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Recession Could Last 'For Years'; Dems Oppose Obama Tax Cuts; Tom Daschle Wants to Improve Health Care

Aired January 8, 2009 - 16:00   ET

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


WOLF BLITZER, CNN ANCHOR: Happening new, surprising new opposition to Barack Obama's proposed tax cuts from members of his own party. The pushback coming as the president-elect makes his biggest pitch yet for his economic rescue plan.
Plus, a star witness in the impeachment case against the Illinois governor. His choice for the U.S. Senate, Roland Burris, is in the hot seat this hour. Stand by for that.

And Sarah Palin still is bristling at the news media, and she's wondering if Caroline Kennedy will get the same scrutiny she got.

I'm Wolf Blitzer. You're in THE SITUATION ROOM.

President-elect Barack Obama's painting a dire picture of the U.S. economy if -- if Washington fails to take drastic action as soon as possible. Right now, some top Senate Democrats are expressing serious concerns of their own about President-elect Obama's push for about $300 billion in tax breaks. The opposition within his own party is casting a shadow of the president-elect's very high-profile speech today.

Our Senior Congressional Correspondent Dana Bash is standing by.

First, though, to our Senior White House Correspondent Ed Henry.

Ed, a clear sense of urgency from President-elect Obama just a dozen days before the inauguration.

ED HENRY, CNN SR. WHITE HOUSE CORRESPONDENT: That's right, Wolf. A lot of urgency on foreign policy. Of course, we've heard the mantra of "one president at a time," but not on the economy. The president- elect is ramping up his sales pitch because he knows he has a lot on the line.

(BEGIN VIDEOTAPE)

HENRY (voice-over): It turns out sometimes there are two presidents at a time, at least when you have a tight window to sell your economic plan.

BARACK OBAMA (D-IL), PRESIDENT-ELECT: I don't believe it's too late to change course, but it will be if we don't take dramatic action as soon as possible. If nothing is done, this recession could linger for years. The unemployment rate could reach double digits. HENRY: Sounding as if he's already in charge, President-elect Barack Obama used his first speech since the election to make the case the financial crisis is getting worse, blaming it on what he called a culture of anything goes.

OBAMA: We arrived at this point due to an era of profound irresponsibility that stretched from corporate boardrooms to the halls of power in Washington, D.C. The result has been a devastating loss of trust and confidence in our economy, our financial markets and our government.

HENRY: Mr. Obama made the pitch that trust could be restored if Congress passes his massive $775 billion recovery package, though he continued to offer few details about the plan.

Republicans say they're encouraged the incoming president seems willing to work with them, but they're raising concerns about the price tag, on top of a $1.2 trillion budget deficit.

SEN. MITCH MCCONNELL (R), MINORITY LEADER: Well, given the deficit numbers, it really ought not to be a trillion-dollar spending bill. I think we can start by saying that.

HENRY: But New York City Mayor Michael Bloomberg, one of many prominent local officials in the crowd for the speech, said any belt tightening needs to take a back seat to reviving the economy.

MAYOR MICHAEL BLOOMBERG (I), NEW YORK: We have no choice but to ratchet up the deficit at the moment, and the president-elect referenced that and said he'd like to do things that have a life span where there's an end to it so he can then address that issue and bring down the deficits in the future.

(END VIDEOTAPE)

HENRY: Now, today's speech was almost a flashback to the campaign for the president-elect. He's trying to use the lofty rhetoric that even his critics compliment him on to try to stay above the fray, make the broader sales pitch, while now he sends top staff, incoming cabinet officials, up to the Hill to try to make the more direct pitch on the details -- Wolf.

BLITZER: And those details will be critical, indeed.

Ed, stand by.

Let's go to Capitol Hill, where private Democratic worries about the Obama tax cut plan are now becoming public. This is a surprising development.

Our Senior Congressional Correspondent Dana Bash is working this story for us.

Dana, what are you hearing from these Democrats in Congress today? DANA BASH, CNN CONGRESSIONAL CORRESPONDENT: We talked to several Democratic senators who made really clear, Wolf, that some of the ideas Barack Obama campaigned on, they don't want them to become law. You know, Barack Obama may be a Democratic president, incoming, with a Democratic Congress, but it was clear today that does not mean they're going to give him everything he wants.

(BEGIN VIDEOTAPE)

BASH (voice-over): At the very moment Barack Obama was pushing his economic recovery proposal, several fellow Democrats emerged from a closed-door meeting of the powerful Senate Finance Committee saying they opposed central parts of his tax plan, especially a $3,000 tax credit to businesses for every job they create.

SEN. JOHN KERRY (D), MASSACHUSETTS: I'm not that excited about that.

BASH (on camera): Why?

KERRY: Because if somebody's able to hire, they're probably going to hire anyway.

BASH (voice-over): On the campaign trail, Obama constantly pushed the proposal as an innovative way to create jobs.

OBAMA: And I will give American businesses a $3,000 tax credit for every job they create right here in the United States of America.

