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Fed Maintains Interest Rates; Barack Obama Attacks McCain View of 'Strong Economy'; Governor Sarah Palin now Refusing to Cooperate with Investigation

Aired September 16, 2008 - 14:00   ET

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

RICK SANCHEZ, CNN ANCHOR: This is CNN, breaking news.
Hi, everybody. We are going to start with breaking news. I'm Rick Sanchez here in the World Headquarters of CNN.

And the information is vital for all of us. The government's monetary gurus are meeting right now. They're meeting in secret on a global financial crisis, and there could be a very important announcement from them. It could come really at any minute. We expect it will probably happen within ten minutes or so.

Yesterday, when we talked, the stock market was down about 300 points. After we left you, the bottom dropped out. Wall Street closed with its seventh biggest point loss ever, the biggest since 9/11. I repeat, the biggest in this country since 9/11.

So let's look at where we are right now, and some things that you may not know about, some you may. First of all, the cost of overnight borrowing doubled after banks around the world began to just horde cash in any way they could, fearing that it would be more difficult to do so in the future. It is a growing fear about AIG. Remember those letters A-I-G.

Who is AIG? It is the world's biggest insurer. Will it collapse? Or will someone rise to the rescue. AIG owes hundreds of billions of dollars to other institutions. That is their problem as we speak. We can't say it enough, those are the people who lend you money. So let's continue talking about that. How worried are all of these banks right now?

I have a couple of quick quotes from you. What we have been doing is doing some research and scouring some of the financial wires and seeing what some of the financial gurus are saying about the situation that we find ourselves in today. Let me read you a couple of these that we have gathered. "It is a financial mess out there," says one. "Unbelievable," says another.

Another quote says "I have never seen anything like this before." A lot of people are saying that if AIG, again, AIG fails, it will dwarf the recent disasters surrounding Bear Stearns, Lehman Brothers and Merrill Lynch. Also, I just asked this question a while ago. Let's go ahead, Robert, to our twitter board, if we possibly can.

I asked this question a little while ago. Before we started this newscast, I went to Twitter.com/RickySanchez.CNN, which is one of the best and fastest ways of communicating with people. And I asked this question, what is the biggest story out there today? What should we be talking about? McCain, Sarah Palin, Joe Biden, Barack Obama, yesterday's stories, what is going on with the Fed or AIG? Everybody, watch this, AIG, the markets, the fed, focus on that.

Look, AIG at the top of the list. Here's another one, right there, AIG says 123 Raw Girl. That should be of concern to the right and the left. Unfortunately, AIG is the biggest story, writes to me Jodie Morris, Palin second. I am watching developments here with bated breath.

AIG says Corroli (ph). The other stuff is just petty bickering. One more, Dustin Mooney (ph) says, AIG is out in out the biggest problem right now and no one, Democrat or Republican, seems to know what the right choice is.

All right. We are going to lay out the crisis that is affecting AIG. Standing by with that from New York is CNN's Allan Chernoff. He has been is digging deep into this. He knows a lot of questions that people want answered.

We are also going to start in Washington though. CNN's Ali Velshi is on announcement watch for us, the announcement, of course, that's going to be coming from the Federal Reserve. What we expect in the next five minutes is that the Federal Reserve is going to say, we are going to lower the interest rates or we're going to leave them as they are.

What do you expect and why is this so important? Ali, get us started?

ALI VELSHI, CNN SR. BUSINESS CORRESPONDENT: Well, Rick, first of all, 48 hours ago, someone would have laughed if they had suggested that the Fed was going to cut rates. It had never been expected at this meeting. they were expected to hold steady on interest rates. But because of the turmoil that is going on, what the Fed can do, if they cut interest rates -- and we have no inside information, but people are betting they might do this in the next ten minutes. If they cut the interest rates what it does is it makes money cheaper to borrow, whether you are an individual or a company.

That means that the companies thinking of doing something, thinking of borrowing money, thinking of expanding can do that. It is thought as a way to expand the economy. Like wise, raising rates slows the economy down. Thinking about it as your own credit card, Rick. If your rates go up on the credit card, you will spend less. You will not carry as much of a balance. If, all of a sudden, you have interest-free for the next year, you might spend more.

It's the same thing with the Fed. Now, by the Fed cutting rates at this point, it could signal that there is help out there for banks and businesses in trouble. It won't actually have a material effect on the AIG situation, but will inject sense to the investing public that the government is there and the Federal Reserve is there.

SANCHEZ: Whoa, whoa. Let me slow you down. If it doesn't have a material effect, what is it? Is it emotional? Is it a confidence booster?

VELSHI: Yes, this is all emotional. This entire behavior of the market is a sense that is failure impending, that things are not safe. And that is why people are taking their money out of the market. That's why the market has been going down. But you can see from where the market is right now, sort of skirting around the zero mark, the fact is that people are waiting to see what happens.

