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Iraq's 'Hope & Optimism'; Delegate Gold in Puerto Rico; Hillary Clinton Caught Between True & False

Aired April 8, 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, a review of Iraq's sobering realities after five years of war. America's military and diplomatic leaders for Iraq offering an upbeat assessment of what's happening right now, then they're grilled on what's not going well. Both men took questions from the next commander in chief.
All three presidential candidates are up on Capitol Hill. Wait until you hear what the U.S. ambassador said about current troop plans affecting the next administration.

And on the campaign trail, another story Hillary Clinton told is raising questions. So what's the truth about what she said involving a tragedy?

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

It's the first time since September they've appeared together with an update on Iraq. What General David Petraeus and Ambassador Ryan Crocker told lawmakers paints a sobering picture of the progress and the pains of this war.

(BEGIN VIDEO CLIP)

GEN. DAVID PETRAEUS, COMMANDER, MULTINATIONAL FORCE, IRAQ: Since Ambassador Crocker and I appeared before you seven months ago, there has been significant, but uneven, security progress in Iraq. Since September, levels of violence and civilian deaths have been reduced substantially. Al Qaeda in Iraq and a number of other extremist elements have been dealt serious blows. The capabilities of Iraqi security force elements have grown, and there has been noteworthy involvement of local Iraqis and local security.

(END VIDEO CLIP)

BLITZER: Although General Petraeus says Iraqi troops are slowly getting better, he said they're not yet ready to defend Iraq. And he said Iran is playing a destructive role in the country.

And this summer, when U.S. troop levels are expected to return roughly to where they were before the troop increase, Petraeus said this...

(BEGIN VIDEO CLIP)

PETRAEUS: At the end of that period, we will commence a process of assessment to examine the conditions on the ground and over time determine when we can make recommendations for further reductions.

(END VIDEO CLIP)

BLITZER: Essentially, General Petraeus wants the military to pause for some 45 days this summer before making any more decisions on troop level reductions.

Meanwhile, there was a telling comment regarding whoever occupies the White House after President Bush. It involves an agreement the United States is negotiating right now with the government of Iraq for a continued U.S. military troop presence.

(BEGIN VIDEO CLIP)

RYAN CROCKER, AMBASSADOR TO IRAQ: The agreement will not specify troop levels, and it will not tie the hands of the next administration. Our aim is to ensure that the next president arrives in office with a stable foundation upon which to base policy decisions.

(END VIDEO CLIP)

BLITZER: There's a bit of irony in that Petraeus actually faced -- faced the next president of the United States. John McCain, Hillary Clinton, and Barack Obama all sitting on the committees questioning the general and the ambassador.

McCain and Clinton on the Armed Services Committee, which questioned General Petraeus and Ambassador Crocker earlier today. And right now, the Foreign Relations Committee is getting its turn. Barack Obama is a member of that committee.

And we could be hearing from him and his questioning of these two witnesses at any moment. We'll bring that to you live as soon as it starts.

Our Dana Bash will have more regarding Senator McCain's questioning earlier in the day.

But let's go to our senior political correspondent, Candy Crowley. She's been watching the Democratic candidates and what they're up to right now.

Senator Clinton, Candy, as you know, wasted no time responding to something that Senator McCain said.

CANDY CROWLEY, CNN SR. POLITICAL CORRESPONDENT: Absolutely, Wolf. You know, this is the time to kind of strut your commander in chief credentials, but after all, they are in the middle of a political campaign.

So, first she took care of some campaign business, not a question for the witness, but a shot at John McCain, who said yesterday that a quick withdrawal from Iraq would leave a calamity behind, and anyone who suggests that withdrawal is irresponsible. He didn't mention any names, and neither did she. (BEGIN VIDEO CLIP)

SEN. HILLARY RODHAM CLINTON (D-NY), PRESIDENTIAL CANDIDATE: I think it could be fair to say that it might well be irresponsible to continue the policy that has not produced the results that have been promised time and time again at such tremendous cost to our national security and to the men and women who wear the uniform of the United States military.

(END VIDEO CLIP)

CROWLEY: And with that, the woman who would be in commander in chief in low and deliberate tones told the general of the Iraq war that his recommendation notwithstanding, it's time for the troops to come home.

(BEGIN VIDEO CLIP)

H. CLINTON: As many of us predicted and as you, yourself, stated, we still do not see sufficient progress. What conditions would have to exist for you to recommend to the president that the current strategy is not working?

(END VIDEO CLIP)

CROWLEY: In the short time senators are allotted, Clinton also took exception to the administration's plan to work out that long-term agreement with Iraq about the presence of U.S. troops, without first coming to Congress.

(BEGIN VIDEO CLIP)

H. CLINTON: Well, Ambassador Crocker, it seems odd, I think, to Americans who are being asked to commit for an indefinite period of time the lives of our young men and women in uniform, the civilian employees whom you rightly referenced and thanked, as well as billions of dollars of additional taxpayer dollars, if the Iraqi parliament may have a chance to consider this agreement, that the United States Congress would not.

(END VIDEO CLIP)

CROWLEY: So, essentially, Wolf, what we're talking about here is pretty much what both McCain and Clinton have said on the campaign trail, just in sort of lower tone in a Senate forum.

