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THE SITUATION ROOM

President Obama's Letter to Russia; Presidential Helicopter Data Breach; Terror Attack on Sports Team; Pakistan's "State of War"

Aired March 3, 2009 - 17:00   ET

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


BLITZER: Thank you, Jack.

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

Happening now, President Obama's letter to Moscow hinting at how Russia might avoid a U.S. missile shield build in its own backyard.

A brazen and bloody terrorist act targeting a sports team -- the shocking gun battle all caught on camera.

Are terrorists pulling Pakistan apart at the seams?

And the head-on train collision which killed 25 people -- investigators now tell how the engineer was texting a friend only seconds before the crash. But that's not all they found.

I'm Wolf Blitzer.

You're in THE SITUATION ROOM.

President Obama says it's time for the U.S. to reboot its relationship with Russia and he's revealing how he wrote to his counterpart in Moscow calling for cooperation against a potential threat to both countries.

Let's go to our White House correspondent, Dan Lothian.

He's watching this story for us -- some strong words, Dan, from the president today.

DAN LOTHIAN, CNN CORRESPONDENT: That's right. In that letter that the president did send to the Russian president, suggesting that Russia could play a role in reducing Iran's nuclear threat. This is an ongoing concern for the United States.

(BEGIN VIDEOTAPE)

LOTHIAN (voice-over): To Russia with love -- President Obama's letter is viewed as a diplomatic back door effort to deal with Iran.

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: What I said in the letter was that, obviously, to the extent that we are lessening Iran's commitment to nuclear weapons, then that reduces the pressure or the need for a missile defense system. LOTHIAN: In other words, the U.S. might not move forward with that missile defense system, which Russia opposes, if Iran drops plans for producing nuclear weapons. And the letter suggested the Russians could play a role in influencing Iran.

Former Secretary of Defense, William Cohen.

WILLIAM COHEN, FORMER DEFENSE SECRETARY: I don't think there will be a diplomatic solution to Iran without Russia.

LOTHIAN: That missile defense system in Russia's backyard would be based in Poland and the Czech Republic. The letter, which the White House refused to distribute, was hand-delivered to Moscow three weeks ago.

Senior administration officials say Mr. Obama presented Russian President Dmitry Medvedev with an incentive, but insisted it was not a quid pro quo.

At the Pentagon, Secretary Robert Gates said the U.S. is not trying put Russia on the spot.

ROBERT GIBBS, WHITE HOUSE PRESS SECRETARY: We're trying to reopen a dialogue and say we are open to talking with you about how we address this problem and how we can move forward.

LOTHIAN: Or, as the president himself put it...

OBAMA: We need to reset or reboot the relationship there.

LOTHIAN: President Medvedev says a conversation is ongoing, but that he still opposes the anti-missile system.

PRES. PRESIDENT DMITRY MEDVEDEV, RUSSIA (THROUGH TRANSLATOR): It complicates the situation in Europe instead of making it more secure.

(END VIDEO TAPE)

LOTHIAN: From Iran's standpoint, all this talk is just that. They deny the existence of a nuclear weapons program and say that all they're trying to do there is a peaceful program to produce nuclear power -- Wolf.

BLITZER: Dan Lothian is over at the White House.

Thank you.

Here's a security breach involving the president's Marine One helicopter fleet. This is a shocking story.

How did blueprints for one of the aircraft actually end up on a computer in Iran -- Iran?

Let's bring in Brian Todd.

He's looking at the story for us. How did this happen -- Brian?

BRIAN TODD, CNN CORRESPONDENT: Well, Wolf, it happened in a sequence of events that were mostly unnoticed at the time and seemed fairly benign at the time but have a chilling outcome.

(BEGIN VIDEOTAPE)

TODD (voice-over): Diagrams of cockpit systems, lists of key helicopter parts.

BOB BOBACK, CEO, TIVERSA, INC.: Radar warning set, counter- measure measure dispensing set.

TODD: Lists found in documents for a cockpit upgrade for one of the helicopters in the president's fleet Marine One. Some of this information now in the hands of an unauthorized user in Iran.

BOBACK: The fact that it is in their possession, this is a problem.

TODD: An independent company called Tiversa, which monitors Internet file sharing networks, discovered last summer that this information had leaked out and told the government.

Tiversa noticed last week that a user in Iran had picked it up. It's not clear who that user is.

A Navy spokesman tells us the military looked into the leak last summer when it first happened and found that the information is not classified and doesn't compromise the security of the president's helicopters.

But the spokesman says these diagrams still shouldn't have gone out on the Internet.

And a former Pentagon logistics official says the danger is that someone in Iran could take that cockpit information and piece together a more comprehensive picture later.

DAVID BERTEAU, CENTER FOR STRATEGIC & INTERNATIONAL STUDIES: And do they actually want to target the helicopter?

Do they want to learn more about how we build our systems?

Do they want to learn more about our technology?

Do they want to reverse engineer it and build something of their own with their own capability?

