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THE SITUATION ROOM

North Korean Leader Kim Jong-il Appears in Better Health; Congressman Calls for Expulsion of Iranians on U.N. Mission in U.S.; Some Small and Medium Sized Banks Still Dependent on TARP; Marco Rubio Criticized for Getting Parents Biography Wrong; Rick Perry May Skip Some GOP Debates; War Veteran Becomes Protest Hero; Hillary Clinton's 'Smart Power'

Aired October 27, 2011 - 17:00   ET

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


WOLF BLITZER, HOST: And you're in THE SITUATION ROOM.

Happening now, fears that Iran's leaders have planted spies right here in Washington, D.C. and could be endangering Americans at this moment. We're digging deeper on a U.S. congressman's call to expel Iranian officials from this country.

Plus, new evidence that Democrats are targeting a top contender to be the Republican vice presidential nominee. Can Senator Marco Rubio move beyond his misstatements about his family's exodus from Cuba?

And Hillary Clinton outperforms the president. A new poll may have some Democrats wishing she was going to be the party's 2012 nominee.

Breaking news, political headlines, and Jeanne Moos all straight ahead. We want to welcome our viewers in the United States and around the world. I'm Wolf Blitzer, you're in THE SITUATION ROOM.

The Obama administration is pushing back against the Republican congressman's call to expel Iranian officials here in the United States. The homeland security committee chairman Peter King laid out his dramatic proposal on Capitol Hill and right here in THE SITUATION ROOM yesterday. He says the State Department is dead wrong, his words, "dead wrong" in saying the United States can't boot Iranian from their mission at the United Nations. We're taking a closer look at the so-called spies here in the United States. We asked our Brian Todd to take a closer look and investigate. What did you find out, Brian?

BRIAN TODD, CNN CORRESPONDENT: Wolf, Congressman King says he expects to be joined in his call by most Republicans on the House Homeland Security committee. The congressman is now applying intense pressure to a group of Iranians working on behalf of their government on U.S. soil.

(BEGIN VIDEOTAPE)

TODD: Strong fallout from the alleged plot to assassinate Saudi Arabia's ambassador to the U.S. The chairman of the House Homeland Security Committee says Iran has spies in America, specifically, he says, people who work at Iran's mission to the U.N. and Iran's interest section in Washington.

REP. PETER KING, (R) NEW YORK: We, to me, should get rid of either all of them or most of them and send a clear signal.

TODD: King says they could all be expelled on suspicious of spying. He says those Iranian he suspects, but their identities are classified. King didn't give specific information tying them to the alleged Saudi assassination plot, but he says some of those people are tied to Iranian intelligence and that people in those offices have in the past been identified as members of the Quds force, the shadowy Iranian military unit suspected of involvement in the Saudi plot.

Eric O'Neill is a former FBI investigator who took down Russian spy Robert Hanson, a case dramatized in the Hollywood film "Breach." I asked O'Neill about the allegation that the plotters wanted to bomb the ambassador at a restaurant.

(on camera): Could someone maybe in D.C. give the information to Iranian that the ambassador wanted to go to a certain restaurant or was frequenting that restaurant?

O'NEILL: It's certainly possible. That is the sort of actionable intelligence that a spy, that is gold to a spy.

TODD (voice-over): O'Neill says by day, the employees may be processing visas, but in their spare time, he says, they could be recruiting sources. We called and e-mail the intra-section, then went over there.

(on camera) This was the Iranian intersection here in Washington. It works through the Pakistani embassy, but they say they don't control what happens here. They just pass messages to and from both governments to each other. We're going to go in and see if anybody wants to talk to us.

(voice-over) I'm met at the door.

(on camera) Yes, hi, I'm Brian Todd from CNN. I'm recording this because we're rolling on this. I wanted to see if Mr. -- they're not available?

UNIDENTIFIED MALE: No.

TODD: Can they come outside and speak to me?

UNIDENTIFIED MALE: I said they're not available.

TODD: When I called back, I'm told all that's done there is consular work. Officials at Iran's mission at the U.N. did not respond to our calls and email asking for response to Congressman King.

(END VIDEOTAPE)

TODD: But Iranian officials have vehemently denied any role in trying to assassinate the Saudi ambassador. President Mahmoud Ahmadinejad told CNN recently that his country never had any intent to hurt Saudi Arabia, and even if they did, they would never do it in the United States, Wolf.

BLITZER: How many Iranians are each of these locations to the U.N. and of the Iranian intra-section here in Washington, D.C.?

TODD: Congressman King says there are 39 diplomats at the mission at the U.N. and 28 people who are not diplomats here that their intra- section in Washington. He says the U.S. can kick out even the diplomats at the U.N. because he says the Bush administration did it a few years back when they caught people at the U.N. surveilling the New York subway system and the tunnels there. So he believes that is the United States has the authority to kick them out.

