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THE SITUATION ROOM

Google Braces Massive Fine; Yemen Govt. Losing Control; Empty SEC Office Costing Taxpayers; Obama vs. Romney: Near Miss; Senate Cancels July Fourth Recess to Work on Debt Ceiling Deal

Aired June 30, 2011 - 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, THE SITUATION ROOM: Brooke, thanks very much.

Happening now: Bill Clinton on the Republicans, he says will be most threatening to President Obama in 2012. Stand by for my one-on-one interview with the former president of the United States on the campaign, the economy, and much more, including a topic that made him get rather emotional.

And the Senate cancels its Fourth of July break amid political fireworks over the federal debt. Now Republicans are challenging the president to give up some of his time on the campaign trail.

And a cavernous building stands empty, leased by a federal agency for millions and millions of dollars. This hour an outrageous waste of taxpayer money exposed. I'm Wolf Blitzer in Chicago. You're in THE SITUATION ROOM.

A game of chicken is playing out in Washington right now, a game that could do some serious damage to the U.S. economy. The former President Bill Clinton is warning that it will be a very big deal if Congress fails to raise the legal limit on the federal debt by August 2nd.

I spoke with President Clinton, at length, here at the site of the Clinton Global Initiative event in Chicago.

(BEGIN VIDEOTAPE)

BLITZER: You think that August 2nd deadline is a pretty hard deadline?

BILL CLINTON, FMR. PRESIDENT OF THE UNITED STATES: I do. I know it's a hard deadline in the sense that just letting it happen will have, at the very least, a short-term adverse effect on our standing in the world, on our credit, on people thinking we're a grownup country who know what we're doing.

Now how bad the long-term damage is will be determined by how quickly we remedy it. But since it's never happened before, it's impossible to be absolutely specific. But it's nutty. What you're really saying when you don't raise the debt limit is not you want to balance the budget in the future, it is I'm sorry, I'm so mad I can't get my way, I'm not going to pay our past debts. A grownup country wouldn't do that. We can't afford to do that.

(END VIDEOTAPE)

BLITZER: Stand by for much more of my interview with Bill Clinton. That's coming up in THE SITUATION ROOM. It is a lengthy interview. You'll want to see it and hear it.

Meanwhile on Capitol Hill today, a move by Senate Democrats to show they're taking the federal debt seriously. The Majority Leader Harry Reid canceled the chamber's Fourth of July recess. But there is still plenty of bickering about the way politicians on both sides are spending their time, including the president. Let's go live to our Congressional Correspondent Kate Bolduan. She is follow this story.

Kate, what is the latest?

KATE BOLDUAN, CNN CONGRESSIONAL CORRESPONDENT: An amazing day, Wolf. As you said, the Senate Majority Leader Harry Reid announced this morning the Senate has canceled its Fourth of July break next week to continue working on those debt negotiations.

Well, that set off a full day of some pretty astonishing and highly- charged political theater.

(BEGIN VIDEOTAPE)

BOLDUAN (voice over): After President Obama scolded Congress for taking time off instead of getting to work on a deal to raise the federal debt ceiling, the Senate's top Republican issued a challenge in the form of an invitation right back at the president.

SEN. MITCH MCCONNELL, (R) SENATE MAJORITY LEADER: The president says he wants to get working, wants us to get working. I can't think of a better way than to have him come right on over today. We're waiting.

BOLDUAN: Republican senator John Cornyn took it even further, calling the president's Wednesday press conference, quote, "absolutely disgraceful".

SEN. JOHN CORNYN, CHAIRMAN, NAT'L. REPUBLICAN SENATORIAL CMTE.: He should be ashamed. I respect the office of the president of the United States, but I think the president has diminished that office and himself by giving the kind of campaign speeches that he gave yesterday.

BOLDUAN: And Cornyn issued a challenge of his own as the president heads out of town for two political fundraisers.

CORNYN: Instead of going to Philadelphia tonight and raising money, why didn't he call Senator McConnell, Speaker Boehner, Minority Leader Pelosi, and Majority Leader Reid into his office and sit down and do his job?

BOLDUAN: That elicited this sharp rebuttal from the president's spokesman.

JAY CARNEY, White House PRESS SECRETARY: We can walk and chew gum at the same time, as the president said yesterday.

BOLDUAN: Meantime in a choreographed offensive, Democrats took to the floor, one after another, laying out what they call egregious tax breaks and accused Republicans of protecting only the wealthiest Americans.

SEN. JEFF MERKLEY, (D) OREGON: As a special write-off for thoroughbred racehorses.

SEN. CHARLES SCHUMER, (D) NEW YORK: The tax break for yacht owners.

UNIDENTIFIED MALE: A tax break for private jets.

BOLDUAN: And the sharp rhetoric turned to political theater when Republicans balked at the timing of an unrelated trade deal meeting that Democrats said would help the economy.