It could be any of those purposes. We have no idea.

TODD: How did it leak?

Tiversa's CEO tells us a private contractor who works with one of the manufacturers of the Marine One fleet had access to the information. He says that person likely put it on a personal computer which also had file sharing capability. File sharing is commonly used to swap movies and music. Experts say when sensitive documents are put on a computer that also has file sharing, anyone on the outside can get it.

BERTEAU: Somebody knew when he was opening it, were ready to pounce, found what they were looking for and pulled it out.

(END VIDEO TAPE)

TODD: Now the name and firm of that private subcontractor are not being revealed. Tiversa's CEO tells us the person responsible for that breach at that firm did not realize this information was leaking out at the time. A Pentagon official tells us the major defense firms who make the current and future models for Marine One -- those firms are Sikorsky and Lockheed Martin -- they had nothing to do with this breach -- Wolf.

BLITZER: Does this kind of sensitive information that's passed along through these file sharing systems, are they potentially getting to other dangerous places?

TODD: They really are. Tiversa, the company that monitors this, tell us that they have picked up people in Yemen, Syria, China and Pakistan accessing sensitive information through these file sharing systems. If you have file sharing on any home computer -- maybe if one of your kids uses it to share movies or music with a friend -- and you put sensitive information on that same computer, anyone can get. It's really a dangerous kind of filter that does not exist there.

BLITZER: It's a whole new world out there.

TODD: Right.

BLITZER: Thanks very much, Brian.

Brian Todd reporting.

Let's go back to Jack Cafferty.

He has The Cafferty File -- Jack.

CAFFERTY: We spend how much in the war on terror?

That's all very comforting, isn't it?

BLITZER: Yes.

CAFFERTY: Rush Limbaugh, the face of the Republican Party -- at least that's how some Democrats want it.

White House Chief of Staff Rahm Emanuel calls Limbaugh "the voice and intellectual force and energy behind the GOP."

Press Secretary Robert Gibbs says Limbaugh is "a national spokesperson for conservative views." This after Limbaugh recently repeated his claim that he wants President Obama to fail. It also comes at the same time as a dust-up of sorts within the conservative ranks between Limbaugh and Michael Steele, the chairman of the Republican National Convention.

Over the weekend, Steele called Limbaugh "an entertainer whose comments are ugly."

Needless to say, Limbaugh has had a field day with the finger- pointing, going after both the Democrats and Steele on his radio show. Limbaugh insists he's not in charge of the GOP, he doesn't want to be in charge. He says considering the sad state of the Republican Party, if he was in charge as chairman, he'd quit.

As for Steele, Limbaugh suggests he appears to be supporting President Obama and Nancy Pelosi and that he's being used by the liberal media.

Well, after Rush's millions of listeners heard that, it took Steele about three minutes to start backpedaling and reach out to Rush Limbaugh to say I'm sorry, that his words came out wrong, that he has enormous respect for Rush Limbaugh and that what he actually meant was that a lot of people want to make Limbaugh the bogey man when he's not.

Steele said today he's talked with Limbaugh and: "We are all good."

He'd better hope so.

Here's the question -- who's running the Republican Party, the RNC or Rush Limbaugh?

Go to CNN.com/caffertyfile and post a comment on my blog -- Wolf.

BLITZER: Get ready, Jack. You're going to get a lot of comments.

CAFFERTY: I already have. Yes, that was the top...

BLITZER: Really?

CAFFERTY: That was the top e-mail getter of the three questions already today.

BLITZER: I'm sure it was.

CAFFERTY: Yes.

BLITZER: I have no doubt.

All right, Jack.

Thank you.

A terrorist attack on a sports team -- ambushing a busload of athletes in a bloody attack in Pakistan and it's caught on videotape. Will this kind of terror rip the country apart?

CNN's Fareed Zakaria is standing by live. He's about to join us.

Also, new details of text messages sent by an engineer only seconds before the deadly train wreck. But now we're learning that he was going to let a teenage friend operate the locomotive.

Plus, the mother of those octuplets inspiring some states to consider new laws that would prevent her situation from happening there. But there are serious ethical concerns. We'll explain that and more, right here in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: Wow -- a terror attack caught on camera. The target -- a sports team in Lahore, Pakistan. A dozen or more gunmen ambush a bus carrying athletes from Sri Lanka. At least seven police officers and a driver are dead and a number of those cricket players wounded. The terrorists, though, still at large.

CNN's Stan Grant is over at the scene in Lahore -- Stan?

STAN GRANT, CNN CORRESPONDENT: Wolf, this is the site where the bloody attack took place. It was carried out in broad daylight -- an executed, coordinated attack by the gunmen that has absolutely left Pakistan stunned and, in the words of the prime minister, humiliated.

(BEGIN VIDEOTAPE)

GRANT (voice-over): Dramatic video capturing this bloody attack in real time. Local media cameras showing heavily armed men emerging from nearby bushes onto a busy Lahore intersection. Sounds of gunfire clearly audible. The gunmen fire on their target -- a bus carrying the visiting Sri Lankan cricket team. Some of the attackers seen taking shelter -- the scene a blur of battle.

