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LOU DOBBS TONIGHT

Stock Market Plunges Again; Obama/McCain Debate Showdown; Obama's Radical Ties?; Fed Takes Drastic Action

Aired October 7, 2008 - 19:00   ET

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


LOU DOBBS, HOST: Looking forward to that, Wolf. Thank you very much.
Tonight Senators Obama and McCain preparing to face off in their second presidential debate. Will the good senators finally show some leadership on the issue of the economy and a few others? Tonight I'll be joined by former Governor Mitt Romney for the McCain campaign, Senator Claire McCaskill for the Obama campaign.

And tonight the issues the presidential candidates are trying to avoid including illegal immigration, the exporting of middle class jobs and the impact of so-called free trade on our middle class.

And tonight also new questions about Senator Obama's ties with 1960s radical Bill Ayers, a founder of the Weather Underground terrorist group. Is there more to this than we suspected? That report coming up. All of that, all the day's news and much more from an independent's perspective, straight ahead here tonight.

ANNOUNCER: This is LOU DOBBS TONIGHT: news, debate, and opinion for Tuesday, October 7th. Live from New York, Lou Dobbs.

DOBBS: Good evening, everybody. It is debate night here on CNN. The Obama and McCain campaigns are promising a lively debate in Nashville, Tennessee. Both of these candidates will be trying of course to convince independent voters, independently-minded voters that they have the character and the vision to be president.

One of the most urgent challenges facing the nation is our worsening financial crisis. The stock market today again plunged, the Dow losing more than 500 points. We have extensive coverage on what we should expect in the presidential debate this evening.

Ed Henry, Jessica Yellin and Bill Schneider all in Nashville. And our political analysts here, Ed Rollins, Michael Goodwin and Robert Zimmerman here with me in the studio in New York. We begin tonight with Ed Henry inside the debate hall in Nashville. Ed, what is Senator McCain, what is his objective tonight?

ED HENRY, CNN WHITE HOUSE CORRESPONDENT: Well, Lou, the stakes could not be any higher for John McCain tonight. He has been thrown on the defensive by this financial crisis and frankly he is running out of time to change the basic narrative of this race right now which is that Barack Obama is edging ahead in many of the battleground states in large part because of the economy. The good news for McCain heading into this debate though is that he is very comfortable in this setting. The town hall format, taking questions from voters, it's something he does on the campaign trail a lot. So he could excel in this format. But Obama supporters today have been trying to push the line that perhaps John McCain will get desperate tonight, he'll go on the attack.

But McCain aides insist they realize that would backfire in this setting, a very intimate setting behind me. You've got two chairs for the candidates sitting very close by and then undecided voters from the local area here in Nashville sitting around them. McCain aides realize it would look really bad for John McCain if he went really hard on the attack tonight.

Instead they are saying that in the final two hours of debate prep this afternoon, John McCain was focusing hard on issues like taxes, health care, other pocketbook issues and trying to lay out in practice tonight that he would lay out, basically sharp policy differences with Obama.

The personal attacks he will leave to his running mate, Governor Sarah Palin who as you know over the last few days has been hitting Obama hard on various personal issues. Tonight their goal at least is to try and talk about that financial crisis which so many Americans are so desperately concerned about right now, Lou?

DOBBS: Ed, thank you very much, Ed Henry. Senator Obama tonight expected to hammer Senator McCain on his economic policies. The Obama campaign trying to deflect strong new criticism on his character from Senator McCain and Governor Palin. Jessica Yellin now joins us from Nashville. Jessica, do you believe Senator Obama can keep his focus on the economy tonight or will it perhaps slide just a bit to character issues?

JESSICA YELLIN, CNN CONGRESSIONAL CORRESPONDENT: Well, he is prepared to deflect any criticism of his character by parrying that this is not what the American public wants to hear about. What the American public wants to hear about Obama will say is the economy. Already today we have heard it all day, Lou, talking to Obama's aides.

They're telling me John McCain has said publicly that he would rather have a debate about Barack Obama's character because that will help John McCain do better in the polls. But the Obama campaign is adamant that what they think Americans want and frankly, where Obama does best is talking about the economy.

So we are going to hear Barack Obama emphasize not just the troubles that the U.S. is facing economically right now, but beyond that what specific plans he Barack Obama is proposing to help those folks that Sarah Palin calls Joe six-pack, the folks the Obama campaign call regular middle class Americans, plans for an immediate economic stimulus package, expanded unemployment insurance, that sort ever thing.

And again already on the aggressive, prepared to counter any criticism John McCain may bring by saying this is just an unneeded distraction from the important issues. One other thing I would add, Lou is that John McCain does, as Ed said, do very well in these town hall settings and the Obama campaign is emphasizing that point. The one thing McCain realty needs -- sorry -- Obama needs to do well tonight is connect, not stay aloof, connect on an individual level with these voters who ask questions -- Lou.

