posts.

And please be sure to join us in less than four hours from now as Barack Obama and Hillary Clinton take part in the CNN debate in Austin, Texas. It's co-sponsored by Univision and the Texas Democratic Party. It airs live here on CNN beginning at 8:00 p.m. Eastern and airs later tonight in Spanish on Univision. Journalists from CNN and Univision will ask the questions. Our own CNN anchor, Campbell Brown, will moderate this debate.

There's other news we're following, including breaking news out of Serbia. Rioters ransacking parts of the United States Embassy in Belgrade. Mass demonstrators smashed windows, set fires, and tried to pull down a U.S. flag.

The State Department says only Marine and security guards were inside. And the police have finally gotten things under control. But only after they clashed with the very angry mobs.

Rioters are upset that Kosovo declared its independence from Serbia on Sunday. The United States is among the nations now formally recognizing that independence.

Coming up later this hour, we'll have a lot more on this story. Our CNN world affairs analyst, the former defense secretary, William Cohen, standing by to join us live.

Let's check in with Jack Cafferty right now. He's got "The Cafferty File" -- Jack.

JACK CAFFERTY, CNN ANCHOR: Just another quiet, boring day in THE SITUATION ROOM. Nothing going on.

BLITZER: Oh, my god. It's intense. A lot of news.

CAFFERTY: Oh, I know.

All right. Someone is lying.

"The New York Times" dropped a bombshell on John McCain this morning with a front-page story that could cost him the White House. It's great reading -- an improper relationship with a lobbyist, a woman named Vicki Iseman. His inner circle convinced they were having an affair. All happening while he was chairman of the Senate Commerce Committee and she was representing telecom companies who had business before McCain's committee.

The two of them together at fundraisers, in his office, aboard private corporate jets. It got so bad that his closest friends and advisers finally stepped in to save McCain from himself.

This is all according to "The New York Times."

The problem with the story is it's a little on the skinny side. Most of it is based on unnamed sources, and that detracts from its credibility.

On the other hand, The Times' byline contains the names of four reporters who were not likely to go to their editor and say, "Hey, look what we've got" if they didn't have it. And reportedly, as far back as last December, McCain was pleading with the editors of The Times not to run this story.

McCain's explanation for all of this comes up short. "It's not true" ain't going to cut it.

For one thing, McCain has been here before. Remember the Keating Five in the savings and loan scandal? And it's highly unlikely The Times information from McCain's inner circle of advisers is all false. You don't publish a story of this magnitude unless you're on pretty solid ground.

So stay tuned, because there's a lot more to come.

Meanwhile, here's the question: How much will newspaper stories raising questions about John McCain's ethics and his alleged relationship with a woman lobbyist hurt his presidential chances?

Go to CNN.com/caffertyfile, where you can post a comment on my blog -- Wolf.

BLITZER: Jack, thanks very much.

John McCain's campaign not only denying the report suggesting favoritism to a female lobbyist. The chairman -- the campaign, that is, calling it journalism based on fantasy. So why is a powerful Washington attorney defending Senator McCain?

I'll be speaking to that attorney. Robert Bennett, he's standing by live right here in THE SITUATION ROOM.

Also, talk calmly or argue fiercely? What might Hillary Clinton do in our debate tonight to try to gain some ground on Barack Obama?

And in what state do voters get to vote two times for the same person? Our Abbi Tatton is standing by to explain.

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

(COMMERCIAL BREAK)

BLITZER: Right now John McCain's presidential campaign is fiercely beating back reports that are unflattering, to say the least, to the candidate. They include suggestions that Senator McCain gave special treatment to a Washington lobbyist several years ago and claims that some former aides actually worried McCain might have had a romantic relationship with the family lobbyist.

Robert Bennett is a lawyer. He's representing Senator McCain. He's here in THE SITUATION ROOM. He's also the author of a brand new book entitled "In The Ring: The Trials of a Washington Lawyer."

What timing to go come out with a book right at a moment like this. And we'll talk about that shortly. But thanks for coming in.

ROBERT BENNETT, MCCAIN'S ATTORNEY: Thank you, Wolf, for having me.

BLITZER: All right. You were brought in -- I just want to update our viewers. You were retained by Senator McCain, when, last December?

BENNETT: Last December.

