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Lou Dobbs Tonight

America's Credit Crunch Intensifies; China and Russia Hold War Games

Aired August 17, 2007 - 18:00   ET


KITTY PILGRIM, CNN ANCHOR: Tonight, amnesty supporters step up their demands for an end to raids on illegal aliens. We will have a special report on that.
The war on the middle class escalates. Even Americans with good credit are facing difficulties securing loans.

And Russia and China hold major war games and they strengthen their anti-American alliance.

Three of the nation's best political analysts and strategists will also be here to discuss the week's political news -- all that, much more, straight ahead.

ANNOUNCER: This is LOU DOBBS TONIGHT: news, debate, and opinion for Friday, August 17.

Live from New York, sitting in for Lou Dobbs, Kitty Pilgrim.

PILGRIM: Good evening, everybody.

A major setback today in the search for six trapped miners in Utah. Officials indefinitely suspended the underground rescue operation after three rescuers were killed. Six others were injured. Governor Jon Huntsman of Utah said the disaster has gone from a tragedy to a catastrophe. There's still no word tonight on the fate of the six trapped miners.

Brian Todd reports from Huntington, Utah -- Brian.

BRIAN TODD, CNN CORRESPONDENT: Kitty, we are getting some very graphic new detail on just how sudden and devastating this collapse was. It comes from the head of the Mine Safety and Health Administration, Richard Stickler. He talked to us a short time ago and talked about where they were at the point in this mine when the collapse occurred.

Rescue workers were working at the deepest part of the mine in the main tunnel, when he said -- this was about 2,000 feet below the surface of the earth -- when he said the sheer weight of the mountain at that point with the drilling and everything else going on, it just became too much for that tunnel and its support system to bear.

It created a certain type of energy against the supports. And here's what he said happened next.


RICHARD STICKLER, ASSISTANT SECRETARY OF LABOR, MINE SAFETY AND HEALTH ADMINISTRATION: Last night the right rib exploded off of the coal pillar with tremendous force, removed -- it knocked out all the ground support we had in place, the water jacks that you have seen the pictures there, the chain-link fence, the wire ropes, completely propelled all that ground support over to the opposite rib. And, unfortunately, we had nine miners right in that area.


TODD: And while the digging in that tunnel has been suspended indefinitely, there's one facet of this operation that does continue. It's the drilling from the top of the mountain. A fourth bore hole we are now told is about 800 feet below the surface. It has to go about 1,500 feet down to get to a chamber where they believe the six missing miners might have gone for air if they survived the initial collapse. But right now, Kitty, that drilling is the only part of this operation that is continuing.

Thanks very much, Brian Todd.

Well, later in the broadcast, we will have the very latest on the condition of the miners who were injured in that rescue operation.

For now, though, turning to the war in Iraq, insurgents killed two more of our troops in the Baghdad area. A third soldier died in a non-combat incident; 47 of our troops have been killed so far this month, 3,705 of our troops killed since the war began, 27,409 troops wounded, 12,297 seriously.

The number-two U.S. commander in Iraq, Lieutenant General Ray Odierno, today said U.S. troop levels in Iraq are likely to go down next spring. But General Odierno said the reductions would only reduce the number of troops to pre-surge levels.

Meanwhile the military is stepping up its efforts to defeat the insurgency in Iraq.

Barbara Starr reports from the Pentagon.


BARBARA STARR, CNN PENTAGON CORRESPONDENT (voice-over): In Charleston, South Carolina, new bomb resistant armored vehicles were loaded onto transport aircraft, bound for Iraq, trying to help protect U.S. troops against IED attacks.

Meanwhile in northwestern Iraq, wounded villagers are still recovering from this week's massacre that left hundreds dead. But these disturbing pictures aside, and the number two commander in Iraq reports some optimistic statistics. Total attacks are at the lowest level in a year. Attacks against civilians are at a six-month low. IED attacks are down. In fact, Lieutenant General Raymond Odierno went so far as to say what his boss, General Petraeus, is most likely to recommend in September. MAJ. GENERAL RAYMOND ODIERNO, COMMANDER, MULTI-NATIONAL CORPS - IRAQ: The surge we know as it is today goes through April of '08. We believe that some time around that time we will begin to reduce our forces down to pre-surge levels.

STARR: Odierno said the surge level of 160,000 could be back down to around 130,000 troops a year from now. But if Petraeus offers that plan when he briefs Congress next month, Democrats are likely to object, wanting a quicker drawdown.

Analysts predict a September face-off.

COL. DOUG MACGREGOR (RET.), U.S. ARMY: Well, the argument that the generals will make or are trying to make by creating the illusion of success on the ground for the surge is that Congress is deserting them, that Congress has pulled the rug out from under them and ultimately stabbed them in the back.


STARR: Kitty, for all of this optimism, General Odierno was also very clear. If the Iraqi government does not made more political progress, especially in reaching out to disaffected Sunnis, all of the security success could evaporate at some point -- Kitty.

PILGRIM: Well, that makes perfect sense.

Barbara, though, and this fall, we will be at record high of troops, correct?

STARR: There will be a sudden spike in the fall. Everybody should note that that is coming. That is also due to this troop rotation, units moving in, units moving out. But make no mistake, Kitty. Combat operations remain at a very high pace against al Qaeda and against Sunni insurgents.

General Odierno also said the U.S. military will begin a round of quick lightning strikes against insurgent cells when and where they find them.

