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The Situation Room

Federal Government Becoming Bank Police?; White House Delivers Gloomy Job Outlook

Aired October 22, 2009 - 18:00   ET

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


SUSAN NEELY, PRESIDENT, AMERICAN BEVERAGE ASSOCIATION: In these economic times, people don't want to pay one penny more on anything, let alone a penny an ounce, which would be a 12 cent increase on a regular can of soft drink. People don't want to pay that for items that are in all of our refrigerators.

(END VIDEOTAPE)

MARY SNOW, CNN CORRESPONDENT: But some public health advocates do see states adopting these so-called taxes before there's any kind of movement on a national level -- Wolf.

WOLF BLITZER, CNN ANCHOR: Mary Snow reporting. Thank you.

Happening now: the best political team on television on these stories. Washington's biggest defensive yet against risky pay practices on Wall Street. Are the feds going too far, becoming the bank police?

A gloomy new forecast for the economy next -- a top White House official warning the jobless rate will stay high and the stimulus will sputter out.

And Dick Cheney accusing the president of dithering about Afghanistan. This hour, the former vice president engaged again in a war of words with the White House.

We want to welcome our viewers in the United States and around the world.

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

It's an ugly open secret about the U.S. economy that a top administration official couldn't help but admit today. The chair of President Obama's Council of Economic Advisers says the economic stimulus package has done about all it can do to jolt the economy and generate jobs.

Christina Romer offering a grim assessment to Congress amid debate about whether a second stimulus is now needed.

(BEGIN VIDEO CLIP)

CHRISTINA ROMER, CHAIRWOMAN, COUNCIL OF ECONOMIC ADVISERS: Most analysts predict that the fiscal stimulus will have its greatest impact on growth in the second and third quarters of 2009. And, by mid-2010, fiscal stimulus will likely be contributing little to further growth.

(END VIDEO CLIP)

BLITZER: All right, with the effects of the stimulus probably petering out early next year, Romer says the unemployment rate could still be -- get this -- above 9.5 percent throughout all of next year.

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

Dan, this is not good news as far as the economy next year is concerned. And it suggests the White House may have misjudged how effective this economic stimulus package would be.

DAN LOTHIAN, CNN WHITE HOUSE CORRESPONDENT: That's right, Wolf.

And, you know, this news that the $787 billion stimulus plan is not expected to contribute significantly to any expansion next year is not the kind of news that most Americans want to hear, especially those who are still looking for a job, and especially in light of the fact that the president, when he was pushing for this stimulus plan, said that it would save or create 3.5 million to four million jobs.

So far, Romer is saying that about 600,000 to 1.5 million jobs have been created. Now, today, Robert Gibbs responding to this news and this testimony from Romer tried to downplay any surprises here.

(BEGIN VIDEO CLIP)

ROBERT GIBBS, WHITE HOUSE PRESS SECRETARY: This is legislation that, as you know, is a two-year bill and spends out over that two- year period, two fiscal year period of time.

I don't -- but I think, if you read her -- the full context, and not just the context, but actually read what she testified to, I think what she says is, there continue to be very positive impacts after the third quarter of this year because of the recovery part.

(END VIDEO CLIP)

LOTHIAN: Romer points out that this is not a normal recovery and that trying to come out of this, there are a lot of forces working against them.

But if there's any good news here, she says that the job losses are likely to end next year, but it will be some time before we see that uptick, those jobs being created -- Wolf.

BLITZER: And they're very precise, Christina Romer saying that between 600,000 and 1.5 million jobs were either saved or created.

LOTHIAN: That's right, saved or created.

BLITZER: Yes.

LOTHIAN: And that's always difficult to tell what jobs are actually saved, what jobs are created. And we heard that earlier as well when the president was pushing for this. He was very careful to say between 3.5 to four million jobs saved or created. Sometimes, he would say four million jobs created. But, yes, they always put save and create in there when they throw out those numbers.

BLITZER: So, if this first economic stimulus package, the effects are really going to peter out early next year, is the president inclined to seek congressional approval for a second economic stimulus package?

LOTHIAN: That's the big question here at the White House. Simply what aides will say is that the president wants to look at everything that he can, all possibilities to stimulate the economy.

But they're very careful to stay away from using the term a second stimulus, because obviously this is something that a lot of Americans don't want to hear. They're really tired of bailing out and throwing more money to stimulate the economy. So, they're staying away from using that language, but saying that they're looking at all options here to try to jolt the economy -- Wolf.

BLITZER: Dan Lothian is our man at the White House. Thank you.

President Obama gave his stamp of approval today to a crackdown on the fat paychecks going out to some of those bailed-out companies. The Treasury Department is now moving forward with a plan to order pay cuts at seven big firms surviving on taxpayer money.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: I have always believed that our system of free enterprise works best when it rewards hard work. This is America. We don't disparage wealth, we don't begrudge anybody for doing well, we believe in success. But it does offend our values when executives of big financial firms -- firms that are struggling -- pay themselves huge bonuses even as they continue to rely on taxpayer assistance to stay afloat.