Pakistan police fire back.

(VIDEO CLIP)

GRANT: They take casualties, dead officers visible on the ground.

(on camera): This is the spot where the attack took place. The bus came down here, carrying the Sri Lankan players. This is a busy roundabout. The gunmen were behind the bushes over there. But as you've seen, they stepped out behind those bushes and that's when they opened fire.

(voice-over): The driver of the Sri Lankan team bus heroically accelerates, taking the players out of the firing line.

UNIDENTIFIED MALE: In front of me was the S.P. Van (ph) and two police vans. And the attackers targeted those first.

GRANT: A number of Sri Lankan cricketers wounded -- miraculously none seriously. Quickly, they are whisked away by helicopter from the nearby cricket stadium -- the tour of Pakistan immediately abandoned. The players returning home to Sri Lanka.

This attack showing just how vulnerable Pakistan is.

UNIDENTIFIED MALE (THROUGH TRANSLATOR): Our relations with Sri Lanka are very good. They came here on our invitation and their protection was our responsibility. I feel that this incident has humiliated the country and the whole nation. This has tarnished the prestige of Pakistan.

GRANT: The Sri Lankan cricketers escaped serious injury. Pakistan's international reputation, though, suffering potentially irreparable harm.

(END VIDEO TAPE)

GRANT: And the gunmen who carried out this attack still at large. The investigation now just beginning -- trying to find out who may have carried this out and why -- Wolf.

BLITZER: Stan Grant reporting from Lahore, Pakistan. Cricket, by the way, is an obsession in South Asia. It's often described as a religion.

The bat and ball sport was brought to the region during the days of the British Empire. Four South Asian nations are at the core of international cricket. And the 2007 World Cup was televised in 200 countries, to an estimated two billion viewers.

Afghanistan is also passionate about cricket. Refugees grew to love the game while living in camps in Pakistan. The Taliban originally opposed the sport, but later accepted it reluctantly.

Let's bring in CNN's Fareed Zakaria.

He's the host of "FAREED ZAKARIA GPS," which airs Sundays here on CNN -- how worried, Fareed, should we be about the stability of a nuclear-armed Pakistan right now?

FAREED ZAKARIA, HOST, "FAREED ZAKARIA GPS: There's no question, Wolf, that Pakistan is probably the most dangerous country in the world right now -- dangerous not in the sense that it is threatening to use its formal military against anyone, but threatening in that it is unstable, it is weak. It has within it this cancer of Islamic terrorism, which is growing so great that it has turned into a kind of Frankenstein's monster.

It threatens Afghanistan, India, Pakistan itself and, of course, the United States and the West in general.

It's -- it's a very tough situation out there.

BLITZER: Because the nightmare scenario, as you know -- and a lot of our viewers know, Fareed, is that that nuclear arsenal gets into the hands of these terrorists. How secure, based on everything you know -- and you've studied this very closely -- is the control over that -- those nuclear weapons?

ZAKARIA: You know, I was, Wolf, in a meeting with General Kiyani, the head of the Pakistani Army, just a couple of days ago, in which one of us asked him precisely that question. And he gave me the same answer General Musharraf had given me when he was the head of the Army and president of Pakistan, which was these are very secure, we have it under control, there's very little danger.

I have to say that, in general, the sense one gets of the Pakistani Army is that it is professional, it is disciplined. The problem is the country is falling apart around them. And so it's not a question of whether the military and its command and control is in shape. I don't think there's a danger of some kind of colonel taking over the arsenal.

But what if the whole country collapses into a sudden degree of chaos?

What happens then?

And do people start freelancing at that point, as they did in the final days of the Soviet collapse, which is why we have the problem of loose nukes in the Soviet -- in the former Soviet Union?

BLITZER: The Pakistanis' claim that the continuation of these drone strikes on Taliban or Al Qaeda suspected targets inside Pakistan merely undermines the legitimacy of a pro-Western government in Islamabad and in Pakistan.

Do they have a point?

Should the Obama administration rethink these attacks inside Pakistan and simply allow the Pakistanis to try to get the job done?

ZAKARIA: I think there's something to what you're saying, Wolf. That is, the key here is public support -- public support for the war on -- against Islamic terrorism.

If their sense of the United States is that we are bombing indiscriminately, there's a lot of collateral damage -- remember, our intelligence is not that good. The idea that we are hitting, you know, solid, legitimate Al Qaeda target in every case has simply not been borne out by the evidence.

So I think if we have absolutely incontrovertible evidence, go for it. But otherwise as you say, I would much prefer to let the Pakistanis do it -- strengthen their capacity.

Because, at the end of the day, they have to win this war. One day, we're going to have to go home. And they are going to have to find a way to kill this cancer of militancy.

