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Explosion Rocks U.S. Embassy in Yemen; Fed to Bail Out AIG; The Candidates Talks Issue Number One, the Economy; Battleground Indiana: Democrats Attempt to Turn Red State to Blue State; Biden Steals Back the Spotlight; Uncle Sam Will Bail Out Another Financial Giant; Stock Market Rebounded Yesterday

Aired September 17, 2008 - 06:00   ET


JOHN ROBERTS, CNN ANCHOR (voice-over): $85 billion bailout.

UNIDENTIFIED FEMALE: You just can't let this company fail.

ROBERTS: AIG, an insurance company the world depends on, is now being supported by you.

Plus, which candidate...

SEN. BARACK OBAMA (D), PRESIDENTIAL CANDIDATE: From gas to groceries, to health care.

ROBERTS: ... can stop our country...


ROBERTS: ... from hemorrhaging cash. Each campaign joins us life on the "Most Politics in the Morning."


ROBERTS: And good morning. Good to have you with us on this Wednesday. It's the 17th of September. An awful lot of news to tell you about this morning.

KIRAN CHETRY, CNN ANCHOR: Yes. We have breaking news abroad as well to tell you about.

This is a car bomb, possibly Iraqi-propelled grenade explosion in Yemen. The U.S. embassy in Sana'a, the capital of Yemen, under attack. Senior state officials said that the embassy was rocked first by gunfire and then a series of explosions just outside of the main gate. Officials say that no American employees were killed, but at least one Yemeni guard died. We're going to have a live report for you in just a moment.

New life for the country's largest insurer on the brink of bankruptcy. The Federal Reserve agreeing to an $85 billion bailout to rescue troubled AIG in exchange for a nearly 80 percent stake in the company. The terms are similar to a deal the Fed cut to rescue mortgage giant Fannie Mae and Freddie Mac earlier this month. The nation's top military officer making an unannounced visit to Pakistan. Admiral Mike Mullen's visit comes the same day that Pakistani forces were given orders to open fire on U.S. troops if they launch another raid across the Afghan border. U.S. military commanders say Islamabad is not doing enough to prevent the Taliban and other militant groups from regrouping in the region.

ROBERTS: Returning to our top story and the breaking news this morning. The explosions outside of the front gates of the heavily fortified U.S. embassy Sana'a, the capital of Yemen. A spokesman for the embassy says a secondary explosion followed the main blast.

Witnesses also reporting a number of explosions and a raging gun battle in the streets. It went on for 10 to 15 minutes. At least one person has been killed.

CNN's international security correspondent Paula Newton is live for us in London watching the unfolding developments. What do we know so far, Paula, about the nature of this attack?

PAULA NEWTON, CNN INTERNATIONAL SECURITY CORRESPONDENT: John, from inside the embassy they actually could say they could feel the ground shaking beneath them. That went on for at least 10 or 15 minutes as the gun battle was raging. As you said, heavily fortified, the tactic here with insurgents is to try and have a security breach at the front gate, which then allows them to lob in a mortar shell or a rocket- propelled grenade to do some damage inside.

As we were saying earlier, it does not seem that any U.S. embassy staff at this point have been injured. We'll continue to follow the story. The issue here, John, is as the war on terror continues to rumble along, Yemen has always been a bit of a hot bed. The government there has had significant problems, really trying to make sure that insurgents don't take over that entire country and beyond that they have been able to send those kinds of insurgents and recruits over to Iraq, the fighting.

The U.S. embassy there, John, should be said as always been a target. They had a similar event in March. And at that point in time, they had to evacuate U.S. embassy staff and some of their families. We'll continue to follow this but as we know right now, the U.S. embassy staff still remains within the embassy and they're just trying to cordon off the area, make sure it's still safe to assess the damage -- John.

ROBERTS: According to the "Associated Press," we're getting reports that six Yemeni guards were killed in that attack. In terms of this evacuation of the U.S. embassy because of that incident that took place in March of this year, the order had just gone out I think it was last week for people to return. Do we know if they had, if those dependent and non-essential personnel had returned?

NEWTON: Some -- from what we understand, some had started to trickle back in. They were trying to see if perhaps even some people would be joined by their families. They were trying to make this stable within (INAUDIBLE) September turnover. As we understand it, not many were going back in anyway. The U.S. embassy has continued to be a target there for years. And I think in the spring they made an assessment that really it was best to keep it to the essential staff at the embassy. We wait to hear word, though, right now, John, and we'll keep you updated throughout the morning.

ROBERTS: All right. Paula Newton, our international security correspondent from London this morning -- Paula, thanks.

CHETRY: Also joining us on the phone right now is Ryan Gliha, spokesman for the U.S. embassy in Yemen.

Ryan, thanks for being with us this morning.


CHETRY: Now, where you there to witness this attack?

GLIHA: I was at the embassy when the attack occurred this morning, yes.

CHETRY: What was it like? Tell us what it felt like at the time.

GLIHA: Frankly, it's hard for me to really describe much more than from my perspective in my office. At about 9:15 this morning, there was an explosion that occurred at the main gate of the embassy. At that point, we were all ordered to assume what we call a duck and cover position, which is a condition where we guard ourselves and our bodies from potential debris. From that vantage point, I really can't tell you much after that except that we did feel several explosions after the main explosion that shook the ground.