If the Fed cuts rates, what will happen is you will see is a rally in that market. If they don't cut rates, you may see the market stay where it is. You may see it start to go down again. It is all confidence. It's all emotional right now. This is not science. This is all emotional, whether it is your spending habits or the government's or a banks or an investor.

So there is fear that there is just going to be failure around the financial system and that is what is worries people.

SANCHEZ: Well here's the thing that would affect that kick start, were it to come. Let's bring Allan Chernoff into this conversation. Allan, you saw what people are talking about who have been e-mailing me, AIG, AIG, AIG. They want to know what is going on.

Explain to our viewers, if you can, in are laymen's terms, who may not be investors, why is AIG so important? What is going on with this company that is getting everybody's eyes all open and looking?

ALLAN CHERNOFF, CNN SR. CORRESPONDENT: Critical question. AIG, first of all, is the nation's biggest insurance company, in terms of under writing and writing premiums. OK, so that, number one, makes it really important.

The other issue here is that AIG not only, like so many other financial institutions, bought into these mortgage securities, remember that term -- those are pools of mortgages. And as you now, so many mortgages have gone bad, and that has caused so many losses all over Wall Street. So they not only bought those mortgages. They also insured them at dozens and dozens and dozens of financial institutions.

So now they are on the hook. A lot of those mortgages, as we said, have gone bad. AIG feels financial pressure because it insured them. Last night, the credit agencies downgraded AIG. And as a result, AIG has got to come up with some cash. That is why they have this cash crunch right now. That is the immediate pressure on AIG. They need billions and billions. If they don't raise them, the company -- the parent company could declare Chapter 11 bankruptcy.

SANCHEZ: Let me ask you the question, because of what we have seen in the last couple of weeks, is there any chance that someone would bail them out the way they have bailed some of the others out, like Freddie Mac and Fannie Mae?

CHERNOFF: Well, that has been the critical issue here. The treasury secretary has said that he would rather not use tax payer money. He is hesitant to do that. SANCHEZ: Yes.

CHERNOFF: And you know what? The private banks, the financial institutions, they are meeting. They have been meeting. They have been talking about raising money. They don't really want to do it. AIG has been a very aggressive company. They are the most aggressive insurance company. That is how they became number one.

Now these banks, as I said, they have already suffered big losses on all of their investments. Now do they want to lay out more money to a company facing big trouble? Well, it is a tough one.

SANCHEZ: Yes, because --

CHERNOFF: It's a tough road to walk down.

SANCHEZ: Here is what's interesting about this, and you and I are going to be talking about more of this on the other side, because it might be seen or construed by some as rewarding bad behavior. Listen, you want to go out there and take these kind of risks? You want to be everything to everybody? You may end up having to pay for it. And some would say that is what AIG may end up doing.

Let's hold the conversation there. We've got Allan. We've got Ali Velshi as well. We're expecting the decision to come down from the Fed at any moment now. Obviously, we may see a rally, which would mean an uptick. Right now, we're looking at the Dow. It's up 28. Obviously, it's really staying around the middle right now, not deciding what it wants to do.

If there is a decision, then perhaps we will see a rally take effect. We are waiting and we are going to take a quick break now. We probably won't have it in the next two minutes. So as soon as it happens, if we are in the break, we will come out of it and bring it to you. Stay with us. We'll be right back.

(COMMERCIAL BREAK)

SANCHEZ: Yes, as a matter of fact, I am checking here on Twitter.com/RickSanchezCNN, as well as MySpace and Facebook. I can see that a lot of people are very interested in what is going on right now. Look at this, weird, I used to see dozens of AIG commercials in one hour. In this month, in my area, I've yet to see one. You almost know what a company is doing if you want to pay attention.

Let's recap here for you. AIG is on the brink of collapse. That is a problem. They are the nation's biggest insurer and they need to come up with a whole lot of cash, billions in fact. And it seems at this point, they haven't been able to. What is interesting about this is we have been calling AIG all day long and I have gotten a lot of the tweaks as well from people who say, I sell that stock and I can't get the company officials to return my calls and I can't get any information from them right now. That might be a problem.

We will continue to talk about that as well. Of course, the big story we are following right now is what happens next? Here is what we think could happen. The Fed might in fact lower interest rates as a result of what happened yesterday and what still might be to come.

Joining us now from New York of Bob Lenzner, who is the national editor for "Forbes Magazine," also Mort Zuckerman, who is the editor in chief of "US News and World Report," also the chairman of "New York Daily News."

Gentlemen, thanks so much for being with us.

Mort, I will begin with you, do you think that the Fed will cut interest rates? And if so, why would they do it? Would bit a smart move?

MORT ZUCKERMAN, EDITOR IN CHIEF, "US NEWS AND WORLD REPORT": Well, in the first place, if they cut them, they would have to cut them by a half a point. This is going to take a real step to do it. My own view is actually that they ought to delay it for a while and see what happens shakes out. If AIG does go under, then I think they would absolutely have to cut it, and we don't know where that stands at the moment, because, as you say, they are all meeting now to see if they can save AIG, which has 500 billion dollars in credit default swaps, which is insurance they have given to many other companies to guarantee their debt.