BASH: But many in Obama's own party who will actually craft the legislation disagree and say tax credits to businesses in dire straits won't create jobs.

SEN. KENT CONRAD (D), NORTH DAKOTA: I think it is unlikely to be effective. If you think about it, businesspeople are not going to hire people to produce products that are not selling.

BASH: That's not the only Obama tax idea his Democratic brethren are blasting. Another, payroll tax cuts, $500 per person and $1,000 per couple earning less than $200,000 a year, amounting to about $10 to $20 a week.

CONRAD: Twenty dollars a week?

BASH (on camera): Twenty dollars a week.

CONRAD: I don't think that will be effective either. I think that is, in terms of this economic impact, very much like what happened with the rebates.

BASH: Several Democrats warned that Obama tax cut will have the same disappointing effect as last year's rebate. People will save the money or use it to pay debt, not jump-start the economy by spending it.

SEN. RON WYDEN (D), OREGON: Just giving people $500 and $600, while certainly welcome when there's all this economic hurt, may not be the best use of stimulus.

(END VIDEOTAPE)

BASH: Now, over in the House, the speaker, Nancy Pelosi, would not directly answer several questions from our producer, Deirdre Walsh (ph), about potential hurdles with Obama's economic stimulus proposal, but it is very clear, as you just heard, Wolf, there are some in the Senate and, as we speak, members of Obama's economic team are briefing Democratic senators, trying to convince them about their ideas -- Wolf.

BLITZER: Got to try to get that house in order, at least among the Democrats, because Republicans will be critical, at least on some of these issues as well.

BASH: Oh, you bet.

BLITZER: We're going to speak to a top House Republican. That's coming up later.

Thank you, Dana.

Just moments ago, the president-elect appeared with his handpicked choice to be the new Democratic Party leader. That would be the Virginia governor, Tim Kaine. The outgoing DNC chairman, Howard Dean, was conspicuously absent from the event over at the Democratic Party headquarters in Washington. Governor Dean is traveling to American Samoa today, but he has a history of clashing with some of President-elect Obama's top aides, including the incoming White House chief of staff, Rahm Emanuel.

The president-elect praised Howard Dean even as he announced his replacement.

(BEGIN VIDEO CLIP)

OBAMA: It's time not only to build on Howard's record of achievement, but to remake the Democratic Party to meet the challenges of the 21st century. And no one is better suited to help lead this effort than the new chairman of the DNC, my good friend, Governor Tim Kaine of Virginia. Tim comes from Virginia, a state that reflects America, where people of all backgrounds and walks of life, big cities and small towns and...

(END VIDEO CLIP)

BLITZER: All right. Our Senior Political Correspondent Candy Crowley is going to have more on this change over at the DNC. That's coming up later, right here in THE SITUATION ROOM.

Let's go to Jack Cafferty, though, right now. He's got "The Cafferty File" -- Jack.

JACK CAFFERTY, CNN ANCHOR: Wolf, Senate Majority Leader Harry Reid told "The Hill" newspaper that the Democrats on Capitol Hill will not be a rubberstamp for President-elect Obama's policies the way the Republicans have been for President Bush. Reid said -- we're quoting here -- "I don't work for Barack Obama, I work with him."

Reid's been on a bit of a roll this week. He started out on Sunday with his ongoing and rather tasteless mantra about President Bush's failures, calling him on national television the worst president ever. Tuesday, Reid turned away Roland Burris at the Senate door. Not a surprise, since he vowed to refuse anyone appointed by the scandal-ridden Illinois governor, Rod Blagojevich. But Reid may not have a choice.

Reid met with Burris yesterday. He seems to have warmed up to the possibility of seating him in the Senate if the lawyers can work things out. And if that happens, Harry Reid will look sillier than he already does in this.

Reid was also shooting from the lip on the still-disputed Minnesota Senate race. He said, quoting here, "Norm Coleman will never, ever serve again in the Senate."

Really? What if a court decides otherwise?

Yesterday, he told his fellow senators to cancel their travel plans for the weekend, vowed a weekend vote on only the second day of the legislative session.

Harry Reid, busy fellow.

Here's the question. Senate Majority Leader Harry Reid says he doesn't work for Barack Obama. Is he right?

Go to cnn.com/caffertyfile, post a comment on my blog.

I don't know if he's right or not. He's annoying -- Wolf.

BLITZER: All right, Jack. Thank you.

The cabinet confirmation process is under way, with health reform in the spotlight.

(BEGIN VIDEO CLIP)

SEN. EDWARD KENNEDY (D), MASSACHUSETTS: Reform is urgently needed, and Tom Daschle is just the person for the job.

(END VIDEO CLIP)

BLITZER: The health secretary nominee Tom Daschle telling his former colleagues he'll learn from Bill Clinton's mistakes.

Plus, new evidence surfacing of Sarah Palin's big beef with the news media. Is she taking her anger out on Caroline Kennedy?

And later, the economic crisis takes the ultimate toll -- stress, depression and even suicide. Crisis centers are on alert right now.

