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Donations For Favors?; Marine Charged in Wife's Death; Tracing the Nation's Financial Crises

Aired July 14, 2008 - 15:00   ET

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

KYRA PHILLIPS, CNN ANCHOR: Topping the hour, a lobbyist with close ties to the White House is caught on tape offering access to key figures in the Bush administration. What does he want in return? A hefty donation to the private library that will honor President Bush.
In an undercover investigation by "The Sunday Times of London," Stephen Payne was asked to arrange meetings in Washington for an exiled former Central Asian president in exchange for a donation of up to three-quarters-of-a-million dollars.

Wheeling and dealing like this may seem shady, but, apparently, it's legal.

CNN's Ed Henry joins us now live from the White House.

It sure wouldn't be legal here, Ed.

ED HENRY, CNN WHITE HOUSE CORRESPONDENT: Well, Kyra, as Stephen Payne himself in a statement to CNN and some e-mails involved in this case that he has turned over to CNN suggests he realizes that it actually could be perceived to be bribery if in fact there were official actions in exchanged these hefty donations to the Bush Library.

And Mr. Payne insists to CNN that he believes this is gotcha journalism.

Let's tell you what actually happened. As you noted, secretly recorded videotape by "The Times of London," sort of a sting operation, basically Stephen Payne, a one-time Bush fund-raiser, he raised about $200,000 in the 2004 reelection campaign, and a lobbyist basically says he can deliver meetings with Vice President Cheney, Secretary of State Condoleezza Rice, in exchange for major donations to the Bush library, which is still being built in Dallas.

Take a listen. The audio is not perfect. It's a Web video that's on the Web site of "The Times of London."

(BEGIN VIDEO CLIP)

STEPHEN PAYNE, LOBBYIST: A couple of hundred thousand dollars or something like that. Not a huge amount, but enough to show that they're serious.

UNIDENTIFIED MALE: A couple hundred thousand? PAYNE: A couple of hundred thousand, I think that would probably get the attention of people raising the money, definitely Dr. Rice or I think a meeting with Dr. Rice.

(END VIDEO CLIP)

HENRY: Now, the White House denounced Stephen Payne's actions here. And Dana Perino, when I asked her about it at the daily White House briefing, basically suggested he was acting alone here. Take a listen.

(BEGIN VIDEO CLIP)

DANA PERINO, WHITE HOUSE PRESS SECRETARY: There's categorically no link between any official business in the Bush library. Steve Payne was never an employee of the White House, but we do use hundreds of volunteers a year, as you know, for helping us do advance work.

And I don't know all the facts about that situation, but we certainly would not advocate for such behavior.

(END VIDEO CLIP)

HENRY: So, what Dana Perino is admitting there, at the very least at the end, is that Stephen Payne has done some volunteer, I stress volunteer, advance work, basically logistical work in helping to set up foreign trips for President Bush and Vice President Cheney.

It's also worth noting that, when you go to the Web site of the Department of Homeland Security, Stephen Payne serves in an advisory committee for the secretary, Michael Chertoff there.

In a long written statement to CNN, though, Stephen Payne admitted that he did mention in these conversations that donations could be possible to think tanks, foundations and/or President Bush's library.

But he insisted that in these subsequent e-mails that CNN now has, he made clear -- quote -- "There could be no quid pro quo between those donations and any official actions by the White House."

Interesting as well, I pressed Dana Perino on whether they would release any visitor logs here at the White House to show whether Stephen Payne has brought to any of his clients to the White House.

She said she would consult with White House lawyers. But I think it's highly unlikely they would turn over those records. There's been litigation as she herself noted in previous cases about White House visitor logs. So, it's going to be very hard to pin down whether he brought any clients here -- Kyra.

PHILLIPS: All right, leave it to you to hold them accountable.

Ed Henry, live at the White House -- thanks, Ed.

HENRY: Thank you. PHILLIPS: Well, there's much more on that story coming up at the top of the hour of CNN's "THE SITUATION ROOM" with WOLF BLITZER.

Now, North Carolina police are holding a press conference right now, hopefully to shed some light on the death of an Army nurse.

Fayetteville Chief of Police Bergamine is speaking. Let's go ahead and listen in.

(JOINED IN PROGRESS)

TOM BERGAMINE, FAYETTEVILLE POLICE CHIEF: ... Sheriff's Office informed us of an unidentified body which was found in a remote location near Sneads Ferry, North Carolina.

Detectives redirected themselves and responded to that location. Upon arrival, our detectives were informed that a citizen who was in the area came across a body, and he immediately reported it to the officials of Onslow County Sheriff's Office.

The detectives requested assistance from NCIS and State Bureau of Investigation agents to secure the scene for further processing. Fayetteville Police Department detectives then drove to Camp Lejeune and arrested John Patrick Wimunc and Kyle Alden, who were brought back to Fayetteville for further processing.