PILGRIM: Thanks very much, Barbara Starr.

Well, the U.S. military tonight faces a new threat from Russia. Russia President Vladimir Putin says he's resuming long-range patrols by Russian bombers. Now, Putin's comments came as he deepened his anti-American alliance with communist China. It's an alliance the United States is watching with increasing concern.


PILGRIM (voice-over): President Bush and Russian President Putin were all smiles in Maine last month. Weeks later, the Russian president took part in a summit of a different nature with a decidedly different tone, one that may seem to put him at odds with the West.

As helicopters fire rockets and aircraft scream overhead, an alliance grows stronger between the leaders of Russia, China and a handful of former Soviet states. Collectively known as the Shanghai Cooperation Organization, the group says its goal is stability in oil and mineral-rich central Asia.

Western analysts, though, say the real motive is to put on a show of force against Western influence in the region.

GORDON CHANG, AUTHOR, "COMING COLLAPSE OF CHINA": China and Russia have always tried to intimidate the United States. And in the past they really had not had the tools to do so. But through the Shanghai Cooperation Organization, they have founded an organization that is now known as the anti-NATO. And clearly they want to use this to establish a sphere of influence in Central Asia and to remove the presence of the United States.

PILGRIM: Putin wants to establish a more powerful Russian military and cooperating with China is part of that strategy, offering a market worth billions for Russian hardware. Yet while Russia cozies up to China, Putin also faces a possible future competitor.

RICHARD FISHER, INTERNATIONAL ASSESSMENT AND STRATEGY CENTER: We should also understand that Russia is in competition with China to a great degree. China also wants to exert its leadership over the same grouping of countries that comprise the Shanghai Cooperation Organization. So, this should be very interesting to watch.

PILGRIM: Another example of Russia's new assertiveness, a resumption of long-range flights by its bomber aircraft. Putin said 14 took off from Russian airfields Friday.


PILGRIM: Now, Russia, meanwhile is a major weapons supplier to communist China. Beijing has spent billions of dollars buying advanced Russian aircraft, warships, and submarines.

Well, communist China is also an increasing threat to American consumers. There's an outrage at Beijing's failure to stop Chinese companies from exporting dangerous products and food to this country. Now, critics say our government is also to blame for allowing those dangerous imports into the United States. Federal officials today promised to step up their efforts to protect Americans.

Jeanne Meserve has our report -- Jeanne.

JEANNE MESERVE, CNN HOMELAND SECURITY CORRESPONDENT: Kitty, there was another recall this week of Chinese-made toys, but the administration is still studying what to do about tainted imports. Health and Human Services Secretary Michael Leavitt is heading up an interagency group scheduled to make recommendations in November. His interim assessment, the huge volume of goods flowing into this country makes inspection of every shipment impossible.

But critics say the country has a fraction of the inspectors it needs, and Leavitt didn't shut the door on adding more.


MICHAEL LEAVITT, SECRETARY OF HEALTH AND HUMAN SERVICES: Do we need to have more? We will have recommendations to the president about that. But I do want to emphasize that while we need to have adequate inspectors and we need to have a process that highlights those that are potentially dangerous, we have to build quality into the product so that we know every step along the way that quality in fact is being built and used.


MESERVE: An alphabet soup of government agencies inspect goods coming into the country. Leavitt characterized their collaboration in the field as working remarkably well, but said their systems don't always connect the way they should.

He stressed that whatever changes are made to ensure the safety of foreign goods, it's important to think ahead. He cited estimates that by 2015 the amount of imports coming into the U.S. will triple -- Kitty.

PILGRIM: Jeanne, working remarkably well? Today, Toys 'R' Us is taking vinyl bibs off the shelves after some of the bibs made in China tested positive for lead. We have had recall after recall week after week for a month, and the report is due out on November 30? Doesn't it seem that time is fairly short and the government is in denial about the problem?

MESERVE: Well, that's the timeline that the president set for this interagency working group. They say they will come up with their recommendations and come up with some specifics even after that.

Leavitt says he's been out in the field going to different sorts of facilities, looking at what's taking place around the country. That's where they are. You may wish them to be further, but that's where they are right now.


PILGRIM: I think every parent in the country does with the number of recalls that are happening these days with toys.

Thanks very much, Jeanne Meserve.

Coming up, more evidence of the huge impact on middle-class Americans of this week's turmoil in the markets.

Christine Romans has the story -- Christine.

CHRISTINE ROMANS, CNN CORRESPONDENT: Kitty, another chaotic day on Wall Street, and it all stems from the housing crisis. And for many U.S. middle-class homeowners, it might be just beginning; 1.4 million Americans will see their mortgage payments more than double over the next five years. We will have that story right after the break.

PILGRIM: Thanks very much, Christine.

And also ahead, a pro-illegal-alien lobby opens up a new front in its battle against our immigration laws. We will have a special report.

Also, undeclared GOP presidential candidate Fred Thompson talks to CNN about his political ambitions.

And new details on Hurricane Dean, whether it's an imminent threat to this country. We will bring you the latest on that.


PILGRIM: The pro-illegal-alien lobby is pushing for immigration agents to suspend enforcement rates during the 2010 census. Now, they say the rates make it unlikely that illegal aliens will cooperate with the census.

But, as Lisa Sylvester reports, many lawmakers are questioning whether illegals should even be counted.