(END VIDEO CLIP)

BLITZER: We are going to have much more on the forced pay cuts for bailed-out firms. That's coming up ahead. We will also hear from the so-called pay czar who's leading the charge. Jessica Yellin spoke with him earlier today.

There's another move in the works to crack down on pay policies that contributed to the financial crisis. For the first time, the Federal Reserve is now proposing that it police executive compensation at thousands of banks, including many that never received any bailout. The Fed wouldn't set pay, but it could veto pay policies that seem too risky or reckless.

The American people are sending some mixed messages right now about the economy and about the president's handling of the recession.

Let's go to our senior political correspondent, Candy Crowley -- Candy. CANDY CROWLEY, CNN SENIOR POLITICAL CORRESPONDENT: Wolf, in this country, we have become accustomed to looking at ourselves across a divide, blue state, red state, West Coast, East Coast. And now there's another one. How do you view the economy?

(BEGIN VIDEOTAPE)

(BELL RINGING)

CROWLEY (voice-over): A week ago, Wall Street rang out a day above the 10000 mark. There are economic predictions the final quarters of this year will show economic growth.

Chiming in now, without celebration, the American people -- for the first time since December, the percentage of Americans who describe the economy as very poor has gone up to 42 percent. On Main Street, forecasts of economic growth and Wall Street milestones do not speak as loudly as other figures.

The jobless rate is still high. Some people are beginning to come to the end of their unemployment benefits. And small businesses continue to struggle. The unknown is also a powerful thing.

Martin Bailey once served as chairman of President Clinton's Council of Economic Advisers.

MARTIN BAILEY, FORMER CHAIRMAN, COUNCIL OF ECONOMIC ADVISERS: What I think many people are sensing is a fear that this -- this recovery may not be as strong as the typical one, and, in fact, may be more like a jobless recovery.

CROWLEY: Overall, the latest CNN/Opinion Research Corporation poll shows 84 percent of Americans think the economy is either poor or very poor. In the glass-half-full column, more than two-thirds believe the worst is over and the economy has stabilized or is improving.

BAILEY: The main thing that makes it better is that we have sort of taken the Great Depression off the table.

CROWLEY: So far, the public's assessment of the economy does not seem to be taking much of a toll on the president's policies.

OBAMA: There's no question that the steps we have taken have improved the overall climate for small business across the country, But there's also no question that we have got a long way to go.

CROWLEY: In general, Americans seem to share that view. Fifty- six percent say the president's policies have or will improve the economy.

In short, beyond Wall Street, outside the wonky world of economic predictors, most Americans believe the president has made things better, the worst is over, but increasing numbers say it is still very bad out there.

(END VIDEOTAPE)

CROWLEY: An improving economy would go a long way to change those numbers, but that's what worries a couple of economists I talked to today who note that the economy really is driven by consumer spending. For consumers to spend, you need confident consumers. And nothing in this poll suggests that Americans at this point are confident about the economy -- Wolf.

BLITZER: All right, Candy, thanks very much.

Dick Cheney attacks the Obama administration over Afghanistan.

(BEGIN VIDEO CLIP)

RICHARD B. CHENEY, FORMER VICE PRESIDENT OF THE UNITED STATES: The White House must stop dithering while America's armed forces are in danger.

(END VIDEO CLIP)

BLITZER: A former military commander fires right back, calling the Bush administration -- and I'm quoting now -- "incompetent war fighters." The retired General Paul Eaton, he is here in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: A new round in the war of words in the Dick Cheney and the Obama administration, the former vice president hitting hard about the review of strategy under way in the White House right now when it comes to the war in Afghanistan.

Brian Todd is taking a closer look at what's going on.

It's clearly heating up, Brian.

BRIAN TODD, CNN CORRESPONDENT: It is, Wolf, and the title of Dick Cheney's speech says it all. It's called "Concerns About America's Foreign Policy Drift." He slams President Obama for changing the missile shield plant, for pursuing better relations with Iran and for what he called dithering over what to do in Afghanistan.

(BEGIN VIDEOTAPE)

RICHARD B. CHENEY, FORMER VICE PRESIDENT OF THE UNITED STATES: President Obama now seems afraid to make a decision and unable to provide his commander on the ground with the troops he needs to complete the mission.

TODD (voice-over): Dick Cheney says it's time for the president to give U.S. forces a clear mission in Afghanistan and the means to achieve it. Since leaving office, Cheney's never needed much of an excuse to tweak the current administration. And a remark by Mr. Obama's chief of staff, Rahm Emanuel, on CNN's "STATE OF THE UNION" gave the former vice president another opening. RAHM EMANUEL, WHITE HOUSE CHIEF OF STAFF: And when you go through all the analysis, it's clear that, basically, we had a war for eight years that was going on that's adrift, that we're beginning at scratch and just from the starting point after eight years.

TODD: Cheney says when Obama's staff arrived at the White House, the Bush team handed them an updated Afghanistan strategy.

CHENEY: The new strategy that they embraced in March with a focus on counterinsurgency and an increase in the number of troops bears a striking resemblance to the strategy we passed to them. Now they seem to be pulling back and blaming others for their failure to implement the strategy that they embraced last March.