SEN. JOHN KERRY, (D) MASSACHUSETTS: And I look over there and I see these empty chairs on the very same day that the July Fourth recess has been canceled, because four or five members on that side refused to allow the Senate to recess, supposedly because we have so much business.

(END VIDEOTAPE)

BOLDUAN: As you see, a whole lot of fiery rhetoric on both sides. But it's not clear if any of this will have any impact on pushing the now stalled debt talks forward. We do now know the House and the Senate will both be in next week, Wolf, but right now still no meetings scheduled between all the main negotiators, Republican and Democratic leaders and the White House, Wolf.

BLITZER: All right, Kate, thank you very much. Kate Bolduan on the Hill.

Let's dig deeper right now over the political fight involving the debt limit with our Chief White House Correspondent Jessica Yellin.

Jessica, you have been talking to some of your sources. What are you hearing?

JESSICA YELLIN, CNN CHIEF White House CORRESPONDENT: First of all, Wolf, we know White House officials are not backing down from the president's tone yesterday. Feisty and combative with Republican leadership. I'll tell you that time is actually tighter in this negotiation than the August 2nd deadline suggests. That's because Democratic officials familiar with negotiations say they believe that a deal needs to be reached before the last week of July, so a little about a month from now, in order to get a bill done and through both houses in order to meet that August 2nd deadline.

Democrats familiar with the talks say that on the big issue for Republicans, spending cuts, those two sides were about $800 billion apart when talks broke down. So that's a huge, vast gulf. And we're not even mentioning that biggest issue for Democrats, revenue. So there is a lot of distance to cover before they have a deal. BLITZER: Let's talk a little bit about revenue, what Democrats call revenue increases, what Republicans call tax increases. Are Democrats still insisting that tax hikes, tax increases are part of any deal?

YELLIN: Flatly, yes. Democratic officials are still outlining those revenue increases. They say it's a must. And their argument is in part they have to sell this to their base. Both sides have to make it palatable to the people who are going to vote yes. But they also say it's not just about selling it to get the votes. They also say it's good policy. So there is no wiggle room for them on this. And they're insisting that they're confident they'll get there eventually because leadership knows it has to be done. But right now there is lockdown on both sides. Somebody's got to give to get a deal, Wolf.

BLITZER: I think our viewers are going to be interested what former President Clinton has to say how to break that lockdown, that logjam, that interview coming up later in THE SITUATION ROOM

Jessica, thank you.

Let's get to Pakistan right now. A country facing a good deal of uncertainty and danger, especially as the United States forces prepare to begin their withdrawal from neighboring Afghanistan. It's all raising lots of questions about the security of Pakistan's nuclear arsenal.

Here is our Pentagon Correspondent Chris Lawrence-Chris.

CHRIS LAWRENCE, CNN PENTAGON CORRESPONDENT: Yes, Wolf, for its part, Pakistan has said there has never been an incident with any of its nuclear material. It continuously says there is nothing to worry about. But there are some folks here in the U.S. who watch Pakistan and who keep close tabs on the nuclear issue, who are getting more and more concerned.

(BEGIN VIDEOTAPE)

LAWRENCE (voice over): Nuclear experts still think it's unlikely terrorists can seize a nuclear weapon in Pakistan, but --

CHARLES BLAIR, FEDERATION OF AMERICAN SCIENTISTS: The trend is not good. The trend has only gotten worse.

LAWRENCE: Terrorism analyst Charles Blair says for added security, the various parts to a nuclear weapon are kept in separate locations. But he estimates in 10 years Pakistan will have nearly as many nuclear warheads as the British do today.

BLAIR: All of those areas then need to be safeguarded.

LAWRENCE: Since 2007, there have been four attacks near likely nuclear weapon sites, and in may, insurgents penetrated a Pakistani military base just six miles from Karachi's airport. Militants stormed the Mayron (ph) navy base with rocket launchers and hand grenades and killed 10 troops. A Taliban commander has threatened to hit nine more key sites to avenge the death of Osama bin Laden. Analysts say it's unlikely terrorists could steal an actual warhead.

HANS KRISTENSEN, NUCLEAR INFORMATION PROJECT: If you get in and you manage to get that far, and you get through the steel doors, and you to steal this weapon, then you have to make your way out again. And there is probably another security team that has arrived at that time.

LAWRENCE: But they're more worried about the materiel, liken enriched uranium used to make bombs. Say tensions with India flare and Pakistan moves material to mate with and arm a warhead?

BLAIR: The main conduit, probably would be during transportation. Because that is when it is outside the perimeter fence.

LAWRENCE: And the terrorists would probably have help from the inside.

BLAIR: I don't think that an attack without any sort of insider assistance would work.

LAWRENCE: Blair says the Pakistani Taliban have shown they can infiltrate nearly any federal agency.

BLAIR: That's really where the more interesting aspects to their recent attacks come into place. The Mayron (ph) naval base attack, for example, there was believed to be an insider occlusion in there.

