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THE SITUATION ROOM

Britain's Closest Election in Decades; Stock Prices Take Steep Plunge; Greek Economic Crisis Affects U.S.

Aired May 6, 2010 - 17:00   ET

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


WOLF BLITZER, CNN ANCHOR: Rick, thank you.

Happening now, breaking news: violent reaction to the economic crisis in Greece. Clashes in the streets spook investors on Wall Street. But that's not the only reason U.S. stock prices took a very deep plunge.

Another breaking story we're following: control of the British government is up for grabs right now. Stand by within seconds for the first exit polls in a contest that could throw one of America's most important allies into political turmoil.

And an exclusive look at the Times Square bombing suspect's home. Did it help fund his alleged terrorist training in Pakistan?

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

(MUSIC)

BLITZER: It's Britain's closest election in decades. And within seconds, we'll have the first exit poll results. Let's go to our sister network, CNN International, right now.

(BELL TOLLING)

BECKY ANDERSON, CNN INTERNATIONAL: It is 10:00 in the United Kingdom, and we are pushing in on Big Ben. We're going to go back to those numbers, because they are being projected on Big Ben. What you see there is a major exit poll, giving the first indication of what the night might hold, and the numbers are Conservatives: 307, that is the blue line, 255 to the Labour Party, and the Lib Dems: 55.

As is say, this is a projection, the exit polls, put together by the British broadcasters, 20,000 voters have been asked, which way did you vote? And these are the projected numbers for seats in the Palace of Westminster, in the British parliament, going forward -- 307 seats to the Conservatives, 255 to Labour, and 55 to the Lib Dems.

Big news taking off special coverage of the U.K. election.

BLITZER: All right. So there you have it, from our sister network, CNN International. The -- David Cameron, who has been challenging the incumbent prime minister, Gordon Brown, of Labour, David Cameron, the Conservative, his party wins the most seats, 307 seats, 255 for Gordon Brown, you just heard Nick Clegg from the liberal Democrats, he had tried his best, he was moving up, he comes in with 55 seats, his party comes in with 55 seats.

Here's the question: Will this be enough for David Cameron to form the next government, the next government and succeed Gordon Brown as prime minister of Britain?

Let's talk a little bit about what this could mean for President Obama or the U.S. special relationship with the U.K. Our senior political analyst, Gloria Borger, is joining us.

It looks like a decisive victory for David Cameron and the Conservatives over Gordon Brown of Labour, the incumbent, Gloria. But, you know, they're going to have to form a government. It's a parliamentary system.

GLORIA BORGER, CNN SR. POLITICAL ANALYST: Yes. They do have to form a government. You need 326 seats outright. The question is: what does David Cameron decide to do right now?

From the Obama administration's point of view, it's very clear that while they have been decidedly neutral in this race, that Barack Obama and David Cameron formed a relationship when the president was running for office in 2008. And Cameron, while a Conservative, is kind of a kinder, gentler Conservative, who talks about change, talks about social policy, talks about poverty, things that he and Barack Obama have in common. He talks about the special relationship that the United States has with Britain.

The big question here, Wolf, is what is he going to do about the economy? This is the country that has the same problems that we do and the country is going to need dramatic budget cuts. And is he going to be able to make that happen?

BLITZER: If these exit polls results are accurate, it's just short -- as you pointed out, Gloria --

BORGER: Right.

BLITZER: -- he would need. He now has to find some smaller parties to join a coalition government, if you will, 307. This is -- we want to remind our viewers, these are exit poll estimates of what is likely to happen, but these are not the official results by any means.

From the U.S. perspective, there was a clear sense that the U.S./British relationships would remain robust and strong --

BORGER: Absolutely.

BLITZER: -- whether Labour or Conservative won. There was some question whether the liberals -- if the liberal democrats won, how that would relationship would hold up.

BORGER: Yes. I think -- I think the liberal democrat would have been a bit of a problem because of his positions on disarmament, et cetera, that the administration would not have been so comfortable. And the president and Gordon Brown have had a bit of distance between them, you know? Gordon Brown has been asking for bilateral meetings with the president. He's been turned down time and time again.

And so, clearly, I think while this administration could live with either Brown or Cameron, I think Cameron is somebody -- and don't forget that one of the president's former top advisers, Anita Dunn, who used to be communications director in the White House, had been advising David Cameron in this race. So, it's not surprising that he's talking about things like change. So, it's clear there's been sort of an informal and not formal link between the White House and Cameron.