As the investigation continued today, detectives developed probable cause to additionally charge John Wimunc with first-degree murder and Kyle Alden with conspiracy to commit first-degree for the death of Holly Wimunc.

But Wimunc and Alden are now in the Cumberland County Detention Center being held under no bond. With respects to the unidentified body at the -- forensics investigators process that scene, where the body was found. The body will be sent to the North Carolina State Medical Examiner's Office in Chapel Hill for an autopsy to determine a positive identification and cause of death.

With regards to this investigation, I need to let you folks know this case is still ongoing. And our folks need to do a great more deal of work. Therefore, in an effort to protect the integrity of this investigation and not to jeopardize the criminal prosecution of any pending charges, after today's press conference, we will not discuss any further details of the investigation.

We have been in contact with Holly Wimunc's family throughout this entire investigation and will continue to do so until the investigation is concluded.

In closing, I would like to thank all the agencies that assisted us during this investigation and will continue to assist us until a successful conclusion.

Those agencies once again are the state bureau of investigation, Naval Investigative Services, Fort Bragg CID, Alcohol Tobacco Firearm, key officials at Fort Bragg Public Affairs Office and Camp Lejeune Public Affairs Office.

Also, I would like to convey our appreciation to the various media sources here today for their patience with us during this high- profile case.

The combination of work done by all who had part in this investigation has proven that dedicated teamwork, spirit of cooperation, and focused results, results in success. I am very proud of the work of these folks standing behind me, our detectives, these agencies that helped us out, and they just really worked hard and have done a fantastic job.

At this time, we will take 10 minutes to entertain any questions you night have.

Again, I would like to thank all the media correspondents for your patience, your cooperation during this investigation. Your politeness has also contributed to the success of this investigation.

QUESTION: Chief...

(CROSSTALK)

QUESTION: You had an opportunity to (OFF-MIKE) the suspect in the case. Have you (OFF-MIKE) motive of what they have been talking to you about?

BERGAMINE: At this point, the motive, we would not really want to discuss.

QUESTION: Do you believe Holly Wimunc was killed here in Fayetteville?

BERGAMINE: Chris, come on up.

UNIDENTIFIED MALE: This is Detective (INAUDIBLE), the lead investigator in the case. He's assigned to the I run the Fayetteville Police Department's Homicide Unit.

I'm Sergeant Chris (INAUDIBLE). And I run the Fayetteville Police Homicide Unit.

(CROSSTALK)

UNIDENTIFIED MALE: ... Locklear (ph).

UNIDENTIFIED MALE: In response to that question, I think we can say with a great amount of certainty that she was killed here in Fayetteville, yes, sir.

QUESTION: Do you have a cause of death on that?

UNIDENTIFIED MALE: At this point, we do not. Again, that will be something that the medical examiner will have to give us.

And, again, we still do not have a positive identification on the body that was found in Onslow County. We need to make sure that we're clear with that. That's an issue that the medical examiner is going to have to resolve for us.

QUESTION: Can you talk us about the state of the body?

UNIDENTIFIED MALE: Obviously, it would be unrecognizable, OK? And let's just leave it at that.

If she was in such condition that we could have identified her visibly, then we would have done so and given you that today. But she's -- we couldn't. It's going to be a medical examination.

(CROSSTALK)

QUESTION: ... burned or because there were other things done to her body that would not let be able to let you identify it?

UNIDENTIFIED MALE: OK. That's something we would like to hold close. We are talking about these issues in an investigation. At this point, I think that's one of the things we would like to kind of hold close. So, we're going to...

QUESTION: Can you give any explanation as to why the apartment was burned in the first place?

UNIDENTIFIED MALE: I mean, it's hard to explain why people do what they do. As the investigation is unfolding, we're learning different things. We have a lot of interviews that we have left to do. We're only in, what, the third or fourth day of this thing. And, at this point, I couldn't say.

UNIDENTIFIED MALE: One could only assume...

PHILLIPS: Who killed this Army nurse, Holly Wimunc?

Well, North Carolina police believe they have their man. Now Chief Tom Bergamine with the Fayetteville North County Police Department just announcing that they are pushing forward with first- degree murder charges against Wimunc's husband.

Her charred remains were found yesterday. And then two camp Lejeune Marines were under just announcing that they are pushing forward with first-degree murder charges against Wimunc's husband. Her charred remains were found yesterday and then two camp Lejeune Marines were under arrest.

One was her estranged husband, Marine Corporal John Patrick Wimunc, along with Marine Lance Corporal Kyle Alden. Now we are being told or we are learning from the police chief, her estranged Hussein will be charged with first-degree murder, the other Marine, Lance Corporal Kyle Alden, with arson.