BLITZER: The State Department disagrees. They say they are a host country responsibilities that would prevent the U.S. from kicking out diplomats, Iranian diplomats, at the U.N. But as you point out, the Iranians who work at this intra-section in Washington, they're not diplomats because the U.S. does not have formal diplomatic relations.

TODD: They're legal residents, but they are not formal diplomats.

BLITZER: But they are Iranian citizens who work for the Iranian intra-section. The U.S. is represented in Tehran at the Swiss embassy, but no Americans work there for good reason. Back in 1979, we remember what happened to those diplomats who were held hostage for 444 days. Thanks, Brain, very much for that.

Now to another dangerous U.S. adversary, the elusive North Korean leader Kim Jong-il. U.S. officials are making it clear that the strongman and his country's nuclear program will be a threat for some time to come. Let's bring in our Pentagon correspondent Barbara Starr. Barbara, the defense secretary Leon Panetta, he's in South Korea, spoke about this threat from the north. What happened?

BARBARA STARR, CNN PENTAGON CORRESPONDENT: Well, you know, Wolf, Panetta has been traveling through Asia for the last several days reassuring allies in that region of the world that the U.S. military is there to stay and a North Korea is a major reason why.

(BEGIN VIDEOTAPE)

STARR: U.S. officials say North Korea is slowing down its succession plan to hand over control of the country. Kim Jong-il designated his son Kim Jong-un to succeed him. But U.S. officials say Kim Jong-il appears to be in better health and traveling more, a big change from 2009 when he was thought to have cancer. No clear indication now when he may hand over power.

But there has been a change, an additional provocation beyond its quest for nuclear weapons. Senior Pentagon officials say North Korea is engaging in increased cyber-attack efforts against South Koreans and U.S. forces, routed through computer addresses in China, making it tough to track down and deal with it.

On his first trip to South Korea as defense secretary, Leon Panetta made clear his eyes are sharply focused on the north. LEON PANETTA, DEFENSE SECRETARY: They take steps that you know, that threaten not only the security of Korea, but threaten the security of the United States.

STARR: Panetta wants China to step up and exert its massive regional influence. U.S. officials say North Korea is up to its usual diplomatic dance in recent talks on nuclear programs, only talking about its nuclear program to gain concessions from the west on food shipments and other aid. The secretary strongly doubts North Korea's nuclear intentions.

PANETTA: The word "skepticism" would be in order as to what may or may not happen in those discussions.

STARR: Skepticism underscored by the top U.S. military commander on the peninsula.

PANETTA: They show a willingness to continue to develop and test capabilities that can be associated with their nuclear program. And this is something that we got to remain vigilant on a daily basis.

(END VIDEOTAPE)

STARR: Very quiet, very serious words there, Wolf. Just how unpredictable is North Korea? Panetta says he's been told there are still several hundred North Koreans inside Libya. North Korea will not let them come home because it fears those North Koreans may bring back word of the Arab spring, Wolf?

BLITZER: Interesting stuff. All right, Barbara, thank you.

And Jack Cafferty is joining us with "The Cafferty File" -- Jack.

JACK CAFFERTY, CNN CONTRIBUTOR: It's a lovely place, North Korea.

The U.S. government has killed three American citizens with drone strikes in Yemen in the last month, three. They include the Al Qaeda leader Anwar al Awlaki, another Al Qaeda member, and al Awlaki's 16- year-old son. The teenager, 16, born in Colorado, he was killed in a drone strike that targeted and killed a prominent militant along with several others. It's unclear if the 16-year-old youngster was a militant himself.

But whether he was or not, the silence coming from the U.S. government regarding his death is deafening. U.S. officials will only say they didn't know the teen was an Al Qaeda member, and otherwise they have not commented at all on the drone strike. No one is taking responsibility for a 16-year-old kid's death.

The U.S. drone campaign is becoming increasingly controversial. It's a part of the national security policy of this country. The secretive air strikes have killed hundreds of foreigners in countries like Pakistan, Afghanistan, Iraq, Somalia, Yemen, and Libya. But this case is different. It includes an American teenager killed by the United States in a country that we're not even at war with. The Obama administration has justified attacks against Al Qaeda members anywhere in the world. In the case of Anwar al Awlaki, officials say it was a legal strike because he was planning attacks against Americans. But not everyone is convinced that killing American citizens anywhere without due process is a good idea. The ACLU has asked for classified documents justifying the killing of the senior al Awlaki. Some, including Republican presidential candidate Ron Paul, have even suggested that targeting and killing American citizens overseas could be an impeachable offense for President Obama.

Here's the question. How can the Obama administration justify killing U.S. citizens overseas without due process? Post a comment on my blog or go to our post on THE SITUATION ROOM Facebook page. Wolf?

BLITZER: Jack, thank you.

Meanwhile, a new warning from the inspector overseeing the financial bailout program here in the United States. Dozens of smaller U.S. banks that got help may still go bust.

