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Lou Dobbs Tonight

Arson Suspected in Southern California Wildfires; Toy Companies Ignoring Safety Concerns?

Aired October 25, 2007 - 18:00   ET


LOU DOBBS, CNN ANCHOR: Tonight, firefighters in Southern California reaching a critical point in their assault against those huge wildfires raging in Southern California.
Law enforcement agencies, they are stepping up their investigation of arson, arsonists being blamed for some of those fires. We will have complete coverage from throughout Southern California.

And America's middle class being pummeled by spiraling debt, skyrocketing expenses for housing, cars, and health care, credit cards and more. A former government adviser says the war on the middle class, however, is a myth. He is among our guests here tonight. We will have a frank and full exchange of views on that.

And disturbing new evidence that major toy brands are putting their profits ahead of the safety of American consumers and workers in toy factories in communist China.

We will have that special report, all the day's news and much more straight ahead here tonight.

ANNOUNCER: This is LOU DOBBS TONIGHT: news, debate, and opinion for Thursday, October 25.

Live from New York, Lou Dobbs.

DOBBS: Good evening, everybody.

The battle against those massive wildfires in Southern California tonight at a pivotal point. Firefighters are now hoping the lower temperatures and lower wind speeds will help them make significant progress in their fight against those fires. The fires have killed at least three people.

Federal, state and local law enforcement agencies, meanwhile, are stepping up their investigation. They are hunting now for suspected arsonists. Arson investigations are under way in two California counties. We will have the very latest for you on those arson investigations, as well as live coverage of the firefighters working so hard to contain these massive wildfires.

First, Casey Wian tonight reporting on the Santiago fire just outside of Los Angeles -- Casey.

CASEY WIAN, CNN CORRESPONDENT: Lou, as firefighters finally gained control of most of the Southern California firestorms, the death toll here continues to rise.


WIAN (voice-over): The charred remains of two people found in a home in San Diego County the latest reminder that the Southern California firestorms have been deadly as well as devastating. Three fatalities now directly attributable to the fire. Authorities confirming the deaths of seven elderly evacuees are also fire related.

Firefighters were helped by calmer winds and cooler ocean air; 17 fires now are contained, yet nearly 9,000 firefighters still battle 14 active fires in seven counties. More than 700 square miles of mountain terrain, residential neighborhoods, and a Marine Corps base are now scorched. Improved flying conditions allowed for more air support. Helicopters, small planes and DC-10s were better able to drop their flame retardant and water loads.

GREG COX, SAN DIEGO COUNTY BOARD OF SUPERVISORS: The first 24 hours we were very limited on what we could handle. Since then, we have got 40 helicopters that are in the air. We have 34 fixed-wing aircraft. There's, I believe, three C-130s that are coming in through the efforts of Congressman Hunter. So, I mean, we have got a lot of resources coming. Could we use more? Sure, we could.

WIAN: President Bush arrived to tour the area while FEMA promised help for more than 19,000 people still living in shelters.

DAVID PAULISON, DIRECTOR, FEDERAL EMERGENCY MANAGEMENT AGENCY: It is going to be a long-term housing issue. And that's where we will work with them. We will work with the Red Cross, work with HUD to make sure that people are not without a place to stay. There is going to be a handful of people that are here that have lost their homes, that cannot go back. So we will need to put them in hotels and motels or into apartments, or into some more permanent housing to help them get back on their feet.

WIAN: Residents who fled the fires and returned home were shocked by what little remains.


WIAN: Yet, despite the devastation for nearly 1,600 families who have lost their homes, signs of strengths and vows to rebuild.

ERIN ARNOLD, LOST HOME TO FIRE: My mom is crying. And I'm like, don't cry. It is just -- it is not coming back. We are starting over. It is all right. It feels -- fire -- you know, they say fire is a cleansing -- I feel kind of cleansed.


WIAN: Here at the command center for firefighters in Orange County, crews are absolutely exhausted. Many of them have been working around the clock, sleeping in tents when they can. It is to their credit that the loss of life and damage from these firestorms is not much worse. And, Lou, some good news to report at this hour. I'm just learning that the number of active fires has been reduced from 14 to 10 and now 13 of these fires are 100 percent contained -- Lou.

DOBBS: That is good news indeed and welcome news for all of the residents there in Southern California.

And as you say, Casey, not enough in my judgment at least has been made of what has been an amazingly effective, just stellar response on the part of local communities, the counties and the state government, as well as the federal government here.

WIAN: Absolutely. The response has been overwhelming, amazing. Residents who have been evacuated, who have lost their homes have credited these firefighters and these state and federal officials with an incredible response.

But they continue to say -- many of the state lawmakers here and local officials say there was a lack of resources at the beginning of these fires; things could have been prevented a lot earlier if more resources were on hand early -- Lou.

DOBBS: Yes. And I think that people there, and I would -- I certainly could not even begin to imagine what those people who have lost their homes feel. But I have to -- I just can't imagine there not being a tremendous sense of gratitude there in Southern California on the part of most of the people affected by this huge natural disaster, and, unfortunately, it appears part of this manmade disaster in the case of the suspected arson fires.

