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Economy Hemorrhaging Jobs; We're Delaying Justice; President Obama Put to the Test; Best Fix for the Economy; Help-Wanted Sign Still Hanging; Polls Cooling, Talk Heats Up

Aired February 6, 2009 - 17:00   ET

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


WOLF BLITZER, CNN ANCHOR: Happening now, another month of horrible job losses.

But could the bad news be just what President Obama needs politically?

He's seizing on the numbers. He's increasing the pressure to pass the stimulus plan.

Also, new raids tightening medical marijuana -- the very raids candidate Obama says he opposed.

Are federal drug officials thumbing their noses at the new administration?

And your cell phone possibly helping to fund a brutal and deadly civil war thousands of miles away. It has one American rock band singing a new tune.

I'm Wolf Blitzer.

You're in THE SITUATION ROOM.

It's the hemorrhaging that just won't stop. The latest jobs numbers are out and they're worse than almost anyone expected, adding a new sense of urgency to the battle over President Obama's stimulus plan.

Take a look at this -- 598,000 jobs cut in January. That's the highest number in 34 years -- 1.8 million jobs lost in the last three months alone and the national unemployment level now at 7.6 percent. That's the highest level in almost 17 years.

Let's go to our senior White House correspondent, Ed Henry.

He's working the story -- Ed.

ED HENRY, CNN CONGRESSIONAL CORRESPONDENT: Well, Wolf, the president pounced all over these awful job numbers today, using it to roll out a new economic recovery advisory board. It's going to be run by former Fed Chairman Paul Volcker. Other heavyweights, as well, on this board who've previously helped guide the nation through other economic crises.

And the president also used the numbers to once again state that it's urgent -- that there be no delay, no distractions, as he put it -- to stopping his economic recovery plan on Capitol Hill.

What's interesting is that for the third straight day, he used the word catastrophe to warn about what would happen if there's no action.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: If we drag our feet and fail to act, this crisis could turn into a catastrophe. We'll continue to get devastating job reports like today's -- month after month, year after year. It's very important to understand that although we had a terrible year with respect to jobs last year, the problem is accelerating, not decelerating. It's getting worse, not getting better.

(END VIDEO CLIP)

HENRY: There are Republicans, however, like Bob Corker of Tennessee, today saying in the Senate that they feel just as strongly as the president on the other side of this issue.

Bob Corker saying that a time when you've got a $1.2 trillion budget deficit, you can't pile another $800 billion or $900 billion on top of that.

Part of the reason why the president, next week, is going to be hitting the road. On Monday, he's going to Indiana, to an area that's seen unemployment just spike from 5 percent to 15 percent. On Tuesday, he's going to Fort Myers, Florida -- another place that has really seen unemployment soar.

And, of course, Monday evening, the president is going to be holding his first news conference. It's going to be in prime time, 8:00 Eastern -- yet another chance for him to send the message that he needs this economic recovery plan -- Wolf.

BLITZER: All right. We're going to keep watching to see what's happening.

Also, Ed, on the Senate floor, will there be a vote to end debate right now?

Do the Democrats have the 60 votes necessary to do so?

It's tough and go, as we speak right now.

There's another, though, important issue facing the president of the United States. It involves the closing of the U.S. naval base prison over at Guantanamo Bay in Cuba.

Brian Todd is talking to some members -- some families members -- victims of 9/11 and the USS Cole who are concerned about what might happen to some of those suspected terrorists -- Brian, what are you picking up?

BRIAN TODD, CNN CORRESPONDENT: Well, Wolf, we're told that the president just got out of a meeting with relatives of 9/11 victims and victims of the USS Cole bombing. No decision, based on that meeting, on how to dispose of the cases of the terror suspects allegedly involved in those attacks, we're told.

Now, the president has bought himself some time to decide how to treat those terror suspects in U.S. custody. But his options are very complicated. And one new order regarding one Guantanamo detainee does have victims' families questioning this process.

(BEGIN VIDEOTAPE)

TODD (voice-over): As he weighs legal options for dealing with the most notorious terror suspects, President Obama brings victims into the loop -- a closed White House meeting with 9/11 families and relatives and victims of the USS Cole bombing. The Cole attack victims are already upset with the government's decision to drop charges against Guantanamo detainee Abd al-Rahim al-Nashiri -- a top suspect in the 2000 bombing in Yemen, which left 17 sailors dead.

CMDR. KIRK LIPPOLD (RET.), FORMER USS COLE COMMANDER: When you look at the families that have already had to suffer as a result of the war on terror, we do not want to prolong that suffering simply for the sake of this decision to drop charges. And that's what we're doing. We're delaying justice.

TODD: Al-Nashiri is not being released, but he was going to be arraigned this coming Monday. The judge in his case had not complied with the president's order to delay trials for top terror suspects for four months while their cases are reviewed.

Dropping al-Nashiri's charges without prejudice simply makes his case fall in line with the others. And he still could be prosecuted later.

To the Cole families' claim that justice for their loved ones is being delayed...

ROBERT GIBBS, WHITE HOUSE PRESS SECRETARY: The act that the Cole families are -- were affected by, happened in 2000. We've not yet seen justice brought now in 2009 to Mr. Al-Nashiri.

TODD: Robert Gibbs says it's the president's main concern to bring swift justice to detainees.

What are his options?

PROF. SCOTT SILLIMAN, DUKE UNIVERSITY LAW SCHOOL: The Obama administration may decide to send these cases to our regular federal courts, courts-martial or perhaps asking Congress to create a national security court. They could be tried in any of those forums. But it was important that the military commissions at Guantanamo Bay be suspended so that there would never be a problem with double jeopardy attaching.