BLITZER: They have to be very careful, because general Petraeus is a career military officer. Ambassador Crocker is a career diplomat, a foreign service officer. It's not as if they're political appointees by the Bush administration in which they can sort of, you know, roll up their sleeves and really go after them. They have to walk a delicate line.

CROWLEY: Absolutely. And what was interesting to me is, if you remember the last time he was up on Capitol Hill, she talked about how his testimony would require the willing suspension of belief. You know, she really kind of went after him and undermined -- tried to undermine the credibility of what he was saying. There was none of that this time.

BLITZER: All right. And we're standing by to hear the questioning from Senator Barack Obama. He'll be questioning before the Foreign Relations Committee General Petraeus and Ambassador Crocker. We'll bring that to our viewers as soon as it starts.

Candy, thanks very much.

Meanwhile, John McCain talked positively about Iraq's potential and said the United States is "no longer staring into the abyss of defeat."

Dana Bash has been watching all of this very closely.

Dana, starkly different words coming from Senator McCain and the other Democratic presidential candidates, and all the Democrats in general on the Armed Services Committee.

DANA BASH, CNN CONGRESSIONAL CORRESPONDENT: You're right, Wolf. You just heard Candy describe the substance of what Hillary Clinton said. Well, anybody listening to Clinton and also listening to John McCain talking about the same war and the same room at the very same hearing might think that they're living in parallel universes. Obviously, politically, they are.

And for John McCain, his world right now is all about making the case for this strategy, the strategy that he is so much banking on, making the case that it is succeeding.

(BEGIN VIDEOTAPE)

BASH (voice-over): Any question about just how critical this day in the Senate was to John McCain can be answered by looking at how he started it -- a campaign rally with veterans right on Capitol Hill.

SEN. JOHN MCCAIN (R-AZ), PRESIDENTIAL CANDIDATE: My friends, we will never surrender to the extremists. And they...

BASH: Next, the presumptive Republican nominee used his position as the committee's top GOP senator to take on his urgent challenge, proving naysaying Democrats wrong on Iraq.

MCCAIN: Today, it is possible to talk with real hope and optimism about the future of Iraq and the outcome of our efforts there.

BASH: Trying to tap into Americans' desire to win, McCain declared success was in reach and used a favorite stump line to chastise Democratic rivals, as one sat listening.

MCCAIN: To promise a withdrawal of our forces regardless of the consequences would constitute a failure of political and moral leadership.

BASH: On the trail, McCain regularly applauds General Petraeus.

MCCAIN: Thank God for General Petraeus, one of the great generals in American history.

BASH: But as rosy an Iraq picture McCain hopes to paint, he's trying to gain credibility with war-weary voters by acknowledging problems.

MCCAIN: The thousand Iraqi army and police deserted or underperformed.

BASH: He gently questioned Petraeus about Iraqi military defections during battle in Basra.

MCCAIN: Suffice it to say it was a disappointment.

PETRAEUS: It was. Although, it is not over yet, Senator.

BASH: He led the witness, too, especially to make the crux of his argument for staying in Iraq.

MCCAIN: Do you still view al Qaeda in Iraq as a major threat?

PETRAEUS: It is still a major threat, though it is certainly not as major a threat as it was, say, 15 months ago.

MCCAIN: Certainly not.

(END VIDEOTAPE)

BASH: Now, McCain also got some help from his two Senate wingmen on this issue, Joe Lieberman and Lindsey Graham. They both used their question time, Wolf, with General Petraeus to really scold Democrats for not acknowledging progress in Iraq. But, you know, Wolf, that's also an argument that Senator McCain admits is harder to make as violence is on the upswing in Iraq.

BLITZER: What a day. And it's going to continue tomorrow as well.

All right, thanks very much, Dana, for that.

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

Jack, we're standing by. At some point we're going to be breaking away -- I don't think in the next few minutes -- and listen to Senator Obama grill these two witnesses before the Foreign Relations Committee. Once that happens, we'll go there live.

JACK CAFFERTY, CNN ANCHOR: Well, he's last on the seniority list. So it could be later this evening before we get to hear from Senator Obama.

In the meantime, it looks like voter turnout in the upcoming Pennsylvania primary April 22 could follow those record-breaking trends that we've seen set all over the country this year. Statewide, there are 8.3 million registered voters. That's only 50,000 fewer than voted in the 2004 presidential election, and we're only talking about the primaries here. Officials say the numbers will go higher. They're continuing to process applications that were due on March the 24th.

Chalk up the huge numbers to the excitement that seems to be bubbling over, especially when it comes to the race between Barack Obama and Hillary Clinton. The implications in Pennsylvania not good for the Republicans, though -- 4.2 million Democrats have registered in Pennsylvania so far this year. That's almost a 14 percent increase from the 2004 Democratic presidential primary.

But Republican registration has remained virtually flat at 3.2 million voters. What that means is Democrats now outnumber Republicans in some of the counties outside Philadelphia that have long been bastions for the GOP.

It's going to be interesting to see what an increased voter turnout could mean in the match-up between Obama and Clinton. Pennsylvania's got 158 delegates, more than any of the remaining states.

