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Taliban in Charge; Nuclear Submarines Collide; President Obama's Next Moves; Terrifying Final Moments; Mystery Fireball Over Texas; TV Exec Accused of Beheading Wife

Aired February 16, 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: And to our viewers, you're in THE SITUATION ROOM.

Happening now, the Taliban now effectively in charge of a strategic corner of Pakistan -- cutting a stunning deal with the country's government. It's a huge, huge blow to the Obama administration. We'll tell you what's going on.

Also, nuclear powered and armed with atomic warheads -- two submarines collide. And we're just now learning how close they came to disaster.

Plus, a mystery in the sky -- a massive fireball over Texas blazing across the daytime horizon. Hundreds of people saw it. Some even heard it. Now the government is weighing in.

I'm Wolf Blitzer.

You're in THE SITUATION ROOM.

Their brand of justice is brutal and deadly, their treatment of women hard to believe and now the Taliban effectively in charge of one part of Pakistan, where the national government has agreed to let them lay down the law.

Let's go to our Pentagon correspondent, Barbara Starr.

She's got the story -- the implications, Barbara, are enormous for the U.S. and the region.

BARBARA STARR, CNN PENTAGON CORRESPONDENT: Absolutely, Wolf.

The Obama administration is now days away from announcing thousands of U.S. troops will go to Afghanistan. But across the border, that U.S. ally, Pakistan, may be dooming U.S. strategy.

(BEGIN VIDEOTAPE)

STARR (voice-over): (AUDIO GAP) the Obama administration's effort to fight the Taliban and al Qaeda. Pakistan announced it's cut a deal with militants. Now, strict Islamic law, known as Sharia, will be the law of the land.

But this is where the Obama administration wants Pakistan to make a stand against the Taliban. Just two hours from the capital, Islamabad, the government is supposed to rule here. Thousands of civilians have fled the fighting in recent months.

President Obama's envoy making the case the Swat Valley violence has broad security implications.

RICHARD HOLBROOKE, U.S. SPECIAL ENVOY: What happened in Swat demonstrates a key point and that is that India, the United States and Pakistan all have a common threat now, for the first time in 60 years.

STARR: The Taliban promised a 10 day cease-fire, but no one knows the next step. The U.S. wants to spend billions more to train Pakistani forces to keep fighting here. This isn't the wild west of the Afghan border region, this is an area the government is supposed to control.

MARK KIMMITT, FORMER ASSISTANT SECRETARY OF STATE: It is troubling that the Taliban are now in a position where they can negotiate with the Pakistani government.

STARR: Kimmitt points out, in Iraq, the U.S. reached out to insurgents. But here, it may be hard to see a middle ground.

KIMMITT: You certainly don't want, in that area, to be an area where women are denied the ability to go to school, minor infractions are met with the chopping off of hands and that the culture and the legal system takes a step backward against human rights rather than forwards.

(END VIDEOTAPE)

STARR: Pakistan tried this before, singing a deal with tribal militants in the border region.

The result?

Many say it just gave the Taliban and al Qaeda more time to build up their strength in the region and move across into Afghanistan to fight U.S. forces there -- Wolf.

BLITZER: And, as you say, more forces on the way, clearly.

Barbara, thank you.

Barbara just reported the deal between Pakistan's government and the Taliban includes the Swat Valley, just a two hour drive north from the capital, Islamabad. Swat was once the country's most popular tourist destination. Its pristine mountains, meadows and lakes earned it the nickname the Switzerland of Pakistan. It even, by the way, has a ski resort.

But tourism evaporated with the arrival of the Taliban and their brutal brand of justice, including beheadings and kidnappings. They've also banned education for girls and destroyed some 180 schools in the region.

Let's go to Phil Black right now. He's got something that's going on, very disturbing, in the Atlantic. A nuclear submarine collision that has occurred -- Phil, what happened?

PHIL BLACK, CNN CORRESPONDENT: Wolf, the collision between the sophisticated, deadly submarines is an embarrassing blunder. But the fear is the consequences could have been so much worse.

(BEGIN VIDEOTAPE)

BLACK (voice-over): This is the shame of the Royal Navy -- HMS Vanguard at its base at Faslane in Scotland, bearing the scars of its encounter with a French submarine.

ADMINISTRATION. SIR JONATHAN BAND, BRITISH NAVY: The submarines came into contact at very slow speed. Both submarines remain safe and no injuries occurred. We can confirm the capability remained unaffected and there was no compromise to nuclear safety.

BLACK: This was the French submarine involved, Le Triomphant. The French Navy says its sonar nose cone was damaged.

Nuclear sub expert, Dr. John Large, says that means these subs were almost lost.

JOHN LARGE, INDEPENDENT NUCLEAR CONSULTANT: At the front of these boats is the torpedo compartment, armed with conventional torpedoes. But, of course, a collision in this very sensitive area could mean a sinking of the boat.