TODD: The Obama team says they increased troop levels in March after their predecessors didn't.

ROBERT GIBBS, WHITE HOUSE PRESS SECRETARY: Given the fact that an increase in troops sat on desks in this White House, including the vice president's, for more than eight months, a resource request filled by President Obama in March.

TODD: Will Cheney's criticisms increase the pressure to send more troops?

DAVID GERGEN, CNN SENIOR POLITICAL ANALYST: The Cheney speech could help to crystallize the arguments from conservatives, but I think the true pressure is coming from the general on the ground, General McChrystal.

(END VIDEOTAPE)

TODD: The White House said today Mr. Obama's decision on Afghanistan could come at any time, clearly one of the most highly anticipated decisions of his young presidency -- Wolf.

BLITZER: And a critical decision indeed. What about on some other national security issues, Brian? What did the former vice president say for example about President Obama's Iran policy?

TODD: Well, he said that Mr. Obama seems to be just pursuing better relations for better relations' sake with Iran and that diplomacy won't work unless Iran fears real consequences.

But Secretary of State Clinton says the administration is pursuing a dual-track approach, talks and sanctions, and that while the door is open to Iran, talks for that country, it is not open- ended, so they say they are taking a tough enough line.

BLITZER: All right, Brian, thanks very much.

Let's discuss this very, very sensitive issue, dithering, what a word, with the best political team on television.

Joining us, our national political correspondent, Jessica Yellin, our CNN correspondent Joe Johns, our CNN contributor the Democratic strategist Donna Brazile, Republican strategist Nicolle Wallace of TheDailyBeast.com, and General Paul Eaton, retired, U.S. Army, a senior adviser to the National Security Network, a nonprofit private group here in Washington.

Let me get you to respond, General Eaton first, to what the vice president is saying -- this administration is dithering and he's putting U.S. men and women's lives on the line.

MAJOR GENERAL PAUL EATON (RET.), U.S. ARMY: Well, let's take a look at the past, Wolf.

What we have seen is a failure to adapt on the part of the Bush administration. Soldiers love courageous leaders. They absolutely adore courageous, adaptive leaders. What we witnessed in the Bush administration was a failure to adapt to the plan.

They had this counterinsurgency approach which was, first, deny it, second, ignore it, and then, third, bomb it. And they kept that as their counterinsurgency approach until a retired general named Jack Keane, along with Fred Kagan, pushed over a period of about six months to get the Bush administration to change their policy.

BLITZER: All right. But that was then, but what about now, this notion that, for weeks, if not months, the president of the United States has failed to make a decision to implement this new strategy? He's got a request from the commanding general in Afghanistan for at least 40,000 more troops.

EATON: Absolutely.

And this president immediately agreed to put in 21,000 soldiers into Afghanistan to bump up the requirements. And that was in March, when he established that we were going to pursue a counterinsurgency approach.

Right now, our own Secretary Gates, a Republican secretary of defense, has said that we are going through our most comprehensive review of our strategy in Afghanistan since 1980. So, this president is being very deliberate. And I, as a soldier heavily invested in the armed forces, believe that that is a very prudent and appropriate...

(CROSSTALK)

BLITZER: Let me bring Nicolle Wallace -- she worked in the Bush White House -- into this conversation.

Nicolle, you hear the criticism coming from General Eaton of the former administration, including the former vice president. I want you to respond.

NICOLLE WALLACE, FORMER BUSH WHITE HOUSE COMMUNICATIONS DIRECTOR: Well, listen, one man's dithering is another's deliberations.

And I think the American people will draw their own conclusions about whether Barack Obama is dithering or deliberating. And I think it will, no surprise, probably fall along party lines. But here's one thing -- and he mentioned General Keane. General Keane said a couple of weeks ago that what McChrystal has proposed has been endorsed publicly up and down the military chain of command, General Petraeus, the architect of the successful surge strategy in Iraq, Admiral Mullen.

And so the real pressure point and in the view of most of the American people, the party that they are most interested in seeing how Obama responds to is General McChrystal.

BLITZER: Yes, because she makes a good point, General, because General Petraeus, who's in charge of the whole region, the Central Command, and General McChrystal, they seem to be pretty -- pretty united in their determination to get more troops to help out.

EATON: Wolf, there's a preoccupation with the number of soldiers.

This is about the full economic, diplomatic power of the United States, all part of the plan that General McChrystal has prepared. So, what we're -- we -- we are preoccupied with figures.

And, you know, the Pentagon, once a figure goes down on the table, it takes a life of its own. So, what we have got, we have a comprehensive strategy under development, under review by the best and brightest minds we have in Washington, D.C., and elsewhere.

BLITZER: Let me bring Joe Johns and Jessica Yellin in. They have some questions as well.

JOE JOHNS, CNN SENIOR CORRESPONDENT: My question is, we talk about the procedure and how the president is going about this, but probably the most important question is the substantive effect of it. Does it give solace? Does it help the Taliban the longer the president waits? Does it affect troop morale? Does it make the president appear weak? And does that really matter overseas?

EATON: I don't see it as making the president look weak. I don't see it as making the armed forces or the United States of America look weak.