I just can't imagine that they are not thrilled at the response by these government -- there is going to be politics and people making much of their criticism. But at a time in which there is so much negativity, so much of government that does not work at any level, it is certainly gratifying and heartwarming to see government working at all levels in responding to this fire.

Casey, thanks very much -- Casey Wian reporting from the Santiago fire there in Southern California.

Fires in Lake Arrowhead near Los Angeles have destroyed more than 500 homes. Police are stopping many of the residents from returning to their homes because of the still dangerous conditions.

Ted Rowlands now reports from near Lake Arrowhead on the devastation that awaits residents who left the area and are returning.

Ted, first, just how bad are the conditions in the Lake Arrowhead area and the surrounding area tonight?

TED ROWLANDS, CNN CORRESPONDENT: Well, unlike the San Diego County, where a lot of people are being allowed to go back into their homes, this is mountainous country and it is still unsafe, a lot of downed power lines in all of these winding areas.

And while they are making progress, the problem here is they have so much real estate to cover with the airdrops. Behind me, you see these hot spots that they are not even dealing with right now. There is a larger fire over this mountaintop that they are concentrating on right now.

But, if you turn and look, this goes across this entire valley. And this is the way it is for miles in this area. So, people aren't being able to go back, see their homes. They're at evacuation centers, in all 12,000 people still evacuated. We were at an evacuation center today where families told us they would have to most likely stay away for up to a week.

And these are people that have a home to come back to, at least for now. Meanwhile, the assault continues. One of the two fires in this region is 40 percent contained. The other fire, the one you are looking at here, is actually zero percent contained. But they are hoping that throughout the rest of today -- they have a tremendous air assault going on -- they will be able to improve on those containment levels.

And to follow up on what you and Casey were just talking about, the people at the center that we talked to that had to stay away for a week, no complaining. No problems. They understand. Really, it is amazing the amount of cooperation and the amount of -- the sort of respect these people have.

They have been thrown out of their homes. Some of them have lost their homes. But they are following the rules and they are just -- they're making do and sucking it up until they get back into their homes.

DOBBS: Ted, thank you very much, Ted Rowlands keeping us up to date on that fire.

As Ted has just pointed out, the fire behind him there now remains -- is not contained at all. And firefighters still struggling to control those blazes. Ted Rowlands reporting near Lake Arrowhead tonight.

Officials offering today a $150,000 reward for information leading to the arrest of suspected arsonists. Law enforcement agencies now say arsonists are responsible for several of the fires that were set in Orange and Riverside counties.

John Zarrella has our report -- John.

JOHN ZARRELLA, CNN MIAMI BUREAU CHIEF: Hey, Lou, the reward, $150,000, and may in fact go up much higher than that before all is said and done by the end of the day today, expecting perhaps an announcement of more money added to that reward.

Now, we spent some time this morning up at Silverado and Santiago canyons, where those two canyons meet and that's the location that the authorities say one of the three spots where these fires started, where the Santiago fire started.

While we were up there, Alcohol, Tobacco and Firearms agents on the scene looking for as much information as they possibly can. One of the things investigators are saying is this whoever did that my well have known what they were doing or were very, very lucky because they apparently knew which way the wind was blowing, which way the wind would carry that fire.

Why anybody would do something like this, of course, no one has any idea but it's quite clear that it is arson, the massive fire already consuming some 25,000 acres. And FBI agents and other agencies telling us they are bringing all agencies together to find out who did it.


HERB BROWN, FBI: To all the Southern Californians that have lived through this tragedy, the FBI will bring to bear all its national resources, with ATF, the Orange County Fire Authority, as well as the Orange County Sheriff's Department, to make sure that we track, apprehend and put this person or persons behind bars where they belong.


ZARRELLA: Now, there have been no search warrants served in this particular fire. No arrests made in this particular fire. And residents who live up in the Canyon area spent a lot of the time at the bottom of the Canyon Road today, and they told us that they want two things. They want to be able to go home as soon as possible which they can't do now and they want to get these people.

One man said, I want 15 minutes alone with whoever did that. Just give me that.

But while this fire, the investigation continues and no suspects, Lou, we are hearing word constantly of arrests being made of people in other areas arrested for possibly setting fires. Not necessarily the ones that are burning, but going in and setting other fires. Now, why anybody would be doing that, it is unconscionable, and it's hard to believe -- Lou.

DOBBS: Well, the Santiago fire, yesterday, we had reports that law enforcement agencies were convinced it was arson because that fire actually -- they could determine that it had been started in three separate places. Did that early information hold up through the day?

ZARRELLA: Yes, so far it has held up.

And it is interesting, Lou. One of the things that I was told that was that the way they can determine is, you go to the location after it has burned through. They get to where it started. Fire officials say within minutes they were there and they saw that it had burned miles within minutes. And they say process of elimination. No lightning strikes, no downed power lines that caused it because of the wind, process of elimination in a lot of cases leads them to a determination that it had to have been human-caused.