BLACK: Experts say both Britain and France keep at least one ballistic missile sub at sea at all times. It's called the nuclear deterrent. They operate on a constant war footing -- each ready to fire its arsenal of 16 missiles carrying multiple nuclear warheads.

Dr. Large says it's not surprising the two subs were in the same part of the Atlantic.

LARGE: If you follow military logic, these submarines require a certain amount of depth to operate when they're in station by stealth. They have targeting requirements -- you know, their targets are at some place. So it means that both militaries would probably send their submarines, without each other's knowledge, to the same general sea location.

BLACK: These subs are designed to run very quietly. But they're also supposed to detect other ships and submarines by listening out with their sonar systems.

Anti-nuclear campaigners say the consequences could have been far worse than just embarrassment.

KATE HUDSON, CAMPAIGN FOR NUCLEAR DISARMAMENT: Major loss of life from the crews of the submarines, and, of course, massive radioactive contamination of the sea and the sea bed. And, of course, loose nukes lost on the sea bed. So a very bad scenario, potentially. I think we're very, very fortunate that there's been as little damage as there has.

BLACK: British and French officials say there was never any danger of a radiation leak and both countries say the submarines never lost their capability to launch their missiles.

(END VIDEOTAPE)

BLACK: So the secret is out. But here in Britain, there has been widespread criticism of defense officials for trying to conceal this incident in the first place -- Wolf.

BLITZER: Phil Black in London for us.

Thanks very much.

Let's move on to what's happening closer to home right now.

I want to go to our senior White House correspondent, Ed Henry.

He's working on the president's economic agenda, which is going to unfold day by day this week -- Ed, what are you hearing?

ED HENRY, CNN CONGRESSIONAL CORRESPONDENT: Well, that's right, Wolf.

He's going back on the road. He's going to be in Colorado and Arizona. And what's interesting is the president, over the weekend, on his way to Chicago, sat down with some newspaper columnists on Air Force One and gave a little window on his thinking about all these big battles ahead on the economy.

And he acknowledged that while the stimulus fight was a victory for the White House early on, that the really tough battles lie ahead.

And the first one will be the housing crisis. He has to find a way to deal with the foreclosure crisis. That's what he'll do on Wednesday in Arizona. His plan could include cutting the principal on mortgages for people, trying to keep them in their homes.

Secondly, he has to deal with the banking crisis. A lot of people on Wall Street, but also on Main Street, waiting for Treasury Secretary Timothy Geithner to flush out more details of his plan -- getting the credit markets flowing for mortgages, for car loans, student loans -- so critical to consumers all across the country.

And, third, tomorrow he's waiting for the automakers -- the struggling automakers -- to turn over their viability plan, to justify what -- you know, why they've gotten government money and why they may need more government money ahead.

And today, White House Spokesman Robert Gibbs said some tough choices will need to be made.

(BEGIN VIDEO CLIP)

ROBERT GIBBS, WHITE HOUSE PRESS SECRETARY: We're anxious to take a look at the plans, understanding that it is extremely important to have a strong and viable auto industry.

Obviously, that is likely to require some restructuring to ensure its viability. And we think some of that will be in those plans. And we look forward to going through and analyzing that in order to see where the companies feel like they are and what the most important next steps are for both the American economy, for the workers, as well as the companies.

(END VIDEO CLIP)

HENRY: But the biggest lesson the president appears to have learned from the stimulus fight is that while he says bipartisanship is still a goal, there are going to be some cases where he's going to have to go ahead with or without Republican votes. He told these newspaper columnists: "You know, I am an eternal optimist. That doesn't mean I'm a sap."

That suggests he realizes he's not always going to have the Republicans on board. He's going to have to move forward anyway -- Wolf.

BLITZER: He's moving, clearly, from Washington to Denver tomorrow, then on to Phoenix.

Thanks very much.

Ed Henry is going to be moving on with him.

Twenty-six seconds of terror -- we're learning new details right now the final moments of a doomed flight, that Continental Airlines plane that crashed near Buffalo. We now know what happened just before it plunged to earth.

Also, a Muslim television executive accused of beheading his wife -- her body found in his New York TV studio. An unimaginable crime.

What was going on?

Were there warnings?

Plus, a mystery fireball streaks through the sky and the government now telling us what it wasn't, as questioned swirl about exactly what it was.

Stay with us.

You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: We're learning more about that flight -- that Continental Flight 3407 that crashed in Buffalo the other day.

I want to go to our senior correspondent, Allan Chernoff, right now.

He's getting more information coming in.

What have we learned today -- Allan?

ALLAN CHERNOFF, CNN SENIOR CORRESPONDENT: Wolf, the NTSB is not ruling out any possible cause here. Investigators are looking at mechanical issues, the performance of the engines, what they call human performs. But most of all, experts are focusing on icing and the fact that the pilots were using the autopilot.

(BEGIN VIDEOTAPE)

CHERNOFF (voice-over): In only 26 seconds, Flight 3407 fell out of sky -- twisting and rolling uncontrollably until it flopped on a single home six miles from the Buffalo Niagara Airport. It happened so suddenly that the pilot, approaching the airport on auto pilot, appears to have had little chance of preventing the aircraft from stalling.