What ii does is, it tells the world we are not going to rush to judgment on putting a great number of American young men and women in the firing line, without knowing what our strategy is going to be. I think our president is coming to grips with a very difficult problem. And I believe that we absolutely need to give him the time, a fraction of the time that we gave the Bush administration with the surge issue.

We are giving this president a rational amount of time to come up with a considered answer. And every father and mother of a soldier going over there in the future would lover to see that happen.

JESSICA YELLIN, CNN CONGRESSIONAL CORRESPONDENT: General, you have been critical of Cheney, former Vice President Cheney, for speaking out about an issue that he is clearly passionate about, knowledgeable about. Is there a time and place when it's appropriate for a former vice president to speak out against the current officeholder?

EATON: I think it is undignified to behave the way the former vice president is behaving.

BLITZER: Why is it undignified, if he firmly believes that this is endangering the lives of U.S. men and women?

EATON: I think it's partisan politics at its worst. And we saw that again today when 35 Republican senators attempted to filibuster the defense appropriations act because it had a...

DONNA BRAZILE, CNN POLITICAL ANALYST: A hate crime.

EATON: A hate crime.

BLITZER: Let me bring in Donna, because, Donna, if it were a Republican president right now, would it be undignified for a former Democratic vice president, Al Gore, for example, to be critical of the Republican administration? Would that be undignified?

DONNA BRAZILE, CNN POLITICAL ANALYST: Well, it's hypocritical, Wolf, when the former vice president sat on many of these plans during his eight years in office and didn't implement them.

Just remember, three years ago, we had 20,000 troops in Afghanistan. At the current strength level and those in the pipeline, we will reach 68,000.

We're talking about sending more troops before we know if we have a functioning national government in Afghanistan. I think the president is right to take his time. He should not be pushed into making a hasty decision, because this not involve our troops and our resources, but it also involves us getting NATO on board.

BLITZER: We have got to take a break.

But when former VICE President Al Gore's was critical of the Bush administration's handling of the war in Iraq, was that undignified?

EATON: I don't consider it undignified when you attack a real problem. And right now, the attacks that the former vice president are leveling are specious.

BLITZER: I guess it's the definition of a real problem, and that's open to debate.

All right, General, thanks very much.

I'm going to ask everyone else to stick around. We have much more to discuss, including a massive crackdown on a Mexican drug cartel, hundreds of arrests made nationwide and tons of illegal drugs seized.

And why Republican Senator Lindsey Graham is partnering with Democratic Senator John Kerry right now.

Stick around. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: The best political team on television is standing by.

(NEWS BREAK)

BLITZER: An openly gay man tells our Dana Bash he was attacked because of his sexual orientation. A bill now heading to the president's desk would define that as a hate crime, hate crime. Will that help the administration's relations with the gay community once the president signs it into law in the coming days?

(COMMERCIAL BREAK)

BLITZER: President Obama says Americans' values are offended when bailed-out companies write fat checks for their executives. But critics warn, the administration's new crackdown could do more harm than good.

Let's bring in our national political correspondent, Jessica Yellin. She's back.

You had a chance to speak with the so called pay czar today?

YELLIN: I did, Wolf.

And the pay czar says that this is going to make a difference for these companies in helping them to pay back their bailout billions. President Obama, as you say, welcomes the plan, but not everyone is receiving it with warm embrace.

(BEGIN VIDEOTAPE)

YELLIN (voice-over): The Obama administration is forcing pay cuts at companies that are living on taxpayers' bailout billions. Think that's a good thing? Naysayers warn, the move will backfire.

On "The Today Show":

(BEGIN VIDEO CLIP, "THE TODAY SHOW")

UNIDENTIFIED MALE: I'm concerned that this is more focused on punishment.

(END VIDEO CLIP)

YELLIN: On CNBC.

(BEGIN VIDEO CLIP, CNBC)

UNIDENTIFIED MALE: Will it kill capitalism and the economy? We're going to tell you why it will later in this show.

(END VIDEO CLIP)

YELLIN: And right here on CNN.

UNIDENTIFIED MALE: So, the best people may end up leaving these companies, oddly enough.

YELLIN: Funny, remember how we got here to begin with?

JACK CAFFERTY, CNN ANCHOR: And we're supposed to pay bonuses to these people?

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: And bonuses to the idiots who sank the company.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: I would be for an exemplary hanging or two.

(END VIDEO CLIP)

YELLIN: Wall to wall outrage over the bonuses at insurance giant AIG prompted Congress to create a so-called pay czar to set new rules. Now that man, Kenneth Feinberg, is limiting pay at the seven companies who are still living off the bailout lifeline.

KENNETH FEINBERG, OBAMA ADMINISTRATION "PAY CZAR": These are, under the statutes, seven specific companies that are, in effect, owned by the taxpayers of the United States.

YELLIN: Top Democrats are cheering his plan.

REP. BARNEY FRANK (D), MASSACHUSETTS, CHAIRMAN, FINANCIAL SERVICES COMMITTEE: Hooray.

YELLIN: Leading Republicans are fretting.

