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Tax Cut Deal?; Bombings in Iraq; Romney Profiting From Pink Slips?; Tension Rises On Korean Border; Inside North Korea; Elder President Bush Carefully Backs Romney; Huntsman Scores Major New Hampshire Endorsemen

Aired December 22, 2011 - 16:00   ET


WOLF BLITZER, CNN ANCHOR: Happening now, breaking news: word of a possible breakthrough in the payroll tax cut stalemate. We're standing by for a formal announcement. This is a major development.

Also, the Iraqi capital literally exploding this violence today, dozens and dozens of people killed in a wave of bombings. And with U.S. forces now gone, will the country descend into a real civil war, as so many people have feared?

Plus, critics accuse Mitt Romney of profiting from pink slips. Is the Republican presidential candidate still making money from layoffs? We're checking the facts.

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

Let's get right to the breaking news right now, a possible deal in the stalemate over extending the payroll tax cut for at least another two months, but potentially for the entire year, the year of 2012. We have all of our reporters standing by.

Let's go to our chief congressional correspondent, Dana Bash. She's up on Capitol Hill.

Dana, for viewers just tuning in right now, tell our viewers what we know. What was just literally happened?

DANA BASH, CNN SENIOR CONGRESSIONAL CORRESPONDENT: What we expect is that the House Republicans who have been standing firm saying that they will not go for a short-term two-month extension of this payroll tax so that Americans' taxes will not go up on January 1, that we believe they are going to give in, back down on that and they will in fact go for it.

This deal is being worked out, the final details of it as we speak. But our understanding from Democratic and Republican sources, Jessica Yellin has been working her sources, Kate Bolduan, and myself, and Deirdre Walsh also -- basically, what we're hearing is that there's going to be some kind of tweak for House Republicans to save face politically and to be able to sell to them that they're going to assuage some of their concerns on a policy level.

And that is, we heard from House Republicans really all week that they believe this is bad for small businesses. So, we understand that there's probably going to be some kind of -- quote, unquote -- "tweak" to try to help small businesses with the problem they might have in terms of filing with the IRS, changing the short-term filing to long- term filing and so forth.

That is what we understand. Again, the details are still being worked out. A major, major caveat here, Wolf. The House Republican Conference is to put it bluntly unpredictable, and so there's going to be a conference call with all of the rank and file House Republicans and the Republican leadership, we understand from sources, at 5:00 p.m., so in less than an hour, where they're going to try to sell this deal and make sure it can pass the House and also make sure that the Republican leadership is going to be on semi-firm footing politically within their own conference if they go for this with the Senate and with the White House.

BLITZER: Just to be technical on this point, Dana, members of the House of Representatives, the 435 members of the House, by and large, they're still in Washington. They're ready to vote as early as today or tomorrow to get this done?

BASH: Well, they could be called back, but what is probably more likely -- and again this is something that we're trying to figure out what their plan is, but it's more likely they are going to pass it by unanimous consent, meaning they won't have to come back. They could just vote on it and approve it without people actually having to come back and raise their hand and say, aye, we vote for this. The same goes for the Senate.

Again, we don't know if that's for sure what's going to happen. We're waiting to hear about the details of this deal.

BLITZER: All right, stand by for a moment.

Jessica Yellin, you're over at the White House. What are they saying there?

JESSICA YELLIN, CNN CHIEF WHITE HOUSE CORRESPONDENT: Wolf, they're carefully not saying anything yet because as you will recall the last time it looked like there was a deal done on a payroll Texas cut, things went south after Speaker Boehner held a conference call with his members.

So CNN knows that the speaker is having this call at 5:00 p.m. this evening and so, I don't think you will hear anything from the White House until they know that everything has gone well on that call. But the bottom line is it does look like the president at this point is going to, you know, with their fingers crossed inside this building, be able to go on his -- be able to spend Christmas with his family in Hawaii and have a payroll tax cut extension through the new year.

And for the White House, this has been the perfect sort of political and policy issue for the president. If you think about the last time he had a stalemate, a standoff with the House of Representatives, it was over this very complicated, confusing issue over the debt talks, which didn't really touch any Americans directly. This is one of those issues that hits almost every American in the paycheck, in their wallet -- $40 for the average American would have been missing from their paycheck if this doesn't work out. And so for the president, he was quite literally fighting for working Americans, which is the posture he wants through the election year.

It has been the perfect way to end this year for this White House. And now they are just holding this breath, hoping this 5:00 p.m. conference call with House Republicans goes the right way and this deal will get done today, Wolf.

BLITZER: Is it possible -- I assume it is, Jessica -- that if in fact all the T's are crossed and the I's are dotted, there's a deal between the Democrats and Republicans in the House and the Senate, the president will go out and make a statement to the American people later today?

YELLIN: Of course, they're not saying. I wouldn't be surprised if he does. He -- generally, presidents like to cap off the year with a statement before they head out.

