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Cutting Malpractice Costs; California's Financial Mess; Heavenly Show of Solar Eclipse; Airman Loses Legs in Gall Bladder Surgery; Financing Health Care Reform

Aired July 21, 2009 - 14:03   ET

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

KYRA PHILLIPS, CNN ANCHOR: Well, a botched gallbladder operation ends up costing a young airman his legs. We're going to have his heart-wrenching story and show you what you need to know before your next surgery.

And this could have been the day that the Senate Judiciary Committee passed judgment on Sonia Sotomayor. Instead, as Senate rules allow, Republicans called for a one-week delay. With Democrats in the majority, nobody doubts the panel will recommend Sotomayor's confirmation to the Supreme Court of the United States and the full Senate will confirm her.

Time's up. The Obama administration has missed its own deadline for detailing its new anti-terrorism policies. The deadline was today.

The report is a key part of President Obama's plan to close the military prison at Guantanamo Bay, Cuba, by January of next year. New target date, six months before we learn how long terror suspects should be held in custody, and two more months before the report on interrogation and transfer of detainees to other countries.

And moments ago, President Obama won a key battle for the F-22 fighter jet. The Senate voted to cut nearly $2 billion for seven additional 522s from the 2010 budget. Both President Obama and Defense Secretary Robert Gates argued that more planes were not needed or wanted. Supporters countered that the issue was about saving jobs in states where the F-22 is built.

Defense Secretary Gates vows to do everything possible to find an American soldier captured by the Taliban in Afghanistan. Pfc. Bowe Bergdahl, as you can see here on this Taliban video, was released Sunday. He was captured June 30th.

The Taliban threatened to kill him if coalition troops continued to target civilians. Allied military officials deny that allegation. U.S. officials with access to the latest info tell CNN that they believe Bergdahl is still in Afghanistan.

Striking the Taliban where it hurts. Their gold mine of poppy seeds used to make opium and heroin, those deadly drugs smuggled out of the country fetching millions of dollars, if not billions on U.S. streets and around the world. A U.S. air strike blew up tons of the seeds today. The U.N.'s Office of Drugs and Crime says since 9/11, Afghans have been responsible for more than 90 percent of the heroin sold worldwide. The DEA is getting involved in the mission to cut off the Taliban's drug trade.

Last hour, I spoke with the DEA's assistant administrator and chief of operations.

(BEGIN VIDEO CLIP)

THOMAS HARRIGAN, DEA CHIEF OF OPERATIONS: We are sending our agents out to work in close coordination with the U.S. military and our NATO counterparts. But also, more importantly, with the counter- narcotics police of Afghanistan. We've worked with them over the last several years.

Again, DEA was in Afghanistan back in the '70s. We were there in the late '70s during the Russian invasion. We reopened our office in 2003, obviously because of the potential movement of opium and heroin through Afghanistan into eastern and western Europe, and eventually into the United States.

(END VIDEO CLIP)

PHILLIPS: The end is near, says Fed chief Ben Bernanke. The end of the recession, that is. But don't expect a booming recovery. Bernanke warned Congress today, and I quote, "Unemployment will stay high for quite some time." He still doesn't expect the economy to turn in positive numbers for the second half of this year.

And the guy in charge of following all those TARP dollars is on Capitol Hill today. He isn't happy, either. More on that in the breakdown later this hour.

He says he was busted because he's black. A Harvard professor's arrest sparks controversy in Cambridge, and today the D.A. weighs in.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

PROF. CHARLES OGLETREE, GATES' ATTORNEY: He was very frustrated, there's no question about that. But belligerent is not the case. Never touched the officer, never pointed at the officer. And in fact, he was trying to stay in his house, having produced identification -- what more do I need to do? This is my house.

(CROSSTALK)

JOHN ROBERTS, CNN ANCHOR: So will you pursue any -- Mr. Ogletree, will you pursue any case of wrongful arrest here?

OGLETREE: Right now we're talking with the Cambridge Police, the district attorney's office, and the city of Cambridge to try to resolve this as soon as possible. And we hope that what will happen is that cooler heads will prevail in looking at this case and realize that there is no statute in Massachusetts that Mr. Gates violated and that the charges will be dropped.

(END VIDEO CLIP)

PHILLIPS: And it was. Word coming down just a few hours after the interview the disorderly conduct charge against Harvard Professor Henry Louis Gates dropped. After the noted black scholar was arrested last week, he accused Cambridge cops of racial bias.