REP. JEB HENSARLING (R), TEXAS: Now, has this gone too far?

Might it impact the competitiveness of the institution?

YELLIN: And the American people?

Polls taken during the AIG controversy show 59 percent wanted government to limit executive pay at major companies.

Wall Street experts warned the government's move will drive away top talent.

NEIL WEINBERG, "FORBES" MAGAZINE EXECUTIVE EDITOR: If the government won't allow these institutions that still have taxpayer money to pay them, someone else will.

YELLIN: But they see benefits, too.

WEINBERG: U.S. taxpayer money is not going to go out the door to make the rich richer.

(END VIDEOTAPE)

YELLIN: Now, a number of companies have since put out statements saying, yes, they will comply with this ruling -- not that they have a choice. And they say they're committed to digging themselves out of the financial hole they're in.

Only Bank of America complained in their statement. They say, Wolf, that other companies are already trying to poach their top talent.

BLITZER: Jessica, don't go away.

We've got more to discuss.

And this just coming in to CNN. We're learning about a new development, potentially very significant, in the Senate's struggle to reach a compromise over health care reform.

Let's bring in our senior Congressional correspondent, Dana Bash -- you're working your sources, Dana, up on the Hill.

What are you picking up?

DANA BASH, CNN SENIOR CONGRESSIONAL CORRESPONDENT: Well, two Democratic sources in the Senate tell me that the Senate majority leader right now is leaning toward including a so-called public option in the Senate health care bill, but one that very specifically allows states to opt out of that public option.

Now, this is an idea that's been gaining traction among conservative Democrats for several days -- now those Democrats that Harry Reid needs to get the 60 votes to pass the health care bill. But one problem is that Olympia Snowe, the one Republican they have on board, she opposes this idea. And that's, in part, why there was a last minute meeting just this evening, Wolf, at the White House. The Democratic leadership in the Senate, they were there. They were called down by the president, in part -- and in large part, really, to discuss this issue.

I'm told by a source familiar with the meeting nothing was decided. But this is a very important development because it is a critical time. And this is, I'm told, where the Senate majority leader is leaning right now, in terms of what that Senate health care bill will look like (INAUDIBLE).

BLITZER: It could be very significant in terms of passage or non-passage of this legislation.

Dana, what we do know is just a little while ago, historic legislation was passed on hate crimes in the Senate. It already passed the House. It's going to the president's desk.

Tell our viewers what happened. BASH: Well, what happened is that this actually passed as part of the Defense Authorization bill. And Republicans are furious that they -- the Democrats did this controversial hate crimes legislation that way. But Democrats say that they simply didn't have a choice, that was the only way to get the -- this very important issue passed, especially important for the gay community, and especially for victims of hate crimes, who say that this is essential.

(BEGIN VIDEOTAPE)

BASH: (voice-over): When Todd Matrokin came here for late night pizza last summer, he offered a slice to some people sitting outside.

TODD METROKIN, HATE CRIME VICTIM: I thought it was a nice exchange. And as we were walking away, my friend mentioned, you know, that -- and he said, he called me a faggot under his breath.

BASH: As they walked through this Adams Morgan neighborhood in D.C. Matrokin didn't realize they were being followed until they were suddenly attacked.

METROKIN: The attack occurred right about here. They were calling us names, faggot.

BASH: (on camera): What's the last thing you remember?

METROKIN: The last thing I remember was the first hit.

BASH: (voice-over): He woke up in the hospital, looking like this -- bruises and broken bones, even a shoe mark on his face.

METROKIN: Somebody had to actually stomp on my face while I was on the ground to achieve that. And that's when it became just so crystal clear to me, the kind of hate that requires someone to do that.

BASH: Attacks like this will now be a federal offense under legislation expanding the hate crimes law, which now covers race, color and religion, to also include victims targeted because of their sexual orientation.

SEN. PATRICK LEAHY (D-VT), JUDICIARY COMMITTEE: Violence against members of any group because of who they are is not going to be tolerated in our country.

BASH: Many Republicans object, arguing violent crimes are already illegal and this creates what they call "thought crimes."

HENSARLING: The idea that we're going to pass a law that's going to -- to add further charges to someone based on what they may have been thinking, I think, is -- I think is wrong.

BASH: But supporters note this would punish acts, not beliefs, and point to government figures showing crimes against gays and lesbians are on the rise and say federal dollars, attention and penalties this new law would provide are needed. OBAMA: And I will sign it into law.

BASH: Politically, the White House hopes passing this long fought priority in the gay community...

(VIDEO CLIP)

BASH: -- will ease frustration that President Obama is slow to act on their issues.

(END VIDEOTAPE)

BASH: Now, tonight gay rights groups issued statements praising Democrats for passing what they call the first piece of civil rights legislation for lesbian, gay and transend -- transgendered Americans, rather. But privately, Wolf, gay rights activists say that the president has a long way to go still in tempering the anger that really is out there, that he's not doing enough to try to reverse other very big priorities, like don't ask/don't tell in the military and the Defense of Marriage Act -- Wolf.

BLITZER: Well, this is at least step one for the president. And he'll sign it with fanfare, no doubt, in the coming days.