DOBBS: Jessica, thanks. We look forward to your reporting throughout this broadcast and the evening of course. And I'll be talking about economics with two of the spokesmen for the campaigns, Mitt Romney for the McCain campaign and Senator Claire McCaskill for Senator Obama's campaign. I look forward to seeing just how -- well how specific they want to be about economics because to this point they have not been, so that's going to be coming up here in just moments.

And Senator Obama tonight of course trying to hold on to his narrow lead in the latest national opinion polls. Senator Obama's lead on domestic issues, by the way, has widened. And voters are telling pollsters that Senator Obama would do a better job now on Iraq. Bill Schneider has the story from Nashville. Bill, just how fragile or strong is Obama's lead in these polls now?

WILLIAM SCHNEIDER, CNN SENIOR POLITICAL ANALYST: That very much depends on how fragile you think the economy is. The more fragile you believe the economy is, the more likely you are to support Barack Obama. And I have the figures to prove it.

We asked people how likely do you think it is that the country will enter another great depression. One in five Americans said they thought another depression was very likely. And they voted -- they are voting, three-quarters of them for Barack Obama. Those who say somewhat likely, about two thirds are voting for Barack Obama. Those who said another depression is not very likely are splitting between McCain and Obama. And those who say it's not likely at all, they're pretty solidly for John McCain. The problem is that's only one voter in eight.

DOBBS: You know that's astounding to think that that number of people would even entertain the idea of a depression. It really goes not, you know, well, you have to include Obama of course and McCain in this, but the ignorance of the national leadership in this country right now, that is President George W. Bush, Treasury Secretary Hank Paulson, Speaker of the House Nancy Pelosi and Senator Harry Reid to be talking down our economy, to be talking down our markets and creating a -- what Jimmy Carter once called nearly three decades now, a malaise. I mean they are contributing to this issue rather than resolving it or attempting to offer real positive constructive leadership. I mean it is astounding, is it not?

SCHNEIDER: It is astounding. There is a lot of fear. A lot of anxiety and very few people are offering words of reassurance because nobody, nobody really understands this. They should understand it, but there are no indications that people know, that anyone is in control of what is going on. No one on Wall Street. No one in Washington. And that is very frightening to Americans. To believe that their business leaders and their political leaders have no way of controlling what's happening to them. And that their futures are really at risk.

DOBBS: I think if there is room for fear amongst American citizens and I think FDR had it right that all we have to fear is fear itself without question. But if there is a legitimate fear here right now it is the fear that we have a leadership in this country, political, economic and business that is deeply troubling. Bill Schneider, thank you very much.

Well joining me now, three of the best political analysts in the country, all CNN contributors. Republican strategist Ed Rollins -- Ed, White House political director under President Reagan, chairman of Mike Huckabee's presidential campaign -- Pulitzer Prize winning columnist for the "New York Daily News", Michael Goodwin and Democratic strategist, Democratic National Committeeman Robert Zimmerman.

We just heard Bill Schneider talking about this economy. That number of people thinking that we could go into depression here tells you just how effective the three stooges that is Bush, Pelosi and Reid have been here. This is an abomination. Robert Zimmerman, what is your reaction and what should these two presidential candidates do tonight to counter that?

ROBERT ZIMMERMAN, DEMOCRATIC STRATEGIST: Bill Schneider made a very important point and that is the American people don't feel there is any leadership coming from any sector of our society. You made the point as well from the economic sector of business community, from our government sector and we expect our leadership to provide -- our national leadership to provide some direction.

And that's why this debate is so critical. Because it is in front of an independent audience. And these questioners can ask -- can put a real big reality check on these candidates. That's why it is going to be critical to hear these candidates articulate their message not just of their hope for the economy but their plans to bring about a better economy.

DOBBS: Michael?

MICHAEL GOODWIN, CNN CONTRIBUTOR: Well, Lou, I think basically the public has tuned out George Bush so no matter what he says now it wouldn't help. I find though that the gap here, the vacuum is partially created by the candidates themselves. They have not really said anything. They have also just talked on the problem, each for their own strategic reasons.

Bush -- McCain to get away from Bush, Obama to blame Bush and McCain. So you do have a vacuum and I'm particularly disappointed in the candidates. They have not talked about what they will do in light of how this is going to change their presidency.

ED ROLLINS, FORMER W.H. POLITICAL DIRECTOR: Thirty days we have had nothing but talks of depression and that the world is going to come to an end and that everyone is going to lose their jobs and I think no one has had the skill to go out and communicate here is what the problem is, here is how we fix the problem. We have taken a first step whether you agree or disagree with it. We've invested a tremendous amount of taxpayer's money but we are going to be healthy again and we are going to come out of this thing as we always have. But there is nobody out there in the political, and certainly the candidates have not addressed it.