LISA SYLVESTER, CNN CORRESPONDENT (voice-over): Census workers went door to door in 2000 trying to count every person in the United States, including illegal aliens. To achieve that goal, the Census Bureau convinced immigration officials to suspend enforcement raids. Now with the 2010 census on the horizon, some groups are asking for a similar enforcement freeze.

WILLIAM RAMOS, NATIONAL ASSOCIATION OF LATINO OFFICIALS: It's important that the immigration services of the United States stop the raids so that it allows folks who are scared to come forward. The raids are having a chilling effect across the country.

SYLVESTER: The Census Bureau's deputy director, Preston Jay Waite, echoed that concern to the Associated Press, saying the raids make it less likely for illegal aliens to cooperate.

But the thought of not upholding the law to appease illegal aliens is ridiculous, says Congresswoman Candice Miller.

REP. CANDICE MILLER (R), MICHIGAN: It's absolutely nuts. It's outrageous. The enforcement in Customs and Enforcement Bureau works for American taxpayers who pay their wages. And the American taxpayers expect all federal agencies to enforce the laws.

SYLVESTER: The issue is particularly sensitive, because census figures are used to determining congressional seats in the House of Representatives, raising the question, should illegal aliens be counted at all?

DR. STEVEN CAMAROTA, CENTER FOR IMMIGRATION STUDIES: So California, for example, in 2000 got three extra congressional seats because of illegal aliens who filled out census forms and they got taken away from states like Pennsylvania, where most of the voters are U.S. citizens. Is that fair?

SYLVESTER: The Census Bureau declined an on-camera interview, but insists no formal request to scale back enforcement has been made, adding, "It's premature to say how Census will handle this issue in 2010."

Immigration and Customs Enforcement said the political landscape changed since the 2000 census and says it has no intention of slowing down enforcement efforts.


SYLVESTER: Right now, the Constitution retires the Census Bureau to count all persons living in the country. Congresswoman Candice Miller has offered a constitutional amendment so only U.S. citizens will be counted to determine how congressional seats are apportioned -- Kitty.

PILGRIM: This is very complicated stuff. Thanks very much, Lisa Sylvester.

Time now for some of your thoughts.

Hiram in Georgia: "Please keep on talking about the need for the government to place the interests of the U.S. citizens first. That can be done in part by securing our borders and stopping the outsourcing of jobs. It has been very disheartening to see this administration place the interests of other countries ahead of the interests of U.S. citizens."

Glenn in North Carolina: "My thoughts on illegal immigration are that the employer is as guilty as the immigrant. I think serious jail time for people caught hiring illegal immigrants would solve the immigration problem overnight."

And Baron in Arizona: "Lou, keep up the great work. I have had enough of our politicians and government. They failed us citizens on the illegal immigration laws and now this trade problem with China. Apparently, they only care about lobbyists and not the American people who put them in office."

We will have more of your e-mails later in the broadcast.

This week's wild market swings unnerved even some of the most seasoned investors. As for middle-class Americans, many of them are now frantically trying to figure out how to cover their next mortgage payments, especially with those subprime loans.

Christine Romans has our report.


ROMANS (voice-over): Home prices down, mortgage payments rising, foreclosures skyrocketing, and a credit crunch spreads to the stock market. Stock prices are all over the place, the situation so chaotic, the Federal Reserve cut a key interest rate, a rare move, the Fed's language typically dry, but also grim: "Financial market conditions have deteriorated. Tighter credit conditions and increased uncertainty have the potential to restrain economic growth."

What started as a problem with subprime loans is getting very serious.

GREG VALLIERE, STANFORD WASHINGTON RESEARCH: It took the Fed two weeks to realize how serious this is. Treasury Secretary Paulson just a week ago was saying, no, there's no problem. Everything's fine. You have to wonder about who is in charge in Washington if it takes them this long to realize how serious things are.

ROMANS: Serious for homeowners. Foreclosures are up 55 percent this year, and for the middle class, there is no room for error.

C.D. DAVIES, CEO, LENDING TREE: If you miss that payment, your credit scores will go down, which will cause your rates to go up. And in this environment, it may mean that you don't get financing.

ROMANS: We know there are millions of American workers in this category. A survey this spring by found 41 percent of the work force lives paycheck to paycheck.

JAMES AWAD, W.P. STEWART ASSET MANAGEMENT: Unfortunately, the people who Are going to get hurt the worst are the people who can afford it the least, the very low end of the middle class and I guess lower class, you would say, who are going to get the double whammy of higher mortgage costs.

ROMANS: Mortgage payments will rise for more than a million homeowners, who adjustable-rate mortgages will reset over the next 18 months.


ROMANS: That housing mania that put so many people into homes with minimal down payments and those (r)MD-BO¯teaser interest rates it's now coming back to haunt everyone. Even those with good credit are going to have more trouble getting a loan.

And the worry about what tighter credit conditions mean for a nation addicted to credit has the stock market rattled too -- Kitty.

PILGRIM: Many people are worried about the mortgage payments rising. What is the situation with that?

ROMANS: We know that 1.4 million homeowners are going to see their mortgage payments more than double over the next five years. In an environment where housing prices are coming down and so many people are already living paycheck to paycheck, that is probably going to have some sort of affect on the overall economy. People are going to have to either get out of those homes or find a way to pay for those higher mortgage rates -- mortgage payments, rather.



Thanks very much, Christine Romans.

Well, that brings us to tonight's poll: Do you agree with the treasury secretary that the U.S. economy is fine, yes or no? Cast your vote at And we will bring you the results a little bit later in the broadcast.