CHETRY: No doubt there's a lot of confusion, a lot of questions as to exactly what went on. Do you have any latest tallies of information on injuries or death?

GLIHA: What I can tell you at this point and what I can share with you and what I confirmed at this point, again, that the attack occurred about 9:15 this morning, the primary attack. The primary detonation happened at 9:15 followed by several -- several secondary explosions.

We can confirm at this point that several Yemeni security personnel were killed in the attack, as well as several Yemeni citizens who were waiting to gain entry to the embassy to request services from the embassy.

We, at the embassy, and I think, you know, as American people, our hearts go out to those who were hurt or killed in this attack. We condemn this attack in no uncertain terms. And you know, really, this (INAUDIBLE) it demonstrate that these terrorists criminals really do not hesitate to kill innocent citizens and those who were in charge of protecting the lives of citizens in order to pursue their terrorist agenda.

Right now, we're working very closely with senior Yemeni government officials in order to investigate this incident, and we will call on their continued close cooperation in order to find resolutions for this particular incident and bring those responsible for it to justice.

CHETRY: All right. Well, just to repeat, so you're saying several Yemeni guards were killed as well as several Yemeni citizens that were waiting outside of the embassy to get in and to...

GLIHA: Correct.

CHETRY: ... to try to get some paper work. Now this comes in April, there was another attack. You guys had ordered all non-emergency American staff away from the embassy including their family members. This order was lifted just last week. The timing of the situation, what do you make of it?

GLIHA: Actually, the order -- the order was lifted back in August. I believe August 11th was the date that we lifted that. So the actual order to return that actually obligated non-essential personnel and their family members to leave. That was lifted back in August.

But, you are correct. There was a series of attacks that happened earlier this year starting in March continuing on to April that led us to make the decision to evacuate or to oblige (ph) the evacuation of our non-essential personnel and family members.

CHETRY: What made you think it was OK then to have them return back in August?

GLIHA: We are constantly looking at the security situation here in Yemen. We do not take these decisions very lightly. And in -- basically, in the intervening months from the time that we ordered the departure of non-essential personnel and their family members in April, until the time in August, there had been -- there had been several successes by the Yemeni government and the Yemeni security forces in terms of interdicting terrorist operations and terrorist groups in Yemen.

Some (INAUDIBLE) have been very quiet. There hadn't been any major security incident in the capital area. And so, that's why the determination was made by the Department of State to bring back non- essential personnel and their adult family members. We did not bring back dependent children to the post at that point.

CHETRY: All right. A tough morning for you guys no doubt. I want to thank you for joining us on the phone, Ryan Gliha, U.S. embassy spokesman there in Yemen.

ROBERTS: Seven minutes now after the hour. Overseas markets are mixed on news of the government's stunning bailout of insurance giant AIG in exchange for an $85 billion loan. The Fed gets an 80 percent stake in the company.

And some 10,000 employees of the now bankrupt Lehman Brothers are getting a lifeline from Britain's third biggest bank. Barclays agreed to a $1.75 billion deal to buy Lehman's North American banking division.

The stock market had a good day after the Fed decided not to cut key interest rates. The Dow getting 141 points.

So where is all of this headed? Ali Velshi, "Minding Your Business" for us this morning.

And, what's your prognostication here?

ALI VELSHI, CNN SENIOR BUSINESS CORRESPONDENT: Well, it's interesting that the markets are mixed on this news. The news, of course, is that the federal government has worked out an $85 billion bridge loan or temporary loan for AIG. And the interest rate on that loan, by the way, at today's rate, it's a moving rate, but it's 11.31 percent. So it's a remarkably loan sharkish type of loan to AIG giving the company a lot of incentive to find money elsewhere.

In exchange for that loan, the government gets to hold on to 80 percent of the company as collateral. The intention is not that the government is going to run AIG, but if something where to go wrong with this loan, the government actually has solid collateral. It may not be an altogether bad deal for the taxpayers and it's certainly going to be a disincentive to other companies which think that the Federal Reserve is going to come, or the treasury is going to come to the rescue, because if you're paying that kind of interest, you might want to look for your money elsewhere.

AIG, as you know, is one of the biggest companies in America. It is one of the biggest insurers in the world. It's America's biggest insurer, guys (ph). Homeowners insurance, auto insurance, travel insurance, life insurance. It also has its stock in probably much of your retirement investment. It is one of the S&P 500 stock. It is one of the Dow 30 stocks.

So it really has its tentacles all over the place. When you add up the government backstops that have been put in place for Bear Stearns, for Fannie and Freddie, and for AIG, it adds up to $314 billion right now. So the question that will be asked today many times, and I'm sure you will ask of your guest is, is this the right thing to do? Should the government have stepped in?

Again, the argument was that AIG is too big to fail. We seem to be hearing that a lot.

ROBERTS: And it's certainly right on the heels of Lehman Brothers.

VELSHI: That's right.

ROBERTS: Ali, thanks.

CHETRY: Apparently wasn't too big to fail.