BLITZER: What happened? Why did he need to hire a prominent Washington attorney? BENNETT: Well, the context, Wolf, was that the senator was concerned that there might be some dirty tricks coming his way. And he did not want to suffer like he did in the South Carolina primary years before.

BLITZER: What kind of dirt -- he was specifically worried about what "The New York Times" was working on? Was that...

BENNETT: And then this was exhibit A. He said there are these reporters going around asking questions in a way that is bound to leak and whatever. So...

BLITZER: So what did he want you to do?

BENNETT: Sort of be a crisis manager in the situation. And I think he commented that he knew I had a lot of experience in dealing with the media and in these kinds of issues. And so...

BLITZER: But was there a suggestion that he was afraid of some illegality?

BENNETT: No.

BLITZER: Because normally hiring a lawyer means you're concerned about illegality.

BENNETT: No. Most of my work doesn't involve legality or illegality. It's sort of become a crisis management.

BLITZER: And those of us who remember -- have read your book, remember you've represented some prominent people in Washington, including a former president of the United States.

BENNETT: Yes.

BLITZER: That would be Bill Clinton as well.

BENNETT: Yes. Yes.

BLITZER: So you go way back.

All right. Let's talk a little bit about some of these allegations in "The New York Times"...

BENNETT: Sure.

BLITZER: ... and now followed up in "The Washington Post" as well.

BENNETT: Yes.

BLITZER: "The Washington Post" has a front-page story entitled "McCain Ties to Lobbyists Worried Aides."

Among other things in The Post, they say this morning, "Members of the senator's small circle of advisers also confronted McCain directly, according to sources, warning him that his continued ties to a lobbyist who had business before the powerful Commerce Committee he chaired threatened to derail his presidential ambitions."

Now, he denies that. He denies that anyone confronted him about this among his senior staff.

This is what he said earlier today. Listen to this.

(BEGIN VIDEO CLIP)

BASH: Some of your aides intervened and confronted not just Ms. Iseman, but you in particular, saying, stop seeing her, don't have a relationship with her because this is going to hurt her. Are you saying that did not happen?

MCCAIN: I don't know if it happened at their level. It certainly didn't happen to me.

(END VIDEO CLIP)

BLITZER: All right. So there's a discrepancy right there.

Based on what you know, what's the truth?

BENNETT: Well, I don't know what the truth is. I take the senator at his word. But I can tell you when I looked into this, his senior staff also said that it had not occurred.

BLITZER: They do have in "The Washington Post," in this article by Jeffrey Birnbaum and Michael Scherer, a direct quote from John Weaver, who had been one of his top advisers. He was let go last summer when his campaign was in trouble.

"John Weaver, who was McCain's closest confidante until leaving his current campaign last year, said he met with Vicki Iseman" -- the Washington lobbyist -- "at the Center Cafe at Union Station here in Washington and urged her to stay away from McCain. Association with a lobbyist would undermine his image as an opponent of special interests, aides had concluded."

Now, that's a direct quote from Weaver. It's not -- it's not some anonymous source.

BENNETT: But I understand that what Weaver said was it was not because he was concerned about a relationship, but that he had come to this understand that this lady lobbyist had made some statements to other people about her access to McCain. But Wolf, at some point in this I would like to tell you what's wrong with this story.

BLITZER: All right. Tell me right now.

BENNETT: Yes. There's a number of things wrong. First...

BLITZER: "The New York Times" story or "The Washington Post" story?

BENNETT: Well, with both stories.

BLITZER: OK.

BENNETT: Principally "The New York Times" story.

We sat down -- I sat down with the reporters and spoke with them, and also staff and I submitted answers to their many written questions. We showed them maybe 10 to 12 instances where Senator McCain refused to do the things being asked of him by her lobbying firm and her, where he just declined. That's point number one.

That never makes its way into the story. And I don't think that's fair.

Two, there is nothing to suggest in the story that any decision by John McCain, whether it benefited a client of this lobbying firm, or whether it did not, was ever contrary to the public interest.

BLITZER: There's one suggestion in "The Washington Post" and in "The New York Times" that he wrote a letter to the FCC on behalf of some Pittsburgh television stations trying to get a ruling on whether they could merge.

BENNETT: Well, he wasn't trying to get a particular ruling.

BLITZER: Just a decision. He wanted them to make a decision.

