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CNN LATE EDITION WITH WOLF BLITZER

Interview With Congressmen Cantor, Frank; Discussion of the Economy With Laura Tyson, Carly Fiorina

Aired December 21, 2008 - 11:00   ET

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


WOLF BLITZER, HOST: This is LATE EDITION, the last word in Sunday talk.
(BEGIN VIDEOTAPE)

PRESIDENT GEORGE W. BUSH: Allowing the U.S. auto industry to collapse is not a responsible course of action.

BLITZER: The White House tosses a lifeline to failing U.S. automakers. We'll discuss what's next for Detroit with two U.S. congressman, Financial Services Chairman Democrat Barney Frank and the incoming number two Republican in the House, Eric Cantor.

PRESIDENT-ELECT BARACK OBAMA: If we do this right and it's not easy, then what we can do is grow the economy.

BLITZER: How should the next president turn a U.S. economy in recession around? Former Hewlett-Packard chairman and CEO Carly Fiorina and former Clinton White House economic adviser Laura Tyson weigh in.

GOV. ROD BLAGOJEVICH, D-ILL.: I will fight, I will fight, I will fight until I take my last breath.

BLITZER: Embattled Illinois Governor Rod Blagojevich breaks his silence.

CAROLINE KENNEDY, ASSISTED OBAMA CAMPAIGN: This is a time when nobody can afford to sit out.

BLITZER: And Caroline Kennedy makes her pitch for a U.S. Senate seat. Insight and analysis on the week's politics from James Carville, Ed Rollins, David Gergen, Tara Wall and three of the best political team on television. The first hour of LATE EDITION begins right now.

(END VIDEOTAPE)

BLITZER: It's 11:00 a.m. here in Washington, 8:00 a.m. in Los Angeles and 7:00 p.m. in Baghdad. Wherever you're watching from around the world, thanks very much for joining us for LATE EDITION. Troubled U.S. automakers finally have what they have been hoping for, a lifeline from the federal government. President Bush announced that an immediate $13 billion loan to General Motors and Chrysler, but the cash comes with some conditions attached for both the car companies and their union employees.

It also comes as President-elect Barack Obama puts the finishing touches on an economic stimulus package with a huge price tag. Here to talk about all what's going on are two leading members of the United States Congress.

In his home state of Massachusetts, the Democratic chairman of the House Financial Services Committee, Congressman Barney Frank. And in Richmond, Virginia, Congressman Eric Cantor of Virginia. He will be the number two Republican in the House starting next month. Congressmen, to both of you, thanks very much for coming in.

Congressman Frank, let me start with you. The news today reports that the president-elect is considering a huge economic stimulus package, perhaps $675 billion, $775 billion. This coming at a time when we're approaching this year, I believe, a $1 trillion deficit. Where is all this money, Congressman Frank, going to come from?

FRANK: Well, you know, I wish Wolf, people had been asking that question with the war in Iraq. Obviously, we have to be responsible in spending. But the war in Iraq, which I voted against, which I think will be a mistake, will be of an equal amount. And I really question the priorities in the country that talks about an ever increasing blank check for military spending, which has not ever been held frankly to any kind of a screen to efficiency.

Where does it come from? It comes from the American society. And the calculation that's being made by the president-elect, supported by people like Marty Feldstein, who was the chief economist for Ronald Reagan and a number of other conservative economists, Ben Stein. The argument is, and I think correct, that if we don't do this, it will cost us even more.

This economy is now in the worst shape since the Great Depression and if we do not respond in a very firm way, it gets worse and worse and feeds on itself. And in addition, by the way, to the money that the president-elect has talked about spending. And the money that is being spent, by the way, unlike some of the military spending, frankly that gets done, is going to have very productive results. We're going to be talking about public transportation and highways and school buildings. These are going to be facilities that are going to be very useful to the American people.

BLITZER: What about that Congressman Cantor, and I want you to respond not only to Congressman Frank, but also to the Vice President- elect Joe Biden. He made this point. Listen to this.

(BEGIN VIDEO CLIP)

VICE PRESIDENT-ELECT JOSEPH R. BIDEN, JR.: Every single person I've spoken to agrees with every major economist. There's going to be real significant investment, whether it's $600 billion or more or $700 billion. The clear notion is it's a number that no one thought about a year ago.

(END VIDEO CLIP) BLITZER: All right, are you on board?

CANTOR: Well, Wolf, what I would say is first of all, I think most American taxpayers now are sort of scratching their head, wondering when all this bailout stuff is going to end.

And probably thinking, you know, when is my bailout coming? I think we have to sort of take that into consideration and take the fact that we really need to protect the taxpayers while we're going about trying to stave off a potential threat for loss of millions of jobs in the auto industry and while we're going about trying to address one of the most severe economic situations that I know all of us have seen in our lifetimes.

So it's very important, I think, that we go right to where the issues are. We've all known over the last couple decades that the auto industry in this country has just not been competitive.

BLITZER: Congressman Cantor, let me interrupt for a moment because we're going to get to the auto industry bailout. But first of all, on this second economic stimulus package, this huge number that the president-elect is now considering. The question is, are you going to support? Will the Republicans in the House be on board?

CANTOR: Well, you know, I think it's incumbent upon the Republicans in Congress not to just be the party of no, but I do think that we will be proffering solutions and alternatives so that we can work with the president-elect in trying to make sure we turn this economy around.

But where we've got to be focusing on is long-term job creation. And what I'm concerned about when we hear these staggering numbers, close to $1 trillion right now in spending, where is that going to take us over the long run?

We are looking at probably going back to a very, you know, sort of old and tired way of changing economics, going to prime the government spending pump in hopes of trying to somehow reform, not only Washington, but the way that the economy works. It's just, I don't think that that is a winning formula.

But I do think what you will see is Republicans in Congress very willing and able to work with the president-elect to try and do some things that will promote some invasion, some reform in Washington so that we can see small businesses across this country empowered to begin to investigate, to hire, to create jobs.

BLITZER: I want Congressman Frank to weigh in on that, as well. Go ahead, congressman.

FRANK: Well if they are -- if the Republicans in the House are going to be cooperating with the president-elect, that will be a refreshing change because they have been the party of no to George Bush.

Look, one of the things that ought to be made clear is one of the problems we've had is trying to make public policy in Washington in the last year has been the repudiation of George Bush by the Republican Party.

I noted in "The Wall Street Journal" the other day, one of their good reporters said that a sign of how cranky the House Republicans have become, was their kind of severely attacking Mr. Paulson. In fact, for the last six months, the Republicans in the House in particular, but also in the Senate, have been critical of president bush and, frankly, that's a problem when you have within the Republican Party such a split. As far as the issues are concerned, yes, we want to do this in an innovative way. We do want to fix things and I think that both president bush and the leadership in Congress have come up with a plan for the auto industry that will do that.

It's a very tough set of requirements they're being given and the taxpayers are protected here because this amount of money. By the way, much less than this administration gave to AIG or Citicorp or a number of others, without any congressional approval. It's a lot less, but it's also very likely to be repaid.

BLITZER: We're talking on this auto bailout, Congressman Cantor, about $13 billion for an initial bridge loan over the next three months or so, another $4 billion maybe coming in February. But it is a lot less than Bear Stearns or AIG and Fannie Mae and Freddie Mac. Listen to what the president said on Friday in announcing this short- term loan to Chrysler and GM.

(BEGIN VIDEO CLIP)

BUSH: Under normal ordinary economic circumstances, I would say this is the price that failed companies must pay. I would not favor intervening to prevent the automakers from going out of business. But these are not ordinary circumstances.

(END VIDEO CLIP)

BLITZER: You disagree with the president, I take it.

CANTOR: Wolf, I don't disagree. What I think, number one is...

BLITZER: So let me just be precise. Do you support that $13 billion bailout that he announced on Friday?

CANTOR: No, Wolf, I don't and here's why. Because we over the last several weeks been talking about alternatives as to how we can protect the tax payers and then stave off the threat of a loss of significant number of jobs in the auto industry.

And I believe the way we do that is that we get the concessions up front. Everyone knows that Detroit is not competitive. Everyone knows that the wage rates of the domestic manufacturers far exceed that of their foreign competitors. We know what we need to do in order to put these companies in a position so that they can compete.

Why is it impossible for us to get the concessions now and then have a situation where the government is there if you want to go in to some type of prepackaged bankruptcy, you want to provide some debtor and possession financing on the part of the taxpayers, have the companies pay for that government backstop is one thing.

CANTOR: But again, let's remember, the bailout of a failed model is not, I think, what we owe the taxpayers. We should really protect their money and not throw good money away.

BLITZER: This is an unusual situation, Congressman Barney Frank. I believe the Democratic leadership in the House and Senate, basically with President Bush on this issue of the auto bailout. The Republican leadership in the House and the Senate is opposed.

FRANK: I have to tell you, Eric Cantor, just gave I think an example of what people don't like about us. Mainly you said, do you disagree with the president? He said, no, whereupon he proceeded to denounce what the president is doing.

If what he said was agreement, I really want to be here when he disagrees because that will be really interesting. In fact, there was a good negotiation and both President Bush and Speaker Pelosi -- and again, we're in this terrible crisis as the president said. These are not normal times. People who lose jobs now are going to have a very hard time finding other jobs. There's a downward cascade in the economy.

So this is a very critical time and the president was absolutely right. Speaker Pelosi originally said let's do loans to the auto industry with conditions out of the tarp money. The president said, no, use the money that we voted to give them energy efficiency incentives. When the Republicans in the Senate balked that after it passed the House -- got a majority in the Senate, but not enough to overcome a Republican filibuster, President Bush -- and Nancy Pelosi originally agreed with the president and then he agreed with her.

The other thing I would say is this. It is striking to me that when Eric Cantor talks about concessions, it's only the workers. He mentioned concessions and mention the workers? Yes, the workers have already started to make concessions. They signed a contract that will be much less going forward. They have agreed to waive their jobs bank. I agree there should be concessions but unilaterally imposing them on working men and women and setting -- and by the way, what the Republican position was that the foreign auto companies should set the wage level for Americans.