VELSHI: Good point. The world can -- it's sad for Lehman Brothers and its employees. The world can do without another investment bank. AIG, you think about more like an auto company. It has suppliers, it has tire makers, it has seat makers. The impact of an AIG failure would have been far broader than Lehman Brothers.

ROBERTS: A story we'll keep watching this morning. Ali, thanks so much.

Nine and a half minutes after the hour. You're watching "the "Most News in the Morning."

Ground war.


DOMINIQUE MORSON, OBAMA VOLUNTEER: Are you registered to vote?


ROBERTS: Democrats flood the battlefield in Indiana hoping to turn a solidly red state blue.




ROBERTS: You're watching the "Most News in the Morning."



UNIDENTIFIED MALE: I don't know that it's within all the government's scope to completely solve the crisis. I mean, it's a free market society, and as long as we adhere to that, unless we're ready to change our, you know, our form of government and our economy, then I think we have to accept the losses along with the gains, you know.


CHETRY: The crisis on Wall Street is the talk of the campaign trail. Both Senators Barack Obama and John McCain promising tougher regulation for Wall Street. And with less than seven weeks to go, our national poll of polls show McCain and Obama tied, 46 percent each. In an attempt to lift his ratings, Barack Obama is shifting his focus from Iraq to the economy.


SEN. BARACK OBAMA (D), PRESIDENTIAL CANDIDATE: We have to overhaul our regulatory system. It is not working and that's part of the reason that the market lacks confidence is because it doesn't know where the ratings agencies properly measuring the risk that were involved in these investments that were made. Are the books transparent? Has the SEC and other agencies, have they been looking at them? We have to have complete transparency and openness in how our financial markets are working to restore trust.


CHETRY: CNN's Suzanne Malveaux is live in Las Vegas this morning with more on the real shift to economic issues. And the focus certainly in the last seven weeks, given everything that's happened, Suzanne, seems to be the economy with both candidates.

SUZANNE MALVEAUX, CNN WHITE HOUSE CORRESPONDENT: Kiran, it's really interesting covering Barack Obama's campaign the last 12 months. He really ran on being the anti-war candidate, but he has talked about the economy before, that he has a plan. It has gotten a lot more specific recently. And really, a lot of voters have not been paying attention to it. But now, with this economic crisis, they're certainly hoping to seize on this. This is an urgent situation.

And what Barack Obama is saying is that this really is a difference in philosophy here. That the Bush administration has taken this kind of laisse-faire approach when it comes to government, when it comes to helping out people, the free market approach. So it's calling for greater oversight. He is calling for greater regulation, and he's also trying to emphasize some of the highlights of his own tax, his own economic plan regarding those tax cuts for some 90 percent of the voters -- Kiran.

CHETRY: Suzanne, John McCain also sounding the need for stepped-up regulation in the finance business. Let's listen to what he said yesterday on the campaign trail.


SEN. JOHN MCCAIN (R), PRESIDENTIAL CANDIDATE: Under my reforms, the American people will be protected by comprehensive regulations that will apply the rules and enforce them to the fullest. There will be constant access to the books and accounts of our banks and other financial institutions.


CHETRY: It's interesting both of them talking about transparency. But this is a bit of a change for John McCain who said as late as March, I'm fundamentally a deregulator.

MALVEAUX: You know, this is a -- this is potentially a challenge for McCain here because it really is a twist on a number of levels. First of all, he's been emphasizing his foreign policy, national security credentials, saying it is for the Iraq war. That has really been the central platform of his campaign.

Now, he's shifting here talking about the economics, trying to be somewhat of a populist saying he's going to clean up Wall Street. His problem here, however, is may call for a greater oversight and regulation now, but in the past he has called for deregulation. So he's going to have to kind of square those two positions, and we'll see what the voters -- what they think about his position now -- Kiran.

CHETRY: Suzanne Malveaux for us this morning, bright and early in Vegas. Thank you.

Sizing up Joe Biden.


LARRY SABATO, UNIVERSITY OF VIRGINIA: He just does not interest most people.


CHETRY: Monday morning quarterbacking. Carol Costello looks at whether Barack Obama made the right choice.


SEN. JOE BIDEN (D), VICE PRESIDENTIAL CANDIDATE: It might have been a better pick for me.


CHETRY: You're watching the "Most News in the Morning."


ROBERTS: Breaking news this morning on the "Most News in the Morning." In Sana'a, the capital of Yemen in the U.S. Embassy, a massive explosion at the security perimeter at the gate there leading into the U.S. embassy. Early reports are that it may have been a car bomb. There was a gun battle. Shots were heard prior to the explosion and a massive explosion, more gun shots after that secondary explosion as well.

Ryan Gliha, spokesman for the U.S. embassy says he believes that it was a car bomb, at least in the initial explosion. Not sure what caused the secondary explosions. No Americans were killed in this attack, however, 16 people were killed, six Yemeni security guards, four Yemeni civilians who were in the area as well as the six attackers.

We're following the story for you this morning, and we will keep you updated on the very latest. But again, no Americans killed in this attack outside the U.S. embassy in Sana'a, the capital of Yemen.