The last thing he had to do before he would take his vacation is sign on this big omnibus bill which funds the government through 2012. They had been waiting for that to arrive at the White House. That has now arrived. So he could sign that, make a statement to the American people and he could perhaps go to Hawaii and join his family there for Christmas if, as you say, all goes well and all the T's are crossed and all the I's are dotted later today, but that's a lot of ifs, Wolf.

BLITZER: Yes, there certainly are a lot of ifs.

Stand by for a moment.

Kate Bolduan is watching this as well, our congressional correspondent.

Kate, there will be some Democrats who will oppose this in the House of Representatives. There will be some Republicans who oppose it. They don't even like the idea of payroll tax cut.


BLITZER: Michele Bachmann doesn't like that idea. She's a member of the House of Representatives, although she's not in Washington right now and she certainly can't vote, but there are a lot of Republicans who think this is bad policy right now. So here's the question -- and Dana and Jessica sort of raised it.

Does the speaker -- assuming the speaker and Eric Cantor, that they're on board with Mitch McConnell and the Republican leadership in the Senate, is it a done deal as far as the votes are concerned? Will they have a majority of the House of Representatives, knowing that there are some Republicans who will vote no, some Democrats for different reasons, will vote no as well?

BOLDUAN: Well, you cannot say for certain if it's a done deal in terms of the votes.

And the most recent example that jumps to mind is, during the summer's debt ceiling debacle, we can call it, when they actually needed to pull one bill of the floor of the House of Representatives because they did not have the votes that they think they had in terms of Republican support.

But I will put it this way. If this is a deal that Senate Majority Leader Harry Reid has signed off on, that the top Democrat in the House has signed off on, Nancy Pelosi, you can be sure that the vote will be very different this time around than the one that happened Tuesday to reject the short-term offer which had no Democratic support.

You can be sure that any Republican support that -- you could guess that any Republican support that may be lost on this vote when it would come to a vote would gain many more Democratic votes, so it seems that the chances with all of the leaders on board makes it seem, makes one think that its chances are greatly increased that it would pass.


Dana Bash, you have covered Capitol Hill for a long time as well. If the speaker says he's got a deal and he can't deliver, that would be a real humiliation.

BASH: There's no question about it.

Part of the reason why we got here, if you believe the people who were in the room with the speaker and with other Republican leaders when this deal in the Senate was made on Friday for the short-term extension, they thought that the speaker felt comfortable with this passing in the first place in the House. And then of course there was a revolt on a conference call over the weekend by his fellow Republicans saying there's no way we're going to go with this. We believe it's bad policy.

Yes, I find it especially given where we are politically right now incredibly hard to believe that the House speaker would say he's got a deal if he didn't feel that he could get the votes. I was just e-mailing with some top Republican aides as we were on the air, saying, are we OK saying there's a deal? And one of the sources responded, you're fine. We're OK with that.

And if I might just add one interesting wrinkle here that might have led to this, our Deirdre Walsh, our congressional producer, was telling me earlier, she was hearing from Republican sources that House Republicans were hearing about it from their constituents, that their constituents were not happy and are not happy with this impasse in Washington and they were feeling pressure to give in from the people back home who went them here.

So, you have this kind of schism, if you will, of the people who were elected to make up the House majority, Republicans who say we're coming here in principle and we're going to stand for what we believe, but you know what? They're also representing people who want that extra $1,000 on average in their paycheck. So they're definitely hearing about it.

One of the most conservative, fiscally conservative House freshman from Wisconsin just released a statement a short while ago saying he would vote for this, so that definitely is a dynamic and an undercurrent in why we believe this agreement is coming so fast.

BLITZER: but as they say, it's not done until it's done. All right, guys. Stand by, Dana Bash, Jessica Yellin, Kate Bolduan. We have a lot more to discuss.

Let's get some perspective right now from our chief political correspondent, Candy Crowley, the host of "STATE OF THE UNION."

It's amazing, Candy -- and you and I have covered Washington for a long time -- of what the deadline of wanting to get out of town for Christmas and New Year's can do to members of Congress.

CANDY CROWLEY, CNN SENIOR POLITICAL CORRESPONDENT: True, but any kind of deadline, I have always said members of Congress are a lot like reporters.

They expand the amount of time to get the job done. Basically you can look at this and say anything they can get by the 31st of December would work. So their deadline might have been a little shorter this time. The president wanted to get out of town, they want to get out of town. But I can't remember a time, whether it was passing an omnibus budget plan, the debt ceiling, you know, they just have to get their backs up against the wall and that's where the deal- making begins.

BLITZER: Sort of like, as you say, like reporters. We work better under deadline pressure than when we have, oh, you got a month to figure it out. We will wait until day 29 to figure it out.


BLITZER: Members of Congress sort of do the same thing.