BLITZER: Labour has been in power in Britain for 13 years. If Cameron and the Conservatives emerge as the new leaders, that would be a dramatic change. Once again, these are exit poll results just short of the number needed to form a government, but Cameron: 307, Gordon Brown and Labour: 255, Nick Clegg, the liberal democratic leader, 55.

We'll continue to watch this story.

The other breaking news we're following: stock prices took a nose dive in the midst of violent clashes in Greece and an apparent technical glitch on Wall Street. The Dow Jones Industrials closed down 347 points just a little over an hour ago. The index had plunged more than 900 points, almost 1,000 points, at one point during the day.

Lisa Sylvester has been monitoring this economic upheaval in Greece and the fallout here in the United States. But let's go to Poppy Harlow of CNNMoney.com, first, to explain what happened on Wall Street.

All right, Poppy, walk us through it.

POPPY HARLOW, CNNMONEY.COM: Sure. Wolf. Where do you start, an unbelievable sell-off today. Before the big decline for the Dow, this market was down about 400 points. Then this afternoon, just a few hours ago, as you said, it fell almost 1,000 points. We saw some major, major Dow components like Procter & Gamble, like 3M, like Accenture -- we saw Apple take a big hit.

The question was: was there a faulty trade? What happened?

I just talked to the CEO of the New York Stock Exchange. You can imagine he was in a frenzy here trying to figure out what had happened. It's very, very technical. The market was volatile because of the crisis in Greece which Lisa will get to.

But what happened that led to the huge decline was that trade on some of those major stocks were slowed here. What that means is that traders and executives here said these stocks are falling, we're going to take a 30-second, a minute pause to let things settle out and then we'll resume trading. They did that.

Other marketplaces like the NASDAQ did not do that. They traded through. I'll let him explain what that means and why that led to such a decline.

Take a listen to Duncan Niederauer.

(BEGIN VIDEO CLIP)

DUNCAN NIEDERAUER, CEO, NYSE EURONEXT: It's hard to know because we don't know how many trades. A lot of times what happens is these trades will be cancelled. People will say, oh, we didn't realize what was going on. The fact is, these electronics markets realize full well what's going on, they have policies to deal with these kinds of things. The last time this happened frequently was during the crisis where there were thousands of trades cancelled on a daily basis at the electronics venues, because it's a different market model.

HARLOW: Who or what, if anything, should or can be held liable? You said it's a different market model. That's what the traders told me. This is the new marketplace.

NIEDERAUER: Right. And in our view, we think we've got the best market model. No surprise that we're going to say that, right? Others think they have the better market model. I think in periods of volatility like this, I think our model shows its value.

A computer just looks for the next price that it can fill and to order at. So, if you put a market sell order in and I'm the only bidder on that electronic system, you're order is getting filled whatever my bet is. It could be $10, $20, $30 below the market price.

And I think we just have to say -- in periods of extreme volatility, people should trade their orders more carefully. Now, the SEC could come out and say, hey, guys, wait a minute, if it's a trading halt, we get you're not going to wait. If it's one of these situations where it's a half minute or a minute, why don't we all wait and let cooler heads prevail?

(END VIDEO CLIP)

BLITZER: All right, Poppy, I guess the experts are all worried already about what happens tomorrow? What's the best estimate? What are you hearing up there?

HARLOW: That's the big question, Wolf. We've got just a matter of hours before Asian markets open, then we have Europe open, and then we have this marketplace open. And it doesn't help that it's a Friday, because, generally, when markets are so volatile, there's a lot of global questions about the economy. It is very, very -- traders are very anxious to hold any of those trades -- any positions over the weekend.

I asked Duncan Niederauer again, how do you go into this marketplace tomorrow? I was surprise actually by his cautious answer.

Listen.

(BEGIN VIDEO CLIP)

NIEDERAUER: I think the view is, coming into a Friday after the week of volatility we've had, it's hard to believe that people will come in with bids tomorrow, but the market has sold off quite a bit here, and I think people are just trying to digest how big an issue is Greece, what is the contagion effect? You had a couple people say today, there's going to be knock-on effects where the credit market seems to be seizing up. That's going to make people really, really nervous, especially on a Friday in front of a weekend.

HARLOW: It's a big question. Again, as I've been saying, what happens going into tomorrow?

NIEDERAUER: Yes, hard to predict. I -- it's -- we'll find out tomorrow. I mean, that makes a market, right?

(END VIDEO CLIP)

HARLOW: So, a very -- a very cautious outlook there, Wolf. I would just tell you, traders here are sort of undoing their ties heading out to Wall Street, just waiting to see what tomorrow brings.

I want to point you to CNNMoney.com. That is where all of our team is working hard updating you on this story as it develops. We'll be down here bright and early tomorrow morning and we'll bring you the latest -- Wolf.