Back here at home, a growing disaster in the Midwest which has been overwhelmed by floodwaters. More than a million people in five states are in the dark after record flooding this weekend. Crews say it could be days if not weeks before power is restored there.

And in Texas, food banks are overwhelmed. Thousands of people remain in shelters now four days after Ike devastated the Texas Gulf Coast.

CHETRY: And to politics this morning, in Indiana, it's long been a Republican stronghold. President Bush took the state by 21 points back in 2004. But this election, the Hoosier State and its 11 electoral votes are suddenly in play. And the Obama campaign thinks it has a shot at turning Indiana blue. Here's CNN John King. JOHN KING, CHIEF NATIONAL CORRESPONDENT: Kiran and John, George W. Bush won Indiana with 57 percent of the vote in 2000, and then with 60 percent four years ago. So consider this most unfamiliar territory. With seven weeks to go in campaign 2008, Indiana is a battleground state.


KING (voice-over): At 4.29 a gallon, the grumbling and disbelief is to be expected. But listen closely to a very different sound Democrats are counting on to make history.

DOMINIQUE MORSON, OBAMA VOLUNTEER: Do you know who you're planning on supporting this year?

KING: Dominique Morson is cheerful.

MORSON: Are you registered to vote? OK, great. Thanks.

UNIDENTIFIED MALE: Thanks for asking, though.

KING: Patient.

MORSON: It takes 30 seconds, like literally.

KING: And persist.

MORSON: And what city is that?

KING: Morson is part of an unprecedented effort by the Obama campaign to register new voters with the ambitious goal of turning reliably Republican states like Indiana from red to blue.

MORSON: I think we can. I really do. I think we definitely have enough people dedicated to the campaign and enough people that want to see some change. So, I think we'll definitely see that happen.

KING: At Obama headquarters, constant reminders of the October 6th registration deadline. And Republican Secretary of State Todd Rakita says the McCain camp had better take notice.

SEC. TODD ROKITA, INDIANA SECRETARY OF STATE: Yes. They have a fight here in Indiana and I think it's real.

KING: In 2004, 2 1/2 million Indiana voters cast ballots for president. This year the state has already processed more than 560,000 new and updated registration forms, and Rakita predicts that number will be to record 750,000 by the deadline.

RAKITA: This is the first time I've ever seen a Democratic presidential campaign this engaged in the state. Usually Indiana is number one on the board for the red states on election night when it comes to our presidential elections.

KING: Not since 1964 has a Democrat carried Indiana for president, and Republicans promise to keep it red this year. Without a doubt, the state's farm communities and small towns lean conservative.

UNIDENTIFIED MALE: Every vote counts this year.

KING: Tough going for Obama foot soldiers along the Kentucky border in Evansville, too. President Bush took nearly 60 percent of the vote here in 2004.

UNIDENTIFIED MALE: Just the man himself. Not really sure about him.

KING: In this garage, a McCain voter.




KING: So it's not easy. A half-hour of knocking doors, only one promised to vote for Obama and plenty of skepticism.

UNIDENTIFIED MALE: You aren't registered?


UNIDENTIFIED MALE: You want to get registered?

KING: But the Democrats are here at all in the final weeks. Never mind here aggressively looking for every last vote is itself a dramatic change.

UNIDENTIFIED MALE: Too much tossups.


KING: Most Republicans and even many Democrats here predict in the end Obama will come up short. But that he is competitive here at all is proof that Democrats have the edge and more options this year in trying to assemble the 270 electoral votes needed to win the White House -- John and Kiran.

ROBERTS: Reality check.


SEN. JOE BIDEN (D), VICE PRESIDENTIAL CANDIDATE: Increased regulatory oversight of the very people John has refused to regulate.


ROBERTS: Joe Biden on AMERICAN MORNING. Was his attack on John McCain fact or fiction? Alina Cho tracks down the truth. You're watching the "Most News in the Morning."


ROBERTS: Twenty-six minutes after the hour. Democratic vice presidential candidate Joe Biden out on the campaign trail solo, looking to wrestle away some of the headlines from his GOP counterpart. Is it working, or is Biden drawing too much attention to his own credentials?

CNN's Carol Costello is looking at that for us this morning.

CAROL COSTELLO, CNN CORRESPONDENT: John, Kiran, Joe Biden is trying to take the spotlight off that other VP candidate and put it squarely on Barack Obama. So how's he doing?


COSTELLO (voice-over): Sarah Palin seems to be a game changer.


COSTELLO: Her star burning so brightly, a piece of toast that bears her likeness is on eBay. And Joe Biden? Joe, who? Joe who has become Mr. Attack Dog.

SEN. JOE BIDEN (D), VICE PRESIDENTIAL CANDIDATE: John McCain could easily become known as Bush 44.

America needs more than a great soldier. John McCain is profoundly, profoundly out of touch with the American people.

COSTELLO: Note, Senator Joe Attack Dog did not mention the pit bull of lipstick, but Senator John McCain. And that has turned the spotlight just a little on Biden and his own track record.

Like how he dropped out of the 1988 presidential race after he plagiarized a British politician's speech, and how he voted against the first Gulf War. Opposed the surge in the latest war. And there are questions about earmarks and why Biden has only disclosed one year of earmarks for his home state of Delaware. $342 million for 2009.