DOBBS: All right. Thank you. We are going to be back with our panel throughout this broadcast. We would like to hear what you think about our poll question tonight, which is, do you believe we will hear either of these candidates offer any real solutions on the issues of illegal immigration, free trade, outsourcing middle class jobs, and prosperity?

Yes or no. Please cast your vote at loudobbs.com. We will have the results coming up here later in the broadcast. Much more on the presidential debate ahead and the issues these candidates don't want to talk about, I'll be talking about them with two of their representatives, former Governor Mitt Romney for the McCain campaign, Senator Claire McCaskill for Senator Obama's campaign.

And new charges of voter fraud against an organization that has had close ties to Senator Obama. Stay with us.

(COMMERCIAL BREAK)

DOBBS: One topic that is very likely to come up in tonight's debate is Senator Barack Obama's relationship with 1960s radical terrorist William Ayers. The McCain campaign says the relationship raises serious concerns about Senator Obama's judgment and his character. Louise Schiavone joins me now with more on the Obama/Ayers relationship -- Louise.

LOUISE SCHIAVONE, CNN CORRESPONDENT: Lou, Barack Obama and 60's radical William Ayers go back at least 13 years when it is reported they were introduced in a Democratic Party ally's living room. They have collaborated on community projects since then although Obama rejects suggestions that he and Ayers are allies in radical politics, but there are skeptics.

(BEGIN VIDEO CLIP)

SEN. BARACK OBAMA (D-IL), PRESIDENTIAL CANDIDATE: The notion that somehow, as a consequence of me knowing somebody who engaged in detestable acts 40 years ago, when I was 8 years old, somehow reflects on me and my values, doesn't make much sense.

STEVE CHAPMAN, COLUMNIST, CHICAGO TRIBUNE: I think it does make sense. I think Ayers is a guy who set off a bomb in the United States Capitol, you know the same Capitol where Barack Obama serves as a senator. And he was a guy who was at war with the American democratic system.

(END VIDEO CLIP)

SCHIAVONE: Ayers in fact is famously quoted in "The New York Times" in 2001 before the 9/11 attacks as having said of the weather underground violence quote, "I don't regret setting bombs. I feel we didn't do enough", end quote. Obama directed $50 million in Annenberg challenge grants to various programs in Chicago schools, including some Ayers' education projects. Annenberg funds also went to a left- wing community action group called ACORN, which as you know, Lou, is now under investigation for voter fraud and embezzlement.

DOBBS: A number of jurisdictions, shall we say. Louise, thank you very much -- Louise Schiavone.

Well, Nevada state officials raided the Las Vegas headquarters of ACORN after receiving complaints of voter fraud. The Nevada Secretary of State saying ACORN has submitted multiple voter registrations with false or duplicate names. Some of those registrations even using the names of Dallas Cowboys football players, including Tony Romo and Terrell Owens. Nevada is one of five states investigating the group's current voter drive. ACORN issuing this statement in response to the raid today.

Today's raid says ACORN is quote, "a stunt that serves no useful purpose other than to discredit our work registering Nevadans and distracting us from the important work ahead of getting every eligible voter to the polls." With some apparent -- emphasis apparently on the Dallas Cowboy football players.

Your reaction to this thing with Ayers? It turns out we are seeing a far more extensive relationship -- even "The New York Times" in its reporting basically concluded that there was not a strong, close relationship. But that conclusion was not -- was in point of fact invalidated in my opinion at least by its reporting. What do you make of the impact? Should it be brought up in the debate tonight, Robert Zimmerman?

ZIMMERMAN: If it is brought up in the debate tonight, then John McCain loses the election tonight.

DOBBS: Wow.

ZIMMERMAN: It is nothing more than a two-bit deceitful smear being lodged against Barack Obama because John McCain can't talk about the real issues. And in front of this audience in particular of independents who are not hard partisans, they want to hear about how these candidates are going to address the economy.

DOBBS: Do you agree with that, Michael?

GOODWIN: Not at all. I do believe that it is a character issue. Obama I think has never been entirely clear about his relationship with Ayers or with Reverend Jeremiah Wright, so I think all those things are fair game. It doesn't mean that they end the race in McCain's favor, but I think Obama has to do a better job of explaining his relationship to these people.

DOBBS: Is it resonating, Ed, do you think? I mean, it's a good line. Senator McCain today saying that he has written two books, two memoirs but he's not exactly an open book and the crowd loved that.

ROLLINS: Well he's not an open book and I think relationships like this -- I mean the problem with the Democratic Party -- Robert won't like when I say this -- but the foundation of many of the activists today started in the anti-Vietnam War in 1968, their convention, what have you. The Weathermen people were heroes.