BLITZER: We'll be -- we'll be with you, Poppy, all day tomorrow. Obviously, watching overnights the overseas markets as well.

Whatever role the violence in Greece played in this market plunge, this much is very, very clear right now. The economic turmoil in one country could have a huge impact around the world.

Lisa Sylvester is here. She's taking a closer look at this part of the story -- Lisa, and it's very worrisome.

LISA SYLVESTER, CNN CORRESPONDENT: It is indeed, Wolf.

You know, Greek officials today, they passed a series of austerity measures, which in plain speak that means they cut wages, pensions, and are freezing hiring. The result, though, you see here -- people pouring into the streets to protest having their pay checks cuts. You saw the police trying to push them back, police in riot gear.

Now, Greece is on the verge of financial collapse. The government -- bottom line -- they can't pay their bills. They owe $400 billion in loans. In European countries and the International Monetary Fund are promising $140 billions in loans to bail out Greece, but a condition is that Greece will have to cut its spending.

BLITZER: All right. Explain to our viewers why what happens in Greece could have a huge impact here.

SYLVESTER: The bottom line, it's a spillover, it's a domino effect. Greece's debt: 115 percent of GDP, that is a huge number. Credit rating companies -- they recently downgraded Greece's debt, and then they did the same for Portugal and Spain. That's kind of like having your credit rating reduced. It makes it much expensive to borrow money.

Well, investors are worried that just like Greece, that Portugal and Spain could reach a point where they're not able to pay off its loans and Spain has a much larger economy than Greece. Greece's financial crisis is also weakening the euro, which is a worry for American companies because it could make it harder to sell U.S. products in Europe.

And, finally, that's all been a drag on the stock market. U.S. investors, what they are really worried about is that if Greece defaults, that would have a big effect on the Europeans banking system. European banks are holding all of that debt we talked about that Greece owes, so think of the potential impact. It would a lot like the collapse of Lehman Brothers in the United States, Wolf, just multiplied several times over.

BLITZER: Yes, many times over because it's one thing for a bank to fail and have an enormous impact on the overall economy. We saw that here in the United States. Think about a country -- a country failing --

SYLVESTER: Right.

BLITZER: -- whether it's Greece or Portugal or Ireland --

SYLVESTER: And could be more than one country, too.

BLITZER: -- or Spain. There's a whole group of them. If they fail, think of the spillover it will have not only in Europe, but in Asia, and here in the United States as well. And there are a lot of nervous folks on Wall Street watching the violence in Greece today and they're getting nervous, which is perhaps understandable.

All right. Thanks very much. Good explanation, Lisa.

All right. It's an exclusive. CNN has now obtained new photos of the Connecticut house once owned by the Times Square bomb suspect Faisal Shahzad. What he may have used it for might surprise you.

And is there a connection between Shahzad and the Taliban in Pakistan? We'll have the latest details in that investigation.

Lots of news is happening today, right here in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: Jack Cafferty is here, he has "The Cafferty File" -- Jack.

JACK CAFFERTY, CNN ANCHOR: If the fires and riots in Greece don't get Washington's attention, my guess is that a 1,000-point drop in the stock market this afternoon might -- might. In less than an hour, a few minutes actually, the Dow Jones Industrial Average went from down a couple hundred to down almost 1,000 points before rebounding some, closed down about 340.

The panic was triggered in part by Greece. Greece is a world- class welfare state. People retire in their 50s. They're accustomed to government handouts at every turn. Now, the Greek government says we're going to have to cut back, and people go crazy.

Here in the United States, we have a growing welfare state. We have food stamps and aid to dependent children and unemployment insurance and Medicaid and rent subsidies and welfare and, of course, tens of millions of illegal aliens. We have a $12 trillion debt that we're unable to pay. And while it ain't going to happen tomorrow, at some point, we're going to be faced with the realization that we can't do it this way anymore, something has got to give.

When that day comes, there will be cuts, drastic draconian cuts. Whether it leads to the kind of things we're seeing in Greece is probably a stretch, and we don't really know that yet, but suffice it to say, that when they start cutting, it's going to make a lot of people unhappy.

The real tragedy in all of this is it's preventable. No one in Washington, though, has the guts to confront this issue head-on. It is the ultimate act of selfishness and betrayal. We are literally destroying the lives of Americans who haven't even been born yet. Our children, grandchildren and generations to come will suffer the effects of our irresponsible fiscal policy.

Look at Athens. Look at Washington. Do the math.

Here's the question: What lessons should the United States take away from what's happening in Greece? Go to CNN.com/CaffertyFile. Post a comment on my blog.