The whole mess sparked by a 911 call by someone who thought the professor was a burglar. It turned out he was just trying to get into his own home. The cops came, words were exchanged, and Professor Gates was led away in cuffs.

Well, today comes a joint press release: "The city of Cambridge, the Cambridge Police Department and Professor Gates acknowledged that the incident of July 16, 2009 was regrettable and unfortunate. This incident should not be viewed as one that demeans the character and reputation of Professor Gates or the character of the Cambridge Police Department."

Professor Gates will join us live tomorrow night as CNN continues its investigation of the most challenging issues facing African- Americans. What are the solutions? Well, Wednesday night at 7:00, the countdown to an all new "Black in America 2," live from Times Square. Then at 8:00, President Obama's news conference, followed by the first night of CNN's two-night event, "Black in America 2."

(COMMERCIAL BREAK)

PHILLIPS: California may be closer to getting its financial house in order. Legislative leaders are now trying to sell a compromise plan to close the state's $26 billion budget shortfall.

CNN's Dan Simon joins us now from San Francisco -- Dan.

DAN SIMON, CNN CORRESPONDENT: Hi, Kyra.

Well, this is described as a significant retooling of state government. You have this huge deficit. At the end of the day, we're looking at $15 billion in cuts. It's sort of hard to wrap your number around that. I've been on the phone for the last hour or so talking to state officials to get some perspective in terms of what that means.

What we know at the end of the day, that there's going to be about $9 billion in cuts just to education alone. So, you're talking about a third of the cuts to education.

We're also seeing a significant cut to California's Medicaid program, a $1.3 billion cut to Medi-Cal, they call it here. That services about six million families and low-income people throughout the state.

Of course, Governor Schwarzenegger, you would expect him to do this, to put his best face on what we're seeing.

Take a look.

(BEGIN VIDEO CLIP)

GOV. ARNOLD SCHWARZENEGGER (R), CALIFORNIA: This is a budget that will have no tax increases, a budget that is cutting spending. We have made it -- we deal with the entire $26 billion deficit, around $15 billion in cuts that we're making.

Very happy about that. We are protecting education, education will be fully refunded. We also are very happy that in this budget we made government more efficient. And also, we're cutting the waste, fraud and abuse in some of the programs.

And so, all around, I think this is a really great, great accomplishment.

(END VIDEO CLIP)

SIMON: Well, when Governor Schwarzenegger is saying that he is protecting education, what he means is that they have built in this budget that, as soon as the economy rebounds, that all that money, $9 billion, will be paid back to education, be paid back to the public school systems and the universities in California.

Now, there is some good news here, if you can call it that. Schwarzenegger had proposed totally eliminating the state's welfare program. That will stay largely in tact. And a lot of citizens were worried about the public parks, that parks could be closed throughout the state of California. Most of those will remain open -- Kyra.

PHILLIPS: All right. Dan Simon, we'll follow it, of course. Appreciate it.

Oakland, California, once used marijuana to help the city solve its cash crunch. A marijuana tax, to be exact. Voters today are being asked to approve a measure that would raise taxes at Oakland's medical marijuana shops, and the shop owners are actually in favor of it. They say helping Oakland with its financial problems would help them be seen in a more acceptable light.

What's that new scar on Jupiter? Well, that's what a lot of experts are trying to figure out after the biggest, badest planet in the solar system got smacked in the face.

(COMMERCIAL BREAK)

PHILLIPS: So what the heck happened to Jupiter? That's what space buffs are trying to figure out after something smashed into the king of the solar system. Experts say it could have been a comet, a meteor, maybe even a big chunk of ice. But right now nobody is quite sure. An amateur astronomer in Australia was the first to see Jupiter's new beauty mark, and he tipped off NASA.

And here on planet Earth, a heavenly show. Just hours from now, the daytime sky will turn dark across much of Asia. A solar eclipse like this one we see here from last year, well, it's going to be visible in China, India and other parts of the continent. The total eclipse will last almost four minutes. The longest solar eclipse so far this century.

I was hearing the solar eclipse song in my head. Sorry. All of a sudden I was like, OK, queue the really cheesy video back from the '80s.

CHAD MYERS, CNN METEOROLOGIST: There you go. There you go.

PHILLIPS: Is this what you're checking out?