Coming up: An undeclared GOP candidate makes waves in Iowa. We will have a report on Fred Thompson's Iowa debut.

And from tragedy to catastrophe. Three rescuers lost their lives trying to reach six trapped miners. We will have the very latest when we return on that story.


PILGRIM: Another top White House official is resigning. Now, CNN has learned that Tony Snow, the White House press secretary, will leave his post as early as September.

Snow's been having chemotherapy for a recurrence of cancer and he's reported to be leaving the White House because of financial pressures. Earlier this week, President Bush's political adviser, Karl Rove, announced that he will step down at the end of the month.

And another top congressional Republican is retiring. Former House Speaker Dennis Hastert confirms he will not run for reelection next year. He made the announcement in his northern Illinois district earlier today.

Washington has been rife with speculation he might retire. Now, Hastert lost his powerful speaker's post to a Democrat in last year's elections. Hastert has served 20 years in Congress, eight of those as House speaker, and that is the longest by any Republican.

Fred Thompson is still the unofficial Republican presidential candidate. He made his debut in Iowa today, strolling around the Iowa State Fair. Thompson campaigned with his family and worked the crowd.

Our chief national correspondent, John King, caught up with him and has this report.


JOHN KING, CNN CHIEF NATIONAL CORRESPONDENT (voice-over): In Hollywood-speak, this is Fred Thompson's Iowa premiere, not yet an official candidate, but this a critical signal.

FRED THOMPSON, FORMER U.S. SENATOR: Hey, good to see you. Thank you.

KING (voice over): The actor and former Tennessee senator still chooses his words carefully.

(on camera): Do you think that you can still get in this race a couple weeks from now as planned and do what it takes to win the Iowa caucuses?

THOMPSON: Yes, I do. I really do.

We're going to be getting in, if we get in. And, of course, we're -- testing-the-waters phase, the legality. We are going to make a statement shortly that will cure all of that.

KING (voice over): But the timing of what you might call a wait- for-me visit was no accident. Rudy Giuliani still leads national polls of the Republican race. The former Massachusetts governor, Mitt Romney, is, at least at the moment, more and more the candidate to keep an eye on.

WHIT AYRES, REPUBLICAN POLLSTER: Mitt Romney is now first in Iowa, first in New Hampshire, with the most money in the bank, and a lot more money where that came from. That's a pretty good impersonation of a front-runner.

KING: This public stroll at the Iowa State Fair came after private meetings with Iowa GOP activists and elected officials, including Christian conservatives who traditionally have huge influence in the state's kickoff presidential caucuses.

AYRES: The real question now is, what happens with Fred Thompson? Does he come in and consolidate the conservative wing of the party? Or does the conservative wing get disillusioned with Fred Thompson as they have with many other candidates?

KING: Steve Scheffler is a veteran activist who runs the Iowa Christian Alliance and was among those invited to a private meeting with Thompson.

STEVE SCHEFFLER, IOWA CHRISTIAN ALLIANCE: I think by and large people felt comfortable with what he had to say but, again, I think, you know, the first time meeting with these people is not going to be where people are going to say a light went off in my head and that's who I'm going to support.

KING (on camera): Many social conservatives complain of what they call lip service from the candidates for president. But Senator Thompson tells CNN that over time he is sure he will convince them that a President Thompson would not only push for a constitutional amendment banning gay marriage, but also push aggressively to overturn the Supreme Court's landmark Roe vs. Wade abortion-rights decision.

John King, CNN, Des Moines, Iowa.


PILGRIM: Coming up, Hillary Clinton vs. Karl Rove. Three leading political analysts will be here to assess the latest developments in the presidential election campaign.

Also, Hurricane Dean roars across the Caribbean. Will it hit the United States? Well, we will have a live report.

And we will also have the very latest on the mine disaster in Utah, after the death of three rescuers.

Stay with us.


PILGRIM: The underground search for six trapped miners in Utah has been suspended indefinitely. Now, the announcement came after three rescue workers were killed, six were injured, one critically.

Dan Lothian is outside the hospital in Price, Utah, where those injured rescue workers were taken -- Dan.

DAN LOTHIAN, CNN BOSTON BUREAU CHIEF: And that's right, such a troubling atmosphere here.

Just a few days ago, what we were focusing on was the rescue of the six miners who are trapped underground. And then you have last night's accident, as you mentioned. Six people were hospitalized. Three people were killed. One person remains hospitalized here at Castleview Hospital. We are told that he's in stable condition, but will be in the intensive care unit for the next two to three days or so.

Another victim was taken from this hospital to another hospital in Provo, Utah. I talked with a spokesperson there a short time ago, and she told me that he's in surgery for facial injuries he sustained, heavy head injuries and leg injuries. So, he currently, last check, is in surgery.

And then one other person in a hospital in Salt Lake City, we are told that he is in fair condition with non-life-threatening injuries.

Now, the governor of the State of Utah called these rescue workers heroes, but he said that he was disturbed by what turned into a deadly rescue operation.


GOV. JON HUNTSMAN (R), UTAH: We have questions, too, and we want answers to those questions. And we want to make sure that the lives that were lost last night were not in vain, that as a result of what we learned from this week-and-a-half of pain, that we've become better and smarter and safer.


LOTHIAN: And, again, this has been so difficult for the relatives, the family members of those miners who have been trapped underground, those six miners. They had been hoping that they could be reached by now and would be found alive. They continue to hope for that. But now, after last night's accident, you have additional family members who have traumas -- back to you.