BENNETT: Which they were in their 800th day of not deciding. And it's perfectly appropriate. It happens every day, for members of Congress to nudge the bureaucracy along.

I would point out that this is something like an eight-year-old incident. And it's just recycled from years ago. But there's nothing to suggest there was anything improper in that request.

BLITZER: Because if the chairman of the Commerce Committee writes a letter to the FCC, which it overseas, obviously that's going to have some impact.

BENNETT: And it should have some impact. That's one of the things we want members of Congress to do, to keep as part of their responsibilities to keep the bureaucracy honest.

BLITZER: Let me read to you the statement that Bill Keller of "The New York Times" put out.

BENNETT: Yes.

BLITZER: And then you'll respond.

"On the substance, we think the story speaks for itself. On the timing, our policy is, we publish stories when they are ready. 'Ready' means the facts have been nailed down to our satisfaction, the subjects have all been given a full and fair chance to respond, and the reporting has been written up with all the proper context and caveats. This story was no exception." So what are you saying about Bill Keller and his team at "The New York Times?"

BENNETT: Well, I'm not -- I'm not really questioning when they released it personally. What I'm saying is I think they went with the story before -- before they had the evidence. If you really analyze the story, it's like a big piece of cotton candy. When you bite into it, there's not -- there's not much there.

BLITZER: And the same for "The Washington Post?"

BENNETT: Yes, I think so. And when they did up the Keating Five, which, you know, I don't want to sound arrogant -- I think I know more about that than anybody. I was counsel to the Senate Ethics Committee. And even though I'm a registered Democrat, I recommended that McCain be exonerated.

And I will tell you, Wolf, after investigating John McCain for a year and a half and looking under every rock, I concluded he was an honest man. And I basically, because of that, recommended his exoneration, which I should add in full disclosure was not accepted by the committee.

BLITZER: Robert Bennett's book is entitled "In The Ring: The Trials of a Washington Lawyer."

And you've had a lot of trials over the years. We're going to continue this conversation Sunday on "LATE EDITION."

Thanks very much for coming in.

BENNETT: Thank you for having me, Wolf. I appreciate it.

BLITZER: Thank you. Good luck with the book.

BENNETT: Thank you.

BLITZER: America under attack overseas. Protesters set fire to the U.S. Embassy in Belgrade. How should Washington respond? The former defense secretary, William Cohen, he's standing by live to joins us right here in THE SITUATION ROOM.

And Republican presidential candidate Mike Huckabee says he's not dropping out of the race because he believes in miracles. So how does he see news of a possible scandal involving John McCain and a female lobbyist? What he has to say about this, that's coming up as well, right here in THE SITUATION ROOM.

(COMMERCIAL BREAK)

(NEWSBREAK)

BLITZER: Some of Hillary Clinton's supporters say she must win in Texas. But after seeing 10 straight losses to Barack Obama, what can she do tonight in our CNN debate to turn things around?

We're about three and a half hours away from that debate. Stand by for it.

And a political pop quiz. In what state can you vote twice on the same day for the same person?

Abbi Tatton answers and tells you why, right here in THE SITUATION ROOM.

(COMMERCIAL BREAK)

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

Happening now, a United States embassy under attack. You're looking at what happened just hours ago in Belgrade. So how will the U.S. respond?

Our State Department correspondent, Zain Verjee, standing by with the latest.

Satellite shootdown. Our Pentagon correspondent, Jamie McIntyre, takes a close look at the larger message the U.S. may be sending to China about who is ahead in space.

That's coming up.

And as the Democratic presidential candidates prepare for tonight's high-stakes debate right here on CNN, demand for the tickets out of sight. Ted Rowlands standing by. He's taking a closer look at what it takes to actually get a seat in Austin.

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

Let's return now to our top story. Republican presidential candidate John McCain angrily denying a "New York Times" story today alleging that several years ago his aides were concerned about a close relationship with a lobbyist whose clients had business before a Senate committee he chaired. McCain is considered the presumptive Republican presidential nominee, but Mike Huckabee has yet to withdraw from this race.

Let's go out to Mary Snow. She's following the Huckabee campaign for us.

What is the reaction? What are we hearing from the Huckabee campaign on this very, very sensitive issue involving McCain?

MARY SNOW, CNN CORRESPONDENT: Well, you know, Wolf, despite the fact that Mike Huckabee is trying to knock John McCain out of the spotlight, he is sidestepping this particular fight.