They want to put that into law, that American workers in unions, bargaining, would instead be told by the law that they would be paid what foreign auto companies would pay without comparable concessions.

BLITZER: Let me let Congressman Cantor respond to that and then we'll take a quick break. Go ahead, Congressman.

CANTOR: We all know that in this country, there are three manufacturers that are not doing well and the rest that are doing well.

FRANK: No, they're not doing well.

CANTOR: But they are, Barney. There are ongoing concerns. They're not into Washington looking for a bailout. We all know, everyone knows in this country that Detroit is operating off a failed model.

And then what the problem is with the current package, and Barney, I did not ever say I agreed with this president on this particular package.

I don't, Barney, let me just clear that up. What is wrong with the package is there are no binding requirements here. These are floating targets. So, how in the world are we going to guarantee the taxpayers they are going to get their money back? That's where I'm coming from. We ought to be putting the taxpayers first. At the same time, trying to save the millions of jobs in the domestic auto industry.

FRANK: You underestimate the president and the majority in Congress in both houses which said yes, we are first, we are first to get repaid. If the appointee to oversee this says it's not working, we get repaid.

CANTOR: How are they going to get repaid if the companies are no longer viable?

FRANK: Because they have enough money to repay. Eric, having posed the question, why do you not want the answer? The fact is that they have enough money and everybody has agreed on that, including the secretary of the Treasury, that there would be enough money to repay this amount. They have got collateral. They've got property. They've got intellectual property rights. We are very heavily collateralized on this and we are senior in the debt. Secondly, there will be an appointee who will have a right to consist on insist on those concessions. But again, you talk only about concessions in the workers and I think the concessions have to be in both parties.

BLITZER: Guys, we have to take a quick break, but I want to continue this conversation. We have a lot more to talk about as well, including the president-elect, Barack Obama. He said this week that Congress has been, I'm quoting him now, "asleep at the switch, as well, when it comes to oversight of the financial industry." We're going to get reaction from our two congressmen.

And later, James Carville, Ed Rollins, David Gergen and Tara Wall on the scandal surrounding Rod Blagojevich and a lot more. LATE EDITION continues after this.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

OBAMA: We have been asleep at the switch. Not just some of the regulatory agencies, but some of the congressional committees that might have been taking a look at this stuff. We have not been as aggressive. (END VIDEO CLIP)

BLITZER: The president-elect speaking about this alleged $50 billion Ponzi scheme that was apparently run by Bernard Madoff up on Wall Street. We're talking about that and the economic crisis with Democratic Congressman Barney Frank of Massachusetts and Republican Congressman Eric Cantor of Virginia. Congressman Frank, you're chairman of the Financial Services Committee. Were you asleep at the switch?

FRANK: No, I became chairman of the committee on January 31st of 2007. We did have 12 years in which the Republicans were in control. In fact, in 2003, I became the senior Democrat on the committee in the minority and we tried very hard to get more money for the SEC and it took us two years, the Republicans blocked it, literally. You can go look at the roll call book when we tried to increase the funding for the SEC.

In 2007, we did begin, once the Democrats were in power to adopt a reform agenda. We passed a bill to try to require share holder votes under executive compensation. We passed the bill. Look, there was this big issue about Fannie Mae and Freddie Mac and the regulation and in 2005, Chairman Mike Oxley, Republican, tried to get a bill passed. He got it passed in the House. It was blocked in the Senate.

Article in "The New York Times" today that points out the secretary of the Treasury thought it was a good thing. The president didn't.

But in 2007, within two months of the Democrats taking over, we passed the bill in our committee and within four months in the House to regulate Fannie Mae and Freddie Mac.

Part of the problem here was that the Senate was so closely divided that they blocked things. So we did begin -- we passed the bill in 2007 to regulate subprime mortgages. During 2005, we were in negotiations, a couple of Republicans, Spencer Bachus and some Democrats to try to block the subprime mortgages which are the single biggest problem here and the Republican Congress wouldn't allow us to act.

BLITZER: So what about that, Congressman Cantor? When the Republicans were the majority until two years ago in the House and in the Senate, were you guys asleep at the switch?

CANTOR: Wolf, this is the problem. Again, the American people are tired of finger pointing. Let's take some ownership. Yes, we were all asleep at the switch. Barney was asleep at the switch. All of us were asleep at the switch. Look at what has been going on with Freddie Mac, with Fannie Mae, and this path that Congress has been heading down over the last several decades trying to encourage lending and almost force lending to folks who really were not credit worthy in the first place.

Then you've got the SEC situation, Bernie Madoff is the latest situation. Not to mention all the factors that led up to the bailout. CANTOR: The lack of enforcement, in terms of naked short sales, and the list can go on. Let's just stop all the finger-pointing...

(CROSSTALK)

... and take some ownership, here, and go forward.

BLITZER: Hold on. Congressman Cantor, are you ready to, now, work with the Democratic majority in the House to bring back more oversight, greater regulation of the financial sector?

CANTOR: Wolf, they've been in charge for the last two years. I think the oversight function has clearly been in their court. We have certainly been there waiting and willing to participate in those oversight hearings.

BLITZER: What about regulation, bringing back more regulation?

CANTOR: Wolf, I would say this. There's no question that we've got a shadow banking sector out there that has been pretty much operating without any type of oversight or enforcement of any regulations.

And what's happened is a regulatory arena has now gone on and assumed a lot of risk that has been taking place on the outside, in these nonregulated entities.

So, of course, we've got to update our laws. We've got to modernize our system. But one thing we must be careful of -- we don't want to stamp out the need for America to continue to have the most innovative, entrepreneurial industry in the world.

BLITZER: All right...

CANTOR: Because that's, frankly, what has allowed us to grow to this point, until, frankly, in September, the bottom fell out, and we've been in a real difficult time since then.

BLITZER: Sounds, Congressman Frank, like you have an opening to work together with your Republican colleagues.

FRANK: Well, I hope so. But, so far, we've seen resistance. And I do have to take severe exception to this. We were all asleep at the switch.

For instance, the subprime mortgage crisis -- and Mr. Cantor said we were urging people to make loans that they shouldn't have made.

No, in fact -- and I was very proud that Larry Lindsey, who was a Bush-Reagan-Bush appointee, noted, "I was one of those who said stop lending money to people who can't afford it."

When the Bush administration pushed more money and told Fannie Mae and Freddie Mac to lend more to people below the median income, I said that was a mistake. We wanted to do rental housing instead. And, the fact is -- and, you know, Mr. Cantor says, "Don't finger-point." That's what you say when you feel responsible. And parties do make a difference.

In 1994, when the Democrats were last in control, we passed a bill that told the Federal Reserve, Mr. Greenspan, regulate subprime mortgages that are being issued by these unregulated entities. He refused to do it. And he admitted later he made a mistake.

BLITZER: All right. Go ahead, Congressman Cantor.

FRANK: In 2007 we came back to power...

(CROSSTALK)

FRANK: Wait a minute. In 2007 we came back to power and passed a bill to do that. The Republicans went 12 years and wouldn't allow any legislation to come to the floor to restrict subprime mortgages. We did it, in 2007, in the House.

CANTOR: But that really doesn't tell all the story, Barney. It really is not being fair. The bottom line is...

FRANK: Would you deny it?

(CROSSTALK)

CANTOR: ... any time you have Congress or the federal government going into an industry, telling them who to lend to, how to create their products -- I mean, you've got community reinvestment acts; you've got this subprime situation, where we...

FRANK: We tried to stop the subprime situation.

CANTOR: Before 2000, the Congress allowed the securitization of those kind of loans that opened up the door...

FRANK: Excuse me, Eric. You're just misstating the facts.

In 1994, Congress passed a bill...

CANTOR: ... securitization of those kind of loans that, frankly, shouldn't have been made in the first place.

FRANK: Eric...

CANTOR: Listen, we all know... FRANK: Look, that's a total distortion.

CANTOR: We all know that there's a lot of blame to assign, Barney. I don't think that that should be our mission, right now. Right now is we ought to think about the people who are out there...

(CROSSTALK)

CANTOR: ... struggling with their mortgages, the small businesses, right now, who are being forced to lay off people. We have to come together and figure out how we're going to chart a new way. We cannot keep doing things the old way.

BLITZER: All right.

FRANK: Oh, excuse me, Eric, but this is such a distortion. The fact is that there have been differences. Some of us have tried. The fact is that, with subprime mortgages, we tried, in 2005, to pass a bill. The Republican leadership, with Mr. Cantor part of it, blocked us. In 2007, in the House, we passed such a bill.

So, yes, it is important to figure out what went wrong in the past. I'd love to work together. But in 2007 -- Mr. Cantor said you can't tell an industry what to do. Well, we are telling them what not to do. We've been trying to tell them not to make these bad, subprime mortgages to people who can't afford them. And the Republicans blocked us.

BLITZER: All right. We're not going to resolve this issue, but -- we're almost out of time, but I want to get your quick reaction, Congressman Frank, to an uproar that was caused this week when the president-elect announced that Pastor Rick Warren would give us the invocation at the inauguration on January 20th.

He defended that, in the wake of concern from gays and lesbians, by saying this. I'll play this clip.

(BEGIN VIDEO CLIP)

PRESIDENT-ELECT BARACK OBAMA: A couple of years ago I was invited to Rick Warren's church to speak, despite his awareness that I held views that were entirely contrary to his, when it came to gay and lesbian rights.

That dialogue, I think, is part of what my campaign has been all about, that we're not going to agree on every single issue.

(END VIDEO CLIP)

BLITZER: Yesterday, Pastor Rick Warren defended his stance. Listen to what he told a Muslim group in the United States.