BIDEN: We have no Lawrence wealth (ph) museums. We have no bridges to nowhere in Delaware. It's all straight up.

COSTELLO: Still analysts say not much about Biden's record or the candidate himself will resonate with voters like, say, they have with Sarah Palin.

LARRY SABATO, UNIVERSITY OF VIRGINIA: He's been in the Senate for 36 years. He's a part of the furniture of the Senate. And, you know, for that reason he just does not interest most people.

COSTELLO: And that in part is why some Democratic voters say Obama should dump Biden for Hillary Clinton, like George McGovern dumped Thomas Eagleton back in '72 when his medical condition came to light.

Biden himself field speculation he should go.

BIDEN: She's easily qualified to be vice president of the United States of America and quite frankly, it might have been a better pick than me. COSTELLO: But despite it all, analysts say that is more than a long shot.

STU ROTHENBERG, ROTHENBERG POLITICAL REPORT: These were important initial decisions that these men made, the presidential nominees of their party. They cannot acknowledge that they were wrong.


COSTELLO: But one Democratic insider told me Joe Biden is doing a great job. His frustration was that Obama didn't send Biden out earlier in attack mode. He hopes to continue -- John, Kiran.

CHETRY: Well, we have some breaking news as we cross the half hour here out of Yemen this morning. Explosions rocking the gates of the U.S. capital, the U.S. embassy in the capital city of Sana'a. Senior state officials are telling us that gunmen first open fire and then moments later an explosion followed by several secondary blasts occurred.

Sixteen people were killed, including six Yemeni guards, four civilians. No Americans were killed.

Earlier I spoke with Ryan Gliha. He's a spokesman for the U.S. embassy who was in the building at the time of the attack.


ON THE PHONE: RYAN GLIHA, U.S. EMBASSY SPOKESMAN: There was an explosion that occurred at the main gate of the embassy. At that point, we were all ordered to assume what we call a duck and cover position, which is a position where we guard ourselves and our bodies from potential debris. From that vantage point, I really can't tell you much after that except that we did feel several explosions after the main explosion that shook the ground.


CHETRY: Right now, the embassy and Yemen's government is investigating. They had lifted this order of all non-essential personnel and embassy personnel, as well as families to be out of the area. They lifted that back on August 11th. And again, this is an area that has seen its share of violence and terror attacks. They've been doing a lot to try to crack down, but again, as we saw today, apparently this one slipped by. We'll continue to follow it this morning.

Uncle Sam will bail out another financial giant. The Federal Reserve agreeing to lend AIG, that's the nation's biggest insurer, as much as $85 billion to keep the company out of bankruptcy. Now in return, the government gets an 80 percent stake in AIG.

Meantime, the stock market rebounded yesterday even before the news of AIG's bailout. The Dow gaining 141 points. So, can we expect more of the same today? Ali Velshi is "Minding Your Business" here with more on exactly what this AIG bailout means to us and what it could potentially mean to the markets today.

ALI VELSHI, CNN SENIOR BUSINESS CORRESPONDENT: Well, after that big selloff we had on the market on Monday, yesterday's gain was partially due to the fact there were rumors that AIG might get some kind of a rope from the government and also because the price of oil which had gone down to close to $90 a barrel.

Let me tell you about AIG. This is an $85-billion loan -- a bridge loan. It's a temporary loan. It's up for 24 months. And it's a loan at an interest rate of about 11.31 percent. And as you said, the government will get the potential to take over 80 percent of the company. They're replacing the CEO of the company.

Now, AIG, the reason this matters to you is that it's one of the world's biggest insurers. It is certainly the nation's biggest insurer. It provides homeowner's insurance, auto insurance, travel insurance, life insurance. But it also insures major, major corporations including banks and many of those mortgage securities, mortgage-backed securities. So that's very important because they've been failing and they are backed by AIG.

Major airlines -- and AIG, by the way, is the world's largest lessor of airlines. They have 900 aircraft. They insure Hollywood movies against failure. They actually insured Angelina Jolie in one of those action films that she was in against anything that could happen to her so the movie could be completed.

They insure these offshore oil platforms during hurricanes and things like that. So, it is crucial. Insurance is crucial. We don't think about it. But without major insurers, business really could drive to a halt. So, this is a much bigger deal than Lehman Brothers or even Bear Stearns. The world can exist without five investment banks, but they can't take a major insurer out of play.

Now that's not -- the only reason this matters to you, it is a widely held stock. It is one of the 30 Dow components, one of the 30 biggest, most influential companies in America. It is in your 401(k), in your mutual funds, in the S&P 500 and in the Dow 30. So, the implications of a failed AIG would have been far greater, far, far greater than a failed Lehman Brothers.

And that's why the government decided to step in. Whether that's good or not remains to be seen. But it was thought out by the government to be important to save this company.

CHETRY: All right. Thanks for putting it in perspective for us this morning, Ali.