GREGORY FEITH, FORMER NTSB INVESTIGATOR: If the autopilot is flying the airplane, by the time the autopilot turns off or disengages, now the airplane is an unusual latitude and the pilot has to try and do so many mental gymnastic things, like trying to figure out what the position of the airplane is and what the appropriate corrective action is. And at a low altitude, that is just not possible for successful recovery.

CHERNOFF: Flying on autopilot is standard operating procedure in most conditions, according to the National Transportation Safety Board. And the flight manual for the aircraft, the Bombardier Q400 turboprop, says autopilot may be used in icing conditions with the exception of severe icing conditions. Weather conditions last Thursday night were light to moderate icing in Buffalo.

Experts say, though, it's possible for an aircraft to encounter patches of heavier ice. Even though the pilot had the deicer on for most of the flight, aviation experts say with the autopilot engaged, the crew may not have been aware of exactly how much ice had built up on the wings or the tail.

PUNEET SINGLA, STAT UNIVERSITY OF NEW YORK, BUFFALO: We don't have a very good view of the wings of the aircraft. He cannot look outside and see that if there is an ice or not. There is no cameras installed to give him a view of the wing.

CHERNOFF (on camera): He has to rely on his own manual feel?

SINGLA: Yes.

(END VIDEOTAPE)

CHERNOFF: It will be many months before the NTSB comes to a conclusive explanation of what exactly happened, what went wrong. But near the top of the list of possibilities has to be the combination of icing and the use of the autopilot -- Wolf.

BLITZER: All right. I know they're going to focus in on that closely.

Thanks very much, Allan.

There's a mystery going on right now over Texas. It involves a fireball that was seen by hundreds of people.

CNN's Sandra Endo is working the story for us.

What are we learning on this front, because it's got a lot of people asking questions -- Sandra.

SANDRA ENDO, CNN CORRESPONDENT: Absolutely, Wolf. And it had a lot of people looking up into the sky in bewilderment as to what exactly they were seeing.

(BEGIN VIDEOTAPE)

ENDO (voice-over): A fireball blazing down through the sky.

EDDIE GARCIA, NEWS & AUSTIN PHOTOGRAPHER: And I don't know what I saw in the sky. It was something burning and falling really fast.

ENDO: This photographer caught it on tape Sunday during a marathon run in Austin, Texas.

GARCIA: You know, I have no idea what it is or what it can be. All -- I'm just grateful that I got at shot at it. And hopefully, that will help.

ENDO: Texans from Dallas to the state's capital, Austin, reported hearing sonic booms around 11:00 in the morning.

UNIDENTIFIED MALE: It looked to be kind of small, nothing too large. But we didn't know what it was.

ENDO: Over the weekend, the Federal Aviation Administration issued a warning to pilots to watch out for falling debris after a collision last week in space. This animation created by CNN shows the crash between an American and Russian satellite over Siberia last Tuesday. The FAA said Saturday it received reports from residents in Austin of things falling from the sky, but nothing actually hit the ground.

We showed the tape to an expert at Georgia Tech University. He said the possibility the fireball was a meteor can't be ruled out.

DAVID SPENCER, GEORGIA TECH: Well, oftentimes, people will see meteorites at night. If we pass through the former tail of a comet, for example, there will be lots of small particles out there. But you rarely see them in the daytime because it takes a larger particle to give off a fireball effect like what you're seeing here.

(END VIDEOTAPE)

ENDO: Now, the Department of Defense confirms the fireball was not debris from the satellite collision. And the FAA has lifted its warning to pilots -- Wolf.

BLITZER: All right, Sandra, thank you for that.

A wife beheaded, her husband accused of the crime and he's a Muslim who actually started a TV network to try and improve the image of Muslims. New details of a shocking crime.

Plus, singers, dancers -- even synchronized swimmers. No it's not the Olympics. It's the birthday of the North Korean leader, Kim Jong Il. Details of an unusual celebration underway right now.

(COMMERCIAL BREAK)

BLITZER: We're just getting word of a really horrible story that's unfolding involving a Muslim television executive in New York accused of beheading -- beheading his estranged wife. The woman's body has been found in a TV studio.

Mary Snow is working this story for us.

Very strange, very sad.

What do we know?

MARY SNOW, CNN CORRESPONDENT: It really is. And this executive had gotten a lot of media attention in the past couple of years. It's a shocking and disturbing story involving the founder of the Muslim TV network Bridges. He's seen here in this photograph with his wife.

This network was launched in 2004, largely to counter violent stereotypes of Muslims. The founder has been arrested for beheading his wife. The TV network, in a statement on its Web site says: "Bridges TV is deeply shocked and saddened by the murder of Aasiya Hassan and subsequent arrest of Muzzammil Hassan. Our deepest condolences and prayers go out to the families of the victim. We request that their right to privacy be respected."