MYERS: This is the solar eclipse, actually. In fact, its' going to run across Shanghai. That was going to be a great place for people to go. The only problem is, a cold front also came to Shanghai.

PHILLIPS: Oops.

MYERS: And so all these people that spent thousands of dollars to go see this thing in Shanghai are scrambling to go north or south to get out of the way of that cold front.

PHILLIPS: So people headed there actually to see it?

MYERS: Absolutely.

PHILLIPS: Oh, wow. OK.

MYERS: Like, a $1,500 plane ticket to go see this eclipse, and all of a sudden, you have parked yourself under the biggest cold front in Asia.

PHILLIPS: You can never count on weather, but we can count on you to tell us all about it.

MYERS: You can't count on anything, Kyra.

Won't be able to see it really across much of Australia, or even for Hawaii. It will slide down across.

I don't know if you can even see what this graphic is, but here's Asia, here's Australia. And there, right there, there goes one, two, three -- basically it's high sun, because that's when the sun is going to be the highest. And the moon is going to get in the way. And there it goes, just north of New Zealand, and so on and so forth.

There is the front. There is the rain right across Shanghai. No good news there for people that tried to go there.

(WEATHER REPORT)

PHILLIPS: Barofsky's his name and saving (ph) TARP is his gain. And hundreds of billions of his dollars are his number one priority.

(COMMERCIAL BREAK) PHILLIPS: Well, it's a story that we covered that provoked a lot of outrage, kids from a mostly minority daycare kicked out of a swimming pool in suburban Philadelphia. The reason? The club says it was for safety concerns. Others say it was racism.

The experience had 12-year-old Marcus Allen in tears.

(BEGIN VIDEO CLIP)

SUSAN CANDIOTTI, CNN NATIONAL CORRESPONDENT: Marcus, I see tears coming down your face. Why does this make you cry?

MARCUS ALLEN, KICKED OUT OF SWIM CLUB: Because it's kind of, like, sad that, like, people are still thinking, like, like this, when I felt like these days were over.

(END VIDEO CLIP)

PHILLIPS: Well, Marcus is smiling now because there is a happy ending. Actor, writer and producer Tyler Perry actually saw Marcus on CNN, and he was so touched that he is sending Marcus and 64 other kids from the daycare to Disney World.

Marcus joins me live from Philadelphia, along with Alethea Wright, the director of the Creative Steps Daycare Center.

You're smiling big now, Marcus. So, when you found out what Tyler Perry was going to do, how did you react?

ALLEN: I was, like, really -- I was really excited that he was going to do it. And, like, I was, like, all happy and excited to go to Disney World.

PHILLIPS: Well, I'm curious -- I know this is pretty exciting, you know, to now go to Disney World, and it really does kind of change the face of this whole situation. But at the same time, Marcus, what did you learn from this experience about race relations and, you know, the importance of integration? And you even mentioned there when Susan Candiotti was interviewing you that you thought attitudes like that were far gone.

What did you learn from this?

ALLEN: I learned that some people are still thinking the way that people thought a long time ago. But everybody isn't the same, even though a couple of people are still thinking that way. And I shouldn't stereotype a certain group of people just because of some people from their group did something wrong.

PHILLIPS: Amen, Marcus.

And Alethea, I bet, you know, this is not just about the swim team and winning meets and having a good time in the pool. But my guess is this situation allowed you to use a hands-on experience, a real-life experience, to teach these kids another important lesson.

ALETHEA WRIGHT, CREATIVE STEPS DAYCARE: Absolutely. Absolutely.

I really think that by Tyler Perry reaching out to the children, it showed them that people of color can be successful and to be proud of the skin that they're in, in spite of what happened at the Valley Swim Club. And one of the things that sticks out in my mind is, how can we have a president, an African-American president in Air Force One, but his children, Sasha and Malia, can't go to the Valley Swim Club?

PHILLIPS: Wow.

So Alethea not only has -- well, let me ask you this -- how has this impacted the swim team? Has it changed morale? Has it brought the kids closer together? Has it brought parents and kids closer together?

What's been the overall positive effect of something that was pretty disappointing?

WRIGHT: It hasn't been disappointing as far as the unity that has taken place, even throughout the world. People have been reaching out and supporting. And it's really helping us to understand as the world that this bigotry still exists. And the children have really been emotionally scarred from this because they're baffled.