JOHN ROBERTS, CNN ANCHOR: The nation's financial crisis is transforming the presidential campaign. Senators John McCain and Joe Biden appeared here on AMERICAN MORNING yesterday, each one of them weighing in on government regulations. Did they spin us? Alina Cho is sorting fact from fiction on the campaign trail with an "A.M. Reality Check" for us this morning.

ALINA CHO, CNN CORRESPONDENT: Yes. Good morning guys. After all it is issue number one, right? We're going to start with your interview, John, with vice presidential candidate Senator Joe Biden. When asked how an Obama-Biden administration would take action if they were in the White House right now, Biden had this to say. Take a listen.


SEN. JOE BIDEN (D), VICE PRESIDENTIAL CANDIDATE: Create jobs, keep people in their homes and increase regulatory oversight of the very people John has refused to regulate.


CHO: He's talking about John McCain, of course, his Republican rival, and about the financial markets. Now, reality check. Did Senator John McCain oppose government financial oversight?

Now the truth is until recently the GOP presidential candidate consistently called himself an opponent of most government regulation. In fact, in a "Wall Street Journal" article about six months ago, McCain said he's always for less regulation but that he also understands the opposing view.

McCain went on to say, quote, "I am fundamentally a deregulator." Fast forward to now, with the recent problems on Wall Street, McCain is talking more frequently of increasing government regulation on the financial sector. Here's what he told Kiran just yesterday. Take a listen.


SEN. JOHN MCCAIN (R), PRESIDENTIAL CANDIDATE: We have these regulatory agencies, some of whom are asleep at the switch for the last couple of years or few years and they were designed for the 1930s.


CHO: Now, McCain went on to say there needs to be more transparency, more accountability on Wall Street, but so far no specifics on a plan. So, is Senator Biden right when he says Senator McCain has refused to regulate?

The verdict? Biden's statement is historically accurate. But with all recent turmoil in the financial markets, McCain's position, John, appears to be changing.

Of course, as you heard yesterday, he says the real problem is greed on Wall Street. He's all for protecting the American citizens. The question is how to do it. And again, we are doing this reality check every day. We've got a team of reality checkers. I'm just one person. But it's a good tool as a lot of undecideds decide who to cast their vote for.

ROBERTS: It is. The CNN truth squad. It's work this morning.

CHO: That's right. ROBERTS: Alina, thanks so much for that. 35 minutes now after the hour.

Showdown in Alaska. More fallout from Sarah Palin's firing of Alaska's top cop. How an ugly divorce turned into a highly charged political fight. You're watching the "Most News in the Morning."



JAY LENO, HOST, "THE TONIGHT SHOW": U.S. Treasury Secretary Henry Paulson tried to calm growing fears vowing that the U.S. financial markets will remain stable and he said, you can take that to the bank, assuming you can find one that's still open. Yeah! Yeah!


ROBERTS: Jay Leno with his take of the country's financial turmoil. Both John McCain and Barack Obama are focused on Wall Street and the struggling economy. Joining us now to talk about how they are dealing with issue number one, in Washington, Democratic strategist Jennifer Palmieri and in New York, Republican analyst Andrea Tantaros.

Good to see you folks both this morning. Let's first of all, Andrea, let's start with you. John McCain taking a lot of heat for something he said on Monday in the wake of the Lehman Brothers' collapse, where he said the fundamentals of the economy are strong, yesterday, he walked that back a little. Let's listen to how he put it.


MCCAIN: Well, what I obviously was saying and I believe is the American worker is the most productive and most innovative, the fundamental of our economy and the strength of it and the reason why we will rebound.


ROBERTS: Andrea, he was playing a pretty good game of offense there coming out of the Republican convention in St. Paul. Is he on defense now?

ANDREA TANTAROS, REPUBLICAN ANALYST: You know, I think it's difficult for Republicans to talk about the economy when they've been in the White House for eight years. I think from a political standpoint, Democrats can go after Republicans and it seems like this attack is going to stick.

Now let's talk policy. And this is where I want John McCain to really get on the offensive and I think he will. Barack Obama proposes over a trillion dollars in new spending, balancing budgets and cutting taxes. You cannot do all three.

And I look forward to the Republicans actually telling Barack Obama and saying, how can you do that. Just one of his proposals, universal health care, is scored at $700 billion. His tax plan is enough to pay for that. He can't do what he's talking about doing which is cut taxes on 95 percent of Americans by just doing those three things. It just won't work.

ROBERTS: And at the same time, though, Andrea, John McCain proposing a whole new set of tax cuts and still trying to balance the budgets by 2013. A lot of economists said he can't do that. But --


TANTAROS: Well, John, there's the difference because McCain wants to cut spending, Barack Obama does not.

ROBERTS: That's always been the problem, though, hasn't it, Jennifer. He's trying to cut spending. I mean, President Bush came in with tax cuts that the deficit or the debt has gone from $5 trillion to $9 trillion over the course of eight years.

JENNIFER PALMIERI, DEMOCRATIC STRATEGIST: That's true. And also, John McCain promises to pay for his tax cuts, which is you pointed out. Not only is he going to continue Bush's tax cuts but have $200 billion in new tax cuts for corporations by repealing earmarks.