And it comes on a day he's answering questions about Senator John McCain when he chose to come to the Alamo, a legendary place that is steep in symbolism, where Mike Huckabee is trying to make the point that he's going to keep on fighting.

(BEGIN VIDEOTAPE) SNOW (voice-over): Mike Huckabee picked the site of the Alamo to send a message of defiance with his struggling campaign. But he sidestepped one fight, even though he was handed the ammunition.

When asked about today's "New York Times" report questioning John McCain's relationship with a lobbyist, Huckabee did not seize on criticism aimed at the Republican rival he's hoping to derail.

MIKE HUCKABEE (R), PRESIDENTIAL CANDIDATE: You know, I have campaigned now on the same stage and platform with John McCain for 14 months. I only know him to be a man of integrity. Today, he denied that any of that was true. I take him at his word. I have no further comment, other than that.

SNOW: But Huckabee has mentioned the possibility of McCain being what he calls YouTubed because of a slip-up as one reason why he's staying in the race, despite impossible odds.

HUCKABEE: But, as we all know, on any given day, a candidate can say one word, do one thing, have one particular moment that can end his whole career. So, I'm not saying I'm just driving behind him at the NASCAR race waiting on him to lose a tire, but crazier things have happened.

(LAUGHTER)

SNOW: Republican strategist David Winston doesn't see Huckabee benefiting much.

DAVID WINSTON, REPUBLICAN CONSULTANT: Yes, I think that's sort of like waiting for Godot. McCain is in a position right now where it would be extraordinary if he didn't get the nomination at this point.

SNOW: In Houston, Huckabee touted himself as the Washington outsider. He says a key reason for him to soldier on is to fight for an amendment to ban abortion, and believes he has a fighting chance for success among conservatives in Texas. And he followed in the footsteps of other presidential candidates, including Pat Buchanan, Steve Forbes, even Bill Clinton, by campaigning near the Alamo to take a stand.

(END VIDEOTAPE)

SNOW: And Mike Huckabee taking his never surrender-message here. He's going to be touring the Alamo in just a short amount of time. And then he's going to be speaking to supporters and reporters after his visit here.

Mike Huckabee, always one to be an unconventional candidate, is also planning a trip to New York this weekend, where he's expected to make a guest appearance on "Saturday Night Live" -- Wolf.

BLITZER: Mary Snow is outside the Alamo, a lovely place, indeed. All right, Mary, thanks very much.

Looking ahead to tonight's high-stakes Democratic presidential debate right here on CNN, polls show Barack Obama and Hillary Clinton running neck and neck in Texas, the state that some strategists are calling Clinton's fire wall.

Let's go to CNN's -- CNN's political -- senior political analyst, Bill Schneider.

I will get it right eventually.

He's watching the story for us from Austin, Texas, another lovely place, indeed.

Who has got the bigger challenge tonight, Bill?

WILLIAM SCHNEIDER, CNN SENIOR POLITICAL ANALYST: I think it's Hillary Clinton. She has to do something to break Barack Obama's momentum.

(BEGIN VIDEOTAPE)

SCHNEIDER (voice-over): Texas is the end game, where Hillary Clinton has to stop Barack Obama. But what can she do? She has gone after Obama's lack of experience.

SEN. HILLARY RODHAM CLINTON (D-NY), PRESIDENTIAL CANDIDATE: Change is just a word if you don't have the strength and experience to make it happen.

SCHNEIDER: Obama's response? Experienced people got us into Iraq.

SEN. BARACK OBAMA (D-IL), PRESIDENTIAL CANDIDATE: Nobody had more experience than Donald Rumsfeld and Dick Cheney and many of the people on this stage that authorized this war.

(APPLAUSE)

SCHNEIDER: Democrats voting in Tuesday's Wisconsin primary preferred change over experience by better than 2-1.

Clinton promotes herself as a tough fighter.

CLINTON: And I will bring your voices and your values to the White House, and I will fight for you every day.

SCHNEIDER: Obama repudiates attack politics.

OBAMA: I was convinced the American people wanted something new and different. They didn't want a politics that was all about tearing each other down.

SCHNEIDER: He says he offers a new politics.

OBAMA: New politics of common sense, of common purpose, of shared sacrifice and shared prosperity.

SCHNEIDER: He's naive, Clinton says, and he doesn't show enough fight.