The polls continue to suggest that Obama is closing fast on Clinton's one-time lead of more than 30 points. The most recent CNN Poll of Polls shows that Clinton is now ahead by just 6 -- 49 percent to 43.

So, here's the question: Who benefits most from record Democratic voter registration in Pennsylvania?

Go to cnn.com/caffertyfile and you can post a comment on my blog -- Wolf.

BLITZER: Pennsylvania shaping up as a critical, critical test for Hillary Clinton, because I think a lot of her supporters acknowledge, as you well know, that if she loses, if she were to lose in Pennsylvania on April 22, we could hear a very different story from her on April 23.

CAFFERTY: Yes, we'd have to get a bowling team together here in THE SITUATION ROOM, because we wouldn't have enough to do.

BLITZER: We always have enough to do. Lots of news happening, Jack.

Thanks. We'll get back to you very, very soon.

Iraq is doing well for itself in one area. It's now generating tens of billions of dollars in oil revenues.

Given the huge amount of oil it exports, that's more than $100 a barrel. One Democrat even said Iraq has billions of dollars in surplus funds right now sitting in American banks. So why is the U.S. government, American taxpayers, still paying the lion's share of what's needed to rebuild Iraq?

We'll talk about it with Republican Senator Lindsey Graham. He's a strong supporter of the war effort.

Hillary Clinton tells another story, raising questions about what's true and what's not true. Brian Todd standing by to get to the bottom of this one.

And Bill Clinton goes to Puerto Rico. But it's no vacation. No vacation at all. You're going to find out why this one could potentially be a critical trip.

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

(COMMERCIAL BREAK)

BLITZER: Standing by to hear from Senator Barack Obama. He's going be questioning General David Petraeus, Ambassador Ryan Crocker, over at these hearings before the Senate Foreign Relations Committee. As soon as his questioning starts, we'll go there live.

Could a Caribbean island that's not a U.S. state play a key role in choosing the next Democratic presidential nominee? Hillary Clinton's campaign seems to think so, so former president Bill Clinton is in Puerto Rico right now.

Let's go to our senior political analyst, Bill Schneider. He's watching this story for us.

Bill, it's a pretty important area for the Democratic -- Democratic candidates right now, and that's why Bill Clinton is there.

WILLIAM SCHNEIDER, CNN SR. POLITICAL ANALYST: That's right. He was not there, Wolf, on pensioner's holiday.

(BEGIN VIDEOTAPE)

SCHNEIDER (voice-over): Puerto Rican residents can't vote for president, but they can vote for presidential nominees of both parties.

HOWARD DEAN, DNC CHAIRMAN: It may even go to Puerto Rico, which is the last polling that goes on.

SCHNEIDER: Well, not quite. Puerto Rico Democrats originally scheduled their contests on June 7, the first Sunday in June as required under Puerto Rico law.

WILLIAM JEFFERSON CLINTON, FMR. PRESIDENT OF THE UNITED STATES: Now it won't be over until the last people vote in Puerto Rico on June the 7th.

SCHNEIDER: But it turns out that date was a typo. The first Sunday this June is June 1, two days before the final primaries in South Dakota and Montana.

That wasn't the only change of plans. Puerto Rican Democrats originally planned to hold caucuses. But when they saw how competitive the Democratic race was, they decided to hold a primary instead. That could help Hillary Clinton overcome Barack Obama's lead in delegates and popular votes.

Latino voters have delivered for Clinton in primaries all over the country. Clinton even held Obama to a tie among Latino voters in Obama's home state of Illinois. There are as many Puerto Ricans living on the mainland as in Puerto Rico itself. They're American citizens, not immigrants. New York, where Clinton is senator, has a large Puerto Rican population, most of whom have relatives in Puerto Rico.

W. CLINTON: She has a plan to bring more jobs to Puerto Rico, and we have worked with the people (INAUDIBLE).

SCHNEIDER: Puerto Rico will elect 55 pledged delegates to the Democratic convention. That's more than 34 other states and territories. No wonder the Clinton campaign sees delegate gold in Puerto Rico.

(END VIDEOTAPE)

SCHNEIDER: Puerto Rico is one of the largest of the 10 remaining Democratic contests. Puerto Rico will elect more pledged delegates than Oregon, Kentucky, West Virginia, Montana, or South Dakota. With all those delegates, it's a good bet we'll see Hillary Clinton and Barack Obama campaigning in Puerto Rico. But carefully, because, Wolf, neither of them speak Spanish.

BLITZER: All right, we'll be watching very closely, Bill. Thank you.

(NEWSBREAK)

BLITZER: The Olympic flame arrives on U.S. soil. The event is intended to promote this summer's games in Beijing, but some people are using the torch relay to fan the flames of protests.

We're going to show you what's going on.

And the top U.S. military commander in Iraq coming to Capitol Hill armed with charts and statistics. How accurate though are his claims?

We'll fact-check today's testimony from General David Petraeus.

And we're standing by to get the questioning from Senator Barack Obama. He's going to be questioning General Petraeus and Ambassador Crocker. That should be coming up fairly soon before the Senate Foreign Relations Committee.