I think, by the way, Wolf, that these attacks will -- they will produce a backlash in Pakistan. As you pointed out, cricket is a kind of religion. And the terrorists have kind of insulted or humiliated Pakistan in its own eyes, in the eyes of the world. And I think this is one more area here Al Qaeda always overplays its hand and it produces a backlash against it.

It happened in Iraq. It's possible it will start happening in Pakistan.

BLITZER: Let's see. Let's see what happens.

Fareed, thanks very much.

ZAKARIA: It's a pleasure, Wolf.

BLITZER: And don't forget, "FAREED ZAKARIA GPS" airs every Sunday, 1:00 p.m. Eastern, right here on CNN. If you haven't seen it, you should. 1:00 p.m. Eastern, "FAREED ZAKARIA GPS," on Sunday.

He's accused of run -- he's accused of running the largest Ponzi scheme, bilking investors out of billions and billions of dollars. But now Bernard Madoff is asking a judge to let him keep something very valuable.

Plus, John McCain's daughter and some very personal fallout from her father's failed presidential campaign. She reveals the hardest part of her post-election life. We'll tell you what's going on, right here in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: Let's check in with Zain Verjee.

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

VERJEE: Wolf, the man accused of bilking investors of $50 billion is giving up the rights to his business, but not the fancy apartment. A court document filed yesterday shows Bernie Madoff will hand over his investment firm and company perks, which, once liquidated, could benefit customers. But Madoff's lawyers are asking a judge to let his wife kept $70 million worth of assets in her name, including their New York apartment.

Nearly eight years after a Washington intern disappeared, a laborer from El Salvador is now charged with her murder. Chandra Levy went missing in 2001. Her remains were found in D.C.'s Rock Creek Park. Today, police issued an arrest warrant for a man already serving time for attacking two women in the same park. Levy's case gained notoriety when her relationship with Congressman Gary Condit became public.

And, Wolf, superstar Michael Jackson could stage a come back. The king of pop scheduled a news conference for Thursday at the London Arena. There are reports that he's going to announce a series of summer concerts in London. Jackson has had financial trouble, including the near foreclosure of his Neverland Ranch since his child molestation trial in 2005, in which he was found not guilty.

Do you think he can make a comeback, Wolf?

BLITZER: I think he can. And I know you were a huge fan when you were growing up in Kenya.

(LAUGHTER)

VERJEE: I was, actually.

BLITZER: What about "Thriller?"

You loved that.

VERJEE: I did. I did.

BLITZER: Yes, I know you did.

All right. You're going to go.

(LAUGHTER)

BLITZER: I know Zain's going to be at the concert in London. I guarantee it.

(LAUGHTER)

BLITZER: Thank you.

Senator John McCain's daughter Meghan was a fixture out there on the campaign trail with her dad. And that, she says, has killed her personal life.

Let's go to our Internet reporter, Abbi Tatton -- Abbi, what exactly is she suggesting?

ABBI TATTON, CNN INTERNET REPORTER: Wolf, apparently being the daughter of a presidential nominee plays havoc with your love life. Yes, Meghan McCain is having trouble dating.

So she tells the world on a blog post on the Web site The Daily Beast, where Meghan writes: "Nothing makes her more ill than the idea of some guy bragging that he was on a date with John McCain's daughter."

She says she's not attracted to men who supported President Obama, but that she also can't stand obsessive supporters of her dad. Men who are Facebook friends or Facebook supporters of John McCain apparently a complete turn-off.

And her mom -- this extends to her mom, as well. Meghan says one obsessive fan of her mother's told her she could be his Cindy.

All of this, she says, has left her scarred. And she's telling fathers out there that if you want your daughter to be single, run for president -- Wolf. BLITZER: OK. Thank you, Abbi.

Thanks very much.

Coming up, is all the dire economic news good news for President Obama's agenda?

Donna Brazile and Tucker Eskew -- they're standing by live.

Michelle Obama pays tribute to U.S. military families.

What's behind her visit to Arlington National Cemetery today?

And she's become known as the octo mom, but some state lawmakers are now trying to limit the number of embryos that other women can have implanted. We'll explain, 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 says she has to watch her words carefully. The long time U.S. ally that's giving her an earful -- that's still ahead.

Plus, in this down economy, there's one employer actually seeing a spike. And that would be the U.S. military. It's a sign of the times. But with so many people wanting to join, a perk is disappearing.

And a day after a big tumble, investors didn't seem all that excited to get back into the market. The Dow once again closing down today. Analysts say there's still fear and this economy is far from any recovery.

I'm Wolf Blitzer.

You're in THE SITUATION ROOM.

Let's get right to our guests. There's a lot to discuss.

Joining us now in our Strategy Session, our CNN political contributor, Donna Brazile, and Republican strategist, Tucker Eskew. He's a partner in the management and communications consulting firm ViaNovo.

TUCKER ESKEW, REPUBLICAN STRATEGIST: ViaNovo.

BLITZER: ViaNovo. I said it right.