DOBBS: You mentioned that there have been arrests in other -- related to other fires of suspected arsonists. At this point, this is starting to look like not a natural disaster at all, but if we are to see this large a scale of arson, this is looking very bad indeed.

What is -- is there speculation right now on the part of the FBI, ATF and other obviously local and state law enforcement agencies?

ZARRELLA: Well, they are not telling us what the -- what their thinking is. What they will say is it is going to be extremely difficult to catch whoever did this.

Now, the other people that have been arrested in connection with other fires we have found out people have been caught on the side of the road starting a fire. Another person somewhere else starting a fire on the side of a road. Whether those people have any connection to these main fires in Southern California, we do not know, but they are continuing to bring more people into custody for these other incidents that seem to be cropping up since Monday, Tuesday, and into Wednesday -- Lou.

DOBBS: A disturbing, a disgusting development to find that arson is connected, is related to some of these fires.

Thank you very much, John.

One final question. I take it that there are at this point in the case of the Santiago fire no witnesses at all as to -- or suspects at this point?

ZARRELLA: Well, police told me that there may be one person that they have talked to who lived a ways away from it who may have seen something. But it doesn't appear that they saw very, very much. And investigators told me privately, look, right now, we don't have a whole heck of a lot to go on.

DOBBS: John, thank you very much -- John Zarrella reporting.

We will have much more on those wildfires in Southern California throughout this broadcast.

Also tonight, the New York governor's decision to give away driver's licenses to illegal aliens is a security threat to the nation.

Bill Tucker will have that special report tonight -- Bill.

BILL TUCKER, CNN CORRESPONDENT: Lou, expert says that Governor Spitzer will bring illegal aliens right out of the shadows, all right, and then it will allow them to hide in plain sight -- Lou.

DOBBS: Bill, thank you very much -- that report coming up.

And a report on scathing testimony on Capitol Hill about the failure of big toy brands in this country to protect American consumers and toy workers in communist China as well.

Foreclosures are soaring in this country, bankruptcies as well. Middle-class Americans struggling to pay for their homes and other basic necessities. Is this outright war on the middle class or a myth? We will have a special report and I will be joined by an economist who says it is a myth.

Stay with us.


DOBBS: Pro-amnesty and open borders activists tonight are plotting their next step after, suffering a setback on Capitol Hill, another one.

Yesterday, senators killed the so-called DREAM Act, which would have effectively granted citizenship to more than a million illegal aliens in this country and of course give them an opportunity to gain amnesty and access to citizenship for their families as well. It would have also taken care of family members, extended family members.

And that defeat, despite it, two leading Democratic presidential contenders, well, they still are pushing hard for passage.

Senator Hillary Clinton releasing this statement. Are you ready? This is a woman who wants to be president of this country -- quote -- "I am disappointed that the Senate failed to pass the DREAM Act. The enactment of this legislation is long overdue, and I will continue to fight for its passage for all of our children and our nation."

Senator Barack Obama, not to be outdone, fully embraces the DREAM Act as well, an original co-sponsor of the act, saying -- quote -- "For the millions here illegally, but otherwise playing by the rules, we much encourage them to come out of hiding and get right with the law."

Both senators would like to lead this nation, 300 million American citizens. It will be interesting.

New York's Governor Eliot Spitzer, well, he's brushing aside those little national security concerns and pushing ahead with his outrageous plan to give away driver's licenses to illegal aliens. The heck with New York citizens. Spitzer says that this will -- quote -- "bring them out of the shadows."

Are you hearing the refrain here, bringing them out of the shadows? Does anybody remember a million illegal alien supporters, open border advocates marching in the streets of this country? But handing driver's licenses out to illegal aliens will do a lot more than what the governor is suggesting.

As Bill Tucker now reports, the governor's plan is really a vast security threat to this entire nation.


TUCKER (voice-over): New York State wants to turn this, a matricula consular card, into this, a New York state driver's license. A matricula consular card is an I.D. card issued by the Mexican Consulate to illegal aliens. It's easily counterfeited, like this one with Governor Spitzer's name and picture. Those cards will be part of a group of documents which will open the door to illegal aliens applying for a driver's license, a license that will look identical to the one carried by a citizen or lawful resident.

Groups outraged by the move say illegal residents will lose the appearance of being in the country unlawfully.

NEIL BERRO, COALITION FOR A SECURE DRIVER'S LICENSE: The driver license is the most important form of identification we carry.

TUCKER: In practical terms, the driver's license opens the door to applying for other documents. It is a lesson that North Carolina learned when it provided licenses to illegal aliens.

REP. SUE MYRICK (R), NORTH CAROLINA: The thing that upset us a lot is the fact that this could be used for anything. In other words, once you get a North Carolina driver's license, you can use it for legal identification. So, it is good to go, you know, get a mortgage or get credit cards or anything else.

TUCKER: And currently New York State has reciprocity with all other states regarding its license, meaning that if you have a New York State license and you move to Florida, you can trade that license in for a Florida license. That is what some security experts call incentive.