Thanks very much for that, Dana.

Don't hold your breath waiting for unemployment to get a whole lot better. The president's top economic adviser expects more of the same throughout all of next year.

So is that bad news for the Democrats?

What's going on?

We'll discuss with the best political team on television.

(COMMERCIAL BREAK)

BLITZER: The president has welcomed a decision by his so-called pay czar to slash compensation for firms getting government bailout money.

Here's the question, though -- are the Feds going too far?

Let's bring back the best political team on television, on national political correspondent, Jessica Yellin; our CNN correspondent, Joe Johns; our CNN contributor, the Democratic strategist, Donna Brazile; and Republican strategist, Nicole Wallace, of TheDailyBeast.com.

What do you think, Nicole?

Is the president doing the right thing or going too far?

NICOLE WALLACE, REPUBLICAN STRATEGIST, DAILYBEAST.COM: You know, I think this is a tricky one. I mean I think that, for most people, the closest they get to gazillion dollar bonuses like the ones they see on Wall Street are -- are when they hear us talking about them on shows like these.

But I think there's something new now. There is an undercurrent of deep skepticism about the role of the federal government in all aspects of American life. And I think it's greatly increased from where it was at the beginning of Obama's term, where I think he may have had more power, frankly, to do something about these bonuses.

I think the health care debate has greatly undermined the public confidence in Obama's compass on the role of the federal government in American life. And I think, politically, this could cut both ways for the Obama White House.

BLITZER: Jessica, you had a chance to speak with Ken Feinberg, the so-called pay czar, today.

YELLIN: And one of the things he keeps pointing out, Wolf, is that -- and Nicole -- is that this was created by an act of Congress. This is not a White House initiative. He is put in that position by a vote of Congress. His decisions are final because everyone was so upset about the bailouts.

This also only applies -- what he's ruled -- to November and December of this year. His rulings have nothing to do with next year yet.

BLITZER: So are you saying there's less here than meets the eye?

YELLIN: Well, there's -- it's the beginning and so it's still yet to be shaped.

And I wonder, Donna, if you would agree that if this were decided by a Republican Congress, there would be a very different spin on what they're doing if they're standing up for the people.

BRAZILE: I don't think they would say anything. And, look, at the time when -- when Congress approved these bonuses, many of us expressed concerns that there were no strings attached, that we were giving money to these banks and to others to bail them out without putting forth any regulations to ensure that we'd never get ourselves back in this situation.

JOE JOHNS, CNN CORRESPONDENT: It's sort of a crowd pleaser, obviously, for the Obama administration.

YELLIN: Right.

JOHNS: But on the other hand, people on Capitol Hill have been talking about getting rid of the Wall Street coin toss, which is heads I win, tails I break even. And, you know, the -- the notion of getting rid of that incentive to do whatever you want and still get paid the big bucks.

So that is a policy thing (INAUDIBLE)... BLITZER: Because we heard yesterday from Neal Barofsky, who's the -- the watchdog of the TARP money, the $700 billion that was used to bailout these companies, you know, there's been so little oversight, no real regulations passed over the past year. The -- the economic situation, as far as failure of these big banks, these investment houses, is worse today than it would have been a year ago, because they're -- they're even bigger than they were then. If they were too big to fail then, they're way too big to fail right now.

YELLIN: And there's all this concern about how much we're spending on the stimulus and what kind of accountability you're getting from that.

Well, what kind of accountability are you getting from this spending on the TARP?

And, Nicole, it was your administration that launched this.

So do you guys think that -- do you think that maybe the Bush administration made a mistake in not setting pay limits to begin with and avoid this kind of problem?

WALLACE: Well, look, I mean I think the Obama administration has been at the helm now for nine months. And I think that most of the American public is looking to them for the answer to how we get out of this and how we make sure that it doesn't happen again. And I think Obama's poll numbers dropping a historic chunk this month -- I mean, I think his third quarter approval number of 53 percent is tied to decisions like this.

I think that people are still frustrated that even though Wall Street has recovered, unemployment is soaring. And I think all these problems are -- are the ones that face his White House and his White House squarely. I don't think anyone, you know, walking around or feeling frustrated about the economy is thinking about what George Bush and his Treasury Department did or didn't do.

BLITZER: Listen to Christina Romer. She's the top economic adviser at the Council of Economic Advisers. She's the chair over at the White House.

I want you to listen to this, Donna, and then we'll discuss, because this is a pretty gloomy assessment, as far as jobs, jobs, jobs.

(BEGIN VIDEO CLIP)

CHRISTINE ROMER, CHAIRWOMAN, COUNCIL OF ECONOMIC ADVISERS: With predicted growth right around 2.5 percent for most of next year -- the next year-and-a-half, movements in the unemployment rate, either up or down, are likely to be small. As a result, unemployment is likely to remain at its severely elevated level.

(END VIDEO CLIP)

BLITZER: All right. Let me take that away from economic jargon and basically say if there's 2.5 percent economic growth next year -- that's still a huge if. No one knows if there's going to be positive growth, because it's been negative, as you know, for more than a year right now, maybe two years.

