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THE SITUATION ROOM

The Candidates' Economic Plans; Should the Federal Government Be Buying Shares in Banks?; McCain Will Raise Ayers in Debate; Mother of Cay lee Anthony Indicted for Murder; Interview with Chris Dodd

Aired October 14, 2008 - 17:00   ET

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


KING: But, Wolf, when you travel into the suburbs -- and if you know how important they are in presidential politics, if John McCain does not close that gap among suburban women, it is very hard to see him winning this election -- Wolf.
BLITZER: And John's going to be back with us later.

Thank you, John.

To our viewers, you're in the SITUATION ROOM.

Happening now, as the federal government steps up its role in bailing out big banks, the candidates step in with competing plans for fixing the financial system.

What's in it for you?

I'll be speaking with the Senate Banking Committee chairman, Chris Dodd. Stand by for that.

John McCain has been taking swipes at Barack Obama's ties to a former '60s radical. Now he says he'll raise that issue face-to-face, making for possible fireworks in tomorrow night's final presidential debate.

And long after the smoke cleared from a bloody battle in Iraq, there's dramatic video coming out right now of that clash, raising troubling new questions about the deaths of two American soldiers.

I'm Wolf Blitzer.

You're in the SITUATION ROOM.

The federal government taking dramatic steps today to try to end the country's financial crisis, including the latest announced steps -- buying shares of major U.S. banks.

But the presidential candidates have their own plans -- in many respects very different, in some respects key similarities.

Let's bring in Suzanne Malveaux.

She's been looking at both of these plans from the two presidential candidates -- talk a little bit, Suzanne, of they agree, where they disagree, what they're proposing. SUZANNE MALVEAUX, CNN WHITE HOUSE CORRESPONDENT: Well, Wolf, it's really interesting to take a look at the candidates' plans, because there are some philosophical between the candidates' approach and how to fix this broken economy. But you may be surprised at what we found -- just how similar their plans are.

(BEGIN VIDEOTAPE)

MALVEAUX (voice-over): Two candidates -- two different solutions for fixing the economy. Barack Obama proposes making it easier for struggling Americans to get a hold of their money from their IRA or 401(k).

OBAMA: Up to a maximum of $10,000 without fine or penalty through 2009. This could help tide folks over.

MALVEAUX: John McCain proposes the government directly buy $300 billion worth of bad mortgages. To keep families in their homes.

SEN. JOHN MCCAIN (R), PRESIDENTIAL CANDIDATE: So if your neighbor defaults, he doesn't bring down the value of your home with him. I will...

CHRISTINE ROMANS, CNN CORRESPONDENT: They are both bold plans. They're both detailed plans. They're getting more detailed by the day.

MALVEAUX: CNN's Christine Romans, who is tracking the financial crisis, says the candidates' plans are remarkably similar in some ways. They both call on eliminating taxes on the benefits received by the unemployed and protecting seniors from having to take on huge losses from their 401(k) and IRA plans.

ROMANS: When they hit the age 70-1/2, both of them agree, you shouldn't force seniors who don't need to, to sell into a down market.

MALVEAUX: That drew rare praise from Obama, who's been calling McCain erratic in his approach.

OBAMA: He's had some good ideas. I think the idea of making sure that people aren't forced to sell their 401(k) or IRA accounts at the age of 70 when the market is in the tank, I think that makes sense.

MALVEAUX: But the candidates also disagree. Obama wants to provide a tax credit for businesses that create jobs. And he wants taxpayers to be able to withdraw up to $10,000 from their 401(k) and IRA plans without any penalties. McCain thinks that's a bad idea.

MCCAIN: This is an invitation to capital flight and therefore to continued instability in the market.

MALVEAUX: McCain wants to help investors by lowering their capital gains tax.

OBAMA: I will tell you that nobody really has capital gains right now.

(END VIDEO TAPE)

MALVEAUX: A point that Obama makes. And economic analysts say that President Franklin Delano Roosevelt -- in 1932, he won the election by saying he promised bold, persistent experimentation and that he'd just rip up his plan and throw it out and start something new if it didn't work. Well, today, that is called flip-flopping and would not necessarily be acceptable. But analysts say that since there is such uncertainty, whoever becomes president, Wolf, may have to do just that.

BLITZER: Some people say flip-flopping, others say they're changing their minds, but what's wrong with people...

MALVEAUX: Adjusting to the situation on the ground.

BLITZER: There's a new reality out there.

Suzanne, thanks very much.

MALVEAUX: Thanks, Wolf.

BLITZER: Buying shares in leading banks is something the Bush administration doesn't necessarily want to do, but feels the federal government has no choice but to do.

Should this have happened, though, much sooner than now?

Let's go back to Carrie Lee.

She's watching this story for us -- you've been looking specifically, Carrie, at the Treasury secretary, Henry Paulson's, overall performance during this financial crisis.

And what are you coming up with?

CARRIE LEE, CNN CORRESPONDENT: Well, clearly, Wolf, a lot of tools rest in his hands to fix this financial crisis, a lot of things at his disposal. And he's now deciding exactly how about a third of the $700 billion in bailout money will be spent.

And the Bush administration says that that broad plan had to come first. Congress had to approve that.

Well, a lot has changed since that broad plan was passed. There was a huge backlash against the buying of bad assets from banks. The market tanked as confidence waned.