If AIG goes under, then a lot of the debt is going to be downgraded. That is going to huge strain on the financial world, which is already under great strain. It will restrict credit even further than it has already restricted. And that I think will prompt the Fed to lower rates. So they must know something at this point as to whether that's going to happen or not.

SANCHEZ: Bob, tell us, how vulnerable is AIG and how did they get into this situation to begin with?

BOB LENZNER, NATIONAL EDITOR, "FORBES MAGAZINE": AIG is extremely vulnerable, as Mort says. He has the numbers exactly right. But more than that, AIG has transactions all over the world with banks, investment banks, insurance companies, hedge funds and multinational companies. They cannot afford to let it go bankrupt. They must do something to at least bail it out temporarily until AIG has a chance to sell assets.

So I think that they should offer it a bridge loan, and see whether AIG then could sell assets to pay them back or that Goldman Sachs and JP Morgan will be able to raise the money.

By the way, I think they will lower the interest rate by 50 basis points, because they have to help the banking system, particularly the regional banks, that have a lot of bad paper on their balance sheet. They have to help them make money. So they have to help widen the spread between their cost of funds and their lending to small business or for mortgages or for whatever.

SANCHEZ: You think they will? Mort thinks they might, at least not yet, that they're going to wait. Let's hold off on this a minute. We expect the announcement. Let's try and sneak a break in here guys in the control room. About a minute and a half break, and when will come right back. We will have these two gentlemen joining us, and we will continue the discussion.

You are watching CNN from it's World Headquarters in Atlanta. I'm Rick Sanchez.

(COMMERCIAL BREAK)

SANCHEZ: All right. Here we go. We have just received the decision from the Fed. They have opted to not lower interest rates. Again, they have opted to not lower interest rates. Mort Zuckerman called that one right.

Let's go the Ali Velshi, first of all, for your reaction. Ali, standing by in Washington.

VELSHI: Never mind my reaction. Look at the bottom right corner of your screen. The Dow is off almost 90 points now. That is what we said would happen. If they decreased rates, you might see a rally in the market. If they do not change it, you're going to see a sell off. Now we're down 100 points.

The bottom line here is the Fed is not telegraphing a message that they are going to get involved in saving troubled companies right now. That is a very interesting message they're making. Not only did Mort call it, but Mort also made the point that the Fed is not limited to changing rates on this date, just because they have a meeting. They can do this any time.

They can do it tomorrow, or they can do it next week. This just happened to be a scheduled meeting. There was some speculation that the Fed might step in and say, things are sort of falling apart, what can we do to help. And they have opted not to help.

I'll tell you why, Rick. When you make money easier to borrow to people, what it does it is it creates more demand. It strengthens the economy. That's a good thing, right? Except by doing that, you also sometimes push prices up. While that is not the immediate concern that we've had here, as we have in the last year, you remember, we have come through a year where we have seen remarkable prices, remarkable food cost increase. And even today, the inflation rate for the last month just came in. The one-year inflation rate, while down, is still well over five percent.

So the Fed risks pushing inflation up by cutting interest rates, which is why they don't take that decision very easily. Anyway, they have decided not to do it. Look at the market, moving around, trying to decide how to make sense of this thing. The problems we went into this is are the problem we come out of it with. What happens to AIG? What happens to companies like Washington Mutual, which also had their credit ratings cut?

Rick, I'll tell you one thing, the easiest way for people to understand this for people, is that if you miss a payment and you get too much credit and the credit card issuer says you are not as good a risk, your credit score goes lower, it becomes more expensive for you to borrow money. That is what is happening to AIG. That's what's happening to Washington Mutual. Their credit rating agencies are saying you are over extended at the moment, and it doesn't look like your ability to pay your bills is as strong as it used to be. Hence, they are paying more money and they are finding it hard to raise money. That's what this is about.

If you are cash rich as an individual or a company, right now, through this downturn, you will make it to the other side. If you are dependent on borrowing money from other people, you are having a hard time.

SANCHEZ: Ali, let me do something really quick. I'm going to get back to you in a bit. Let's go over to Susan Lisovicz. She is standing by at the New York Stock Exchange, where I guess she is trying to figure out how the markets are reacting to this. It was about 50 a minute ago. Now it's down 33.

What is the feedback you're getting there?

SUSAN LISOVICZ, CNN BUSINESS CORRESPONDENT: Well, the market was clamoring for a rate cut, and you are seeing a little bit of a sell off. But typically what happens in the immediate seconds after a decision is that everybody is trying to figure out what policy makers are trying to do and the messages they are sending. I just got the statement right now. And I am comparing it to the statement from a month ago.

Obviously things have changed quite dramatically in the last month or so. One of them is that oil prices have come down dramatically, and that has improved the inflation situation. But the Fed in this statement that has just come out says that inflation has been high. It says the committee expects inflation to moderate later this year and next year, but that the inflation outlook remains highly uncertain.