JAMES CARAFANO, SENIOR FELLOW, HERITAGE FOUNDATION: If you issue driver's licenses to people unlawfully present, and you advertise that fact, what you are going to do is actually suck a lot more people into your state. If New York State wants to incentivize that, those people will come to New York.

TUCKER: That was the reason North Carolina ended its program last year. Its motor vehicle agencies were overwhelmed with the number of illegal aliens applying for licenses.

But New York Governor Eliot Spitzer says the program will make the state safer by identifying residents who are currently undocumented.


TUCKER: And, in New York State, we should remember that the DMV clerks have been ordered to allow anyone who wants to register to vote to be registered, no questions asked. No Secret Service is needed.

Lou, I think that's what you call raising the incentive.

DOBBS: I think it is pretty clear and it is pretty clear why Frank Merola, the county clerk in Rensselaer County, is suing the governor, the state Senate taking on the governor on this issue, because state law requires a Social Security number for the issuance of a license, which obviously they can't -- an illegal alien couldn't provide.

This is just ridiculous. And we find out that part of the nonsense that this governor has been peddling -- and he has been peddling it by the bucket on this issue -- is that the there will be all sorts of scanners and readers of documents. It turns out those don't work quite yet.

TUCKER: Well, we don't know because there was supposed to be a demonstration of that technology, Lou. They postponed the demonstration of that technology.

DOBBS: Oh, darn.

TUCKER: We might know more tomorrow, because some DMV clerks are going to...

DOBBS: There will be a big breakthrough tomorrow, will there?

TUCKER: There is supposed to be a demonstration. We will find out.

DOBBS: I would really -- we have really got to see this breakthrough, because this governor, you know, is really -- I mean, this is -- this is really captain forward, this governor. He's doing just a boffo job there in Albany representing the -- well, representing, I guess, illegal aliens. He doesn't seem to care much about the issue of massive voter fraud, which he is providing here. Still hasn't responded to that issue, has he?

TUCKER: No. He dismisses it. He says won't happen because it can't happen. And that's literally the extent of his response.

DOBBS: And the vast majority of the county clerks and the election boards obviously responsible for carrying out those elections in quite strong disagreement with the governor on that issue.

TUCKER: Yes, they are.

DOBBS: Bill Tucker, thank you very much for keeping us up to date.

Let us know how that technology works. Governor...


DOBBS: I don't know whether to call him Captain Midnight or Governor Midnight.


TUCKER: Well, he didn't return any phone calls today, Lou. So, we will have to see if he calls us tomorrow about how the tests go.

DOBBS: I'm sure the governor is busy. He has got, if not citizens to take care of, socio-ethnocentric interests and other special interests to which he is beholden. Remember when this governor used to be interested in the law? It was a long time ago.

Thanks, Bill Tucker.

Time now for some of your thoughts.

Cheryl in New York wrote in to say: "Lou, thank you for all you do. I'm a lifelong New Yorker. Yesterday, I changed my registration to independent. Governor Spitzer, Senator Clinton and Senator Schumer should all be voted out for allowing this illegal alien nonsense to continue."

I couldn't agree with you more. And millions of your fellow Americans and New Yorkers agree with you.

Mark in Wisconsin: "Illegal immigration and the war in Iraq share a common theme: Nationalize expenses, but keep the profits privatized."

I would like to repeat that, if I may, what we share with the war in Iraq and in domestic politics, that common theme, nationalizing expenses, but keeping the profits privatized, the war in Iraq and the war against the failure of this government to enforce immigration laws.

I mean, that's just ridiculous.

Chris in California: "If the left keeps going left and the right keeps going right, then won't everyone just be going in circles?"

Well, not everyone, because there are some of us who are in the center in this country. And we are going to watch the idiot partisans -- dare I use that word idiot? I keep looking for a synonym. The misguided partisans continue to stay at the extremes of the -- and they can move out as far as they want on those ideological, polemical polls, and spin as much as they want.

Let's, the rest of us, try to stay in the center in this country.

And Lisa in Alabama: "Mr. Dobbs, I watched your show for the first time last night, and I loved it. I actually screamed out, yeah, you go, dude."

Well, we appreciate that. And those of you whose e-mail is read here receive a copy of Jack Cafferty's new book. It's entitled "It's Getting Ugly Out There."

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

The amnesty push and open borders push on in the U.S. Senate, Governor Spitzer's plan to give away driver's licenses to illegal aliens, all contributing to what is, in my opinion, a not-right war on our middle class in this country. Some people, however, don't believe there is a war on the middle class at all. Later here, I will be talking with a former government adviser, an economist who says the war on the middle class and its jobs simply a myth.

That's also the subject of our poll tonight. We would like to know, do you believe that the war on our middle class is simply a myth? Yes, no? Cast your vote at We will have the results here at the end of the broadcast.

Coming up next, thousands of people evacuated from their homes in fire-ravaged Southern California, some of them able to return home. We will have some of their stories.

And U.S. toy companies putting profits ahead of the safety of American consumers and Chinese workers, we will have that report, a great deal more.