CROWLEY: Yes, exactly.

BLITZER: You know what? But who wins? The American people will win -- 160 million Americans will continue to get this payroll tax cut. Millions more, about two or three million, will continue to get unemployment benefits.

Doctors who provide services to Medicare recipients, they will get what they deserve. They won't get a cut in their reimbursements. They will all win. But, politically, assuming that the House leadership has now come around and accepted what their colleagues in the Senate have done, who wins, who loses?

CROWLEY: Usually when a question like this comes up, we say let's see how they spin it. I just don't think there's much of a way to spin this other than the president has really profited and Democrats have really profited from this, but in particular the president.

I don't think you have to look any farther than the polls we have that show that the president is now just blow 50 percent instead of closer to 40 percent. And what has happened in the time where he was 41, 42, and now that he's 48, 49? Well, this budget, this fight over these payroll tax deductions and it is also because it is just -- not only was it bad to -- were the Republicans put on the wrong side of this argument, they were arguing against themselves.

This is a group that say no tax cuts. You can't have them for -- or no tax hikes, not for millionaires and not for anyone. Well, this by any definition of the word would feel like a tax cut -- to someone who suddenly had to pay $40 per paycheck in taxes. So, they were arguing against their own type as well against a very well organized Democratic group, including the White House, just pushing and pushing and pushing and saying, oh, sure, you protect the millionaires, but you don't protect the middle class.

In the end, it was just such a loser for the Republicans.

BLITZER: That's why I was under the assumption they would out a deal this week, next week. Somebody would blink because there was no way there was going to be a tax hike, a tax increase on 160 millions. Candy, thanks very much.

Our White House correspondent, Brianna Keilar, is already in Honolulu where the first family is waiting for the president to arrive.

It looks like he will be able to show up there, maybe in time for Christmas. He won't have to spend Christmas Eve by himself at the White House with the dog Bo, and he will have his wife and kids with him.

Set the scene for us. He was supposed to be there when because the first family has been out there for a few days, right?

BRIANNA KEILAR, CNN WHITE HOUSE CORRESPONDENT: The first family has been out here since late last week, Wolf. First lady Michelle Obama and Sasha and Malia, they're staying in Kailua, where the family has stayed previously, not too far from Honolulu, where we are right now and of course, the president's coming out here for Christmas, spending Christmas with his family here obviously contingent very much on the buy-in from House Republicans on this deal.

And that's why everyone's keeping such a close eye on that conference call with House Republicans we will be seeing shortly. But I think we kind of expected this, to come out here and sort of be playing the waiting game waiting for the president. It's become standard practice in recent years that his departure for the family vacation in Hawaii is delayed.

In 2009, it was that Christmas Eve health care vote in the Senate. Last year, it was Congress finishing up extending those Bush era tax cuts. And the president had said, Wolf, Congress needs to wrap this up or we should all be here spending Christmas. So there was this sense that he couldn't come out here obviously because he'd sort of put that line in the sand. Of course, Wolf, as you know, it seems very likely that the president will want to have this whole thing in the bag, a vote, a completely done deal before he would fly so far out here to be away from Washington.

BLITZER: That would be prudent. Brianna, we will stay in close tough with you, Brianna Keilar, our White House correspondent already in Honolulu.

And we're standing by for official word from the House and Senate leadership, also from the White House that a deal has been struck allowing this payroll tax cut to continue into the new year. This is major breaking news we're following. We will be live on Capitol Hill, live at the White House if we get a statement from the president or anywhere else.

Much more coming up on the breaking news. Stay with us right here in THE SITUATION ROOM.

Also, other major news we're following: explosion after explosion rocking Baghdad, details of a wave of bombings that killed dozens of people.

And there is a real growing fear that civil war could break out only days after U.S. forces have left Iraq.

And are layoffs putting money in Mitt Romney's pocket? Why some critics say he's still profiting from the pink slips.

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


BLITZER: I want to reiterate the breaking news we're following.

A deal apparently has been struck that will allow 160 million Americans to continue receiving that payroll tax cut as of January 1st. They're working on all the final details, but apparently, the House and Senate Republican leadership, the Democratic leadership, the president of the United States, they're all on board. We're waiting for official word. We'll share it with you as soon as we get it. We expect a formal statement coming up soon from Capitol hill, maybe from the president himself.

Stand by for that. Much more of the breaking news coming up.

But there's other important news we're following as well. A wave of explosions rocked Baghdad today. At least 63 people were killed in 16 separate attacks, at least 185 people were wounded. It comes just days after the last U.S. troops pulled out of Iraq and amid turmoil some fear could plunged the country in all out civil war.

Let's get some more from Bobby Ghosh right now. He's the deputy international editor of our sister publication, "TIME" magazine. He's also a former Baghdad bureau chief. He was there from day one in March 2003 when the U.S. went in to topple Saddam Hussein's regime.