Stay with us. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: All right. These are live pictures you're seeing from Springfield, Illinois. That's Roland Burris. He's slated to become the next junior senator from Illinois, succeeding Barack Obama. He's testifying on these impeachment hearings going against the man who proposed that he become the next senator, the governor, Rod Blagojevich.

We're monitoring what's happening at these hearings and we'll update you as they continue. Stand by for that.

Meanwhile, take a look at this. This is a man who wants to improve your health care, Tom Daschle. We'll show you a picture of him right now, the man who spent almost 20 years in the U.S. Senate, eventually becoming the Senate majority leader.

He faced senators today as he tries to become the next secretary of Health and Human Services. Daschle's confirmation hearings began today up on Capitol Hill.

Our Congressional Correspondent Brianna Keilar is covering the hearings for us up on Capitol Hill.

Got a pretty warm welcome there today, didn't he, Brianna?

BRIANNA KEILAR, CNN CONGRESSIONAL CORRESPONDENT: By Democrats and Republicans alike, Wolf. Daschle has been a leading voice for health care reform, but more important, he knows Congress, where many past attempts at reform have failed.

(BEGIN VIDEOTAPE)

KEILAR (voice-over): Tom Daschle, the man tasked with carrying out President-elect Obama's promise to overhaul the health care system, was welcomed to his confirmation hearing by Ted Kennedy. The lion of the Senate back on the Hill, despite an ongoing battle with brain cancer. His singular focus, making expanded health care coverage his legacy.

SEN. EDWARD KENNEDY (D), MASSACHUSETTS: Reform is urgently needed, and Tom Daschle is just the person for the job.

KEILAR: After meeting with Americans all over the country talking about their concerns, Mr. Obama's pick for Health and Human Services secretary delivered an urgent message to Congress.

TOM DASCHLE, HEALTH AND HUMAN SERVICES SECRETARY NOMINEE: The flaws in our health system are pervasive and corrosive. They threaten our health and economic security.

KEILAR: He told the Senate Health Committee those flaws are a drag on the health of Americans, but also on the economy.

DASCHLE: The people at General Motors once told us they actually spend more on health care today than they do on steel. The folks at Starbucks told us that spend more on health care than they do on coffee, and that the American family spends more on health care than they do on virtually any other thing but rent.

KEILAR: Daschle spelled out the Obama plan: lower health care costs, increased access to coverage for the 70 million uninsured or under-insured Americans, and improve the quality of care insured Americans receive. He said tackling the often divisive issue of health care reform will mean reaching across the aisle.

Vouching for Daschle, his former Senate colleague, Republican Bob Dole, who introduced Daschle at the hearing.

BOB DOLE (R), FMR. PRESIDENTIAL CANDIDATE: We have a nominee who understands bipartisanship is best in the long range even though with a big Democratic majority, he may not need Republicans.

(END VIDEOTAPE)

KEILAR: It was Senator Kennedy's hope to start working on health care reform here in the opening weeks of Congress, but with the economy being the major focus, and major spending needed to fix it, Wolf, there's a realization the timeline could be longer. Maybe here in several months.

BLITZER: All right. Thanks very much, Brianna, watching the story.

Barack Obama says Daschle's background makes him the right man to help improve your health care. Daschle is the only person ever to be majority leader and minority leader twice. He co-wrote a book entitled "Critical: What Can We Do About the Health Care Crisis?" And he was a special policy adviser, particularly on health care issues, for the lobbying law firm Alston & Bird. His clients include Abbott Industries, HealthSouth, and CVS Caremark.

In a new interview posted to YouTube, Governor Sarah Palin blasts the news media and has her eye on the coverage of Caroline Kennedy.

Let's go to our Internet reporter Abbi Tatton for more.

Abbi, what exactly does Governor Palin say?

ABBI TATTON, CNN INTERNET REPORTER: Wolf, Governor Palin says if she had been on a Democratic ticket, or from a more elite social class, she would have been treated differently by the media. And because of that, she says, she's watching Caroline Kennedy's treatment carefully.

(BEGIN VIDEO CLIP)

GOV. SARAH PALIN (R), ALASKA: I've been interested also to see how Caroline Kennedy will be handled, and if she'll be handled with kid gloves, or if she will be under such a microscope, also. It's going to be interesting to see how that plays out. And I think that as we watch that, we will perhaps be able to prove that there is a class issue here.

(END VIDEO CLIP) TATTON: Wolf, that interview is with conservative filmmaker John Ziegler for an upcoming documentary, and in it, Palin also tackles the infamous Katie Couric interviews, blaming her own campaign for making her do them.

(BEGIN VIDEO CLIP)

PALIN: I knew it didn't go well the first day, and then we gave her a couple of other segments after that. And my question to the campaign was, after it didn't go well the first day, why were we going to go back for more? And because however it works in, you know, that upper echelon of power brokering in the media, and with spokespersons and -- it was -- told me that, yes, we were going to go back for more. And going back for more was not a wise decision either.