So today's move more of a direct way to bring it back, get banks lending again and reduce the risk of more bank failures.

(BEGIN VIDEOTAPE)

LEE: The government is taking a quarter trillion dollar stake in U.S. banks -- buying partial ownership, removing FDIC insurance limits, backing new debt and limiting executive pay.

The goal -- to get banks to loan money again. But that's been the crux of the financial crisis all along.

So why did this move, 11 days after the $700 billion bailout, take so long?

PROF. JEREMY SIEGEL, UNIVERSITY OF PENNSYLVANIA: You're asking exactly the right question. I mean the U.K. did it right away. We should have done this right away. Paulson marketed his Plan badly, presented it to Congress badly. You know, I give him an F on how he approached it. And I think we're paying the price being late on this infusion and other measures.

LEE: Another reason, Treasury Secretary Henry Paulson himself resisted this move, fearing the Fed would have to play favorites and banks would balk. Today, he acknowledged most American citizens don't like the idea of Wall Street shifting to Washington, either.

HENRY PAULSON, TREASURY SECRETARY: Today, we are taking decisive actions to protect the U.S. economy. We regret having to take these actions. Today's actions are not what we ever wanted to do. But today's actions are what we must do to restore confidence in our financial system.

LEE: It may just be working. The Dow saw its biggest one day point gain ever yesterday and today the credit markets have loosened up, too.

(BEGIN VIDEO CLIP FROM "AMERICAN MORNING")

PAUL KRUGMAN, ECONOMIST, PRINCETON UNIVERSITY: A lot of the European countries have agreed to do something like this. And now the United States is doing it. So, you know, no one is sure. This is -- these are crazy and scary times. But this is our best shot at this point, so it's the right thing.

(END VIDEO TAPE)

LEE: At this point, right?

Well, so far, investors are upbeat, but time is really going to tell if this infusion is fundamentally the right move for our economy. And it's also going to depend on whether banks actually do start lending, that these loans don't default, that borrowers use their money to grow the business or to prop up consumer spending.

Basically, Wolf, I think the next step is proof that this plan is working -- not just the words, but the actions.

BLITZER: We'll see what happens, Carrie, with you.

Thank you.

House Democrats, meanwhile, are calling for a new economic stimulus package. Their proposal would cost up to $150 billion, with an emphasis on aid to state and local governments in areas including health care, food stamps and unemployment. House Republicans object to that, calling the Democratic proposal "irresponsible" and say it's going to do nothing to help the economy long-term. Instead, House Republicans want to speed up offshore drilling and cut some capital gains taxes, along with some corporate income taxes.

We're watching that story, as well.

Out on the campaign trail, John McCain has been playing up Barack Obama's ties to a former 1960s radical named William Ayers. Obama has seemingly dared McCain to raise that issue in tomorrow night's debate. Now it seems that McCain has taken the challenge.

Ed Henry is working this part of the story for us -- Ed, what's the latest?

ED HENRY, CNN CONGRESSIONAL CORRESPONDENT: Well, Wolf, the stakes are very high for John McCain in this third and final debate tomorrow night. As you know, he's been falling behind in a lot of key battleground states. He did not bring up the name of William Ayers in that second debate in Nashville, in part because that was a town hall format with undecided voters. A negative attack like that could have really backfired on John McCain.

But he has been getting a lot of pressure out on the campaign trail from his supporters to bring this up, to get tougher with Barack Obama. And he made clear today on a St. Louis radio station, he will bring it up in the third debate.

(BEGIN VIDEO CLIP FROM "THE MARK REARDON SHOW," COURTESY KMOX")

UNIDENTIFIED MALE: Many of your supporters are eager for you to confront Senator Obama on the Bill Ayers relationship, in particular.

MCCAIN: Yes.

UNIDENTIFIED MALE: Hillary Clinton even brought this up in the primary. Senator Obama says that you should have the guts to do it in person.

So will you?

MCCAIN: Oh, yes. You know, I was astonished to hear him say that -- that he was surprised for me to have the guts to do that, because the fact is that the question didn't come up in that fashion. So, you know -- and I think he's probably ensured that it will come up this time.

(END VIDEO CLIP)

HENRY: But this comes at a time when John McCain has tried to have a more positive tone out on the trail. Over the last couple of days, less on the sharp attacks on Barack Obama, as he makes his closing argument, especially to Independent voters.

So it's not clear that this will work, this strategy. And, also, it could backfire with those Independent voters -- Wolf.

BLITZER: Ed Henry already out there at Hofstra University.

Thanks, Ed, very much.

Young Jews traveling to Florida, but not necessarily for sunshine, but for Barack Obama.

(BEGIN VIDEO CLIP)

SELMA FURST, BENDER'S GRANDMOTHER: Oh, gosh. This is wonderful.

(END VIDEO CLIP)

BLITZER: It's called the great schlep and it's happening right now.

What's it all about?

Who's behind it?

John Zarrella working the story.

Also, partially nationalizing U.S. banks in an effort to get credit flowing once again, but will it work?

I'll speak live with the Senate Banking Committee chairman, Chris Dodd. He's standing by on Capitol Hill.