And if the Fed is still concerned about inflation, it would not want to lower interest rates. In fact, the widely expected view up until last week was that the next move would have been a rate increase. The Fed also said that strains in the financial markets have increased significantly, and labor markets have weakened further. I think our audience knows that quite well if they watch us at all.

Economic growth appears to have slowed recently, reflecting a softening of household spending. In any case, there was a lot of debate as to what the Fed would do. There was index that said the Fed was going to cut rates. But there was plenty of debate on the floor and even with your guests that the Fed would not do that. And the Fed is standing put for now there.

There is a lot of fluidity that's happening right now with the state of AIG, one of the primary headlines right now. And the Fed, as Ali said, can act at any time, doesn't need to have to have a regularly scheduled meeting. This one was set many, many months ago.

SANCHEZ: Speaking of AIG, let's go back to that port of the conversation. I've got to tell you, ti's one of things that my Twitter board is about to explode here, with people wondering what is going on. As we talk to them, they are talking to us. We are live, and people are amazed that we are even able to do this while the information is coming on.

Somebody is saying, unreal how we cover this. But here's an interesting question that just came moments ago. Can you ask Ali or someone else, what would be the ripple effect if the AIG failed? This is an important question. You know why this is an important question? A lot of people watching this newscast right now are seeing these acronyms being thrown about and they are wondering what is the real effect on me? How is this going to hit my family?

We will get it to Ali in a minute, but I want to go to Allan Chernoff, because we basically told him we wanted him to look into this AIG thing for us today, and try to break it down into Layman's terms. Allan, can you explain to someone watching this newscast right now why an AIG failure would hit me somehow in the pocketbook, as an American?

CHERNOFF: Great, great question. If AIG were to fail, you would see losses at just dozens and dozens of investment firms, even bigger losses than we have already seen. You would probably see a lot of financial stocks take a huge hit.

So in your pocketbook, in terms of investments, you would be hit there. If you have a policy with AIG, well, those are subsidiaries. And according to AM Best, which rates insurance companies, they are actually rated A, excellent. So your policies should be OK. But if you are really nervous, you certainly have the right to cancel your policy and get insurance elsewhere. I am not advising people necessarily to do that, but you can do it.

But it would create a lot of turmoil in the financial market, and a lot of the losses around Wall Street. That could hit all of us pretty hard. I mean, it could send the economy from a recession, who knows, way further. I don't want to use the D word, Depression, but it really, really could hit the economy hard.

On that issue of the economy, if I can, from this Federal Reserve statement that I have over here -- the Fed always puts out a statement when it makes an interest rate decision. This is one of the most worrisome statements I've ever seen from the Fed. They are saying that they are concerned about the financial market, unemployment, inflation, slow economic growth, credit conditions, on and on and on. What they are saying here is that the rate cuts that we have already made, they should be filtering into economy.

So pretty soon, they are saying, we should feel the impact. We have already cut the rates a lot. It's going to help out, they're saying. Hanging tough there.

SANCHEZ: That is pretty much all we can do right now. Americans for the most part are tough, and they are watching us right now and I can't help but think that a lot of them have their fingers crossed while they're looking astern. The news hit of the day right now is that the Fed has chosen not to lower interest rates. We were waiting along with everybody else to find out if, in fact, they were going to do so. Now, what is the action as a result of them making that decision? That is why we have people like Mort Zuckerman on the other side. He is going to be joining us now. He called it by the way, right here on CNN. He said not a good idea. Maybe later, but not yet. He seemed to be right. Going back to Mort Zuckerman when we come back.

Stay with us.

(COMMERCIAL BREAK)

SANCHEZ: We welcome you back to the World Headquarters of CNN.

In case you didn't hear it, the breaking news item that we're following right now has to do with the deterioration of the financial markets and the decision just moments ago by the Fed to not lower the interest rate. A decision that one of my two guests -- I have Bob Lenzner and Mort Zuckerman here with me. Mort actually called this when he thinks it would a little bit premature, eventually might be done. But that is a decision that the Fed has decided on.

Mort, let me bring you into this, since you seemed to make that call, do you think eventually they will have to do this? And if so when? What will make the determining factors that will make them eventually do it?

ZUCKERMAN: The real challenge for the Fed is to provide lubrication for the financial pipes of this economy, the transfer of savings to the people who want to invest it is the critical thing. And we have a credit crunch that is unprecedented since the last 70 years. So what the Fed is doing is they are providing credit to many more companies in the financial world for longer periods, not just overnight. They are doing it for 30 and 60 and 90 days, not just for securities in the sense of debt securities, but also equities, not just for banks, but for investment banks and hedge funds and stock companies, brokers.

In order to make sure that there is liquidity in the system, because as you said before, the Libor (ph) rate, which reflects the willingness of the banks to loan money to other banks, which used to be the lowest rate other than treasury bills, has now soared. It was as high as 600 basis points, or six percent above the Treasury rate, which is unprecedented, and means that banks don't trust other banks.