(END VIDEO CLIP)

TATTON: That was an interview "TIME" magazine ranked the top video moment of the campaign -- Wolf.

BLITZER: Abbi, thanks very much.

In a few weeks from now, many American television watchers could be staring at a virtual TV blackout. But Barack Obama wants to stop that from happening so soon.

Stand by for details.

And shattered windows and shaken up citizens. A strong earthquake rocks one city, sending people running for their lives.

Stay with us. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: It looks like there may be a major breakthrough developing at the United Nations Security Council, where they're meeting in emergency session on the situation in Gaza.

Our Senior U.N. Correspondent Richard Roth is standing by with details.

What's going on, Richard?

RICHARD ROTH, CNN SR. U.N. CORRESPONDENT: Wolf, several diplomats have told us an agreement has been reached among the 15- nation Security Council, but certainly the key players in this, French, U.S., Britain on one side, and the big Arab bloc on the others, a resolution that may go some ways towards ending this conflict, but it's not known whether Hamas or Israel would abide by the terms.

The wording, as usual, complicated. You could be a Supreme Court law clerk and never figure these things out because they have to stand up to the test of history. But in the key wording, which there was disagreement for days, this Security Council is prepared to vote on a resolution that would call for and stress the need for the urgency of an immediate, durable and fully respected cease-fire. And then, thus, if fully respected, it would lead to full Israeli withdrawal.

It seems to put a little bit more of the pressure on Hamas first to abide this and cease the firing of rockets into southern Israel before Israel would then shut down its forces. Still, a very big open question.

If there's a vote, it could happen today. The French are very interested in delaying things to give President Sarkozy more time for his Egyptian/French peace proposal that's running through Cairo to succeed -- Wolf.

BLITZER: What does it say, if anything, Richard, about international or United Nations monitors coming in to Gaza to make sure that the cease-fire is, in these words, durable?

ROTH: I can't tell you much on the monitoring part. We'd have to see the fine print when we get through it. I don't see it in the initial read. It could be there in the fine print.

Both parties have been hesitant, some times asking for -- Israel's very leery of the U.N., too heavy involvement, but they did accept all those peacekeepers. They like the fact that they were in southern Lebanon to end the Hezbollah fighting.

We'll update you as we get it.

BLITZER: Thanks, Richard, very much.

Potentially a very significant development.

(NEWSBREAK)

(COMMERCIAL BREAK)

BLITZER: To our viewers, you're in THE SITUATION ROOM.

Happening now, many Americans don't understand it or want it, so why is the electoral college still around? We'll tell you why you might not want to see it go.

Barack Obama says they'll have to pry his blackberry out of his hands. He's not giving up without a fight.

And in Oakland, California right now, violent riots erupting over a shooting at a train station.

I'm Wolf Blitzer, you're in the situation room. All that coming up, but we want to return to our top story right now.

In a major speech today, President-elect Barack Obama essentially said if you think you're struggling now in this economy, your cash situation could be even worse if something isn't done and isn't done fast. Yet, some lawmakers are questioning what President-elect Barack Obama wants to do. Let's get some reaction from the Republican opposition. Joining us now, Congressman Eric Cantor of Virginia. He's the second highest- ranking Republican in the House of Representatives.

Congressman Cantor, thanks very much for coming in.

REP. ERIC CANTOR (R-VA), HOUSE MINORITY WHIP: Thank you, Wolf.

BLITZER: In a nutshell, what you heard from the president-elect today, are you happy or not so happy?

CANTOR: Well, you know, Wolf, I have a lot of concerns. I will tell you, though, that the president-elect has said he wants to work in a bipartisan fashion. He wants us to present ideas to him about how we can turn this economy around. But I'll tell you, what I heard today just gives me a great bit of concern.

We're talking about spend a trillion dollars. The president- elect has said that out of that trillion dollars, we'll see over three million jobs created. At that rate, it's almost $330,000 per job cost if that's what we're going to do.

It's a tremendous expansion of government if you look and listen to what he's saying. We still don't know the details though, Wolf, and that's really what's very troubling. Where is this money going?

We all know where it's coming from. And it's going to be on the backs of our children, the future generations of this country. So, again, we have a lot of concerns, but certainly willing to -- to take a look and try and see if we can get this economy moving again.

BLITZER: He says this -- this may be the worst economic crisis facing the United States certainly since World War II, maybe since the Great Depression. And he's inheriting, as you know, a $1.2 trillion annual budget deficit right now. That's unheard of. It's amazing.

Is he overexaggerating the dire circumstances facing the U.S. economy right now?

CANTOR: There's no question that fear is gripping the American people. Families -- every family knows someone. If they don't have a job, they know someone that's out of a job.

So, we need to keep that in mind as we go about trying to come up with a -- a package that will actually produce long-term results. And, remember, a stimulus package should be focused on preservation, protection and the creation of jobs. To me, that's what a stimulus bill does.