(END VIDEOTAPE)

TODD: That's, of course, the legal term for a defendant being tried twice for the same crime on the same set of facts, which is not allowed in the U.S. court system.

But as al-Nashiri, 9/11 mastermind Khalid Sheikh Mohammed and other terror suspects sit in legal limbo at the moment, they are still being held at Guantanamo until a decision is made to possibly send them somewhere else -- Wolf.

BLITZER: There's one option for the national security court, as it's called.

How would that work?

TODD: Well, Scott Silliman of Duke University Law School, who we interviewed for the piece, says it would be created by Congress under Article 1 of the Constitution. But he says that idea for the security court is a little bit flawed. That kind of court might have less due process than normal federal courts and might not be recognized internationally. He says it might just look like another version of the current military commissions.

BLITZER: Brian Todd, thank you very much.

And the Pentagon, by the way, says 520 detainees have been released from Guantanamo since 2002, with some returning to their native countries; others transferred to third countries willing to take them in. Sixty-two of them are now suspected of committing new terrorist acts since their release. Twenty-five of those incidents have occurred in the last 10 months.

Jack Cafferty is here once again with The Cafferty File -- Jack.

CAFFERTY: I don't have to tell you this, the U.S. economy is in its worst shape since the recession of the 1970s and soon could match the Great Depression of the '30s. So says the CEO of General Electric. Jeff Immelt says that unlike other downturns in the past, this one is faced with limited liquidity. And he stressed that governments around the world are going all in and firing as many bullets as they can in an effort to stimulate their economies.

Immelt says: "Eventually, government always wins."

I hope he's right.

Immelt says it's important to move forward quickly with a large stimulus package than to worry about the details.

Congress, are you listening?

There's more. Another top economic mind, the co-chief investment officer of Pacific Investment Management Company, that would be PIMCO, says the United States might head into a mini depression unless government spends trillions of dollars.

That's trillions with a T.

Bill Gross told Bloomberg TV: "There's a potential catastrophe if the U.S. government continues to focus on billions of dollars." So while Congress bickers about mere hundreds of billions, two of the brighter bulbs in the private sector suggest it's going to take much more.

Gross says the Fed's going to have to start buying Treasuries -- a lot of them -- because some think that as China's economy slows, it's going to start buying less and less of our debt.

Goldman Sachs estimates government borrowing will reach $2.5 trillion this fiscal year.

Meanwhile, these grim assessments come right before today's report that employers cut another 598,000 jobs in January -- the worst job loss since December of 1974, bringing the nation's unemployment rate to 7.6 percent.

Happy Friday.

Here's the question -- is the U.S. government capable of heading off a full blown depression?

Go to CNN.com/caffertyfile, where you can post a comment on my blog -- Wolf.

BLITZER: Jack Cafferty, thank you.

And Jack's question is just one of many in the debate over President Obama's stimulus plan.

We're going to get some expert analysis -- a fact check, if you will -- from a top economist. He's standing by live to answer some tough questions about what really needs to be done and what can be done.

Also, the latest Web innovation from Google -- it's raising some serious concerns about your privacy.

And new raids on medical marijuana -- the very kind of raids President Obama said he opposes.

So why are they still happening?

Stay with us.

You're in THE SITUATION ROOM.

(COMMERCIAL)

BLITZER: Week three of the Obama presidency dominated by his economic stimulus package and bumps in the road to cabinet confirmation.

Here's CNN's Don Lemon.

(BEGIN VIDEOTAPE)

UNIDENTIFIED MALE: And the clerk will read our communication to the Senate.

DON LEMON, CNN CORRESPONDENT (voice-over): The fervent stimulus debate all week from Congress begins with Republican dissent.

SEN. JOHN MCCAIN (R), ARIZONA: We'd like to see payroll tax cuts.

LEMON: Tax problems persist for two Obama cabinet nominees -- Tom Daschle and Nancy Killefer.

Monday, this mea culpa from Daschle.

TOM DASCHLE, FORMER SENATOR: And I deeply apologize.

LEMON: And by Tuesday, whammo -- Daschle and Killefer both bow out -- a low point, admittedly, for the president.

B. OBAMA: Well, it's -- you know, I think this was a mistake. I think I screwed up.

LEMON: The day wasn't all bad.

UNIDENTIFIED MALE: So help me God.

ERIC HOLDER, ATTORNEY GENERAL OF THE UNITED STATES: So help me god.

UNIDENTIFIED MALE: Congratulations.

(APPLAUSE)

LEMON: After lengthy delays, Eric Holder becomes the first ever African-American attorney general. Judd Gregg, a strict fiscal Republican, is nominated to head commerce.

Wednesday, a marathon.

B. OBAMA: I will not tolerate it as president.

LEMON: A stern warning to CEOs, followed up by new proposed rules to cap their pay if they receive bailout money.

Then a bill signing to help underprivileged children.

B. OBAMA: There you go.

(APPLAUSE)

LEMON: And the first lady gets a warm reception at the Housing and Urban Development offices in D.C.

MICHELLE OBAMA, FIRST LADY OF THE UNITED STATES: Thank you so much for taking the time to...

UNIDENTIFIED MALE: We love you!

M. OBAMA: ...to come.

(APPLAUSE)

M. OBAMA: Wow! I love you, too.

LEMON: On Thursday, while announcing a new faith-based initiative, the president prays publicly for tolerance and for economic health.

OBAMA: Let us pray together on this February morning. But let us also work together in all the days and months ahead.

LEMON: Later, the same message -- minus the prayer -- at the Energy Department, before making his first official trip on Air Force One to a conference in Virginia.

OBAMA: What do you think of my, you know, this spiffy ride here?