Plus, Republican rising star Senator Marco Rubio responding once again to claims that he embellished on his family's story of escaping Cuba. Some Democrats, though, don't want this controversy to go away. We'll explain why.

And new light for a major lawsuit against Wal-Mart. Stay with us. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: We're seeing more movement today in the scramble by the so called super committee to try to reach a deal to try to cut the U.S. deficit. Less than a month to the deadline, is it progress, is it posturing, what's going on? Let's check in with our Congressional correspondent Kate Bolduan. Kate, what are you seeing? What are you hearing?

KATE BOLDUAN, CNN CONGRESSIONAL CORRESPONDENT: Hey, there, Wolf. After so long, months of closed door meetings without any sign of progress, members of both parties have come out offering dueling proposals to slash the federal deficit. It might not surprise you, they are still far apart.

(BEGIN VIDEOTAPE)

BOLDUAN: A day after Democrats and Republicans on the so-called super committee unveiled competing plans to cut the federal deficit, both sides dismissing the other's offer, House Speaker John Boehner made a public appeal -- the committee must succeed.

REP. JOHN BOEHNER, (R) HOUSE MAJORITY LEADER: I think it's important for the super committee to meet its goal. It was put together in a bipartisan way. I want to pat the members on the back, because they really all have worked very hard. But now we're into the real tough time and it's going to take a lot more work. BOLDUAN: Boehner argued any deal must focus on cutting spending to entitlement programs, like Medicare, Medicaid, and Social Security. He also rejected the Democratic plan, calling more than $1 trillion in tax increases an unreasonable number, though Boehner appeared to not rule out the idea of including some form of new revenue in a deal, sidestepping multiple questions on the Republican bright line.

BOEHNER: I'm committed to getting to an outcome.

BOLDUAN: For their part, super-committee Democrats have proposed about a $3 trillion deal over 10 years that includes significant cuts to entitlements and up to 1.3 trillion in new taxes. Sources from both parties tell CNN Republicans countered with a $2.2 trillion offer, including entitlement deeper cuts and no tax increases. House Democratic leader Nancy Pelosi described the GOP package as not enough and not the right balance.

REP. NANCY PELOSI, (D-CA) HOUSE MINORITY LEADER: It's not fair to say to a senior, you're going to pay more for Social Security and we're not going to touch a hair on the head of the wealthiest people in our country.

(END VIDEOTAPE)

BOLDUAN: Now, while the committee does appear to be deadlocked over the issue of taxes with key aides on both sides harshly criticizing the other's proposal, calling it political posturing, not serious, and even a joke, Wolf, some aides close to the negotiation say all hope has not been lost. Both sides of this committee do continue to meet, and both sides are continuing to stress how serious the fast approaching November 23 deadline really is. Wolf?

BLITZER: Coming up pretty soon and a lot is at stake. Kate, thanks for that. By the way, you can read more about the super committee on my blog. Go to CNN.com/situationroom, check out my daily blog.

TARP, that's the Troubled Asset Relief Program which poured money into banks at the height of the financial crisis here in the United States, and it turns out that fraud and mismanagement in the program have caused taxpayers hundreds of millions of dollars.

Lisa Sylvester is here to explain the problems with TARP are not necessarily over with by any means.

What are you learning?

LISA SYLVESTER, CNN CORRESPONDENT: That's certainly right, Wolf. The TARP program was signed into law in 2008 under President Bush. Three years later, hundreds of banks are still relying on government assistance.

(BEGIN VIDEOTAPE)

SYLVESTER: The special inspector general overseeing the bank bailout program known as TARP warns 400 small to medium sized banks are stuck in the program with no clear exit plan in place. The report states quote, "community banks do not have the same access to capital as the larger banks. They are many exposed to distressed commercial real estate access and nonperforming loans."

Mark Calabria with the Cato Institute points out half of those banks haven't been making dividend payments due to the taxpayers.

MARK CALABRIA, CATO INSTITUTE: You are looking at somewhere around 200 banks that are unlikely to ever find their way out of TARP. And when those banks finally go bust and fail, that cost is going to come back to the taxpayer.

SYLVESTER: Of the 707 banks that received TARP money from the Treasury Department, 14 of them have already gone under, including United Commercial Bank. UCB is now the target of a fraud investigation. Criminal charges have been filed against two of its senior executives. That bank received more than a quarter of a billion dollars in taxpayer money, money that is now gone and unlikely to ever be recovered.

The Treasury Department in response notes that with the largest banks exiting TARP, the banking portion of the program has made $13 billion so far from dividends, interests, and repayments from the banks, quote, "The overriding objective of TARP wasn't to make a profit. It was to put out a financial fire and save American jobs. But the fact that we have already covered a substantial portion of our investments is certainly a welcome development."