We're coming right back. Stay with us.


DOBBS: Here we go, still. I was about to say here we go again.

More than half-a-million Chinese-made children's products recalled today because they contain high levels, unacceptably high levels, of lead. Those products include 38,000 Go Diego Go! animal rescue boats, those boats made by Fisher-Price, a division of Mattel. More than 140,000 purple Halloween pails are being pulled out of store shelves. And about 110,000 WeGlow children's flashing rings also being recalled.

A complete list of all these new product recalls will be found on our Web site,

Those recalls coming as a Senate panel convened to investigate the conditions under which those toys are manufactured. Today's testimony revealed the that world's best-known brands remain committed to cheap manufacturing arrangements with communist China, some of them at the expense of the safety of American consumers and Chinese workers.

Christine Romans has our report.


CHRISTINE ROMANS, CNN CORRESPONDENT: Eighty-hour work weeks, 20 or 30 cents an hour, dangerous chemicals.

SEN. BYRON DORGAN (D), NORTH DAKOTA: No American worker should be told, you have lost your job because you can't compete with a sweatshop.

ROMANS: Bama Athreya has interviewed Chinese factory workers, and says toy brands and retailers are -- quote -- "wringing profits from human misery." BAMA ATHREYA, INTERNATIONAL LABOR RIGHTS FORUM: Wal-Mart and the world's major toy brands and retailers are not producing in China despite the lack of meaningful protection for workers or product safety. They are they precisely because of it.

ROMANS: Wal-Mart says -- quote -- "Our commitment to low prices does not come at the cost of safety."

According to anti-sweatshop campaigner Charles Kernaghan, new toy factory employees are coached.

CHARLES KERNAGHAN, NATIONAL LABOR COMMITTEE: The first day they come into the factory they're given a training session where they teach the workers how to lie to Mattel auditors and other corporate auditors.

ROMANS: Mattel declined an invitation to testify, but insists it has strict standards for its vendors and licensees. Of the 8,000 toy factories in China, a new toy industry group so far has certified just 670.

PETER EIO, INTERNATIONAL COUNCIL OF TOY INDUSTRIES: In two short years, we have made great strides forward, but recognize there is a great deal still to be done.

ROMANS: Most brands have pledged to use only certified factories in China by the end of the year 2009. Yet top American brands have been making their toys in China for more than 20 years.

Harry Wu is a human rights activist who spent 19 years in a Chinese prison camp. He cites two products made by prison labor -- Christmas lights and, he says, artificial flowers.

HARRY WU, LAOGAI RESEARCH FOUNDATION: The prisoners would sit in a small space and put these leaves and flowers on the branches, include the label, "Made in the United States," "99 cents," "1.99 cents".

ROMANS: One Senator said it comes back to a broken U.S. trade policy.

SEN. BERNIE SANDERS (I), VERMONT: The time is long overdue for this Congress to begin rethinking these unfettered trade policies, which is are hurting so many people in America and all over the world.

ROMANS: Senators Bernie Sanders and Byron Dorgan have introduced a bill to make it illegal to sell, trade or advertise goods made in sweatshops.

Christine Romans, CNN, New York.


DOBBS: In testimony today, a point that bears some repeating -- some focus -- Mattel's chief executive officer paid $6 million last year. And as is fashionable, we thought we'd compare that with the average employee of his company. While his typical manufacturing worker isn't an American, but rather Chinese factory workers. That works out to Mattel's CEO making just about 5,400 times more than his average toy worker in China. It works out, I suppose -- if you happen to be the CEO of Mattel.

Coming up next, America's middle class is struggling to survive, receiving little or no help from the Bush administration. We'll have a report on one family's struggle.

And I'll be talking with an economist who says the loss of middle class jobs is a myth.

We'll be returning to Southern California to cover the natural disaster there. Those wildfires are partially fueled by arson and some of those fires are being controlled tonight.

Stay with us as we return to Southern California for the latest on those fires.


DOBBS: There is good news to report tonight on those fires ravaging Southern California. Officials today allowing -- deciding to allow residents of some 13 communities in San Diego County to return to their homes. The massive wildfires still burning in large areas of Southern California tonight. Many of those fires remain out of control, threatening still heavily populated areas. Almost a half million acres have been scorched so far. Three people killed by those fires. Another 90 people injured -- many of them firefighters. Sixteen hundred homes have been destroyed.

Fresh and rested firefighters from dozens of states are now joining the battle against those wildfires. Some local fire crews in California have been fighting those wildfires now for five straight days, almost nonstop. We have, as I said, even more good news. There are now only 10 of those fires -- I say only, but down from 17 -- 10 fires that are not controlled or contained.

Well, last night, we introduced you to a remarkable 14-year-old girl who was forced to flee her home with her family and to take shelter at the Qualcomm Stadium in San Diego. She and her family obviously longing to go back home. And today, young Kelsey Perry and her family were allowed to return to their home. Their house had been destroyed in one of the biggest fires to sweep across Southern California -- the so-called Witch Fire, that also leveled more than 700 other homes and buildings.