LEMON: Week's end sees a personal touch on foreign policy, with a talk with families of the 9/11 attacks about the closing of GITMO.

Don Lemon, CNN, Atlanta.

(END VIDEOTAPE)

BLITZER: And late last night, President Obama put even more pressure on the Republicans.

(BEGIN VIDEO CLIP)

OBAMA: We are not going to get relief by turning back to the very same policies that, for the last eight years, doubled the national debt and threw our economy into a tailspin. We can't -- we can't...

(APPLAUSE)

OBAMA: We can't embrace the losing formula that says only tax cuts will work for every problem we face, that ignores critical challenges like our addiction to foreign oil or the soaring cost of health care or falling schools and crumbling bridges and roads and levees. I don't care whether you're driving a hybrid or an SUV, if you're headed for a cliff, you've got to change direction.

(END VIDEO CLIP)

BLITZER: Just a little fact check right now.

Joining us is Mark Zandi.

He's the chief economist at Moody's Economy.com.

Mark, thanks very much for coming in.

What's a better way to deal with this economic crisis -- cut people's taxes or spend government money given to the states to build infrastructure -- roads, bridges?

MARK ZANDI, MOODY'S ECONOMY.COM: Well, I think you need both. The infrastructure spending has a bigger economic bang for the buck. It creates more jobs. But the problem is it can't get into the economy quickly. So I think you do need tax cuts. That doesn't have the same bang for the buck. It's not as efficacious. But you can get that into the economy quickly.

So a plan, like the current plan, that has both tax cuts and spending increases, I think, is the best plan.

WOMAN: The Republicans say they want more tax cuts for the middle class, but only tax cuts for those individuals and families who actually pay federal income tax, not for those who don't pay any federal income tax.

Are the Republicans right?

ZANDI: Well, I think that would reduce the effectiveness of tax cuts because people who are in lower income groups that, in fact, probably don't pay income tax -- look, if they got a tax break, would spend it and would spend it very quickly and that would raise the stimulus.

So, to make it more effective, I think it should go to lower income households, who, in fact, don't pay income tax.

BLITZER: And they would, presumably, spend it very quickly. And that would help to stimulate the economy.

That's the theory right?

ZANDI: That's the idea. And I think it works. I mean people who are in lower income groups, they're under more financial stress. If they get a dollar, they're going to spend that dollar and they're going to spend it very quickly. And that's exactly what we want to see right now.

BLITZER: It passed the House at about -- a little bit more than $800 billion. Now it's ballooned to more than $900 billion in the Senate. And the Republican leader, the minority leader, Mitch McConnell, says, you know what, it's going to cost a whole lot more than that.

Listen to this.

(BEGIN VIDEO CLIP)

SEN. MITCH MCCONNELL (R-KY), MINORITY LEADER: And when you include interest, the bill before us will cost nearly $1.3 trillion. At some point, the taxpayers will have to pay all of this back. And they're worried.

(END VIDEO CLIP)

BLITZER: Is he right? Is his math correct?

ZANDI: Yes, he's right. If you throw in the interest costs from borrowing all the money necessary to finance the stimulus, it will ultimately cost about $1.3 trillion. That's correct.

But another point to consider -- if we don't do stimulus, in my view, I think the economy will weaken very substantively. And that means we're going to lose a lot of tax revenues. If people aren't working, they're not paying taxes. If businesses aren't energy money, they're not going to pay corporate income tax. And we're going to see more spending to help all those people who lose their jobs.

So the deficit is going to rise anyway if we do nothing. So I think it's better to take a shot at it -- and a big shot at it -- and see if we can't make this work and get the economy going again.

BLITZER: What's wrong with just pumping money in that's going to create jobs right away?

Why do you need to put into this legislation money that's going to create jobs two, three, four years down the road?

ZANDI: Well, a fair amount of the money is for jobs now -- helping people who lose their jobs...

BLITZER: But a big chunk is only for two or three years down the road.

ZANDI: Yes, that's right. But I think everyone does realize that in this economy -- it's not coming back quickly. So if it gets help in '09, that would be wonderful and great. But if it gets help in 2010 and 2011, it's going to need it then, as well.

BLITZER: When President Obama says you've got to pass it right now because every day is critical -- we heard David Axelrod say that, his top adviser, in the last hour.

Are they right or is there time to make sure they do it better?

ZANDI: Well, we have to do it right. But time is of essence here. We just got a sense of that today with the jobs numbers. We lost almost 600,000 jobs in one month. We've lost 3.6 million jobs in a little over a year. The unemployment rate is rising very quickly.

We are getting trapped in a very negative cycle and so we need to break it. So we need this stimulus plan and we need it very quickly.

BLITZER: How quickly?

ZANDI: Now, that doesn't mean we should do...

BLITZER: How quickly?

ZANDI: I think we should pass it in the next couple, three weeks. I think it's very therapeutic what we're going through -- the debate. I think the Senate is going to make this a better bill. We're going to get rid of the spending that makes very little sense as stimulus.

But I think, ultimately, we need to get this passed in the next couple, three weeks.

BLITZER: Some economists say this is a waste of money, a waste of time and it could be a disaster. And they point to the Japan model in the '90s, when the Japanese government did a stimulus plan and they pumped tons of money into their economy and they say it was a lost decade for Japan, because it really didn't turn their economy around.

Is there a parallel between what Japan went through in the '90s and what the U.S. is going through now?

ZANDI: Well, there's good lessons from the Japanese experience. What the Japanese did is they did their stimulus over a period of a decade. They took their time about doing it. They didn't try to stem the downturn right up front with a lot of spending.