They got to go right back in the community again. Some went to jail, some as soon as they got out of jail became activists again and I think to a certain extinct when this man who the vast majority of people don't know him, maybe elected president in 30 days, we have a right to go probe who he is and what he did.

(CROSSTALK)

DOBBS: Hold that thought as they say, Robert. Our panel will be right back with us. And we hope you will stay with us. We will be reporting next on your tax dollars hard at work.

You know that AIG, $85 billion bailout? Man, are we getting our money's worth as taxpayers. At least one very smart tony luxury spa in California for the top executives of AIG. And we will be reporting to you on dramatic action from the Federal Reserve in this financial crisis.

And Governor Mitt Romney, Senator Claire McCaskill join me. We'll be talking about these candidates' news plans, proposals on the economy. And we'll be talking specifics. All of that and more next.

(COMMERCIAL BREAK)

DOBBS: Well both the president and the Fed chairman today reminding Americans that this bailout make take a while to work its magic. Stock prices today plunged for a fifth straight secession after Federal Reserve Chairman Ben Bernanke warned that our economy is very likely to slow even further. The Fed chairman also suggesting that the Fed may cut interest rates again. The Dow Jones industrials fell more than 500 points to a five-year low now.

Chairman Bernanke also invoked depression-era emergency powers that will allow the Fed to buy short-term debt. The companies used to finance payrolls and other day-to-day operations, the commercial paper market. Lisa Sylvester has our report now from Washington -- Lisa.

LISA SYLVESTER, CNN CORRESPONDENT: Lou, this is truly unprecedented. The federal government is stepping in and buying what's called commercial paper. Now this is as you mentioned the short-term debt that companies and banks use to fund their day-to-day operations. Federal Chairman Ben Bernanke says that this move is necessary because investors have shied away from buying this commercial paper.

(BEGIN VIDEO CLIP)

BEN BERNANKE, FEDERAL RESERVE CHAIRMAN: Disruptions in the commercial paper market and the tightening of bank lending standards have made it more difficult for businesses to obtain the working capital they need to meet everyday operating expenses such as payroll and inventories. (END VIDEO CLIP)

SYLVESTER: But make no mistake about it. What we are talking about here, this is unsecured lending to banks and other companies. Some analysts say that the Fed is trying to do something but its own actions are not exactly instilling confidence.

(BEGIN VIDEO CLIP)

BOB ANDRES, PORTFOLIO MANAGEMENT CONSULTANTS: I believe policymakers, from a historical standpoint, when we look back at this, we will see that they were operating from behind the curve and got a late start on this. So now they are in a position where they are forced to play the game of Whack-a-mole again.

(END VIDEO CLIP)

SYLVESTER: Chairman Bernanke also sends a strong signal that the Federal Reserve will cut interest rates at the end of this month if not sooner. And he warned that the financial crisis could mean more economic pain ahead -- Lou.

DOBBS: And of course after he made those comments the markets sold off further in large measure. It can be I think reasonably assumed because again it was talk and it was not action. And this market and investors want action. Lisa, thank you very much. Lisa Sylvester from Washington.

The federal government last month announced that $85 billion taxpayer funded bailout of insurance giant AIG. Just days later, AIG executives spent nearly half a million dollars of taxpayer money at an exclusive California resort where rooms go for about $1,000 a night.

According to the House Oversight Committee documents, the retreat at St. Regis Resort in Monarch Beach (ph), California, cost taxpayers almost half a million; $200,000 spent on rooms; $150,000 on meals; $23,000 on spa treatments; $10,000 on so-called leisure dining. Your tax dollars at work, thank goodness they didn't buy drinks. That might have been upsetting.

And former AIG CEO Robert Willumstad today told the House Committee the retreat seems inappropriate. He left the company in June, by the way.

Up next, why the Obama campaign is comparing Senator McCain to an Olympic hero ahead of tonight's debate. Also ahead Senator Mitt -- Governor Mitt Romney is supporting Senator McCain, he'll join me. And Senator Claire McCaskill supporting Senator Obama. She'll be here to defend her candidate's plan for the economy if we can discern one given the new circumstances in this economy, looking forward to that with both Mitt Romney and Claire McCaskill here next. We'll be right back.

(COMMERCIAL BREAK)

ANNOUNCER: This is LOU DOBBS TONIGHT: news, debate, and opinion. Here again, Mr. Independent, Lou Dobbs.

DOBBS: Our volatile economy has helped shift momentum to the Obama campaign. In just a few moments former Massachusetts Governor Mitt Romney will join me from the presidential debate site in Nashville, representing obviously Senator McCain's positions. And first in Nashville as well, Senator Claire McCaskill who is supporting Senator Barack Obama. Senator McCaskill, good to have you with us. Let me turn to...

SEN. CLAIRE MCCASKILL (D), MISSOURI: Thank you.