Plus, he replaced a Congressman caught up in a sex scandal and now he has one of his own. We'll explain right here in the SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: A massive change of plans for the Wall Street bailout. President Bush announcing that more than one third of the $700 billion rescue bill will now be used to buy stock in U.S. banks, in effect, partially nationalizing them in an effort to unfreeze the credit market.

Let's discuss this and more with Democrat Senator Chris Dodd of Connecticut.

He's chairman of the Banking Committee.

Senator, thanks very much for coming in.

SEN. CHRIS DODD (D), CONNECTICUT: Thank you, Wolf.

BLITZER: You like what you heard this morning from Secretary Paulson and President Bush?

DODD: I think it makes more sense. I spent about an hour with the secretary today at the Department of the Treasury. And as you'll recall, Wolf, when we wrote the alternative bill on September 20th to the Treasury proposal, we provided broad authority here for the secretary to do just what he's doing today. The original bill that he submitted only allowed him to engage in the auction option. Our bill said no, you ought to consider other options, including the one they're exercising today.

I actually think this will get better results. And most people that I've talked to over the last several weeks believe that this direct investment idea will do the job of freeing up credit, which is really at the heart of the problem here -- getting credit moving again. And this proposal, I think, has the better -- the potential for better results.

BLITZER: Can the administration do this without additional authorization from the Senate?

DODD: Yes, they can. And that's why we wrote the bill the way we did. When I submitted that bill on September 20th, the day after the White House sent their three page bill up, we drafted overnight the proposal that said specifically here we want to give the authority for broad latitude to allow you, as secretary of the Treasury, to do a number of different things, including this one of taking the direct investment and equity position.

That was an idea that was floated by many individuals with long years of experience on Wall Street, feeling this would be the better option. While there'll still be, I think, an auction piece to all of this, I believe that the proposal to make that equity investment will probably get a greater bang for the dollars we're investing.

And so while we're doing this for the financial sector, I think it's also important that we make sure that these banks are going to mitigate the foreclosure problem.

BLITZER: You...

DODD: As you, Wolf, have said many times, we now have over 9,800 foreclosures every single day in this country. If we're going to provide relief for the banks, then we've got to make sure they're going to provide the relief to the homeowner.

BLITZER: Should they have done this two or three weeks ago and avoided this enormous crash, if you want to call it that, or disaster on Wall Street over the past few weeks?

In other words, did they delay unnecessarily?

DODD: Not necessarily. Looking backward, I can't tell you that. Obviously, we lost a week or so because of the delays up in the Congress of getting the bill adopted. And I think they wanted to go -- that is, the Treasury did -- in the direction of auctions.

But as they began to realize that the better step to take was the one they're taking, I don't fault them for that.

My hope is this will work. The markets are one indication, Wolf. But I think we maybe focus too much attention on markets. It is the availability of credit -- the flowing of capital -- that, clearly, is at the heart of all of this. This idea, I think, gives a better -- a better chance of releasing that frozen capital credit problem that we've seen in the country.

BLITZER: The other day, Senator McCain really went after you and your House counterpart, Barney Frank, Democrat of Massachusetts, the chairman of the Financial Resources Committee. And he said this.

I'm going to play this little clip, because I want to give you a chance, Senator Dodd, to respond to Senator McCain.

Listen to this.

(BEGIN VIDEO CLIP)

MCCAIN: The same people that are now claiming credit for this rescue are the same ones that were willing conspirators in causing this problem as it is. And you know their names. And you will know more of their names -- Congressman Barney Frank and Senator Chris Dodd...

(APPLAUSE)

MCCAIN: ...are two of them.

(END VIDEO CLIP)

BLITZER: Willing coconspirators -- that's a pretty strong indictment of you and Barney Frank.

Go ahead and tell Senator McCain what you say about that.

DODD: Well, I noticed that Barney got more boos than I did on that one, I think.

First of all, this is clearly a campaign in trouble. The idea you're going to focus on two members of Congress is a little misguided in terms of his reaction.

Not wanting to talk about Mr. Deregulation, with all due respect, John McCain has been the leader as chairman of Commerce Committee for six years. As you well know, Wolf, of course, the Republicans have been in control of the Congress for almost 13 of the last 14 years and eight years in the White House.

The idea that two members of Congress are somehow responsible for all this, I think people see through that. It was deregulation and the failure to regulate. And that was really the cause of it.

As Hank Paulson and Ben Bernanke said, it was dreadful landing practices. When the "Wall Street Journal" tells you that 65 percent of those people who ended up with subprime mortgages qualified for conventional mortgages -- far less costly to them -- but the brokers made more money.

And John McCain and the people who support him were, unfortunately, willing to support a deregulated environment, an environment where those regulations that were in place were not enforced.

John McCain needs to talk about the economy and what he wants to do for the future. Naming and calling conspirators, that kind of language, that kind of rhetoric, I don't think, has any resonance with most people.

BLITZER: I think what he was referring to was your support and Barney Frank's support for Fannie Mae and Freddie Mac over the years...

DODD: But that...

BLITZER: ...he says, at a time when he was trying to reign them in.

DODD: Oh, well, that's just completely false. In fact, Barney Frank and I, along with Mike Oxley, the Republican chairman of the Banking Committee, to his great credit, in 2005, offered major reform of GFCs. But it was the White House and the Republicans in the Senate that, frankly, thwarted those attempts. That was the real effort made. There were 331 votes for the Oxley-Frank Bill, a great bipartisan bill that was shot down more than three years ago.