Now, police have charged Muzzammil Hassan with second degree murder. His wife's body was found at the Bridges TV station in Orchard Park near Buffalo, New York. That happened last Thursday.

Police say there have been several domestic violence calls to the couple's home. They say Aasiya Hassan had filed for divorce and received an order of protection against her husband. She had been listed as the general manager of the station.

Muzzammil Hassan gained attention in 2004 when he launched what was billed as the first English language cable channel of its kind, targeting Muslim-Americans inside the United States.

Now, at the time, he said he hoped the network would balance negative portrayals of Muslims following the attacks of September 11th.

There is a hearing -- a bail hearing February 18th. He is in prison. We were unable to reach his attorney. BLITZER: I know you tried to get his attorney, though. You're...

SNOW: And it's unclear if he really has representation at this time, according to police.

BLITZER: What a story.

All right. Shocking, indeed.

Thank you, Mary, for that.

Let's check in with Zain Verjee once again.

She's monitoring some other important stories incoming into THE SITUATION ROOM -- Zain, what's going on?

ZAIN VERJEE, CNN STATE DEPARTMENT CORRESPONDENT: Wolf, an air strike in Gaza today. Residents and Hamas security officials say Israeli jets bombed an area of suspected smuggling tunnels in Gaza's southern frontier. The Israeli military says the strike targeted a tunnel used to smuggle weapons from Egypt. It says the attack was also in response to the recent firing of Palestinian rockets into Southern Israel. No injuries are being reported.

The South Korean news agency says North Korea denies that it's getting ready to test a long-range missile. Instead, it says the Communist North is signaling that it's preparing to launch a satellite. The report comes after word from a senior U.S. official that an American spy satellite got a picture of activity at a former missile test site. The official did tell CNN that there was no direct evidence that a missile was being moved to the launch pad.

And dramatic pictures today, Wolf, of a desperate and dangerous attempt to reach the body of a teenager swept away by massive flooding in Peru. Take a look at this. A police officer is almost swept away himself. But he was saved by his colleagues on the bank of the Rimac Rover near Lima. The river reached its highest levels in several years. The flooding left one person dead and hundreds more homeless.

And farmers say a perfect storm of adverse economic conditions is forcing them to send hundreds of thousands of dairy cows to slaughter. Feed prices are up, consumers are eating out less. The global recession has cut demand for dairy exports from the U.S. And the price of milk is about half of what it costs to produce it. Industry officials say unless the market gets a boost, 1.5 million milking cows could face slaughter this year -- Wolf, are you eating out less?

BLITZER: No.

(LAUGHTER)

VERJEE: You don't cook?

BLITZER: Not really.

Zain, thank you. (LAUGHTER)

BLITZER: Eating plenty, though.

The great divide doesn't seem to be getting smaller. The stimulus may have passed. It's about to be signed into law. But the fight over it has not passed.

Was President Obama naive to think he could change business as usual in Washington?

Plus, the grandmother of those octuplets says that she's had a change of heart -- why she says her daughter is a good mom.

And the iPhone trick that's caught the attention of casinos in Las Vegas.

That and a lot more coming up right here in THE SITUATION ROOM.

(COMMERCIAL BREAK)

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

Happening now, Secretary of State Hillary Clinton makes her first trip overseas.

Why is the first stop so important?

And what her husband, the former president, thinks of her on the job performance. Stand by.

The president's ride -- at a time when corporate executives are being criticized for their jets, should President Obama be replacing the Marine One fleet?

It's something you may not necessarily have known was in the stimulus plan -- the high speed travel you'll be paying for.

I'm Wolf Blitzer.

You're in THE SITUATION ROOM.

All that coming up.

Let's go to our Bill Schneider first.

He's got more on this whole issue of bipartisanship -- or should we say, Bill, lack thereof, in Washington?

WILLIAM SCHNEIDER, CNN SENIOR POLITICAL ANALYST: Well, Democrats and Republicans are fighting about bipartisanship right now.

(BEGIN VIDEOTAPE)

SCHNEIDER (voice-over): It's gotten so bad, bipartisanship is now a partisan issue. OBAMA: I want to thank the members of Congress who came together in common purpose to make it happen.

SCHNEIDER (voice-over): Came together?

(BEGIN VIDEO CLIP FROM "THIS WEEK," COURTESY ABC)

SEN. LINDSEY GRAHAM (R), SOUTH CAROLINA: If this is going to be bipartisanship, the country is screwed.

(END VIDEO CLIP)

SCHNEIDER: The economic stimulus plan passed the House with no Republican support and only three Republican votes in the Senate.

SEN. JOHN MCCAIN (R), ARIZONA: And it was a bad beginning.

SCHNEIDER: Why isn't bipartisanship working?

There's real urgency out there.

OBAMA: When you start seeing an economic crisis of this magnitude, everybody's got to chip in. Everybody has got to pull together. Politics has to stop.

SCHNEIDER: But it hasn't. The red versus blue divide is still very much alive in Congress. When President Obama allowed House Democrats to shape the initial stimulus plan, it ran right into the buzz saw of old political divisions.