Much more of our coverage coming up right here in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: Hillary Clinton has been criticized in recent days over a heart-wrenching story she's been telling out on the campaign trail. The problem is some people -- some people -- say it's simply not true. The campaign says she was merely repeating what she was told, and now others are coming forward to say that some parts of the story actually are very accurate.

Let's go to Brian Todd. He's been sorting through this complicated story trying to get to the bottom of it.

What are you finding out, Brian?

BRIAN TODD, CNN CORRESPONDENT: Not easy to get to the bottom of it, Wolf. We are finding that some parts are accurate. Some key parts of the story are not accurate. And it all speaks to how a personal story can get very tangled on the campaign trail.

(BEGIN VIDEOTAPE)

TODD (voice-over): First, she heard the story that tugged at her heart. At a campaign stop in Ohio in late February, someone tells Hillary Clinton of an uninsured pregnant woman that he heard was turned away from a local hospital.

BRYAN HOLMAN, POMEROY, OHIO, RESIDENT: And they told her she needed $100 that she didn't have.

H. CLINTON: That's really sad.

TODD: The baby was stillborn and the woman later died. Senator Clinton retold the story several times to illustrate a broken health care system.

H. CLINTON: She went back home. She came back a little while later, still having trouble. They told her the same thing. The next time she went to that hospital was in an ambulance.

TODD: But in recent days, Mrs. Clinton and her campaign have come under fire. Officials at one southern Ohio hospital say they treated the woman several times, never turned her away. And they say she was insured when she came through there last summer.

That hospital told the Clinton campaign to stop making those claims, which it did. But news reports now quote the woman's aunt as saying it's a true story. The aunt saying another hospital did want payment before seeing her.

We did some checking on our own. That other facility that the aunt mentioned says they have no indication the woman ever tried to seek treatment there last summer. But she did years ago.

Records obtained by CNN show that facility took her to court in 2002 over unpaid bills. And the aunt told a newspaper the woman didn't want to go back there, that the facility would charge her up front because of her previous debts.

By last summer, when the woman was pregnant, she found a different medical facility. She was insured by then. An official there tells us they treated her eight times. Her baby died, and she was then transferred to a third hospital where she died. So it turns out the guy who told Hillary Clinton the story didn't have all his facts straight. Clinton passed it on time after time, which analysts say happens on the campaign trail a lot.

MARK HALPERIN, "TIME" MAGAZINE: It's up to a responsible campaign to check out the facts before the candidate incorporates it as a key part, an emotional part, in this case, of their stump speech.

(END VIDEOTAPE)

TODD: Now, a Clinton campaign spokesman said they had no reason to doubt the initial story told her by a local sheriff's deputy. The spokesman says they tried, but they were not able to fully vet this story. They say medical records are confidential.

But we did speak to officials at all three medical facilities in question. They tell us they have no recollection of being called by the Clinton campaign to vet any of this.

We've called and e-mailed the campaign throughout the day to ask why they apparently let her tell the story without fully vetting it. We're getting some back-and-forth on that, Wolf. They say they did vet it as well as they could.

The bottom line is they say this woman knew she couldn't go to the one facility without paying the $100. That's why she didn't go. And they say it speaks to the fact that she was underinsured. We are literally just still getting e-mails from the Clinton campaign trying to kind of discern why this kind of came out the way it did.

BLITZER: All right. Let us know if you get any more information that we need to report, Brian. Thank you.

An ambassador, a general, and two U.S. Senate committees. A major hearing about the war under way right now up on Capitol Hill, but does it match what's happening on the ground in Iraq right now? We're doing a fact check on the testimony.

Jamie McIntyre is standing by live.

Also, Senator Lindsey Graham, he's standing by live as well, right here in THE SITUATION ROOM, only hours after his own questions during the hearing. What he says about today's testimony on Capitol Hill, that's coming up.

And remember, we're only moments away from Senator Barack Obama getting ready to start his grilling of these two witness before the Senate Foreign Relations Committee. We'll go there live once he starts with his questions.

Much more on THE SITUATION ROOM right after this.

(COMMERCIAL BREAK)

BLITZER: To our viewers, you're in THE SITUATION ROOM. Happening now, foreign policy in the presidential race. Barack Obama sets off some sparks by saying he understands the world better than Hillary Clinton and John McCain. And that's not the only slap he took at his rivals. A full report on that coming up.

Also, Obama's campaign is inspiring enormous pride among many African-Americans, but is it also creating enormous pressure? Carol Costello digging into an issue that many African-Americans don't want to talk about, at least not right now.

And police announce the arrest of two men in connection with a polygamist ranch in central Texas. More than 400 children have now been taken from the ranch and put into protective custody.

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

As he gave lawmakers an update on Iraq, General David Petraeus used a dozen charts to make his overall argument that the trends are looking up in Iraq, despite the recent uptick in violence.

We have asked our senior Pentagon correspondent, Jamie McIntyre, to do some fact-checking for us involving all of these charts.

So, Jamie, what do you see? What are we seeing right now?

JAMIE MCINTYRE, CNN SENIOR PENTAGON CORRESPONDENT: Well, you know, Wolf, the old saying, everyone is entitled to their own opinion, but not their own facts.