(END VIDEOTAPE)

LAWRENCE: Because of that, a U.S. official tells us that the Pakistanis have added background checks to the people who are working on its nuclear program. In that the nuclear security team is more carefully vetted. He says overall, Pakistan's nuclear arsenal is relatively secure, but nothing is guaranteed, Wolf.

BLITZER: Nothing at all. All right. Very important story, Chris Lawrence at the Pentagon. Thank you.

Meanwhile, a new failure in airline security is raising some red flags. Listen to this. A man managed to get on a cross-country flight without a proper boarding pass, or even a valid id. We're investigating how it happened.

And later, is Bill Clinton convinced President Obama will in fact win reelection next year? Stand by to hear the former president, at length, on politics, the economy, and much more. My one-on-one interview with Bill Clinton. That's coming up in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: We're reporting today from Chicago from the Clinton Global Initiative America Conference. My interview with the former president of the United States here in Chicago; we taped it earlier in the day. That's coming up later here in THE SITUATION ROOM.

Gorgeous, beautiful day in Chicago. You can see what's going on right there. A good time to visit this wonderful city. Meanwhile, the Internet search giant Google may be bracing for a huge fine from the federal government. CNN has learned the Justice Department may be about to act on allegations that Google is profiting from illegal pharmacies by taking advertising money from them.

We're told federal prosecutors in Rhode Island have been looking into this along with undercover agents from the Food and Drug Administration. Our Investigative Correspondent Drew Griffin has been looking into all of this for us.

Drew, you have actually been reporting on this for several years. What is the latest?

DREW GRIFFIN, CNN INVESTIGATIVE CORRESPONDENT: Well, the latest is Google may finally be brought to task for what a lot of people, including state and federal law agencies have been warning Google about, that the hosting of these rogue online pharmacies is giving illegal prescription drugs into hands of people who abuse them, and they need to stop.

We now know that Google was warned specifically. Eric Schmidt, the head of Google was warned three years ago, in a letter written by Joseph Califano, the former secretary of Health, Education and Welfare under Jimmy Carter. He heads the Center Against Substance Abuse. He sent a letter to Schmidt warning him that Google is profiting in this rogue pharmacy business, and he needs to stop it.

BLITZER: You know, Drew, Google isn't talking about this. But do we know if Google has in fact responded to the Justice Department?

GRIFFIN: Yes. To us Google said because it's a legal matter, they won't comment.

But here's what we do know -- in May, Google filed with the Securities and Exchange Commission a report telling its investors that it's setting aside $500 million to potentially settle a suit with the Justice Department. The only thing they stated was the matter involved the use of Google advertising by certain advertisers. So, we know that Google has stockpiled this amount of cash, potentially to pay off what we're told would be a huge, huge fine on this matter -- Wolf.

BLITZER: And how huge of a problem is this, Drew, this whole illegal prescription drug use or abuse, whatever it is? How big of a problem is it?

GRIFFIN: Well, it's the fastest growing abuse of drugs in this country, is prescription drugs. What the studies have shown is that the Internet and the access to that has just increased the level of use by people who want to abuse these drugs. We're talking about drugs that can be used -- well, we've shown you.

We've shown people addicted to these drugs like Soma. They abuse them that. They overdose. Some have even died on them.

And what one study found was not only does the use of illegal prescription drugs has been increasing twofold over the last several years, but in areas where the internet use is the highest, wolf, where the high-speed Internet has been introduced, that is where they see the fastest growth in abuse of prescription drugs. Many people link it directly to the Internet accessibility of the drugs. No questions asked.

BLITZER: Yes. All right. It's a big problem.

Thanks very much, Drew, for that. I know you'll stay on top of the story for our viewers.

Meanwhile, a California man is headed to prison for scamming Chinese immigrants by recruiting them to a phony unit of the United States Army. We have details.

And a federal agency leases -- get this -- a huge, huge office space, but leaves it empty. We're going to tell you how much of your taxpayer money is being wasted.

Stay with us here in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: Deadly new clashes today between troops and militants in Yemen. The nation's acting president tells CNN the government has lost control over five provinces, and that security is deteriorating as unrest continues. He spoke exclusively with CNN's Nic Robertson about the health and the fate of Yemen's embattled President Ali Abdullah Saleh.

Saleh was very seriously wounded in an attack on the presidential palace compound this month.

(BEGIN VIDEOTAPE)

NIC ROBERTSON, CNN SENIOR INTERNATIONAL CORRESPONDENT: Mr. Vice President, you've seen President Saleh. You've seen his injuries. How bad are they?

ABDU RABU MANSOOR HADI, ACTING YEMENI PRESIDENT (through translator): I saw him immediately after the incident. He had burns on his face, burns on his hands, some burns on his chest, and there was a piece of wood that was sticking between his ribs.

And now thanks to God, the president's health and improved a lot and improves more every day. And we're waiting within the next hours for him to give a statement to the nation from Riyadh through television. We hope he recovers very soon and comes back to Yemen.