H. CLINTON: You know, the idea that you're going to escape the Republican attack machine and not have high negatives by the time they're through with you, I think, is just missing what's been going on in American politics for the last 20 years.

(APPLAUSE)

SCHNEIDER: Here's what Obama thinks of the last 20 years.

OBAMA: We're going to need somebody who can break out of the political patterns that we have been in over the last 20 years.

SCHNEIDER: Clinton's attacks on Obama have backfired. What else can she do?

Ask the expert.

BILL CLINTON, FORMER PRESIDENT OF THE UNITED STATES: You have to decide whether the excitement of the new is more important than the empowerment of the American people, because that's what Hillary offers.

(END VIDEOTAPE)

SCHNEIDER: The exit polls show that Democrats see Obama as the most likely to unite the country. And that, more than a fighter, seems to be what voters are looking for this year, someone who can deliver what George W. Bush once promised, a uniter, not a divider -- Wolf.

BLITZER: Thanks very much, Bill Schneider, in Austin, Texas, getting ready for tonight's debate.

Polling shows that the economy is shaping up as the number-one issue for voters in this campaign season. And Texas voters certainly are no exception.

A CNN/Opinion Research Corporation poll shows that the economy tops the list of most important issues for both Democrats and Republicans in Texas. Sixty-two percent of the voters there think America is in a recession already. And, increasingly, voters who prioritize the economy are turning to Barack Obama. Exit polls show him gaining since January among voters who say the economy is the top issue.

In Texas right now, Democratic voters can support their candidate actually twice, once in a primary and once in a caucus.

Let's go to our Internet reporter, Abbi Tatton. She's watching the story for us.

Abbi, how are the candidates getting the supporters up to speed on this process?

ABBI TATTON, CNN INTERNET REPORTER: Well, Wolf, in Texas, it's complicated. You can vote early right now, or you can vote on March 4. But, once you voted, you can then caucus for your candidate.

And, right now, the two candidates who are -- who are locked in battle for these Texas delegates are making sure that their supporters are up to speed. For Barack Obama, that meant, on Tuesday night, at this rally that drew almost 20,000 people in Houston, he gave them a little lesson on how this all works.

And, online, he's calling this the text Texas two-step, explaining the rules and also signing up volunteers for the caucuses or precinct conventions, as they're called in Texas jargon. This is an area where he's done well.

For Hillary Clinton, the real push has been vote early. She's stressing this at rallies, holding these rallies at early-voting locations. We just heard from the Texas secretary of state's office that voting, early voting, is so far much higher than in -- in recent elections -- Wolf.

BLITZER: Abbi, thank you for that.

Burning anger, smoldering fires, tempers flared. We're going to have more regarding that attack on the United States Embassy in Belgrade. Our world affairs analyst, William Cohen, he is standing by to join us live.

And how is John McCain handling this rather unflattering report about him? Might it actually damage his campaign? We're going to talk about that in our "Strategy Session."

And it's just under three-and-a-half hours before Barack Obama and Hillary Clinton debate right here on CNN. It's only the second time they're facing off one on one. We're going to have more analysis and more -- more of a preview -- all of that coming up.

(COMMERCIAL BREAK)

BLITZER: Let's get some more now on the breaking news coming out of Serbia, deep anger at the United States overseas, as the rioters there attack the U.S. Embassy in Belgrade. Mobs are upset that Kosovo declared its independence from Serbia on Sunday, the United States among the many nations formally recognizing that independence.

Joining us now is our world affairs analyst, the former Defense Secretary William Cohen. He's chairman and CEO of The Cohen Group here in Washington.

Mr. Secretary, the Serbian government has a responsibility to protect foreign embassies, including the United States Embassy, from these kinds of mob attacks. What's going on?

WILLIAM COHEN, CNN WORLD AFFAIRS ANALYST: Well, it's pretty clear their failed to do so.

My understanding is that they have now secured the -- the premises, although there may be a few people still on the inside that have yet to be contained. But this sort of an incident was foreseeable, if not foreseen.

Whenever you have passions running this high -- and this is a deeply emotional issue for the Serbian people, understandably -- but the fact is that die was cast several -- some years ago, back in 1999, when we tried to achieve a peaceful resolution of what was taking place in -- in Kosovo.