(BEGIN VIDEO CLIP)

RICK WARREN, SADDLEBACK CHURCH FOUNDER: Now, this one will shock you. I happen to love Democrats and Republicans. (LAUGHTER)

And, for the media's purpose, I happen to love gays and straights.

(APPLAUSE)

(END VIDEO CLIP)

BLITZER: Congressman Frank, are you OK with President-elect Barack Obama's decision? FRANK: No. And that last comment about loving everybody -- that's wonderful, but the question is, how do you show that?

Mr. Warren compared same-sex couples to incest. I found that deeply offensive and unfair. And the president-elect was wrong when he said, well, he invited me to speak; I'm just inviting him to speak.

If he was inviting the Reverend Warren to participate in a forum and to make a speech, that would be a good thing. We should have these. But being singled out to give the prayer at the inauguration is a high honor.

It has traditionally given as a mark of great respect. And, yes, I think it was wrong to single him out for this mark of respect.

And, yes, everybody should speak, and there could be a dialogue. But giving that kind of mark of approval and honor to someone who has frankly spoken in ways that I and many others have found personally very offensive, I thought that was a mistake for the president-elect to do.

BLITZER: All right. We'll leave it right there because we're out of time.

Congressman Frank, thanks for joining us.

Congressman Cantor, thanks to you, as well.

CANTOR: Thank you, Wolf.

BLITZER: And up next, it's a plan John McCain calls "unacceptable." The commerce secretary, Carlos Gutierrez defending President Bush's decision to rescue U.S. automakers, a plan that has a lot of his fellow Republicans very upset. More "Late Edition," right after this.

(COMMERCIAL BREAK)

BLITZER: President Bush's decision to loan trouble automakers billions of dollars isn't sitting well with Republicans in the Congress, as you just heard.

The U.S. commerce secretary, Carlos Gutierrez, addressed that and more when we spoke on Friday. (BEGIN VIDEOTAPE)

BLITZER: And joining us now, the secretary of commerce, Carlos Gutierrez.

Mr. Secretary, thanks for coming in.

GUTIERREZ: A pleasure. Thank you, Wolf.

BLITZER: You know, a lot of your fellow Republicans are not very happy with what the president decided to do today.

John McCain, who was the Republican presidential nominee, said -- he said this, "I find it unacceptable that we would leave the American taxpayer with a tab of tens of billions of dollars, while failing to receive any serious concessions from the industry."

GUTIERREZ: Well, we wanted to -- to do this through Congress. And we wanted to put it in legislation, make it part of the law. Congress was not able to come through for us.

So, the buck stops with the president. And he had to make the decision. And, when he made the decision, based on the fact that we are going through a recession, this is the wrong time to let these companies collapse, to let them default on their loans, and then we would have this chain effect, this ripple effect, throughout the economy.

We're talking about hundreds of thousands of jobs. I think the president made a leadership call. And -- and -- and, again, it's just -- it's one of these things where somebody had to make the decision. The president stood up and he made the decision. I think he made the very right -- right call.

BLITZER: He's getting some negative reaction from the leadership in the Senate and the House.

The Republican leader in the Senate, Mitch McConnell: "I have strong objections to the Troubled Asset Relief Program, TARP, funds for industry-specific bailouts, and I do not support this action."

That's the $700 billion that was supposed to be going to the financial sector.

And John Boehner, the Republican leader in the House: "By declining to take the responsible approach, Washington has failed both autoworkers and taxpayers. The use of TARP funds is also regrettable, the latest in a growing list of TARP money uses that were not discussed with or envisioned by Congress when the program was authorized."

GUTIERREZ: Obviously, I have a lot of respect for my fellow Republicans, but this is quite remarkable, because, you know, from the very beginning, the president said, we want to use 136 funds from the energy bill. That's why we went to Congress. We wanted Congress to help us.

(CROSSTALK)

BLITZER: It was legislation passed last year to make the car industry more green, if you will.

GUTIERREZ: That's right. So, use those funds that were already allocated...

(CROSSTALK)

BLITZER: Congress said no to that.

GUTIERREZ: Congress said no. They couldn't come through. So, the buck stops with the president. And the president's decision is based on the judgment that, right now, in the middle of recession, to throw these companies into a default, to essentially put them in a state of collapse, would be very detrimental to the economy. He made a leadership decision. And, of course, you know, there will be some who always criticize it. But I suppose that's the price of leadership.

BLITZER: For the president, was this a tough decision to make? Because it -- I think he's -- he even said it goes against his instincts for the free market operating, and, if a company can't make it, you know what? That's the nature of capitalism.

GUTIERREZ: And he said, you know, if these were normal circumstances, and we weren't in the middle of recession, then you could say, well, let the marketplace worked.

But the reality is, we are in the middle of a recession. Unemployment is rising. This is the wrong time to put the economy on this -- on this course, and -- and having some of the largest companies in the -- in the country collapse on us.

BLITZER: Well...

GUTIERREZ: So, that's the nature of the decision. That's why he made the call.

BLITZER: And let's hope, by March 31, there are some real changes there that will allow these -- these companies to survive.

GUTIERREZ: And the American people are watching, because now they have money in this. And -- and the -- the auto companies have to step up now.

BLITZER: Let me switch gears and talk about this Bernard Madoff scandal, supposedly $50 billion wiped out. This guy was involved, allegedly, in this huge Ponzi scheme.

And it raises questions, all of us wondering, how safe is our money out there?

GUTIERREZ: Well, this is -- I mean, it's been an amazing set of events.

We do have regulatory bodies. And...

(CROSSTALK)

BLITZER: But they were apparently asleep at the switch. GUTIERREZ: And I know that Chairman Cox has talked about that we have got to look into this, because, apparently, since 1999, some of these allegations were surfacing.

But, you know, it goes back to -- if anyone ever promises you a guaranteed 10 percent or 12 percent, you should be a little bit suspicious. But I would hope that the SEC will look into this, that we will get some answers, and that, most importantly, that we will be able to prevent something like this in the future.

BLITZER: We better learn some lessons, because there are a lot of, not only individuals, but a lot of charities that have simply been wiped out as a result of this.

GUTIERREZ: Yes. Yes. It's a big shame. It's just incredible, to think that can happen. But let's get on with it and let's find out what happened.

BLITZER: Mr. Secretary, good luck. Thanks for coming in.

GUTIERREZ: Pleasure. Always a pleasure. Thank you, sir.

(END VIDEOTAPE)

BLITZER: And up next on LATE EDITION, the Illinois Governor Rod Blagojevich claims he has done nothing wrong. But can the governor really do his job while he fights the charges? We'll ask four of the best political team on television. James Carville, Ed Rollins, David Gergen and Tara Wall, they're all standing by live. LATE EDITION continues right after this.

(COMMERCIAL BREAK)

BLITZER: Welcome back. Before heading off to Hawaii on his Christmas vacation, President-elect Barack Obama wrapped up his cabinet picks. But his main message throughout the week was about fixing the struggling U.S. economy and doing something about the auto industry. Here to talk about the president-elect's transition to power and much more, our all-star political panel. In Boston, CNN senior political analyst and former presidential adviser David Gergen. In New York, Republican strategist and former presidential adviser, Ed Rollins. And here in Washington, Democratic strategist James Carville and Tara Wall, the deputy editorial page editor of the "Washington Times." Guys, thanks very much for coming in.

David Gergen, did President Bush do the right thing by bailing out Chrysler and GM?

GERGEN: Yes. He had backed himself into a corner and had to act and I think Dick Cheney put it well when he said had Bush had not done this, he would have been remembered as the Herbert Hoover of his era.

And it was unfortunate they had to come to this thing. But the real point is here, he's not only been forced to do that, but he has punted this to Barack Obama. Obama now faces a ton of huge decisions in the first 90 days of his presidency. BLITZER: There's no doubt, James, that he did punt in effect because by March 31st, if it doesn't look like it's working out, it is all going to be up to the president-elect and the new Congress to decide what to do.

CARVILLE: They're going to run out of money before March 31st. And right now, auto sales, everybody, doesn't matter, not just American carmakers, Japanese or European carmakers also are down 35, 40 percent. I don't think anybody thinks that is going to change between now and March and David is right, they have the ball and they're going to have to figure out what to do with this and it's going to be quick, very quick.

BLITZER: So Ed Rollins, the $14 or $17 billion in this initial bridge loan as it's called, that could escalate. That could go up to a lot more money given the overall state of the economy and the low demand for new cars right now.

ROLLINS: I think there's no question if you're going to try to save this industry, which is an industry in real problems, you are going to have a lot more money that is going to be thrown at him. I think that's a lot of the objections of the Republicans.

I think the problem the president made here is he let it go to Congress. The Congress, his own party, basically, didn't want it. There's a few weeks before the new president comes in and this president is trying to be relevant. He doesn't want to be Herbert Hoover, he is going to be Herbert Hoover. I don't care what he says, or what Dick Cheney says, this president has damaged this economy and is going to go out with a tarnished record. I think the critical thing here is let the new Congress take charge and let the new president take charge and move it forward. Unfortunately, it is on their watch and it is a mess.

BLITZER: He really went against, Tara, all the Republican leaders in the House and the Senate, the president of the United States, by throwing this lifeline to GM and Chrysler.

WALL: There's not a lifeline. Quite frankly, they're already bankrupt. I mean you can talk, will they go bankrupt? Are they going to go bankrupt? They may go bankrupt. There wasn't even a real solid -- there are a lot of things I can praise President Bush for and some of the decisions he has made over the years, but this was not one of them. And this is something that he essentially went back on his word on.

WALL: He said he wasn't going to do it.

BLITZER: So should have just allowed this, in the midst of this recession?

WALL: Politically, I understand why he did it politically, but fiscally and responsibly and conservatively, it was not the route to go. It is not the route to go. And who knows whether it will actually save these automakers. And quite frankly, to wonder why Ford wasn't one of the automakers that said they didn't need this money. I think that more needs to be done on what the automakers themselves need to do in order to fix their structure.