ROBERTSON: Why does the president insist on coming back to Yemen against pressure of the United States, against the pressure from the opposition here?

Many people consider him now to be part of the problem for Yemen, not part of the solution, the reason why the economy is in bad shape, the reason why there is so much corruption. They say this will be a perfect opportunity for him to step down. He's been injured.

HADI: He is part of solving the problems in Yemen. He is part of the political balance here in Yemen. He's been an expert in dealing with all differences and with all political and tribal differences and tribal approaches.

ROBERTSON: How long before he comes back, in your estimation?

HADI: No one can tell. This is according to the doctors.

ROBERTSON: Days?

HADI: Days, weeks, months.

ROBERTSON: Months? It could be months?

HADI: It could be months. This is a decision up to the doctors.

ROBERTSON: With the greatest respect, sir, you must have some idea when the president will be ready to travel back.

HADI: I have no idea about the exact date when he is coming.

(END VIDEOTAPE)

BLITZER: Yemen's acting president by the way says government forces are moving aggressively to target al Qaeda forces based in Yemen to try to prevent them from taking advantage of the instability right now. Serious story, enormous consequences.

Meanwhile, the Senate confirms General David Petraeus to become the next head of the CIA.

Lisa Sylvester is monitoring that and some of the other top stories in THE SITUATION ROOM right now.

Lisa, what do you have?

LISA SYLVESTER, CNN CORRESPONDENT: Hi there, Wolf.

Well, senators unanimously approved General Petraeus to become the 20th head of the CIA this morning. He'll take over for outgoing Chief Leon Panetta in September. Panetta is leaving the spy agency to take over as secretary of defense. Petraeus currently serves as commander of U.S. forces in Afghanistan.

And in Los Angeles, a judge has sentenced a man who conned Chinese immigrants into joining a fake U.S. Army unit to three years in prison. The man who called himself the supreme commander of the phony unit charged more than 20 Chinese nationals up to $450 apiece to join. Recruits were promised was a path to U.S. citizenship.

And striking public sector workers marched through British cities today. Members of four major unions walked off the job over government plans to change the pension system. Many of the striking workers are teachers. Air traffic controllers, customs officers, and other government employees are also on strike.

And Canada is welcoming Britain's royal newlyweds on their first official trip since their wedding back in April. A plane carrying Prince William and Kate touch down in Ottawa just a short time ago. And shortly after the landing, they were joined by Canadian Prime Minister Stephen Harper to lay a wreath at a War Memorial. Among the events on the itinerary of their nine-day tour of Canada are a cooking workshop in Montreal, and rodeo in Calgary.

They certainly have rock star status wherever they go, don't they, Wolf?

BLITZER: They're going to have a lot of fun in Canada, then the United States.

I wonder if that dress, Lisa, that she is wearing, is that already sold out? That seems almost every outfit she wears immediately sells out.

SYLVESTER: You know, that's what happened at Wimbledon. She wore this beautiful white dress. And I think it was something like in 20 minutes, something like that, the dress was sold out. So, you better believe there are people probably right at this moment Googling it and trying to find out who the designer of that dress is too. Nice dress.

BLITZER: Yes, all right. Good point. Thanks very much, Lisa. We'll check back with you.

All right. We have a story that is going to shock you. It's a big, huge empty space, and it's costing taxpayers millions and millions of dollars. We're looking into an outrageous case of broken government.

And an example of airline security gone very, very wrong. How someone managed to get on a cross-country flight without a boarding pass or even a valid ID.

Stay with us. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: I'm Wolf Blitzer, reporting today from Chicago. You're in THE SITUATION ROOM.

Here are some stories we're working on:

Former President Bill Clinton says he'd be surprised if President Obama is not reelected. In my interview, you're going to be hearing who he likes in the field of Republican candidates. Plus, much more.

Also, the comedian Stephen Colbert establishes a political action committee. Is it satire or is it serious?

And Mark Halperin of "TIME" magazine use as four-letter word to describe the president. Jeanne Moos will take a closer look at the uproar that has followed.

To our viewers, you're in THE SITUATION ROOM. We're live from the Clinton Global Initiative-America Conference in Chicago.

(MUSIC)

BLITZER: So, how can a man get through airport screening and on to a cross-country flight with only an out-of-date school ID and a boarding pass with the wrong date? It's raising serious concerns about airline security.

Our homeland security correspondent Jeanne Meserve has the details -- Jeanne.

(BEGIN VIDEOTAPE)

JEANNE MESERVE, CNN HOMELAND SECURITY CORRESPONDENT: Wolf, law enforcement officials say there is nothing at this point to indicate that this is a terrorist incident. But it certainly illustrates a failure in the security protocols of the Transportation Security Administration and an airline.