And Slobodan Milosevic refused. As a matter of fact, he undertook a campaign to ethnically cleanse some one million ethnic Albanians, a majority of the people in Kosovo. And it required NATO then to intervene and to have a bombing campaign in order to prevent that cleansing from taking place. So, the die was cast.

BLITZER: But, since then, there's been a -- there's been a new regime in Serbia, in Belgrade. This is the heart of Europe right now. What should the U.S. do in response to this mob attack on its embassy in Belgrade?

COHEN: Well, it should continue to work through the U.N. Russia clearly has a role to play here. And Russia has not been in favor of this declaration or vote for -- for independence. Nor has China.

But I think that we have to go back to the U.N. We have to get support for bringing this under control, and to make sure that the Serbian government understands its responsibility. It's responsible to protect the American Embassy and all embassies and personnel within them. And they have failed to do so. They must do so.

So, that -- in addition to that, we may have to have an additional NATO presence. This is the something the Europeans are going to have to face up to. This is in their backyard. The United States helped carry that campaign against Milosevic, but we're going to have to have a much larger presence, I think, in the short term to make sure this doesn't spill out of control.

BLITZER: Mr. Secretary, thanks for coming in.

COHEN: Pleasure to be with you.

BLITZER: A serious problem unfolding in Serbia, in Belgrade today.

Coming up in our "Strategy Session": Senator John McCain defends his honor.

(BEGIN VIDEO CLIP)

SEN. JOHN MCCAIN (R-AZ), PRESIDENTIAL CANDIDATE: At no time have I ever done anything that would betray the public trust, nor make a decision which in any way would not be in the public interest and would favor anyone or any organization.

(END VIDEO CLIP)

BLITZER: The senator and his staff blaming the news media, but how effectively has the McCain camp minimized the damage? And we're three hours right now and about 20 minutes away from tonight's CNN and Univision debate. Is this Senator Hillary Clinton's last, best chance to get back in this contest?

That and a lot more coming up in our "Strategy Session" -- right here in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: John McCain says he's disappointed in a "New York Times" story today suggesting , several years ago, aides were concerned about his relationship with a female lobbyist. The McCain camp is calling the article -- and I'm quoting now -- "a smear campaign."

Let's get to our "Strategy Session."

Joining us, radio talk show host Bill Press and Republican strategist Leslie Sanchez.

Let me start with you, Leslie.

How do you think the McCain camp is doing in responding to this "New York Times" story?

LESLIE SANCHEZ, REPUBLICAN STRATEGIST: I think the McCain camp did an excellent job today.

They came out very forthright, denounced all of these charges. And, really, this was the equivalent of a political drive-by shooting. And, rightly so, a lot of folks believe this was, you know, sour grapes by a former staffer. But the fact that "The New York Times" actually tried to make a bigger story out of this, something that happened eight years ago, is really shameful journalism.

BLITZER: What do you think, Bill?

BILL PRESS, RADIO TALK SHOW HOST: Well, first of all, I don't think there's any statutes of limitations on improper behavior, if there was.

And it's always -- the tactic is to attack the newspaper, attack the media, and try to change the subject.

Look, I think it depends. Wolf, as far as I'm concerned, the sex story, I -- I take John McCain at his word. I don't think that's the issue.

I think the issue is, if as chairman of the committee, he was doing special favors for a corporation that had legislation before his committee and one lobbyist that he had a particular friendship with, then that's an improper relationship. And I think McCain campaigns as Mr. Clean. The reason this could have some resonance is, it sort of knocks the halo off John McCain and makes it more difficult to him -- for him to present himself as the straight shooter.

(CROSSTALK)

SANCHEZ: You know, one of the points that is interesting that does get lost in this, they talk about -- a "Washington Post" today, the $85,000 or so that this particular lobbying group has given to campaign -- to John McCain.

I mean, you compare that to somebody like Chuck Schumer -- I know "The National Review" pointed that out -- who took 10 times that much in his attacks in monitoring the hedge funds managers and what he wants to do in banking. So, I think, by comparison, it really is a weak peg to base this story on.

(CROSSTALK)

BLITZER: Hold on a second.

(CROSSTALK)

BLITZER: If you're John McCain, you don't even want to be accused of taking $80,000...

PRESS: Exactly.

SANCHEZ: There is...

BLITZER: ... and then doing favors for that group.

PRESS: Exactly.