DOBBS: ... to the -- an issue that is straightforward. It's as simple and I think invites as direct an answer as any question that could be put forward to either these candidates. Given the fact that pensions have lost about $2 trillion in this crisis, that we have had $4 trillion ripped out of our markets, how can either candidate -- I'm going to put it this way -- how can either of these candidates tonight stand in front of the American people and say that they can deliver on their health care proposals, that they can deliver on tax cuts of any kind, in any measure, given the economic circumstances this nation now faces?

MCCASKILL: Well, I think what Barack Obama has to do is explain that his economic policies and philosophy is much different than the philosophy that got us to this place. I mean, we have done John McCain's economics; it's called George Bush economics. And that's what landed us in this mess, no regulation, no tax breaks for the middle class, all about trickle down from the very top.

So what Barack Obama has to clearly lay out is what his economic policies are. Tax cuts for middle class. Tax incentives for companies to keep jobs in America, instead of tax incentives to send jobs overseas. There's a stark...

DOBBS: Senator, if I may...

MCCASKILL: ... difference between these two candidates.

DOBBS: If I may, Senator, you and I have known each other a long time. My question was really, very simple. Is there any way in the world, either candidate, including yours, can possibly look the American people straight in the eye tonight, and say that they can still deliver tax cuts, universal health care, these ambitious programs in the face of what is now extraordinarily a changed environment and economy?

MCCASKILL: Well, Lou, this is a tough situation. But the question is who can provide economic growth? I mean, the only way we get out of this situation is do what we do best in America, and that is to fight back with the work ethic, ingenuity and a tax code and an economic policy that supports the middle class. That's what Barack Obama can definitely look the American people in the eye and explain, and that's what his philosophy is. It's not about what George Bush did that got us here. That's the difference between these two candidates. Can they do everything right away? Well, it is all going to depend on how quickly we can get this economy back on track. And certainly I think Barack Obama has some very good ideas to do that.

DOBBS: I'm sure he does. But I do think that the American people deserve great candor from these candidates. And frankly, Senator McCaskill, I don't care whether it is Senator Obama or Senator McCain -- if neither one of them has the guts and the intellectual integrity to look the American people in the eye tonight and say, and acknowledge that there is a changed, changed nation and economy that supports that nation, that will not permit these programs, these tax cuts that both men have addressed, then don't you think that they are both, to put it in the kindest of words, being disingenuous?

MCCASKILL: I think Barack Obama will have a lot of candor. Frankly, Lou, I think he has been in touch with how bad this economy has been. I mean, just a few weeks ago, John McCain was still saying the fundamentals of our economy are strong. I think Barack Obama can have a lot of candor. And the important thing is, it's not enough to change quarterbacks or change uniforms. We have got to change teams if we think we are going to grow this economy.

DOBBS: Senator, thank you very much. Appreciate it.

MCCASKILL: Thank you, Lou.

DOBBS: Appreciate it.

Well, in a moment, I'll be joined by Governor Mitt Romney to give us his assessment as to whether or not this economy, with trillions of dollars ripped out of its markets and out of pensions of and 401(k)s of millions Americans might have is kind of impact on their campaign proposals. We will see.

But, first, back with Ed Rollins, Michael Goodwin and Robert Zimmerman, I'm going to ask you for instant analysis. You just heard Claire McCaskill, senator from Missouri, refute, I gave he three opportunities to say that her candidate and the American people are going to have an honest exchange here about the limitations, now that we have an economy in distress. Are you not somewhat disappointed, Robert Zimmerman?

ROBERT ZIMMERMAN, REPUBLICAN STRATEGIST: I'm not disappointed in Claire McCaskill who is a great public official. And very candidly Senator Barack Obama has said there will be a number of programs that have to be deferred or delayed. He has to be more specific on that. Likewise on the mortgage crisis we're facing, he has advocated restructuring the bankruptcy laws so people can stay in their homes.

DOBBS: Which has been discounted by any person who has any concern about the vital did I of the market.

ZIMMERMAN: Compared to John McCain's approach which is a voluntary system he is advocating. I think Barack Obama has an idea that needs more specifics. Hopefully we will see that tonight. DOBBS: Do you not believe? I'm going to try this one more time. Do you not believe the American people deserve at least a straight forward statement from both of these candidates that circumstances are now altered because of the distressed economy and they won't be able to deliver on tax cuts and won't be able to provide the entitlements and we are more likely to see entitlements restricted?

ZIMMERMAN: And Lou, we need more specifics from both candidates tonight.

MICHAEL GOODWIN, NEW YORK DAILY NEWS: Lou, last week Joe Biden was asked that question. He said we will slow down our doubling of foreign aid. That's the kind of BS answer that will not help in this economy. Not an honest answer.