So, we thought we would take a look at what these charts do and don't say. First up is, how much of Iraq is actually being controlled by the Iraqi government? This map purports to show how it's changed between last year and this year, three provinces compared to nine provinces.

But you notice, included is Basra there down in the south. And the recent fighting in Basra has clearly shown that that's actually under the control of Shia militias, not the Iraqi government. So, I think you would have to say that that doesn't exactly show the real picture of what's happening in Iraq.

BLITZER: And what about this other issue, the so-called Sons of Iraq, these former Iraqi insurgents, if you will, especially in the Al Anbar Province? What does it show about them?

MCINTYRE: Well, they're -- again, they are citing this as one of the keys to success.

And the Sons of Iraq have moved from about 21,000 to about 90,000. And here on this chart, for instance, we see that there's 100 battalions that are supposed to be able to take the lead, but, again, as we have seen in -- in our own reporting from Iraq, it takes, sometimes, U.S. commanders to give a real swift kick to get some of those troops into battle.

You get back to the Sons of Iraq, though, the -- the question there is, it's moving from 21,000 to 91,000 on the payroll. But the key sentence there is "on the payroll." The U.S. is paying these people. And the real question is, what happens when they're not paid? The U.S. is trying to make sure that the Iraqi government picks up those paychecks.

BLITZER: Because there's -- a lot of people fear that, as -- as quickly as these guys switched from being enemies, insurgents, terrorists, killing Americans, killing Iraqi troops, and now being on the payroll in effect of the U.S. government, they could flip right back very quickly if they weren't on the payroll of the U.S. government.

MCINTYRE: Right. But, still, General Petraeus argues that this is a real bargain, about $16 million for this program. That's just a fraction of what it costs when you look at the saved lives and even just the -- the vehicles that are being destroyed by roadside bombs.

BLITZER: Jamie, thanks very much for that fact check -- our senior Pentagon correspondent, Jamie McIntyre.

And, meanwhile, Iraq is generating tens of billions of dollars in oil revenues, so, why is the United States still paying for most of the reconstruction effort?

Joining us now -- joining us now from Capitol Hill is Republican Senator Lindsey Graham of South Carolina. He's a key member of the Senate Armed Services Committee.

Senator, thanks very much for coming in.

SEN. LINDSEY GRAHAM (R), SOUTH CAROLINA: Thank you for having me.

BLITZER: All right, let's talk a little bit about why American taxpayers are paying for all of this reconstruction at a time when the Iraqis have accumulated enormous surpluses as a result of $100-a- barrel oil exports. The U.S. is spending billions of dollars, money the Iraqis should be spending. Isn't that an outrage?

GRAHAM: Well, the Iraqis are spending $11 for every of our $1 on reconstruction. And, by next year, they will be responsible for all reconstruction projects major in nature. That's what General -- excuse me -- Ambassador Crocker said today. Next year, they will be responsible for the entire security bill.

So, yes, they are be taking more financial responsibility. They should. But I think we need to appreciate the fact that Saddam Hussein basically raped this country when it comes to infrastructure. But, yes, they are going to be spending more. They are going to be fighting more. And that's a good thing. And I think they should.

BLITZER: But here are the -- here are the statistics that the chairman of your committee, Carl Levin, put out today, which I don't think necessarily are in line with what either Ambassador Crocker or what you were just saying. The Iraqis promised to spend $10 billion in reconstruction last year. According to Levin, they wound up spending 4.4 percent of that, the General Accounting Officer number. The White House number, they wound up spending 24 percent of that.

What's wrong with this picture?

GRAHAM: Well, the ministries that are going to spend the money have basically been very poorly functioning. So, you don't want to spend the money unless you can account for it. But the ministries are getting better. The surp (ph) fund, the commander fund available to commanders to help infrastructure, is going to be matched by Iraqi dollars.

And the trend lines are all in the right direction, finally, in terms of political progress, economic progress, military progress, now Iraqi assumption of responsibility. The trend lines in terms of financial responsibility by the Iraqis are going in the right direction, as well as military responsibilities. But we have got a ways to go.

BLITZER: So far -- so far, we have spent, in terms of American taxpayer dollars, $27 billion to build roads...

GRAHAM: Right. Right.

BLITZER: ... bridges, hospitals, schools in Iraq, $27 billion, which is a lot of money.

Listen to what Carl Levin said earlier today.

(BEGIN VIDEO CLIP)

SEN. CARL LEVIN (D-MI), ARMED SERVICES COMMITTEE CHAIRMAN: Iraq now has tens of billions of dollars in surplus funds in their banks and in accounts around the world, including about $30 billion in U.S. banks.

(END VIDEO CLIP)

BLITZER: And, this year, they're going to generate $56.4 billion in oil exports. Shouldn't they start reimbursing American taxpayers for all this money that we have spent there, given how much money they're getting?

GRAHAM: They should do more, and they will do more. But let me put this in terms of cost, in terms of our national security interests.

Wolf, remember "Charlie Wilson's War?" Did you see the movie?

BLITZER: Yes, I did. And I know Charlie Wilson...

(CROSSTALK)

GRAHAM: Yes. The last debate was whether or not we should spent $1 million on Afghan schools. If we could go back in time, what would we do to fill the vacuum created by the Taliban -- that the Taliban filled in when the Soviets left?