So, what is concerning me right now is the staggering number that is coming out of the president-elect's folks about what we're going to spend. Where is that money going? How can it all be going to some type of medical records systems, or whether it's green jobs? I'm just having some difficulty understanding how all that money is going to result in people deciding that we need to get back up and start investing again, how are we going to get banks lending again. BLITZER: Right.

CANTOR: These are the questions I think need to be asked.

BLITZER: Well, he did have a proposal in there for a tax cuts. Republicans almost always love tax cuts. Listen to this specific proposal he -- he unveiled today.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT-ELECT: To get people spending again, 95 percent of working families will receive a $1,000 tax cut, the first stage of a middle-class tax cut that I promised during the campaign and will include in our next budget.

(END VIDEO CLIP)

BLITZER: Does that work for you?

CANTOR: What works for me, Wolf, is meaningful tax relief.

I'm for giving 100 percent of the taxpayers a tax cut. What the president-elect is talking about, frankly, is spending, because, as we know, there's a little over 40 percent of the individuals in this country that don't pay taxes. And the way you get to giving 95 percent of the people of this country a tax cut is, you essentially write a check from the federal government. That's spending.

And -- and the real question is, if we're going to engage in government spending, what is the test? To me, the test ought to be, we should focus on protection, preservation, and creation of jobs.

I am fearful that what he is talking about is a one-time shot, much like that occurred last year. That stimulus didn't work. We have got to be much smarter in terms of how we direct our efforts and, frankly, how we curb the spending, because we're talking about spending a lot of money here.

BLITZER: Listen to this other proposal he unveiled today, in terms of helping those who lose or don't have a job. Listen to this.

(BEGIN VIDEO CLIP)

OBAMA: To help Americans who have lost their jobs and can't find new ones, we'll continue the bipartisan extension of unemployment insurance and health care coverage to help them through this crisis.

(END VIDEO CLIP)

BLITZER: Are you fine with that?

CANTOR: Well, you know, I think we ought to -- we ought to take stock in the fact that many, many people in this country have lost their jobs, extraordinary numbers. And, unfortunately, we're going to hear them go even higher. And I do think that we ought to provide the bridge for those families. We can provide some tax relief, so that we exempt unemployment benefits from taxes as well. There is certainly a role to be played there to help people get back on their feet.

BLITZER: Eric Cantor is the second-ranking Republican in the House.

The -- you have got a tough job ahead of you. Thanks very much for coming in.

CANTOR: Wolf, thank you.

BLITZER: Amid the global cash crisis, the vast majority of the people hurting are doing whatever they can to survive, but there are some people out there who feel so strapped and so hopeless, they feel there's simply no way out.

Let's go to Brian Todd. He's looking at this story for us.

It's pretty depressing, Brian, what's going on.

BRIAN TODD, CNN CORRESPONDENT: It certainly reflects a desperation, Wolf. We have seen it repeatedly as this financial crisis has progressed. And experts say it may go on, touching potentially anyone, from single homeowners to the top of the financial chain.

(BEGIN VIDEOTAPE)

TODD (voice-over): Overleveraged German billionaire Adolf Merckle steps in front of a train. Despondent Chicago real estate mogul Steven Good shoots himself to death in his Jaguar. Fund manager Rene-Thierry Magon de la Villehuchet slits his wrist in his office, after reportedly losing more than a billion dollars in Bernard Madoff's alleged Ponzi scheme, all apparent suicides seemingly tied to the financial crisis.

An MIT professor who studies the psychology of finance says the stress of losing a lot of other people's money was just one factor.

ANDREW LO, PROFESSOR OF FINANCE, MASSACHUSETTS INSTITUTE OF TECHNOLOGY: For a number of these individuals, the unfortunate truth is that their loss of status and -- and reputation is, you know, virtually, you know, impossible to live with, which is why they chose the way out they did.

TODD: But this goes way beyond the high-stakes players. As the crisis has deepened over the fall and winter, there have been repeated stories in the news of people killing themselves while on the brink of home foreclosure or some other financial meltdown.

Officials at the government's top mental office tell us calls to the suicide prevention hot line went way up last year, their crisis centers reporting a significant number of people saying economic stress was the reason they called. Experts say financial worries can easily trigger depression, helplessness and anxiety.

LO: This strongest kind of far is fear of the unknown. And the fact is that this financial crisis is all about things that most typical Americans don't understand.

TODD: But one financial historian says those stories of people jumping out Wall Street windows during the Great Depression are largely myth, and during most periods of financial strain:

JOHN STEELE GORDON, FINANCIAL HISTORIAN: They tend to go back to bad habits that they had broken previously. They start smoking again or, you know, alcoholics go back on the bottle, after having given it up. And that's very understandable under very stressful conditions.

(END VIDEOTAPE)

TODD: Many experts we spoke say it may be difficult, but people have to keep in their minds that this financial decline will go on for a while, but, when you are feeling that kind of stress or loss of self -- self-esteem, triggered by a financial setback, look for ways to externalize it.