Nobody trusts anybody else. Credit comes from the Latin word crederi, which means basically trust or to believe. And nobody believes the financial conditions of other companies, in part because they don't know the financial condition of their own company. So what the Fed is trying to do is to make sure there is credit in the system at various levels, so that the economy can continue function and doesn't breakdown.

The reduction of interest rates, the Federal Reserve rate now, would not be significant in this major objective. In fact, people might interpret that as a loss of confidence in the economy. So this is why they made the right decision. What they have to work on is what they are working on. They are doing it in unprecedented ways of providing funding and liquidity to parts of the financial system that never before were helped by the Fed to maintain that liquidity.

SANCHEZ: Bob, let me bring you into this conversation. A lot of Americans are watching us right now. And I guarantee you that a lot of them are angry about what they are watching. And a lot of them are wondering whether it was greed or maybe even -- let me just cut to the chase here with you, incompetence. How can the people running these companies know how far down they were before they decided to pull the plug?

LENZNER: It was a combination of incompetence and hubris and greed. But the turmoil in the markets caused by letting Lehman Brothers go bankrupt has triggered today the fact that cost of insuring yourself against an event with Morgan Stanley and Goldman Sachs, the two remaining giant investment banks, sky rocketed today, showing just how scared people are about the solvency of the system.

That is what I am told. There are some people in Wall Street who think that Paulson made a mistake. I don't know what Mort would say about this -- not helping Lehman Brothers through, because today the cost of insuring yourself on Morgan Stanley is 800 basis points, and on Goldman Sachs it's 400 basis points. And that is saying that the market believes there could be a real problem with those two giant firms down the road.

SANCHEZ: But, you know, it is interesting, apparently the Koreans were interested in Lehman Brothers, and there wasn't a deal on the table? What happened to that?

LENZNER: This is hubris on the part of Fold (ph), who is responsible for 26,000 people. He wanted to bring Lehman Brothers through as an independent company. He didn't reduce his balance sheet when he had enormous leverage on it, even after Bear Stearns had to be taken over by JP Morgan. He should have reduced his balance sheet, moved immediately to join up with a stronger financial institution.

He didn't do it even as late as Sunday night. He was trying not to file bankruptcy.

SANCHEZ: Sounds like he made a stupid call. Take us out on this, Mort.

ZUCKERMAN: Well, listen, we are where are at this stage in the game. The consequences of the Lehman bankruptcy, the fall out is going to be felt. Whatever it is, the Fed has to make sure that this economy provides credit and the financial system provides credit. That is their number one thing. Whatever it takes, no ideological barriers, no practical barrier should stand in the way. That's what they really have to focus on.

They have to find a way to help the financial system provide money, because without out business will not grow, people will be able to invest and that will be a catastrophe. Then we will head into a much worse period. SANCHEZ: Yes, we will keep our fingers crossed and hope it doesn't happen.

Mort Zuckerman, you are a great guest. Thanks so much for being with us. I'll tell you, you made the call. We appreciate it.

Also, Bob Lenzner, excellent commentary and analysis.

There you have it, two experts on what the Fed has decided, which is not to decrease the interest rates at this point. We were on it.

By the way, the fundamentals of our economy are strong. Who said that? John McCain about two or three months ago and then he said it again yesterday as the stock market was tanking. It was likely the wrong time to say it, and at the wrong time. And as you might imagine, Barack Obama has jumped all over this statement.

(BEGIN VIDEO CLIP)

SEN. JOHN MCCAIN (R), PRESIDENTIAL CANDIDATE: Our economy, I think, still, the fundamentals of the economy are strong. But these are very, very difficult times.

(END VIDEO CLIP)

(BEGIN VIDEO CLIP)

SEN. BARACK OBAMA (D), PRESIDENTIAL CANDIDATE: Senator McCain, what economy are you talking about? What is more fundamental than the ability to find a job that pays the bills and that can raise a family? What is more fundamental than knowing that your life savings is secure and that you can retire with dignity? What is more fundamental than knowing that you will have a roof over your head at the end of the day? What is more fundamental than that?

(END VIDEO CLIP)

SANCHEZ: It's the politics of the finances. Today, McCain is doing some damage control. He has appeared on CNN's "AMERICAN MORNING," where he didn't exactly back down from his claim about the economy. But he did try to redefine it somewhat.

(BEGIN VIDEO CLIP)

MCCAIN: What I obviously was saying, and I believe, is the American workers, the most productive and most innovative, they are the fundamental of our economy and the strength of it and the reason why we will rebound. We will come back from the crisis.

(END VIDEO CLIP)

SANCHEZ: According to the CNN Opinion Research Corporation poll conducted earlier this month, 56 percent of the voters think that the economy is the most important issue.

Well, there is a heck of a lot of questions that are swirling around right now. The claims being made on the campaign trail. Today, we take you on a stump speech of Sarah Palin to separate truth from half truth from fiction.