SANCHEZ: There's no doubt about that. But I think the fact that they brought up Keating Five and a lot of things from -- you know, that -- Bob Bennett, you had him a few moments ago basically talking and clearing that issue up. I think there's a lot of innuendo. And you have to go back to the fact this is sour grapes by a former staffer...

(CROSSTALK)

BLITZER: When you say a former staffer, are you talking about John Weaver? Is that who you're accusing?

(LAUGHTER)

SANCHEZ: We don't know. It hadn't been disclosed who that is. But...

PRESS: Hey, Wolf? Wolf -- Wolf, I think the important thing here is, what are the facts? Did he write the letters? Did he take the campaign contributions? Did he fly on the corporate jet?

I have heard nobody refuting the actual facts in this case. And the problem is that John McCain has put himself on the pedestal. He has said: I'm different than everybody else. I don't do favor for lobbyists. I don't like lobbyists. I don't like special interests. I do none of that stuff.

Well, if he in fact has, then he's just like all the rest of them.

SANCHEZ: You know, that -- I think that's a very far stretch.

You talk about he talked about the plane. He talked about the fact that there are changes now. You can't deny, you know, campaign finance reform. You can't deny -- you're exactly right -- how he's championed these causes.

But, overall, if you looked at his response today, it was very strong, poignant, and it denied a lot of these ill...

BLITZER: All right. Bill...

(CROSSTALK)

SANCHEZ: ... allegations.

BLITZER: ... I want you to listen to your radio talk show host colleague Rush Limbaugh and hear what he had to say earlier today.

(LAUGHTER)

PRESS: OK. OK.

(BEGIN VIDEO CLIP, "THE RUSH LIMBAUGH SHOW")

RUSH LIMBAUGH, RADIO TALK SHOW HOST: The story is not the story. The story is the drive-by media turning on its favorite maverick, trying to take him out. The media picked the Republican candidate. "The New York Times" endorsed that candidate while they sat on this story. And now, with utter predictability, they are trying to destroy him.

(END VIDEO CLIP)

BLITZER: All right, Bill.

PRESS: I would just have to say, talk about sour grapes. Rush is still disappointed that his candidate didn't make it and he's stuck with John McCain.

(LAUGHTER)

PRESS: Look, John McCain didn't turn down "The New York Times" endorsement. He was happy to have it. This is not a drive-by shooting. Again, let's stick to the facts.

SANCHEZ: It is a political drive-by shooting.

PRESS: Are the facts -- are the facts correct or not?

SANCHEZ: This is a story -- Bill, they sat on this for months. They sat on this and still could not patch together a better story than they have right now.

(CROSSTALK) BLITZER: Well, what did you think? Leslie, did you think "The Washington Post" story that followed up this morning was fair?

SANCHEZ: No.

(LAUGHTER)

SANCHEZ: I think it's just...

PRESS: Hey, well...

SANCHEZ: I think it's part of what we're going to go through for the next two days in this cycle.

BLITZER: All right.

PRESS: They sat on the story.

(CROSSTALK)

SANCHEZ: You know...

PRESS: If I may, they sat on the story, Leslie, because John McCain asked them to sit on the story.

(CROSSTALK)

SANCHEZ: No. That is completely false.

PRESS: There's no timing for a bad story.

BLITZER: All right.

SANCHEZ: That's completely false. He denied that today. That is false, Bill.

BLITZER: All right.

They -- just for the record, the editor of "The New York Times," Bill Keller, says they were doing their reporting. They were continuing. The story wasn't ready. That's why they sat on it and didn't want to go to press until they said it was ready.

SANCHEZ: So, it leaks -- it finds its way -- so, it finds its way to The Drudge Report.

(CROSSTALK)

BLITZER: Hold on. We have got -- we have got to leave it right there.

PRESS: All right.

(LAUGHTER)

BLITZER: That's what news organizations do. They work their stories.

(LAUGHTER)

BLITZER: And when they're -- they feel they're ready, they report them. But let's see what happens, because I -- I suspect this battle is going to continue between "The New York Times" and the McCain campaign.

All right, guys, thanks very much...

PRESS: All right. Thanks, Wolf.

BLITZER: ... Leslie Sanchez and Bill Press.

ANNOUNCER: This is CNN breaking news.

BLITZER: Let's go right back to Carol Costello. She has got some new details on what's happening in Serbia.