Bobby, I don't know about you, but I'm very, very worried that the old rivalries between Sunnis and Shiites and the Kurds, this whole experiment that has happened in Iraq could unravel.

BOBBY GHOSH, DEPUTY INTERNATIONAL EDITOR, TIME: There's plenty of reason to be alarmed, Wolf. There's a toxic soup of political intrigue and terrorist activity that's now sort of coming to a bubble in Baghdad as we speak. I mean, the decision of Prime Minister Maliki who represents the Shia party to go after a Sunni vice president almost before the U.S. military had finished switching off the lights as they left, that was -- politically, that absolutely smacked off some kind of vendetta, some almost Shia versus Sunni kind of vendetta.

And then today's bombings, although they may not be directly connected to that event, they contribute to a sense in Iraq that now that the Americans are gone, all kind of knives will be unsheathed and be stabbed in every which direction.

BLITZER: I can't tell you how nervous officials here in Washington. Based on my own reporting, we reported here in THE SITUATION ROOM yesterday that the CIA director, General David Petraeus, made a surprise visit to Iraq in recent days, trying to calm things down. General Ray Odierno, the Army chief of staff, a former commander of U.S. forces in Iraq, he's there right now meeting with Nouri al-Maliki.

I don't think a lot of folks -- correct me if I'm wrong -- have a great deal of confidence in this Iraqi prime minister.

GHOSH: Well, they're not entirely sure what he stands for. He's been very evasive, very oily, about moving with the tide a little bit. But the thing is if the U.S. military or the giant U.S. embassy there was unaware that Maliki was going to go after this Sunni politician, then that represents a pretty big intelligence failure.

The Maliki cabinet is no good at keeping secrets. Everybody in Baghdad knows what's happening in what used to be the Green Zone. So, if this thing -- if Maliki's decision to go after the Sunni politician was unknown to the Americans, then that represents a different kind of problem. That means that despite this effort, despite having a huge embassy there, despite all this long standing relationship between the United States and the Iraqi government, we didn't know that such a big thing was coming down the pike.

BLITZER: And let's not forget, Bobby, and you spent a lot of time in Baghdad over the years, former "TIME" magazine bureau chief there, there are still, even though all U.S. troops are out, 17,000 Americans in Iraq, most of them in the Green Zone as you point out. About half of these 17,000 are diplomats or diplomatic support staff, the other half security contractors, civilians, highly paid civilians, there to protect the Americans.

I'm sure you're worried about them. I'm very worried about their security.

GHOSH: I'm worried about them. I'm also worried all the thousands, possibly, tens of thousands of Iraqis that over the years, have helped the Americans, whether it's the American military as translators and drivers and so on, or journalist organizations like yours and mine. Their lives are also at incredible risk.

And so, there's a lot of reason for us to be alarmed and keeping a very, very close eye on how things are going in Baghdad.

BLITZER: How close is this alliance between the government of Nouri al-Maliki, who as you say is himself a Shiite and the Iranian regime right next door?

GHOSH: Well, it's close -- it's not as close as people would make it out to be. Some commentators in Washington assume that Maliki is the puppet to Iran's puppet master. That's not true. It is true that many members of Maliki's government spent some time during their long exile under the Saddam Hussein years in Iran and there are certainly closer ties than there used to be.

But Maliki is also quite stubborn and very aware that the large majority of his own supporters, Shiite Iraqis, identify themselves first as Arabs and do not see themselves as an extension naturally, of Iran.

So, the relationship is a little better than it used to be, but this is not a master-servant relationship by any stretch of the imagination.

BLITZER: The White House issued a statement expressing deep concern, condolences for all of the dead people as a result of this wave of terror.

Also pointed out though that the vice president, Joe Biden, was on the phone with the Kurdish president of Iraq, Jalal Talabani. Joe Biden has played a key role in all of this. But here's the question to you, Bobby, how much influence now that all American forces are out of Iraq, does the Obama administration really have there?

GHOSH: Almost none. I think which is why Biden reached out to Talabani because now, the Kurds represent the U.S.'s best hope of having some sort of influence because it's a coalition government and nobody can really rule Iraq the way the politics is set up without the support of the Kurds. So, the Kurds almost are a proxy of the U.S., whichever administration, whichever government is in power, is in control in this country. We have to rely on the Kurds to help out.

But in terms of direct relationship, Joe Biden knows the clears in Iraq better than any American politician and even he has very little direct influence anymore.

BLITZER: And of all those three groups, the Sunnis, the Shiites, and the Kurds, the Kurds clearly the most pro-American of the bunch.

Bobby Ghosh of "TIME" magazine, as usual, thanks very, very much.

GHOSH: Anytime, Wolf.

BLITZER: He's promising to create jobs, but some critics say Mitt Romney is still making money right now from a company that lays off employees. We're checking the facts.