But the entire TARP program, including bailouts to AIG and the auto industry, is expected to ultimately cost taxpayers about $50 billion. Republican Congressman Patrick McHenry says the administration needs to do more to protect the taxpayer.

REP. PATRICK MCHENRY, (R) NORTH CAROLINA: We've told institutions in essence that they are too big to fail, that the government will prop them up even when they make bad decisions, when they actively make bad decisions. I think that is a major mistake and the moral hazard is a lasting hangover of the TARP program beyond just the dollars and cents that is clearly costing the taxpayers.

(END VIDEOTAPE)

SYLVESTER: The report also highlights one group that has done very well under TARP, and that is the lawyers. The inspector general's audit finds $8 million in what it calls questionable legal fees that the Treasury paid out, either unsupported expenses, vague or no descriptions of work performed, or administrative fees that were paid out and not allowed, Wolf.

BLITZER: OK, so let's just put it all into context. What, about $800 billion the TARP money was laid out to save these banks?

SYLVESTER: Originally what was approved was $700 billion. What actually went out the door was about $450 billion. Treasury will say the majority of that they have received back, but literally billion are still out there and there's a lot concern that some of these smaller and medium sized banks might --

BLITZER: So the 450 laid out, they expect to lose about $50 billion of that.

SYLVESTER: Yes, $50 billion is going to be the overall TARP program. That includes the banks, AIG, the bailout of the auto industry. When it's all said and done, about $50 billion is what taxpayers --

BLITZER: And Fannie Mae and Freddie Mac, billions that were sent to them, that's not part of this.

SYLVESTER: That's not even included. So there was a lot of money during that crisis that went out the door, and how much of it is going to be recovered, we'll find out.

BLITZER: At least we recovered $400 billion. A lot of people were expecting all that money to go down the drain, maybe $700 billion, the entire program, so everything is relative. Thanks.

The president of the United States spoke out just a little while ago about the deal in Europe to ease some of the financial crisis. It was warmly received on Wall Street today. Listen to what the president said at a photo opportunity with the Czech prime minister.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: We've seen that the message that they were going to deal with this in a serious way has calmed markets all around the world. It will help lay the predicate for long-term economic growth not only in Europe but around the world. The key now is to make sure it is implemented fully and decisively, and I have great confidence in the European leadership to make that happen.

(END VIDEO CLIP)

BLITZER: Dow Jones industrials went up more than 300 points on basis, at least in part of that news, also, positive economic growth last quarter in the United States.

Marco Rubio supporters had their eye on 2012. Now the year that matters to the Florida senator is 1956. That's when his parents left Cuba. We'll explain.

And the Occupy protests have been largely peaceful. That was before Oakland. Will there be a backlash to the wounding of a United States military veteran by local police? Stay with us. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: We've confirmed there's a new crown prince in Saudi Arabia. King Abdullah has named Prince Naif as the new crown prince to succeed Prince Sultan, who died over the past few days. Prince Naif is the interior minister of Saudi Arabia. I think he's 77 or 78 years old. He's pretty well-known to U.S. officials, so we're getting more information about what's going on.

By the way, the vice president Joe Biden of the United States is in Saudi Arabia right now. He's paying a condolence visit to the Saudi kingdom on behalf of the president of the United States. Vice President Joe Biden showing up with a senior delegation, top officials including the CIA director General Petraeus. The head of the U.S. military's central command, the former defense secretary William Cohen is part of Biden's delegation.

John McCain, you see him there representing the United States. He was invited to come along. Top U.S. officials paying their respects to Saudi Arabia in the aftermath of the death of the Crown Prince Sultan who died over a weekend.

And now there's a new heir apparent, a new crown prince, Prince Naif. He has said some pretty controversial things over the years. Tomorrow we're going to have a full report on what this means in terms of U.S.- Saudi relations, what it means for Saudi Arabia. Stand by. That will be coming up here in THE SITUATION ROOM tomorrow.

Other news we're following including some political news here in the United States. There's a good deal of debate going on within the Republican party right now about whether Senator Marco Rubio would be a terrific vice presidential choice next year or would he be not such a terrific choice? The Florida senator is trying to move beyond claims that he embellished the story of his family's exodus from Cuba. Democrats are working hard though to keep the controversy alive.

CNN's Jim Acosta is following the story for us.

So what's the latest in this saga?

JIM ACOSTA, CNN POLITICAL CORRESPONDENT: Wolf, the knives are definitely out for Marco Rubio. A Democratic leaning Political Action Committee all but confirmed in an interview with CNN it is using the Rubio story in the hopes of knocking him out of contention for the Republican ticket in 2012.

(BEGIN VIDEOTAPE)

ACOSTA: During a series of events in Florida, Marco Rubio admitted what is now widely known, that he botched the details of his own family story. His parents did not come to the U.S. after Fidel Castro seized control in 1959 as Rubio's Senate web bio once stated. They came in 1956 as his corrected site states now.