PILGRIM: Dan, do you have anything for us on the progress of the drilling at the fourth hole? LOTHIAN: Continued drilling in that fourth hole down about 800 feet at last check. And, of course, what they're trying to do is find out if they can get into an area where they believe the miners may have gone for safety after that collapse. If they do find those six miners down there, then what they can do is they can send down food, they can send down water, whatever else is needed to keep them alive. And then they would have to bore a larger hole, which would take a long time, but then they'd send down a capsule and remove them that way.

So that operation continues. But for now, the operation of going through to try to get in on the ground after them, that has been called off for now.

PILGRIM: Thanks very much, Dan Lothian.

Well, a dangerous heat wave today continued across much of the South. At least 41 deaths are being blamed on the oppressive heat wave, which has delivered 100 degree plus temperatures all week. Power demands hit record levels in some cities. Memphis, Tennessee today saw 100 degree temperatures. The mercury also hit 100 in Montgomery, Alabama; in Atlanta, Georgia and in a small town called Evening Shade, Arkansas. Temperatures are expected to drop slightly, however, this weekend.

But as the South continues to swelter, residents in many parts of the Caribbean are taking cover from Hurricane Dean. It's now a category three storm. The hurricane is expected to intensify when it enters the Gulf of Mexico early next week.

Now, Governor Rick Perry of Texas today declared Dean an imminent threat to his state.

CNN meteorologist Chad Myers is in the CNN Weather Center with the very latest on that -- Chad.

CHAD MYERS, CNN METEOROLOGIST: Kitty, the storm moves through Martinique and St. Lucia in the overnight hours, until about 7:00 a.m. Eastern time. About 100 mile per hour wind gusts was the highest that we could find. But here are some pictures from Martinique that we're getting in. And the winds are gusting there. For a while, you could even begin to see some of the trees that don't have their palm fronds on them. And this is literally just from St. -- Martinique and St. Lucia today.

And now it's in the middle of the Caribbean, not hitting anything, really. There are still some gusts in Puerto Rico to around 20 to 30; also up to the Virgin Islands, to 20 or 30. But St. Kitts & Nevis, all the way down to the Woodward Islands, you are now kind of out of this storm.

This storm is all by itself in a perfect location to strengthen again. Everybody was OK there in those islands. That's good news. They knew it was coming. They had plenty of time to prepare.

But now the storm is in this -- a very warm water period of air, also nothing to get in the way -- no land mass to get in the way.

So what are we expecting?

We're expecting a very large eye to shrink down and become a small eye, and then an eye replacement cycle, which means that that small eye will break up and then it would reform again. So we're going to have these fluctuations from category three to category four and five and back and forth.

Here's San Juan. There is the eye. Actually, from the San Juan radar we can now find the eye of this storm -- 125 miles per hour. That is the wind. That is the solid wind.

But there are gusts to 155. And then it becomes a category four storm by tomorrow afternoon, still really in the middle of nowhere. But you're going to get arms into the D.R. also into Haiti. And the winds here are going to be at least 80 miles per hour, with an awful lot of rain. If it rains in the Dominican Republic and it rains a lot in Haiti, you get significant mudslides and loss of life. So be very careful if you're headed there or if you are there or if you live there.

And then, a category four storm at 150 miles per hour right over Jamaica. Now, it could be south of Jamaica or north of Jamaica. And that really doesn't matter. It is going to get pounded. That island will get pounded. And I've been to Jamaica many times. Very few buildings can withstand 150 miles per hour. You get back into the Cayman Brac. You get into the Grand Cayman and then eventually even toward Cancun.

And like you mentioned earlier, getting into, possibly, the Gulf of Mexico. And once it gets there, Kitty, there's nothing -- there's -- you can't get out of the Gulf of Mexico without hitting something. It's going to be Mexico, Texas, Louisiana, maybe even Florida. The only way it could miss is if it makes a right turn and goes off the Florida Straits. But, you know, that's only this big compared to a mass that's this big -- Kitty.

PILGRIM: Thanks very much.

I know you will keep your eye on it, Chad Myers.

MYERS: Absolutely.

PILGRIM: Well, in Peru, absolute devastation after Wednesday's massive earthquake. Rescue workers today desperately searched through the rubble for possible survivors. The death toll, meanwhile, continues to rise.

Harris Whitbeck is in one of the hardest areas, Pisco. It's about 125 miles southeast of the capital of Lima -- Harris?

HARRIS WHITBECK, CNN CORRESPONDENT: Kitty, the death toll is well over 500. It's about 510, and it is expected to rise.

Behind me, a small hotel. It used to be five stories high. Now it's only three stories. The owner of the hotel says he has 35 registered guests who are still in there. The guests, he says, are citizens of Peru, Colombia and Brazil. He says that a relative of one of his guests, who would be under the rubble, received a text message from his brother just hours ago today. And because of that, rescuers had renewed their efforts to see if there are still any possibility that people might be alive under the tons and tons of debris of that hotel.

The work there is frantic. Rescuers, firefighters have been working for hours trying to seek -- trying to find ways of digging through the rubble to, in fact, see if people are still alive.

Scenes like this one have been repeated on and on throughout the day and throughout many portions of Pisco, where 85 percent of the town itself collapsed and where other towns in the whole Ica region have also faced similar circumstances.