BLITZER: Senator Dodd, good luck.

Thanks very much for coming in.

DODD: Thank you very much, Wolf.

BLITZER: Let's hope this works out. We're all counting on -- I guess everyone right now.

Stars of a hit TV show are trying to get young people involved in this election.

Listen to this.

(BEGIN VIDEO CLIP FROM MOVEON.ORG AD)

UNIDENTIFIED FEMALE: And if you're ever out somewhere and you're considering voting McCain, just call me. I'll pick you up, no questions asked.

(END VIDEO CLIP)

BLITZER: Cast members of "Gossip Girl" are in a new ad.

What are they trying to accomplish?

Plus, a Congressman caught up in scandal -- allegations of hush money for a former mistress.

Stick around.

You're in the SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: And we're just getting in some more information on the disappearance of a 3-year-old girl.

Carrie Lee is monitoring this story for us.

What are we learning -- Carrie?

LEE: Thank you, Wolf.

Well, just in, prosecutors saying that a Florida grand jury has indicted the mother of missing toddler Caylee Anthony on a first degree murder charge. Twenty-two-year-old Casey Anthony had long been identified as a suspect in her 3-year-old daughter's disappearance. Investigators questioned why she waited a month to report her daughter missing, among other things. The grand jury heard from several witnesses, including Anthony's father, before returning the indictment.

And a series of wildfires raging across Southern California, forcing thousands to leave their homes. Two people have been killed and 16,000 acres have been scorched as the flames spread. Governor Arnold Schwarzenegger is calling it a perfect storm of conditions. The Santa Ana winds are gusting to 70 miles per hour and conditions are dry and hot.

And the economic stimulus check should be in the mail soon for about a quarter of a million married couples. Now, couples were supposed to notify the Social Security Administration of any name changes. But if they did not, they missed out on the February rebate. The IRS had said it wouldn't send checks to anyone whose names and Social Security numbers didn't match.

But last week the IRS reversed its position.

And NASA engineers say they want to know how to fix a major glitch on the Hubble space telescope. Now, the telescope hasn't been able to capture and send out images for the past two weeks. Engineers plan to wake up computer components that have been dormant for more than 18 years. The Hubble should be able to resume sending pictures back to Earth by Friday.

Wolf, 18 years -- technology on Earth definitely advances faster than in space, apparently.

BLITZER: Pretty good stuff out there. It takes a long time to get there.

LEE: Yes, I guess so.

BLITZER: Thanks, Carrie.

A debate over the candidates raging in the battleground state of Florida. (BEGIN VIDEO CLIP)

UNIDENTIFIED FEMALE: I vote at the pool and I hear all the gossip. And that's part of it. We don't want a black president. I said, well, you don't want a senile president.

(END VIDEO CLIP)

BLITZER: Now their grandchildren are coming to try to swing the vote toward Obama. It's called the great schlep.

And Donna Brazile and Ed Rollins, they're here to weigh in.

Also, deja vu in one Florida Congressional District -- first, the Mark Foley scandal, now the man who replaced him caught up in a sex scandal, as well. Also, scrambling behind-the-scenes of tomorrow night's presidential debate -- what the candidates are demanding.

Stick around.

You're in the SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: And to our viewers, you're in the SITUATION ROOM.

Happening now, a prominent Republican says John McCain knows in his heart that he put the country at risk in choosing Sarah Palin. We're going to have that story momentarily.

Also, dramatic video of an actual Army battle in Iraq as it unfolded. It's a rare look and it's terrifying.

We'll also look at why it brings up questions of friendly fire.

And we've been hearing a lot about ACORN lately -- what the group really does and the group's past with both candidates.

I'm Wolf Blitzer.

You're in the SITUATION ROOM.

It's being called the great schlep -- young Jewish voters heading to Florida, where they hope to sway the senior vote.

CNN's John Zarrella has our battleground coverage.

(BEGIN VIDEOTAPE)

JOHN ZARRELLA, CNN CORRESPONDENT (voice-over): Mike Bender is a schlepper -- and proud of it. The Los Angeles writer answered a YouTube challenge.

(BEGIN VIDEO CLIP FROM YOUTUBE.COM)

UNIDENTIFIED FEMALE: I'm making this video to urge you, all of you, to schlep over to Florida.

(END VIDEO CLIP)

ZARRELLA: The organization, Jews Vote, enlisted comic Sarah Silverman to pitch their great schlep. The plan -- get young Jews to schlep, meaning drag themselves, to Florida and sell their grandparents on voting for Barack Obama.

MIKE BENDER, SCHLEPPING FOR OBAMA: Their reaction was -- they said that I a little mushuga (ph) I think was the expression that they used.

UNIDENTIFIED MALE: Crazy?

(LAUGHTER)

ZARRELLA (voice-over): There are about 650,000 Jews living in Florida. Generally, most vote Democrat. But many, especially seniors, are unsure of Obama's commitment to Israel.

Bender's grandparents, Kenny and Selma Furst...

S. FURST: Oh, gosh, this is wonderful.

ZARRELLA: ...had other reservations, as well.

S. FURST: And somebody said to me, well, what do you object about him?

I said well, truthfully, I -- our colors are different.