But if there's 2.5 percent economic growth, the country, throughout all of next year, she says, will probably have at least 9.5 percent unemployment. Going into the midterm elections, 9 percent unemployment is not going to necessarily bode well for Democrats.

BRAZILE: Well, it's not boding well for the American people and it's totally unacceptable. And that's why I think what the president did yesterday in announcing that $317 billion of the remaining $700 billion in TARP money will go to community things to ensure that they can lend money to small businesses to get this -- get the job recovery going.

Look, we know that part of the stimulus was to try to rescue the economy. We're not in a recovery phase. And what Ms. Romer and others in the administration should be focusing on right now is creating jobs. Follow the money, follow the jobs.

JOHNS: How much do you think the Obama administration has a problem with truth in advertising?

You know, there was this -- there was this sense that they were going to put the stimulus and so forth in place and we were going to see some very fast results, even though, if you looked at a lot of the economic tracks and predictors, they said, you know, we could see almost 10 percent unemployment all the way through 2009 and well into 2010.

So do you think the administration maybe have sold this thing a little too hard?

BRAZILE: No. I think what the reality is, Joe, as you well know, is that the government can, you know, put money out there. But if the private sector is holding onto the money, afraid to spend cash for fear of another economic downturn, that has put us in a vicious cycle. And we all know that the -- unemployment is always a lagging indicator of any recession. And this has been a very difficult recession.

I just want to say to Nicole, who I admire and respect a great deal, look, I don't care if President Obama's numbers go down to 48 percent, 42 percent. It's not about President Obama. It's about the American people, getting them back on their feet. And we should stop focusing on what his numbers are. Let's focus on how we get people back to work...

BLITZER: All right...

BRAZILE: And that's why Wall Street should help us out.

WALLACE: I agree with you. And I -- I think you should give them a call and tell them that the war on Fox News is the most misguided political move, at a time when people are seriously distressed about the state of our economy and the future of the wars in Afghanistan and Iraq.

BRAZILE: If I thought that would put somebody back in their home who's lost their property or give somebody a job, I would worry about Fox. The people at Fox are -- are being taken care of. I'm worried about my friends here at CNN. You know, we want to keep our jobs, too.

(LAUGHTER)

WALLACE: Maybe you should ask the White House to declare war on CNN. It's certainly good for ratings.

BRAZILE: No. I don't think it's a war. I think -- I think it's a feud and I'm not -- I'm not afraid of that conversation.

BLITZER: Guys, thanks very much.

WALLACE: Well, it's unpresidential. I think it's unpresidential at a serious time. I take your point, Donna and I...

BRAZILE: And let's...

WALLACE: ...I agree.

BRAZILE: Let's not give Fox a halo. We all know that Fox and the Obama administration, they -- they deserve each other. They will find peace.

BLITZER: On that note...

WALLACE: I'm with you there, sister.

BLITZER: Thanks, guys, very much.

A health insurer reversing a decision on a patient's coverage after a report you saw here on CNN. We're going to tell you what has now happened thanks to Jim Acosta and his reporting.

(COMMERCIAL BREAK)

BLITZER: On our Political Ticker today, Republican Senator Lindsey Graham of South Carolina is under attack for his work on cap and trade legislation. He's been helping a bipartisan energy bill that would link these pollution credits to expanded nuclear energy production and offshore drilling. But an interest group supported by energy companies is now running ads accusing Senator Graham of backing new taxes that will hurt the state's economy. Graham says energy independence will create jobs in his state.

Minnesota Governor Tim Pawlenty is in Washington looking to raise some money. The potential 2012 Republican presidential candidate is holding the first fundraiser for his new political action committee. There's a low dollar pretzel and pints event at a bar meant to introduce Pawlenty to young Republicans. And the other event is for higher rollers. Guests attending the leadership dinner at the home of a lobbyist, need to raise or at least contribute $5,000 to participate.

In New Jersey, a new poll shows the independent candidate, Chris Daggett, is making gains in the race for governor. He's mostly peeling support away from the Republican challenger, Chris Christie. The Rutgers University poll shows Democratic governor, Jon Corzine, leads Christie, 39 percent to 36 percent. That's a statistical tie. Daggett now stands at 20 percent. Polling experts say Daggett could have a significant impact on the final election results.

Remember, for the latest political news any time, you can check out CNNPolitics.com. You can also read my Tweets at Twitter.com. Wolfblitzercnn -- wolfblitzercnn all one word.

Let's go to Lou to see what's coming up at the top of the hour -- Lou?

LOU DOBBS, CNN ANCHOR: Wolf, thank you very much.

I mean, that's quite a race in -- in New Jersey...

BLITZER: It is.

DOBBS: And that Independent, it will be interesting to see what -- what his impact is, whether he can win, in fact.

We're following breaking news right now on health care. Top Democrats have just left the White House and they now say the public option will be part of their consideration for the Senate legislation.

Also, President Obama's massive stimulus plan that was supposed to fix the economy and stimulate the economy, create millions of jobs, save millions of jobs and lead us out of recession. Now the president's top economist says the spending has already done most of what it can do.

