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Lou Dobbs Tonight

Illinois Governor Blagojevich Busted on Corruption Charges; Bailout for Detroit; Border Drug Wars

Aired December 09, 2008 - 19:00   ET


LOU DOBBS, HOST: Wolf, thank you. Tonight the FBI arrest Illinois Governor Rod Blagojevich and leads him away in handcuffs from his home. Blagojevich accused of trying to solve President-elect Obama's seat in the U.S. Senate and other corruption charges. We'll have complete coverage of all of that and questions about the president-elect's contacts with Governor Blagojevich.
Also tonight the Congress and the White House on the verge of agreeing to a $15 billion bailout of Detroit, General Motors' Vice Chairman Bob Lutz will join me to tell us why a bailout is in the national interest.

And tonight more than 5,000 people have been killed in Mexico's out of control drug cartel wars this year, so why in the world is our government opening even more border crossings at this time with Mexico. We'll have all of that, all the day's news and much more from an independent perspective straight ahead here tonight.

ANNOUNCER: This is LOU DOBBS TONIGHT: news, debate, and opinion for Tuesday, December 9th. Live from New York, Lou Dobbs.

DOBBS: Good evening everybody. Governor Rod Blagojevich of Illinois tonight faces sweeping corruption charges that federal prosecutors say are staggering in their breath. Prosecutors say Blagojevich tried to sell or trade the president-elect's former seat in the U.S. Senate to the highest bidder. They also say Blagojevich attempted to extort campaign contributions from people with state contracts and tried to force "The Chicago Tribune" newspaper to fire journalists who criticized him.

Tonight there are contradictions within the Obama team about the president-elect's contacts with the governor. Drew Griffin has our report from Chicago.


UNIDENTIFIED MALE: This is a sad day for government. It's a very sad day for Illinois government. Governor Blagojevich has taken us to a truly new low.

DREW GRIFFIN, CNN INVESTIGATIVE CORRESPONDENT (voice-over): That new low according to this complaint includes the most distressing to local leaders. That Blagojevich was putting up for auction to the highest bidder the U.S. Senate seat vacated by Barack Obama. According to prosecutor Patrick Fitzgerald the bugged conversation of the governor's phone was the most appalling.

UNIDENTIFIED MALE: The conduct would make Lincoln roll over in his grave. The governor's own words describing the Senate seat quote, "it's a bleeping valuable thing, thing you just don't give it away for nothing."

GRIFFIN: How much? The complaint says $500,000 to $1 million. One of the supposed bidders would be someone favorable to a powerful Illinois labor union. The pay to play scheme as prosecutors allege also included trying to get "Chicago Tribune" journalists critical of the governor fired. In exchange, state would help with selling "The Tribune's" Wrigley Field ballpark. In another alleged scheme, $8 million in state help for a children's hospital was being held up in exchange for a political contribution. In October Fitzgerald placed wiretaps on the governor's phones as well as his conference room and on Monday Blagojevich addressed the media that had reported last week the feds had wiretapped him.

GOV. ROD BLAGOJEVICH (D), ILLINOIS: If anybody wants to tape my conversations, go right ahead and feel free to do it.

GRIFFIN: Today appearing before a federal magistrate, the governor dressed in a jogging suit said nothing as a federal magistrate released him on a low bond and made him surrender his passport. The feds knocked on Blagojevich's door at 6:00 a.m. to arrest him. The governor reportedly asked if it was a joke. But prosecutor Patrick Fitzgerald says there's nothing to laugh about.

PATRICK FITZGERALD, U.S. ATTORNEY: The most appalling conduct Governor Blagojevich engaged in according to the complaint filed today or unsealed today is that he attempted to sell the Senate seat. The Senate seat he had the sole right under Illinois to appoint to replace President-elect Obama.


GRIFFIN: And Lou, the Illinois legislature moving very quickly to try to prevent Blagojevich from appointing anybody to that U.S. Senate seat. The legislature going to meet next week to decide on when to have a special election to fill that seat and then presumably to decide what to do with Governor Blagojevich who doesn't appear to be going anywhere.

DOBBS: All right, Drew, thank you very much -- Drew Griffin reporting. Well if the governor is convicted and sent on to prison, he would be the fifth governor of the past eight governors to be arrested or indicted. He would be the fourth governor of the past eight governors to be in prison.

His immediate predecessor, Governor George Ryan, who was governor from 1999 to 2003 remains in prison convicted on a range of corruption charges. Dan Walker, who was governor from 1973 to 1977 pleaded guilty to bank fraud and perjury after obtaining illegal loans and Otto Kerner, who was governor from 1961 to '68 was convicted on charges of bribery and tax evasion. And if you're keeping score as a partisan you should know the score is three Democrats, one Republican indicted.