As Thelma Gutierrez reports, the Perry family has to begin all over again.



THELMA GUTIERREZ, CNN CORRESPONDENT (voice-over): For the Perry family, it was a long ride home. J. PERRY: There was a beautiful home right there on the left.

GUTIERREZ: Past charred oak trees and burnt houses. They walked up a long driveway.

J. PERRY: Oh, gosh.

GUTIERREZ: And saw their home -- an unspeakable loss. The home that Hobby Perry built with his own hands, reduced to ashes.

J. PERRY: And I got married here on the property. And our kids were born in San Diego and they've been raised in this house.

GUTIERREZ: It was the only home 14-year-old Kelsey Perry has ever known.

KELSEY PERRY, LOST HOME TO FIRE: I got it from my grand mom. It was a porcelain elephant.

GUTIERREZ: Kelsey showed me her bedroom.

K. PERRY: My bed was like right here. It's pretty much gone now. My guitar was right next to my bed. I think that thing smoking is my guitar. My computer. My desk was right there. My closet was right there. You know, my mom and dad's bed was all way on the other side.

GUTIERREZ: The Perrys built their home in Ramona in 1988. Julie says every square inch was her husband's labor of love.

J. PERRY: He was in high school. He designed it out of cardboard -- each room -- how -- and he built it exactly the way it was on there. And him and his dad and friends, they all built it with their hands.

GUTIERREZ: Julie and Hobby hoped to grow old here. All their dreams dashed on Sunday night, when the Ramona Fire roared through their neighborhood, sending the Perrys fleeing for their lives with just a photo album and the clothes on their backs.

HOBBY PERRY, LOST HOME TO FIRE: One of my best memories is probably these guys. Oh, and they're still alive, so that's what counts. I stuck around for a little bit to try to think I could fight this, but there was no way.

GUTIERREZ: Amidst all this devastation, a small orange tree survived.

J. PERRY: My dad passed away and he loved oranges. And we planted that for him.

GUTIERREZ: Kelsey says she and her brother Ryan may have lost all their material possessions, but the fire can't destroy a lifetime of memories.

Thelma Gutierrez, Ramona, California.


DOBBS: Remarkable. And you have a strong feeling that the Kelsey family will be just fine.

Coming up next, middle class Americans struggling with soaring foreclosures, spiraling debt, a Bush administration that doesn't even understand what the concept of middle class means and a Congress that is doing almost nothing to help. We'll have, if I may say, a spirited discussion with an economist who says the war on the middle class is a myth.

Stay with us.

We're coming right back.


DOBBS: Millions of middle class Americans are struggling under the weight of massive personal debt in all forms. It's not just soaring mortgage costs -- it's car loans, credit card payments. It's health care. It's college tuition. Congress and this White House have done almost nothing to help our middle class.

Lisa Sylvester reports on what is a debt crisis that is crippling many of our families.


KELLI VACCARO, HOMEOWNER: Hannah (ph), did you want something to eat first?

LISA SYLVESTER, CNN CORRESPONDENT (voice-over): Kelli Vaccaro and her husband have 7-year-old triplets and two teenagers, one of whom just joined the Army. She works three part-time jobs. Her husband works full-time. Still, it's not enough. The California family is worried they will lose their home after their adjustable rate mortgage resets, from 8 percent to over 11 percent. Their payment is now $1,200 a month higher.

VACCARO: I knew that it would change, but my understanding was that it would be a couple of hundred dollars. I never dreamed that it would go up this much.

SYLVESTER: They are among the middle class families being pounded by an ARM. According to Realty Track, the national foreclosure rate increased 99 percent in the last year. California is up 246 percent over the last year; Florida, 158 percent; and Nevada, 187 percent.

The Congressional Joint Economic Committee released a report this week that predicts two million foreclosures by the end of next year on homes bought with subprime mortgages.

LESLIE TOLF, UNION PRIVELEGE: If you look at an interest rate going from 6.5 percent to 10 percent, there is this tsunami of foreclosures that is -- is not even -- crested yet. SYLVESTER: It's not just foreclosures that are up. A record number of homeowners are 90 days behind on their mortgage payments. Consumer bankruptcies have soared 23 percent in the last year. There's been an up tick in auto loan defaults. And credit card companies are having to write off more bad debt -- up 28 percent from last year, according to the credit rating agency, Moody's.

SCOTT HOYT, MOODYSECONOMY.COM: Clearly, consumers have an attitude that they want to spend and they want to have it now if they can. And, in addition, one of the things that's happened over the last few decades is that credit has been much more available.

SYLVESTER: The result?

More families in debt and a potential decline in real family wealth. It's now not only a weight on the individual families, but also threatens to weigh down the U.S. economy.


SYLVESTER: Treasury Secretary Henry Paulson said he views the housing decline as the most significant current risk to the U.S. economy. But Congress is considering several options, including making FHA loans more available to homeowners, eliminating taxes on forgiven mortgage debt. Another proposal would allow homeowners to withdraw from retirement accounts penalty-free to bring their mortgages current.