Moreover, they spent only on bridges and roads. And, ultimately, they built so many roads and bridges that they literally were building bridges to nowhere. And they -- that wasn't very effective.

So I think the lesson is we need to have a plan that includes spending, tax cuts, help for people who are losing their jobs, aid to state and local governments, a diversified set of stimulus and also do it up front and in a big way.

BLITZER: Bottom line, even though you were an adviser to John McCain during the campaign, you say support what Barack Obama is doing right now. You say that to members of the House and Senate.

ZANDI: I absolutely do. I -- you know, I fear that the economy is slipping away. We need to act aggressively and quickly.

This isn't a perfect plan, by any stretch, but it is a good plan -- a good enough plan. It will create jobs and it will make a difference and we need to pass it quickly.

BLITZER: Mark Zandi, thanks very much for coming in.

ZANDI: Thank you.

BLITZER: Finding a job in this economy -- how some are getting an extra edge.

(BEGIN VIDEO CLIP)

ALEXIS GALLETA, NURSING STUDENT: I don't think anybody that's in this program is going to have trouble finding a job.

(END VIDEO CLIP)

BLITZER: Even with record cuts, there are jobs out there to be had. We have details of who's still hiring. Also, Senator McCain has a suggestion for the stimulus -- go back to square one. Paul Begala and Alex Castellanos -- they're here to weigh in on the Senate wrangling.

Stay with us.

You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: We're watching to see what's happening in the U.S. Senate right now.

Will there be a deal, won't there be a deal?

We'll go there shortly to find out what's the latest. There's a lot of back and forth going on right now.

But in the meantime, I want to check in with Mary Snow once again -- Mary, much as all these jobs are being lost, there are some firms out there that are actually hiring people.

MARY SNOW, CNN CORRESPONDENT: They are. And it's hard to believe when nearly 600,000 jobs vanished last month. But the number of numbers industries that can say this right now is rare. But in this climate, with jobs gone, there are some people finding work.

(BEGIN VIDEOTAPE)

SNOW (voice-over): Bucking the trend of mass lay-offs, the health care industry. It added 19,000 jobs last month. Job security is one reason why Alexis Galleta left social work to go to nursing school.

ALEXIS GALLETA, NURSING STUDENT: I don't think anybody that's in this program is going to have trouble finding a job.

SNOW: Nursing student Nancy Yang was a professional singer seeking a safe haven.

NANCY YANG, NURSING STUDENT: Everything else you could cut off on. But health care, especially with the aging population, it will just keep growing.

UNIDENTIFIED FEMALE: Clean technique. You're only changing the ties.

SNOW: Applications to nursing programs have been on the rise for eight years. And the dean of Stonybrook University's Nursing School says she's been seeing more applicants ever since the dot-com bubble burst. And there's a break from the past.

LENORA MCCLEAN, STONY BROOK UNIVERSITY SCHOOL OF NURSING: More men are coming into nursing and more men and women beyond the typical college age student.

UNIDENTIFIED MALE: Put like a check mark.

SNOW: Seizing the momentum, Christopher

Luis left 20 plus years of corporate life to open a business as a headhunter for health care workers. He says he started in October and has since expanded.

CHRISTOPHER LUIS, BRIGHT STAR HEALTH CARE: I looked at the marketplace where the needs were over the next five to 10 years. Health care, particularly health care staffing, was a no-brainer to me.

SNOW: While health care stands out among sharp cuts in other industries, not as many people are being hired compared to last year. And one recruiting firm tracking job losses expects the ripple effects of record unemployment to put a dent in the health care industry, too.

JOHN CHALLENGER, CHALLENGER, GRAY & CHRISTMAS: Companies are letting go workers. That's giving them less access to health care coverage. And that means fewer times that they can go get their health care they need.

(END VIDEOTAPE)

SNOW: Another pocket of strength in January's dismal jobs report was education. The Labor Department reporting that 33,000 hires took place in private education last month.

BLITZER: All right, Mary.

Thanks very much.

I want to show our viewers a picture of what's happening on the Senate floor right now. We're not even sure what's going on, but we're watching it very closely. Earlier in the day, Harry Reid, the Democratic majority leader in the Senate, said he was hoping for a vote to close debate sometime between 5:00 p.m. Eastern and 7:00 p.m. Eastern. That would be right now, about. And we're going to see what happens.

They need 60 votes to close debate and move on to a final vote on the various aspects of the economic stimulus package.

Our Dana Bash is down there and up on Capitol Hill.

We'll go to her shortly and see what's going on.

But it looks like something may be happening right now.

The president made a campaign promise to stop carrying out medical marijuana raids.

So why did agents bust into several shops just this week?

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: The raids represent, potentially, a thumbing of the nose at Eric Holder and President Obama.

(END VIDEO CLIP)

BLITZER: Now the White House is saying what's going on?

What is this White House actually saying?

And why the DEA says it's not going to stop. Stand by.

Plus, that cell phone you carry around -- it could be funding a war.

What's inside that's causing so much trouble?

And now you can track your friends down to the street where they're walking -- how this works still ahead.

(COMMERCIAL BREAK)

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

Happening now, a big rally on Wall Street. The Dow finished up 217 points. Analysts say the boost came from investors betting that Congress was about to act on the economic recovery plan.

A growing concern behind-the-scenes on the battlefield -- why troops wounded in Afghanistan are missing a one hour window that's critical to survival.

I'm Wolf Blitzer.

You're in THE SITUATION ROOM.

Let's check in with our senior political correspondent, Candy Crowley, first for more on the rhetoric that's going out there on this economic stimulus plan.

What are you seeing?

What do you sense is going on -- Candy?