We will follow this investigation as we get more information. If you want to go to CNN.com, and watch this entire news conference that's taking place, you can do that as it's streaming live right now. Well, no matter where you deposit your paycheck, no matter where you take out your mortgage, you're asking some troubling questions today: Will Fannie Mae and Freddie Mac need your money to stay afloat? And does the IndyMac bank bust signal a dangerous trend? Will the cost of fuel keep on rising?

Well, President Bush thinks it will, and he's just sent a message to Congress. Investors are watching it all. And so are we.

(BUSINESS REPORT)

PHILLIPS: We have been thinking a lot about it on Friday, when IndyMac Bank went bust. And today, it's open again under government management and a slight different name. It's now IndyMac Federal Bank, and customers are at the door.

Let's get to straight to Pasadena, California, and Kara Finnstrom.

KARA FINNSTROM, CNN CORRESPONDENT: Well, you can see the doors to the bank behind me here. The FDIC has been letting people in 10 at a time.

And those people have lots of questions. So, it's been a long wait for people in these very long lines.

I want to pan around here and give you a look at the crowds that have really continued to grow here throughout the morning. At least 300 people are in these lines, we estimate. The lines actually stretch around the side of the bank. And these folks waiting quite a bit of time.

One of the messages the FDIC is trying to get out to the majority of its customers, who have less than $100,000 saved here, is that the money will be here, whether you come today, tomorrow or next week.

But those customers still have questions because there are a lot of complications here.

And Mary (ph) here has been waiting quite a while this morning. You did get an answer to your question. You have an insured amount, but tell us what your question was and the answer you got.

UNIDENTIFIED FEMALE: OK.

The answer I got from the FDIC representative was that if I had under $100,000 and it would be insured. But my question was, am I going to get the interest that they said I was going to get and would it last as long as the C.D. maturity was?

And the man said, yes, from FDIC. That would be OK. I could leave it there. I could get my interest that I set the C.D. up for, and then also I could pull it out too if I wanted to.

FINNSTROM: Well, Mary, we're glad you got some of the answers you were looking for here today. Again, long lines, expected to be a very long day, with people here just trying to get some answers.

Kara Finnstrom for CNN, Pasadena, California.

PHILLIPS: And here are some facts just to put it all into perspective.

IndyMac is the fifty bank to fail so far this year. Compare that to three years ago, or to three last year, rather, and none in the two years prior to that. In 2002, 11 banks and thrifts failed. But that pales in comparison to the savings and loan debacle of the late 1980s.

In 1988, near the end of the S&L crisis, 190 institutions failed at a cost of about $98 billion dollars. The crisis cost taxpayers around $132 billion. Now, IndyMac is the second largest failure in terms of assets. In 1984, Chicago's Continental Illinois National Bank and Trust failed with assets of $40 billion.

IndyMac had $32 billion in assets.

Your money, your concerns, be sure to check out CNNMoney.com for in-depth coverage and analysis. And every day, at noon Eastern, it's "ISSUE #1" with Ali Velshi and Gerri Willis. That's right here on CNN.

And ahead here in the CNN NEWSROOM: the housing market in the dumps, some banks in the danger zone. How in the world did we get here? We're going and break it down for you straight ahead in this hour.

And Barack and Michelle Obama depicted as terrorists. Is this magazine cover just satire or tasteless and offensive? We will take a closer look at the uproar that it's causing.

And it's a list you wouldn't want to be on, the government's rundown of who it thinks might be a terrorist has ballooned. And the ACLU isn't happy about it.

You're watching CNN, the most trusted name in news.

(COMMERCIAL BREAK)

PHILLIPS: And we have learned that Democratic presidential candidate Barack Obama plans to meet next week with Palestinian leader Mahmoud Abbas. A Palestinian official tells CNN the meeting will be next Wednesday in the West Bank. Obama is also expected to stop in Israel, but those details are still being worked out.

And we're waiting for Republican John McCain to address the National Council of La Raza. They're having a convention in San Diego. That's one of the nation's most prominent Latino groups, by the way. The speech is scheduled for 3:45 Eastern.

We will have live coverage as soon as it gets under way. Well, talk about a cover story. The Obama campaign isn't laughing at the cartoon on the cover of the current "New Yorker" magazine. It depicts Obama and his wife in the Oval Office. The new apparent president is dressed in Muslim attire. Mr. Obama sports an afro and a machine gun. And an American flag if burning in the fireplace.

A picture of Osama bin Laden hangs on the wall. Well, the magazine says it's satire. But an Obama spokesman says it's tasteless and offensive.

Earlier in the NEWSROOM, we heard two different views.