(LAUGHTER)

ESKEW: You got it.

Thank you, Wolf.

BLITZER: Guys, thanks very much for coming in.

Let's talk a little bit about what's going on -- and there is a lot going on.

Is he asking -- trying to do too much right now, the president of the United States?

Because he's got such a full agenda out there and some are saying you know what, the economic situation is so critical, why not simply focus on that and leave global warming and education and all these other issues to a better day?

DONNA BRAZILE, CNN CONTRIBUTOR: Because I believe all of these issues are interrelated. And the president made a speech last week, as you well know, Wolf. And he said that, in addition to solving our economic problems, we have to focus on the future. And that's why he decided to put an emphasis on education and health care and energy independence. They are interrelated. And I think the president is doing the right thing in putting all these issues, including...

BLITZER: And you include health care reform in that. Because that, in and of itself, would be an enormous challenge, even if there weren't all these other issues out there.

BRAZILE: One out of five Americans are facing bankruptcy today because they can't afford to pay their health care bills. Health care costs continue to go up, up, and up, and that 's why the president decided to put this on the table.

BLITZER: Is it smart for him to be tackling all these issues at the same time, Tucker?

ESKEW: Well presidents can't really choose. Issues come to them. But they have to prioritize. That's where there seems to be a real letdown here. David Brooks has written today that there's a promiscuous unwillingness to set priorities. A moderate in some sense who's really liked Obama but feels he is overreaching. There is a strong sense of mission creep here without necessarily all the will and all the manpower and all the reaching across the aisle to get things done that he promised.

BLITZER: It's because he is so active, he is so visible on a daily basis. People are beginning to say maybe he's trying too much.

BRAZILE: I think the problems are so big and the challenges are so difficult that the president is doing the right thing. Look. I agree on the point he needs to beef up his staff real quick because that's a lot on his plate. But on the other hand the American people elected Barack Obama to lead us during this difficult time.

BLITZER: Is he more liberal than he would let on? Because that's also a suggestion that David Brooks writes in "The New York Times," that he's not really the centrist, the moderate that he would like all of us to believe but he's really a hard core left winger.

ESKEW: Democrats on the inside will tell people in this town we're really just staking out turf to begin with and we don't want to negotiate with ourselves. There's a phrase that George W. Bush used, you know. They're not yet willing to actually negotiate with anyone. They're drawing a very hard line in the sand. It's a $3.6 trillion budget, Wolf, with trillion dollar deficits all the way as far as the eyes can see. This is turning of moderates like David Brooks not to mention a lot of conservatives. Even David Gergen has expressed today real concern about this mission creep and a lack of focus.

BLITZER: His budget, by the way, says that if his assumptions are accurate, in two or three years it will go down to $700 billion a year or 600 billion a year. He thinks he can cut it in half but those are his assumptions.

BRAZILE: Here again Republicans would like to rewrite history and rewrite the last eight years which is unfair. If you look at the discretionary spending it's about 1.3 trillion dollars. That's about $90 billion more than what President Bush proposed in the 2009 budget. So Republicans need to really read the details and stop trying to point blame before they take responsibility for what fiscal mess they left president possible to clearly solved.

ESKEW: Well you know the democrats have George Bush to kick around for a little while longer. There is a statute of limitations on that. Mr. Obama is going to be held to account for what's happening and the markets, the capitalists and job creations.

BLITZER: You've got to admit, Tucker, he's been dealt a pretty awful hand.

ESKEW: A tough hand. And smart Republicans will want to help him. The markets are saying you're not helpings us though. 25% decline in the Dow since he took office is a very troubling signal.

BLITZER: What goes down could still go up.

BRAZILE: Absolutely. To blame the president for this market, this unpredictable market, I think, is a rush to judgment when the market is really reacting to forces right now on Wall Street, not what's going on in the white house or on Main Street.

BLITZER: All right guys. Hold on a second because I want to bring in our senior correspondent Allan Chernoff. He's taking a closer look at the economy, the deficit, the budget.

What's going on today because we heard a lot of important people testifying before Congress?

ALLAN CHERNOFF, CNN SENIOR CORRESPONDENT: Very important. Members of the Obama economic team are not mincing words when it comes to the budget. They're acknowledging that $3.5 trillion is a heck of a price tag but they argue there's little alternative to having the government spend our way out of this recession.

(BEGIN VIDEOTAPE)

CHERNOFF: It might seem hard to argue that $3.5 trillion is frugal and responsibility but that's exactly how the Obama administration is portraying the budget plan.

TIMOTHY GEITHNER, TREASURY SECRETARY: This is a remarkably fiscal responsibility budget. I don't think you've seen a budget this fiscally responsible in a very long time.

UNIDENTIFIED MALE: This is simply not a big spending budget. We do, however, reorient our priorities.

CHERNOFF: The top priorities to jump start the nation's economic engine even though the spending plan would expand the deficit to a record $1.75 trillion. Administration officials say less spending could cause even greater problems.