Some of these children have never experienced racism before. They're inner city children.

PHILLIPS: So Tyler -- Tyler -- Marcus, what is your message to Tyler Perry? We actually tried to get him on the phone, and he's shooting a movie in the Bahamas. And who knows? He might be able to see this, or he might hear about this.

What's your message to him?

ALLEN: I would say thank you for being so kind and so generous for sending us all to Disney World. And I hope you have a nice day, and have fun shooting your movie.

PHILLIPS: All right.

Oh, Alethea, I'll tell you what, we should all be so lucky to have someone like Marcus not only on the swim team, but as our son.

Marcus, you are amazing.

Well, give us a report after Disney World, will you, Marcus?

ALLEN: What did you say?

PHILLIPS: I want to hear all about Disney World when you get back, OK?

ALLEN: OK.

PHILLIPS: OK, good. Alethea, thank you so much.

WRIGHT: Thank you. We appreciate it.

ALLEN: Thank you.

PHILLIPS: We appreciate you guys a whole bunch.

And Tyler Perry will be featured in CNN's "Black in America 2," by the way. The two-night event begins tomorrow night at 9:00 p.m.

(COMMERCIAL BREAK)

(1430 BELOW)

(COMMERCIAL BREAK)

PHILLIPS: Well, when 20-year-old Airman First Class Colton Reed was heading to the hospital for his gall bladder surgery, he told his mom, this is routine, it's no big deal. So he thought.

Colton Read still has his gall bladder, but he no longer has his legs. What happened at the David Grant Medical Center at Travis Air Force Base in California not only outraged us, but got us all asking the question, how does a mistake like this happen? John Lobertini with CNN affiliate KTXL has the heartwrenching story.

(BEGIN VIDEOTAPE)

JOHN LOBERTINI, KTXL-TV CORRESPONDENT (voice-over): Airman Colton James Read entered the hospital on July 9 for what was supposed to be a routine gall bladder surgery.

JESSICA READ, AIRMAN'S WIFE: There are still some things we didn't know until we met with some of them yesterday.

LOBERTINI: The Air Force tells Read's wife, Jessica, a resident, a doctor in training, was performing the procedure when the surgery went horribly wrong.

READ: I wasn't aware -- I don't know if Colton was aware -- that a resident was going to be doing part of his surgery.

LOBERTINI: Surgeons at David Grant Medical Center on Travis Air Force base tried to repair the severed aortic valve, but Read's family is most angry about this.

READ: Why was his life or his quality of life not more valuable than that? LOBERTINI: We're told it took Travis 8 1/2 hours to transport the 20-year-old airman to the UC Davis Medical Center in Sacramento, a top flight hospital just 40 minutes away.

SHELLY READ-MILLER, COLTON READ'S MOTHER: We were told that had it been within a six-hour period, the limbs could have been saved. He might have had muscle damage or damage, but nothing, nothing to this degree.

READ: Why did it say so long to get my husband help? Why did they wait so long?

LOBERTINI: A spokeswoman from Travis Air Force Base refused to talk about the specifics of the medical procedure. But Lieutenant Holly Hess did say this: "A serious medical condition did occur. We are conducting an exhaustive review with experts outside the David Grant Medical Center, as well as an internal investigation."

READ: It wasn't what we wanted to hear by any means. And from some of the decision makers over at Travis, I felt like we were almost on the defense.

LOBERTINI: Colton Read remains in critical condition, but he is improving. Read's wife is trying to remain positive. His mother, however, is heartbroken.

READ-MILLER: I want someone to know that my son's first question was Air Force question mark, question mark. I mean, we have it in writing that my son's very first question was, is he going to continue with his career?

(END VIDEOTAPE)

PHILLIPS: Now, if Read's story doesn't outrage you enough, listen to this. A 1950 Supreme Court ruling banning malpractice lawsuits by active-duty military members means that Read can't even sue. Legislation to change that law is making its way through Congress right now.

Now, in all fairness to the legal process, we wanted to know if Colton Read understood that a resident would be doing his procedure. So, we called Travis Air Force base, asked the chief spokeswoman directly, did Colton Read sign a release that he knew a resident would be doing his surgery? Lieutenant Holly Hess said that because of the investigation to the incident and patient privacy laws, she could not answer that question.