(BEGIN VIDEO CLIP)

PHILLIPS: Councilman, you actually just called for a boycott of the magazine. Tell me why you are so outraged about this cover.

PARKS: I think it's outrageous that we have a cover that would depict racism, sexism, anti-religion, also anti-patriotism, and then on top of it, to try to draw a conclusion that Mr. Obama has some sympathy towards terrorism. And all of those are depicted in this magazine cover with no explanation and with the thought that these people tried to justify it, that maybe they'll read the story and get a different perspective, or that the everyday person understands satire.

I think it's something that's outrageous, well over the top, and is totally unnecessary, particularly in this time and this date.

PHILLIPS: Now Shelley, satire is supposed to be funny, it's supposed to be thought provoking, it's supposed to be clever.

Do you see this as over the top?

SHELLEY WYNTER, RADIO TALK SHOW HOST: Absolutely not. Kyra, this is interesting to me. The New Yorker is not a news magazine. The New Yorker -- and since 1925, it's been a high minded, journalistic, literary publication.

It -- nothing in their description calls it's a news magazine. So, if Time or Newsweek did something like this, I would be right on the right with Mr. Parks. But, this is the New Yorker. E. B. White has come out of here, John Cheever, countless authors have come out of this magazine. And so I think what they did, it absolutely shows what this cover -- this cover shows exactly what the article is about. I would say, if you're going to boycott --

PHILLIPS: Wait a minute. But there's my question. This cover doesn't demonstrate what the article is about. If you read the article, the article -- it talks about how he put together his campaign, how he picks his mentors. How he sort of rose to the position...

WYNTER: Isn't the, isn't the. Correct me if I'm wrong, isn't the article on the politics of fear? Isn't that what this is all about? Isn't that what the cover is supposed to depict, what the politics of fear is all about. If we're going to boycott the New Yorker then I say, I would just as well go down to Rainbow Push headquarters and boycott Rainbow Push for what Jesse Jackson said.

PHILLIPS: But Shelley, but Shelley. If I see this magazine cover, OK. I mean, this is pretty racial. I mean, let's look at it again.

You've got Michelle Obama in an afro. You know, you've got, you know, her husband, Barack Obama, in a turban. We're talking about racism and terrorism. I mean, these are -- and burning of the flag. These are the most sensitive issues in our country right now. If I see that, I'm going to think, oh, my god, is this who we want in the White House?

WYNTER: But do you really believe that? Do you really believe that if you see this article, this cover, excuse me, you're going to say to yourself, oh, this is Barack and Michelle.

I mean, no way. This is crazy to me. This is satire. It's just -- no one was this outraged when someone had a painted -- had a cartoon of Condoleezza Rice as a pregnant black woman who had -- delivering a monkey as a baby. No one said anything. I didn't see the likes of Mr. Parks wanting to boycott that magazine that ran that cartoon. So this is satire. And so anybody that looks at a drawing of a cartoon and wants to say this is what my presidential candidate is going to be like, it's already ridiculous. It shouldn't be voting.

PHILLIPS: Councilman, go ahead.

PARKS: I think you're missing the point in the fact that this magazine will be in newsstands across this country and internationally. No one is going to read the article to the fine point that you've just discussed it. It will leave the image and the impression of what the cover reflects, and for those who have those...

WYNTER: No way.

PARKS: ... racist tendencies, those that already have those sexist tendencies...

WYNTER: They not going to vote for Barack Obama anyway.

PARKS: What -- well, the issue is, what has Michelle Obama done?

PHILLIPS: Shelley, let him finish, let him finish.

PARKS: What is Michelle Obama done in her life that would allow you to depict her in fatigues, a bandoleer and a machine gun on a cover of a magazine? There is absolutely nothing. She's never quoted a word, stated a word, her persona in any way close to what's depicted on this magazine. So satire would not even have a place here.

WYNTER: Ask the people who are pushing that message about Michelle and Barack Obama. That's who they're talking about when they draw a satirical cartoon.

I mean, everybody -- I don't think there's anybody walking around today that will see a cartoon drawn like that on the cover of the New Yorker by the way, not Time, not Newsweek. The New Yorker, which is a literary journal of commentary -- social commentary reporting and so forth. No one is going to walk by that and say, oh wow, I knew that about Barack Obama was true. Now that I see it on the New Yorker.

PHILLIPS: All right. Let me bring, let me ask you guys...

WYNTER: If that happens, they weren't going to vote for him anyway.

PARKS: This magazine cover...

PHILLIPS: Gentleman, let me ask you a question.

PARKS: ... hits at the lowest level of people's thought processes.

PHILLIPS: Councilman, let me pose this. And councilman I will start with you. I have known you for a long time. You've broken a lot of barriers as a black professional, being a police officer, the chief of the LAPD. Now, you're in the political arena.