CANDY CROWLEY, CNN SENIOR POLITICAL CORRESPONDENT: Well, a couple of things are happening.

First, as far as the White House is concerned, time is running out. But the actual arguments over how big this bill should be and what should be included in it haven't changed. The tone certainly has.

(BEGIN VIDEOTAPE)

CROWLEY (voice-over): The president used a 7.6 percent unemployment figure like a cattle prod.

OBAMA: It is inexcusable and irresponsible for any of us to get bogged down in distraction, delay or politics as usual while millions of Americans are being put out of work. CROWLEY: The Kumbaya period of smiling Capitol Hill visits, cocktail parties and bipartisan chatter seems to have disappeared in a collision of figures -- 598,000 jobs lost in January gave urgency to Democrats' push for something now. And a $900 billion stimulus bill with programs they say won't create jobs gives Republicans the impetus to resist.

SEN. TOM COBURN (R), OKLAHOMA: The fear that is driving this bill and what might happen if we don't hurry up and get a bill is probably the worst motivation that we could have. The real fear that we ought to have is, have we done it right?

CROWLEY: Other figures also add to the stepped up partisan warfare. A new CBS News poll finds 61 percent of Americans support the package, but that is down 12 points in a month. At the same time opposition grew by 15 points. It is not likely a coincidence that in a carrot and stick department the president has been 100 percent stick lately.

OBAMA: So, well, then -- then you get the argument well, that this is not a stimulus bill. This is a spending bill. What do you think a stimulus is?

(LAUGHTER)

OBAMA: That's the whole point.

CROWLEY: Back in the trenches, Senator John McCain, who promised to work with his former rival when possible and oppose him, when necessary, has opted for the latter.

SEN. JOHN MCCAIN (R), ARIZONA: The whole point, Mr. President, is to enact tax cuts and spending measures that truly stimulate the economy. There are billions and tens of billions of dollars in this bill which will have no effect within three, four, five or more years or ever.

(END VIDEOTAPE)

CROWLEY: Of course, Wolf, all of this partisan talk is coming as this dwindling group of people up on the Senate side are trying to come up with -- it's not a bipartisan bill, at least some sort of bill that will pick up the necessary two Senate Republican votes they may need to pass this bill. Wolf?

BLITZER: Yes, because they need 60 to close debate and it's unclear whether the Democrats have that right now.

Candy, thanks very much.

Let's discuss this a little bit more with our CNN political contributors. The Democratic strategist, Paul Begala, and the Republican strategist, Alex Castellanos.

So Paul, listen to what John McCain said on the Senate floor. Listen to this. (BEGIN VIDEO CLIP)

MCCAIN: Maybe we have to go back to square one here. Maybe we should go back to the beginning here because it was flawed when it began when -- when the authors of this legislation from the House said we won so we wrote the bill. That's not bipartisanship.

(END VIDEO CLIP)

BLITZER: What do you say when someone like Senator McCain has often worked with Democrats on sensitive legislation when he takes a stance like that?

PAUL BEGALA, DEMOCRATIC STRATEGIST: Well, I would say, here's a little deuce, Senate McCain. If you lose your home, you'll be down to just eight homes. There's a crisis out there. There is a recession that is careening into a depression.

Let me put it in terms that the senior senator from Arizona, I think, would understand. His beloved city of Phoenix has a total working population of 1.8 million people. There's 1.8 million jobs in Phoenix. That's how many jobs we've lost just in the last three months, Senator.

While you should have been passing a stimulus bill under President Bush, you didn't do so and we've lost 1.8 million jobs just in three months, the entire working population of Phoenix, if it was all concentrated there. So this is a crisis and I -- I guess I don't know how to explain it to some of my Republican friends.

BLITZER: They did ask...

BEGALA: The place is on fire and they're blocking the fire trucks.

BLITZER: They, they...

BEGALA: Even though they were the arsonists who set the fire.

BLITZER: President Bush did pass, did get a $150 billion stimulus package passed last year including some tax credits. Didn't seem to do much good, though, did it, Alex?

ALEX CASTELLANOS, REPUBLICAN CONSULTANT: No, it didn't. And I think one of the things you're seeing here is the return of partisanship in a very healthy way. Republicans are remembering who they are and Democrats are remembering who they are.

Democrats are the party of big spending and big government. Their idea on how to stimulate is, we're going to stimulate government and make bigger. Republicans are saying, look, if we want to get money in people's hands, why don't we let -- give it to the people in the form of tax cuts, get the money in the private sector, stimulate that.

So I think this is the healthy thing. And... (CROSSTALK)

CASTELLANOS: If we wanted to get some more money into the economy, maybe we can get the Obama Cabinet nominees to pay their taxes. That will give us a lot more.

BLITZER: All right, Alex, but you just heard Mark Zandi, a respected economist, say you need both, you need tax cuts to be sure, but you also need to get funding, spending for infrastructure to get people back to work.

CASTELLANOS: I think almost everyone agrees with that even though there's a lot of concerns that, ultimately, you know, it didn't even work in the new deal that once you pull back, that people -- the stimulus stops. In other words you're trying to kind of light wet wood here. You have to keep using matches. It's like saying to a drunk, look, keep drinking because if you stop, you're going to have a hangover.

So right now, there are still some questions about that. But, you know, one of the problems with this legislation is that it doesn't even have real tax cuts. It's tax rebate. It's one time stuff. If I go to you and tell you, look, you're going to get a little bit of money in your pocket, but bad times are coming, you don't have enough confidence to spend. But if I cut taxes for a long time that could really...

BLITZER: Paul...

CASTELLANOS: ... ignite the economy. That's where Republicans are going.