What are we learning, Carol?

CAROL COSTELLO, CNN CORRESPONDENT: Yes.

We have been telling you about the rioting in Serbia and how masked men and women and attackers broke into the U.S. Embassy in Belgrade. Well, a radio station in Serbia -- this is according to the Associated Press -- is reporting that a charred body was found inside of the U.S. Embassy.

Now, keep in mind, the U.S. State Department has told us that they have accounted for all personnel. And they say no American has been injured. But, again, the Serbian radio station B-92 is apparently reporting that a charred body was found inside the U.S. Embassy.

When we find out more, of course, we will pass it along to you -- back to you, Wolf.

BLITZER: All right, Carol, we will stay on top of this story. Thank you.

Just a little bit more than three hours from now, right here on CNN, Democratic presidential candidates Barack Obama and Hillary Clinton take the stage for a highly anticipated one-on-one debate. We're going to have some details, what we can expect.

But, first, two high-profile Democratic strategists, one a supporter of Obama, the other a supporter of Clinton, they will meet, square off -- right here in THE SITUATION ROOM.

And will a corruption scandal keep the longest-serving Republican in the history of the U.S. Senate from running for reelection?

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

(COMMERCIAL BREAK) BLITZER: In today's Political Ticker: The man who served longer than any other Republican in Senate history wants another term.

Ted Stevens of Alaska filed for reelection today. Stevens is under federal investigations for his ties to an oil contractor and the renovation of his home. He's not been charged. Democrats still hope the investigation will make Stevens a weakened candidate.

Remember, for the latest political news any time, check out CNNPolitics.com.

Let's go back to Jack and "The Cafferty File" -- Jack.

CAFFERTY: Isn't Stevens the one who wanted to build that bridge to nowhere?

BLITZER: Well, it was going to go some little place, yes. But that's what it was called.

CAFFERTY: Yes, but, I mean, he was -- he was...

(CROSSTALK)

BLITZER: Right. He liked that bridge. He liked that bridge.

CAFFERTY: Yes.

They should build it, and he should go jump off it.

(LAUGHTER)

CAFFERTY: The question: How much will newspaper stories raising questions about John McCain's ethics and his alleged relationship with a woman lobbyist hurt his presidential chances?

Greg writes: "This could be 'Taps' for McCain. "The Times" may be ambushing him. What if they have the equivalent of Monica's blue dress and they're just waiting for McCain to lie about it?"

Randy in Missouri weighs in with this: "Before it's all over, dirt will come up on all the candidates, and the amount of damage depends on how much attention you guys give it. I hope you are fair about it all the way around."

Steve in Fort Worth, Texas: "I'm sorry. I don't believe 'The New York Times' has any balance in their credibility account. These reporters may be thought of as fair within 'The Times,' but a -- quote -- 'story of this magnitude' -- unquote -- deserves at least one source that can be named. I don't buy it."

Chantal in Canada: "All I got to say is read about the Keating Five. Who's so pure and full of integrity now?"

W. writes: "Jack, it won't matter at all. He wasn't going to win anyway." Trevor in Stamford, Connecticut: "McCain, in my opinion, shouldn't lose sleep over this. Scandals, unfortunately, seem to be standard practice in Washington."

Jazz writes: "Wow. Mugging the old man before the start of the race. Somebody really wants the young guy to win this. There will be payback, and we know it. Hold on to your hats, folks. It's going to be a rough ride."

And F.H. in South Carolina says, succinctly, "McCain's actions definitely cast doubt, and that's the poison" -- Wolf.

BLITZER: See you in a few moments Jack. Thank you.

And, to our viewers, you're in THE SITUATION ROOM.

Happening now: It could be Hillary Clinton's last chance to turn Texas her way, her high stakes debate with Barack Obama only three hours away. She's laying the groundwork today, but can she achieve a defining moment tonight?

John McCain vs. "The New York Times" -- the paper is raising serious allegations about his ties to a female lobbyist in what the McCain camp calls a liberal smear.

And the U.S. Embassy in Serbia in flames -- rioters stage a fiery attack, as chaos breaks out in the streets of Belgrade, where thousands of Serbs are outraged over Kosovo's independence.

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

A very tense situation in the Serbian capital right now -- rioters attacking the United States Embassy in Belgrade, setting it on fire.

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