BLITZER: Let me let David Gergen weigh in because a lot of people have made the point that you're not just talking about the workers at Ford and Chrysler and GM, but a lot of other suppliers out there and, at a time when the U.S. government is bailing out AIG and Fannie Mae and Bear Stearns and all these other companies, financial investment houses and banks to the tunes of tens, if not hundreds of billions of dollars, what is wrong with throwing a $14 or $17 or even $20 or $30 billion lifeline to the auto industry? GERGEN: I cannot understand the philosophy in Washington where we have to save these big banks, and we really don't put back in any tough provisions on these banks in terms of what they're responsible for. We haven't asked very much of them at all and not help the automobile companies, especially the workers in Detroit and all the suppliers.

It just makes no, it makes no sense to me. It's a lack of compassion. It's a lack of understanding and I think it also shows something else. It's not just that these three companies in Detroit are in trouble. Automobile companies all over the world are in trouble. Every industrialized country, except the United States, up until when President Bush acted had already acted to help their automobile companies.

Here in the United States, we say, well, it's the big three versus these foreign automobile makers. Does anybody understand that Toyota has said this is a good idea to have this lifeline extended to Detroit? Automobile companies all over the world are facing this huge severe recession. It's not just a question of bad decisions in Detroit. It's a recession which is pulling all these fellows down as well.

And so, it does seem to me it makes a lot of sense to extend the lifeline, give them three or four months to see if they can figure out a way of viability. If they can't, then, yes, bankruptcy proceedings.

BLITZER: Let me let Tara respond. Go ahead.

WALL: Ironically, Toyota is one of the auto -- part of the auto industry, one of the automakers that don't actually need this type of bailout because they've done some things that have been innovative and can be an example to some of our own automakers.

I think the biggest question is, why didn't we see this sooner? Why couldn't we have intervened sooner? We as a nation, we as a country, we as the government in general, should have and I agree in that regard, should have seen this coming. It's been a long time coming. This problem did not develop over night with the Detroit automakers. It has been a long time coming and we should have seen it coming.

BLITZER: You know what else is coming, Ed Rollins, a $600 billion or $700 billion economic stimulus package, maybe even more. We don't have the final numbers. But it's going to be huge, numbers that we haven't seen in a long time. You know, what do you think?

ROLLINS: We're throwing billions around like we used to throw millions around. It's very real money and ultimately, the long term here is this country is going to be a totally different place in a year or two and our children are going to have a tremendous burden and I think we have to start being very responsible about our spending.

I mean obviously, we have got a world mess. We've got certainly a domestic mess, but I think we have to have careful thought process here and find out how deep is the problem and what really is going to work.

Just basically every other day saying let's give $600 trillion here or billions here and $400 billion here is not responsible. I think to a certain extent, this new Congress coming in a week or 10 days, a new Congress coming in, let's be hopeful that they can get to the bottom of it.

There's a full page, two-page indictment of the Bush administration on the decisions that they have made in the "New York Times" today, the bad decisions they made on the home crisis and I would hope that we won't make the same kinds of decisions with a new administration.

BLITZER: Go ahead, James.

CARVILLE: As someone said, and it was absolutely brilliant, that there are no atheists in fox holes or ideologues in financial crises. And people have come up and said, well we have an anti-regulatory, we are pay as you go people, they sound ludicrous. It didn't make any sense. We are about to fall off the cliff. There is no demand in this country.

And unless the government somehow or another kicks demand up by trying to do this, we're in real danger of sliding into deflation. I mean, that's the real problem here. And I don't know if these guys have the right answer or not, but there's got to be an answer. Somebody has got to try something.

The situation is pretty serious out there and I give the Obama administration a lot of credit. They're trying to address it. These people here that are writing op/eds about the anti-regulatory philosophy and all that craziness that got us in the mess we're in now, they have to turn around and look and see what's going on because the problem here for the automakers and everybody else is some time in September, October, demand just fell off a cliff. And if you can't sell something and no one's buying it, then no one can make and that's what is going on in this economy.

BLITZER: Everybody stand by, because we're going it continue this conversation. A lot more coming up, as well, including Caroline Kennedy. Is she a shoe in to replace Hillary Clinton in the United States Senate? James Carville, Ed Rollins, David Gergen and Tara Wall, they're standing by live. Much more coming up right here on LATE EDITION. (COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

KENNEDY: I come at this as a mother, as a lawyer, as an author, as an education advocate and from a family that really has spent generations in public service and I feel this commitment, this is a time when nobody can afford to sit out. And I hope that I have something to offer.

(END VIDEO CLIP)

BLITZER: Caroline Kennedy emerging from lunch at Sylvia's in Harlem with Al Sharpton, talking about why she wants to be next U.S. senator from New York. James Carville, has this train left the station already?

CARVILLE: It is, but I don't think she's had a great, you know, week or 10 days here. I mean, she's got to get her toe out of the water and stick her head in.

And it's not going to be good to answer questions through spokespeople and things like that. She's got to give a real sort of, I think she does, I mean, the fact that her uncle is one of the most revered people in our people in our party, maybe one of the most revered people in the United States as far --- makes everybody stand up and take notice.

But at a point, she's got to grab the bull by the horn here and, you know, having press conferences with Al Sharpton is fine and issuing statements about her position on gay marriage is fine, but I mean she has to let people in New York know what it is and know what she's got to fight for as the United States senator.

And that's not coming through right now. And the longer this thing sits out there is, I think that the more problematic it becomes for Mrs. Kennedy. I think she is -- everybody, almost universal claim, she is a very talented, very bright woman and she has to show that side of her. And people -- she's got to show she really understands what's going on. And I think she's got some work to do.

BLITZER: Ed Rollins, it all comes down to the governor, David Paterson, a Democrat. It's up to him.

BLITZER: It's only an election where he votes.

ROLLINS: Well, it's a one-vote election, election, as you say. I think what's happened, though, is she wasn't on David Paterson's top- tier list two or three weeks ago.

I mean, everything that I've heard from other people that know him much better is that, you know, he was looking at some serious Democrat long-term players.

She's now boxed him. He, now, not only has to either appoint her or he has to reject her. And rejecting a Kennedy is a big, big political move.

I don't -- I agree with James. I don't think her -- her campaign has been rather clumsy and flat-footed.

But I think, at the end of the day, she has put herself in contention, made a lot of people very unhappy, made some other serious candidates unhappy very because they did it the right way; they respected the governor's wishes and didn't go out and campaign for it.

So she's either going to get it or she's going to have a very public rejection. And we'll know in a few weeks.

BLITZER: David Gergen, what's going to happen? GERGEN: Well, there is another outstanding candidate in Andrew Cuomo, who has all the credentials. But I -- I don't totally agree that she's -- had been totally clumsy.

I think that her early -- the phone calls and that sort of thing, the early floating of this was well done. Her trip upstate, I thought, went well.

What I did not think worked well was the answering questions through a spokesperson, as James Carville just said. I think that's -- I just didn't think that communicated well.

What I think she needs to do -- Anderson Cooper suggested this the other night -- and I think she needs to give a major speech about her vision in the Senate, where she wants to go.

And then she needs to sit down for some conversations, on television, about who she is, where she's going; admit, you know, that there are some areas she doesn't know very well. But I think she's got to give a fuller sense of who she is.

When she does that, I think Paterson's going to appoint her. But I think she's got to cross that...

BLITZER: All right. Quickly, Tara, weigh in.

WALL: She could always wait until 2010, too, and do it the same way Hillary Clinton did, and go for the seat in an election.

But, you know, I know he's faced with this seat, right now. I think that one of -- one of the concerns, at least some of our readers have posed is that -- to ensure that she is not walking in with a sense of entitlement, as some fear.

I mean, as James pointed out, she can't just ride in on the coat tails of Edward Kennedy, her uncle. She's got to prove her mettle.

And no one doubts that there are a lot of things that she can do and she's capable of. I think there is a sense, though, among some in the public, that it's another dynasty. And not everyone, you know, is going to be satisfied with having another political dynasty.

CARVILLE: Look, this is the post-Palin area of American politics. You cannot not give an interview. You can't, sort of, do it like that. This is just too fresh on people's minds. And she needs to say -- you know, and that, sort of, changed the nature of things.

(CROSSTALK)

CARVILLE: She's got to, like I say, get a toe out and put a head in, here.

BLITZER: And there's a pretty aggressive new media in New York state, too, as all of us know.

(LAUGHTER)

All right, guys. Stand by. We have a lot more to talk about, including Rod Blagojevich. We'll be right back.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

GOV. ROD R. BLAGOJEVICH, D-ILL.: I'm here to tell you, right off the bat, that I am not guilty of any criminal wrongdoing, that I intend to stay on the job. And I will fight this thing every step of the way. I will fight; I will fight; I will fight; I will fight until I take my last breath.

(END VIDEO CLIP)

BLITZER: All right. A very defiant, embattled governor of Illinois, Rod Blagojevich, making it clear he's not going anywhere.

Tara, what do you think? Can he survive this?

WALL: Well, I think, in his own egotistical mind, he probably does think he did nothing wrong. And so did Kwame Kilpatrick in Detroit, the mayor there.

I mean, this just sounds very familiar. There are a lot of similarities, here. I think, other than looking like a walking mug shot, some would say, he -- you know, he is not getting a lot of empathy, I don't believe, whether he did it or not.

I think the picture painted by this investigation sheds more light, a bigger light, if you will, on the problem of politics in general, this pay for play, these things that are allowed to go on without a lot of, you know -- lot of reflection on what's actually happening in politics and why this is happening, why it's allowed to continue to happen.

I think that is the picture we need to paint here. And we need to shed more light on that issue...

BLITZER: James, can this Democratic governor survive?

CARVILLE: I hope not. Because every day he's in office is a bad day for the Democrats and good day for the Republicans. That's just what the facts are.