BLITZER: That's a great question, Jack. And I think that nearly 1,000-point drop today, as you point out, is going to cause a lot of attention to be focused on it. Jack will be back later.

Let's get to a CNN exclusive right now in the Times Square bomb investigation. We have now obtained photos and new information about the home Faisal Shahzad owned in Connecticut. He used it to take out a loan not long before he left to Pakistan where he claims he got training in bomb-making.

CNN's Deborah Feyerick is joining us. She has more details on what's going on.

What are you learning, Deb?

DEBORAH FEYERICK, CNN CORRESPONDENT: Well, Wolf, one thing we're going to do is we do want to show you that video -- that video that's coming in of Shahzad basically buying fireworks at a store. He gave the clerk his I.D, he paid about $100, and the clerk says that he just didn't raise any red flags in that video you're going to see a little later on in your broadcast.

But Faisal Shahzad continues to talk to investigators who are trying to connect as many dots as they possibly can, including who radicalized this young husband and father. Terror experts that I spoke to today believe that Shahzad became radicalized before he left for Pakistan. They also say Shahzad's apparent links to the Taliban are very disturbing, specifically that someone was apparently able to target and recruit someone in the United States who has a prominent family in that area of Pakistan.

Shahzad's father is a retired vice air marshal. We're told that he also was interviewed today by a joint U.S./Pakistan investigative team. He was not detained. He was not arrested.

And now, a college friend of Shahzad says he did notice a change in his friend before his trip overseas. In college, the friend says Shahzad identified himself as Muslim, but he became more observant after he left university. He married, had two kids and was becoming increasingly introverted, reading more books and going online.

And this is the friend's story as told to us by a leader in the Pakistani-American community.

(BEGIN VIDEO CLIP)

SAUD ANWAR, FOUNDER, PAKISTANI AMERICAN ASSN.: He had isolated himself that he was essentially alone pretty much on that time. The only people he would interact was with his own immediate family, his wife, his children and his wife's family. And that's when the two, their interactions were no longer there because everybody got busy in their lives.

He also noticed that he was becoming a little bit more religious, with the religious perspective. Obviously, being religious is not bad, but the type of religious feeling that he had was, there was a little anger in there. He felt he was looking at things as true black and white. He was thinking that this is the only way to do it, and the other ways do it is not right.

So, there was an absolute way of approaching things and there was less lack of flexibility that was being noticed in his personality at that time. He could not believe the fact the person who was such a caring father, caring husband, would do this to anyone, and affect the future of his own family.

(END VIDEO CLIP)

FEYERICK: Now, Dr. Anwar, who you just heard from, says no one in the Pakistani American community knew Shahzad. Shahzad managed to stay under the radar -- Wolf.

BLITZER: It's a very, very disturbing situation. What do think about the money trail? Who financed all of this? Do they have serious clues?

FEYERICK: Well, you know, it always comes down to the money. And, yes, well, six months before he left for Pakistan and the alleged terror training, he took out a second mortgage on his home. He got a $65,000 credit line. And he was still working at his job as a junior financial analyst.

Investigators are now trying to determine whether that money, that second mortgage, went to funding this bomb plot. And I asked one terror expert, you know -- why didn't Shahzad act as a suicide bomber especially the Pakistani Taliban, if he is linked to them, usually carry out suicide attacks? The experts told me that either Shahzad realized that the device wasn't going to work and panic or perhaps his handlers in Pakistan, the ones guiding him on this mission, viewed Shahzad as an asset to be used in other attacks here in the United States -- Wolf.

BLITZER: Deb Feyerick, working the story for us -- thank you.

That massive oil sheen in the Gulf of Mexico slams into the Louisiana barrier island. How long will it take for that giant containment dome to get into place? Stand by. We're going there.

And we'll tell you why authorities might be one step closer right now to finding that Air France plane that went missing over the Atlantic last summer.

(COMMERCIAL BREAK)

BLITZER: Let's get back to Lisa. She's monitoring some of the other top stories in THE SITUATION ROOM right now.

What else is going on, Lisa?

SYLVESTER: Hi there, Wolf.

Well, events in Washington and around the country are marking what could be the last National Day of Prayer. The tradition which dates back almost 60 years was ruled unconstitutional by a Wisconsin judge for violating the ban on government-backed religion. The Justice Department is appealing the case. Evangelist Franklin Graham prayed on a sidewalk near the Pentagon after having his invitation to the service inside revoked for making controversial remarks about Islam.