Meanwhile, in the city of Chicago, dozens of people have been jailed for corruption in recent years in a federal investigation into payoffs and patronage in city hall. U.S. attorney Patrick Fitzgerald today repeatedly said the criminal complaint against governor -- the governor makes no allegations against the president-elect.

President-elect Obama himself said Fitzgerald's complaint was a complete surprise to him. But tonight there are new questions about the extent of the president-elect's relationship with the governor. Jessica Yellin has our report from Chicago.


JESSICA YELLIN, CNN CONGRESSIONAL CORRESPONDENT (voice-over): President-elect Barack Obama on charges against his state's governor.

BARACK OBAMA (D-IL), PRESIDENT-ELECT OF THE UNITED STATES: I had no contact with the governor or his office and so we were -- I was not aware of what was happening. As I said, it's a sad day for Illinois. Beyond that I don't think it's appropriate to comment.

YELLIN: The federal prosecutor made it plain. Barack Obama was not involved.

FITZGERALD: I should make clear the complaint makes no allegations about the president-elect whatsoever, his conduct.

YELLIN: The complaint allegation Governor Blagojevich was angling to profit off naming the replacement for Barack Obama's Senate seat including the president-elect's own preference. CNN reported that Valerie Jarrett, Obama's adviser and friend, was believed to be the president-elect's preference to take that seat.

She withdrew from consideration while the investigation was ongoing. She was named as a senior adviser to Obama in the White House. The complaint does not name Jarrett, but it calls this person Senate candidate one describing her as a female and an adviser to the president-elect who was likely to be supported by the president-elect.

The complaint goes on to quote Blagojevich saying "unless I get something real good for Senate candidate one, (EXPLETIVE DELETED) I'll just send myself. You know what I'm saying." The prosecutor says that ploy fell apart when the candidate in question decided not to seek the Senate seat.

UNIDENTIFIED MALE: This part of the scheme lost steam when the person that the governor thought was the president-elect's choice of senator took herself out of the running. But after the deal never happened, this is the governor's reaction quote, "they're not willing to give me anything but appreciation. Bleep them", closed quote.

YELLIN: Today Illinois Senator Dick Durbin says he spoke to Governor Blagojevich two weeks ago and the governor pressed him to see if there's any chance Valerie Jarrett would like to put herself back into consideration for that seat. SEN. DICK DURBIN (D), ILLINOIS: By the time the governor returned my call, Valerie Jarrett had taken her name out of the running and had told me personally. It came up in the conversation when the governor asked me if I thought that she was serious about not being appointed. And I said, yes, she told me pointblank she was. And I accepted her word on that.


YELLIN: And, Lou, I want to emphasize that there is no suggestion whatsoever of any wrongdoing by Valerie Jarrett, Barack Obama or anyone on his team. And an Obama aide tells me that Barack Obama never actually had a preference for that Senate seat -- Lou.

DOBBS: All right, well let's go to some areas where there are some questions remaining. There are conflicting reports as you know reports out of the Obama camp tonight about whether or not the president-elect had any real contact with the governor.

As you reported, President-elect Obama today said he had quote, "no contact with the governor and was not aware of what was happening." But Obama's senior adviser, David Axelrod said this just two weeks ago.

Quote, "I know he's talked to the governor and there are a whole range of names, many of which have surfaced." What's the president- elect now saying about this contradiction tonight, Jessica?

YELLIN: Well, I asked first an Obama aide about it. The Obama aide said that David Axelrod was one of Barack Obama's closest advisers misspoke and since then David Axelrod has himself released a statement in which he says he was mistaken when he told that to an interviewer last month.

They did not then or at any time discuss this subject. So clearly the Obama team is making every effort to make it clear that what the Obama -- what President-elect Obama said today is the truth. They did not have any contact directly between Obama and Blagojevich and no one wants to contradict him on that. We are still trying to find out if at any level any of his aides may have had any contact with the governor's office. So far I've made no headway on that but I continue to ask -- Lou.

DOBBS: I know you will (INAUDIBLE). Thank you very much, Jessica -- Jessica Yellin reporting from Chicago.

Joining me now our senior legal analyst, Jeffrey Toobin -- Jeffrey, what do you make of his contradiction? It's the kind of thing candidates worry about but an investigation like this becomes perhaps expanded in its importance.

JEFFREY TOOBIN, CNN SR. LEGAL ANALYST: Well certainly this is nothing good for Barack Obama. It may not be very bad but it's certainly not helpful to his getting his agenda through and there naturally are going to arise all sorts of questions. What was the relationship between Obama, the senator, and Blagojevich, the governor? Here there appears to be a contradiction about whether they ever discussed who would replace Obama.