GEITHNER: The alternative path for us which is to sit back, hope this crisis burns itself out, would be a much deeper recession with much greater damage to American businesses and families with much greater fiscal damage, leaving us with much greater deficits in the future.

CHERNOFF: The Obama forecast predicts the budget will expand the economy by more than 3% next year but the chairman of the Federal Reserve, Ben Bernanke, testified he isn't so sure partly because Americans may save rather than respond money they'll get from planned tax cuts. The spending Bernanke says he wishes we could do without is on bailing out insurance giant AIG.

BEN BERNANKE, FEDERAL RESERVE CHAIRMAN: I think if there's a single episode in this entire 18 months that has made me more angry, I can't think of one more than AIG. AIG exploited a huge gap in the regulatory system. There was no oversight of the financial products division.

(END VIDEOTAPE)

CHERNOFF: But Bernanke says there's no choice. Taxpayers have to spend the billions to rescue AIG or risk a collapse of our financial system. Just as the Obama team argues taxpayers have to stomach a $1.75 trillion deficit to help cushion the economy 's downturn. Wolf?

BLITZER: Allan Chernoff, thanks very much.

Donna Brazile and Tucker Eskew are still here. Donna you know a lot of Americans they just hate these bailouts of AIG and some of these big banks. They're saying if these institutions screwed up, they should pay the price.

BRAZILE: Wolf, I happen to be one of those Americans because I still want to know exactly what we did with the initial $700 billion. If these banks, insurance companies don't have nothing to show for it we should not throw good money after bad. If they're not regulating these insurance companies and banks now and giving them taxpayers' money, then I can understand why the American people are frustrated.

BLITZER: Does he have a choice, the president, in bailing out AIG, Citigroup, these other institutions right now after Lehman Brothers was left to die?

ESKEW: Where do you draw the line? There's a body of thought that we need to let some of these people fail. Now there are enormous consequences to that but there are as well they're just pouring money down a rat hole. Throwing good money after bad is not smart politics. I think we ought to apply that lesson to the budget. The secretary treasury has expressed no other alternative but their way. There are ways to stimulate growth without social programs and they chose not to do it.

BLITZER: Guys we'll leave it right there but we'll continue the conversation. Thanks very much.

BRAZILE: I want to rehash that.

BLITZER: We will. No doubt about it.

An investigation revealing some truly shocking details about that head on crash that killed 25 people. Why was an engineer texting only seconds before the collision?

And the first lady pays tribute to members of the U.S. military and their families. We'll hear from her at length. That's coming up right here in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: New details emerging right now about the engineer on that train text messaging only seconds before that deadly crash out in California. Let's go to CNN's Ted Rowlands. He's getting details for us.

What a horrible story it was. What are we learning?

TED ROWLANDS, CNN CORRESPONDENT: Well Wolf, the NTSB is having hearings today in Washington. Basically this engineer was not only texting with a teenage friend of his up until the crash. Apparently he let the young man ride in the cab of the train before and was planning on letting this young man actually operate the train the day of the crash.

(BEGIN VIDEOTAPE)

ROWLANDS: Engineer Robert Sanchez was at the controls of the southern California commuter train when it collided head on with a Union Pacific freight train in September of last year killing 25 people and injuring more than 100 others. Phone records show Sanchez was not only texting a friend just 22 seconds before the collision but made plans to allow the same friend to actually operate the train.

This is a text conversation four days before the crash. Sanchez to friend, "I'm really looking forward to getting you in the cab and showing you how to run a locomotive." Friend to Sanchez, "Oh my god dude. Me too. Running a locomotive. Having all after to that in the palms of my hands." Sanchez to friend, "I'm going to do all the radio talking. You're going to run the locomotive and I'm going to tell you how to do it."

At a Washington NTSB hearing officials say Sanchez had been caught with a cell phone twice before, once another employee turned him in. Another time a manager called his phone to see if it was with Sanchez in the train cab.

UNIDENTIFIED MALE: The engineer's cell phone rang. It was in his briefcase on the other side of the train. I told the engineer that he was in violation of our policy.

ROWLANDS: The NTSB investigation indicates that Sanchez missed a stop signal resulting in the collision. The engineer's alleged conduct has raised serious questions about what other people may be doing while operating trains.

KITTY HIGGINS, NTSB MEMBER: One train, one day, one crew. I mean it raises questions for me about what the heck else is going on out there.

(END VIDEOTAPE)

ROWLANDS: And to that point, we found out today that one of the crew members on the other train tested positive for marijuana. The final text that Sanchez sent, Wolf, was finalizing details of where he was going to meet up with his teenaged friend. The NTSB is still investigating. They're expected to have fall report later this year.

BLITZER: What a shocking story, indeed, on all fronts. Ted, thank you.

Another shocking investigation underway, are veteran's health record simply shredded or hidden by government employees unable to work to keep up with the workload. Let's go to our Pentagon correspondent Chris Lawrence.