Many Tennessee residents are getting their first look at the damage in the wake of those damaging floods. Most of the water in Nashville has receded. And parts of downtown are again. The mayor estimates the flood damage will easily top $1 billion. Last weekend's massive storm killed 21 people in Nashville alone.

And authorities could be one step closer to finding that Air France plane that crashed over the Atlantic Ocean, killing all 228 people on board. More accurate computer programs are narrowing the search area down to three miles. The new search for the flight using sonar devices is extended until the end of the month. Air France flight 447 disappeared last June -- Wolf.

BLITZER: Lisa, thank you.

We're also learning about new leads out of the Pakistan in the Times Square bomb investigation. Did the suspect Faisal Shahzad really get bomb-making training from extremists?

Plus, a new move in Congress to revoke the citizenship of Americans found to be involved in terrorism. Does it have a chance of becoming law?

(COMMERCIAL BREAK)

BLITZER: A senior official now says it appears likely the Times Square bomb suspect did, in fact, get some kind of training by extremists in Pakistan. That's based on some new leads on the Pakistani end of the investigation. The official says investigators have not concluded which group might have trained Faisal Shahzad. But they're continuing to look at a possible connection to the Pakistani Taliban.

And joining us now: Fareed Zakaria. He's the host of "FAREED ZAKARIA GPS" which airs here on CNN every Sunday morning, 10:00 a.m.

Fareed, the radicalization of Faisal Shahzad, educated, coming from a relatively well-to-do Pakistani Muslim family, how does this happen?

FAREED ZAKARIA, HOST, "FAREED ZAKARIA GPS": It's the million dollar question, Wolf. And it's not just him. If you look back to many of the attacks in London, you remember the 7/7 subway bombings, it's the same phenomenon.

These guys are assimilated. They come from relatively well-to- do, by which one means middle class and are not impoverished backgrounds. And something in their life goes wrong and they crack or get radicalized, then reach out through the internet or go to Pakistan. So at some level there's something psychological here about these characters. They are loners, and they somehow break, and so I think one has to look at the individual psychology, but what's interesting to me is most of them do seem to come out of Pakistan. You know it's not like they're coming out of all over the Islamic world. There are a few here and there, but overwhelmingly these guys have been coming out of Pakistan.

BLITZER: How do you explain that?

ZAKARIA: I think Pakistan is a particular problem in the world of Islam with regard to these things. It's founded as an Islamic state. Remember there are only two countries founded as really Islamic countries in their core, in their DNAs, in their constitutions and in their state ideology, Saudi Arabia and Pakistan. Both countries have had the same problem which is the state creates at atmosphere in which jihadist ideology is permitted, encouraged. Instruments of the state have funded aspects of it. You only have to read the history of Pakistan who was written by the current ambassador to Washington, when he was more of a dissident scholar, and he points out the Pakistani military has funded the sort of culture of jihad and militancy for 40 or 50 years. So there's something where you created recruiting pools that make this more likely to happen.

BLITZER: Is it possible, do you believe that the Pakistani Taliban actually not only recruited Faisal Shahzad, but trained him and said go back to Times Square and detonate this car bomb?

ZAKARIA: I think what's most interesting about this case is it seems as though it's not they who reached out to him, but he reached out to them, if you see what I mean. This seems like a bottom-up phenomenon. It is the lone would be terrorist, contacting some organization, perhaps asking them for some resources, for some training, and then yes, they might have come up with an idea, but I think he probably had, this is not a particularly original idea. I think that this is more about him than it is about them, but clearly he got some help in Pakistan, and there are groups in Pakistan that are delighted to offer lone terrorists like him or would-be terrorists all the help they can get.

BLITZER: Is the Pakistani government, the current government, doing enough to help the U.S. and others in this struggle?

ZAKARIA: It's a complicated question Wolf. They are doing things they haven't done before. I want to be clear about that. Pakistan is taking more steps than they have taken against these terrorist groups than they have ever done before. But, you know, here's the key. This guy went to North Waziristan. The north is very important there, because the Pakistani government so far has only gone after terrorist groups in South Waziristan. I know this gets complicated, but the big deal is this. The terrorist groups in South Waziristan tends to kill Pakistanis, so the Pakistani military has turned on them and is going after them aggressively. The ones in North Waziristan tend to go after Afghans, foreigners, Indians, Americans, Brits. Those people have been left entirely undisturbed so far. So the real test of whether Pakistan has had a change in its strategic orientation will be when they go after the groups in the North Waziristan and that's where this man was radicalized or trained and that's where he probably got most of the support he got to do the Times Square attack.

BLITZER: Great analysis Fareed. Thanks very much. Fareed Zakaria joining us; he's the host of "FAREED ZAKARIA GPS," airs Sunday mornings 10:00 a.m. eastern right here on CNN.