But, Lou, for all the talk in Washington, very little has actually been to turn this tide -- Lou.

DOBBS: Yes. And unstated here -- and unstated by Henry Paulson and others is that this country, as a matter of public policy, has for the past, basically, 20 years, but accelerated over, certainly, the past six, followed policies that are beneficial to lenders to the extreme disadvantage of borrowers. And it's going -- it's a collision that is now occurring in our markets.

Lisa Sylvester, thank you very much.

Rising debt, mortgage interest costs are not the only threats, of course, to our middle class. Good middle class manufacturing jobs are being replaced by lower skilled, lower paying service jobs.

Not all agree, however, with this assessment of our economy. One economist saying, in fact, this kind of populist dogma is bad politics -- and even worse economics.

That was written by Stephen Rose in yesterday's "Wall Street Journal".

The senior economic fellow at the Progressive Policy Institute joins me now here.

Well, Steve, good to have you here.


DOBBS: And as -- when you mention populist and middle class, you get my attention right away.

What is so populist about being concerned about the middle class in this country, when we're looking at so much pain across such a large number of people?

ROSE: It's a big country, Lou and a lot of people are getting hurt, there's no question about it. But the issue becomes is it 20 percent of the population or is it 50 percent of the population?

If you think it's 50 percent of the population, you'll talk politically in a certain way and you'll make programs in a certain way. But if you think it's 20 percent, it's a much different ball of wax.

DOBBS: All right. Well, let's take a look at something you've said. You said the middle class jobs aren't disappearing.

ROSE: Correct.

DOBBS: I don't know anybody that has suggested...

ROSE: No, no, no.

DOBBS: I never said that. I want to make it very clear. What I have said is those middle class jobs -- those wages are stagnant. It is taking two people now in that household to earn and to achieve the same purchasing power as 30 years ago.

But in your own report, you write this -- if we could have this up for everybody to follow along -- "Men have experienced a far more mixed employment situation over the past 30 years, with median earnings for prime aged men actually declining by 1 percent. More than one third of new jobs filled by men between 1979 and 2005 paid $25,000 or less."

Why is that not an issue for public policy?

Why is not an issue for business in this country?

ROSE: It is an issue. I'm not saying that it's not an issue at all, by any means. And we have done a lot -- we need to do a lot to help the transition when people get...

DOBBS: The transition?

ROSE: The transition when people lose jobs and then try to find other jobs.

DOBBS: Wait a minute.


DOBBS: This country is being run by a bunch of free market idiots right now.

ROSE: And I agree with you on that.

DOBBS: OK. All right. And now you're talking about a policy for transition, when we have public policies that favor capital to the -- to the immense disadvantage of labor. One of the things that we don't have to put up is only one third of those surveyed in this country right now believe that their children will have a better life than they. That is a reflection on the American dream.

How can we permit business practices, how can we permit public policy -- that is, as you say, it is so populist of me. Forgive me for saying that. I am kind of concerned about people rather than, you know, people who are already garnering the lion's share of the national income.

ROSE: OK. There are many issues here. And over time, the economy has grown by a lot. And if you are going to argue, as you've done in other places, that all the growth went to the top 10 percent or the top 1 percent...

DOBBS: No, no. I didn't say all of the growth ever. What I have said is -- and will say categorically again...

ROSE: Well, then...

DOBBS: that working people in this country have seen their wages stagnate over the course of the past 30 years.

ROSE: OK. What we know is you said earlier in this show that you need two incomes to stay at the same standard of living.

DOBBS: Yes. Basically.

ROSE: And studies that I've done and studies from the Economic Policy Institute were able to show that households -- husband and wife couples -- their incomes are up 22 percent over the last 25 years when you count both earnings. And if the women -- because the men have -- husbands have worked the same number of hours. The increased work is just of the women. If the women had worked the same number of hours, they still would have been up 9 percent.

So people are, indeed, two earners. That's way more. But they have a 22 percent gain in their standard of living. It is not working more for the same.

DOBBS: So women -- so women and men in the same household -- married -- are actually, then, 22 percent ahead of a man and a woman 33 years ago.

ROSE: Correct. I mean and a lot of what's happened in the last...

DOBBS: Well, explain something to me then.

How could that happen if wages have been stagnant for individual earners over the course of 35 years? ROSE: Well, as my report shows is that for women's wages, they're up 40 percent.

DOBBS: Well, they're up 40 percent and they are still lagging men's wages.

ROSE: Yes, but you asked about growth. There's two separate issues here.


ROSE: You asked about growth. You did. And so what I'm (INAUDIBLE)...

DOBBS: Well, let me ask you...

ROSE: that women's...

DOBBS: Let's just go to this and get it really very simple. The idea that -- and this is what you wrote about -- well, let's take a look first at median household income -- $48,201, right?

ROSE: Correct.

DOBBS: The Census Bureau reported this year while median household income rose for a second straight year to that $48,000, when adjusted for inflation, it hasn't reached the pre-recession high of 1999.