(LAUGHTER)

If he were to resign, I'd be glad to help him raise money for a legal defense fund. I mean, he's certainly entitled to a defense. He hasn't been convicted of anything.

But you just cannot sit there and watch this, as a Democrat, and say, man, why don't you go fight the charges or something -- get out. And I don't know of a single Democrat that doesn't want this guy to resign, a single Republican who... (CROSSTALK)

BLITZER: David Gergen?

GERGEN: Between Blagojevich and Madoff, and all these others, it's hard to keep up with all the sleazebags, these days.

Look, he's not going to survive. But I do think we probably have to settle in for a fairly long period while the legal process grinds on and he holds on.

It's worth remembering that it took over a year to resolve the Watergate scandals before Richard Nixon eventually resigned.

BLITZER: All right. I'm going to hold off Ed Rollins, because we're out of time. But, next time, Ed, you'll have a chance to weigh in on this, as well.

Guys, thanks very much. Much more "Late Edition" coming up, right at the top of the hour.

(COMMERCIAL BREAK)

BLITZER: This is LATE EDITION, the last word in Sunday talk.

(BEGIN VIDEO CLIP)

BUSH: The American people want the auto companies to succeed. And so do I.

BLITZER: A temporary save for the struggling U.S. auto industry. We will discuss long-term fixes for auto makers and an economy in recession with former Hewlett Packard chairman and CEO Carly Fiorina and former Clinton White House economic adviser, Laura Tyson.

Plus, Michigan Governor Jennifer Granholm on what the auto rescue means for the big three and its union workers.

President-elect Barack Obama completes his cabinet picks. But facing an economy in recession and two wars, the hard work now begins.

OBAMA: There's been a lot of speculation in the press that O would love to correct immediately.

BLITZER: We will discuss the transition to power with three of the best political team on television. LATE EDITION's second hour begins right now.

(END VIDEO CLIP)

BLITZER: And welcome back to the second hour of LATE EDITION. President-elect Barack Obama will not only have to revisit the U.S. auto industry rescue plan when he takes office, he will also be overseeing an economy that he says is likely to get worse before it gets better. Joining us now to discuss all of this are two guests, the former Clinton White House economic adviser Laura Tyson. She's joining us from San Francisco. And former Hewlett Packard chairman and CEO Carly Fiorina. She's here in Washington. She's now the CEO of Carly Fiorina enterprises.

And Carly, let me start off with you. This 675, the $775 economic stimulus package that the president elect is now weighing, is that going to do the job in turning this economy around?

FIORINA: Well I think he is absolutely correct in saying that people on both sides of the aisle think economic stimulus is necessary. My own view is I'm a bit concerned that we seem to be taking policy prescriptions from the era of the Great Depression, when big government, big companies and big labor were the answer. They're only part of the answer today. Today, small business is the engine of job creation in this country. Consumers have to buy products. We need to do things that make it easier for small businesses to hire and grow, make it easier for consumers to purchase.

Right now we still have a credit freeze. So we are going to have to get to the fundamentals that are driving this economy downward right now which is home foreclosures, lack of consumer purchasing power, and small businesses that are closing, not opening.

BLITZER: Laura, do you agree with that or disagree?

TYSON: I do agree with that. I think that it's very important to think of this as a multi-part crisis. There's a collapse in demand driven by the collapse in consumption demand. There is also the unresolved foreclosure mortgage crisis. And there is the unresolved credit crisis.

And we have seen just this week with the move by the Federal Reserve essentially to move interest rates to zero and to say we will rely on quantitative easing. You can see the depth of the credit crisis. So it's three separate crises interwoven, making it very difficult. I certainly agree that the solutions are going to have to involve help for households, foreclosure relief, tax relief, help for small businesses.

I think it is very important. I agree completely with Carly. Now some of that will come through stimulating things like construction through infrastructure spending or stimulating demand for green energy. You know, weatherization of households can be done by small businesses.

BLITZER: The president-elect seems to be on board part of this economic stimulus package, providing a middle class tax cut but he's holding off on increasing taxes on the wealthiest, those earning more than $250,000 a year. Are you on board, Carly, with those two points? FIORINA: Well, I think that's clearly wise right now. You don't raise taxes on anyone in the middle of a recession. And if you can provide tax cuts to the middle class, all to the better. I think there's also an opportunity to look at revising tax policies for small businesses, to encourage them to make some investments and to hire people.

But I applaud much of what President-elect Obama has done thus far. I just hope that we are not overly focused on the big solution, big labor, big government, big companies.

BLITZER: Are you reassured by the economic team he's put in place?

FIORINA: I think the economic team he's put in place clearly has a lot of credibility. I think he's made very good appointments thus far across-the-board. But I think we have to remember that in this country, in this 21st century, the job creation engine of growth is small business. Small business is where so many immigrants, for example, get their start. African-Americans, small businesses are among the fastest growing. Hispanic-American, Asian-American, women- owned businesses. And that ultimately, consumers have to be in a position to buy products.

BLITZER: Is this a time, Laura Tyson, when the federal government has to forget about the notion of balancing the budget given the economic distress out there? You've got to start pumping in these hundreds of billions of dollars, even if the money is going to come from future generations?

TYSON: I think that if you look at the range of opinions that has come together on the need for essentially stimulus measures right now, you will see it goes all the way from Larry Lindsey from Martin Feldstein, all the way to the liberal economists, Wayne Udse (ph), Bob Reich, myself, others.

The point is, we have a collapse in demand. We have a collapse in consumer demand and in investment demand because businesses don't want to invest because they see consumers collapsing. We have a collapse in export demand because the rest of the world is also reeling from a crisis which started here.

I agree that what we need to do is to stimulate demand. You can do that in two ways. You can do that by tax cuts that help households. You can do that with foreclosure relief that help households. You can do it with business tax relief for small businesses. You can also do it, though, by spending money, the government spending money, the multiplier effect.

That is, the additional dollars and jobs created by spending a dollar of government funds on infrastructure spending or green energy investments. Those multiplier effects are very large. I don't think we need to make a distinction here between big government and small business.

A lot of the jobs, a lot of the companies that will be benefited by a massive infrastructure spending program or a massive green energy investment program will be small businesses. They are looking for demand for their products and services.

BLITZER: The president, Carly, said on Friday that this is no time to let the big three auto makers in the United States file for Chapter 11 bankruptcy protection, and he explained it this way. Listen.

(BEGIN VIDEO CLIP)

BUSH: If you hear that a car company is suddenly going into bankruptcy, you are worried that parts and servicing will not be available, and you question the value of your warranty, with consumers hesitant to buy new cars from struggling auto makers, it will be more difficult for auto companies to recover.

(END VIDEO CLIP)

BLITZER: Did he do the right thing on Friday?

FIORINA: Well, I think it was a political choice. I think he did not want to be the guy who let them fail on his watch, and he has kicked the can to President-elect Obama. I think the conditions around this bailout are frankly impossible to meet. These companies haven't been profitable for years. They are not going to be profitable in 90 days.

BLITZER: So is it good money going to bad?

FIORINA: Well, I happen to believe so, yes. And so I also happen to believe personally, that while there's a lot of anecdotal evidence, I think the principle reason consumers aren't buying cars is because they can't get credit.

We have to remember that people got on bankrupt airlines all the time. In other words, they literally took their life in their hands and got on a bankrupt airline. So I remain unconvinced that a structured orderly bankruptcy isn't the right answer here. And I also believe that while we are focused on big companies and big labor who have big representation in Washington, that to disagree just a moment with what Laura Tyson said earlier, a lot of small businesses cannot get through the government contracting process. It's much to complex.

So unless we are prepared to loosen some of the regulations and requirements that small companies have to go through to get at some of this big government spending program, they won't get at it.

BLITZER: Let me let Laura weigh in. Did the president do the right thing by bailing out these big three? I assume you think the answer is yes.

TYSON: I do. But I want to explain why. First of all, I think that we need to distinguish the long-term structural problems that the U.S. auto industry has from the immediate crisis. They have been strangled by the credit crisis. Their consumers' car demand is way, way down. It's down to 11 million from maybe a long term trend in the U.S. of more like 14 or 15. Their consumers have been strangled, their suppliers have been strangled and they have been strangled.

So part of this understanding is that the bridge loan in a credit crisis where the credit markets are not functioning. Now the question is where there is a bridge to and that is really the effort of trying to put together a long run structural package. But I want to say, I wasn't so worried about the issue of American consumers not buying cars because of warranties. I actually agree with Carly that this is a consumer credit, consumer demand problem.

The reason I don't think a structured bankruptcy solution makes any sense right now is two fold. One is this country is consumed by fear. And I do not think another bankruptcy -- the Lehman bankruptcy froze the credit markets. That was the end of the normal functioning of credit markets.

TYSON: The bankruptcy of a U.S. automaker, General Motors, would essentially create huge additional fear.

The second reason why I think that we needed to really work with the car companies, in this situation, is there was no possibility of normal bankruptcy proceedings. Because, in order to have normal bankruptcy proceedings, you have to have a normal credit market. And we don't.

So think of this as the government coming in, where the credit markets are not functioning normally, and providing some support to the car industry to get through the credit crisis to get to a long- term solution.

FIORINA: You know, Wolf, I think one of the reasons the administration has had difficulty selling this is because they have been so inconsistent.

BLITZER: The Bush administration?

FIORINA: The Bush administration. They originally said the TARP was to get the credit markets flowing again.

BLITZER: The TARP was the $700 billion...

FIORINA: Exactly.

BLITZER: ... that's supposed to go to help the financial sector.

FIORINA: Right. It hasn't worked. And Laura is absolutely right. This was a bridge loan. My belief is that, if we have already bailed out banks, it should be banks providing bridge loans, not the American taxpayer.

(LAUGHTER)

BLITZER: They've already spent the first $350 billion of that TARP --so-called TARP money. Now Congress has to authorize the second batch, the second $350 billion.

First to Carly, should Congress do that?