ZAKARIA: Thank you Wolf.

BLITZER: Get a closer look at the Pakistani Taliban and other groups designated as terrorists by the U.S. government, Pakistani supporters of the Afghan Taliban formed their own force beginning in 2002 in response to the Pakistani's army incursion at the tribal areas. Leaders of the Pakistani Taliban are based Waziristan. That's the mountainous region in the northwest part of Pakistan. The original Taliban movement from Afghanistan also is active in Pakistan. Mullah Mohammed Omar, who was Afghanistan's de facto leader during the Taliban rule there, that was before 9/11, is believed to be hiding in Quetta, a city in Pakistan right now. Pakistan's tribal areas are also home to many fugitive leaders of al Qaeda, including possibly Osama Bin Laden.

The first significant batch of oil hits the barrier islands, just as a giant containment dome reaches the source of the spill. We're following the race to prevent environment disaster. CNN's Brooke Baldwin brings us an exclusive look at the oil below the surface with an underwater camera.

And an influential group adds to the backlash in Arizona and its tough crackdown on illegal immigration.

(COMMERCIAL BREAK)

BLITZER: Let's go right back to Lisa. She is monitoring some of the other top stories in THE SITUATION ROOM right now. What do you have, Lisa?

SYLVESTER: Hi there Wolf. Well, a giant containment dome thought to be the best hope for stopping the massive oil spill in the Gulf of Mexico is now on site. BP, the company responsible for the spill, shipped the four-story vessel overnight and hopes to lower it approximately 5,000 feet for the larger of the leak points today.

More fallout from Arizona's controversial new immigration law, a leading Latino rights group, the National Council of La Rasa is calling for a nationwide boycott of the state. Also Democratic Senator Charles Schumer of New York is asking the Arizona governor to delay implementation of the law for a year to give Congress more time to enact comprehensive immigration reform. The measure has come under fire because it requires police officers to question anyone they suspect is in the state illegally.

President Obama this week promised to push for passage of a comprehensive immigration reform bill this year. I sat down with Representative Luis Gutierrez, one of the staunchest advocates for immigrant causes on Capitol Hill, and he told me he's not entirely convinced. In his words, he feels likes a yo-yo, getting promising from the president and the White House, and then watching them back away.

(BEGIN VIDEO CLIP)

REP. LUIS GUTIERREZ (D), ILLINOIS: One day he's kind of with us, and the next day he's not. I wish the president would just say, I'm going to fight, I'm going to give the best fight.

(END VIDEO CLIP)

SYLVESTER: The White House has said it wants a bipartisan bill, but is having a Republican co-sponsor in the Senate. Gutierrez predicts if immigration reform does not move this year, Latinos will stay home on Election Day.

BLITZER: Interesting, yesterday the president said he wants to start the process on immigration reform this year. Didn't say he wanted to see it pass.

SYLVESTER: It's a key thing and language is key you know that he made the promise on the campaign trail, so people are looking for some kind of movement. If they start it, they think it's better than nothing, Wolf.

BLITZER: All right Lisa. Thank you. Could growing concerns over the thwarted terror attack in Times Square eventually lead to the revoking the citizenship of some Americans? It's a question that's now being considered on Capitol Hill.

And are conditions improving at all around that massive oil spill in the Gulf of Mexico? I'll speak with the commandant of the U.S. Coast Guard.

(COMMERCIAL BREAK)

BLITZER: The attempted bombing in Times Square is raising more red flags about the terror through here in the United States. Some lawmakers are offering new legislation to revoke the citizenship of Americans who support terrorism groups. Here's our senior Congressional correspondent Dana Bash.

(BEGIN VIDEOTAPE)

DANA BASH, CNN SENIOR CONGRESSIONAL CORRESPONDENT (voice-over): California-born Adam Gadahn in an al Qaeda recruiting video. The al Qaeda operative on the FBI's most wanted terrorist list is still a U.S. citizen.

SEN. JOE LIEBERMAN (I), CONNECTICUT: If we captured Gadahn today, he could make a claim as an American citizen to be tried in a federal district court with all the rights of citizenship.

BASH: This bipartisan group wants to change that with legislation revoking the citizenship of Americans the state department deems aligned with foreign terrorist organization.

SEN. SCOTT BROWN (R), MASSACHUSETTS: If they've been identified through their actions or specific statements that they no longer want to be citizens, by golly, let's help them.