SEN. MARCO RUBIO, (R) FLORIDA: Do I wish I had known those dates earlier? Absolutely. Does it change anything? Absolutely not.

ACOSTA: A Democratic leaning political action committee called American Bridge 21st century says the dates do matter, suggesting in this web video Rubio is not really a Cuban exile because his parents left the island before Castro took over. Rubio referred to his family as exiles in this CNN interview last year. The senator insists his parents are exiles because they couldn't go home. RUBIO: And they spent the rest of their lives, my mom is still alive, separated permanently from the nation of their birth. That makes them both exiles and immigrants.

RODELL MOLLINEAU, AMERICAN BRIDGE, 21ST CENTURY: We hold Republicans accountable.

ACOSTA: But American Bridge president Rodell Mollineau acknowledged in an exclusive interview with CNN his group wants to do more than just set the record straight.

(on camera): Does it have anything to do with the fact he's being talked about as a potential candidate in 2012?

MOLLINEAU: I think it does. I'm not making any bones about that.

ACOSTA: Are you trying to knock him out of contention for 2012?

MOLLINEAU: I think what we're finding here --

ACOSTA: Answer the question. Are you trying to knock him out of contention for 2012?

MOLLINEAU: I'm trying to allow the American people to know a little bit more about Marco Rubio.

ACOSTA: Why don't you just answer the question?

(Voice-over) He finally did.

MOLLINEAU: We think Marco Rubio is someone being talked about, more by the media, to be a vice president.

ACOSTA: So this was a consideration?

MOLLINEAU: Yes, it was.

UNIDENTIFIED MALE: We have one junior senator who made it to the White House. Do we have a second on here?

(APPLAUSE)

ACOSTA: Despite pleas from Republicans even in his home state, Rubio has ruled out being on the ticket in 2012, but that hasn't stopped the chatter in Washington. Top Republicans believe a vice presidential nominee Rubio could take Florida away from President Obama, who won the state by 200,000 votes in 2008.

American Bridge has plenty of money to go after Rubio, raising hundreds of thousands of dollars from unions and big California donors like J.J. Abrams, the director of the new "Star Trek" movie. But these phasers aren't on stun, according to Rubio ally and Cuban- American Republican Congresswoman Ileana Ros-Lehtinen.

REP. ILEANA ROS-LEHTINEN (R), FLORIDA: Marco Rubio is a conservative Hispanic. And as such, many liberal groups and many entities want to destroy his reputation.

(END VIDEOTAPE)

ACOSTA: And now Rubio is fighting fire with fire. Today, his own political action committee put out a plea for donations that accused liberals of "coordinating attacks" on Rubio -- Wolf.

BLITZER: Because he is very popular in Florida, and he presumably could help Mitt Romney or anybody who gets the Republican nomination.

ACOSTA: Absolutely.

BLITZER: So how is this playing, this whole uproar -- if it is an uproar -- in the Cuban-American community? And I ask you, Jim Acosta, as a son of a Cuban immigrant who came to this country, I assume because of Castro.

ACOSTA: That's right. If you read what is going on down in Miami, obviously when the story first came out, there were concerns that he was embellishing or exaggerating his history to ingratiate himself with that community, which obviously is a core constituency for the Republican Party. Since then, though, those folks have really rallied around Marco Rubio.

You heard Ileana Ros-Lehtinen's comments. She even made a quip about it at her hearing today on Capitol Hill. If Congresswoman Ros- Lehtinen is on your side, you're in good shape.

BLITZER: And these Democrats are going after him like they're going after Mitt Romney, because they think that potentially could be a ticket and they're worried about that.

ACOSTA: They very much are, and for good reason, because Marco Rubio is a threat to Florida for the president. If Rubio is on that ticket, it is certainly in play.

BLITZER: Jim Acosta, good report. Thanks very much.

ACOSTA: You bet.

BLITZER: In the presidential race, Rick Perry's campaign is suggesting he may skip some upcoming GOP debates after a number of widely-panned performances.

Listen to what he said during a recent debate explaining why Mitt Romney's economic proposals were more specific than his.

(BEGIN VIDEO CLIP)

GOV. RICK PERRY (R-TX), PRESIDENTIAL CANDIDATE: A president, particularly with the plan that I'm going to be laying out over the next three days -- and I'm going to lay it out all for you tonight. Mitt's had six years to be working on a plan. I've been in this for about eight weeks.

(END VIDEO CLIP) BLITZER: Gloria Borger, she's got a terrific column on CNN.com on this very subject.

What struck you about this comment from Rick Perry?

GLORIA BORGER, CNN CHIEF POLITICAL ANALYST: Well, I think there's a problem with it, because I recall, and I'm sure you do, too, the days not too long ago when ideas were actually what spurred people to get into presidential campaigns. They had a belief system, they had a set of ideas, and they said, you know what? This is good for the country, I'm going to run on those ideas.