Well, earmarks account for $18 billion of spending a year. So he has a major mismatch that he has to account for. But, I think that, you know, crises like we're seeing now in Wall Street sort of have that tendency to bring in moment of clarity to presidential elections.

And I think that this is bad news for McCain politically because nothing ties him closer to George Bush...

ROBERTS: All right, Jennifer, but --


PALMIERI: ...than McCain's deal for deregulation.

ROBERTS: All right, Jennifer, but what about Barack Obama? I mean, you take a look at the economy. Historically, its advantage Democrats and our new poll, recent poll reflects that as well. 52 percent of Americans believe that Barack Obama would better handle the economy. 44 percent, John McCain. But Does Barack Obama have the depth of experience to instill confidence that he is the one who can best handle this economy.

PALMIERI: Well, the polling suggests that he does. That people do find that. And he has, he has a solid record on the issue of regulating financial institutions. You know, in March -- I'm sorry, February of '06, they had legislation on reigning in mortgage abuses. He gave a speech in September to NASDAQ, not pretty well-received there about the need for more regulation. He had a proposal in March on how you would actually bring our regulatory framework to the 21st century standards.

So, he has a -- and he also talked specifics about what he would do outside of fixing the financial institution which McCain doesn't do. So I think that said, that's why you see that change in the polling.

ROBERTS: Andrea, over the next six weeks, Democrats plan to hold plenty of hearings on Capitol Hill. Investigations into what's happening in the financial markets, the broader economy as well.

How does John McCain counter that? Because obviously they're going to try to keep the pressure on him when it comes to the economy.

TANTAROS: Yes, sure. Well, I hear both candidates talking about more regulation. And you know, there's a difference. There's lots of regulation, too little regulation and proper regulation. And I think both candidates need to start talking about that.

John McCain needs to go on the offensive and talk about why we need to cut spending. That is one area where, look, I really broke with John McCain many times on issues. But I have got to give him credit on the spending issue. We need someone who has got to cut spending.

Over a trillion dollars in new spending isn't going to work. And you know, going back to Jennifer's point, Barack Obama, he loves earmarks. You cannot talk about earmarks when you talk about John McCain. So we can have somebody in there proposing over a million dollars in new spending.

You want to talk about the housing crisis, nobody is talking about the fact that the second largest recipient of pack money and donations from Freddie and Fannie is Barack Obama. We have not heard that out of his campaign. I would like to start hearing some answers.

ROBERTS: John McCain also did, though, take a lot of contributions from that financial insecurities.


PALMIERI: The point is does the money actually influence your policies, and that is not the case with Obama, and it is the case with John McCain?

TANTAROS: How do you know?

ROBERTS: Jennifer, Andrea --


PALMIERI: Because of this (INAUDIBLE) regulations.

ROBERTS: Jennifer, Andrea, we've got to go. But thanks for being with us this morning.

PALMIERI: Thanks, John.

TANTAROS: Thank you.

ROBERTS: It's good to see both of you. It's now 43 minutes after the hour. CHETRY: Bailing out Wall Street. Mitt Romney and Bill Richardson on how their party's candidates would fix the economy. You're watching the "Most News in the Morning."


CHETRY: 46 minutes past the hour now. Reynolds Wolf is in for Rob Marciano today watching some fire danger out west, and also some storms moving toward now the East Coast.

Hey, Reynolds.


ROBERTS: The art of the deal. Forget the bad economy. Meet the man who made $200 million in two days selling stuff like this. You're watching the "Most News in the Morning."


CHETRY: Welcome back to the "Most News in the Morning." Bad times for the economy meaning good times, though, for at least one artist. After a record breaking two day event at Sotheby, British artist Damien Hirst managed to sell his work for nearly $200 million.

CNN's Lola Ogunnaike joins me now about this really interesting phenomenon where everything else is tanking and the art world seems to be thriving.

LOLA OGUNNAIKE, CNN ENTERTAINMENT CORRESPONDENT: Yes. The art world is definitely thriving. And the person who is thriving the most right now is Damien Hirst. He is said to be one of the richest artist in the world. Worth well over a billion dollars.

He's a combination of a shrewd businessman, a brilliant marketer and a great artist. And he's known primarily for his formaldehyde works which did phenomenally well during the auction. The Golden Calf sold for $18.6 million, and that's the golden calf made with -- it's an 18- ton golden calf actually with golden feet and horns.

And then the next piece, The Kingdom, which is a tiger shark over seven feet long soaked in formaldehyde also sold for well over $17 million, Kiran.

CHETRY: Wow. Who's buying this stuff? Who has that kind of money to buy a fish in her mouth -- oh, that's it -- in formaldehyde?

OGUNNAIKE: A tiger shark. Well, what's so interesting about this, of the top 20 pieces that sold half of them went to Europeans. And the other stuff is being sold to customer from emerging markets like Russia, China, India and the Middle East. They have the money to spend and they're really spending it on contemporary art.

CHETRY: So, all of this money, being imported to the art world, is it a reaction in part to how poorly the stock market has been doing, or how jittery, I guess you could say, people are about the markets?