At least 17,000 homes were destroyed in Pisco alone. Those people are literally living on the streets. They're living on the streets because they fear more aftershocks and because they no longer have a place to go.

The Peruvian government says that help is on its way. It's been airlifting supplies to a military base here in Pisco. But survivors say that they have not gotten much help and that there's a bottleneck of supplies at the military base. We spoke to people who had been in lines for three and four hours hoping to get some food and all they got was a bottle of purified water -- Kitty.

PILGRIM: The scene of great devastation.

Thanks very much. Harris Whitbeck.

Well, Communist China has come up with a plan to ease its pollution and congestion problems ahead of the 2008 Olympic Games. The Chinese government banned hundreds of thousands of private cars on Friday from city streets.

Now, pollution is a huge problem in Beijing and the International Olympic Committee has warned that smog could threaten some Olympic competitions if it's not addressed.

Well, it is unclear how successful the four day trial will be.

Coming up, we'll tell you how the Pentagon was cheated out of millions of dollars.

And is presidential candidate Senator Hillary Clinton an easy target for presidential adviser Karl Rove?

Three of the country's best political analysts will join me for more on that and all the week's top stories.

Stay with us.

(COMMERCIAL BREAK) PILGRIM: A disturbing story of fraud against the federal government. Defense contractor C & D Distributors pleaded guilty to bilking the Pentagon out of $20 million over nearly 10 years. Now, the Defense Department blamed a flawed system designed to rush supplies to troops to Iraq. And that system allowed the smart part supplier to charge millions in shipping costs. And they were paid.

In one case, the supplier chart 38 cents for two washers and then it charged and collected almost $1 million to ship those two 38 cent washers.

Well, the political showdown over the conduct of the war in Iraq continued this week.

Joining me are three of the best political analysts in the country. Ed Rollins, Republican strategist, former White House political director under president Reagan.

We also have Michael Goodwin of the "New York Daily News".

And Democratic strategist Robert Zimmerman joins us from Long Island. And Robert Zimmerman is also a Democratic National Committeeman.

And thank you all for being here.

Let's start with one of the sort of skirmishes in Washington -- Karl Rove picking on Hillary Clinton, a parting shot after he says he's resigning, saying that she's fatally flawed and lacks vision.

Now, it just -- this -- it seems like...

MICHAEL GOODWIN, "NEW YORK DAILY NEWS": Well, he hopes she's fatally flawed because she's almost certainly going to be the Democratic nominee.

Look, I think that there are two things happens when he says that. A, it's designed to rev up the Republican base, the hate Hillary base and just those who don't want her to be president. You don't have to hate her to not want her to be president.

But I think it has the perhaps unintended consequence of strengthening her among Democrats. And I think it weakness the challengers against her.

PILGRIM: Yes, that the attack actually works for her.


PILGRIM: Robert, what do you think?

ROBERT ZIMMERMAN, DEMOCRATIC STRATEGIST: Well, forgive me if I sound a bit cynical about Karl Rove, but the fact of the matter is he wouldn't be attacking Hillary Clinton if she wasn't the strongest Democratic candidate in the field. And with a CBS News poll showing that over 60 percent believe she is the most electable with the best experience, and the Quinnipiac poll showing her beating Giuliani and Fred Thompson, she clearly is establishing herself as a leading candidate. And this is what explains not just Karl Rove's false attack, but also his lack of political acumen.

PILGRIM: It wasn't just a personal attack. He called her on her record on health care, called it spotty and poor. And he said she was less than supportive of American troops. So it was based on some real issues for him.

What do you think, Ed?

ED ROLLINS, REPUBLICAN STRATEGIST: Well, first of all, for once I agree with my friend, who's out there in the Hamptons with all the rich kids...


ROLLINS: Mr. Zimmerman.


PILGRIM: I know.

ROLLINS: Rich Democrats, rich Republicans, as a matter of fact...


ROLLINS: you know, I mean Karl -- this is Karl's exit strategy. And he may very well become sort of a James Carville of our party, in which he's out there being the attack dog, which he has not done as much of as the White House political adviser.

But, you know, the bottom line is he's gone. He's not relevant long-term. He's got another three or four weeks in which he can advise the president.

Being on the outside, having been on the inside, once you're on the outside, you're a voice, but not a very powerful voice.

PILGRIM: You know...


PILGRIM: ...let's go into the whole thing about Hillary, though. That there's a poll out, her likeability, which seems fairly subjective, and perhaps people are making fairly subjective decisions now that the platforms aren't really clear. We have Clinton at 31 percent, Obama at 34 percent and Edwards at 19 percent. And that's on likeability.

ROLLINS: But this is the most absurd part of polling. There's a 3 percent difference.


ROLLINS: That's the margin -- that's the margin of error. And it's just -- you say Obama's popular, she's not popular on the basic -- every poll is a plus or minus 3 percent or 4 percent.

This is absurd.

PILGRIM: Well, now that (INAUDIBLE)...

ROLLINS: She's a viable candidate. She's who we have to beat and it's not going to be on likeability or what have you. It's going to be on her substantive policy issues.

PILGRIM: Some voters...


PILGRIM: ...likeability is an issue.

Go ahead, Robert.

ZIMMERMAN: Well, I was going to say, I think Ed's point is absolutely on target. In fact, it's also worth noting that at this stage in 1991, she's standing in much better shape than Bill Clinton was. Bill Clinton didn't have as strong of favorability and strong approval ratings as she does at this time.