You have got to seek therapy, talk it out with anyone who is around you. In some of these reported suicides, Wolf, people kept their financial setbacks a secret, even from family members, until the very, very end.

BLITZER: This is all so, so depressing.

All right, Brian, thanks very much.

Meanwhile, a new warning that the state of California could -- quote -- "go off a cliff." It's not an earthquake prediction we're talking about. It's the economy. It's an SOS about Governor Arnold Schwarzenegger's desperate budget crisis that is unfolding right now.

Plus, when Barack Obama appeared at the Democratic Party headquarters just a short while ago, many were wondering, where's Howard Dean? Questions about bitter feelings within the party, that's coming up in our "Strategy Session."

And the president-elect now says his aides are going to have to pry his BlackBerry out of his hands. Is this a fight the next commander in chief is destined to lose? We will tell you what's going on -- right here in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: In Illinois right now, state lawmakers are moving toward a vote on whether to impeach the governor, Rod Blagojevich. The impeachment committee is hearing testimony from the governor's disputed choice to fill Barack Obama's former Senate seat, the same seat he's accused trying to sell to the highest bidder.

CNN's Susan Roesgen is working the story for us in Chicago.

Susie, what are we hearing from Roland Burris on this day?

SUSAN ROESGEN, GENERAL ASSIGNMENT CORRESPONDENT: Well, he's getting a pretty good grilling right now, Wolf. He's being grilled by the head of the Republicans in the statehouse.

This -- this committee wants to know about any financial connections between Burris and the governor, wants to know about previous lobbying, wants to know about consulting fees, wants to know whether there was a pay-to-play scheme going on, whether in any way his appointment was tainted by the governor.

So, here, you're going to hear some of this grilling that he's getting here from Representative Jim Dixon (ph).

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: All right.

At any time, were you directly or indirectly aware -- aware of a quid pro quo with the governor for the appointment of this vacant Senate seat?

ROLAND BURRIS, FORMER ILLINOIS ATTORNEY GENERAL: No, sir.

UNIDENTIFIED MALE: (OFF-MIKE) arrested, had you had any conversations with the governor about your desire to be appointed to the seat?

BURRIS: No.

UNIDENTIFIED MALE: OK.

(END VIDEO CLIP)

ROESGEN: Now, what's important there, Wolf, is that Roland Burris told this committee earlier that he had expressed an interest in Barack Obama's Senate seat as soon as he realized that Barack Obama was going to win the Democratic nomination, but he says he didn't talk to anybody about that and he didn't talk to the governor about that until the governor approached him, he says, through one of the governor's lawyers after the governor was arrested.

So, again, they're talking to Roland Burris right now. And this is important for his U.S. Senate seat, whether he will be approved or not, but, of course, Wolf, in the end here, the big fish that this committee is angling for is Governor Blagojevich himself. And they may decide today to vote on whether or not to recommend impeachment to the full statehouse, after they finished speaking to Roland Burris -- Wolf.

BLITZER: Impeachment hearings under way, as you say, right now in Springfield, Illinois.

Susie, thanks. Also right now, the California governor, Arnold Schwarzenegger, is desperately trying to get budget negotiations back on track. He's racing against the clock, amid fears that this state could simply run out of money in only a few weeks -- weeks.

CNN's Thelma Gutierrez is following the story for us.

How desperate, Thelma, is this situation?

THELMA GUTIERREZ, CNN CORRESPONDENT: Wolf, it's a mess.

Let's put it this way. The governor says that, if they don't pass a budget within the next three weeks, the state will -- quote -- "go off a cliff." They're already looking at issuing IOUs and possibly even delaying state tax refunds.

(BEGIN VIDEOTAPE)

MILDRED COPELAND, RESIDENT OF CALIFORNIA: And would you like hash browns or home fries?

GUTIERREZ: Mildred Copeland is a waitress in Toluca Lake, California. She's 84. And she's upset that she and other California taxpayers may not get their state tax refunds in time.

COPELAND: When they need it, they will get it, right? So, why shouldn't we? If we work for it and we pay it in, we should be able to get it back.

GUTIERREZ: Mildred says she doesn't really understand how budgets are passed in Sacramento, but, right now, she doesn't like what she's hearing.

GOV. ARNOLD SCHWARZENEGGER (R), CALIFORNIA: In a matter of weeks, California, which is the eighth largest economy in the world, will run out of cash and start issuing IOUs to the people that it does business with. And, also, it would also delay refunds to our hardworking taxpayers.

GUTIERREZ: Desperate measures for desperate times. Governor Schwarzenegger says the state is facing a $42 billion deficit. Any way you look at it, balancing the budget is going to be painful.

UNIDENTIFIED FEMALE: It is already affecting our district and our schools.

GUTIERREZ: In fact, the Los Angeles Unified School District already has sent letters out to hundreds of employees, warning of layoffs.

RAMON CORTINES, SUPERINTENDENT, LOS ANGELES UNIFIED SCHOOL DISTRICT: What is devastating to us is that decisions are not being made in Sacramento, so that we can begin the process and we can plan in an orderly way.