DOBBS: (INAUDIBLE) the relationship in Springfield, the Capitol, where Barack Obama worked for many years. A Congressman, Blagojevich before he became governor, the relationship would be only natural to exist, a professional relationship would have been natural to exist. Walking in at 6:00 in the morning into the governor's house and saying you're under arrest, that's bold and that suggests at least to me and you correct me, a prosecutor is pretty ticked off.

TOOBIN: Well it's not just ticked off. The only reason you arrest a white collar defendant like that is you think he's going to do something wrong, something worse that very day. As Fitzgerald all but said out loud today in his press conference, they thought today he might do something that would further his criminal scheme, whether it involved "The Tribune" company, whether involving this highway project, or even potentially appointing someone to the U.S. Senate. This was a continuing criminal enterprise, according to Fitzgerald, and he needed to be stop it today.

DOBBS: Is it a reasonable question though to ask of the prosecutor why not wait and see where this things leads to see who else wants to get into this -- to be snared in this web.

TOOBIN: Well that's always the tension that a prosecutor faces. Do you look for more evidence or do you try to stop other crimes from being committed? This is the judgment Fitzgerald made, but you could certainly ask that question.

DOBBS: And Senator Obama today, the president-elect saying he didn't want to complicate the investigation by speaking any further to the press about it. Is it really -- is it an appropriate constraint or could he have talked -- is it really a political decision rather than a legal one?

TOOBIN: It is a political decision. They don't want to get ensnared in this story. It is perfectly appropriate for him to talk about his relationship with Blagojevich but they want to talk about the economy. They want to talk about what they want to talk about. This is solely a distraction.

DOBBS: Political corruption not the first thing politicians usually like to talk about.

TOOBIN: Lou, you know I sometimes think you're too cynical about politicians but it may be you are not cynical enough.


TOOBIN: Today is really unbelievable.

DOBBS: I think I retain a vibrant vital skepticism. Thanks very much, Jeffrey Toobin. Appreciate it.

New developments tonight in another ethics investigation, this one involving Congressman Charlie Rangel, the chairman of the powerful Ways and Means Committee. The House Ethics Committee today said it is widening its investigation of Congressman Rangel. It wants to find out whether the Congressman protected an oil company from a big tax bill in return for a donation to a college facility named after the congressman. Rangel says he's done nothing improper. This is the latest in a series of questions about his conduct.

Well much more ahead on the corruption scandal in Illinois and also how corruption and favoritism and cronyism and nepotism can influence governors who appoint senators and many elected officials are ignoring Mexico's raging war against the drug cartels and instead of focusing on safety and public security, trying to widen the openings in our border with Mexico. We'll have a special report.

And new questions about whether the private equity firm that owns Chrysler should be receiving any kind of bailout from the taxpayer, all of that and more next. We'll be right back.


DOBBS: A victory tonight for laid off factory workers in Chicago who took over that plant, at least a partial victory. Bank of America says it has now offered to extend credit to Republic Windows and Doors so the company can pay its employees that they gave three days notice -- now they can pay them severance and vacation pay owed. Two hundred workers, they've been on a sit in at the company's plant since last Friday.

The company told the workers that Bank of America had closed its line of credit and that they could not give them money. The governor of Illinois, by the way, yesterday publicly supported those workers just hours before he was to be arrested on federal corruption charges.

Congress and the White House tonight appear to be near an agreement on a bailout for the automobile industry and Congress could vote on that deal this week. The $15 billion bailout would create as well a car czar, believe it or not, who would have broad powers to supervise a restructuring of the industry. There is a key difference, however, between Chrysler and the other two domestic carmakers, a difference that needs to be considered in any bailout of the industry.

Ford and General Motors are publicly traded companies. Chrysler is owned by Cerberus, a private equity group that brought Chrysler from Daimler Benz. Some in Congress are asking whether taxpayer dollars should be used to bailout a private company with billions of dollars at its disposal. Bill Tucker has our report.


BILL TUCKER, CNN CORRESPONDENT (voice-over): For some a potential bailout of Chrysler comes down to this simple question asked in a direct way last week.

REP. GINNY BROWN-WAITE (R), FLORIDA: Is the private equity company that currently has the major holding in Chrysler has $24 billion currently in assets and they will not put forth anymore money to stave off bankruptcy, how can we in all good conscience expect the taxpayers to take on this substantial cost? TUCKER: Nardelli's answer was that Chrysler's owner, Cerberus, has already put billions of dollars of its own capital at risk in an industry that needs help.

ROBERT NARDELLI, CEO, CHRYSLER: They already put the equity in to create the company. We did another $2 billion draw down on equity on the car side. They continue to put more equity into our finance company.

TUCKER: Yes, but Chrysler critics say this would be a case of public money, taxpayer money, going for private gain. One expert says there's a big difference between a private equity company and a publicly traded company, which is subject to tough accounting standards.

HARRY CENDROWSKI, CENDROWSKI CORP. ADVISORS: The private equity group only really reports to itself and maybe its lenders so the transparency with respect to their financial and other disclosures would not be the same.