(voice-over): The saga starts at New York's JFK Airport where on June 24th, Olajide Oluwaseun Noibi boarded a Virgin America flight bound for Los Angeles. After takeoff, the FBI says, other passengers complained about Noibi's odor. When the flight crew investigated, they found he had a boarding pass for a different day with someone else's name on it. His only ID from the University of Michigan, though he hasn't been a student there since '06.

How did he get through a TSA checkpoint which requires a valid government-issued ID and a boarding pass? There was clearly a malfunction.

One expert blames human error and says biometric technology should be used.

RAFI RON, AVIATION SECURITY CONSULTANT: I'm talking about the ability to identify people either by fingerprints or by the iris scanning, or any other measure that actually recognizes the person rather than the paper.

MESERVE: There was another failure. Virgin America says, "It appears that staff may have missed an alert" when Noibi presented his boarding pass at the gate, and the flight crew failed to notice an extra passenger.

When Noibi landed at LAX, law enforcement was waiting. He was questioned and released. But Wednesday, it appears he got through another TSA security checkpoint at LAX, again with a fraudulent boarding pass and improper I.D.

A Delta agent stopped him before he boarded a flight to Atlanta. In his bag, authorities say they found more than 10 boarding passes in various names. He was arrested and charged with being a stowaway.

JAY CARNEY, WHITE HOUSE PRESS SECRETARY: Our security agencies take any situation like this seriously. And I can assure you they are investigating this situation thoroughly. (END VIDEOTAPE)

MESERVE: Noibi told authorities he got through the checkpoint by presenting a note from police saying his U.S. passport had been stolen. The TSA will make allowances for lost documents, but his University of Michigan I.D. was apparently years out of date, and his boarding pass would have shown a different name and the wrong date. A simple cross-check should have stopped him.

The TSA says disciplinary action is under review for the officers involved who will, at a minimum, get remedial training. The agency points out that Noibi did go through physical screening and was not carrying anything dangerous.

Wolf, back to you.

BLITZER: All right, Jeanne. Thank you.

Jeanne Meserve, reporting for us.

Let's turn to another breakdown in your security, waste of your money. A huge office space leased by a federal agency, empty.

Lisa Sylvester is back. She has been doing some great reporting on this, part of her "Broken Government" series.

What are you learning here? Because it's very shocking, Lisa.

SYLVESTER: This really is.

You know, Wolf, this lease is raising a lot of eyebrows because it was done without any bidding, without any approval. And as it turns out, without the SEC even having the money to rent the building.

(BEGIN VIDEOTAPE)

SYLVESTER (voice-over): It's a gorgeous building with its own private sculpture garden, a fountain, and lots and lots of space. But there are no workers here, no computers, no phones ringing, nothing.

The Securities and Exchange Commission leased nearly a million square feet at the Constitution Center building in Washington, D.C., at a cost of $557 million over 10 years for workers it never hired. That expanded space was in addition to a brand-new headquarters near Union Station, across town.

In a scathing report, the inspector general of the SEC says the commission "grossly overestimated the amount of space needed." Representative Jeff Denham, whose subcommittee oversees public buildings, is equally outraged.

REP. JEFF DENHAM (R), CALIFORNIA: Shocked. I mean, shocked. You know, as we're looking at budget cuts and a huge debt, to find out there is an agency that could go out during a weekend, find this property, secure the property, sign the lease without any bids or any signoff, it's an outrage and it's a waste of money. SYLVESTER: July, 2010, the SEC signed the lease, assuming it would have to hire about 800 new workers under the new Dodd/Frank Wall Street Reform Act. By October, 2010, it was clear Congress, concerned about the deficit, wasn't going to appropriate new funds. January of this year, the SEC inspector general began investigating why the lease was even signed, and around this November, the first rent check for the property will be due.

(on camera): This building takes up an entire city block, and it has spectacular views. Take a look outside the window. You can see clear across the river to Virginia.

The SEC originally leased about 900,000 square feet. But when it said it couldn't use the space, it had to sublease it out to two other agencies. Now what's left is about 350,000 square feet of just empty space.

(voice-over): In a congressional hearing, the SEC had two representatives testify, but neither could explain why basic procedures were not followed.

JEFF HESLOP, SEC CHIEF OPERATING OFFICER: I'm new to the position. I'm reviewing the current process and trying to improve and fix that process going forward. So I can't speak to past operating practices other than to tell you, as you have seen, they were deeply flawed.

SYLVESTER: We asked the SEC for an interview, but they declined. The head of the SEC Office of Administrative Services, who signed the lease, is still on the job and still in that position.

(END VIDEOTAPE)

SYLVESTER: And the SEC is unique as a federal agency because it has its own authority to lease buildings. Other federal offices have to go through the General Services Administration.

Now, Congress is looking at revoking the SEC's leasing authority. And next Wednesday, there will be another hearing on this issue, and the chairman of the SEC has been called to testify -- Wolf.

BLITZER: They've got to learn from these blunders. These are millions and millions of dollars at stake. And they've got to make sure that this never, ever happens again.