Ronald Reagan, of course, was one of those people who had a core set of beliefs. Another person was Bill Clinton, who had a core set of beliefs. He was the original new Democrat, sort of middle ground kind of Democrat.

They decided that their value system and their beliefs would be good for the country, and then they decided to run. In this race, it seems to be perversely backwards, because of course Rick Perry shouldn't have needed six weeks. He should have had those ideas.

BLITZER: Right. If you're going to run for the Republican presidential nomination, you should have a whole plan in place, ready to outline on national security, domestic policy. Everything should be ready to go, not make it up as you go along.

BORGER: So, what's wrong with Mitt Romney taking six years to come up with his 59 point plan for the economy? That's not a terrible thing.

BLITZER: Or Newt Gingrich, for that matter. He spent decades coming up with his various ideas as well.

BORGER: Exactly.

BLITZER: So why is all of this happening right now?

BORGER: Well, I think what you have is a really new constituency in the Republican Party, the Tea Party. And what they're doing is they're auditioning candidates who they believe will fit their belief system.

In the column I call them the theatrical directors of the Republican Party. So, they auditioned Michele Bachmann, she was pretty good off Broadway, never got to Broadway. Rick Perry kind of looked the part, but he plugs his lines too much. And then, Herman Cain is, of course, very entertaining.

So they're trying to look for an alternative to Romney, who they know from last time around is too establishment. And they're looking for the perfect candidate. They're just not finding it.

BLITZER: Read Gloria's column at CNN.com for more.

Thanks, Gloria.

BORGER: Thanks.

BLITZER: We're learning more about an Iraq War veteran who was hurt during clashes between Occupy Wall Street protesters and police in California. Stand by. We've got some dramatic new details.

And an American student free in a new prisoner swap in the Middle East.

(COMMERCIAL BREAK)

BLITZER: Another round of clashes between police and Occupy Wall Street protesters. Demonstrates in New York marched in support of a U.S. Iraq War veteran hurt during "Occupy" protests out in California. Former U.S. Marine Scott Olsen is in intensive care in an Oakland hospital after listed in fair condition.

CNN's Amber Lyon is joining us now with new information she's getting on this story.

Amber, so what is the latest?

AMBER LYON, CNN CORRESPONDENT: Well, Wolf, we're out here in front of Occupy San Francisco. This is just across the bay from where everything happened to this former Marine, and this camp and camps all over the country marched last night in solidarity for this Marine.

We talked with the hospital that is currently treating Scott Olsen, and they say they have good news. His condition has been upgraded from critical to fair after he's received a fractured skull when friends say he was hit by some type of police projectile. Some people are saying it may have been tear gas.

We got incredible video, YouTube video, of what happened. I want you to take a look.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: Whoa!

What happened? What happened?

UNIDENTIFIED MALE: He's shot!

(END VIDEO CLIP)

LYON: And you just hear those protesters just absolutely in shock. You also hear all the banging going on outside. Some people we spoke with who were there at the moment, Wolf, said that it seemed like it was almost a war zone in downtown Oakland as police were firing tear gas and rubber bullets, what protesters say were indiscriminately.

Now, we talked with Oakland P.D. They say they're currently conducting an investigation as to what exactly hit Scott Olsen, what happened. They say they are not willing to comment until they have concluded that investigation. We spoke with Scott Olsen's mother, who says her son served two tours in Iraq without injury. She cannot believe that this happened here in the U.S. We also spoke with his roommate who served with him overseas.

(BEGIN VIDEO CLIP)

KEITH SHANNON, SCOTT OLSEN'S ROOMMATE: I guess when he came in, he was conscious, but -- and they said that he knew what he wanted to say, but wasn't able to say it. He had to say "yes" or "no" answers, so I'm just worried it might be some permanent damage or not.

(END VIDEO CLIP)

LYON: And a big complaint among protesters, they said that Oakland P.D. was indiscriminately firing rubber bullets and tear gas, and that's why they believe that Scott Olsen was hit in the head.

We spoke with one young man who says when he saw Scott lying on the ground with blood pouring out of his head, he ran over to try to help him, and then he was shot.

(BEGIN VIDEO CLIP)

LYON: OK, so -- oh, my gosh. What happened?

UNIDENTIFIED MALE: I was trying -- I came -- I was crossing the street, and this guy got in the head with a canister. And we tried to help him, and they threw another caster, and it almost hit in the head again. And they went off. And were dragging him away and they shot me.

(END VIDEO CLIP)

LYON: And I think there was some question as to whether the police force would kind of break up the movement, but as we've seen from all the protests yesterday, and continuing today, it's really galvanized this in occupation movement in support of Scott Olsen -- Wolf.

BLITZER: We're going to stay in close touch with you, Amber. Thanks very much.

Pretty shocking. As his mom says, he serves two tours of duty in Iraq, he comes home just fine, but now this happens to him in Oakland, California. We'll stay on top of the story.