So I think those kinds of polls really are really not relevant to evaluating the race. I think you've got to keep a very close eye on those early contests in Iowa, Nevada, New Hampshire and South Carolina.

GOODWIN: Right. And I think that's the key, is there's still time for Obama -- and I don't think John -- I think John Edwards is a non- factor at this point, except to split the empty Hillary vote. But I think there's still time for Obama in those early states.

But the time is running out. And I think we're starting to see the strains in his campaign and she's pulling away. She's got a lead in all the early states. So, he's quickly running out of time.

And Robert is right, it's the early states that's now a make or break for Obama.

PILGRIM: While we were talking polls, let's look at two more. The Bush presidency so far has been a success or a failure?

Fifty-seven percent say a failure, but not -- but much better for the Democratic Congress, success or failure, I think it says 55 percent say it's been a failure.

So the team in place is not doing very well with the American public either.


GOODWIN: It's a tie. No, we don't like either one of them and I think that's the mood of the country right now. We don't like a lot of things that are going on in the country; in Iraq, of course; gasoline prices. The economy is, you know, teetering this week, with Wall Street in the dumper.

So I think there are lots of issues for both parties and nobody is really happy right now.

PILGRIM: It also puts pressure on the candidates to come up with solutions to fairly difficult problems to solve.

Robert, any thoughts how this might form the positions?

ZIMMERMAN: Well, I think your point about the Congress is a very significant one because the real question is going to be who the electorate holds accountable for the Congress not getting its job done -- the Republican leadership, which has embraced the Bush policies on so many critical issues such as the war in Iraq? Or the Democratic leadership, that has put forward programs for change and alternatives.

And that's going to be the challenge in the '08 election on the Congressional level.

And let me just point out to you, Ed, the Hamptons can be a -- the Hamptons might be able to foretell the future, because here we have a Republican region that elects Democrats (INAUDIBLE) to Congress.


ROLLINS: He took the bait. He took the bait. He went right for it.


ROLLINS: Thank you, Robert.

ZIMMERMAN: I took it.


ROLLINS: Here's the drill. This is a very unpopular president and a very unpopular war. Voters voted in 2006 for change -- for very significant change. The lack of leadership on the part of the Democrats, whether it's just Mrs. Pelosi or Harry Reid or what have you, the country now basically thinks they're as bad as the Republicans after 12 years and after this presidency. And to a certain extent, no one feels like there's any solutions being offered.

So it's a far more greater indictment to be ranked lower after a very short period of time than basically at the end of an -- of an administration on which people clearly made -- made the judgments.

PILGRIM: You know what we're talking about...

ZIMMERMAN: I just feel that I've got to...

PILGRIM: All right, Robert.

We'll let you ZIMMERMAN: We're hearing from...


We're hearing from the Hamptons again.

ZIMMERMAN: I think -- I want to make a response. Because I do think it's important to note the Democratic Congress has put through dramatic changes, whether it's raising the minimum wage, implementing the 9/11 security reforms, offering an alternative to Iraq.

The issue is will the Republican Congressional leadership get with the program, advocate change or be road blocks?

That's what we're facing.

ROLLINS: Don't forget your big ethic bill where you banned ex- members from working out in the gym. I mean that's -- that's important.


PILGRIM: All right.

Let's move on to a fairly serious issue. And we have this report by Ambassador Crocker and General Petraeus coming up in September on Iraq, a sort of assessment of where we stand, how the surge is working.

And this is a fairly disturbing report.

Do Americans trust the top U.S. commander in Iraq to report what's really going on?

We have 53 percent of Americans saying no.

This is the man whose boots are on the ground, who's in charge of this, ostensibly, with Ambassador Crocker.


PILGRIM: is it not disturbing that Americans feel they're not going to get a straight tell on this?

GOODWIN: Well, let's -- look. I mean let's face it, I mean the military speaks in such ways that -- I mean it does report to the Pentagon. There are reports this week at the Bush White House would actually be preparing the report and, in effect, filtering it.

I think what's really going to matter most is when Petraeus comes before Congress public -- for public testimony. I think then we're going to see what he really thinks and what Congress thinks. And I think that's going to be the real defining moment of this whole exercise.

PILGRIM: Which, undoubtedly, will be televised. We'll also be at a point where the troops will be at a peak, or presumed to be at a peak. And that will put pressure on the situation.

Robert, what do you think might -- we also have several reports coming out at the same time. We may get mixed messages there.

ZIMMERMAN: Well, clearly, General Petraeus and Ambassador Crocker are really a victim of the Bush administration's lack of credibility and their deceitful reporting of the Iraq War. This is the administration that told us two-and-a-half years ago the insurgency was in its last throes. They told us we'd be greeted by -- as liberators and this war wouldn't cost the American people because it would be paid for with oil revenues.

The reality is that both General Petraeus and Ambassador Crocker are, in fact, being compromised by the White House insisting upon controlling this report. And this administration has no credibility left either with the Congress or the American people in their conduct in the war on terrorism.

PILGRIM: No matter how it's characterized, the reality is the reality. And the American people deserve to know what's happening.

ROLLINS: The problem -- and to, you know, I mean Robert obviously is not more clearer thinking because he's ocean-side out there in the Hamptons. But at the same time, you know, when people see 400 people murdered, as they were earlier in the week, it's very difficult to say things are getting better, even though the military and the general probably thinks that we're making some progress. The pictures that come forward and the activities of terrorists make Americans think it's not working. And that's a serious problem.