BLITZER: Paul, you know that he's getting some criticism, he's getting a little heat, the president, from the left who's saying, you know what, stop wasting your time going after Republicans and just deal, basically, with your Democratic base.

BEGALA: Well, I -- I applaud the fact that this president has reached out the open hand, to paraphrase his own inaugural address to the Republicans, and I think it's shameful, frankly, how the Republicans have returned the clinched fists, but it is par for the course.

Frankly, a lot of us have seen this from the Republicans. This is why we're in the mess we are in. And it -- really it's the lack of any accountability from the Republicans whose economic plans caused this disaster. This is not an earthquake.

CASTELLANOS: Paul, that's not right.

BEGALA: This is not an act of nature. This is not a natural disaster. This is a set of Republican economic policies that have driven the country in the ditch. We rejected them and put this bright new president in and now the Republicans are blocking him...

BLITZER: Alex... BEGALA: ... from doing what we hired him to do.

BLITZER: Go ahead.

CASTELLANOS: Paul, we need to get the history out again because tax cuts didn't cause the housing bubble. The housing bubble did. Tax cuts that George Bush cut taxes with help from Democrats even in Congress that caused 51 months of growth. The largest period of growth in American history. So...

BEGALA: The voters resolved this, Alex. First off, tax cuts did help contribute to the...

CASTELLANOS: No, no, no. Tax cuts did not contribute...

(CROSSTALK)

BEGALA: Of course it did.

CASTELLANOS: It is growth.

BEGALA: First off...

CASTELLANOS: John F. Kennedy said so, Ronald Reagan said so, George Bush proved it.

BEGALA: You keep on doing that, Alex. I love these Stone Age Republicans who just continue on the exact same faith path. Here's the deal.

CASTELLANOS: Why do we have to follow...

BEGALA: Need to forget or get out of the way. You know, you wouldn't lead, you couldn't follow, man, just get out of the way, and let this...

(CROSSTALK)

BLITZER: Alex, is Barack Obama, the president of the United States, the great communicator along the lines of Ronald Reagan?

CASTELLANOS: You know one thing we saw, I think, in his speech last night is we saw a better Barack Obama, a better president. And he returned to the campaign Obama. He returned, frankly, to the more partisan figure that he was in the campaign and all of the sudden he seemed stronger and more inspired.

He's a terrific communicator but he does not have one thing Ronald Reagan had and that is a philosophy of government. He's there a lot of Barack Obamas. He's for more spending, but more tax cuts. He's for stronger defense but he's for you got to take care of the terrorists in Guantanamo. So we don't really know who he is. There's so many different ones.

With Reagan, we're going to -- more freedom for people...

BLITZER: All right.

CASTELLANOS: ... to govern themselves. We don't know what Obama believes about government.

BLITZER: Very quickly, Paul, go ahead.

BEGALA: Well, I think we know exactly what he believes, and he believes in getting this economy moving again. We have a lack of effective demand. Families are pulling in, businesses are pulling in. It's prudent for an individual but it's disastrous for the economy. We have to prime the punt and Republicans who caused this problem are now trying to block the solutions.

This guy's very pragmatic and I know ideologues sometimes...

BLITZER: All right.

BEGALA: ... have a hard time with a pragmatist, but Barack Obama's a pragmatic guy who wants to solve problems and I can think he's a little frustrated that the people who caused the problem are now trying to block him from enacting the solution.

BLITZER: Paul Begala and Alex Castellanos, thanks, guys, very much.

Coming up, there are new developments right now in the doctor who helped the mother of those octuplets conceived. Details of a new investigation under way.

Plus, Michael Phelps has just spoken out about being suspended from competitive swimming for three months. We'll bring you the videotape right here in THE SITUATION ROOM.

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ANNOUNCER: This is CNN Breaking News.

BLITZER: Want to go right to our senior congressional correspondent, DANA BASH. She's watching what's going on. A critical moment unfolding in the U.S. Senate over the president's economic stimulus package.

What is the latest, Dana?

DANA BASH, CNN SR. CONGRESSIONAL CORRESPONDENT: The latest, Wolf, is that CNN has learned that there appears to be a tentative agreement, a tentative agreement, in the Senate on a stimulus package.

We are told that this agreement has been forged with Republican Susan Collins and members of the Democratic leadership to have a stimulus package in the range of $780 billion.

Now I say that this is tentative because the sources I'm talking to say that Harry Reid, the Senate majority leader, is, as we speak, taking this to Senate Democrats. There's a meeting in the Capitol of Senate Democrats where he will explain the details of this bill and make sure that his fellow Democrats will be on board with this, but again, the news is that what they have been working on for days and days with this small group of moderate Republicans appears to have born to, at least at this and at least with that one Republican, Susan Collins.

$780 billion is the ballpark that we're, that we are hearing about this deal, Wolf.

BLITZER: The $800 billion, the president has said, including last night and we heard David Axelrod say, you know, $800 billion is at least what they want. It was $819 billion. The House version that went up over $900 billion in the Senate.

If they have Susan Collins on board and if all 58 Democrats, including Ted Kennedy, whose ill and hasn't been participating in these discussions over the past few days, if all are on board, my math says they have 59, so not only do they have to keep all 58 Democrats in line, there are some questions about a few of them, but they also have to bring at least another one more Republican in.

And do they think they have the 60 votes needed to end debate and move on?

BASH: Well, for example, Olympia Snowe, the other Republican from Maine, she is somebody who has been very positive about wanting to vote for this. She is somebody, also, who met with President Obama at the White House so I think that they probably believe that they would have somebody like her. And there have been a couple of other Republicans in these meetings, Arlen Specter of Pennsylvania and Lisa Murkowski of Alaska.