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


BLITZER: Millions of layoff notices have been handed out during the U.S. economic downturn, and critics of Mitt Romney say some can be traced back to him through his old company where the Republican presidential candidate made a fortune and may still be profiting from some of those pink slips.

CNN's Brian Todd has been looking into this part of the story for us.

Brian, what are you finding out?

BRIAN TODD, CNN CORRESPONDENT: Wolf, Mitt Romney left that firm, Bain Capital, 12 years ago. He has not had had a say in the firm's dealings, but through his holdings, he is still making millions from Bain Capital. And Bain is still streamlining companies.


TODD (voice-over): It's one of his strongest campaign talking points -- he'll get the jobs back. And as someone who once led a successful investment firm, he says he's got the experience to do it.

MITT ROMNEY (R), PRESIDENTIAL CANDIDATE: And every investment we made was designed to try and grow that investment, grow that enterprise, ultimately to add jobs and success. That's been my hope and my record.

TODD: But there's fresh scrutiny of Mitt Romney. Criticism that at that investment firm, he was involved in large scale layoffs, and may still be profiting from the firm's deals which result in layoffs.

According to his financial disclosure form for this year, Romney negotiated a retirement deal from that firm, Bain Capital, when he left the company in 1999. As part of that deal, he received an undisclosed share of the firm's profits. Since then, he hasn't had a say in what the firm does, but Romney still has holdings in Bain Capital that generate income for him.

The disclosure forms say Romney made over $3 million in income from transactions made by Bain or its affiliated companies this year.

What does Bain do?

DAN PRIMACK, SENIOR EDITOR, FORTUNE MAGAZINE: Bain's primary business is acquiring companies, trying to improve those companies, and then sell that or take that company public, hopefully for a higher value than it originally paid. That's the essence of its business. Sometimes, that means they shrink the company before they're going to grow it, which is when we thought of layoffs or streamlining. Sometimes, they truly do buy a company and start adding employees in various divisions.

TODD: Contacted by CNN, Romney's campaign said Bain Capital had a good track record, creating jobs with companies like Staple ands Domino's Pizza.

"Fortune" editor Dan Primack says Bain also drove some companies, like medical equipment maker Dade Industries out of business and people out of work. When it first made those companies slightly profitable, but then took dividends from them while adding to their debt.

In a new interview with "TIME" magazine posted online, Romney responded to that.

ROMNEY: In any case where I was involved in an investment in a company that was not successful, one would have to feel terrible about someone losing their job.

TODD: It's a record that analysts say Romney will have to defend at every step during the campaign.

(on camera): Does it hurt him politically to talk about the economy and building jobs when his work for the company actually resulted in a lot of layoffs, even with some successful ventures?

RON BROWNSTEIN, CNN SENIOR POLITICAL ANALYST: Nothing will be more important to Mitt Romney if he is the Republican nominee than being able to defend his record at Baim.


TODD: Ron Brownstein says Romney has dealt with this before in 1994 when he ran for the Senate against Ted Kennedy. Brownstein says Kennedy attacked Romney with ads slamming Romney's record at Baim Capital, the job losses, the bankruptcies. He says Romney did not handle it very well then and it cost him that election -- Wolf.

WOLF BLITZER, CNN ANCHOR: So I assume he's going to be able to handle it better this time. As far as defending himself in the future, will he still be making profits from Baim down the road, maybe even during the campaign?

TODD: He may or may not be making profits during the campaign. That form says his retirement deal with Baim Capital has expired. That means he won't be able to profit from any future deals that Baim makes.

But he's still profiting from some past deals and those profits could continue to come in for a little longer. If it's coming in, of course, during the campaign, he's going to hear about it. BLITZER: Brian Todd, thanks very much. Let's dig a little bit deeper right now in our "Strategy Session." Joining us now, the Democratic strategist, Jen Psaki and the Republican strategist, Nancy Pfotenhauer. Ladies, thanks very much for coming in.

You're a big Democrat. Are you going to make this an issue if Romney gets the nomination? Is that a legitimate issue?

JENNIFER PSAKI, DEMOCRATIC STRATEGIST: Well, look, the devil's in the details here and you know, I think what people don't know yet about this deal is that his job was to make more money for investors.

Not that there's anything wrong with that, but in the process, he had to cut workers. He had to cut benefits. He wasn't running a jobs bank here. He was making profits for wealthy investors.

That is something that may not really shake well with the American people who are struggling to find work and struggling to make ends meet. I think there's going to be some questions raised.

BLITZER: What potentially could hurt Romney is the outsourcing. A lot of Americans were losing their jobs. They hate the fact that those jobs may be going to India or Taiwan or China or something like that. Potentially that's a political issue.