ED ROLLINS, REPUBLICAN STRATEGIST: Easy for the senator to say it is all Bush. The congress has been controlled by the democrats in the last two years. What spending programs are they willing to give up? Are they willing to give up some of the war spending? Whatever.

DOBBS: Joining me now to represent Senator McCain's views on economic policy, former presidential candidate and McCain supporter, as I said, Governor Mitt Romney. Governor Romney is also, as you can tell, in Nashville, Tennessee.

Governor, good to have you with us.

FORMER GOV. MITT ROMNEY ( R), MASSACHUSETTS: Thanks, Lou, good to be with you.

DOBBS: I'm going to ask the same question I did of Claire McCaskill, because I really, to my bones, believe it is the absolute essential issue. Will, in your judgment, it be necessary for both of these candidates, to say directly to the American people and honestly that, given the fact that we have seen $4 trillion ripped out of these markets, $2 trillion lost in pensions and 401(k)s here in short order, and with all that is happening in this distressed economy that they are not going to be able to deliver on the tax cuts that they have enunciated. They are not going to be able to deliver on the entitlement proposals that they have made?

ROMNEY: Well, I think what they have to lay out is what Barack Obama was unwilling to do in the last debate, what Jim Lehrer asked him twice, what things he would cut back. He was unable to name a single thing he would cut back. John McCain has said, first of all, he would consider freezing all discretionary, non-military accounts. All of them. You can think about what an enormous impact that would have. He has also indicated he would like to reform our entitlement program, and I have spent some time looking at entitlements. I believe we can save a lot of money there.

With regards to taxes, if the economy is in trouble, what you would like to do is to reduce taxes. That's typically the way to stimulate the economy. I think they'll both be talking about holding taxes down or cutting taxes, but you know, unless we are going to reign in excessive federal spending, holding down taxes would mean unacceptable deficits. And so, Barack Obama, if he wants a tax cut, is going to have to talk about cutting down on the government expenditures, and he has just not been willing do to that so far.

DOBBS: Which entitlements then, Governor, would Senator McCain be willing to constrain?

ROMNEY: Well, I can't give you the specifics in his case, but I can tell you where the options are of these. One is in Medicaid, to dramatically reduce the growth of Medicaid by giving the states the free reign to take their Medicaid collars and spend them in a way that they can help their own poor in the way they would like to.

Secondly with regards to Social Security, you have got four major levers there, but certainly slowing the rate of inflation of the initial benefit calculation on Social Security for higher-income individuals is an idea that has been put out there that makes a lot of sense in my view. And on Social Security - excuse me, on Medicare, that's the big - that's a big monster there -- we are going to have to reform our health care system. John McCain has laid out a plan to get more people health insurance and to reign in the excessive growth in health care. So he will do it.

DOBBS: He will did do it, but at the same time, a lot of discussion of tax cuts. This is also a senator who said he is going to be the biggest free trader in this country. And when we look at what these free trade so-called policies have brought, it has been devastation for our middle class. Corporate America has put our working men and women in this country into direct competition with the cheapest labor in the world, while corporate America, bereft of an idea or the capacity for innovation, apparently, in terms of its financial markets, looks to the United States government for a trillion -- at least a trillion dollars in direct intervention from the federal government. I mean, is it about time for Senator McCain or anyone else to start saying, it is time to change these idiotic policies that for 32 consecutive years have created trade deficits and devastated middle-class American workers?

ROMNEY: Lou, I couldn't disagree with you more.

DOBBS: I didn't think that you were going to jump right on the bandwagon.

ROMNEY: Exactly right. Any time someone says, you know what, we can't compete globally and we have to...

DOBBS: I didn't say - whoa, whoa, whoa, Governor. Now, wait. You can yell at me, you can cuss at me, but don't suggest that that's what I said. Because the American worker has improved productivity, as you know, by over 70 percent over the course of the past 30 years and his and her wages have remained stagnant. This is not about the United States not competing internationally. What this is about is about corporate America not giving away our knowledge base and surrendering our middle class to foreign labor because it is cheaper.

ROMNEY: Hey, Lou, let's talk about what that means. If the point is, as you say, we shouldn't be able to trade on a free basis, meaning we want to charge a tariff for foreign goods coming in -- excuse me, then, free trade means trading between nations without a tariff. That's all it means. So if you say that you are concerned about free trade, presumably you want some kind of trade protection or tariff or barriers, am I misunderstanding you?

DOBBS: Oh, no, Governor, what you are misunderstanding is the issue of comparative advantage in the case of China, where we are practicing free trade, of course, the tariff barriers are at a ratio of just about 3:1 the case of automobiles as between the United States and China. We can go through a host. We also have, as you know, David Ricardo suggested, for example, that we have equal levels of employment in comparative advantage between two trading countries, whereas China has about 300 million people either unemployed or underemployed, and our middle class of course is being put into direct commission with them. That's neither fair nor is it free. Certainly not in its impact, is it?