We want to make sure that we tell our viewers we're not sure if those two senators have signed on, but I can tell you that in term of what everybody has been talking about, Rahm Emanuel, the White House chief of staff, was just seen in Senator Reid's office.

The Democratic leadership has been working extremely closely with White House. Senator Reid has talked to President Obama several times between midnight last night and today, and including, you know, several members of his staff.

So this is something that they are all working on, knowing how very, very difficult it has been to find the right mix of cuts and spending and actual spending on things that many people believe are the most important things to create jobs because that has been really the rub in trying to get those extra votes particularly from those Republicans, Wolf.

BLITZER: Is it fair to say, Dana, that the Democratic leader, Harry Reid, and the president of the United States, for that matter, believe that all of these 56 Democrats and the two independents who vote with the Democrats, Bernie Sanders of Vermont and Joe Lieberman of Connecticut, that all 58 of them are definitely on board? BASH: Not yet. And that is exactly why, Wolf, literally, as we are talking, Harry Reid is meeting with his, with his caucus, meeting with Senate Democrats, talking to them and to make sure that they are on board. So we're going to know a lot more after that meeting wraps up, Wolf.

BLITZER: And this explains why the Senate has now gone into recess until 6:30 p.m. Eastern, about 45 minutes or so from now. Is that right?

BASH: It certainly would be because there -- the senators are off at their corners, if you will, trying to figure out if this is actually a tentative agreement that will, that will turn into a real agreement, something that they could vote on, tonight.

BLITZER: All right, let's get a little analysis of what's going on. Gloria Borger, our senior political analyst, is also joining us.

Gloria, what are you hearing about what's going on beyond what Dana just told us?

GLORIA BORGER, CNN SENIOR POLITICAL ANALYST: Well, I think Dana has the most up to date news for you, Wolf. But I think, you know, the big question here is, really, whether the center will hold and make a difference. You know, Barack Obama campaigned on starting a new paradigm in Washington, getting post-partisan, and he really wants to get these moderate Republicans on board.

And we're going to see if they have the leverage to really get this stimulus package passed and if they do, it could become the model for lots of pieces of legislation down the road, Wolf.

BLITZER: And I want to welcome our viewers, not only in the United States, but around the world, who have joined us.

Ali Velshi is here in New York watching all of this unfold.

$780 billion. It's $800, $819 which the House passed, certainly not more than $900 billion, what the Senate originally wanted. But I think that's clearly something the president of the United States, at this point, if he could get a few Republicans to join, would be more than happy to welcome.

ALI VELSHI, CNN SENIOR BUSINESS CORRESPONDENT: Yes. As much as we're tainted by the word trillion all over the place, it's still a lot of money. Now the original bill that came out of Congress was about 65 percent traditional spending and other things versus about 35 percent tax cuts.

Now you've got your people who are diehard tax cutters who think that's going to save the economy and get us out of the, out of the problems that we're in. And then you have the traditional infrastructure spending, the shovel ready jobs that we can put money into. And that's in this bill.

Then there's the safety net stuff, the COBRA extensions, unemployment extensions, food stamps where there's debate about what it does for the economy, but it is necessary because of the number of people who were out of work or losing their homes. And then there's the fourth bucket, and that is the other stuff. The things we didn't have an agreement on what they would do for the economy.

It looks like if you do the math on this one, it's the other stuff that may have come out of this were -- obviously, this is all speculation at this point, but it might be that that other stuff is gone to be dealt with later by the Democrats. But you still got you tax cuts, your spending and your safety net in this bill.

BLITZER: All right. Our chief national correspondent, John King, is also joining us.

John, what are you hearing?

JOHN KING, CNN CHIEF NATIONAL CORRESPONDENT: Wolf, just backing up what Dana reported just a few minutes ago, getting some indications and some e-mails from people on Capitol Hill that the stand by that they expect that they have a tentative deal.

I think the way it is outlined is a very interesting question. You heard Dana lay out just who is involved in these negotiations and Gloria hit on, saying that this could be a model in the future.

Let's see if this deal holds but it tells you something that it is the moderate Republicans in the Senate, you may get this $780 billion deal in the Senate, have to match it up what's in the House, and Ali is right about the specifics, which to our viewers are the most important part, where all this money go, how will it help them.

But in terms of the long-term politics, it is not necessarily a giant building block to just get the moderates in the Senate. When you move to bigger issues, if you want Republicans and the House on board, you're going to have to get broader bipartisan support.

And I think one of the reasons, Wolf, I'm just back from the state of Indiana. If you go into blue collar areas, they want this done and they said they are pressuring their members of Congress to do it. But when you get into the more conservative areas, already they're saying Washington is spending too much money, which is one of the reasons you see the conservatives in the House embolden to say no.

When they're going home their constituents are saying why all this money being spent in Washington.

BLITZER: I know, Paul Begala, our political contributors, has also been in touch with a lot of Democrats. What are you hearing, Paul?

BEGALA: Well, Senator Harry Reid, the Senate majority leader, has been meeting with Republican senators as well as a few Democrats that he's worried about, trying to persuade them to come along. People like Susan Collins, as Dana reported, the senator from Maine, George Voinovich, who is going to retire, the senator from Ohio, whose state has been so hard hit, and is working in very close consultation with the president and the president's chief of staff.

They think that they've got a deal, but they are, as Dana said, they're meeting with their Democratic colleagues right now because, you know, sometimes passing legislation is like squeezing a balloon. So if you do this, if you squeeze on this end to get a few Republicans, you could lose some Democrats on the other end, and it's -- it is a very difficult dance that Harry Reid is leading right now.