Lisa, please stay on top of this story. Our viewers are outraged as they heard your reporting.

Thanks very much.

A factory that President Obama visited is coming back to haunt him, with a little help from one of his leading Republican opponents. We're talking about Mitt Romney.

Stand by for this report.

And Bill Clinton tells me why he is not sitting by the phone waiting for a call from the president.

(BEGIN VIDEO CLIP)

BLITZER: Well, how often do you talk to him?

WILLIAM JEFFERSON CLINTON, FMR. PRESIDENT OF THE UNITED STATES: I try -- I never -- he's got plenty to do. He's got to have to deal with -- he's got the Afghanistan problem, the Libya problem, a whole range of other issues. If they want me to do something, they ask and we talk.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

BLITZER: President Obama holds a fundraiser in Pennsylvania this hour, but Republican Mitt Romney got there first. The Republican presidential contender, raising campaign cash today in Allentown, Pennsylvania. That's about 50 miles from Philadelphia, where President Obama has two events in that important battleground state. Romney is trying to steal the president's thunder in more ways than one.

CNN's Jim Acosta is following their dueling appearances. He is joining us live -- Jim.

JIM ACOSTA, CNN CORRESPONDENT: Wolf, President Obama has spent a lot of time touring factories while in office, touting his efforts to create blue collar jobs. And with the help of Republican presidential candidate Mitt Romney, one factory has come back to haunt the president.

(BEGIN VIDEOTAPE)

ACOSTA (voice-over): Picking a presidential backdrop can come with political peril. Take the tour President Obama took back in December of 2009 at the Allentown Metal Works plant in Pennsylvania. Afterward, he boasted to a nearby college his stimulus plan was creating jobs.

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: I was just talking to the governor before we walked in, and he's got a whole series of charts about how much more steel was produced in Pennsylvania because of the Recovery Act.

ACOSTA: Today, the plant sits empty. It closed back in January. But the factory lives on in a new Web video released by the Mitt Romney campaign.

UNIDENTIFIED FEMALE: The Allentown Metal Works is set to close its doors on Friday.

ACOSTA: The video ends with the catchphrase, "Obama isn't Working."

The former Massachusetts governor and GOP contender stood out in front of that plant to say his economic plan will get the job done. MITT ROMNEY (R), PRESIDENTIAL CANDIDATE: I can assure voters that if I were president of the United States, I would spend every waking moment doing what I could to get Americans back to work.

ACOSTA: Romney's early strategy to ignore his GOP rivals and run against the president may be catching on. The latest polls, including this one from Marist, show Romney right on the president's heels in a hypothetical match-up. And he is not the only GOP candidate sharpening an economic message.

REP. MICHELE BACHMANN (R), PRESIDENTIAL CANDIDATE: We cannot afford four more years of Barack Obama.

(APPLAUSE)

ACOSTA: The problem for Republicans, President Obama appears to be running against Congress at the moment.

OBAMA: You know, Malia and Sasha generally finish their homework a day ahead of time. Malia is 13. Sasha is 10.

ACOSTA: At his press conference Wednesday, he quipped that his daughters are better at finishing their homework than leaders on Capitol Hill are at cutting a deal to balance the budget.

OBAMA: They don't wait until the night before. They're not pulling all-nighters.

ACOSTA: But there is a sign the White House is getting more selective when it comes to its factory tours.

OBAMA: No matter what you may hear, there is no silver bullet to reverse a decade of economic challenges.

ACOSTA: The plant the president visited earlier this week in Iowa has hired back all of the workers it's laid off since the recession, and then some.

(END VIDEOTAPE)

ACOSTA: When asked for a response, the president's reelection campaign did not have a comment. They referred us to the Democratic National Committee, which slammed Romney's own economic record when he was governor.

It is a sign, Wolf, that the political factories on both sides of the 2012 campaign are just getting warmed up -- Wolf.

BLITZER: You can be sure there will be a lot more of this coming up. Thank you.

And you can also bet the Obama camp has been choosing the president's appearances very, very carefully, especially since he became an official candidate for reelection.

CNN's Tom Foreman has been looking over his travel schedule -- Tom. TOM FOREMAN, CNN CORRESPONDENT: Look at the election map from 2008, all of the blue states that Barack Obama won, all of the red states that went to John McCain. And now look at the president's travel from this year. It's been almost exclusively to those blue states that he needs to have come out for him again next year.

The one exception being Texas, down here. And you may recall when he went there, everyone said, what is he doing in Texas?

But let's look at some of the details, because these are really quite telling, some of the key states.

For example, Ohio. There, he edged out John McCain, 52 percent to 47 percent. That's a state he needs to have.

Pennsylvania, right next door, another state where he had a big win, but where jobs are a big issue. Pennsylvania, Ohio, some of those areas, he's got to shore them up.