GRAHAM: I think the president should have gotten more involved in trying to bring Republicans and Democrats together to find common ground.

SCHNEIDER: But the plan passed.

What difference does it make that it got so little Republican support?

It means the stimulus will be a continuing issue of partisan controversy.

President Obama is betting it will work.

OBAMA: It will save or create more than 3.5 million jobs over the next two years.

SCHNEIDER: Republicans sound like they're invested in failure.

SEN. JOHN MCCAIN, (R) ARIZONA: A lot of this package will not create jobs.

SCHNEIDER: They say they're just concerned.

REP. JOHN BOEHNER, (R-OH) HOUSE MAJORITY LEADER: I hope this bill works, I really do, for the good of our country, but my concern is that the plan that's outlined will not do what we want it to do.

(END VIDEOTAPE)

SCHNEIDER (on camera): The stimulus has become partisan. If the economy does not improve, Democrats will be held accountable. If things do get better, Republicans could face serious political backlash. In either case, we'll hear the dreaded words "I told you so" -- Wolf?

BLITZER: We always do hear those words in Washington. All right, Bill, thank you.

Let's discuss this and more with Democratic National Committee communications director Karen Finney and Republican strategist Rich Galen. Andrew Sullivan wrote this, rich, let me read to you what he wrote in a Times Online piece on Sunday entitled "Republican Taliban declare jihad on Obama." Strong words. He says this, "From the disciplined House vote against any stimulus bill to the Gregg," Judd Gregg, "withdrawal, they are busy trying to revive the clear ideological warfare of the 1990s. As they did with Clinton 16 years ago, they are going to war. It is certainly easier than forging difficult and messy legislative compromises that might even redound to the president's advantage if the economy recovers." What do you think of that assessment?

RICH GALEN, REPUBLICAN STRATEGIST: I think it's wrong. I think Republicans -- let me say I was in the majority with republicans when they kind of -- not kind of -- when he steamrolled over the Democrats, so fair is fair, it's the Democrats' time to be behind the steering wheel of the steamroller, but Republicans were not consulted at all at the beginning of the process, as Bill pointed out, the Democrats in the House got the first crack at this thing and everybody had to chip away from it or get it. But let me say this about bipartisanship. There's nothing wrong with making the other side test their theories. The notion of bipartisanship doesn't mean the minority has to roll over and just do whatever the majority wants, but I think what we need to stay away from is the kind of personal attacks that frankly I don't think we've heard. We've heard policy attacks. That's legit.

BLITZER: What do you think, Karen about this whole issue of bipartisanship right now?

KAREN FINNEY, DEMOCRATIC STRATEGIST: I think the problem that the Republican Party is going to find itself in is that "I told you so" is not really a winning strategy. That is not really going to solve the problems that we're facing. And I think part of what we've seen is when you have a straight line party vote it's clear they had no interest in any way, shape or form in sincerely working with Democrats on the legislation. Look, we've known since November we were going to need to work on a stimulus package. Why didn't they get to work then and put some ideas forward? Why did they wait to have to be asked, why did they put forward some amendments?

GALEN: No, no, no, no, no you - you have to understand -- I'm sorry, let me just interrupt for the briefest second. In the House a bill comes to the floor under what's called a rule, and the majority, again, we did the same thing, the majority gets to set the rules in terms of how many or if any.

FINNEY: But again, they didn't have to -- the Republicans could have gotten started a long time ago on this.

GALEN: And this was done not only in the dark of night, but behind closed doors with only Democrats in the House and Senate in the Conference Committee.

FINNEY: The day the president went up to the Hill, Rich, to meet with Republicans, they already decided they weren't going to vote for it.

GALEN: That's because they didn't get a say.

BLITZER: Hold on, elections obviously matter and the decisive majority in the House of Representatives matter, and I think Rich makes a fair point. If the shoe was on the other food, the republicans would probably be doing exactly what the Democrats have done as well. That goes with the territory.

Let me move on to Hillary Clinton right now. Because she's on her first overseas trip in Asia right now. She's already got some suggesting that with Joe Biden the vice president, George Mitchell and special envoy, Holbrooke a special enjoy, is it too much competition? Listen to her husband, the former president.

(BEGIN VIDEO CLIP)

BILL CLINTON, FORMER PRESIDENT OF THE UNITED STATES: Not concerned about it. And these envoys were her idea, both the ideas of the envoys and the people who were selected. And she thinks that Joe Biden has got one of the best foreign policy minds and certainly some of the most important foreign policy experience we've had.

(END VIDEO CLIP)

BLITZER: All right. Karen, you buy that explanation, or is there a problem here?

FINNEY: Absolutely. Look, given the magnitude of the challenges, I think we need as many of the heaviest hitters and best and brightest that we can get working on these issues.

I don't think that we need to worry about Secretary Clinton in any way, shape or form being overshadowed. Here trip to Asia is off to a great start. It's an important signal that she's headed to Japan first, and I think it's just as important to have George Mitchell and Dick Holbrooke out there. We've got a lot of challenges and I know the secretary really respects the whole team.