BLITZER: But it would be very difficult, the first major test of this new president, three weeks into his administration, Paul, for a Democrat in the United States Senate to basically slap President Obama in the face and vote no at a critical moment like this.

Isn't that fair?

BEGALA: Yes, it would be very damaging to this new president and my hope is that the Democrats will be good followers as -- and let Barack Obama be a good leader. But it's hard to do. You know that's the nature of Democrats. They don't like to be ordered around. They like to kind of go their own way and they are hard to organize. And it has been done in the past.

You recall, Wolf, you were covering it. The -- President Clinton, when he was trying to pass his economic plan, some of the most influential Democrats in Washington voted against that plan. Sam Nunn was a committee chairman in the Senate at the time. He voted against his own president on that. So it's not without precedent, but I think this new president is probably going to win at the end of the day, but you've got to say that his party's majority leader is doing all he can to get those 60 votes for the new president.

BLITZER: But you'll also remember, Paul, that some of those Democrats who reluctantly voted with then President Bill Clinton in 1993, they wound up getting defeated in their bids for reelection in 1994 when the Democrats lost control of the Congress.

Alex Castellanos is still with us, the Republican strategist. How many Republicans, realistically, do you think would join potentially, Susan Collins, Olympia Snowe, maybe, of Maine, and go ahead and support President Obama in this tentative $780 rescue compromise?

Alex? Unfortunately, I don't think Alex is hearing me, but let me go back to Gloria Borger. What do you think, Gloria? How many Republicans, realistically, are out there who might join the Democrats and President Obama in this compromise?

BORGER: You know, it's hard to say right now, Wolf. You know there have been moderate Republicans. Remember the gang of 14 on judicial filibusters that included Republicans and Democrats. You know I think he'd be lucky if he gets a handful of Republicans here and it will be interesting to see how anyone define what is bipartisanship.

You know, John McCain said earlier in the day, picking off one or two Republicans is not bipartisanship. And that's probably true. But I think what we're going to see here is a question of whether these moderate Republicans are really going to have a certain amount of power now heading down the road.

Conservatives were squawking about the spending in this bill, but I think people really only started paying attention to conservative Republicans when they were joined by those moderate Republicans, who were also saying that they didn't like some of the stimulus in this bill because they didn't think it was stimulative. So we'll have to see if it's more than a handful.

BLITZER: I think Alex could hear me now.

Realistically, Alex, how many Republicans do you think might decide, when the dust settles if, in fact, they agree on this $780 billion tentative compromise? How many might join Susan Collins and vote yay?

CASTELLANOS: I think less than a handful and a small hand at that. Barack Obama has done something for Republicans that George Bush, frankly, couldn't do. And that's he's given them their mojo back. He's reminded them who they are. When he's gone out there with this huge spending package, Republicans have remembered that hey, we're here to get money in the hands of the people, not the government.

And so what Republicans have done, they've gone back home and they've heard from their constituents, look, no, if you want to get money in the hands of working people, why don't you just cut our taxes, not give it to the government and then turn around somehow and get it back to us?

So, I think, politically, he strengthened the Republican hand and -- and he's brought back, frankly, partisanship and I think a healthy partisanship that will help us see the differences between big spending, big government Democrats, and free market and growth- oriented Republicans.

BLITZER: All right, I want everybody to stand by. We're following breaking news. Our senior congressional correspondent Dana Bash had a first, a tentative, tentative deal bringing this economic stimulus package to about $780 billion. It's on the table.

The Democrats are caucusing right now behind closed doors. We expect them to emerge fairly soon, walk over to those microphones and hear what's going on. They're in recess on the Senate floor for another half hour or so until 6:30 p.m. Eastern.

Much more of our coverage, the breaking news on a tentative deal on an economic stimulus package right after this.

(COMMERCIAL BREAK)

ANNOUNCER: This is CNN Breaking News.

BLITZER: A truly major development happening right now involving the president's economic stimulus package. We want to welcome our viewers in the United States and around the world. I'm Wolf Blitzer in THE SITUATION ROOM.

We're following the developments at a truly critical moment right now in the U.S. Senate. There seems to be a tentative deal for an economic stimulus package of around $780 billion.

Our senior congressional correspondent Dana Bash broke this story for us.

Dana, set the scene for us and tell us what we know precisely at this point.

BASH: What we know, according to Democratic sources and from Senator Susan Collins, the Republican of Maine, from her office as well, is that there is a tentative agreement between those groups on a $780 billion, I should say approximately $780 package to stimulate the economy.

This is something that they had been working on for days and days. And essentially what they have been trying to do, wrestling with in a really frantic way behind the scenes is trying to figure out the right way to cut spending from the package.

In fact, what they have done with this is cut about $100, a little it more than $100 billion out of what the Democrats had original proposed. The reason why we're saying it's tentative is because, as we speak, Senate Democrats are meeting to go over it.

And you might see some microphones set up and some people milling around the hallways. That's because we are waiting for the Democratic leader after this meeting with his caucus, with all Senate Democrats to come out and tell us whether or not this tentative agreement is actually an agreement.

Now what does it mean in terms of hard numbers? It is still going to be, potentially, a squeaker because we know that Susan Collins is one Republican that signed on to this, but there really only have been two other Republicans at this point in the past two hours or so who have been in the room negotiating.

And those are Arlen Specter of Pennsylvania and Lisa Murkowski of Alaska. We have been trying to reach them and their offices to see if they, too, have agreed to this. We don't know the answer to this yet.

There is another Republican, Olympia Snowe, we're also waiting to hear back from her office but she has been a lot more positive about the idea of voting for a stimulus package. She was very positive after coming out of a meeting with President Obama the other day.

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