GUTIERREZ: The governor says, that's because Democrats and Republicans have hit an impasse, with neither side willing to budge.

So, he proposed a plan with a 10 percent cut across the board.

UNIDENTIFIED PROTESTERS: Working families first!

GUTIERREZ: Across the state, Californians are protesting. The governor wants to cut $17.4 billion from education, health and human services, and prisons, which the Democrats don't like. He also hopes to raise more than $14 billion in revenues by increasing state sales tax, something that makes Republican cringe. And his proposal would ease environmental regulations to get the state's infrastructure projects going, which could generate 20,000 new jobs.

Mildred says, she's just trying to hang on to her job, while hoping the state's legislators do theirs.

(END VIDEOTAPE)

GUTIERREZ: And it looks like they have already started. As we speak, the governor's office says, the governor is meeting with leaders from both parties to try to reach some kind of a resolution. If they don't, Wolf, by February 1, those IOUs will go out, in lieu of salaries.

And guess with who they're going to start with? The state comptroller's says they will with the state's legislators.

BLITZER: Wow.

(CROSSTALK)

BLITZER: All right, this is really shocking stuff.

We're going to speak, by the way, in the next hour with Antonio Villaraigosa, the mayor of Los Angeles. He's deeply involved in this crisis as well.

Thanks, Thelma, for that report.

Barack Obama says he wants to unite lawmakers for the good of the country, but might his proposals turn off some Democrats and force him to reach out to Republicans? That's coming up in our "Strategy Session."

And the president-elect suggests, nobody -- nobody is going to come between him and his BlackBerry. But should the next leader of the free world be allowed to keep something that could, in theory -- in theory -- be hacked?

Stay with us. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: Howard Dean is credited with coming up with the 50- state strategy that certainly helped propel the Democrats to big wins this past election, as well as in 2006. So, why wasn't he today's handing-off-the-torch affair over at the DNC headquarters? The new DNC chairman, Tim Kaine, the governor of Virginia, coming in.

Joining us now in today's "Strategy Session," our CNN political contributor and Democratic strategist Donna Brazile and the conservative commentator Terry Jeffrey. He's also editor in chief of the Cybercast News Service.

Donna, it was sort of strange that Howard Dean wouldn't be at that event with Barack Obama and Tim Kaine today.

DONNA BRAZILE, CNN POLITICAL ANALYST: Well, Governor Dean is on a plane to American Samoa, where he will celebrate the inaugural of a governor there.

But, as you well know, Wolf, president-elect Obama praised Howard Dean for a terrific job that he did at the DNC. He has been a great chair. He has elevated the Democratic National Committee. He has earned the respect of just about every Democrat in the country.

And I think it's important to understand that, as we go forward, Tim Kaine will build upon the success of Howard Dean, and the DNC will be prepared for all of the fights of the 21st century.

BLITZER: Because, as you know, Terry, there's already been murmurings out there about some of the past history involving the Governor Howard Dean and the incoming White House chief of staff, the former congressman, Rahm Emanuel. They disagreed on that so-called 50-state strategy.

TERRY JEFFREY, EDITOR IN CHIEF, CYBERCAST NEWS SERVICE: Yes.

You know, Wolf, the Washington establishment of the Democratic Party never did like Howard Dean. And it's an ironic thing, because there's only one objective measure of a party chairman, and that's winning elections.

And, when Howard Dean came in as the DNC chair in early 2005, the Democrats had just been wiped out in the '04 elections. The Republicans controlled the White House. They controlled the Congress. Four years later, they now control the White House and the Congress. And the guy was chairman of the party the whole time.

But, all along, when he was chairman, he was in a conflict with Rahm Emanuel, who ran the DCCC during that 2006 election, ended up getting the lion's share of the credit for the Democrats taking back the House of Representatives. He was in conflict with Chuck Schumer, who ran the Senatorial Campaign Committee for the Democrats. Harry Reid didn't like him. Nancy Pelosi didn't like him.

So, this guy may have been a prophet who was not honored in his own political party.

(LAUGHTER)

BLITZER: What do you say about that, Donna?

BRAZILE: Well, no -- there's no question that Howard Dean was an unsung hero of many of the great successes of the Democratic Party.

But, yes, there was disagreement on -- on the strategy, but there was never any disagreement on the goal. And the goal was, of course, to help Democrats win back the House and Senate, which Howard Dean worked tirelessly for to -- to meet that goal.

But, Wolf, as -- as we go forward, again, this -- this is not an administration that's going to spend any of its time looking back. This administration and president-elect Obama signaled that today with the selection of Tim Kaine. They're going to look forward to build upon all of the great achievements that Howard Dean has laid down.

And let me just say something. We talk a lot about Howard Dean. And he deserves a great deal of credit. But there are many men and women over at the DNC that have done a great job. They have sacrificed. They have left their family, left their homes. They have went out there, worked for Barack Obama. And I want to congratulate them, too. They deserve a lot of credit, as well.