ROMNEY: I'll go back to the original point, which is if you believe that we should erect some kind of trading barrier so that we don't trade with China, that is valid position. It's just not one that I think works long-term for our country, because I believe, as you pointed out at the very beginning, that by virtue of the productivity growth we've had in this country, we can compete with China and we can compete with other nations as long as the trade is fair.

DOBBS: My point, my point is...

ROMNEY: John McCain is going to make sure - John McCain is going to make sure that we do get those nations to treat us fairly and that we play...

(CROSSTALK)

DOBBS: Governor, I hope you will come back and we can have this...

ROMNEY: And America will win.

DOBBS: Governor, I hope you can come back and we can further this discussion. And it would be a delight. We wish you well. Thank you very much, Governor.

ROMNEY: Thanks, Lou. Thank you.

DOBBS: A lot more with our panel here. Reaction with Governor Romney and Senator McCaskill. And two critical issues these presidential candidates aren't talking about. We will have that and a great deal more.

(COMMERCIAL BREAK)

DOBBS: According to the latest CNN state by state poll, Senator Obama is now leading Senator McCain in the race for electoral votes. John King joins me now and has the very latest for us from the CNN electoral map. John, we have seen a shift in key battleground states over the last few days, strongly in the Barack Obama favor, right inch.

JOHN KING, CNN CORRESPONDENT: Largely independent voters driving the change. Let me show you where the change is. We woke up this morning with the CNN projection at 250 for Obama and you need 270 win. Here is what happened. We had North Carolina leaning republican, but our new battleground poll makes us switch that to a toss up and you see the maps changing up in the corning.

Also New Hampshire, only four electoral votes but that could matter. That is leaning democratic. And the battleground out in the Midwest of Wisconsin, ten electoral votes. Move that over. You get Obama at 264, just six shy of 270 and not only put him within striking distance but you see now the seven toss up states, the golden states left on the map, all states carried by George W. Bush four years ago.

So the republicans on defense and even if John McCain were to hold the state of Florida, win the state of North Carolina, win the state of Virginia and the state of Ohio and Missouri, he would just catch up with Barack Obama and you could have a scenario where it plays out here in Colorado and Nevada. So the republicans on defense, even if McCain won them all, he would barely win the election. So say Ohio goes democratic, Barack Obama is the next president. So John McCain enters this second presidential debate in a wind this his face on the economic issues that are shifting all these state polls. And Lou, you panel knows these states well. This battleground state map right now is tilted significantly in the democrat's favor.

DOBBS: And the volatility that we have seen over the last really, two weeks, that volatility, does it seem to be, if you will, abetting? Or is it something we can expect in the days ahead?

KING: I would not say anything is locked in. But clearly I was just in Ohio this past week and I can tell you in small towns in Ohio, the economic debate is dominating and it's not so much that they are in love with Obama plan but they are tired of republican policy and saying they are though the hearing much different from John McCain. So that is his challenge to prove he has an economic plan and prove it is different from the current administration.

DOBBS: John King, thank you very much, with his magic wall and terrific insight into what's going on in this race.

We are back with Ed Rollins, Michael Goodwin and Robert Zimmerman. You heard John King talking about the economics. I think John may have been (inaudible) a little bit for spending so much time on checks in this campaign. But the reality is we heard Mitt Romney basically say to us that he truly believes that if you in any way protect the American workers, and don't leave the middle class of the country vulnerable to 300 million under and unemployed Chinese manufacturing and now services as well, that you are some how being a protectionist.

ROLLINS: Slightly different tone that I heard when he was campaigning against John McCain in Michigan and which he had promised the auto industry that they were going to go back to the glory days when his father was there. But that's okay. I thought he made a nice presentation. Two things, we are not on defense. We are at goal line stand. And I don't want to say, but John king, someone who has lived with maps 40 years, he does as professional job as any. He knows where the trends are and he does a great job. But we have 30 days. And what happens sometimes is the states follow national polls by about a week. The national polls two weeks back, Obama had a lead. Starting to tighten up a little bit. So you may see erosion coming back here a little bit.

DOBBS: We should point out that the Zogby poll and the CBS poll put this race at three and four points respectively.

ROLLINS: And the hot line poll which is very important, done by a very prominent democrat who used to be my partner. But I think the thing has closed up a little bit if tonight doesn't go well for McCain then it will open up and it could be over. But we are on the goal line. And last time the democrats had three shots trying to get it across the goal line I'm not sure they will make it on the fourth.

GOODWIN: I think the problem for John McCain is as the market goes and as the job losses mound, his campaign goes down sort of in direct proportion. So how he changes that is a mystery that's why he is going after Bill Ayers and those sorts of things.