GOODWIN: Well, and I think -- and I think the reality is the Iraqi government has not been able to reach any of the reconciliation issues that we've required of it. And we still don't have a sense of Iraqi Army and the Iraqi police. Those are the things that we were supposed to be turning it over to the Iraqis and it -- when, to the extent that we're still doing the fighting and the dying, and then we see these horrific car bombs, the imagery just doesn't work.

PILGRIM: The imagery tells it all.


PILGRIM: Thanks very much for...


PILGRIM: Oh, go ahead, Robert.

Quickly, though because we're almost out of time.

ZIMMERMAN: OK. Just that General Petraeus said this is not going to be resolved militarily, it will be resolved politically. And, politically, they have not met their benchmarks yet with the Iraqi government. PILGRIM: That's quite true.

ROLLINS: We totally agree on something, Robert.

PILGRIM: And you can't deny that.

Ed Rollins, Michael Goodwin, Robert Zimmerman, thanks very much for being with us.

GOODWIN: Thank you.

ROLLINS: Thank you.

PILGRIM: A reminder now to vote in tonight's poll -- do you agree with the Treasury secretary that the U.S. economy is fine?

Yes or no?

Cast your vote at

We'll bring you the results in just a few minutes.

And coming up, Heroes. It's our weekly tribute to the men and women who serve this country in uniform. Tonight, we have Lieutenant Brian Stann of the U.S. Marine Corps.

Stay with us.


PILGRIM: And now Heroes. It's our weekly tribute to the men and women who serve this country in uniform.

Tonight we introduce you to Marine Lieutenant Brian Stann. Now, Lieutenant Stann was awarded the Silver Star for bravery under fire in Iraq. Lieutenant Stann also fights very different battles when he's out of uniform.

Bill Tucker has his story.


UNIDENTIFIED MALE: The fighting pride of the United States Marine Corps.

BILL TUCKER, CNN CORRESPONDENT (voice-over): Marine Lieutenant Brian Stann is a professional fighter.

UNIDENTIFIED MALE: Stann on the aggressive right now.

TUCKER: Undefeated in the ring. And after 9/11, he was determined to bring defeat to the enemy on the battlefield.

LT. BRIAN STANN, U.S. MARINE CORPS: It was a fight. I wanted in. I absolutely wanted in. I felt like that was my duty. That's where I belonged. TUCKER: February 2005 he deployed to Iraq as a platoon commando leading as many as 80 men. The first two months were quiet.

STANN: Day to day there, I mean, it could be anything from a quick reaction force mission searching homes, maybe doing civil affairs operations or doing actually, you know, offensive raids, trying to get known enemy targets.

TUCKER: In May, things changed almost overnight when Brian and his men were attempting to seize a bridge near Karbala.

STANN: The third moving -- moving north toward the bridge, encountered a pretty large ambush. It was layered with, you know, numerous enemy assault positions, improvised explosive devices in the road and then numerous suicide vehicles, as well.

TUCKER: Brian and his men were engaged in a continuous fight for six days.

STANN: We did take some casualties. We had a vehicle destroyed. We had a tank destroyed. Although there were very, very serious injuries sustained, you know, we're fortunate that all of those Marines are still here with us today.

TUCKER: Stann led all 42 men into battle that day and he led all 42 out safely.

GEORGE BUSH, PRESIDENT OF THE UNITED STATES: I appreciate the people like Marine First Lieutenant Brian Stann, a former Navy linebacker, who was awarded the Silver Star last month for his actions and his bravery in Iraq.

TUCKER: Stann also served a second tour in Iraq last year and is currently a commanding officer in Camp Lejeune. He is also a professional mixed martial arts fighter.

STANN: I got into the sport to help me, you know, better prepare me to lead men in combat.

UNIDENTIFIED MALE: And Stann just continues to throw them.

STANN: It continues to help me to this day.

TUCKER: Stann has had four professional fights, all knockouts.

So what's next?

STANN: It's just, you know, lead the Marines, take care of my family and continue to compete.

TUCKER: Bill Tucker, CNN.


PILGRIM: A remarkable young man.

And we wish him well.

And, by the way, Lieutenant Stann's next World Extreme cage fight is September 5th.

Still ahead, more of your e-mails and the results of tonight's poll.

Stay with us.


PILGRIM: Now the results of tonight's poll -- 95 percent of you do not agree with the Treasury secretary that the U.S. economy is fine.

Well, it's time now for some of your thoughts.

And Kimberly in Georgia wrote to us: "I love the show, Mr. Dobbs. I want to thank you for looking out for us. My husband has been deployed time and time again and now even my sister is in Baghdad. And through all of this, the president has refused to close the border and move on overstayed visas or enforce current immigration laws. It is sickening to me."

Cody in Kansas wrote to us: "Lou, thanks for your show defending American consumers and defending the middle class. Hard working people of America, we always watch your show here in the heartland."

And Dean in Pennsylvania wrote to us: "I had to write and tell you that as of today, I am official Independent voter thanks to your vociferous and unparalleled defense of working men and women of this country. We may yet win back our government. Keep up the good work."

Each of you whose e-mail is read here will receive a copy of Joseph Califano's book, "High Society."

Thanks for being with us tonight.

Please join us tomorrow.

For all of us here, thanks for watching.

Have a great weekend.

Good night from New York.

"THE SITUATION ROOM" starts right now with Miles O'Brien -- Miles.