BLITZER: Very quickly, Rich.

GALEN: Well, the fact is that, now the White House is going to be up in arms about the fact that Bill Clinton said these are all her ideas, making it sound like the president had nothing to do with it, which none of us believe. I have a huge amount of respect for Mrs. Clinton. She'll do just fine.

BLITZER: All right, guys, we'll leave it on that note. Thanks very much. A sleepover inside the California capitol, but this is no slumber party. Lawmakers are trying to win just one more Republican vote as the state's budget crisis deepens.

Plus the mother of those California octuplets was facing criticism from her mother. But now there's been a change of heart. What the grandmother is saying, we'll tell you, right here in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: It's almost unbelievable what's happening in California right now and in other states because of the economic crisis. Let's head out to Dan Simon. He's in California watching a marathon session that seems not to have resolved this issue at all, Dan. What do we know?

DAN SIMON, CNN CORRESPONDENT: Well, hi, Wolf, the legislature has reconvened after a grueling weekend. Just one more vote is needed to pass this budget, but no one seems to be budging.

(BEGIN VIDEOTAPE)

SIMON (voice-over): Saturday night in Sacramento, a sleepover for lawmakers.

DARRELL STEINBERG, (D) CALIFORNIA STATE SENATE PRESIDENT: It's been a long night, but you know what? I'm ready to go, and we're all here, packed a little bag, and we're going to stay here.

SIMON: Senate leaders refused to adjourn until they had all their votes to pass a budget. They need just one more Republican aboard. All they need are three for a required two thirds majority, but one senator they've been counting on had his mind made up.

DAVE COX, (R) CALIFORNIA STATE SENATE: My answer is no, and I'm not looking for additional information. I've made my decision. You get to the point where it's a matter of principle.

SIMON: For Republicans, it's about the taxes. A $14 billion- plus increase to help erase the state's $42 billion deficit. Most Republican legislators have taken pledges to never raise taxes, and fear that doing so could cost them at the polls.

ABEL MALDONADO, (R) CALIFORNIA STATE SENATE: Taxing the people of California close to $15 billion is a hard pill to swallow.

SIMON: But Governor Schwarzenegger and leading democrats say it's the only way out, along with $15 billion in spending cuts, more than half slashing education programs.

KAREN BASS, (D) CALIFORNIA ASSEMBLY SPEAKER: This is a budget that is painful. I am proud of the fact that we are solving a $41 billion problem. I'm proud of that, but to say that I'm happy about everything in the budget, how could I be happy about cutting education?

SIMON: If the measure fails, Governor Schwarzenegger is threatening to lay off as many as 10,000 state employees. That would be in addition to the mandatory two day a month furloughs already affecting the wallets of more than 200,000 state workers.

(END VIDEOTAPE)

SIMON (on camera): How did the deficit get so large? Well, one reason is the state's unemployment rate. It has risen to a 15-year high at 9.3 percent, a couple points above the national average. And that has meant a huge reduction in state income taxes -- Wolf?

BLITZER: Dan Simon, thanks very much.

And we're just getting this story, the Associated Press reporting that Kansas, the State of Kansas has now suspended its income tax refunds to folks in Kansas because the state simply doesn't have enough money in its main bank account, the AP also reporting that the state may not necessarily be able to pay its employees on time in the coming days and week. The Democratic Governor Kathleen Sebelius wants to transfer monies from other accounts, but she needs approval from the legislature, she doesn't have it yet. Meanwhile, her name has reported widely as a possibility secretary of health and human services? What's going on in Kansas? We're watching this story. Because it's not only Kansas, but California and several other states across the country.

This economic crisis having dire consequences right now.

First there was surprise and then resentment. Now the grandmother of those California octuplets says she's had a change of heart. Angela Suleman is opening up about her daughter and her 14 grandchildren. CNN's Thelma Gutierrez is following the story -- Thelma?

THELMA GUTIERREZ, CNN CORRESPONDENT: Wolf, the octuplet's grandmother, Angela Suleman, says before the babies were born, she was resentful toward her daughter, because she already had six other children. She was unemployed and living with her parents, but after seeing her grandchildren, Suleman says she's no longer angry.

(BEGIN VIDEOTAPE)

GUTIERREZ (voice-over): This is Angela Suleman's home in Whittier, California. She's retired and lives on a fixed income. Soon her now-famous daughter Nadya will bring home eight babies who will join six siblings to live in Suleman's cramped three-bedroom home.

NADYA SULEMAN, OCTUPLET GRANDMOTHER: My retirement check goes every month. It's just gone.

GUTIERREZ: In an exclusive interview with CBS's Maggie Rodriguez, the grandmother of the famous 14 says her daughter Nadya never told her about her plans to undergo in vitro fertilization to have more babies. She says she didn't find out until her daughter's belly began to grow.

SULEMAN: She didn't tell me because she knew I didn't want her to do it.