Do you think in any way this cover sets us back? That it's more divisive than anything else and only proves that we're still racially insensitive?

PARKS: Well, I think what it does is that it forgets that the eye of the beholder is the one that sets the judgment. It's not those who did the printing, it's those who receive the message. And I think it does set us back because every now and then when you get something like this, you have to go back and look at the calendar and realize it's 2008, and we've just taken a major step back to where this wouldn't be acceptable decades ago.

The fact is, today you have more people that will speak out on it, but it wasn't acceptable in decades ago when people were going through many, many other issues that dealt with racism, sexism. So it's certainly not appropriate today.

PHILLIPS: Shelley, there's definitely a risk when you lampoon ignorance. That is for sure. Not everyone is going to get it. Can you give me the final thought?

WYNTER: I appreciate that.

I'm just saying if we're going to be politically correct on satire, then what is the definition of satire? If you're going to knock down what's -- something that's clearly satirical, then what choice -- where do we go from here? Now we have nothing out there. And I would say to Mr. Parks, if we're going to be set back, then we need to be as outraged at Jesse Jackson's comments last week because that set us back 150 years, back to the days of lynching. And because he said it, it doesn't take away from the fact that it set us back almost 150 years.

PARKS: Well, I don't think it's a benefit no matter who does the harm.

WYNTER: Fair enough.

PARKS: And I think no one...

(CROSSTALK)

PARKS: ... anyone supporting Jesse Jackson. And I think what we need to do is find out how many people out of ten, understand what satire is and look at it in the face of what it is. It's a picture that depicts what could be the first couple of the United States, in a very derogatory manner. And brings up all of the fears and anger which drives people to the worst conclusions they can come up with. I think that's totally inappropriate.

WYNTER: If nobody know what is satire is, they shouldn't be voting.

PHILLIPS: But Shelley -- but that's my final point. Is that when you lampoon ignorance, you know, not everybody is going to get it and it's risky. It's a definite risk.

WYNTER: That's what satire is. That's the definition of satire.

PHILLIPS: And we all appreciate it.

(END VIDEO CLIP)

PHILLIPS: Well, a spokesperson for John McCain's campaign says that he agrees with the Obama campaign that the cartoon is tasteless and offensive.

Next hour, in "THE SITUATION ROOM," Wolf Blitzer will talk with the "New Yorker"'s editor about that cover and the debate that it's ignited.

Well, straight ahead, you can't get more American than Budweiser beer, right? Wrong. Big brewery changes ahead -- in the CNN NEWSROOM.

(COMMERCIAL BREAK)

PHILLIPS: Hello, everyone. I'm Kyra Phillips, live in New York. And you're in the CNN NEWSROOM.

Right now, it's 3:29 Eastern time. And here are some of the stories we're working on.

A Fort Bragg soldier killed, her Marine husband now facing murder charges And just minutes ago, police in Fayetteville, North Carolina announced they've charged Corporal John Wimunc in the death of his wife Holley. The two had been going through a divorce. And another Marine faces conspiracy charges. It's meant as satire, but Barack Obama isn't laughing. His campaign is lashing out at a "New Yorker" magazine cover and it appears to portray Obama and his wife as terrorists. The magazine says it's a spoof -- obvious misconceptions that some people have about the couple.

And John McCain reaching out to a prominent voting bloc this hour. We're waiting for him to speak to the National Council of La Raza in San Diego. That's one of nation's most prominent Latino groups.

So are you on the list -- the government's terrorist watch list, that is?

It's swelled to about one million names, according to the American Civil Liberties Union. The group is marking that milestone with scathing criticism of national security policy. It's calling for better controls on the list, including tight criteria for adding names and more rights to challenge being added.

(BEGIN VIDEO CLIP)

CAROLINE FREDERICKSON, DIRECTOR, ACLU WASHINGTON LEGISLATIVE OFFICE: The watch list, now with over one million records, or soon to be there, is so bloated as to be ineffective, at best; likely useless, and perhaps, even harmful by creating its own security weaknesses. The list is unfair to travelers, unfair to law-abiding Americans and unfair to the security screeners who have to work in this ridiculous system.

(END VIDEO CLIP)

PHILLIPS: And just this month President Bush signed a bill that removes Nelson Mandela from that watch list. Mandela, of course, is the former South African president and Nobel laureate.

Well, hundreds more airline workers are being told that they don't have a job. Midwest Airlines says it's cutting 40 percent of its workforce, about 1,200 employees, in a variety of departments. The company says it's notifying affected workers today. This is the latest, by the way, in a string of layoffs across the industry prompted by the soaring fuel costs.

This Bud's for who?