And gas prices jumped overnight this past weekend. Is it fair or is it price gouging that is actually going on? We're going to talk to a gas station owner who says everyone should get off of his back because it is not his fault. Stay with us.

(COMMERCIAL BREAK)

SANCHEZ: Welcome back, I'm Rick Sanchez here in the World Headquarters of CNN. We do have some more breaking news now. This is on the Sarah Palin investigation in the state of Alaska, an investigation looking into whether or not Sarah Palin, as governor, fired the head of an agency for failing to fire her brother-in-law. Well, this is the information that we have been getting. The "Associated Press" has been reporting since last night now that Governor Palin will not, that Governor Palin will not, cooperate with the investigation.

And now, this press release released moments ago from the governor's office in Alaska. It says: "Alaska legislators" -- I'm reading to you -- "and citizens filed suit today to halt an investigation of Governor Sarah Palin and others because the investigators have lost the appearance of impartiality required under the Alaska constitution."

So once again, that is the take that the governor's office is putting on this, saying they're not going to cooperate because -- all right this is coming from lawmakers in Alaska. It says that Alaska legislators and citizens -- not quite sure which citizens that is, but obviously it's a story that we're going to be staying on top of.

The upshot of this is it appears that Governor Palin is not going to cooperating with that investigation. And we do have a lot more on this story from our own crews and we have also booked Michael Isikoff from "Newsweek" magazine as a guest. He's going to be coming up probably within in the next hour or so. He has been deeply investigating this since it first started. So there you go.

As we get more information, we will share it with you. Welcome your twitters, by the way, as well as Facebook and MySpace, here in the CNN NEWSROOM.

We hear the candidates for president and vice president giving speeches every day. But up until now, we hadn't heard anything quite like this one. This is Democrat Joe Biden and he is describing John McCain as a personal friend. This is an emotional speech that Biden gives in Michigan. Biden says he is personally disappointed -- his words -- with what McCain has been doing.

(BEGIN VIDEO CLIP)

SEN. JOE BIDEN (D), VICE PRESIDENTIAL CANDIDATE: When Senator McCain was subjected to scurrilous lies hurled at him by George Bush's campaign in South Carolina in 2000, I picked up the phone and called John McCain. I said, John, where do you want me? I am for Al Gore, but where do you want me? I will come and testify that they are lies.

Well, ladies and gentlemen, now some of the very same people who orchestrated those tactics and lies, the ones that John deplored, are now being employed by the McCain/Palin campaign. The same campaign that called for a town hall meeting once a week is now putting out and launching a low blow everyday.

Barack can take it. I can take it. That is not what bothers me. Folks, it is not only disappointing, it's only disappointing to me to think that John McCain is able to say, I approve this message.

(END VIDEO CLIP)

SANCHEZ: OK. We look into this and we asked, what is Joe Biden actually talking about? What is he complaining about?

Here is CNN's Randi Kaye now taking a look at that.

(BEGIN VIDEOTAPE)

RANDI KAYE, CNN CORRESPONDENT: Call it what you will, mistruths, half truths, stretching the truth, telling the truth. Whatever it is, it has Democrats and Republicans questioning what is going on inside of the McCain campaign. Their opponents have gone so far as to say that John McCain and Sarah Palin are lying their way into the White House, claims that the campaign brushes off.

TUCKER BOUNDS, MCCAIN CAMPAIGN: I think that those who say that John McCain and Governor Palin are lying about anything in this campaign need to pay closer attention to our advertisements and the record of the candidate that we are running against.

KAYE (on camera): Make no mistake, the Obama campaign has also been accused of mistruths along the way, like telling voters that McCain wanted to spend 100 years in Iraq. McCain actually said troops should stay in noncombat roles for as long as it takes, not that he wanted 100 years of war.

(voice-over): But today, Obama turned up the heat on McCain.

(BEGIN VIDEO CLIP, CAMPAIGN AD)

NARRATOR: He is running the sleaziest ads ever, truly vile, dishonest sneers...

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KAYE: McCain stands by his ads, he told the ladies from "The View."

JOY BEHAR, CO-HOST, "THE VIEW": We know that those two ads are untrue. They are lies. And yet you, at the end of it, say I approve these messages. Do you really approve them?

MCCAIN: Actually, they are not lies.

KAYE: Well, are they or aren't they? Keeping them honest --

(BEGIN VIDEO CLIP)

ANNOUNCER: Learning about sex before learning to read?

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KAYE: Did Obama want to teach sex education to kindergartners? Not really. The program in question was intended to teach kids how to avoid sexual predators, says the non-partisan group, factcheck.org.

VIVECA NOVAK, FACTCHECK.ORG: What he wanted to do was increase the range of some sex form of education, K-12. But the kind of thing he was interested in having kids at a young age learn about was inappropriate sexual advances that might be made against them.

KAYE: The campaign's response?

BOUNDS: Our ads are based on honesty and truth and a true reflection of Barack Obama's record.