TUCKER: But Chrysler will almost certainly get whatever the other automakers get to the dismay of those who oppose any bailout like the free market Cato Institute.

DAN MITCHELL, CATO INSTITUTE: Every time government have some role in running private companies, market forces go out the window and it's all just about who has the best lobbyists and who has the best insider contacts.

TUCKER: Few if any can top Cerberus in that regard. Its executives include former Treasury Secretary John Snow, former vice president Dan Quayle and former Louisiana Senator John Breaux.


TUCKER: Interestingly Chrysler's CEO Bob Nardelli has managed to escape much of the congressional wrath that has been directed at GM CEO Rick Wagoner. No one has yet called for Nardelli to go despite his lack of car industry experience and his infamous departure at Home Depot where he took about a quarter of a million dollars out the door with him and left the stock some 40 percent lower in value than when he took over the company, Lou.

DOBBS: Yeah, it's interesting the questions that are not being asked by Congress as they extensively try to nail down this deal and to provide some benchmark or metric of performance they see. And it was still unclear on any conditions they might attach.

TUCKER: Right.

DOBBS: Cerberus, who actually owns -- who has put that capital into that private equity firm?

TUCKER: That's a great question, Lou, and it's not one that they're willing to share with us...


TUCKER: They keep that secret. You go to the Web site, you can't find it and if you call them directly, they won't tell you.

DOBBS: Well the son of a guns, I'll be darned. All right, thank you very much, Bill -- Bill Tucker.

That brings us to the subject of our poll tonight. Do you believe private equity firms should be receiving taxpayer funded bailouts? Yes or no. Cast your vote at We'll pass along the results both to you later in the broadcast and to the chairman of the House Financial Services Committee and the Senate Banking Committee tomorrow.

We'll have much more on the auto bailout ahead. General Motors Vice Chairman Bob Lutz is joining us here later in the broadcast. And up next a governor busted, the brazen Illinois corruption scandal still unfolding tonight. Three of my favorite radio talk show hosts join me; we'll also hear what their listeners have to say.

And Mexico's drug cartel violence worsening, spreading into this country. So why are government officials focusing on commerce instead of security? We'll have that special report here next.


DOBBS: Disturbing new details emerging tonight from Mexico proving that the raging drug cartel wars there are far more deadly than the government of Mexico has previously admitted. The U.S. response, however, is even more alarming. Even with the violence spreading into this country, U.S. government officials are making new moves to further open our border with Mexico, focusing on commerce and not security. Casey Wian has our report.


CASEY WIAN, CNN CORRESPONDENT (voice-over): Mexican Attorney General Eduardo Medina Mora announced this week that nearly 5,400 people have been killed in drug cartel violence so far this year, double the number during the same period in 2007. More than a thousand have been killed in the past six weeks alone which works out to one drug cartel murder in Mexico every hour.

But you wouldn't know that from another announcement this week on the border between San Diego and Tijuana, one of the bloodiest places in Mexico's drug war. California Governor Arnold Schwarzenegger joined his Mexican counterpart to taut the approval and funding for a new border crossing to help promote trade.

GOV. ARNOLD SCHWARZENEGGER (R), CALIFORNIA: There has been no new border entry built, no crossing built in California for the last 10 years and that of course resulted in huge waiting time. I always said that the faster we move goods and people around that is true economic power.

WIAN: Not a word was mentioned about drug cartel violence. Instead the governor said California is losing $8 billion a year and 74,000 jobs because of delays that exist in border crossings. Also on the trade bandwagon, New Mexico Governor and Commerce Secretary- nominee Bill Richardson, he visited Mexico over the weekend and met with business leaders and former government officials at a university, yet refused to elaborate on the purpose of his trip beyond this in Spanish.

GOV. BILL RICHARDSON, COMMERCE SECY. NOMINEE (through translator): As you know my mother is Mexican. She is 95 years old. I've come to visit her in Cuernavaca (ph). It's a very quick visit, lightning quick and that's all I want to say.

WIAN: Left unaddressed, President-elect Obama's campaign promise to renegotiate the North American Free Trade Agreement.


WIAN: All of this talk about expanded trade and commerce seems to fly in the face of the travel alert now in effect from the U.S. State Department. It warns U.S. citizens of the risks of traveling to Mexico including armed conflict, kidnappings, and other crimes regularly occurring in broad daylight -- Lou.

DOBBS: An extraordinary state of denial on the part of the governor of the state of California. No indication of a response either by, well by the state of California, New Mexico, or from of course with Governor Richardson now slated to be commerce secretary or the state of Arizona where Janet Napolitano, the governor, is slated to become the secretary of the Department of Homeland Security.