ZARRELLA: But what Mike didn't know was that his many phone conversations advocating Obama had paid off before he walked in the door.

(on camera): You think you're going to vote for Obama now?

KENNY FURST: Not think, no.

ZARRELLA: You're convinced now?

K. FURST: I'm convinced.

S. FURST: I'm kind of changing my old mind and saying to myself, you know, people are people.

ZARRELLA (voice-over): His grandparents now on board, Mike moved on to their friends. First, the beauty salon where his grandma does nails. Here, too, the issue was race.

UNIDENTIFIED FEMALE: I vote at the pool and I hear all the gossip. And that's part of it, we don't want a black president. And I said, well, you don't want a senile president.

ZARRELLA: The schlep was the talk of his grandparents' retirement community -- so much so, a crowd of more than 100 packed a ballroom to hear his pitch.

BENDER: His love for the United States is similar to that of a generation of Jewish immigrants.

ZARRELLA: By the time he was done...

UNIDENTIFIED JEWISH PEOPLE: Yes, we can! Yes, we can!

ZARRELLA: For Mike Bender, schlep accomplished. (on camera): Organizers say 100 schleppers made it to Florida over the holiday weekend and another 100 went to other battleground states. There are even plans now to translate the schlep video into Spanish.

John Zarrella, CNN, Tamarac, Florida.

(END VIDEO TAPE)

BLITZER: So will the grandparents get the message?

Can that great schlep actually make a difference?

Let's discuss with two CNN contributors, the Democratic strategist, Donna Brazile, and the Republican strategist, Ed Rollins.

Donna, first to you, what do you think?

Because there are a lot of elderly Jewish voters down there and they vote in very high percentages in Miami-Dade, in Broward and Palm Beach Counties, especially.

DONNA BRAZILE, CNN CONTRIBUTOR: About 650,000. And, clearly, the Democratic ticket would love to have them all on board.

Look, I went online to take a little bit of information about this whole organization. This is very inspirational. Not only do they address some of the fundamental questions many voters have raised about Senator Obama, his religion, his patriotism, position on taxes, position on women's issues. It also says let's talk about it. He's black. Let's talk about it. These are heroic kids going back home to talk to their parents. Great validator. They're dispelling some of the myths out there about Barack Obama.

BLITZER: Ed, how do you feel?

ED ROLLINS, REPUBLICAN STRATEGIST: Think it's great when kids go see grandparents. Just for that it's giving joy to people in Florida. My sense, it sells you a little bit about the Obama campaign which obviously is doing well in a lot of places. If it's fighting hard for the Jewish vote in Florida obviously there are some serious doubts and maybe these young kids will help put it away. But equally as important, it shows once again the innovation of this campaign. They have continually amazed me as an observer and as a long-time strategist of the new things that this campaign is doing where our campaign used to have tremendous volunteers in Florida, more than any other state is paying 12 bucks to get volunteers to go walk door to door. I don't know how it's going to turn out. I think it's a very innovative and a real contribution to get young people involved.

BLITZER: Donna, you remember that Florida vote very well from the year 2000 when you were Al Gore's campaign manager. Some of those Jewish voters in Palm Beach County, for example, because of the butterfly ballots wound up voting for Pat Buchanan as you well remember.

BRAZILE: They remind me of that every time. Ed is absolutely right. This is self-selecting. These young people are self- organizing. Meaning the campaign is not involved in this. They have decided on their own using the internet and other important technological tools to go out there and really reach out to people who they know are undecided, and they're trying to shore them up for Barack Obama. It is a tremendous program.

BLITZER: I agree with Ed and Donna. It's always great to always see grandchild getting ready to meet grandparents. Ed, let me play this sound bite for you. This clip in Matthew Dowd, a top republican strategist, very smart guy. I'll play it and then we'll discuss. It's pretty surprising. Listen to this.

(BEGIN VIDEO CLIP)

MATTHEW DOWD, FORMER BUSH-CHENEY CHIEF STRATEGIST: He knows in his guts he put somebody unqualified on the ballot. He knows that in his gut. I think when this race is over that is something he's going to have to live with. He knows he took somebody out of nowhere and put them on the ballot and put the country, he knows it, at risk. He knows that.

(END VIDEO CLIP)

BLITZER: He's talking about Senator McCain's decision to pick Sarah Palin as his running mate. Wow. That's pretty blunt talk from Matthew Dowd.

ROLLINS: Well, I would argue, and I have great respect for Matt, if this was four years ago or eight years ago when he was the chief strategist for George Bush that he could basically say he knows what's in the heart of the candidate. He's not a part of the McCain campaign. And I think he's either neutral or certainly Obama. I think it's a guess. I don't think it's an accurate guess. I think that John McCain made his decision. I think he's very proud of his decision. If he loses this race, it's not going to be because of Sarah Palin. It's going to be because he hasn't connected with the voters, which he still has three weeks to do.

BLITZER: Has Sarah Palin been a plus for Senator McCain so far or a minus?

ROLLINS: I go back to the only excitement in this campaign on the part of republicans was her first two weeks after she was named. She got that base energized. Now gone into an economic disaster the last three weeks. I don't think she matters at this point in time. But she certainly contributed early on. And she is the one still drawing the -- the base crowd out there, which is very important. BLITZER: Certainly she's energized that campaign. When they go out together, Donna, at these rallies, folks show up in huge numbers. When Senator McCain goes out by himself, not necessarily all that energy out there.