Chris, how could this happen?

CHRIS LAWRENCE, CNN PENTAGON CORRESPONDENT: Well, Wolf, this investigation found a veterans affairs department overworked, undermanned, and using technology that's way out of date. What you end up with is some workers doing anything just to keep up and produce their own paperwork.

(BEGIN VIDEOTAPE)

LAWRENCE: Veterans fight for their country and are injured in war. They never expected their medical forms to end up in someone's shredder. It started with an audit at the Detroit office of the Veterans' Benefits Administration.

BELINDA FINN, OFFICE OF INSPECTOR GENERAL: At the suggestion of a VBA employee we took a look at the shred bins and found claim related documents.

LAWRENCE: The inspector general's office testified before congress Tuesday on what happened next. The V.A. suspended all shredding and inspectors kept looking. They found hundreds of claims forms in more than 40 regional officers but have no idea how many more were destroyed.

FINN: In fact, I note the shred bins we looked in had been emptied very recently and contained only about 14 days worth of documents.

REP. DOUG LAMBORN (R), COLORADO: If these files were all electronic, the shredding incident could have been avoided.

LAWRENCE: Records will be scanned into computers. The paperless system is at the earliest still a year away. The V.A. also found some offices were so overworked they held mail amnesty periods, basically where employees could return in all the mail they had been hoarding in boxes and desk drawers with no penalty.

FINN: I think it's similar to the library that has an amnesty program for overdue books.

LAWRENCE: At one amnesty, employees turned in 16,000 pieces of mail. One marine wounded in Iraq says troops are told these same medical records are cherished when we sign up.

TODD BOWERS, IRAQ & AFGHAN. VETERANS OF AMERICA: But when we get out of the military it's frustrating to know when we hand them off to the V.A. to the same government that taught us how important the documents are and it may seem or give the perception that they don't treat them with the same amount of scrutiny that they did when we were in the military, that can be a little overwhelming to service members and sort of make them lose a little bit of heart.

(END VIDEOTAPE)

LAWRENCE: The V.A. has implemented a tougher policy, so right now two people have to examine every document before it's shredded. They're doing an internal review to see if that's going to work and they expect to have that done by the end of the month.

BLITZER: We'll see what happens. All right. Thank you very much. Chris Lawrence is at the Pentagon.

The octuplet mom lives in California but one lawmaker wants to make sure her case couldn't happen in his state.

Plus, the first lady honoring military families, Michelle Obama in her own words today over at Arlington National Cemetery. We'll tell you what she said right here in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: What happened in California some states now want to prevent. We're talking about the woman who had the octuplets. Let's go to our senior medical correspondent Elizabeth Cohen. She's looking at the story for us.

What's going on, Elizabeth? ELIZABETH COHEN, CNN SENIOR MEDICAL CORRESPONDENT: Well Wolf, because of octo mom, legislators in Georgia are now saying that they think they should tell doctors what to do in the examining room.

(BEGIN VIDEOTAPE)

COHEN: Octo mom Nadya Suleman lived in California and some lawmakers like state Senator Ralph Hudgens don't want this to happen in their state.

RALPH HUDGENS (R), GEORGIA STATE SENATE: She's not married. She's unemployed. She's on government assistance. And now she's going to put these 14 children on the back of the taxpayers in the state of California.

COHEN: So Hudgens and some fellow Georgia legislators have introduced the so-called octo mom bill. Suleman says she wound up with octuplets because she had six embryos put in her wound, an unusually high number. The proposed bill would made that illegal in Georgia. It would limit the number of embryos a doctor could put in a woman. For women under age 40, no more than two embryos. For women over age 40, no more than three.

Fertility doctors say limits like these could hurt a woman's chances of getting pregnant. They say three embryos are usually enough for most women but that some with special circumstances need more.

DR. DANIEL SHAPIRO, FERTILITY SPECIALIST: What this bill will effectively do is shut us down and patients seeking reproductive care in Georgia will go to Tennessee or South Carolina or Alabama, they'll just leave.

COHEN: Lawmakers in Missouri are considering a bill like the one in Georgia. And Italy and England for years have had laws limiting the number of embryos that can be transferred at any one time, all in an effort to prevent another octo mom.

(END VIDEOTAPE)

COHEN: Wolf, there is a hearing on this bill later this week in Atlanta. Wolf?

BLITZER: Elizabeth Cohen, thanks very much. Let's go right to Jack Cafferty. He has the Cafferty File. Jack?

JACK CAFFERTY, CNN CORRESPONDENT: Yes, the question this hour is who's' running the Republican Party? Is it the RNC or is it Rush Limbaugh?

Ray in Indiana writes, "I don't know if Limbaugh is running it or not but apparently any one republican who says anything remotely critical feels compelled to apologize to him. The fact that they feel the need to apologize to someone who spews hatred and division tells me all I need to know about the party of values." W. in Salt Lake City, "Being a trucker's wife, I can tell you Rush's audience is 99 percent truck drivers. It's their only entertainment. The best part is they don't vote. My husband believes every word Rush speaks. After 30 years of marriage, I can tell you he has never voted nor have any of his trucking buddies."