WIAN: Yeah, it's interesting, Lou, these governors all were the ones who called for the National Guard to be extended along the border because of the increasing border violence. You probably remember a couple of years ago Governor Schwarzenegger got in some hot water when he said close the border and what I really meant was secure the border. Now they're not even talking about that. They just want trade it seems at all costs. More trade, Lou.

DOBBS: And extraordinarily none of them talking about the fact that Mexico remains the principle source of marijuana, cocaine, heroin, and amphetamines in the United States and still a discussion of commerce rather than border security -- remarkable -- Casey, thank you -- Casey Wian.

Up next, much more on the corruption scandal over the governor of Illinois, three top radio talk show hosts join me to give us their assessment and tell us what their listeners are saying.

Also corruption, nepotism, favoritism, cronyism in government -- imagine that. New questions about the way governors are appointing senators and the White House and the Congress appear ready to give Detroit a $15 billion bailout. How much do the carmakers really need? I'll be joined by GM's vice chairman, Bob Lutz here next. We'll be right back.


Congress and the White House tonight appear to be close to a deal that would provide $15 billion of bailout money for Detroit. Some of the car makers, however, say they will need more money to survive.

We're joined now by General Motors vice chairman, Bob Lutz. He's one of those that says the industry needs more help. He is also one of my -- I think it's fair to say, Bob -- I hope you don't mind my saying this -- but one of the iconic figures of the automobile industry. And it's good to have you with us.

BOB LUTZ, GM VICE CHAIRMAN: Thanks. Good to be with you, Lou.

DOBBS: $15 billion. There seems to be a lot of discussion going on between the White House, the Democratic leadership tonight. Is $15 billion really enough for the three domestic car makers?

LUTZ: Well, you know, what I said earlier today was we don't know. It all depends on the economy. Right now we have a liquidity crisis because of the incredible shrinkage of the total market. And I always like to point out that this isn't just a Detroit problem. The Detroit three's market share is about the same as it always was. We still have the dominant portion of the U.S. market, and we're seeing a lot of the transplants taking off shifts and closing factories. I think Mitsubishi just announced that they're going to be down for something like a month.

So the revenue has basically dropped from a going rate of 17.5 million units to currently 10.5 million. That is not sustainable. And if the Obama administration is not able to bring about some economic recovery by making credit available again, you know, there is a chance that we would be back. But we're hoping that won't be the case.

DOBBS: Yes. It is a devastating number, dropping from 17 to 10 million units. But many people are not aware that this is something that's being experienced across the globe. In Spain, for example, last month, sales there -- car sales off 50 percent.

LUTZ: Exactly right.

DOBBS: The idea that this bailout is a bridge loan, an investment in our automobile industry -- it also comes at a time where it's peculiar. Detroit showing signs of moving into the future, setting new standards for fuel economy, innovating...

LUTZ: Exactly right, yes.

DOBBS: ... whether it be electric cars, hybrids, biofuels, flex fuels, doing interesting things, hydrogen, nitrogen.

LUTZ: Right.

DOBBS: Why are you guys getting such a tough time in your judgment from a Congress and a White House that has been so eager to throw trillions of dollars, without questions asked, at the banking industry, the financial services industry? And I'll put it this way, because we can, because we're talking about $8.5 trillion -- for a measly $15 to $30 billion, you guys are being treated like a pariah.

LUTZ: Yes, and one might suspect that there's a degree of deflection here. You know, take everybody's attention away from the really massive sums that have been put into the banking system, of which precious little, if any at all, has so far flowed into the economy to enable more credit for people to be able to buy cars and houses again.

So, you know, I would never dare say what you just said, but I think you said it all.

I think the bum rap, I think the bum rap, Lou, comes from the 1980s, maybe early '90s, when demonstrably the big three did not take the Japanese threat seriously. We built some pretty bad cars. We polluted a whole generation of customers who are now about 55 or 60 years old, who are telling their kids, never buy a domestic car. And I think a lot of the congress people are that age. They have someone in their family that had a bad experience with a domestic car. And this ill feeling or what all of the comments we heard about dinosaurs, they don't get it, they don't have anything competitive, it couldn't be more wrong.

DOBBS: Former Chrysler Chairman Lee Iacocca, who you know pretty well, had this to say on the suggestion that CEOs step down of the car companies. He said and we want to put this up for our viewers. "You don't change coaches in the middle of a game, especially when things are so volatile. The companies may not be perfect, but the guys who are running them now are the only ones with the experience and the in- depth knowledge and understanding of how the car business really works."

I want to be more specific and talk about your CEO, because Chris Dodd called for him to, quote/unquote, "move on." And he's the only CEO in Detroit who actually is a product of the car industry, who knows the car industry. What is going on there?

LUTZ: Well, I don't know. You know, the phrase I use is it reminds you a little bit of the ancient Mayan culture, where when the crops were bad, they would take a virgin to the rim of the volcano and throw her in, and it was somehow going to appease the gods. You know, it was really doing something.