So, that got us thinking, do patients always know who will be involved in their surgery, or do you have to watch for the fine print every time you go into the hospital room? Senior medical correspondent Elizabeth Cohen has the information that you need to know to become an empowered patient. She's going to talk about when you go into any kind of surgery, are you asked in particular to sign something prior to a surgery?

ELIZABETH COHEN, CNN SENIOR MEDICAL CORRESPONDENT: All right, what happens when you go in for a surgery at a teaching hospital, which is where there are residents, and those are -- you can -- those are doctors who are in training to be sort of full-fledged doctors. You could look at it that way.

It is customary for those patients to be asked to sign a form that says, in addition to the surgeon who would be operating on you, that residents and other house staff may or will be involved. That's sort of the customary way to do it is that the release form says, yes, you're going to be with your surgeon, but there may also be sort of people in training who will be involved.

In this case, with this airman, it's unclear who was doing the surgery. Was the resident doing the surgery or was the surgeon doing the surgery? Were they doing it together? Was he assisting or was he really doing the surgery? It's not clear. But, yes, you are asked to sign something that says that your surgeon's doing it, but other people might be involved, as well.

PHILLIPS: So, we're still -- we're not exactly sure who made the mistake.

COHEN: Right. I think -- I mean, I think it's not clear until this is all sort of investigated and laid out.

PHILLIPS: All right, so if you refuse to sign that, and you don't want the residents doing it, can you still get the surgery?

COHEN: OK, this is the issue. And I want to be clear here. I'm talking about civilians. I think military medicine is a whole different deal, so I'm going to be clear here, we're talking about civilians.

If you are at a teaching hospital, meaning that there are surgical residents who are there, and you do not want the resident involved, you don't want the resident touching you in the operating room, you should make that clear well before the day of the surgery. So, if you're having an elective surgery, like a gall bladder surgery, you should say to your surgeon, look, I want you to do this. I do not want residents involved in my care.

Or you might say, you know, if residents want to watch, that's fine, but I don't want them to touch me. You should make that clear. Now, the surgeon might say all right, well, sorry, you're going to have to go elsewhere because surgeons -- I use residents, and sort of tough luck, you're going to have to go someplace else. But at least you've had that conversation, and you can make an informed choice.

PHILLIPS: All right, this young man, only 20 years old, went in for gall bladder surgery. How -- is that a complicated surgery? Because apparently this was the slip of a needle. The next thing you knew, a leg was paralyzed, it just turned into a complete nightmare, and they to amputate his legs.

COHEN: Right. This is not a particularly complicated surgery. I mean, that's the thing is that what happens here, really, it's just so tragic that it happened because this really should have been very routine. But accidents happen in the operating room. Residents make mistakes, full-fledged surgeons who have been doing that surgery for decades sometimes make mistakes. Bad things happen. And that's why the segment you did early about saying "I'm sorry"...

PHILLIPS: Right.

COHEN: ... it's an important part of all of this.

PHILLIPS: It sure is. All right, thank you so much, Elizabeth.

COHEN: Thanks.

PHILLIPS: Well, pushing forward on health care, Republicans are still pushing back, warning Democrats to slow down, spend less and change course when it comes to President Obama's push for health care reform. Last hour, Elizabeth and I had a chance to interview RNC Chairman Michael Steele after the president's speech.

(BEGIN VIDEO CLIP)

COHEN: What I thought was interesting at your National Press Club speech, and I've been reading it here, and it was a really interesting speech, you didn't say what you would do to solve the problem. You bashed Obama and Pelosi and those folks, but I didn't hear what you would do to solve the problem.

MICHAEL STEELE, CHAIRMAN, REPUBLICAN NATIONAL COMMITTEE: I beg to differ. I beg to differ. I had two and a half pages of recommendations on what we could do to begin to address the cost issue. Which I laid out as the central reason for this crisis right now is cost driven. It's not access. It's not quality. It's cost.

(END VIDEO CLIP)

PHILLIPS: Republicans point to a Congressional Budget Office report that Democratic reform plans would add to the nation's debt and still not cover everybody. Supporters of those plans say the CBO didn't take account of potential savings.

So, you know what to ask before you have surgery, but how deep are you willing to dig in your pocket to pay for it? Some federal health care reforms have the rich picking up the tab, but how do you define rich? Our Carol Costello breaks it down.

(BEGIN VIDEOTAPE)

CAROL COSTELLO, CNN CORRESPONDENT (voice-over): On the subject of health care reform, President Obama is fighting back.