OGUNNAIKE: Well, interestingly enough, this is not an anomaly. This has been happening since the summer. I did a piece earlier this summer, and I spoke with an auctioneer at Christie's, and they sold a Warhol $32.5 million, a Freud (ph) for $33 million, and a Monet for $80 million. So as the market -- our market is crumbling, the art world for now at least is insulated.

CHETRY: And they're saying that these works are actually increasing in value which is what these people want to see.

OGUNNAIKE: Well, and they get to enjoy it. It's on their walls. They have their jets, they have their homes and they get to enjoy their art.

CHETRY: How about it. Formaldehyde fish. I love it. Lola Ogunnaike, thanks.


ROBERTS: Broken schools.


UNIDENTIFIED FEMALE: The parent was a professional boxer and came to school looking for me.


ROBERTS: Why kids can't cope when mom and dad become the bullies.

And, running up a wall.


UNIDENTIFIED MALE: I'm feeling my entire body weight pushing against this treadmill.


ROBERTS: Dr. Sanjay Gupta tries out NASA's multimillion dollar sideways treadmill.


ROBERTS: Welcome back to the "Most News in the Morning." Checking the Wednesday "Political Ticket" now. A top McCain advisor says she does not think that John McCain, Barack Obama or Sarah Palin are qualified to run a major corporation.

Carly Fiorina who used to run Hewlett-Packard also said that running a company is not the same as running a country. The Obama campaign seized on her comments as proof that John McCain doesn't understand the economy.

CHETRY: A legal battle in a key battleground state. The Obama campaign and the DNC went to court to prevent Republicans from challenging voters in the polls in November. A practice called "voter caging." A liberal blog reported that a Republican official said the party would use a list of homes in foreclosure to make sure people from those addresses were not voting. The Michigan Republican Party is threatening its own lawsuit saying the blog fabricated that comment.

ROBERTS: Move over Al Gore and your invention of the Internet. A McCain advisor called his BlackBerry, quote, "The miracle that John McCain helped create." He said as leader of the Senate Commerce Committee, McCain helped create policies that led to advancements in the telecommunications industry. The McCain campaign called the advisor's comment a, quote, "bone headed joke." McCain has said that he doesn't use a computer and doesn't send email. One of the BlackBerry's prime function.

And for more up-to-the-minute political news, just head to

CHETRY: What would you do without yours?

ROBERTS: I would probably sleep at night for starters.

CHETRY: You're looking for that little red light blinking at all hours, right? Well, the focus on the campaign trail is squarely on issue number one, the economy. And John McCain and Sarah Palin say they are the ones who can clean up the mess.

Ed Henry is on the trail with the McCain campaign and joins us this morning from Cleveland.

Hi, Ed.

ED HENRY, CNN WHITE HOUSE CORRESPONDENT: Well, good morning, Kiran. You know, this morning today, in fact, John McCain and his running mate will be back on the campaign trail together, and when you see them in these battleground states like Michigan where they will be today or Ohio here last night they were together, it's easy to see why John McCain prefers to be next to his running mate.


HENRY (voice-over): When John McCain campaigns by himself, there are empty seats in critical states like Florida. But, with Sarah Palin at his side, the crowds are electric.

UNIDENTIFIED MALE: Please welcome Governor Sarah Palin.

HENRY: When Palin was finished speaking here in Ohio, voters, especially women, started leaving while McCain was still at the podium.

It's dangerous for the second in command to outshine the top of the ticket. But McCain aides insist they're fine with all the excitement around Palin, because it boosts their megaphone on key issues like the economy. GOV. SARAH PALIN (R), VICE PRESIDENTIAL CANDIDATE: We also need serious reform on Wall Street. And John McCain is the guy who will get it done.

MCCAIN: We're going to put an end to the reckless conduct, corruption and unbridled greed that have caused a crisis on Wall Street.

HENRY: Here on the road, they are running as outsiders.

PALIN: And, with your vote, we are going to Washington, D.C., to shake things up.

HENRY: But McCain's latest solution to fix the economy comes straight from inside the beltway, appoint a blue-ribbon panel in Washington to probe Wall Street.

MCCAIN: We have to assure every American that their deposit in a bank is safe. We have to have a 9/11 Commission. And we have to fix this alphabet soup of regulatory agencies that is left over from the 1930s.

HENRY: In Colorado, Barack Obama jumped all over that idea.

SEN. BARACK OBAMA (D-IL), PRESIDENTIAL CANDIDATE: Senator McCain offered up the oldest Washington stunt in the book. You pass the buck to a commission to study the problem.

HENRY: Democrats are hoping that, if they can paint McCain as out of touch on the economy and Palin as outside-the-mainstream conservative, the running mate's high favorability ratings will drop.

SEN. CLAIRE MCCASKILL (D), MISSOURI: That's going to settle down. And, you know, women in America and all -- frankly, all voters are going to kick the tires for the next month-and-a-half, and they're going to figure out that these policies that she embraces are very extreme.

HENRY: Senior McCain advisers insist, Democrats are doing some wishful thinking.

CARLY FIORINA, VICTORY CHAIR, REPUBLICAN NATIONAL COMMITTEE: I think it's pretty clear that the Democratic Party is in full-throated panic about the state of the race.

HENRY: But even some conservatives see a risk if Palin overshadows McCain.