ZIMMERMAN: Very quickly, the volatility of the economy is helping the perception of Obama being able to handle the economy. Keep in mind, Al Gore was running ahead at this time in the 2000 campaign.

DOBBS: Thank you very much. We will be back with our distinguished political analysts. Up next, will we hear anything tonight from these two candidates with illegal immigration? Border security? Public education. Spending on infrastructure? Perhaps constraining government spending?

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DOBBS: Well we are approaching 8:00 p.m. eastern time. Of course, all of the folks, best political team on television getting ready to bring you debate night here on CNN. Illegal immigration and border security, major issues for middle-class Americans. With under a month to the election neither Senator McCain or Obama has adequately nor specifically dressed either issue. Casey Wian joins me for more on what the candidates are saying and not saying. Casey?

CASEY WIAN, CNN CORRESPONDENT: Immigration and customs arrested 300 suspected illegal aliens at a chicken processing plant in South Carolina today. Several supervisors arrested. Authorities say they checked the immigration papers of 825 workers. And 775 of them were fraudulent.

(BEGIN VIDEO CLIP)

WALT WILKINS, U.S. ATTORNEY: We need to enforce the laws of the United States, enforce them against those who use identification documents to unlawfully obtain jobs and as well as those employers who knowingly hire and harbor undocumented aliens.

(END VIDEO CLIP)

WIAN: But Barack Obama has said immigration raids are "terrorizing communities." He says he wants border security. So does John McCain. Both have largely ignored the issue as drug cartel violence across our southern border escalates. In Tijuana, the bodies of 60 cartel victims have been discovered. Some with their tongues cut out, others beheaded. Perhaps the candidates are taking a cue from the Bush administration. U.S. Attorney General Michael Mukasey is in Mexico City and refused to characterize the drug war as a crisis adding "there is no reason to be pessimistic." Lou?

DOBBS: That is an interesting statement. Not sure what the attorney general meant by that. But it is always nice to hear a positive attitude emanating from this administration in some quarter whether realistic or not. Thank you very much, Casey Wian.

Reminder to vote in our poll. The question is do you believe we will hear either candidate offer any real solutions on the issues of illegal immigration, free trade, outsourcing and prosperity? Yes? No? Cast your vote at loudobbs.com. Love to hear from you. We'll have the results in a few moments.

Still ahead more with our political analysts. As we count down to tonight's debate from Nashville, Tennessee. Stay with us we're coming right back.

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DOBBS: The debate over who is to blame for the nation's housing crisis is taking an increasingly uglier turn. Congressman Franks said yesterday the republican criticism of a democratically supported housing plan was racially motivated meant to appeal to the Republican Party base. Franks said.

A spokesman for Congressman Frank told us he stands by his comments. House minority leader, Boehner called the remarks, "A lame desperate attempt to divert Americans attention from the democratic role in this crisis."

We're back with our panel. Ed Rollins, Michael Goodwin and Robert Zimmerman. Ed, your reaction to this?

ROLLINS: My reaction is Barney Frank has ducked and dodged every bit of responsibility as the chairman of this committee and prior when he was ranking member. To make this kind of comment is outrageous. These were mostly done in urban areas, those aren't republican areas, just an absurd statement for him to make.

GOODWIN: The whole problem with the mortgage crisis, was no standards for subprime loans. I don't know what Barney Frank is talking about.

ZIMMERMAN: I am tired of seeing Barney Frank scapegoated. He put more reforms in place to reform Freddie Mac than John McCain did during this entire tenure.

ROLLINS: He knew how to he set it up and basically took care of.

ZIMMERMAN: John McCain was the leading regulators.

ROLLINS: I'll look at the facts any time with you, Robert. Side by side.

DOBBS: You're on your own here, Robert.

Tonight. What does -- you know, we know what they have got to do. Is there any chance in the world that these two men will actually stand up, be men, and discuss the issues intelligently, maturely and responsibly with the American people? Or are we going to have another patronizing, safe performance by the gentleman where they don't address the issues honestly and directly.

GOODWIN: I think look it's up to Tom Brokaw. Seasoned journalist. Comfortable in front of the cameras. He selected the questions, it's really up to him to force the candidates to answer.

ZIMMERMAN: Both of the individuals have articulated their philosophy and put it before the American people. I don't, I think they will speak up as men. Very different positions. And Barack Obama --

ROLLINS: I think they need to, basically, this economic thing, what they're going to cut, take out of their program and being honest with the American public if they do that.

DOBBS: If they don't, then god help the Republicans, Congresswoman Kaptur put it on the floor of the House.

Tonight's poll results, 87% of you do not believe we will hear either candidate offer real solutions on the issues use immigration, free trade, outsourcing or prosperity. We thank you for being with us. CNN special presidential debate coverage continues now with my colleague Wolf Blitzer. Wolf?

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