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: One Republican senator said, and I'm quoting him now, "If we're able to stop Obama on this, it will be his Waterloo. It will break him."

COSTELLO: But Mr. Obama and the Democratic National Committee are not about to be broken, not even by their own party. The DNC launched this ad aimed not at Napoleonic Republicans but at conservative Democrats.

UNIDENTIFIED MALE: It's time.

UNIDENTIFIED FEMALE: It's time for health care reform.

COSTELLO: It turns out some Democratic small business owners who make over $280,000 a year don't want to pay a surcharge on their income to pay for the president's trillion-dollar health care program. So, Democratic House Speaker Nancy Pelosi has come up with an alternative plan. Instead of raising taxes on those who make more than $280,000 a year, she wants a proposed surcharge to apply to individuals making over 500k a year and couples making more than $1 million.

Pelosi figures you hear $500,000 a year, you think, my God, that's not me. But "me" does apply to around 1 percent of taxpayers and some of them aren't happy either. According to the nonpartisan Tax Foundation, a self-employed couple making $1.5 million in Montgomery County, Maryland, now pays $583,863 in total taxes. After 2010, when the Bush tax cuts expire, their taxes will go up more than $62,000.

Throw in a 5.4 percent surtax for health care reform, that's $9,000 more. Total estimated taxes on the year, $655,126. And while that may sound like a fine way to raise revenue, economist Peter Morici says even that won't begin to pay for the kind of health care reform the president wants.

PETER MORICI, UNIVERSITY OF MARYLAND: He's going to need that surcharge on the wealthy, and it's going to be bigger than anticipated, or he's going to have to tax everybody.

COSTELLO (on camera): The Congressional Budget Office is weighing in, too. It says the House bill as it is now would increase the nation's deficit by $240 billion by 2019. And that's something the president doesn't want to see happen. He wants to combine cost savings with extra taxes on the rich. That way the deficit will not grow.

Carol Costello, CNN, Washington.

(END VIDEOTAPE)

PHILLIPS: Call it love, Facebook style. They share more than a social network. These love birds share first and last names. Meet the future Mr. and Mrs. Kelly Hildebrand.

(COMMERCIAL BREAK)

PHILLIPS: Top cop tracking the $700 billion bailout program is on the Capitol Hill today. He says federal officials need to keep better tabs on how banks spend your tax dollars.

Alison Kosik has our breakdown from New York. Hey, Allison.

ALISON KOSIK, CNN BUSINESS CORRESPONDENT: Hey, Kyra. Let me ask you this. Wouldn't you just love to know where all that bailout money has gone?

PHILLIPS: I think it is probably impossible to track every single penny, but yes, that would be nice.

KOSIK: It would be. Neil Barofsky, the special inspector general overseeing the troubled asset relief program known as TARP. And he says we should have those answers. He told the House Oversight Committee that banks should be required to explain how the money is spent.

Right now, the Treasury Department doesn't collect that information. It argues monitoring TARP funds is like pouring water into the ocean. It diffuses so quickly that it can't be tracked. Barofsky isn't buying that, and neither are several Senate Democrats. They're now calling on the Treasury Department to accept his recommendations for greater transparency and accountability -- Kyra?

PHILLIPS: Barofsky is also warning that taxpayers could be on the hook for a lot more than 700 billion bucks.

PHILLIPS: Exactly. He also is saying that when you add up all 50 government rescue programs, not just TARP, total taxpayer exposure could hit $23.7 trillion. That's $80,000 for every American. But the Treasury Department is calling that number inflated, and Barofsky acknowledged that number includes some programs that the government is no longer on the hook for. It also ignores fees and interest that regulators have collected. But Barofsky is hitting back.

(BEGIN VIDEO CLIP)

NEIL BAROFSKY, SPECIAL INSPECTOR GENERAL, TARP: If you look at the report, and in context, it is very clear where these numbers came from. They came from the government itself. These are all open source, public source information. This is from the Web sites of the Treasury and the Federal Reserve, submissions to Congress. If the numbers are inflated, then it was the government itself that inflated them, not us.

(END VIDEO CLIP)

KOSIK: So, what exactly do we know about how the banks are spending TARP money at this point? Barofsky says all you have to do is ask. He surveyed 360 banks and look what he came up with. Eighty- three percent said they used it to make loans, and that's the original purpose of TARP.