KAYE: But what about Sarah Palin? On the campaign trail she keeps hammering home one point, I told Congress, thanks, but no thanks to that infamous Bridge to Nowhere. But that's not true. Congress had already killed the project.

NOVAL: She never said no thanks, Congress.

KAYE (on camera): Opposing the bridge plays into a bigger theme of the McCain campaign, that Sarah Palin is the perfect crusader to help McCain rid Washington of its addiction earmarks and wasteful pork barrel spending.

(voice-over): This is what McCain said on "The View."

MCCAIN: First of all, earmark spending, which she vetoed half a billion dollars worth in the state of Alaska.

BARBARA WALTERS, CO-HOST, "THE VIEW": She also took some earmarks (INAUDIBLE).

MCCAIN: No. Not as governor she didn't. She vetoed --

KAYE: The truth -- Governor Palin has cut Alaska's earmark requests in half. But this year alone, the state asked for $197 million.

NOVAK: She says that she vetoed a lot of legislation that would have called for earmarks. But that doesn't get rid of the fact that she actually did ask for earmarks for the state of Alaska.

KAYE: On energy policy, Palin said Alaska provides 20 percent of the energy produced in the U.S. Is that true? No. The U.S. Energy Information Administration says it's 3.35 percent.

NOVAK: It's a big deal because Sarah Palin and John McCain have been claiming that Palin is an expert on energy in the United States, because Alaska has a good bit of oil. But the figures she's citing are simply wrong.

KAYE: And what about Palin's international credentials? The extent of her travels abroad?

BOUNDS: The Alaska National Guard has confirmed, just like we had confirmed at the campaign, that she has traveled abroad. She went to Kuwait, she entered Iraq. She underwent and presided over a ceremony. So here we are trying to bat down something that was completely true, 100 percent accurate.

KAYE: Apparently not. We checked with the Army National Guard and they told us that they are 100 percent sure Palin never made it past the Iraq/Kuwait checkpoint, that she never entered Iraq. And her trip to Ireland, originally billed by the campaign as visit to a foreign country, campaign spokeswoman Maria Comella says, it was a refueling stop. Some Republicans are uneasy. Bush White House strategist Karl Rove on Fox News Sunday, criticized both the McCain and Obama campaigns.

KARL ROVE, FMR. BUSH STRATEGIST: McCain has gone in some of his ads, similarly gone one step too far and sort of attributing to Obama, things that are, you know, beyond the 100 percent truth test. Both campaigns ought to be careful about that.

KAYE: Still, political expert Larry Sabato, says mistruths can work well with the party base, which is conditioned to believe the campaign.

LARRY SABATO, UVA CENTER FOR POLITICS: A smear campaign can succeed. If it's completely outrageous and it's completely contrary to the facts, then probably the truth will catch up with it before the end of the campaign. But if the unfairnesses or the mischaracterizations are subtle enough, then the campaign will probably succeed.

KAYE: Randi Kaye, CNN, Anchorage, Alaska.

(END VIDEOTAPE)

SANCHEZ: And let's share with you one more time the breaking news that's coming to us now. First of all, you heard that the fed wasn't going to drop the interest rates. And now you're hearing as well that it appears Sarah Palin will not cooperate with an investigation into why she fired Alaska's public safety commissioner. And now we're also learning that there's a move to block the investigation entirely.

So, are Democrats out to get her is the question being posed, at least by some of the Republicans who back Sarah Palin. Or, is there something really to uncover?

"Newsweek"'s Michael Isikoff has been investigating the story. He knows as much as anyone about it. He is going to be our special guest coming up in the next hour. Also, let's go to the twitter board if we can, right now. You're going to see what people are saying. They have been -- in fact, reaction has -- a bevy of reaction has been coming into us. People seem to be very upset about Palin not cooperating and this seems to be the general thread of discussion. "Palin not cooperating? I thought she had stated repeatedly that she had nothing to hide. OK. So, let's cooperate."

We have many, many more that we're going to be going through during the commercials, so we can bring you up to date on what many people are saying about the story as it develops. As we can go to -- by the way go to twitter.com/ricksanchezCNN. We find it to be one of the most effective ways if you happen to have an internet close by. Just go to twitter.com/ricksanchezCNN. You and I can have a conversation while I am doing this news cast. It's different, it's interactive. Check out our political ticker for all of the latest campaign news, by the way. Just log on to cnnpolitics.com, your source for all things political.

The pictures from Texas have been astounding by the way. Hurricane Ike took a toll far beyond the Lone Star state. We're going to be breaking down some maps and showing you some areas that got hit severely. Also, the economy is the top story today. We're following how today's fed move is playing out in Wall Street. We'll keep going back, you keep staying with us.

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SANCHEZ: The fact that the Republicans are now not only cooperating with the Sarah Palin investigation in Alaska, but as we've told you in breaking news moments ago, actually will now be challenging it, is getting a lot of reaction from people who've been watching us here on CNN at 2:00 p.m.