Florida, down here, a massive number of electoral votes. Again, he barely won over John McCain. He's got to be hitting Florida to make sure those people show up for him.

So why has he chosen some of these over some of the other possible states here? Those are also worth looking at.

Here is New Mexico down there. He won big there, 57 percent to 42 percent. Probably less worry at the moment.

Up here in Colorado, that's a state he'll probably have to watch a little more closely because it can change and often has in the past -- 54 percent to 45 percent though at the moment. Those are the numbers he has to work with. Even up here in Wisconsin, the same thing, a big win, 56 percent to 43 percent.

But what you can clearly see, whether you're talking about the blue states he has already been to or the ones he might go to, there is a pattern here. The White House might say this is just about traveling the country, but this is clearly about reelection.

BLITZER: All right, Tom. Thank you.

President Obama, meanwhile, is accused of having an obsession with raising taxes. We're going to tell you about the latest sparring over the debt ceiling standoff.

And the comedian Stephen Colbert establishes a so-called SUPERPAC. And some say it's more than just political satire.

Plus, you're in THE SITUATION ROOM. We're live from the Clinton Global Initiative America Conference here in Chicago.

(COMMERCIAL BREAK)

BLITZER: Let's get right to today's "Strategy Session." Joining us, the Democratic strategist and CNN political contributor, Paul Begala. He's a senior strategist for the Democratic fundraising groups Priorities USA and Priorities USA Action.

Also joining us, the Republican strategist, Terry Holt.

Guys, thanks very much for coming in.

And let me play a clip. Jon Kyl, the number two Republican in the Senate, he has been negotiating with Biden, with the other Democrats. He was very tough on the president on the issue of taxes.

Listen to what he said.

(BEGIN VIDEO CLIP)

SEN. JON KYL (R), ARIZONA: What I'd like to briefly address today is what seems to me to be an obsession on the part of the president to raise taxes. In fact, he is so fixed on this, it is so important to him to raise taxes, that he is willing to risk an economic crisis, knowing that Congress won't raise taxes as part of this debt ceiling increase.

(END VIDEO CLIP)

BLITZER: Why is he doing that, Paul? Why do you think the president, if you believe Jon Kyl, is engaging this kind of risky business?

PAUL BEGALA, CNN CONTRIBUTOR: Well, I know why Jon Kyl is. He's a good man, but I'm reminded of the words of one of my old clients, Zell Miller, the best darned governor that Georgia ever had. And Zell used to say, "A hit dog barks." OK?

Senator Kyl is barking because he has been hit. He's barking because the president, yesterday, pointed out that the Republican Party wants to essentially end Medicare in order to preserve tax breaks for the rich. But the Republican Party is willing to push America into a potential fiscal collapse, a default for the first time in over two centuries, in order to protect tax breaks for private jets, tax breaks for Mitch McConnell's friends who own race horses in Kentucky, tax breaks for oil companies.

They ought to be paying their fair share as well. And so I think Senator Kyl is out there because he knows that the president tagged him and hurt his party politically yesterday.

BLITZER: Did he? Did he hurt the Republican Party, Terry?

TERRY HOLT, REPUBLICAN STRATEGIST: I don't think so. Washington doesn't have a tax problem, it has a spending problem.

This is the president, Barack Obama, who had an $800 billion-plus stimulus package that didn't work, a trillion-dollar health care package, and now he wants to get into the pockets of the American people. All this class warfare, tax cuts for the rich, it's all hooey. What we're talking about is spending out of control in Washington. The American people get it. And Jon Kyl is pointing out the obvious, that we need to cut spending and not go back to the American people for more money when they can't afford the tax bill they have right now.

BLITZER: But what's wrong, Terry, with removing some of the loopholes that allows, for example, a company like General Electric, which made last year $14 billion, wind up paying zero in federal income tax?

HOLT: Well, it's really important that if we're going to sacrifice, we have a shared sacrifice. And I think most people would agree that if you are going to go after this program, then the other programs should be fair game as well.

And I think that for Republicans in general, the entire government and the spending that this government does, it should all be on the table. But let's be realistic.

You're not going to balance the budget by taking away this tiny little tax break here, a tax break there. That's all rhetoric.

It's great for Paul's take talking point. Don't get me wrong, I'm very entertained by it all. But, at the end of the day, we're going to have to make big, systemic changes in order to get this deficit under control, and we're not going to get it from the wealthy who have airplanes. I'm sorry, it's not enough money in that.

BLITZER: Go ahead, Paul.

(LAUGHTER)

BEGALA: So we're going to get it from poor children, disabled children, senior citizens --

HOLT: I don't think anybody's talking about taking money out of the mouths of babes.

(CROSSTALK)

HOLT: What we are talking about is getting the entitlement programs under control. We've made promises that we can't keep. It's going to bankrupt the country.