FIORINA: Well, I think Congress has to ask a lot of really tough questions. Because the first $350 billion has been spent very differently, in all candor, than the administration originally said it would be spent. Secondly, the money that has been spent hasn't solved the fundamental problem, which is credit is frozen. And, third, the money that has been given out, so far, has apparently been given out without a lot of conditions attached.

My goodness, we've bailed out all these financial institutions and they are still not lending, not to consumers, not to small businesses, and most currently, not to the Big Three auto companies who desperately need a bridge loan.

BLITZER: It's going to be up to the president-elect, Laura, to decide what to do. I assume he's going to want to have that discretion. He wants Congress to give him the authority to use that second $350 billion.

TYSON: Yes, he is, absolutely. And, look, I agree with almost everything Carly said. One of the things we've really had, here, is complete inconsistency.

At a moment of great crisis, the Treasury has -- first of all, didn't ask for funds to recapitalize the banks; then used the funds to recapitalize the banks; got to asked to -- said that it wanted to buy distressed assets; then said they weren't going to buy distressed assets, and basically have set virtually no conditions on the firms that have received the money -- or very generous conditions.

So it is very important that we have these funds -- absolutely essential that we have these funds. They can be used in a variety of ways, and I believe that the Obama administration will put together a plan to use them sensibly, to get us out of this very difficult credit crisis.

BLITZER: Carly, what's the most important lesson people out there, around the world, right now, should learn from this Bernard Madoff scandal, this alleged $50 billion Ponzi scheme -- not only wealthy people losing everything but a lot of charities losing everything as well?

What happened here? What's the most important thing we have to learn from it, to make sure it could never happen again?

FIORINA: Well, I think two things. And I recently wrote an op- ed in The Wall Street Journal, saying this. First, every financial instrument and all financial institutions, regardless of their nature or their type, need to be visible and transparent to appropriate regulators, period.

We cannot have huge pools of capital that are simply opaque to regulation.

BLITZER: So much more regulation?

FIORINA: We need a strong and sensible regulatory framework that doesn't choke capitalism but that can see and act on what it sees. But, secondly -- and this is my message to business people all over the world -- there is no substitute for ethics. Yes, people need to be responsible about their investing, but dishonest business people need to go to jail. They need to have the full extent of the burden of the law brought to bear.

This is a terrible blotch on the credibility of business, just as, by the way, so many failed companies are, right now, because it is not true to say that only a credit crisis has caused these companies, whether they're automobile companies or banks, to fail. They are failing because management and boards have taken unwise decisions.

I'm not saying everybody was dishonest. But there's a level of responsibility, here, that business leaders, I believe, must step up to. At a minimum, let's be ethical. And at a maximum, let's be responsible to something more than the short-term stock crisis.

BLITZER: Laura, what's the most important lesson you've learned from this?

TYSON: Well, I think we need to look at the dramatic regulatory collapse, here, that has occurred. We now are getting information that the SEC have reports, going back as far as 2000, about the irregularities, quote, unquote, of this particular hedge fund.

What was happening was an embrace of an ideology, frankly, that, against any regulation, prudent, imprudent, any regulation, and we see what the consequence is.

I agree you need ethical behavior, but you definitely need regulation. And we need an SEC that has an active chair who will enforce existing regulation.

But frankly, we need to look at our regulatory structure entirely. We had a situation -- you know, only 25 percent, now, of the U.S. credit market is regulated; 75 percent of those entities, now, like hedge funds, that are outside of regulation.

This is a -- this was a recipe for disaster, and the hedge fund industry as we know it will be transformed by this scandal. We need transparency. We need to know what is going on behind those black boxes, because it isn't always ethical.

BLITZER: To paraphrase, or to quote Ronald Reagan, in a different context, "trust but verify," I think would be...

FIORINA: That's exactly right.

TYSON: Trust but verify.

BLITZER: ... a good theme, right now.

TYSON: Perfect.

BLITZER: Guys, thanks very much. Carly, Laura, thanks very much for coming in. Merry Christmas to both of you, as well. TYSON: Merry Christmas to you.

FIORINA: Merry Christmas to you, Wolf.

BLITZER: And up next, now that President Bush has given the automakers a loan, will the labor unions agree to lower wages and benefits?

I'll put that question to the Michigan governor, Jennifer Granholm. "Late Edition" continues after this.

(COMMERCIAL BREAK)

BLITZER: Troubled U.S. automakers and their workers aren't the only ones grateful that the government is coming to their rescue. Michigan's governor, Jennifer Granholm, is also breathing a sigh of relief. I spoke with her after the rescue plan was announced.

(BEGIN VIDEOTAPE)

BLITZER: And joining us now, the governor of Michigan, Jennifer Granholm. Governor, thanks very much for coming in.

GRANHOLM: You bet, Wolf. Thanks for having me on.

BLITZER: Did you ever think you'd be saying thank you, Mr. President, for saving two of the three big automakers in the United States?

GRANHOLM: No, I never did. You know, I have -- to be candid with you, I'm a Democrat and I have been pretty tough on President Bush and his -- his ability to help the auto industry or the manufacturing industry in this country. But today, we are all in Michigan and, frankly, the three million workers across the country whose jobs are saved -- at least temporarily -- we are saying thank you to President Bush for stepping in and doing what Congress could not and would not do last week.

BLITZER: He really saved -- saved the autoworkers. He saved the auto industry, at least the U.S. auto industry, didn't he?

GRANHOLM: He did. And what he's done is given them a lifeline to help lead the country out of this recession. We know that this industry can produce these green, lean efficient vehicles, but they need to make the strategic and the structural changes that they've been in the middle of, if it weren't for this darned credit crunch and financial meltdown.

So they are positioned now to help do that, to produce the electric vehicles, to lead the nation in creating jobs in ways that will reduce our dependence on foreign oil. And that's very exciting.

BLITZER: All right...

GRANHOLM: ...and I think the Obama administration is going to be a partner in it.

BLITZER: And to a certain degree, he punted to the Obama administration.

The auto companies now have until March 31st to come up with a strategy. One important part would be the union workers, the UAW workers -- their salaries and benefits being in line with the non- union workers at Toyota plants in the South or elsewhere.

Is that realistic based on what you know?

GRANHOLM: Well, first of all, there is such a misunderstanding out there. Last year, the UAW entered into a contract which reduced the wages from $28 an hour to $14 an hour. That's exactly on a par...

BLITZER: That's for new workers. That's for new workers.

GRANHOLM: That's for new workers. Right. And that's exactly on par with what... BLITZER: But most of the workers are old -- older workers.

GRANHOLM: Many of them are. And so the older workers make about $28 an hour. And, by the way, the Toyota plant in Georgetown, Kentucky also makes $30 an hour.

So there is a real question about what the UAW is going to do going forward. They're going to -- they recognize they've got more at stake in this than anybody else in terms of saving jobs. So they recognize they're going to have to come up sacrifice in the same way that the executives of the industry are going to have to sacrifice, the suppliers, the dealers. Everyone is going to have to do what they can to ensure that this industry survives. Everyone knows it. And I think they will.

BLITZER: Because if you add in what's called all the legacy and the benefits and everything else, supposedly -- and correct me if you think these statistics are wrong -- the union workers make -- you know, get about $70 per hour...

GRANHOLM: Well...

BLITZER: ...compared to maybe $30 or $40 an hour for the Toyota non-workers.

GRANHOLM: That is total bunk, Wolf.

I mean, since when do people -- are you getting paid for what people are getting pensions for in your company?

I mean that's so -- it's so wrong to assign the legacy -- the pension costs of all of the people who have ever work at the auto company to me -- the worker who's working there now. That's not the way you assign wages. That's not how people determine their hourly wage.

You might roll in your own benefits and your own hourly rate. But to say that you're responsible or that you have to bear the burden of everybody who's ever worked there for 100 years this industry has been around -- that's really -- that has been a talking point that the Republicans have put out that is an utter falsehood.

The bottom line is they do have more legacy costs, because they've been around a lot longer than the foreign transplants. We have to deal with that and figure out as a nation how we're going to provide health care in this country to make our industries -- not just the auto industry, but all industries -- competitive with the industries of other nations when those other nations provide health care.

But we're in a position to do that now. We have an incoming administration that's committed to a green automotive industry and an industry that now has a lifeline to take us there.

BLITZER: There was a really tough piece on Forbes going after you by name. And I'm going to read a little graph from there. The article was entitled, "Here's What's Un-American, Governor Granholm." And this is what it says: "Throughout the financial crisis, Governor Granholm, predictably, has pointed her finger away from the culprits. She has defended the automobile companies, saying their financial situation is not their fault. She neglects -- neglects to explain how it is that other companies are currently manufacturing cars in other U.S. states and actually turning a profit."

Do you want to respond to that criticism?

GRANHOLM: Yes. Do you want to ask -- ask those guys right now if they're turning a profit. Toyota had to stop production, stop their plant being built in Mississippi. They've all lost customers over this financial meltdown, because it is the financial institutions that are not releasing funds.

They get $700 billion in a bailout and they're sitting on the money.

What good is that to stimulate the economic growth, when people can't buy cars because they don't have access to credit?

The auto industry made mistakes in the past. I don't apologize for that. But they have been in the middle of a restructuring that leads us to the plug-in electric hybrid vehicle, to exactly where people want to go.

The unions have made enormous concessions. And they're going to make more, as is the rest of the industry. But to say that the auto industry is in the same position as the financial industry -- and when the financial industry is the one that caused this financial meltdown -- the mortgage industry caused this meltdown./ but to blame the auto industry for that, that's not fair. It's the biggest consumer device -- consumer product that you buy. People should be able to have access to credit to buy it. Everyone is hurting from this. That's the bottom line.

BLITZER: And if you think of the hundreds of billions of dollars that have been spent on bailing out the financial sector, that $14 billion...

GRANHOLM: With no...

BLITZER: ...or $15 billion or $16 billion for the auto industry is rather modest.