Amber, thank you.

A little game of "what if?" in a brand new poll. We're talking about how Hillary Clinton would fair if -- it's a huge "if" -- if she ran against Republican presidential candidates instead of the incumbent president, Barack Obama.

(COMMERCIAL BREAK)

BLITZER: Lisa Sylvester is monitoring some of the other top stories in THE SITUATION ROOM right now, including a new lawsuit targeting Wal-Mart.

What's going on, Lisa?

SYLVESTER: Hi, Wolf.

Well, a massive discrimination lawsuit against the retailing giant that died at the Supreme Court is being revived. Lawyers filed the original class action on behalf of 1.5 million women, saying they were denied pay raises and promotions because of their gender. The court decided the women couldn't all be lumped together. The new lawsuit includes 45,000 women in California.

And an American student accused of being an Israeli spy is now free. Egypt released Elan Grabel to Israel today. Egypt traded his freedom for 25 prisoners being held in Israel. The 27-year-old law student was accused of inciting violence during the Arab Spring protests.

And an Army wife in Florida got the dinner of her dreams at a Chick- fil-A. Take a look here.

Amy Reed (ph), while she knew her husband was returning from Afghanistan, she just wasn't sure when. As she waited for a worker to bring her meal, instead it was her husband who appeared.

And there you can see what happened. A nice, happy reunion.

Apparently, this was a family that used to have family time at the Chick-fil-A. So it's appropriate that's where they did their reunion there.

BLITZER: I love those --

SYLVESTER: I love those stories.

BLITZER: And a lot of them are going to be coming home from Iraq over the next few weeks.

Thanks very much for that, Lisa.

The secretary of state, Hillary Clinton, talks about her style of American diplomacy, style that she calls "Smart Power," in the new issue of "TIME" magazine.

Joining us now is Rick Stengel, the managing editor of "TIME," which, of course, is owned by the same parent company of CNN. That would be Time Warner.

Rick, thanks very much for coming in.

What was your impression? You spent a lot of quality time with her on the road as she traveled to a lot of key countries. What is, from her perspective, the number one global issue of concern right now for the United States?

RICK STENGEL, MANAGING EDITOR, "TIME": You know, that's hard to say. I mean, she was -- I was with her in Libya, Wolf, I was with her in Pakistan, I was with her in Afghanistan. In a way, that's the troika of the things that she's really concerned about right now.

As you know, the relationship between Afghanistan and Pakistan makes that the most dangerous region in the world by far. So she's acting as a kind of referee now, a referee between the folks in Pakistan, the folks in Afghanistan, what's going on in Libya as well.

BLITZER: We've got some pictures that are in the new issue, also on your Web site. I want to put some of them up on the screen, some still photos.

There you see her with Hamid Karzai. What a disappointment he has been.

Did she convey that disappointment to you?

STENGEL: You know, it's funny, Wolf. When she was in Afghanistan, she was talking about Pakistan. And when she was in Pakistan, she was talking about Afghanistan.

They were very cordial when they were doing that press conference together. She was then much more concerned about safe havens in Pakistan and kind of reprimanding the Pakistani government. But she didn't express any displeasure or disappointment with Karzai.

BLITZER: She really is a celebrity. I traveled with her a few months ago to Paris, to Cairo, to Tunis. Wherever she goes, she's a global superstar.

Is that the impression you got traveling with her?

STENGEL: Yes, absolutely. I don't think you have this picture, but I took it on my BlackBerry.

We went to a hospital in Tripoli, and she was visiting a patient who had lost his leg in the battle there. And while she was talking to the doctor, the patient in the bed was taking pictures of Secretary Clinton.

I mean, she isn't just the secretary of state. She combines something that we haven't really seen in a secretary of state before -- a politician and a diplomat. And she's always wearing both hats, and she has blended the two to make her a global superstar.

BLITZER: You've got a new poll in "TIME" magazine, and it's a hypothetical, and very hypothetical. And I'll put some numbers up on the screen.

Hypothetical choice for president: President Obama, 46 percent; Mitt Romney, 43 percent. But if Hillary Clinton were the Democratic nominee, she gets 55 percent to Romney's 38 percent.

Now, you and I know this is not going to happen, but how popular is she in this new poll?

STENGEL: Well, you know, she's very, very popular. And we talked a little bit about this. In fact, her husband, Bill Clinton, has talked about it.

When you're not in the direct line of fire, your popularity can go up. She is seen as making achievements, whereas Obama is often seen as having losses. So, in a way, her popularity is a little bit artificial, and she acknowledges that. I mean, I think it's great for American diplomacy that she's so popular both in America and around the world, but it's not the kind of popularity that necessarily translates into the ballot box.

BLITZER: Great new cover. Great new issue of "TIME" magazine, "Hillary Clinton: Smart Power."

Rick Stengel, thanks very much.