I'll tell you, I'll paraphrase another one of Lee Iacocca's favorite sayings. And you'll remember this from advertising. He used to say, "if you can find a better car, buy it." My phrase is, "if you can find a better management team to run this company or the other big two or the other Detroit two, by all means, put them in." I mean, everyone wants to serve the shareholders. If they can come up with somebody better, that's fine. But at this point, it looks to me that it smacks terribly of sacrificial lamb and doing anything to generate the impression of taking bold action.

DOBBS: What do you think -- we're out of time, Bob, but I want to ask you -- what do you think of the idea of a car czar? I love that idea. But apparently it's being written in.

LUTZ: Look, if the government is going to put in that much money, I think they have every right to see how it's spent. And I personally welcome it very much.

I want the government to see the inside of the industry. It's always been our problem that we talk at them, and they think we're whining or complaining. I would like somebody from the federal government to have an actual insight into our problems and into the barriers that we have, that foreign manufacturers don't have.

DOBBS: Well, it looks like you're going to have that sought- after advantage relatively soon. Bob, thanks very much for being with us. Bob Lutz.

LUTZ: Thanks very much, Lou. Appreciate it.

DOBBS: All the best.

Up next, should the Illinois governor still be allowed to, well, to decide who will take the president-elect's former Senate seat? I'll be joined by three of the country's top radio talk show hosts here next.

And the former CEOs of the mortgage industry. Well, now, they are on Capitol Hill and facing something of a firestorm. We'll have that report and more. Stay with us. We're coming right back.


DOBBS: Former executives of Fannie Mae and Freddie Mac today facing tough questioning on Capitol Hill. They were asked about the loss of billions of dollars of taxpayers' money and their roles in the country's housing and credit crisis. There were very few answers. Kitty Pilgrim has our report.


KITTY PILGRIM, CNN CORRESPONDENT: The house oversight committee had 400,000 documents from Fannie and Freddie but nobody was admitting anything.

REP. LYNN WESTMORELAND (R), GEORGIA: I'm glad that I came to the hearing today to learn that none of you had anything to do with the Fannie Mae or Freddie Mac going south. You all were getting paid a million dollars a years, millions of dollars a year, but you didn't know anything was wrong.

REP. MARK SOUDER (R), INDIANA: You don't believe that you had any basic responsibility for the crisis. That's your testimony?

PILGRIM: Salaries were a sore point. The former executives admitted to astronomical annual salaries.



PILGRIM: Some in congress lost all patience.

UNIDENTIFIED MALE: Can we agree that this was not an act of god? Can we agree to that?

FRANKLIN RAINES, FMR. CEO FANNIE MAE: I agree with you. It's the result of human beings making decisions.

DANIEL MUDD, FMR. CEO FANNIE MAE: I think you rightly describe it as a circular problem and the more one thing happened, the more it led to the other thing.

PILGRIM: Drawing the most outrage, the fact that their chief risk officers at both institutions faced budget cuts and were fired or replaced after raising alarms. At Freddie Mac, the alarm was raised.

REP. CAROLYN MALONEY (D), NEW YORK: Do you regret firing a risk manager that told you were moving in the long direction and it was risky and toxic and not what you should be doing?

PILGRIM: He said there were many reasons for the firing and the chief risk manager at Fannie Mae saw the same fate.

REP. DENNIS KUCINICH (D), OHIO: He's cutting the one person that's telling him you're going to go over a cliff.


PILGRIM: Why did Fannie and Freddie get involved in the risky loans? One reason is they were trying to meet affordable housing goals which required more than half of all loans be made to low income and very low income borrowers. Some of those loans did not require any income statements from the people who applied for them, Lou.

DOBBS: One of the great things there to watch the frustration and even the little anger there on the part of congress was, that's nice to see. People being human, thinking about human issues like how in the world the taxpayer got so screwed and how people like Franklin making $100 million for running a business that's a government agency. I wonder how the folks over at the FAA feel about the administration and FAA while Franklin is making $10 million a year, they're just doing their job and one of the most critical jobs in the government getting by comparison peanuts. It's disgusting. Those congressmen, those senators, are part of the problem as well. They need -- they played the game. It's ridiculous.

PILGRIM: There was quite a bit of discussion about the salaries and how they were in charge of failing businesses and they still didn't seem to realize they were failing.

DOBBS: Fannie Mae restating earnings billions and billions of dollars. There was no restatement, by the way, of Franklin's compensation. Thank you very much, Kitty. Appreciate it.

Up next, what the Illinois governor corruption scandal could mean for the president-elect. I'll be joined by three of the best radio talk show hosts in the country.

And why so many familiar faces are running for the senate. Is it nepotism or what is it? We'll have that report next.