ROSE: There are a couple of issues here. One is certainly the period in the 2000s have not been good. And we should understand that. And, obviously, the administration has something to do with that and the policies that it did.

But the other is you're making a much longer sweep. You're trying to argue for the last 25 years. In the last 25 years, the median is up, number one. And, number two, there's also been a big demographic shift. So in a paper that I did earlier this year, I was able to show that a lot of what's happened is that we've take on growth over time by living in smaller households. That is, more people are living as single people. There are more retired people living alone. There aren't three generation households. And when you compare apples to apples, at the median, the real standard of living is up 33 percent.

DOBBS: Numbers fascinate me as much as you. The number that counts for me is the number of people in this country who can say that they are participating in a larger share of the national income as workers -- working men and women in this country. They have the smallest share of the national income since World War II. The top 1 percent have the highest share since the Depression -- 1 percent earning over 20 percent of the income in this country.

It is unconscionable and it is an issue for the public policy to confront, whether you're liberal, conservative. It is an issue for business leaders of conscience to contend with.

Would you not agree?

Can we at least agree on this?

ROSE: Certainly, there's been rising inequality. But the issue that a lot of people try to say, then, is that they -- and you said it earlier.

DOBBS: Right.

ROSE: That people are working more for the same amount and that they're moving backward...

DOBBS: In many cases, I believe they're -- they're moving backward.

ROSE: Yes. And if they're moving backwards -- and since we know that there's been growth, slow growth over many years -- all you have to do is do the back of an envelope calculation and you'd find that the rich would be controlling 60 percent, the top 10 percent. And the top 20 would be controlling 80 percent. It just doesn't jive with 80 percent homeownership for those over 40 years old, the malls in your area being filled.

I mean I -- there are lots of stresses on people, and I know I don't want to argue there are no problems.

DOBBS: I think you have...

ROSE: But the issue is...

DOBBS: We're going to have to come back and talk about it more.

But when you say that you will not argue the issue of income inequality in this country and the fact that that inequality, I think it's fair to say, is worsening, that we have to look at it as a matter of public policy. Otherwise, what's the point of living in this country?

Stephen, we'll pick it up from there.

ROSE: We'll pick it up.

DOBBS: It's has been good to talk with you.

As we will continue our discussion of what has so brilliantly led in public policy in this country, both parties doing so much for the American people.

I know you believe that. I sure don't.

Thank you.

Stephen Rose.

Coming up at the top of the hour, "THE SITUATION ROOM" with Wolf Blitzer -- Wolf. WOLF BLITZER, HOST, "THE SITUATION ROOM": Thanks, Lou.

The manhunt for whoever set one of the biggest wildfires in California. Arson investigators right now scouring three flash points and setting a reward, as many of the people returning home find only ashes.

And the massive flying power being used right now to fight the flames. Tonight, we have an exclusive look at the command center and a ride aboard one of their best weapons.

Plus, get this -- the secret mafia plan to take out Rudy Giuliani. Details are coming out in a New York murder trial and it sounds like something straight out of Hollywood.

That and a lot more, Lou, coming up here in "THE SITUATION ROOM".

DOBBS: Wolf, thank you very much.

American deaths in Iraq declining for a second straight month.

Is something called the surge strategy working?

I'll be talking about that with General David Grange, next.

Stay with us.


DOBBS: Well, joining me now, General David Grange.

General Grange one of the country's most decorated former military commanders.

And, General, very quickly. I mean we're seeing some good news. Fewer American deaths -- dramatically fewer -- for two months now in Iraq.

Does this mean the surge is working?

BRIG. GEN. DAVID GRANGE (RET.), CNN MILITARY ANALYST: It means there are some positive results. You know, you don't want to look at deaths to give you that information on measures of effectiveness. I rely on reports from the field commanders that tell you many other measures where they're having success.

So, yes, there is success.

DOBBS: And we should point out that supporting that suggestion of progress is the fact that Iraqi deaths are declining, as well.

What will be the test of whether or not this approach will lead to the return of American service members to their homes as soon as possible?

GRANGE: Trained and ready Iraqi police and military forces and a government that has some kind of ability to provide the rule of law in a safe and secure environment, so human services can be -- can be used for the people of Iraq. But you still have these other issues like Iran influencing from fringes that are going to cause problems for some time.

DOBBS: Right. And sanctions today put into effect by the Bush administration, as you know, ratcheting up the pressure and the potential for conflict there, as well.

GRANGE: Well, that's -- they're necessary. The finance -- the financial ones are great. But they need to do some -- some other type of sanctions to really have the effect on these forces.

DOBBS: General David Grange, as always, good to have you here.

GRANGE: My pleasure.

DOBBS: The results of our poll next.

We're coming right back.

Stay with us.


DOBBS: The results of our poll overwhelming -- 97 percent of you say you don't believe the war on the middle class is simply a myth.

I'm with you.

Thanks for being with us.

Please join us here tomorrow.

For all of us, thanks for watching.

Good night from New York.

"THE SITUATION ROOM" with Wolf Blitzer begins now -- Wolf.