Anheuser-Busch is the latest American icon facing foreign ownership. The maker of Budweiser has agreed to a $52 billion takeover bid by Belgian brewer InBev, which says that it will keep Anheuser- Busch's North American breweries open. If shareholders and regulators OK the deal, it would create the world's largest brewer, with the name Anheuser-Busch InBev. Beers such as Beck's, Stella, Rolling Rock, Bud, Bud Lite, they're all under its banner.

The housing market in the dumps, some banks in the danger zone -- how in the world did we ever get here?

We're going to try and break it down for you.

Stay with us.

(COMMERCIAL BREAK)

PHILLIPS: The mortgage crisis, the banking scare -- is your money under siege from a perfect storm of bad news?

Our Tony Harris examines how we even got to this point.

(BEGIN VIDEOTAPE)

TOM FOREMAN, CNN CORRESPONDENT: If you think about the good times, they were really, really good. Neighborhoods were expanding. It seemed like the whole nation was being reborn on this just wave of money sweeping over everything. And it was very hard, in the middle of that, for anyone to say it's not going to continue forever.

TONY HARRIS, CNN CORRESPONDENT (voice-over): Even adjusted for inflation, home prices increased, on average, by 80 percent between 1997 and 2006.

GERRI WILLIS, CNN PERSONAL FINANCE EDITOR: It was like a casino in the housing market -- prices just couldn't stop going up. The whole idea that suddenly everybody's house price could fall was -- you know, it seemed ludicrous.

HARRIS: Neighborhoods across America were a builder's dream. But there were early signs the foundation was cracking.

WILLIS: There were construction cranes everywhere. But at the same time, when we went into the neighborhoods, you would see for sale signs; you would see neighbors who were nervous.

SOLEDAD O'BRIEN, CNN CORRESPONDENT: After going up and up and up and up for years, just how far down and down and down are house prices going to fall?

ALI VELSHI, CNN CORRESPONDENT: That's how we understood that this whole thing was slowing down, that the demand for new homes at every price range, was just softening up. That was the first thing. There were just too many. It was a supply and demand issue. There was too much out there.

WILLIS: The peak of the housing bill was in the summer of 2006. Median home prices hit about $230,000. I think the cracks in the foundation were already there.

UNIDENTIFIED MALE: The trend is a 30 percent drop in prices.

WILLIS: Oh, my goodness. Are you saying that prices are going to drop 30 percent?

UNIDENTIFIED MALE: I think that's a ballpark number.

VELSHI: We have never, never in the history of the United States, seen an economic downturn caused by or triggered by housing first. It's often something else, and housing then becomes a part of it, because people lose their jobs or they can't afford to pay, so then the housing market comes down. But to see the housing market actually come in and start this -- and now we see the effects of it.

HARRIS: At issue, not just the number of homes available, but now the mortgage market, too. Lenders had been giving money to high- risk buyers with little or no money down. Those loans were often adjustable rate mortgages, or ARMS. And when monthly payments went up, homeowners weren't able to pay up.

UNIDENTIFIED FEMALE: We should have went to the mob for a loan.

SUSAN LISOVICZ, CNN CORRESPONDENT: There were predatory lenders and people who were unethical in their sales approach. They simply just wanted to do even more. They just wanted to keep that gravy train going. So what you saw in many cases was a loosening of standards.

LOU DOBBS, CNN ANCHOR: Subprime mortgage lender, New Century Financial, today filed for bankruptcy. The lender, which specialized in loans to people with poor credit, was overwhelmed by customer defaults.

WILLIS: New Century Financial was one of the big subprime lenders. And when it went into bankruptcy, that was like one of those depth charges in the sea. It kind of shook everybody and everybody thought, oh, this is going to be a real problem.

VELSHI: More bad news, this ongoing crunch.

FOREMAN: The mortgage market meltdown.

LISOVICZ: The moment of truth came last summer, when you started to see these huge financial companies that were exposed. And finally, it was like you opened a vault and you saw all of the skeletons in there.

VELSHI: Writing off $3.4 billion in loans.

LISOVICZ: One of the things that has just been, I think, mind- boggling, that continues to amaze me, is how is it that a small group of people with crummy credit could unhinge some of the biggest financial companies in the world?

UNIDENTIFIED MALE: There are 51 active listings. I would say 20 to 30 of those are foreclosures or bank-owned right now.

VELSHI: The bankers didn't seem to pay attention to the danger of people going into default. They figured they'd just take the property or the person in default would sell their home. It was a fantastic plan, until property values started to fall.

HARRIS: As home prices plummeted, oil prices soared because of rising global demand. And Americans felt the pinch.

FOREMAN (on camera): So you actually ran out of gas trying to get here?

UNIDENTIFIED MALE: Never in my life have I seen gas this high. We can't drive. We can't heat our homes. We can't do -- there's just nothing that can be done without this energy.