BLITZER: Should I be surprised, Terry, that Howard Dean is not going to -- at least as of right now, not going to be in the Cabinet, or a top position in the incoming Obama administration? I don't know if he wants a job or he doesn't want a job, but it's clear that his name has not yet surfaced.

JEFFREY: You know, I think it is surprising -- it's it's not surprising, Wolf, but it does show that they -- they really don't like this guy.

And I think there's another irony there. Part of Howard Dean's success as Democratic Party chairman is, he really had an appeal to the liberal grassroots of the Democratic Party. He energized the grassroots. He was able to get them to contribute money from the grassroots.

And I think -- I don't think Tim Kaine's really going to have that same power. And I think the Democrats better be careful going forward that they -- that don't -- they don't forget the person, the people who brought them here, which is the base of their own party.

BRAZILE: Well...

BLITZER: Well, let's not underestimate Tim Kaine...

BRAZILE: Absolutely.

BLITZER: ... the governor of Virginia. He has really done some dramatic work for the Democrats in the Commonwealth of Virginia, two Democratic senators, a Democratic governor, and the first time in 50 years the state of Virginia goes for a Democratic presidential candidate.

So, he's -- he's got some -- something to brag about already, Donna.

BRAZILE: And, thank you, Wolf, because Tim Kaine is also a visionary.

Howard Dean led the Democratic Party out of the wilderness. And Tim Kaine will help lead us, along with president-elect Obama and many, many others, into the 21st century, so that -- that we are a party that will reach out to all Americans, regardless of party affiliation. And we're a party, as president-elect Obama said today, of problem-solvers.

So, I'm looking forward to the DNC meeting on January 21. And, of course, I'm still a -- I'm still a DNC member. And I will cast my vote for Tim Kaine.

BLITZER: I -- I know you would.

(LAUGHTER)

BLITZER: All right, Donna, Terry, guys, thanks very much.

JEFFREY: Not me.

(LAUGHTER)

BLITZER: Barack Obama...

BRAZILE: Terry, you're invited to the party, OK?

(LAUGHTER)

BLITZER: All right. Thank you.

(LAUGHTER)

BLITZER: Barack Obama is rolling out a very large welcome mat for his inauguration -- how the president-elect is trying to make his big day diverse in more ways than one.

And a new shot across the bow about the president-elect's choice for attorney general of the United States. Will Eric Holder's nomination be held up?

And new fears right now that Israel is facing potentially a two- front war, as the U.N. pushes very hard right now for a cease-fire.

Stay with us. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: Let's check in with Jack Cafferty once again. He has "The Cafferty File" -- Jack.

JACK CAFFERTY, CNN ANCHOR: The question this hour: Senate Majority Leader Harry Reid says he doesn't work for Barack Obama. Is he right?

Jack in Washington writes: "Jack, Harry Reid is really getting out of control. For the past couple of years, Pelosi and Reid have been headlining the Democratic agenda in Congress, and it seems as if they are having a hard time coming to terms with the fact that there is now a new sheriff in town, Reid more so than Pelosi."

Barb in Florida writes: "No I don't think so. He seems to dance to his own drummer, and from what I see he has about as much rhythm as George W. Bush. It's not a pretty picture."

Judy writes: "Somebody needs to put duct tape over this guy's mouth. Methinks Harry Reid doesn't like change too much. I hope Harry gets used to it soon, because he works for the voters, and the voters said that Obama is the commander in chief. Enough said."

John writes: "He's probably right that he doesn't work for Obama. But that's not his problem. He thinks he's self-employed and answerable to no one. And that's everybody's problem."

Billy in Las Vegas writes: "'Hands Up' Harry Reid is an embarrassment to my state and the Democratic Party, talks tough, but then flip-flops all the time, as in the latest in the Roland Burris situation. He's the Senate point man for future President Obama's programs, so he better change his attitude real quick, or we will end up with yet another do-nothing Congress, while the American people suffer. By the way, Jack, most Democrats I know here in Nevada can't stand the guy."

June in New York writes: "The better question is, does Harry Reid work? Every time he opens his mouth, he proves himself to be an idiot. The man is a joke. He needs to pack it in."

And Edith in Coral Gables, Florida, wants to know, "Do you work for Wolf Blitzer, Jack?"

You bet I do, Edith. I am Wolf's man Jack.

If you didn't see your e-mail, you can go to my blog at CNN.com/caffertyfile, and look for yours there, among hundreds of others.

Did you tape the Ellen DeGeneres show yet?

(CROSSTALK)

BLITZER: We're going to tape it later tonight out here in Los Angeles. It's going to be exciting. It's going to air Monday. I'm a little nervous about it, Jack.

But you don't work for me. You work for CNN. And we're proud to have you working at CNN, because you're a very good man.

CAFFERTY: Well, thank you, Wolf. You're quite an attractive gentleman yourself.

(CROSSTALK)

(LAUGHTER)

BLITZER: Thank you.

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

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