BLITZER: Here's the difference. Here's the difference, Senator, with all respect. The Afghans had zero exports in oil.

GRAHAM: Right. Right.

BLITZER: They had zero -- they had zero money. The Iraqis have billions of dollars, including $30 billion sitting in U.S. banks right now.

GRAHAM: The point that you're making is a good point. They should do more militarily, and they should pay the bill in larger measure. And they are, and they will.

But my point is very simple. It's in our national security interests that Iraq become a stable, functioning government, saying no to al Qaeda, a buffer to Iranian ambitions. What is it worth to the American people to have an ally in the Mideast, a country in the middle of the Mideast that aligns themselves with us against al Qaeda, that will say no to Iranian desires?

We have got a long way to go in Iraq. It's going to cost money, and it's going to cost more injuries and more lives. But, in my opinion, it's worth it. And isn't that really your question? "Senator Graham, is it worth it?"

Yes, it's worth it to me to win in Iraq, because losing in Iraq will cost us more.

BLITZER: No, we're just focussing in on whether or not U.S. taxpayers should be funding the school reconstruction, the bridges, the roads, at a time of economic dislocation here in the United States, recession, fear of recession. Certainly, we could use $27 billion or $30 billion for reconstructing parts of South Carolina right now, too.

GRAHAM: Absolutely. But, in my opinion, people in South Carolina are better off when Muslims will fight al Qaeda. And when you see a Muslim population saying no to al Qaeda, it's in our economic and national security interests to support them. The GDP we're spending on Iraq war effort is below five percent. It averaged seven percent in Vietnam, 17 percent in World War II.

It really depends how you view Iraq. Is Iraq a side adventure, where it makes no sense to spend any money, or is it part of a battle in an overall global struggle against radical Islam? To me, it is the central battlefront in the war on terror, the outcome of which will matter for generations, and it's worth it.

(CROSSTALK)

BLITZER: We're not discussing that.

(CROSSTALK) BLITZER: We're just discussing whether the billions of dollar they're getting every single week...

GRAHAM: Right.

BLITZER: ... whether they should start using it, as opposed to U.S. taxpayers funding this kind of infrastructure reconstruction.

GRAHAM: Right. I totally agree with you that the Iraqis should take more responsibility for major reconstruction projects. And they are. They should match what we're spending on reconstruction at the military level. They should spend more on their military. They are. They should buy airplanes from us. They are. They have got a long way to go. Their ministries don't work as well as I would like.

But the trend lines are moving in the right direction. And I'm -- I do understand. I -- I come from a poor state. But I'm also a United States senator, charged with the responsibility of trying to protect the nation against our enemies.

BLITZER: One final --

GRAHAM: And I can't think of a bigger enemy than al Qaeda right now.

BLITZER: -- One final question, Senator, before I let you go.

GRAHAM: Yes.

BLITZER: In the long run, assuming they are going to become a very wealthy, oil-rich state, making billions of dollars, should they start repaying us for all the money that we have spent trying to rebuild the country?

GRAHAM: You know what? I would love to have an ally in the Mideast that would say no to al Qaeda, that with align themselves with us, that would be a buffer to Iranian efforts to expand their regime. That would be repaying us, in my opinion, to make my country safer. If the Iraqis would do that, that would repay me.

BLITZER: Because, as you know, some of your colleagues are -- they wanted these to be loans, not grants to the Iraqis.

GRAHAM: I was the guy who introduced the amendment. Lindsey Graham was the chief sponsor of the loan vs. grant. And, if they can pay us back over time, great.

But I want them to succeed. It's more about the future than it is the past. And the money we're spending now can pay enormous dividends if we're successful in Iraq. But, if we fail, the money we're spending now will pale in comparison to the suffering to come. So, it's money well spent to create a buffer to Iran and to defeat al Qaeda and to have an ally in the Mideast we don't have today.

BLITZER: Senator Graham, thanks very much for coming in.

GRAHAM: God bless.

BLITZER: Big day here in Washington -- the hearings continuing.

We're standing by, also, for Senator Barack Obama. He's going to be questioning the two witnesses, General Petraeus, as well as the Ambassador Ryan Crocker. We will go there live once that questioning begins.

Thousands of people's -- people's -- people in cities around the world are working for one common goal right now, to disrupt the running of the Olympic torch. And they're not all fighting for the same cause. The torch is in the United States right now. We're going to have an update on what's going on.

Get ready, countdown to the Pennsylvania primary. It's two weeks away. Find out how close the race is getting and what Barack Obama is doing to try to close the gap.

And later, a very emotional moment for President Bush today. You're going to see the event that had him fighting tears in his eyes.

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

(COMMERCIAL BREAK)

BLITZER: The Olympic torch relay has been plagued by passionate demonstrators protesting China's human rights record.

The flame is now in San Francisco, where people are organizing online for more large-scale demonstrations tomorrow.

Let's go to our Internet reporter, Abbi Tatton.

Abbi, what do these people have in store?

ABBI TATTON, CNN INTERNET REPORTER: Wolf, let's look at the story so far, first of all, in London, on Sunday, where at least 36 people were arrested, then on to Paris, where, at times, the torch was sheltered in a bus for its own protection.