FOREMAN: When you go to fill up your car and it costs $50 instead of $20, you get it. And America got it.

(on camera): I think that when gas prices went up, that was the thing that, more than anything else, made all sorts of normal Americans coast to coast say, I understand, something is happening with my economy that's not good for me.

VELSHI: It just got very loud here. Just moments before you came here, we took our third run at $100 and oil has now stayed above that level.

The average consumer, if there is no other source of income or their income wasn't going up enough, they were getting squeezed all around. And that mortgage payment was getting bigger. Something had to give. And it's when you stop making that mortgage payment that the whole house of cards falls apart.

(END VIDEOTAPE)

PHILLIPS: Well, it's a dry heat in Arizona, but the rain is still pretty wet. Weekend storms leave a bunch of cities swamped and a bunch of drivers stranded. And it's easy to forget about saving for retirement when flat screen TVs and other goodies can be bought with the simple swipe of a credit card.

Christine Romans has some ways to trick yourself into saving that are Right on Your Money.

(BEGIN VIDEOTAPE)

CHRISTINE ROMANS, CNN CORRESPONDENT (voice-over): To spend or not to spend -- that's the question many of us ask ourselves every day.

"Money" magazine's Walter Updegrave says one way to save money is to trick yourself, like signing up for automatic investing plans.

WALTER UPDEGRAVE, SR. EDITOR, MONEY MAGAZINE: The money that comes out of your paycheck before you get a chance to get your hands on it and spend it.

ROMANS: And give yourself incentives to save.

UPDEGRAVE: Say that you set a savings goal of, say, $5,000 per year. And you say to yourself, if I reach this goal, I'm going to give myself a reward. I'm going to buy myself an iPod or something like that.

ROMANS: If the carrot approach doesn't work, Updegrave says try the stick. UPDEGRAVE: Some people may operate better from fear of punishment than the promise of a reward. Now, it might be something -- maybe you can't watch your favorite TV shows for a month or maybe you can't eat out for a month, something like this. Something that's enough of a penalty where you don't want to incur it, so you have enough motivation to save.

ROMANS: Christine Romans, CNN, New York.

(END VIDEOTAPE)

(COMMERCIAL BREAK)

PHILLIPS: Well, as the FDA is still trying to find the cause of that big salmonella scare, you might find it tough to find fresh jalapeno peppers. Imports from Mexico have slowed now that inspectors are testing jalapeno and serrano peppers and cilantro. Peppers are suspects in the salmonella outbreak that earlier was linked to tomatoes. More than a thousand people in the U.S. got sick.

And weather is proving a mixed blessing in California. High humidity and rain helped with some of the state's wildfires. But a couple of places are seeing floods and mud slides. In one community, dozens of homes were damaged by a slide as wide as two footballs. A county over, some firefighters were stranded when flash floods washed out the roads.

And parts of Arizona also getting drenched. Traffic came to a standstill here after flash floods swamped U.S. Route 60 in Tempe. Some drivers were stuck for hours.

In Tucson, thousands of people were stuck in the dark when storms knocked out their power poles.

And no relief for the valley. It's raining there right now -- right, Chad Myers?

CHAD MYERS, CNN METEOROLOGIST: It certainly is.

(WEATHER REPORT)

Tropical Storm Bertha -- although right now there's a hurricane watch for Bermuda, because look, this thing really has increased intensity in the past few hours. A lot more color involved here. And the hurricane hunter aircraft did pick up a 70 knot wind. Now, that's flight level. That's about a 70 mile per hour wind down at the ground.

Tropical Storm Bertha kind of spins around for a while. It could become a hurricane again. It's not out of the question. But for right now, we'll just keep it right at that same stream.

Now, another storm possibly that we're watching could be Cristobal, if you will. This is -- that's the Spanish pronunciation of this storm, Cristobal. And it is spinning here now. The islands -- there's Venezuela. Florida way up there to the north. We'll keep watching it, though, because the forecast is for -- at least the computers taking it into the Caribbean, although not really developing into too much -- Kyra.

PHILLIPS: Chad, thanks.

MYERS: Sure.

PHILLIPS: Staying fit -- just when some folks were getting creative, the law steps in. Well, you won't be whittling away your waistline like this in one Tennessee town.

(COMMERCIAL BREAK)

PHILLIPS: Well, NATO is calling the defense of a remote U.S. base in Afghanistan heroic fighting. Nine American soldiers were killed, 15 wounded, in yesterday's battle near the Pakistan border. That's the highest number of U.S. soldiers killed in the Afghan war in three years. The military says that insurgents overran an observation point just outside the outpost, but failed to capture the base. An estimated 100 attackers were killed or wounded.