BRAZILE: Look, Wolf. I know Matt Dowd very well. We worked together on the Dukakis campaign. That was years ago. Matt is not in the Obama campaign. He was speaking as someone who understands exactly what this moment is about. He says, look, I don't know what's in John McCain's heart and in his soul. I was on the channel with him. But he was expressing what many conservatives are expressing. She's been a negative to the ticket. She's energizing the base but alienating swing voters and undecideds who John McCain need to close the deal in the remaining weeks of the election.

BLITZER: Would you advise John McCain if you were a strategist for him, I know you're not, you worked for Mike Huckabee during the primaries, to take a close look at Pennsylvania right now 21 days away from the election, three weeks, polls showing Obama has a 12 or 14 point advantage, some of those polls showing. Would it be wise for him quietly without a whole lot of fanfare to start moving resources away from Pennsylvania, a state that John Kerry carried four years ago in trying to bolster his prospects, whether in Ohio or Virginia or North Carolina?

ROLLINS: Certainly where he was today was an idiotic place. You don't want to be in the Philadelphia suburbs. You want to be in western Pennsylvania if you're going to compete there.

I think at this point in time Pennsylvania's going to be very, very hard for us. I think he's got to win -- clearly he's going to win Ohio or Florida. He's starting to slide behind there. I would really devote a lot of time and energy there. If you don't put those two states on the map, you don't have a chance. So my energy in the last three weeks would be more of a southern strategy, where I go down there, I wouldn't spend a lot of time in Wisconsin, Iowa, and Pennsylvania. I'd spend a lot of time in the Virginias, North Carolinas and the Floridas, and the Ohios.

BLITZER: Donna, if you were advising the McCain campaign, I know you're not, what advise would you give them in these final three weeks.

BRAZILE: There's no question. Ed is absolutely right. That's been a very important reason for the republicans over the last 40 years. I would advise John McCain to go out west. And to try to reconnect with Hispanic voters in Colorado, Nevada. Look, there's a poll out today that shows that Barack Obama is gaining on him in North Dakota of all places. So he might want to send Sarah Palin out west and go moose hunting early. I don't know if it's the season. It's time to go and find some votes.

BLITZER: One quick final question to you, Ed. He says, Senator McCain, he's going to raise the issue of William Ayers tomorrow night at the final presidential debate. Is that wise? ROLLINS: It depends on how -- if he makes an attack on him, my sense is tomorrow night's about the economy. And John has got to basically connect with voters and convince them that he can basically put a team together and lead this country on the economic front. I think Ayers a legitimate issue months ago. I don't think it's a legitimate issue today.

BLITZER: Ed Rollins, Donna Brazile. We'll have a lot of excitement at this final debate.

BRAZILE: I agree with Ed. I agree with Ed.

ROLLINS: Neither Donna and I know where to go hunting moose.

BRAZILE: I could dress it and cook it with a little bit of bacon fat.

BLITZER: It's always good to have grandchild visit grandparents as well. All right. Guys, thanks very much.

The latest Gallup tracking poll numbers show Senator Obama has the biggest support with voters under 30 than any other age group. It's not just in Florida where democrats are asking young voters to persuade their grandparents to vote for Obama.

Let's go to our internet reporter, Abbi Tatton. She's looking into this.

Abbi, what is the Obama campaign saying?

ABBI TATTON, CNN INTERNET REPORTER: Wolf, they're saying your family will still love you even if they don't agree with you. This web video from the Obama campaign urges young people to have the talk with their parents, even if it's difficult.

UNIDENTIFIED MALE: It was a little bit awkward. You're telling your parents who've raised you, who have given you these talks, they need to do something different.

TATTON: Three weeks out before the election, it's not just the Obama campaign with this idea. Moveon.org has these spoof public service announcements featuring stars of gossip girl. They warn of the dangers of parents voting republicans.

UNIDENTIFIED FEMALE: Voting republican even once could have disastrous effects that last for years.

UNIDENTIFIED FEMALE: You're not risking your future, you're risking mine.

TATTON: A spokesman for the Republican National Committee said we're all for family conversations. We're confident the more people discuss the candidates, the more they will support John McCain. Wolf?

BLITZER: Abbi, thank you.

He's accused of paying hush money to a mistress.

UNIDENTIFIED MALE: I have not violated my oath of office. Nor have I broken any laws. And I consider this to be a private matter.

BLITZER: Another congressman caught up in a sex scandal. But there's a twist.

Is Colorado turning blue? We're on the scene with young voters in what may be a key battleground state.

Stick around. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: Yet again, a sex scandal is rocking one Florida congressional district. CNN's Susan Roesgen is joining us live.

Susan, last time it was republican congressman Mark Foley. Now what's going on with his replacement?

SUSAN ROESGEN, CNN CORRESPONDENT: Last time a republican, Wolf. This time a democrat. I covered the Florida election down in Florida in the 16th congressional district when Mark Foley resigned in scandal. But now a new scandal could derail the potential re-election of the man who replaced him.

(BEGIN VIDEOTAPE)

ROESGEN: Congressman Tim Mahoney met reporters today with his wife in tow. The first term democratic congressman who ran on campaign pledges of morals and values now is defending himself against allegations of immorality and possibly illegal actions as well.