Now the torch is arriving in San Francisco, and protesters are gearing up for a day of events tomorrow. This umbrella group of demonstrators protesting China's Tibet policy is appealing for housing, transportation online in the last few days, promising a text message update if the torch route changes tomorrow.

But look around online, you will see this is not the only group organizing, all these groups distributing materials, all planning to be there to air grievances with China's policies. And if you look around on craigslist, you will see all the people looking for rides, sharing transport in order to be there tomorrow.

The Beijing official Olympic Web site has been trying to put a positive spin on this, writing organizers, condemning what they characterize as a few pro-Tibet independent activists along the torch route -- Wolf. BLITZER: Thanks very much for that, Abbi.

Coming up in our "Strategy Session," Senator Clinton says she's focused.

(BEGIN VIDEO CLIP)

H. CLINTON: If there's one word that sums up my campaign, and what it's all about, it's solutions. I'm offering real solutions, not just speeches.

(END VIDEO CLIP)

BLITZER: But, as her double-digit lead in Pennsylvania dwindles, can she keep going without a big win there?

And General Petraeus calls for a suspension of troop reductions in Iraq this summer. How will that impact Senator McCain's run for the White House? Donna Brazile and Dick Armey, they're standing by for our "Strategy Session" -- right here in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: We're exactly two weeks from the highly anticipated Democratic presidential primary in Pennsylvania. And now there are new indications that Barack Obama may be closing the gap on Hillary Clinton in that state.

Let's discuss in our "Strategy Session."

Joining us, the Democratic strategist Donna Brazile and the former Republican Congressman, the House -- the former House Majority Leader Dick Armey.

Guys, thanks very much for coming in.

Donna, these poll numbers are pretty interesting, what's going on in Pennsylvania right now. In the latest CNN poll of polls, the average of the major polls in Pennsylvania, right now, we have Clinton at 49 percent, Obama 43 percent. There's a six-point spread, as you see. But, a week earlier, it was an 11-point spread, 51/40. And, earlier in March, it was a 14-point spread, 52/38.

This trend is not good for Hillary Clinton in Pennsylvania.

DONNA BRAZILE, CNN POLITICAL ANALYST: Despite that, Wolf, she's still heavily favored, because she has a very popular governor, Ed Rendell, who is backing her, a newly elected mayor, Mr. Nutter, who is backing her.

BLITZER: In Philadelphia.

BRAZILE: In Philadelphia. She has the support of John Murtha in the west. She has strong union support. So, despite the up and the downs of the polls, I still think that Senator Clinton is heavily favored to win in Pennsylvania. BLITZER: They haven't been up and down. It's been narrowing pretty dramatically.

BRAZILE: Well, Senator Obama is putting a lot of money on television. He has a lot of money on the ground. He's connecting with voters. He's out there bowling and eating up every Philadelphia cheesesteak. So...

BLITZER: That -- that bus tour was pretty successful, a lot of people are saying.

BRAZILE: Absolutely. So, it's going to be a tight race.

BLITZER: All right. Can he win in Pennsylvania?

DICK ARMEY, FORMER REPUBLICAN HOUSE MAJORITY LEADER: Well, I mean, all things are possible.

(CROSSTALK)

BLITZER: Two weeks to go from today.

ARMEY: Well, I understand. And I wouldn't say it's impossible. He obviously has, and is spending a lot of money.

But, you know, we just -- I think it's sort of a monthly thing. Count Senator Clinton out, and watch her come back. Count her out, and watch her come back.

(LAUGHTER)

ARMEY: I think she would get Sidney Crosby to come out strong for her, he could sew up the whole state. Right now, he's probably the most popular person in the entire state.

But I also believe that Mrs. Clinton, Senator Clinton, will stay in this. She understands her obligation to the superdelegates. That's the elite of her party. Their judgment should prevail. She understands the importance of that. And I, for one, believe she owes it to the Democratic Party to stay in until the convention.

BLITZER: Sidney Crosby, are you saying -- who is Sidney Crosby?

ARMEY: He's the most important hockey player in...

BLITZER: Oh, OK.

ARMEY: ... in...

(CROSSTALK)

BLITZER: You knew that? Did you know that?

BRAZILE: No.

(CROSSTALK) BLITZER: I didn't know that.

(CROSSTALK)

ARMEY: They don't have hockey in New Orleans.

(CROSSTALK)

BLITZER: I thought he was talking about Bill Cosby for a second, who went to Temple University.

BRAZILE: Well, Bill Cosby is also very popular.

BLITZER: He's a popular guy in Pennsylvania, too.

(CROSSTALK)

BLITZER: Just give us your sense, as a strategist. If she were to lose in Pennsylvania, would it be over for her?

BRAZILE: No, I don't think so. I think we will look at the results in the -- the other upcoming states, North Carolina and Indiana, May 6, another crucial day for both Senator Clinton and Senator Obama. And perhaps, as many of us indicated, this will go all the way to June.

BLITZER: How important is this testimony that we're hearing today and tomorrow from General Petraeus, as well as Ambassador Crocker, on Senator McCain's chances of being the next president of the United States? And let me rephrase it. How important is the war in Iraq to his chances of being the next president of the United States?