The president of Sudan is facing charges of genocide. The chief prosecutor of the international criminal court in the Netherlands accuses President Omar al-Bashir of masterminding a campaign of murder, rape and deportation of African tribes in Darfur. According to the U.N. government-backed militia have killed an estimated 300,000 people over the past five years and forced two -and-a-half million from their homes. Sudan's vice president rejects the court's authority. He says the charges are politically motivated.

Now, John McCain was speaking in Phoenix earlier today. He's actually in San Diego, California getting ready to address the National Council of the La Raza at its annual convention, to talk about illegal immigration.

But we've been talking about this story all day -- the cover of "The New Yorker" magazine that portrays Barack Obama and his wife, Michelle Obama, as terrorists. It's created quite a debate and both Obama's campaign and John McCain's campaign came forward, saying they both thought it was tasteless.

But here's what McCain actually said on camera within the past hour or so.

(BEGIN VIDEO CLIP)

SEN. JOHN MCCAIN (R), PRESIDENTIAL CANDIDATE: I saw a picture of it on television. I don't -- I think it's totally inappropriate. And, frankly, I understand if Senator Obama and his supporters would find it offensive.

(END VIDEO CLIP)

PHILLIPS: And we're being told that the head of "The New Yorker" magazine will be joining Wolf Blitzer on "THE SITUATION ROOM," coming up at the top of the hour.

OK, so we know she's a beauty, but graceful? Not so much. For the second year in a row, Miss. USA does something memorable at the Miss. Universe pageant in front of a live audience and about a billion people on TV. We'll show it to you.

(COMMERCIAL BREAK)

PHILLIPS: John McCain speaking right now live in San Diego, California. This is the conference for the national council of La Raza. Barack Obama spoke to the same organization just yesterday.

McCain right now discussing illegal immigration. We're following that. You can always go to CNN.com and watch it live as it streams there. And, of course, Wolf Blitzer will be talking more about this at top of the hour.

Let's check in with him.

He's standing by in "THE SITUATION ROOM" to tell us what else is coming up at the top of the hour -- hey, Wolf.

WOLF BLITZER, CNN ANCHOR: We're going to have a lot more on McCain's speech, Kyra, among other subjects, including the latest issue of "The New Yorker" magazine. It's generating lots of attention, sparking controversy with its cover.

Did the magazine simply go too far when it depicted Barack Obama and his wife as flag-burning terrorists?

I'll be joined by the editor of the magazine, David Remnick.

Also, a man who has billions of dollars weighs in on the country's financial woes.

What would Michael Bloomberg do if he were in charge?

I'll ask the mayor of New York.

And Cindy McCain talks candidly about her husband and her son's return from military service in Iraq and one of her own unusual hobbies. A very private political wife opening up to CNN.

All that, Kyra, and a lot more coming up right here in "THE SITUATION ROOM."

PHILLIPS: Sounds good, Wolf.

Thanks.

Strip tease exercise classes may be hot in some places, but not in Bartlett, Tennessee. A new gym owner says she was shut down after she put stripper poles in her studio.

(BEGIN VIDEO CLIP)

RACHEL VINT, OWNER, ECCENTRIC STUDIO: She said if I had just a dance studio or just an exercise studio, that would be one thing. But when I installed the poles, I became an adult-oriented business.

(END VIDEO CLIP)

PHILLIPS: Vint says that men aren't allowed in the studio and that women keep their clothes on anyway. Despite all that, Bartlett's mayor says that the place won't reopen without a court order. This is the suburban area of Memphis, Tennessee. By the way, we'll keep you posted.

Miss USA, Crystle Stewart, will never forget her appearance at the Miss Universe pageant and neither will we. Whoops. I'll tell you what, she still looks beautiful. The slip coming just after judges picked Stewart for the top 10.

Miss Venezuela once was kidnapped in her homeland, so she knows how to be graceful under pressure. She picked up the crown and the title.

The closing bell is about to ring on Wall Street.

Our beauty queen, Susan Lisovicz, standing by with a final look at a very busy business day down there -- hey, Susan.

LISOVICZ: Hey, Kyra.

You know, the key to not falling is you have to scuff up those skyscraper shoes. You have to scuff them up. You have to scuff them up.

PHILLIPS: That's right. You go on the sidewalk and you scuff them and then you work it down the runway.

LISOVICZ: Right.

PHILLIPS: You and I know that.

LISOVICZ: Because you get some traction.

(LAUGHTER)

LISOVICZ: I do it every time. I haven't fallen yet -- knock on wood.

(STOCK MARKET REPORT)

PHILLIPS: Sounds good, Susan. Now, let's take it to "THE SITUATION ROOM" and Wolf Blitzer -- Wolf?

BLITZER: Thanks very much, Kyra.