CONGRESSMAN TOM MAHONEY: No marriage is perfect. But our private life is our private life. And I'm sorry that these allegations have caused embarrassment and heart ache.

ROESGEN: This is the source of the congressman's embarrassment. The blond is Patricia Allen, a former campaign aide who claims Mahoney fired her for breaking off an affair with him. She gave ABC News this recorded conversation.

Allen hasn't given any public statements. No one answers her door. But the irony is that Florida voters elected Mahoney just two years ago to replace republican congressman Mark Foley. He resigned after he was caught sending racy text messages to underage congressional pages. Florida voters can't believe it.

UNIDENTIFIED FEMALE: I'm in shock. I didn't know anything about it until just now. I can't even tell you. There's no words to say that -- just unbelievable.

UNIDENTIFIED MALE: It's sad. Are we ever going to get to the point where we have politicians we can trust again and really believe in who are there for us? ROESGEN: Congressman Mahoney says he wants a house ethics investigation into what he says are false allegations. Mahoney calls it a politically motivated story designed to hurt him in a close race for re-election. Less than three weeks away.

(END VIDEOTAPE)

ROESGEN: Now, Wolf, I mentioned that the congressman himself is asking for a house ethics investigation. But so is house speaker Nancy Pelosi and several top republicans are asking questions about this. They're asking the questions we've heard before. When did the democrats know about this? And what did they do about it? So a lot of people are asking questions. And, again, this re-election is just, like, 20 days away now. It'll be very interesting to see what will happen.

BLITZER: How it plays out down in Florida. Thank you, Susan.

Four years ago Colorado went republican in the presidential race. CNN now considers it to be a battleground state in this election. Student voters could help swing it one way or the other. Dan Simon spoke to some of them as part of our battleground state coverage.

Dan, what did they have to say?

DAN SIMON, CNN CORRESPONDENT: Wolf, first of all, we should point out that no democrat here as cracked more than 50% since LBJ in 1964. The latest CNN poll of polls shows Obama leading in Colorado by five percentage points. We've been here the last couple days trying to analyze why this state could become blue. What we found is that Obama is doing much better when it comes to newly registered voters. The democrats lead the republicans 3 to 1 in that regard. We talked to a few of those students, a few of these new voters just about 30 minutes away in Boulder.

(BEGIN VIDEOTAPE)

SIMON: Katie Ulrich thinks that California is home. But the 20- year-old college student registered to vote in Boulder, Colorado, where she goes to college.

KATIE ULRICH, STUDENT, UNIVERSITY OF COLORADO: I realized my vote was much more important here in Colorado. That's why I registered here.

SIMON: What's helping to make this traditionally red state competitive is people like Katie, new voters to the democratic rolls. This year Colorado democrats have added nearly 140,000 new voters. Republicans about 42,000. That's a more than 3 to 1 margin for the democrats. It's not known yet how many of them are college age. But students at boulder say they saw long lines at the registration booth. Katie says it was a speech on campus from Michelle Obama that motivated her and several of her friends to change where they were registered. From their home states to battleground Colorado.

ULRICH: I didn't really know when I came here that it was such a battleground state. But I think that the student population has a good chance of swinging it to the democratic vote.

SIMON: Freshman Zach Perkins also saw a chance to have an impact.

ZACH PERKINS, STUDENT, UNIVERSITY OF COLORADO: It's good to know I have some kind of control actually in this election. As opposed to if I was in a state where my vote didn't necessarily make much of a difference.

SIMON: If Obama is actually able to turn this state blue, observers say new voters could be a decisive factor.

KEN BICKERS, PROFESSOR, UNIVERSITY OF COLORADO: In a tight election any group that really surging can put it over the top.

SIMON: Still political science professor Ken Bickers says McCain has 40 years of history on his side. For republicans, the task is clear.

BICKERS: McCain is going to have to turn out the base in a big way. That is social conservatives and traditional republicans. He's going to have to work the neighborhoods and get those people out to vote.

(END VIDEOTAPE)

SIMON: And I just spoke with the McCain campaign here in Colorado a few minutes ago. They feel like if they get their base out and they do well with the independents here, you've got to keep in mind Colorado is unusual in that a third of all voters here are unaffiliated. If they do well with those folks they can keep this state red. They certainly have history on their side, Wolf.

BLITZER: We'll be watching. Thank you, Dan.

The fog of war. Long after a bloody battle in Iraq, a dramatic combat tape is now showing up. And it's raising very troubling new questions about the deaths of two American soldiers.

And ties to Barack Obama, a grass roots group called A.C.O.R.N. is it carrying out massive voter registration fraud as some are alleging? We're taking a look at the allegations.

Much more on this story and a lot more coming up right here in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: It is called the fog of war, the confusion and combat when things happen so fast, it is really difficult to know what actually happened. A video of a battle in Iraq two years ago underscored that confusion and it is raising questions right now about how two U.S. soldiers died.

Our senior Pentagon correspondent Jamie McIntyre has been following the story and has the video. Jamie, what does it show?

JAMIE MCINTYRE, CNN SENIOR PENTAGON CORRESPONDENT: Well Wolf, this video is real eye opener, an unvarnished, up close unvarnished look at real combat.