NANCY PFOTENHAUER, REPUBLICAN STRATEGIST: I think it could be a political issue, but I think Jen is correct and that fundamentally, this is going to come down to which job creation formula do the American people believe will work.

Now if I were Romney, I would be saying come and get it cowboy. I would love to put his record against President Obama's record. Let's face it. The president has a tough sell right now and to point fingers at someone else on job creation, I'm not sure he wants to get into that patch.

BLITZER: You think he's going to get into the whole argument that he was a community organizer, a politician that he's never been in business? Do you think that's what he's going to say about the president?

PFOTENHAUER: He is not a job creator. We know that. We have that. It's been historically proven. We've lost conservatively about 3 million jobs.

So and frankly, that's, if you look at the underemployed, that number gets two or three times that level very, very quickly. So I don't think he wants to be arguing. The president doesn't want to be arguing his job --

PSAKI: I think private sector economists have said don't take the White House's word for it that he's created millions of jobs. Saved or created millions of jobs. We were losing 750,000 jobs a month when the president came into office.

We're now gaining jobs. but it's more, I will say, it's more about the path forward and who you're fighting for and what you're going to do moving forward to create jobs.

BLITZER: Let me get your quick reaction to the breaking news we're following right now. An apparent deal on Capitol Hill that would allow 160 million Americans to continue getting this payroll tax cut. It looks, at least on the surface, we don't know the details yet, like the Republican leadership in the House has blinked.

PFOTENHAUER: They probably should just from a pure politics standpoint. They were right on the policy, short term or temporary tax cuts rather, do not really have a profound stimulative effect or even help people too much. So the longer you can make it the more long-term, the better the economic impact, but they walked into this the wrong way politically.

BLITZER: Who's they?

PFOTENHAUER: The House Republicans. And so they were correct I think politically to quote/unquote "blink" and it's net job creation. Not job creation so that's why you see differences in numbers.

BLITZER: She's an economist, but that's another matter. What do you think? Should the president, you still work in the Obama White House. Should the president assuming there's a deal show up tonight, tomorrow, before he heads out to Hawaii, make a statement to the American people?

PSAKI: I think absolutely. The president has said he is going to stay in town until this is done, but this has been a huge priority. But it's also a case study in what's wrong with Washington.

The payroll tax cut is something that Republicans in Congress proposed last year. He's going to drag them across the finish line here when they should have revolved in early December and move on to other agenda items.

BLITZER: Jen Psaki, Nancy Pfotenhauer, guys, we got to leave it right there. We're following the breaking news. Good to have you in. Merry Christmas. Happy New Year. Always good to have you guys here.

It's tense even in the best of times. With the death of Kim Jong-Il, the border between North and South Korea is like a tinderbox.

Plus, more of what I saw in North Korea on my assignment there one year ago.


BLITZER: A moment of silence this afternoon in the United Nations generally assembly marking the death of the North Korean dictator, Kim Jong-Il. His passing and the succession of his son, Kim Jong-Un is raising tension along the demilitarized zone that divides the two Koreas.

CNN's Paula Hancocks is there -- Paula.


PAULA HANCOCKS, CNN INTERNATIONAL CORRESPONDENT: You're joining me at the DMZ. This is the demilitarized zone between North and South Korea. Now this border is very tense at the best of times, but obviously, since the death of Kim Jong-Il, monitoring has been increased. We understand that the South Korean military has increased its level of alert, but the U.S. military is saying that it is business as usual.

COLONEL JONATHAN WITHINGTON, SPOKESMAN, U.S. FORCES-KOREA: We're maintaining a level of readiness expected of us on any given day here in the Republic of Korea.

HANCOCKS: Here in the DMZ, you can see a North Korean soldier just across the border. They often come out of that area to see what is happening on this side, the South Korean border.

This is the joint security area. It's basely where all the negotiations have taken place between the north and the south since 1953. Now, the blue huts behind me are half in North Korea, half in South Korea and the border itself is obviously very tense.

You can see the South Korean soldiers facing off against the North Korean soldiers in a very inauspicious border. The concrete slab that you can see in the middle there, just a few inches above the ground, is effectively the border between North and South Korea.

This is the conference room where the negotiations actually take place when they are negotiations, between the north and south. This table here is effectively along the border, so they want to make sure it is completely equal, half of the huts exactly in the north half and exactly in the south.

There have been many negotiations over the years that have happened here. This is called check point three along the DMZ and you can see how close we are to the demarcation line here. These white stakes that you can see is effectively the border between North and South Korea.

So just beyond that, beyond those trees, you can see a building there. This is one of the buildings that's obviously the North Koreans could well be using to monitor South Korea, just here on the South Korean side, they're monitoring the North Korean side.

So at this point, a very tense border with both sides watching these closely, hoping that as each day goes by, the situation will ease. Paula Hancocks, CNN, on the DMZ between North and South Korea.