GUTIERREZ: Suleman admits she was angry at her daughter at first until she saw the babies in the neonatal intensive care unit.

SULEMAN: After I saw them, you know, I thought my goodness, these are my grandchildren, they're so tiny and fragile. I'll have to be there for them.

GUTIERREZ: Tiny and fragile, and at the center of a controversy to how they came into the world, and growing public anger toward their 33-year-old unemployed mother, and the fertility doctor who made it possible by transferring the embryos that resulted in octuplets.

ALEXANDER CAPRON, MEDICAL ETHICIST, UNIVERSITY OF SOUTHER CALIF.: The fertility field has been most rife with controversy. What it raises is the concern about the use of this technology.

GUTIERREZ: Nadya Suleman, who now has a Web site, says she plans to go to school to get a master's degree and then get a job to support all 14 of her children. Her mother tells CBS that makes her feel better.

SULEMAN: You can resent your daughter for so long, and then you see she's trying so hard, you know, to take care of these children, and she's a good mother.

(END VIDEOTAPE)

GUTIERREZ (on camera): Angela Suleman says her home is too small to accommodate her daughter and 14 grandchildren. She says she's going to try to help them try to find a larger home. As for Nadya, she now has a Web site where people can leave comments or make a donation -- Wolf?

BLITZER: Thelma, thank you for that update. Meanwhile a former president is sizing up President Obama and has a message for Republicans.

(BEGIN VIDEO CLIP)

CLINTON: Well, first of all he has reached across and it takes two to tango.

(END VIDEO CLIP)

BLITZER: Bill Clinton tacking about the lack of bipartisanship on the stimulus. You're going to find out what he says will be the president's next

And the high-speed travel plans President Obama has for America. Did you know you're paying for this? Stay with us, you're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: A lavish show today marked the 67th birthday of a reclusive leader. That would be North Korea's Kim Jong-Il. Noticeably absent from the festivities, the dictator himself fueling speculation his health is failing and adding to the uncertainty in a volatile region of the world. CNN's John Vause has the story.

(BEGIN VIDEOTAPE)

JOHN VAUSE, CNN CORRESPONDENT (voice-over): Few things say happy birthday more than 100 synchronized swimmers performing a special tribute or dancers in what looked like an old-styled variety show.

And if North Koreans were left in any doubt whose big day this is, "Let's not forget what Kim Jong-Il has done for us, they sing. He's protected our happiness."

On state-run television reports of an early spring thaw, snow melting on Kim Jong-Il Peak and the moon was shining over daylight over the log cabin where the Dear Leader is said to have been born.

Kim emerged recently in public with an official from China's Communist Party, inspecting military units, looking noticeably thinner. He's now 67, with a history of smoking, possibly diabetes, heart problems and high blood pressure, and may also be recovering from a stroke, which he suffered last August, according to U.S. intelligence.

(on camera): Right now, though, with Kim apparently back in control, there's growing speculation that the North is preparing to test-fire a long-range missile. Pyongyang though, says it's just part of their space program, but analysts say in the past that's been North Korean doublespeak for a rocket launch. John Vause, CNN, Beijing.

(END VIDEOTAPE)

BLITZER: All right. Let's go right back to Zain. She is getting reaction from Michael Phelps on the decision in South Carolina. What do we know about it, Zain?

VERJEE: Olympic swimmer Michael Phelps just responding now to the fact that charges will not be pressed against him after that infamous photograph emerged of him smoking from a marijuana pipe. Here's what he had to say.

(BEGIN VIDEO CLIP)

MICHAEL PHELPS, SWIMMER: Pretty happy with having this thing sort of rest a little bit. I realize that I have made a mistake and a bad judgment, and this is something that I need to learn from, I will learn from, and have learned from. And I think from now on, it's for me to try to get a message across to kids. You know, I know that a lot of people make mistakes and the best way to learn from them is changing things. And if I can help people from making the same mistake that I made, and it helps in the future for me and trying to get back in the water and swimming a little more regular and trying to get my normal schedule back is really what I'm looking forward to.

(END VIDEO CLIP)

VERJEE: Michael Phelps saying he wants to get his life back and move forward -- Wolf?

BLITZER: All right, Zain. Good luck to him. We hope he does succeed in that.

As long as black jack has been around, gamblers have tried to count cards as a way to maximize profits. Now Las Vegas is catching on to an iPhone program that makes counting cards easy. Our Internet reporter Abbi Tatton is here to explain what's going on. Abbi, how does this work?

ABBI TATTON, CNN INTERNET REPORTER: Wolf, card counting has been around forever but now Nevada gaming officials are warning casinos there's this new iPhone application out there that makes it a whole lot easier. Here's your blackjack table now, if we can show you how this works. Here's the, phone application here. On the blackjack table, two high cards, punch those in, and one, two, three, four, five low cards there as well. Punching this in is keeping a running count of what's in the deck, so helping you predict what might be coming up. It even has a vibrate to tell you when's a good time to bet high. The Nevada gaming control board has alerted casinos to be on the lookout for this kind of suspicious iPhone use, that's because using a device to count cards is illegal in Nevada casinos.