Unfortunately, governor...

GRANHOLM: And it's a loan.

BLITZER: Yes. I...

GRANHOLM: It's a loan for the auto industry.

BLITZER: And the taxpayers -- you and I, we're all hoping that loan will be repaid.

GRANHOLM: It will be.

BLITZER: That would be good for the taxpayers. It would certainly be good for all the workers in Michigan, as well.

GRANHOLM: You bet.

BLITZER: You've got your hands full, Governor.

Thanks.

Good luck.

GRANHOLM: You bet.

Thanks, Wolf.

Yes.

(END VIDEOTAPE)

BLITZER: Coming up, my colleague Campbell Brown is talking tough about how President-elect Barack Obama is handling questions about the Illinois governor's scandal. You're going to want to hear what she has to say when LATE EDITION continues.

(COMMERCIAL BREAK)

BLITZER: And welcome back to LATE EDITION, I'm Wolf Blitzer is Washington. Joining us now from New York is Campbell Brown. She's the host of CNN's "CAMPBELL BROWN: NO BIAS, NO BULL." Campbell, this week you challenge the way President-elect Barack Obama is handling questions about the Rod Blagojevich case at his press conferences in Chicago. I want to play something that you said earlier in the week on your show. And we will talk about it afterwards. Listen to this.

(BEGIN VIDEO CLIP)

CAMPBELL BROWN, CNN ANCHOR: You have an extraordinarily high approval rating right now. People in this country who voted against you are pulling for you. These are desperate times for many Americans, and most of this country wants you to succeed. But you will not succeed if you discard the very ideals you promoted during your campaign, directness, honestly, candor, transparency, openness. You made a deal with the prosecutor to keep a lid on certain information about this investigation until next week. Fine. But that doesn't give you a blanket excuse to dismiss any and all questions associated with Blagojevich or anything else. You were the one who embraced openness. You can stand to be a little more open to it.

(END VIDEO CLIP)

BLITZER: But Campbell, if the U.S. Attorney Patrick Fitzgerald says to him, you know what, I need a week.

BLITZER: I'm in a delicate state in this investigation right now. Hold off on saying anything for at least one week. What's the harm there?

BROWN: Well, I don't think there's any harm there. And first let me say, I do respect his decision and agreement that he apparently made with the U.S. attorney to not comment on staff contacts which appeared to be the issue until next week as he made this deal with Patrick Fitzgerald.

My issue was he cut off a reporter before the reporter had even asked the question. And as president-elect you can certainly choose to not answer any question you want and say I made a deal with the U.S. attorney, but you do not get to dictate the questions asked by you at a press conference by any means.

And there are plenty of legitimate questions related to Blagojevich that would not violate any deal he made with the U.S. attorney in terms of what he, you know, how he thinks this should be handled going forward, whether it would be a special election or appointed by a different governor if Blagojevich were to step down.

That would have no bearing at all on the investigation. So to use it as I said in that, cutting through the bull as a blanket excuse to just not touch this issue because it may be a little bit embarrassing for him, is not fair given the pledge he made during the campaign.

BLITZER: What kind of feedback did you get for saying that?

BROWN: Well you know, a lot of feedback from viewers in fact that I felt came down really on both sides. As I also said in the piece, he has extraordinarily high approval ratings right now, this president-elect. Republicans, people who voted against him, are very much supporting him right now because of where the country is.

We need leadership and that's being conveyed. And the general feeling from lot of people is you know what, you in the media, hands off. Give him plenty of slack right now. We as a country need him to lead.

But at the same time there are a lot of people who understand we have a job to do regardless of the issue and this shouldn't just apply to Blagojevich but any issue on the table. The media's role, especially those White House reporters is to press him on every issue in every way they can. BLITZER: Campbell Brown, thanks very much. And don't forget, Campbell is the host of CNN's "CAMPBELL BROWN: NO BIAS, NO BULL." It airs every weeknight here on CNN at 8 p.m. Eastern.

Straight ahead, three of the best political team on television, they're standing by to break down the week in politics. You're watching LATE EDITION, the last word in Sunday talk.

(COMMERCIAL BREAK)

BLITZER: A lot happening with President-elect Barack Obama's transition to power, so let's get right to it. Joining us now, our senior White House correspondent Ed Henry. He's lucked out. He's in Honolulu, Hawaii, where the president-elect is spending his Christmas vacation. Also joining us, our senior political analyst Bill Schneider. He's in Los Angeles. And our national political correspondent Jessica Yellin, she is here in Washington D.C.

Ed, he's what, going to spend 12 or 13 years out in Hawaii where you are. His home state, that's where he was born. Set the scene for us. Is it all down time, or is he going to be working?

HENRY: There's going to be a mix, Wolf. He's here until January 1st. He originally was only going to be here until December 30th, but he extended it into the new year. He's going to obviously mostly focus on resting, relaxation, before this dramatic transfer of power of January 20th, his real last chance to get some time off.

But we are told he will still be getting daily intelligence briefings. And he'll also obviously be working a bit on his inaugural address, deciding what he's going to say there. And also, he has some poignant family time as well because let's remember, he's going to have a private memorial service that he will attend this week because his grandmother of course passed away two days before his historic election.

And then finally, his transition team this week is going to put out about that long awaited report about exactly how many contacts he and his staff had with Rod Blagojevich, the Illinois governor. And while that's highly anticipated, it's obviously not going to be the final word. It's going to be the internal investigation from the Obama team. There's still, obviously we still have to hear from the prosecutor, Patrick Fitzgerald himself, Wolf.

BLITZER: And as lovely as Crawford, Texas is, maybe Honolulu, Hawaii might be a little more lovely for those reporters covering the beat.

Let's talk a little bit, Jessica Yellin, about the enormous challenges he's facing. Not only two wars, an economy in recession right now, what to do with the big three auto industry. He's got so much on his plate right now. And he's getting ready for an enormous, enormous headache.

YELLIN: And their approach is to be as big as possible, to plan a huge stimulus package that is not we are told going to be a trillion dollars, but inching close to it. Their approach is to be bold, as they keep saying. And they know it's going to get really rocky at first. They don't know that things are going to work out immediately. But they think that if they promise that there will be progress in time, people will stick with them because he's got the good will of the people behind him.

BLITZER: I want you to listen, Bill Schneider, to what the Vice president-elect Joe Biden said on ABC. Listen to this.

(BEGIN VIDEO CLIP)

BIDEN: The economy is in much worse shape than we thought it was. There is no short run other than keeping the economy from absolutely tanking. That's the only short run.

(END VIDEO CLIP)

BLITZER: It's really depressing when you hear some of the talk, not only from the outgoing Bush administration but from the incoming team as well.

SCHNEIDER: That's right. It's a very dire situation. The bill for the stimulus plan keeps going up. As Jessica said, it's approaching a trillion dollars. And then they have this March 31st deadline when they have to decide whether the auto companies have come up with a viable plan. That's a remarkable thing. They have gotten into trouble over decades and between now and March 31st, the auto companies have to come up with some very complicated plan about how they are going to reorganize and restructure themselves. Build cars that are fuel efficient that people want to buy, somehow deal with the credit crisis, and all in about nine weeks. That's an amazing amount of work that has to be done very, very quickly. Comparable to what Franklin Roosevelt faced when he became president in 1933.

BLITZER: Do you get the sense out there, Ed Henry, and you're covering this transition to power that the incoming team that they are winging it or they really understand exactly what they are about to do?

HENRY: No. I think they fully understand the challenges ahead, Wolf, and I think that what we saw this week in wrapping up really the entire cabinet before he launched his 12-day vacation here in beautiful Hawaii is he realizes he's going to have to hit the ground running, not just on January 20th, frankly, but before, now.

While he's been saying over and over there's only one president at a time and Barack Obama can't actually make any official decisions, if you will. He has to have his team in place, and we have to acknowledge that he has been very efficient in doing that, and that is a clear signal, his aides say, especially the fact that he put his economic and national security teams up front.

HENRY: With a lot of familiar Washington hands is a sign that he wanted to try to reassure people about all these various crises. And then he brought in some of the more Washington outsiders, if you will, for jobs like education and energy. So he tried to have a blend of all that. But also I think the dominant theme of this cabinet is pragmatism. From national security to the economy and all the various domestic posts as well. There's a lot of pragmatism there and it's because he realizes he has a big, big challenge ahead, Wolf.

BLITZER: Yes, there's no doubt, Jessica, that he went to the center on a lot of those appointments including as you know, two Republicans.

YELLIN: He did, Wolf. He's also angered a lot of his base. Part of the reason gay activists were so angry about the Rick Warren choice was because they also were stunned...

BLITZER: Rick Warren, Pastor Rick Warren is going to give the invocation at the inauguration.

YELLIN: ... And he has been, they feel, homophobic in the past and they were stunned that they didn't have a gay appointee on the cabinet or in his very, very senior role on cabinet level.

Also, women's groups are upset that the number of women in the cabinet is comparable to what Bill Clinton put in 15 years ago. They thought they would see progress by now. So Obama has been very centrist. But some feel that his big tent approach is getting so big, that he is letting down his base.

BLITZER: Give us a historic perspective, Bill. What do you think about this notion? Because if you look at the cabinet, it seems very diverse with women and minorities. What do you think?

SCHNEIDER: Well, there are 15 members of the cabinet by my count, I believe, seven of them are white men. You have got several Hispanics, one Hispanic woman. Three women. Women are dissatisfied. Some women's rights are dissatisfied because they believe there should be more. There's one African-American, two if you count the U.S. trade representative.

There is a lot of diversity there, but the most conspicuous thing about this administration is he appointed several people inside the White House. Not necessarily in the cabinet, people like Larry Summers to be the director of economic policy. Tom Daschle to make plans for an enormous health care reform program. Carol Browner to deal with energy and climate change. They are going to be in the White House, answerable directly to the president. So there is every indication to me that this is going to be a very centralized administration with the center of power directly in the White House and even in the Oval Office, not so much in the cabinet.