BLITZER: I was in North Korea exactly one year ago accompanying the veteran diplomat, Bill Richardson on a mission to ease nuclear tensions. The trip was a surreal combination of high stakes diplomacy, propaganda and sightseeing.

(BEGIN VIDEOTAPE) BLITZER: Here we are. This is Kim Il-Sung's square as you can see. It's really huge. It's magnificent and they often have events here, which is totally understandable.

These are all government buildings over here and this is a magnificent palace right in front of me over here if you want to flip over, you can see the foreign ministry and then you see this marvelous structure over here.

This is a brisk, cold day on this Friday. Here in Pyongyang, but it's nice. There's not a whole lot of traffic here. It's icy. The streets are icy. It's snowy. See a lot of people shovelling and there you see the sickle of this communist government. You see marks, manifestations of the communist philosophy.

(voice-over): Inside, the talk is tough, in the first of several meetings for Governor Richardson.

UNIDENTIFIED MALE: We're ready for either dialogue or war. That was their standard pitch.

BLITZER (on camera): Governor, how did it go?

UNIDENTIFIED MALE: Well, it was a decent start. Both sides are feeling each other out. I express our deep concern and they obviously express concern with U.S. policy -- the escalating situation on the peninsula.

BLITZER (voice-over): But this journey is nothing if not surreal. In the morning, meetings that could make the difference between war and peace. In the afternoon, our North Korean handlers, all of whom are very polite and speak English well, take us sightseeing.

On this afternoon, we're taken to Kim Il-Sung University, the largest in the country. The smartest, most talented students are here, all dressed smartly. the men with blazers and ties, the women with proper dresses.

UNIDENTIFIED MALE: How do you get into the university here?

UNIDENTIFIED MALE: We select high level of students in the secondary school and then they have nationwide test, examinations.

BLITZER: We then go to the stone tower, the tallest in the world.

(on camera): We're on top of the world's tallest stone tower. Here overlooking Pyongyang and it really is majestic to see what's going on. You see the river, the bitter cold, freezing snow.

But the buildings are really impressive and they built this tower to really highlight what they have accomplished over the years. They make the point of pointing out this is taller than the Washington Monument. And they constantly point out it's the tallest in the world.

(voice-over): And then there's the North Korean's version of the -- larger than the one in Paris. They're very proud of everything they show us. But we have no way of knowing what they say is true.

UNIDENTIFIED FEMALE: Pyongyang was very surreal. It's a city without much going on because the economic, the international trade is just not there and it's a bit of -- a sad, yet beautiful place, bittersweet.

BLITZER: At stores, I see lots of books slamming the United States, including this one. The United States imperialist started the Korean War.


BLITZER: And tomorrow, we're going to have a special edition of THE SITUATION ROOM. You'll be able to see our documentary, "Six Days in North Korea" chronicling my assignment there one year ago that's tomorrow, 5:00 p.m. Eastern, 2:00 Pacific here in THE SITUATION ROOM.

We'll have a check of our political ticker that's coming up next, including late night shenanigans for Jon Huntsman. We're going to show what he was up to with David Letterman.

And a sugar high for Mitt Romney. We have details of his ultra sweet breakfast.


BLITZER: Here's a look at some of the other political headlines making news on CNN Political Ticker.

The former President George H.W. Bush is offering some backing to Mitt Romney. The 41st president tells the "Houston Chronicle" Romney is the quote, "best choice" for the Republican presidential nomination, although the paper notes that Bush's support does not necessarily constitute an official endorsement.

Romney says he had no idea the support was coming and adds it means more to him personally than politically since he sees the first President Bush as a hero.

He may be at the back of the GOP presidential pack, but Jon Huntsman has scored a major endorsement in the first of the nation primary state. New Hampshire's "Concord Monitor" newspaper has announced its support for the former U.S. ambassador to China, painting the frontrunners in the race, Newt Gingrich and Mitt Romney as unpredictable.

Huntsman is focused on the January 10th primary in New Hampshire with the hopes of jump starting his candidacy. Meanwhile, Huntsman is also making the rounds on late night TV.

In an appearance on the "Late Show with David Letterman," Huntsman joined the band for a rendition of the Chuck Berry classic, "Johnny Be Good." Watch this.

Pretty good. Nice work. Huntsman also discussed serious domestic and international issues including China and his experience serving the Obama administration as the United States ambassador to that country.

His rival, Mitt Romney, by the way, may be suffering a case of sugar shock. The former Massachusetts governor has a packed schedule of events in northern New Hampshire today and explained where some of his energy might be coming from.


MITT ROMNEY (R), PRESIDENTIAL CANDIDATE: I speak fast. People think I speak too fast. It will be worse this morning because when I got on the bus, my dear wife was kind enough to say would you like some cereal and I picked frosted flakes and would you like some toast.