Also tonight, taking on Wall Street -- the White House pay czar cutting executive pay at seven banks that took the most of that taxpayer bailout money.

How much of a hit are they really taking?

Will this do anything to change the ways of Wall Street, if anything?

Also, the swine flu all over the country, widespread now -- 41 states. Children remain the most at risk. Eighty-six children have already died. We'll be reporting where it is most dangerous and what is or is not being done to protect the public.

Also, three of the brightest medical minds on the swine flu join me to tell us how your family is at risk and what you can do to protect your family and whether the vaccine is truly safe.

Join us for all of that, all the day's news and much more at the top of the hour -- Wolf, back to you.

BLITZER: Lou, thanks very much.

See you in a few moments.

We want to go right back to CNN's Fredricka Whitfield.

She's got a development -- an update on a story we brought you yesterday -- Fred, tell our viewers what's going on, because this is impressive, good news.

FREDRICKA WHITFIELD, CNN ANCHOR: It is. It's an incredible about-face.

Our Jim Acosta reported earlier on a young man by the name of Ian Pearl, a muscular dystrophy patient who would have lost 24/7 nursing care under a change by his insurance company.

Guardian Life, the insurance company, has now issued a statement saying that it is reversing its decision and that Pearl will continue to receive the same benefits. The company's CEO, Dennis Manning : "Insurance companies are comprised of human beings and sometimes we make mistakes."

The company says it has apologized. And, in fact, the CEO says he's looking forward to actually meeting with Pearl, to come face-to- face and make that apology.

BLITZER: Very impressive, indeed. We're all thrilled with our reporting. And thanks to Jim Acosta and his reporting. It really makes a difference in the life of this one individual.

Appreciate it very much, Fred.

Jeanne Moos -- she's coming up next.

(COMMERCIAL BREAK)

BLITZER: An unusual blooper story.

Here's Jeanne Moos.

(BEGIN VIDEOTAPE)

JEANNE MOOS, CNN CORRESPONDENT: (voice-over): What do a pigeon, a giant seagull, a fan falling off a cab, an anchor making the gesture for crazy and Al/Jesse, Jesse/Al, Al/Jesse have to do with one another?

It's the weekend bloopers. And what a week it was.

This Australian anchor got caught making the internationally known gesture for crazy coming out of a taped sound bite with a senator.

(BEGIN VIDEO CLIP, COURTESY NEWS.COM.AU/ABC2)

UNIDENTIFIED MALE: -- the nine point plan some time ago. UNIDENTIFIED FEMALE: (INAUDIBLE) Hayden Cooper joins us now from Canberra.

(END VIDEO CLIP)

MOOS: It was so quick, you might think you're crazy.

(on camera): The anchor later apologized to the senator, who laughed it off, saying, "Maybe I am crazy."

(voice-over): Well, here's what happens when you get your reverends mixed up.

(BEGIN VIDEO CLIP, COURTESY MSNBC)

UNIDENTIFIED FEMALE: Joining me now to talk about this and the nation's real problem of joblessness is the Reverend Al Sharpton.

What's your reaction to hearing someone say, you know, when it comes to income inequality, all is well, a rising tide floats all boats?

REV. JESSE JACKSON, RAINBOW/PUSH COALITION: I'm Reverend Jesse Jackson.

UNIDENTIFIED FEMALE: Right. I don't -- you know, I'm so sorry. The -- the script in front of me said Reverend Al Sharpton. I'm looking at your face. I know who you are, Reverend Jackson. We all do. I'm sorry.

(END VIDEO CLIP)

MOOS: Good recovery. Blame it on the teleprompter.

Here's a little refresher -- Reverend Al Sharpton, Reverend Jesse Jackson.

This Australian Nine News anchor has a lot of gull.

(BEGIN VIDEO CLIP, COURTESY NINE NETWORK)

PETER HITCHENER, NINE NEWS: You could say they hope someone burdened with information will help solve...

(END VIDEO CLIP)

MOOS: A seagull sauntered pass the camera shooting the skyline.

(BEGIN VIDEO CLIP, COURTESY NINE NETWORK)

HITCHENER: I knew that it had happened, because I could see it in the monitor in the back of the studio. I could see this gigantic thing walking behind me and I thought, I think that's a bird.

(END VIDEO CLIP) MOOS: It was this bird that took on the Eagles at Sunday's televised game between Philadelphia and the Oakland Raiders. The pigeon hung out on the field and even joined the Raiders' kickoff coverage.

(VIDEO CLIP)

MOOS: Talk about a wing formation. The Raiders and the pigeon beat Philadelphia. But baseball fans celebrated the Phillies getting into the World Series by dropping the F bomb...

(VIDEO CLIP)

MOOS: ...and falling off a taxi. This guy didn't over tip, he tipped over.

I'm Jeanne Moos...

JACKSON: I'm Reverend Jesse Jackson.

MOOS: ...CNN, New York.

(END VIDEOTAPE)

BLITZER: And I'm Wolf Blitzer in THE SITUATION ROOM.

Up next, "LOU DOBBS TONIGHT" -- Lou.