But banks also used TARP money to add to their own capital cushion, to make investments, to pay back debt, and even to buy other banks. Barofsky isn't saying whether that is good or bad. He's just pointing out that banks can account for this money.

Kyra, the question is whether the Treasury Department will start asking for more accountability. That is the question, Kyra.

PHILLIPS: Thanks, Alison.

KOSIK: Sure.

PHILLIPS: The budget is issue number one in California. For good reason. The state is dealing with a $26 billion deficit. But after months of haggling, Governor Arnold Schwarzenegger has reached a tentative deal with lawmakers to close the hole.

Susan Lisovicz at the New York Stock Exchange with the details.

This budget includes a lot of cuts. Let's lay out where they're all coming from.

SUSAN LISOVICZ, CNN CORRESPONDENT: Fifteen billion dollars in cuts, Kyra. As Dan was talking to you earlier in the program, nearly two-thirds of it is going to come from education. Coming in at a terrible time because so many of us going back to school to get additional degrees, to learn a vocation, something to ride out this recession.

So, $9 billion cut from public schools, colleges, universities. And you see that play out with more crowded classrooms, some programs that may be cut altogether.

Another big chunk is coming from local governments. Just under $4.5 billion. So, the state trying to get its budget in order, and you will be able to feel it across the state with all these local governments, which are going to have problems, undoubtedly, because of the cuts they're going to see.

Additional cuts will come, state workers are going to continue to feel it. They're already taking three days every month without pay. That would be extended through next June, Kyra.

PHILLIPS: Well, as you know, California has been paying a lot of the creditors with these IOUs. When does the state make good on those?

LISOVICZ: Very good question, Kyra. We don't have an answer for you. We don't know if in fact they're even going to continue putting out more IOUs. We know the state comptroller is evaluating this proposed budget. We do know that there's been floated an early October redemption date.

What I can tell you definitively is there is a brisk secondary market for these IOUs. Stay with me, Kyra. If you go on Craigslist and go to California, you'll see all these offers to buy these IOUs at less than face value. Why is that? They'll make money because they're paying less than face value. Ultimately, they'll be redeemed.

But also because there is an interest rate that comes with them, a 3.75 percent interest rate. So, one of them that I was looking at says "Don't wait until October to get your money. I have approximately $90,000 available to invest in these warrants right now on a first-come basis."

PHILLIPS: All right, Susan Lisovicz.

LISOVICZ: Seller beware.

PHILLIPS: There you go. Thank you.

An SUV flips on its side and engulfed in flames, a mom and her two small children trapped inside. Time for quick thinking and fast reaction. This had a much better outcome than what you think.

(COMMERCIAL BREAK)

PHILLIPS: House full of kids, jail full of suspects, two dead parents, and loose ends and leads. And questions for police in the Florida panhandle. Wait until you hear the latest.

(COMMERCIAL BREAK)

PHILLIPS: Two small children and their mom trapped in a burning SUV, no time to waste, no room for error on the part of rescuers. We want to warn you, it's pretty tough watch this and to listen to it.

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UNIDENTIFIED MALE: Move back! There's a baby in there!

UNIDENTIFIED MALE: Come on!

UNIDENTIFIED MALE: Save the baby. Save the baby!

UNIDENTIFIED MALE: Get away from the car.

PHILLIPS: Two brothers who are Milwaukee firefighters were actually off duty when they arrived at the scene here. They and others pulled the mom and her two year-old daughter out first. Her four year-old son was trapped by a seat belt. The brothers first attempt to get him out failed and as others used fire extinguishers to hold the flames back, well, one of the brothers grabbed a knife, cut the boy free. He actually suffered burns over 20 percent of his body. Today he's in serious but stable condition. His mom and sister were treated for burns to their hands and arms.

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Well, if you've the cash, you can own a big piece of American history. The Watergate Hotel in Washington, is on the auction block. The hotel made famous by the scandal that brought down President Richard Nixon. Well, the Watergate's owner defaulted on its loan and a foreclosure notice was expired on Thursday. The Watergate became famous in 1972, after burglars broke into the Democratic Party's headquarters. Nixon resigned, as you may remember, after his involvement in that break-in and the cover-up. It all was revealed.

PHILLIPS: Tough times call for creative thinking. And in the recession, a lot of state and local governments are turning to auctions to raise some much need cash.