DOBBS: The arrest of Governor Blagojevich on corruption charges sending political shock waves across the country also raising the questions about nepotism, favoritism and outright corruption in the way governors often fill vacant seats in the senate. Louise Schiavone has our report.


LOUISE SCHIAVONE, CNN CORRESPONDENT: The avalanche of corruption charges against one governor's alleged criminal wheeling and dealing.

PATRICK FITZGERALD, U.S. ATTORNEY: Governor Blagojevich tried to sell appointments to the senate seat.

SCHIAVONE: Raises the question how is an interim senator handpicked? In Illinois the known candidates ranged from the recognizable name of Congressman Jesse Jackson Jr. to the governor himself.

ANDY MCKENNA, ILLINOIS REPUBLICAN PARTY CHMN.: People are struggling in their own way. If they feel like you get a senate seat because you had a father or mother in a certain position, I think that concerns people.

SCHIAVONE: In New York, no scandal but lots of buzz about Governor David Paterson considering Caroline Kennedy for Hillary Clinton's soon to be vacated senate seat.

UNIDENTIFIED FEMALE: She would be a great, great, great senator.

SCHIAVONE: Her ex-husband might not agree. His name also comes up as a potential candidate.

JOAN CLAYBROOK, PUBLIC CITIZEN: I think Paterson is in the hot seat in New York. He has to make it an open process and clear that he'll talk to everybody.

SCHIAVONE: Wherever senators are appointed, changes of favoritism and nepotism follow. Alaska governor appointed his daughter, Lisa, to the senate.

MICHAEL FRANC, HERITAGE FOUNDATION: If you go for the spouse, if you go for a child of a famous person, what that tends to do is create counter pressures that make that decision a bad one at the end of the day.

SCHIAVONE: In Delaware, lots of political griping when a caretaker was appointed to vice president elect Joe Biden's senate seat some saying he was just holding the seat for Biden's son. NORM ORNSTEIN, AMERICAN ENTERPRISE INST.: Every possible choice for the senate will have to go through the prism of a governor who was trolling for the best financial offer or otherwise to make that appointment.


SCHIAVONE: With trillions of dollars worth of federal obligations, as Michael Frank at Heritage, he will have a right to demand the highest quality candidates and to know specifically how and why a governor has chosen a U.S. senator. Lou?

DOBBS: Still a choice better left to the people. Thank you very much, Louise Schiavone.

Joining me now, three of the best radio talk show hosts in the country in Chicago Steve Cochran of WGN. You see Steve working for a living right now. He is simulcasting with us. And in Detroit, Mildred Gaddis, WCHB, good to see you, great to have you with us and here in New York, John Gambling of WOR. Great to see you.

Steve Cochran, can you hear me now?

STEVE COCHRAN, WGN: Can hear you just fine, sir. Another slow day at work here.

DOBBS: You're putting us all to shame doing everything at once. The fourth governor of the past eight in Illinois to be charged with corruption. Sort of a proud moment for all of Illinois, isn't it? Moment for all of Illinois, isn't it?

COCHRAN: Look at this way, Lou. Four weren't charged. So you've got to balance these things out. Look, the people of the state deserve better and the people of this state will get better. Lieutenant Quinn was on the show in the last hour. He's ready to go. It's kind of a perfect storm of stupid in the state house and they are doing a special session next week. It's stunning this may wait another week before we know where it's going to go. But this has been one heck of a day.

DOBBS: Blagojevich has been charged with, as you know, trying to charge the senate seat.

COCHRAN: For the kids out there, that's wrong. For the future politicians, that's not a good thing to do.

DOBBS: OK. We're going to add to that list. The senate seat vacated by the president-elect, trying to shake down a children's hospital for campaign contributions, trying to pressure the Chicago tribune to fire members of the editorial board because he was the subject of their reporting. At what point is there any sign at all that the leaders of the Democratic Party in Illinois have sufficient courage and principle to demand that this sucker leave office?

COCHRAN: Well, here's the deal. There was a provision in the state constitution where he could make the decision that he will step aside. He'll keep his salary. He'll be able to fight for his chance, his day in court. Sure he will. And he can do that, or he will resign outright. That's another option obviously. They can impeach him. Special sessions they said Monday, state Supreme Court could get involved. I'd like to tell you that this guy might do the right thing but if you've read the criminal complain. I'd like to read it to you Lou but frankly the script from Scarface has less cursing in it. There's no reason to believe that he will do the right thing but you have to remain hopeful. But it's not just the democrats. The republicans have to act, too. You and I both know that there wasn't an extended group of people who knew what he was up to and everybody was either asleep at the wheel or looking the other way and that's not acceptable.