STENGEL: Thank you, Wolf.

BLITZER: Jack Cafferty is asking, how can the Obama administration justify killing U.S. citizens overseas without due process?

Stay with us.

(COMMERCIAL BREAK)

BLITZER: Let's get back to Jack for "The Cafferty File" -- Jack.

CAFFERTY: The question this hour is: How can the Obama administration justify killing U.S. citizens overseas without due process, including a 16-year-old boy who was killed in a drone strike?

James writes, "Sorry, but nobody goes to Yemen right now to enjoy the scenery. If he was riding with a well-known militant, chances are he knew who he was with. It is truly regrettable that a 16-year-old was killed."

"Sixteen-year-olds tend to be in the moment and not really thinking about all the possible implications. However, in this case you would think that if his father had been recently killed in a drone strike, the son would be more cautious about riding around with another obvious target. I'm sorry for the family's loss."

Zachary writes, "Listen to you good Christians. A 16-year-old child deserved to die because his father was suspected of being a traitor and he was with him? I'm a liberal, and I say try Obama for war crimes right now."

"Drone attacks outside the theater of war are illegal, period. Executing suspects without trials, without even indicting them, is illegal, period. Killing non-combatants is also illegal."

Andrew in Minnesota says, "Collateral damage. Put yourself in that situation, bad things are likely to happen. The lesson? Stay out of hostile environments. You'll probably be OK. Perfectly justified, in my opinion, and we should do nothing."

Tony in North Carolina, "King Obama can do as he pleases. He doesn't need Congress, the Constitution, the Bill of Rights, or the American people to give him permission."

"As he told the Republicans, 'I won the election.' The arrogance of this man is only superseded by his love of himself."

George on Facebook writes, "Two words: cost savings. No dragged out trial and years of appeals."

Sue in Vienna, Virginia, writes, "The fact that we've been asked this question is appalling and makes me believe that you've lost your mind. You're talking about Americans who turned against their own country and al Qaeda members who belong to a terrorist group that decided it might be fun to go out and kill a few thousand Americans."

"You used to be one of my favorite people on CNN. Now I think you ought to think about retiring. You have totally lost your edge."

If you want to read more about this, go to my blog, CNN.com/caffertyfile, or through our post on THE SITUATION ROOM'S Facebook page.

Wolf, I've lost my edge.

BLITZER: I disagree. You haven't lost your edge. You've still got that edge, Jack, and you will have it for many years to come.

CAFFERTY: Well, I hope you're right.

BLITZER: Thank you.

Highway patrol officers have seen just about everything, but one officer was stunned when he stopped one woman.

Stand by. You'll want to see this. Jeanne Moos is next.

(COMMERCIAL BREAK)

BLITZER: Police dashboard cameras capture eye-popping video all the time, but rarely like this.

CNN's Jeanne Moos has more.

(BEGIN VIDEOTAPE)

JEANNE MOOS, CNN CORRESPONDENT (voice-over): Please step out of the car, Miss. Oops. This miss was missing most of her clothes.

UNIDENTIFIED MALE: He clocked the vehicle going 110 miles an hour.

MOOS: Twenty-eight-year-old Erin Holdsworth of Hiram, Ohio, may have been half naked, but she was allegedly going full speed, as fast as 128, before stop sticks thrown on the road disabled her tires.

UNIDENTIFIED MALE: Step out of the vehicle! Step out of the vehicle!

MOOS: Oh, she stepped out all right. Stepped out wearing a white thong and some sort of see through fishnetty thing. She also sports lots of tattoos, which we noticed when she literally kicked up a ruckus in the back seat of the cruiser.

Dash cam video of near-naked drivers is pretty rare, though we did find a naked motorcycle rider pulled over for drunken driving in Florida.

UNIDENTIFIED MALE: I asked him what happened to his clothing, and he said he lost it.

MOOS: We wanted to ask Erin Holdsworth what happened to her clothing, but when we got someone we think was her on the phone, she told us to call her lawyer, and we haven't heard back from her.

A seven-mile high-speed chase with a half-naked driver even landed her on automotive blogs. The bad news for Holdsworth is she has been charged with driving while impaired, speeding, reckless driving, et cetera.

The only good news is that admirers seem smitten with the racy speed demon. "Was she charged with theft as well? Because she's stolen my heart." "Were you convicted? Because you've got 'fine' written all over you."

In 26 years of working in Bainbridge Township as a police officer, I don't ever recall having a subject in such a state of undress.

MOOS: Early reports indicated she was wearing high heels, but that was a product of wishful thinking, because those are clearly sneakers. At least she didn't get charged with DWU: driving while undressed.

Jeanne Moos, CNN, New York.

(END VIDEOTAPE)

BLITZER: Jeanne, thanks very much for that report.

That's it for me. Thanks very much for watching.

I'm Wolf Blitzer, in THE SITUATION ROOM.

The news continues next on CNN.