I put honey on it. Would you like something to drink, I got chocolate milk, so I'm kind of high on sugar this morning and that may speed things up a bit.


BLITZER: Romney is traveling in the state in a new campaign bus named for the former president, Ronald Reagan. For complete political coverage, please be sure to go to You'll get a lot of political news right there.

We're following the breaking news here in THE SITUATION ROOM. A possible deal to extend the payroll tax cut. We're standing by for an announcement presumably in the coming minutes.

Plus, CNN's Erin Burnett on what she's learning about the deal.


BLITZER: Back to the breaking news here in Washington on Capitol Hill, a possible deal on the payroll tax stalemate. At stake, 160 million Americans continuing to get a tax cut.

Let's bring in our own Erin Burnett. Erin, this is a major development. You've been spending a lot of time on your show on this. Have you spoken with the Massachusetts Republican senator, Scott Brown?

ERIN BURNETT, HOST, CNN'S "ERIN BURNETT OUT FRONT": I'm going to be speaking with him tonight, but obviously he's been the Republican in the Senate, Wolf, who has been most vocal and angry at House Republicans, saying their attempts to not do a deal were irresponsible and wrong.

So far though, I know you have been going through the details with Dana as well as Kate, but obviously it looks like we've got some sort of a deal here that, well, still a kick the can down the road kind of deal and showing a lot of the dysfunction that we still have in Washington.

I can tell you the market reaction this afternoon was market up a percent taking this in stride, 3:46 p.m., I got an e-mail from a trader saying payroll tax deal near. So they were watching it very closely.

But I think it's safe to say there was an expectation this would get done. So failure from this point could cause downside, but there's probably not that much upside if we get the deal of a two- month extension and look at it again in early January.

BLITZER: How worried should we have been if there were failures that America's credit worthiness would be downgraded once again?

BURNETT: Well, you know, it's interesting. I think the credit -- the issue with our downgrade, I know it's interesting becuase I talked to Jeb Hensarling last night. He was you know is the co-chair of the "Super Committee," which failed in its task to cut $1.2 trillion from the deficit.

The reason for the downgrade was that Washington could not get its act together and couldn't get anything done. It was the gridlock and lack of leadership, which was the reason for the downgrade perhaps even more than just borrowing the money.

When you look at that metric, we're a lot better than a lot of other countries that credit ratings that are below ours. So this deal likely won't move the needle on that even if it's not fully paid for.

But and that's an interesting point as to whether you can borrow some of this money. Eventually they come back in early January or whether they'll be able to agree on a full way to pay for it. Everybody wants a one-year extension, Wolf, and they couldn't find a way two weeks ago. So it's I think --

BLITZER: Let's hope they can. Erin, thanks very much. We look forward to the interview with Scott Brown. Coming up, "ERIN BURNETT OUT FRONT" 7:00 p.m. Eastern. We watch every single night.

A check of some other top stories coming up and in our next hour, the controversy over some old newsletters in Ron Paul's name. He's getting defensive about them. You saw that yesterday here on THE SITUATION ROOM.

His interview with Gloria Borger. What really happened? We're digging a little bit deeper.


BLITZER: Here's a look at this hour's "Hot Shots."

In the Philippines, children affected by devastating flash floods praying in an evacuation center. In the West Bank, Christian pilgrims pray at a church in Bethlehem on the site where Jesus is believed to have been born.

In India, people warm up around a fire as the cold wave and dense fog disrupt traffic and in Sri Lanka, a young vendor makes mangers at a roadside stand. "Hot Shots," pictures coming in from around the world.

Mary Snow is monitoring some other top stories in THE SITUATION ROOM right now. Mary, Wal-Mart making a huge recall of infant formula after the death of a Missouri baby.

MARY SNOW, CNN CORRESPONDENT: Wolf, Wal-Mart pulled the formula off shelves nationwide until test determined whether it is linked to the 10-day-old baby's death or if it was something else. The infant died from a rare bacterial infection. Enfamil says it's confident in the safety and quality of its products.

A lawmaker in Zimbabwe will remain in jail over Christmas after calling President Robert Mugabe a, quote, "gay who sleeps around." State prosecutors would not allow (inaudible) to post bail. The movement for democratic change leader denied making the remarks at a political rally this month.

A clue into the whereabouts of the millions of dollars missing from MF Global's U.S. costumer accounts. A bankruptcy court trustee discovered $700 million were transferred to the company's U.K. affiliate days before it folded.

Jon Corzine, the former New Jersey governor who ran MF Global said he did not know what happened to the money. The trustee in the case says the $700 million is separate from the estimated $1.2 billion he's trying to recover.

And an upward trend for stocks today as U.S. investors took part in some positive jobs news. The Dow was up half of 1 percent while the S&P 500 index rose 10 points putting it just in the right place to finish out the year higher -- Wolf.

BLITZER: Mary, thanks very much.