Now it does come with a warning, do not use this in casinos, but it also comes with a function called stealth mode which blanks the screen so you can be doing this and no one can tell -- Wolf?

BLITZER: Unless you're holding it in your hand and they see you doing it.

TATTON: You can do it in your pocket, maybe. We're not giving anyone any ideas.

BLITZER: Good point. All right, Abbi, thanks very much.

Former President Bill Clinton pulling no punches with the Republicans.

(BEGIN VIDEO CLIP)

CLINTON: Those guys are on automatic. They have, you know, you punch a button and they give you the answer they give you.

(END VIDEO CLIP)

BLITZER: That's just the beginning of what Bill Clinton had to say. Is now the time to spend billions of dollars to upgrade the president's helicopter fleet? We're working that story as well right here in THE SITUATION ROOM.

(COMMERCIAL BREAK) BLITZER: Tomorrow, President Obama will sign the economic stimulus bill into law. It's an achievement that didn't come without a fight, so how is the president doing?

Former President Bill Clinton offered his own candid opinion. He was in Austin, Texas this weekend hosting the Clinton Global Initiative University, that encourages college students in higher institutions to come up with projects and ideas to address global issues. The former president spoke with CNN's John Roberts.

(BEGIN VIDEOTAPE)

JOHN ROBERTS, CNN ANCHOR: What do you think of the job President Obama did on this? And is he, in fact -- does he, in fact, have the experience necessary to be a good president, reach across party lines and craft a bipartisan bill?

CLINTON: Well, first of all, he has reached across, and it takes two to tango. I find it amazing that the Republicans, who doubled the debt of the country in eight years and produced no new jobs doing it, gave us an economic record that was totally bereft of any productive result, are now criticizing him for spending money.

You know, I'm a fiscal conservative. I balanced the budget. I ran surpluses. If I were in his position today, I'd be doing what he's doing. Why? Because the problem with the economy is the housing decline led to the general decline in values. Assets are going down. The only -- this stimulus is our bridge over troubled waters until the bank reforms kick in.

He did the right thing. He did everything he could to get Republican support. He took some of their tax cutting ideas.

But if you look at this bill, it is designed to do three things, and it does all three. It puts money in the hands of people who need money to survive -- unemployment benefits, food stamp benefits, tax cuts.

Second thing it does is to give money to state and local governments so they don't have to lay a million people off or raise taxes. Either one would be bad for the economy.

The third thing it does is create new jobs.

And I think, given the Congress he had and the environment and the speed with which they had to move, I think he did a fine job with this.

ROBERTS: So what's your take then on what Senator McCain said, that he's off to a terrible start?

CLINTON: Well, I just disagree with him, but we have a different economic philosophy. For example, there's a hundred economic studies which show that you get a better return in terms of economic growth on extending unemployment benefits or investing money in energy conservation jobs to improve buildings than you do giving people of my income group a tax cut. But it doesn't stop them. Those guys are on automatic. They have a, you know, you punch a button and they give you the answer they give you.

I think that there are a lot of tax cuts in that bill for middle- class families, for lower-income families. There's a $7,500 tax credit that will kick in when these plug-in electric vehicles go on the market, which could help us to become the world's leader in that and secure us jobs for a decade or more.

ROBERTS: Do you really think the president can change Washington, can bring the type of change to Washington that he campaigned on? He's already up against a wall, against the Republicans in Congress. Not quite as big a wall as you found yourself up against in 1993, but he does seem to be having some difficulty. Do you think he really can bring change to Washington?

CLINTON: Here's what I think will happen. I think that as we go along, if the American people stick with him and if he begins to have good results, then I think more and more Republicans will cooperate with him, because they will see that he's right, or because he carried their states, or for any number of reasons.

ROBERTS: How long do you think he has?

CLINTON: Well, I think that, first, his next big challenge is to come forward with the details of how we're going to rewrite as many home mortgages as we can, how are we going to take some of these bad assets off the banks' books so they can get cleaned up and they can loan money. And what conditions will we give more money to banks for? That is, they're going to have to loan money from now on. That's what Secretary Geithner is working on.

Those three things make a lot of sense. That's our long-term answer.

The stimulus is our bridge over troubled water, I'll say again.

So when he does that, as it starts to work, and people see America start moving again, then I think you will see people open up and we'll see a more bipartisan spirit develop.

ROBERTS: How much time do you think he has? A hundred days, six months, a year, two years?

CLINTON: I think that, first, he's got -- the public, I believe, will support him at least for a year in trying to work these things out. And he's been very straightforward in saying it might take as much as two years for the economy to really get in gear again.

My instinct is it will happen a little quicker than that.

But keep in mind, before he ever took office, $30 trillion had disappeared. That's more than twice America's annual gross national product.

(END VIDEOTAPE) BLITZER: Former president speaking with our John Roberts.

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

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