BLITZER: And presumably, as they were during the campaign, very, very disciplined as well. I want all of you to stand by. We have a lot more to talk about with our political panel.

But up next, both the outgoing Vice President Dick Cheney and the incoming Vice President Joe Biden were on the Sunday morning talk shows today. We are going to bring what you they had to say in our very popular "In Case You Missed It Segment." That's coming up next.

(COMMERCIAL BREAK)

BLITZER: In case you missed it, let's check some of the highlights on the other Sunday morning talk shows here in the United States. On FOX, Vice President Dick Cheney strongly defended the controversial actions that President Bush took as commander-in-chief during the war on terror.

(BEGIN VIDEO CLIP)

VICE PRESIDENT DICK CHENEY: I think they're fully justified in setting up a terror surveillance program to be able to intercept the communications of people who are communicating with terrorists outside the United States. I think you can have a robust interrogation program with respect to high value detainees.

(END VIDEO CLIP)

BLITZER: On ABC, Vice President-elect Joe Biden said he will head up a middle class task force during these tough economic times.

(BEGIN VIDEO CLIP)

BIDEN: It is designed to do the one thing that we use as a yardstick is the economic success of our administration. Is the middle class growing, is the middle class getting better, is the middle class no longer being left behind? And we'll look at everything from college affordability to after school programs, the things that affect people's daily lives. I will be the guy honchoing that policy.

(END VIDEO CLIP0

BLITZER: And on NBC, Secretary of State Condoleezza Rice said that in the long run, the overthrow Saddam Hussein and the creation of a Democratic Iraq will be seen as a positive step for the entire region.

(BEGIN VIDEO CLIP)

SECRETARY OF STATE CONDOLEEZZA RICE: This Iraq at the center of the Middle East, a powerful Arab state that is a friend of the United States and Democratic is going to make the Middle East a fundamentally different place.

(END VIDEO CLIP)

BLITZER: Highlights from some of the other Sunday morning talk shows here on LATE EDITION, the last word of Sunday talk. And don't miss "FAREED ZAKARIA: GPS" at 1 p.m. Eastern, right at the top of the hour. This week, Fareed asked the U.S. ambassador to the U.N., Zalmay Khalilzad if he thinks we should be negotiating with the Taliban in Afghanistan.

(BEGIN VIDEO CLIP)

ZALMAY KHALILZAD, U.S. AMBASSADOR TO THE U.N.: I think we need to reach out to elements of the Taliban that are reconcilable. But to achieve success with regard to that, work in other cases would show that the government and the coalition need to be in a much stronger position than they are to be successful. I think it's an important part of ultimate success.

(END VIDEO CLIP)

BLITZER: Stay tuned for "FAREED ZAKARIA: GPS." That comes up right at the top of the hour only here on CNN. Our political panel is ready to go back into discussions right after this.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

BLAGOJEVICH: I have done nothing wrong. And I'm not going to quit a job the people hired me to do because of false accusations and a political lynch mob.

(END VIDEO CLIP)

BLITZER: Rod Blagojevich, the embattled governor of Illinois, making it clear he's not planning on leaving his job any time soon.

Let's continue our conversation with the best political team on television, Ed Henry, Jessica Yellin and Bill Schneider.

Jessica, you've spent a lot of time in Chicago, in Illinois. This story potentially could move in a certain direction, in the coming days, when the Obama team releases that document, the catalog, the chronology of all of its contacts with Blagojevich.

YELLIN: Right. And it's my understanding that's going to come out on Monday or Tuesday. Everyone I'm talking to says there's not a lot of "there" there.

I think what we find out is that Rahm Emanuel had these conversations with his chief of staff, Blagojevich. It's not surprising. The most shocking thing for the American people will be if they find out the kind of colorful language Rahm Emanuel uses when he talks to his friends and his colleagues.

(LAUGHTER)

I don't really think this is going to be devastating for the Obama team.

BLITZER: And, Ed Henry, you just came out of Chicago, as well. What are you hearing?

HENRY: I think Jessica is dead-on, with exactly what she reported -- absolutely. She's been ahead of the curve on that, and that it's not really going to show any sort of criminal wrongdoing or anything like that -- maybe some colorful language from Rahm Emanuel, as she put it, I think, charitably.

(LAUGHTER) But I think, in the long run, it could be a political headache for this incoming administration. Because, as this plays out, what all of this could show -- any kind of connection to, sort of, this seamy side of Chicago politics is certainly not what Barack Obama wants to be talking about when he's trying to usher in a message of change.

If there's a long trial in the months ahead, et cetera, and a lot of this stuff drips out, it can obviously be a political headache. But I really do not believe, at this stage, that it's going to be, sort of, anything that suggests any sort of criminal wrongdoing by Rahm Emanuel or anyone else close to the president-elect, Wolf.

BLITZER: Now, give us some perspective, Bill, because you have a very aggressive prosecutor, in this case, the U.S. attorney in Chicago, Patrick Fitzgerald. And, by all accounts, he's by no means letting down.

SCHNEIDER: No, of course he's not letting down. There has been, as yet, no criminal indictment, although that could be forthcoming very soon, against Governor Blagojevich.

He was arrested on a criminal complaint, and is likely to be charged.

The political question, of course, is the involvement of anyone on the Obama team. So far there's no indication of any improper involvement.

It wouldn't be surprising if Rahm Emanuel discussed with the governor of Illinois, who has the power to make the appointment, who will take the Senate seat.

The real issue there is whether there was any discussion of money. It's all about money. And that was the charge that the prosecutor brought, that he was trying to sell this Senate seat.

If there was any discussion like that, which we have no evidence of at this point, then, of course, there would be an explosion. But there's no evidence of that, at this point.

And we're waiting to see exactly whether there's an indictment or any criminal charges brought against the governor.

BLITZER: Yes, right now, there's only a criminal complaint, out there, but no formal charges have yet been presented.

Jessica, the other big political buzz of the week, Caroline Kennedy, the daughter of the late president John F. Kennedy and Jacqueline Kennedy Onassis -- she's thrown her hat into this ring. She's trying to convince the governor of New York, David Paterson, that she would be a good successor to Hillary Clinton, in the Senate.

YELLIN: There sure is an enormous amount of pressure on Paterson, right now. I wouldn't want to be that man. But, look, you have to believe, Wolf, that, politically, Paterson couldn't let Caroline Kennedy get this far out, pushing for this, if he weren't inclined to give her the seat.

I mean, it would really be a very awkward situation, at this point, to give it elsewhere. There's still a power struggle. But she really is doing everything she can. . BLITZER: And in the end, Ed Henry, it really is only up to the governor to make this decision?

HENRY: It is up to the governor, but obviously the president- elect is somebody who, while publicly he has not said, you know, she should get it, because he's going to leave that power in the hands of the governor, on the other hand, it's pretty obvious to Governor Paterson that President-elect Obama is very fond of Caroline Kennedy. She was at the center of his search for a vice president.

And let's face it. She was somewhat pivotal in helping him bring Democratic party elders behind him, over Hillary Clinton, when she helped get her uncle, Senator Edward Kennedy, to endorse Barack Obama at a pivotal stage in that race.

That's partly why, perhaps, we're not seeing so many Clinton people speak out and say, yes, Caroline Kennedy's the one. They're still not too happy about that endorsement, Wolf.

BLITZER: I'm going to let Bill Schneider weigh in, in a moment, on whether there's royalty in American politics.

Stand by. We'll take a quick break. We'll be right back.

(COMMERCIAL BREAK)

BLITZER: Bill Schneider, there seems to be growing -- a growing royalty, if you will, here in the United States, that, if you have the right name, you know what? You're going to get elected or you're going to get appointed to a job.

SCHNEIDER: Or at least you're going to get a boost. Because American politics has a lot to do with name recognition. People don't vote for someone they have never heard of.

And that's why Hillary Clinton could get elected senator from New York. Everyone had heard of her. They knew who she was.

George Bush was elected in large part because the name Bush was familiar. Jeb Bush, of course, may now run for governor of Florida.

Politicians who are unknown have to spend an enormous amount of money just so the voters are familiar with who they are. Well, if they have a brand name like Bush or Clinton or Kennedy, a lot of that is accomplished already.

BLITZER: And, you know, there's another Clinton waiting in the wings, Chelsea Clinton. I don't think she's old enough to be a U.S. senator yet.

(LAUGHTER)

I think you have to be 30 years old. But maybe in a few years, we'll see Chelsea Clinton stepping into the political forefront as well. How big of a deal is this controversy, Jessica, over Pastor Rick Warren delivering the invocation at the inauguration, given his views on homosexuality and the uproar that has generated?

YELLIN: It matters. I can't emphasize enough how stunned and surprised the gay and lesbian community is that Obama picked this person.

They find him truly, truly offensive. And Obama's team is surprised that this is such a controversy, because Rick Warren spoke out after Obama connected himself with Warren during the campaign; then Warren came out on Prop 8.

And so they didn't expect this kind of controversy to flame up this way. The gay and lesbian community is very upset.

BLITZER: You know, and earlier on "Late Edition," Ed Henry, Barney Frank, who is openly gay -- he was upset about this decision himself.

HENRY: You're right. And obviously, Barack Obama has to be concerned about the left wing of this party, his base.

But, on the other hand, it's not so bad for him, in the long run, to pick some fights, early on, with the left, and reach out to the center.

It's very clear that, given all the crises you talked about throughout the last two hours of this show, he is going to have to govern from the center if he's going to get a lot of this stuff done.

Now, obviously, he can't offend liberals time and time again. He's got to be careful about these kinds of fights. But, on the other hand, it can be helpful to him to be moving toward the center on some of these things and reaching out to evangelicals, Wolf.

BLITZER: All right, guys. We've got to leave it right there -- a good discussion. We'll see you next Sunday on "Late Edition." I'm Wolf Blitzer in Washington.

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