BASH: This would update a little known World War II-era law still on the books, allowing the secretary of state to revoke citizenship of Americans supporting foreign armies or states. Authors say the goal is not only to strip Americans like Adam Gadahn of legal rights as U.S. citizens, but to thwart an al Qaeda strategy to train Americans with U.S. passports.

LIEBERMAN: Recruit American citizens, who can train overseas and use their American passports to reenter or country for the purpose of planning and carrying out attacks against us.

BASH: Senator Joe Lieberman insists the bill is constitutional. Some legal experts disagree and call it dangerous.

PROF. STEVE VLADECK, AMERICAN UNIVERSITY: The government has such a broad understanding of what it means to provide material support to terrorism these days that really the most innocent benign activity could subject the most harmless Americans to this extreme sanction.

BASH: Politically the idea is not being received the way you may think. The house Republican leader is skeptical.

REP. JOHN BOEHNER (R-OH), MINORITY LEADER: I don't know how you would attempt to take their citizenship away. It would be pretty difficult under the U.S. constitution.

BASH: The Democratic house speaker open to it.

REP. NANCY PELOSI (D-CA), HOUSE SPEAKER: Something like this sounds like a good idea. I don't object to the spirit of it. I do think it's important to know what basis.

(END VIDEOTAPE)

BASH: White House spokesman Robert Gibbs said today he doesn't know anyone within the administration who supports this idea. It would be the secretary of state, Hillary Clinton, who under this bill would be the one to determine whether somebody is aligned with a foreign terrorist organization and should have their citizenship removed. She said she would take a hard look at it, but other state department officials say they are very concerned about legislation that would take away somebody's citizenship before convicted of any crime.

BLITZER: And we're talking about native born or naturalized.

BASH: Either one.

BLITZER: And what I hear you saying is that Lieberman and his colleagues who support this, they want Faisal Shahzad's citizenship revoked even before he's convicted of any crime.

BASH: Actually they were pretty clear they think it could not happen retroactively in this particular case, but they did say Wolf that this case absolutely prompted them for pushing this legislation so that any of these cases in the future would be applied.

BLITZER: Dana Bash is up on the hill for us working this story, thank you.

Today's steep plunge in stock prices and the violent clashes in Greece may be making President Obama's economic headache even worse. Or strategy session is next.

(COMMERCIAL BREAK)

BLITZER: Joining me now in our strategy session, two CNN political contributors, the Democratic strategist Paul Begala, and the Republican strategist Mary Matalin. When you saw, Paul, that nearly 1,000-point drop mid-afternoon today on the stock market, what did you think politically could be the result of that?

PAUL BEGALA, DEMOCRATIC STRATEGIST: Politically, it's never good for the party in power, which is my Democrats when the economy does badly, but I think Democrats can run on this, and here's how. Republicans want to privatize social security. The top Republican on the House budget committee, Paul Ryan of Wisconsin, has a proposal out there just like President Bush put forward, to take 25% of the social security, and invest it in the stock market with Bernie Madoff and Goldman Sachs and these guys that lost 900 points for a time today. I think Democrats can run on that and say, look, America, if you want to invest your social security in the stock markets, vote for the Republicans. If you want social security to be safe, vote for Democrats.

BLITZER: It's interesting, Mary, because Harry Reid, the majority leader in the Senate, he came out with this line today. I'll play it for you.

(BEGIN VIDEO CLIP)

SEN. HARRY REID (D-NV), MAJORITY LEADER: All you have to do is read the newspapers; you can find the Republicans are having difficulty determining how they're going to continue making love to Wall Street.

(END VIDEO CLIP)

BLITZER: How they're going to continue making love to Wall Street. Go ahead, Mary.

MARY MATALIN, REPUBLICAN STRATEGIST: This is four days after the president called for civility and at the same time Harry Reid has taken over and continues to solicit from Wall Street over $1 million. There's a reason he's tanking in his home state for his Senate bid. But going to -- back to Paul's point, the issue that's on the top of the agenda for all Americans of every party is this crushing debt, this massive debt, from government spending, which is the root cause of the problems in Greece which could be contagious to Spain and to the EU and across -- that would be an economic problem for us and a political problem for the president today, because it crystallizes for Americans what happens to an entire country under the weight of debt that it cannot sustain. Our debt, as a ratio to GDP, is creeping up on -- on those rates. And people get it. It's the number one issue, and that's what's going to drive the issues this election this fall.

BLITZER: Because it's one thing, Paul, as you know for some financial house like Lehman Brothers or Bear Stearns to collapse. It's another thing for a country like Greece or Portugal or Ireland or Italy or Spain to collapse, because then the ramifications -- if you think that great recession we just had was bad, get ready for an even worse recession.