DOBBS: Patrick Fitzgerald the U.S. attorney there in Chicago certainly wasn't asleep at the wheel. That's a strong stop that he is taking care of. Just yesterday Governor Blagojevich was dismissing reports about this investigation saying wire tap me. I've got nothing to hide.

COCHRAN: Gary Hart moment. Yeah.

DOBBS: John Gambling, we've got all sorts of things. Louise Schiavone reporting on Caroline Kennedy up for the senate here in New York, talk that Ted Kennedy is talking to folks in Massachusetts about his wife should he have to leave office, filling in for his seat. Joe Biden. I mean, what in the world are we coming to? This is about as un-American as it gets.

JOHN GAMBLING, WOR IN NEW YORK: You have to question yourself about the people going into politics. Why don't we have better people? We listened to about Blagojevich for us here in the New York tri-state area over in New Jersey, it's a Saturday Night Live joke about politicians being hauled off in cuffs and going to jail. It's almost on a weekly basis. And we just don't get quality people generically speaking into this business.

DOBBS: Well, Mildred, you've gone through your own problems there in Detroit.

GAMBLING: It's universal.

DOBBS: It is. It's frightening that we're going through this lowest common denominator with so many of our politics. Isn't it?

MILDRED GADDIS, WCHB IN DETROIT: You said it's un-American. I'm not sure that it is. We are accustomed in this country to see politicians take care of their friends as well as family members. So I'm not surprised by any of these names that are coming up. But I think that you certainly issue a tremendous challenge for democrats in the state of Illinois. This is a moment for them. They certainly need to take the leadership role and ensure that this governor has absolutely nothing to do with the person who succeeds Barack Obama, a senator from Illinois.

DOBBS: All right. We're going to be back with Mildred and John and Steve in just a moment. But, first, a preview of what is coming up at the top of the hour. That means Campbell Brown, "NO BIAS, NO BULL."

Campbell, tell us about it.

CAMPBELL BROWN, CNN ANCHOR: Well Lou, we're going to be continuing your conversation to a large extent. I don't know about you, but I'm not sure I've ever seen anything like this story. The Blagojevich story, it takes a special kind to try to selling a senate seat, especially the one that was occupied by president-elect. We're going to cover the story from all angles, including an exclusive interview with two editors from the Chicago Tribune allegedly targeted in a Blagojevich scheme.

Also tonight, Tom Freeman is going to be here. What he has to say about the proposed big three bailout. Not at all happy about it, thinks it's a bad idea. He'll tell us all about it. Lou?

DOBBS: All right. Thank you very much Campbell. We'll be right back with our panel. We'll be focusing on that bailout next. Stay with us.


DOBBS: We're back with Steve Cochran, Mildred Gaddis and John Gambling. Very quickly, your listeners, Steve, your thought on the Detroit bailout, should get 15 billion or more?

COCHRAN: I'd like to see what I think is the direction that this is going which is a piece of it. In other words, here's some of the money. Let's see if you do the right thing and earn the rest of the money. I think it's going to be a bit of a calamity without some help. I'd like to see a structured bailout.

DOBBS: Mildred, do you believe that bailout should include Chrysler which is after all a private company owned by a very wealthy private equity firm that should be putting its own money in the minds of some towards the deal?

GADDIS: You know, my listeners, because of the people in the state and people around the country without jobs because of a result of no assistance whatsoever kind of think that all three ought to be helped. But the question of whether the U.S. government should be in the business of bailing out private enterprises is indeed a legitimate question.

I think it's interesting that many of my listeners have shifted their position a little bit. Initially they thought, give them the money and let them take care of it. Now they are saying that there should be an auto-czar and the U.S. congress should not give them whatever they are asking for.

DOBBS: I think you've got a lot of support there.

GAMBLING: I spoke with Barney Frank this morning and I believe the $15 billion and the delay to March 31 is nothing but a delay tactic so they don't have to make a decision right now.

DOBBS: We want to say Steve Cochran thanks for being with us. We've got to run. Thank you.

COCHRAN: Thank you.

DOBBS: We've got just a little time here. Well, we haven't got enough time to get into anything new. We'll save that for the next round. Mildred, we thank you for being with us. Steve Cochran thank you. John Gambling, great to see you.

And tonight's poll results, 97 percent of you say that you do not believe that private equity firms should be receiving taxpayer-funded bailouts. We'll be passing that on to Barney Frank and to Chris Dodd as well over in the senate.

Time now for just a few of your thoughts real quickly.

Chris in Rhode Island said, "My hats off to those workers who are fighting for their rights in Chicago. They've got part of it. Maybe the backlash from this will wake up people in this country as to what is really going on."

Liz from Florida, "John Thain should be fired. I can't even imagine thinking he deserves a bonus." It was only $10 million. We love hearing from you. Send us your thoughts at

We thank you for being with us tonight. We ask you to be with us tomorrow.

For all of us, thank you and good night. Campbell Brow