(BEGIN VIDEOTAPE)

MCINTYRE: The raw video from the helmet camera worn by an American army private captures a confusing battle nearly two years ago in Ramadi.

UNIDENTIFIED MALE: There's the tank right there.

UNIDENTIFIED MALE: Oh, yeah.

MCINTYRE: But one thing is clear from the 52-minute video record, the U.S. soldiers are convinced that they have been hit by friendly fire from an American tank.

UNIDENTIFIED MALE: Are you all right?

UNIDENTIFIED MALE: Yeah, I'm good.

UNIDENTIFIED MALE: What [ bleep ] was that?

UNIDENTIFIED MALE: An American tank.

UNIDENTIFIED MALE: Is he shooting at us?

UNIDENTIFIED MALE: I think so.

MCINTYRE: The unedited video has been posted on the website salon.com along with a full account of the battle and its aftermath.

UNIDENTIFIED MALE: The tank is shooting at us. Cease-fire, cease-fire. Cease-fire. Dude, I am almost positive that is the tank, because I saw him flash.

MCINTYRE: Despite the soldiers' certainty, the army says a thorough investigation after the fact determined that 120 millimeter mortar rounds from the enemy and not the U.S. tank killed two American soldiers that day.

BRIG. GEN. SEAN MACFARLAND, INVESTIGATING OFFICER: All of the tank rounds that were fired that day were accounted for in the targeted building. Not the building occupied by friendly forces. Every single one of them. We also found clear evidence of a enemy mortar strike on the top of the building.

UNIDENTIFIED MALE: Buddy, don't you die on me! Keep breathing!

MCINTYRE: Among the fatalities, Private First Class Albert Mark Nelson who eventually bled to death after his leg was blown off, but only after a heroic but futile effort to save him. JEAN FIGGINS, MARK NELSON'S MOTHER: That is my baby. I need to know everything. I won't have any closure until I know exactly and I don't care how gruesome it is, but what happened to him.

MCINTYRE: A salon.com reporter showed this video to Nelson's mother who said it directly contradicted the official version by an army officer.

FIGGINS: He said to me quote, unquote, I know as a mother, you are concerned about whether or not your son suffered. He said but I am here to tell you that your son didn't suffer. He said, he was killed instantly. He said, he was kill sod fast that he didn't have time to feel pain, and he never knew what hit him.

MCINTYRE: On the video, Nelson whose face was blurred by salon.com can be heard moaning as the soldiers try to get him to a field hospital.

(END VIDEOTAPE)

MCINTYRE: Wolf, this evening the army cannot explain why Private Nelson's mother did not get the accurate details of the death, but they say that particularly in the wake of the Pat Tillman fiasco, they make every effort possible to make sure that the information given to families is precise as can be.

BLITZER: It is a sensitive, sensitive issue. Jamie, thank you for the report.

When it comes to the presidential debates, no detail is too small.

UNIDENTIFIED MALE: Each campaign needed to have possession of the actual glass that they might use to drink some water during the debate.

BLITZER: That is a small detail. We are behind the scenes of tomorrow night's final face-off between John McCain and Barack Obama.

Plus, it is the group linked to thousands off allegedly fraudulent voter registration forms. We put the grass roots group A.C.O.R.N. in the spotlight coming up as well.

(COMMERCIAL BREAK)

BLITZER: The candidates said that demands are keeping organizers of tomorrow's debate very busy. CNN's Ed Henry takes us behind the scenes.

Ed?

ED HENRY, CNN CORRESPONDENT: Wolf, Richard Nixon's awful performance at the first televised presidential debate 48 years ago is still resonating here at Hofstra.

(BEGIN VIDEOTAPE) HENRY: No detail is too small for the third presidential debate at Hofstra University. Not even new air conditioning vents for two candidates who live by the motto never let them see you sweat.

STUART RABINOWITZ, PRES., HOFSTRA UNIVERSITY: One of the things I just didn't happen to know about is that you should have vents over where the candidates will be speaking so nobody perspires excessively.

HENRY: Neither John McCain or Barack Obama wants to wind up looking haggard with a 5:00 shadow like Richard Nixon in his infamous 1960 clash with JFK and they don't want to be caught off guard by the size of the water glass, risking an on set disaster as it slips out of their hands.

RABINOWTIZ: The strangest request was that each campaign needed to have possession of the actual glass that they might use to drink some water during the debate. I think that it is because they want to measure the heft of it and not be surprised.

HENRY: No surprise that landing its first presidential debate has been a major boom to Hofstra. 6800 students entered a lottery for a shot for a coveted seat inside of the debate ball after first agreeing to register to vote.

MELISSA CONNOLLY, HOFSTRA UNIVERSITY: We wanted to make sure our students are active and involved in the democratic process. I mean, having an event like this on campus has been so energizing.

HENRY: All the buzz comes at a steep price, $3.5 million and counting for Hofstra. But its president says it is worth every penny.

UNIDENTIFIED MALE: I don't know which candidate is going to win, but Hofstra has won already.

(on camera): The president told me, he is already lobbying the commission to give them a second presidential debate in 2012. Early campaigning never hurts, just like the candidates, who will likely be trudging through New Hampshire shortly after this election is over -- Wolf.

(END VIDEOTAPE)

BLITZER: Ed Henry, on the campus, thanks very much.

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