If we think this debt ceiling issue is serious now, wait until we just can't -- no one will even loan us money anymore. That's the road we're headed down, and that's why Republicans have fundamentally changed this conversation in Washington about not -- not about how much we can spend, but how much we can --

(CROSSTALK)

BEGALA: I mean, come on. I was talking to --

HOLT: You violated it on the first question. It's your turn, I'm sorry. BLITZER: Paul, go ahead.

BEGALA: The Republican position is politically untenable and morally unjustifiable. Their belief is that millionaires and billionaires who have profited greatly --

HOLT: That's not my belief, Paul.

BEGALA: -- should not pay their fair share. They should not pay even a nickel more.

HOLT: You are fired as my spokesperson, because that's not the Republican position.

BLITZER: Hold on, Terry. Let him finish.

BEGALA: The Republican position is, in the words of "The Wall Street Journal," no left-wing tool, essentially end Medicare. That is a radical change in our country.

It is to cut Medicaid in the Republican budget that passed the House, cut Medicaid and nursing home care over time by half in order to preserve tax breaks for oil companies, corporate jets, millionaires and billionaires. The president is saying, look, we do have to cut, and it's going to hurt the Democrats to cut programs that they care about. But the Republicans have to do their share, too.

They have to go to wealthy people who have plenty of money and say they've got to pay a little bit more, or at least they can't get the corporate welfare. Exxon Mobil gets billions of dollars in corporate welfare and they make billions in profits. That's where we should go before we ever touch senior citizen --

(CROSSTALK)

BLITZER: Hold on, guys, for one second.

Because, Terry, I want you to switch gears to presidential politics for a moment.

Sure.

BLITZER: This "New York Times"/CBS News poll that came out asked the question, "Are there any candidates that you feel enthusiastic about?" And 67 percent say -- these are Republican voters, self-identified -- 67 percent say they're not enthusiastic about any of these Republican candidates. Romney got 7 percent; Bachmann, 7 percent; the others, virtually nothing.

What's wrong with this image that we're seeing out there?

HOLT: Well, you know, I don't know that any of them are terribly well known by a large swath of the American people. If they are, they are not well known.

It's still relatively early in this process, and it hasn't developed as early as some other presidential races. I also think people still expect this administration and this Congress to solve the very real, pressing problems that are facing this country now.

The Republican field is large. There's been a lot of speculation about who's in and who's out. But as we focus, probably after Labor Day, I think you will see Republican primary voters begin to coalesce around a few of these very qualified candidates. We're not short of candidates, but we are short of an attention that could focus on one or two of them to get that catalyst for change going.

BLITZER: Paul, hold your fire, because we're going to continue this conversation. Unfortunately, though, not right now.

Guys, thanks very much. Plenty of opportunities. Let's wait until after Labor Day and we'll see what happens. Obviously, that's one option.

CNN embedded with U.S. troops in Afghanistan. Right now the Taliban has been attacked. We are following up with an exclusive look at what happens after the firefight.

And Bill Clinton gets personal. We're going to catch up with him on his struggle to stay slim.

(BEGIN VIDEO CLIP)

CLINTON: I'm getting back into shape. My goal is to try to get down to what I weighed at Chelsea's wedding, which is what I weighed the day I graduated from high school, and to stay there.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

BLITZER: Hundreds of business leaders are here in Chicago for the Clinton Global Initiative America Conference, including the CEO of the very successful online shoe and apparel company, Zappos.

CNN's Ted Rowlands spoke with him about some of the issues unfolding.

It's all about jobs, jobs, jobs, how to create jobs in this economy. What are you hearing?

TED ROWLANDS, CNN CORRESPONDENT: Yes. Well, he's an interesting guy. He's in his mid 30s. He's a multimillionaire. He sold his first company to Microsoft for $250 million out of college. Then he started Zappos, which is basically an online retailer. They sells shoes and other clothing.

And his take was that entrepreneurs aren't given enough at the initial stages. He says he struggled to get funding. He says young people have so many great ideas. The funding just isn't there.

Now, he has built a famous reputation for culture, corporate culture. In fact, people come to his factory in Las Vegas and they observe, and then they take his ideas and go back and emulate them. Here's a little bit of what he said he thinks should be done to create jobs in America.

(BEGIN VIDEO CLIP)

TONY HSIEH, CEO, ZAPPOS: More innovation has come out of the private sector than the public sector if you just look at history. So, I think, really, a lot more thought should be put into, how you get more of that innovation and how do you get more of those ideas to come out of the private sector?

(END VIDEO CLIP)

ROWLANDS: And Wolf, one of the things that was created during this two-day conference, $265 million available for entrepreneurs as a result of the commitments made here in Chicago over the last two days. They just announced that over the last few minutes. Also, 125,000 new jobs once these commitments are actually fulfilled.

So, some progress hopefully going to be made.

BLITZER: So it's not just talk, talk, talk. They're actually doing something in terms of creating jobs

ROWLANDS: Absolutely.

BLITZER: Ted, thanks very, very much.

Ted Rowlands, reporting for us.