Here is CNN's Alina Cho.

ALINA CHO, CNN CORRESPONDENT (voice-over): Looking for a deal on a car? Would you buy a used one from this man?

GOV. JOB CORZINE (D), NEW JERSEY: The average price is about $1,200.

CHO: The governor of New Jersey.

CORZINE: $1,500, $2,000. A lot of these cars are really more valuable than that. So people are taking that opportunity to save money in a tough environment.

CHO: New Jersey is just one of many states holding government garage sales to make money at a time when they desperately need it. Federal and local governments are in on the game, too. And almost everything is on the block.

(on camera): You can buy a salt spreader truck, who would want that?

(voice-over): You would be surprised. Watches, (INAUDIBLE), some of it seized, some surplus, all for sale.

IAN ARONOVICH, PRES & CEO, GOVERNMENTAUCTIONS.ORG: You can buy literally anything. You will buy a container of soccer balls. You will buy a disassembled Meg (ph) jet. You will buy a boat. You will buy a car.

CHO: Government auctions aren't new, but in a recession, they are more popular.

UNIDENTIFIED MALE: Well, we got to go to cars here. They are dirty. They just need to be cleaned.

UNIDENTIFIED MALE: The body is good, the paint is not chipped. The transmission and oil looks good.

CHO: One drawback, you buy as is. No test drives.

Tanisha and Diamond Ruffin (ph) are shopping for his first car.

UNIDENTIFIED MALE: There's one in the back. It's a dodge, I believe. I like the color.

UNIDENTIFIED FEMALE: Are you kidding me? For a first-time car owner, he'll take anything on the lot.

CHO: If you can get it. Bidding...

UNIDENTIFIED MALE: $1500 bid...

CHO: ...can be fierce.

JACOB OLEARCHIK, STORE KEEPER, NJ DISTRIBUTION LOT: Like there's been a couple incidents where there was an actual fistfight, where two customers were arguing over a car. I personally had to break that up.

CHO: This New Jersey car auction raked in more than $163,000, bringing the state so far this year more than $2 million in auction sales.

Sometimes...

UNIDENTIFIED MALE: I had bought a car that had stuff in the trunk. I had to buy the car with bullets insides, with a fax machine inside.

CHO: You get a little more than you bargained for.

(on camera): If you are interested in buying something from a government auction, a couple of things you should know. First, do your research. Comparison shop with a car. For example, you can get a blue book. Also, in your mind, set a maximum bid and stick to it.

There is something called auction fever. And it is real.

Alina Cho, CNN, New York.

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PHILLIPS: Well, there are 10 Kelly Hildebrandts in the United States and two of them are getting married -- to each other. It's a pretty wild love story brought to you by Facebook. Check out how Kelly Katrina met Kelly Carl.

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KELLY HILDEBRANDT, BRIDE-TO-BE: I was curious one night and I just typed in my own name, just wondering if there was any other Kelly Hildebrandts and he was the only one that popped up.

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PHILLIPS: Well, guy Kelly immediately thought girl Kelly was a babe. They started exchanging messages and then moved to phone calls and well, the rest of the story is history. The happy Kellys wedding set for October. And, no, there won't be a baby Kelly, they promise.

PHILLIPS: This next (INAUDIBLE) basically takes no scripts, takes no explanation. It is a picture worth a thousand words and, folks, we just ain't got the time.

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PHILLIPS: Slow drip of details trickling out every day in the Florida murder case. Now we've learned the suspects had a kind of dress rehearsal about a month before the attack on Byrd and Melanie Billings' home. And the alleged mastermind says the Billings gave them financial support for his martial arts studio. And listen to this bizarre twist, state documents show Byrd Billings once tried to copyright the kids' names. He'd send Florida a huge bill their names appeared on a state letterhead.

His stepdaughter was asked about that.

(BEGIN VIDEO CLIP) ASHLEY MARKHAM, MELANIE BILLINGS' DAUGHTER: I don't know a lot about that. I've heard the reports. I know that the copyright, what I believe he was he was doing to protect the rights of the children. They're a large family and they even local media coverage, they were -- as far as I know it was to protect the rights of the children.

(END VIDEO CLIP)

PHILLIPS: Seven people are in custody for those killings. Robbery was said to be the main motive, although others could crop up.

That does it for us. I'll see you back here tomorrow.

Rick Sanchez picks it up from here.