BEGALA: Absolutely. This is the by-product of the casino economy that the Republican economics have given us. We deregulate Wall Street and cut taxes for the rich, privatize social security, this is what you get, America, when you put those kind of people in charge. Harry Reid's exactly right. I would have toughened it up. I would say when Republicans get in bed with wall street, it's the American people who get -- well, you know what, it's a hardware term, hammered, perhaps, nailed. Insert your hardware device.

MATALIN: They say Main Street gets screwed. This is four days after the president requested civility. BEGALA: I didn't call for civility.

MATALIN: You don't have to listen to this president. And any economist in the world who thinks that the problems in Greece and possibly Spain, Portugal, Italy are about casino Republicans, that's just a nutty thing for Paul to be saying and he knows it. It's crushing, unsustainable, public debt. It is the welfare state. It is the prescription for a governance that this president holds, which many of the members of Paul's party do not, and sometimes he doesn't even and his president that he worked for did not, so that's what the problem is and that's the president's political problem if not a substantive problem.

BLITZER: Do you agree, Paul, in Europe and Greece and some other countries like Spain and Portugal, it's all the socialized welfare that the government has to pay for that they don't have the money for that's causing this anxiety, is causing the riots now in the streets of Athens?

BEGALA: I'll let the Greeks speak for the Greeks and let the economists try to dissect what's going on over in Europe. I know right here in America, Mary's right, the president who I worked for, Bill Clinton, handed off to the president that Mary worked for, a surplus, and a pathway to zero national debt by this year, we should have zero national debt but for Republican economic policies. I know what caused it here. It was cutting taxes for the rich. Deregulating Wall Street. The Russian roulette with the American people's money that the Wall Street guys were playing and that's what caused this crash in America. I suspect that's probably what's behind the thing overseas, but I don't know.

BLITZER: Mary, I'll give you the final word.

MATALIN: That economy that President Clinton enjoyed was the result of Reaganomics and when we get back to Reaganomics, we will get out of the recession that we're in, and when we got -- when we picked up from the Clinton administration we had a recession, so we can keep going back all the way to the beginning of time, but every president has to deal with what he gets and President Clinton was very lucky to have followed Reaganomics.

BLITZER: Mary and Paul, guys, thanks very much.

Jack Cafferty is asking a good question. He's got your e-mail when we come back.

And we're tracing the Times Square bombing suspect's trail in Pakistan. Our senior international correspondent, Nic Robertson, is in Karachi right now. And he's going to tell us what he's uncovered.

(COMMERCIAL BREAK)

BLITZER: Jack's back with "The Cafferty File." Jack?

CAFFERTY: The question this hour is: What lessons should the U.S. take away from what's going on in Greece? Jim writes in New Jersey: "Greece has put us all on notice. The welfare state is unsustainable. Time to take our medicine, the longer we wait, the more it will hurt."

Jimmie writes: "I think you're finally starting to under what the tea party movement is really about. Problem is, the current administration wants to head the country toward becoming cradle to grave, means more votes."

John writes: "Greece was the world's first democracy. Now they are the perfect example of what can happen when everyone with a hand- out gets a hand-out."

W. writes: "I think we'll definitely have cuts that will inflame the baby boomer generation. I already expect at 27 to be working until I'm 70, social security or not. I'll have better middle age because of improvements in health care and medical research, so I should be expected to work longer and harder than my parents planned for. The latest generation rested on the laurels of the greatest generation, and they have no one to blame but themselves."

Martin writes: "At this point it's a lost cause. Nobody is willing to give up entitlements for the fiscal good of the nation, nor is it anything but political suicide to merely propose taking them away. See you in the bread lines, Jack."

Keith writes: "Greece seems like a place I need to go, a place where people stand up for what they believe in. Americans are being taken advantage of and are doing absolutely nothing about it. Bring on the revolution, I say. Bring it on."

And Jan in North Carolina writes: "For the entire history of mankind, Greece has led the way. Greek philosophy has shaped the entire western thought, since its inception, take a look at Greece, there go we."

If you want to read more on the subject, you'll find it on my blog at CNN.com/Caffertyfile.

BLITZER: Thanks Jack and to our viewers, you're in THE SITUATION ROOM.

Happening now, new leads in the Times Square investigation the bombing suspect likely did have training from extremists in Pakistan. Our Nic Robertson is there and he's in Karachi retracing some of the steps.

The attorney general of the United States says Faisal Shahzad is still cooperating, but even as investigators connect the dots, some lawmakers are second-guessing the watch list system that almost let him get away.

And CNN now has exclusive pictures as oil from that leaking well hits Louisiana's barrier islands.