Let's go to some of those twitter responses. This is twitter.com/ricksanchezCNN, if you want to join us. This is from W.Farr. He says, "The only thing 'partisan' about the Palin investigation is a Republican's attempts to hide facts from the voters before November." But sounddude has a completely different opinion. He says, "Look, as a moderate, the trooper story is a nonstory. How about Obama and his terrorist friend, or the hate church that he attended?"

So obviously, a lot of people are going to be weighing in on this thing. And when I say a lot of people, I'm talking about right now, some 14,800, it's almost 15,000 people who are twiting with us as we go.

All right. Remember when Hurricane Ike was coming and officials said that people in Texas faced certain death if they stayed behind? Some people thought that was an exaggeration. It wasn't. I want you to look at some pictures now. This is before the storm. This is the Bolivar Peninsula, it's near Galveston. Houses, yards, schools, families, right? Look at the blue house, the house with the blue roof with that little arrow on it. All right. Now, change the shot. Ready -- go. Look at that. Same place, after the storm. What do you see? Just about everything except for that part of the blue roof is wiped out. Absolute destruction along the coastline. Another shot, another neighborhood nearby. This is before Hurricane Ike. Keep your eye on that yellow arrow on the left there. You see it? All right. Now, go ahead, next picture after the storm. Look at this. When we say storm surge, that's what a storm surge can do. Knock out an entire community if it's right there next to the seaside or the water in this case, the Gulf of Mexico.

No doubt, Texas got the worst of Hurricane Ike. But look at what the storm did before it burned up north. Arkansas, Missouri, Indiana, this is Columbus, Ohio, you're looking at where about a million and a half homes are still without electricity. And probably will be for several days, we're told. In Ohio right now, grocery stores and hardware stores are doing all they can to keep up with demand for food, generators and batteries.

Gas shortage or gas gouging? Who's to blame when fuel prices shoot up in times of trouble? You know, you may be surprised about this one. I'm going to talk to a gas station owner in just a little bit. And you know, he's mad. He's mad, because everybody is blaming him, he says. He's going to tell you, this ain't my fault. We'll be right back.

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(BEGIN VIDEO CLIP)

LISA LING, CNN SPECIAL CORRESPONDENT: I'm Lisa Ling and we're here at Coco's Island, which is about 330 miles off the Pacific coast of Costa Rica. The only way to get here is by boat and it took about 30 hours. And despite the fact that I turned green and lost my lunch a couple of times, we made it here safely. But it was really surreal.

As soon as we arrived it was dark and we spotted some buoys out in the ocean and some of the guys from Wild Aid, which is the conservation group that's been helping us, started to pull in the fishing lines.

UNIDENTIFIED MALE: Watch out! We got a hook.

LING: On that line were nine sharks, four of which were still alive that they then released.

UNIDENTIFIED MALE: Save the shark.

UNIDENTIFIED MALE: I'm going to. I'm going to. Hand me cutters, please. There we go.

LING: The reason why we came here is because this area is totally under attack by fishermen who are looking for sharks. There's such a huge demand for sharks fin soup that it has been just really destroying the shark population here.

And often, they will saw off the fins and throw the bodies back into the ocean because they can't store to bodies on the boats. And it's been a very eye-opening experience for me, because sometimes these fishermen they throw in lines that go miles and miles long and you have hundreds of hooks. And imagine how many fish they're able to catch with those lines.

This is all going to be part of our Planet in Peril investigation that's going to be airing in December. So, check it out.

(END VIDEO CLIP)

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SANCHEZ: All right. Let's go to Sukh Bains. He's joining us now from Kentucky, where he owns a gas station. He's in Louisville.

I understand that people have been giving you a lot of grief?

SUKH BAINS, INDEPENDENT GAS STATION OWNER: Oh, yes. We're having to deal with a lot right now just with people thinking about the price gouging, and everything like that that's been, you know, really out there in the media right now.

SANCHEZ: And what do you tell them? Do you have anything to do with this? Are you gouging?

BAINS: Oh, no. I mean, we just are making our normal margins. Anywhere between a nickel to seven cents a gallon. And I think people are pretty understanding now. But every once in a while --

SANCHEZ: So, where's the price hike coming from then, if not from you?

BAINS: Oh, no. It's from big oil, definitely. With the refineries shut down in Texas, we've been really, there's been a price increase of almost 30 to 40 cents on the wholesale level in the last few days.

SANCHEZ: Well, Mr. Bains, we gave you an opportunity to clear the record. We appreciate your taking the time to talk us to do so.

BAINS: No, I appreciate you having me on. Thank you.

SANCHEZ: All right. There you go.

Investigators are looking into Sarah Palin's record as governor of Alaska. Well, there is news on this front, in case you haven't heard. Today the McCain campaign says that Palin will not cooperate with that investigation. We look into the accusations and the campaign's response thus far and even more news on this.

We're all over it and so are you. I'll share some of your comments. Stay with us.

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