Matthew in Cedar Rapids, Iowa, "Running? No. Dividing? Yes. Michael Steele was chose to lead the GOP because it is in shambles. They've lost control of the White House as well as Congress, and their voter base is waning as people like Rush drive away women, blacks, Hispanics and almost anyone who isn't a wealthy white man."

B. writes, "It may not be pretty but it is pretty obvious. Rush Limbaugh speaks for the GOP, a party without conscience or direction. A collective voice which has expressed a desire to see the government fail in its obligation to act upon the will of the people. This is the message the GOP has chosen to represent the party going into the next decade."

Ja in Tallahassee, Florida writes, "Rush Limbaugh is the only person to come along in many, many years who tells the truth and doesn't care if anybody is offended. It would be a boon to the RNC if they would push for Rush to be their candidate for president in 2012. He sure has my vote."

Andrew in Tucson, "Rush is at his best when he's portraying himself as the victim. Mainstream media has taken the bait. He's become the story, so he's happy."

And Ann writes from Charleston, South Carolina, "So far I think the RNC is running the Republican Party. The only thing Rush Limbaugh is running is his mouth."

If you didn't see your email here, you can go to my blog at CNN.com/CaffertyFile and look for yours there. We got probably a couple of thousand letters on just this one topic.

BLITZER: And Jack, you're going to be thrilled when you hear who's coming up right after this next break. That would be the first lady of the United States, Michelle Obama, and I know you've written a little bit about her on CNN.com.

CAFFERTY: Yes I did. I wrote a column this week saying that I had a little bit of a crush on her. I think she's terrific. He's good. She's fascinating.

BLITZER: You'll watch this next segment. Is that right?

CAFFERTY: I shall.

BLITZER: OK. Good. Stand by Jack, Jack Cafferty is going to be back soon himself.

The Secretary of State Hillary Clinton speaking bluntly about the potential stumbling blocks in Middle East peace negotiations. Our one on one interview with the secretary of state that's coming up. Plus, the first lady Michelle Obama's heartfelt message to military families.

(COMMERCIAL BREAK)

BLITZER: The first lady, Michelle Obama, paying tribute to the men and women of the U.S. military at Arlington National Cemetery today. Here's the first lady in her own words.

MICHELLE OBAMA, FIRST LADY: Members of the military, and their families, have a special courage and strength, as the president said last week during his address at Camp Lejeune, service doesn't end with the person wearing the uniform. You all know that. And I've been honored and deeply moved to meet many military families over the past couple of year years. They are mothers and fathers who have lost their beloved children to war. They are husbands and wives keeping the family on track while their wives and husbands are deployed on duty. They are grandparents, aunts and uncles, sisters and brothers, who are taking care of children while single moms or dads in uniform are away. Their moms and dads who both serve in uniform, like helicopter pilots kernels Laura and Jim Richardson, who in 2003 became the first couple to have led their own battalions during a time of combat. And during that time, they were able to lead their 14-year- old daughter in the care of family when they were deployed. See, military families have done their duty, and we as a grateful nation must do ours. We must do everything in our power to honor them, by supporting them, not just by word, but by deed. And it is my great hope that today and future generations will honor men and women in uniform by first of all never taking the blessings of freedom for granted. And by doing their part to create a more perfect union. I know that we will continue to do our parts over the coming years.

BLITZER: One of the first lady's signatures, by the way, during the campaign was the difficulties military families face.

Let's check in with Lou to see what's coming up in an hour from now on "LOU DOBBS TONIGHT."

What are you working on tonight?

LOU DOBBS, CNN ANCHOR: Among other things, we'll be looking at the second amendment to tell you what happened in the state of New Jersey, which rolled back an effort to control guns in that state. Governor Corzine very disappointed. We'll also be talking about the attorney general in the state of Arizona about border violence. A number of news organizations don't quite understand what's happening on our southern border. The fact that phoenix has become the kidnapping center of the United States. The absolute kidnapping capital of this country, while Mexico has become the kidnapping capital of the world. And how the Obama administration wants to trade in your second amendment rights to own and bear arms for the convenience of the Mexican government. How about that, Wolf.

BLITZER: Full hour of news at the top of 7:00 p.m., in one hour. Lou, we'll be watching you. Thank you very much.

You're in THE SITUATION ROOM.

Happening now, the United States of America in a very deep hole. President Obama and his economic team talk candidly about the long, hard process of clawing our way out.

Plus, jobless Americans reporting for duty. The U.S. military finds a silver lining in this economic crisis.

And the secretary of state Hillary Clinton may have a problem with Israel's likely new prime minister. In Jerusalem, she talks to CNN about Middle East peace and sends positive signals about talking to Syria.

All of that, and the best political team on television. We want to welcome our viewers in the United States and around the world.

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

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