ARMEY: Well, of course, the war in Iraq is an important issue that continues to carry a great deal of public attention.

I think the attention is going to shift more and more to the economy and to the future of this economy. And, if Senator McCain comes out with the big, bold ideas about retirement, security reform, tax reform, economic growth measures, I think he can...

(CROSSTALK)

BLITZER: Well, you know him well. You think he's going to do that?

ARMEY: I think he --

(CROSSTALK)

BLITZER: Because you fought with him on a lot of those issues over the years, as you well remember.

ARMEY: Yes. Well, I did not actually fight with the senator. I was always very appreciative of his leadership on holding down the costs of big government. BLITZER: Well, when he voted against the Bush tax cuts, you weren't happy about that.

ARMEY: Well, I didn't -- I didn't have a big problem with him doing that, because you can follow the lead of Milton Friedman. The real rate of taxation is the level of spending. Senator McCain has always held a position your first responsibility is to get control of the level of spending.

I think that's a position to be applauded. And, frankly, I think it's a position that our party should look at. Let's get control of spending. Then we can enjoy tax reduction.

BLITZER: What do you think about this war and McCain?

BRAZILE: First of all, I want to say that Dick Armey is right. We have got to get spending under control and then look at those tax cuts. But those tax cuts should not be extended.

I think Senator McCain is in a real bind. Look, today, you saw, with his line of questioning, he tried to get General Petraeus and Ambassador Crocker to agree with him that the country should stay in and not reduce the legal of troops until the Iraqis are ready to step up.

I think the American people -- and you saw that with the Senator Clinton line of questioning -- the amount of money that we spent, $22 billion just, you know, training the Iraqi army, at some point, the American people will say, enough is enough. They have already said that in the polls. And, if John McCain won't pay attention to the people, I don't think they will pay attention to him this fall.

BLITZER: How does he avoid this notion that, if you elect John McCain, it's a third Bush term?

ARMEY: Well, that -- I think, quite frankly, there have been some very substantial differences between Senator McCain and President Bush. He is very clearly an independent-minded person.

I think all of us should take a lesson. Senator Clinton in particular ought to take a lesson about Iraq. Any time you have a great, big, massive government misadventure, it's easier to get in than to get out. That can be true of health care or any of the other 100 ideas that she has that America can't afford.

So, what Senator McCain is saying, we ought to proceed with a little more caution. But, once we're in, as we are now, we should have a very deliberate process by which we end this program, they end this -- this war and our involvement in it, in a manner that leaves the place able to function on its own.

BLITZER: Dick Armey, easier said than done, as you well know.

ARMEY: Right.

BLITZER: Donna Brazile, thanks, as well. Voters in one California district are heading to the polls today. The superdelegate seat and how it could impact the presidential race, that's next.

And the primary run is far from over, but Barack Obama's talking about potential running mates. What does he -- what he says he doesn't need in a vice president.

And, remember, momentarily, Obama is about to question the two witnesses before the Senate Foreign Relations Committee, General Petraeus, Ambassador Crocker. Once that questioning starts, we will go there live.

We will be right back.

(COMMERCIAL BREAK)

BLITZER: In today's political ticker, voting is under way in California right now to fill the seat of the late Congressman Tom Lantos, but it's also a race for a superdelegate who could support Hillary Clinton or Barack Obama. The Democrat Jackie Speier, who supports Clinton, is running against Michelle McMurry, who supports Obama. Speier is favored to wins once voting ends tonight. She was endorsed by Tom Lantos before he died in February of cancer.

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

Let's go back to Jack. He has got "The Cafferty File" -- Jack.

CAFFERTY: Wolf, the question this hour is: Who benefits most from record Democratic voting registration in Pennsylvania, up about 14 percent over what it was four years ago?

Republican registration, by the way, in the state is flat.

Keith in Irving, Texas, writes: "Prevailing sense would say it benefits Barack Obama, but you never know. Of course, Hillary's last few days will probably hurt her more than any recent voter registrations will help either candidate."

Dorothy in Ohio writes: "I hope it benefits Hillary, once people realize that she will put this country back on course to be respected once again by other countries -- not like it has been since Bush took office. We need to get out of debt, like it was when Bill was president."

Scott writes: "Barack Obama will. He's been able to excite and energize the electorate far more than Clinton has. Hillary will only benefit if a large portion of the new voters are crossover Republicans who listen to Rush Limbaugh and want to keep her in the race."

Mark in North Carolina says: "Is this yet another setup question to push Obama? Are we to assume that most or all new voters will vote for him? We won't really know until April 22, will we? Perhaps many of these new voters are simply sick and tired of having the networks tell them who to nominate."

Greg writes: "Definitely not the good Republicans left in the state who are still in their right minds."

And Ron in Richmond, Virginia, says: "Any time a large turnout happens, it is good for the people. But it also speaks volumes about the state of the union. We are barreling down an economic dirt road, and the bridge is out."

If you didn't see your e-mail here, you can go to my blog at CNN.com/caffertyfile. You can look for yours among the hundreds that are posted there -- Wolf.

BLITZER: Jack, thank you.

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